-----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, NXmJs1m7+v8oKEcW4KC/Vkt6g0Ni6j4fR9ayug+Vng9YfjX6u9Q8KTsSbxJALHiy ybQ0PXhFJ2LEH9ZqJcVgDg== 0000899243-98-001610.txt : 19980817 0000899243-98-001610.hdr.sgml : 19980817 ACCESSION NUMBER: 0000899243-98-001610 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980814 SROS: NYSE 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: 98690828 BUSINESS ADDRESS: STREET 1: C/O FDX CORPORATION STREET 2: 2005 CORPORATE AVENUE CITY: MEMPHIS STATE: TN ZIP: 38132 BUSINESS PHONE: 9013955029 MAIL ADDRESS: STREET 1: C/O FDX CORPORATION STREET 2: 2005 CORPORATE AVE CITY: MEMPHIS STATE: TN ZIP: 38132 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, 1998. 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.) 6075 POPLAR AVENUE, MEMPHIS, TENNESSEE 38119 (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: TITLE OF EACH CLASS NAME OF EACH EXCHANGE 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 ((S) 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 3, 1998, 147,449,762 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 average bid and asked prices of such stock on the New York Stock Exchange) was approximately $8,173,200,549. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Stockholders for the fiscal year ended May 31, 1998 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 28, 1998 are incorporated by reference into Part III. ================================================================================ TABLE OF CONTENTS
PAGE ---- PART I ITEM 1. Business.......................................................................... 1 ITEM 2. Properties........................................................................ 14 ITEM 3. Legal Proceedings................................................................. 18 ITEM 4. Submission of Matters to a Vote of Security Holders............................... 19 Executive Officers of the Registrant.............................................. 20 PART II ITEM 5. Market for the Registrant's Common Stock and Related Stockholder Matters.......... 22 ITEM 6. Selected Financial Data........................................................... 23 ITEM 7. Management's Discussion and Analysis.............................................. 23 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk........................ 23 ITEM 8. Financial Statements and Supplementary Data....................................... 23 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................................... 23 PART III ITEM 10. Directors and Executive Officers of the Registrant................................ 24 ITEM 11. Executive Compensation............................................................ 24 ITEM 12. Security Ownership of Certain Beneficial Owners and Management.................... 24 ITEM 13. Certain Relationships and Related Transactions.................................... 24 PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................... 24 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. On January 27, 1998, Federal Express Corporation ("FedEx") and Caliber System, Inc. ("Caliber") became wholly-owned subsidiaries of the Company. In this transaction, which was accounted for as a pooling of interests, Caliber shareholders received 0.8 shares of FDX common stock for each share of Caliber common stock. Each share of FedEx's common stock was automatically converted into one share of FDX common stock. FDX is a $16 billion global transportation and logistics enterprise that offers customers a one-stop source for global shipping and logistics solutions. Services offered by FDX companies include worldwide express delivery, ground small-parcel delivery, less-than-truckload freight delivery and global logistics and electronic commerce solutions. These services are offered through a "family" of operating companies: FedEx (the Company's largest subsidiary), RPS, Inc. ("RPS"), Viking Freight, Inc. ("Viking Freight"), Roberts Express, Inc. ("Roberts Express") and Caliber Logistics, Inc. ("Caliber Logistics"). 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 ground small package delivery. Viking Freight is a leading less-than-truckload freight carrier in the western United States. Roberts Express is the world's leading surface-expedited carrier for time-critical shipments requiring special handling. Caliber Logistics provides customized, integrated logistics and warehousing solutions worldwide. For financial information concerning the Company's business segments, refer to Note 12 of Notes to Consolidated Financial Statements contained in the Company's 1998 Annual Report to Stockholders, which Note is incorporated herein by reference. PURPOSE OF FDX The purpose of FDX is to provide strategic direction and coordination to the FDX family of companies. Sales and marketing activities, financial planning and reporting, legal and regulatory compliance, communications and information systems development are functions that must be coordinated across subsidiary lines. The Company intends to use advanced information systems to connect the FDX companies. These aligned information systems will be designed to make it easy and convenient for customers to use the full range of FDX services. For each one of the FDX companies, the Company's management will focus on making appropriate investments in the technology and transportation assets necessary to optimize the Company's earnings performance and cash flow. Strict yield management programs should continue to support profitable volume growth. The Company will manage the business as a portfolio. As a result, decisions on capital investment, expansion of delivery and information technology networks, and service additions or enhancements will be based on achieving the highest overall return on capital. The Company's management believes that a collaborative selling process should increase revenues for the operating companies through a targeted program focusing on high-yielding business. STRATEGY The Company's strategy is to use leading-edge technology, networks and information to enhance its position as the world's leading transportation, logistics and supply chain management company. The Company's management is focused on three primary growth strategies: 1) a collaborative sales process that leverages the Company's shared customer relationships; 2) aggressive global marketing of the broad FDX portfolio to targeted prospective customers; and 3) strategic application of information systems to reduce costs and improve customer access and connectivity. The Company desires to take advantage of such global business trends as "just-in-time" shipping, the rapid growth of electronic commerce and the proliferation of sourcing and selling across markets. FDX's management believes that, with the combination of FedEx and the Caliber companies, the Company is better able to take advantage of a global transportation market that - with the express, ground small-parcel and less-than-truckload segments combined - is projected to grow from $75 billion currently to nearly $400 billion over the next twenty years. The Company intends to execute its strategy by providing total distribution and logistics solutions, using dedicated delivery networks and capitalizing on the sales synergies that exist between FedEx and the Caliber companies. Total Distribution and Logistics Solutions Increasingly, the Company's competitors are "bundling" express delivery and non-express ground small package services at attractive prices to large customers who need both services. This is a strategic weapon that neither FedEx nor the Caliber companies alone possessed. FDX, through its operating companies, can offer its customers a full range of distribution and logistics options. The Company's management believes that its business customers seek from a single supplier strategic, cost-effective ways to manage their supply chains - the series of transportation and information exchanges required to convert parts and raw materials into finished, delivered products. These customers can use the Company as a strategic competitive weapon by squeezing time, mass and cost from their supply chains, while maintaining or improving their customer service. 2 Dedicated Delivery Networks The Company's management believes that simply layering the unique resource and operating requirements of a time-definite, global, express-delivery network onto a day-definite, ground, small-package network results in diminished service quality and increased costs. The Company's management also 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 segment in which they have the most expertise. Sales Synergies Although FDX companies operate discrete, specialized delivery networks, the Company's management seeks to align sales and marketing initiatives across all FDX companies. FDX management believes that many of FedEx's and RPS' customers will take the opportunity to obtain the best of both services from the same family of companies - the world's leading express delivery network, plus North America's second largest ground small-parcel service. The following describes in more detail the business of each of the five FDX operating companies: FEDERAL EXPRESS CORPORATION INTRODUCTION FedEx was incorporated in Delaware on June 24, 1971 and began operations in 1973. On January 27, 1998, FedEx became a wholly-owned subsidiary of the Company. FedEx offers a wide range of express services, providing rapid, reliable, time-definite delivery of documents, packages and freight to more than 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 nearly three million shipments each business day. RECENT DEVELOPMENTS During fiscal year 1997, FedEx announced plans to develop an 89-acre site in suburban Memphis, Tennessee comprising nine separate buildings with more than 1.1 million square feet of space. The office campus 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. 3 In October 1997, FedEx achieved re-certification of ISO 9001 registration 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. Also in October 1997, FedEx announced that it had selected Miami International Airport as the site for a new $50 million hub for its Latin America and Caribbean operations. Construction on the 189,000 square foot facility began in spring 1998. The Miami hub will include the proprietary FedEx Expressclear/(SM)/ system which facilitates the customs clearance of most inbound shipments prior to a flight's arrival. When completed, the Miami hub will allow FedEx to offer expanded next business day service between the major markets of Latin America, the United States, Canada and Mexico, as well as two business day service to Europe and Asia. In the first quarter of 1998, FedEx announced the only next business day 10:30 a.m. express cargo service from Asia to the United States. The company introduced a direct flight from Osaka, Japan to Memphis, Tennessee. The nonstop daily flight cut transit times across the Pacific in half for FedEx customers -- from 48 to 24 hours -- who ship from Asia to North America. The FedEx International Priority/(R)/ service is backed by FedEx's money-back guarantee. The new flight schedule also enabled the company to offer its Asian customers later pickup times for connections through the company's AsiaOne/(R)/ hub in Subic Bay, The Philippines, to 13 major Asian markets. Also in first quarter 1998, FedEx announced three new international service enhancements: a flat-rate box for shipping by FedEx International Priority, an expansion of FedEx International Economy/(R)/ service, and lower rates from the United States to major Canadian markets. In March 1998, FedEx expanded its services by offering customers a Sunday delivery option. FedEx Priority Overnight service now provides delivery by 3:00 p.m. on Sunday to select zip codes in 50 top United States metropolitan areas. 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 four U.S. domestic overnight delivery services: FedEx First Overnight/(R)/, FedEx Priority Overnight, FedEx Standard Overnight/(R)/ and FedEx Overnight Freight/(R)/. Overnight document and package service extends to virtually the entire United States population and overnight freight service covers all major and most medium-size metropolitan areas. 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/(R)/, FedEx/(R)/ Drop Boxes, FedEx ShipSites/(R)/ or FedEx Authorized ShipCenters/(R)/ strategically located throughout the country. Four U.S. domestic deferred services are available for less urgent shipments: FedEx 2Day/(R)/, FedEx 2Day Freight/(R)/, FedEx Express Saver/(R) / and FedEx Express Saver/(R)/ Freight. FedEx SameDay/(R)/ service is for urgent shipments to virtually any U.S. destination. U.S. domestic 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. 4 In addition to the services discussed above, FedEx offers various international package and document delivery services and international freight services, including: FedEx International First/(SM)/, FedEx International Priority ("IP"), FedEx International Priority DirectDistribution/(SM)/, FedEx International Economy/(R)/, FedEx International Priority Freight/(R)/, FedEx International Economy/(R)/ Freight, FedEx Expressclear/(SM)/ Electronic Customs Clearance, FedEx International Broker Select/(R)/, FedEx International Priority Plus/(R)/, FedEx International Express Freight/(R)/, FedEx International MailService/(R)/, and FedEx International Airport-to-Airport./(SM)/ 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, while continuing to participate in the CRAF program and continuing to bid on military charters with respect to the carriage of cargo, discontinued military passenger flights at the end of September 1992. FedEx offers commercial and military charter services which supplement the utilization of aircraft capacity when not needed in FedEx's scheduled operations. During fiscal 1998, revenues from charter operations accounted for approximately 0.7% of FedEx's total revenues and approximately 0.6% and 0.9% of total revenues during fiscal 1997 and 1996, respectively. LOGISTICS AND ELECTRONIC COMMERCE Logistics and Electronic Commerce ("LEC"), formerly Logistics, Electronic Commerce and Catalog, is a division of FedEx which offers information-rich, technology-based products and services which facilitate the movement of goods throughout the order management process. LEC focuses on markets where delivering high-speed, time-definite, information-intensive solutions provide significant customer value. In 1998, LEC 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. LEC offers FedEx customers several products and services. FedEx interNetShip/(SM)/ provides shipment processing capability within the United States on the World Wide Web. From FedEx's World Wide Web page (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/(R)/ 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 shipments, order FedEx pickups and maintain a database of shipping addresses and activity using modems and their own personal computers. FedEx PowerShip/(R)/ 2, is a stand-alone automated shipping system which 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/(R)/ software, which performs the same 5 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/(R)/ is an automated shipping system which is automatically updated with FedEx's system information, such as routing codes and rates. FedEx PowerShip 3/(R)/ enables customers who ship as few as three packages per day to enjoy the advantage of automated shipping. PRICING FedEx periodically publishes list prices in its Service Guides for the majority of its services. In general, during fiscal 1998, U.S. domestic shipping rates were based on the service selected, weight, size, any ancillary service charge and whether or not the shipment is 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. In general, the more revenue a particular customer produces, the greater the discount. Of the more than two million current FedEx customers, a significant portion participates in FedEx's discount program. To more closely align FedEx's rates with its transportation costs, FedEx introduced distance-based pricing effective July 1, 1997 for U.S. shipments. The rates are based on the weight and size of shipment, the distance between the shipper and the recipient and the service commitment. SERVICE REVENUES The following table shows the amount of revenues generated for each class of service offered for the fiscal years ending May 31 (amounts in thousands): 1998 1997 1996 ---- ---- ---- FedEx Priority Overnight $ 4,852,164 $ 4,485,317 $ 4,170,254 FedEx Standard Overnight 1,958,047 1,758,462 1,616,538 FedEx 2Day 2,179,188 1,621,643 1,365,430 U.S. domestic freight services 337,098 207,729 132,122 International priority services 2,731,140 2,351,096 1,996,827 International freight services 597,861 604,472 554,143 Charter 87,902 72,330 92,389 LEC and other* 511,441 418,701 345,916 ----------- ----------- ----------- Total $13,254,841 $11,519,750 $10,273,619 =========== =========== =========== _________________________ *Includes revenues generated by the specialized services summarized above under "Logistics and Electronic Commerce." Also includes revenues from sales of aircraft engine noise-reduction kits and non-U.S. intra-country operations. 6 SEASONALITY OF BUSINESS FedEx's express package business and international airfreight business are both seasonal in nature. Historically, the U.S. domestic package business experiences an increase in late November and December. International business, particularly in the Asia to U.S. markets, peaks in October and November due to U.S. domestic 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, 615 aircraft, approximately 40,900 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 U.S. domestic sorting facility, the SuperHub located in Memphis, serves as the center of FedEx's multiple hub-and-spokes U.S. domestic 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. 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 over 11,000 drop-off sites in retail stores. In international regions where low package traffic makes FedEx's direct presence less economical, Global Service Participants have been selected to complete deliveries. FedEx has an advanced package tracking and billing system, FedEx COSMOS/(R)/, 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. 7 FUEL SUPPLIES AND COSTS During fiscal 1998, 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 the past three 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. No such contracts were outstanding as of May 31, 1998. See Note 14 to Notes to Consolidated Financial Statements set forth in the Company's 1998 Annual Report to Stockholders, which Note is incorporated herein by reference. 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 ----------- -------------- ----------------- 1998 $570,959 4.6% 1997 557,533 5.2 1996 461,401 4.8 1995 394,225 4.5 1994 374,561 4.7 Approximately 20% 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 U.S. domestic express market is highly competitive and sensitive to both price and service. Competitors in this market include other express package concerns, principally United Parcel Service of America, Inc. ("UPS") and Airborne Express, passenger airlines offering package express services, regional express delivery concerns, airfreight forwarders and the United States Postal Service. The international express package and freight markets are also highly competitive. The ability to compete effectively internationally depends upon price, frequency and capacity of scheduled service, extent of geographic coverage and reliability. 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 8 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. FedEx's principal competitors in the international market are foreign national air carriers, United States passenger airlines and all-cargo airlines and other express package companies including UPS and DHL Worldwide Express. REGULATION Air Under the Federal Aviation Act of 1958, as amended, both the Department of Transportation ("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. domestic 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. domestic 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. 9 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 limiting the level of engine smoke 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. 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 At June 30, 1998, 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 comprise approximately 12% of all employees. FedEx believes its relationship with its employees is excellent. Negotiations between the FedEx Pilots Association ("FPA") and FedEx led to a tentative collective bargaining agreement in December 1997. By a vote of 56% to 44%, the FPA rejected that agreement on March 11, 1998. In the months following the rejection of the tentative agreement, the FPA installed a new negotiating committee and the FPA president resigned. Formal negotiations aimed at achieving a comprehensive collective bargaining agreement resumed in late July 1998. Attempts by other labor organizations to organize certain other groups of employees have been initiated. Although FedEx cannot predict the outcome of these labor activities or their effect on FedEx or its employees, if any, FedEx is responding to these organization attempts. FINANCIAL INFORMATION ABOUT FOREIGN AND U.S. DOMESTIC OPERATIONS For information concerning financial results for U.S. domestic and international operations for the three years ended May 31, 1998, 1997 and 1996, refer to Note 12 of Notes to Consolidated Financial Statements contained in the Company's 1998 Annual Report to Stockholders, which Note is incorporated herein by reference. 10 RPS, INC. By focusing on high volume business-to-business customers, maintaining a low cost structure and using appropriate, efficient 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 and between North America and Europe, 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 66% 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 service extends to 28 European countries through an alliance with General Parcel Logistics, GmbH. 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 8,500 owner-operated vehicles and, in addition, owns over 8,700 trailers. Competition for high volume, profitable shipping business focuses largely on providing economical 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 shipping-automation technology to streamline the handling of more than 1.3 million daily packages. RPS also utilizes software systems and Internet-based applications to offer its customers new ways to connect internal shipment 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-spokes sorting and distribution system. The role of an RPS hub is to service its satellite terminals by receiving mainline loads to and from RPS facilities throughout the United States and Canada. The capacity of the hub helps ensure timely delivery of packages moving through the RPS network. RPS hubs are equipped with overhead scanners to scan the RPS bar code labels as they travel through the hub network and are automatically routed to ensure the correct destination. The entire package handling process has minimal human intervention, ensuring packages are handled carefully and sorted correctly. RPS is headquartered in Pittsburgh, Pennsylvania. Daniel J. Sullivan is the President and Chief Executive Officer of the company. RPS has approximately 23,000 employees. RPS' primary competitors are UPS (non-express services) and the United States Postal Service. VIKING FREIGHT, INC. Viking Freight specializes in one- and two-day less-than-truckload ("LTL") service throughout the western United States. Service is also available to Alaska and Hawaii. Viking Freight's management focuses on achieving high levels of on-time delivery, easy-to-use information technology and responsive customer service. 11 With next- and second-business day regional freight service, plus direct ocean service to Alaska and Hawaii, Viking Freight's 4,700 employees handle approximately 12,000 shipments per day, achieving an award-winning on-time delivery performance exceeding that of most other LTL carriers. Consistent with its "Easy To Do Business With" service philosophy, Viking Freight has recently created two customer advisory boards -- one for corporate accounts, the other for smaller shippers -- to better anticipate and meet customers' needs. Viking Freight has enhanced its customer service and today responds to most inquiries within seconds. Viking Freight's web sites (www.vikingfreight.com and www.eztdbw.com) let customers conduct business electronically with convenience and confidence. In 1998, for the third time, the National Small Shipments Traffic Conference (NASSTRAC) named Viking Freight its regional LTL carrier of the year. In addition, readers of Logistics Management and Distribution magazine voted Viking Freight "Quality Carrier for 1998," the seventh year Viking Freight has received this award. Viking Freight is headquartered in San Jose, California. Rodger G. Marticke is the President and Chief Executive Officer of the company. Viking Freight's primary regional competitors are ConWay Western Express, Inc., USF Bestway, Inc. and USF Reddaway Truck Line, Inc. Viking Freight also competes with other regional and long-haul carriers. 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 2,000 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' 145 ExpressCenters. Customer Link, Roberts Express' 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. To promote even higher levels of productivity and service, Roberts Express recently installed a "dynamic vehicle allocation system." As customer orders are received, the system lets dispatchers evaluate at least 20 load and traffic variables, to help ensure that delivery vehicles are where they need to be, when they need to be, for optimum customer service and fleet utilization. 12 Roberts Express is headquartered in Akron, Ohio. R. Bruce Simpson is the President of the company. Roberts Express has approximately 500 employees and 1,500 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. CALIBER LOGISTICS, INC. Caliber Logistics is a contract logistics provider with expertise across the entire supply chain, from inbound materials management through distribution to the final consumer. Services provided include transportation management, dedicated transportation, warehouse operations and management, just-in-time delivery programs, customer order processing, returnable container management, freight bill payment and auditing and other management services outsourced by its customers. An important element in the company's 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. Caliber Logistics headquarters is located in Hudson, Ohio. Its European headquarters is located in Leiden, The Netherlands. Thomas I. Escott is the President of the company. Caliber Logistics has approximately 2,900 employees and 600 owner-operators. RPS, VIKING FREIGHT, ROBERTS EXPRESS - REGULATION Prior to January 1996, RPS, Viking Freight 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 Freight 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 Freight 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 Freight 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 Freight 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. 13 RPS, VIKING FREIGHT, 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 months of December and January of each year are the slowest. 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, 1998 consisted of the following: MAXIMUM GROSS STRUCTURAL PAYLOAD DESCRIPTION NUMBER (POUNDS PER AIRCRAFT)* - ----------- ------ ---------------------- McDonnell Douglas MD11 26** 198,500 McDonnell Douglas DC10-30 22** 172,000 McDonnell Douglas DC10-10 47** 142,000 Airbus A300-600 25** 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 208A 10 3,000 --- Total 615 _________________________ *Maximum gross structural payload includes revenue payload and container weight. **25 MD11, 17 DC10-30, four DC10-10, 25 A300, 16 A310, 13 B727-200 and five B727-100 aircraft are subject to operating leases. 14 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 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 cancelable upon 30 days notice. At June 30, 1998, FedEx operated approximately 40,900 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 June 30, 1998, FedEx was committed under various contracts to purchase 11 Airbus A300, 34 MD11 and 50 Ayers ALM 200 aircraft to be delivered through 2007. During 1997, FedEx entered into agreements with two airlines to acquire 53 DC10s, 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 29 additional DC10s along with additional aircraft engines and equipment. 15 SORTING AND HANDLING FACILITIES At July 1, 1998, 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 120 645,000 153,000 Indianapolis Airport 2016 Authority REGIONAL - -------- Fort Worth, Texas 168 641,000 74,000 Fort Worth Alliance Airport 2014 Authority Newark, New Jersey 56 503,800 142,000 Port Authority of New 2010 York and New Jersey Oakland, California 21 191,000 50,000 City of Oakland 2011 METROPOLITAN - ------------ Los Angeles, California 25 130,000 53,000 City of Los Angeles 2009 Chicago, Illinois 55 419,000 15,000 City of Chicago 2018 Anchorage, Alaska+ 42 208,000 4,200 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.
16 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. 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. During 1997, construction began on FedEx's new European sorting hub at Charles de Gaulle Airport which is expected to open in 2000. The Fort Worth hub became operational in September 1997. Also, new, larger facilities were opened in 1998 at the new Chek Lap Kok airport in Hong Kong, CKS International Airport in Taiwan and Dubai Airport, United Arab Emirates. 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. During fiscal year 1997, FedEx began construction on an office campus in Collierville, Tennessee for its information and telecommunications division, and announced plans to build a headquarters office campus in East Shelby County, Tennessee. See also Item 1, "Business - Federal Express Corporation - Recent Developments." FedEx owns 13 and leases 707 facilities for city station operations in the United States. In addition, 159 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, 1998, FedEx leased space for 391 FedEx World Service Centers in the United States and had placed approximately 31,000 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 189 were operating at July 1, 1998. Internationally, FedEx leases space for 46 FedEx World Service Centers and has approximately 964 FedEx Drop Boxes. 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. 17 RPS, INC. As of June 30, 1998, RPS operated 365 facilities, including 25 hubs. Fifty-three of the facilities, 22 of which are hubs, are owned; 312 facilities are leased, generally for terms of three years or less. Twelve of the facilities, three of which are hubs, are operated by RPS, Ltd., RPS' subsidiary operating in Canada. The 25 hub facilities are strategically located to cover the geographic area served by RPS. These facilities average 109,000 square feet and range in size from 26,000 to 236,000 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 a subsidiary of RPS. VIKING FREIGHT, INC. As of June 30, 1998, Viking operated 43 terminals, 31 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 72,000 square feet of office and dock space, and are located on sites ranging from 1.5 to 21.6 acres. The company's corporate headquarters is located in leased facilities in San Jose, California. ROBERTS EXPRESS, INC. Roberts Express' corporate headquarters is located in Akron, Ohio in owned facilities. Roberts does not use terminal facilities in its business. CALIBER LOGISTICS, INC. Caliber Logistics' corporate headquarters is located in Hudson, Ohio in leased facilities. ITEM 3. LEGAL PROCEEDINGS FEDERAL EXPRESS CORPORATION Customers of FedEx have filed four 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 of 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. Three of those cases were consolidated in Minnesota Federal District Court. That court stayed the consolidated cases in favor of a case filed in Circuit Court of Greene County, Alabama. The stay was lifted in July 1998. The complaint in the Alabama case also alleges that FedEx continued to collect the excise tax on the transportation of property shipped by air after the tax expired again on December 31, 1996. A fifth case, filed in the Supreme Court of New York, New York County, containing allegations and requests for relief substantially similar to the other four cases was dismissed with prejudice on 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 have appealed. This case originally alleged that FedEx continued to collect the excise tax on the transportation of property shipped by air 18 after the tax expired on December 31, 1996. The New York complaint was later amended to cover the first expiration period of the tax (December 31, 1995 through August 27, 1996) covered in the original Alabama complaint. The air transportation excise tax expired on December 31, 1995, was reenacted by Congress effective August 27, 1996, and expired again on December 31, 1996. The excise tax was then reenacted by Congress effective March 7, 1997. The expiration of the tax relieved 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 10 years through September 30, 2007. FedEx intends to vigorously defend itself in these cases. No amount has been reserved for these contingencies. 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 which arise in the ordinary course of its business. In the opinion of management, the aggregate liability, if any, with respect to these other actions will not materially adversely affect the 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, 1998. 19 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 53 Chairman, President and Chief Executive Officer of the Company since 1971 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. DAVID J. BRONCZEK 44 Executive Vice President and Chief Operating Officer of FedEx since January 1987 1998; Senior Vice President - Europe, Middle East and Africa of FedEx from June 1995 to January 1998; Senior Vice President - Europe, Africa and Mediterranean of FedEx from June 1993 to June 1995; Vice President - Canadian Operations of FedEx from February 1987 to March 1993; and several sales and operations managerial positions at FedEx from 1976 to 1987. T. MICHAEL GLENN 42 Executive Vice President - Market Development and Corporate Communications 1985 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. 44 Executive Vice President and Chief Financial Officer of the Company since 1987 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 49 Corporate Vice President - Strategic Financial Planning and Control and 1992 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 46 Executive Vice President and Chief Information Officer of the Company since 1986 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 54 Executive Vice President, General Counsel and Secretary of the Company 1980 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. DANIEL J. SULLIVAN 52 President and Chief Executive Officer of RPS, Inc. since January 1998; 1998 Chairman, President and Chief Executive Officer of Caliber System, Inc. from January 1996 to January 1998; Chairman, President and Chief Executive Officer of Roadway Services, Inc. from October 1995 to January 1996; President and Chief Executive Officer of Roadway Services, Inc. from August 1995 to October 1995; President and Chief Operating Officer of Roadway Services, Inc. from January 1994 to August 1995; Senior Vice President and President of National Carrier Group of Roadway Services, Inc. during 1993; Vice President and President -National Carrier Group of Roadway Services, Inc. during 1992; Vice President and Group Executive of Roadway Services, Inc. from July 1990 through 1991; and President of RPS through June 1990.
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OFFICER, YEAR FIRST ELECTED AS OFFICER AGE POSITIONS HELD WITH COMPANY ------------------ --- --------------------------- THEODORE L. WEISE 54 President and Chief Executive Officer of FedEx since January 1998; 1977 Executive Vice President - Worldwide Operations of FedEx from February 1996 to January 1998; Senior Vice President - Air Operations of FedEx from August 1991 to February 1996; Senior Vice President - United States and Canada of FedEx from June 1990 to August 1991; Senior Vice President - Domestic Ground Operations of FedEx from March 1987 to June 1990; Senior Vice President - Central Support Services of FedEx from October 1986 to March 1987; Senior Vice President/General Manager - FedEx World Service Centers from March 1983 to October 1986; Senior Vice President - Operations Planning of FedEx from March 1979 to March 1983; Vice President - Operations Resource and Corporate Planning of FedEx from September 1978 to March 1979; Vice President - Special Projects and Advanced Planning of FedEx from April 1977 to September 1978; and Director of Special Projects of FedEx from 1972 to 1977.
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. PART II Information for Items 5 through 8 of this Report appears in the Company's 1998 Annual Report to Stockholders as indicated in the following table and is incorporated herein by reference. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Information regarding market information, stockholders and dividends is contained in the Corporate Information section of the Company's 1998 Annual Report to Stockholders, on page 56 under the headings, "Stock listing," "Stockholders" and "Market information" and is incorporated herein by reference. As of August 3, 1998, the closing price of the Company's common stock on the New York Stock Exchange was $60.3125 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. 22 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 1998 Annual Report to Stockholders, which Note is incorporated herein by reference. PAGE IN ANNUAL REPORT TO STOCKHOLDERS ITEM 6. SELECTED FINANCIAL DATA Financial Highlights on a Like-Calendar Basis........ 25 Financial Highlights................................. 26 Selected Consolidated Financial Data................. 54 See Management's Discussion and Analysis of Results of Operations and Financial Condition set forth in the Company's 1998 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 FINANCIAL CONDITION AND RESULTS OF OPERATIONS 27 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................... 33 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Statements of Income.................... 34 Consolidated Balance Sheets.......................... 35 Consolidated Statements of Cash Flows................ 36 Consolidated Statements of Changes in Common Stockholders' Investment...................... 37 Notes to Consolidated Financial Statements........... 38 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 23 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 "Voting Securities and Principal Holders Thereof - Security Ownership of Management and Certain Beneficial Owners," "Election of Directors," "Meetings and Committees," "Compensation of Directors," and "Transactions with Management and Others" on pages 2 through 8 and on page 16 of the Definitive Proxy Statement for the Company's 1998 Annual Meeting of Stockholders which will be held September 28, 1998 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 1998 Annual Meeting of Stockholders to be held on September 28, 1998, as indicated in the following table and is incorporated herein by reference. PAGE IN PROXY STATEMENT --------- ITEM 11. EXECUTIVE COMPENSATION Compensation Information............................. 9 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Voting Securities and Principal Holders Thereof...... 2 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with Management and Others.............. 16 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 July 8, 1998, are presented on pages 34 through 53 of the Company's 1998 Annual Report to Stockholders and are incorporated herein by reference. The Report of Independent Auditors on the consolidated financial statements of Caliber System, Inc. (not presented separately herein) as of December 31, 1996 and for the two years in the period then ended 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 1998 Annual Report to Stockholders is not to be deemed as filed as part of this Report. 24
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 1998 Annual Report to Stockholders and incorporated herein by reference. 3. EXHIBITS Exhibits 2.1, 2.2, 3.1, 3.2, 4.1 through 4.30, 10.1 through 10.98, 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. 25 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 14, 1998 ------------------------------- Strategic Financial Planning and Control James S. Hudson (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
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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 14, 1998 ------------------------------- James S. Hudson Attorney-in-Fact
27 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 1998 Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated July 8, 1998. 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, July 8, 1998 S-2 SCHEDULE II FDX CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED MAY 31, 1998, 1997 AND 1996 (In thousands) ADDITIONS
CHARGED CHARGED BALANCE BALANCE AT TO TO AT BEGINNING COSTS AND OTHER END OF DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS(A) YEAR ----------- ---------- --------- -------- ------------- --------- Accounts Receivable Allowances - --------------------- 1998................. $ 86,154 $ 95,634 $ - $ 120,379 $ 61,409 ========= ========= ======== ========= ========= 1997................. $ 43,395 $ 76,150 $ - $ 51,415 $ 68,130 ========= ========= ======== ========= ========= 1996................. $ 40,812 $ 51,700 $ 1,700 $ 50,817 $ 43,395 ========= ========= ======== ========= =========
(A) Write-offs, net of recoveries. EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 2.1 Agreement and Plan of Merger dated as of October 5, 1997 among the Registrant (formerly known as Fast Holding Inc.), Federal Express Corporation ("FedEx"), Caliber System, Inc., Fast Merger Sub Inc. and Tires Merger Sub Inc. (Filed as Annex A 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.) 2.2 Amendment No. 1, dated as of January 21, 1998, to Agreement and Plan of Merger dated October 5, 1997 among the Registrant, FedEx, Caliber System, Inc. Fast Merger Sub Inc. and Tires Merger Sub Inc. (Filed as Exhibit 2.2 to Registrant's Current Report on Form 8-K dated January 27, 1998, Commission File No. 333-39483, and incorporated herein by reference.) 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 April 1, 1987 between FedEx and The Bank of New York ("BONY"), as Trustee, relating to FedEx's 10% Senior Notes due April 15, 1999. (Filed as Exhibit 10.36 to FedEx's FY88 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 4.2 Supplemental Indenture No. 2 dated as of April 18, 1989 between FedEx and BONY, relating to FedEx's 10% Senior Notes due April 15, 1999. (Filed as Exhibit 4(a) to FedEx's Current Report on Form 8-K dated April 25, 1989, Commission File No. 1-7806, and incorporated herein by reference.) 4.3 Supplemental Indenture No. 3 dated as of April 21, 1989 between FedEx and BONY and form of note relating to FedEx's 10% Senior Notes due April 15, 1999. (Filed as Exhibit 4(b) to FedEx's Current Report on Form 8-K dated April 25, 1989, Commission File No. 1-7806, and incorporated herein by reference.) 4.4 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.) 4.5 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 ------ ---------------------- 4.6 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.) 4.7 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.) 4.8 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 and FedEx's 6 1/4% Notes due April 15, 1998. (Filed as described above.) 4.9 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.) 4.10 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.) 4.11 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.) 4.12 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.) 4.13 Form of 6 1/4% Note due April 15, 1998. (Filed as Exhibit 4.1 to FedEx's Current Report on Form 8-K dated April 21, 1993, Commission File No. 1-7806, and incorporated herein by reference.) 4.14 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.) 4.15 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.) 4.16 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 ------ ---------------------- 4.17 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.) 4.18 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.) 4.19 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.) 4.20 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.) 4.21 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.) 4.22 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.) 4.23 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.) 4.24 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.) 4.25 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 ------ ---------------------- 4.26 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.) 4.27 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.) 4.28 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.) 4.29 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.) 4.30 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.) 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.) 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.) E-4 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 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.) 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.) E-5 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 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.) 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.) E-6 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 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.) 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.) E-7 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 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.) 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.) E-8 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 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.) 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.) E-9 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 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 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.) 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.) E-10 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 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.) 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.) E-11 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 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.) 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.) E-12 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 10.84 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.) 10.85 Management Performance Bonus Plan. (Description of the performance bonus plan contained in the Definitive Proxy Statement for Registrant's 1998 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.) 10.86 Long-Term Performance Bonus Plan. (A description of each long- term performance bonus plan is contained in the Definitive Proxy Statement for Registrant's 1998 Annual Meeting of Stockholders, under the heading "Long-Term Incentive Plans - Awards in Last Fiscal Year" and is incorporated herein by reference.) 10.87 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.) 10.88 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.) 10.89 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.) 10.90 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 ------ ---------------------- 10.91 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.) 10.92 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.) 10.93 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. (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.) 10.94 Aircraft Sales Agreement dated as of April 21, 1998 between Flightlease, Ltd. and FedEx. Confidential treatment has been requested for certain confidential portions of this Exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. In accordance with Rule 24b-2, these confidential portions have been omitted from the exhibit and filed separately with the Commission. 10.95 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.) 10.96 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.) 10.97 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.) 10.98 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 ------ ---------------------- 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, 1998. 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. 99 Report of Independent Auditors. E-15 EX-10.94 2 AIRCRAFT SALES AGREEMENT EXHIBIT 10.94 ================================================================================ AIRCRAFT SALES AGREEMENT BY AND BETWEEN FLIGHTLEASE, LTD AND FEDERAL EXPRESS CORPORATION DATED AS OF APRIL 21, 1998 ================================================================================ SALE OF TWENTY McDONNELL DOUGLAS MODEL MD-11 AIRCRAFT AND RELATED AIRCRAFT EQUIPMENT ================================================================================ FEC Contract No. 98-0818 AIRCRAFT SALES AGREEMENT This AIRCRAFT SALES AGREEMENT (the "Agreement") is entered into as of the 21st day of April, 1998 by and between Flightlease, LTD, a Swiss corporation ("Flightlease") and FEDERAL EXPRESS CORPORATION, a Delaware corporation ("FedEx"). RECITALS 1. Flightlease desires to sell to FedEx and FedEx desires to buy from Flightlease twenty (20) McDonnell Douglas Model MD-11 aircraft, all upon the terms and conditions contained in this Agreement. 2. Flightlease and FedEx desire to document the terms and conditions for the sale and purchase of the Aircraft, as defined below. FOR AND IN CONSIDERATION of the mutual covenants contained in this Agreement and other good and valuable consideration, the receipt of which is hereby acknowledged, FedEx and Flightlease (each a "Party" and together the "Parties") agree as follows: ARTICLE 1 DEFINITIONS; CONSTRUCTION Section 1.01. Primary Definitions. In addition to words and terms elsewhere defined in this Agreement, the following words and terms shall have the meanings set forth below: "Aircraft" shall mean any or all of the twenty (20) McDonnell Douglas Model MD-11 aircraft, each with three Engines, the APU and any and all Parts installed therein or thereon at Delivery, as more particularly described on Exhibit A hereto, with all associated records and documentation for each Airframe and Engine including, but not limited to (i) all Aircraft and Engine logs, records, manuals and historical documents updated to the current delivery status of each respective Aircraft and Engine, and (ii) all production and detail drawings, data and documents relating to such Aircraft and the operation thereof in the possession of Swissair or Flightlease or any subsequent operator thereof, as may be required for U.S. certification. "Aircraft Delivery Certificate" shall mean a tender and acceptance certificate, substantially in the form of Exhibit B. "Aircraft Records" shall mean that portion of the Data listed under the caption "Records" in Exhibit D. "Airframe" shall mean any one or more of the McDonnell Douglas Model MD-11 airframes bearing the respective Manufacturer's Serial Numbers set forth in Exhibit A. 1 "Airworthiness Directive" shall mean a mandatory order issued by the FAA applying to specific types of aircraft, engines, parts or appliances, when an unsafe condition exists and that condition is likely to exist or develop in other aircraft, engines, parts or appliances of the same design. "Airworthy" shall mean the condition of an Aircraft (1) which includes the existence of a validly issued, current individual aircraft FOCA Certificate of Airworthiness with respect to such Aircraft and which satisfies all requirements for the effectiveness of such FOCA Certificate of Airworthiness, (2) which complies with: (A) the MD-11 Type Design Data Certificate, including all applicable supplemental type certificates which have been incorporated on such Aircraft; (B) subject to the nondiscrimination covenants set forth in Section 3.06(a)(ii), all applicable FAA Airworthiness Directives which are required to be complied with by the Scheduled Delivery Date of such Aircraft and the requirements for maintaining data substantiating the status and method of compliance for each such Airworthiness Directive; and (C) the Aircraft records requirements set forth in Exhibit D; and (3) in which such Aircraft's structure, systems and components are functioning in accordance with their intended use as set forth in FAA-approved documentation, including, but not limited to, any applicable original manufacturer's manuals, technical standard orders, parts manufacturing approval certificates or Swissair engineering specification orders. "APU" shall mean an auxiliary power unit of a type approved by either the FOCA or the FAA for use on McDonnell Douglas Model MD-11 aircraft. "Business Day" shall mean any day other than a Saturday, Sunday or other day on which banking institutions in New York, New York or Memphis, Tennessee or Zurich, Switzerland are authorized or required by law to be closed. "Change Designation" shall mean a notice in the form set forth in Exhibit F exercising the right to substitute Airframes set forth in Section 2.02. "Data" shall mean all of the manuals, documents, drawings, charts, records and other recorded materials described in Exhibit D, on whatever medium, and any successor, supplemental, modifying, amending or replacement manuals, documents, drawings, charts, records and other recorded materials, on whatever medium, all of which shall be current with the latest revisions available with respect thereto at the time such Data is delivered to FedEx. "Delivery" or "Delivered" shall mean, with respect to any Aircraft, the occurrence of all the following events, which events are to be performed in accordance with this Agreement: (a) tender of the Aircraft by Flightlease to FedEx as evidenced by Flightlease's execution and delivery to FedEx of an Aircraft Delivery Certificate with respect to such Aircraft, (b) acceptance by FedEx of the 2 Aircraft, as evidenced by FedEx's execution and re-delivery of such Aircraft Delivery Certificate to Flightlease, and (c) sale by transfer of title of the Aircraft by Flightlease to FedEx as evidenced by delivery to FedEx of the executed FAA Bill of Sale and the executed Warranty Bill of Sale. "Delivery Condition" shall mean the condition that an Aircraft must be in at the time it is tendered by Flightlease to FedEx for Delivery as prescribed by Section 3.06. "Delivery Date" shall mean any date on which the Delivery of an Aircraft is complete. "Designation" shall mean a written notice in the form set forth in Exhibit E designating a particular Airframe for delivery on a Scheduled Delivery Date. "Engine" shall mean one or more, as the case may be, Pratt & Whitney PW4462 or PW4460 aircraft engines in full QEC configuration to be conveyed to FedEx under this Agreement as a part of an Aircraft. "Engine Designation" shall mean a written notice in the form set forth in Exhibit H designating the Engines to be conveyed by Flightlease to FedEx as a part of an Aircraft. "Engine Records" shall mean that portion of the Data relating to the Engines and the Spare Engines, including that portion of the Data set forth under the caption "Engines" in Exhibit D. "Event of Default" shall mean, as to Flightlease, any of the events of default set forth in Section 12.01 and, as to FedEx, any of the events of default set forth in Section 12.02. "Excusable Delay" shall mean any delay in the timely discharge and performance by a Party of its obligations and duties under this Agreement to the extent such delay shall be the result of (i) the occurrence of a Force Majeure Event with respect to the Party whose performance is delayed, (ii) the fault of the other Party, whether such fault arises from the failure of the other Party to discharge and perform its obligations and duties hereunder or otherwise, or (iii) any other event that excuses as a matter of applicable law a Party's timely performance of its contractual obligations and duties. "FAA" shall mean the United States Federal Aviation Administration or any successor agency thereto. "FAR" shall mean the United States Federal Aviation Regulations, 14 C.F.R (S)1 et seq., as promulgated pursuant to Title 49 (S)40101 et seq. of the United States Code, and any successor statute thereto, as such regulations are in effect from time to time. "FOCA" shall mean the Federal Office for Civil Aviation of Switzerland, or any successor agency thereto. "Force Majeure Event" shall mean any act of God, action or regulation of any governmental authority, fire, weather, flood, earthquake, accident, act of the public enemy, war, civil disturbance, rebellion, insurrection, work stoppage, work slow down, other labor or work action, labor dispute, 3 restraint of government or other cause or event beyond the control of the Party claiming the benefit of the occurrence of any such force majeure. "Lien" shall mean any mortgage, pledge, security interest, lien, claim, encumbrance or other charge or rights of others of any kind on property. "Life Limited Part" shall mean an item which when listed on the Aircraft or Engine type certificate data sheet or the applicable Manufacturer's instructions for continued airworthiness, must be permanently removed from service and discarded before a specified time (e.g. hours, cycles or calendar limit) is achieved. "LTU" shall mean LTU Lufttransport-unternehmen GmbH & Co. KG. "LTU Aircraft" shall mean those certain four (4) MD-11 aircraft, each with three (3) Pratt & Whitney 4460 engines installed thereon, with the airframes bearing manufacturer's serial numbers 48484, 48485, 48486 and 48538 to be acquired by Flightlease from LTU. "Manufacturer" shall mean McDonnell Douglas Corporation as to the Airframes and United Technologies Corporation/Pratt & Whitney as to the Engines or Spare Engines, or such other companies contracted by either of the foregoing corporations for the supply of approved Aircraft Parts. "Overhaul" shall mean the work necessary to return an item to the highest standard specified in the relevant manual as set forth in SR Technics' PW4000 Engine Reliability Program (ERP 6) (Publication Number 068 906, 3rd Edition, dated February 28, 1998) such that the item will be entirely disassembled and every single part restored per the engine manual instructions. "Part" shall mean any item or items of avionics, appliances, parts, furnishings, instruments, accessories and equipment approved by the FAA or the FOCA for installation and use on an Aircraft. "Purchase Price" shall mean, as applicable, the purchase price for (a) an Aircraft on a Scheduled Delivery Date as set forth in Section 2.01 or (b) a Spare Engine on a Spare Engine Delivery Date as set forth in Section 4.03 or (c) Spare Parts upon delivery to FedEx as set forth in Section 4.04. "Scheduled Delivery Date" shall mean a date on which an Aircraft is to be delivered as set forth in Section 2.01 or such other date as the Parties may agree in writing. "Shop Findings Report" shall mean a report stating the root cause of the failure of a Part and the materials used in returning such Part to a serviceable condition which is executed by an authorized repairman, all in accordance with the Swissair Maintenance Program. "Spare Engine" shall mean each of the eight (8) Pratt & Whitney PW4462 engines to be sold to FedEx by Flightlease each in full QEC configuration, which are not installed on the Aircraft and as more particularly described in Section 4.01 herein. 4 "Spare Engine Delivery Certificate" shall mean a tender and acceptance certificate, substantially in the form of Exhibit J, executed by FedEx and Flightlease concurrently with the Delivery of each Spare Engine. "Spare Part" shall mean Parts held by the SAirGroup or any of its direct or indirect subsidiaries in their respective inventories on the date specified in Section 4.04 herein and that are unique to or available for use upon McDonnell Douglas Model MD-11 aircraft. "Swissair" shall mean Swiss Air Transport Co., LTD., a wholly-owned subsidiary of SAirGroup Company, as an operator of the Aircraft. "Swissair Maintenance Program" shall mean SR Technics' FOCA-approved Maintenance Program (in effect as of the date of this Agreement, a copy of which is attached as Exhibit "K") for the Airframes and the Engines. "Transition Maintenance" shall mean all of the maintenance items under FedEx's FAA-approved maintenance program required to transition each Aircraft from Swissair's Maintenance Program to the FedEx maintenance schedule (inclusive of FedEx's zero C Check and zero B Check), all in full compliance with such maintenance requirements in force and effect at the Delivery of each applicable Aircraft. "Warranty Bill of Sale" shall mean a warranty bill of sale conveying title to an Aircraft or Spare Engine to FedEx, which warranty bill of sale shall be in the form attached hereto as Exhibit C-1 or C-2, as applicable. Section 1.02. Rules of Construction. The words "hereof," "herein," "hereunder," "hereto" and other words of similar import refer to this Agreement in its entirety. The terms "agree" and "agreements" contained herein are intended to include and mean "covenant" and "covenants". Article and section headings in this Agreement have been inserted solely for convenience and shall not be considered in construing this Agreement. ARTICLE 2 PURCHASE OF AIRCRAFT Section 2.01. Purchase Prices and Delivery Dates. (a) On the terms and subject to the conditions set forth herein, Flightlease agrees to sell to FedEx, and FedEx agrees to purchase from Flightlease, the Aircraft, with one Aircraft to be so sold and purchased on each Scheduled Delivery Date as set forth below. If any Scheduled Delivery Date is not a Business Day, the Aircraft to be delivered shall be delivered on such Scheduled Delivery Date and accepted on the Business Day next following the Scheduled Delivery Date. Subject to the provisions of Section 2.01(b), the Purchase Price of each Aircraft to be delivered on each Scheduled Delivery Date and the latest date by which a Designation as to a Scheduled Delivery Date may be given are as set forth in the following table: 5 LATEST SCHEDULED DELIVERY DESIGNATION DELIVERY PURCHASE NUMBER DATE DATE PRICE 1 01-Aug-2001 01-Aug-2002 * 2 01-Sep-2001 01-Sep-2002 * 3 01-Oct-2001 01-Oct-2002 * 4 01- Nov-2001 01- Nov-2002 * 5 01-Mar-2002 01-Mar-2003 * 6 01-Jun-2002 01-Jun-2003 * 7 01-Sep-2002 01-Sep-2003 * 8 01-Dec-2002 01-Dec-2003 * 9 01-Mar-2003 01-Mar-2004 * 10 01-Jun-2003 01-Jun-2004 * 11 01-Sep-2003 01-Sep-2004 * 12 01-Dec-2003 01-Dec-2004 * 13 01-Mar-2004 01-Mar-2005 * 14 01-Jun-2004 01-Jun-2005 * 15 01-Sep-2004 01-Sep-2005 * 16 01-Dec-2004 01-Dec-2005 * 17 01-Mar-2005 01-Mar-2006 * 18 01-Jun-2005 01-Jun-2006 * 19 01-Sep-2005 01-Sep-2006 * 20 01-Dec-2005 01-Dec-2006 * provided, however, Flightlease shall be paid an additional * by FedEx upon Delivery of each Aircraft bearing MSN 48540, 48634 and 48541 regardless of the Delivery Date of each such Aircraft to FedEx. (b) if an Aircraft is not Delivered on a date specified above, then the Purchase Price for such Aircraft will be reduced by * per month for each month that has elapsed since July 1, 1998, using a base price of *. If the Delivery Date is not the first Business Day of the month, then the Purchase Price shall be additionally reduced on a daily basis by * for each elapsed day from the first day of the month of Delivery up to and including the Delivery Date. The following example shall be illustrative of the calculation of a Purchase Price for an Aircraft which is not Delivered on a date specified above: EXAMPLE: If an Aircraft is purchased December 20, 2003, then * (c) Upon mutual agreement of FedEx and Flightlease and not less than two (2) years' prior written notice, any Scheduled Delivery Date(s) may be changed to such other date(s) as are mutually acceptable to the parties. Notwithstanding the foregoing, if either Flightlease or FedEx *Blank space contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. 6 requests a revised Scheduled Delivery Date(s) for any one or more Aircraft and the Parties are unable to agree upon a mutually acceptable revised Scheduled Delivery Date(s), then such Scheduled Delivery Date(s) shall remain unchanged and as written above. Section 2.02. Designation and Substitution of Airframes and Engines. (a) Flightlease will designate an Airframe from among all the Airframes for Delivery on a Scheduled Delivery Date by giving FedEx a Designation on or before the latest date for giving such Designation specified in Section 2.01. Each Airframe to be designated by Flightlease to be delivered on any Scheduled Delivery Date will be chosen by Flightlease in its sole discretion. Flightlease shall have the right as a result of operational considerations to substitute a different Airframe for a previously designated Airframe for delivery on a Scheduled Delivery Date by delivering a Change Designation on any date before the one hundred eightieth (180th) day prior to such Scheduled Delivery Date, provided that, within thirty (30) days after its receipt of FedEx's invoice setting forth in detail the nature and amount of any reasonable incremental engineering costs and incremental modification costs, Flightlease reimburses FedEx for any such costs incurred by FedEx solely as the result of the substitution of the Airframe. (b) No later than thirty (30) days prior to the Scheduled Delivery Date for an Aircraft, Flightlease shall designate to FedEx the three Engines to be conveyed to FedEx as part of such Aircraft to be delivered on such Scheduled Delivery Date by giving FedEx a completed Engine Designation. After designating such Engines, Flightlease will not substitute other Engines for such designated Engines without FedEx's prior approval (except where required to meet the applicable delivery conditions or other matters beyond the reasonable control of Flightlease). Each Engine to be delivered on the various Scheduled Delivery Dates will be chosen by Flightlease in its sole discretion, subject to the limitation set forth in Section 5.01(d) and provided that (i) the three Engines on each Airframe shall all be of the same type specification and type data plate certification, and (ii) no more than twelve of such Engines delivered to FedEx shall be Pratt & Whitney PW4460 engines. Section 2.03. Payment of Purchase Price. Each Purchase Price payable to Flightlease by FedEx shall be net of any and all taxes, recording expenses, assessments, duties and similar governmental charges and fees charged on or with respect to the sale of the Aircraft, any and all of which amounts shall be paid by FedEx, subject, however, to the provisions of Section 3.01 and Article 8. The Purchase Price for each Aircraft shall be paid on the Delivery Date for such Aircraft. The Purchase Price for any Spare Engine or Spare Parts purchased pursuant to Article 4 shall be paid on the date the Spare Engine(s) or Spare Part(s) being sold to FedEx are delivered by Flightlease to FedEx. The Purchase Prices shall be paid by FedEx in United States Dollars by wire transfer of immediately available funds to such account(s) as may be designated in writing by Flightlease to FedEx. ARTICLE 3 AIRCRAFT DELIVERY, TITLE, RISK OF LOSS Section 3.01. Delivery. Flightlease shall deliver each Aircraft to FedEx on the Scheduled Delivery Date for each such Aircraft pursuant to the procedures set forth in this Article 3. Flightlease shall tender each Aircraft required to be delivered to FedEx under this Agreement by 7 delivering an Aircraft Delivery Certificate (completed as to the tender related portion thereof) to FedEx with respect to such Aircraft. The Delivery of each Aircraft, Spare Engine and Spare Part shall be made at Zurich International Airport, Zurich, Switzerland, provided that no Tax (as defined in Article 8) is assessed against the purchase or sale of the Aircraft, Spare Engine or Spare Part. If such Tax is likely to be assessed, then the Parties shall agree upon a mutually acceptable alternate delivery location which prevents the payment of a Tax. Section 3.02. Inspection, Flight Checks and Discrepancies. (a) FedEx shall have access to each Aircraft no later than five (5) days prior to the Scheduled Delivery Date for such Aircraft at Swissair's maintenance facility at the Zurich International Airport, Zurich, Switzerland. At such time, FedEx shall have the right to: (i) conduct all ground inspections reasonably necessary to determine whether the Aircraft is in Delivery Condition, including, but not limited to, engine borescope inspections required to determine that each Engine is within the serviceable limits prescribed by the McDonnell Douglas Maintenance Manual chapter 72-00-07; and (ii) functionally ground and flight check such Aircraft in accordance with the requirements and procedures contained in the McDonnell Douglas Model MD-11 Production Flight Procedure Manual (the "MDAC PFPM"). Notwithstanding the foregoing, FedEx and Flightlease each agree to use commercially reasonable efforts to minimize any duplication of testing and inspection procedures contemplated under this Section 3.02 and, as reasonably possible, to jointly participate in the testing and inspections to prevent duplication. Subject to Section 3.02(b), any such checks or test flights shall be of a reasonable duration. In determining if an Aircraft is in Delivery Condition the tolerances stated in the MDAC PFPM shall apply. FedEx shall bear its own incremental costs incurred to attend any inspections, tests and checks contemplated under this Article 3. (b) The initial flight test of an Aircraft shall not be more than four (4) hours in duration. Flightlease will permit at least two (2) representatives of FedEx to observe any functional flight check of an Aircraft made in conjunction with the Delivery of such Aircraft. During the functional flight check, Flightlease shall provide a pilot who shall function as pilot-in-command and who shall maintain operational control and responsibility for the Aircraft. FedEx shall provide a properly licensed and certificated pilot who shall occupy a pilot's seat (left or right, at the discretion of the pilot-in-command). FedEx's pilot shall physically exercise the flight controls in such phases of flight as necessary to verify the functional operation of the Aircraft. Insurance for all functional flight checks shall be provided by Flightlease, at its sole expense under its insurance policies, provided, however, that any FedEx personnel who are to be present on such Aircraft during any such flight shall execute and deliver to Flightlease prior to such flight a release and waiver of liability containing terms and conditions reasonably satisfactory to Flightlease. Flightlease shall provide the fuel necessary for such flight check. (c) Upon completion of functional ground and flight check of an Aircraft, Flightlease shall, at Flightlease's expense and in accordance with the applicable criteria set forth in the Swissair Maintenance Program: (i) correct and/or clear any items noted in the Aircraft's log book and (ii) correct and/or clear any discrepancies of the Aircraft from the Delivery Condition otherwise noted during the functional ground and flight checks of such 8 Aircraft. If an additional flight check is required to demonstrate that a discrepancy from the Delivery Condition for such Aircraft has been corrected, such additional flight check shall be conducted in the manner set forth in Section 3.02(a) and (b). Any additional flight check made to inspect the correction of any discrepancy of such Aircraft from the required Delivery Condition previously noted shall be limited to the time necessary to inspect such discrepancy. If additional discrepancies from the Delivery Condition are noted during a subsequent flight check (or the original discrepancy is not satisfactorily corrected), Flightlease shall correct the discrepancy from the Delivery Condition noted during the subsequent flight check. Notwithstanding the foregoing, Flightlease shall not be required to correct or clear any items or discrepancies of the Aircraft from Delivery Condition that are (y) related solely to any Passenger Parts, or (z) which the Parties agree in writing in the Aircraft Delivery Certificate to correct and/or clear after the Delivery of the Aircraft. (d) Upon completion of the items in Sections 3.02(a) through 3.02(c) on an Aircraft, FedEx shall execute and deliver to Flightlease the Aircraft Delivery Certificate for such Aircraft pursuant to which FedEx shall certify that it has accepted the Aircraft and that the Aircraft is in the Delivery Condition, except to the extent that any remaining discrepancies of the Aircraft from the Delivery Condition are noted by the Parties in such Aircraft Delivery Certificate. Thereafter, subject to Section 3.01, Flightlease shall not change or alter the configuration or operate such Aircraft for any reason prior to Delivery without the prior written consent of FedEx. Section 3.03. Delivery Procedure. At the time of Delivery of each Aircraft: (i) Flightlease shall deregister the Aircraft from the FOCA aircraft registry; shall cause the FOCA to confirm the deregistration of the Aircraft to the satisfaction of the FAA; and shall perform such other acts as are reasonably requested by FedEx to facilitate each Aircraft to be placed on the FAA aircraft registry; (ii) Flightlease shall execute and deliver to FedEx the FAA Bill of Sale (FAA Form 8050-2) and the Warranty Bill of Sale; (iii) FedEx shall pay Flightlease the Purchase Price in accordance with Section 2.03; (iv) Flightlease shall deliver to FedEx the Data with respect to such Aircraft; (v) Flightlease shall execute and deliver to FedEx an assignment of any warranties with respect to the Aircraft, in the form of Exhibit G; (vi) Concurrently with the delivery of the Warranty Bill of Sale described in clause (ii) above, Flightlease shall cause the FAA Bill of Sale executed by Flightlease to be filed and recorded with the FAA Aircraft Registry in Oklahoma City, Oklahoma. FedEx shall be responsible for all costs of filing or recording of the FAA Bill of Sale and any such other acceptance certificates, delivery receipts and any other documents as shall be agreed to by the Parties as appropriate for the sale, purchase and Delivery of such Aircraft; (vii) At the time and upon completion of Delivery of each Aircraft, Messrs. Daugherty, Fowler & Peregrin, special FAA counsel to FedEx, shall confirm to FedEx that such counsel will furnish FedEx its opinion, addressed to FedEx, to the effect that: (A) the FAA Bill of Sale with respect to the Aircraft being delivered by Flightlease to FedEx and the FAA Application for Registration relating thereto have been duly filed with the FAA; (B) legal title to such Aircraft is 9 vested in FedEx or its designee, and (C) such Aircraft, including the Engines conveyed to FedEx in connection with such Aircraft, is free and clear of all Liens as may be recorded with the FAA, other than Liens arising by, through or under FedEx or its designee, if any, that has taken title to the Aircraft. Such opinion may be subject to the type of assumptions and qualifications regularly included by experienced FAA counsel in similar opinions; (viii) To facilitate the Delivery of each Aircraft, Flightlease may deliver to the law firm of Daugherty, Fowler & Peregrin the documents contemplated in Section 3.03(ii) and (vi) of this Agreement. The referenced documents shall be held in escrow by such law firm pending Flightlease's express authorization to deliver the Warranty Bill of Sale and the assignment of warranties to FedEx and to deliver the FAA Bill of Sale to the FAA for recordation purposes. The fees and expenses of Daugherty, Fowler & Peregrin which are solely related to the escrow procedure and FAA filing set forth in this Section 3.03(viii) shall be paid by FedEx; and, (ix) Not more than thirty (30) days following the Delivery of each Aircraft, FedEx shall pay Flightlease for the fuel on board the Aircraft at Delivery as reflected on the applicable Aircraft Delivery Receipt. Section 3.04. Casualty Aircraft. If, before the Delivery Date of any Committed Delivery (as defined below), one or more Aircraft are designated as a "total loss" by Flightlease's insurers and such insurers pay to Flightlease the full insured value of such Aircraft or so designated by the insurers to the predecessor in title to the LTU Aircraft prior to Flightlease acquiring title to the LTU Aircraft (each a "Casualty Aircraft"), then Flightlease shall designate or re-designate other Aircraft in order to deliver an Aircraft to FedEx for each Scheduled Delivery Date; provided, however, that notwithstanding any such designation, one Committed Delivery per each such Casualty Aircraft shall automatically terminate in reverse chronological order of Scheduled Delivery Dates. If a Committed Delivery is terminated under this Section 3.04, Flightlease and FedEx shall have no further obligation to sell or purchase any Aircraft with respect to such Committed Delivery. For purposes of this Section 3.04, the term "Committed Delivery" shall mean a commitment to sell and deliver Aircraft whether or not a particular Aircraft had been designated for such delivery. Section 3.05. Aircraft Subject to Damage But Not a Casualty Aircraft. (a) If an Aircraft which has been designated for delivery to FedEx on a particular Scheduled Delivery Date sustains any damage and such damage can be repaired such that the Aircraft can be tendered for Delivery on the date (the "Partial Casualty Delivery Date") that is the later to occur of (i) the Scheduled Delivery Date with respect to such Aircraft or (ii) the date which is not more than two (2) weeks after the occurrence of such damage or partial destruction, Flightlease shall notify FedEx in writing of such occurrence and whether Flightlease elects (i) at Flightlease's sole cost and expense, to repair the damaged Aircraft so that it will be in Delivery Condition within such two (2) week period, or (ii) to substitute another Aircraft, if any, for the damaged Aircraft to be delivered not less than two (2) weeks after the original Scheduled Delivery Date. Any repair required by damage to the Aircraft shall not (i) impose any restrictions on the FOCA-certified limitations, performance or operation as set forth in the Manufacturer's FAA-approved Airplane Flight Manual for the Aircraft or (ii) materially impair the fuel mileage performance of the Aircraft or (iii) increase the empty weight of the Aircraft by more than 350 pounds. 10 (b) Any delay in the Delivery of an Aircraft within the two (2) week period set forth in Section 3.05(a) shall be considered an Excusable Delay and shall not constitute an Event of Default hereunder. Section 3.06. Delivery Condition. (a) At the time of the tender of an Aircraft by Flightlease to FedEx in connection with its Delivery, the Aircraft shall be in the following condition: (i) The Aircraft (including installed Engines delivered with the Aircraft) shall meet the following standards: A. Transition Maintenance shall have been accomplished on each Aircraft (provided that FedEx has delivered to Flightlease the work cards required for such check not less than sixty (60) days prior to the applicable Scheduled Delivery Date for the Aircraft) as required to include each Aircraft on FedEx's Operations Specification. B. Each component or part of the Aircraft which has a hard time (hour, calendar or cycle) limit to restoration (including the APU, but excluding the landing gear) will have at least * hours, * cycles or * months (whichever is the applicable limiting factor) remaining to operate until its next scheduled restoration or removal. C. Each Engine delivered with an Airframe hereunder shall be subject to the following conditions: (1) have not more than * flight cycles since its last complete Overhaul in accordance with SR Technics' PW 4000 Engine Reliability Program (ERPVI); (2) each life-limited part shall have at least * of its cycles remaining as specified by the manufacturer's engine manual; provided, however, FedEx agrees to accept up to twelve (12) Engines where each Life Limited Part has no less than * of its cycles remaining subject to financial compensation to FedEx by Flightlease based upon the Pratt & Whitney parts price catalog current at the time of the applicable Engine Delivery to FedEx, all as more particularly set forth in Exhibit L to this Agreement; (3) no Engine shall be subject to special surveillance or inspection conditions which reduces the maintenance intervals below those of SR Technics' approved engine maintenance program, except in the case of either (i) an industry-wide mandatory inspection which cannot be terminated, or (ii) acceptance and agreement by FedEx; additionally, the intervals between scheduled borescopes shall not be less than every *. D. landing gear shall have been overhauled not more than six (6) years prior to each applicable Aircraft Delivery. *Blank space contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. 11 E. each Aircraft shall be delivered with an export certificate of airworthiness issued by the FOCA. F. each Aircraft shall be certificated to operate CATIIIB. G. each Aircraft shall be in compliance with all Airworthiness Directives and mandatory service bulletins issued by the FOCA, the FAA and the applicable Manufacturer. If the delivery condition set forth in paragraph (C)(1) above is less than * flight cycles since its last complete Overhaul in accordance with SR Technics' PW 4000 Engine Reliability Program, then the per Aircraft Purchase Price may be increased, all as more particularly provided in Exhibit I. The failure of the Aircraft being delivered to FedEx to meet the standards in this Section 3.06 when tendered for delivery shall give FedEx the right to refuse to accept delivery of the Aircraft. (ii) Each Airframe together with each Engine and all component parts of each Aircraft presented to FedEx for Delivery shall have been continually maintained on a non-discriminatory basis, consistent with the Swissair Maintenance Program and to an equal standard with all other similar aircraft in Flightlease's fleet. The foregoing sentence shall be applicable to the LTU Aircraft once Flightlease or its designee acquires legal title to such aircraft. (iii) The Aircraft, together with each Engine conveyed to FedEx at the time of the Delivery of the Aircraft, and the APU shall be in compliance with the Swissair Maintenance Program, the Aircraft shall be Airworthy and the Aircraft Records relating to such Aircraft, Engines and APU shall be in compliance with the Swissair Maintenance Program and the applicable FARs requiring the maintenance of such Aircraft Records. At the Scheduled Delivery Date, no deferred or carryover maintenance items shall exist with respect to the Aircraft, and all temporary repairs to the Aircraft shall have been made permanent and all temporary repairs to the Aircraft shall have been made permanent repairs in accordance with SRM Category A or Category B; provided, however, no Category B inspection interval shall be less than * hours or * cycles. (iv) The delivery of any Engine or other Pratt & Whitney PW4460 or PW4462 engine installed on an Aircraft upon its Delivery shall be subject in all respects to Section 3.03. (v) The Aircraft shall be in a configuration which complies with Swissair's operating specifications for McDonnell Douglas Model MD-11 aircraft at such time, except to the extent that any discrepancies or deviations from such operating specifications shall result from the removal of Passenger Parts from the Aircraft. *Blank space contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. 12 (vi) The Aircraft (including the Engines to which title is conveyed therewith) and each Spare Engine shall be free of all Liens. (vii) Prior to the delivery of the Aircraft, Flightlease shall have stripped from the Aircraft any insignia, trademark or tradename on the Aircraft identifying the Aircraft as a Swissair aircraft or that of any other lessee or operator. (viii) Prior to the delivery of an Aircraft Flightlease shall have received from FedEx a listing of loose equipment and other passenger interior parts which are not required by FedEx for its operation of the Aircraft in a cargo configuration all of which Flightlease may retain at no cost. (b) EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, THE AIRCRAFT SHALL BE DELIVERED BY FLIGHTLEASE AND ACCEPTED BY FEDEX "WHERE IS", "AS IS". (c) Flightlease shall not be responsible for compliance with any Airworthiness Directive outstanding with respect to any Airframe on the Scheduled Delivery Date for such Aircraft if the final date for compliance with such Airworthiness Directive is after such date, provided that Flightlease shall not discriminate against any of the Aircraft in connection with its compliance with Airworthiness Directives applicable to the McDonnell Douglas Model MD-11 aircraft in its fleet. With respect to any Engine, no Airworthiness Directive shall be outstanding which requires termination within * or * , whichever is most limiting, from the applicable Scheduled Delivery Date. (d) Flightlease will require any lessee of an Airframe that may be delivered to FedEx to comply with any Airworthiness Directive applicable to such Aircraft in the same manner as Flightlease complies with such Airworthiness Directive with respect to the Aircraft in its fleet. With respect to any Engine, no Airworthiness Directive shall be outstanding which requires termination within * or * , whichever is most limiting, from the applicable Scheduled Delivery Date. (e) With respect to any Aircraft, Flightlease shall not have complied with or terminated any Airworthiness Directive applicable to either McDonnell Douglas Model MD-11 airframes and the accessories thereto or Pratt & Whitney PW4460 or PW4462 engines by the use of FAA-approved alternative means of compliance, unless FedEx expressly approves compliance with or termination of such Airworthiness Directive by such alternative means or FedEx's then current FAA- approved maintenance program permits compliance with or termination of such Airworthiness Directive by such alternative means of compliance. Section 3.07. Aircraft Delivery Certificate; Engine Delivery Certificate. Subject to any discrepancies from the Delivery Condition expressly noted by the Parties in the applicable Aircraft Delivery Certificate, FedEx's execution and delivery of an Aircraft Delivery Certificate with respect to an Aircraft as to which a Delivery occurs shall be a binding acknowledgment and agreement by FedEx that the Aircraft delivered was in the Delivery Condition upon its Delivery to FedEx. Subject to any discrepancies from the delivery conditions set forth in Section 3.06 that are applicable solely *Blank space contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. 13 to Engines that are expressly noted by the Parties in the applicable Engine Delivery Certificate, FedEx's execution and delivery of an Engine Delivery Certificate with respect to an Engine or Spare Engine which is delivered to FedEx by Flightlease shall be a binding acknowledgment and agreement by FedEx that such Engine or Spare Engine, as the case may be, was in the condition required by Section 3.06 upon its delivery to FedEx by Flightlease. Section 3.08. Liability. FEDEX HEREBY RELEASES FLIGHTLEASE FROM AND FLIGHTLEASE SHALL NOT BE LIABLE FOR ANY DEFECT, KNOWN OR UNKNOWN, LATENT OR PATENT, IN SUCH AIRCRAFT, THE ENGINES, ANY PART OR COMPONENT OF SUCH AIRCRAFT AND ANY SPARE ENGINE OR SPARE PART DELIVERED TO IT OR FOR ANY ACTUAL, INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES SUSTAINED BY FEDEX AS A RESULT OF ANY SUCH DEFECT, INCLUDING, WITHOUT LIMITATION, LOSS OF REVENUE, LOSS OF USE OF THE AIRCRAFT, THE ENGINES, THE SPARE ENGINES, THE SPARE PARTS OR ANY INTERRUPTION IN FEDEX'S BUSINESS RESULTING FROM OR OCCASIONED BY FEDEX'S INABILITY TO USE THE AIRCRAFT, THE ENGINES OR THE SPARE ENGINES EXCEPT AS EXPRESSLY SET FORTH HEREIN. Section 3.09. Title and Risk of Loss. (a) Concurrently with each Delivery of an Aircraft (or Spare Engine or Spare Part, as the case may be) and after receipt by Flightlease of the Purchase Price thereof but not prior thereto, title to, and risk of loss of, damage to or destruction of such Aircraft (or Spare Engine or Spare Part, as the case may be) shall pass from Flightlease to FedEx. FedEx shall not, by virtue of this Agreement acquire any insurable or other ownership interest in an Aircraft or Spare Part or Spare Engine prior to the Delivery thereof by Flightlease to FedEx. (b) Upon Delivery of an Aircraft and subject to Section 3.03(ix) and Flightlease's receipt of the applicable Aircraft Purchase Price, FedEx shall take title to any fuel on board of the Aircraft. ARTICLE 4 SPARE ENGINES; AIRCRAFT SIMULATOR; SPARE PARTS Section 4.01. Obligation to Sell Spare Engines; Spare Engine Purchase Price; and Delivery Condition. (a) Flightlease will sell to FedEx and FedEx shall purchase from Flightlease eight (8) Pratt & Whitney PW4462 engines, each in full QEC configuration in accordance with the Pratt & Whitney powerplant Buildup Manual 51A096-1963 and two (2) fully-functional low profile transport stands. The engine build (wing or tail) for Spare Engines shall be defined by Flightlease; provided, however, Flightlease will deliver a minimum of three (3) Spare Engines in the tail configuration. The Spare Engines shall be sold to FedEx on each of the dates set forth on Exhibit A and shall be transported on a fully-functional low profile transport stand. Not less than thirty (30) days prior to each of the dates set forth on Exhibit A, Flightlease shall deliver to FedEx a Spare Engine Designation, the form of which is attached as Exhibit H, designating the Spare Engine to be delivered to FedEx on the applicable Delivery Date. Concurrent with the Delivery of a Spare Engine to FedEx, each of Flightlease and FedEx shall execute and deliver to the other a Spare Engine Delivery Certificate. The engine stand delivered with the first Spare Engine shall be retained by FedEx. The second Spare Engine to be delivered to FedEx will be shipped on a transport stand 14 which must be returned to Flightlease each time for shipment of the next Spare Engine until FedEx retains the engine stand with delivery of the last Spare Engine. (b) The Purchase Price for each Spare Engine shall be * and each Spare Engine shall comply with the delivery conditions set forth in Subsections 3.06(a)(i)(C)(1) through (3) and Subsections 3.06(c) and (d) of this Agreement and FedEx shall have the right to borescope each Spare Engine under the provisions set forth in Section 3.02(a) of this Agreement; provided, however, if any Spare Engine fails to meet the conditions specified in Section 3.06(a)(i)(C)(1) of this Agreement, then the Spare Engine Purchase Price may be increased or decreased, as applicable, all in accordance with the formula set forth in Exhibit I. Section 4.02. Intentionally Omitted.. Section 4.03. Obligation to Sell MD-11 Full Flight Aircraft Simulators. Flightlease hereby acknowledges that it has agreed to sell or cause to be sold to FedEx two (2) MD-11 full flight aircraft simulators bearing manufacturer's serial numbers 5 and 6 . Simulator bearing manufacturer's serial number 6 shall be delivered to FedEx not later than October 31, 1999 and the simulator bearing manufacturer's serial number 5 shall be delivered to FedEx at a mutually agreeable date in 2006, but in any event not later than three (3) months prior to the last Scheduled Delivery Date under this Agreement. The purchase price for the simulator bearing manufacturer's serial number 6 shall be * and the purchase price for the simulator bearing manufacturer's serial number 5 shall be * , all upon the terms and conditions as more particularly set forth in that certain Aircraft Simulator Purchase Agreement, a copy of which is attached as Exhibit M to this Agreement. Section 4.04. Spare Parts List. Within nine (9) months of the date of execution of this Agreement, Flightlease will deliver to FedEx a Spare Parts list (the "Spares List") which will include all Spare Parts held by Flightlease, SR Technics and Swissair in their respective inventories as of the actual date of delivery to FedEx of the Spares List. Further, Flightlease agrees to update the Spares List and deliver a copy of the same to FedEx within nine (9) months after Flightlease's acquisition of the last LTU Aircraft. The Spares List and any updates thereto will set forth for each type of Spare Part, SR Technics' part numbers and the manufacturer's part numbers for each type of Spare Part, the quantity of each type of Spare Part held by Flightlease, SR Technics and Swissair at the date on which the Spares List or the update is delivered and the average unit price for each type of Spare Part * * and any update (the "Average Unit Price"). The Spares List and any update will be provided via electronic storage media mutually acceptable to Flightlease and FedEx. Flightlease will also provide FedEx with a hard copy of the Spares List. and any updates thereto. Section 4.05. Spare Parts Purchase Rights. On each date upon which FedEx accepts Delivery of an Aircraft and upon not less than forty-five (45) days' prior written notice to Flightlease, FedEx has the option but not the obligation to purchase from Flightlease Spare Parts surplus to SR Technics' requirements and having an aggregate Average Unit Price of up to * for each Aircraft as to which Delivery occurs. Any written notice to Flightlease shall include the date on which it will take delivery of such Spare Parts, any particular mix of Spare Parts *Blank space contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. 15 that it desires to have in such lot of Spare Parts and the destination to which the Spare Parts are to be shipped. FedEx shall pay to Flightlease an amount not more than * of the aggregate Average Unit Price for each such Spare Part acquired from Flightlease, all in accordance with the payment procedures set forth in Section 2.03 of this Agreement. Nothing herein shall restrain FedEx from purchasing Spare Parts from Flightlease at the Average Unit Price at any time Flightlease offers Spare Parts for sale to FedEx. Section 4.06. Spare Parts Documentation. At the time of delivery of the Spare Parts sold by Flightlease to FedEx, the Spare Parts delivered will be free and clear of all Liens and will be in a serviceable condition. Such Spare Parts will be packaged in accordance with ATA 300 specifications and be accompanied by a Swissair or SR Technics Serviceable Tag (which shall specifically include either an executed JAA Form 1 or an FAA Form 8130-3). Any Spare Parts delivered to FedEx may be in a form modified by Flightlease in order to comply with applicable Airworthiness Directives, manufacturer's service bulletins and recommendations for modification by the respective manufacturers of such Spare Parts. In addition, any Spare Parts delivered to FedEx by Flightlease shall be in compliance with any outstanding Airworthiness Directives and service bulletins required to be complied with or terminated on or before the delivery date of such Spare Parts. Upon FedEx's request at the time of the delivery of a particular Spare Part, Flightlease will also provide FedEx with the last Shop Findings Report which Flightlease or SR Technics has in its records with respect to that Spare Part if Flightlease or SR Technics regularly creates and retains Shop Findings Reports for such type of Spare Part pursuant to the Swissair Maintenance Program. FedEx will not be required to accept any Spare Part tendered by Flightlease for sale to FedEx that does not meet the applicable requirements of FAR (S)43.9. Flightlease will make no representations or warranties with respect to the Spare Parts sold to FedEx pursuant to this provision other than that such Spare Parts are free and clear of all Liens (except as may arise or be created by FedEx or its successors-in-interest) and are serviceable. Section 4.07. FedEx's Right of First Refusal. At any time on or after January 1, 2002, in the event any of Swissair, SR Technics or Flightlease proposes to sell or otherwise transfer to a single purchaser (whether in a single transaction or multiple stages which constitutes a single transaction) Spare Parts which in the aggregate have an Average Unit Price of * * or greater, then Flightlease, SR Technics or Swissair, as applicable, shall submit a written offer to FedEx to sell such Spare Parts to FedEx at a price equal to * * of the Average Unit Price for each such Spare Part. The written offer shall include a copy of the bonafide, third-party offer received by Flightlease, SR Technics or Swissair, as applicable, and which such party intends to accept. FedEx shall have forty-five (45) days from actual receipt of the offer to accept such offer by giving the offering party (at all times with a copy to Flightlease) written notice of its acceptance to purchase the Spare Parts upon the terms and conditions contained in this Agreement and a mutually acceptable delivery schedule. In the event FedEx either (i) rejects the written offer specified above or (ii) fails to accept the offer within the forty-five (45)day period specified above, then the right of first refusal shall expire and Flightlease and Swissair shall have no further obligation whatsoever to FedEx for the particular Spare Parts identified in the written notice. Notwithstanding the foregoing, if FedEx receives a written offer from Flightlease, SR Technics or Swissair, as applicable, for the sale of any one particular Spare Part, then FedEx shall have seven (7) days from actual receipt of the offer to accept such offer by *Blank space contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. 16 giving Flightlease written notice of its acceptance to purchase the Spare Part upon the terms and conditions contained in this Agreement and a mutually acceptable delivery schedule. ARTICLE 5 REPRESENTATIONS AND WARRANTIES Section 5.01. Flightlease's Representations and Warranties. (a) Flightlease hereby represents and warrants to FedEx as follows: (i) Organization and Existence. Flightlease is a corporation validly existing, duly organized and in good standing under the laws of Switzerland. (ii) Due Authorization. Flightlease has all requisite corporate power and authority to execute and enter into this Agreement and to perform its obligations under this Agreement. The execution and delivery of this Agreement by Flightlease and the performance by Flightlease of its obligations hereunder have been duly authorized by all necessary corporate action, do not knowingly contravene any law, statute, rule, regulation, ordinance, writ, decree, judgment or injunction applicable to Flightlease, or result in the violation of, the breach of, or a default or event of default under any indenture, agreement, mortgage, contract, agreement, other instrument or document, or any contractual restriction to which Flightlease is a party, which is binding on it, which affects Flightlease or by which its assets are bound or affected to the extent that the contravention, violation or breach thereof or the occurrence of a default or event of default thereunder would have a material adverse effect on the ability of Flightlease to satisfy its obligations hereunder. (iii) Approvals. All authorizations, consents, approvals, waivers and other actions required by, and all notices to and filings required to be made with, all governmental authorities and regulatory bodies for the due execution, delivery and performance by Flightlease of this Agreement or the consummation of the transactions contemplated by this Agreement have been obtained. (iv) Enforceability. This Agreement (including the joinder of SR Technics to this Agreement) constitutes the legally valid and binding obligations of Flightlease and SR Technics, enforceable against each of SR Technics and Flightlease in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or other laws affecting creditors' rights generally or general equitable principles, whether applied in a court of law or in a proceeding at equity. (b) With respect to any Aircraft, Spare Part and Spare Engine being delivered, Flightlease hereby represents and warrants to FedEx that upon Delivery of such Aircraft, Spare Part and Spare Engine: 17 (i) Except as expressly agreed to in writing by FedEx or as expressly permitted in this Agreement, the Aircraft, the Spare Parts and the Spare Engines shall be in the Delivery Condition on their respective Delivery Dates; (ii) Flightlease shall have full power and lawful authority to convey its ownership interest in the Aircraft, Spare Parts and Spare Engines to FedEx on their respective Delivery Dates; and (iii) upon execution, filing and recordation with the FAA of the FAA Bill of Sale and delivery of the Warranty Bill of Sale to FedEx, FedEx shall have received good legal and beneficial title to the Aircraft, including the Engines and Spare Engines, as applicable, conveyed to FedEx in connection with such Aircraft, free and clear of all Liens, other than Liens arising by, through or under FedEx or any designee of FedEx that has taken title to the Aircraft or a Spare Engine. (c) Prior to Flightlease's delivery to FedEx of any PW4460 Engines, Flightlease will reasonably endeavor to upgrade all such PW4460 Engines to PW4462 standard, subject to no significant additional cost to Flightlease. (d) That each of the Pratt & Whitney PW4462 Engines acquired by Swissair in 1997 and bearing MSN P733815, P733816, P733817, P733802, P733803, P733804, P733799, P733800, and P733801 shall be Engines which are to be transferred and sold to FedEx hereunder with Airframes to be selected by Flightlease; provided, however, in all cases three of such engines shall be delivered to FedEx either concurrently with or prior to Delivery of each Airframe bearing Manufacturer's Serial Numbers 48540, 48634 and 48541. Notwithstanding the foregoing to the contrary, if one or more of the Engines specified in this Section 5.01(d) are subject to a "total loss" by Flightlease's insurers and such insurers pay to Flightlease the full insured value of any such Engine(s), then Flightlease shall designate in writing another Engine(s) to be delivered to FedEx. Any such substitute Engine(s) proposed to be delivered to FedEx shall conform in all respects to the conditions set forth in Section 3.06(a)(i)(C), Section 3.06(c) and (d), and shall not have more total hours or total cycles than the Engine that it is replacing. Section 5.02. No Warranties. EXCEPT FOR WARRANTIES OF TITLE AND ANY ASSIGNED MANUFACTURERS' WARRANTIES AND EXCEPT AS OTHERWISE EXPRESSLY SET FORTH HEREIN, THE AIRCRAFT, THE SPARE PARTS, THE ENGINES AND THE SPARE ENGINES SHALL BE PURCHASED "WHERE IS", "AS IS" AND WITHOUT WARRANTIES OR REPRESENTATIONS OF ANY KIND, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER WITH RESPECT TO ANY AIRCRAFT, THE ENGINES, THE SPARE PARTS OR THE SPARE ENGINES INCLUDING, BUT NOT LIMITED TO: ANY OBLIGATION OR LIABILITY IN STRICT LIABILITY OR TORT; OR THE CONDITION, DESIGN, QUALITY OR CAPACITY OF THE AIRCRAFT OR THE SPARE ENGINES OR THEIR FITNESS FOR ANY PARTICULAR PURPOSE. Section 5.03. FedEx's Representations. FedEx hereby represents and warrants to Flightlease as follows: 18 (i) Organization and Existence. FedEx is a corporation validly existing, duly organized and in good standing under the laws of the State of Delaware. (ii) Due Authorization. FedEx has all requisite corporate power and authority to execute and enter into this Agreement and to perform its obligations under this Agreement. The execution and delivery of this Agreement by FedEx and the performance by FedEx of its obligations hereunder have been duly authorized by all necessary corporate action, do not knowingly contravene any law, statute, rule, regulation, ordinance, writ, decree, judgment or injunction applicable to FedEx, or result in the violation of, the breach of or a default or event of default under any indenture, agreement, mortgage, contract, agreement, other instrument or document, or any contractual restriction to which FedEx is a party, which is binding on it, which affects FedEx or by which its assets are bound or affected to the extent that the contravention, violation or breach thereof or the occurrence of a default or event of default thereunder would have a material adverse effect on the ability of FedEx to satisfy its obligations hereunder. (iii) Approvals. All authorizations, consents, approvals, waivers and other actions required by, and all notices to and filings required to be made with, all governmental authorities and regulatory bodies for the due execution, delivery and performance by FedEx of this Agreement or the consummation of the transactions contemplated by this Agreement have been obtained. (iv) Enforceability. This Agreement constitutes the legally valid and binding obligation of FedEx, enforceable against FedEx in accordance with its respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, insolvency, fraudulent conveyance or transfer, moratorium or other laws affecting creditors' rights generally or general equitable principles whether applied in a court of law or in a proceeding at equity. ARTICLE 6 ADDITIONAL DOCUMENTATION AND RECORDS; TRANSLATION OF DOCUMENTATION AND RECORDS Section 6.01. Additional Documentation and Records. Notwithstanding any other provision in this Agreement, FedEx acknowledges that neither Flightlease nor Swissair is an FAA Part 121 Operator of aircraft. Accordingly, except for the matters set forth in Exhibit D and Section 4.06 which shall be delivered to FedEx by Flightlease, if FedEx requires additional Aircraft documentation or records then Flightlease hereby agrees to use its best efforts to promptly procure and deliver such documentation or records to FedEx, but only to the extent that they are in the possession of Flightlease, Swissair or any subsequent operator of the Aircraft. Section 6.02. Translation of Documentation and Records. In addition to the items set forth in Exhibit D to this Agreement which will be delivered to FedEx in the English language, Flightlease agrees to use its best efforts to assist FedEx with the translation into the English language of any 19 additional documentation which is provided to FedEx by Flightlease and that is required for the United States FAA certification of each Aircraft. Upon written request by Flightlease, FedEx agrees to reimburse Flightlease for its actual, reasonable costs for translation of additional documentation. ARTICLE 7 ASSIGNMENT OF WARRANTIES, SERVICE LIFE POLICIES AND PATENT INDEMNITIES Section 7.01. Assignment of Warranties. At Delivery of each Aircraft and Spare Engine, an Assignment of Assignable Warranties in the form of Exhibit G shall be executed by Flightlease and delivered to FedEx pursuant to which Flightlease will assign to FedEx, effective upon Delivery of such Aircraft or Spare Engine, all of Flightlease's interests in any and all existing and assignable warranties, service life policies and patent indemnities of manufacturers and maintenance and restoration providers relating to such Aircraft or Spare Engine. Further, upon FedEx's request, Flightlease shall (i) give written notice to any such manufacturers and maintenance and restoration providers of the assignment of such warranties, service life polices and patent indemnities to FedEx, and (ii) take all such actions as may be reasonably requested by FedEx in assisting FedEx in the enforcement of its rights pursuant to this Article 7. Where such assistance provided under this Section 7.01 is materially burdensome upon Flightlease or exposes Flightlease to a material liability to third parties, such liability cost or expense shall be for the account of FedEx. ARTICLE 8 PAYMENT OF TAXES Section 8.01. Payment of Taxes by FedEx. (a) Except as provided in Section 8.01(b), any and all taxes, excises, duties and assessments whatsoever (including any related penalty, interest or other additions to tax) ("Tax" or "Taxes") arising out of the sale, transfer or delivery of the Aircraft, Engines, Spare Parts or the Spare Engines under this Agreement, in any manner levied, assessed or imposed by any government or subdivision or agency thereof having jurisdiction, shall be the sole responsibility and liability of FedEx and FedEx shall indemnify and hold Flightlease harmless from any and all such Taxes. Subject to the provisions contained in Section 3.06 herein, Flightlease and FedEx will cooperate in good faith and take such reasonable actions as are practicable to minimize or, if possible, eliminate any such Taxes. (b) The indemnity provided for in Section 8.01(a) shall not extend to any of the following: (i) Taxes based upon, measured by or with respect to the net income, gross receipts in the nature of an income tax not in the nature of a transfer tax, items of tax preference or minimum tax or excess profits, capital, franchise, net worth or conduct of business or other similarly- based taxes of Flightlease; (ii) Taxes imposed on Flightlease that would not have been imposed, but for the willful misconduct or gross negligence of Flightlease; or 20 (iii) Taxes imposed by the country of Switzerland or any political subdivision or taxing authority thereof or created thereunder; provided, however, that in the case of value added tax (Mehrwertsteuer) or similar Tax assessed in Switzerland ("VAT"), FedEx will, at Flightlease's expense, take all action reasonably requested by Flightlease to recover such VAT where it is able to do so and immediately to pay such recovered amounts, or direct such recovered amounts, to Flightlease. (c) With respect to any Tax which FedEx has assumed responsibility for under this Article 8, FedEx shall either (i) pay at the delivery date for any equipment or other personal property sold by Flightlease to FedEx, all sales or other similar taxes payable with respect to the sale and/or purchase of such Aircraft, Engines, Spare Parts or Spare Engines, respectively, or (ii) provide to Flightlease an exemption certificate, resale certificate, or other evidence reasonably acceptable to Flightlease that the sale and purchase of any Aircraft, Engines, Spare Parts or Spare Engine is exempt from any such tax. Other evidence includes, but is not limited to, a letter specifying the applicable taxing authority's statute, regulation, rule or case law authority providing for such exemption. (d) If any Tax for which FedEx has assumed the responsibility for payment pursuant to this Article 8 is levied, assessed or imposed upon Flightlease, Flightlease shall promptly give FedEx notice of such levy, assessment or imposition, whereupon FedEx shall promptly pay and discharge the same or, if permitted by law, may contest or protest such liability before payment. If Flightlease fails to notify FedEx, FedEx will be relieved of its indemnity obligations under this Section 8.01 with respect to that Tax. Upon the written request and at the sole expense of FedEx, Flightlease shall reasonably cooperate with FedEx in contesting or protesting the validity or application of any such Tax (including, but limited to, permitting FedEx to proceed in Flightlease's name if required or permitted by law, provided, in each case, that such contest does not involve, or can be separated from, the contest of any tax or other issues unrelated to the transactions described in this Agreement). FedEx also shall have the right to participate in any contest conducted by Flightlease with respect to a Tax indemnifiable under this Article 8, including, without limitation, the right to attend conferences with the taxing authority and the right to review submissions to the taxing authority or any court to the extent in the reasonable judgment of Flightlease, but only to the extent, such contest does not involve, or can be separated from, the contest of any tax or issues unrelated to the transactions contemplated in this Agreement. In the event Flightlease shall receive a refund of all or any part of such Tax (including a refund of interest and penalties, if any, in connection therewith) which FedEx has paid and discharged, the amount of such refund shall promptly be remitted to FedEx by Flightlease, less any expenses of Flightlease associated with contesting and/or protesting the validity or application thereof which have not been previously reimbursed by FedEx. ARTICLE 9 EXCUSABLE DELAY Section 9.01. Excusable Delay. Subject to Section 3.05, neither Party shall be responsible to the other Party for any Excusable Delay in the discharge and performance of its respective obligations and duties under this Agreement or for any delay or failure in the discharge and performance of its respective obligations and duties under this Agreement as a result of the action or omission of the other Party. 21 ARTICLE 10 INDEMNIFICATION Section 10.01. FedEx's Indemnification. From and after the Delivery of an Aircraft, Spare Parts, Engines or Spare Engines to FedEx, FedEx shall defend, indemnify and hold harmless Flightlease, its Affiliates and each of their respective directors, officers, and employees (collectively the "Flightlease Indemnitees") from and against all claims, demands, suits, causes of action, obligations, liabilities, damages, losses and judgments, costs and expenses, whether or not arising from the negligence of such indemnified parties, asserted against any of them by reason of injury or death of any person, or by reason of loss of or damage to property, including such Aircraft, Spare Parts, Engines and Spare Engines, arising out of or in any manner connected with any of the Aircraft, Spare Parts, Engines and Spare Engines, including, without limitation, the purchase, sale, ownership, possession, use, operation, flight testing (if the event giving rise to the Flightlease Indemnitees' right to indemnity involves the Aircraft and occurs while a pilot who is an employee or an agent of FedEx is in control of the Aircraft being flight tested), storage, maintenance, financing, sale, lease or sublease of any Aircraft, Engine, Spare Engine or Spare Part. Section 10.02. Flightlease's Indemnification. Flightlease agrees to defend, indemnify and hold harmless FedEx, its Affiliates, and each of their respective directors, officers, and employees from and against all claims, demands, suits, causes of action, obligations, liabilities, damages, losses and judgments, costs and expenses, asserted against any of them by reason of any claim adverse to FedEx's title to any Aircraft, Engine, Spare Part or Spare Engine by any party claiming by or through Flightlease. ARTICLE 11 INSURANCE Section 11.01. Liability Insurance. Commencing with the delivery of the first Aircraft to FedEx, FedEx shall maintain until the third (3rd) anniversary of the Delivery Date of each Aircraft, with insurance carriers reasonably acceptable to Flightlease, comprehensive airline liability insurance in an amount not less than * which shall: include aircraft liability, cargo liability, and comprehensive general liability insurance; insure, inter alia, FedEx's indemnification obligations to the Flightlease Indemnitees; and name the Flightlease Indemnitees as additional insureds. The insurers shall waive any right of subrogation, set-off or counterclaim against the Flightlease Indemnitees as to the coverage of the Flightlease Indemnitees, breaches of representations and warranties by FedEx. In the event of cancellation of or material change in the policy, such insurance shall continue in force for the benefit of the Flightlease Indemnitees for at least thirty (30) days after written notice to Flightlease. Section 11.02. Hull Insurance. If FedEx, or any successor to FedEx's interest in the Aircraft, maintains hull insurance on the Aircraft, FedEx shall require its, or its successor's, hull insurers to waive any and all rights of subrogation, set-off, counterclaim and deduction, whether by attachment or otherwise, which they may have against the Flightlease Indemnitees, for any loss, damage or destruction of the Aircraft. *Blank space contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. 22 Section 11.03. Insurance Certificates. Upon Delivery, FedEx shall furnish Flightlease with insurance certificates certifying (a) that the policies of insurance required by this Article 11 are in full force and effect (together with required waivers of subrogation) and (b) that Flightlease shall be given thirty (30) days' prior written notice by the insurers in the event of either cancellation or material change in coverage or cancellation of the waivers of subrogation, except in the event of war risk coverage, in which case the notice period shall be seven (7) days or such other period as shall be customary in the insurance market. ARTICLE 12 DEFAULT AND REMEDIES Section 12.01. Flightlease Events of Default. The following events shall constitute Events of Default as to Flightlease: (a) Flightlease shall fail to Deliver the Aircraft, Spare Parts or a Spare Engine in accordance with the terms and conditions of this Agreement; (b) Flightlease shall fail to perform any other covenant of Flightlease contained in this Agreement, and such failure is not cured within five (5) Business Days after written notice of such default is given by FedEx to Flightlease or, if such failure cannot be cured within five (5) Business Days, is not cured within ninety (90) days after receipt of such notice if Flightlease promptly commences taking and diligently pursues all necessary actions to cure such failure; (c) If any representation or warranty made by Flightlease herein or made in any statement or certificate furnished or required hereunder or in connection with the execution and delivery of this Agreement, proves untrue in any material adverse respect; (d) If Flightlease shall file a voluntary petition in bankruptcy, shall be adjudicated as bankrupt or insolvent, shall file any petition or answer seeking any reorganization, composition, readjustment, liquidation or similar relief for itself under any present or future statute, law or regulation, shall seek or consent to or acquiesce in the appointment of any trustee, shall make any general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due; or (e) If a petition shall be filed against Flightlease seeking any reorganization, composition, readjustment, liquidation or similar relief under any present or future statutes, law or regulation, and shall remain undismissed or unstayed for an aggregate of ninety (90) days (whether or not consecutive), or if any trustee, receiver or liquidator of either Party is appointed, which appointment shall remain unvacated or unstayed for an aggregate of ninety (90) days (whether or not consecutive). Section 12.02. FedEx Events of Default. The following events shall constitute Events of Default as to FedEx: 23 (a) FedEx shall fail to accept delivery and pay the Purchase Price for any Aircraft, Spare Part or a Spare Engine tendered by Flightlease for Delivery to FedEx in accordance with this Agreement; (b) FedEx shall fail to perform any other covenant of FedEx contained in this Agreement and such failure is not cured within five (5) Business Days after written notice of such default is given by Flightlease to FedEx or, if such failure cannot be cured within five (5) Business Days, is not cured within ninety (90) days after receipt of such notice if FedEx promptly commences taking and diligently pursues all necessary actions to cure such failure; (c) If any representation or warranty made by FedEx herein or made in any statement or certificate furnished or required hereunder or in connection with the execution and delivery of this Agreement proves untrue in any material adverse respect; (d) If FedEx shall file a voluntary petition in bankruptcy, shall be adjudicated as bankrupt or insolvent, shall file any petition or answer seeking any reorganization, composition, readjustment, liquidation or similar relief for itself under any present or future statute, law or regulation, shall seek or consent to or acquiesce in the appointment of any trustee, shall make any general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due; or (e) If a petition shall be filed against FedEx seeking any reorganization, composition, readjustment, liquidation or similar relief under any present or future statutes, law or regulation, and shall remain undismissed or unstayed for an aggregate of ninety (90) days (whether or not consecutive), or if any trustee, receiver or liquidator of either party is appointed, which appointment shall remain unvacated or unstayed for an aggregate of ninety (90) days (whether or not consecutive). Section 12.03. Remedies. (a) Upon the occurrence of an Event of Default as to Flightlease, FedEx (i) shall, at its option, be relieved from its obligations arising thereafter to accept delivery of and pay the Purchase Price for the Aircraft or to purchase any Spare Parts or Spare Engines from Flightlease, (ii) may, at its option, terminate this Agreement, and (iii) shall have all other rights and remedies available to it at law and in equity, including, but not limited to, the equitable remedy of specific performance. (b) Upon the occurrence of an Event of Default as to FedEx, Flightlease (i) may, at its option, be relieved from its obligations arising thereafter to deliver any Aircraft or sell any Spare Part or Spare Engines to FedEx, (ii) may, at its option, terminate this Agreement and (iii) shall have all other rights and remedies available to it at law and in equity, including, but not limited to, the equitable remedy of specific performance. Section 12.04. Limitation of Damages. NEITHER PARTY SHALL HAVE ANY LIABILITY FOR ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES SUSTAINED BY THE OTHER PARTY ARISING OUT OF THE FIRST PARTY'S DEFAULT UNDER THE TERMS OF THIS AGREEMENT. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY REMEDIES IT MAY HAVE AS A RESULT OF ITS 24 INCURRENCE OF ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES ARISING OUT OF A DEFAULT BY THE OTHER PARTY UNDER THIS AGREEMENT. ARTICLE 13 PERFORMANCE OF OBLIGATIONS Flightlease acknowledges and agrees that notwithstanding the references in this Agreement to any of its affiliated corporations (including without limitation Swissair, SAirGroup and SR Technics) or the joinder of SR Technics to this Agreement, that the obligations, covenants, agreements and commitments hereunder are solely those of Flightlease. Flightlease further acknowledges and agrees that FedEx shall not have to pursue its rights against any other party in order to cause the performance of the obligations and commitments contemplated hereunder. ARTICLE 14 CONDITIONS Section 14.01. Conditions to FedEx's Obligations. The obligation of FedEx to accept an Aircraft and purchase any Spare Parts or Spare Engines from Flightlease shall be subject to the following conditions precedent: (a) The Aircraft and Spare Engines shall be Airworthy and shall be free and clear of all defects and discrepancies and shall have been continuously maintained in accordance with Swissair's Maintenance Program to the same standards (exclusive of interior furnishing) as all other aircraft in Flightlease's fleet. The foregoing sentence shall be applicable to the LTU Aircraft once Flightlease or its designee acquires legal title to such aircraft. (b) receipt by FedEx of a satisfactory opinion of counsel to Flightlease, which opinion may be rendered by in-house counsel, regarding due authorization, no conflicts with organization documents, agreements and instruments to which Flightlease and SR Technics are a party or their assets are bound or any court order, and enforceability of this Agreement and any ancillary agreements, and such other matters as may be reasonably requested. In such opinion, such counsel may render their opinions based solely on the federal and corporate laws of Switzerland. Such opinion may be subject to the type of assumptions and qualifications regularly included by experienced corporate counsel in similar opinions; (c) the execution of this Agreement and consummation of the transactions contemplated by it shall not breach, or result in a default under any statute, treaty, regulation or other regulatory directive, foreign or domestic, binding upon FedEx; (d) FedEx shall not be unable to perform its obligations with respect to one or more of the Aircraft as the result of the occurrence of a Force Majeure Event or other Excusable Delay (other than a Force Majeure Event or other Excusable Delay which is directly a result of the fault, act or omission of Flightlease); and (e) the Aircraft, the Spare Parts and the Spare Engines shall be in Delivery Condition. 25 Section 14.02. Conditions to Flightlease's Obligations. The obligation of Flightlease to deliver any Aircraft and sell any Spare Parts and Spare Engines to FedEx shall be subject to the following conditions precedent: (a) compliance by FedEx with all applicable laws and regulations of all jurisdictions which are applicable to the transactions contemplated hereby; (b) receipt by Flightlease of a satisfactory opinion of counsel to FedEx, which opinion may be rendered by in-house counsel, regarding due authorization, no conflicts with organizational documents, agreements and instruments to which FedEx is a party or its assets are bound or any court order, and enforceability of this Agreement and any ancillary agreements, and such other matters as may be reasonably requested. In such opinion, such counsel may assume that the documents, agreements and instruments are governed by Tennessee law and render their opinions based solely on the federal laws of the United States, the corporate laws of the State of Delaware and the laws of the State of Tennessee. Such opinion may be subject to the type of assumptions and qualifications regularly included by experienced corporate counsel in similar opinions; (c) the execution of this Agreement and consummation of the transactions contemplated by it shall not breach, or result in a default under, any statute, treaty, regulation or other regulatory directive, foreign or domestic, binding upon Flightlease; and (d) Flightlease shall not be unable to perform its obligations with respect to one or more of the Aircraft as the result of the occurrence of a Force Majeure Event, other Excusable Delay which is directly a result of the fault, act or omission of FedEx. ARTICLE 15 CONFIDENTIALITY Section 15.01. Confidentiality Obligations. Each of Flightlease and FedEx agrees to keep the economic terms of this Agreement confidential and not to disclose, transfer, use or otherwise make available such information to any third party without the prior written consent of the other Party. Each of Flightlease and FedEx agrees to exercise care that is at least equal to the care it uses to protect the confidentiality of its own confidential and proprietary information of similar importance to prevent the disclosure to outside parties or unauthorized use of such information. Notwithstanding the above, Flightlease and FedEx (including the corporations of which each is a direct or indirect wholly-owned subsidiary) may disclose confidential information to their respective officers, directors, employees and/or tax, legal and other professional advisors (specifically including financial advisors) and institutions providing finance to either Flightlease or FedEx, each of whom is informed of the confidential nature of the information and of the restrictions on disclosure and use of the information as set forth herein and may disclose confidential information as required by law (including, but not limited to, pursuant to a request by the Internal Revenue Service or a federal, state or cantonal taxing authority for information or as may be required to enforce a Party's rights under this Agreement in a court of law). In the event of a breach of or a default under the terms of this Section 15.01, the non-breaching Party shall be entitled to pursue and seek all legal and 26 equitable remedies available to it, including the equitable remedies of specific performance and injunction, which remedies shall not be deemed exclusive, but shall be cumulative. If either of the Parties desire to make a press release, information release or otherwise provide information to any third party for release to the news media with respect to the transactions contemplated by this Agreement, subject to its obligations under applicable securities laws, the Party desiring to make the release or provide the information shall provide the text of such release or information to the other Party for its review at least five (5) Business Days in advance of the proposed distribution of the release or information. Subject to legal requirements and other legally compelled disclosures, each Party shall obtain the prior written consent of the other Party to release of any such news or press release or information and the text of any written or oral statement or any release of information to be provided to the news media and the timing of the distribution of such information. ARTICLE 16 FURTHER ASSURANCES Section 16.01. Further Assurances. (a) Flightlease recognizes that in the course of (i) the conversion of the Aircraft from a passenger configuration to a cargo configuration and (ii) the transition of the Aircraft from the Swissair Maintenance Program to FedEx's FAA-approved maintenance program, issues will arise in which Flightlease may possess information and expertise regarding the Aircraft that FedEx would find useful, Aircraft Records or Engine Records that may be necessary to the transition of the Aircraft to FedEx's maintenance program, and other knowledge that will be useful to FedEx in connection with such activities. Subject to any restrictions on the disclosure of confidential information and consistent with the protection of its confidential information and proprietary information, including, without limitation, any trade secrets, Flightlease agrees to cooperate with FedEx and to assist FedEx by providing such confidential, proprietary and trade secret information pursuant to a mutually acceptable non-disclosure agreement and any non-confidential information regarding the Aircraft that Flightlease may possess which would be helpful to FedEx in achieving its goals. Flightlease also agrees to meet with representatives of FedEx and the FAA at mutually agreeable times and locations to discuss the Aircraft and Swissair's maintenance of the Aircraft. In no event shall the assistance to be provided by Flightlease to FedEx require the incurrence by Flightlease of more than nominal expense. (b) Flightlease will provide to FedEx a supplemental type certificate (a "STC") and the substantiating data covering any modification of an Aircraft or Engine or Spare Engine that is delivered to FedEx by Flightlease pursuant to this Agreement if that modification is designed by Flightlease. FedEx may use such STC to make the same modification covered by the STC to any other McDonnell Douglas Model MD-11 aircraft owned and operated by FedEx. Flightlease will not charge FedEx for the use of such a STC by FedEx on any of FedEx's McDonnell Douglas Model MD-11 aircraft. ARTICLE 17 MISCELLANEOUS Section 17.01. Notices. Unless otherwise specified in writing by the affected Party, all notices, approvals, requests, consents and other communications given pursuant to this Agreement shall be in writing in the English language and shall be deemed effective when received if hand- 27 delivered, sent by facsimile (which facsimile shall be confirmed by the executed counterpart thereof being sent by another means for giving notice specified herein), Federal Express priority service or sent by United States or Swiss certified or registered mail, addressed as follows: If to Flightlease: Flightlease, LTD DYPT CH-8058 Zurich-Airport SWITZERLAND Attention: Head of Aircraft Trading Telephone No. 41-1-812-3419 Facsimile No. 41-1-812-9813 If to SR Technics: SR Technics c/o Flightlease, LTD DYPT CH-8058 Zurich-Airport SWITZERLAND Attention: Head of Aircraft Trading Telephone No. 41-1-812-3419 Facsimile No. 41-1-812-9813 If to FedEx: Federal Express Corporation 2005 Corporate Avenue Memphis, Tennessee 38132 Attention: Vice President, Fleet Development and Acquisitions Telephone No. (901) 395-3830 Facsimile No. (901) 395-3828 Section 17.02. Exhibits. All exhibits described in this Agreement shall be deemed to be incorporated and made a part of this Agreement, except that if there is any inconsistency between this Agreement and the provisions of any Exhibit, the provisions of this Agreement shall control. Section 17.03. Assignments. This Agreement and the rights and obligations hereunder, may be assignable or delegable in whole or in part, absolutely or by way of security, by either Party upon prior written notification to the non- assigning Party PROVIDED, HOWEVER, the assigning Party shall remain primarily liable for its obligations under this Agreement, with such continuing obligations to be evidenced by such agreements and instruments as the non- assigning Party may reasonably request. Section 17.04. No Offset. The amounts payable by either Party to the other Party under this Agreement shall be absolute and unconditional and shall not be subject to any abatement, reduction, set off, defense, counterclaim or recoupment of or by the Party obligated to make such payment as a result of any claim, cause of action or other rights that such Party may have against the other Party. Section 17.05. Binding Effect. This Agreement and the rights and obligations of the Parties hereunder, shall be binding upon and inure to the benefit of each of the Parties, their respective permitted successors, assigns and legal representatives. 28 Section 17.06. Applicable Law and Jurisdiction. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without regard to the laws of conflict of laws of the State of New York. Further, the Parties irrevocably consent to the exclusive jurisdiction of the appropriate United States District Court located in the State of New York for the resolution of any disputes which may arise hereunder. Section 17.07. Entire Agreement. This Agreement shall constitute the entire agreement between the Parties with respect to the transactions contemplated herein and shall not in any manner be supplemented, amended or modified except by a written instrument executed on behalf of each of the Parties by their duly authorized representatives. Section 17.08. Expenses. Each of the Parties hereto shall be responsible for its own costs and expenses incurred in connection with the negotiation, preparation and execution of this Agreement. Section 17.09. Counterparts. This Agreement may be executed in separate counterparts, each of which when so executed shall be deemed to be an original and which, taken together, shall constitute one and the same instrument. Section 17.10. Brokers' Commissions. Each of FedEx and Flightlease represent to the other Party that each has negotiated this Agreement directly with the other and that no brokers are entitled to a commission as a result of their actions. FedEx and Flightlease agree to indemnify and hold one another harmless from and against all claims, demands, liabilities, damages, losses or judgments which may be suffered by the other and which arise out of the actions of or employment by the other with any agent or broker. Section 17.11. No Remedy Exclusive. Except as expressly set forth herein, no remedy herein conferred upon or reserved to a Party herein is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and in addition to every other remedy given under this Agreement or now or hereafter existing at law, in equity or by statute. Except as expressly set forth herein, no delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle a Party to exercise any remedy reserved to it in this Agreement, it shall not be necessary to give any notice other than such notice as may be herein expressly required. Section 17.12. Severability. If any provision of this Agreement or any application of any provision of this Agreement to any person or circumstances shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of that provision to other persons or circumstances shall not be affected by the invalidity or unenforceability of the provision generally or as to any person or circumstance. The other provisions of this Agreement shall be enforced to the greatest extent permitted by applicable law and in a manner to give effect to the intent of the Parties to the greatest extent possible. 29 Section 17.13 Survival of Provisions. The rights, benefits and obligations of the Parties under Section 3.08, Section 3.09, Article 5, Article 6, Article 8, Article 10, Article 11, Article 12, Article 13, Article 15, Article 16, and Sections 17.06 and 17.10 shall survive the completion of THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK 30 performance of this Agreement and its termination or expiration and continue in full force and effect thereafter in accordance with their respective terms. IN WITNESS WHEREOF, Flightlease and FedEx do hereby execute this Agreement on the day and year first above written. FEDERAL EXPRESS CORPORATION Approved By:/s/James R. Parker As to Legal Form -------------------------------------- KHS 4-21-98 Name: James R. Parker Legal Dept Title: Vice President-Fleet Development & Acquisitions FLIGHTLEASE, LTD By: /s/ Ph. Bruggisser -------------------------------------- Name: Title: Chairman By: /s/ Peter Gysel -------------------------------------- Name: Title: Exec. VP Aircraft Purchasing & Sales JOINDER OF SR TECHNICS In consideration of the purchase of the Aircraft by FedEx, SR Technics hereby executes and delivers this Agreement to FedEx and to Flightlease in order to evidence its consent to the matters set forth in this Agreement as such matters relate to SR Technics and agrees to be unconditionally and absolutely be bound by the terms and conditions set forth therein, but only to the extent such matters directly relate to SR Technics. SR TECHNICS By: /s/ P. Truniger -------------------------------------- Name: Title: V P Engine Maintenance /s/ H. Weder H. Weder V P Material 5/29/98 31 EXHIBIT A TO THE AIRCRAFT SALES AGREEMENT BETWEEN FEDERAL EXPRESS CORPORATION ("FEDEX") AND FLIGHTLEASE, LTD ("FLIGHTLEASE") DATED AS OF APRIL 21, 1998 (THE "AGREEMENT") AIRCRAFT SUBJECT TO AIRCRAFT PURCHASE AGREEMENT The McDonnell Douglas Model MD-11 aircraft bearing the following Manufacturer's Serial Numbers: 48443, 48444, 48445, 48446, 48447, 48448, 48452, 48453, 48454, 48455, 48456, 48457, 48539, 48540, 48634, 48484, 48485, 48486, 48538, 48541 SPARE ENGINES SUBJECT TO AIRCRAFT PURCHASE AGREEMENT One (1) Spare Engine shall be delivered with each of the Aircraft to be delivered to FedEx on August 1, 2002; March 1, 2003; September 1, 2003; April 1, 2004; October 1, 2004; October 1, 2005; August 1, 2006 and November 1, 2006. A-1 EXHIBIT B TO THE AIRCRAFT SALES AGREEMENT BETWEEN FEDERAL EXPRESS CORPORATION ("FEDEX") AND FLIGHTLEASE, LTD ("FLIGHTLEASE") DATED AS OF APRIL 21, 1998 (THE "AGREEMENT") AIRCRAFT DELIVERY CERTIFICATE This Aircraft Delivery Certificate is given by Flightlease, LTD ("Flightlease") and Federal Express Corporation ("FedEx") pursuant to the Agreement. Any capitalized term used herein and not expressly defined herein shall have the meaning ascribed to it in the Agreement. TENDER OF THE AIRCRAFT BY FLIGHTLEASE. Flightlease hereby tenders to FedEx for Delivery pursuant to the terms and subject to the conditions of the Agreement, the McDonnell Douglas Model MD-11 Aircraft described below: Registration Number: __________________ Manufacturer's Serial Number: ________________ Fuselage or Line Number: ______________________ along with three (3) Pratt & Whitney PW4462 [PW4460] engines, bearing Manufacturer's Serial Numbers: Position (1)________ Position (2)________ Position (3)________ (the "Delivered Aircraft") with the operating times and cycles as accumulated on the Aircraft up to the time of Delivery, together with the Aircraft Records, listed on Exhibit D to the Agreement. Flightlease hereby restates and confirms each of its representations and warranties set forth in Section 5.01 of the Agreement. ___ US gallons of fuel on board acquired by Flightlease at $___ per US gallon. Tender of the Aircraft is made by Flightlease at __________________________, at _______/a.m./p.m. ____________ time, on this ____ day of _____________________, _____. FLIGHTLEASE, LTD By:_______________________________ Name:_____________________________ Title:______________________________ B-1 ACCEPTANCE OF THE AIRCRAFT BY FEDEX. FEDERAL EXPRESS CORPORATION ("FedEx") hereby accepts and acknowledges receipt of the Delivered Aircraft from Flightlease, in accordance with the terms and conditions of the Agreement, at ______________________, at _________/a.m./p.m. ____________ time, on ________________, __________, together with the Aircraft Records listed in Exhibit D to the Agreement. By its execution and delivery of this Certificate, FedEx hereby (i) restates and confirms each of its representations and warranties set forth in Section 5.03 of the Agreement and (ii) acknowledges and agrees that upon delivery by Flightlease to FedEx, except as to those discrepancies expressly set forth in Attachment 1 and Attachment 2 to this certificate, the Delivered Aircraft was in Delivery Condition. FEDERAL EXPRESS CORPORATION By:__________________________________ Name:________________________________ Title:_________________________________ DISCREPANCIES FROM DELIVERY CONDITION. Flightlease and FedEx hereby agree that the remaining discrepancy or discrepancies of the Delivered Aircraft from the Delivery Condition, if any, and the manner of, and deadline for, the correction of any such discrepancy or discrepancies are as set forth in Attachment 2 hereto. Dated: ______________________, __________. FLIGHTLEASE, LTD By:_______________________________ Name:_____________________________ Title:______________________________ FEDERAL EXPRESS CORPORATION By:__________________________________ Name:________________________________ Title:_________________________________ B-2 ATTACHMENT 1 TO AIRCRAFT DELIVERY CERTIFICATE AIRCRAFT HOURS AND CYCLES AS OF_________________,________ MCDONNELL DOUGLAS MODEL MD-11 AIRCRAFT REGISTRATION NUMBER: _______; FUSELAGE OR LINE NUMBER ____; MANUFACTURER'S SERIAL NUMBER ____________ A. AIRFRAME: TOTAL SINCE TO NEXT NEW C CHECK FLIGHT HOURS __________ __________ FLIGHT CYCLES __________ __________ CALENDAR TIME __________ __________ B. PRATT & WHITNEY PW4462 [PW4460] ENGINES: TOTAL TOTAL FLIGHT TOTAL CYCLES TOTAL TIME ENGINE MANUFACTURER'S FLIGHT CYCLES HOURS SINCE SINCE LAST SINCE LAST POSITION SERIAL NUMBER SINCE NEW NEW OVERHAUL OVERHAUL - -------- ------------- --------- --- -------- -------- 1 ____________ _________ ___________ ________ ________ 2 ____________ _________ ___________ ________ ________ 3 ____________ _________ ___________ ________ ________ The flight cycles or flight hours remaining to the limitation on each life limited part in each Engine are as set forth in Annex 1 to this Attachment 1 to the Aircraft Delivery Certificate. C. LANDING GEAR TOTAL TOTAL CYCLES TOTAL DAYS MANUFACTURER'S FLIGHT CYCLES TOTAL DAYS TO TO NEXT POSITION SERIAL NUMBER SINCE NEW SINCE NEW NEXT OVERHAUL OVERHAUL Nose ____________ _________ ___________ ________ ________ Left Main ____________ _________ ___________ ________ ________ Center Main____________ _________ ___________ ________ ________ Right Main ____________ _________ ___________ ________ ________ B-3 D. AUXILIARY POWER UNIT APU INSTALLED IN THE DELIVERED AIRCRAFT: MANUFACTURER'S SERIAL NUMBER _____________________ NUMBER OF FLIGHT CYCLES SINCE NEW _____________________ NUMBER OF FLIGHT HOURS SINCE NEW _____________________ LIFE LIMITED PARTS CONTAINED IN SUCH APU:
MANUFACTURER'S TOTAL FLIGHT TOTAL FLIGHT NUMBER OF CYCLES OR SERIAL CYCLES SINCE HOURS SINCE HOURS REMAINING TO FIRST LIFE PART DESCRIPTION NUMBER NEW NEW LIMITED PART REMOVAL - ------------------------------------ -------------- ------------ ------------ ----------------------------- First Stage Low Pressure Compressor -------------- ------------ ------------ ----------------------------- Second Stage Low Pressure Compressor -------------- ------------ ------------ ----------------------------- Third Stage Low Pressure Compressor -------------- ------------ ------------ ----------------------------- High Pressure Turbine -------------- ------------ ------------ ----------------------------- First Stage Low Pressure Turbine -------------- ------------ ------------ ----------------------------- Second Stage Low Pressure Turbine -------------- ------------ ------------ -----------------------------
Dated:__________________________, _________. FLIGHTLEASE, LTD By: ________________________________ Name: ______________________________ Title: _______________________________ B-4 ANNEX 1 TO ATTACHMENT 1 AIRCRAFT DELIVERY CERTIFICATE PW4460/PW4462 LIFE LIMITED PARTS REPORT ENGINE POSITION ________ ENGINE SERIAL NO._________
- -------------------------------------------------------------------------------------------------------- PART PART SERIAL TIME CYCLES CYCLE CYCLES NAME NUMBER NUMBER SINCE NEW SINCE NEW LIMIT REMAINING - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- FAN MODULE - -------------------------------------------------------------------------------------------------------- Cone Segment, Compressor Inlet - -------------------------------------------------------------------------------------------------------- Coupling, Turbine Shaft - -------------------------------------------------------------------------------------------------------- Shaft, L.P.C. Drive Turbine - -------------------------------------------------------------------------------------------------------- Airseal, L.P.T. Stg. 3 - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- LOW COMPRESSOR MODULE - -------------------------------------------------------------------------------------------------------- Hub, Front Compressor - -------------------------------------------------------------------------------------------------------- Disc, Drum Rotor - -------------------------------------------------------------------------------------------------------- Disc, L.P.C. Stg. 1.6 - -------------------------------------------------------------------------------------------------------- Disc, L.P.C. Stg. 2 - -------------------------------------------------------------------------------------------------------- Disc, L.P.C. Stg. 3 - -------------------------------------------------------------------------------------------------------- Disc, L.P.C. Stg. 4 - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- HIGH COMPRESSOR MODULE - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 5 - -------------------------------------------------------------------------------------------------------- Hub, H.P.C. Front - -------------------------------------------------------------------------------------------------------- Disc, Drum Rotor Front - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 6 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 7 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 8 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 9 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 10 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 11 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 12 - -------------------------------------------------------------------------------------------------------- Disc, Drum Rotor Rotor - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 13 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 14 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 15 - -------------------------------------------------------------------------------------------------------- Shaft, H.P.C. Drive Turbine - -------------------------------------------------------------------------------------------------------- Hub, H.P.C. Rear - -------------------------------------------------------------------------------------------------------- Airseal, Diffuser - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- HIGH PRESSURE TURBINE MODULE - -------------------------------------------------------------------------------------------------------- Hub, Turbine Front - -------------------------------------------------------------------------------------------------------- Airseal, H.P.T. Stg. 1 - -------------------------------------------------------------------------------------------------------- Airseal, H.P.T. Stg. 2 - -------------------------------------------------------------------------------------------------------- Ring, H.P.T. Stg. 1 - -------------------------------------------------------------------------------------------------------- Hub, Turbine Inter. Rear - -------------------------------------------------------------------------------------------------------- Plate, H.P.T. Blade, Retaining - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- LOW PRESSURE TURBINE MODULE - -------------------------------------------------------------------------------------------------------- Airseal, L.P.T. Stg. 3 - -------------------------------------------------------------------------------------------------------- Disc, L.P.T. Stg. 3 - -------------------------------------------------------------------------------------------------------- Airseal, L.P.T. Stg. 4 - -------------------------------------------------------------------------------------------------------- Disc, L.P.T. Stg. 4 - -------------------------------------------------------------------------------------------------------- Airseal, L.P.T. Stg. 5 - -------------------------------------------------------------------------------------------------------- Hub, Turbine Rear - -------------------------------------------------------------------------------------------------------- Disc, L.P.T. Stg. 6 - --------------------------------------------------------------------------------------------------------
B-5 ATTACHMENT 2 TO AIRCRAFT DELIVERY CERTIFICATE DISCREPANCIES OF DELIVERED AIRCRAFT FROM DELIVERY CONDITION Any capitalized term used herein and not expressly defined herein shall have the meaning ascribed to it in the Agreement. The following remaining discrepancy or discrepancies from Delivery Condition exist with respect to the Delivered Aircraft (as defined in the Aircraft Delivery Certificate of which this Attachment 2 is a part): Flightlease and FedEx have agreed that the foregoing discrepancy or discrepancies will be corrected in the following manner and by the following date or dates: Dated: __________________________, _______. FLIGHTLEASE, LTD By:_______________________________ Name:_____________________________ Title:______________________________ FEDERAL EXPRESS CORPORATION By:__________________________________ Name:________________________________ Title:_________________________________ B-6 EXHIBIT C-1 TO THE AIRCRAFT SALES AGREEMENT BETWEEN FEDERAL EXPRESS CORPORATION ("FEDEX") AND FLIGHTLEASE, LTD ("FLIGHTLEASE") DATED AS OF APRIL 21, 1998 (THE "AGREEMENT") AIRCRAFT WARRANTY BILL OF SALE KNOW ALL MEN BY THESE PRESENTS: THAT the undersigned, FLIGHTLEASE, LTD., a corporation organized and existing under the laws of Switzerland ("Transferor"), has the power and right to convey the legal and beneficial title to that certain McDonnell Douglas MD-11 aircraft bearing Swiss Registration Number _________ and Manufacturer's Serial Number _______________, together with three (3) Pratt & Whitney PW4460 [OR PW4462] turbofan jet engines installed thereon, bearing Manufacturer's Serial Numbers _______________, ______________, and _____________, together with all fixed equipment, parts, components and accessories installed on said aircraft and engines (collectively the "Aircraft"). THAT for and in consideration of the sum of Ten Dollars ($10) and other valuable consideration, Transferee does, this ____ day of ________________, 200__, grant, convey, transfer, bargain, sell, deliver and set over all of its rights, title and interests to and in the Aircraft unto FEDERAL EXPRESS CORPORATION, a Delaware corporation ("Transferee"). Transferor hereby warrants to Transferee, its successors and assigns, that there is hereby conveyed to Transferee title to the Aircraft free and clear of all liens, encumbrances and rights of others arising by, through or under Transferor and that it shall warrant and defend such title forever against all claims and demands whatsoever; and that this bill of sale is made and delivered pursuant to the provisions of the Aircraft Sales Agreement between Transferor and Transferee, dated as of April 21, 1998. The matters set forth in this Bill of Sale shall be governed by and in accordance with the laws of the State of New York. IN WITNESS WHEREOF, Transferor has executed this Warranty Bill of Sale on the _____ day of __________________________, __________. FLIGHTLEASE, LTD. By: ___________________________ Name: _________________________ Title: __________________________ C-1 EXHIBIT C-2 TO THE AIRCRAFT SALES AGREEMENT BETWEEN FEDERAL EXPRESS CORPORATION ("FEDEX") AND FLIGHTLEASE, LTD ("FLIGHTLEASE") DATED AS OF APRIL 21, 1998 (THE "AGREEMENT") SPARE ENGINE WARRANTY BILL OF SALE KNOW ALL MEN BY THESE PRESENTS: THAT the undersigned, FLIGHTLEASE, LTD., a corporation organized and existing under the laws of Switzerland ("Transferor"), has the power and right to convey the legal and beneficial title to that certain Pratt & Whitney PW4460 [OR PW4462] turbofan jet engine, bearing Manufacturer's Serial Number _____, together with all fixed equipment, parts, components and accessories installed on said engine (the "Engine"). THAT for and in consideration of the sum of Ten Dollars ($10) and other valuable consideration, Transferee does, this ____ day of ________________, 200__, grant, convey, transfer, bargain, sell, deliver and set over all of its rights, title and interests to and in the Engine unto FEDERAL EXPRESS CORPORATION, a Delaware corporation ("Transferee"). Transferor hereby warrants to Transferee, its successors and assigns, that there is hereby conveyed to Transferee title to the Engine free and clear of all liens, encumbrances and rights of others arising by, through or under Transferor and that it shall warrant and defend such title forever against all claims and demands whatsoever; and that this bill of sale is made and delivered pursuant to the provisions of the Aircraft Sales Agreement between Transferor and Transferee, dated as of April 21, 1998. The matters set forth in this Bill of Sale shall be governed by and in accordance with the laws of the State of New York. IN WITNESS WHEREOF, Transferor has executed this Warranty Bill of Sale on the _____ day of __________________________, __________. FLIGHTLEASE, LTD. By: ___________________________ Name: _________________________ Title: __________________________ C-2 EXHIBIT D TO THE AIRCRAFT SALES AGREEMENT BETWEEN FEDERAL EXPRESS CORPORATION ("FEDEX") AND FLIGHTLEASE, LTD ("FLIGHTLEASE") DATED AS OF APRIL 21, 1998 (THE "AGREEMENT") DATA RELATING TO THE AIRCRAFT AND ENGINES TO BE DELIVERED BY FLIGHTLEASE TO FEDEX Original or copies of the following items of Data will be supplied in the English language on the specified medium or on microfiche, microfilm, paper, disk or any then current medium or a combination of these media, with revision updates revised as of the applicable Delivery Dates. The required certifications for Aircraft time and cycles, life-limited parts, Airworthiness Directives and hard-time components for Airframes, Engines and APUs shall be signed by a manager or higher management personnel in the Airworthiness, Quality Assurance, Quality Control or Aircraft/Powerplant Records department of Swissair or Flightlease, as applicable. Any required certification of any item of Data shall be in the form attached as Appendix 1 to this Exhibit D. MANUALS: 1. FAA Approved Aircraft Flight Manual 2 Swissair Flight Operations Manual 3. Aircraft Maintenance Manual 4. Aircraft Overhaul Manual 5. Aircraft Wiring Manual 6. Aircraft Structure Repair Manual 7. Aircraft Illustrated parts Catalog 8. Aircraft Weight and Balance Manual, Loading Manual, Basic & Supplemental 9. McDonnell Douglas Procedure for Actual Weighing/Balancing MD-11 Series Aircraft 10. Aircraft Minimum Equipment 11. Original Delivery Equipment List (packing sheets) 12. McDonnell Douglas Aircraft Detail Specification 13. Swissair Regulatory Authority Approved Aircraft Maintenance Program 14. Swissair Maintenance Planning Documents 15. Swissair Component Maintenance Program 16. Swissair Component Maintenance Manuals 17. Aircraft Interior Configuration (L.O.P.A.) 18. Hard copy of all Engineering orders pertaining to MD-11 Aircraft 19. Supplemental Type Certificates. (Airframe, Engine and APU) and the related substantiating data. D-1 Page 2 Exhibit D 20. Substantiating Data relating to any modifications, alterations or repairs to the Airframe, Engines, APU and any Components (Parts) suitable for installation and use on the Airframe, Engines or APU 21. Cross Reference, Swissair Part Numbers versus Manufacturers Part Numbers 22. Swissair Engine Heavy Maintenance Program 23. Swissair Engine Build Specifications 24. Swissair Engine Maintenance Program (on wing) 25. Swissair Powerplant Build-up Manual 26. Swissair Pratt & Whitney 4000 Component Maintenance Manuals - All Chapters 27. Pratt & Whitney 4000 Engine Manual, Part Number 50A824 28. Engine Standard Practices Manual, part Number 585005 29. Engine facility Planning Manual, Part Number 50A442 30. Pratt & Whitney 4000 Illustrated Parts Manual, Part Number 50A824 31. Engine Support Equipment Numerical Index, Part Number 50A738 32. Engine Parts Application Manual, Part Number 51A072 33. Engine Cleaning/Inspection/Repair Manual, Part Number 51A009 34. Engine Service Bulletin Manual and P&W 4000 EMP 35. Swissair APU Heavy Maintenance Program 36. Swissair APU Build Specifications 37. Swissair APU Maintenance Program (in service) 38. APU Maintenance Manual 39. APU Illustrated Part Catalog 40. APU Wiring Diagram Manual DOCUMENTS: 1. Certificate of Airworthiness 2. Certificate of Registration DRAWINGS/CHARTS: 1. Fuel Distribution Chart, Compass Correction Card, and Major Avionic List. D-2 Page 3 Exhibit D RECORDS: AIRCRAFT: 1. Aircraft Weight and Balance Report 2. Aircraft Historical Flight Logs with certification per attached Appendix I 3. Aircraft Historical Maintenance Records 4. Aircraft Engineering Order (EO) Completion List 5. Aircraft EOs Confirming AD Compliance, including method of compliance and any alternate means of compliance with certification per attached Appendix I 6. Aircraft Service Bulletin Compliance List 7. Aircraft Incident and Accident Reports, if none a letter stating the Aircraft has not been in any incidents or accidents 8. Aircraft Time Log Report or similar documentation (Aircraft, Engines, APU and Components) with certification per attached Appendix I 9. Aircraft Life Limited Parts List 10. Airframe and Landing Gear Life-Limited Parts Records (including tags and tear-down reports) with certification per attached Appendix I 11. Aircraft Flying Components/Parts listing including Part Number, Serial Number and Installation location (if available) 12. Aircraft Airworthiness Directive (AD) Status Report with certification per attached Appendix I, including accomplishment documents for the last action taken complete with parts tags and tear-down reports where applicable 13. Data packages on all major repairs and alterations including manufacturer and regulatory authority approvals/authorizations 14. Listing and summary description, in English of all non-routines, including non-routine number and description of discrepancy, generated during last "C" Check/Transition Maintenance Check performed prior to delivery of each aircraft to FedEx. ENGINE: 1. Engines Historical Maintenance Records 2. Engines Trend Monitoring Records (last 30 days) 3. Engine Life-Limited Parts List (back-to-birth records) with certification per attached Appendix I 4. Engine Life-Limited Parts Records (including tags and Shop Findings Reports) D-3 Page 4 Exhibit D 5. Engine Accessories/component List, including Part Numbers, Serial Number, Time Since New (TSN), Time Since Installation (TSI) and Time Since Overhaul (TSO) 6. Engine Engineering Order (EO) Completion List, including method of compliance and any alternate means of compliance 7. Engine EOs Confirming AD Compliance 8. Engine Service Bulletin Compliance List 9. Engine Airworthiness Directive (AD) Status report with certification per attached Appendix I, including accomplishment documents for the last action taken complete with parts tags and tear-down reports where applicable APU: 1. APU Historical Records including last shop visit 2. APU Life-Limited Parts List with certification per attached Appendix I 3. APU Airworthiness Directive (AD) Status Report and method of compliance with certification per attached Appendix I, including accomplishment documents for the last action taken complete with parts tags and tear-down reports where applicable 4. APU Service Bulletin Compliance List 5. APU Life-Limited Parts Records (including tags and Shop Findings Reports) 6. Engineering Order (EO) Completion List, including method of compliance and any alternate means of compliance 7. Engineering Orders Confirming AD Compliance 8. APU Accessories/Component List, including Part Number, Serial Number, Time Since New (TSN), Time Since Installation (TSI) and Time Since Overhaul (TSO). D-4 APPENDIX I AIRCRAFT REGISTRATION NO. ________ MANUFACTURER'S SERIAL NO. ________ DATE ______________________ (TITLE) I HEREBY CERTIFY THAT THIS IS A TRUE AND ACCURATE RECORD TO THE BEST OF MY KNOWLEDGE. - --------------------------- -------------------------- SIGNATURE DATE - --------------------------- -------------------------- PRINTED NAME TITLE - --------------------------- -------------------------- COMPANY NAME COMPANY CERTIFICATE TYPE - --------------------------- COMPANY CERTIFICATE NUMBER D-5 EXHIBIT E TO THE AIRCRAFT SALES AGREEMENT BETWEEN FEDERAL EXPRESS CORPORATION ("FEDEX") AND FLIGHTLEASE, LTD ("FLIGHTLEASE") DATED AS OF APRIL 21, 1998 (THE "AGREEMENT") DESIGNATION OF AN AIRFRAME FOR DELIVERY ON SCHEDULED DELIVERY DATE Any capitalized term used herein shall have the meaning ascribed to it in the Agreement. 1. The Scheduled Delivery Date for which the Designated Airframe (as defined below) is being designated is ________________________________. 2. The following are the identification numbers of the Airframe designated for delivery on the Scheduled Delivery Date set forth in Paragraph 1. above (the "Designated Airframe"): Registration Number: _____________________ Manufacturer's Serial Number: ________________ Fuselage or Line Number: ____________________ 3. The total flight hours and flight cycles on the Designated Airframe since delivery of the Designated Airframe by the Manufacturer to Flightlease and the number of flight hours and flight cycles remaining on the Designated Airframe to certain C Checks as of the date and time of this Designation are as follows: Total Since To Next New C Check Flight Hours ___________ ___________ Flight Cycles ___________ ___________ Calendar Time ___________ ___________ 4. The total flight hours and flight cycles remaining to the next major overhaul of each of the Gears that are installed on the Designated Airframe at the date and time of this Designation are as follows:
TOTAL MANUFACTURER'S SERIAL FLIGHT CYCLES TOTAL DAYS SINCE TOTAL CYCLES TO TOTAL DAYS TO POSITION NUMBER SINCE NEW NEW NEXT OVERHAUL NEXT OVERHAUL -------- ------ --------- --- ------------- ------------- Nose ____________ __________ ___________ ____________ ___________ Left Main ____________ __________ ___________ ____________ ___________ Center Main ____________ __________ ___________ ____________ ___________ Right Main ____________ __________ ___________ ____________ ___________
E-1 5. The total flight hours or flight cycles since new for (x) the APU installed on the Designated Airframe and (y) the Life Limited Parts contained in such APU and the flight cycles or flight hours remaining to the first limit of the Life Limited Parts contained in the APU installed on the Designated Airframe at the date and time of this Designation are as follows : APU installed on the Designated Airframe: Manufacturer's Serial Number ____________________ Number of Flight Cycles Since New _____________________ Number of Flight Hours Since New _____________________ Life Limited Parts contained in such APU:
MANUFACTURER'S TOTAL FLIGHT TOTAL FLIGHT NUMBER OF CYCLES OR SERIAL CYCLES SINCE HOURS SINCE HOURS REMAINING TO FIRST PART DESCRIPTION NUMBER NEW NEW LIFE LIMITED PART REMOVAL - ------------------------------------ -------------- ------------ -------------- ------------------------- First Stage Low Pressure Compressor ______________ ____________ ______________ ____________ Second Stage Low Pressure Compressor ______________ ____________ ______________ ____________ Third Stage Low Pressure Compressor ______________ ____________ ______________ ____________ High Pressure Turbine ______________ ____________ ______________ ____________ First Stage Low Pressure Turbine ______________ ____________ ______________ ____________ Second Stage Low Pressure Turbine ______________ ____________ ______________ ____________
6. The estimated usage of the Aircraft from the date of this Designation until the Scheduled Delivery Date is __________________ flight cycles and _____________ flight hours. This Designation is made by Flightlease on the ____ day of _____________, _____ at _________, [a.m.] [p.m.], _______________________ time. FLIGHTLEASE, LTD By: ________________________ Name: ______________________ Title: _______________________ E-2 EXHIBIT F TO THE AIRCRAFT SALES AGREEMENT BETWEEN FEDERAL EXPRESS CORPORATION ("FEDEX") AND FLIGHTLEASE, LTD ("FLIGHTLEASE") DATED AS OF APRIL 21, 1998 (THE "AGREEMENT") DESIGNATION OF A SUBSTITUTE AIRFRAME FOR DELIVERY ON SCHEDULED DELIVERY DATE 1. This Designation of a Substitute Airframe for delivery on a Scheduled Delivery Date (this "Change Designation") is being provided by Flightlease to FedEx in order to designate an Airframe for delivery on the Scheduled Delivery Date indicated below in substitution for an Airframe previously designated by Flightlease for delivery to FedEx on such Scheduled Delivery Date (the "Previously Designated Airframe"). Any capitalized term not expressly defined herein shall have the meaning ascribed to it in the Agreement. 2. The Scheduled Delivery Date for which the Previously Designated Airframe was to be delivered and for which the Substitute Airframe (as defined below) is now being designated for delivery and sale to FedEx is ______________. 3. The following are the identification numbers of the Previously Designated Airframe: Registration Number: _________________________ Manufacturer's Serial Number: _______________________________ Nose Number: __________________________ Fuselage or Line Number: ___________________________ 4. The following are the identification numbers of the Airframe being substituted for the Previously Designated Airframe which is hereby designated for delivery on the Scheduled Delivery Date set forth in Paragraph 2. above in the stead of the Previously Designated Airframe (the "Substitute Airframe"): Registration Number: __________________________ Manufacturer's Serial Number: _________________________________ Nose Number: ________________________ Fuselage or Line Number: _________________________ 5. The total flight hours and flight cycles on the Designated Airframe since delivery of the Designated Airframe by the Manufacturer to Flightlease and the number of flight hours and flight cycles remaining on the Designated Airframe to certain C Checks as of the date and time of this Designation are as follows: F-1 Total Since To Next New C Check Flight Hours ___________ ___________ Flight Cycles ___________ ___________ Calendar Time ___________ ___________ 6. The total flight hours and flight cycles remaining to the next major overhaul of each of the Gears that are installed on the Designated Airframe at the date and time of this Designation are as follows:
TOTAL MANUFACTURER'S SERIAL FLIGHT CYCLES TOTAL DAYS SINCE TOTAL CYCLES TO TOTAL DAYS TO POSITION NUMBER SINCE NEW NEW NEXT OVERHAUL NEXT OVERHAUL Nose ____________ __________ ___________ ____________ ___________ Left Main ____________ __________ ___________ ____________ ___________ Center Main _____________ __________ ___________ ____________ ___________ Right Main _____________ __________ ___________ ____________ ___________
7. The total flight hours or flight cycles since new for (x) the APU installed on the Designated Airframe and (y) the Life Limited Parts contained in such APU and the flight cycles or flight hours remaining to the first limit of the Life Limited Parts contained in the APU installed on the Designated Airframe at the date and time of this Designation are as follows: APU installed on the Designated Airframe: Manufacturer's Serial Number _____________________ Number of Flight Cycles Since New _____________________ Number of Flight Hours Since New _____________________ F-2 Life Limited Parts contained in such APU:
MANUFACTURER'S TOTAL FLIGHT TOTAL FLIGHT NUMBER OF CYCLES OR SERIAL CYCLES SINCE HOURS SINCE HOURS REMAINING TO FIRST PART DESCRIPTION NUMBER NEW NEW LIFE LIMITED PART REMOVAL - ------------------------------------ -------------- ------------ -------------- ------------------------- First Stage Low Pressure Compressor ______________ ____________ ______________ ____________ Second Stage Low Pressure Compressor ______________ ____________ ______________ ____________ Third Stage Low Pressure Compressor ______________ ____________ ______________ ____________ High Pressure Turbine ______________ ____________ ______________ ____________ First Stage Low Pressure Turbine ______________ ____________ ______________ ____________ Second Stage Low Pressure Turbine ______________ ____________ ______________ ____________
8. The estimated usage of the Aircraft from the date of this Designation until the Scheduled Delivery Date is __________________ flight cycles and _____________ flight hours. This Designation is made by Flightlease on the ____ day of _____________, _____ at _________, [a.m.] [p.m.], _______________________ time. FLIGHTLEASE, LTD By: ________________________ Name: ______________________ Title: _______________________ F-3 EXHIBIT G TO THE AIRCRAFT SALES AGREEMENT BETWEEN FEDERAL EXPRESS CORPORATION ("FEDEX") AND FLIGHTLEASE, LTD ("FLIGHTLEASE") DATED AS OF APRIL 21, 1998 (THE "AGREEMENT") FORM OF ASSIGNMENT OF WARRANTIES In connection with delivery of the Aircraft, Spare Part or Spare Engine (as applicable) described in Annex A hereto by Flightlease, LTD ("Flightlease") to Federal Express Corporation ("FedEx"), Flightlease hereby assigns and conveys to FedEx, its successors, assigns and legal representatives, all of Flightlease's right, title and interest in and to any and all of the manufacturer's, vendor's and other warranties relating to the Aircraft, Spare Part or Spare Engines (as applicable), but only to the extent, that such warranties are assignable (the "Warranties") and all rights to enforce, exercise any rights with respect to or retain any recovery or benefit with respect to the Warranties, including without limitation such rights and recoveries which relate to work completed or to be completed by Flightlease or any of its affiliates in connection with its performance of its obligations under the Aircraft Sales Agreement between FedEx and Flightlease dated as of April 21, 1998 (the "Agreement") prior to or in connection with the Delivery (as defined in the Agreement) of the Aircraft. Notwithstanding the foregoing, Flightlease does not assign or convey to FedEx any outstanding claims or rights, whether liquidated or contingent, or know or unknown, that it may have against the grantor of any of the Warranties arising prior to the tender of the Aircraft by Flightlease for Delivery pursuant to the Agreement. The matters set forth in this Assignment of Warranties shall be governed by and in accordance with the laws of the State of New York. Dated : ______________, _________. FLIGHTLEASE, LTD By: ____________________________ Name:__________________________ Title:___________________________ G-1 ANNEX A TO ASSIGNMENT OF ASSIGNABLE MANUFACTURER'S WARRANTIES One McDonnell Douglas Model MD-11 Aircraft described below: Registration Number: ___________________________ Manufacturer's Serial Number: ____________________ Flightlease Fuselage or Line Number: _________________ Flightlease Nose Number: ___________________________ along with three (3) Pratt & Whitney PW4462 [PW4460] engines, bearing Manufacturer's Serial Numbers: Position (1) ____________________ Position (2) ____________________ Position (3) ____________________ G-2 EXHIBIT H TO THE AIRCRAFT SALES AGREEMENT BETWEEN FEDERAL EXPRESS CORPORATION ("FEDEX") AND FLIGHTLEASE, LTD ("FLIGHTLEASE") DATED AS OF APRIL 21, 1998 (THE "AGREEMENT") DESIGNATION OF ENGINES/SPARE ENGINES FOR SCHEDULED DELIVERY DATES Any capitalized term used in this Designation of Engines/Spare Engines for conveyance on a Scheduled Delivery Date shall have the meaning ascribed to it in the Agreement unless expressly defined herein. 1. The Scheduled Delivery Date for which the Designated Airframe (as defined below) is being designated is ________________________________. 2. The following are the identification numbers of the Airframe designated for delivery on the Scheduled Delivery Date set forth in Paragraph 1. above (the "Designated Airframe"): Registration Number: _______ Manufacturer's Serial No.: _____________ Fuselage or Line Number: ________ 3. The following are the Engines to be conveyed with the Designated Airframe on the Scheduled Delivery Date set forth in Paragraph 1. above (the "Designated Engines"): PRATT & WHITNEY PW4462 [OR PW4460] ENGINES:
TOTAL FLIGHT TOTAL FLIGHT TOTAL CYCLES TOTAL TIME ENGINE MANUFACTURER'S CYCLES HOURS SINCE SINCE LAST SINCE LAST POSITION SERIAL NUMBER SINCE NEW NEW OVERHAUL OVERHAUL 1 ____________ __________ ___________ __________ ___________ 2 ____________ __________ ___________ __________ ___________ 3 ____________ __________ ___________ __________ ___________
4. The flight cycles or flight hours remaining to the limitation on each life limited part in each Engine are as set forth in Annex 1 to this Designation of Engines for Delivery on Scheduled Delivery Date. This Engine Designation is made by Flightlease on the ____ day of _____________, _____ at _________, [a.m.] [p.m.], ____________ time. FLIGHTLEASE, LTD By: _____________________________ Name: ___________________________ Title: ____________________________ H-1 ANNEX 1 TO ATTACHMENT 1 AIRCRAFT DELIVERY CERTIFICATE PW4460/PW4462 LIFE LIMITED PARTS REPORT ENGINE POSITION ________ ENGINE SERIAL NO._________
- -------------------------------------------------------------------------------------------------------- PART PART SERIAL TIME CYCLES CYCLE CYCLES NAME NUMBER NUMBER SINCE NEW SINCE NEW LIMIT REMAINING - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- FAN MODULE - -------------------------------------------------------------------------------------------------------- Cone Segment, Compressor Inlet - -------------------------------------------------------------------------------------------------------- Coupling, Turbine Shaft - -------------------------------------------------------------------------------------------------------- Shaft, L.P.C. Drive Turbine - -------------------------------------------------------------------------------------------------------- Airseal, L.P.T. Stg. 3 - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- LOW COMPRESSOR MODULE - -------------------------------------------------------------------------------------------------------- Hub, Front Compressor - -------------------------------------------------------------------------------------------------------- Disc, Drum Rotor - -------------------------------------------------------------------------------------------------------- Disc, L.P.C. Stg. 1.6 - -------------------------------------------------------------------------------------------------------- Disc, L.P.C. Stg. 2 - -------------------------------------------------------------------------------------------------------- Disc, L.P.C. Stg. 3 - -------------------------------------------------------------------------------------------------------- Disc, L.P.C. Stg. 4 - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- HIGH COMPRESSOR MODULE - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 5 - -------------------------------------------------------------------------------------------------------- Hub, H.P.C. Front - -------------------------------------------------------------------------------------------------------- Disc, Drum Rotor Front - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 6 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 7 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 8 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 9 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 10 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 11 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 12 - -------------------------------------------------------------------------------------------------------- Disc, Drum Rotor Rotor - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 13 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 14 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 15 - -------------------------------------------------------------------------------------------------------- Shaft, H.P.C. Drive Turbine - -------------------------------------------------------------------------------------------------------- Hub, H.P.C. Rear - -------------------------------------------------------------------------------------------------------- AirseaL, Diffuser - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- HIGH PRESSURE TURBINE MODULE - -------------------------------------------------------------------------------------------------------- Hub, Turbine Front - -------------------------------------------------------------------------------------------------------- Airseal, H.P.T. Stg. 1 - -------------------------------------------------------------------------------------------------------- Airseal, H.P.T. Stg. 2 - -------------------------------------------------------------------------------------------------------- Ring, H.P.T. Stg. 1 - -------------------------------------------------------------------------------------------------------- Hub, Turbine Inter. Rear - -------------------------------------------------------------------------------------------------------- Plate, H.P.T. Blade, Retaining - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- LOW PRESSURE TURBINE MODULE - -------------------------------------------------------------------------------------------------------- Airseal, L.P.T. Stg. 3 - -------------------------------------------------------------------------------------------------------- Disc, L.P.T. Stg. 3 - -------------------------------------------------------------------------------------------------------- Airseal, L.P.T. Stg. 4 - -------------------------------------------------------------------------------------------------------- Disc, L.P.T. Stg. 4 - -------------------------------------------------------------------------------------------------------- Airseal, L.P.T. Stg. 5 - -------------------------------------------------------------------------------------------------------- Hub, Turbine Rear - -------------------------------------------------------------------------------------------------------- Disc, L.P.T. Stg. 6 - --------------------------------------------------------------------------------------------------------
H-2 EXHIBIT I TO THAT CERTAIN AIRCRAFT SALES AGREEMENT BETWEEN FEDERAL EXPRESS CORPORATION ("FEDEX") AND FLIGHTLEASE, LTD ("FLIGHTLEASE") DATED AS OF APRIL 21, 1998 (THE "AGREEMENT") PURCHASE PRICE ADJUSTMENT FORMULA -- ENGINES AND SPARE ENGINES A. Any capitalized term used herein and not expressly defined herein shall have the meaning ascribed to it in the Agreement. The Engine and Spare Engine Purchase Price is subject to adjustment based on the cost per cycle derived from the following formula: ENGINE OVERHAUL COST * * ----------------------- = ---------- = PLANNED OVERHAUL CYCLES * B. The Purchase Price of each Aircraft will be adjusted for the three installed engines in accordance with the following formula to reflect the condition of the Engines at Delivery, as follows: 3,000 Cycles Since Overhaul under the Swissair Maintenance Program (ERP VI) MINUS Total Cycles Since Overhaul under the Swissair Maintenance Program (ERP VI) (3 Engines) X * US PLUS Aircraft Purchase Price C. The Purchase Price of each Spare Engine will be adjusted in accordance with the following formula to reflect the condition of the Spare Engines at Delivery: SPARE ENGINE WITH LESS THAN 1,000 CYCLES SINCE OVERHAUL UNDER SWISSAIR MAINTENANCE PROGRAM (ERP VI) Adjusted Purchase Price = [(1,000 MINUS Actual Cycles) X * US] PLUS * SPARE ENGINE WITH MORE THAN 1,000 CYCLES SINCE OVERHAUL UNDER SWISSAIR MAINTENANCE PROGRAM (ERP VI) Adjusted Purchase Price = * US MINUS [(Actual Cycles MINUS 1,000) * *Blank space contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. I-1 EXHIBIT J TO THAT CERTAIN AIRCRAFT SALES AGREEMENT BETWEEN FEDERAL EXPRESS CORPORATION ("FEDEX") AND FLIGHTLEASE, LTD ("FLIGHTLEASE") DATED AS OF APRIL 21, 1998 (THE "AGREEMENT") ENGINE AND SPARE ENGINE DELIVERY CERTIFICATE This Engine Delivery Certificate is given by Flightlease, LTD ("Flightlease") and Federal Express Corporation ("FedEx") pursuant to the Agreement. Any capitalized term used herein and not expressly defined herein shall have the meaning ascribed to it in the Agreement. TENDER OF EACH ENGINE. Flightlease hereby tenders to FedEx at ________________ for delivery pursuant to the terms and subject to the conditions of the Agreement, ______ [specify number of engines] Pratt & Whitney PW4462 [PW4460] engines, bearing Manufacturer's Serial Number(s): ________________________ ________________________ ________________________ (each a "Delivered Engine" and collectively, if applicable, the "Delivered Engines") with the operating times and cycles as accumulated on each Engine up to the time of Delivery as described on Attachment 1A hereto and made a part hereof, at _______/a.m./p.m. ____________ time, on ____________________, _________, together with any Data, listed on Exhibit D to the Agreement. Flightlease hereby restates and confirms each of its representations and warranties set forth in Article 5 of the Agreement. J-1 Tender of each Engine is made by _________________ this ____ day of _____________________, _____. FLIGHTLEASE, LTD By:______________________ Title:___________________ ACCEPTANCE OF EACH ENGINE. FedEx hereby accepts and acknowledges receipt of each Delivered Engine from Flightlease in accordance with the terms and conditions of the Agreement, which Delivered Engine or Delivered Engines has or have, as the case may be, the operating times and flight cycles as accumulated on the Aircraft up to the time of delivery as described on Attachment 1 hereto and made a part hereof, at _________, at _________/a.m./p.m. ____________ time, on ___________________, __________, together with the Data listed in Exhibit D to the Agreement. FedEx hereby restates and confirms each of its representations set forth in Article 5 of the Agreement. FedEx hereby acknowledges and agrees that upon delivery by Flightlease to FedEx, except as to those discrepancies expressly set forth in Attachment 1 to this certificate, the Delivered Engine met the requirements for the condition of the Engines upon delivery as set forth in the Agreement. Acceptance of each Delivered Engine is made by _____________________ this _____ day of ______________________, ______. FEDERAL EXPRESS CORPORATION By: ________________________________ Name: ______________________________ Title: _______________________________ J-2 ATTACHMENT 1A TO ENGINE DELIVERY CERTIFICATE ENGINE INFORMATION AS OF ___________________, ______ PRATT & WHITNEY PW4462 [OR PW4460] ENGINES:
TOTAL FLIGHT TOTAL FLIGHT TOTAL CYCLES TOTAL TIME ENGINE MANUFACTURER'S CYCLES HOURS SINCE SINCE LAST SINCE LAST POSITION SERIAL NUMBER SINCE NEW NEW OVERHAUL OVERHAUL 1 ____________ __________ ___________ __________ ___________ 2 ____________ __________ ___________ __________ ___________ 3 ____________ __________ ___________ __________ ___________
The flight cycles remaining to the limitation on each life limited part in each Engine are as set forth in Annex 1 to this Attachment 1 to the Engine Aircraft Delivery Certificate. Dated:__________________________, _________. FLIGHTLEASE, LTD By: ________________________________ Name: ______________________________ Title: _______________________________ J-3 ANNEX 1 TO ATTACHMENT 1 AIRCRAFT DELIVERY CERTIFICATE PW4460/PW4462 LIFE LIMITED PARTS REPORT ENGINE POSITION ________ ENGINE SERIAL NO._________
- -------------------------------------------------------------------------------------------------------- PART PART SERIAL TIME CYCLES CYCLE CYCLES NAME NUMBER NUMBER SINCE NEW SINCE NEW LIMIT REMAINING - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- FAN MODULE - -------------------------------------------------------------------------------------------------------- Cone Segment, Compressor Inlet - -------------------------------------------------------------------------------------------------------- Coupling, Turbine Shaft - -------------------------------------------------------------------------------------------------------- Shaft, L.P.C. Drive Turbine - -------------------------------------------------------------------------------------------------------- Airseal, L.P.T. Stg. 3 - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- LOW COMPRESSOR MODULE - -------------------------------------------------------------------------------------------------------- Hub, Front Compressor - -------------------------------------------------------------------------------------------------------- Disc, Drum Rotor - -------------------------------------------------------------------------------------------------------- Disc, L.P.C. Stg. 1.6 - -------------------------------------------------------------------------------------------------------- Disc, L.P.C. Stg. 2 - -------------------------------------------------------------------------------------------------------- Disc, L.P.C. Stg. 3 - -------------------------------------------------------------------------------------------------------- Disc, L.P.C. Stg. 4 - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- HIGH COMPRESSOR MODULE - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 5 - -------------------------------------------------------------------------------------------------------- Hub, H.P.C. Front - -------------------------------------------------------------------------------------------------------- Disc, Drum Rotor Front - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 6 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 7 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 8 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 9 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 10 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 11 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 12 - -------------------------------------------------------------------------------------------------------- Disc, Drum Rotor Rotor - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 13 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 14 - -------------------------------------------------------------------------------------------------------- Disc, H.P.C. Stg. 15 - -------------------------------------------------------------------------------------------------------- Shaft, H.P.C. Drive Turbine - -------------------------------------------------------------------------------------------------------- Hub, H.P.C. Rear - -------------------------------------------------------------------------------------------------------- AirseaL, Diffuser - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- HIGH PRESSURE TURBINE MODULE - -------------------------------------------------------------------------------------------------------- Hub, Turbine Front - -------------------------------------------------------------------------------------------------------- Airseal, H.P.T. Stg. 1 - -------------------------------------------------------------------------------------------------------- Airseal, H.P.T. Stg. 2 - -------------------------------------------------------------------------------------------------------- Ring, H.P.T. Stg. 1 - -------------------------------------------------------------------------------------------------------- Hub, Turbine Inter. Rear - -------------------------------------------------------------------------------------------------------- Plate, H.P.T. Blade, Retaining - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- LOW PRESSURE TURBINE MODULE - -------------------------------------------------------------------------------------------------------- Airseal, L.P.T. Stg. 3 - -------------------------------------------------------------------------------------------------------- Disc, L.P.T. Stg. 3 - -------------------------------------------------------------------------------------------------------- Airseal, L.P.T. Stg. 4 - -------------------------------------------------------------------------------------------------------- Disc, L.P.T. Stg. 4 - -------------------------------------------------------------------------------------------------------- Airseal, L.P.T. Stg. 5 - -------------------------------------------------------------------------------------------------------- Hub, Turbine Rear - -------------------------------------------------------------------------------------------------------- Disc, L.P.T. Stg. 6 - --------------------------------------------------------------------------------------------------------
J-4 EXHIBIT K TO THAT CERTAIN AIRCRAFT SALES AGREEMENT BETWEEN FEDERAL EXPRESS CORPORATION ("FEDEX") AND FLIGHTLEASE, LTD ("FLIGHTLEASE") DATED AS OF APRIL 21, 1998 (THE "AGREEMENT") SWISSAIR MAINTENANCE PROGRAM K-1 EXHIBIT L TO THAT CERTAIN AIRCRAFT SALES AGREEMENT BETWEEN FEDERAL EXPRESS CORPORATION ("FEDEX") AND FLIGHTLEASE, LTD ("FLIGHTLEASE") DATED AS OF APRIL 21, 1998 (THE "AGREEMENT") - ------------------------------------------------------------------------ For any Engine delivered to FedEx requiring compensation to FedEx from Flightlease pursuant to Section 3.06C.(2) of the Agreement, payment will be made to FedEx to compensate for the reduction from * for each individual part falling below that limit at the then current manufacturer's life-limited parts price list, in accordance with the following * : * Such financial compensation will be applied to each life-limited part that falls below the delivery standard of * , all in accordance with Section 3.06C.(2) of the Agreement. *Blank space contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. L-1 EXHIBIT M TO THAT CERTAIN AIRCRAFT SALES AGREEMENT BETWEEN FEDERAL EXPRESS CORPORATION ("FEDEX") AND FLIGHTLEASE, LTD ("FLIGHTLEASE") DATED AS OF APRIL 21, 1998 (THE "AGREEMENT") MD11 SIMULATOR PURCHASE AGREEMENT COPY ATTACHED M-1 EX-12 3 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 FDX CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited)
Year Ended May 31, ------------------------------------------------------- 1994 1995 1996 1997 1998 -------- ---------- -------- ------- ---------- (In thousands, except ratios) Earnings: Income before income taxes.............. $540,131 $693,564 $ 702,094 $425,865 $ 899,518 Add back: Interest expense, net of capitalized interest................ 152,170 130,923 109,249 110,080 135,696 Amortization of debt issuance costs...................... 2,860 2,493 1,628 1,328 1,481 Portion of rent expense representative of interest factor..................... 288,716 333,971 393,775 439,729 508,325 -------- ---------- ---------- -------- ---------- Earnings as adjusted.................... $983,877 $1,160,951 $1,206,746 $977,002 $1,545,020 ======== ========== ========== ======== ========== Fixed Charges: Interest expense, net of capitalized interest.................. $152,170 $130,923 $ 109,249 $110,080 $ 135,696 Capitalized interest.................... 29,738 27,381 44,654 45,717 33,009 Amortization of debt issuance costs........................ 2,860 2,493 1,628 1,328 1,481 Portion of rent expense representative of interest factor................................ 288,716 333,971 393,775 439,729 508,325 -------- ---------- ---------- -------- ---------- $473,484 $494,768 $ 549,306 $596,854 $ 678,511 ======== ========== ========== ======== ========== Ratio of Earnings to Fixed Charges................................ 2.1 2.3 2.2 1.6 2.3 ======== ========== ========== ======== ==========
EX-13 4 ANNUAL REPORT TO STOCKHOLDERS EXHIBIT 13 FDX CORPORATION ANNUAL REPORT 1998 [Cover Photo: Aerial, fish-eye view of city skyline] FDX=A WHOLE GREATER [Photo of courier running] THAN THE SUM OF ITS PARTS On January 27, 1998, Federal Express Corporation launched a new era in transportation - again. Twenty-five years after it founded the express distribution industry, FedEx acquired the Caliber System, Inc. companies, leaders in ground small-package delivery, surface expedited shipping, less-than- truckload freight and integrated logistics management. From this historic union emerged a new brand of transportation leadership: FDX Corporation, a $16 billion distribution and logistics powerhouse. With its unprecedented portfolio of shipping and logistics services, FDX is uniquely equipped to provide the comprehensive distribution solutions customers seek in today's fast, competitive, interconnected global marketplace. The service, technology and marketing synergies created by FDX unlock exciting new opportunities for stockholders. In this inaugural annual report to FDX stockholders, you'll discover why the acquisition of Caliber System by FedEx involved more than simple addition - why for customers and stockholders alike, FDX equals a whole far greater than the sum of its parts. FDX=A NEW BRAND OF LEADERSHIP FDX=A $400 BILLION P2 MARKET OPPORTUNITY [Photo of Frederick W. Smith] To Our Stockholders: During fiscal year 1998, FedEx celebrated its 25th year of industry leadership by laying the foundation for future growth with the acquisition of Caliber System, Inc., and the creation of FDX Corporation. Our consolidated results for the year were strong, revealing a $16 billion company with net income of $583 million, excluding merger expenses. Earnings per share rose to a record $3.91. We are pleased with our financial achievements and excited about our growth opportunities. FDX is poised to take advantage of a global transportation market that - with the express, less-than-truckload and ground small-package segments combined - is projected to grow from $75 billion today to nearly $400 billion over the next 20 years. [Photo of FedEx Delivery Van] Once again, we have changed the competitive landscape, creating a one-stop source for global shipping and logistics solutions. No other corporation is better situated to take advantage of business trends such as "just-in-time" shipping, the explosive growth of electronic commerce, and the proliferation of global sourcing and selling across markets. Prior to the acquisition, neither FedEx nor RPS individually could offer the same complementary mix of express and ground small-package delivery services. Now - operating independently yet P3 working together under FDX - we're winning business from our competitors by providing unmatched service, access and connectivity. [Photo of FDX flag] When we announced the formation of FDX Corporation, many observers assumed that the Caliber acquisition made sense only if we fully integrated our operations. Based on 25 years of industry leadership and expertise, we are doing just the opposite - and for compelling strategic reasons. Simply layering the unique resource and operating requirements of a time-definite, global, express-delivery network onto a day-definite, ground small-package network would surely result in diminished service quality and increased costs. [Photo of two FedEx couriers] Under the FDX umbrella, we will leverage our shared strengths while operating each delivery network independently, with each focused on its respective markets. For FedEx, that means an unrelenting dedication to rapid, time-specific global delivery in 1, 2 or 3 business days. For RPS, that means continued commitment to its highly efficient and reliable, business-to-business, ground small-package delivery capability. The result for all FDX companies is optimal service quality, reliability and profitability. To capitalize on the synergies of our shared customer relationships, we are aggressively aligning sales and marketing initiatives across all FDX FDX=COMPLETE ONE P4 companies, with particular attention to our primary opportunities - FedEx and RPS. We have identified more than one million FedEx customers who currently have no relationship with RPS. Conversely, tens of thousands of RPS customers do not use FedEx for their international or U.S. domestic express shipments. Given an opportunity to obtain the best of both delivery services, we find many businesses eager to become full-fledged "FDX customers." [Photo of RPS logo] FDX is now positioned to meet customer needs by providing comprehensive transportation, logistics and supply chain management solutions. Increasingly, businesses are seeking strategic, cost-effective ways to manage their supply chains - the series of transportation and information exchanges required to convert parts and raw materials into finished, delivered products. Experience tells us that customers prefer one supplier to meet all of their distribution and logistics needs. And FDX has what it takes: Our unique global network, operational expertise and air route authorities cannot be replicated by the competition. With FDX, our customers have a strategic competitive weapon to squeeze time, mass and cost from the supply chain. - -STOP SHIPPING [Photo of Caliber trailers on rail cars] P5 FDX=A NEW BRAND Looking ahead, FDX will seize opportunities to drive revenue growth and build bottom-line results for our stockholders. We are focused on three primary growth strategies: 1) A collaborative sales process that leverages our shared customer relationships; 2) Aggressive global marketing of the broad FDX portfolio to targeted prospective customers; and 3) Strategic application of information systems to reduce costs and improve customer access and connectivity. [FedEx Internet page] We see a very bright future for FDX - and we're not alone in our confidence. In June 1998, Wired magazine selected FDX as one of 40 "New Blue Chips," companies that are "building the new economy (using) technology, networks and information to reshape the world." Of the 40 companies cited for possessing fundamental qualities necessary to succeed in a fast-changing economy - globalism, communication, innovation, technology and strategic vision - FDX was the only company deemed to possess all five fundamentals as core business elements. Thank you for your investment of capital and confidence in this new brand of leadership we call FDX. We expect to reward your investment by demonstrating that FDX equals a historic opportunity for growth, profitability and market leadership. /s/ Frederick W. Smith Frederick W. Smith Chairman, President and Chief Executive Officer P6 OF LEADERSHIP P7 FDX= P8 TOTAL SOLUTIONS SEND A MESSAGE JTECH More than one million JTECH pagers have been shipped around the world to hospitals, factories, auto dealerships, even church nursery centers. But perhaps the most critical shipments are the FedEx boxes that arrive just in time for Mother's Day, the busiest day of the year for restaurants. At Outback Steakhouse and other restaurants, customers hold on to the short-range pagers so they can be alerted when a table is ready, freeing them to stroll or browse nearby shops. Less urgent deliveries of replacement pagers or new orders are delivered via RPS. By using FDX services, JTECH sends a message to its customers: Your order will be there. [Photo of JTECH pager] P9 [Photo of Dell laptop computer] P10 [Photo of Dell laptop computer] BUILD TO ORDER DELL COMPUTER CORPORATION Dell revolutionized the computer industry with a customer-focused direct business model that's lean on inventory and cycle time, but long on logistics efficiencies, customization and customer delight. The company turns inventory in fewer than eight days, compared with 60 to 90 days through more traditional indirect competitors. To keep its supply chain tight, Dell has FedEx deliver computers and parts from its factory in Malaysia to its largest Asian market - Japan. In North America, Caliber Logistics provides distribution and fleet management services for Dell facilities in Austin, Texas. FedEx, meanwhile, handles the express deliveries of several Dell products, displaying a commitment to velocity, quality and customer service that mirrors Dell's own uniquely successful approach to business. P11 CALCULATE THE MOVES UNISYS CORP. When a large corporation decentralizes shipping, it's like a computer's circuitry firing at random: interesting pyrotechnics, but not very productive. That's why Unisys chose to harness the buying power of hundreds of sales offices, service locations and manufacturing sites by utilizing the transportation management services of FDX. Unisys employees simply call a toll- free number staffed by Caliber Logistics. Caliber distribution experts rely on FedEx, RPS, Roberts Express, and Viking Freight to ship everything from critical replacement parts to Unisys enterprise servers directly to the customer site. Each shipping decision reflects the most appropriate and cost-effective delivery solution. Now that computes. [Photo of CD-ROMs] P12 CAPTURE THE MOMENTS ART LEATHER When supplying 25,000 professional photographers with custom handmade photo albums, everything has to be picture perfect from order through delivery. So Art Leather, the world's largest manufacturer of albums, folios and frames for professional photographers, and its partner, Gross National Products, offer customers a choice of FDX services to meet their deadlines and budgets: FedEx express services or RPS ground small-package delivery services. And the sky is no limit. Russian and U.S. commanders of the Mir Space Station recently exchanged commemorative Art Leather albums. This year, FedEx and RPS will deliver more than 200,000 Art Leather shipments, each one a thing memories are made of. [Photo of Picture Frame] P13 SHOP FOR VALUE STAGE STORES INC. Challenged with opening one new department store a week, Stage Stores didn't have to shop long before selecting FDX as its distribution ally. Every day, RPS delivers up to 13,000 cartons of popular name-brand merchandise - from Levi Strauss to Liz Claiborne - to 630 stores trade-named Stage, Bealls and Palais Royal. Stage Stores relies on RPS as the distribution arm of its state-of-the-art inventory tracking system, which identifies and transfers slow- moving items and keeps staple merchandise in stock. Store advertising, payroll and other time-sensitive corporate shipments are delivered via FedEx. In other words, for one-stop shipping, Stage Stores shops FDX. [Photo of perfume bottles] P14 [Photo of perfume bottles] P15 DELIVER THE GOODS INGRAM MICRO INC. Ingram Micro, the largest worldwide distributor of computer technology products and services, is legendary for its commitment to same-day shipping of orders received by 5 p.m. When customers have some time to spare, RPS delivers a growing number of those shipments. For more time-sensitive deliveries, Ingram Micro did itself - and its customers - one better, locating its national distribution facility just minutes from the FedEx SuperHub in Memphis, Tennessee. By leveraging late-night cutoff times for next-day and two- day delivery, Ingram Micro cuts as much as a day off its order cycle time. When delivering the goods is your business, that's time well spent. [Photo of computer monitor] P16 FDX COMPANIES AT A GLANCE FDX is a unique holding company that provides strategic direction for FedEx and the Caliber companies. A $16 billion global transportation and logistics enterprise, FDX offers customers "total one-stop shopping" for 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. FedEx, the world leader in global express distribution, offering time-certain delivery within 24 to 48 hours among markets that comprise more than 90 percent 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 Employees and Contractors: 190,000 Headquarters: Memphis, Tennessee Stock Symbol: FDX Online: www.fdxcorp.com Caliber Logistics, a pioneer in providing customized, integrated logistics and warehousing solutions worldwide. Viking Freight, the foremost less-than-truckload freight carrier in the western United States. Mission and Values FDX will produce superior financial returns for its stockholders 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. [Logos for FDX, FedEx, RPS, Roberts, Viking and Caliber Logistics] P17 HIGHLIGHTS OF THE YEAR The formation of FDX frees its member companies to focus on what they do best. In the case of FedEx, that is to provide the industry's finest express-delivery services, just as it has for 25 years. Whether it's rushing a drill bit to a Venezuelan oil field, moving semiconductors just-in-time between Asia and the United States, or delivering chemotherapy treatments to a hospital in Europe, FDX customers rely on FedEx for fast, dependable, time-specific delivery of high-value goods to more than 210 countries. With the world's most advanced express-distribution network, and information systems that allow shippers and their customers global visibility of shipment status, FedEx and its 144,000 employees deliver more than 3 million boxes, documents and pallets each business day. A CELEBRATION OF INNOVATION Fiscal year 1998 marked Federal Express Corporation's 25th anniversary, and with it the latest in a string of service and technology innovations that have made - and kept - FedEx the industry leader since 1973. Despite Asia's current financial situation, FedEx stuck by its long-term strategy of improving global connectivity for FDX customers by refining and strategically expanding FedEx's worldwide network. Examples include: To reduce transit times along a route that links North America, Europe, the Middle East, India and Asia, a new around-the-world flight was launched in September 1997. To expand customers' options for delivering heavy freight, FedEx introduced FedEx International Economy(R) Freight, providing time-specific delivery (typically within five business days) for heavy, skidded shipments up to 1,500 lbs. To enhance global connectivity with Asia, FedEx added a nonstop daily flight with overnight service linking Osaka, Japan, with the FedEx SuperHub in Memphis. The flight makes possible unprecedented next-business-day delivery by 10:30 a.m. - backed by the FedEx Money-Back Guarantee - from key markets in Asia to thousands of U.S. cities, major Canadian markets and Mexico City. [Photos of aircraft loading operation, sort facility and aircraft in flight] SERVICE EXCELLENCE Even as it expanded the reach of its network, FedEx continued to enhance the convenience and quality of its service. During an August 1997 strike by UPS employees, P18 which caused FedEx, RPS and other carriers to experience unusually high shipment volumes, FedEx employees earned system-wide ISO 9001 recertification while handling 30 percent more volume than normal. To recognize FedEx's most treasured asset - its people - for their absolute dedication to customer service during this challenging period, FedEx paid a $25 million Special Appreciation Bonus to nearly 90,000 U.S. employees. Online, FedEx continued to set the customer-service pace, unveiling an upgrade to its FedEx interNetShip(SM) shipment processing capability, and redesigning its acclaimed Web site (www.fedex.com) to improve access and functionality for global customers. These service innovations, plus the brand respect FedEx has earned among express shippers worldwide, helped FedEx generate revenues of more than $13 billion, a 15 percent increase over fiscal year 1997. As the largest subsidiary in the FDX family, FedEx remains superbly positioned to propel FDX to new levels of growth and profitability. [Photos of MD11 aircraft and couriers with packages] FDX=FREEDOM TO FOCUS P19 HIGHLIGHTS OF THE YEAR For RPS, Inc., the FDX family of companies represents an ideal competitive enhancement to its current market position. RPS is North America's second- largest provider of ground small-package delivery, with service available to 28 European countries and Puerto Rico. Having responded to competitive pressure to add express to its service mix by joining FDX, RPS now can concentrate on strategically expanding its core capability - delivering business-to-business packages at rates and service levels that make it the price-value leader in its market. RPS, like its sister company, FedEx, is an industry leader in on-time performance. In early 1998, RPS enhanced its deserved reputation for reliability by announcing a money-back guarantee on all business-to-business ground deliveries within the continental United States, beginning in July. RPS also is a pioneer in applying shipping-automation technology, which benefits customers and streamlines the daily handling of more than 1.3 million packages. In the past year alone, for example, the company added multiple-carrier shipment tracing and proof-of-delivery signature functionality to its Web site (www.shiprps.com), making it an even more customer-useful shipping tool. RPS's value to FDX customers is reflected in continued double-digit growth in revenue and package volume. [Photos of RPS courier, sort facility, Internet page and bar code labels] FDX=A $16 BILLION P20 HIGHLIGHTS OF THE YEAR As the premier brand name in less-than-truckload (LTL) freight movements throughout the western United States, Viking Freight, Inc. adds yet another important service to the diverse portfolio that FDX offers its customers. With next- and second-business-day regional freight service, plus direct ocean service to Alaska and Hawaii, Viking's 4,700 employees handle approximately 12,000 shipments per day, achieving on-time delivery on more than 99 percent of all shipments. Consistent with its "Easy To Do Business With" philosophy, Viking recently 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 site (www.vikingfreight.com), lets customers conduct business electronically with convenience and confidence. Viking's commitment to superior service has not gone unnoticed. In 1997, for the third time, the National Small Shipments Traffic Conference (NASSTRAC) named Viking its regional LTL carrier of the year. Readers of Logistics Management and Distribution magazine voted Viking "Quality Carrier" for 1998, the seventh year Viking has received this award. [Photos of Viking tractor trailers] POWERHOUSE P21 HIGHLIGHTS OF THE YEAR Nearly 1,000 times each business day, Roberts Express, Inc. engineers and executes time-specific, door-to-door surface and air-charter delivery solutions that solve special-handling challenges for FDX customers within North America and Europe. How special? Consider the 60-ton stamping press Roberts recently delivered from Brescia, Italy, to Kokomo, Indiana. The largest shipment ever handled by Roberts, the press was delivered quickly and on time, keeping an automaker's assembly plant up and running at peak efficiency and quality levels. With 2,000 employees and owner-operators, Roberts is the world's largest surface-expedited carrier. For shippers and their customers, Roberts' service guarantee and exceptional on-time performance deliver peace of mind, even in the most time-critical situations. To promote ever higher levels of productivity and service, Roberts recently installed a dynamic vehicle allocation system. As customer orders are received, the system lets dispatchers evaluate at least 20 load and traffic variables to help ensure that delivery vehicles are where they need to be, when they need to be, for optimum customer service and fleet utilization. [Photos of Roberts delivery vehicles] P22 HIGHLIGHTS OF THE YEAR From order-fulfillment systems to warehousing solutions, Caliber Logistics, Inc. develops and implements customized logistics solutions that help FDX customers manage costs, improve customer service and focus on their core business activities. With 3,500 employees and owner-operators worldwide, Caliber Logistics manages logistics for more than 100 FDX customer locations. It handles more than 3 million shipments per year and operates more than 6 million square feet of contract warehouse space. From its base of operations in the United States and Canada, Caliber Logistics launched European operations in the Netherlands in 1996. Since then, new operations in Belgium, Northern Ireland and Scotland have propelled European revenues to nearly 10 percent of the company's annual total. During the second half of 1998, the company expects to continue its controlled, opportunistic expansion by initiating operations in Mexico and Asia. To help customers manage logistics activities and information seamlessly across international borders, the company is deploying unique transportation management software. When installed, initially in the United States and Europe, it will make Caliber the first logistics supplier to offer customers a single transportation-management interface on both sides of the Atlantic. [Photos of Caliber logistics facility and intermodal facility] FDX=SHARED STRENGTHS P23 MESSAGE FROM THE CHIEF FINANCIAL OFFICER The birth of FDX Corporation illustrates the financial synergies that can result when two complementary organizations combine strengths under a shared vision. The acquisition of Caliber System, Inc. by FedEx - a "pooling of interests" transaction - was accretive to FedEx earnings in fiscal year 1998. The transaction included no goodwill charges, produced a tax-free exchange of shares for Caliber stockholders, and left the FDX balance sheet in robust health. FINANCIAL SECTION Stockholders can expect to benefit from growth trends driving the multiple market niches now served by FDX. For each one of the FDX companies, we will focus on making appropriate investments in the technology and transportation assets necessary to optimize our enhanced profit position in terms of earnings performance and cash flow. Our strict yield management programs will continue to support profitable volume growth. We will manage the business as a portfolio. As a result, decisions on capital investment, expansion of our delivery and information technology networks, and service additions or enhancements will be based on achieving the highest overall return on capital. In addition, our collaborative selling process will increase revenues for the operating companies through a targeted program focusing on high-yielding business. While the birth of FDX was a unique event in the transportation industry, fiscal year 1998 was, in many ways, another step on a continuum of excellence - that is, a continuation of the financial performance, service and technology innovation, and global leadership FedEx stockholders have grown to expect. /s/ Alan B. Graf, Jr. Alan B. Graf, Jr. Executive Vice President and Chief Financial Officer [Graphs of 1997 and 1998 Revenues, Earnings Per Share and Debt To Total Capitalization] (1) Earnings Per Share assumes dilution and excludes non-recurring items. See footnote (1) on page 25. P24 FINANCIAL HIGHLIGHTS ON A LIKE-CALENDAR BASIS
In thousands, except earnings per share and Other Operating Data 1998 1997 Percent Change OPERATING RESULTS Revenues $15,872,810 $14,265,288 + 11 Operating income 1,010,660 425,369 +138 Income from continuing operations before income taxes 899,518 343,865 +162 Net income 503,030 141,276 +256 Net income, excluding non-recurring items/(1)/ 582,723 372,752 + 56 Earnings per share, assuming dilution $ 3.37 $ .96 +251 Earnings per share, excluding non-recurring items, assuming dilution/(1)/ $ 3.91 $ 2.53 + 55 Average common and common equivalent shares 149,204 147,144 + 1 FINANCIAL POSITION Property and equipment, net $ 5,935,050 $ 5,460,293 + 9 Total assets 9,686,060 9,008,816 + 8 Long-term debt, less current portion 1,385,180 1,597,954 - 13 Common stockholders' investment 3,961,230 3,448,095 + 15 OTHER OPERATING DATA FedEx Express package: Average daily package volume 3,025,999 2,715,894 + 11 Average pounds per package 8.5 7.2 + 18 Average revenue per pound $ 1.84 $ 2.11 - 13 Average revenue per package $ 15.69 $ 15.11 + 4 Airfreight: Average daily pounds 2,769,922 2,542,226 + 9 Average revenue per pound $ .85 $ .94 - 10 Operating weekdays 254 254 Aircraft fleet 613 584 RPS Average daily package volume 1,326,190 1,121,380 + 18 Average revenue per package $ 5.04 $ 4.93 + 2 Operating weekdays 256 257 Viking Shipments per day 13,287 30,771 - 57 Average revenue per hundredweight $ 9.28 $ 9.08 + 2 Operating weekdays 256 257 Average number of employees (based on a standard full-time workweek) 150,823 145,721 + 4
The information presented on page 24 and the table above compare the results for fiscal 1998 to 1997 as if Caliber System, Inc.'s prior year had ended May 24, 1997 and had included unaudited results from May 19, 1996 to May 24, 1997. However, the 1997 information discussed in the accompanying Management's Discussion and Analysis of Results of Operations and Financial Condition and the 1997 amounts presented in the accompanying consolidated financial statements are based on Caliber System, Inc.'s audited prior fiscal year ended December 31, 1996. /(1)/ Non-recurring items include a charge of $88 million ($80 million, net of tax, or $.54 per share, assuming dilution) in 1998 related to the acquisition of Caliber System, Inc., and charges of $310 million ($231 million, net of tax, or $1.57 per share, assuming dilution) in 1997 related to the restructuring of Viking Freight, Inc.'s operations. P25 FINANCIAL HIGHLIGHTS Years ended May 31
In thousands, except earnings per share and Other Operating Data 1998 1997 Percent Change OPERATING RESULTS Revenues $15,872,810 $14,237,892 + 11 Operating income 1,010,660 507,002 + 99 Income from continuing operations before income taxes 899,518 425,865 +111 Net income 503,030 196,104 +157 Earnings per share, assuming dilution $ 3.37 $ 1.33 +153 Average common and common equivalent shares 149,204 147,228 + 1 FINANCIAL POSITION Property and equipment, net $ 5,935,050 $ 5,470,399 + 8 Total assets 9,686,060 9,044,316 + 7 Long-term debt, less current portion 1,385,180 1,597,954 - 13 Common stockholders' investment 3,961,230 3,501,161 + 13 OTHER OPERATING DATA FedEx Express package: Average daily package volume 3,025,999 2,715,894 + 11 Average pounds per package 8.5 7.2 + 18 Average revenue per pound $ 1.84 $ 2.11 - 13 Average revenue per package $ 15.69 $ 15.11 + 4 Airfreight: Average daily pounds 2,769,922 2,542,226 + 9 Average revenue per pound $ .85 $ .94 - 10 Operating weekdays 254 254 Aircraft fleet 613 584 RPS Average daily package volume 1,326,190 1,067,104 + 24 Average revenue per package $ 5.04 $ 4.96 + 2 Operating weekdays 256 254 Viking Shipments per day 13,287 33,294 - 60 Average revenue per hundredweight $ 9.28 $ 9.04 + 3 Operating weekdays 256 254 Average number of employees (based on a standard full-time workweek) 150,823 145,995 + 3 See Note 1 to Notes to Consolidated Financial Statements for a discussion of the periods presented.
P26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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 shareholders 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 $.10 par value shares so issued or converted. The accompanying financial statements have been restated to include the financial position and results of operations for both FedEx and Caliber for all periods presented. 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. FedEx's fiscal year ending May 31 consists of four, three-month quarters. The accompanying consolidated results of operations and cash flows and the following financial and statistical information for the year ended May 31, 1998 combine Caliber's 53-week period from May 25, 1997 to May 31, 1998 with FedEx's year ended May 31, 1998. The Company's consolidated financial position as of May 31, 1998 consists of Caliber's financial position as of May 31, 1998 consolidated with FedEx's financial position as of May 31, 1998. The accompanying consolidated results of operations and cash flows and the following financial and statistical information for the years ended May 31, 1997 and 1996 combine Caliber's 52 weeks ended December 31, 1996 and 1995, respectively, with FedEx's years ended May 31, 1997 and 1996, respectively. The Company's consolidated financial position as of May 31, 1997 consists of Caliber's financial position as of December 31, 1996 consolidated with FedEx's financial position as of May 31, 1997. Due to the different fiscal year ends, Caliber's results of operations for the period January 1, 1997 to May 24, 1997 do not appear in the Consolidated Statements of Income and instead are recorded as a direct adjustment to equity. Caliber's revenues, operating expenses and net loss for this period were $1.0 billion, $1.1 billion and $41 million, respectively. Included in expenses for this period was an $85 million pre-tax charge ($56 million, net of tax) related to the restructuring of Viking Freight, Inc. ("Viking"), Caliber's regional freight carrier (discussed below). RESULTS OF OPERATIONS Consolidated net income for 1998 was $503 million ($3.37 per share, assuming dilution) compared with $196 million ($1.33 per share, assuming dilution) and $281 million ($1.92 per share, assuming dilution) for 1997 and 1996, respectively. Current year results reflect strong domestic package volume growth and slightly improving revenue per package (yield) at both FedEx and RPS, Inc. ("RPS") and significant improvements in Viking's operations. FedEx's net income for 1998 was $421 million compared with $361 million and $308 million for 1997 and 1996, respectively. Year-over-year improvements in FedEx's consolidated results for the past three years reflect double-digit growth of its express delivery package volume and slight improvements in U.S. domestic yield. In 1998, U.S. domestic margins improved as yields increased at a higher rate than cost per package. However, international margins declined in the face of diminished airfreight revenues, foreign currency fluctuations and rising expenses. From continuing operations, Caliber recorded income of $78 million for 1998, a loss of $165 million for 1997 and income of $92 million for 1996. The current year income is attributable to strong volume growth and increased yields at RPS, Caliber's ground small-package carrier, and improved operations at Viking since its restructuring in March 1997 (discussed below). Excluding impairment charges related to the Viking restructuring, Caliber recorded net income of $10 million in 1997. Non-recurring Items Results of operations included various non-recurring items which affected reported earnings for 1998 and 1997 as discussed below. Current year results included $88 million ($80 million, net of tax) of expenses related to the acquisition of 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 $3.91 per share, assuming dilution. Also in the current year, Viking recognized a $16 million gain from assets sold 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 where it has been a leader in the regional less-than-truckload market for many years. In connection with the restructuring, Caliber recorded a non-cash asset impairment charge of $225 million ($175 million, net of tax) in December 1996 and an $85 million restructuring charge in March 1997. Excluding the net effect of P27 MANAGEMENT'S DISCUSSION AND ANALYSIS the December 1996 charge, consolidated net income for 1997 was $371 million, or $2.52 per share, assuming dilution. In addition, Caliber recorded in 1998 approximately $5 million of income, net of tax, from discontinued operations related to the exiting of the airfreight business served by Roadway Global Air, Inc. in 1995. A significant non-recurring item impacting 1998's results of operations was the Teamsters strike against United Parcel Service ("UPS") in August 1997. During the 12 operating days of the strike, FedEx delivered approximately 800,000 additional U.S. domestic express packages per day, and RPS delivered approximately 300,000 additional packages per day. While it is difficult to estimate with precision the impact of this additional volume, FedEx and RPS have retained a portion of this volume. The Company analytically calculated that the volume not retained at the end of the first quarter contributed approximately $170 million in revenues to that quarter. This additional revenue, net of applicable variable compensation, income taxes and variable costs, but not allocated fixed costs, resulted in approximately $.25 additional earnings per share, assuming dilution, to the consolidated first quarter's earnings. FedEx recorded two aircraft-related items in the current year. FedEx realized a net gain of $17 million from the insurance settlement and the release from certain related liabilities on a leased MD11 aircraft destroyed in an accident in July 1997. This gain was recorded in operating and non-operating income in substantially equal amounts. An unrelated expense, which partially offset this gain, was an addition of $9 million to an operating reserve for the disposition of leased B747 aircraft. In recording the additional reserve, maintenance and repairs and rentals and landing fees expenses were increased. These aircraft, which were subleased, underwent certain maintenance and repairs before being transferred to a new lessee. The net effect of the MD11 gain and the B747 reserve on FedEx's domestic and international operating income was immaterial. The combined effect of these aircraft-related items contributed approximately $.03 per share in the first quarter of 1998, net of applicable variable compensation and income taxes. FedEx's 1997 results included a $15 million pre-tax benefit to operating income from the settlement of a Tennessee personal property tax matter and a $17 million gain in non-operating income from an insurance settlement for a DC10 destroyed by fire in September 1996. Revenues The following table shows a comparison of revenues for the years ended May 31:
In millions Percent Change 1998 1997 1996 1998/1997 1997/1996 FedEx: U.S. domestic express $ 9,326 $ 8,073 $ 7,284 +16 +11 International Priority (IP) 2,731 2,351 1,997 +16 +18 International Express Freight (IXF) and Airport-to-Airport (ATA) 598 605 554 - 1 + 9 FedEx Air Charter 88 72 92 +21 -22 Logistics services 99 99 94 - + 5 Other/(1)/ 413 320 253 +29 +27 ------- ------- ------- 13,255 11,520 10,274 +15 +12 Caliber: RPS 1,710 1,344 1,293 +27 + 4 Viking 382 966 834 -60 +16 Other 526 408 321 +29 +27 ------- ------- ------- $15,873 $14,238 $12,722 +11 +12
- --------------- /(1)/Includes the sale of engine noise reduction kits. P28
The following table shows a comparison of selected shipment statistics for the years ended May 31: In thousands, except dollar amounts Percent Change 1998 1997 1996 1998/1997 1997/1996 FedEx: U.S. domestic express: Average daily packages 2,767 2,490 2,246 +11 +11 Revenue per package $13.27 $12.77 $12.67 + 4 + 1 IP: Average daily packages 259 226 192 +15 +18 Revenue per package $41.45 $40.91 $40.58 + 1 + 1 IXF/ATA: Average daily pounds 2,770 2,542 2,144 + 9 +19 Revenue per pound $ .85 $ .94 $ 1.01 -10 - 7 Caliber: RPS: Average daily packages 1,326 1,067 1,043 +24 + 2 Revenue per package $ 5.04 $ 4.96 $ 4.92 + 2 + 1 Viking: Shipments per day 13.3 33.3 31.3 -60 + 6 Revenue per hundredweight $ 9.28 $ 9.04 $ 8.07 + 3 +12
In 1998, FedEx's U.S. domestic package volumes increased on a year-over-year basis primarily due to rapid growth of its deferred services, including FedEx Express Saver. This growth was augmented by incremental UPS strike-related volume, the majority of which was in the deferred service category. Excluding the effects of a temporary 2% fuel surcharge and the expiration of the air cargo transportation tax on 1997 yields, FedEx U.S. domestic yields rose 5% in 1998 as a result of continuing yield-management actions. These actions included pursuing price increases on low-yielding accounts, discontinuing unprofitable accounts, increasing average weight per package and implementing a 3% to 4% price increase targeted to list price and standard discount matrix customers for U.S. domestic shipments effective February 15, 1998. The expiration of the air cargo transportation excise tax added approximately $50 million to U.S. domestic revenues and 1% to U.S. domestic yields in both 1997 and 1996. 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. FedEx's IP service continued to experience double-digit growth in average daily volumes and revenues, with yields remaining relatively constant. Current year volume growth slowed to 15% year-over-year, primarily due to weakness in Asian markets. In 1998 and 1997, FedEx's international non-express airfreight revenues were a significant factor in determining international profitability. FedEx uses ATA airfreight service (a lower-priced, space-available service) to fill space on international flights not used by express services such as IP or IXF. In 1998, weakness in Asian economies and continued downward pressure on yields resulted in lower non-express airfreight prices and revenues than in 1997. In 1997, airfreight revenues increased year-over-year, due to FedEx's expansion in international markets, despite excess market capacity and downward pressure on yields. The increases in FedEx's other revenue in 1998 and 1997 were primarily attributable to increased sales of engine noise reduction kits. RPS's revenue per day increased 26% and 3% in 1998 and 1997, respectively, primarily due to increased average daily volume of 24% and 2% in these same years. Over the same periods, RPS's yield remained stable, and effective February 9, 1998, management implemented a 3.7% rate increase at RPS. On a daily basis, Viking's revenue declined 61% year-over-year in 1998 and increased 15% in 1997. As a result of Viking's restructuring in March 1997, in which operations at four of five divisions were terminated by June 1997, Viking's daily shipments declined 60% year-over-year in 1998. P29 MANAGEMENT'S DISCUSSION AND ANALYSIS Operating Expenses Volume growth and expansion of the Company's operations resulted in a trend of rising operating expenses. Presented below are year-over-year percentage changes in selected operating expenses: Percent Change 1998/1997 1997/1996 Salaries and employee benefits + 8 +11 Purchased transportation +18 +18 Rentals and landing fees +14 +12 Depreciation and amortization + 4 + 9 Maintenance and repairs +13 +14 Fuel - 1 +20 Other +11 +17 Total operating expenses + 8 +15 Salaries and employee benefits expense rose primarily due to higher employment levels associated with volume growth, partially offset in 1998 by a decline at Viking after its restructuring. Increased provisions under the Company's performance-based, incentive compensation plans in 1998 and 1997, and a $25 million special appreciation bonus in 1998 for U.S. operations employees at FedEx for their extra efforts during the UPS strike also contributed to the increases in salaries and employee benefits expense. Increases in purchased transportation were primarily volume related, with the majority of the increases occurring at RPS in 1998 and at FedEx in 1997. Rentals and landing fees increased primarily due to additional aircraft leased by FedEx. As of May 31, 1998, the Company had 86 wide-bodied aircraft under operating lease compared with 78 as of May 31, 1997, and 74 as of May 31, 1996. Management expects year-over-year increases in lease expense to continue as the Company enters into additional aircraft rental agreements during 1999 and thereafter. In the past three years, FedEx's aircraft fleet has increased resulting in a corresponding rise in maintenance expense. The rise in maintenance and repairs expense for 1998 was primarily due to higher engine maintenance expense on B727, DC10 and A310 aircraft. As discussed above, most of the 1998 increase in an operating reserve for the disposition of B747 aircraft was recorded as maintenance and repairs expense. In 1997, FedEx experienced higher engine maintenance expense on MD11 and A310 aircraft. 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. Fuel expense decreased in 1998 due to a 10% decline in average jet fuel price per gallon and a decrease in vehicle fuel consumption at Viking, partially offset by a 13% increase in jet fuel gallons consumed. Fuel expense increased in 1997 due to a 12% and 8% rise in average jet fuel price per gallon and gallons consumed, respectively. In 1997, the increase in average price per gallon of jet fuel was due to higher jet fuel prices and a 4.3 cents per gallon excise tax on aviation fuel, used domestically, which became effective October 1, 1995. For the past three years, fuel expense included amounts received and paid by FedEx under contracts which are designed to limit FedEx's exposure to fluctuations in jet fuel prices. In order to mitigate the impact of the increase in jet fuel prices experienced in 1997, FedEx implemented fuel surcharges on airfreight shipments, effective December 1, 1996, for shipments out of Europe and selected Asian countries. Additionally, the Company implemented fuel surcharges, effective December 15, 1996, for airfreight shipments originating in the United States, Latin America and the remaining parts of Asia, except those to the People's Republic of China and Hong Kong. These surcharges were discontinued effective April 15 or June 1, 1997, depending on the origin country. FedEx also implemented a temporary 2% fuel surcharge, effective February 3, 1997, on U.S. domestic shipments except FedEx Same Day service and including Puerto Rico. This surcharge also applied to all U.S. export IP shipments, except those to the People's Republic of China and Hong Kong. This surcharge was lifted on August 1, 1997. Increases in other operating expenses for 1998 and 1997 were primarily due to expenses related to volume growth and, in 1998, expenses necessitated by additional volume during the UPS strike, including temporary manpower and uniforms and supplies. The cost of sales of engine noise reduction kits also increased in 1998 and 1997. The Company's work on the Year 2000 ("Y2K") computer compliance issue began in 1996. The Company's Y2K compliance program consists of five parts: inventory, assessment, renovation, testing and implementation. The Company has conducted an inventory and assessment of remediation required for business-critical information technology applications. Project plans have been created, and progress is being monitored on an ongoing basis. Upon completion, validation of these efforts will be performed by an internal, independent process. The Company's goal is to have the majority of these business-critical information technology applications Y2K compliant by December 31, 1998. The Company is also in the process of completing Company-wide inventory, assessment and remediation project plans for business-critical personal computers and software, user applications and embedded-chip systems. The Company's goal is to have the majority of these business-critical components Y2K compliant by May 31, 1999. The Company is investigating the Y2K compliance status of its vendors, suppliers and affiliates via the Company's own internal vendor compliance effort. The P30 Company will carry out this task through a Company-wide effort, assisted by consultants, to address internal issues, and jointly with industry trade groups, to address issues related to third parties which are common to transportation companies. The Company has incurred approximately $50 million to date, including consulting fees, internal staff costs and other expenses. The Company expects to incur additional expenses of approximately $100 million in the next two years to be Y2K compliant. While the Company believes it is taking all appropriate steps to achieve Y2K compliance, its Y2K issues and any potential future business interruptions, costs, damages or losses related thereto, are dependent, to a significant degree, upon the Y2K compliance of third parties, both domestic and international, such as government agencies, customers, vendors and suppliers. The Y2K problem is pervasive and complex, as virtually every computer operation will be affected in some way. Consequently, no assurance can be given that Y2K compliance can be achieved without significant additional costs. Operating Income The Company's consolidated operating income increased 99% in 1998 and decreased 35% in 1997. Operating income for 1998 benefited from the effect of the UPS strike; whereas, operating income for 1997 was reduced by the Viking asset impairment charge of $225 million. FedEx's consolidated operating income increased 20% and 12% in 1998 and 1997, respectively. FedEx's U.S. domestic operating income rose 35% and 3% in 1998 and 1997, respectively. In 1998, operating income improved primarily due to increases in revenue per package (3.9%) exceeding increases in cost per package (2.9%) and due to a rise in average daily volume (11%). Also, as noted above, 1998 U.S. domestic operating results were significantly impacted by the UPS strike. Sales of engine noise reduction kits contributed $127 million, $87 million and $63 million to FedEx's U.S. domestic operating income in 1998, 1997 and 1996, respectively. In 1997, domestic operating income included a $15 million pre-tax benefit from the settlement of a Tennessee personal property tax matter. Increases in cost per package (1.4%) exceeded increases in revenue per package (0.8%), while average daily volume rose 11%. U.S. domestic operating margins were 7.8%, 6.7% and 7.3% in 1998, 1997 and 1996, respectively. International operating income declined $57 million in 1998, compared with a $59 million increase in 1997. International operating results declined in 1998 as a result of slower growth of IP and IXF volumes during a period of international network expansion. Lower airfreight yields, higher salaries and employee benefits and aircraft lease expense, additional start-up costs for several new international flights and the net effect of foreign currency fluctuations negatively impacted international results. The increase in operating income in 1997 was attributable to strong growth in the Company's IP volumes and airfreight pounds, partially offset by lower airfreight yields. International operating margins were 2.3%, 4.4% and 2.9% in 1998, 1997 and 1996, respectively. RPS reported operating income of $172 million, $136 million and $174 million for 1998, 1997 and 1996, respectively. The increase in operating income for 1998 resulted from package volume growth and the positive effect of the 12-day UPS strike. In 1997, despite a 4% increase in revenues, higher fixed costs of RPS's continuing expansion and investment in technology and equipment contributed to the decline in operating results. Operating margins were 10.1%, 10.1% and 13.4% in 1998, 1997 and 1996, respectively. Viking reported operating income of $28 million in 1998, an operating loss of $362 million in 1997 and an operating loss of $40 million in 1996. As discussed above, operating results for 1998 include a $16 million gain on the sale of certain Viking assets, and results for 1997 include a $225 million asset impairment charge. Operating margins were 7.3%, (37.5%) and (4.8%) in 1998, 1997 and 1996, respectively. For additional information on the Company's business segments, see Note 12 of Notes to Consolidated Financial Statements. Other Income and Expense and Income Taxes Net interest expense increased 19% for 1998, primarily due to lower levels of capitalized interest at both FedEx and Caliber. Interest is capitalized during the modification of certain MD11 and DC10 aircraft from passenger to freighter configuration, among other projects. For 1997, net interest expense increased 16% due to higher debt levels at Caliber and the loss of interest income from discontinued operations, partially offset by lower effective interest rates at FedEx. The level of capitalized interest in 1997 was comparable to that of 1996. Other, net for 1998 included a gain from an insurance settlement for an MD11 aircraft destroyed in an accident in July 1997. Other, net for 1997 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 44.6% in 1998, 53.9% in 1997 and 43.0% in 1996. 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 and 1996. In each year, the effective tax rate (exclusive of non-recurring items) was greater than the statutory U.S. federal tax rate primarily because of state income taxes and other factors as identified in Note 9 of Notes to Consolidated Financial Statements. For 1999, management expects the effective tax rate to remain at a level similar to the 1998 rate (exclusive of non-recurring items). The actual rate, however, is dependent on a number of factors, including the amount and source of operating income. P31 MANAGEMENT'S DISCUSSION AND ANALYSIS Outlook Management is committed to achieving long-term earnings growth by providing transportation, high value-added logistics and related information services through focused operating companies. This frequently involves a significant front-end investment in assets, technology and personnel that may reduce near- term profitability. As discussed in Revenues above, a key reason for the increase in FedEx's U.S. domestic yield was the continued yield-management actions of implementing price increases on low-yielding accounts, discontinuing unprofitable accounts, increasing average weight per package and implementing a 3% to 4% rate increase in February 1998. Management believes yields will continue to benefit from these actions in 1999, while package volumes will grow at a lower rate in 1999 than in the past several years. FedEx will continue to manage yields with the goal of ensuring an appropriate balance between revenues generated and the cost of providing express services. Actual results, however, may vary depending primarily on the impact of competitive pricing changes, customer responses to yield-management initiatives, changing customer demand patterns and domestic economic conditions. FedEx's operating income from the sales of engine noise reduction kits peaked in 1998 and is expected to decline $45 million year-over-year in 1999 and to become insignificant by 2001. Actual results may differ depending primarily on the impact of actions by FedEx's competitors and regulatory conditions. While FedEx's long-term strategy for international operations is to improve global connectivity for its customers by strategically expanding its worldwide network, international economic developments, including the current Asian economic difficulties, may limit short-term growth of FedEx's international services and profits. Management expects, however, strategic expansion to allow for continued, long-term growth of these services. Management expects IP average daily volume to continue its strong growth in 1999, and IP yields to remain relatively constant. With respect to airfreight, management believes volumes and yields will decline year-over-year in 1999. Actual results for IP or airfreight, however, will depend on international economic conditions, actions by FedEx's competitors and regulatory conditions for international aviation rights. To boost customer confidence and RPS's competitive position, RPS introduced a guaranteed ground offering in July 1998 for business-to-business shipments. Management expects RPS's package volume to continue to grow, as projected facility expansions begin to address current capacity constraints. Yields will likely remain stable or increase slightly. Actual results, however, will depend primarily on the impact of competitive pricing changes, actions by RPS's competitors, changing customer demand patterns and domestic economic conditions. Viking's strategy for 1999 is to maintain its market leadership in the western United States, improve yields and invest in updated information systems and other technologies. The Company will continue to invest in technologies that improve the efficiency of package pick-up, sorting, tracking and delivery and that improve customer access and connectivity. The Company will also continue projects designed to enhance productivity and strengthen the Company's infrastructure. Assuming effective implementation, these investments are expected to reduce transportation cost per package. Effective June 1, 1998, the Company adopted a new accounting standard which provides guidance on accounting for the costs of software developed or obtained for internal use. This standard requires that certain of these costs be capitalized, and the Company estimates the pre-tax benefit of the adoption to be approximately $30 million for 1999. FINANCIAL CONDITION Liquidity Cash and cash equivalents totaled $230 million at May 31, 1998, an increase of $69 million during 1998 compared with an increase of $33 million in 1997 and a decrease of $244 million in 1996. Cash provided from operations during 1998 was $1.7 billion compared with $1.1 billion and $1.2 billion in 1997 and 1996, 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 telecommunication equipment, package handling facilities and sort equipment. The amount and timing of capital additions are dependent on various factors including volume growth, domestic and international economic conditions, new or enhanced services, geographical expansion of services, competition and availability of satisfactory financing. Capital expenditures for 1998 totaled $1.9 billion and included three MD11 aircraft (which were subsequently sold and leased back), four Airbus A310 aircraft, aircraft modifications, customer automation and computer equipment, facilities and vehicles and ground support equipment. In comparison, prior year expenditures totaled $1.8 billion and included ten Airbus A310 aircraft, two MD11 aircraft (which were subsequently sold and leased back, one in 1997 and one in 1998), customer automation and computer equipment and P32 vehicles and ground support equipment. For information on the Company's purchase commitments, see Note 14 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 the Company's aircraft acquisitions when management determines that it best meets the Company's needs. The Company 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 the control of the Company. See Note 4 of Notes to Consolidated Financial Statements for additional information concerning the Company's debt and credit facilities. In July 1997, $20 million of Memphis-Shelby County Airport Authority ("MSCAA") Special Facilities Revenue Bonds were issued. The proceeds of the bonds in combination with other funds were used to refund outstanding MSCAA 1982B bonds on September 2, 1997. Also in July 1997, FedEx issued $250 million of unsecured senior notes with a maturity date of July 1, 2097, under FedEx's July 1996 shelf registration statement filed with the Securities and Exchange Commission. In June 1998, approximately $833 million of pass through certificates were issued under shelf registration statements filed with the Securities and Exchange Commission to finance or refinance the debt portion of leveraged leases related to eight Airbus 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 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 debt of $1.6 billion at May 31, 1998, of which $1.4 billion is long-term. 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 $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 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, 1998, 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 $15 million for the year ending May 31, 1999. 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 sales, 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 the past three years, FedEx has entered into contracts which are 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. See Note 14 of Notes to Consolidated Financial Statements for accounting policy 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, 1998, the Company had a net cumulative deferred tax liability of $41 million consisting of $601 million of deferred tax assets and $642 million of deferred tax liabilities. The reversals of deferred tax assets in future periods will be offset by similar amounts of deferred tax liabilities. Statements in this "Management's Discussion and Analysis of Results of Operations and Financial Condition" or made by management of the Company which contain more than historical information may be considered forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) which are subject to risks and uncertainties. Actual results may differ materially from those expressed in the forward-looking statements because of important factors identified in this section. P33 CONSOLIDATED STATEMENTS OF INCOME Years ended May 31 In thousands,
except Earnings Per Share 1998 1997 1996 REVENUES $15,872,810 $14,237,892 $12,721,791 ----------- ----------- ----------- Operating Expenses: Salaries and employee benefits 6,647,140 6,150,247 5,557,962 Purchased transportation 1,481,590 1,252,901 1,064,925 Rentals and landing fees 1,285,655 1,131,543 1,014,024 Depreciation and amortization 963,550 926,089 851,992 Maintenance and repairs 884,280 781,708 686,185 Fuel 726,768 734,722 612,243 Merger expenses 88,000 - - Restructuring and impairment charges (16,000) 225,036 - Other 2,801,167 2,528,644 2,154,908 ----------- ----------- ----------- 14,862,150 13,730,890 11,942,239 ----------- ----------- ----------- OPERATING INCOME 1,010,660 507,002 779,552 ----------- ----------- ----------- Other Income (Expense): Interest, net (124,413) (104,195) (90,190) Other, net 13,271 23,058 12,732 ----------- ----------- ----------- (111,142) (81,137) (77,458) ----------- ----------- ----------- Income from Continuing Operations Before Income Taxes 899,518 425,865 702,094 Provision for Income Taxes 401,363 229,761 301,908 ----------- ----------- ----------- Income from Continuing Operations 498,155 196,104 400,186 ----------- ----------- ----------- DISCONTINUED OPERATIONS, NET OF INCOME TAXES: Loss from discontinued operations - - (69,950) Income (loss) from discontinuance 4,875 - (49,664) ----------- ----------- ----------- 4,875 - (119,614) ----------- ----------- ----------- NET INCOME $ 503,030 $ 196,104 $ 280,572 ----------- ----------- ----------- EARNINGS (LOSS) PER COMMON SHARE: Continuing operations $ 3.40 $ 1.35 $ 2.76 Discontinued operations .03 - (.82) ----------- ----------- ----------- $ 3.43 $ 1.35 $ 1.94 ----------- ----------- ----------- EARNINGS (LOSS) PER COMMON SHARE- ASSUMING DILUTION: Continuing operations $ 3.34 $ 1.33 $ 2.74 Discontinued operations .03 - (.82) ----------- ----------- ----------- $ 3.37 $ 1.33 $ 1.92 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
P34 CONSOLIDATED BALANCE SHEETS May 31
In thousands 1998 1997 ASSETS Current Assets: Cash and cash equivalents $ 229,565 $ 160,852 Receivables, less allowances of $61,409 and $68,130 1,943,423 1,877,972 Spare parts, supplies and fuel 364,714 339,353 Deferred income taxes 232,790 196,959 Prepaid expenses and other 109,640 68,592 ----------- ----------- Total current assets 2,880,132 2,643,728 ----------- ----------- Property and Equipment, at Cost: Flight equipment 4,056,541 3,741,407 Package handling and ground support equipment and vehicles 3,425,279 3,131,060 Computer and electronic equipment 2,162,624 1,957,917 Other 2,819,430 2,557,564 ----------- ----------- 12,463,874 11,387,948 Less accumulated depreciation and amortization 6,528,824 5,917,549 ----------- ----------- Net property and equipment 5,935,050 5,470,399 ----------- ----------- Other Assets: Goodwill 356,272 370,342 Equipment deposits and other assets 514,606 559,847 ----------- ----------- Total other assets 870,878 930,189 ----------- ----------- $ 9,686,060 $ 9,044,316 ----------- ----------- LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities: Short-term debt $ - $ 230,000 Current portion of long-term debt 257,529 126,666 Accounts payable 1,145,410 999,782 Accrued expenses 1,400,900 1,223,039 ----------- ----------- Total current liabilities 2,803,839 2,579,487 ----------- ----------- Long-Term Debt, Less Current Portion 1,385,180 1,597,954 ----------- ----------- Deferred Income Taxes 274,147 181,835 ----------- ----------- Other Liabilities 1,261,664 1,183,879 ----------- ----------- Commitments and Contingencies (Notes 5, 14 and 15) Common Stockholders' Investment: Common stock, $.10 par value; 400,000 shares authorized; 147,411 and 147,624 shares issued 14,741 14,762 Additional paid-in capital 992,821 937,978 Retained earnings 2,972,077 2,621,511 ----------- ----------- 3,979,639 3,574,251 Less treasury stock, at cost, and deferred compensation 18,409 73,090 ----------- ----------- Total common stockholders' investment 3,961,230 3,501,161 ----------- ----------- $ 9,686,060 $ 9,044,316 The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets.
P35 CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended May 31
In thousands 1998 1997 1996 OPERATING ACTIVITIES Income from continuing operations $ 498,155 $ 196,104 $ 400,186 Adjustments to reconcile income from continuing operations to cash provided by operating activities: Depreciation and amortization 963,731 928,799 857,951 Provision for uncollectible accounts 59,616 40,634 38,963 Provision (benefit) for deferred income taxes and other 45,548 (9,610) 34,355 Restructuring and impairment charges (16,000) 225,036 - Gain from disposals of property and equipment (5,741) (20,143) (7,040) Changes in assets and liabilities, net of effects from dispositions of businesses: Increase in receivables (254,283) (426,357) (205,427) Increase in other current assets (102,203) (443,799) (65,038) Increase in accounts payable, accrued expenses and other liabilities 453,721 647,780 114,612 Other, net 63,829 (29,266) 15,971 ----------- ----------- ----------- Cash provided by operating activities 1,706,373 1,109,178 1,184,533 ----------- ----------- ----------- INVESTING ACTIVITIES Purchases of property and equipment, including deposits on aircraft of $70,359, $26,107 and $68,202 (1,880,173) (1,762,979) (1,700,376) Proceeds from dispositions of property and equipment: Sale-leaseback transactions 322,852 162,400 176,500 Reimbursements of A300 deposits 106,991 63,039 143,859 Other dispositions 135,329 39,423 32,619 Net receipts from (advances to) discontinued operations 1,735 (2,527) (60,000) Other, net (75,964) 24,612 77,208 ----------- ----------- ----------- Cash used in investing activities (1,389,230) (1,476,032) (1,330,190) ----------- ----------- ----------- FINANCING ACTIVITIES Principal payments on debt (533,502) (9,670) (264,004) Proceeds from debt issuances 267,105 433,404 214,798 Proceeds from stock issuances 33,925 31,013 36,566 Dividends paid (7,793) (34,825) (54,688) Other, net (6,939) (9,741) (4,898) ----------- ----------- ----------- Cash (used in) provided by financing activities (247,204) 410,181 (72,226) ----------- ----------- ----------- CASH AND CASH EQUIVALENTS Cash provided by (used in) continuing operations 69,939 43,327 (217,883) Cash used in discontinued operations (1,735) (10,802) (26,118) Balance at beginning of year 161,361 128,327 372,328 ----------- ----------- ----------- Balance at end of year $ 229,565 $ 160,852 $ 128,327 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
P36 CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' INVESTMENT
In thousands, except shares Additional Common Paid-in Retained Treasury Deferred Stock Capital Earnings Stock Compensation BALANCE AT MAY 31, 1995 $ 8,888 $863,035 $2,444,886 $(55,122) $ (724) Cash dividends declared by Caliber System, Inc. - - (54,706) - - Distribution of Roadway Express, Inc. - - (199,745) - - Purchase of treasury stock - - - (13,009) - Forfeiture of restricted stock - - - (1,068) 1,130 Issuance of common and treasury stock under employee incentive plans (932,105 shares) 72 40,051 - 17,477 (13,898) Amortization of deferred compensation - - - - 2,227 Foreign currency translation adjustment - - (7,626) - - Net income - - 280,572 - - ------- -------- ---------- ------- -------- BALANCE AT MAY 31, 1996 8,960 903,086 2,463,381 (51,722) (11,265) Cash dividends declared by Caliber System, Inc. - - (28,184) - - Purchase of treasury stock - - - (15,057) - Forfeiture of restricted stock - - - (803) 720 Two-for-one stock split by Federal Express Corporation in the form of a 100% stock dividend 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) Amortization of deferred compensation - - - - 3,421 Foreign currency translation adjustment - - (4,091) - - Net income - - 196,104 - - ------- -------- ---------- ------- -------- BALANCE AT MAY 31, 1997 14,762 937,978 2,621,511 (55,482) (17,608) Adjustment to conform Caliber System, Inc.'s fiscal year - 492 (51,795) (1,765) - Cash dividends declared by Caliber System, Inc. - - (3,899) - - Purchase of treasury stock - - - (7,049) - Forfeiture of restricted stock - - - (979) 586 Issuance of common and treasury stock under employee incentive plans (1,466,895 shares) 135 54,195 - 7,918 (7,204) Cancellation of Caliber System, Inc. treasury stock (156) 156 (66,474) 57,357 - Amortization of deferred compensation - - - - 5,817 Foreign currency translation adjustment - - (30,296) - - Net income - - 503,030 - - ------- -------- ---------- ------- -------- BALANCE AT MAY 31, 1998 $14,741 $992,821 $2,972,077 $ - $(18,409) The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
P37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: BUSINESS COMBINATION AND BASIS OF PRESENTATION 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 shareholders 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 have been restated to include the financial position and results of operations for both FedEx and Caliber for all periods presented. 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. FedEx's fiscal year ending May 31 consists of four, three-month quarters. 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. The Company's consolidated financial position as of May 31, 1998 consists of Caliber's financial position as of May 31, 1998 consolidated with FedEx's financial position as of May 31, 1998. The Company's consolidated results of operations and cash flows for the years ended May 31, 1997 and 1996 comprise Caliber's calendar years 1996 and 1995 consolidated with FedEx's fiscal years 1997 and 1996. The Company's consolidated financial position as of May 31, 1997 consists of Caliber's financial position as of December 31, 1996 consolidated with FedEx's financial position as of May 31, 1997. The results of operations for FedEx and Caliber and the combined amounts presented in the Company's consolidated financial statements are as follows:
Years Ended Six Months Ended In thousands May 31, November 30, 1997 1997 1996 (Unaudited) Revenues: FedEx $11,519,750 $10,273,619 $6,596,377 Caliber 2,718,142 2,448,172 1,212,132 ----------- ----------- ---------- $14,237,892 $12,721,791 $7,808,509 ----------- ----------- ---------- Net Income (Loss): FedEx $ 361,227 $ 307,777 $ 250,272 Caliber (165,123) (27,205) 64,329 ----------- ----------- ---------- $ 196,104 $ 280,572 $ 314,601 ----------- ----------- ---------- Other Changes in Common Stockholders' Investment: FedEx $ 25,148 $ 22,793 $ (3,254) Caliber (32,531) (251,888) (3,826) ----------- ----------- ---------- $ (7,383) $ (229,095) $ (7,080) ----------- ----------- ----------
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 restated 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 has been included in the Company's Consolidated Statements of Changes in Common Stockholders' Investment 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. P38 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, except for B747 airframe and engine overhaul maintenance which is accrued and charged to expense on the basis of hours flown. 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 assigned residual values. Vehicles are depreciated on a straight-line basis over 5 to 10 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, 1998 and 1997, were deferred gains of $338,119,000 and $340,166,000, 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, 1998 and 1997, were $324,203,000 and $289,822,000, respectively, representing the cumulative difference between rent expense and rent payments. Self-insurance reserves. The Company is self-insured up to certain levels for workers' compensation, employee health care and vehicle liabilities. Reserves are based on the actuarially estimated cost of claims. Included in other liabilities at May 31, 1998 and 1997, were $277,696,000 and $275,663,000, respectively, representing the long-term portion of self-insurance reserves 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 $33,009,000, $45,717,000 and $44,624,000 for 1998, 1997 and 1996, respectively. Advertising. Advertising costs are generally expensed as incurred and are included in other operating expenses. Advertising expenses were $183,253,000, $162,337,000 and $145,592,000 for 1998, 1997 and 1996, respectively. Cash equivalents. Cash equivalents are cash in excess of current operating requirements 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 $11,283,000, $5,885,000 and $19,059,000 in 1998, 1997 and 1996, respectively. 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 $144,580,000 and $131,927,000 at May 31, 1998 and 1997, 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 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 generally recognized upon delivery of shipments. For shipments in transit, revenue is recorded based on the percentage of service completed. Earnings per share. In accordance with the provisions of Statement of Financial Accounting Standards P39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Diluted earnings per share is computed by dividing net income by the number of weighted-average common and common equivalent shares outstanding during the year (See Note 8). Recent pronouncements. In 1999, the Company will adopt the provisions of three Statements of Financial Accounting Standards ("SFAS") recently issued by the Financial Accounting Standards Board. SFAS No. 130, "Reporting Comprehensive Income," establishes standards for displaying comprehensive income and its components in a full set of general purpose financial statements. SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," establishes standards for reporting information about operating segments in annual financial statements and requires reporting selected information about operating segments in interim financial reports issued to shareholders. SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," standardizes the disclosures for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis and eliminates other disclosures no longer useful as prescribed in previous standards. SFAS Nos. 130, 131 and 132 only affect financial disclosures in interim and annual reports; therefore, the adoption of these accounting standards will not have an impact on the Company's financial condition or results of operations. Effective June 1, 1998, the Company adopted Statement of Position ("SOP") 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use," released by the American Institute of Certified Public Accountants in March 1998. SOP 98-1 provides guidance on accounting for these costs and requires that certain related expenses be capitalized. The Company estimates the pre-tax benefit of the adoption of this Statement to be approximately $30,000,000 in 1999. Reclassifications. Certain prior year amounts have been reclassified to conform to the 1998 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 EXPENSES May 31 - ----------------------------------- In thousands 1998 1997 Insurance $ 292,173 $ 266,397 Compensated absences 278,550 260,724 Employee benefits 190,056 145,556 Taxes other than income taxes 188,464 159,180 Salaries 143,876 126,030 Aircraft overhaul 73,643 84,006 Other 234,138 181,146 ---------- ---------- $1,400,900 $1,223,039 P40
NOTE 4: LONG-TERM DEBT May 31 - ------------------------------------------------------------------- In thousands 1998 1997 Unsecured notes payable, interest rates of 7.60% to 10.57%, due through 2098 $1,253,770 $1,128,525 ---------- ---------- Unsecured sinking fund debentures, interest rate of 9.63%, due through 2020 98,529 98,461 ---------- ---------- Commercial paper - 200,904 ---------- ---------- Capital lease obligations and tax exempt bonds, due through 2017, interest rates of 5.35% to 7.88% 253,425 255,100 Less bond reserves 9,024 11,096 ---------- ---------- 244,401 244,004 ---------- ---------- Other debt, interest rates of 9.68% to 9.98% 46,009 52,726 ---------- ---------- 1,642,709 1,724,620 Less current portion 257,529 126,666 ---------- ---------- $1,385,180 $1,597,954
The Company has a revolving credit agreement with domestic and foreign banks that provides for a total commitment of $1,000,000,000, all of which was available at May 31, 1998. This agreement is composed of two parts. The first part provides for a commitment of $800,000,000 through January 15, 2003. The second part provides for a commitment of $200,000,000 through January 14, 1999. 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 operations or the ability to pay dividends. As of May 31, 1998, approximately $1,066,000,000 was available for the payment of dividends under the restrictive covenant of the agreement. Commercial paper borrowings are backed by unused commitments under the revolving credit agreement and reduce the amount available under the agreement. Borrowings under this credit agreement and commercial paper borrowings are classified as long-term based on the Company's ability and intent to refinance such borrowings. Tax exempt bonds were issued by the Memphis-Shelby County Airport Authority ("MSCAA") and the City of Indianapolis. A lease agreement 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. Caliber has issued $200,000,000 of unsecured notes which is included in long- term debt. The 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 certain leasing transactions. In July 1997, the MSCAA issued $20,105,000 of 5.35% Special Facilities Revenue Bonds. The proceeds of the bonds in combination with other funds were used to refund outstanding MSCAA 1982B 8.3% bonds on September 2, 1997. The 1997 bonds have a maturity date of September 1, 2012. FedEx is obligated under a lease agreement with MSCAA to pay rentals equal to the principal and interest on the bonds. In July 1997, FedEx issued $250,000,000 of 7.6% unsecured senior notes due July 1, 2097, under its July 1996 shelf registration statement filed with the Securities and Exchange Commission. Scheduled annual principal maturities of long-term debt for the five years subsequent to May 31, 1998, are as follows: $257,500,000 in 1999; $14,900,000 in 2000; $11,300,000 in 2001; $206,900,000 in 2002; and $10,900,000 in 2003. The Company's long-term debt, exclusive of capital leases, had carrying values of $1,446,000,000 and $1,322,000,000 at May 31, 1998 and 1997, respectively, compared with fair values of approximately $1,597,000,000 and $1,423,000,000 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 which expire at various dates through 2025. In addition, supplemental aircraft are leased under agreements which generally provide for cancellation upon 30 days' notice. P41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property and equipment recorded under capital leases at May 31 was as follows:
In thousands 1998 1997 Package handling and ground support equipment and vehicles $261,985 $274,017 Facilities 134,442 134,442 Computer and electronic equipment and other 6,518 6,520 -------- -------- 402,945 414,979 Less accumulated amortization 274,494 277,406 -------- -------- $128,451 $137,573 Rent expense under operating leases for the years ended May 31 was as follows: In thousands 1998 1997 1996 Minimum rentals $1,135,567 $ 986,758 $866,865 Contingent rentals 60,925 57,806 61,164 ---------- ---------- -------- $1,196,492 $1,044,564 $928,029
Contingent rentals are based on mileage 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, 1998 follows: In thousands Capital Leases Operating Leases 1999 $ 15,023 $ 960,462 2000 15,023 918,193 2001 15,023 843,352 2002 15,023 778,016 2003 15,023 716,559 Thereafter 317,397 8,225,590 --------- ----------- $ 392,512 $12,442,172 At May 31, 1998, the present value of future minimum lease payments for capital lease obligations was $200,183,000. 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, 1998, none of these shares had been issued. NOTE 7: COMMON STOCKHOLDERS' INVESTMENT Stock Compensation Plans At May 31, 1998, the Company had options and awards outstanding under 12 stock- based compensation plans consisting of nine fixed stock option plans and three restricted stock plans, which are described below. As of May 31, 1998, there were 10,049,688 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, 1998, a total of 6,112,517 shares at an average cost of $23.61 per share had been purchased and reissued under the above-mentioned plans. On January 27, 1998, as part of the Caliber acquisition, 1,950,251 shares of Caliber treasury stock (equivalent to 1,560,201 shares of FDX common stock) were cancelled. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its plans. Accordingly, no compensation cost was recognized for its fixed stock option plans. The compensation cost charged against income for its restricted stock plans was $5,817,000, $3,421,000 and $2,227,000 for 1998, 1997 and 1996, respectively. Had compensation cost for the Company's stock-based compensation plans been determined consistent with SFAS 123, "Accounting for Stock-Based Compensation," P42 the Company's net income and earnings per share would have been the pro forma amounts indicated below: In thousands, except per share data 1998 1997 1996 Net income: As reported $503,030 $196,104 $280,572 Pro forma 489,556 187,624 275,299 -------- -------- -------- Earnings per share, assuming dilution: As reported $ 3.37 $ 1.33 $ 1.92 Pro forma 3.28 1.27 1.89 The pro forma disclosures, applying SFAS 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 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 1993 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, 1998, there were 2,863,362 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: 1998 1997 1996 Dividend yield 0% 0% 0% Expected volatility 25% 25% 25% Risk-free interest rate 5.4%-6.5% 5.8%-6.9% 5.9%-6.4% Expected lives 2.5-6.5 years 2.5-8.5 years 2.5-7.5 years The following table summarizes information about the Company's fixed stock option plans for the years ended May 31:
1998 1997 1996 Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding at beginning of year 6,761,730 $34.17 6,444,178 $31.53 6,377,979 $27.59 Granted 1,242,772 56.40 1,700,532 40.04 1,823,369 40.71 Exercised (1,168,492) 26.89 (1,136,503) 27.30 (1,421,890) 25.41 Forfeited (141,784) 39.01 (268,030) 35.98 (335,280) 32.46 ---------- ---------- ---------- Outstanding at end of year 6,694,226 39.47 6,740,177 34.21 6,444,178 31.53 ---------- ---------- ---------- Exercisable at end of year 2,674,813 33.84 2,265,149 27.84 2,452,800 25.10
P43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The weighted-average fair value of options granted during the year was $16.49, $16.23 and $13.07 for the years ended May 31, 1998, 1997 and 1996, respectively. The following table summarizes information about fixed stock options outstanding at May 31, 1998:
Options Outstanding Options Exercisable Weighted- Average Weighted- Weighted- Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life Price Exercisable Price $15.28-$22.56 363,615 4.0 years $19.80 362,975 $19.80 $23.13-$33.25 1,977,616 5.4 years 30.30 1,199,998 29.97 $35.00-$52.88 3,983,415 7.8 years 43.41 1,111,840 42.61 $59.06-$79.75 369,580 9.4 years 65.38 - - --------- --------- $15.28-$79.75 6,694,226 7.0 years 39.47 2,674,813 33.84
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 expense related to these plans is recorded as a reduction of common stockholders' investment and is being amortized as restrictions on such shares expire. The following table summarizes information about restricted stock awards for the years ended May 31: 1998 1997 1996 Weighted- Weighted- Weighted- Average Average Average Shares Fair Value Shares Fair Value Shares Fair Value Awarded 120,000 $65.98 201,900 $51.93 350,500 $39.65 Forfeited 14,000 69.88 18,000 40.03 29,000 38.96 At May 31, 1998, there were 492,100 shares available for future awards under these plans. P44 NOTE 8: COMPUTATION OF EARNINGS PER SHARE The calculation of basic and diluted earnings per share for the years ended May 31 was as follows:
In thousands, except per share amounts: 1998 1997 1996 Income from continuing operations $498,155 $196,104 $400,186 Loss from discontinued operations - - (69,950) Income (loss) from discontinuance 4,875 - (49,664) -------- -------- -------- Net income applicable to common stockholders $503,030 $196,104 $280,572 -------- -------- -------- Average shares of common stock outstanding 146,701 145,713 144,695 Basic earnings per share: Continuing operations $ 3.40 $ 1.35 $ 2.76 Discontinued operations Loss from discontinued operations - - (.48) Income (loss) from discontinuance .03 - (.34) -------- -------- -------- $ 3.43 $ 1.35 $ 1.94 -------- -------- -------- Average shares of common stock outstanding 146,701 145,713 144,695 Common equivalent shares: Assumed exercise of outstanding dilutive options 6,924 6,100 5,250 Less shares repurchased from proceeds of assumed exercise of options (4,421) (4,585) (4,102) -------- -------- -------- Average common and common equivalent shares 149,204 147,228 145,843 Diluted earnings per share: Continuing operations $ 3.34 $ 1.33 $ 2.74 Discontinued operations Loss from discontinued operations - - (.48) Income (loss) from discontinuance .03 - (.34) -------- -------- -------- $ 3.37 $ 1.33 $ 1.92 NOTE 9: INCOME TAXES The components of the provision for income taxes for the years ended May 31 were as follows: In thousands 1998 1997 1996 Current provision: Domestic Federal $267,471 $153,244 $197,948 State and local 32,839 29,344 24,431 Foreign 36,543 44,165 37,759 -------- -------- -------- 336,853 226,753 260,138 -------- -------- -------- Deferred provision: Domestic Federal 56,408 577 35,021 State and local 7,860 95 4,398 Foreign 242 2,336 2,351 -------- -------- -------- 64,510 3,008 41,770 -------- -------- -------- $401,363 $229,761 $301,908
P45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company's operations included the following income (loss) with respect to entities in foreign locations for the years ended May 31: In thousands 1998 1997 1996 Entities with pre-tax income $ 208,000 $ 205,000 $ 153,000 Entities with pre-tax losses (306,000) (191,000) (236,000) --------- --------- --------- $ (98,000) $ 14,000 $ (83,000) 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: 1998 1997 1996 Statutory U.S. income tax rate 35.0% 35.0% 35.0% Increase resulting from: Goodwill amortization 0.5 0.9 1.0 Foreign operations 0.8 0.7 1.7 State and local income taxes, net of federal benefit 2.7 2.9 2.6 Other, net 2.5 3.5 2.7 Non-recurring items (Caliber acquisition 1998, Viking restructuring 1997) 3.1 10.9 - ----- ----- ----- Effective tax rate 44.6% 53.9% 43.0% ----- ----- ----- Effective tax rate (excluding non-recurring items) 41.5% 43.0% 43.0% The significant components of deferred tax assets and liabilities as of May 31 were as follows: In thousands
1998 1997 Deferred Deferred Deferred Deferred Tax Assets Tax Liabilities Tax Assets Tax Liabilities Depreciation $ - $523,843 $ - $429,350 Deferred gains on sales of assets 86,053 - 83,413 - Employee benefits 126,513 22,595 88,467 18,830 Self-insurance reserves 204,303 - 196,684 - Other 183,941 95,729 189,986 95,246 -------- -------- -------- -------- $600,810 $642,167 $558,550 $543,426
NOTE 10: PENSION AND PROFIT SHARING PLANS The Company sponsors defined benefit pension plans covering substantially all employees. The largest plans cover U.S. domestic 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, 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. P46
The following table sets forth the funded status of the plans as of May 31: In thousands 1998 1997 Plan assets at fair value $4,434,870 $3,615,028 Actuarial present value of the projected benefit obligation for service rendered to date 4,121,795 3,151,083 ---------- ---------- Plan assets in excess of projected benefit obligation 313,075 463,945 Unrecognized net gains from past experience different from that assumed and effects of changes in assumptions (196,519) (338,491) Prior service cost not yet recognized in net periodic cost 5,757 16,063 Unrecognized transition amount (13,197) (13,695) Adjustment required to recognize minimum liability (847) - ---------- ---------- Net pension asset $ 108,269 $ 127,822 ---------- ---------- Accumulated benefit obligation $2,865,542 $2,098,875 ---------- ---------- Vested benefit obligation $2,684,692 $1,950,809 Net periodic pension cost for the years ended May 31 included the following components: In thousands 1998 1997 1996 Service cost - benefits earned during the period $ 250,753 $ 246,443 $ 196,990 Interest cost on projected benefit obligation 245,697 221,975 174,130 Actual return on plan assets (730,436) (463,442) (474,434) Net amortization and deferral 350,711 141,514 260,335 --------- ---------- ---------- $ 116,725 $ 146,490 $ 157,021 The following actuarial assumptions were used in determining net pension cost and projected benefit obligations: 1998 1997 1996 Weighted-average discount rate 7.0% 8.0% 7.9% Weighted-average rate of increase in future compensation levels 4.6 5.4 5.4 Weighted-average expected long-term rate of return on assets 10.3 10.3 9.3
Plan assets consist primarily of marketable equity securities and fixed income instruments. The Company also has profit sharing plans, which cover substantially all U.S. domestic 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 $124,700,000 in 1998, $107,400,000 in 1997 and $95,000,000 in 1996. The 1998 amount consists of contributions to the plans of $81,600,000 and cash distributions made outside the plans directly to employees of $43,100,000. The 1997 amount consists of contributions to the plans of $78,800,000 and cash distributions made outside the plans directly to employees of $28,600,000. NOTE 11: POSTRETIREMENT BENEFIT PLANS FedEx offers medical and dental coverage to all eligible U.S. domestic retirees and their eligible dependents. Vision coverage is provided for retirees, but not their dependents. Substantially all of FedEx's U.S. domestic 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. Certain of the Caliber companies offer similar benefits to their eligible retirees. P47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table sets forth the accrued postretirement benefit cost as of May 31: In thousands 1998 1997 Accumulated postretirement benefit obligation: Retirees $ 52,559 $ 46,469 Fully eligible active employees 44,141 42,221 Other active employees, not fully eligible 120,327 95,844 -------- -------- 217,027 184,534 Unrecognized net gain 13,531 29,291 Unrecognized prior service benefit 1,477 - -------- -------- $232,035 $213,825 Net postretirement benefit cost for the years ended May 31 was as follows: In thousands 1998 1997 1996 Service cost $18,385 $17,830 $ 13,608 Interest cost 14,767 13,663 12,577 Amortization of accumulated gains (619) (252) (802) Amortization of unrecognized prior service benefit (90) - - ------- ------- ------- $32,443 $31,241 $25,383 FedEx's future medical benefit costs were estimated to increase at an annual rate of 9.5% during 1999, 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 8.0% during 1999, decreasing to an annual growth rate of 5.25% in 2010 and thereafter. FedEx's cost is capped at 150% of 1993 employer cost and, therefore, will not be subject to medical and dental trends after the capped cost is attained, projected to be in 2000. Caliber's health care costs were estimated to increase at an annual rate of 8.5% during 1999, decreasing to an annual growth rate of 5.25% in 2005 and thereafter. Primarily because of the cap on FedEx's cost, a 1% increase in these annual trend rates would not have a significant impact on the accumulated postretirement benefit obligation of the Company at May 31, 1998, or 1998 benefit expense. The weighted-average discount rates used in estimating the accumulated postretirement benefit obligation were 7.2% and 7.8% at May 31, 1998 and 1997, respectively. The Company pays claims as incurred. NOTE 12: BUSINESS SEGMENT INFORMATION The Company is primarily composed of the operations of FedEx and RPS, Inc. ("RPS"). FedEx is in a single line of business - the worldwide express transportation and distribution of goods and documents. RPS is a ground small- package carrier. The operations represented in the Other category are also in the transportation industry and include Viking Freight, Inc. ("Viking"), a regional freight carrier, Caliber Logistics, Inc., a contract logistics provider and Roberts Express, Inc., a surface expedited carrier. For reporting purposes, operations for FedEx are classified into two geographic areas, U.S. domestic and international. Shipments which either originate in or are destined to locations outside the United States are categorized as international. P48 A summary of selected financial information for the Company's operations for the years ended or at May 31 is as follows: In thousands
FedEx FedEx U.S. Domestic International RPS Other Total Revenues: 1998 $9,665,342 $3,589,499 $1,710,378 $ 907,591 $15,872,810 1997 8,322,037 3,197,713 1,344,307 1,373,835 14,237,892 1996 7,466,311 2,807,308 1,292,748 1,155,424 12,721,791 Operating Income (Loss): 1998 $ 752,563 $ 84,170 $ 172,033 $ 1,894/(1)/ $ 1,010,660 1997 558,040 141,002 135,721 (327,761)/(2)/ 507,002 1996 542,168 81,656 173,610 (17,882) 779,552 Identifiable Assets: 1998 $6,872,952 $1,560,154 $ 799,733 $ 453,221 $ 9,686,060 1997 6,122,885 1,502,601 713,887 704,943 9,044,316
/(1)/ Includes $74,000,000 of merger expenses. See Note 1. /(2)/ Includes charges related to the Viking restructuring. See Note 17. Identifiable assets used jointly in U.S. domestic and international operations (principally aircraft) have been allocated based on estimated usage. International revenues related to services originating in the United States totaled $1,588,400,000, $1,433,700,000 and $1,316,100,000 for the years ended May 31, 1998, 1997 and 1996, respectively. NOTE 13: SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest expense and income taxes for the years ended May 31 was as follows: In thousands 1998 1997 1996 Interest (net of capitalized interest) $130,250 $108,828 $116,535 Income taxes 355,563 195,253 245,487 Non-cash investing and financing activities for the years ended May 31 were as follows: In thousands
1998 1997 1996 Fair value of assets surrendered under exchange agreements (with two airlines) $ 90,428 $ 62,018 - Fair value of assets acquired under exchange agreements 78,148 46,662 - Fair value of assets receivable under exchange agreements 12,280 15,356 -
NOTE 14: COMMITMENTS AND CONTINGENCIES The Company's annual purchase commitments under various contracts as of May 31, 1998, were as follows: In thousands Aircraft- Aircraft Related/(1)/ Other/(2)/ Total 1999 $530,500 $484,300 $487,400 $1,502,200 2000 584,600 397,200 168,500 1,150,300 2001 269,800 319,700 34,200 623,700 2002 240,600 147,200 9,300 397,100 2003 457,400 156,600 - 614,000 /(1)/ Primarily aircraft modifications, rotables, and spare parts and engines. /(2)/ Facilities, vehicles, computer and other equipment. P49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At May 31, 1998, FedEx was committed to purchase 12 Airbus A300s, 35 MD11s and 50 Ayers ALM 200s to be delivered through 2007. Deposits and progress payments of $94,459,000 have been made toward these purchases. During 1997, FedEx entered into agreements with two airlines to acquire 53 DC10s, 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 29 additional DC10s along with additional aircraft engines and equipment. In March 1998, put options were exercised by an airline requiring FedEx to purchase seven MD11s for a total purchase price of $416,000,000. Delivery of the aircraft will begin in 2000. 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. At May 31, 1998, all such contracts had expired. At May 31, 1997, FedEx had contracts with various financial institutions covering a total notional volume of 396,900,000 gallons (approximately 54% of FedEx's annual jet fuel consumption), with some contracts extending through May 1998. Based on market prices at May 31, 1997, the fair value of these contracts was a liability of approximately $418,000 as of such date. Under jet fuel contracts, FedEx made payments of $28,764,000 in 1998, received $15,162,000 (net of payments) in 1997 and received $1,977,000 in 1996. NOTE 15: LEGAL PROCEEDINGS Customers of FedEx have filed four 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 of 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. Three of those cases were consolidated in Minnesota Federal District Court. That court stayed the consolidated cases in favor of a case filed in Circuit Court of Greene County, Alabama. The stay was lifted in July 1998. The complaint in the Alabama case also alleges that FedEx continued to collect the excise tax on the transportation of property shipped by air after the tax expired again on December 31, 1996. A fifth case, filed in the Supreme Court of New York, New York County, containing allegations and requests for relief substantially similar to the other four cases was dismissed with prejudice on 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 have appealed. 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 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 10 years through September 30, 2007. FedEx intends to vigorously defend itself in these cases. No amount has been reserved for these contingencies. FDX Corporation and its subsidiaries are subject to other legal proceedings and claims which 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 16: DISCONTINUED OPERATIONS On January 2, 1996, Caliber distributed to its shareholders 95% of the issued and outstanding shares of common stock of Roadway Express, Inc. ("REX"), its wholly-owned subsidiary. This distribution, which was tax-free for federal income tax purposes to Caliber and its shareholders, was made to the holders of record of Caliber's common stock at the close of business on December 29, 1995. Shareholders received one share of REX common stock for every two shares of Caliber common stock held on that date. As a result, shareholders' equity was reduced by $199,700,000, which represented the book value of the net assets distributed. Caliber's remaining investment in REX amounted to $8,400,000 and is included in other assets as of May 31, 1997. The remaining investment in REX was sold during the first quarter of 1998. On November 6, 1995, Caliber announced plans to exit the air freight business served by its wholly-owned subsidiary, Roadway Global Air, Inc. ("RGA"). Caliber recorded a pre-tax charge of $64,925,000 related to the discontinuance of this business. Income from discontinuance of $4,875,000, net of tax, in 1998 included the favorable settlement of leases and other contractual obligations. P50 Loss from discontinued operations for the year ended May 31, 1996 consists of the following: In thousands REX RGA Total Revenue $2,288,845 $ 99,425 $2,388,270 Operating expenses 2,299,615 180,557 2,480,172 ---------- -------- ----------- Operating loss (10,770) (81,132) (91,902) Other expense, net (3,103) (6,571) (9,674) ---------- -------- ----------- Loss before income taxes (13,873) (87,703) (101,576) Income tax benefit 1,206 30,420 31,626 ---------- -------- ----------- Loss from discontinued operations $ (12,667) $(57,283) $ (69,950) The loss from discontinuance for the year ended May 31, 1996 consists of the following: In thousands Costs related to the discontinuance of RGA's air freight business $ (64,925) Transaction costs for the spin-off of REX (7,518) ----------- Loss before income taxes (72,443) Income tax benefit 22,779 ----------- Loss from discontinuance $ (49,664) NOTE 17: UNUSUAL EVENTS 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 pre-tax 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, Caliber recorded a pre-tax asset impairment charge of $225,000,000 ($175,000,000, net of tax) in 1997 and a pre- tax 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 Common Stockholders' Investment 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 which 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 all but $11,640,000 of the assets to be disposed of during 1998. Remaining accrued restructuring costs at May 31, 1998 of $18,900,000 relate primarily to future lease obligations. Results of operations associated with the assets held for disposal are included in operating results in 1998 and 1997. FedEx received $7,800,000 in 1996 from the bankruptcy estate of a firm engaged by FedEx in 1990 to remit payments of employee withholding taxes. This amount is a partial recovery of a $32,000,000 loss incurred by FedEx in 1991 that resulted from the firm's failure to remit certain of these tax payments to appropriate authorities. FedEx has received $17,900,000 from the bankruptcy estate of the firm. All major issues pertaining to the bankruptcy have been resolved, and any additional amounts FedEx may receive are expected to be insignificant. P51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18: SUMMARY OF QUARTERLY OPERATING RESULTS (UNAUDITED) In thousands, except earnings per share
First Second Third Fourth Quarter/(1)/ Quarter/(2)/ Quarter/(3,4)/ Quarter/(5,6)/ 1998 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 $ 1.13 $ 1.02 $ .12 $ 1.16 Earnings per common share - assuming dilution $ 1.11 $ 1.00 $ .12 $ 1.14 1997 Revenues $3,274,386 $3,468,270 $3,534,045 $3,961,191 Operating income 148,099 186,341 133,151 39,411 Income before income taxes 124,688 180,422 106,803 13,952 Income from continuing operations 71,571 103,937 61,018 (40,422) Net income (loss) 71,571 103,937 61,018 (40,422) Earnings (loss) per common share $ .49 $ .71 $ .42 $ (.28) Earnings (loss) per common share - assuming dilution $ .49 $ .71 $ .41 $ (.28) /(1)/ 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. First quarter 1997 included Caliber's results for the 12-week period from January 1, 1996 to March 23, 1996 consolidated with FedEx's results for the three months ended August 31, 1996. /(2)/ 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. Second quarter 1997 included Caliber's results for the 12- week period from March 24, 1996 to June 15, 1996 consolidated with FedEx's results for the three months ended November 30, 1996. /(3)/ 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 1997 included Caliber's results for the 12- week period from June 16, 1996 to September 7, 1996 consolidated with FedEx's results for the three months ended February 28, 1997. /(4)/ Third quarter 1998 results included $88,000,000 of expenses ($.53 per share, net of tax, assuming dilution) related to the acquisition of Caliber and the formation of the Company. /(5)/ Fourth quarter 1998 included Caliber's results for the 13-week period from March 1, 1998 to May 31, 1998 consolidated with FedEx's results for the three months ended May 31, 1998. Fourth quarter 1997 included Caliber's results for the 16-week period from September 8, 1996 to December 31, 1996 consolidated with FedEx's results for the three months ended May 31, 1997. /(6)/ Caliber announced a major restructuring of its Viking operations on March 27, 1997. Non-recurring charges relating to the restructuring included $225,000,000 ($1.18 per share, net of tax, assuming dilution) in the fourth quarter of 1997.
P52 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, 1998 and 1997, and the related consolidated statements of income, common stockholders' investment and cash flows for each of the three years in the period ended May 31, 1998. 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 December 31, 1996, balance sheet and the related statements of income, shareholders' equity and cash flows for each of the two years in the period 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 as of May 31, 1997, and for each of the two years in the period ended May 31, 1997, and reflect total assets of 16 percent at May 31, 1997, and total revenues of 19 percent in both 1996 and 1997 of the related FDX Corporation consolidated totals. 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 1998, in conformity with generally accepted accounting principles. /s/ Arthur Anderson LLP Memphis, Tennessee July 8, 1998 P53 SELECTED CONSOLIDATED FINANCIAL DATA
Years ended May 31 In thousands, except per share amounts and Other Operating Data 1998 1997 1996 1995 1994 OPERATING RESULTS Revenues $15,872,810 $14,237,892 $12,721,791 $11,719,596 $10,301,946 Operating income 1,010,660 507,002 779,552 756,247 681,815 Income from continuing operations before income taxes 899,518 425,865 702,094 693,564 540,131 Income from continuing operations 498,155 196,104 400,186 396,125 295,975 Income (loss) from discontinued operations 4,875 - (119,614) (78,977) 27,730 Cumulative effect of accounting changes - - - - (18,131) Net income $ 503,030 $ 196,104 $ 280,572 $ 317,148 $ 305,574 PER SHARE DATA Earnings (loss) per share: Basic EPS Continuing operations $ 3.40 $ 1.35 $ 2.76 $ 2.76 $ 2.08 Discontinued operations .03 - (.82) (.55) .20 Cumulative effect of accounting changes - - - - (.13) $ 3.43 $ 1.35 $ 1.94 $ 2.21 $ 2.15 Diluted EPS Continuing operations $ 3.34 $ 1.33 $ 2.74 $ 2.74 $ 2.06 Discontinued operations .03 - (.82) (.55) .20 Cumulative effect of accounting changes - - - - (.13) $ 3.37 $ 1.33 $ 1.92 $ 2.19 $ 2.13 Average shares of common stock 146,701 145,713 144,695 143,489 142,284 Average common and common equivalent shares 149,204 147,228 145,843 144,501 143,641 Cash dividends -/(1)/ -/(1)/ -/(1)/ -/(1)/ -/(1)/ FINANCIAL POSITION Property and equipment, net $ 5,935,050 $ 5,470,399 $ 4,973,948 $ 4,421,312 $ 4,042,035 Total assets 9,686,060 9,044,316 8,088,241 7,943,218 7,459,007 Long-term debt, less current portion 1,385,180 1,597,954 1,325,277 1,324,711 1,632,202 Common stockholders' investment 3,961,230 3,501,161 3,312,440 3,260,963 2,971,856 OTHER OPERATING DATA FedEx Express package: Average daily package volume 3,025,999 2,715,894 2,437,662 2,247,594 1,925,105 Average pounds per package 8.5 7.2 6.4 6.3 6.0 Average revenue per pound $ 1.84 $ 2.11 $ 2.31 $ 2.31 $ 2.51 Average revenue per package $ 15.69 $ 15.11 $ 14.87 $ 14.62 $ 15.12 Airfreight: Average daily pounds 2,769,922 2,542,226 2,144,225 2,153,041 1,844,270 Average revenue per pound $ .85 $ .94 $ 1.01 $ 1.06 $ 1.06 Operating weekdays 254 254 256 255 257 Aircraft fleet 613 584 557 496 458 RPS Average daily package volume 1,326,190 1,067,104 1,043,437 1,009,665 854,908 Average revenue per package $ 5.04 $ 4.96 $ 4.92 $ 4.78 $ 4.70 Operating weekdays 256 254 252 253 252 See Note 1 to Notes to Consolidated Financial Statements for a discussion of the periods presented. /(1)/ Caliber declared dividends of $3,899,000, $28,184,000, $54,706,000, $54,620,000 and $53,746,000 for 1998, 1997, 1996, 1995 and 1994, respectively. Caliber declared additional dividends of $10,883,000 from January 1, 1997 to May 24, 1997, that are not included in the amounts above. FedEx did not pay dividends in the years shown. FDX does not intend to pay dividends on FDX common stock.
P54 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) President 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 ALAN B. GRAF, JR. Executive Vice President and Chief Financial Officer KENNETH R. MASTERSON Executive Vice President, General Counsel and Secretary T. MICHAEL GLENN Executive Vice President, Market Development and Corporate Communications DENNIS H. JONES Executive Vice President and Chief Information Officer P55 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, 1998, there were 15,373 stockholders of record. Market information: Following are high and low closing prices, by quarter, for FDX Corporation common stock in fiscal 1998 and 1997. No cash dividends have been declared. First Second Third Fourth Quarter Quarter Quarter Quarter FY 1998 High $70 $82 9/16 $69 11/16 $74 1/4 Low 53 61 1/16 56 3/8 61 1/4 FY 1997 High $41 9/16 $44 7/8 $53 1/8 $57 1/8 Low 37 1/16 36 1/4 40 1/8 50 3/8 Corporate headquarters: 6075 Poplar Avenue, Suite 300, Memphis, Tennessee 38119, (901) 369-3600. Annual meeting: The annual meeting of stockholders will be held at The Memphis Marriott, 2625 Thousand Oaks Boulevard, Memphis, Tennessee, on Monday, September 28, 1998, at 10:00 a.m., CDT. Inquiries: For financial information, contact Elizabeth R. Allen, Investor Relations, FDX Corporation, Box 727, Dept. 1854, Memphis, Tennessee 38194, (901) 395-3478. For general information, contact Shirlee M. Clark, Director, Public Relations, FDX Corporation, Box 727, Dept. 1850, Memphis, Tennessee 38194, (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 Elizabeth R. Allen, Investor Relations, FDX Corporation, Box 727, Dept. 1854, Memphis, Tennessee 38194, (901) 395-3478. 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: First Chicago Trust Company of New York, Shareholder Services, P.O. Box 2500, Jersey City, New Jersey 07303-2500, (800) 446-2617/John H. Ruocco (312) 407-5153. 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: FDX(SM) is a service mark of FDX Corporation. Federal Express(R), FedEx(R), the FedEx(R) logo, FedEx International Priority(R), FedEx International Economy(R), FedEx International Express Freight(R), FedEx Express Saver(R) and FedEx interNetShip(R) are registered service marks of Federal Express Corporation. Reg. U.S. Pat. & Tm. Off. and in certain other countries. FedEx Air Charter(SM) and FedEx International Airport to Airport(SM) are service marks of Federal Express Corporation. RPS(R) and the RPS(R) logo are registered service marks of RPS, Inc. Reg. U.S. Pat. & Tm. Off. Viking Freight(SM) is a service mark of Viking Freight, Inc. Caliber Logistics(SM) is a service mark of Caliber Logistics, Inc. Roberts Express(R) is a registered service mark of Roberts Express, Inc. Reg. U.S. Pat. & Tm. Off. P56 HOW TIME FLIES When Federal Express took flight on April 17, 1973, it delivered 186 packages to 25 cities. One courier sold his watch to buy fuel for his van. Others used their own cars for deliveries. The folks in Pittsburgh did business out of a motel room. Anything to make this vision fly. FedEx's 25th anniversary is cause to celebrate not only the founding of an industry, but that the company did it so well. FedEx set standards for service against which every carrier is measured, instilled employees with a singular commitment to satisfy the customer, innovated incessantly, and proved that a service company could win the Malcolm Baldrige National Quality Award. In 25 years, FedEx redefined service for all time. [Photo of 25th anniversary employee gathering with FedEx trucks and plane] FDX Corporation 6075 Poplar Avenue Memphis, Tennessee 38119 [Photo: Aerial, fish-eye view of city skyline] EX-21 5 SUBSIDIARIES OF REGISTRANT 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 3. PIK Holdings Limited United Kingdom 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
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JURISDICTION OF ORGANIZATION OR REGISTRATION -------------------------------- 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 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 (Hong Kong) Limited Hong Kong H. Federal Express International (France) SNC France I. Federal Express International Limited United Kingdom J. Federal Express International Y Compania S.N.C. de C.V. Mexico K. Federal Express Italy Inc. Delaware 1. Federal Express Italia SpA Italy L. Federal Express Japan K.K. Japan
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JURISDICTION OF ORGANIZATION OR REGISTRATION -------------------------------- M. Federal Express Limited United Kingdom N. Federal Express Luxembourg, Inc. Delaware O. Federal Express Pacific, Inc. Delaware 1. Federal Express Services (M) Sdn. Bhd. Malaysia 2. The Flying Tiger Line, Limited Hong Kong 3. Udara Express Courier Services Sdn. Bhd. Malaysia P. Federal Express Parcel Services Limited United Kingdom Q. Federal Express (Singapore) PTE, LTD. Singapore R. Federal Express (Thailand) Limited Thailand S. Federal Express (U.K.) Limited United Kingdom a. Federal Express (U.K.) Pension Trustees Ltd. United Kingdom T. FedEx (Mauritius) Ltd. Mauritius U. Fedex (N. I.) Limited Northern Ireland V. Winchmore Developments Ltd. United Kingdom a. Concorde Advertising Limited United Kingdom IV. Federal Express Leasing Corporation Delaware V. Fedex Customs Brokerage Corporation Delaware VI. Fedex Foreign Sales Corporation U. S. Virgin Islands VII. Fedex FSC Corporation Barbados VIII. Fedex International Transmission Corporation Delaware IX. FEDEX Partners, Inc. Delaware X. Flying Tigers Limited New Zealand XI. The Flying Tiger Line (NZ) Limited New Zealand XII. Tiger International Insurance Ltd. Cayman Islands
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JURISDICTION OF ORGANIZATION OR REGISTRATION -------------------------------- 2. CALIBER SYSTEM, INC. Ohio I. Caliber Logistics, Inc. Ohio A. Caliber Dedicated Transportation, Inc. Delaware B. Caliber Intermodal, Inc. Delaware C. Caliber Logistics (Canada), Ltd. Canada D. Caliber Logistics de Mexico, S.A. de C.V. Mexico E. Caliber Logistics Europe, B.V. Netherlands 1. Caliber Logistics Breda, B.V. Netherlands 2. Caliber Logistics GmbH Germany 3. Caliber Logistics UK Ltd. United Kingdom F. Caliber Logistics Healthcare, Inc. Ohio II. Caliber System (Canada), Inc. Canada III. FDX Technology, Inc. Ohio 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
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JURISDICTION OF ORGANIZATION OR REGISTRATION -------------------------------- K. Third Party Services, Inc. Delaware V. RPS, Inc. Delaware A. Caliber Customer Support, Inc. Delaware B. Caliber Direct, Inc. Delaware C. Circle Investment Co. Delaware D. RPS de Mexico, S.A. de C.V. Mexico E. RPS, Ltd. Wyoming F. Services Development Corporation Delaware G. 2839610 Canada Inc. Canada VI. Triangle Investment Co. Delaware VII. 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
5 EX-23.1 6 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in FDX Corporation's Form 10-K for the year ended May 31, 1998 of our report dated July 8, 1998. /s/ ARTHUR ANDERSEN LLP ------------------------------------- Arthur Andersen LLP Memphis, Tennessee August 12, 1998 EX-23.2 7 CONSENT OF INDEPENDENT AUDITORS 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) as of December 31, 1996 and for the two years in the period then ended included in this annual report (Form 10-K) of FDX Corporation for the year ended May 31, 1998. /s/ ERNST & YOUNG LLP ERNST & YOUNG LLP Akron, Ohio August 12, 1998 EX-24 8 POWERS OF ATTORNEY EXHIBIT 24 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, 1998, 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, 1998. /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, 1998, 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, 1998. /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, 1998, 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, 1998. /s/ RALPH D. DENUNZIO ----------------------------- Ralph D. DeNunzio STATE OF NEW YORK COUNTY OF NEW YORK I, Pauline E. Kalahele, 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/ PAULINE E. KALAHELE ----------------------------- Notary Public My Commission Expires: February 28, 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, 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, 1998, 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 22nd day of June, 1998. /s/ JUDITH L. ESTRIN ----------------------------- Judith L. Estrin STATE OF CALIFORNIA COUNTY OF SANTA CLARA I, Deandra J. Wheeler, a Notary Public in and for said County, in the aforesaid State, do hereby certify that Judith L. Estrin, 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 she signed and delivered the said instrument as her free and voluntary act, for the uses and purposes therein set forth. /s/ DEANDRA J. WHEELER ----------------------------- Notary Public My Commission Expires: 8-22-2001 - ---------------------- 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, 1998, 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 29th day of June, 1998. /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: May 8, 1999 - ---------------------- 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, 1998, 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 30th day of June, 1998. /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: Jan. 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, 1998, 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 25th day of June, 1998. /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, 1998, 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, 1998. /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: 8/14/00 - ---------------------- 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, 1998, 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 19th day of June, 1998. /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: January 13, 2001 - ---------------------- 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, 1998, 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, 1998. /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: Jan. 26, 1999 - ---------------------- 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, 1998, 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 24th day of June, 1998. /s/ JOSHUA I. SMITH ----------------------------- Joshua I. Smith STATE OF MARYLAND COUNTY OF PRINCE GEORGE'S I, Myrna I. Baughman, 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/ MYRNA I. BAUGHMAN ----------------------------- Notary Public My Commission Expires: 10-1-99 - ---------------------- 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, 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, 1998, 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, 1998. /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: Jan. 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, 1998, 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, 1998. /s/ PETER S. WILLMOTT ----------------------------- Peter S. Willmott STATE OF ILLINOIS COUNTY OF COOK I, Joan L. Noble, 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/ JOAN L. NOBLE ----------------------------- Notary Public My Commission Expires: 03/05/99 - ---------------------- 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, 1998, 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, 1998. /s/ ALAN B. GRAF, JR. ----------------------------- Alan B. Graf, Jr. STATE OF TENNESSEE COUNTY OF SHELBY I, Edna M. Kennon, 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/ EDNA M. KENNON ----------------------------- Notary Public My Commission Expires: 9-14-99 - ---------------------- 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, 1998, 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, 1998. /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: August 12, 1998 - ---------------------- EX-27 9 FINANCIAL DATA SCHEDULE
5 FINANCIAL DATA SCHEDULE-EXHIBIT 27-THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENTS OF INCOME AND THE CONSOLIDATED BALANCE SHEETS ON PAGES 34 AND 35 OF THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED MAY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR MAY-31-1998 JUN-01-1997 MAY-31-1998 229,565 0 2,004,832 61,409 364,714 2,880,132 12,463,874 6,528,824 9,686,060 2,803,839 1,385,180 0 0 14,741 3,946,489 9,686,060 0 15,872,810 0 14,862,150 0 0 124,413 899,518 401,363 498,155 4,875 0 0 503,030 3.43 3.37
EX-99 10 REPORT OF INDEPENDENT AUDITORS EXHIBIT 99 Report of Independent Auditors To the Board of Directors Caliber System, Inc. We have audited the consolidated balance sheet of Caliber System, Inc. and subsidiaries as of December 31, 1996 and the related consolidated statements of income, shareholders' equity and cash flows for each of the two years in the period 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 audits. 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 provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Caliber System, Inc. and subsidiaries at December 31, 1996, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP 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-----