UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended May 31, 2011.
OR
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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)
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Delaware
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71-0427007 |
(State or Other Jurisdiction of
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(I.R.S. Employer |
Incorporation or Organization)
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Identification No.) |
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3610 Hacks Cross Road, Memphis, Tennessee
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38125 |
(Address of Principal Executive Offices)
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(ZIP Code) |
Registrants telephone number, including area code: (901) 369-3600
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on which registered |
None
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None |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
Yes o No þ
Indicate by check mark if the Registrant is not required to file reports pursuant to Rule 13
or Section 15(d) of the Exchange Act.
Yes o No þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Date 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of
Registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. þ
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. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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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 Registrant is a wholly owned subsidiary of FedEx Corporation, a Delaware corporation, and
there is no market for the Registrants common stock, par value $0.10 per share. As of July 12,
2011, 1,000 shares of the Registrants common stock were outstanding.
The Registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form
10-K and is therefore filing this Form with the reduced disclosure format permitted by General
Instruction I(2).
PART I
Overview
Federal Express Corporation (FedEx Express) invented express distribution in 1973 and remains the
industry leader, providing rapid, reliable, time-definite delivery of packages and freight to more
than 220 countries and territories through one integrated global network. FedEx Express is a
wholly owned subsidiary of FedEx Corporation (FedEx), which was incorporated in Delaware on
October 2, 1997 to serve as the parent holding company of FedEx Express. We offer time-definite
delivery within one to three business days, serving markets that generate more than 90% of the
worlds gross domestic product through door-to-door, customs-cleared service, with a money-back
guarantee. Our unmatched air route authorities and extensive transportation infrastructure,
combined with leading-edge information technologies, make us the worlds largest express
transportation company. We employ approximately 143,000 employees and have approximately 57,000
drop-off locations (including FedEx Office centers), 688 aircraft and approximately 50,000 vehicles
and trailers in our integrated global network.
FedEx Corporate Services, Inc. (FedEx Services), a wholly owned subsidiary of FedEx, provides us
and other FedEx subsidiaries with sales, marketing, information technology, customer service and
certain other back-office support. FedEx Services and its subsidiary
FedEx TechConnect, Inc. provide a
convenient single point of access for many customer support functions, enabling FedEx to more
effectively sell the entire portfolio of transportation services and to help ensure a consistent
and outstanding experience for our customers.
FedExs wholly owned subsidiary FedEx Office and Print Services, Inc. (FedEx Office) provides
customer access to our shipping services. FedEx Office has approximately 1,950 locations and
offers the full range of our services at virtually all U.S. locations. In addition, FedEx Office
offers packing services, and packing supplies and boxes are included in its retail product
assortment.
In 2010, we began offering our U.S. domestic services at all U.S. OfficeMax retail locations (over
900 locations). These additional staffed drop-off locations complement FedExs existing retail
network, including FedEx Office centers, and further expand customer access to our services.
Except as otherwise specified, any reference to a year indicates our fiscal year ended May 31 of
the year referenced.
Services
We offer a wide range of shipping services for delivery of packages and freight. Overnight and
deferred package services are backed by money-back guarantees and extend to nearly the entire
United States population. We offer three U.S. overnight package delivery services: FedEx First
Overnight, FedEx Priority Overnight and FedEx Standard Overnight. FedEx SameDay service is
available for urgent shipments up to 70 pounds to virtually any U.S. destination. We also offer
U.S. express overnight and deferred freight services backed by money-back guarantees to handle the
needs of the time-definite freight market.
International express and deferred package delivery with a money-back guarantee is available to
more than 220 countries and territories, with a variety of time-definite services to meet distinct
customer needs. We also offer domestic pickup-and-delivery services within certain non-U.S.
countries, including the United Kingdom, Canada, China, India and Mexico. In addition, we offer
comprehensive international
express and deferred freight services, backed by a money-back guarantee, real-time tracking and
advanced customs clearance.
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We provide our customers with a high level of service quality, as evidenced by our ISO 9001
certification for our global express and ground operations. ISO 9001 registration is required by
thousands of customers around the world. Our global certification enhances our
single-point-of-access strategy and solidifies our reputation as the quality leader in the
transportation industry. ISO 9001 is currently the most rigorous international standard for
Quality Management and Assurance. ISO standards were developed by the International Organization
for Standardization in Geneva, Switzerland to promote and facilitate international trade. More
than 150 countries, including European Union members, the United States and Japan, recognize ISO
standards.
Information regarding our e-shipping tools and solutions can be found below (Technology). In
addition, detailed information about all of our delivery services, e-shipping tools and solutions
and FedExs citizenship efforts can be found on the FedEx Web site, fedex.com. The information on
the FedEx Web site, however, is not incorporated by reference in, and does not form part of, this
Report.
International Expansion
We are focused on the long-term expansion of our international presence. We are adding flights,
purchasing aircraft and improving services to and from Asia, Europe and Latin America based on the
long-term growth prospects of these regions.
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We have agreed, subject to certain conditions, to purchase a total of 45 B777 Freighter
(B777F) aircraft, a new high-capacity, long-range airplane, 12 of which have already been
delivered. We also hold options to purchase an additional 13 B777F aircraft. The B777F
enables us to fly between major world markets with lower operating costs, more shipments and
in less time than before, allowing later cut-off times for customers in these markets to drop
off their shipments. |
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In 2011, we added more daily scheduled transpacific and transatlantic flights, providing
needed capacity between Asia, Europe and the United States. |
We recently made strategic moves in India and Mexico:
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In February 2011, we acquired the Indian logistics, distribution and express businesses of
AFL Pvt. Ltd. and its affiliate Unifreight India Pvt. Ltd. |
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On December 15, 2010, we entered into an agreement to acquire
Servicios Nacionales Mupa, S.A. de C.V. (MultiPack), a Mexican
domestic express package delivery company, which we expect to complete in the first quarter of 2012. |
These acquisitions will give us more robust domestic transportation networks and added capabilities in
these important global markets, and are expected to provide important contributions to our
long-term growth, productivity and profitability.
We began serving mainland China in 1984, and since that time, we have expanded our service to cover
more than 400 cities across the country. Within the past few years, we have taken several
important actions that bolster our presence there. As an example, in 2009, we began operations at
our new Asia-Pacific hub at the Guangzhou Baiyun International
Airport in southern China. The new
hub assumed and expanded the activities of our previous hub in Subic Bay, Philippines and better
serves our global customers doing business in and with the China and Asia-Pacific markets.
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To facilitate the use of our growing international network, we offer a full range of international
trade consulting services and a variety of online tools that enable customers to more easily
determine and comply with international shipping requirements.
Technology
We are a world leader in technology, and our founder Frederick W. Smiths vision that the
information about a package is as important as the delivery of the package itself remains at the
core of our comprehensive technology strategy.
Our technology strategy is driven by our desire for customer satisfaction. Through FedEx Services,
we strive to build technology solutions that will solve our customers business problems with
simplicity, convenience, speed and reliability. The focal point of our strategy is the
award-winning FedEx Web site, together with our customer integrated solutions.
The fedex.com Web site was launched over fifteen years ago, and during that time, customers have
shipped and tracked billions of packages at fedex.com. The fedex.com Web site is widely recognized
for its speed, ease of use and customer-focused features. At fedex.com, our customers ship
packages, determine international documentation requirements, track package status and pay
invoices. The advanced tracking capability within My FedEx provides customers with a consolidated
view of inbound, outbound and third-party shipments. FedEx Desktop provides customers the benefit
of working offline and having real-time shipment updates sent directly to their computer desktop.
FedEx Mobile is a suite of services available on most Web-enabled mobile devices, such as the
BlackBerry, and includes enhanced support for Apple products, such as the iPhone, iPod Touch and
iPad. FedEx Mobile allows customers to track the status of packages, create shipping labels, get
account-specific rate quotes and access drop-off location data for shipments. We also use wireless
data collection devices to scan bar codes on shipments, thereby enhancing and accelerating the
package information available to our customers.
Our e-commerce tools and solutions are designed to be easily integrated into our customers
applications, as well as into third-party software being developed by leading e-procurement,
systems integration and enterprise resource planning companies. The FedEx Ship Manager suite of
solutions offers a wide range of options to help our customers manage their shipping and associated
processes.
FedEx Services has a team of highly qualified professionals dedicated to securing information about our
customers shipments and protecting our customers privacy, and we strive to provide a safe, secure
online environment for our customers.
Marketing
The FedEx brand name is a symbol for high-quality service, reliability and speed. FedEx is one of
the most widely recognized brands in the world. Special emphasis is placed on promoting and
protecting the FedEx brand, one of our most important assets. In addition to traditional print and
broadcast advertising, we promote the FedEx brand through corporate sponsorships and special
events. For example, FedEx sponsors:
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The National Football League (NFL), as its Official Delivery Service Sponsor |
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FedExField, home of the NFLs Washington Redskins |
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The #11 Joe Gibbs Racing Toyota Camry driven by Denny Hamlin in the NASCAR Sprint Cup
Series |
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PGA TOUR and the Champions Tour golf organizations, as the Official Shipping Company, and
FedExCup, a season-long points competition for PGA TOUR players |
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The FedEx St. Jude Classic, a PGA TOUR event that raises millions of dollars for St. Jude
Childrens Research Hospital |
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FedExForum, home of the NBAs Memphis Grizzlies |
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ATP World Tour mens professional tennis circuit and French Open tennis tournament |
U.S. Postal Service Agreement
Under an agreement with the U.S. Postal Service that runs through September 2013, we provide
domestic air transportation services to the U.S. Postal Service, including for its First-Class,
Priority and Express Mail. We also have approximately 5,000 drop boxes at U.S. Post Offices in
approximately 340 metropolitan areas and provide transportation and delivery for the U.S. Postal
Services international delivery service called Global Express Guaranteed (GXG).
Pricing
We periodically publish list prices in our Service Guides for the majority of our services. In
general, U.S. shipping rates are based on the service selected, destination zone, weight, size, any
ancillary service charge and whether the shipment was picked up by one of our couriers or dropped
off by the customer at a FedEx Express, FedEx Office or FedEx Authorized ShipCenter location.
International rates are based on the type of service provided and vary with size, weight,
destination and, whenever applicable, whether the shipment was picked up by one of our couriers or
dropped off by the customer at a FedEx Express, FedEx Office or FedEx Authorized ShipCenter
location. We offer our customers discounts generally based on actual or potential average daily
revenue produced.
We have an indexed fuel surcharge for U.S. domestic and U.S. outbound shipments and for shipments
originating internationally, where legally and contractually possible. The surcharge percentage is
subject to monthly adjustment based on a rounded average of a certain spot price for jet fuel. For
example, the fuel surcharge for June 2011 was based on the average spot price for jet fuel
published for April 2011. Changes to our fuel surcharge, when calculated according to the average
spot price for jet fuel and FedEx Express trigger points, are applied effective from the first
Monday of the month. These trigger points may change from time to time, but information on the
fuel surcharge for each month is available at fedex.com approximately two weeks before the
surcharge is applicable. The weighted average U.S. domestic and U.S. outbound fuel surcharge as a
percentage of the base rates for the past three years was: 201110%; 2010 6%; and 2009 17%.
These percentages include certain fuel surcharge reductions that are associated with our annual
base rate increases.
Operations
Our primary sorting facility, located in Memphis, serves as the center of our multiple
hub-and-spoke system. A second national hub facility is located in Indianapolis. In addition to
these national hubs, we operate regional hubs in Newark, Oakland, Fort Worth and Greensboro and
major metropolitan sorting facilities in Los Angeles and Chicago.
Facilities in Anchorage, Paris, Guangzhou and Cologne/Bonn serve as sorting facilities for express
package and freight traffic moving to and from Asia, Europe and North America. Additional major
sorting and freight handling facilities are located at Narita Airport in Tokyo, Stansted Airport
outside
London, and Pearson Airport in Toronto. The facilities in Guangzhou, Paris and
Cologne/Bonn are also designed to serve as regional hubs for their respective market areas. A
facility in Miami the Miami Gateway Hub serves our South Florida, Latin American and
Caribbean markets.
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Throughout our worldwide network, we operate city stations and employ a staff of customer service
agents, cargo handlers and couriers who pick up and deliver shipments in the stations service
area. In some international areas, independent agents (Global Service Participants) have been
selected to complete deliveries and to pick up packages. For more information about our sorting
and handling facilities, see Part I, Item 2 of this Annual Report on Form 10-K under the caption
Sorting and Handling Facilities.
FedEx Office offers retail access to our shipping services at all of its U.S. locations. We also
have alliances with certain other retailers to provide in-store drop-off sites. Our unmanned FedEx
Drop Boxes provide customers the opportunity to drop off packages in office buildings, shopping
centers, corporate or industrial parks and outside some U.S. Post Offices.
Fuel Supplies and Costs
During 2011, we purchased jet fuel from various suppliers under contracts that vary in length and
which provide for specific amounts of fuel to be delivered. The fuel represented by these
contracts is purchased at market prices. Because of our indexed fuel surcharge, we do not have any
jet fuel hedging contracts. See Pricing.
The following table sets forth our costs for jet fuel and its percentage of our total revenues for
the last five fiscal years:
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Total Cost |
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Percentage of Total |
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Revenues |
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2011 |
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3,178 |
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13.2 |
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2010 |
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2,342 |
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11.0 |
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2009 |
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2,932 |
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13.2 |
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2008 |
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3,396 |
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14.0 |
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2007 |
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2,639 |
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11.7 |
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Approximately 11% of our requirement for vehicle fuel is purchased in bulk. The remainder of our
requirement is satisfied by retail purchases with various discounts.
Competition
As described in Item 1A of this Annual Report on Form 10-K (Risk Factors), the express package
and freight markets are both highly competitive and sensitive to price and service, especially in
periods of little or no macro-economic growth. The ability to compete effectively depends upon
price, frequency, capacity and speed of scheduled service, ability to track packages, extent of
geographic coverage, reliability and innovative service offerings.
Competitors within the United States include other package delivery concerns, principally United
Parcel Service, Inc. (UPS), passenger airlines offering express package services, regional
express delivery concerns, air freight forwarders and the U.S. Postal Service. Our principal
international competitors are DHL, UPS, TNT, other foreign postal authorities, freight forwarders,
passenger airlines and all-cargo airlines. Many of our international competitors are
government-owned, -controlled or -subsidized carriers, which may have greater resources, lower
costs, less profit sensitivity and more favorable operating conditions than we do.
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Employees
We are headquartered in Memphis, Tennessee. David J. Bronczek is our President and Chief Executive
Officer. As of May 31, 2011, we employed approximately 95,000 permanent full-time and 48,000
permanent part-time employees, of which approximately 15% are employed in the Memphis area. Our
international employees in the aggregate represent approximately 27% of all employees.
Our pilots, who constitute a small percentage of our total employees, are represented by the Air
Line Pilots Association, International (ALPA), and are employed under a collective bargaining
agreement. During the fourth quarter of 2011, our pilots ratified a new labor contract that
includes safety initiatives, increases in hourly pay rates and travel per diem rates, and
provisions for opening a European crew base. The new contract is scheduled to become amendable in
March 2013 unless the union exercises its option to shorten the contract, in which case the
agreement would be amendable in March 2012 and a portion of the hourly pay increases would be
canceled.
Attempts by other labor organizations to organize certain other groups of employees occur from time
to time. Although these organizing attempts have not resulted in any certification of a U.S.
domestic collective bargaining representative (other than ALPA), we cannot predict the outcome of
these labor activities or their effect, if any, on us or our employees. Certain of our
non-U.S. employees are unionized. We believe our relationship with all of our employees is
excellent.
Trademarks
The FedEx trademark, service mark and trade name is essential to our worldwide business. FedEx
and FedEx Express, among others, are trademarks, service marks and trade names of Federal Express
Corporation for which registrations, or applications for registration, are on file. We have
authorized, through licensing arrangements, the use of certain of our trademarks, service marks and
trade names by our Global Service Participants to support our business. In addition, we license
the use of certain of our trademarks, service marks and trade names on promotional items for the
primary purpose of enhancing brand awareness.
Regulation
Air. Under the Federal Aviation Act of 1958, as amended, both the U.S. Department of
Transportation (DOT) and the Federal Aviation Administration (FAA) exercise regulatory
authority over us.
The FAAs regulatory authority relates primarily to operational aspects of air transportation,
including aircraft standards and maintenance, as well as personnel and ground facilities, which may
from time to time affect our ability to operate our aircraft in the most efficient manner. We hold
an air carrier certificate granted by the FAA pursuant to Part 119 of the federal aviation
regulations. This certificate is of unlimited duration and remains in effect so long as we
maintain our standards of safety and meet the operational requirements of the regulations.
In September 2010, the FAA proposed rules that would significantly reduce the maximum number of
hours on duty and increase the minimum amount of rest time for our pilots, and thus require us to
hire additional pilots and modify certain of our aircraft. It is reasonably possible that these
rules, if enacted as currently drafted, or other future flight safety requirements could impose
material costs on us.
The DOTs authority relates primarily to economic aspects of air transportation. The DOTs
jurisdiction extends to aviation route authority and to other regulatory matters, including the
transfer of route
authority between carriers. We hold various certificates issued by the DOT, authorizing us to
engage in U.S. and international air transportation of property and mail on a worldwide basis.
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Under the Aviation and Transportation Security Act of 2001, as amended, the Transportation Security
Administration (TSA), an agency within the Department of Homeland Security, has responsibility
for aviation security. The TSA has issued to us a Full All-Cargo Aircraft Operator Standard
Security Plan, which contains many new and enhanced security requirements. These requirements are
not static, but will change periodically as the result of regulatory and legislative requirements,
and to respond to evolving threats. Until these requirements are adopted, we cannot determine the
effect that these new rules will have on our cost structure or our operating results. It is
reasonably possible, however, that these rules or other future security requirements could impose
material costs on us.
We participate in the Civil Reserve Air Fleet (CRAF) program. Under this program, the U.S.
Department of Defense may requisition for military use certain of our wide-bodied aircraft in the
event of a declared need, including a national emergency. We are compensated for the operation of
any aircraft requisitioned under the CRAF program at standard contract rates established each year
in the normal course of awarding contracts. Through our participation in the CRAF program, we are
entitled to bid on peacetime military cargo charter business. We, together with a consortium of
other carriers, currently contract with the U.S. Government for charter flights.
Ground. The ground transportation performed by us is integral to our air transportation services.
The enactment of the Federal Aviation Administration Authorization Act of 1994 abrogated the
authority of states to regulate the rates, routes or services of intermodal all-cargo air carriers
and most motor carriers. States may now only exercise jurisdiction over safety and insurance. We
are registered in those states that require registration.
Like other interstate motor carriers, we are subject to certain DOT safety requirements governing
interstate operations. In addition, vehicle weight and dimensions remain subject to both federal
and state regulations.
International. Our international authority permits us to carry cargo and mail from points in our
U.S. route system to numerous points throughout the world. The DOT regulates international routes
and practices and is authorized to investigate and take action against discriminatory treatment of
United States air carriers abroad. The right of a United States carrier to serve foreign points is
subject to the DOTs approval and generally requires a bilateral agreement between the United
States and the foreign government. The carrier must then be granted the permission of such foreign
government to provide specific flights and services. The regulatory environment for global
aviation rights may from time to time impair our ability to operate our air network in the most
efficient manner. Additionally, global air cargo carriers, such as us, are subject to current and
potential additional aviation security regulation by foreign governments.
Our operations outside the United States, such as our growing international domestic operations,
are also subject to current and potential regulations that restrict, and sometimes prohibit, our
ability to compete in parts of the transportation and logistics market. As an example, the Chinese
government has adopted postal regulations that exclude foreign-owned companies such as us from
competing in the mainland China domestic document delivery market.
Communication. Because of the extensive use of radio and other communication facilities in our
aircraft and ground transportation operations, we are subject to the Federal Communications
Commission Act of 1934, as amended. Additionally, the Federal Communications Commission regulates
and licenses our activities pertaining to satellite communications.
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Environmental. Pursuant to the Federal Aviation Act, the FAA, with the assistance of the U.S.
Environmental Protection Agency, is authorized to establish standards governing aircraft noise.
Our aircraft fleet is in compliance with current noise standards of the federal aviation
regulations. In addition to federal regulation of aircraft noise, certain airport operators have
local noise regulations, which limit aircraft operations by type of aircraft and time of day.
These regulations have had a restrictive effect on our aircraft operations in some of the
localities where they apply but do not have a material effect on any of our significant markets.
Congresss passage of the Airport Noise and Capacity Act of 1990 established a National Noise
Policy, which enabled us to plan for noise reduction and better respond to local noise constraints.
Our international operations are also subject to noise regulations in certain of the countries in
which we operate.
Concern over climate change, including the impact of global warming, has led to significant U.S.
and international legislative and regulatory efforts to limit greenhouse gas emissions, including
our aircraft emissions. For example, during 2009, the European Commission approved the extension
of the European Union Emissions Trading Scheme (ETS) for GHG emissions, to the airline industry.
Under this decision, all of our flights to and from any airport in any member state of the European
Union will be covered by the ETS requirements beginning in 2012, and each year we will be required
to submit emission allowances in an amount equal to the carbon dioxide emissions from such flights.
For a description of such efforts and their potential effect on our cost structure and operating
results, see Item 1A of this Annual Report on Form 10-K (Risk Factors).
We are subject to federal, state and local environmental laws and regulations relating to, among
other things, contingency planning for spills of petroleum products and the disposal of waste oil.
Additionally, we are subject to numerous regulations dealing with underground fuel storage tanks,
hazardous waste handling, vehicle and equipment emissions and noise and the discharge of effluents
from our properties and equipment. We have environmental management programs to ensure compliance
with these regulations.
Labor. All of our U.S. employees are covered by the Railway Labor Act of 1926, as amended (the
RLA), while labor relations within the United States at most of FedExs companies are governed by
the National Labor Relations Act of 1935, as amended (the NLRA). Under the RLA, groups that wish
to unionize must do so across nationwide classes of employees. The RLA also requires mandatory
government-led mediation of contract disputes supervised by the National Mediation Board before a
union can strike or an employer can replace employees or impose contract terms. This part of the
RLA helps minimize the risk of strikes that would shut down large portions of the economy. Under
the NLRA, employees can unionize in small localized groups, and government-led mediation is not a
required step in the negotiation process.
The RLA was originally passed to govern railroad and express carrier labor negotiations. As
transportation systems evolved, the law expanded to cover airlines, which are the dominant national
transportation systems of today. As an air express carrier with an integrated air/ground network,
we and our employees have been covered by the RLA since the founding of the company in 1971. The
purpose of the RLA is to offer employees a process by which to unionize (if they choose) and engage
in collective bargaining while also protecting global commerce from damaging work stoppages and
delays. Specifically, the RLA ensures that an entire transportation system, such as ours, cannot
be shut down by the actions of a local segment of the network.
The U.S. Congress has, in the past, considered adopting changes in labor laws that would make it
easier for unions to organize units of our employees. For example, there is always a possibility
that Congress could remove most of our employees from the jurisdiction of the RLA, thereby exposing
our network to
sporadic labor disputes and the risk that small groups of employees could disrupt our entire
air/ground network. In addition, federal and state governmental agencies have and may continue to
take actions that could make it easier for our employees to organize under the RLA or NLRA. For a
description of these potential labor law changes, see Item 1A of this Annual Report on Form 10-K
(Risk Factors).
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We present information about our risk factors on pages 29 through 32 of this Annual Report on Form
10-K.
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ITEM 1B. |
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UNRESOLVED STAFF COMMENTS |
None.
Our principal owned and leased properties include our aircraft, vehicles, national, regional and
metropolitan sorting facilities, administration buildings, FedEx Drop Boxes and data processing and
telecommunications equipment.
Aircraft and Vehicles
As of May 31, 2011, our aircraft fleet consisted of the following:
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Maximum Operational |
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Revenue Payload |
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(Pounds per |
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Owned |
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Leased |
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Total |
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Aircraft)(1) |
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Boeing B777F |
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12 |
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0 |
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12 |
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178,000 |
|
Boeing MD11 |
|
|
38 |
|
|
|
26 |
|
|
|
64 |
(2) |
|
|
164,200 |
|
Boeing MD10-30 |
|
|
10 |
|
|
|
7 |
|
|
|
17 |
|
|
|
114,200 |
|
Boeing MD10-10 |
|
|
58 |
|
|
|
0 |
|
|
|
58 |
|
|
|
108,700 |
|
Airbus A300-600 |
|
|
35 |
|
|
|
36 |
|
|
|
71 |
|
|
|
85,600 |
|
Airbus A310-200/300 |
|
|
50 |
|
|
|
3 |
|
|
|
53 |
|
|
|
61,900 |
|
Boeing B757-200 |
|
|
58 |
|
|
|
0 |
|
|
|
58 |
(3) |
|
|
45,800 |
|
Boeing B727-200 |
|
|
65 |
|
|
|
2 |
|
|
|
67 |
|
|
|
38,200 |
|
ATR 72-202/212 |
|
|
21 |
|
|
|
0 |
|
|
|
21 |
(4) |
|
|
14,660 |
|
ATR 42-300/320 |
|
|
26 |
|
|
|
0 |
|
|
|
26 |
|
|
|
10,880 |
|
Cessna 208B |
|
|
241 |
|
|
|
0 |
|
|
|
241 |
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
614 |
|
|
|
74 |
|
|
|
688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Maximum operational revenue payload is the lesser of the net volume-limited payload and the
net maximum structural payload. |
|
(2) |
|
Includes 4 aircraft not currently in operation and awaiting completion of modification. |
|
(3) |
|
Includes 21 aircraft not currently in operation and awaiting completion of modification. |
|
(4) |
|
Includes 5 aircraft not currently in operation and awaiting completion of modification. |
|
|
The B777Fs are two-engine, wide-bodied cargo aircraft that have a longer range and
larger capacity than any aircraft we operate. |
|
|
The MD11s are three-engine, wide-bodied aircraft that have a longer range and larger
capacity than MD10s. |
-11-
|
|
The MD10s are three-engine, wide-bodied aircraft that have received an Advanced Common
Flightdeck (ACF) modification, which includes a conversion to a two-pilot cockpit, as well as
upgrades of electrical and other systems. |
|
|
The A300s and A310s are two-engine, wide-bodied aircraft that have a longer range and more
capacity than B757s and B727s. |
|
|
The B757s are two-engine, narrow-bodied aircraft configured for cargo service. |
|
|
The B727s are three-engine, narrow-bodied aircraft configured for cargo service. |
|
|
The ATR and Cessna 208 turbo-prop aircraft are leased to independent operators to support
our operations in areas where demand does not justify use of a larger aircraft. |
An inventory of spare engines and parts is maintained for each aircraft type.
In addition, we lease smaller aircraft, which feed packages to and from airports primarily outside
the U.S. served by our larger jet aircraft. The lease agreements generally call for the
owner-lessor to provide the aircraft, flight crews, insurance and maintenance, as well as fuel and
other supplies required to operate the aircraft. Our lease agreements are for terms not exceeding
one year and are generally cancelable upon 30 days notice.
At May 31, 2011, we operated approximately 50,000 ground transport vehicles, including pickup and
delivery vans, larger trucks called container transport vehicles and over-the-road tractors and
trailers.
Aircraft Purchase Commitments
The following table is a summary of the number and type of aircraft we were committed to purchase
as of May 31, 2011, with the year of expected delivery:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B757 |
|
|
B777F(1) |
|
|
Total |
|
|
2012 |
|
|
16 |
|
|
|
7 |
|
|
|
23 |
|
2013 |
|
|
4 |
|
|
|
6 |
|
|
|
10 |
|
2014 |
|
|
|
|
|
|
7 |
|
|
|
7 |
|
2015 |
|
|
|
|
|
|
3 |
|
|
|
3 |
|
2016 |
|
|
|
|
|
|
3 |
|
|
|
3 |
|
Thereafter |
|
|
|
|
|
|
7 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
20 |
|
|
|
33 |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Our obligation to purchase 15 of these aircraft is conditioned upon there being no event
that causes us or our employees to not be covered by the RLA. |
As of May 31, 2011, deposits and progress payments of $604 million had been made toward
aircraft purchases and other planned aircraft-related transactions. Also see Note 13 of the
accompanying consolidated financial statements for more information about our purchase commitments.
-12-
Sorting and Handling Facilities
At May 31, 2011, we operated the following major sorting and handling facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sorting |
|
|
|
|
Lease |
|
|
|
|
|
|
Square |
|
|
Capacity |
|
|
|
|
Expiration |
Location |
|
Acres |
|
|
Feet |
|
|
(per hour)(1) |
|
|
Lessor |
|
Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
National |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memphis, Tennessee |
|
|
518 |
|
|
|
3,450,000 |
|
|
|
475,000 |
|
|
Memphis-Shelby County Airport Authority |
|
2036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indianapolis, Indiana |
|
|
335 |
|
|
|
2,509,000 |
|
|
|
215,000 |
|
|
Indianapolis Airport Authority |
|
2017/2028 (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fort Worth, Texas |
|
|
168 |
|
|
|
948,000 |
|
|
|
76,000 |
|
|
Fort Worth Alliance Airport Authority |
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newark, New Jersey |
|
|
70 |
|
|
|
595,000 |
|
|
|
156,000 |
|
|
Port Authority of New York and New Jersey |
|
2030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oakland, California |
|
|
75 |
|
|
|
320,000 |
|
|
|
54,000 |
|
|
City of Oakland |
|
2031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greensboro, N. Carolina |
|
|
165 |
|
|
|
593,000 |
|
|
|
29,000 |
|
|
Piedmont Triad Airport Authority |
|
2031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metropolitan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicago, Illinois |
|
|
51 |
|
|
|
419,000 |
|
|
|
52,000 |
|
|
City of Chicago |
|
2028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles, California |
|
|
34 |
|
|
|
305,000 |
|
|
|
57,000 |
|
|
City of Los Angeles |
|
2021/2025 (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anchorage, Alaska (2) |
|
|
64 |
|
|
|
332,000 |
|
|
|
24,000 |
|
|
Alaska Department of Transportation and Public Facilities |
|
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paris, France (3) |
|
|
87 |
|
|
|
861,000 |
|
|
|
63,000 |
|
|
Aeroports de Paris |
|
2029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cologne, Germany (3) |
|
|
7 |
|
|
|
325,000 |
|
|
|
20,000 |
|
|
Cologne Bonn Airport |
|
2040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guangzhou, China (4) |
|
|
155 |
|
|
|
882,000 |
|
|
|
61,000 |
|
|
Guangdong Airport Management Corp. |
|
2029 |
|
|
|
(1) |
|
Documents and packages. |
|
(2) |
|
Handles international express package and freight shipments to and from Asia, Europe and
North America. |
|
(3) |
|
Handles intra-Europe express package and freight shipments, as well as international express
package and freight shipments to and from Europe. |
|
(4) |
|
Handles intra-Asia express package and freight shipments, as well as international express
package and freight shipments to and from Asia. |
|
(5) |
|
Property is held under two separate leases lease for original hub expires in 2017, and
lease for additional buildings expires in 2028. |
|
(6) |
|
Property is held under two separate leases lease for sorting and handling facility expires
in 2021, and lease for ramp expansion expires in 2025. |
-13-
Our primary sorting facility, which serves as the center of our multiple hub-and-spoke system,
is located at the Memphis International Airport. Our facilities at the Memphis International
Airport also include aircraft hangars, aircraft ramp areas, vehicle parking areas, flight training
and fuel facilities, administrative offices and warehouse space. We lease these facilities from
the Memphis-Shelby County Airport Authority (the Authority). The lease obligates us to maintain
and insure the leased property and to pay all related taxes, assessments and other charges. The
lease is subordinate to, and our rights thereunder could be affected by, any future lease or
agreement between the Authority and the U.S. Government.
We have additional international sorting-and-handling facilities located at Narita Airport in
Tokyo, Stansted Airport outside London and Pearson Airport in Toronto. We also have a substantial
presence at airports in Hong Kong, Taiwan, Dubai and Miami.
Administrative and Other Properties and Facilities
Our world headquarters are located in southeastern Shelby County, Tennessee. The headquarters
campus comprises nine separate buildings with approximately 1.3 million square feet of space. We
also lease 39 facilities in the Memphis area for administrative offices and warehouses. We and
FedEx Services lease state-of-the-art technology centers in Collierville, Tennessee, Irving, Texas,
Colorado Springs, Colorado, and Orlando, Florida. These facilities house personnel responsible for
strategic software development and other functions that support FedExs technology and e-commerce
solutions.
We own or lease approximately 670 facilities for city station operations in the United States. In
addition, approximately 400 city stations are owned or leased throughout our international network.
The majority of these leases are for terms of five to ten years. City stations serve as a sorting
and distribution center for a particular city or region. We believe that suitable alternative
facilities are available in each locale on satisfactory terms, if necessary.
As of May 31, 2011, we had approximately 45,000 Drop Boxes, including 5,000 Drop Boxes outside U.S.
Post Offices. As of May 31, 2011, we also had approximately 13,000 FedEx Authorized ShipCenters
and other types of staffed drop-off locations, such as FedEx Office centers. Internationally, we
had approximately 4,500 drop-off locations.
|
|
|
ITEM 3. |
|
LEGAL PROCEEDINGS |
FedEx Express and its subsidiaries are subject to legal proceedings and claims that arise in the
ordinary course of their business. For a description of material pending legal proceedings, see
Note 14 of the accompanying consolidated financial statements.
As described below, we have received requests for information from various governmental agencies
over the past five years related to possible anti-competitive behavior in several package and
freight transportation segments. We do not believe that we have engaged in any anti-competitive
activities, and we are cooperating with these investigations.
In June 2006, we received a grand jury subpoena for the production of documents in connection with
a criminal investigation by the Antitrust Division of the U.S. Department of Justice (DOJ) into
possible anti-competitive behavior in the air freight transportation industry. In July 2007, we
received a notice from the Australian Competition and Consumer Commission (ACCC) requesting
certain information and documents in connection with the ACCCs investigation into possible
anti-competitive behavior relating to air cargo transportation services in Australia. In December
2007, we received a grand jury subpoena for the production of documents in connection with a
criminal investigation by the DOJ into
possible anti-competitive behavior in the international freight forwarding industry. In March
2008, we received an additional subpoena from the DOJ relating to its investigation of the
international freight forwarding industry.
-14-
In February 2011, we received a demand for the production of information and documents in
connection with a civil investigation by the DOJ into the policies and practices of FedEx and UPS
for dealing with third-party consultants who work with shipping customers to negotiate lower rates.
Related antitrust litigation with one of these third party consultants was dismissed in early June
2011, but the court granted the plaintiff permission to file an amended complaint, which FedEx
received in late June 2011.
PART II
|
|
|
ITEM 5. |
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES |
FedEx Express is a wholly owned subsidiary of FedEx, and there is no market for FedEx Expresss
common stock.
|
|
|
ITEM 6. |
|
SELECTED FINANCIAL DATA |
Omitted under the reduced disclosure format permitted by General Instruction I(2)(a) of Form 10-K.
|
|
|
ITEM 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION |
Managements discussion and analysis of results of operations and financial condition is presented
on pages 22 through 32 of this Annual Report on Form 10-K.
|
|
|
ITEM 7A. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Quantitative and qualitative information about market risk is presented on page 62 of this Annual
Report on Form 10-K.
|
|
|
ITEM 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
FedEx Expresss consolidated financial statements, together with the notes thereto and the report
of Ernst & Young LLP dated July 12, 2011 thereon, are presented on pages 35 through 61 of this
Annual Report on Form 10-K.
|
|
|
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
-15-
|
|
|
ITEM 9A. |
|
CONTROLS AND PROCEDURES |
Managements Evaluation of Disclosure 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 May 31, 2011 (the end
of the period covered by this Annual Report on Form 10-K).
Assessment of Internal Control Over Financial Reporting
Managements report on our internal control over financial reporting is presented on page 33 of
this Annual Report on Form 10-K. The report of Ernst & Young LLP with respect to our internal
control over financial reporting is presented on page 34 of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
During our fiscal quarter ended May 31, 2011, 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.
|
|
|
ITEM 9B. |
|
OTHER INFORMATION |
None.
PART III
|
|
|
ITEM 10. |
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Omitted under the reduced disclosure format permitted by General Instruction I(2)(c) of Form 10-K.
|
|
|
ITEM 11. |
|
EXECUTIVE COMPENSATION |
Omitted under the reduced disclosure format permitted by General Instruction I(2)(c) of Form 10-K.
|
|
|
ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Omitted under the reduced disclosure format permitted by General Instruction I(2)(c) of Form 10-K.
|
|
|
ITEM 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Omitted under the reduced disclosure format permitted by General Instruction I(2)(c) of Form 10-K.
-16-
|
|
|
ITEM 14. |
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Of the fees Ernst & Young LLP billed FedEx for services provided during 2011 and 2010, we estimate
that the following amounts were for services related to FedEx Express. These amounts (in
thousands) represent the fees that Ernst & Young LLP directly billed to FedEx Express, as well as
that portion of Ernst & Young LLPs fees that FedEx allocated to FedEx Express through management
fees.
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
Audit fees |
|
$ |
8,102 |
|
|
$ |
7,924 |
|
Audit-related fees |
|
|
524 |
|
|
|
666 |
|
Tax fees |
|
|
354 |
|
|
|
322 |
|
All other fees |
|
|
3 |
|
|
|
56 |
|
|
|
|
|
|
|
|
Total |
|
$ |
8,983 |
|
|
$ |
8,968 |
|
|
|
|
|
|
|
|
|
|
|
Audit Fees. Represents fees for professional services provided for the audit of FedEx
Expresss annual financial statements and review of FedEx Expresss quarterly financial
statements, for the audit of FedEx Expresss internal control over financial reporting and
for audit services provided in connection with other statutory or regulatory filings. |
|
|
|
Audit-Related Fees. Represents fees for assurance and other services related to the
audit of FedEx Expresss financial statements. The fees for 2011 and 2010 include fees
primarily for benefit plan audits. |
|
|
|
Tax Fees. Represents fees for professional services provided primarily for domestic and
international tax compliance and advice. Tax compliance and preparation fees totaled
$137,000 in 2011 and $169,000 in 2010. |
|
|
|
All Other Fees. Represents fees for products and services not otherwise included in the
categories above. The amounts shown for 2011 and 2010 include fees for information
technology risk advisory and online technical resources. |
To help ensure the independence of our independent registered public accounting firm, the Audit
Committee of the Board of Directors of FedEx has adopted a Policy on Engagement of Independent
Auditor, which is available on FedExs Web site at
http://ir.fedex.com/documentdisplay.cfm?DocumentID=122.
Pursuant to the Policy on Engagement of Independent Auditor, the Audit Committee preapproves all
audit services and non-audit services to be provided to FedEx by its independent registered public
accounting firm. The Audit Committee may delegate to one or more of its members the authority to
grant the required approvals, provided that any exercise of such authority is presented at the next
Audit Committee meeting.
The Audit Committee may preapprove for up to one year in advance the provision of particular types
of permissible routine and recurring audit-related, tax and other non-audit services, in each case
described in reasonable detail and subject to a specific annual monetary limit also approved by the
Audit Committee. The Audit Committee must be informed about each such service that is actually
provided. In cases where a service is not covered by one of those approvals, the service must be
specifically preapproved by the Audit Committee no earlier than one year prior to the commencement
of the service.
-17-
Each audit or non-audit service that is approved by the Audit Committee (excluding tax services
performed in the ordinary course of FedExs business and excluding other services for which the
aggregate fees are expected to be less than $25,000) will be reflected in a written engagement
letter or writing specifying the services to be performed and the cost of such services, which will
be signed by either a member of the Audit Committee or by an officer of FedEx authorized by the
Audit Committee to sign on behalf of FedEx.
The Audit Committee will not approve any prohibited non-audit service or any non-audit service that
individually or in the aggregate may impair, in the Audit Committees opinion, the independence of
the independent registered public accounting firm.
In
addition, FedExs independent registered public accounting firm may not provide any services, including
financial counseling and tax services, to any FedEx officer, Audit Committee member or FedEx
managing director (or its equivalent) in the Finance department or to any immediate family member
of any such person.
PART IV
|
|
|
ITEM 15. |
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
(a)(1) and (2) Financial Statements; Financial Statement Schedules
FedEx Expresss consolidated financial statements, together with the notes thereto and the report
of Ernst & Young LLP dated July 12, 2011 thereon, are listed on page 21 and presented on pages 35
through 61 of this Annual Report on Form 10-K. FedEx Expresss Schedule II Valuation and
Qualifying Accounts, together with the report of Ernst & Young LLP dated July 12, 2011 thereon, is
presented on pages 63 through 64 of this Annual Report on Form 10-K. All other financial statement
schedules have been omitted because they are not applicable or the required information is included
in FedEx Expresss consolidated financial statements or the notes thereto.
(a)(3) Exhibits
See the Exhibit Index on pages E-1 through E-6 for a list of the exhibits being filed or furnished
with or incorporated by reference into this Annual Report on Form 10-K.
-18-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
|
|
FEDERAL EXPRESS CORPORATION
|
|
Dated: July 12, 2011 |
By: |
/s/ DAVID J. BRONCZEK
|
|
|
|
David J. Bronczek |
|
|
|
President and Chief Executive Officer |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has
been signed below by the following persons on behalf of the Registrant in the capacities and on the
dates indicated.
|
|
|
|
|
Signature |
|
Capacity |
|
Date |
|
|
|
|
|
/s/ DAVID J. BRONCZEK
David J. Bronczek
|
|
President, Chief Executive Officer
and Director
(Principal Executive Officer)
|
|
July 12, 2011 |
|
|
|
|
|
/s/ CATHY D. ROSS
Cathy D. Ross
|
|
Executive Vice President, Chief
Financial Officer and Director
(Principal Financial Officer)
|
|
July 12, 2011 |
|
|
|
|
|
/s/ J. RICK BATEMAN
J. Rick Bateman
|
|
Vice President and Worldwide
Controller
(Principal Accounting Officer)
|
|
July 12, 2011 |
|
|
|
|
|
/s/ FREDERICK W. SMITH*
Frederick W. Smith
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Chairman of the Board of Directors
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July 12, 2011 |
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/s/ ROBERT B. CARTER*
Robert B. Carter
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Director
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July 12, 2011 |
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/s/ MICHAEL L. DUCKER*
Michael L. Ducker
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Executive Vice President and
Chief Operating Officer and
Director
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July 12, 2011 |
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/s/ T. MICHAEL GLENN*
T. Michael Glenn
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Director
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July 12, 2011 |
-19-
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Signature |
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Capacity |
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Date |
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/s/ ALAN B. GRAF, JR.*
Alan B. Graf, Jr.
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Director
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July 12, 2011 |
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/s/ JAMES R. PARKER*
James R. Parker
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Executive Vice President of Air
Operations and Director
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July 12, 2011 |
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/s/ CHRISTINE P. RICHARDS*
Christine P. Richards
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Director
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July 12, 2011 |
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*By:
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/s/ J. RICK BATEMAN
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J. Rick Bateman
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July 12, 2011 |
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Attorney-in-Fact |
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-20-
FINANCIAL SECTION TABLE OF CONTENTS
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PAGE |
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Managements Discussion and Analysis of Results of Operations
and Financial Condition |
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22 |
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24 |
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28 |
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29 |
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32 |
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Consolidated Financial Statements |
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33 |
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34 |
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36 |
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38 |
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39 |
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40 |
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41 |
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Other Financial Information |
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62 |
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63 |
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64 |
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65 |
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-21-
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW OF FINANCIAL SECTION
The financial section of the Federal Express Corporation (FedEx Express) Annual Report on
Form 10-K (Annual Report) consists of the following Managements Discussion and Analysis of
Results of Operations and Financial Condition (MD&A), the Consolidated Financial Statements and
the notes to the Consolidated Financial Statements, and Other Financial Information, all of which
include information about our significant accounting policies, practices and the transactions that
underlie our financial results. The following MD&A is abbreviated pursuant to General Instruction
I(2)(a) of Form 10-K. Our MD&A includes an overview of our consolidated 2011 results compared to
2010, and 2010 results compared to 2009. Our MD&A also includes a discussion of key actions and
events that impacted our results, as well as a discussion of our outlook for 2012. For additional
information, including a discussion of liquidity, capital resources and contractual cash
obligations, as well as our critical accounting estimates, see the Annual Report on Form 10-K for
the fiscal year ended May 31, 2011 of our parent company, FedEx Corporation (FedEx). The
discussion in the financial section should be read in conjunction with the other sections of this
Annual Report, particularly Item 1: Business and our detailed discussion of risk factors
included in this MD&A.
DESCRIPTION OF BUSINESS
We are the worlds largest express transportation company. Our sister company FedEx Corporate
Services, Inc. (FedEx Services) provides us and our other sister companies, including FedEx
Ground Package System, Inc., with customer-facing sales, marketing and information technology
support, as well as retail access for our customers through FedEx Office and Print Services, Inc.
(FedEx Office) and customer service, technical support and billing and collection services
through FedEx TechConnect, Inc.
The operating expenses line item Intercompany charges on the financial summary represents an
allocation that primarily includes costs for services provided to us by FedEx Services as described
above. 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 these allocations approximate the net cost of
providing these functions.
Certain FedEx operating companies provide transportation and related services for other FedEx
companies outside their reportable segment. Billings for such services are based on negotiated
rates that we believe approximate fair value and are reflected as revenues of the billing segment.
These rates are adjusted from time to time based on market conditions. Such affiliated company
revenues and expenses are not separately identified in the following financial information, as the
amounts are not material.
-22-
The key indicators necessary to understand our operating results include:
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the overall customer demand for our various services; |
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the volume of shipments transported through our network, as measured by our average daily
volume and shipment weight; |
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the mix of services purchased by our customers; |
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the prices we obtain for our services, as measured by average revenue per package (yield); |
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our ability to manage our cost structure (capital expenditures and operating expenses) to
match shifting volume levels; and |
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the timing and amount of fluctuations in fuel prices and our ability to recover incremental
fuel costs through our fuel surcharges. |
The majority of our operating expenses are directly impacted by revenue and volume levels.
Accordingly, we expect these operating expenses to fluctuate on a year-over-year basis consistent
with the change in revenues and volumes. Therefore, the discussion of operating expense captions
focuses on the key drivers and trends impacting expenses other than changes in revenues and volume.
Except as otherwise specified, references to years indicate our fiscal year ended May 31, 2011 or
ended May 31 of the year referenced and comparisons are to the prior year.
-23-
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 years
ended May 31:
|
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Percent Change |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011/2010 |
|
|
2010/2009 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Package: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. overnight box |
|
$ |
6,128 |
|
|
$ |
5,602 |
|
|
$ |
6,074 |
|
|
|
9 |
|
|
|
(8 |
) |
U.S. overnight envelope |
|
|
1,736 |
|
|
|
1,640 |
|
|
|
1,855 |
|
|
|
6 |
|
|
|
(12 |
) |
U.S. deferred |
|
|
2,805 |
|
|
|
2,589 |
|
|
|
2,789 |
|
|
|
8 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. domestic package revenue |
|
|
10,669 |
|
|
|
9,831 |
|
|
|
10,718 |
|
|
|
9 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International priority |
|
|
8,228 |
|
|
|
7,087 |
|
|
|
6,978 |
|
|
|
16 |
|
|
|
2 |
|
International domestic(1) |
|
|
653 |
|
|
|
578 |
|
|
|
565 |
|
|
|
13 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total package revenue |
|
|
19,550 |
|
|
|
17,496 |
|
|
|
18,261 |
|
|
|
12 |
|
|
|
(4 |
) |
Freight: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
U.S. |
|
|
2,188 |
|
|
|
1,980 |
|
|
|
2,165 |
|
|
|
11 |
|
|
|
(9 |
) |
International priority |
|
|
1,722 |
|
|
|
1,303 |
|
|
|
1,104 |
|
|
|
32 |
|
|
|
18 |
|
International airfreight |
|
|
283 |
|
|
|
251 |
|
|
|
369 |
|
|
|
13 |
|
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total freight revenue |
|
|
4,193 |
|
|
|
3,534 |
|
|
|
3,638 |
|
|
|
19 |
|
|
|
(3 |
) |
Other |
|
|
247 |
|
|
|
213 |
|
|
|
268 |
|
|
|
16 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
23,990 |
|
|
|
21,243 |
|
|
|
22,167 |
|
|
|
13 |
|
|
|
(4 |
) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
8,919 |
|
|
|
8,177 |
|
|
|
8,031 |
|
|
|
9 |
|
|
|
2 |
|
Purchased transportation |
|
|
1,243 |
|
|
|
1,058 |
|
|
|
1,063 |
|
|
|
17 |
|
|
|
|
|
Rentals and landing fees |
|
|
1,650 |
|
|
|
1,557 |
|
|
|
1,598 |
|
|
|
6 |
|
|
|
(3 |
) |
Depreciation and amortization |
|
|
1,048 |
|
|
|
1,005 |
|
|
|
952 |
|
|
|
4 |
|
|
|
6 |
|
Fuel |
|
|
3,553 |
|
|
|
2,652 |
|
|
|
3,281 |
|
|
|
34 |
|
|
|
(19 |
) |
Maintenance and repairs |
|
|
1,348 |
|
|
|
1,127 |
|
|
|
1,348 |
|
|
|
20 |
|
|
|
(16 |
) |
Impairment and other charges(2) |
|
|
|
|
|
|
|
|
|
|
258 |
|
|
|
|
|
NM |
|
Intercompany charges |
|
|
2,015 |
|
|
|
1,918 |
|
|
|
2,093 |
|
|
|
5 |
|
|
|
(8 |
) |
Other |
|
|
3,008 |
(3) |
|
|
2,623 |
|
|
|
2,778 |
|
|
|
15 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
22,784 |
|
|
|
20,117 |
|
|
|
21,402 |
|
|
|
13 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
1,206 |
|
|
$ |
1,126 |
|
|
$ |
765 |
|
|
|
7 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
|
5.0 |
% |
|
|
5.3 |
% |
|
|
3.5 |
% |
|
(30 |
) bp |
|
180 |
bp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net |
|
|
10 |
|
|
|
15 |
|
|
|
4 |
|
|
|
(33 |
) |
|
|
275 |
|
Other, net |
|
|
(76 |
) |
|
|
(82 |
) |
|
|
(37 |
) |
|
|
(7 |
) |
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66 |
) |
|
|
(67 |
) |
|
|
(33 |
) |
|
|
(1 |
) |
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
1,140 |
|
|
|
1,059 |
|
|
|
732 |
|
|
|
8 |
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
409 |
|
|
|
408 |
|
|
|
301 |
|
|
|
|
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
731 |
|
|
$ |
651 |
|
|
$ |
431 |
|
|
|
12 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
International domestic revenues include our international intra-country domestic operations. |
|
(2) |
|
Represents charges for aircraft-related asset impairments and other charges primarily associated with aircraft-related lease and contract termination costs and employee severance. |
|
(3) |
|
Includes a $66 million legal reserve associated with the ATA Airlines lawsuit. |
-24-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Revenue |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
37.2 |
% |
|
|
38.5 |
% |
|
|
36.2 |
% |
Purchased transportation |
|
|
5.2 |
|
|
|
5.0 |
|
|
|
4.8 |
|
Rentals and landing fees |
|
|
6.9 |
|
|
|
7.3 |
|
|
|
7.2 |
|
Depreciation and amortization |
|
|
4.4 |
|
|
|
4.7 |
|
|
|
4.3 |
|
Fuel |
|
|
14.8 |
|
|
|
12.5 |
|
|
|
14.8 |
|
Maintenance and repairs |
|
|
5.6 |
|
|
|
5.3 |
|
|
|
6.1 |
|
Impairment and other charges |
|
|
|
|
|
|
|
|
|
|
1.2 |
(1) |
Intercompany charges |
|
|
8.4 |
|
|
|
9.0 |
|
|
|
9.4 |
|
Other |
|
|
12.5 |
(2) |
|
|
12.4 |
|
|
|
12.5 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
95.0 |
|
|
|
94.7 |
|
|
|
96.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
|
5.0 |
% |
|
|
5.3 |
% |
|
|
3.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes a charge of $258 million for aircraft-related asset impairments and other charges primarily associated with aircraft-related lease and contract
termination costs and employee severance. |
|
(2) |
|
Includes a $66 million legal reserve associated with the ATA Airlines lawsuit. |
The following table compares selected statistics (in thousands, except yield amounts) for the
years ended May 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011/2010 |
|
|
2010/2009 |
|
Package Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily package volume (ADV): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. overnight box |
|
|
1,184 |
|
|
|
1,157 |
|
|
|
1,127 |
|
|
|
2 |
|
|
|
3 |
|
U.S. overnight envelope |
|
|
627 |
|
|
|
614 |
|
|
|
627 |
|
|
|
2 |
|
|
|
(2 |
) |
U.S. deferred |
|
|
873 |
|
|
|
867 |
|
|
|
849 |
|
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. domestic ADV |
|
|
2,684 |
|
|
|
2,638 |
|
|
|
2,603 |
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International priority |
|
|
575 |
|
|
|
523 |
|
|
|
475 |
|
|
|
10 |
|
|
|
10 |
|
International domestic(1) |
|
|
348 |
|
|
|
318 |
|
|
|
298 |
|
|
|
9 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ADV |
|
|
3,607 |
|
|
|
3,479 |
|
|
|
3,376 |
|
|
|
4 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue per package (yield): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. overnight box |
|
$ |
20.29 |
|
|
$ |
19.00 |
|
|
$ |
21.21 |
|
|
|
7 |
|
|
|
(10 |
) |
U.S. overnight envelope |
|
|
10.86 |
|
|
|
10.47 |
|
|
|
11.65 |
|
|
|
4 |
|
|
|
(10 |
) |
U.S. deferred |
|
|
12.60 |
|
|
|
11.70 |
|
|
|
12.94 |
|
|
|
8 |
|
|
|
(10 |
) |
U.S. domestic composite |
|
|
15.59 |
|
|
|
14.61 |
|
|
|
16.21 |
|
|
|
7 |
|
|
|
(10 |
) |
International priority |
|
|
56.08 |
|
|
|
53.10 |
|
|
|
57.81 |
|
|
|
6 |
|
|
|
(8 |
) |
International domestic(1) |
|
|
7.38 |
|
|
|
7.14 |
|
|
|
7.50 |
|
|
|
3 |
|
|
|
(5 |
) |
Composite package yield |
|
|
21.25 |
|
|
|
19.72 |
|
|
|
21.30 |
|
|
|
8 |
|
|
|
(7 |
) |
|
Freight Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily freight pounds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
7,340 |
|
|
|
7,141 |
|
|
|
7,287 |
|
|
|
3 |
|
|
|
(2 |
) |
International priority |
|
|
3,184 |
|
|
|
2,544 |
|
|
|
1,959 |
|
|
|
25 |
|
|
|
30 |
|
International airfreight |
|
|
1,235 |
|
|
|
1,222 |
|
|
|
1,475 |
|
|
|
1 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average daily freight pounds |
|
|
11,759 |
|
|
|
10,907 |
|
|
|
10,721 |
|
|
|
8 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue per pound (yield): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
1.17 |
|
|
$ |
1.09 |
|
|
$ |
1.17 |
|
|
|
7 |
|
|
|
(7 |
) |
International priority |
|
|
2.12 |
|
|
|
2.01 |
|
|
|
2.22 |
|
|
|
5 |
|
|
|
(9 |
) |
International airfreight |
|
|
0.90 |
|
|
|
0.81 |
|
|
|
0.99 |
|
|
|
11 |
|
|
|
(18 |
) |
Composite freight yield |
|
|
1.40 |
|
|
|
1.27 |
|
|
|
1.34 |
|
|
|
10 |
|
|
|
(5 |
) |
|
|
|
(1) |
|
International domestic statistics include our international intra-country domestic express operations. |
-25-
Revenues
Our revenues increased 13% in 2011 driven by higher yield and volumes. In 2011, FedEx
International Priority (IP) package volume increased 10% led by volume growth from Asia, Europe
and the U.S. Our U.S. domestic package yields increased 7% due to higher fuel surcharges, rate
increases and increased package weights. IP package yields increased 6% due to higher fuel
surcharges, increased package weights and favorable exchange rates. IP freight pounds increased
25% led by volume growth in Europe.
Our revenues decreased 4% in 2010 due to lower yields primarily driven by a decrease in fuel
surcharges. Yield decreases during 2010 were partially offset by increased IP package volume,
particularly from Asia, IP freight volume and U.S. domestic package volume due to improved global
economic conditions. Lower fuel surcharges were the primary driver of decreased composite package
and freight yield in 2010. U.S. domestic package yield also decreased during 2010 due to lower
rates and lower package weights. In addition to lower fuel surcharges, IP package yield decreased
during 2010 due to lower rates, partially offset by higher package weights and favorable exchange
rates.
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 years ended May 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
U.S. Domestic and
Outbound Fuel
Surcharge: |
|
|
|
|
|
|
|
|
|
|
|
|
Low |
|
|
7.00 |
% |
|
|
1.00 |
% |
|
|
|
% |
High |
|
|
15.50 |
|
|
|
8.50 |
|
|
|
34.50 |
|
Weighted-average |
|
|
9.77 |
|
|
|
6.20 |
|
|
|
17.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Fuel
Surcharges: |
|
|
|
|
|
|
|
|
|
|
|
|
Low |
|
|
7.00 |
|
|
|
1.00 |
|
|
|
|
|
High |
|
|
21.00 |
|
|
|
13.50 |
|
|
|
34.50 |
|
Weighted-average |
|
|
12.36 |
|
|
|
9.47 |
|
|
|
16.75 |
|
In January 2011, we implemented a 5.9% average list price increase on U.S. domestic and U.S.
outbound express package and freight shipments and made various changes to other surcharges, while
we lowered our fuel surcharge index by two percentage points. In January 2010, we implemented a
5.9% average list price increase on 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 increased in 2011 due to yield and volume growth, particularly in our
higher-margin IP package services, although operating margin was down slightly. Higher revenues in
2011 were partially offset by higher retirement plans and medical expenses, increased aircraft
maintenance costs, the reinstatement of certain employee compensation programs, and the negative
impact of severe weather during the second half of the year. Results in 2011 were also negatively
impacted by a $66 million legal reserve associated with the ATA Airlines lawsuit (see Note 14 of
the accompanying consolidated financial statements).
Salaries and benefits increased 9% in 2011 due to volume-related increases in labor hours, the
reinstatement of several employee compensation programs including merit salary increases, higher
pension and medical costs, and full 401(k) company-matching contributions. Other operating
expenses increased 15% due to volume-related expenses and the ATA Airlines legal reserve. Maintenance and
repairs expense increased 20% in 2011 primarily due to an increase in aircraft maintenance expenses
as a result of timing of maintenance events and higher utilization of our fleet driven by increased
volumes. Purchased transportation costs increased 17% in 2011 due to IP package and freight volume growth.
-26-
Fuel costs increased 34% in 2011 due to increases in the average price per gallon of fuel and fuel
consumption driven by volume increases. Based on a static analysis of the net impact of
year-over-year changes in fuel prices
compared to year-over-year changes in fuel surcharges, fuel had a positive impact in 2011. This
analysis considers the estimated impact of the reduction in fuel surcharges included in the base
rates charged for services.
Our operating income and operating margin increased during 2010 due to volume growth, particularly
in higher-margin IP package and freight services. Reductions in network operating costs
driven by lower flight hours and improved route efficiencies, as well as other actions to control
spending, positively impacted our results for 2010. Our 2010 year-over-year results were also
positively impacted by a $258 million charge in 2009 for aircraft-related asset impairments
and other charges primarily associated with aircraft-related lease and contract termination costs
and employee severance.
Maintenance and repairs expense decreased 16% in 2010 primarily due to the timing of maintenance
events, as lower aircraft utilization as a result of weak economic conditions, particularly in the
first half of 2010, lengthened maintenance cycles. Depreciation expense increased 6% in 2010
primarily due to the addition of 21 aircraft placed into service during the year. Intercompany
charges decreased 8% in 2010 primarily due to lower allocated information technology costs and
lower net operating costs at FedEx Office.
Fuel costs decreased 19% in 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 significant negative impact to
operating income in 2010. This analysis considers the estimated impact of the reduction in fuel
surcharges included in the base rates charged for services.
Other Income and Expense and Income Taxes
Net interest income decreased during 2011 primarily due to a decrease in capitalized interest
related to the timing of progress payments on aircraft purchases. Other expense decreased in 2011
primarily due to lower management fees from FedEx. Net interest income increased during 2010 primarily due to
increased capitalized interest related to progress payments on aircraft purchases. Other expense
increased in 2010 primarily due to higher management fees from FedEx related to increased financing
fees and foreign currency losses.
Our effective tax rate was 35.9% in 2011, 38.5% in 2010 and 41.1% in 2009. Our 2011 rate was lower
than our 2010 rate primarily due to increased permanently reinvested foreign earnings and a lower
state tax rate driven principally by favorable audit and legislative developments. In 2011, our
permanent reinvestment strategy with respect to unremitted earnings of our foreign subsidiaries
provided a 2.6% benefit to our effective tax rate. Our total permanently reinvested foreign
earnings were $625 million at the end of 2011. The increase in the 2009 rate was primarily due to
lower pre-tax income in 2009.
Our current federal income tax expenses in 2011, 2010, and 2009 were significantly reduced by
accelerated depreciation deductions we claimed under provisions of the Tax Relief and the Small
Business Jobs Acts of 2010, the American Recovery and Reinvestment Tax Act of 2009, and the
Economic Stimulus Act of 2008. Those acts, designed to stimulate new business investment in the
U.S., accelerated our depreciation deductions for new qualifying investments, such as our new
Boeing 777 freighter (B777F) aircraft. These are timing benefits only, in that the depreciation would have
otherwise been recognized in later years.
The components of the provision for federal income taxes for the years ended May 31 were as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Current |
|
$ |
(227 |
) |
|
$ |
(160 |
) |
|
$ |
(150 |
) |
Deferred |
|
|
447 |
|
|
|
348 |
|
|
|
241 |
|
|
|
|
|
|
|
|
|
|
|
Total Federal Provision |
|
$ |
220 |
|
|
$ |
188 |
|
|
$ |
91 |
|
|
|
|
|
|
|
|
|
|
|
-27-
For 2012, we expect our effective tax rate to be in the range of 36.0% to 38.0%. The actual
rate, however, will depend on a number of factors, including the amount and source of operating
income.
Additional
information on income taxes, including our effective tax rate
reconciliation and liabilities for uncertain tax positions, can be
found in Note 8 of the accompanying consolidated financial statements.
Business Acquisitions
On
February 22, 2011, we completed the acquisition of the Indian
logistics, distribution and express businesses of AFL Pvt. Ltd. and
its affiliate Unifreight India Pvt. Ltd. for $96 million in cash. The
financial results of the acquired businesses are included in our
results from the date of acquisition and were not material to our
results of operations or financial condition. Substantially all of
the purchase price was allocated to goodwill.
On
December 15, 2010, FedEx entered into an agreement to acquire
Servicios Nacionales Mupa, S.A. de C.V. (MultiPack), a Mexican
domestic express package delivery company. This acquisition will be
funded with cash from operations and is expected to be completed
during the first quarter of 2012, subject to customary closing
conditions. The financial results of the acquired company will be
included in our results from the date of acquisition and will be
immaterial to our 2012 results.
Outlook
In 2012, we expect revenue growth to be driven by continued growth in our international services as
international economic conditions are expected to improve at a faster rate than in the U.S. We
also anticipate improvement in both domestic and international yields through ongoing yield
management initiatives.
Our operating income and operating margin are expected to increase in 2012, driven by continued
growth in international package and freight services, and productivity enhancements such as
improving on-road productivity, sort efficiency and efficiencies in our aircraft maintenance
processes. We anticipate that increases in merit pay, higher incentive compensation and increased
depreciation will dampen our earnings growth in 2012.
Capital expenditures are expected to increase in 2012 driven by replacement vehicle and equipment
purchases. In 2012, capital expenditures will also include continued
investments for additional B777F
and Boeing 757 (B757) aircraft. These aircraft capital expenditures are necessary to achieve significant
long-term operating savings and to support projected long-term international volume growth.
See Risk Factors for a discussion of potential risks and uncertainties that could materially
affect our future performance.
Seasonality of Business
Our business is cyclical in nature, as seasonal fluctuations affect volumes, revenues and earnings.
Historically, the U.S. express package business experiences an increase in volumes in late November
and December. International business, particularly in the Asia-to-U.S. market, peaks in October
and November in advance of the U.S. holiday sales season. Our first and third fiscal quarters,
because they are summer vacation and post winter-holiday seasons, have historically experienced
lower volumes relative to other periods. Shipment levels, operating costs and earnings for our
company can also be adversely affected by inclement weather, particularly the impact of severe
winter weather in our third fiscal quarter.
Contractual Cash Obligations
Our expected capital expenditures for 2012 include $2.0 billion in investments for delivery of
aircraft as well as progress payments toward future aircraft deliveries, including B757s and the
B777F which are significantly more fuel-efficient per unit than the aircraft type previously
utilized. Our B757 aircraft are replacing our Boeing 727 aircraft, and we expect to be completely
transitioned out of this aircraft type by 2016. We will benefit from the tax expensing and accelerated
depreciation provisions of the Tax Relief Act of 2010 on qualifying capital investments we make in
2012.
We have agreed to purchase a total of 45 B777F aircraft (12 of which were in service at May 31,
2011, and an additional seven to be delivered in 2012). 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.
NEW ACCOUNTING GUIDANCE
New accounting rules and disclosure requirements can significantly impact our reported results and
the comparability of our financial statements. New accounting guidance that has impacted our
financial statements can be found in Note 2 of the accompanying consolidated financial statements.
In June 2011, the Financial Accounting Standards Board issued new guidance to make the presentation
of items within other comprehensive income (OCI) more prominent. The new standard will require
companies to present items of net income, items of OCI and total comprehensive income in one
continuous statement or two separate consecutive statements, and companies will no longer be
allowed to present items of OCI in the statement of stockholders equity. Reclassification
adjustments between OCI and net income will be presented
separately on the face of the financial statements. This new standard is effective for our fiscal
year ending May 31, 2013.
-28-
We believe there is no additional new accounting guidance adopted but not yet effective that is
relevant to the readers of our financial statements. However, there are numerous new proposals
under development which, if and when enacted, may have a significant impact on our financial
reporting.
RISK FACTORS
Our financial and operating results are subject to many risks and uncertainties, as described
below.
We are directly affected by the state of the economy. While macro-economic risks apply to most
companies, we are particularly vulnerable. The transportation industry is highly cyclical and
especially susceptible to trends in economic activity, such as the recent global recession. Our
primary business is to transport goods, so our business levels are directly tied to the purchase
and production of goods key macro-economic measurements. When individuals and companies
purchase and produce fewer goods, we transport fewer goods. In addition, we have a relatively high
fixed-cost structure, which is difficult to quickly adjust to match shifting volume levels.
Moreover, as we grow our international business, we are increasingly affected by the health of the
global economy. As a result, the recent global recession had a disproportionately negative impact
on us and our recent financial results.
Our business depends on our strong reputation and the value of the FedEx brand. The FedEx brand
name symbolizes high-quality service, reliability and speed. FedEx is one of the most widely
recognized, trusted and respected brands in the world, and the FedEx brand is one of our most
important and valuable assets. In addition, we have a strong reputation among customers and the
general public for high standards of social and environmental responsibility and ethics. The FedEx
brand name and our reputation are powerful sales and marketing tools, and we devote significant
resources to promoting and protecting them. Adverse publicity (whether or not justified) relating
to activities by our employees or agents, such as noncompliance with anti-corruption laws, could
tarnish our reputation and reduce the value of our brand. Damage to our reputation and loss of
brand equity could reduce demand for our services and thus have an adverse effect on our financial
condition, liquidity and results of operations, as well as require additional resources to rebuild
our reputation and restore the value of the FedEx brand.
We rely heavily on information and technology to operate our transportation and business networks,
and any disruption to FedExs technology infrastructure or the Internet could harm our operations
and our reputation among customers. Our ability to attract and retain customers and to compete
effectively depends in part upon the sophistication and reliability of FedExs technology network,
including the ability to provide features of service that are important to our customers. External
and internal risks, such as malware, insecure coding, Acts of God, attempts to penetrate FedExs
networks, data leakage and human error, pose a direct threat to FedExs services and data. Any
disruption to the Internet or FedExs complex, global technology infrastructure, including those
impacting FedExs computer systems and customer Web sites, could adversely impact our customer
service, volumes, and revenues and result in increased costs. These types of adverse impacts could
also occur in the event the confidentiality, integrity, or availability of company and customer
information was compromised due to a data loss by FedEx or a trusted third party. While FedEx has
invested and continues to invest in technology security initiatives,
information technology risk management and
disaster recovery plans, these measures cannot fully insulate FedEx from technology disruptions or
data loss and the resulting adverse effect on our operations and financial results.
Our transportation business may be impacted by the price and availability of fuel. We must
purchase large quantities of fuel to operate our aircraft and vehicles, and the price and
availability of fuel can be unpredictable and beyond our control. To date, we have been mostly
successful in mitigating over time the expense impact of higher fuel costs through our indexed fuel
surcharges, as the amount of the surcharges is closely linked to the market prices for fuel. If we
are unable to maintain or increase our fuel surcharges because of competitive pricing pressures or
some other reason, fuel costs could adversely impact our operating results. Even if we are able to
offset the cost of fuel with our surcharges, high fuel surcharges could move our customers away
from our higher-yielding services to our lower-yielding services or even reduce customer demand for our services
altogether. In addition, disruptions in the supply of fuel could have a negative impact on our
ability to operate our transportation network.
-29-
Our business is capital intensive, and we must make capital expenditures based upon projected
volume levels. We make significant investments in aircraft, vehicles, technology, package handling
facilities, sort equipment and other assets to support our network. We also make significant
investments to rebrand, integrate and grow the companies that we acquire. The amount and timing of
capital investments depend on various factors, including our anticipated volume growth. For
example, we must make commitments to purchase or modify aircraft years before the aircraft are
actually needed. We must predict volume levels and fleet requirements and make commitments for
aircraft based on those projections. Missing our projections could result in too much or too
little capacity relative to our shipping volumes. Overcapacity could lead to asset dispositions or
write-downs and undercapacity could negatively impact service levels.
We face intense competition. The express transportation market is both highly competitive and
sensitive to price and service, especially in periods of little or no macro-economic growth. Some
of our competitors have more financial resources than we do, or they are controlled or subsidized
by foreign governments, which enables them to raise capital more easily. We believe we compete
effectively with these companies for example, by providing more reliable service at compensatory
prices. However, an irrational pricing environment can limit our ability not only to maintain or
increase our prices (including our fuel surcharges in response to rising fuel costs), but also to
maintain or grow our market share.
Labor organizations attempt to organize groups of our employees from time to time, and potential
changes in labor laws could make it easier for them to do so. If we are unable to continue to
maintain good relationships with our employees and prevent labor organizations from organizing
groups of our employees, our operating costs could significantly increase and our operational
flexibility could be significantly reduced. Despite continual organizing attempts by labor unions,
other than our pilots, all of our U.S. employees have thus far chosen not to unionize. The U.S.
Congress has, in the past, considered adopting changes in labor laws, however, that would make it
easier for unions to organize small units of our employees. For example, there is always a
possibility that Congress could remove most of our employees from the purview of the Railway Labor
Act of 1926, as amended (the RLA). For additional discussion of the RLA, see Part I, Item 1 of
this Annual Report under the caption Regulation. Such legislation could expose our
customers to the type of service disruptions that the RLA was designed to prevent local work
stoppages in key areas that interrupt the timely flow of shipments of time-sensitive, high-value
goods throughout our global network. Such disruptions could threaten our ability to provide
competitively priced shipping options and ready access to global markets. In addition, federal and
state governmental agencies, such as the National Labor Relations Board, have and may continue to
take actions that could make it easier for our employees to organize under the RLA.
If we do not effectively operate, integrate, leverage and grow acquired businesses, our financial
results and reputation may suffer. Our strategy for long-term growth, productivity and
profitability depends in part on our ability to make prudent strategic acquisitions and to realize
the benefits we expect when we make those acquisitions. In furtherance of this strategy, we
recently made strategic moves in India and Mexico. While we expect these and future
acquisitions to enhance our value proposition to customers and improve our long-term profitability,
there can be no assurance that we will realize our expectations within the time frame we have
established, if at all.
Increased security or pilot safety requirements could impose substantial costs on us. As a result
of concerns about global terrorism and homeland security, governments around the world are adopting
or are considering adopting stricter security requirements that will increase operating costs and
potentially slow service for businesses, including those in the transportation industry. For
example, the U.S. Transportation Security Administration has issued to us a Full All-Cargo Aircraft
Operator Standard Security Plan, which contains many new and enhanced security requirements. These
requirements are not static, but will change periodically as the result of regulatory and
legislative requirements, and to respond to evolving threats. The Federal Aviation Administration,
in September 2010, proposed rules that would significantly reduce the maximum number of hours
on duty and increase the minimum amount of rest time for our pilots, and thus require us to hire
additional pilots and modify certain of our aircraft. Until these requirements are adopted, we
cannot determine the effect that these new rules will have on our cost structure or our operating
results. It is reasonably possible, however, that these rules or other future security or flight
safety requirements could impose material costs on us.
-30-
The regulatory environment for global aviation or other transportation rights may impact our
operations. Our extensive air network is critical to our success. Our right to serve foreign
points is subject to the approval of the Department of Transportation and generally requires a
bilateral agreement between the United States and foreign governments. In addition, we must obtain
the permission of foreign governments to provide specific flights and services. Our growing
international domestic operations are also subject to current and potential regulations that
restrict, and sometimes prohibit, our ability to compete in parts of the transportation and
logistics market. As an example, the Chinese government has adopted postal regulations that
exclude foreign-owned companies such as FedEx from competing in the mainland China domestic
document delivery market. Regulatory actions affecting global aviation or transportation rights or
a failure to obtain or maintain aviation or other transportation rights in important international
markets could impair our ability to operate our network.
We may be affected by global climate change or by legal, regulatory or market responses to such
change. Concern over climate change, including the impact of global warming, has led to
significant U.S. and international legislative and regulatory efforts to limit greenhouse gas
(GHG) emissions. For example, during 2009, the European Commission approved the extension of the
European Union Emissions Trading Scheme (ETS) for GHG emissions, to the airline industry. Under
this decision, all our flights to and from any airport in any member state of the European Union
will be covered by the ETS requirements beginning in 2012, and each year we will be required to
submit emission allowances in an amount equal to the carbon dioxide emissions from such flights.
In addition, the U.S. Congress has, in the past, considered bills that would regulate GHG
emissions, and some form of federal climate change legislation is possible in the future.
Increased regulation regarding GHG emissions, especially aircraft emissions, could impose
substantial costs on us. These costs include an increase in the cost of the fuel and other energy
we purchase and capital costs associated with updating or replacing our aircraft or vehicles
prematurely. Until the timing, scope and extent of such regulation becomes known, we cannot
predict its effect on our cost structure or our operating results. It is reasonably possible,
however, that it could impose material costs on us. Moreover, even without such regulation,
increased awareness and any adverse publicity in the global marketplace about the GHGs emitted by
companies in the airline and transportation industries could harm our reputation and reduce
customer demand for our services. Finally, given the broad and global scope of our operations and
our susceptibility to global macro-economic trends, we are particularly vulnerable to the physical
risks of climate change that could affect all of humankind, such as shifts in world ecosystems.
A localized disaster in a key geography could adversely impact our business. While we operate an
integrated network with assets distributed throughout the world, there are concentrations of key
assets within our network that are exposed to localized risks from natural or manmade disasters
such as tornados, floods, earthquakes or terrorist attacks. The loss of a key location such as our
Memphis super hub or one of FedExs information technology centers could cause a significant
disruption to our operations and cause us to incur significant costs to relocate or reestablish
these functions. Moreover, resulting economic dislocations, including supply chain and fuel
disruptions, could adversely impact demand for our services.
-31-
We are also subject to other risks and uncertainties that affect many other businesses, including:
|
|
increasing costs, the volatility of costs and funding requirements and other legal mandates
for employee benefits, especially pension and healthcare benefits; |
|
|
the increasing costs of compliance with federal and state governmental agency mandates and
defending against inappropriate or unjustified enforcement or other actions by such agencies; |
|
|
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; |
|
|
any impacts on our business resulting from new domestic or international government laws
and regulation; |
|
|
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; |
|
|
market acceptance of our new service and growth initiatives; |
|
|
any liability resulting from and the costs of defending against class-action litigation,
such as wage-and-hour, discrimination and retaliation claims, and any other legal
proceedings; |
|
|
the outcome of future negotiations to reach new collective
bargaining agreements including with the union that represents our pilots (the current pilot contract is scheduled to
become amendable in March 2013 unless the union exercises its option to shorten the contract,
in which case the agreement would be amendable in March 2012); |
|
|
the impact of technology developments on our operations and on demand for our services, and
FedExs ability to continue to identify and eliminate unnecessary information technology
redundancy and complexity throughout the FedEx organization; |
|
|
widespread outbreak of an illness or any other communicable disease, or any other public
health crisis; and |
|
|
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. |
FORWARD-LOOKING STATEMENTS
Certain statements in this report, including (but not limited to) those contained in Outlook and
the Retirement Plans and Contingencies notes to the consolidated financial statements, are
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995 with respect to our financial condition, results of operations, cash flows, plans, objectives,
future performance and business. Forward-looking statements include those preceded by, followed by
or that include the words may, could, would, should, believes, expects, anticipates,
plans, estimates, targets, projects, intends or similar expressions. These
forward-looking statements involve risks and uncertainties. Actual results may differ materially
from those contemplated (expressed or implied) by such forward-looking statements, because of,
among other things, the risk factors identified above and the other risks and uncertainties you can
find in FedExs and our press releases and other 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.
-32-
MANAGEMENTS REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act
of 1934, as amended). Our internal control over financial reporting includes, among other things,
defined policies and procedures for conducting and governing our business, sophisticated
information systems for processing transactions and a properly staffed, professional internal audit
department at FedEx. Mechanisms are in place to monitor the effectiveness of our internal control
over financial reporting and actions are taken to correct all identified deficiencies. Our
procedures for financial reporting include the active involvement of senior management, FedExs
Audit Committee and our staff of highly qualified financial and legal professionals.
Management, with the participation of our principal executive and financial officers, assessed our
internal control over financial reporting as of May 31, 2011, the end of our fiscal year.
Management based its assessment on criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
Based on this assessment, management has concluded that our internal control over financial
reporting was effective as of May 31, 2011.
The effectiveness of our internal control over financial reporting as of May 31, 2011, has been
audited by Ernst & Young LLP, the independent registered public accounting firm who also audited
the Companys consolidated financial statements included in this Annual Report on Form 10-K. Ernst
& Young LLPs report on the Companys internal control over financial reporting is included in this
Annual Report on Form 10-K.
-33-
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholder
Federal Express Corporation
We have audited Federal Express Corporations internal control over financial reporting as of May
31, 2011, based on criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Federal
Express Corporations management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Federal Express Corporation maintained, in all material respects, effective
internal control over financial reporting as of May 31, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Federal Express Corporation as of May 31,
2011 and 2010, and the related consolidated statements of income, changes in owners equity and
comprehensive income, and cash flows for each of the three years in the period ended May 31, 2011
of Federal Express Corporation and our report dated July 12, 2011 expressed an unqualified opinion
thereon.
/s/ Ernst & Young LLP
Memphis, Tennessee
July 12, 2011
-34-
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholder
Federal Express Corporation
We have audited the accompanying consolidated balance sheets of Federal Express Corporation as of
May 31, 2011 and 2010, and the related consolidated statements of income, changes in owners equity
and comprehensive income, and consolidated statements of cash flows for each of the three years in
the period ended May 31, 2011. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Federal Express Corporation at May 31, 2011 and
2010, and the consolidated results of its operations and its cash flows for each of the three years
in the period ended May 31, 2011, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Federal Express Corporations internal control over financial reporting as
of May 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 12,
2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Memphis, Tennessee
July 12, 2011
-35-
FEDERAL EXPRESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
|
|
|
|
|
|
|
|
|
|
|
May 31, |
|
|
|
2011 |
|
|
2010 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
626 |
|
|
$ |
512 |
|
Receivables, less allowances of $83 and $71 |
|
|
1,645 |
|
|
|
1,455 |
|
Spare parts, supplies and fuel, less
allowances of $169 and $170 |
|
|
367 |
|
|
|
317 |
|
Deferred income taxes |
|
|
398 |
|
|
|
360 |
|
Due from parent company and other FedEx subsidiaries |
|
|
607 |
|
|
|
839 |
|
Prepaid expenses and other |
|
|
90 |
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
3,733 |
|
|
|
3,563 |
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, AT COST |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft and related equipment |
|
|
13,146 |
|
|
|
11,640 |
|
Package handling and ground support equipment |
|
|
2,451 |
|
|
|
2,291 |
|
Vehicles |
|
|
1,730 |
|
|
|
1,681 |
|
Computer and electronic equipment |
|
|
706 |
|
|
|
754 |
|
Facilities and other |
|
|
3,589 |
|
|
|
3,446 |
|
|
|
|
|
|
|
|
|
|
|
21,622 |
|
|
|
19,812 |
|
Less accumulated depreciation and amortization |
|
|
11,110 |
|
|
|
10,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
10,512 |
|
|
|
9,301 |
|
|
|
|
|
|
|
|
|
|
OTHER LONG-TERM ASSETS |
|
|
|
|
|
|
|
|
Goodwill |
|
|
1,085 |
|
|
|
958 |
|
Other assets |
|
|
1,016 |
|
|
|
776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other long-term assets |
|
|
2,101 |
|
|
|
1,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,346 |
|
|
$ |
14,598 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-36-
FEDERAL EXPRESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
|
|
|
|
|
|
|
|
|
|
|
May 31, |
|
|
|
2011 |
|
|
2010 |
|
LIABILITIES AND OWNERS EQUITY |
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
17 |
|
|
$ |
12 |
|
Accrued salaries and employee benefits |
|
|
836 |
|
|
|
779 |
|
Accounts payable |
|
|
1,092 |
|
|
|
952 |
|
Accrued expenses |
|
|
1,084 |
|
|
|
1,080 |
|
Due to other FedEx subsidiaries |
|
|
283 |
|
|
|
146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
3,312 |
|
|
|
2,969 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT, LESS CURRENT PORTION |
|
|
655 |
|
|
|
655 |
|
|
OTHER LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
1,994 |
|
|
|
1,500 |
|
Pension, postretirement healthcare and
other benefit obligations |
|
|
867 |
|
|
|
786 |
|
Self-insurance accruals |
|
|
631 |
|
|
|
609 |
|
Deferred lease obligations |
|
|
695 |
|
|
|
723 |
|
Deferred gains, principally related to
aircraft transactions |
|
|
244 |
|
|
|
265 |
|
Other liabilities |
|
|
115 |
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other long-term liabilities |
|
|
4,546 |
|
|
|
3,985 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OWNERS EQUITY |
|
|
|
|
|
|
|
|
Common stock, $0.10 par value; 1,000 shares
authorized, issued and outstanding |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
608 |
|
|
|
608 |
|
Retained earnings |
|
|
7,107 |
|
|
|
6,376 |
|
Accumulated other comprehensive income |
|
|
118 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total owners equity |
|
|
7,833 |
|
|
|
6,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,346 |
|
|
$ |
14,598 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-37-
FEDERAL EXPRESS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended May 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES |
|
$ |
23,990 |
|
|
$ |
21,243 |
|
|
$ |
22,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
8,919 |
|
|
|
8,177 |
|
|
|
8,031 |
|
Purchased transportation |
|
|
1,243 |
|
|
|
1,058 |
|
|
|
1,063 |
|
Rentals and landing fees |
|
|
1,650 |
|
|
|
1,557 |
|
|
|
1,598 |
|
Depreciation and amortization |
|
|
1,048 |
|
|
|
1,005 |
|
|
|
952 |
|
Fuel |
|
|
3,553 |
|
|
|
2,652 |
|
|
|
3,281 |
|
Maintenance and repairs |
|
|
1,348 |
|
|
|
1,127 |
|
|
|
1,348 |
|
Impairment and other charges |
|
|
|
|
|
|
|
|
|
|
258 |
|
Intercompany charges |
|
|
2,015 |
|
|
|
1,918 |
|
|
|
2,093 |
|
Other |
|
|
3,008 |
|
|
|
2,623 |
|
|
|
2,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,784 |
|
|
|
20,117 |
|
|
|
21,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
1,206 |
|
|
|
1,126 |
|
|
|
765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
Interest income |
|
|
10 |
|
|
|
15 |
|
|
|
8 |
|
Other, net |
|
|
(76 |
) |
|
|
(82 |
) |
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(66 |
) |
|
|
(67 |
) |
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES |
|
|
1,140 |
|
|
|
1,059 |
|
|
|
732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES |
|
|
409 |
|
|
|
408 |
|
|
|
301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
731 |
|
|
$ |
651 |
|
|
$ |
431 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-38-
FEDERAL EXPRESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended May 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
731 |
|
|
$ |
651 |
|
|
$ |
431 |
|
Adjustments to reconcile net income to cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,048 |
|
|
|
1,005 |
|
|
|
952 |
|
Provision for uncollectible accounts |
|
|
117 |
|
|
|
75 |
|
|
|
116 |
|
Deferred income taxes and other noncash items |
|
|
425 |
|
|
|
274 |
|
|
|
259 |
|
Noncash impairment charges |
|
|
|
|
|
|
|
|
|
|
199 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
|
(138 |
) |
|
|
(369 |
) |
|
|
316 |
|
Other current assets |
|
|
174 |
|
|
|
32 |
|
|
|
(248 |
) |
Accounts payable and other liabilities |
|
|
270 |
|
|
|
444 |
|
|
|
(603 |
) |
Other, net |
|
|
(6 |
) |
|
|
23 |
|
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities |
|
|
2,621 |
|
|
|
2,135 |
|
|
|
1,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(2,453 |
) |
|
|
(1,851 |
) |
|
|
(1,345 |
) |
Proceeds from asset dispositions and other |
|
|
16 |
|
|
|
26 |
|
|
|
50 |
|
Business acquisition, net of cash acquired |
|
|
(96 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities |
|
|
(2,533 |
) |
|
|
(1,825 |
) |
|
|
(1,295 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on debt |
|
|
(12 |
) |
|
|
(152 |
) |
|
|
(1 |
) |
Payment on loan from parent company |
|
|
|
|
|
|
|
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in financing activities |
|
|
(12 |
) |
|
|
(152 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
38 |
|
|
|
(6 |
) |
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
114 |
|
|
|
152 |
|
|
|
62 |
|
Cash and cash equivalents at beginning of period |
|
|
512 |
|
|
|
360 |
|
|
|
298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
626 |
|
|
$ |
512 |
|
|
$ |
360 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-39-
FEDERAL EXPRESS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN OWNERS
EQUITY AND COMPREHENSIVE INCOME
(IN MILLIONS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
Total |
|
|
|
Common |
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Owners |
|
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2008 |
|
$ |
|
|
|
$ |
476 |
|
|
$ |
5,273 |
|
|
$ |
165 |
|
|
$ |
5,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to opening balances for
retirement plans measurement date
transition, net of tax benefit of $8 and
expense of $7, respectively |
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
11 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 1, 2008 |
|
|
|
|
|
|
476 |
|
|
|
5,258 |
|
|
|
176 |
|
|
|
5,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
431 |
|
|
|
|
|
|
|
431 |
|
Foreign currency translation adjustment,
net of tax of $25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106 |
) |
|
|
(106 |
) |
Retirement plans adjustments,
net of tax of $39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution by parent company |
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2009 |
|
|
|
|
|
|
492 |
|
|
|
5,689 |
|
|
|
138 |
|
|
|
6,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
651 |
|
|
|
|
|
|
|
651 |
|
Foreign currency translation adjustment,
net of tax of $3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27 |
) |
|
|
(27 |
) |
Retirement plans adjustments,
net of tax of $61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106 |
) |
|
|
(106 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer from other FedEx subsidiaries |
|
|
|
|
|
|
116 |
|
|
|
36 |
|
|
|
|
|
|
|
152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2010 |
|
|
|
|
|
|
608 |
|
|
|
6,376 |
|
|
|
5 |
|
|
|
6,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
731 |
|
|
|
|
|
|
|
731 |
|
Foreign currency translation adjustment,
net of tax of $24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120 |
|
|
|
120 |
|
Retirement plans adjustments,
net of tax of $6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2011 |
|
$ |
|
|
|
$ |
608 |
|
|
$ |
7,107 |
|
|
$ |
118 |
|
|
$ |
7,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-40-
FEDERAL EXPRESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS. Federal Express Corporation (FedEx Express) is the worlds largest
express transportation company and a wholly owned subsidiary of FedEx Corporation (FedEx).
FISCAL YEARS. Except as otherwise specified, references to years indicate our fiscal year ended
May 31, 2011 or ended May 31 of the year referenced.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of FedEx
Express and its subsidiaries, substantially all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated in consolidation.
REVENUE RECOGNITION. Revenue is recognized upon delivery of shipments. For shipments in transit,
revenue is recorded based on the percentage of service completed at the balance sheet date.
Estimates for future billing adjustments to revenue and accounts receivable are recognized at the
time of shipment for money-back service guarantees and billing corrections. Delivery costs are
accrued as incurred.
Certain of our revenue-producing transactions are subject to taxes, such as sales tax, assessed by
governmental authorities. We present these revenues net of tax.
ACCOUNTS RECEIVABLE ARRANGEMENT. We maintain an accounts receivable arrangement with FedEx
TechConnect, Inc. (FedEx TechConnect), a subsidiary of FedEx Corporate Services, Inc. (FedEx
Services). FedEx Services is a wholly owned subsidiary of FedEx. Under this arrangement, FedEx
TechConnect records and collects receivables associated with our domestic package delivery
functions, while we continue to recognize revenue for the transportation services provided. Our
net receivables recorded by FedEx TechConnect totaled $1.4 billion at May 31, 2011 and $1.3 billion
at May 31, 2010. See Note 15 for further discussion of this arrangement.
CREDIT RISK. We routinely grant credit to many of our customers for transportation services
without collateral. The risk of credit loss in our trade receivables is substantially mitigated by
our credit evaluation process, short collection terms and sales to a large number of customers, as
well as the low revenue per transaction for most of our services. Allowances for potential credit
losses are determined based on historical experience and the impact of current economic factors on
the composition of accounts receivable. Historically, credit losses have been within managements
expectations.
ADVERTISING. Advertising and promotion costs are expensed as incurred and are classified in other
operating expenses. Advertising and promotion expenses were $92 million in 2011, $85 million in
2010 and $88 million in 2009. In addition, FedEx Services performs marketing functions for us and
the related charges are allocated to us and are reflected on the line item Intercompany charges
on the consolidated statements of income. We believe the total amounts allocated approximate the
costs of providing such services.
CASH EQUIVALENTS. Cash in excess of current operating requirements is invested in short-term,
interest-bearing instruments with maturities of three months or less at the date of purchase and is
stated at cost, which approximates market value.
SPARE
PARTS, SUPPLIES AND FUEL. Spare parts (principally aircraft-related) are reported at
weighted-average cost. Allowances for obsolescence are provided for spare parts expected to be
on hand at the date the aircraft are retired from service. These allowances are provided over the
estimated useful life of the related aircraft and engines. Additionally, allowances for
obsolescence are provided for spare parts currently identified
as excess or obsolete. These allowances are based on management estimates, which are subject to
change. Supplies and fuel are reported at weighted average cost.
-41-
PROPERTY AND EQUIPMENT. Expenditures for major additions, improvements, flight equipment
modifications and certain equipment overhaul costs are capitalized when such costs are determined
to extend the useful life of the asset or are part of the cost of acquiring the asset. Maintenance
and repairs are charged to expense as incurred. We capitalize certain direct internal and external
costs associated with the development of internal-use software. Gains and losses on sales of
property used in operations are classified within operating expenses.
For financial reporting purposes, we record depreciation and amortization of property and equipment
on a straight-line basis over the assets service life or related lease term if shorter. For
income tax purposes, depreciation is computed using accelerated methods when applicable. The
depreciable lives and net book value of our property and equipment are as follows (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Book Value at May 31, |
|
|
|
Range |
|
2011 |
|
|
2010 |
|
Wide-body aircraft and related equipment |
|
15 to 30 years |
|
$ |
6,536 |
|
|
$ |
5,897 |
|
Narrow-body and feeder aircraft and related equipment |
|
5 to 18 years |
|
|
1,517 |
|
|
|
1,049 |
|
Package handling and ground support equipment |
|
5 to 30 years |
|
|
577 |
|
|
|
516 |
|
Vehicles |
|
3 to 10 years |
|
|
317 |
|
|
|
299 |
|
Computer and electronic equipment |
|
3 to 10 years |
|
|
161 |
|
|
|
130 |
|
Facilities and other |
|
2 to 30 years |
|
|
1,404 |
|
|
|
1,410 |
|
Substantially all property and equipment have no material residual values. The majority of
aircraft costs are depreciated on a straight-line basis over 15 to 18 years. We periodically
evaluate the estimated service lives and residual values used to depreciate our property and
equipment. This evaluation may result in changes in the estimated lives and residual values. Such
changes did not materially affect depreciation expense in any period presented. Depreciation
expense, excluding gains and losses on sales of property and equipment used in operations, was $1
billion in 2011, $987 million in 2010 and $934 million in 2009. Depreciation and amortization
expense includes amortization of assets under capital lease.
CAPITALIZED INTEREST. Interest on funds used to finance the acquisition and modification of
aircraft, including purchase deposits and construction of certain facilities up to the date the
asset is ready for its intended use is capitalized and included in the cost of the asset.
Capitalized interest was $61 million in 2011, $65 million in 2010 and $58 million in 2009.
IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets are reviewed for impairment when circumstances
indicate the carrying value of an asset may not be recoverable. For assets that are to be held and
used, an impairment is recognized when the estimated undiscounted cash flows associated with the
asset or group of assets is less than their carrying value. If impairment exists, an adjustment is
made to write the asset down to its fair value, and a loss is recorded as the difference between
the carrying value and fair value. Fair values are determined based on quoted market values,
discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of
are carried at the lower of carrying value or estimated net realizable value. We operate an
integrated transportation network, and accordingly, cash flows for most of our operating assets are
assessed at a network level, not at an individual asset level, for our analysis of impairment.
There were no material property and equipment impairment charges recognized in 2011 or 2010.
During 2009, we recorded $199 million in property and equipment impairment charges. These charges
were primarily related to our decision to permanently remove from service certain aircraft, along
with certain excess aircraft engines.
-42-
PENSION AND POSTRETIREMENT HEALTHCARE PLANS. Our defined benefit plans are measured using
actuarial techniques that reflect managements assumptions for discount rate, expected long-term
investment returns on plan assets, salary increases, expected retirement, mortality, employee
turnover and future increases in healthcare costs. We determine the discount rate (which is
required to be the rate at which the projected benefit obligation could be effectively settled as
of the measurement date) with the assistance of actuaries, who calculate the yield on a theoretical
portfolio of high-grade corporate bonds (rated Aa or better) with cash flows that are designed to
match our expected benefit payments in future years. A calculated-value method is employed for
purposes of determining the expected return on the plan asset component of net periodic pension
cost for our qualified U.S. pension plans.
A majority of our employees are covered by the FedEx Corporation Employees Pension Plan, which is
sponsored by our parent, FedEx. Additionally, we also sponsor or participate in nonqualified
benefit plans covering certain employee groups and other pension plans covering certain of our
international groups. The accounting guidance related to employers accounting for defined benefit
pension and other postretirement plans requires recognition in the balance sheet of the funded
status of defined benefit pension and other postretirement benefit plans, and the recognition in
other comprehensive income (OCI) of unrecognized gains or losses and prior service costs or
credits. Additionally, the guidance requires the measurement date for plan assets and liabilities
to coincide with the plan sponsors year end.
GOODWILL. Goodwill is recognized for the excess of the purchase price over the fair value of
tangible and identifiable intangible net assets of businesses acquired. Several factors give rise
to goodwill in our acquisitions, such as the expected benefit from synergies of the combination and
the existing workforce of the acquired entity. Goodwill is reviewed at least annually for
impairment by comparing the fair value with carrying value. Fair value is determined using an
income approach incorporating market participant considerations and managements assumptions on
revenue growth rates, operating margins, discount rates and expected capital expenditures. Fair
value determinations may include both internal and third-party valuations. Unless circumstances
otherwise dictate, we perform our annual impairment testing in the fourth quarter.
INTANGIBLE ASSETS. Intangible assets include technology assets and contract-based intangibles
acquired in business combinations. Intangible assets are amortized over periods ranging from 3 to
12 years on a straight-line basis or an accelerated basis depending upon the pattern in which the
economic benefits are realized. Unless circumstances otherwise dictate, we perform our annual
impairment testing in the fourth quarter.
INCOME TAXES. Deferred income taxes are provided for the tax effect of temporary differences
between the tax basis of assets and liabilities and their reported amounts in the financial
statements. The liability method is used to account for income taxes, which requires deferred
taxes to be recorded at the statutory rate expected to be in effect when the taxes are paid.
We recognize liabilities for uncertain income tax positions based on a two-step process. The first
step is to evaluate the tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will be sustained on audit,
including resolution of related appeals or litigation processes, if any. The second step requires
us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be
realized upon ultimate settlement. It is inherently difficult and subjective to estimate such
amounts, as we must determine the probability of various possible outcomes. We reevaluate these
uncertain tax positions on a quarterly basis or when new information becomes available to
management. These reevaluations are based on factors including, but not limited to, changes in
facts or circumstances, changes in tax law, successfully settled issues under audit, and new audit
activity. Such a change in recognition or measurement could result in the recognition of a tax
benefit or an increase to the related provision.
We classify interest related to income tax liabilities as interest expense, and if applicable,
penalties are recognized as a component of income tax expense. The income tax liabilities and
accrued interest and penalties that are due within one year of the balance sheet date are presented
as current liabilities. The remaining portion of our income tax liabilities and accrued interest
and penalties are presented as noncurrent liabilities because payment of cash is
not anticipated within one year of the balance sheet date. These noncurrent income tax liabilities
are recorded in the caption Other liabilities in our consolidated balance sheets.
-43-
SELF-INSURANCE ACCRUALS. We are self-insured for workers compensation claims, vehicle accidents
and general liabilities, benefits paid under employee healthcare programs and long-term disability
benefits. Accruals are primarily based on the actuarially estimated, undiscounted cost of claims,
which includes incurred-but-not-reported claims. Current workers compensation claims, vehicle and
general liability, employee healthcare claims and long-term disability are included in accrued
expenses. We self-insure up to certain limits that vary by type of risk. Periodically, we
evaluate the level of insurance coverage and adjust insurance levels based on risk tolerance and
premium expense.
LEASES. We lease certain aircraft, facilities, equipment and vehicles under capital and operating
leases. The commencement date of all leases is the earlier of the date we become legally obligated
to make rent payments or the date we may exercise control over the use of the property. In
addition to minimum rental payments, certain leases provide for contingent rentals based on
equipment usage principally related to aircraft leases. Rent expense associated with contingent
rentals is recorded as incurred. Certain of our leases contain fluctuating or escalating payments
and rent holiday periods. The related rent expense is recorded on a straight-line basis over the
lease term. The cumulative excess of rent payments over rent expense is accounted for as a
deferred lease asset and recorded in Other assets in the accompanying consolidated balance
sheets. The cumulative excess of rent expense over rent payments is accounted for as a deferred
lease obligation. Leasehold improvements associated with assets utilized under capital or
operating leases are amortized over the shorter of the assets useful life or the lease term.
DEFERRED GAINS. Gains on the sale and leaseback of aircraft and other property and equipment are
deferred and amortized ratably over the life of the lease as a reduction of rent expense.
Substantially all of these deferred gains are related to aircraft transactions.
FOREIGN CURRENCY TRANSLATION. Translation gains and losses of foreign operations that use local
currencies as the functional currency are accumulated and reported, net of applicable deferred
income taxes, as a component of accumulated other comprehensive income within owners equity.
Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated
in a currency other than the local currency are included in the caption Other, net in the
accompanying consolidated statements of income and were immaterial for each period presented.
Cumulative net foreign currency translation gains in accumulated other comprehensive income were
$138 million at May 31, 2011, $18 million at May 31, 2010 and $46 million at May 31, 2009.
EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS. Our pilots, which represent a
small number of our total employees, are employed under a collective bargaining
agreement. During the fourth quarter of 2011, the pilots ratified a new labor contract that
includes safety initiatives, increases in hourly pay rates and travel per diem rates, and
provisions for opening a European crew base. The new contract is scheduled to become amendable in
March 2013 unless the union exercises its option to shorten the contract, in which case the
agreement would be amendable in March 2012 and a portion of the hourly pay increases would be
canceled. In addition to our pilots, certain of our non-U.S. employees are unionized.
STOCK-BASED COMPENSATION. We participate in the stock-based compensation plans of our
parent, FedEx. We recognize compensation expense for stock-based awards under the provisions of
the accounting guidance related to share-based payments. This guidance requires recognition of
compensation expense for stock-based awards using a fair value method.
FedEx uses the Black-Scholes pricing model to calculate the fair value of stock options. Our total
share-based compensation expense was $29 million in 2011, $29 million in 2010 and $30 million in
2009.
USE OF ESTIMATES. The preparation of our consolidated financial statements requires the use of
estimates and assumptions that affect the reported amounts of assets and liabilities, the reported
amounts of revenues and expenses and the disclosure of contingent liabilities. Management makes
its best estimate of the ultimate outcome
for these items based on historical trends and other information available when the financial
statements are prepared. Changes in estimates are recognized in accordance with the accounting
rules for the estimate, which is typically in the period when new information becomes available to
management. Areas where the nature of the estimate makes it reasonably possible that actual
results could materially differ from amounts estimated include: self-insurance accruals; retirement
plan obligations; long-term incentive accruals; tax liabilities; accounts receivable allowances;
obsolescence of spare parts; contingent liabilities; loss contingencies, such as litigation and
other claims; and impairment assessments on long-lived assets (including goodwill).
-44-
NOTE 2: RECENT 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.
On June 1, 2009, we adopted the authoritative guidance issued by FASB 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. See Note 9 for related disclosures.
On June 1, 2009, we adopted the authoritative guidance issued by FASB 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.
In June 2011, the FASB issued new guidance to make the presentation of items within OCI more prominent. The new standard will require companies to present
items of net income, items of OCI and total comprehensive income in one continuous statement or two
separate consecutive statements, and companies will no longer be allowed to present items of OCI in
the statement of stockholders equity. Reclassification adjustments between OCI and net income
will be presented separately on the face of the financial statements. This new standard is
effective for our fiscal year ending May 31, 2013.
We believe there is no additional new accounting guidance adopted but not yet effective that is
relevant to the readers of our financial statements. However, there are numerous new proposals
under development which, if and when enacted, may have a significant impact on our financial
reporting.
NOTE 3: BUSINESS COMBINATIONS
On February 22, 2011, we completed the acquisition of the Indian logistics, distribution and
express businesses of AFL Pvt. Ltd. and its affiliate Unifreight India Pvt. Ltd. for $96
million in cash. The financial results of the acquired businesses are included in our results
from the date of acquisition and were not material to our results of operations or financial
condition. Substantially all of the purchase price was allocated to goodwill.
On December 15, 2010,
FedEx entered into an agreement to acquire Servicios Nacionales Mupa, S.A.
de C.V. (MultiPack), a Mexican domestic express package delivery company. This acquisition will
be funded with cash from operations and is expected to be completed during the first quarter of 2012, subject to
customary closing conditions.
The financial results of the acquired company will be included in our results from the date of
acquisition and will be immaterial to our 2012 results.
-45-
These acquisitions will give us more robust domestic transportation networks and added
capabilities in these important global markets.
NOTE 4: GOODWILL AND OTHER INTANGIBLE ASSETS
GOODWILL. The carrying amount of goodwill and changes therein are as follows (in millions):
|
|
|
|
|
Goodwill acquired prior to
May 31, 2009 |
|
$ |
903 |
|
|
|
|
|
|
|
|
|
|
Balance as of May 31, 2009 |
|
|
903 |
|
|
|
|
|
|
Purchase adjustments and other(1) |
|
|
(11 |
) |
Transfer between segments(2) |
|
|
66 |
|
|
|
|
|
|
|
|
|
|
Balance as of May 31, 2010 |
|
|
958 |
|
|
|
|
|
|
Goodwill acquired(3) |
|
|
89 |
|
Purchase adjustments and other(1) |
|
|
38 |
|
|
|
|
|
|
|
|
|
|
Balance as of May 31, 2011(4) |
|
$ |
1,085 |
|
|
|
|
|
|
|
|
(1) |
|
Primarily currency translation adjustments. |
|
(2) |
|
Transfer of goodwill for the merger of Caribbean Transportation Services into
us effective June 1, 2009. |
|
(3) |
|
Goodwill acquired in 2011 relates to the acquisition of the Indian logistics,
distribution and express businesses of AFL Pvt. Ltd. and its affiliate Unifreight India Pvt. Ltd.
See Note 3 for related disclosures. |
|
(4) |
|
We do not have any accumulated impairment losses associated with our goodwill. |
OTHER INTANGIBLE ASSETS. The net book value of our intangible assets was $16 million in 2011 and
$20 million in 2010. Amortization expense for intangible assets was $4 million in 2011, $16
million in 2010 and $25 million in 2009. Estimated amortization expense is expected to be
immaterial in 2012.
-46-
NOTE 5: SELECTED CURRENT LIABILITIES
The components of selected current liability captions were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
May 31, |
|
|
|
2011 |
|
|
2010 |
|
Accrued Salaries and Employee Benefits |
|
|
|
|
|
|
|
|
Salaries |
|
$ |
172 |
|
|
$ |
149 |
|
Employee benefits, including
variable compensation |
|
|
228 |
|
|
|
209 |
|
Compensated absences |
|
|
436 |
|
|
|
421 |
|
|
|
|
|
|
|
|
|
|
$ |
836 |
|
|
$ |
779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Expenses |
|
|
|
|
|
|
|
|
Self-insurance accruals |
|
$ |
293 |
|
|
$ |
385 |
|
Taxes other than income taxes |
|
|
275 |
|
|
|
263 |
|
Other |
|
|
516 |
|
|
|
432 |
|
|
|
|
|
|
|
|
|
|
$ |
1,084 |
|
|
$ |
1,080 |
|
|
|
|
|
|
|
|
NOTE 6: LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
The components of long-term debt (net of discounts), along with maturity dates for the years
subsequent to May 31, 2011, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
May 31, |
|
|
|
2011 |
|
|
2010 |
|
Senior unsecured debt |
|
|
|
|
|
|
|
|
Interest rate of 9.65%, due in 2013 |
|
$ |
300 |
|
|
$ |
300 |
|
Interest rate of 7.60%, due in 2098 |
|
|
239 |
|
|
|
239 |
|
|
|
|
|
|
|
|
|
|
|
539 |
|
|
|
539 |
|
Capital lease obligations |
|
|
133 |
|
|
|
128 |
|
|
|
|
|
|
|
|
|
|
|
672 |
|
|
|
667 |
|
Less current portion |
|
|
17 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
$ |
655 |
|
|
$ |
655 |
|
|
|
|
|
|
|
|
Interest on our fixed-rate notes is paid semi-annually. Long-term debt, exclusive of capital
leases, had carrying values of $539 million at May 31, 2011 and May 31, 2010, compared with
estimated fair values of $620 million at May 31, 2011 and $640 million at May 31, 2010. The
estimated fair values were determined based on quoted market prices or on the current rates offered
for debt with similar terms and maturities.
FedEx issues other financial instruments in the normal course of business to support our
operations. We had letters of credit at May 31, 2011 of $435 million issued on our behalf by FedEx
and $315 million in outstanding surety bonds placed by third-party insurance providers. These
instruments are required under certain U.S. self-insurance programs and are also used in the normal
course of international operations. The underlying liabilities insured by these instruments are
reflected in our balance sheets, where applicable. Therefore, no additional liability is reflected
for the letters of credit and surety bonds themselves.
Our capital lease obligations include leases for aircraft and facilities. Our facility leases
include leases that guarantee the repayment of certain special facility revenue bonds that have
been issued by municipalities primarily to finance the acquisition and construction of various
airport facilities and equipment. These bonds require interest payments at least annually, with
principal payments due at the end of the related lease agreement.
-47-
NOTE 7: LEASES
We utilize certain aircraft, land, facilities and equipment under capital and operating leases that
expire at various dates through 2040. We leased 11% of our total aircraft fleet under capital or
operating leases as of May 31, 2011 as compared to 12% as of May 31, 2010. A portion of our
supplemental aircraft are leased by us under agreements that provide for cancellation upon 30 days
notice. Our leased facilities include national, regional and metropolitan sorting facilities and
administrative buildings.
The components of property and equipment recorded under capital leases were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
May 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Aircraft |
|
$ |
8 |
|
|
$ |
15 |
|
Package handling and ground support equipment |
|
|
165 |
|
|
|
165 |
|
Vehicles |
|
|
17 |
|
|
|
17 |
|
Other, principally facilities |
|
|
129 |
|
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
319 |
|
|
|
326 |
|
Less accumulated amortization |
|
|
299 |
|
|
|
304 |
|
|
|
|
|
|
|
|
|
|
$ |
20 |
|
|
$ |
22 |
|
|
|
|
|
|
|
|
Rent expense under operating leases for the years ended May 31 was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rentals |
|
$ |
1,273 |
|
|
$ |
1,229 |
|
|
$ |
1,252 |
|
Contingent rentals(1) |
|
|
145 |
|
|
|
122 |
|
|
|
143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,418 |
|
|
$ |
1,351 |
|
|
$ |
1,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Contingent rentals are based on equipment usage. |
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 May 31, 2011 is as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases |
|
|
|
|
|
|
|
Aircraft |
|
|
|
|
|
|
Total |
|
|
|
Capital |
|
|
and Related |
|
|
Facilities |
|
|
Operating |
|
|
|
Leases |
|
|
Equipment |
|
|
and Other |
|
|
Leases |
|
2012 |
|
$ |
24 |
|
|
$ |
494 |
|
|
$ |
662 |
|
|
$ |
1,156 |
|
2013 |
|
|
117 |
|
|
|
499 |
|
|
|
585 |
|
|
|
1,084 |
|
2014 |
|
|
|
|
|
|
473 |
|
|
|
511 |
|
|
|
984 |
|
2015 |
|
|
|
|
|
|
455 |
|
|
|
485 |
|
|
|
940 |
|
2016 |
|
|
|
|
|
|
458 |
|
|
|
377 |
|
|
|
835 |
|
Thereafter |
|
|
|
|
|
|
1,545 |
|
|
|
3,544 |
|
|
|
5,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
141 |
|
|
$ |
3,924 |
|
|
$ |
6,164 |
|
|
$ |
10,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease
payments |
|
$ |
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-48-
The weighted-average remaining lease term of all operating leases outstanding at May 31, 2011 was
approximately seven years. 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.
We are the lessee in a series of operating leases covering a portion of our leased aircraft. The
lessors are trusts established specifically to purchase, finance and lease aircraft to us. These
leasing entities meet the criteria for variable interest entities. We are not the primary
beneficiary of the leasing entities as the lease terms are consistent with market terms at the
inception of the lease and do not include a residual value guarantee, fixed-price purchase option
or similar feature that obligates us to absorb decreases in value or entitles us to participate in
increases in the value of the aircraft. As such, we are not required to consolidate the entity as
the primary beneficiary. Our maximum exposure under these leases is included in the summary of
future minimum lease payments shown above.
NOTE 8: INCOME TAXES
Our operations are included in the consolidated federal income tax return of FedEx. Our income tax
provision approximates the amount which would have been recorded on a separate return basis. The
components of the provision for income taxes for the years ended May 31 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Current provision (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(227 |
) |
|
$ |
(160 |
) |
|
$ |
(150 |
) |
State and local |
|
|
(1 |
) |
|
|
7 |
|
|
|
(17 |
) |
Foreign |
|
|
193 |
|
|
|
205 |
|
|
|
208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35 |
) |
|
|
52 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
Deferred provision (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
447 |
|
|
|
348 |
|
|
|
241 |
|
State and local |
|
|
6 |
|
|
|
18 |
|
|
|
14 |
|
Foreign |
|
|
(9 |
) |
|
|
(10 |
) |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
444 |
|
|
|
356 |
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
409 |
|
|
$ |
408 |
|
|
$ |
301 |
|
|
|
|
|
|
|
|
|
|
|
Our current federal income tax expenses in 2011, 2010, and 2009 were significantly reduced by
accelerated depreciation deductions we claimed under provisions of the Tax Relief and the Small
Business Jobs Acts of 2010, the American Recovery and Reinvestment Tax Act of 2009, and the
Economic Stimulus Act of 2008. Those acts, designed to stimulate new business investment in the
U.S., accelerated our depreciation deductions for new qualifying investments, such as our new
Boeing 777 freighter (B777F) aircraft. These are timing benefits only, in that the depreciation would have
otherwise been recognized in later years.
Pre-tax earnings of foreign operations for 2011, 2010 and 2009 were approximately $452 million, $560
million and $139 million, respectively, which represent only a portion of total results associated
with international shipments.
-49-
A reconciliation of the statutory federal income tax rate to the effective income tax rate for the
years ended May 31 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Statutory U.S. income tax rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
Increase resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
Allocation
of FedEx Office and Print Services, Inc. operating costs |
|
|
2.0 |
|
|
|
1.9 |
|
|
|
5.3 |
|
State and local income taxes, net of
federal benefit |
|
|
0.3 |
|
|
|
1.5 |
|
|
|
(0.3 |
) |
Foreign operations |
|
|
(3.4 |
) |
|
|
(1.7 |
) |
|
|
(0.9 |
) |
Other, net |
|
|
2.0 |
|
|
|
1.8 |
|
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
35.9 |
% |
|
|
38.5 |
% |
|
|
41.1 |
% |
|
|
|
|
|
|
|
|
|
|
Our 2011 rate was lower than our 2010 rate primarily due to increased permanently reinvested
foreign earnings and a lower state tax rate driven principally by favorable audit and legislative
developments. Our effective tax rate in 2009 was negatively impacted by lower pre-tax income.
The significant components of deferred tax assets and liabilities as of May 31 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
Deferred Tax |
|
|
Deferred Tax |
|
|
Deferred Tax |
|
|
Deferred Tax |
|
|
|
Assets |
|
|
Liabilities |
|
|
Assets |
|
|
Liabilities |
|
Property, equipment,
leases and intangibles |
|
$ |
205 |
|
|
$ |
1,970 |
|
|
$ |
306 |
|
|
$ |
1,577 |
|
Employee benefits |
|
|
450 |
|
|
|
33 |
|
|
|
413 |
|
|
|
35 |
|
Self-insurance accruals |
|
|
300 |
|
|
|
|
|
|
|
309 |
|
|
|
|
|
Other |
|
|
305 |
|
|
|
877 |
|
|
|
311 |
|
|
|
877 |
|
Net operating loss/credit
carryforwards |
|
|
115 |
|
|
|
|
|
|
|
94 |
|
|
|
|
|
Valuation allowances |
|
|
(91 |
) |
|
|
|
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,284 |
|
|
$ |
2,880 |
|
|
$ |
1,349 |
|
|
$ |
2,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net deferred tax liabilities as of May 31 have been classified in the balance sheets as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
Current deferred tax asset |
|
$ |
398 |
|
|
$ |
360 |
|
Noncurrent deferred tax liability |
|
|
(1,994 |
) |
|
|
(1,500 |
) |
|
|
|
|
|
|
|
|
|
$ |
(1,596 |
) |
|
$ |
(1,140 |
) |
|
|
|
|
|
|
|
We have $398 million of net operating loss carryovers in various foreign jurisdictions. The
valuation allowances primarily represent amounts reserved for operating loss and tax credit
carryforwards, which expire over varying periods starting in 2012. As a result of this and other
factors, we believe that a substantial portion of these deferred tax assets may not be realized.
Unremitted earnings of our foreign subsidiaries amounted to $625 million at the end of 2011 and $309 million
at the end of 2010. We have not recognized deferred taxes for U.S. federal income tax purposes on the
unremitted earnings of our foreign subsidiaries that are permanently reinvested. In 2011, our
permanent reinvestment strategy with respect to unremitted earnings of our foreign subsidiaries
provided a 2.6% benefit to our effective tax rate. Were the earnings to be distributed, in the
form of dividends or otherwise, these unremitted earnings would be subject to U.S. federal income
tax and non-U.S. withholding taxes. Unrecognized foreign tax credits potentially would be
available to reduce a portion of the U.S. tax liability. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practicable due to uncertainties related to
the timing and source of any potential distribution of such funds, along with other important
factors such as the amount of associated foreign tax credits.
-50-
As of May 31, 2011, we had $300 million of cash in offshore jurisdictions associated with our
permanent reinvestment strategy.
We file income tax returns in the U.S., various U.S. state and local jurisdictions, and various
foreign jurisdictions. The Internal Revenue Service is currently auditing our consolidated
U.S. income tax returns for the 2007 through 2009 tax years. We are no longer subject to U.S.
federal income tax examination for years through 2006 except for specific U.S. federal income tax
positions that are in various stages of appeal and/or litigation. No resolution date can be
reasonably estimated at this time for these appeals and litigation, but their resolution is not
expected to have a material effect on our consolidated financial statements. We are also subject
to ongoing audits in state, local and foreign tax jurisdictions throughout the world.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Balance at beginning of year |
|
$ |
59 |
|
|
$ |
52 |
|
|
$ |
73 |
|
Increases for tax positions taken in the current year |
|
|
1 |
|
|
|
3 |
|
|
|
1 |
|
Increases for tax positions taken in prior years |
|
|
6 |
|
|
|
8 |
|
|
|
5 |
|
Decreases for tax positions taken in prior years |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(24 |
) |
Settlements |
|
|
(7 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
56 |
|
|
$ |
59 |
|
|
$ |
52 |
|
|
|
|
|
|
|
|
|
|
|
Our liabilities recorded for uncertain tax positions include $39 million at May 31, 2011 and $41
million at May 31, 2010 associated with positions that if favorably resolved would provide a
benefit to our effective tax rate. We classify interest related to income tax liabilities as
interest expense, and if applicable, penalties are recognized as a component of income tax expense.
The balance of accrued interest and penalties was $16 million on May 31, 2011 and $16 million on
May 31, 2010. Total interest and penalties included in our consolidated statements of income are
immaterial. Included in the 2011 and 2010 balances are $9 million of tax positions for which the
ultimate deductibility or income inclusion is certain but for which there may be uncertainty about
the timing of such deductibility or income inclusion.
It is difficult to predict the ultimate outcome or the timing of resolution for tax positions.
Changes may result from the conclusion of ongoing audits, appeals or litigation in state, local,
federal and foreign tax jurisdictions, or from the resolution of various proceedings between the
U.S. and foreign tax authorities. Our liability for uncertain tax positions includes no matters
that are individually or collectively material to us. It is reasonably possible that the amount of
the benefit with respect to certain of our unrecognized tax positions will increase or decrease
within the next 12 months, but an estimate of the range of the reasonably possible changes cannot
be made. However, we do not expect that the resolution of any of our uncertain tax positions will
be material.
NOTE 9: RETIREMENT PLANS
RETIREMENT PLANS SPONSORED BY FEDEX
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. The accounting for pension and postretirement healthcare plans includes numerous
assumptions, such as: discount rates; expected long-term investment returns on plan assets; future
salary increases; employee turnover; mortality; and retirement ages. These assumptions most
significantly impact our U.S. domestic pension plan.
-51-
A summary of our retirement plans costs over the past three years is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Pension plans sponsored by FedEx |
|
$ |
322 |
|
|
$ |
158 |
|
|
$ |
48 |
|
Other U.S. domestic and international pension plans |
|
|
45 |
|
|
|
41 |
|
|
|
36 |
|
U.S. domestic and international defined
contribution plans |
|
|
178 |
|
|
|
110 |
|
|
|
161 |
|
Postretirement healthcare plans |
|
|
49 |
|
|
|
35 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
594 |
|
|
$ |
344 |
|
|
$ |
292 |
|
|
|
|
|
|
|
|
|
|
|
PENSION PLANS. A majority of our employees are covered by the FedEx Corporation Employees Pension
Plan (FedEx Plan), a defined benefit pension plan sponsored by our parent, FedEx. The plan
covers certain U.S. employees age 21 and over, with at least one year of service. Pension benefits
for most employees are accrued under a cash balance formula we call the Portable Pension Account.
Under the Portable Pension Account, the retirement benefit is expressed as a dollar amount in a
notional account that grows with annual credits based on pay, age and years of credited service,
and interest on the notional account balance. The Portable Pension
Account benefit
is payable as a lump sum or an annuity at retirement at the election of the employee.
The plan interest credit rate varies from year to year based on a U.S.
Treasury index. Prior to 2009, certain employees earned benefits using a traditional pension
formula (based on average earnings and years of service), however, benefits under this formula were
capped on May 31, 2008. 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. Our employees comprise more than 73% of the participants in the FedEx Plan. For more
information about this plan and the related accounting assumptions, refer to the financial
statements of FedEx included in its Form 10-K for the year ended May 31, 2011.
PENSION PLAN ASSUMPTIONS. Our pension cost is materially affected by the discount rate used to
measure pension obligations, the level of plan assets available to fund those obligations and the
expected long-term rate of return on plan assets. We use a measurement date of May 31 for our
pension and postretirement healthcare plans. Management reviews the assumptions used to measure
pension costs on an annual basis. Economic and market conditions at the measurement date impact
these assumptions from year to year and it is reasonably possible that material changes in pension
cost may be experienced in the future. Actuarial gains or losses are generated for changes in
assumptions and to the extent that actual results differ from those assumed. These actuarial gains
and losses are amortized over the remaining average service lives of our active employees if they
exceed a corridor amount in the aggregate.
The weighted-average actuarial assumptions for the FedEx Plan were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Discount rate used to determine benefit obligation |
|
|
5.76 |
% |
|
|
6.37 |
% |
|
|
7.68 |
% |
Discount rate used to determine net periodic benefit cost |
|
|
6.37 |
|
|
|
7.68 |
|
|
|
7.15 |
|
Rate of increase in future compensation levels
used to determine benefit obligation |
|
|
4.58 |
|
|
|
4.63 |
|
|
|
4.42 |
|
Rate of increase in future compensation levels
used to determine net periodic benefit cost |
|
|
4.63 |
|
|
|
4.42 |
|
|
|
4.49 |
|
Expected long-term rate of return on assets |
|
|
8.00 |
|
|
|
8.00 |
|
|
|
8.50 |
|
We incurred a net periodic benefit cost of $308 million in 2011, $144 million in 2010 and $30
million in 2009, for our participation in the FedEx Plan. The increase in pension costs from 2010
to 2011 was due to a significantly lower discount rate used to measure our benefit obligations at
our May 31, 2010 measurement date. The increase
in pension costs from 2009 to 2010 was due to the negative impact of market conditions on our
pension plan assets at our May 31, 2009 measurement date.
-52-
Information regarding the funded status of the FedEx Plan was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
May 31, |
|
|
|
2011 |
|
|
2010 |
|
Projected benefit obligation (PBO) |
|
$ |
16,032 |
|
|
$ |
13,331 |
|
Fair value of plan assets |
|
|
15,152 |
|
|
|
12,790 |
|
|
|
|
|
|
|
|
Funded status |
|
$ |
(880 |
) |
|
$ |
(541 |
) |
|
|
|
|
|
|
|
Certain of our employees participate in a nonqualified defined benefit pension plan sponsored by
FedEx. Our participants in this nonqualified defined benefit plan make up approximately 30% of
the participants in the plan. FedEx has accumulated benefit obligations (ABOs) aggregating
approximately $290 million at May 31, 2011 and $302 million at May 31, 2010 and PBOs aggregating
approximately $293 million at May 31, 2011 and $304 million at May 31, 2010 related to this plan.
This plan is not funded because such funding provides no current tax deduction and would be deemed
current compensation to plan participants.
DEFINED CONTRIBUTION PLANS. Defined contribution plans are in place covering a majority of U.S.
employees and certain international employees. Most U.S. employees are covered under the FedEx
401(k) plan as noted above. Pilots are covered under a 401(a) money
purchase pension plan, as well as their own 401(k) plan. Expense for
our employees under these plans was $178 million in 2011, $110 million in 2010 and $161 million in
2009.
FEDEX EXPRESS SPONSORED RETIREMENT PLANS
PENSION PLANS. We also sponsor nonqualified benefit plans covering certain of our U.S. employee
groups and other pension plans covering certain of our international employees. The nonqualified
benefit plans are not funded because such funding provides no current tax deduction and would be
deemed current compensation to plan participants. The international defined benefit pension plans
provide benefits primarily based on final earnings and years of service and are funded in
compliance with local laws and practices. For the plans sponsored by us, our assets are primarily
invested in equities with the remainder in fixed income and other securities. Fair value
disclosures have not been provided for these international defined benefit pension plans since the
assets are primarily managed at an individual country level. The amount of assets in these plans
having significant unobservable inputs (Level 3), if any, would be immaterial to our financial
statements.
POSTRETIREMENT HEALTHCARE PLANS. We sponsor a plan offering medical, dental and vision coverage to
eligible U.S. retirees and their eligible dependents. For Medicare eligible non-pilot retirees and
their eligible dependents, we only provide a fixed subsidy toward a Health Reimbursement Account
(HRA) with Extend Health, which may be used for the premium payment for a Medigap policy. U.S.
employees become eligible for these benefits at age 55 and older, if they have permanent,
continuous service of at least 10 years after attainment of age 45 if hired prior to January 1,
1988, or at least 20 years after attainment of age 35 if hired on or after January 1, 1988.
Postretirement healthcare benefits are capped at 150% of the 1993 per capita projected employer
cost, which has been reached and therefore, these benefits are not subject to additional future
inflation.
RECENT ACCOUNTING GUIDANCE. The accounting guidance related to postretirement benefits requires
recognition in the balance sheet of the funded status of defined benefit pension and other
postretirement benefit plans, and the recognition in accumulated other comprehensive income
(AOCI) of unrecognized gains or losses and prior service costs or credits. The funded status is
measured as the difference between the fair value of the plans assets and the PBO of the plan.
-53-
For the plans currently sponsored by us, the following table provides a reconciliation of the
changes in the pension and postretirement healthcare plans benefit obligations and fair value of
assets for our employees over the two-year period ended May 31, 2011 and a statement of the funded
status as of May 31, 2011 and 2010 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans |
|
|
Postretirement Healthcare Plans |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Accumulated Benefit Obligation (ABO) |
|
$ |
460 |
|
|
$ |
397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Projected Benefit Obligation (PBO) and
Accumulated Postretirement Benefit Obligation (APBO) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PBO/APBO at the beginning of year |
|
$ |
513 |
|
|
$ |
416 |
|
|
$ |
469 |
|
|
$ |
365 |
|
Service cost |
|
|
29 |
|
|
|
22 |
|
|
|
25 |
|
|
|
19 |
|
Interest cost |
|
|
26 |
|
|
|
23 |
|
|
|
28 |
|
|
|
26 |
|
Actuarial
(gain) loss |
|
|
(12 |
) |
|
|
88 |
|
|
|
37 |
|
|
|
82 |
|
Benefits paid |
|
|
(14 |
) |
|
|
(14 |
) |
|
|
(47 |
) |
|
|
(44 |
) |
Amendments |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Participant contributions |
|
|
3 |
|
|
|
3 |
|
|
|
21 |
|
|
|
21 |
|
Other |
|
|
57 |
|
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PBO/APBO at the end of year |
|
$ |
602 |
|
|
$ |
513 |
|
|
$ |
533 |
|
|
$ |
469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the beginning of year |
|
$ |
237 |
|
|
$ |
204 |
|
|
$ |
|
|
|
$ |
|
|
Actual return on plan assets |
|
|
31 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
Company contributions |
|
|
35 |
|
|
|
30 |
|
|
|
26 |
|
|
|
23 |
|
Benefits paid |
|
|
(14 |
) |
|
|
(14 |
) |
|
|
(47 |
) |
|
|
(44 |
) |
Other |
|
|
31 |
|
|
|
(20 |
) |
|
|
21 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the end of year |
|
$ |
320 |
|
|
$ |
237 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status of the Plans |
|
$ |
(282 |
) |
|
$ |
(276 |
) |
|
$ |
(533 |
) |
|
$ |
(469 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Recognized in the Balance Sheet at May 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current pension, postretirement healthcare and other
benefit obligations |
|
$ |
(8 |
) |
|
$ |
(7 |
) |
|
$ |
(27 |
) |
|
$ |
(25 |
) |
Noncurrent pension, postretirement healthcare and other
benefit obligations |
|
|
(274 |
) |
|
|
(269 |
) |
|
|
(506 |
) |
|
|
(444 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
(282 |
) |
|
$ |
(276 |
) |
|
$ |
(533 |
) |
|
$ |
(469 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in AOCI and not yet reflected in
Net Periodic Benefit Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain) |
|
$ |
101 |
|
|
$ |
119 |
|
|
$ |
(76 |
) |
|
$ |
(117 |
) |
Prior service cost and other |
|
|
2 |
|
|
|
3 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
103 |
|
|
$ |
122 |
|
|
$ |
(74 |
) |
|
$ |
(115 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in AOCI and not yet reflected in
Net Periodic Benefit Cost expected to be amortized in
next years Net Periodic Benefit Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain) |
|
$ |
4 |
|
|
$ |
6 |
|
|
$ |
(1 |
) |
|
$ |
(4 |
) |
Prior service cost and other |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5 |
|
|
$ |
7 |
|
|
$ |
(1 |
) |
|
$ |
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
-54-
The following table presents plans sponsored by us on a disaggregated basis
to show those plans (as a group) in an unfunded position. At May 31, 2011 and 2010, the fair value
of plan assets for pension plans with a PBO or ABO in excess of plan assets were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
PBO Exceeds the Fair Value of |
|
|
|
Plan Assets |
|
|
|
2011 |
|
|
2010 |
|
|
Pension Benefits |
|
|
|
|
|
|
|
|
Fair value of plan assets |
|
$ |
297 |
|
|
$ |
237 |
|
PBO |
|
|
(579 |
) |
|
|
(513 |
) |
|
|
|
|
|
|
|
Net funded status |
|
$ |
(282 |
) |
|
$ |
(276 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABO Exceeds the Fair |
|
|
|
Value of |
|
|
|
Plan Assets |
|
|
|
2011 |
|
|
2010 |
|
|
Pension Benefits |
|
|
|
|
|
|
|
|
ABO(1) |
|
$ |
188 |
|
|
$ |
372 |
|
|
Fair value of plan assets |
|
|
20 |
|
|
|
208 |
|
PBO |
|
|
(248 |
) |
|
|
(474 |
) |
|
|
|
|
|
|
|
Net funded status |
|
$ |
(228 |
) |
|
$ |
(266 |
) |
|
|
|
|
|
|
|
|
|
|
(1) |
|
ABO not used in determination of funded status. |
In the plans currently sponsored by us, net periodic benefit cost for FedEx Express employees for
the three years ended May 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans |
|
|
Postretirement Healthcare Plans |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
Service cost |
|
$ |
29 |
|
|
$ |
22 |
|
|
$ |
22 |
|
|
$ |
25 |
|
|
$ |
19 |
|
|
$ |
25 |
|
Interest cost |
|
|
26 |
|
|
|
24 |
|
|
|
21 |
|
|
|
28 |
|
|
|
26 |
|
|
|
28 |
|
Expected return on plan assets |
|
|
(17 |
) |
|
|
(14 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Recognized actuarial losses (gains) and other |
|
|
7 |
|
|
|
9 |
|
|
|
7 |
|
|
|
(4 |
) |
|
|
(10 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
45 |
|
|
$ |
41 |
|
|
$ |
36 |
|
|
$ |
49 |
|
|
$ |
35 |
|
|
$ |
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in OCI were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
Postretirement |
|
|
|
|
|
|
|
|
|
|
Postretirement |
|
|
|
Pension Plans |
|
|
Healthcare Plans |
|
|
Pension Plans |
|
|
Healthcare Plans |
|
|
|
Gross |
|
|
Net of Tax |
|
|
Gross |
|
|
Net of Tax |
|
|
Gross |
|
|
Net of Tax |
|
|
Gross |
|
|
Net of Tax |
|
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss and other
arising during period |
|
$ |
(26 |
) |
|
$ |
(17 |
) |
|
$ |
42 |
|
|
$ |
25 |
|
|
$ |
59 |
|
|
$ |
39 |
|
|
$ |
101 |
|
|
$ |
59 |
|
Amortizations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial (losses) gains
and other |
|
|
(7 |
) |
|
|
(5 |
) |
|
|
4 |
|
|
|
4 |
|
|
|
(4 |
) |
|
|
(3 |
) |
|
|
11 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in OCI |
|
$ |
(33 |
) |
|
$ |
(22 |
) |
|
$ |
46 |
|
|
$ |
29 |
|
|
$ |
55 |
|
|
$ |
36 |
|
|
$ |
112 |
|
|
$ |
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-55-
The weighted-average actuarial assumptions for the plans sponsored by us were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans |
|
|
Postretirement Healthcare Plans |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
Discount rate used to determine benefit obligation |
|
|
4.79 |
% |
|
|
4.76 |
% |
|
|
5.70 |
% |
|
|
5.67 |
% |
|
|
6.11 |
% |
|
|
7.27 |
% |
Discount rate used to determine net periodic benefit cost |
|
|
4.76 |
|
|
|
5.70 |
|
|
|
5.16 |
|
|
|
6.11 |
|
|
|
7.27 |
|
|
|
7.13 |
|
Rate of increase in future compensation levels
used to determine benefit obligation |
|
|
4.02 |
|
|
|
4.08 |
|
|
|
3.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate of increase in future compensation levels
used to determine net periodic benefit cost |
|
|
4.08 |
|
|
|
3.86 |
|
|
|
4.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected long-term rate of return on assets |
|
|
6.45 |
|
|
|
6.64 |
|
|
|
7.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit payments for FedEx Express employees in the plans sponsored by us, which reflect
expected future service, are expected to be paid as follows for the years ending May 31 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement |
|
|
|
Pension Plans |
|
|
Healthcare Plans |
|
2012 |
|
$ |
16 |
|
|
$ |
27 |
|
2013 |
|
|
18 |
|
|
|
27 |
|
2014 |
|
|
18 |
|
|
|
28 |
|
2015 |
|
|
19 |
|
|
|
29 |
|
2016 |
|
|
20 |
|
|
|
31 |
|
20172021 |
|
|
130 |
|
|
|
187 |
|
We expect to make pension plan contributions in 2012 approximating $34 million. These estimates
are based on assumptions about future events. Actual benefit payments may vary significantly from
these estimates.
Future medical benefit claims costs are estimated to increase at an annual rate of 8.3% during
2012, decreasing to an annual growth rate of 4.5% in 2029 and thereafter. Future dental benefit
costs are estimated to increase at an annual rate of 7.0% during 2012, decreasing to an annual
growth rate of 4.5% in 2029 and thereafter. A 1% change in these annual trend rates would not have
a significant impact on the APBO at May 31, 2011 or 2011 benefit expense because the level of these
benefits is capped.
NOTE 10: BUSINESS SEGMENT INFORMATION
We are engaged in a single line of business and operate in one business segment the worldwide
express transportation and distribution of time-sensitive shipments. We are the worlds largest
express transportation company, and use a global air-and-ground network to speed delivery of
time-sensitive shipments. We operate an integrated transportation network in providing these
worldwide services and use our network assets (particularly aircraft) interchangeably around the
world as demand and other circumstances dictate a need.
-56-
The following table presents revenue by service type and geographic information for the years ended
or as of May 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
REVENUE BY SERVICE TYPE |
|
|
|
|
|
|
|
|
|
|
|
|
Package: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. overnight box |
|
$ |
6,128 |
|
|
$ |
5,602 |
|
|
$ |
6,074 |
|
U.S. overnight envelope |
|
|
1,736 |
|
|
|
1,640 |
|
|
|
1,855 |
|
U.S. deferred |
|
|
2,805 |
|
|
|
2,589 |
|
|
|
2,789 |
|
|
|
|
|
|
|
|
|
|
|
Total domestic package revenue |
|
|
10,669 |
|
|
|
9,831 |
|
|
|
10,718 |
|
International Priority (IP) |
|
|
8,228 |
|
|
|
7,087 |
|
|
|
6,978 |
|
International domestic(1) |
|
|
653 |
|
|
|
578 |
|
|
|
565 |
|
|
|
|
|
|
|
|
|
|
|
Total package revenue |
|
|
19,550 |
|
|
|
17,496 |
|
|
|
18,261 |
|
|
Freight: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
2,188 |
|
|
|
1,980 |
|
|
|
2,165 |
|
International priority |
|
|
1,722 |
|
|
|
1,303 |
|
|
|
1,104 |
|
International airfreight |
|
|
283 |
|
|
|
251 |
|
|
|
369 |
|
|
|
|
|
|
|
|
|
|
|
Total freight revenue |
|
|
4,193 |
|
|
|
3,534 |
|
|
|
3,638 |
|
Other |
|
|
247 |
|
|
|
213 |
|
|
|
268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,990 |
|
|
$ |
21,243 |
|
|
$ |
22,167 |
|
|
|
|
|
|
|
|
|
|
|
|
GEOGRAPHICAL INFORMATION(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
12,890 |
|
|
$ |
11,830 |
|
|
$ |
12,903 |
|
International |
|
|
11,100 |
|
|
|
9,413 |
|
|
|
9,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,990 |
|
|
$ |
21,243 |
|
|
$ |
22,167 |
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
10,807 |
|
|
$ |
9,564 |
|
|
$ |
8,756 |
|
International |
|
|
1,806 |
|
|
|
1,471 |
|
|
|
1,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,613 |
|
|
$ |
11,035 |
|
|
$ |
10,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
International domestic revenues include our international intra-country domestic
operations. |
|
(2) |
|
International revenue includes shipments that either originate in or are destined to
locations outside the United
States. Noncurrent assets include property and equipment, goodwill
and other long-term assets. Our flight equipment registered in the
U.S. is included as U.S. assets; however, many of our aircraft operate
internationally. |
-57-
NOTE 11: SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest expense and income taxes for the years ended May 31 was as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Cash payments for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest (net of capitalized interest) |
|
$ |
|
|
|
$ |
|
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
351 |
|
|
$ |
250 |
|
|
$ |
421 |
|
Income tax refunds received |
|
|
(352 |
) |
|
|
(207 |
) |
|
|
(313 |
) |
|
|
|
|
|
|
|
|
|
|
Cash tax payments, net |
|
$ |
(1 |
) |
|
$ |
43 |
|
|
$ |
108 |
|
|
|
|
|
|
|
|
|
|
|
NOTE 12: GUARANTEES AND INDEMNIFICATIONS
In conjunction with certain transactions, primarily the lease, sale or purchase of operating assets
or services in the ordinary course of business, we may provide routine guarantees or
indemnifications (e.g., environmental, fuel tax and software infringement), the terms of which
range in duration, and often they are not limited and have no specified maximum obligation. As a
result, the overall maximum potential amount of the obligation under such guarantees and
indemnifications cannot be reasonably estimated. Historically, we have not been required to make
significant payments under our guarantee or indemnification obligations and no amounts have been
recognized in our financial statements for the underlying fair value of these obligations.
We provide guarantees on certain FedEx unsecured debt instruments aggregating $1 billion at May 31,
2011, jointly and severally with other affiliated companies in the FedEx consolidated group. In
addition, we guarantee, jointly and severally with other affiliated companies in the FedEx
consolidated group, FedExs $1.0 billion revolving credit agreement, which backs its commercial
paper program. At May 31, 2011, no commercial paper was outstanding and the entire $1.0 billion
under the revolving credit agreement was available for future borrowings. The guarantees are full
and unconditional and are required by the lenders since FedEx has no independent assets or
operations.
Special facility revenue bonds have been issued by certain municipalities primarily to finance the
acquisition and construction of various airport facilities and equipment. These facilities were
leased to us and are accounted for as either capital leases or operating leases. We have
unconditionally guaranteed $667 million in principal of these bonds (with total future principal
and interest payments of approximately $886 million as of May 31, 2011) through these leases. Of
the $667 million bond principal guaranteed, $116 million was included in capital lease obligations
in our balance sheet at May 31, 2011. The remaining $551 million has been accounted for as
operating leases.
-58-
NOTE 13: COMMITMENTS
Annual purchase commitments under various contracts as of May 31, 2011 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft and |
|
|
|
|
|
|
|
|
|
Aircraft-Related |
|
|
Other(1) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
$ |
1,480 |
|
|
$ |
17 |
|
|
$ |
1,497 |
|
2013 |
|
|
1,086 |
|
|
|
12 |
|
|
|
1,098 |
|
2014 |
|
|
781 |
|
|
|
16 |
|
|
|
797 |
|
2015 |
|
|
569 |
|
|
|
8 |
|
|
|
577 |
|
2016 |
|
|
584 |
|
|
|
8 |
|
|
|
592 |
|
Thereafter |
|
|
1,470 |
|
|
|
106 |
|
|
|
1,576 |
|
|
|
|
(1) |
|
Primarily advertising and promotions contracts. |
The amounts reflected in the table above for purchase commitments represent noncancelable
agreements to purchase goods or services. Our obligation to purchase
15 of these B777F 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. 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.
We had $604 million in deposits and progress payments as of May 31, 2011 (a decrease of $167
million from May 31, 2010) on aircraft purchases and other planned aircraft-related transactions.
These deposits are classified in the Other assets caption of our consolidated balance sheets.
In addition to our commitment to purchase B777Fs, our aircraft purchase commitments include the
Boeing 757 (B757) in passenger configuration, which will require additional costs to modify for
cargo transport. Aircraft and aircraft-related contracts are subject to price escalations. The
following table is a summary of the number and type of aircraft we are committed to purchase as of
May 31, 2011, with the year of expected delivery:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B757 |
|
|
B777F |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
16 |
|
|
|
7 |
|
|
|
23 |
|
2013 |
|
|
4 |
|
|
|
6 |
|
|
|
10 |
|
2014 |
|
|
|
|
|
|
7 |
|
|
|
7 |
|
2015 |
|
|
|
|
|
|
3 |
|
|
|
3 |
|
2016 |
|
|
|
|
|
|
3 |
|
|
|
3 |
|
Thereafter |
|
|
|
|
|
|
7 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
20 |
|
|
|
33 |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
NOTE 14: CONTINGENCIES
Wage-and-Hour. We are a defendant in a number of lawsuits containing various class-action
allegations of wage-and-hour violations. The plaintiffs in these lawsuits allege, among other
things, that they were forced to work off the clock, were not paid overtime or were not provided
work breaks or other benefits. The complaints generally seek unspecified monetary damages,
injunctive relief, or both. The following describes the wage-and-hour matters that have been
certified as class actions.
-59-
In April 2009, in 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. The U.S. Court of Appeals for the
Ninth Circuit has refused to accept a discretionary appeal of the class certification order at this
time. In April 2011, the court granted our motion for partial summary judgment regarding the
proper method for calculating a split-shift premium, effectively eliminating the certified subclass
for split-shift premiums. Although the claims for alleged off-the-clock work and missed meal
periods are still pending, we do not believe that a material loss is reasonably possible with
respect to these remaining claims. We have denied any liability and intend to vigorously defend
ourselves in this matter.
ATA Airlines. In October 2010, a jury returned a verdict in favor of ATA Airlines in its lawsuit
against us and awarded damages of $66 million, and in January 2011, the court awarded ATA
pre-judgment interest of $5 million. The suit was filed in Indiana federal court and alleged that
we had breached a contract by not including ATA on our 2009 Civil Reserve Air Fleet (CRAF)/Air
Mobility Command (AMC) team, which provides cargo and passenger service to the U.S. military.
While we do not agree with the verdict or the amount of damages awarded and have appealed the
matter to the U.S. Court of Appeals for the Seventh Circuit, accounting standards required an
accrual of a $66 million loss in the second quarter of 2011. We did not accrue the $5 million of
interest as a loss because we have additional arguments on appeal that lead us to believe that loss
of that amount is not probable.
California Paystub Class Action. A federal court in California ruled in April 2011 that paystubs
for certain FedEx Express employees in California did not meet that states requirements to reflect
pay period begin date, total overtime hours worked and the correct overtime wage rate. The ruling
came in a class action lawsuit filed by a former courier seeking damages on behalf of herself and
all other FedEx Express employees in California that allegedly received noncompliant paychecks.
The court certified the class in June 2011. The court has ruled that FedEx Express is liable to
the State of California, and there will be a ruling as to whether FedEx Express is liable to class
members who can prove they were injured by the paystub deficiencies. The judge has not yet decided
on the amount, if any, of liability to the State of California or to the class, but has wide
discretion. A material loss in this matter is reasonably possible but not estimable because both
the number of class members and the amount, if any, to which some class members may be entitled is
uncertain, and in ruling the judge may consider some or all of the following: whether employees
suffered injury; whether remedial action was undertaken; whether there was knowledge of any
violation; whether any violation was intentional; and whether any award would be unjust under the
circumstances.
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.
NOTE 15: PARENT/AFFILIATE TRANSACTIONS
Affiliate company balances that are currently receivable or payable relate either 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 TechConnect. Under this arrangement, we
recognize revenue for the transportation services provided to our U.S. customers and factor the
related receivables to FedEx TechConnect for collection. We have no continuing involvement with
the receivables transferred to FedEx TechConnect. Our net receivables recorded by FedEx
TechConnect totaled $1.4 billion at May 31, 2011 and $1.3 billion at May 31, 2010.
-60-
The costs
of FedEx Services, FedEx TechConnect and FedEx Office and Print
Services, Inc., as well as charges for management fees from our parent, 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 providing
the functions.
NOTE 16: SUMMARY OF QUARTERLY OPERATING RESULTS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
(in millions) |
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
5,769 |
|
|
|
5,841 |
|
|
$ |
5,914 |
|
|
$ |
6,466 |
|
Operating income |
|
|
351 |
|
|
|
255 |
|
|
|
176 |
|
|
|
424 |
|
Net income |
|
|
212 |
|
|
|
152 |
|
|
|
100 |
|
|
|
267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
4,882 |
|
|
|
5,235 |
|
|
$ |
5,365 |
|
|
$ |
5,761 |
|
Operating income |
|
|
100 |
|
|
|
344 |
|
|
|
270 |
|
|
|
412 |
|
Net income |
|
|
50 |
|
|
|
201 |
|
|
|
153 |
|
|
|
247 |
|
-61-
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATES. While we currently have market risk sensitive instruments related to interest
rates, we have no significant exposure to changing interest rates on our long-term debt because the
interest rates are fixed on all of our long-term debt. As disclosed in Note 6 to the accompanying
consolidated financial statements, we had outstanding fixed-rate, long-term debt (exclusive of
capital leases) with an estimated fair value of $620 million at May 31, 2011 and $640 million at
May 31, 2010. Market risk for fixed-rate, long-term debt is estimated as the potential decrease in
fair value resulting from a hypothetical 10% increase in interest rates and amounts to $19 million
as of May 31, 2011 and May 31, 2010. The underlying fair values of our long-term debt were
estimated based on quoted market prices or on the current rates offered for debt with similar terms
and maturities.
We have interest rate risk with respect to our pension and postretirement benefit obligations.
Changes in interest rates impact our liabilities associated with these benefit plans as well as the
amount of pension and postretirement benefit expense recognized. Declines in the value of plan
assets could diminish the funded status of our pension plans and potentially increase our
requirement to make contributions to the plans. Substantial investment losses on plan assets will
also increase pension and postretirement benefit expense in the years following the losses.
FOREIGN CURRENCY. While we are a global provider of transportation services, the substantial
majority of our transactions are denominated in U.S. dollars. The principal foreign currency
exchange rate risks to which we are exposed are in the euro, Chinese yuan, Canadian dollar, British
pound and Japanese yen. Historically, our exposure to foreign currency fluctuations is more
significant with respect to our revenues than our expenses, as a significant portion of our
expenses are denominated in U.S. dollars, such as aircraft and fuel expenses. During 2011 and 2010,
foreign currency fluctuations positively impacted operating income. However, favorable foreign
currency fluctuations also may have had an offsetting impact on the price we obtained or the demand
for our services, which is not quantifiable. At May 31, 2011, the result of a uniform 10%
strengthening in the value of the dollar relative to the currencies in which our transactions are
denominated would result in a decrease in operating income of $39 million for 2012. This
theoretical calculation assumes that each exchange rate would change in the same direction relative
to the U.S. dollar. This calculation is not indicative of our actual experience in foreign
currency transactions. In addition to the direct effects of changes in exchange rates,
fluctuations in exchange rates also affect the volume of sales or the foreign currency sales price
as competitors services become more or less attractive. The sensitivity analysis of the effects
of changes in foreign currency exchange rates does not factor in a potential change in sales levels
or local currency prices.
COMMODITY. While we have market risk for changes in the price of jet fuel, this risk is largely
mitigated by our fuel surcharges because our fuel surcharges are closely linked to market prices
for jet fuel. Therefore, a hypothetical 10% change in the price of jet fuel would not be expected
to materially affect our earnings.
However, our fuel surcharges have a timing lag of six to eight weeks before they are adjusted for
changes in fuel prices. Our fuel surcharge index also allows fuel prices to fluctuate 2% before an
adjustment to the fuel surcharge occurs. Accordingly, our operating income in a specific period
may be significantly affected should the spot price of jet fuel suddenly change by a substantial
amount or change by amounts that do not result in an adjustment in our fuel surcharges.
OTHER. We do not purchase or hold any derivative financial instruments for trading purposes.
-62-
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholder
Federal Express Corporation
We have audited the consolidated financial statements of Federal Express Corporation as of May 31,
2011 and 2010, and for each of the three years in the period ended May 31, 2011, and have issued
our report thereon dated July 12, 2011 (included elsewhere in this Annual Report on Form 10-K).
Our audits also included the financial statement schedule listed in Item 15(a) in this Annual
Report on Form 10-K. This schedule is the responsibility of the Companys management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Memphis, Tennessee
July 12, 2011
-63-
SCHEDULE II
FEDERAL EXPRESS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MAY 31, 2011, 2010, AND 2009
(IN MILLIONS)
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ADDITIONS |
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BALANCE |
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CHARGED |
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BALANCE |
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AT |
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CHARGED |
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TO |
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AT |
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BEGINNING |
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TO |
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OTHER |
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END OF |
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DESCRIPTION |
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OF YEAR |
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EXPENSES |
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ACCOUNTS |
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DEDUCTIONS |
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YEAR |
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Accounts Receivable Reserves: |
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Allowance for Doubtful Accounts |
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2011 |
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$ |
34 |
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$ |
117 |
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$ |
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$ |
114 |
(a) |
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$ |
37 |
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2010 |
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43 |
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75 |
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84 |
(a) |
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34 |
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2009 |
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27 |
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116 |
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100 |
(a) |
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43 |
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Allowance for Revenue
Adjustments |
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2011 |
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$ |
37 |
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$ |
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$ |
367 |
(b) |
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$ |
358 |
(c) |
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$ |
46 |
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2010 |
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37 |
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291 |
(b) |
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291 |
(c) |
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37 |
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2009 |
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42 |
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311 |
(b) |
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316 |
(c) |
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37 |
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Inventory Valuation
Allowance: |
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2011 |
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$ |
170 |
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$ |
12 |
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$ |
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$ |
13 |
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$ |
169 |
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2010 |
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175 |
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12 |
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17 |
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170 |
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2009 |
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163 |
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15 |
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3 |
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175 |
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(a) |
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Uncollectible accounts written off, net of recoveries. |
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(b) |
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Principally charged against revenue. |
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(c) |
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Service failures, rebills and other. |
-64-
FEDERAL EXPRESS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
(IN MILLIONS, EXCEPT RATIOS)
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Year Ended May 31, |
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2011 |
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2010 |
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2009 |
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2008 |
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2007 |
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Earnings: |
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Income before income taxes |
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$ |
1,140 |
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$ |
1,059 |
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$ |
732 |
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$ |
1,846 |
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$ |
1,984 |
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Add back: |
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Interest expense, net of capitalized interest |
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4 |
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19 |
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40 |
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Portion of rent expense representative of
interest factor |
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611 |
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572 |
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576 |
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587 |
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580 |
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Earnings as adjusted |
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$ |
1,751 |
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$ |
1,631 |
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$ |
1,312 |
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$ |
2,452 |
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$ |
2,604 |
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Fixed Charges: |
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Interest expense, net of capitalized interest |
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$ |
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$ |
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$ |
4 |
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$ |
19 |
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$ |
40 |
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Capitalized interest |
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|
61 |
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65 |
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58 |
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46 |
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32 |
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Portion of rent expense representative of
interest factor |
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|
611 |
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572 |
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576 |
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587 |
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|
580 |
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$ |
672 |
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$ |
637 |
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$ |
638 |
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$ |
652 |
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$ |
652 |
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Ratio of Earnings to Fixed Charges |
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2.6 |
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2.6 |
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2.1 |
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3.8 |
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4.0 |
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-65-
EXHIBIT INDEX
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Exhibit |
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Number |
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Description of Exhibit |
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Certificate of Incorporation and Bylaws |
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3.1 |
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Restated Certificate of Incorporation of FedEx Express, as amended. (Filed as
Exhibit 3.1 to FedEx Expresss FY98 Third Quarter Report on Form 10-Q, and
incorporated herein by reference.) |
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3.2 |
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By-laws of FedEx Express. (Filed as Exhibit 3.2 to FedEx Expresss FY93 Annual
Report on Form 10-K, and incorporated herein by reference.) |
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Facility Lease Agreements |
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10.1 |
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Composite Lease Agreement dated May 21, 2007 (but effective as of January 1, 2007)
between the Memphis-Shelby County Airport Authority (the Authority) and FedEx
Express. (Filed as Exhibit 10.1 to FedExs FY07 Annual Report on Form 10-K, and
incorporated herein by reference.) |
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10.2 |
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First Amendment dated December 29, 2009 (but effective as of September 1, 2008) to
the Composite Lease Agreement dated May 21, 2007 (but effective as of January 1,
2007) between the Authority and FedEx Express. (Filed as Exhibit 10.1 to FedExs
FY10 Third Quarter Report on Form 10-Q, and incorporated herein by reference.) |
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10.3 |
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Second Amendment dated March 30, 2010 (but effective as of June 1, 2009) and Third
Amendment dated April 27, 2010 (but effective as of July 1, 2009), each amending
the Composite Lease Agreement dated May 21, 2007 (but effective as of January 1,
2007) between the Authority and FedEx Express. (Filed as Exhibit 10.3 to FedExs
FY10 Annual Report on Form 10-K, and incorporated herein by reference.) |
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10.4 |
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Special Facility Lease Agreement dated as of August 1, 1979 between the Authority
and FedEx Express. (Filed as Exhibit 10.15 to FedEx Expresss FY90 Annual Report
on Form 10-K, and incorporated herein by reference.) |
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10.5 |
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First Special Facility Supplemental Lease Agreement dated as of May 1, 1982 between
the Authority and FedEx Express. (Filed as Exhibit 10.25 to FedEx Expresss FY93
Annual Report on Form 10-K, and incorporated herein by reference.) |
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10.6 |
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Second Special Facility Supplemental Lease Agreement dated as of November 1, 1982
between the Authority and FedEx Express. (Filed as Exhibit 10.26 to FedEx
Expresss FY93 Annual Report on Form 10-K, and incorporated herein by reference.) |
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10.7 |
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|
Third Special Facility Supplemental Lease Agreement dated as of December 1, 1984
between the Authority and FedEx Express. (Filed as Exhibit 10.25 to FedEx
Expresss FY95 Annual Report on Form 10-K, and incorporated herein by reference.) |
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10.8 |
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|
Fourth Special Facility Supplemental Lease Agreement dated as of July 1, 1992
between the Authority and FedEx Express. (Filed as Exhibit 10.20 to FedEx
Expresss FY92 Annual Report on Form 10-K, and incorporated herein by reference.) |
E-1
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Exhibit |
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Number |
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Description of Exhibit |
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10.9 |
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|
Fifth Special Facility Supplemental Lease Agreement dated as of July 1, 1997
between the Authority and FedEx Express. (Filed as Exhibit 10.35 to FedEx
Expresss FY97 Annual Report on Form 10-K, and incorporated herein by reference.) |
|
|
|
|
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|
10.10 |
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|
Sixth Special Facility Supplemental Lease Agreement dated as of December 1, 2001
between the Authority and FedEx Express. (Filed as Exhibit 10.28 to FedExs FY02
Annual Report on Form 10-K, and incorporated herein by reference.) |
|
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|
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10.11 |
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|
Seventh Special Facility Supplemental Lease Agreement dated as of June 1, 2002
between the Authority and FedEx Express. (Filed as Exhibit 10.3 to FedExs FY03
First Quarter Report on Form 10-Q, and incorporated herein by reference.) |
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10.12 |
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Special Facility Lease Agreement dated as of July 1, 1993 between the Authority and
FedEx Express. (Filed as Exhibit 10.29 to FedEx Expresss FY93 Annual Report on
Form 10-K, and incorporated herein by reference.) |
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10.13 |
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|
Special Facility Ground Lease Agreement dated as of July 1, 1993 between the
Authority and FedEx Express. (Filed as Exhibit 10.30 to FedEx Expresss FY93
Annual Report on Form 10-K, and incorporated herein by reference.) |
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10.14 |
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|
First Amendment dated December 29, 2009 (but effective as of September 1, 2008) to
the Special Facility Ground Lease Agreement dated as of July 1, 1993 between the
Authority and FedEx Express. (Filed as Exhibit 10.2 to FedExs FY10 Third Quarter
Report on Form 10-Q, and incorporated herein by reference.) |
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|
|
Aircraft-Related Agreement |
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10.15 |
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|
Boeing 777 Freighter Purchase Agreement dated as of November 7, 2006 between The
Boeing Company and FedEx Express. Confidential treatment has been granted for
confidential commercial and financial information, pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.1 to FedExs
FY07 Second Quarter Report on Form 10-Q, and incorporated herein by reference.) |
|
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10.16 |
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|
Supplemental Agreement No. 1 dated as of June 16, 2008 to the Boeing 777 Freighter
Purchase Agreement dated as of November 7, 2006 between The Boeing Company and
FedEx Express. (Filed as Exhibit 10.13 to FedExs FY08 Annual Report on Form 10-K,
and incorporated herein by reference.) |
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10.17 |
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|
Supplemental Agreement No. 2 dated as of July 14, 2008 to the Boeing 777 Freighter
Purchase Agreement dated as of November 7, 2006 between The Boeing Company and
FedEx Express. (Filed as Exhibit 10.3 to FedExs FY09 Second Quarter Report on
Form 10-Q, and incorporated herein by reference.) |
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10.18 |
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|
Supplemental Agreement No. 3 dated as of December 15, 2008 (and related side
letters) to the Boeing 777 Freighter Purchase Agreement dated as of November 7,
2006 between The Boeing Company and FedEx Express. Confidential treatment has been
granted for confidential commercial and financial information, pursuant to Rule
24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit
10.4 to FedExs FY09 Second Quarter Report on Form 10-Q, and incorporated herein by
reference.) |
E-2
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Exhibit |
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Number |
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Description of Exhibit |
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10.19 |
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|
Supplemental Agreement No. 4 dated as of January 9, 2009 (and related side letters)
to the Boeing 777 Freighter Purchase Agreement dated as of November 7, 2006 between
The Boeing Company and FedEx Express. Confidential treatment has been granted for
confidential commercial and financial information, pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.1 to FedExs
FY09 Third Quarter Report on Form 10-Q, and incorporated herein by reference.) |
|
|
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|
|
|
10.20 |
|
|
Side letters dated May 29, 2009 and May 19, 2009, amending the Boeing 777 Freighter
Purchase Agreement dated as of November 7, 2006 between The Boeing Company 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. (Filed as Exhibit 10.17 to FedExs FY09 Annual
Report on Form 10-K, and incorporated herein by reference.) |
|
|
|
|
|
|
10.21 |
|
|
Supplemental Agreement No. 5 dated as of January 11, 2010 to the Boeing 777
Freighter Purchase Agreement dated as of November 7, 2006 between The Boeing
Company and FedEx Express. Confidential treatment has been granted for
confidential commercial and financial information, pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.3 to FedExs
FY10 Third Quarter Report on Form 10-Q, and incorporated herein by reference.) |
|
|
|
|
|
|
10.22 |
|
|
Supplemental Agreement No. 6 dated as of March 17, 2010, Supplemental Agreement No.
7 dated as of March 17, 2010, and Supplemental Agreement No. 8 (and related side
letters) dated as of April 30, 2010, each amending the Boeing Company 777 Freighter
Purchase Agreement dated as November 7, 2006 between The Boeing Company 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. (Filed as Exhibit 10.22 to FedExs FY10 Annual Report on Form
10-K, and incorporated herein by reference.) |
|
|
|
|
|
|
10.23 |
|
|
Supplemental Agreement No. 9 dated as of June 18, 2010, Supplemental Agreement No.
10 dated as of June 18, 2010, Supplemental Agreement No. 11 (and related side
letter) dated as of August 19, 2010, and Supplemental Agreement No. 13 (and related
side letter) dated as of August 27, 2010, each amending the Boeing 777 Freighter
Purchase Agreement dated as of November 7, 2006 between The Boeing Company and
FedEx Express. Confidential treatment has been granted for confidential commercial
and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act
of 1934, as amended. (Filed as Exhibit 10.1 to FedExs FY11 First Quarter Report
on Form 10-Q, and incorporated herein by reference.) |
|
|
|
|
|
|
10.24 |
|
|
Supplemental Agreement No. 12 (and related side letter) dated as of September 3,
2010, Supplemental Agreement No. 14 (and related side letter) dated as of October
25, 2010, and Supplemental Agreement No. 15 (and related side letter) dated as of
October 29, 2010, each amending the Boeing 777 Freighter Purchase Agreement dated
as of November 7, 2006 between The Boeing Company and FedEx Express. Confidential
treatment has been granted for confidential commercial and financial information,
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
(Filed as Exhibit 10.2 to FedExs FY11 Second Quarter Report on Form 10-Q, and
incorporated herein by reference.) |
E-3
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
|
|
|
10.25 |
|
|
Supplemental Agreement No. 16 (and related side letters) dated as of January 31,
2011, and Supplemental Agreement No. 17 dated as of February 14, 2011, each
amending the Boeing 777 Freighter Purchase Agreement dated as of November 7, 2006
between The Boeing Company and FedEx Express. Confidential treatment has been
granted for confidential commercial and financial information, pursuant to Rule
24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit
10.1 to FedExs FY11 Third Quarter Report on Form 10-Q, and incorporated herein by
reference.) |
|
|
|
|
|
|
10.26 |
|
|
Supplemental Agreement No. 18 (and related side letter) dated as of March 30, 2011
to the Boeing 777 Freighter Purchase Agreement dated as of November 7, 2006 between
The Boeing Company 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. (Filed as Exhibit 10.26 to
FedExs FY11 Annual Report on Form 10-K, and incorporated herein by reference.) |
|
|
|
|
|
|
|
|
|
U.S. Postal Service Agreement |
|
|
|
|
|
|
10.27 |
|
|
Transportation Agreement dated July 31, 2006 between the United States Postal
Service and FedEx Express. Confidential treatment has been granted for
confidential commercial and financial information, pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.2 to FedExs
FY07 First Quarter Report on Form 10-Q, and incorporated herein by reference.) |
|
|
|
|
|
|
10.28 |
|
|
Amendment dated November 30, 2006 to the Transportation Agreement dated July 31,
2006 between the United States Postal Service and FedEx Express. Confidential
treatment has been granted for confidential commercial and financial information,
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
(Filed as Exhibit 10.2 to FedExs FY07 Second Quarter Report on Form 10-Q, and
incorporated herein by reference.) |
|
|
|
|
|
|
10.29 |
|
|
Letter Agreement dated March 8, 2007 and Letter Agreement dated May 14, 2007, each
amending the Transportation Agreement dated July 31, 2006 between the
United States Postal Service and FedEx Express. Confidential treatment has been
granted for confidential commercial and financial information, pursuant to Rule
24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit
10.15 to FedExs FY07 Annual Report on Form 10-K, and incorporated herein by
reference.) |
|
|
|
|
|
|
10.30 |
|
|
Amendment dated June 20, 2007 and Amendment dated July 31, 2007, each amending the
Transportation Agreement dated July 31, 2006 between the United States
Postal Service and FedEx Express. Confidential treatment has been granted for
confidential commercial and financial information, pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.1 to FedExs
FY08 First Quarter Report on Form 10-Q, and incorporated herein by reference.) |
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10.31 |
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Amendment dated December 4, 2007 to the Transportation Agreement dated July 31,
2006 between the United States Postal Service and FedEx Express.
Confidential treatment has been granted for confidential commercial and financial
information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended. (Filed as Exhibit 10.1 to FedExs FY08 Third Quarter Report on Form 10-Q,
and incorporated herein by reference.) |
E-4
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Exhibit |
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Number |
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Description of Exhibit |
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10.32 |
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Letter Agreement dated October 23, 2008 and Amendment dated October 23, 2008, each
amending the Transportation Agreement dated July 31, 2006 between the United States
Postal Service and FedEx Express. Confidential treatment has been granted for
confidential commercial and financial information, pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.1 to FedExs
FY09 Second Quarter Report on Form 10-Q, and incorporated herein by reference.) |
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10.33 |
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Letter Agreement dated March 4, 2009, amending the Transportation Agreement dated
July 31, 2006 between the United States Postal Service and FedEx Express. (Filed
as Exhibit 10.24 to FedExs FY09 Annual Report on Form 10-K, and incorporated
herein by reference.) |
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10.34 |
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Letter Agreement dated September 29, 2009, amending the Transportation Agreement
dated July 31, 2006 between the United States Postal Service and FedEx Express.
Confidential treatment has been granted for confidential commercial and financial
information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended. (Filed as Exhibit 10.1 to FedExs FY10 Second Quarter Report on Form
10-Q, and incorporated herein by reference.) |
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10.35 |
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Amendment dated December 8, 2009 to the Transportation Agreement dated July 31, 2006
between the United States Postal Services and FedEx Express. Confidential
treatment has been granted for confidential commercial and financial information,
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
(Filed as Exhibit 10.4 to FedExs FY10 Third Quarter Report on Form 10-Q, and
incorporated herein by reference.) |
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10.36 |
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Letter Agreement dated August 30, 2010, amending the Transportation Agreement dated
July 31, 2006 between the United States Postal Service and FedEx Express.
Confidential treatment has been granted for confidential commercial and financial
information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended. (Filed as Exhibit 10.2 to FedExs FY11 First Quarter Report on Form 10-Q,
and incorporated herein by reference.) |
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10.37 |
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Amendment dated November 22, 2010 to the Transportation Agreement dated July 31,
2006 between the United States Postal Service and FedEx Express. Confidential
treatment has been granted for confidential commercial and financial information,
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
(Filed as Exhibit 10.3 to FedExs FY11 Second Quarter Report on Form 10-Q, and
incorporated herein by reference.) |
E-5
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Exhibit |
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Number |
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Description of Exhibit |
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Financing Agreement |
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10.38 |
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Five-Year Credit Agreement dated as of April 26, 2011 among FedEx,
JPMorgan Chase Bank, N.A., individually and as administrative agent,
and certain lenders. (Filed as Exhibit 99.1 to FedExs Current
Report on Form 8-K dated April 26, 2011, and incorporated herein by
reference.) |
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FedEx Express is not filing any other instruments evidencing any
indebtedness because the total amount of securities authorized under
any single such instrument does not exceed 10% of the total assets
of FedEx Express and its subsidiaries on a consolidated basis.
Copies of such instruments will be furnished to the Securities and
Exchange Commission upon request. |
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Other Exhibits |
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*12 |
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Statement re Computation of Ratio of Earnings to Fixed Charges (presented
on page 65 of this Annual Report on Form 10-K). |
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*23 |
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Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. |
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*24 |
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Powers of Attorney. |
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*31.1 |
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Certification of Principal Executive Officer Pursuant to Rules 13a-14(a)
and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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*31.2 |
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Certification of Principal Financial Officer Pursuant to Rules 13a-14(a)
and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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*32.1 |
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Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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*32.2 |
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Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
E-6