-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QQzKoWOOqvf8ewdIb5/8aL6M7eKghWcdiaD7caXU+jlsNzCPc7by56e6y9lnDhPX TWEF5vSzonSjS5vSeWpuHw== 0000912057-00-001304.txt : 20000202 0000912057-00-001304.hdr.sgml : 20000202 ACCESSION NUMBER: 0000912057-00-001304 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991130 FILED AS OF DATE: 20000114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FDX CORP CENTRAL INDEX KEY: 0001048911 STANDARD INDUSTRIAL CLASSIFICATION: AIR COURIER SERVICES [4513] IRS NUMBER: 621721435 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-39483 FILM NUMBER: 507509 BUSINESS ADDRESS: STREET 1: 942 SOUTH SHADY GROVE ROAD CITY: MEMPHIS STATE: TN ZIP: 38120- BUSINESS PHONE: 9013693600 MAIL ADDRESS: STREET 1: 6075 POPLAR AVENUE CITY: MEMPHIS STATE: TN ZIP: 38119 10-Q 1 FORM 10-Q - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED NOVEMBER 30, 1999, OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________. COMMISSION FILE NUMBER: 333-39483 FDX CORPORATION (Exact name of registrant as specified in its charter) Delaware 62-1721435 (State of incorporation) (I.R.S. Employer Identification No.) 942 South Shady Grove Road Memphis, Tennessee 38120 (Address of principal (Zip Code) executive offices) (901) 818-7200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock Outstanding Shares at December 31, 1999 Common Stock, par value $.10 per share 289,956,501 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ FDX CORPORATION INDEX PART I. FINANCIAL INFORMATION
PAGE Condensed Consolidated Balance Sheets November 30, 1999 and May 31, 1999.............................. 3-4 Condensed Consolidated Statements of Income Three and Six Months Ended November 30, 1999 and 1998........... 5 Condensed Consolidated Statements of Cash Flows Six Months Ended November 30, 1999 and 1998..................... 6 Notes to Condensed Consolidated Financial Statements................. 7-12 Review of Condensed Consolidated Financial Statements by Independent Public Accountants............................... 13 Report of Independent Public Accountants............................. 14 Management's Discussion and Analysis of Results of Operations and Financial Condition......................................... 15-22 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................... 23 Item 6. Exhibits and Reports on Form 8-K............................ 23 EXHIBIT INDEX........................................................ E-1
- 2 - FDX CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS - ------
November 30, 1999 May 31, (Unaudited) 1999 ------------ ----------- (In thousands) Current Assets: Cash and cash equivalents......................................$ 517,893 $ 325,323 Receivables, less allowances of $80,327,000 and $68,305,000.................................. 2,378,934 2,153,166 Spare parts, supplies and fuel................................. 277,559 291,922 Deferred income taxes.......................................... 322,129 290,721 Prepaid expenses and other..................................... 72,949 79,896 ----------- ----------- Total current assets....................................... 3,569,464 3,141,028 Property and Equipment, at Cost..................................... 14,478,808 13,719,907 Less accumulated depreciation and amortization................. 7,609,418 7,160,690 ----------- ----------- Net property and equipment................................. 6,869,390 6,559,217 Other Assets: Goodwill....................................................... 439,575 344,002 Other.......................................................... 659,798 603,964 ----------- ----------- Total other assets......................................... 1,099,373 947,966 ----------- ----------- $11,538,227 $10,648,211 =========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements. - 3 - FDX CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' INVESTMENT - ----------------------------------------
November 30, 1999 May 31, (Unaudited) 1999 ----------- ----------- (In thousands) Current Liabilities: Short-term borrowings...............................................$ 200,000 $ - Current portion of long-term debt................................... 7,576 14,938 Accrued salaries and employee benefits.............................. 698,315 740,492 Accounts payable.................................................... 1,119,505 1,133,952 Accrued expenses.................................................... 973,858 895,375 ----------- ----------- Total current liabilities....................................... 2,999,254 2,784,757 Long-Term Debt, Less Current Portion..................................... 1,849,989 1,359,668 Deferred Income Taxes.................................................... 299,702 293,462 Other Liabilities........................................................ 1,748,896 1,546,632 Commitments and Contingencies (Notes 7 and 8) Common Stockholders' Investment: Common Stock, $.10 par value; 800,000,000 shares authorized, 298,573,887 and 297,987,200 issued.......................................... 29,857 29,799 Additional paid-in capital.......................................... 1,065,446 1,061,312 Retained earnings .................................................. 3,945,348 3,615,797 Treasury stock, at cost............................................. (352,726) (1,281) Deferred compensation and other..................................... (24,487) (17,247) Accumulated other comprehensive income.............................. (23,052) (24,688) ----------- ----------- Total common stockholders' investment........................... 4,640,386 4,663,692 ----------- ----------- $11,538,227 $10,648,211 =========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements. - 4 - FDX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended November 30, November 30, -------------------------- ---------------------------- 1999 1998 1999 1998 ----------- ---------- ----------- ---------- (In thousands, except per share amounts) Revenues ........................................ $4,570,104 $4,209,237 $8,890,081 $8,291,539 Operating Expenses: Salaries and employee benefits ............. 1,873,804 1,756,999 3,704,637 3,505,115 Purchased transportation.................... 437,409 397,142 827,717 768,363 Rentals and landing fees.................... 393,512 347,717 760,219 679,228 Depreciation and amortization............... 285,360 252,196 562,622 502,373 Maintenance and repairs..................... 278,092 236,367 533,361 484,077 Fuel ....................................... 225,101 153,710 409,561 303,141 Other....................................... 772,291 728,119 1,503,622 1,428,412 ---------- ---------- ---------- ---------- 4,265,569 3,872,250 8,301,739 7,670,709 ---------- ---------- ---------- ---------- Operating Income................................. 304,535 336,987 588,342 620,830 Other Income (Expense): Interest, net............................... (26,589) (24,853) (47,197) (50,087) Other, net.................................. 4,982 270 4,663 (2,991) ---------- ---------- ---------- ---------- (21,607) (24,583) (42,534) (53,078) ---------- ---------- ---------- ---------- Income Before Income Taxes....................... 282,928 312,404 545,808 567,752 Provision for Income Taxes....................... 111,745 129,648 215,591 235,617 ---------- ---------- ---------- ---------- Net Income....................................... $ 171,183 $ 182,756 $ 330,217 $ 332,135 ========== ========== ========== ========== Earnings per common share: Basic....................................... $ .58 $ .62 $ 1.12 $ 1.13 ========== ========== ========== ========== Assuming dilution........................... $ .57 $ .61 $ 1.10 $ 1.11 ========== ========== ========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements. - 5 - FDX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended November 30, ---------------------- 1999 1998 --------- --------- (In thousands) Net Cash Provided by Operating Activities.......................... $ 676,454 $ 887,115 Investing Activities: Purchases of property and equipment........................... (838,586) (964,163) Proceeds from disposition of property and equipment: Sale-leaseback transactions............................... - 80,995 Reimbursements of A300 and MD11 deposits.................. 24,377 25,130 Other dispositions........................................ 142,979 154,087 Acquisition of business....................................... (115,768) - Other, net.................................................... (13,848) (692) --------- --------- Net cash used in investing activities.............................. (800,846) (704,643) Financing Activities: Short-term borrowings, net.................................... 200,000 422,512 Proceeds from debt issuances.................................. 497,120 - Principal payments on debt.................................... (12,564) (167,690) Proceeds from stock issuances................................. 12,662 5,753 Purchase of treasury stock.................................... (369,508) - Other, net.................................................... (10,748) (8,169) --------- --------- Net cash provided by financing activities.......................... 316,962 252,406 --------- --------- Net increase in cash and cash equivalents.......................... 192,570 434,878 Cash and cash equivalents at beginning of period................... 325,323 229,565 --------- --------- Cash and cash equivalents at end of period......................... $ 517,893 $ 664,443 ========= ========= Cash payments for: Interest (net of capitalized interest)........................ $ 51,251 $ 56,798 ========= ========= Income taxes.................................................. $ 210,859 $ 202,257 ========= ========= Non-cash investing and financing activities: Fair value of assets surrendered under exchange agreements (with two airlines)..................... $ 19,450 $ 26,006 Fair value of assets acquired under exchange agreements......................................... 18,903 14,300 --------- --------- Fair value of assets surrendered in excess of assets acquired................................... $ 547 $ 11,706 ========= =========
See accompanying Notes to Condensed Consolidated Financial Statements. - 6 - FDX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These interim financial statements of FDX Corporation (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X, and should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended May 31, 1999. Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed therein. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly the consolidated financial position of the Company as of November 30, 1999 and the consolidated results of its operations for the three and six-month periods ended November 30, 1999 and 1998, and its consolidated cash flows for the six-month periods ended November 30, 1999 and 1998. Operating results for the three and six-month periods ended November 30, 1999 are not necessarily indicative of the results that may be expected for the year ending May 31, 2000. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, which is effective for fiscal years beginning after June 15, 2000. The Statement requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet and to measure those instruments at fair value. The impact, if any, on earnings, comprehensive income and financial position of the adoption of SFAS No. 133 will depend on the amount, timing and nature of any agreements entered into by the Company. Management has not yet completed its estimate of the effect of adoption of this Statement. The Company has entered into contracts on behalf of its subsidiary Federal Express Corporation ("FedEx"), that are designed to limit FedEx's exposure to fluctuations in jet fuel prices. Under these contracts, the Company makes (or receives) payments based on the difference between a fixed price and the market price of jet fuel, as determined by an index of spot market prices representing various geographic regions. The difference is recorded as an increase or decrease in fuel expenses. As of early January 2000, contracts in place to fix the price of jet fuel cover a small percentage of the estimated gallons of usage for the third quarter of 2000 and approximately 40 percent of the estimated usage for the fourth quarter of 2000. Through early January 2000, contracts covering 2001 fix the price of approximately one-third of the estimated requirements for jet fuel. Certain prior period amounts have been reclassified to conform to the current presentation. (2) ACQUISITION On September 10, 1999, the Company's FDX Logistics subsidiary acquired the assets of GeoLogistics Air Services, Inc., an airfreight forwarder servicing freight shipments between the United States and Puerto Rico, for approximately $116,000,000 in cash in a business combination accounted for as a purchase. This - 7 - FDX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (2) ACQUISITION (CONTINUED) business is operating under the name Caribbean Transportation Services, Inc. ("CTS"). Its operating results are included in the operations of the Company from the date of acquisition. The excess of purchase price over the estimated fair value of the net assets acquired ($103,000,000) has been recorded as goodwill and is being amortized ratably over 15 years. Pro forma results would not differ materially from reported results in any of the periods presented. (3) COMPREHENSIVE INCOME The following table provides a reconciliation of net income reported in the Company's consolidated financial statements to comprehensive income (in thousands):
Three Months Ended Six Months Ended November 30, November 30, ------------------------ ----------------------- 1999 1998 1999 1998 -------- -------- --------- -------- Net income....................................... $171,183 $182,756 $330,217 $332,135 Other comprehensive income: Unrealized gain (loss) on available-for-sale securities ............... 969 -- (3,062) -- Tax effect.................................... (378) -- 1,194 -- -------- -------- -------- -------- Net of tax.................................. 591 -- (1,868) -- Foreign currency translation adjustments................................. 2,912 20,583 4,236 3,762 Tax effect.................................... (577) (3,284) (732) 92 -------- -------- ------- -------- Net of tax.................................. 2,335 17,299 3,504 3,854 -------- -------- ------- -------- Comprehensive income.......................... $174,109 $200,055 $331,853 $335,989 ======== ======== ======== ========
(4) FINANCING ARRANGEMENTS At November 30, 1999, short-term borrowings comprise funds drawn on a credit agreement executed on October 13, 1999. The interest rate on these borrowings is 7.21%. Principal and interest are payable on January 28, 2000, at which time the facility will be terminated. During the second quarter, the Company issued $500,000,000 of commercial paper which was outstanding at November 30, 1999. Interest rates on these borrowings approximate 6.6%. The commercial paper is reflected in Long-Term Debt based on the Company's ability and intent to refinance this instrument with long-term debt. The Company has a $1,000,000,000 revolving credit agreement with domestic and foreign banks. The revolving credit agreement comprises two parts. The first part provides for a commitment of $800,000,000 through January 27, 2003. The second part provides for a 364-day commitment of $200,000,000. This portion of the agreement, originally set to expire on January 14, 2000, was amended October 15, 1999 to expire October 13, 2000. Interest rates on borrowings under this agreement are generally determined by maturities selected and prevailing market conditions. Commercial paper borrowings, which are backed by unused - 8 - FDX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (4) FINANCING ARRANGEMENTS (CONTINUED) commitments under this revolving credit agreement, and the short-term borrowings under the credit agreement described above reduce the amount available under the revolving credit agreement. At November 30, 1999, $300,000,000 of the commitment amount was available. (5) COMPUTATION OF EARNINGS PER SHARE The calculation of basic and diluted earnings per share for the three and six-month periods ended November 30, 1999 and 1998 was as follows (in thousands, except per share amounts):
Three Months Ended Six Months Ended November 30, November 30, ------------------------ ---------------------- 1999 1998 1999 1998 --------- --------- -------- --------- Net income applicable to common stockholders.................................. $171,183 $182,756 $330,217 $332,135 ======== ======== ======== ======== Average shares of common stock outstanding................................... 293,415 295,107 295,793 294,987 ======== ======== ======== ======== Basic earnings per share......................... $ .58 $ .62 $ 1.12 $ 1.13 ======== ======== ======== ======== Average shares of common stock outstanding................................... 293,415 295,107 295,793 294,987 Common equivalent shares: Assumed exercise of outstanding dilutive options............................. 12,906 10,749 13,056 11,733 Less shares repurchased from proceeds of assumed exercise of options................................... (8,240) (8,004) (7,888) (8,423) -------- -------- -------- -------- Average common and common equivalent shares............................. 298,081 297,852 300,961 298,297 ======== ======== ======== ======== Earnings per share, assuming dilution............................. $ .57 $ .61 $ 1.10 $ 1.11 ======== ======== ======== ========
In September 1999, the Company's Board of Directors approved a plan that authorized the purchase of up to 15,000,000, or approximately five percent, of the Company's outstanding shares of common stock. As of November 30, 1999, the Company had acquired 8,856,500 shares under the plan at an average cost of $40.56 per share and reissued 181,184 of these shares to fund employee benefits. The remaining shares (8,675,316) are being held in treasury for general corporate purposes. - 9 - FDX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (6) BUSINESS SEGMENT INFORMATION FDX is a global transportation and logistics provider whose operations are primarily represented by FedEx, the world's largest express transportation company, and RPS, a business-to-business ground small-package carrier. These operating companies comprise the Company's reportable segments. Other operating companies included in the FDX portfolio are Viking Freight, Inc., a less-than-truckload carrier operating principally in the western United States; Roberts Express, Inc., a critical-shipment carrier; and FDX Logistics, Inc., a contract logistics provider. Amounts included in Other in the following table also include certain unallocated corporate items. The following table provides a reconciliation of reportable segment revenues and operating income to the Company's consolidated financial statement totals (in thousands):
Three Months Ended Six Months Ended November 30, November 30, ------------------------------- ---------------------- 1999 1998 1999 1998 --------- ---------- ---------- ---------- Revenue FedEx.................................... $3,736,027 $3,482,236 $7,322,833 $6,899,419 RPS...................................... 521,062 480,836 996,958 921,417 Other.................................... 313,015 246,165 570,290 470,703 ---------- ---------- ---------- ---------- $4,570,104 $4,209,237 $8,890,081 $8,291,539 ========== ========== ========== ========== Operating income FedEx.................................... $ 211,216 $ 250,939 $ 420,159 $ 470,011 RPS...................................... 65,637 61,236 116,150 109,819 Other.................................... 27,682 24,812 52,033 41,000 ---------- ---------- ---------- --------- $ 304,535 $ 336,987 $ 588,342 $ 620,830 ========== ========== ========== ==========
(7) COMMITMENTS As of November 30, 1999, the Company's purchase commitments for the remainder of 2000 and annually thereafter under various contracts are as follows (in thousands):
Aircraft- Aircraft Related(1) Other(2) Total -------- ---------- ---------- -------- 2000 (remainder) $ 11,500 $158,500 $309,000 $479,000 2001 245,800 324,200 97,500 667,500 2002 242,800 337,500 11,400 591,700 2003 439,600 461,300 7,600 908,500 2004 235,200 188,500 7,600 431,300
(1) Primarily aircraft modifications, rotables, spare parts and spare engines. (2) Primarily vehicles, facilities, computers and other equipment. FedEx is committed to purchase three DC10s, 30 MD11s and 75 Ayres ALM 200s to be delivered through 2007. Deposits and progress payments of $5,717,000 have been made toward these purchases. FedEx has entered into agreements with two airlines to acquire 53 DC10 aircraft (44 of which had been received as of November 30, 1999), spare parts, aircraft engines and other equipment, and maintenance services in exchange for a combination of aircraft engine noise reduction kits and cash. Delivery of these aircraft began in 1997 and will continue through 2001. Additionally, these - 10 - FDX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (7) COMMITMENTS (CONTINUED) airlines may exercise put options through December 31, 2003, requiring FedEx to purchase up to 22 additional DC10s along with additional aircraft engines and equipment. During the six-month period ended November 30, 1999, FedEx acquired five A300s and one MD11 under operating leases. These aircraft were included as purchase commitments as of May 31, 1999. At the time of delivery, FedEx sold its rights to purchase these aircraft to third parties who reimbursed FedEx for its deposits on the aircraft and paid additional consideration. FedEx then entered into operating leases with each of the third parties who purchased the aircraft from the manufacturer. Lease commitments added since May 31, 1999 for the five A300s and one MD11 are as follows (in thousands): 2000 $ 17,700 2001 33,800 2002 32,500 2003 32,900 2004 34,600 Thereafter 740,400
(8) LEGAL PROCEEDINGS There were two separate class-action lawsuits against FedEx generally alleging that FedEx breached its contract with the plaintiffs in transporting packages shipped by them. These lawsuits alleged that FedEx continued to collect a 6.25% federal excise tax on the transportation of property shipped by air after the excise tax expired on December 31, 1995, until it was reinstated in August of 1996. The plaintiffs sought certification as a class action, damages, an injunction to enjoin FedEx from continuing to collect the excise tax referred to above, and an award of attorneys' fees and costs. One case was filed in Circuit Court of Greene County, Alabama. On October 6, 1999, the Greene County Circuit Court dismissed all claims against FedEx by entering summary judgment. Time for appeal has expired and this decision is final. The other case, which was filed in the Supreme Court of New York, New York County, and contained allegations and requests for relief substantially similar to the Alabama case, was dismissed with prejudice on FedEx's motion on October 7, 1997. The court found that there was no breach of contract and that the other causes of action were preempted by federal law. The plaintiffs appealed the dismissal. This case originally alleged that FedEx continued to collect the excise tax on the transportation of property shipped by air after the tax expired on December 31, 1996. The New York complaint was later amended to cover the first expiration period of the tax (December 31, 1995 through August 27, 1996) covered in the original Alabama complaint. The dismissal was affirmed by the appellate court on March 2, 1999. On December 20, 1999, the highest appellate court in New York denied the plaintiffs' request to appeal the dismissal of the excise tax class action. The plaintiffs may ask for re-argument within thirty days, but the Company believes it is very unlikely any such request would be granted. The air transportation excise tax expired on December 31, 1995, was reenacted by Congress effective August 27, 1996, and expired again on December 31, 1996. The excise tax was then reenacted by Congress effective March 7, 1997. The expiration of the tax relieved FedEx of its obligation to pay the tax during the periods of expiration. The Taxpayer Relief Act of 1997, signed by President Clinton in August 1997, extended the tax for ten years through September 30, 2007. - 11 - FDX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (8) LEGAL PROCEEDINGS (CONTINUED) In the opinion of management, the aggregate liability, if any, with respect to the above mentioned suits and any other claims arising in the normal course of business will not materially adversely affect the financial position or results of operations of the Company. - 12 - REVIEW OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS BY INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP, independent public accountants, has performed a review of the condensed consolidated balance sheet of the Company as of November 30, 1999, and the related condensed consolidated statements of income for the three and six-month periods ended November 30, 1999 and 1998 and the condensed consolidated statements of cash flows for the six-month periods ended November 30, 1999 and 1998, included herein, as indicated in their report thereon included on page 14. - 13 - REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of FDX Corporation: We have reviewed the accompanying condensed consolidated balance sheet of FDX Corporation and subsidiaries as of November 30, 1999 and the related condensed consolidated statements of income for the three and six-month periods ended November 30, 1999 and 1998 and the condensed consolidated statements of cash flows for the six-month periods ended November 30, 1999 and 1998. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of FDX Corporation and subsidiaries as of May 31, 1999 and the related consolidated statements of income, changes in stockholders' investment and comprehensive income and cash flows for the year then ended. In our report dated June 29, 1999, we expressed an unqualified opinion on those financial statements, which are not presented herein. In our opinion, the accompanying condensed consolidated balance sheet of FDX Corporation and subsidiaries as of May 31, 1999, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. /s/ Arthur Andersen LLP ----------------------- Arthur Andersen LLP Memphis, Tennessee December 15, 1999 - 14 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Consolidated results Operating results for the second quarter ended November 30, 1999 continue to reflect higher fuel prices and lower than expected volume growth in U.S. domestic markets at Federal Express Corporation ("FedEx"), the Company's largest business segment. Strong package volume growth in certain international markets contributed positively to earnings for the second quarter and year-to-date periods. Higher fuel costs and recent trends in domestic and international package volume growth are expected to continue for the remainder of 2000. Cost controls to restrain short-term spending combined with productivity enhancements have been implemented in light of lower volume growth. Also, the FedEx sales force is being realigned to include a greater emphasis on small and medium-sized customers and to target growth in higher-yielding packages. Management believes these changes in tandem with other actions currently under consideration will improve the long-term growth of the Company's share of the express package market, which has eroded slightly in the current fiscal year. Certain capital spending projects are also being delayed; however, the Company plans to continue to make strategic capital investments in support of its long-term growth goals. Increased fuel prices negatively affected second quarter operating income by $55 million and year-to-date operating income by $82 million compared to the comparable periods in the prior year. In order to offset most of the effects of substantially higher fuel costs during the second half of the fiscal year, FedEx announced on December 30, 1999 that it would impose a fuel surcharge of 3% on most FedEx U.S. domestic and international services effective February 1, 2000. The surcharge will apply to all shipments tendered within the United States and all U.S. export shipments, where legally and contractually possible. The Company has also entered into contracts designed to limit the Company's exposure to further increases in fuel prices. Other income and expense declined in the second quarter as a slight increase in interest expense was more than offset by gains on the sales of equipment. The effective tax rate was 39.5% for both the second quarter and first half of 2000 versus 41.5% in the comparable prior year periods, reflecting stronger results from international operations. Actual results for the remainder of 2000 may vary depending upon many factors such as economic growth rates, rates of volume growth in the U.S. domestic markets at both of the Company's principal business segments, the actions of competitors, the spot prices of aviation and diesel fuel (which have continued to increase in the early part of the Company's third quarter), the extent to which the Company enters into additional contracts designed to limit its exposure to fluctuations in jet fuel prices, the amount and duration of the fuel surcharge and any other pricing actions and the impact those actions may have on demand for the Company's services. - 15 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) FEDERAL EXPRESS CORPORATION The following table compares revenues and operating income (in millions) and selected statistics (in thousands, except yield amounts) for the three- and six-month periods ended November 30:
- --------------------------------------------------------------------------------------------------------------- Three Months Ended Percent Six Months Ended Percent 1999 1998 Change 1999 1998 Change ---- ---- ------ ----- ------ ------ Revenues: Package: U.S. overnight $1,844 $1,777 + 4 $3,677 $3,556 + 3 U.S. deferred 588 558 + 5 1,147 1,102 + 4 International Priority (IP) 881 762 +15 1,699 1,487 +14 ------ ------ ------ ------ Total package revenue 3,313 3,097 + 7 6,523 6,145 + 6 Freight: U.S. 144 107 +35 274 207 +32 International 127 139 - 9 253 272 - 7 ------ ------ ------ ------ Total freight revenue 271 246 +10 527 479 +10 Other 152 139 +10 273 275 - ------ ------ ------ ------ Total revenues $3,736 $3,482 + 7 $7,323 $6,899 + 6 ====== ====== ====== ====== Operating income $ 211 $ 251 -16 $ 420 $ 470 -11 ====== ====== ====== ====== Package statistics: Average daily packages: U.S. overnight 2,011 1,954 + 3 1,981 1,916 + 4 U.S. deferred 913 895 + 2 876 864 + 1 IP 323 285 +13 310 275 +13 ------ ------ ------ ------ Composite 3,247 3,134 + 4 3,167 3,055 + 4 Revenue per package (yield): U.S. overnight $14.56 $14.44 + 1 $14.50 $14.38 + 1 U.S. deferred 10.22 9.89 + 3 10.24 9.89 + 4 IP 43.31 42.45 + 2 42.88 41.96 + 2 Composite 16.20 15.69 + 3 16.09 15.59 + 3 Freight statistics: Average daily pounds: U.S. 5,072 4,480 +13 4,810 4,199 +15 International 2,574 2,719 - 5 2,539 2,669 - 5 ------ ------ ------ ------ Composite 7,646 7,199 + 6 7,349 6,868 + 7 Revenue per pound (yield): U.S. $ .45 $ .38 +18 $ .45 $ .38 +18 International .78 .81 - 4 .78 .79 - 1 Composite .56 .54 + 4 .56 .54 + 4 =============================================================================================================
- 16 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) FEDERAL EXPRESS CORPORATION (CONTINUED) Revenues While total revenue increased at FedEx by 7% in the second quarter and 6% for the first half of the year, growth rates in U.S. domestic overnight package volume continued to lag behind the levels that management expected. However, strong revenue growth in high-yielding IP services, especially in Asia and Europe, continued in the second quarter and is expected to remain at current levels for the remainder of the fiscal year. U.S deferred package revenue growth was near management expectations for the quarter and the year-to-date periods as management continues to restrict the growth of these lower-yielding services. List price increases, including an average 2.8% domestic rate increase in March 1999 and FedEx's ongoing yield-management program also contributed to the slight increase in yields in the current quarter. In order to stimulate U.S. domestic revenue growth in higher-yielding package products, FedEx is realigning its sales force. The changes will include a greater emphasis on small and medium-sized customers and modifications to the sales incentive program to target higher-yielding packages. Actual results, however, may vary depending on a number of factors, including the impact of competitive pricing changes, customer responses to yield-management initiatives and the fuel surcharge, changing customer demand patterns, actions by FedEx's competitors, regulatory conditions for aviation rights and economic conditions. Total freight revenue also continued to increase in the current quarter and for the year-to-date period due to higher average daily pounds and yields in U.S. freight, offset by declines in international freight pounds and yields. Other revenue included charter services, sales of engine noise reduction kits, Canadian domestic revenue, logistics services and other. Operating Income Operating income declined in the second quarter and year-to-date periods due to higher fuel costs and lower than expected growth in U.S. package services. Fuel expenses increased 44% and 34% for the quarter and year-to-date periods, respectively. For the quarter, average cost per gallon for aircraft fuel increased 38% and gallons consumed increased 8%. Year to date, average cost per gallon increased 29% and gallons consumed increased 7%. The Company has entered into contracts designed to limit its exposure to jet fuel price fluctuations. As of early January 2000, contracts in place to fix the price of jet fuel cover a small percentage of the estimated gallons of usage for the third quarter of 2000 and approximately 40% of the estimated usage for the fourth quarter of 2000. Through early January 2000, contracts covering 2001 fix the price of approximately one-third of the estimated requirements for jet fuel. In order to offset most of the effects of substantially higher fuel costs during the second half of the fiscal year, FedEx announced on December 30, 1999 that it would impose a fuel surcharge of 3% on most FedEx U.S. domestic and international services effective February 1, 2000. The surcharge will apply to all shipments tendered within the United States and all U.S. export shipments, where legally and contractually possible. Also, FedEx continues to execute cost containment and productivity enhancement programs which management believes could reduce anticipated second half 2000 operating expenses by up to $75 million. These cost reductions are expected to be achieved by lowering discretionary spending and limiting staffing additions, but will not affect plans for strategic spending in support of long-term growth goals. The actual impact of the fuel surcharge and management's cost containment plans on operating income will depend on a number of factors such as the impact of competitive pricing changes, customer responses - 17 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) FEDERAL EXPRESS CORPORATION (CONTINUED) to yield-management initiatives, changing customer demand patterns, actions by FedEx's competitors and general economic conditions. Rentals and landing fees increased due to an increase in aircraft and facilities leases entered into based on planned volume growth. Aircraft lease expense for the quarter and year-to-date periods rose 16% and 15%, respectively. As of November 30, 1999, FedEx had 102 wide-bodied aircraft under operating lease compared with 93 as of November 30, 1998. Management expects year-over-year increases in lease expense to continue if the Company enters into additional aircraft rental agreements during 2000 and thereafter. Maintenance and repairs increased 18% in the second quarter and 11% year to date compared to the prior year periods. Given FedEx's increasing fleet size and age and variety of aircraft types, management believes that maintenance and repairs expense will continue to increase for the remainder of 2000. In part, this higher expense will likely be attributed to scheduled maintenance and repairs expense and a greater number of routine cycle checks resulting from fleet usage and certain Federal Aviation Administration directives. Salaries and employee benefits increased only 6% in the second quarter and 5% for the year-to-date period as higher costs in connection with the agreement with the Fedex Pilots Association that became effective May 31, 1999 were offset by improved productivity and lower provisions for incentive compensation. Contributions from the sales of engine noise reduction kits declined $14 million for the quarter and $28 million year to date. Management expects similar declines for each of the remaining quarters of the year. RPS, INC. The following table compares revenues and operating income (in millions) and selected package statistics (in thousands, except yield amounts) for the three- and six-month periods ended November 30:
- -------------------------------------------------------------------------------------------------------------- Three Months Ended Percent Six Months Ended Percent 1999 1998 Change 1999 1998 Change ---- ---- ------ ---- ----- ------ Revenues $521 $481 + 8 $997 $922 + 8 - -------------------------------------------------------------------------------------------------------------- Operating income $ 66 $ 61 + 7 $116 $110 + 6 - -------------------------------------------------------------------------------------------------------------- Average daily packages 1,541 1,464 + 5 1,453 1,386 + 5 Revenue per package (yield) $ 5.45 $ 5.30 + 3 $ 5.49 $ 5.28 + 4 ==============================================================================================================
Revenues RPS revenues grew 8% for both the quarter and the first half of the year reflecting yield increases and higher average daily packages. Yields were positively impacted by a rate increase of 2.3% in February 1999 and a better mix of higher-yielding packages. Weather conditions in the eastern United States during the second quarter negatively affected package volume. RPS continues to expand capacity in order to accommodate volume growth, while maintaining or improving yields. RPS recently opened two additional hub facilities and will continue to expand package processing capacity to - 18 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) RPS, INC. (CONTINUED) meet its aggressive growth plans. Actual results will depend on the impact of competitive pricing changes, customer responses to yield-management initiatives and changing customer demand patterns. Operating Income Operating income for the quarter and the first half of the year reflect higher operating costs during periods of investment in capacity expansion and technology. The effects of these higher costs were partially mitigated by improved yield, effective cost controls and lower provisions for incentive compensation. Depreciation expense increased 18% for the second quarter and first half periods as new terminal facilities were opened late in 1999 and throughout the first half of 2000. In the first quarter of 2000, RPS began testing new delivery services to residential areas. To date, the tests have been favorable and the Company currently expects to offer the new services by the spring of calendar 2000 to approximately 50% of the U. S. population. Year-to-date costs associated with this test have been minimal, but will accelerate as the test progresses. If the services are implemented there will be additional start-up and capital costs associated with the implementation. The actual results of these new services, if they are ultimately offered, will depend upon a number of factors such as consumer demand for and satisfaction with the RPS product, the service coverage and brand awareness of the RPS product, competitive pricing, the extent of the Company's ability to penetrate the business-to-consumer electronic commerce market and the ability to attract and retain qualified contractors for the delivery network. OTHER OPERATIONS Other operations include Viking Freight, Inc. ("Viking"), a regional less than truckload freight carrier operating in the western United States; Roberts Express, Inc. ("Roberts"), a critical shipment carrier; FDX Logistics, Inc. ("Logistics"), a contract logistics provider; and certain unallocated corporate items. Other operations also include the results of Caribbean Transportation Services, Inc. from the time of its acquisition by Logistics in September, 1999. Revenue and operating income from other operations increased 27% and 12% for the quarter and 21% and 27% year to date compared to the prior year periods. The increase in revenue is due to substantially higher revenues at Roberts and Logistics, combined with double-digit revenue growth at Viking. The increase in operating income is due to strong earnings at Roberts and Viking, offset by the results at Logistics. Viking posted an operating margin of 10.8% for the second quarter and 10.4% for the year-to-date period. FINANCIAL CONDITION Liquidity Cash and cash equivalents totaled $518 million at November 30, 1999. Management believes that cash flow from operations, the Company's commercial paper program, the revolving bank credit facility and other borrowing arrangements will adequately meet the Company's working capital and stock repurchase program needs for the foreseeable future. On September 27, 1999, the Company's Board of Directors approved a plan that authorizes the purchase of up to 15 million, or approximately 5%, of the Company's outstanding shares of common stock. Through November 30, 1999, the - 19 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) FINANCIAL CONDITION (CONTINUED) Company had acquired 8,856,500 shares under the plan at an average cost of $40.56 per share and reissued 181,184 shares to fund employee benefits. The purchase of these treasury shares was funded principally through the issuance of commercial paper. Shares held in treasury will be used for general corporate purposes. Capital Resources The Company's operations are capital intensive, characterized by significant investments in aircraft, vehicles, computer and telecommunications equipment, package handling facilities and sort equipment. The amount and timing of capital additions depend on various factors including volume growth, domestic and international economic conditions, new or enhanced services, geographical expansion of services, competition, availability of satisfactory financing and actions of regulatory authorities. Capital expenditures for the first six months of 2000 totaled $839 million and included aircraft, aircraft modifications, vehicles and ground support equipment, customer automation and computer equipment and facilities. In 1999 expenditures primarily included one MD11, aircraft modifications, vehicles and ground support equipment and customer automation and computer equipment. As a result of lower than expected U.S. domestic volume growth at FedEx, the Company has reduced planned capital expenditures for 2000 by $200 million. For information on the Company's purchase commitments, see Note 7 of Notes to Condensed Consolidated Financial Statements. Management believes that the capital resources available to the Company provide flexibility to access the most efficient markets for financing its capital acquisitions, including aircraft, and are adequate for the Company's future capital needs. Market Risk Sensitive Instruments and Positions There have been no material changes in the Company's market risk sensitive instruments and positions since its disclosure in its Annual Report on Form 10-K for the year ended May 31, 1999. Euro Currency Conversion On January 1, 1999, 11 of the 15 member countries of the European Union fixed conversion rates between their existing sovereign currencies ("legacy currencies") and a single currency called the euro. On January 4, 1999, the euro began trading on currency exchanges and became available for non-cash transactions. The legacy currencies will remain legal tender through December 31, 2001. Beginning January 1, 2002, euro-denominated bills and coins will be introduced, and by July 1, 2002, legacy currencies will no longer be legal tender. The Company established euro task forces to develop and implement euro conversion plans. The work of the task forces in preparing for the introduction of the euro and the phasing out of the various legacy currencies includes numerous facets such as converting information technology systems, adapting billing and payment systems and modifying processes for preparing financial reports and records. Since January 1, 1999, the Company's subsidiaries have been able to quote rates to customers, generate billings and accept payments, in both euro and legacy currencies. Based on the work of the Company's euro task forces to date, the Company believes that the introduction of the euro, any price transparency - 20 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) FINANCIAL CONDITION (CONTINUED) brought about by its introduction and the phasing out of the legacy currencies will not have a material impact on the Company's consolidated financial position, results of operations or cash flows. Costs associated with the euro project are being expensed as incurred and are being funded entirely by internal cash flows. YEAR 2000 COMPLIANCE Introduction The Company's operating subsidiaries rely heavily on sophisticated information technology ("IT") for their business operations. For example, FedEx maintains electronic connections with approximately two million customers via its proprietary products and technologies. The Company's Year 2000 ("Y2K") computer compliance issues were, therefore, broad and complex. The FedEx Y2K Project Office, which was established in 1996, coordinates and supports FedEx's continuing Y2K compliance effort. The Company also used a major international consulting firm to assist its subsidiaries in their Y2K program management. The Company's Y2K compliance efforts focused on business-critical areas including its IT systems, non-IT systems and interfaces with third parties. Hardware, software, systems, technologies and applications were considered "business-critical" if a failure either would have had a material adverse impact on the Company's business, financial condition or results of operations or would have involved a safety risk to employees or customers. In the Company's previous filings with the Securities and Exchange Commission on Form 10-Q and 10-K, extensive descriptions and definitions of business-critical items were presented. State of Readiness Nothing has come to the Company's attention which would cause it to believe that its Y2K compliance effort was not successful. While the Company will continue to monitor for Y2K related problems, to date no significant Y2K issues have been encountered. Costs to Address Y2K Compliance Since 1996, the Company has incurred approximately $108 million on Y2K compliance ($15 million in the first half of 2000), which includes internal and external software/hardware analysis, repair, vendor and supplier assessments, risk mitigation planning, and related costs. The Company currently expects that it will incur additional total costs of approximately $12 million on Y2K matters, including depreciation of $6 million. Remaining Y2K expenditures will include project management of the corporate contingency effort and the command and control center, further system audit and validation, and project management to ensure compliance of new systems development. The Company classifies costs as Y2K for reporting purposes if they remedy only Y2K risks or result in the formulation of contingency plans and would otherwise be unnecessary in the normal course of business. The Company's Y2K compliance effort is being funded entirely by internal cash flows. For the fiscal year ending May 31, 2000, Y2K expenditures are expected to be less than 10% of the Company's total IT expense budget. Although there are opportunity costs to the Company's Y2K compliance effort, management believes that no significant information technology projects have been deferred due to this work. Contingency Planning and Risks FedEx's key contingency plans addressed the activities to be performed in preparation for and during a Y2K-related failure that could have an immediate and - 21 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) YEAR 2000 COMPLIANCE (CONTINUED) significant impact on normal operations. Possible failures were identified and contingency plans were formulated. These plans included items such as alternative operating locations, alternative procedures for mission critical functions and procedures for company-wide communications. These are in addition to the Company's operational contingency plans for the pick-up, delivery and movement of packages. FedEx created a Y2K contingency command and control center that links to its other operations command and control centers. Key command and control personnel were on site commencing December 31, 1999. Other contingency plans for FedEx and the Company's other operating subsidiaries, including those covering vendor and supplier issues, continue to be in place to minimize Y2K-related risks including those that vendors and suppliers might pose if they are behind in their own Y2K efforts. * * * STATEMENTS IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION" OR MADE BY MANAGEMENT OF THE COMPANY THAT CONTAIN MORE THAN HISTORICAL INFORMATION MAY BE CONSIDERED FORWARD-LOOKING STATEMENTS (AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995), WHICH ARE SUBJECT TO RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS BECAUSE OF IMPORTANT FACTORS IDENTIFIED IN THIS SECTION. - 22 - PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Note 8 Legal Proceedings in Part I is hereby incorporated by reference. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits.
Exhibit Number Description of Exhibit -------- ----------------------- 3.1 Amended and Restated Certificate of Incorporation of FDX Corporation, as amended. 10.1 Extension Agreement dated as of October 15, 1999 to Credit Agreement dated as of December 10, 1998 among the Company and First National Bank of Chicago, individually and as agent, and certain lenders. 12.1 Computation of Ratio of Earnings to Fixed Charges. 15.1 Letter re Unaudited Interim Financial Statements. 27 Financial Data Schedule (electronic filing only).
(b) Reports on Form 8-K. During the quarter ended November 30, 1999, the Registrant filed one Current Report on Form 8-K dated September 27, 1999. The report was filed under Item 5, Other Events, and Item 7, Financial Statements and Exhibits, and contained a press release announcing the authorization of the repurchase of up to 15 million shares of the Company's common stock. - 23 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FDX CORPORATION (Registrant) Date: January 12, 2000 /S/ JAMES S. HUDSON ------------------------------------------- JAMES S. HUDSON CORPORATE VICE PRESIDENT STRATEGIC FINANCIAL PLANNING & CONTROL (PRINCIPAL ACCOUNTING OFFICER) - 24 - EXHIBIT INDEX
Exhibit Number Description of Exhibit - ------- ---------------------- 3.1 Amended and Restated Certificate of Incorporation of FDX Corporation, as amended. 10.1 Extension Agreement dated as of October 15, 1999 to Credit Agreement dated as of December 10, 1998 among the Company and First National Bank of Chicago, individually and as agent, and certain lenders. 12.1 Computation of Ratio of Earnings to Fixed Charges. 15.1 Letter re Unaudited Interim Financial Statements. 27 Financial Data Schedule (electronic filing only).
E-1 EX-3.1 2 EXHIBIT 3.1 Exhibit 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION of FDX CORPORATION FDX Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies that the Corporation was originally incorporated under the name "Fast Holding Inc." on October 2, 1997, and that its original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on the same date. The Corporation further certifies that this Amended and Restated Certificate of Incorporation amends, integrates and restates the provisions previously filed with the Secretary of State of the State of Delaware. ARTICLE FIRST: The name of the corporation is FDX CORPORATION. ARTICLE SECOND: The address of its registered office in the State of Delaware is Corporation Service Company, 1013 Centre Road, City of Wilmington, County of New Castle, Delaware 19805. The name of its registered agent at such address is Corporation Service Company. ARTICLE THIRD: The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is 404,000,000 shares consisting of 4,000,000 shares of Series Preferred Stock, no par value (herein called the "Series Preferred Stock"), and 400,000,000 shares of Common Stock, par value $0.10 per share (herein called the "Common Stock"). The following is a statement of the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, in respect of each class of stock of the Corporation: I. SERIES PREFERRED STOCK 1. CONDITIONS OF ISSUANCE. Series Preferred Stock may be issued from time to time and in such amounts and for such consideration as may be determined by the Board of Directors of the Corporation. The designation and relative rights and preferences of each series, except to the extent such designations and relative rights and preferences may be required by Delaware law or this Amended and Restated Certificate of Incorporation, shall be such as are fixed by the Board of Directors and stated in a resolution or resolutions adopted by the Board of Directors authorizing such series (herein called the "Series Resolution"). A Series Resolution authorizing any series shall fix: A. The designation of the series, which may be by distinguishing number, letter or title; B. The number of shares of such series; C. The divided rate or rates of such shares, the date at which dividends, if declared, shall be payable, and whether or not such dividends are to be cumulative, in which case such Series Resolution shall state the date or dates from which dividends shall be cumulative; D. The amounts payable on shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up; E. The redemption rights and price or prices, if any, for the shares of such series; F. The terms and amount of any sinking fund or analogous fund providing for the purchase or redemption of the shares of such series, if any; G. The voting rights, if any, granted to the holders of the shares of such series in addition to those required by Delaware law or this Amended and Restated Certificate of Incorporation; H. Whether the shares of such series shall be convertible into shares of the Corporation's Common Stock or any other class of the Corporation's capital stock, and if convertible, the conversion price or prices, any adjustment thereof and any other terms and conditions upon which such conversion shall be made; I. Any other rights, preferences, restrictions or conditions relative to the shares of such series astray be permitted by Delaware law or this Amended and Restated Certificate of Incorporation. 2. RESTRICTIONS. In no event, so long as any Series Preferred Stock shall remain outstanding, shall any dividend whatsoever be declared or paid upon, nor shall any distribution be made upon, Common Stock, other than a dividend or distribution payable in shares of such Common Stock, nor (without the written consent of such number of the holders of the outstanding Series Preferred Stock as shall have been specified in the Series Resolution authorizing the issuance of such outstanding Series Preferred Stock) shall any shares of Common Stock be purchased or redeemed by the Corporation, nor shall any moneys be paid to or made available for a sinking fund for the purchase or redemption of any Common Stock, unless in each instance full dividends on all outstanding shares of the Series Preferred Stock for all past dividend periods shall have been paid and the full dividend on all outstanding shares of the Series Preferred Stock for the current dividend period shall have been paid or declared and sufficient funds for the payment thereof set apart and any arrears in the mandatory redemption of the Series Preferred Stock shall have been made good. 3. PRIORITY. Series Preferred Stock, with respect to both dividends and distribution of assets on liquidation, dissolution or winding up, shall rank prior to the Common Stock. 4. VOTING RIGHTS. Holders of Series Preferred Stock shall have no right to vote for the election of Directors of the Corporation or on any other matter unless a vote of such class is required by Delaware law, this Amended and Restated Certificate of Incorporation or a Series Resolution. 5. FILING OF AMENDMENTS. The Board of Directors shall adopt amendments to this Amended and Restated Certificate of Incorporation fixing, with respect to each series of Series Preferred Stock, the matters described in paragraph 1 of this Subdivision I. II. COMMON STOCK All shares of Common Stock shall be identical and shall entitle the holders thereof to the same rights and privileges. 1. DIVIDENDS. When and as dividends are declared upon the Common Stock, whether payable in cash, in property or in shares of stock of the Corporation, the holders of Common Stock shall be entitled to share equally, share for share, in such dividends. 2 2. VOTING RIGHTS. The holders of Common Stock shall have the sole right to vote for the election of Directors of the Corporation or on any other matter unless required by Delaware law, this Amended and Restated Certificate of Incorporation or a Series Resolution. The holders of Common Stock shall be entitled to one vote for each share held. III. OTHER PROVISIONS 1. No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any pre-emptive right to purchase or subscribe for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the Corporation of any class or series, or carrying any right to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. 2. Shares of Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. ARTICLE FIFTH: Certain Business Combinations 1. HIGHER VOTE FOR CERTAIN BUSINESS COMBINATIONS. In addition to any affirmative vote of holders of a class or series of capital stock of the Corporation required by law or this Amended and Restated Certificate of Incorporation, and except as otherwise expressly provided in paragraph 2 of this ARTICLE FIFTH, a Business Combination (as hereinafter defined) with or upon a proposal by a Related Person (as hereinafter defined) shall require the affirmative vote of the holders of at least 80% of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of Directors (the "Voting Stock"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. 2. WHEN HIGHER VOTE IS NOT REQUIRED. The provisions of paragraph 1 of this ARTICLE FIFTH shall not be applicable to a particular Business Combination and such Business Combination shall require only such affirmative vote as is required by law and other provisions of this Amended and Restated Certificate of Incorporation, if all of the conditions specified in either of the following paragraphs (A) or (B) are met: (A) Approval by Directors. The Business Combination has been approved by a majority of the Continuing Directors (as hereinafter defined). (B) Price and Procedure Conditions. All of the following conditions shall have been met: (1) The aggregate amount of the cash and the Fair Market Value (as hereinafter defined) as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the higher of the following: (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealer's fees) paid by the Related Person for any shares of Common Stock acquired by it (a) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date") or (b) in the transaction in which it became a Related Person, whichever is higher; or 3 (ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Related Person became a Related Person (such latter date is referred to in this ARTICLE FIFTH as the "Determination Date"), whichever is higher; or (2) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of Shares of any other class or series of outstanding Voting Stock shall be at least equal to the highest of the following (it being intended that the requirements of this-paragraph 2(B)(2) shall be required to be met with respect to every class of outstanding Voting Stock whether or not the Related Person has previously acquired any shares of a particular class of Voting Stock): (i) (if applicable) the highest per share price (including any broker commissions, transfer taxes and soliciting dealers' fees), paid by the Related Person for any shares of such class or series of Voting Stock acquired by it (a) within the two-year period immediately prior to the Announcement Date or (b) in the transaction in which it became a Related Person, whichever is higher; (ii) (if applicable) the highest preferential amount per share to which the holders of shares of such class or series of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; and (iii) the Fair Market Value per share of such class or series of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher. (3) The consideration to be received by holders of a particular class or series of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Related Person has previously paid for shares of such class of Voting Stock. If the Related Person has paid for shares of any class or series of Voting Stock with varying forms of consideration, the form of consideration given for such class or series of Voting Stock in the Business Combination shall be either cash or the form used to acquire the largest number of shares of such class or series of Voting Stock previously acquired by it. (4) No Extraordinary Event (as hereinafter defined) shall have occurred after the Related Person became a Related Person and prior to the consummation of the Business Combination. (5) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) is mailed to public stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required pursuant to such Act or subsequent provisions). 3. CERTAIN DEFINITIONS. For purposes of this ARTICLE FIFTH: (A) A "person" shall mean any individual, firm, corporation or other entity. (B) The term "Business Combination" shall mean any of the following transactions, when entered into by the Corporation or a subsidiary of the Corporation with, or upon a proposal by, a Related Person or any other corporation (whether or not itself a Related Person which is, or after such transaction would be, an Affiliate (as hereinafter defined) of a Related Person: 4 (1) the merger or consolidation of the Corporation or any subsidiary of the Corporation; or (2) the sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one or a series of transactions) of any assets of the Corporation or any subsidiary of the Corporation having an aggregate Fair Market Value of $5,000,000 or more; (3) the issuance or transfer by the Corporation or any subsidiary of the Corporation (in one or a series of transactions) of securities of the Corporation or that subsidiary having an aggregate Fair Market Value of $5,000,000 or more; or (4) the adoption of a plan or proposal for the liquidation or dissolution of the Corporation; or (5) the reclassification of securities (including a reverse stock split), recapitalization, consolidation or any other transaction (whether or not involving a Related Person) which has the direct or indirect effect of increasing the voting power, whether or not then exercisable, of a Related Person in any class or series of capital stock of the Corporation or any subsidiary of the Corporation; or (6) any agreement, contract or other arrangement providing directly or indirectly for the foregoing. (C) The term "Related Person" shall mean any person (other than the Corporation, a subsidiary of the Corporation or any profit sharing, employee stock ownership or other employee benefit plan of the Corporation or a subsidiary of the Corporation or any trustee of or fiduciary with respect to any such plan acting in such capacity) which: (1) is the beneficial owner, directly or indirectly, of more than 10% of the voting power of the outstanding Voting Stock, or (2) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding Voting Stock; or (3) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Related Person, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (D) A person shall be a "beneficial owner" of any Voting Stock: (1) which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly; or (2) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding; or (3) which are beneficially owned, directly or indirectly by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. 5 For the purposes of determining whether a person is a Related Person pursuant to subparagraph (C) of this paragraph 3, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of subparagraph (D) of this paragraph 3 but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (E) The term "Continuing Director" shall mean any member of the Board of Directors who is not affiliated with a Related Person and who was a member of the Board of Directors immediately prior to the time that the Related Person became a Related Person, and any successor to a Continuing Director who is not affiliated with the Related Person and is recommended to succeed a Continuing Director by a majority of Continuing Directors who are then members of the Board of Directors. (F) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of 1934, as in effect on August 1, 1984. (G) The term "Extraordinary Event" shall mean, as to any Business Combination and Related Person, any of the following events that is not approved by a majority of the Continuing Directors: (1) any failure to declare and pay at the regular date therefor any full quarterly dividend (whether or not cumulative) on outstanding Preferred or Preference Stock; or (2) any reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock); or (3) any failure to increase the annual rate of dividends paid on the Common Stock as necessary to reflect any reclassification, (including any reverse stock split), recapitalization, reorganization or any similar transaction that has the effect of reducing the number of outstanding shares of the Common Stock; or (4) any Related Person shall become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which resulted in such Related Person becoming a Related Person; or (5) the receipt by the Related Person, after such Person has become a Related Person, of a direct or indirect benefit (except proportionately as a shareholder) from any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation or any subsidiary of the Corporation, whether in anticipation of or in connection with the Business Combination or otherwise. (H) "Fair Market Value" means: (i) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the Board of Directors in good faith; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by the Board of Directors in good faith. 6 (I) In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash to be received" as used in subparagraphs B(1) and (2) of paragraph 2 of this ARTICLE FIFTH shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares. 4. POWERS OF THE BOARD OF DIRECTORS. A majority of all Continuing Directors shall have the power to make all determinations with respect to this ARTICLE FIFTH, on the basis of information known to them after reasonable inquiry, including, without limitation, the transactions that are Business Combinations, the persons who are Related Persons, the number of shares of Voting Stock owned by any person, the time at which a Related Person becomes a Related Person and the Fair Market Value of any assets, securities or other property, and any such determinations of such Directors shall be conclusive and binding. 5. NO EFFECT ON FIDUCIARY OBLIGATIONS OF RELATED PERSONS. Nothing contained in this ARTICLE FIFTH shall be construed to relieve any Related Person from any fiduciary obligation imposed by law. 6. AMENDMENT OR REPEAL. The affirmative vote of the holders of not less than 80% of the total voting power of the Voting Stock of the Corporation, voting together as a single class, shall be required in order to amend, repeal or adopt any provision inconsistent with this ARTICLE FIFTH. ARTICLE SIXTH: In addition to any affirmative vote of holders of a class or series of capital stock of the Corporation required by law or this Amended and Restated Certificate of Incorporation, unless the Business Combination (as defined in ARTICLE FIFTH of this Amended and Restated Certificate of Incorporation) has been approved by a majority of the Continuing Directors (as defined in ARTICLE FIFTH of this Amended and Restated Certificate of Incorporation), a Business Combination with or upon a proposal by a Related Person (as defined in ARTICLE FIFTH of this Amended and Restated Certificate of Incorporation) shall require the affirmative vote of the holders of not less than a majority of the Voting Stock (as defined in ARTICLE FIFTH of this Amended and Restated Certificate of Incorporation) beneficially owned by stockholders other than such Related Person. Such affirmative vote shall be required notwithstanding the fact that no vote may be required or that a lesser percentage may be specified by law or in any agreement with any national securities exchange or otherwise. The affirmative vote of the holders, other than the Related Person proposing the amendment, repeal or adoption of any provision inconsistent with this ARTICLE SIXTH, of not less than a majority of the Voting Stock of the Corporation, voting together as a single class, shall be required in order to amend, repeal or adopt any provision inconsistent with this ARTICLE SIXTH. ARTICLE SEVENTH: The corporation is to have perpetual existence. ARTICLE EIGHTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized: The Board of Directors shall have power to make, alter, amend and repeal the By-laws (except so far as the By-laws adopted by the stockholders shall otherwise provide). Any By-laws made by the Directors under the powers conferred hereby may be altered, amended or repealed by the Directors or by the stockholders. Notwithstanding the foregoing and anything contained in this Amended and Restated Certificate of Incorporation to the contrary, Sections 5 and 11 of Article II of the By-laws shall not be altered, amended or repealed and no provision inconsistent therewith shall be adopted without the affirmative vote of the holders of at least 80% of the voting power of all the shares of the Corporation entitled to vote generally in the election of Directors, voting together as a single class. Notwithstanding anything contained in this Amended and Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80% of the voting power of all shares of the Corporation entitled to vote generally in the election of Directors, voting together as a single class, shall be required to alter, amend, adopt any provision inconsistent with or repeal this ARTICLE EIGHTH. 7 To authorize and cause to be executed mortgages and liens upon the real and personal property of the Corporation. To set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created. By a majority of the whole Board, to designate one or more committees, each committee to consist of one or more of the Directors of the Corporation. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The By-laws may provide that in the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, or in the By-laws of the Corporation, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Amended and Restated Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-laws of the Corporation; and, unless the resolution or By-laws expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. When and as authorized by the stockholders in accordance with statute, to sell, lease or exchange all or substantially all of the property and assets of the Corporation, including its good will and its corporate franchises, upon such terms and conditions and for such consideration, which may consist in whole or in part of money or property including shares of stock in, and/or other securities of, any other corporation or corporations, as its Board of Directors shall deem expedient and for the best interests of the Corporation. ARTICLE NINTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors and/or of the stockholders/or class stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors and/or on all the stockholders or class of stockholders of this Corporation, as the case may be, and also on this Corporation. ARTICLE TENTH: Meetings of stockholders may be held within or without the State of Delaware, as the By-laws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-laws of the Corporation. Elections of Directors need not be by written ballot unless the By-laws of the Corporation shall so provide. ARTICLE ELEVENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. 8 ARTICLE TWELFTH: Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Except as otherwise required by law and subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors. Notwithstanding anything contained in this Amended and Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80% of the voting power of all shares of the Corporation entitled to vote generally in the election of Directors, voting together as a single class, shall be required to alter, amend, adopt any provision inconsistent with or repeal this ARTICLE TWELFTH. ARTICLE THIRTEENTH: No Director shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, provided that this ARTICLE THIRTEENTH shall not eliminate or limit the liability of a Director (i) for any breach of the Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of Title 8 of the Delaware Code or any amendment or successor provision thereto, or (iv) for any transaction from which the Director derived an improper personal benefit. This ARTICLE THIRTEENTH shall not eliminate or limit the liability of a Director for any act or omission occurring prior to the date when this ARTICLE THIRTEENTH becomes effective. Neither the amendment nor repeal of this ARTICLE THIRTEENTH, nor the adoption of any provision of the Amended and Restated Certificate of Incorporation inconsistent with this ARTICLE THIRTEENTH shall eliminate or reduce the effect of this ARTICLE THIRTEENTH with respect to any matter occurring, or any cause of action, suit or claim that, but for this ARTICLE THIRTEENTH, would accrue or arise prior to such amendment, repeal or adoption of an inconsistent provision. * * * * This Amended and Restated Certificate of Incorporation was duly adopted in accordance with the provisions of Section 242 and 245 of the General Corporation Law of the State of Delaware. The Board of Directors of the Corporation approved the Corporation's Amended and Restated Certificate of Incorporation as set forth herein pursuant to a Consent in Lieu of Meeting of the Board of Directors effective as of December 2, 1997. Federal Express Corporation, the holder of all of the outstanding stock of the Corporation, acting by written consent pursuant to Section 228(a) of the General Corporation Law of the State of Delaware, approved the Amended and Restated Certificate of Incorporation as set forth herein as of December 2, 1997. FDX CORPORATION By: /S/GEORGE W. HEARN George Hearn President ATTEST: /S/SCOTT E. HANSEN Scott E. Hansen Vice President and Secretary 9 CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF FDX CORPORATION FDX Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of the Corporation, resolutions were duly adopted setting forth a proposed amendment to the Amended and Restated Certificate of Incorporation of the Corporation and declaring said amendment to be advisable. The resolutions setting forth the proposed amendment are as follows: RESOLVED, that an amendment to the Corporation's Amended and Restated Certificate of Incorporation doubling the number of authorized shares of common stock is hereby declared to be advisable and that the officers of the Corporation are hereby directed to submit such amendment to the stockholders of the Corporation for approval at their next annual meeting. FURTHER RESOLVED, that the Amended and Restated Certificate of Incorporation of the Corporation be amended by changing the first sentence of Article Fourth thereof so that, as amended, said first sentence of Article Fourth shall be and read in its entirety as follows: ARTICLE FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is 804,000,000 shares consisting of 4,000,000 shares of Series Preferred Stock, no par value (herein called the "Series Preferred Stock"), and 800,000,000 shares of Common Stock, par value $0.10 per share (herein called the "Common Stock"). SECOND: That thereafter, at the annual meeting of stockholders of the Corporation, duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, FDX Corporation has caused this Certificate of Amendment to be signed by George W. Hearn, its Corporate Vice President and Corporate Counsel, this 6th day of October, 1999. FDX CORPORATION By: /S/GEORGE W. HEARN -------------------------------------- George W. Hearn Corporate Vice President and Corporate Counsel 11 EX-10.1 3 EXHIBIT 10.1 EXECUTION COPY Exhibit 10.1 EXTENSION AGREEMENT DATED AS OF OCTOBER 15, 1999 THIS EXTENSION AGREEMENT (the "Agreement") is made as of October 15, 1999 by and among FDX Corporation, a Delaware corporation (the "Borrower"), the Lenders and Bank One, NA, having its principal office in Chicago, Illinois and formerly known as The First National Bank of Chicago, in its capacity as agent ("Agent"). Defined terms used herein and not otherwise defined herein shall have the meanings given to them in that certain Credit Agreement dated as of January 15, 1998, as amended, by and among the Borrower, the Lenders, Banc One Capital Markets, Inc., formerly known as First Chicago Capital Markets, Inc., as Arranger, J.P. Morgan Securities Inc., as Co-Arranger and Syndication Agent, Chase Securities Inc., as Co-Arranger and Documentation Agent, and the Agent (as amended, the "Credit Agreement"). WITNESSETH WHEREAS, the Borrower, the Lenders and the Agent are parties to the Credit Agreement; WHEREAS, the Borrower, the Lenders and the Agent have agreed to extend the Tranche B Facility Termination Date on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Lenders and the Agent agree as follows: 1. EXTENSION OF TRANCHE B FACILITY TERMINATION DATE. Notwithstanding any of the notice requirements of Section 2.19 of the Credit Agreement but otherwise subject to such Section 2.19, each of the Lenders consents to the extension of the Tranche B Facility Termination Date to October 13, 2000, and waives its right under such Section 2.19 to revoke such consent. 2. CONDITIONS OF EFFECTIVENESS. This Agreement shall become effective as of the date set forth above when the Agent shall have received: (i) a counterpart of this Agreement executed by the Borrower, the Agent and each Lender; (ii) a counterpart of the Acknowledgment attached hereto as EXHIBIT A executed by Guarantor; and (iii) such documents evidencing corporate existence, action and authority of the Borrower and the Guarantors as the Agent may reasonably request. 3. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The Borrower represents and warrants that: 1 (a) This Agreement, and the Credit Agreement as previously executed and amended and as amended hereby, constitute legal, valid and binding obligations of the Borrower and are enforceable against the Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and subject also to the availability of equitable remedies if equitable remedies are sought. (b) Upon the effectiveness of this Agreement, the Borrower reaffirms all covenants, representations and warranties made in the Credit Agreement. (c) No Default or Unmatured Default has occurred and is continuing. 4. EFFECT ON CREDIT AGREEMENT. (a) Each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import shall mean and be a reference to the Credit Agreement as amended hereby. (b) Except as specifically amended above, the Credit Agreement and all other Loan Documents, instruments and agreements executed and/or delivered in connection therewith, shall remain in full force and effect, and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Agreement shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Agent or the Lenders, nor constitute a waiver of any provision of the Credit Agreement or any other Loan Documents, instruments and agreements executed and/or delivered in connection therewith. 5. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois. 6. HEADINGS. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 7. COUNTERPARTS. This Agreement may be executed by one or more of the parties to the Agreement on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 2 IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed this Agreement as of the date first above written. FDX CORPORATION By: /s/Charles M. Buchas, Jr. ---------------------------------------------- Name: Charles M. Buchas, Jr. -------------------------------------------- Title: Corporate Vice President and Treasurer ------------------------------------------- BANK ONE, NA, having its principal office in Chicago, Illinois, as Agent By: /s/Kenneth J. Kramer ---------------------------------------------- Name: Kenneth J. Kramer -------------------------------------------- Title: First Vice President ------------------------------------------- MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/Dennis Wilczek ---------------------------------------------- Name: Dennis Wilczek -------------------------------------------- Title: Associate ------------------------------------------- THE CHASE MANHATTAN BANK By: /s/Matthew H. Massie ---------------------------------------------- Name: Matthew H. Massie -------------------------------------------- Title: Managing Director ------------------------------------------- 3 KBC BANK N.Z., GRAND CAYMAN BRANCH By: /s/Robert Snauffer ---------------------------------------------- Name: Robert Snauffer -------------------------------------------- Title: First Vice President ------------------------------------------- By: /s/Raymond F. Murray ---------------------------------------------- Name: Raymond F. Murray -------------------------------------------- Title: First Vice President ------------------------------------------- BANK OF AMERICA, N.A., formerly known as BANK OF AMERICA NATIONAL TRUST ND SAVINGS ASSOCIATION, and successor-by-merger to NATIONSBANK, N.A. By: /s/Sharon Burks Horos ---------------------------------------------- Name: Sharon Burks Horos -------------------------------------------- Title: Vice President ------------------------------------------- BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: /s/Joseph P. Devoe ---------------------------------------------- Name: Joseph P. Devoe -------------------------------------------- Title: Vice President ------------------------------------------- CITICORP USA, INC. By: /s/Arthur Deffaa ---------------------------------------------- Name: Arthur Deffaa -------------------------------------------- Title: Managing Director ------------------------------------------- 4 COMMERZBANK AKTIENGESELLSCHAFT By: /s/Harry P. Yergey ---------------------------------------------- Name: Harry P. Yergey -------------------------------------------- Title: Senior Vice President & Manager ------------------------------------------- By: /s/Subash R. Viswanathan ---------------------------------------------- Name: Subash R. Viswanathan -------------------------------------------- Title: Vice President ------------------------------------------- THE FUJI BANK, LIMITED By: /s/Raymond Ventura ---------------------------------------------- Name: Raymond Ventura -------------------------------------------- Title: Vice President & Manager ------------------------------------------- MELLON BANK, N.A. By: /s/Mark F. Johnston ---------------------------------------------- Name: Mark F. Johnston -------------------------------------------- Title: Vice President ------------------------------------------- KEYBANK NATIONAL ASSOCIATION By: /s/Mark A. LoSchiavo ---------------------------------------------- Name: Mark A. LoSchiavo -------------------------------------------- Title: Assistant Vice President ------------------------------------------- FIRST AMERICAN NATIONAL BANK By: /s/S. Floyd Harvey, III ---------------------------------------------- Name: S. Floyd Harvey, III -------------------------------------------- Title: SVP ------------------------------------------- 5 BANK OF HAWAII By: /s/Brenda Testerman ---------------------------------------------- Name: Brenda Testerman -------------------------------------------- Title: Vice President ------------------------------------------- THE BANK OF NEW YORK By: /s/Ann Marie Hughes ---------------------------------------------- Name: Ann Marie Hughes -------------------------------------------- Title: Vice President ------------------------------------------- THE BANK OF NOVA SCOTIA By: /s/F.C.H. Ashby ---------------------------------------------- Name: F.C.H. Ashby -------------------------------------------- Title: Senior Manager Loan Operations ------------------------------------------- CREDIT SUISSE FIRST BOSTON By: /s/Thomas G. Muoio ---------------------------------------------- Name: Thomas G. Muoio -------------------------------------------- Title: Vice President ------------------------------------------- By: /s/Robert N. Finney ---------------------------------------------- Name: Robert N. Finney -------------------------------------------- Title: Managing Director ------------------------------------------- DEUTSCHE VERKEHRS BANK By: /s/Justin Patrick ---------------------------------------------- Name: Justin Patrick -------------------------------------------- Title: Vice President ------------------------------------------- By: /s/ ---------------------------------------------- Name: -------------------------------------------- Title: Asst V President ------------------------------------------- 6 THE SANWA BANK, LIMITED By: /s/P. Bartlett Wu ---------------------------------------------- Name: P. Bartlett Wu -------------------------------------------- Title: Vice President ------------------------------------------- SUNTRUST BANK, NASHVILLE, N.A. By: /s/Renee D. Drake ---------------------------------------------- Name: Renee D. Drake -------------------------------------------- Title: Vice President ------------------------------------------- THE SUMITOMO BANK, LIMITED By: /s/C. Michael Garrido ---------------------------------------------- Name: C. Michael Garrido -------------------------------------------- Title: Senior Vice President ------------------------------------------- BANCA COMMERCIALE ITALIANA By: /s/Charles Dougherty ---------------------------------------------- Name: Charles Dougherty -------------------------------------------- Title: Vice President ------------------------------------------- By: /s/Tiziano Gallonetto ---------------------------------------------- Name: Tiziano Gallonetto -------------------------------------------- Title: Assistant Vice President ------------------------------------------- THE NORTHERN TRUST COMPANY By: /s/James F.T. Monhart ---------------------------------------------- Name: James F.T. Monhart -------------------------------------------- Title: Senior Vice President ------------------------------------------- 7 WACHOVIA BANK, N.A. By: /s/Elizabeth Witherspoon ---------------------------------------------- Name: Elizabeth Witherspoon -------------------------------------------- Title: Assistant Vice President ------------------------------------------- FIRST UNION NATIONAL BANK By: /s/Beverly J. Coller ---------------------------------------------- Name: Beverly J. Coller -------------------------------------------- Title: Vice President ------------------------------------------- 8 EXHIBIT A TO EXTENSION AGREEMENT DATED AS OF OCTOBER 15, 1999 FOR CREDIT AGREEMENT DATED AS OF JANUARY 15, 1998 ACKNOWLEDGMENT Each of the undersigned hereby (i) acknowledges receipt of a copy of the Extension Agreement dated as of October 15, 1999, relating to the Credit Agreement dated as of January 15, 1998 by and among the Borrower, the Lenders, Banc One Capital Markets, Inc., formerly known as First Chicago Capital Markets, Inc., as Arranger, J.P. Morgan Securities Inc., as Co-Arranger and Syndication Agent, Chase Securities Inc., as Co-Arranger and Documentation Agent, and the Agent, as amended (as amended, the "Credit Agreement"), (ii) reaffirms the terms and conditions of that certain Guaranty dated as of January 27, 1998 (the "Guaranty") and (iii) acknowledges and agrees that the Guaranty (A) remains in full force and effect and (B) is hereby ratified and confirmed. FEDERAL EXPRESS CORPORATION By: /s/Robert D. Henning ---------------------------------------------- Name: Robert D. Henning -------------------------------------------- Title: Vice President and Treasurer ------------------------------------------- RPS, INC. By: /s/Daniel J. Sullivan ---------------------------------------------- Name: Daniel J. Sullivan -------------------------------------------- Title: President and Chief Executive Officer ------------------------------------------- CALIBER SYSTEM, INC. By: /s/Donald C. Brown ---------------------------------------------- Name: Donald C. Brown -------------------------------------------- Title: President ------------------------------------------- 9 VIKING FREIGHT, INC. By: /s/Douglas G. Duncan ---------------------------------------------- Name: Douglas G. Duncan -------------------------------------------- Title: President and Chief Executive Officer ------------------------------------------- ROBERTS EXPRESS, INC. By: /s/R. Bruce Simpson ---------------------------------------------- Name: R. Bruce Simpson -------------------------------------------- Title: President ------------------------------------------- Dated as of October 15, 1999 10 EX-12.1 4 EXHIBIT 12.1 EXHIBIT 12.1 FDX CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited)
SIX MONTHS ENDED YEAR ENDED MAY 31, NOVEMBER 30, ----------------------------------------------------------- -------------------- 1995 1996 1997 1998 1999 1998 1999 ---------- ---------- -------- ---------- ---------- -------- --------- (In thousands, except ratios) Earnings: Income before income taxes.............. $ 693,564 $ 702,094 $425,865 $ 899,518 $1,061,064 $567,752 $ 545,808 Add back: Interest expense, net of capitalized interest................ 130,923 109,249 110,080 135,696 110,590 54,606 54,773 Amortization of debt issuance costs...................... 2,493 1,628 1,328 1,481 9,249 431 595 Portion of rent expense representative of interest factor..................... 333,971 393,775 439,729 508,325 570,789 279,980 306,158 ---------- ---------- -------- ---------- ---------- -------- --------- Earnings as adjusted.................... $1,160,951 $1,206,746 $977,002 $1,545,020 $1,751,692 $902,769 $907,334 ---------- ---------- -------- ---------- ---------- -------- --------- ---------- ---------- -------- ---------- ---------- -------- --------- Fixed Charges: Interest expense, net of capitalized interest.................. $ 130,923 $ 109,249 $110,080 $ 135,696 $ 110,590 $ 54,606 $ 54,773 Capitalized interest.................... 27,381 44,654 45,717 33,009 38,880 20,960 17,097 Amortization of debt issuance costs........................ 2,493 1,628 1,328 1,481 9,249 431 595 Portion of rent expense representative of interest factor....................... 333,971 393,775 439,729 508,325 570,789 279,980 306,158 ---------- ---------- -------- ---------- ---------- -------- --------- $ 494,768 $ 549,306 $596,854 $ 678,511 $ 729,508 $355,977 $378,623 ---------- ---------- -------- ---------- ---------- -------- --------- ---------- ---------- -------- ---------- ---------- -------- --------- Ratio of Earnings to Fixed Charges...... 2.3 2.2 1.6 2.3 2.4 2.5 2.4 ---------- ---------- -------- ---------- ---------- -------- --------- ---------- ---------- -------- ---------- ---------- -------- ---------
EX-15.1 5 EXHIBIT 15.1 EXHIBIT 15.1 December 15, 1999 FDX Corporation 942 South Shady Grove Road Memphis, Tennessee 38120 We are aware that FDX Corporation will be incorporating by reference in its previously filed Registration Statements No. 333-45037, 333-71065, and 333-74701 its Report on Form 10-Q for the quarter ended November 30, 1999, which includes our report dated December 15, 1999 covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered part of these registration statements prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, /s/ Arthur Andersen LLP ----------------------- Arthur Andersen LLP EX-27 6 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF INCOME ON PAGES 3-5 OF THE COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDING NOVEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS MAY-31-2000 JUN-01-1999 NOV-30-1999 517,893 0 2,459,261 80,327 277,559 3,569,464 14,478,808 7,609,418 11,538,227 2,999,254 0 0 0 29,857 4,610,529 11,538,227 0 8,890,081 0 8,301,739 (4,663) 0 47,197 545,808 215,591 330,217 0 0 0 330,217 1.12 1.10
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