Attached files
file | filename |
---|---|
EX-15.1 - EXHIBIT 15.1 - FEDERAL EXPRESS CORP | c93746exv15w1.htm |
EX-12.1 - EXHIBIT 12.1 - FEDERAL EXPRESS CORP | c93746exv12w1.htm |
EX-31.2 - EXHIBIT 31.2 - FEDERAL EXPRESS CORP | c93746exv31w2.htm |
EX-32.1 - EXHIBIT 32.1 - FEDERAL EXPRESS CORP | c93746exv32w1.htm |
EX-31.1 - EXHIBIT 31.1 - FEDERAL EXPRESS CORP | c93746exv31w1.htm |
EX-32.2 - EXHIBIT 32.2 - FEDERAL EXPRESS CORP | c93746exv32w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED November 30, 2009
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: 1-7806
FEDERAL EXPRESS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 71-0427007 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer | |
Identification No.) | ||
3610 Hacks Cross Road | ||
Memphis, Tennessee | 38125 | |
(Address of principal executive offices) | (ZIP Code) |
(901) 369-3600
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
The number of shares of common stock outstanding as of December 15, 2009 was 1,000. The Registrant
is a wholly owned subsidiary of FedEx Corporation, and there is no market for the Registrants
common stock.
The Registrant meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q
and is therefore filing this form with the reduced disclosure format permitted by General
Instruction H(2).
FEDERAL EXPRESS CORPORATION
INDEX
PAGE | ||||||||
PART I. FINANCIAL INFORMATION |
||||||||
ITEM 1. Financial Statements |
||||||||
3-4 | ||||||||
5 | ||||||||
6 | ||||||||
7-13 | ||||||||
14 | ||||||||
15-22 | ||||||||
23 | ||||||||
23 | ||||||||
PART II. OTHER INFORMATION |
||||||||
24 | ||||||||
24 | ||||||||
24 | ||||||||
25 | ||||||||
E-1 | ||||||||
Exhibit 12.1 | ||||||||
Exhibit 15.1 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
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FEDERAL EXPRESS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
November 30, | |||||||||
2009 | May 31, | ||||||||
(Unaudited) | 2009 | ||||||||
ASSETS |
|||||||||
CURRENT ASSETS |
|||||||||
Cash and cash equivalents |
$ | 443 | $ | 360 | |||||
Receivables, less allowances of $66 and $80 |
1,342 | 1,162 | |||||||
Spare parts, supplies and fuel, less
allowances of $168 and $175 |
311 | 294 | |||||||
Deferred income taxes |
355 | 355 | |||||||
Due from parent company and other FedEx subsidiaries |
658 | 841 | |||||||
Prepaid expenses and other |
55 | 82 | |||||||
Total current assets |
3,164 | 3,094 | |||||||
PROPERTY AND EQUIPMENT, AT COST |
19,065 | 18,202 | |||||||
Less accumulated depreciation and amortization |
10,232 | 9,840 | |||||||
Net property and equipment |
8,833 | 8,362 | |||||||
OTHER LONG-TERM ASSETS |
|||||||||
Goodwill |
976 | 903 | |||||||
Other assets |
981 | 947 | |||||||
Total other long-term assets |
1,957 | 1,850 | |||||||
$ | 13,954 | $ | 13,306 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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FEDERAL EXPRESS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
November 30, | |||||||||
2009 | May 31, | ||||||||
(Unaudited) | 2009 | ||||||||
LIABILITIES AND OWNERS EQUITY |
|||||||||
CURRENT LIABILITIES |
|||||||||
Current portion of long-term debt |
$ | 39 | $ | 153 | |||||
Accrued salaries and employee benefits |
757 | 646 | |||||||
Accounts payable |
900 | 835 | |||||||
Accrued expenses |
979 | 1,029 | |||||||
Due to other FedEx subsidiaries |
134 | 144 | |||||||
Total current liabilities |
2,809 | 2,807 | |||||||
LONG-TERM DEBT, LESS CURRENT PORTION |
656 | 667 | |||||||
OTHER LONG-TERM LIABILITIES |
|||||||||
Deferred income taxes |
1,333 | 1,185 | |||||||
Pension, postretirement healthcare and
other benefit obligations |
624 | 596 | |||||||
Self-insurance accruals |
594 | 607 | |||||||
Deferred lease obligations |
810 | 725 | |||||||
Deferred gains, principally related to
aircraft transactions |
274 | 286 | |||||||
Other liabilities |
101 | 114 | |||||||
Total other long-term liabilities |
3,736 | 3,513 | |||||||
COMMITMENTS AND CONTINGENCIES |
|||||||||
OWNERS EQUITY |
|||||||||
Common stock, $0.10 par value; 1,000 shares
authorized, issued and outstanding |
| | |||||||
Additional paid-in capital |
609 | 492 | |||||||
Retained earnings |
5,976 | 5,689 | |||||||
Accumulated other comprehensive income |
168 | 138 | |||||||
Total owners equity |
6,753 | 6,319 | |||||||
$ | 13,954 | $ | 13,306 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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FEDERAL EXPRESS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN MILLIONS)
Three Months Ended | Six Months Ended | |||||||||||||||
November 30, | November 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
REVENUES |
$ | 5,235 | $ | 6,040 | $ | 10,117 | $ | 12,400 | ||||||||
OPERATING EXPENSES: |
||||||||||||||||
Salaries and employee benefits |
1,978 | 2,011 | 3,977 | 4,091 | ||||||||||||
Purchased transportation |
258 | 277 | 505 | 596 | ||||||||||||
Rentals and landing fees |
391 | 400 | 772 | 813 | ||||||||||||
Depreciation and amortization |
248 | 238 | 498 | 475 | ||||||||||||
Fuel |
637 | 954 | 1,208 | 2,272 | ||||||||||||
Maintenance and repairs |
266 | 380 | 526 | 773 | ||||||||||||
Intercompany charges, net |
464 | 529 | 930 | 1,061 | ||||||||||||
Other |
649 | 724 | 1,257 | 1,459 | ||||||||||||
4,891 | 5,513 | 9,673 | 11,540 | |||||||||||||
OPERATING INCOME |
344 | 527 | 444 | 860 | ||||||||||||
OTHER INCOME (EXPENSE): |
||||||||||||||||
Interest, net |
7 | (1 | ) | 13 | (3 | ) | ||||||||||
Other, net |
(20 | ) | 2 | (40 | ) | | ||||||||||
(13 | ) | 1 | (27 | ) | (3 | ) | ||||||||||
INCOME BEFORE INCOME TAXES |
331 | 528 | 417 | 857 | ||||||||||||
PROVISION FOR INCOME TAXES |
130 | 201 | 166 | 333 | ||||||||||||
NET INCOME |
$ | 201 | $ | 327 | $ | 251 | $ | 524 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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FEDERAL EXPRESS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
Six Months Ended | ||||||||
November 30, | ||||||||
2009 | 2008 | |||||||
Operating Activities: |
||||||||
Net income |
$ | 251 | $ | 524 | ||||
Noncash charges: |
||||||||
Depreciation and amortization |
498 | 475 | ||||||
Other, net |
92 | 133 | ||||||
Changes in assets and liabilities, net |
341 | (325 | ) | |||||
Net cash provided by operating activities |
1,182 | 807 | ||||||
Investing Activities: |
||||||||
Capital expenditures |
(1,014 | ) | (753 | ) | ||||
Other |
27 | 8 | ||||||
Net cash used in investing activities |
(987 | ) | (745 | ) | ||||
Financing Activities: |
||||||||
Principal payments on debt |
(125 | ) | (1 | ) | ||||
Payment on loan from parent company |
| (17 | ) | |||||
Net cash used in financing activities |
(125 | ) | (18 | ) | ||||
Effect of exchange rate changes on cash |
13 | (26 | ) | |||||
Net increase in cash and cash equivalents |
83 | 18 | ||||||
Cash and cash equivalents at beginning of period |
360 | 298 | ||||||
Cash and cash equivalents at end of period |
$ | 443 | $ | 316 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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FEDERAL EXPRESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) General
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. These interim financial statements of Federal Express
Corporation (FedEx Express) have been prepared in accordance with accounting principles generally
accepted in the United States and Securities and Exchange Commission (SEC) instructions for
interim financial information, and should be read in conjunction with our Annual Report on Form
10-K for the year ended May 31, 2009 (Annual Report). Accordingly, significant accounting
policies and other disclosures normally provided have been omitted since such items are disclosed
therein.
In the opinion of management, the accompanying unaudited condensed consolidated financial
statements reflect all adjustments (including normal recurring adjustments) necessary to present
fairly our financial position as of November 30, 2009, the results of our operations for the three-
and six-month periods ended November 30, 2009 and 2008 and cash flows for the six-month periods
ended November 30, 2009 and 2008. Operating results for the three- and six-month periods ended
November 30, 2009 are not necessarily indicative of the results that may be expected for the year
ending May 31, 2010.
We are a wholly owned subsidiary of FedEx Corporation (FedEx) engaged in a single line of
business and operate in one business segment the worldwide express transportation and
distribution of goods and documents.
Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2010 or
ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year.
STOCK-BASED COMPENSATION. FedEx has two types of equity-based compensation: stock options and
restricted stock. The key terms of the stock option and restricted stock awards granted under
FedExs incentive stock plans are set forth in FedExs Annual Report.
FedEx uses the Black-Scholes option pricing model to calculate the fair value of stock options.
The value of restricted stock awards is based on the price of the stock on the grant date. We
recognize stock-based compensation expense on a straight-line basis over the requisite service
period of the award in the Salaries and employee benefits caption of our condensed consolidated
income statement.
Our total
stock-based compensation expense was $6 million for the three months ended November 30,
2009 and $17 million for the six months ended November 30,
2009. Our total stock-based
compensation expense was $7 million for the three months ended November 30, 2008 and $17 million
for the six months ended November 30, 2008. This amount represents the amount charged to us by
FedEx for awards granted to our employees.
LONG-TERM DEBT. Long-term debt, exclusive of capital leases, had carrying values of $540
million compared with an estimated fair value of $640 million at November 30, 2009, and $539
million compared with an estimated fair value of $560 million at May 31, 2009. The estimated fair
values were determined based on quoted market prices or on the current rates offered for debt with
similar terms and maturities.
NEW ACCOUNTING GUIDANCE. New accounting rules and disclosure requirements can significantly impact
our reported results and the comparability of our financial statements. We believe the following
new accounting guidance is relevant to the readers of our financial statements.
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On June 1, 2008, we adopted the authoritative guidance issued by the Financial Accounting Standards
Board (FASB) on fair value measurements, which provides a common definition of fair value,
establishes a uniform framework for measuring fair value and requires expanded disclosures about
fair value measurements. On June 1, 2009, we implemented the previously deferred provisions of
this guidance for nonfinancial assets and liabilities recorded at fair value, as required. The
adoption of this new guidance had no impact on our financial statements.
In December 2007, the FASB issued authoritative guidance on business combinations and the
accounting and reporting for noncontrolling interests (previously referred to as minority
interests). This guidance significantly changed the accounting for and reporting of business
combination transactions, including noncontrolling interests. For example, the acquiring entity is
now required to recognize the full fair value of assets acquired and liabilities assumed in the
transaction, and the expensing of most transaction and restructuring costs is now required. This
guidance became effective for us beginning June 1, 2009 and had no material impact on our financial
statements.
In December 2008, the FASB issued authoritative guidance on employers disclosures about
postretirement benefit plan assets. This guidance provides objectives that an employer should
consider when providing detailed disclosures about assets of a defined benefit pension or other
postretirement plan, including disclosures about investment policies and strategies, categories of
plan assets, significant concentrations of risk and the inputs and valuation techniques used to
measure the fair value of plan assets. This guidance will be effective for our fiscal year ending
May 31, 2010.
In April 2009, the FASB issued new accounting guidance related to interim disclosures about the
fair value of financial instruments. This guidance requires disclosures about the fair value of
financial instruments for interim reporting periods in addition to annual reporting periods and
became effective for us beginning with the first quarter of fiscal year 2010.
In May 2009, the FASB issued new accounting guidance related to the accounting and disclosures of
subsequent events, which establishes general standards for accounting and disclosure of events that
occur after the balance sheet date but before financial statements are issued or are available to
be issued. This guidance requires us to disclose the date through which we have evaluated
subsequent events, which for SEC registrants is the date we file our financial statements with the
SEC, and became effective for our first quarter of fiscal year 2010. Events occurring after the
date of the condensed consolidated balance sheet but before the issuance of the financial
statements included in this filing have been evaluated through the time of this filing.
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(2) Comprehensive Income
The following table provides a reconciliation of net income reported in our financial statements to
comprehensive income for the periods ended November 30 (in millions):
Three Months Ended | ||||||||
2009 | 2008 | |||||||
Net income |
$ | 201 | $ | 327 | ||||
Other comprehensive income: |
||||||||
Foreign currency translation adjustments,
net of tax of $3 in 2009 and benefit of $22 in 2008 |
25 | (123 | ) | |||||
Amortization of unrealized pension actuarial
gains/losses,
net of tax of $1 in 2009 |
(2 | ) | (1 | ) | ||||
Comprehensive income |
$ | 224 | $ | 203 | ||||
Six Months Ended | ||||||||
2009 | 2008 | |||||||
Net income |
$ | 251 | $ | 524 | ||||
Other comprehensive income: |
||||||||
Foreign currency translation adjustments,
net of tax of $11 in 2009 and benefit of $30 in 2008 |
34 | (166 | ) | |||||
Amortization of unrealized pension actuarial
gains/losses,
net of tax of $1 in 2009 and $1 in 2008 |
(4 | ) | (1 | ) | ||||
Comprehensive income |
$ | 281 | $ | 357 | ||||
(3) Retirement Plans
We sponsor or participate in programs that provide retirement benefits to most of our employees.
These programs include defined benefit pension plans, defined contribution plans and postretirement
healthcare plans. A majority of our employees are covered by the FedEx Corporation Employees
Pension Plan (FedEx Plan), a defined benefit pension plan sponsored by FedEx. The FedEx Plan
covers certain U.S. employees age 21 and over with at least one year of service and provides
benefits primarily based on earnings, age and years of service. Defined contribution plans
covering a majority of U.S. employees and certain international employees are in place. We also
sponsor or participate in nonqualified benefit plans covering certain of our U.S. employee groups
and other pension plans covering certain of our international employees. For more information,
refer to the financial statements of FedEx included in its Form 10-Q for the quarter ended November
30, 2009.
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Our retirement plans costs for the periods ended November 30 were as follows (in millions):
Three Months Ended | Six Months Ended | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Pension plans sponsored by FedEx |
$ | 40 | $ | 12 | $ | 79 | $ | 24 | ||||||||
Other U.S. domestic and international pension plans |
9 | 10 | 18 | 19 | ||||||||||||
U.S. domestic and international defined contribution plans |
22 | 48 | 44 | 100 | ||||||||||||
Postretirement healthcare plans |
8 | 12 | 17 | 24 | ||||||||||||
$ | 79 | $ | 82 | $ | 158 | $ | 167 | |||||||||
The increase in pension costs for the plans sponsored by FedEx for the three- and six-month
periods ended November 30, 2009 reflects the negative impact of
market conditions on pension plan assets at the May 31, 2009 measurement date. This increase in
pension costs was offset by lower expenses for our 401(k) plans due to the temporary suspension of
the company-matching contributions, as described in our Annual Report.
The components of the net periodic benefit cost of the pension and postretirement healthcare plans
currently sponsored by us were individually immaterial for all periods presented. No material
contributions were made during the first six months of 2010 or 2009 to pension plans sponsored by
us, and we do not expect to make material contributions in 2010.
(4) Commitments
As of November 30, 2009, our purchase commitments under various contracts for the remainder of 2010
and annually thereafter were as follows (in millions):
Aircraft- | ||||||||||||||||
Aircraft (1) | Related (2) | Other (3) | Total | |||||||||||||
2010 (remainder) |
$ | 123 | $ | 140 | $ | 18 | $ | 281 | ||||||||
2011 |
776 | 30 | 27 | 833 | ||||||||||||
2012 |
527 | 10 | 15 | 552 | ||||||||||||
2013 |
425 | 19 | 11 | 455 | ||||||||||||
2014 |
466 | | 10 | 476 | ||||||||||||
Thereafter |
1,924 | | 92 | 2,016 |
(1) | Our obligation to purchase 15 of these aircraft (Boeing 777 Freighters, or B777Fs) is conditioned upon there being no event that causes us or our employees not to be covered by the Railway Labor Act of 1926, as amended. | |
(2) | Primarily aircraft modifications. | |
(3) | Primarily advertising and promotions contracts. |
The amounts reflected in the table above for purchase commitments represent noncancelable
agreements to purchase goods or services. Commitments to purchase aircraft in passenger
configuration do not include the attendant costs to modify these aircraft for cargo transport
unless we have entered into noncancelable commitments to modify such aircraft. Open purchase
orders that are cancelable are not considered unconditional purchase obligations for financial
reporting purposes and are not included in the table above.
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We had $589 million in deposits and progress payments as of November 30, 2009 (an increase of $45
million from May 31, 2009) on aircraft purchases and other planned aircraft-related transactions.
These deposits are classified in the Other assets caption of our condensed consolidated balance
sheets. In addition to our commitment to purchase B777Fs, our aircraft purchase commitments
include the Boeing 757 (B757) in passenger configuration, which will require additional costs to
modify for cargo transport. Also, we have committed to modify our DC10 aircraft for two-man
cockpit configurations. Future payments related to these activities are included in the table
above. Aircraft and aircraft-related contracts are subject to price escalations.
The following table is a summary of the number and type of aircraft we are committed to purchase as
of November 30, 2009, with the year of expected delivery:
B757 | B777F (1) | Total | ||||||||||
2010 (remainder) |
1 | 2 | 3 | |||||||||
2011 |
17 | 4 | 21 | |||||||||
2012 |
8 | 3 | 11 | |||||||||
2013 |
| 3 | 3 | |||||||||
2014 |
| 3 | 3 | |||||||||
Thereafter |
| 13 | 13 | |||||||||
Total |
26 | 28 | 54 | |||||||||
(1) | Our obligation to purchase 15 of these aircraft is conditioned upon there being no event that causes us or our employees not to be covered by the Railway Labor Act of 1926, as amended. |
A summary of future minimum lease payments under capital leases and noncancelable operating
leases with an initial or remaining term in excess of one year at November 30, 2009 is as follows
(in millions):
Operating Leases | ||||||||||||||||
Capital | Aircraft and Related | Facilities and | Total Operating | |||||||||||||
Leases | Equipment | Other | Leases | |||||||||||||
2010 (remainder) |
$ | 32 | $ | 364 | $ | 313 | $ | 677 | ||||||||
2011 |
18 | 526 | 565 | 1,091 | ||||||||||||
2012 |
6 | 504 | 498 | 1,002 | ||||||||||||
2013 |
118 | 499 | 436 | 935 | ||||||||||||
2014 |
| 472 | 377 | 849 | ||||||||||||
Thereafter |
| 2,458 | 3,460 | 5,918 | ||||||||||||
Total |
174 | $ | 4,823 | $ | 5,649 | $ | 10,472 | |||||||||
Less amount
representing
interest |
18 | |||||||||||||||
Present value of
net minimum lease
payments |
$ | 156 | ||||||||||||||
While certain of our lease agreements contain covenants governing the use of the leased assets or
require us to maintain certain levels of insurance, none of our lease agreements include material
financial covenants or limitations.
We make payments under certain leveraged operating leases that are sufficient to pay principal and
interest on certain pass-through certificates. The pass-through certificates are not our direct
obligations, nor do we guarantee them.
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(5) Contingencies
Wage-and-Hour. We are a defendant in a number of lawsuits containing various class-action
allegations of wage-and-hour violations. The plaintiffs in these lawsuits allege, among other
things, that they were forced to work off the clock, were not paid overtime or were not provided
work breaks or other benefits. The complaints generally seek unspecified monetary damages,
injunctive relief, or both.
In April 2009, in one of these wage-and-hour cases, Bibo v. FedEx Express, a California federal
court granted class certification, certifying several subclasses of our couriers in California from
April 14, 2006 (the date of the settlement of the Foster class action) to the present. The
plaintiffs allege that we violated California wage-and-hour laws after the date of the Foster
settlement. In particular, the plaintiffs allege, among other things, that they were forced to
work off the clock and were not provided with required meal breaks or split-shift premiums. We
asked the U.S. Court of Appeals for the Ninth Circuit to accept a discretionary appeal of the class
certification order, but the court refused to accept it at this time.
This
class certification ruling does not address whether we will ultimately be held liable. We
have denied any liability and intend to vigorously defend ourselves in these wage-and-hour
lawsuits. We do not believe that any loss is probable in these lawsuits.
ATA Airlines. ATA Airlines has sued us in Indiana federal court alleging that we breached a
contract by not including ATA on our 2009 Civil Reserve Air Fleet (CRAF)/Air Mobility Command (AMC)
team, which provides cargo and passenger service to the U.S. military. After being advised that it
would not be a part of the 2009 team, ATA ceased operations and filed for bankruptcy. ATA has
alleged damages of $106 million, including lost profits, aircraft acquisition costs and
bankruptcy-related expenses. We have denied any liability and contend that ATA has suffered no
damages. Trial is currently scheduled for April 2010, and we still do not believe that any loss is
probable.
Other. FedEx Express and its subsidiaries are subject to other legal proceedings that arise in the
ordinary course of their business. In the opinion of management, the aggregate liability, if any,
with respect to these other actions will not have a material adverse effect on our financial
position, results of operations or cash flows.
(6) Parent/Affiliate Transactions
Affiliate company balances that are currently receivable or payable relate to charges for services
provided to or by other FedEx affiliates, which are settled on a
monthly basis, or the net activity
from participation in FedExs consolidated cash management program. In addition, we are allocated
net interest on these amounts at market rates.
We maintain an accounts receivable arrangement with FedEx Customer Information Services, Inc.
(FCIS), a wholly owned subsidiary of FedEx Corporate Services, Inc. (FedEx Services). FedEx
Services is a wholly owned subsidiary of FedEx. Under this arrangement, FCIS records and collects
receivables associated with our U.S. customers, while we continue to
recognize revenue for the transportation services provided. Our net receivables recorded by FCIS
totaled $1.1 billion at November 30, 2009 and $1.0 billion at May 31, 2009.
The costs of the FedEx Services segment are allocated to us and are included in the expense line
item Intercompany charges based on metrics such as relative revenues or estimated services
provided. We believe these allocations approximate the net cost of
the functions provided by the FedEx Services segment.
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(7) Supplemental Cash Flow Information
The following table presents supplemental cash flow information for the six-month periods ended
November 30 (in millions):
2009 | 2008 | |||||||
Cash payments for: |
||||||||
Interest (net of capitalized interest) |
$ | | $ | 8 | ||||
Income taxes |
$ | 112 | $ | 246 | ||||
Income tax refunds received |
(69 | ) | (4 | ) | ||||
Cash tax payments, net |
$ | 43 | $ | 242 | ||||
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholder
Federal Express Corporation
Federal Express Corporation
We have reviewed the condensed consolidated balance sheet of Federal Express Corporation as of
November 30, 2009, and the related condensed consolidated statements of income for the three-month
and six-month periods ended November 30, 2009 and 2008 and the condensed consolidated cash flows
for the six-month periods ended November 30, 2009 and 2008. These financial statements are the
responsibility of the Companys management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight
Board (United States). A review of interim financial information consists principally of applying
analytical procedures and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance with the standards
of the Public Company Accounting Oversight Board, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that should be made to the
condensed consolidated financial statements referred to above for them to be in conformity with
U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of Federal Express Corporation as
of May 31, 2009, and the related consolidated statements of income, changes in owners equity and
comprehensive income, and cash flows for the year then ended not presented herein, and in our
report dated July 10, 2009, 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, 2009, 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, 2009
December 18, 2009
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Item 2. | Managements Discussion and Analysis of Results of Operations and Financial Condition |
GENERAL
The following Managements Discussion and Analysis of Results of Operations and Financial
Condition, which describes the principal factors affecting the results of operations and financial
condition of Federal Express Corporation (FedEx Express), is abbreviated pursuant to General
Instruction H(2)(a) of Form 10-Q. This discussion should be read in conjunction with the
accompanying quarterly unaudited condensed consolidated financial statements and our Annual Report
on Form 10-K for the year ended May 31, 2009 (Annual Report). Our Annual Report includes
additional information about our significant accounting policies, practices and the transactions
that underlie our financial results. For additional information, including a discussion of
outlook, liquidity, capital resources, contractual cash obligations and critical accounting
estimates, see the Quarterly Report on Form 10-Q of our parent, FedEx Corporation (FedEx), for
the quarter ended November 30, 2009.
We are the worlds largest express transportation company. Our sister company FedEx Corporate
Services, Inc. (FedEx Services) provides customer-facing sales, marketing, information technology
and customer service support to us, our sister company FedEx Ground Package System, Inc. (FedEx
Ground), and our other sister companies, as well as retail access for our customers through FedEx
Office and Print Services, Inc. (FedEx Office).
The operating expenses line item Intercompany charges on the financial summary represents an
allocation that primarily includes salaries and benefits, depreciation and other costs for the
sales, marketing, information technology and customer service support provided to us by FedEx
Services and FedEx Offices net operating costs. These costs are allocated based on metrics such
as relative revenues or estimated services provided. Intercompany charges also includes
allocated charges from our parent for management fees related to services received for general
corporate oversight, including executive officers and certain legal and finance functions. We
believe the total amounts allocated reasonably reflect the cost of providing these functions.
The key indicators necessary to understand our operating results include:
| the overall customer demand for our various services; |
| the volume of shipments transported through our network, as measured by our average daily volume and shipment weight; |
| the mix of services purchased by our customers; |
| the prices we obtain for our services, as measured by average revenue per package (yield); |
| our ability to manage our cost structure (capital expenditures and operating expenses) to match shifting volume levels; and |
| the timing and amount of fluctuations in fuel prices and our ability to recover incremental fuel costs through our fuel surcharges. |
The majority of our operating expenses are directly impacted by revenue and volume levels.
Accordingly, we expect these operating expenses to fluctuate on a year-over-year basis consistent
with the change in revenues and volume. The following discussion of operating expenses describes
the key drivers impacting expense trends beyond changes in revenues and volume.
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Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2010 or
ended May 31 of the year referenced and comparisons are to the corresponding period of the prior
year.
RESULTS OF OPERATIONS
The
following tables compare revenues, operating expenses, operating expenses as
a percent of revenue, operating income, net income and operating margin (dollars
in millions) for the three- and six-month periods ended November 30:
Three Months Ended | Percent | Six Months Ended | Percent | |||||||||||||||||||||
2009 | 2008 | Change | 2009 | 2008 | Change | |||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Package: |
||||||||||||||||||||||||
U.S. overnight box |
$ | 1,372 | $ | 1,619 | (15 | ) | $ | 2,703 | $ | 3,330 | (19 | ) | ||||||||||||
U.S. overnight envelope |
395 | 486 | (19 | ) | 803 | 1,011 | (21 | ) | ||||||||||||||||
U.S. deferred |
626 | 740 | (15 | ) | 1,227 | 1,502 | (18 | ) | ||||||||||||||||
Total U.S. domestic package revenue |
2,393 | 2,845 | (16 | ) | 4,733 | 5,843 | (19 | ) | ||||||||||||||||
International Priority (IP) |
1,763 | 1,930 | (9 | ) | 3,357 | 3,974 | (16 | ) | ||||||||||||||||
International domestic (1) |
151 | 158 | (4 | ) | 285 | 328 | (13 | ) | ||||||||||||||||
Total package revenue |
4,307 | 4,933 | (13 | ) | 8,375 | 10,145 | (17 | ) | ||||||||||||||||
Freight: |
||||||||||||||||||||||||
U.S. |
490 | 594 | (18 | ) | 939 | 1,192 | (21 | ) | ||||||||||||||||
International priority freight |
321 | 323 | (1 | ) | 581 | 663 | (12 | ) | ||||||||||||||||
International airfreight |
63 | 111 | (43 | ) | 124 | 242 | (49 | ) | ||||||||||||||||
Total freight revenue |
874 | 1,028 | (15 | ) | 1,644 | 2,097 | (22 | ) | ||||||||||||||||
Other |
54 | 79 | (32 | ) | 98 | 158 | (38 | ) | ||||||||||||||||
Total revenues |
5,235 | 6,040 | (13 | ) | 10,117 | 12,400 | (18 | ) | ||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||
Salaries and employee benefits |
1,978 | 2,011 | (2 | ) | 3,977 | 4,091 | (3 | ) | ||||||||||||||||
Purchased transportation |
258 | 277 | (7 | ) | 505 | 596 | (15 | ) | ||||||||||||||||
Rentals and landing fees |
391 | 400 | (2 | ) | 772 | 813 | (5 | ) | ||||||||||||||||
Depreciation and amortization |
248 | 238 | 4 | 498 | 475 | 5 | ||||||||||||||||||
Fuel |
637 | 954 | (33 | ) | 1,208 | 2,272 | (47 | ) | ||||||||||||||||
Maintenance and repairs |
266 | 380 | (30 | ) | 526 | 773 | (32 | ) | ||||||||||||||||
Intercompany charges |
464 | 529 | (12 | ) | 930 | 1,061 | (12 | ) | ||||||||||||||||
Other |
649 | 724 | (10 | ) | 1,257 | 1,459 | (14 | ) | ||||||||||||||||
Total operating expenses |
4,891 | 5,513 | (11 | ) | 9,673 | 11,540 | (16 | ) | ||||||||||||||||
Operating income |
$ | 344 | $ | 527 | (35 | ) | $ | 444 | $ | 860 | (48 | ) | ||||||||||||
Operating margin |
6.6 | % | 8.7 | % | (210 | ) bp | 4.4 | % | 6.9 | % | (250 | ) bp | ||||||||||||
Other income (expense): |
||||||||||||||||||||||||
Interest, net |
7 | (1 | ) | NM | 13 | (3 | ) | NM | ||||||||||||||||
Other, net |
(20 | ) | 2 | NM | (40 | ) | | NM | ||||||||||||||||
(13 | ) | 1 | NM | (27 | ) | (3 | ) | NM | ||||||||||||||||
Income before income taxes |
331 | 528 | (37 | ) | 417 | 857 | (51 | ) | ||||||||||||||||
Provision for income taxes |
130 | 201 | (35 | ) | 166 | 333 | (50 | ) | ||||||||||||||||
Net income |
$ | 201 | $ | 327 | (39 | ) | $ | 251 | $ | 524 | (52 | ) | ||||||||||||
(1) | International domestic revenues include our international domestic operations, primarily in the United Kingdom, Canada, China, India and Mexico. |
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Percent of Revenue (1) | Percent of Revenue (1) | |||||||||||||||
Three | Three | Six | Six | |||||||||||||
Months | Months | Months | Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Operating expenses: |
||||||||||||||||
Salaries and employee benefits |
37.8 | % | 33.3 | % | 39.3 | % | 33.0 | % | ||||||||
Purchased transportation |
4.9 | 4.6 | 5.0 | 4.8 | ||||||||||||
Rentals and landing fees |
7.4 | 6.6 | 7.6 | 6.6 | ||||||||||||
Depreciation and amortization |
4.7 | 3.9 | 4.9 | 3.8 | ||||||||||||
Fuel |
12.2 | 15.8 | 12.0 | 18.3 | ||||||||||||
Maintenance and repairs |
5.1 | 6.3 | 5.2 | 6.2 | ||||||||||||
Intercompany charges |
8.9 | 8.8 | 9.2 | 8.6 | ||||||||||||
Other |
12.4 | 12.0 | 12.4 | 11.8 | ||||||||||||
Total operating expenses |
93.4 | 91.3 | 95.6 | 93.1 | ||||||||||||
Operating income (margin) |
6.6 | % | 8.7 | % | 4.4 | % | 6.9 | % | ||||||||
(1) | Given the fixed-cost structure of our transportation networks, the year-over-year comparison of our operating expenses as a percentage of revenue has been affected by a number of factors, including the impact of lower fuel surcharges, weak economic conditions and our cost-containment activities. Collectively, these factors have distorted the comparability of certain of our operating expense captions on a relative basis. |
The following table compares selected statistics (in thousands, except yield
amounts) for the three- and six-month periods ended November 30:
Three Months Ended | Percent | Six Months Ended | Percent | |||||||||||||||||||||
2009 | 2008 | Change | 2009 | 2008 | Change | |||||||||||||||||||
Package Statistics |
||||||||||||||||||||||||
Average daily package volume (ADV): |
||||||||||||||||||||||||
U.S. overnight box |
1,154 | 1,086 | 6 | 1,141 | 1,094 | 4 | ||||||||||||||||||
U.S. overnight envelope |
606 | 611 | (1 | ) | 611 | 621 | (2 | ) | ||||||||||||||||
U.S. deferred |
858 | 832 | 3 | 840 | 830 | 1 | ||||||||||||||||||
Total U.S. domestic ADV |
2,618 | 2,529 | 4 | 2,592 | 2,545 | 2 | ||||||||||||||||||
IP |
529 | 500 | 6 | 502 | 497 | 1 | ||||||||||||||||||
International domestic (1) |
338 | 311 | 9 | 315 | 309 | 2 | ||||||||||||||||||
Total ADV |
3,485 | 3,340 | 4 | 3,409 | 3,351 | 2 | ||||||||||||||||||
Revenue per package (yield): |
||||||||||||||||||||||||
U.S. overnight box |
$ | 18.87 | $ | 23.66 | (20 | ) | $ | 18.51 | $ | 23.96 | (23 | ) | ||||||||||||
U.S. overnight envelope |
10.36 | 12.62 | (18 | ) | 10.27 | 12.84 | (20 | ) | ||||||||||||||||
U.S. deferred |
11.58 | 14.13 | (18 | ) | 11.40 | 14.25 | (20 | ) | ||||||||||||||||
U.S. domestic composite |
14.51 | 17.86 | (19 | ) | 14.26 | 18.08 | (21 | ) | ||||||||||||||||
IP |
52.88 | 61.30 | (14 | ) | 52.27 | 62.93 | (17 | ) | ||||||||||||||||
International domestic (1) |
7.09 | 8.06 | (12 | ) | 7.07 | 8.34 | (15 | ) | ||||||||||||||||
Composite package yield |
19.62 | 23.44 | (16 | ) | 19.19 | 23.84 | (20 | ) | ||||||||||||||||
Freight Statistics |
||||||||||||||||||||||||
Average daily freight pounds: |
||||||||||||||||||||||||
U.S. |
7,193 | 7,335 | (2 | ) | 6,883 | 7,315 | (6 | ) | ||||||||||||||||
International priority freight |
2,571 | 2,216 | 16 | 2,353 | 2,264 | 4 | ||||||||||||||||||
International airfreight |
1,207 | 1,605 | (25 | ) | 1,253 | 1,737 | (28 | ) | ||||||||||||||||
Total average daily freight pounds |
10,971 | 11,156 | (2 | ) | 10,489 | 11,316 | (7 | ) | ||||||||||||||||
Revenue per pound (yield): |
||||||||||||||||||||||||
U.S. |
$ | 1.08 | $ | 1.29 | (16 | ) | $ | 1.07 | $ | 1.28 | (16 | ) | ||||||||||||
International priority freight |
1.98 | 2.32 | (15 | ) | 1.93 | 2.31 | (16 | ) | ||||||||||||||||
International airfreight |
0.83 | 1.09 | (24 | ) | 0.77 | 1.10 | (30 | ) | ||||||||||||||||
Composite freight yield |
1.26 | 1.46 | (14 | ) | 1.22 | 1.46 | (16 | ) |
(1) | International domestic statistics include our international domestic operations, primarily in the United Kingdom, Canada, China, India and Mexico. |
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Revenues
Our revenues decreased 13% in the second quarter of 2010 and 18% in the first half of 2010 due
to lower yields primarily driven by a decrease in fuel surcharges. As a result of modestly
improved global economic conditions, yield decreases during the second quarter and first half of
2010 were partially offset by increased U.S. domestic package volume and IP volume, particularly
from Asia and Latin America. In addition, the impact of one additional operating day partially
offset the decline in revenue in the first half of 2010.
Lower fuel surcharges were the primary driver of decreased composite package and freight yield in
the second quarter and first half of 2010. Our weighted-average U.S. domestic and outbound fuel
surcharge was 6.35% in the second quarter of 2010 and 4.81% in the first half of 2010, compared
with 29.95% in the second quarter of 2009 and 30.83% in the first half of 2009. U.S. domestic
package yield also declined during the second quarter and first half of 2010 due to a lower rate
per pound and lower package weights. In addition to lower fuel surcharges, IP and international
domestic yields decreased during the second quarter and first half of 2010 due to lower rates,
partially offset by favorable exchange rates in the second quarter of 2010.
Our fuel surcharges are indexed to the spot price for jet fuel. Using this index, the U.S.
domestic and outbound fuel surcharge and the international fuel surcharges ranged as follows for
the three- and six-month periods ended November 30:
Three Months Ended | Six Months Ended | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
U.S. Domestic and Outbound Fuel Surcharge: |
||||||||||||||||
Low |
5.50 | % | 27.00 | % | 1.00 | % | 27.00 | % | ||||||||
High |
7.50 | 34.50 | 7.50 | 34.50 | ||||||||||||
Weighted-average |
6.35 | 29.95 | 4.81 | 30.83 | ||||||||||||
International Fuel Surcharges: |
||||||||||||||||
Low |
5.50 | 17.00 | 1.00 | 17.00 | ||||||||||||
High |
12.50 | 34.50 | 12.50 | 34.50 | ||||||||||||
Weighted-average |
9.57 | 24.18 | 8.50 | 24.72 |
On September 17, 2009, we announced a 5.9% average list price increase effective January 4,
2010 on our U.S. domestic and U.S. outbound express package and freight shipments and made various
changes to other surcharges, while we lowered our fuel surcharge index by two percentage points.
Furthermore, in connection with these changes, the structure of our fuel surcharge table was
modified. In September 2008, we announced a 6.9% average list price increase effective January 5,
2009 on our U.S. domestic and U.S. outbound express package and freight shipments and made various
changes to other surcharges, while we lowered our fuel surcharge index by two percentage points.
Operating Income
Our operating income and operating margin declined during the second quarter and first half of 2010
as a result of significantly lower fuel surcharges (described above) and a more competitive pricing
environment. Continued reductions in network operating costs driven by lower flight hours and
improved route efficiencies as well as other actions to control spending partially mitigated the
negative impact of lower fuel surcharges on our results. In addition, during the second quarter of
2010, plan design changes to a self-insurance program
produced a benefit of $54 million from a remeasurement of the plan liabilities, but was largely
offset by variable incentive compensation accruals.
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Fuel costs decreased 33% in the second quarter of 2010 and 47% in the first half of 2010 due to
decreases in the average price per gallon of fuel and fuel consumption. Based on a static analysis
of the net impact of year-over-year changes in fuel prices compared to year-over-year changes in
fuel surcharges, fuel had a negative impact to operating income in the second quarter and first
half of 2010. This analysis considers the estimated impact of the reduction in fuel surcharges
included in the base rates charged for our services.
Purchased transportation costs decreased 7% in the second quarter of 2010 and 15% in the first half
of 2010 due to lower utilization of third-party transportation providers (primarily in
international locations). Maintenance and repairs expense decreased 30% in the second quarter of
2010 and 32% in the first half of 2010 primarily due to reductions in flight hours and the
grounding of certain aircraft due to excess capacity in the current economic environment.
Depreciation expense increased 4% in the second quarter of 2010 and 5% in the first half of 2010
primarily due to the addition of 16 new aircraft into service since the second quarter of 2009.
Other operating expenses decreased 10% in the second quarter of 2010 and 14% in the first half of
2010 primarily due to actions to control spending.
Other Income and Income Taxes
Interest expense decreased during the second quarter and first half of 2010 primarily due to
increased capitalized interest primarily related to progress payments on aircraft purchases. Other
expense increased during the second quarter and first half of 2010 primarily due to higher
management fees.
Our effective tax rate was 39.2% for the second quarter of 2010 and 39.7% for the first half of
2010, compared with 38.1% for the second quarter of 2009 and 38.9% for the first half of 2009. The
rates in 2009 and 2010 were favorably impacted by the resolution of immaterial state and federal
income tax matters during those periods. In addition, the 2010 rate was negatively impacted by
lower pre-tax income. For the remainder of 2010, we expect the effective tax rate to be between
40% and 42%. The actual rate, however, will depend on a number of factors, including the amount
and source of operating income.
As of November 30, 2009, there had been no material changes to our liabilities for unrecognized tax
benefits from May 31, 2009. The Internal Revenue Service is currently auditing FedExs 2007 and
2008 U.S. income tax returns.
We file income tax returns in the U.S. and various U.S. states and foreign jurisdictions. It is
reasonably possible that certain U.S. federal, U.S. state and foreign jurisdiction income tax
return proceedings will be completed during the next 12 months and could result in a change in our
balance of unrecognized tax benefits. An estimate of the range of the change cannot be made at
this time. The expected impact of any changes would not be material to our consolidated financial
statements.
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NEW
ACCOUNTING GUIDANCE
New accounting rules and disclosure requirements can significantly impact our reported results and
the comparability of our financial statements. We believe the following new accounting
guidance is relevant to the readers of our financial statements.
On June 1, 2008, we adopted the authoritative guidance issued by the Financial Accounting Standards
Board (FASB) on fair value measurements, which provides a common definition of fair value,
establishes a uniform framework for measuring fair value and requires expanded disclosures about
fair value measurements. On June 1, 2009, we implemented the previously deferred provisions of
this guidance for nonfinancial assets and liabilities recorded at fair value, as required. The
adoption of this new guidance had no impact on our financial statements.
In December 2007, the FASB issued authoritative guidance on business combinations and the
accounting and reporting for noncontrolling interests (previously referred to as minority
interests). This guidance significantly changed the accounting for and reporting of business
combination transactions, including noncontrolling interests. For example, the acquiring entity is
now required to recognize the full fair value of assets acquired and liabilities assumed in the
transaction, and the expensing of most transaction and restructuring costs is now required. This
guidance became effective for us beginning June 1, 2009 and had no material impact on our financial
statements.
In December 2008, the FASB issued authoritative guidance on employers disclosures about
postretirement benefit plan assets. This guidance provides objectives that an employer should
consider when providing detailed disclosures about assets of a defined benefit pension or other
postretirement plan, including disclosures about investment policies and strategies, categories of
plan assets, significant concentrations of risk and the inputs and valuation techniques used to
measure the fair value of plan assets. This guidance will be effective for our fiscal year ending
May 31, 2010.
In April 2009, the FASB issued new accounting guidance related to interim disclosures about the
fair values of financial instruments. This guidance requires disclosures about the fair value of
financial instruments for interim reporting periods in addition to annual reporting periods and
became effective for us beginning with the first quarter of fiscal year 2010.
In May 2009, the FASB issued new accounting guidance related to the accounting and disclosures of
subsequent events, which establishes general standards for accounting and disclosure of events that
occur after the balance sheet date but before financial statements are issued or are available to
be issued. This guidance requires us to disclose the date through which we have evaluated
subsequent events, which for Securities and Exchange Commission (SEC) registrants is the date we
file our financial statements with the SEC and became effective for our first quarter of fiscal
year 2010. Events occurring after the date of the condensed consolidated balance sheet but before
the issuance of the financial statements included in this filing have been evaluated through the
time of this filing.
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FORWARD-LOOKING STATEMENTS
Certain statements in this report are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results
of operations, cash flows, plans, objectives, future performance and business. Forward-looking
statements include those preceded by, followed by or that include the words may, could,
would, should, believes, expects, anticipates, plans, estimates, targets,
projects, intends or similar
expressions. These forward-looking statements involve risks and uncertainties. Actual results may
differ materially from those contemplated (expressed or implied) by such forward-looking
statements, because of, among other things, potential risks and uncertainties, such as:
| economic conditions in the global markets in which we operate; |
| the impact of any international conflicts or terrorist activities on the United States and global economies in general, the transportation industry or us in particular, and what effects these events will have on our costs or the demand for our services; |
| damage to our reputation or loss of brand equity; |
| disruptions to the Internet or our technology infrastructure, including those impacting our computer systems and Web site, which can adversely affect shipment levels; |
| the price and availability of jet and vehicle fuel; |
| the impact of intense competition on our ability to maintain or increase our prices (including our fuel surcharges in response to rising fuel costs) or to maintain or grow our market share; |
| our ability to manage our cost structure for capital expenditures and operating expenses, and match it to shifting and future customer volume levels; |
| our ability to effectively operate, integrate, leverage and grow acquired businesses; |
| any impacts on our businesses resulting from new domestic or international government laws and regulation, including regulatory actions affecting global aviation rights, increased air cargo and other security requirements, and tax, accounting, trade (such as protectionist measures enacted in response to the current weak economic conditions), labor (such as changes to the Railway Labor Act affecting our employees), environmental (such as climate change legislation) or postal rules; |
| changes in foreign currency exchange rates, especially in the euro, Chinese yuan, Canadian dollar, British pound and Japanese yen, which can affect our sales levels and foreign currency sales prices; |
| any liability resulting from and the costs of defending against class-action litigation, such as wage-and-hour and discrimination and retaliation claims, and any other legal proceedings; |
| our ability to maintain good relationships with our employees and prevent attempts by labor organizations to organize groups of our employees, which could significantly increase our operating costs and reduce our operational flexibility; |
| increasing costs, the volatility of costs and legal mandates for employee benefits, especially pension and healthcare benefits; |
| significant changes in the volume of shipments transported through our network, customer demand for our various services or the prices we obtain for our services; |
| market acceptance of our new service and growth initiatives; |
| the impact of technology developments on our operations and on demand for our services; |
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| adverse weather conditions or natural disasters, such as earthquakes and hurricanes, which can disrupt electrical service, damage our property, disrupt our operations, increase fuel costs and adversely affect shipment levels; |
| widespread outbreak of an illness or any other communicable disease, or any other public health crisis; |
| availability of financing on terms acceptable to FedEx and FedExs ability to maintain its current credit ratings, especially given the capital intensity of our operations and the current volatility of credit markets; |
| credit losses from our customers inability or unwillingness to pay for previously provided services as a result of, among other things, weak economic conditions and tight credit markets; and |
| other risks and uncertainties you can find in FedExs and our press releases and SEC filings, including the risk factors identified under the heading Risk Factors in Managements Discussion and Analysis of Results of Operations and Financial Condition in our Annual Report, as updated by our quarterly reports on Form 10-Q. |
As a result of these and other factors, no assurance can be given as to our future results and
achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of
future events or circumstances, and those future events or circumstances may not occur. You should
not place undue reliance on forward-looking statements, which speak only as of the date on which
they are made. We undertake no obligation to update or alter any forward-looking statements,
whether as a result of new information, future events or otherwise.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Omitted under the reduced disclosure format permitted by General Instruction H(2)(c) of Form 10-Q.
Item 4. | Controls and Procedures |
Our management, with the participation of our principal executive and financial officers, has
evaluated the effectiveness of our disclosure controls and procedures in ensuring that the
information required to be disclosed in our filings under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms, including ensuring that such information is
accumulated and communicated to management as appropriate to allow timely decisions regarding
required disclosure. Based on such evaluation, our principal executive and financial officers have
concluded that such disclosure controls and procedures were effective as of November 30, 2009 (the
end of the period covered by this Quarterly Report on Form 10-Q).
During our fiscal quarter ended November 30, 2009, no change occurred in our internal control over
financial reporting that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
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Table of Contents
PART II. OTHER INFORMATION
Item 1. | Legal Proceedings |
For a description of all material pending legal proceedings, see Note 5 of the accompanying
condensed consolidated financial statements.
Item 1A. | Risk Factors |
There have been no material changes from the risk factors disclosed in our Annual Report (under the
heading Risk Factors in Managements Discussion and Analysis of Results of Operations and
Financial Condition) in response to Part I, Item 1A of Form 10-K.
Item 6. | Exhibits |
Exhibit | ||||
Number | Description of Exhibit | |||
10.1 | Letter Agreement dated September 29, 2009, amending the Transportation Agreement dated July
31, 2006 between the United States Postal Service and Federal Express Corporation.
Confidential treatment has been requested for confidential commercial and financial
information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
(Filed as Exhibit 10.1 to FedEx Corporations FY10 Second Quarter Report on Form 10-Q, and
incorporated herein by reference.) |
|||
12.1 | Computation of Ratio of Earnings to Fixed Charges. |
|||
15.1 | Letter re: Unaudited Interim Financial Statements. |
|||
31.1 | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under
the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
|||
31.2 | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under
the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
|||
32.1 | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
32.2 | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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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.
FEDERAL EXPRESS CORPORATION |
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Date: December 18, 2009 | /s/ J. RICK BATEMAN | |||
J. RICK BATEMAN | ||||
VICE PRESIDENT AND WORLDWIDE CONTROLLER (PRINCIPAL ACCOUNTING OFFICER) |
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EXHIBIT INDEX
Exhibit | ||||
Number | Description of Exhibit | |||
10.1 | Letter Agreement dated September 29, 2009, amending the Transportation Agreement dated
July 31, 2006 between the United States Postal Service and Federal Express Corporation.
Confidential treatment has been requested for confidential commercial and financial
information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
(Filed as Exhibit 10.1 to FedEx Corporations FY10 Second Quarter Report on Form 10-Q, and
incorporated herein by reference.) |
|||
12.1 | Computation of Ratio of Earnings to Fixed Charges. |
|||
15.1 | Letter re: Unaudited Interim Financial Statements. |
|||
31.1 | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a)
under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|||
31.2 | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a)
under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|||
32.1 | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
32.2 | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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