FEDEX CORP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2002, OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .

Commission file number: 1-15829

FEDEX CORPORATION
(Exact name of registrant as specified in its charter)

Delaware		62-1721435
(State of incorporation)		(I.R.S. Employer Identification No.)
942 South Shady Grove Road Memphis, Tennessee		38120
(Address of principal executive offices)		(Zip Code)

(901) 818-7500
(Registrant's telephone number, including area code)

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 ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý No o

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock		Outstanding Shares at January 9, 2003
Common Stock, par value $.10 per share		298,445,880

FEDEX CORPORATION
INDEX

PART I. FINANCIAL INFORMATION

		Page
ITEM 1: Financial Statements
	Condensed Consolidated Balance Sheets November 30, 2002 and May 31, 2002	3-4
	Condensed Consolidated Statements of Income Three and Six Months Ended November 30, 2002 and 2001	5
	Condensed Consolidated Statements of Cash Flows Six Months Ended November 30, 2002 and 2001	6
	Notes to Condensed Consolidated Financial Statements	7-15
	Independent Accountants' Review Report	16
ITEM 2: Management's Discussion and Analysis of Results of Operations and Financial Condition		17-29
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk		30
ITEM 4: Controls and Procedures		30
PART II. OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K		31
Signature		32
Certifications		33-34
Exhibit Index		E-1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FEDEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)

ASSETS

			November 30, 2002		May 31, 2002
			(Unaudited)
Current Assets:
	Cash and cash equivalents		$	519	$	331
	Receivables, less allowances of $157 and $147			2,642		2,491
	Spare parts, supplies and fuel, less allowances of $98 and $91			236		251
	Deferred income taxes			441		469
	Prepaid expenses and other			125		123

		Total current assets		3,963		3,665
Property and Equipment, at Cost				18,376		17,576
	Less accumulated depreciation and amortization			9,834		9,274

		Net property and equipment		8,542		8,302
Other Assets:
	Goodwill			1,063		1,063
	Other			915		782

		Total other assets		1,978		1,845

			$	14,483	$	13,812

See accompanying Notes to Condensed Consolidated Financial Statements.

FEDEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)

LIABILITIES AND STOCKHOLDERS' INVESTMENT

			November 30, 2002			May 31, 2002
			(Unaudited)
Current Liabilities:
	Current portion of long-term debt		$	31		$	6
	Accrued salaries and employee benefits			684			739
	Accounts payable			1,207			1,133
	Accrued expenses			1,294			1,064

		Total current liabilities		3,216			2,942
Long-Term Debt, Less Current Portion				1,775			1,800
Deferred Income Taxes				611			599
Other Liabilities				1,985			1,926
Commitments and Contingencies
Common Stockholders' Investment:
	Common stock, $.10 par value; 800,000,000 shares authorized, 298,573,387 shares issued			30			30
	Additional paid-in capital			1,117			1,144
	Retained earnings			5,853			5,465
	Accumulated other comprehensive income			(51	)		(53	)
	Treasury stock, at cost; deferred compensation and other			(53	)		(41	)

		Total common stockholders' investment		6,896			6,545

			$	14,483		$	13,812

See accompanying Notes to Condensed Consolidated Financial Statements.

FEDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

		Three Months Ended November 30,						Six Months Ended November 30,
		2002			2001			2002			2001
Revenues		$	5,667		$	5,135		$	11,112		$	10,172
Operating expenses:
	Salaries and employee benefits		2,403			2,231			4,829			4,467
	Purchased transportation		549			464			1,067			909
	Rentals and landing fees		465			472			909			904
	Depreciation and amortization		338			342			677			678
	Fuel		336			283			630			573
	Maintenance and repairs		354			292			725			604
	Airline stabilization compensation		—			(116	)		—			(116	)
	Other		795			734			1,565			1,485

			5,240			4,702			10,402			9,504

Operating income			427			433			710			668
Other income (expense):
	Interest, net		(28	)		(36	)		(59	)		(72	)
	Other, net		(4	)		(2	)		(1	)		(1	)

			(32	)		(38	)		(60	)		(73	)

Income before income taxes			395			395			650			595
Provision for income taxes			150			150			247			226

Income before cumulative effect of change in accounting principle			245			245			403			369
Cumulative effect of change in accounting for goodwill, net of tax benefit of $10			—			—			—			(15	)

Net income		$	245		$	245		$	403		$	354

Basic earnings per common share:
	Income before cumulative effect of change in accounting principle	$	.82		$	.82		$	1.35		$	1.24
	Cumulative effect of change in accounting for goodwill		—			—			—			(.05	)

Basic earnings per common share		$	.82		$	.82		$	1.35		$	1.19

Diluted earnings per common share:
	Income before cumulative effect of change in accounting principle	$	.81		$	.81		$	1.33		$	1.22
	Cumulative effect of change in accounting for goodwill		—			—			—			(.05	)

Diluted earnings per common share		$	.81		$	.81		$	1.33		$	1.17

Dividends declared per common share		$	—		$	—		$	..05		$	—

See accompanying Notes to Condensed Consolidated Financial Statements.

FEDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)

		Six Months Ended November 30,
		2002			2001
Net Cash Provided by Operating Activities		$	1,139		$	1,064
Investing Activities:
	Capital expenditures		(888	)		(937	)
	Proceeds from dispositions		11			23
	Other, net		—			(1	)

Net cash used in investing activities			(877	)		(915	)
Financing Activities:
	Principal payments on debt		—			(25	)
	Proceeds from stock issuances		24			28
	Dividends paid		(30	)		—
	Purchase of treasury stock		(67	)		(25	)
	Other, net		(1	)		—

Net cash used in financing activities			(74	)		(22	)

Net increase in cash and cash equivalents			188			127
Cash and cash equivalents at beginning of period			331			121

Cash and cash equivalents at end of period		$	519		$	248

See accompanying Notes to Condensed Consolidated Financial Statements.

FEDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(1) Summary of Significant Accounting Policies

These interim financial statements of FedEx Corporation ("FedEx") have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, the instructions to Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X, and should be read in conjunction with our Annual Report on Form 10-K for the year ended May 31, 2002. Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed therein.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to present fairly our consolidated financial position as of November 30, 2002, the consolidated results of our operations for the three- and six-month periods ended November 30, 2002 and 2001, and our consolidated cash flows for the six-month periods ended November 30, 2002 and 2001. Operating results for the three- and six-month periods ended November 30, 2002 are not necessarily indicative of the results that may be expected for the year ending May 31, 2003.

Except as otherwise indicated, references to years mean our fiscal year ending May 31, 2003 or ended May 31 of the year referenced, and comparisons are to the corresponding period of the prior year.

Certain of our long-term debt is guaranteed by our subsidiaries. The guarantees are full and unconditional, joint and several, and any subsidiaries that are not guarantors are minor as defined by Securities and Exchange Commission ("SEC") regulations. FedEx, as the parent company issuer of this debt, has no independent assets or operations. There are no significant restrictions on our ability or the ability of any guarantor to obtain funds from its subsidiaries by such means as a dividend or loan.

The Emerging Issues Task Force ("EITF") issued EITF 01-10, "Accounting for the Impact of the Terrorist Attacks of September 11, 2001" in September 2001 to establish accounting for the impact of the terrorist attacks of September 11, 2001. Under EITF 01-10, federal assistance provided to air carriers in the form of direct compensation from the U.S. government under the Air Transportation Safety and System Stabilization Act (the "Act") should be recognized when the related losses are incurred and compensation under the Act is probable. During the second and third quarters of 2002, we recognized $119 million ($116 million in the second quarter) of compensation under the Act. To date $101 million of this compensation has been received. While we believe we have complied with all aspects of the Act and that it is probable we will ultimately receive the remaining $18 million, compensation recognized is subject to audit and interpretation by the Department of Transportation. We cannot be assured of the ultimate outcome of such interpretation, but it is reasonably possible that a material reduction to the amount of compensation recognized by us under the Act could occur.

Effective June 1, 2002, we early adopted Statement of Financial Accounting Standards No. ("SFAS") 143, "Accounting for Asset Retirement Obligations." This statement addresses the diverse accounting practices for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The adoption of this statement did not have a material effect on our financial position or results of operations.

Effective June 1, 2002, we adopted SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and provides a single accounting model for the disposal of

long-lived assets from continuing and discontinued operations. The adoption of this statement did not have a material effect on our financial position or results of operations.

In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities." The statement changes the measurement and timing of recognition for exit costs, including restructuring charges, and is effective for any such activities initiated after December 31, 2002. It has no effect on charges recorded for exit activities begun prior to this date. The adoption of this statement is not anticipated to have a material effect on our financial position or results of operations.

In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 elaborates on the disclosures that must be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002 and its recognition requirements are applicable for guarantees issued or modified after December 31, 2002. The adoption of this interpretation is not anticipated to have a material effect on our financial position or results of operations.

In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based Compensation—Transition and Disclosure." This statement amends SFAS 123, "Accounting for Stock-Based Compensation," to provide for alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. The disclosure requirements of this statement are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of this statement is not anticipated to have a material effect on our financial position or results of operations.

Certain prior period amounts have been reclassified to conform to the current period's presentation.

(2) Goodwill and Other Intangible Assets

Effective June 1, 2001, we early adopted SFAS 142, "Goodwill and Other Intangible Assets," which establishes new accounting and reporting requirements for goodwill and other intangible assets. Under SFAS 142, material amounts of recorded goodwill attributable to each of our reporting units were tested for impairment by comparing the fair value of each reporting unit with its carrying value (including attributable goodwill). Based on our initial impairment tests, we recognized an adjustment of $25 million ($15 million or $.05 per share, net of tax) in the first quarter of 2002 to reduce the carrying value of goodwill at a subsidiary of one of our nonreportable operating segments to its implied fair value. Under SFAS 142, the impairment adjustment recognized at adoption of the new rules was reflected as a cumulative effect of accounting change in our 2002 income statement.

The carrying amount of goodwill at November 30, 2002 and May 31, 2002 was attributable as follows: $393 million at Federal Express Corporation ("FedEx Express"); $595 million at FedEx Freight Corporation ("FedEx Freight"); and $75 million at our nonreportable operating segments.

The components of our amortizing intangible assets follow (in millions):

		November 30, 2002					May 31, 2002
		Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Contract based		$	73	$	(35	)	$	73	$	(32	)
Technology based and other			64		(32	)		64		(28	)

	Total	$	137	$	(67	)	$	137	$	(60	)

Amortization expense for intangible assets during the second quarter of 2003 was $4 million ($7 million year-to-date). Estimated amortization expense is $6 million for the remainder of 2003, $9 million for 2004 and $8 million for each of the four succeeding fiscal years.

(3) Comprehensive Income

The following table provides a reconciliation of net income reported in our consolidated financial statements to comprehensive income (in millions):

			Three Months Ended November 30,
			2002		2001
Net income			$	245	$	245
Other comprehensive income:
	Foreign currency translation adjustments, net of deferred tax benefit of $2			—		(10	)
	Adjustment for jet fuel hedging contract charges recognized in income during period, net of deferred taxes of $1			—		2

		Comprehensive income	$	245	$	237

			Six Months Ended November 30,
			2002		2001
Net income			$	403	$	354
Other comprehensive income:
	Foreign currency translation adjustments, net of deferred taxes of $2 and $0			2		(5	)
	Reclassification of deferred jet fuel hedging charge upon adoption of SFAS 133, net of deferred tax benefit of $6			—		(9	)
	Adjustment for jet fuel hedging contract charges recognized in income during period, net of deferred taxes of $3			—		5

		Comprehensive income	$	405	$	345

(4) Financing Arrangements

From time to time, we finance certain operating and investing activities through the issuance of commercial paper. Our commercial paper program is backed by unused commitments under two revolving credit agreements totaling $1 billion and reduces the amount available under these agreements. The revolving credit agreements comprise two parts. The first part provides for $750 million through September 28, 2006. The second part is a 364-day facility providing for $250 million through September 26, 2003, that was amended and restated on September

27, 2002 to, among other things, extend the term to September 26, 2003. At November 30, 2002, no commercial paper was outstanding and the entire $1 billion under the revolving credit agreements was available for future borrowings.

On June 19, 2002, the Memphis-Shelby County Airport Authority (the "Authority") issued $96 million of its Special Facilities Revenue Refunding Bonds, Series 2002 ("Series 2002 Bonds") at par, bearing interest annually at 5.05% and maturing on September 1, 2012. The Series 2002 Bonds were issued to provide funds to refinance bonds issued to finance the acquisition and construction of various facilities and equipment at the Memphis International Airport. Lease agreements with the Authority covering the facilities and equipment financed with bond proceeds, reflected as a capital lease in long-term debt on our November 30, 2002 balance sheet, obligate FedEx Express to make lease payments equal to principal and interest due on the bonds. FedEx Express has separately guaranteed repayment of the Series 2002 Bonds. The proceeds from the Series 2002 Bonds, along with $6 million, including accrued interest and a 2% prepayment premium, were used to refund the previously issued bonds.

(5) Stock Options

We account for stock options using the intrinsic value method wherein compensation expense is recognized on stock options granted to employees only for the excess of the market price of our common stock over the option exercise price on the date of grant. All of our options are granted at amounts equal to the fair value of our stock so no compensation expense is recorded.

Some companies also recognize compensation expense for the fair value of the option right itself. We have elected not to adopt this accounting method because it requires the use of subjective valuation models which we believe are not representative of the real value of the option to either FedEx or its employees. However, we are required to disclose the pro forma effect of accounting for stock options using such a valuation method for all options granted in 1996 and thereafter. We use the Black-Scholes option pricing model to calculate the fair value of options for our pro forma disclosures. The key assumptions for this valuation method include the expected term, stock price volatility, risk-free interest rate, dividend yield, forfeiture rate and exercise price. For FedEx, many of these assumptions are judgmental and highly sensitive in the determination of pro forma compensation expense. Following is a table of the key weighted average assumptions used in the option valuation calculations for the options granted in the three- and six-month periods ended November 30, 2002 and 2001 and a discussion of our methodology for developing each of the assumptions used in the valuation model.

	Three Months Ended November 30,				Six Months Ended November 30,
	2002		2001		2002		2001
Expected lives	4 years		4 years		4 years		4 years
Expected volatility	35.31	%	35.67	%	34.96	%	35.60	%
Risk-free interest rate	2.57	%	3.86	%	4.12	%	4.81	%
Dividend yield	0.406	%	0.000	%	0.379	%	0.000	%

Expected Lives. This is the period of time over which the options granted are expected to remain outstanding. Generally, options granted have a maximum term of ten years. We examine actual stock option exercises to determine the expected term of the options. Based on this experience, our average expected option term is currently four years. The longer the expected term of the option, the higher the calculated fair value of the option.

Expected Volatility. Stock price volatility has a significant, direct effect on the valuation of stock options. Actual changes in the market value of our stock are used to calculate the volatility assumption. We calculate daily market value changes from the date of grant over a past period equal to the expected term of the option to determine volatility.

Risk-Free Interest Rate. This is the U.S. Treasury Strip rate posted at the date of grant having a term equal to the expected term of the option. The risk-free interest rate has a direct effect on the calculated fair value.

Dividend Yield. This is the annual rate of dividends per share over the exercise price of the option. In July 2002, we paid the first dividend in the history of the company. Therefore, the fair value of options prior to 2003 is not affected by the dividend yield. The dividend yield has an inverse effect on the fair value of the option.

Forfeiture Rate. This is the estimated percentage of options granted that are expected to be forfeited or canceled before becoming fully vested. This percentage is derived from historical experience, and will lower compensation expense. Our forfeiture rate is approximately 8%.

During the second quarter of 2003, we made option grants of 125,000 shares at a weighted average exercise price of $49.23 per share. The weighted average Black-Scholes value of these grants under the assumptions indicated above was $14.90 per option. For the six months ended November 30, 2002, 3.0 million shares have been granted at a weighted average exercise price of $53.20. The weighted average Black-Scholes value of these grants under the assumptions indicated above was $17.24 per option. Pro forma net income, stock option compensation expense, and diluted earnings per common share for the three- and six-month periods ended November 30, 2002 and 2001 assuming all options granted in 1996 and thereafter were valued using the Black-Scholes method were as follows (in millions, except per share amounts):

		Three Months Ended November 30,				Six Months Ended November 30,
		2002		2001		2002		2001
Net income:
	As reported	$	245	$	245	$	403	$	354
	Pro forma stock compensation expense, net of tax benefit		8		7		17		15

	Pro forma	$	237	$	238	$	386	$	339

Diluted earnings per common share:
	As reported	$	.81	$	.81	$	1.33	$	1.17
	Pro forma stock option compensation expense		.02		.02		.05		.05

	Pro forma	$	.79	$	.79	$	1.28	$	1.12

Total stock options outstanding at November 30, 2002 represented 6.5% of total outstanding common shares and options.

(6) Computation of Earnings Per Share

The calculation of basic and diluted earnings per common share for the three- and six-month periods ended November 30, 2002 and 2001 was as follows (in millions, except per share amounts):

		Three Months Ended November 30,						Six Months Ended November 30,
		2002			2001			2002			2001
Net income applicable to common stockholders		$	245		$	245		$	403		$	354

Weighted-average shares of common stock outstanding			298			298			298			298

Basic earnings per share		$	.82		$	.82		$	1.35		$	1.19

Weighted-average shares of common stock outstanding			298			298			298			298
Common equivalent shares:
	Assumed exercise of outstanding dilutive options		15			17			15			16
	Less shares repurchased from proceeds of assumed exercise of options		(10	)		(13	)		(11	)		(12	)

Weighted-average common and common equivalent shares			303			302			302			302

Diluted earnings per share		$	.81		$	.81		$	1.33		$	1.17

(7) Business Segment Information

We are a premier global provider of transportation, e-commerce and supply chain management services, whose operations are primarily represented by FedEx Express, the world's largest express transportation company; FedEx Ground Package System, Inc. ("FedEx Ground"), North America's second largest provider of small-package ground delivery service; and FedEx Freight, the largest U.S. provider of regional less-than-truckload freight services. These businesses comprise our reportable operating segments. Other operating companies included in the FedEx portfolio are FedEx Custom Critical, Inc. ("FedEx Custom Critical"), a critical-shipment carrier; FedEx Trade Networks, Inc. ("FedEx Trade Networks"), a global trade services company; and FedEx Corporate Services, Inc. ("FedEx Services"), a provider of sales, marketing, supply chain management services and information technology support for our global brands.

The following table provides a reconciliation of reportable segment revenues and operating income to our consolidated financial statement totals (in millions):

		Three Months Ended November 30,					Six Months Ended November 30,
		2002		2001			2002		2001
Revenue
	FedEx Express	$	4,098	$	3,814		$	8,032	$	7,552
	FedEx Ground		863		677			1,689		1,301
	FedEx Freight		547		487			1,080		998
	Other		159		157			311		321

		$	5,667	$	5,135		$	11,112	$	10,172

Operating income
	FedEx Express	$	228	$	309		$	356	$	430
	FedEx Ground		135		80			236		140
	FedEx Freight		56		47			104		98
	Other		8		(3	)		14		—

		$	427	$	433		$	710	$	668

(8) Commitments and Contingencies

As of November 30, 2002, our purchase commitments for the remainder of 2003 and annually thereafter for each of the next five years under various contracts were as follows (in millions):

	Aircraft		Aircraft- Related⁽¹⁾		Other⁽²⁾		Total
2003 (remainder)	$	66	$	218	$	130	$	414
2004		20		283		76		379
2005		—		282		71		353
2006		19		251		27		297
2007		102		175		13		290
2008		104		77		11		192

(1): Primarily aircraft modifications, rotables, spare parts and spare engines.
(2): Primarily vehicles, facilities, computers, advertising and promotions contracts and other equipment.

FedEx Express is committed to purchase six DC10s, three A300s, two A310s, ten A380s and eight ATR-42s to be delivered through 2012. Deposits and progress payments of $36 million have been made toward these purchases and other planned aircraft-related transactions.

We have guarantees, amounting to $135 million at November 30, 2002, under certain operating leases for the residual values of aircraft, vehicles and facilities at the end of the respective operating lease periods. Under these operating leases, if the fair market value of the leased asset at the end of the lease term is less than an agreed upon value as set forth in the related operating lease agreement, we will be responsible to the lessor for the amount of such deficiency. Based on our expectation that none of these leased assets will have a residual value at the end of the lease term that is less than the value specified in the related operating lease agreement, we do not believe it is probable that we will be required to fund any amounts under the terms of these guarantee arrangements. Accordingly, no accruals have been recognized for these guarantees.

A class action lawsuit is pending in Federal District Court in San Diego, California against FedEx Express generally alleging that customers who had late deliveries during the 1997 Teamsters strike at United Parcel Service were entitled to a full refund of shipping charges pursuant to our money-back guarantee, regardless of whether they gave timely notice of their claim. At the hearing on the plaintiffs' motion for summary judgment, the court ruled against FedEx Express. The judgment totaled approximately $68 million, including interest and fees for the plaintiffs' attorney. We have denied any liability with respect to this claim and intend to vigorously defend ourselves in this case. We have appealed the judgment to the U.S. Court of Appeals for the 9th Circuit and expect a ruling in the next 12 to 18 months. No accrual has been recorded as we believe the case is without merit and it is probable we will prevail upon appeal.

The Illinois state court has granted preliminary approval to a settlement of the Illinois fuel surcharge class action matter. The lawsuit alleges that FedEx Express imposed a fuel surcharge in a manner that is not consistent with the terms and conditions of its contracts with customers. Under the terms of the proposed settlement, we will issue coupons to qualifying class members toward the purchase of future FedEx Express shipping services. The coupons will be subject to certain terms and conditions and will be redeemable for a period of one year from issuance. A hearing to consider objections to the proposed settlement was held on December 12, 2002. We expect the court to issue its ruling on January 31, 2003 on whether to grant final approval to the settlement. The ultimate cost to us under the proposed settlement agreement will not be material.

In connection with an Internal Revenue Service ("IRS") audit for the tax years 1993 and 1994, the IRS proposed adjustments characterizing routine jet engine maintenance costs as capital expenditures that must be recovered over seven years, rather than as expenses that are deducted immediately, as has been our practice. We filed an administrative protest of these adjustments and engaged in discussions with the Appeals office of the IRS. After these discussions failed to result in a settlement, in 2001 we paid $70 million in tax and interest and filed suit in Federal District Court for a complete refund of the amounts paid, plus interest. The trial in the U.S. District Court in Memphis has been set for April 2003. Pre-trial settlement discussions held on November 4, 2002 and December 18, 2002 have not resulted in a settlement. The Court has ordered additional pre-trial settlement discussions to be held during January 2003.

The IRS has continued to assert its position in audits for the years 1995 through 1998 with respect to maintenance costs for jet engines and rotable aircraft parts. Based on these audits, the total proposed deficiency for the 1995-1998 period, including tax and interest through November 30, 2002, was approximately $194 million (representing $107 million of tax and $87 million of interest). In addition, we have continued to expense these types of maintenance costs subsequent to 1998. Previously, the IRS made similar attempts to require capitalization of airframe maintenance costs. In December 2000, the IRS issued a revenue ruling which permitted current deductions for routine airframe maintenance costs. As a result, the IRS conceded 100% of the airframe issue for 1993-1994 and we anticipate a similar result for all future years.

We believe that our practice of expensing these types of maintenance costs is correct and consistent with industry practice and certain IRS rulings. We intend to vigorously contest the adjustments and do not believe it is probable that we will be required to pay $194 million to the IRS. Additionally, we expect to fully recover the amounts previously paid in litigation. Because the amounts in question relate solely to the timing of the income tax deduction for the above expenditures for federal income tax purposes, any adverse determination in this matter would not have an impact on our total income tax expense. Accordingly, we have not recognized any provision for the tax portion of the proposed deficiency. The income statement consequences if we do not prevail in the litigation on this matter would be for interest on the income taxes that would be payable upon assessment. The IRS has not assessed penalties on this matter. We do not expect

any amounts that may ultimately be payable on this matter to be material to our financial position, results of operations or cash flows.

FedEx and its subsidiaries are subject to other legal proceedings that arise in the ordinary course of their business. In the opinion of management, the aggregate liability, if any, with respect to these other actions will not materially adversely affect our financial position, results of operations or cash flows.

(9) Supplemental Cash Flow Information

		Six Months Ended November 30,
		2002		2001
		(In millions)
Cash payments for:
	Interest (net of capitalized interest)	$	63	$	74
	Income taxes		37		203
Noncash investing and financing activities:
	Fair value of assets acquired under exchange agreements		1		5

Noncash investing activities reflect the contractual acquisition of aircraft, spare parts and other equipment in exchange for engine noise reduction kits.

INDEPENDENT ACCOUNTANTS' REVIEW REPORT

The Board of Directors and Stockholders
FedEx Corporation

We have reviewed the accompanying condensed consolidated balance sheet of FedEx Corporation as of November 30, 2002, and the related condensed consolidated statements of income for the three-month and six-month periods ended November 30, 2002 and 2001, and the condensed consolidated statements of cash flows for the six-month periods ended November 30, 2002 and 2001. These financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States.

We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of FedEx Corporation as of May 31, 2002, and the related consolidated statements of income, changes in stockholders' investment and comprehensive income, and cash flows for the year then ended not presented herein and in our report dated June 24, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of May 31, 2002, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

Memphis, Tennessee
December 18, 2002

Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition

GENERAL

The following management's discussion and analysis describes the principal factors affecting the results of operations, liquidity and capital resources, as well as the critical accounting policies, of FedEx Corporation (also referred to as "FedEx"). This discussion should be read in conjunction with the accompanying financial statements and our Annual Report on Form 10-K for the year ended May 31, 2002 ("Annual Report"), which include additional information about our significant accounting policies, practices and the transactions that underlie our financial results.

FedEx is one of the largest transportation companies in the world. Our business strategy is to offer a portfolio of transportation services through our independently operated business units. These business units are primarily represented by our reportable operating segments: FedEx Express, the world's largest express transportation company; FedEx Ground, North America's second largest provider of small-package ground delivery service; and FedEx Freight, the largest U.S. provider of regional less-than-truckload ("LTL") freight services.

The key factors that affect our operating results are the volumes of shipments transported through our networks, as measured by our average daily volume; the mix of services purchased by our customers; the prices we obtain for our services, as measured by average price per shipment (yield); our ability to manage our cost structure for capital expenditures and operating expenses such as salaries, wages and benefits, fuel and maintenance; and our ability to match operating costs to shifting volume levels.

Except as otherwise indicated, references to years mean our fiscal year ending May 31, 2003 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year.

RESULTS OF OPERATIONS

CONSOLIDATED RESULTS

Dollars in millions, except per share amounts
Three and six month periods ended November 30:

	Three Months Ended							Six Months Ended
	Three Months Ended						Percent Change	Six Months Ended						Percent Change
	2002			2001			Percent Change	2002			2001			Percent Change
Revenues	$	5,667		$	5,135		+10	$	11,112		$	10,172		+ 9
Operating income		427			433		- 1		710			668		+ 6
Operating margin		7.5	%		8.4	%			6.4	%		6.6	%
Income before cumulative effect of change in accounting for goodwill		245			245		—		403			369		+ 9
Net income		245			245		—		403			354		+14

Diluted earnings per share before cumulative effect of change in accounting for goodwill	$	0.81		$	0.81		—	$	1.33		$	1.22		+ 9
Diluted earnings per share	$	0.81		$	0.81		—	$	1.33		$	1.17		+14

Results for the second quarter and first half of 2003 reflect solid overall revenue growth, despite a sluggish economic environment. This growth was largely due to increased international volumes at FedEx Express, the continued substantial growth of our FedEx Ground business and growth at FedEx Freight. Increased U.S. freight volumes at FedEx Express also contributed to consolidated

revenue growth during the first half, as we benefited from a full six months of revenue under the transportation agreement with the U.S. Postal Service ("USPS"). Our agreement with the USPS commenced in late August 2001.

Operating income decreased slightly during the second quarter, as strong operating performances at FedEx Ground and FedEx Freight were offset by significant increases in pension and medical costs, higher maintenance costs due to the timing of maintenance events on our wide-body aircraft and increases in fuel costs at FedEx Express. These higher operating expenses negatively affected our operating margin in the second quarter and, to a lesser extent, for the first half of 2003. However, during the first half, operating income increased 6% over the prior year due to increased profitability at FedEx Ground and cost control efforts at FedEx Express, despite one fewer operating day in the first half. While insurance and security costs have increased in the wake of the terrorist attacks of September 11, 2001, thus far these increases have been manageable.

Although not required, we made contributions to our principal U.S. domestic pension plans of $241 million during the first half. We may elect to contribute additional amounts to the plans during the second half of 2003. The exact amount of additional contributions, if any, will be a function of the market value of plan assets and the interest rate used to value our pension liabilities at our measurement date (February 28, 2003). Based on our current estimates, we do not believe that pension plan funding will affect our ability to generate cash flow from operating activities in excess of cash used in investing activities ("free cash flow") for 2003.

Net interest expense decreased 22% in the second quarter and 18% in the first half due to lower debt levels. Our effective tax rate for the second quarter and first half of both 2003 and 2002 was 38%, as compared to 37.5% for all of 2002.

Net income for the first half of 2002 reflects the cumulative effect of an accounting change. This change resulted from adoption of new rules from the Financial Accounting Standards Board ("FASB") for the treatment of goodwill and other intangible assets. Adoption of these new rules resulted in recognition of a $25 million ($15 million net of tax or $.05 per share) impairment charge to our recorded goodwill during the first quarter of 2002.

Airline Stabilization Compensation

Prior year second quarter operations were significantly affected by the terrorist attacks on September 11, 2001. During the second and third quarters of 2002 we recognized a total of $119 million of compensation under the Air Transportation Safety and System Stabilization Act (the "Act") ($116 million in the second quarter of 2002), of which $101 million has been received as of November 30, 2002. The amounts recognized were for our estimate of losses we incurred as a result of the mandatory grounding of our aircraft and for incremental losses incurred through December 31, 2001. We believe our net income during these periods reflects at least the minimum results we would have reported had the events of September 11 not occurred. All amounts recognized are reflected as reduction of operating expense under the caption "Airline stabilization compensation."

While we believe that we have complied with all aspects of the Act, and it is probable we will ultimately collect the remaining $18 million receivable, the $119 million of compensation previously recognized is subject to audit and interpretation by the Department of Transportation. We cannot be assured of the ultimate outcome of such interpretation, but it is reasonably possible that a material reduction to the amount of compensation recognized by us under the Act could occur.

Outlook

Our outlook for the remainder of 2003 assumes a modest domestic economic recovery in the second half of our fiscal year and continued growth in international volumes, particularly in Asia and Europe. Our current forecast assumes year-over-year growth in U.S. gross domestic product of 2.7% and 3.0% for the first and second calendar quarters of 2003. We expect growth in Asian volumes to be in the 15%-20% range for the remainder of the fiscal year. We expect the growth rate in maintenance and net fuel costs to abate in the second half of our fiscal year, due to the timing of scheduled maintenance of wide-bodied aircraft and as the effect of our dynamic fuel surcharge is included in all comparable periods.

We continue to experience increases in pension and medical benefit costs. Our pension costs for 2003 are expected to be approximately $80 million higher than the prior year due to the effects of decreased returns on pension assets and a lower discount rate used to measure our pension obligations. If current market conditions persist, it is reasonably possible that pension costs for 2004 could increase by approximately $80-$120 million. However, our actual 2004 pension cost cannot be determined until after our measurement date on February 28, 2003. The determination of 2004 pension cost is highly sensitive to changes in key assumptions, particularly the discount rate and the expected long-term rate of return on pension plan assets. Despite these increases in employee retirement costs, our retirement programs continue to be adequately funded.

We expect to realize continued double-digit growth in FedEx Ground volumes through the remainder of 2003, although growth rates at the current 25% level will be difficult to sustain. We do not believe the growth of FedEx Ground is occurring at the expense of our express services. Rather, we believe that U.S. domestic package volume declines at FedEx Express have largely been the result of the economic downturn, which particularly impacted those sectors of the economy that utilize express services, such as manufacturing and wholesale. Accordingly, we expect our U.S. domestic express package volume growth rate to be essentially flat in the second half until sustained economic growth returns to key express-shipping sectors. We expect the FedEx International Priority ("IP") package volume growth rate in the second half to approximate the growth achieved in the first half of 2003.

We have developed a strategy for long-term growth that will allow us to profit from increases in high-tech and high-value-added businesses and the globalization of the economy. Our key long-term corporate financial objective is to increase cash flow by improving our operating margin, principally at FedEx Express and through continued growth at our FedEx Ground and FedEx Freight segments. We plan to accomplish this goal through growth, continued control of discretionary spending and by matching capital expenditures to expected business levels. Achievement of this goal at FedEx Express will require a return to solid growth in those sectors of the U.S. economy that most use domestic express air transportation, moving increased volumes of heavier packages at higher yields and a rational pricing environment.

At FedEx Ground, we expect growth in both our core business as well as continued growth in our home delivery service to contribute positively to operating income in the future. In addition, we expect growth at FedEx Freight following their recent rebranding initiatives. We believe the rebranding will create additional synergies in the FedEx Freight segment, give us a competitive advantage and improve our market share in the LTL segment.

Actual results for 2003 will depend upon a number of factors, including the timing, speed and magnitude of the domestic economic recovery, our ability to match capacity with shifting volume levels and our ability to effectively leverage our new service and growth initiatives. Although increased security requirements for air cargo carriers have been put in place and further measures may be forthcoming, as of yet we have no estimate of what impact any such measures may ultimately have on our results of operations or financial position. In addition, adjustments to our fuel surcharge levels lag changes in actual jet

and diesel fuel prices paid. Therefore, our operating income could be materially affected should the spot price of fuel suddenly change by a significant amount. See "Forward-Looking Statements" for a more complete discussion of potential risks and uncertainties that could materially affect our future performance.

REPORTABLE SEGMENTS

Our reportable operating segments are FedEx Express, FedEx Ground and FedEx Freight, each of which operates in a single line of business. Included within "Other" are the operations of FedEx Custom Critical, FedEx Trade Networks and FedEx Services. Management evaluates segment financial performance based on operating income. The sales, marketing and information technology functions of our FedEx Express and FedEx Ground reportable segments are predominantly performed at FedEx Services, which provides our customers with a single point of contact for all express and ground services. The costs for these activities are allocated based on metrics such as relative revenues and estimated services provided. These allocations materially approximate the cost of providing these functions. The line item "Intercompany charges" on the accompanying financial summaries of our reportable segments includes the allocations from FedEx Services to FedEx Express, FedEx Ground and FedEx Freight, and certain other costs such as corporate management fees.

FEDEX EXPRESS

The following table compares revenues, operating expenses and operating income (dollars in millions) and selected statistics (in thousands, except yield amounts) for the three- and six-month periods ended November 30:

				Three Months Ended							Six Months Ended
				Three Months Ended						Percent Change	Six Months Ended						Percent Change
				2002			2001			Percent Change	2002			2001			Percent Change
Revenues:
	Package:
		U.S. overnight box⁽¹⁾		$	1,351		$	1,299		+ 4	$	2,686		$	2,671		+ 1
		U.S. overnight envelope⁽²⁾			422			420		—		849			885		-4
		U.S. deferred			624			573		+ 9		1,215			1,157		+ 5

			Total U.S. domestic package revenue		2,397			2,292		+ 5		4,750			4,713		+ 1
		International Priority (IP)			1,100			953		+15		2,130			1,908		+12

			Total package revenue		3,497			3,245		+ 8		6,880			6,621		+ 4
	Freight:
		U.S.			401			363		+10		781			536		+46
		International			102			99		+ 3		194			196		-1

			Total freight revenue		503			462		+ 9		975			732		+33
	Other				98			107		-8		177			199		- 11

			Total revenues		4,098			3,814		+ 7		8,032			7,552		+ 6
Operating expenses:
	Salaries and employee benefits				1,680			1,588		+ 6		3,365			3,176		+ 6
	Purchased transportation				151			143		+ 6		294			286		+ 3
	Rentals and landing fees				398			401		-1		778			769		+ 1
	Depreciation and amortization				201			199		+ 1		401			398		+ 1
	Fuel				307			258		+19		578			522		+11
	Maintenance and repairs				276			230		+20		569			477		+19
	Airline stabilization compensation				—			(116	)	n/a		—			(116	)	n/a
	Intercompany charges, net				329			322		+ 2		668			656		+ 2
	Other				528			480		+10		1,023			954		+ 7

			Total operating expenses		3,870			3,505		+10		7,676			7,122		+ 8

Operating income				$	228		$	309		- 26	$	356		$	430		- 17

Operating margin					5.6	%		8.1	%			4.4	%		5.7	%
Package Statistics:
	Average daily packages:
		U.S. overnight box⁽¹⁾			1,183			1,141		+ 4		1,168			1,153		+ 1
		U.S. overnight envelope⁽²⁾			685			676		+ 1		683			699		-2
		U.S. deferred			903			845		+ 7		874			829		+ 5

			Total U.S. domestic packages		2,771			2,662		+ 4		2,725			2,681		+ 2
		IP			381			338		+13		369			336		+10

			Total packages		3,152			3,000		+ 5		3,094			3,017		+ 3

	Revenue per package (yield):
		U.S. overnight box		$	18.12		$	18.06		—	$	18.10		$	18.09		—
		U.S. overnight envelope			9.79			9.87		-1		9.80			9.90		-1
		U.S. deferred			10.95			10.77		+ 2		10.94			10.90		—
			U.S. domestic composite		13.73			13.67		—		13.73			13.73		—
		IP			45.86			44.77		+ 2		45.43			44.33		+ 2
			Composite		17.61			17.17		+ 3		17.51			17.14		+ 2
Freight Statistics:
	Average daily pounds:
		U.S.			9,469			8,547		+11		9,215			6,416		+44
		International			2,271			2,089		+ 9		2,144			2,098		+ 2

			Total freight		11,740			10,636		+10		11,359			8,514		+33

	Revenue per pound (yield):
		U.S.		$	0.67		$	0.67		—	$	0.67		$	0.65		+ 3
		International			0.71			0.75		-5		0.71			0.73		-3
			Composite		0.68			0.69		-1		0.68			0.67		+ 1

(1): The U.S. overnight box category includes packages exceeding 8 ounces in weight.
(2): The U.S. overnight envelope category includes envelopes weighing 8 ounces or less.

FedEx Express Revenues

During the second quarter and first half of 2003, FedEx Express total package revenues increased 8% and 4%, respectively, largely due to increased IP revenues. U.S. domestic package revenue grew 5% for the second quarter and 1% for the first half. However, comparisons for the second quarter for both U.S. domestic and U.S. outbound shipments were affected by the loss of revenue during the temporary grounding of our aircraft in 2002 and by the resulting economic decline after the terrorist attacks of September 11. Excluding this impact, we estimate that U.S. domestic package volume for the second quarter declined less than 1% from the prior year period and U.S. outbound shipments for the second quarter declined approximately 7%.

IP revenues grew 15% on 13% volume growth during the second quarter and 12% on 10% volume growth during the first half. Asia and Europe experienced double-digit average daily volume growth during both the second quarter and first half. In response to continued growth in Asia, we have been awarded (and will utilize) incremental temporary flight authorities in Hong Kong.

During the second quarter, shipments under our transportation agreement with the USPS, which commenced late in the first quarter of 2002, contributed to a 10% increase in U.S. freight revenues on 11% higher average daily U.S. freight pounds. In the first half, U.S. freight revenues increased 46% on 44% higher average daily U.S. freight pounds, as we benefited from a full six months of operations under our transportation contract with the USPS.

Composite package yield in the second quarter and first half of 2003 improved slightly, despite lower fuel surcharge revenue and nominally lower average weight per package for the first half. In November, we announced a 3.5% average price increase on FedEx Express services within the U.S. and for U.S. export shipments. This increase became effective January 6, 2003.

FedEx Express Operating Income

Operating income at FedEx Express decreased 26% during the second quarter and 17% in the first half. The decrease in operating income is attributable to higher benefits and maintenance and repair expenses, and the net impact of higher fuel costs, which increased 19% in the second quarter and 11% in the first half. Increases in fuel usage during the first half were compounded by a 12% higher average price per gallon for aircraft fuel in the second quarter and a decline in fuel surcharge revenue. After considering the impact of our fuel surcharge, fuel prices negatively affected second quarter operating income by approximately $44 million and first half operating income by approximately $56 million. At the end of the first half of the prior year, we implemented a new index for determining our fuel surcharge. Using this index, the fuel surcharge ranged between 2% and 4% in the first half of 2003, while the fuel surcharge for the majority of the first half of 2002 was 4%.

Other operating expenses also increased in the second quarter and first half. In the prior year, reimbursements from the USPS for network expansion costs were reflected as credits to other operating expenses. These reimbursements, however, had no effect on operating income, as they represented the recovery of incremental costs incurred. Last year's second quarter results also included $17 million of income from the favorable resolution of a state sales tax matter. Partially offsetting higher operating costs during the first half was a gain, recognized in the first quarter, from the insurance settlement on a 727-200 aircraft destroyed in an accident in July 2002 that resulted in a net $8 million favorable impact on operating income during the first half.

FEDEX GROUND

The following table compares revenues, operating expenses and operating income (dollars in millions) and selected package statistics (in thousands, except yield amounts) for the three- and six-month periods ended November 30:

			Three Months Ended							Six Months Ended
			Three Months Ended						Percent Change	Six Months Ended						Percent Change
			2002			2001			Percent Change	2002			2001			Percent Change
Revenues			$	863		$	677		+27	$	1,689		$	1,301		+30
Operating expenses:
	Salaries and employee benefits			161			133		+21		318			258		+23
	Purchased transportation			328			260		+26		639			500		+28
	Rentals			22			21		+ 5		42			37		+14
	Depreciation and amortization			39			33		+18		76			63		+21
	Fuel			3			1		n/a		4			3		+33
	Maintenance and repairs			21			18		+17		42			36		+17
	Intercompany charges			74			58		+28		164			117		+40
	Other			80			73		+10		168			147		+14

		Total operating expenses		728			597		+22		1,453			1,161		+25

Operating income			$	135		$	80		+69	$	236		$	140		+69

Operating margin				15.6	%		11.8	%			14.0	%		10.8	%
Average daily packages				2,281			1,826		+25		2,189			1,697		+29
Revenue per package (yield)			$	6.10		$	5.98		+ 2	$	6.12		$	6.04		+ 1

FedEx Ground Revenues

FedEx Ground realized strong revenue growth in the second quarter and first half of 2003 due to core business growth and increasing popularity of our home delivery service. Volumes have significantly increased, with nearly one-third of the volume growth in the second quarter coming from FedEx Home Delivery. Approximately one-fourth of volume growth during the first half was attributable to FedEx Home Delivery.

Yield at FedEx Ground slightly increased in the second quarter and first half, despite lower fuel surcharge revenue. In 2002, we implemented a new dynamic fuel surcharge that is indexed to the current price of diesel fuel. Using this index, the fuel surcharge ranged from 0.75% during most of the first half to 1.25% in November, compared to 1.25% for the entire first half of 2002.

In November, we announced an average price increase of 3.9% on FedEx Ground services, which became effective January 6, 2003.

FedEx Ground Operating Income

Operating income increased significantly in the second quarter and first half at FedEx Ground as a result of revenue growth, excellent productivity and continued cost management. Operating expenses in most categories increased at a lower rate than the growth in revenues. Substantial improvements have been realized in pick-up and delivery and linehaul productivity. Salaries, wages and benefits increased in the second quarter and first half due principally to increases in staffing to support volume growth and higher pension costs.

Operating margins improved in the second quarter and first half in spite of increased intercompany charges for sales, marketing and customer support, and information technology costs in relation to revenues.

FedEx Home Delivery became profitable in the second quarter, which was earlier than anticipated. During 2002, FedEx Home Delivery generated an operating loss of $9 million in the second quarter and $19 million in the first half. In September 2002, FedEx Home Delivery completed the build-out of its national network, enabling it to reach nearly 100% of U.S. residences, with evening, weekend and day- and time-specific delivery options, all backed by a money-back guarantee.

FEDEX FREIGHT

The following table shows revenues, operating expenses and operating income (in millions) and selected statistics for the three- and six-month periods ended November 30:

			Three Months Ended							Six Months Ended
			Three Months Ended						Percent Change	Six Months Ended						Percent Change
			2002			2001			Percent Change	2002			2001			Percent Change
Revenues			$	547		$	487		+12	$	1,080		$	998		+ 8
Operating expenses:
	Salaries and employee benefits			317			289		+10		633			587		+ 8
	Purchased transportation			18			14		+29		35			30		+17
	Rentals			19			16		+19		35			32		+ 9
	Depreciation and amortization			19			22		-14		40			42		-5
	Fuel			22			19		+16		41			39		+ 5
	Maintenance and repairs			31			22		+41		58			45		+29
	Intercompany charges			3			2		+50		7			4		+75
	Other			62			56		+11		127			121		+ 5

		Total operating expenses		491			440		+12		976			900		+ 8

Operating income			$	56		$	47		+19	$	104		$	98		+ 6

Operating margin				10.2	%		9.8	%			9.6	%		9.8	%
Shipments per day (in thousands)				59			56		+ 5		59			57		+ 4
Weight per shipment (lbs)				1,104			1,112		-1		1,112			1,116		—
Revenue per hundredweight			$	13.55		$	12.55		+ 8	$	13.17		$	12.38		+ 6

FedEx Freight Revenues

Revenues at FedEx Freight increased $60 million during the second quarter and $82 million in the first half of 2003, due to a combination of higher shipments and improved yields. Contributing to the increase in yield was the impact of the 5.9% general rate increase in July 2002, higher fuel surcharge revenues and additional volumes related to EZ Flyer, which is our premium priced, interregional service. The FedEx Freight fuel surcharge is tied to the "Retail on Highway Diesel Fuel Price," as published by the U.S. Department of Energy, and fluctuates weekly based on changes in the index.

FedEx Freight Operating Income

In the second quarter, operating margins were higher compared to the prior year at FedEx Freight. Operating income increased 19% in the second quarter and 6% in the first half, in spite of higher maintenance and repairs expenses and higher salaries and employee benefits, offset by lower depreciation and amortization. Higher maintenance and repairs expenses reflect rebranding expenses. Lower depreciation and amortization reflects increased gains from the sale of operating assets in the ordinary course of business.

FedEx Freight East and FedEx Freight West are being rebranded under the name "FedEx Freight." Rebranding expenses, primarily for tractors and trailers, were $4 million in the second quarter and $10 million for the first half. This project began in the fourth quarter of 2002 and is expected to be complete in 2005, with total rebranding costs of approximately $40 million to $45 million. These costs, which are being expensed as incurred, consist primarily of incremental external costs for rebranding tractors and trailers. The cost of the rebranding is expected to increase FedEx Freight's operating expenses by $2 million during the third quarter of 2003 and by $15 million for all of 2003.

OTHER OPERATIONS

Other operations include FedEx Custom Critical, a critical-shipment carrier; FedEx Trade Networks, whose subsidiaries form a global trade services company; FedEx Services, a provider of sales, marketing, supply chain management services and IT support for FedEx Express and FedEx Ground; and certain unallocated corporate items.

Revenues from other operations were $159 million (up 1%) in the second quarter and $311 million (down 3%) in the first half of 2003. The decrease in revenues from other operations in the six months reflects the termination of certain nonprofitable supply chain services contracts, partially offset by increased revenues at FedEx Custom Critical.

Operating income from other operations was $8 million in the second quarter compared to a loss of $3 million in the prior year. Compared to break even operating income in the first half of the prior year, operating income from other operations was $14 million in the first half. This improvement is primarily attributable to unallocated corporate charges in the second quarter of 2002 which were subsequently allocated in the third quarter and increased earnings at FedEx Custom Critical.

FINANCIAL CONDITION

LIQUIDITY

Cash and cash equivalents totaled $519 million at November 30, 2002, compared to $331 million at May 31, 2002. The following table provides a summary of our cash flows for the six-month periods ended November 30 (in millions):

			2002			2001
Net cash provided by operating activities			$	1,139		$	1,064
Net cash used in investing activities				(877	)		(915	)

		Free cash flow		262			149
Cash (used in) provided by financing activities:
	Net repayments			—			(25	)
	Repurchase of treasury stock			(67	)		(25	)
	Dividends paid			(30	)		—
	Other financing activities			23			28

		Net increase in cash	$	188		$	127

The $75 million increase in cash flow provided by operating activities reflects improved earnings and lower levels of required estimated tax payments, offset partially by increased funding to our pension plans.

Cash Used for Capital Investments. Capital expenditures during the first half were lower, primarily at FedEx Express where capital expenditures were managed to lower volumes, resulting in a 9% reduction in the first half. Approximately 70% of our capital expenditures are related to investments in business growth, while the remaining 30% represents replacement of existing capital. See "Capital Resources" below for further discussion.

Free Cash Flow. Cash provided by operations during the first half generated $262 million of free cash flow. We expect overall 2003 free cash flow to be positive based on continued growth of our most profitable businesses and management of working capital and capital expenditures.

Debt Financing Activities. We currently have $1 billion in revolving bank credit facilities that are generally used to finance temporary operating cash requirements and to provide support for the issuance of commercial paper. At November 30, 2002, no commercial paper was outstanding and the entire $1 billion under the revolving credit agreements was available for future borrowings. See

Note 4 of the accompanying financial statements, as well as "Contractual Cash Obligations" below, for further discussion of these credit facilities.

Cash Used for Share Repurchases. During the first half, we repurchased 1.275 million shares at an average price of $52.45 per share and this affected cash flows by $67 million. A total of 5.375 million shares remain under existing share repurchase authorizations. There were 550,000 treasury shares repurchased during the first half of 2002, which affected cash flows by $25 million in that period.

Dividends. Total dividends paid in the first six months of 2003 were $30 million. In addition, shareholders of record as of the close of business on December 12, 2002 were paid a $.05 cash dividend per share of common stock on January 2, 2003. We expect to continue quarterly dividend payments, although each subsequent dividend payment is subject to review and approval by our Board of Directors.

Other Liquidity Information. We will remain focused on cost containment and capital expenditure discipline so we can achieve our goal of free cash flow for 2003 and the future. We believe that cash flow from operations, our commercial paper program and revolving bank credit facilities will adequately meet our working capital needs for the foreseeable future.

CAPITAL RESOURCES

Our operations are capital intensive, characterized by significant investments in aircraft, vehicles, computer hardware and software and telecommunications equipment, package-handling facilities and sort equipment. The amount and timing of capital additions depend on various factors, including preexisting contractual commitments, anticipated volume growth, domestic and international economic conditions, new or enhanced services, geographical expansion of services, competition, availability of satisfactory financing and actions of regulatory authorities.

The following table compares capital expenditures for the three- and six-month periods ended November 30 (in millions):

		Three Months Ended				Six Months Ended
		2002		2001		2002		2001
Aircraft and related equipment		$	129	$	181	$	496	$	402
Facilities and sort equipment			66		88		112		182
Information and technology investments			76		73		129		141
Vehicles and other equipment			81		95		151		212

	Total capital expenditures	$	352	$	437	$	888	$	937

For all of 2003, we expect capital expenditures to be approximately $1.7 billion. During the second quarter of 2003, capital expenditures were 19% lower, primarily due to lower aircraft spending. Total capital expenditures were 5% lower in the first half, even though capital expenditures on aircraft and related equipment were 23% higher due to previously contracted aircraft purchases. The majority of capital expenditures in the first half occurred during the first quarter at FedEx Express, which took delivery of eight aircraft and spent $367 million on aircraft and related equipment.

Because of substantial lead times associated with the manufacture or modification of aircraft, we must generally plan our aircraft orders or modifications three to eight years in advance. Therefore, we must make projections regarding our needed airlift capacity many years before aircraft are actually needed. We will continue to manage our capital spending based on current and anticipated volume levels, and defer or limit capital additions where economically feasible in order to maintain free cash flow.

CONTRACTUAL CASH OBLIGATIONS

The following table sets forth a summary of our contractual cash obligations as of November 30, 2002. Certain of these contractual obligations are reflected in our balance sheet, while others are disclosed as future obligations under accounting principles generally accepted in the United States.

		Payments Due by Fiscal Year (in millions)
		2003⁽¹⁾		2004		2005		2006		2007		Thereafter		Total
Amounts Reflected in Balance Sheet:
Long-term debt		$	6	$	275	$	6	$	257	$	226	$	835	$	1,605
Capital lease obligations			5		11		11		11		11		241		290
Other Cash Obligations Not Reflected in Balance Sheet:
Operating leases			793		1,342		1,252		1,142		1,113		9,164		14,806
Unconditional purchase obligations⁽²⁾			414		379		353		297		290		2,322		4,055

	Total cash obligations	$	1,218	$	2,007	$	1,622	$	1,707	$	1,640	$	12,562	$	20,756

(1): For the remainder of 2003
(2): See Note 8 to the accompanying financial statements

Amounts Reflected in Balance Sheet

From time to time, we finance certain operating and investing activities through the issuance of commercial paper. Our commercial paper program is backed by unused commitments under two revolving credit agreements, totaling $1 billion, and reduces the amount available under these agreements. The revolving credit agreements comprise two parts. The first part provides for $750 million through September 28, 2006. The second part is a 364-day facility providing for $250 million through September 26, 2003, that was amended and restated on September 27, 2002 to, among other things, extend the term to September 26, 2003. At November 30, 2002, no commercial paper was outstanding and the entire $1 billion under the revolving credit agreements was available for future borrowings.

On June 19, 2002, the Memphis-Shelby County Airport Authority (the "Authority") issued $96 million of its Special Facilities Revenue Refunding Bonds, Series 2002 ("Series 2002 Bonds") at par, bearing interest annually at 5.05% and maturing on September 1, 2012. The Series 2002 Bonds were issued to provide funds to refinance bonds issued to finance the acquisition and construction of various facilities and equipment at the Memphis International Airport. Lease agreements with the Authority covering the facilities and equipment financed with bond proceeds, reflected as a capital lease in long-term debt on our November 30, 2002 balance sheet and in the table above, obligate FedEx Express to make lease payments equal to principal and interest due on the bonds. FedEx Express has separately guaranteed repayment of the Series 2002 Bonds. The proceeds from the Series 2002 Bonds, along with $6 million, including accrued interest and a 2% prepayment premium, were used to refund the previously issued bonds.

We have other commercial commitments that were incurred in the normal course of business to support our operations, including surety bonds and standby letters of credit. These instruments are generally required under certain self-insurance programs. While the notional amounts of these instruments are material, there are no additional contingent liabilities associated with them because the liabilities for these self-insurance programs are already reflected in our balance sheet as accrued expenses and other long-term liabilities.

Other Cash Obligations Not Reflected in Balance Sheet

The amounts reflected in the table above for operating leases represent future minimum lease payments under noncancellable operating leases (principally aircraft and facilities) with an initial or remaining term in excess of one year at November 30, 2002. In the past, we financed a significant portion of our aircraft needs (and certain other equipment needs) using operating leases (a type of "off-balance sheet financing"). Certain of these operating leases were arranged using special purpose entities under terms that are considered customary in the airline industry. At the time that the decision to lease was made, we determined that these operating leases would provide economic benefits favorable to ownership with respect to market values, liquidity and after-tax cash flows.

In accordance with accounting principles generally accepted in the United States, our operating leases are not recorded in our balance sheet. Credit rating agencies routinely use the information disclosed in our Annual Report (and the table above) concerning the minimum lease payments required for our operating leases to calculate our debt capacity. Furthermore, our debt covenants would not be adversely affected by the capitalization of some or all of our operating leases.

We have guarantees, amounting to $135 million at November 30, 2002, under certain operating leases for the residual values of aircraft, vehicles and facilities at the end of the respective operating lease periods. We do not believe it is probable that we will be required to fund any amounts under the terms of these guarantee arrangements. Therefore, we have not accrued any amounts for these guarantees on our balance sheet. See Note 8 to the accompanying financial statements for additional information regarding these guarantees.

In the future, other forms of secured financing and direct purchases may be used to obtain capital assets if we determine that it best suits our needs. We have been successful in obtaining investment capital, both domestic and international, for long-term leases on acceptable terms, although the marketplace for such capital can become restricted depending on a variety of economic factors. We believe the capital resources available to us provide flexibility to access the most efficient markets for financing capital acquisitions, including aircraft, and are adequate for our future capital needs.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Information regarding our "Critical Accounting Policies and Estimates" can be found in our Annual Report. The four critical accounting policies that we believe are either the most judgmental, or involve the selection or application of alternative accounting policies, and are material to our financial statements are those relating to revenue recognition, pension cost, self-insurance accruals and long-lived assets. In addition, Note 1 to our Annual Report contains a summary of our significant accounting policies.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the financial statements of a large, global corporation. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.

FORWARD-LOOKING STATEMENTS

Certain statements in this Report, including those contained in "Outlook," "Liquidity" and "Capital Resources," are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, plans, objectives, future performance and business of FedEx. Forward-looking statements include those preceded by, followed by or that include the words "believes," "expects," "anticipates," "estimates" or similar expressions. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated (expressed or implied) by such forward-looking statements, because of, among other things, potential risks and uncertainties, such as:

•: significant changes in the volumes of shipments transported through our networks, the mix of services purchased by our customers or the prices we obtain for our services;
•: our ability to manage our cost structure for capital expenditures and operating expenses and match them, especially those relating to aircraft, vehicle and sort capacity, to shifting customer volume levels;
•: the impact of any terrorist activities or international conflicts, including any military action in Iraq, on the United States and global economies in general, or the transportation industry in particular, and what effects these events will have on our costs or the demand for our services;
•: economic conditions in the markets in which we operate, including the timing, speed and magnitude of the economy's recovery from the downturn that began in calendar 2001 in the sectors that drive demand for our services;
•: any impacts on our business resulting from new domestic or international government regulation;
•: market acceptance of our new service and growth initiatives, including our residential home delivery service;
•: sudden changes in fuel prices;
•: the timing and amount of any money we are entitled to receive under the Air Transportation Safety and System Stabilization Act;
•: competition from other providers of transportation and logistics services;
•: our ability to compete with new or improved services offered by our competitors;
•: changes in customer demand patterns;
•: our ability to obtain and maintain aviation rights in important international markets;
•: changes in government regulation, weather and technology;
•: availability of financing on terms acceptable to us; and
•: other risks and uncertainties you can find in our press releases and SEC filings.

As a result of these and other factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this Report. We are under no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of November 30, 2002, there had been no material changes in our market risk sensitive instruments and positions since the disclosure in our Annual Report. While we are a global provider of transportation services, the substantial majority of our transactions are denominated in U.S. dollars. The distribution of our foreign currency denominated transactions is such that currency declines in some areas of the world are often offset by foreign currency gains of equal magnitude in other areas of the world. The principal foreign currency exchange rate risks to which we are exposed are in the euro, British pound sterling, Canadian dollar and Japanese yen. Foreign currency fluctuations during the second quarter of 2003 did not have a material effect on our results of operations for the period.

Item 4. Controls and Procedures

We maintain a rigorous set of disclosure controls and procedures and internal controls designed to ensure that our assets are adequately safeguarded and the information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. We perform a quarterly assessment of these procedures and controls requiring certification by all principal executive and financial management at both the operating company and corporate levels.

Our operating companies maintain appropriate policies, procedures and systems to support the timely and accurate reporting of their financial results. Our corporate forecasting, accounting close and audit committee reporting processes form the foundation to ensure that all relevant information about our financial results is available to management. In addition, we maintain a thorough quarterly and annual financial reporting process that ensures all key members of management have direct and meaningful input into our financial disclosures.

Our controls include the presence of an extensive internal audit function staffed by professional auditors that review the operational and financial effectiveness of internal control systems on a global basis. In addition, our control environment is evaluated on an ongoing basis by our financial management and annually by our external auditors in connection with their audit of our financial statements.

While we believe our disclosure controls and procedures and our internal controls are adequate, no system of controls can prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable assurance that the objectives of the control system are met. Additionally, controls can be circumvented by the individual acts of some persons or by collusion of two or more people.

Our principal executive and financial officers have evaluated our disclosure controls and procedures within 90 days prior to the filing of this Quarterly Report on Form 10-Q and have determined that such disclosure controls and procedures are effective.

Subsequent to their evaluation, there were no significant changes in internal controls or other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a): Exhibits.

		Exhibit Number		Description of Exhibit
		10.1		Twenty-Third Supplemental Lease Agreement dated as of March 1, 2002 between the Memphis-Shelby County Airport Authority and FedEx Express.
		10.2		First Amendment to Second Addendum dated December 4, 2002, amending the Transportation Agreement dated January 10, 2001 between The United States Postal Service and FedEx Express. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
		10.3		Amended Section 5.5.2 of Airbus A380-800F Purchase Agreement dated as of July 12, 2002 between AVSA, S.A.R.L. and FedEx Express. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
		12.1		Computation of Ratio of Earnings to Fixed Charges.
		15.1		Letter re: Unaudited Interim Financial Statements.
		99.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
		99.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b): Reports on Form 8-K.

No reports on Form 8-K were filed during the quarter ended November 30, 2002.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		FEDEX CORPORATION
Date: January 13, 2003		/s/ JAMES S. HUDSON James S. Hudson Corporate Vice President Strategic Financial Planning & Control (Principal Accounting Officer)

CERTIFICATION

I, Frederick W. Smith, Chairman, President and Chief Executive Officer of FedEx Corporation ("registrant"), certify that:

1.	I have reviewed this quarterly report on Form 10-Q of the registrant;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)	evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6.	The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: January 13, 2003

/s/ FREDERICK W. SMITH

Frederick W. Smith
Chairman, President and
Chief Executive Officer

CERTIFICATION

I, Alan B. Graf, Jr., Executive Vice President and Chief Financial Officer of FedEx Corporation ("registrant") certify that:

1.	I have reviewed this quarterly report on Form 10-Q of the registrant;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)	evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6.	The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: January 13, 2003

/s/ ALAN B. GRAF, JR.

Alan B. Graf, Jr.
Executive Vice President and
Chief Financial Officer

EXHIBIT INDEX

Exhibit Number		Description of Exhibit
10.1		Twenty-Third Supplemental Lease Agreement dated as of March 1, 2002 between the Memphis-Shelby County Airport Authority and FedEx Express.
10.2		First Amendment to Second Addendum dated December 4, 2002, amending the Transportation Agreement dated January 10, 2001 between The United States Postal Service and FedEx Express. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
10.3		Amended Section 5.5.2 of Airbus A380-800F Purchase Agreement dated as of July 12, 2002 between AVSA, S.A.R.L. and FedEx Express. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
12.1		Computation of Ratio of Earnings to Fixed Charges.
15.1		Letter re: Unaudited Interim Financial Statements.
99.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.
99.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

E-1

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PART I. FINANCIAL INFORMATION
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

SIGNATURE
EXHIBIT INDEX