-----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, FEdSC/xBkCra3klTI5KrIB8/jDR3OplWrrqeYlEN7Bzwqrvk/SQVQCtRFgGrXDQM Z9AgZQRol6g+b4MPqwN46g== 0000912057-01-001325.txt : 20010123 0000912057-01-001325.hdr.sgml : 20010123 ACCESSION NUMBER: 0000912057-01-001325 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001130 FILED AS OF DATE: 20010112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FEDERAL EXPRESS CORP CENTRAL INDEX KEY: 0000230211 STANDARD INDUSTRIAL CLASSIFICATION: AIR COURIER SERVICES [4513] IRS NUMBER: 710427007 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07806 FILM NUMBER: 1508114 BUSINESS ADDRESS: STREET 1: 2005 CORPORATE AVE CITY: MEMPHIS STATE: TN ZIP: 38132 BUSINESS PHONE: 9013693600 MAIL ADDRESS: STREET 1: 2005 CORPORATE AVE CITY: MEMPHIS STATE: TN ZIP: 38132 10-Q 1 a2034927z10-q.txt 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, 2000, 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: 1-7806 FEDERAL EXPRESS CORPORATION (Exact name of registrant as specified in its charter) Delaware 71-0427007 (State of incorporation) (I.R.S. Employer Identification No.) 3610 Hacks Cross Road Memphis, Tennessee 38125 (Address of principal (Zip Code) executive offices) (901) 369-3600 (Registrant's telephone number, including area code) 2005 Corporate Avenue, Memphis, TN 38132 ------------------------------------------ Former name, former address or former fiscal year, if changed since last report 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 / / The number of shares of common stock outstanding as of December 31, 2000 was 1,000. The Registrant is a wholly-owned subsidiary of FedEx Corporation, and there is no market for the Registrant's common stock. THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a) AND (b) OF FORM 10-Q AND IS FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT PERMITTED BY GENERAL INSTRUCTION H(2). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FEDERAL EXPRESS CORPORATION (FEDEX EXPRESS) INDEX PART I. FINANCIAL INFORMATION
PAGE ITEM 1: Financial Statements Condensed Consolidated Balance Sheets November 30, 2000 and May 31, 2000.............................. 3-4 Condensed Consolidated Statements of Income Three and Six-Months Ended November 30, 2000 and 1999........... 5 Condensed Consolidated Statements of Cash Flows Six-Months Ended November 30, 2000 and November 30, 1999........................................... 6 Notes to Condensed Consolidated Financial Statements.............. 7-9 Review of Condensed Consolidated Financial Statements by Independent Public Accountants............................... 10 Report of Independent Public Accountants.......................... 11 ITEM 2: Management's Discussion and Analysis of Results of Operations and Financial Condition.............................. 12-15 ITEM 3: Quantitative and Qualitative Disclosures About Market Risk........ 16 PART II. OTHER INFORMATION ITEM 6: Exhibits and Reports on Form 8-K............................... 17 Signatures........................................................ 18 EXHIBIT INDEX..................................................... E-1
-2- PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FEDERAL EXPRESS CORPORATION (FEDEX EXPRESS) CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS November 30, 2000 May 31, (Unaudited) 2000 ----------- ---------- (In thousands) Current Assets: Cash and cash equivalents....................................................$ 92,591 $ 88,630 Receivables, less allowances of $62,604,000 and $56,517,000................................................ 2,133,610 2,088,854 Spare parts, supplies and fuel............................................... 240,936 247,372 Deferred income taxes........................................................ 288,156 247,802 Prepaid expenses and other................................................... 35,284 69,139 ----------- ----------- Total current assets..................................................... 2,790,577 2,741,797 Property and Equipment, at Cost................................................... 11,597,307 12,958,570 Less accumulated depreciation and amortization............................... 6,172,651 6,846,647 ----------- ----------- Net property and equipment............................................... 5,424,656 6,111,923 Other Assets: Goodwill..................................................................... 332,623 327,765 Due from parent.............................................................. 341,485 86,890 Other........................................................................ 513,432 472,164 ----------- ----------- Total other assets....................................................... 1,187,540 886,819 ----------- ----------- $ 9,402,773 $ 9,740,539 =========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements. - 3 - FEDERAL EXPRESS CORPORATION (FEDEX EXPRESS) CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND OWNER'S EQUITY November 30, 2000 May 31, (Unaudited) 2000 ----------- ---------- (In thousands) Current Liabilities: Current portion of long-term debt............................................ $ 22,339 $ 6,339 Accrued salaries and employee benefits....................................... 617,994 636,375 Accounts payable............................................................. 984,647 956,929 Accrued expenses............................................................. 843,533 805,800 Due to parent company........................................................ 8,468 16,425 ---------- ---------- Total current liabilities................................................ 2,476,981 2,421,868 Long-Term Debt, Less Current Portion.............................................. 1,038,551 1,054,430 Deferred Income Taxes............................................................. 127,997 240,569 Other Liabilities................................................................. 1,702,868 1,657,405 Commitments (Note 3) Owner's Equity: Common Stock, $.10 par value; 1,000 shares authorized, issued and outstanding............................ - - Additional paid-in capital................................................... 297,688 894,718 Retained earnings ........................................................... 3,806,272 3,505,422 Accumulated other comprehensive income....................................... (47,584) (33,873) ---------- ---------- Total owner's equity..................................................... 4,056,376 4,366,267 ---------- ---------- $9,402,773 $9,740,539 ========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements. - 4 - FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended November 30, November 30, ------------------------ ------------------------ 2000 1999 2000 1999 ----------- ---------- ---------- ---------- (In thousands) Revenues..........................................$3,981,092 $3,736,027 $7,896,773 $7,322,833 Operating Expenses: Salaries and employee benefits .............. 1,582,184 1,639,851 3,177,634 3,248,911 Purchased transportation..................... 146,876 138,571 297,236 269,923 Rentals and landing fees..................... 354,267 364,831 697,779 711,573 Depreciation and amortization................ 200,687 245,124 397,951 487,201 Fuel......................................... 300,505 217,328 541,094 398,149 Maintenance and repairs...................... 238,114 258,204 505,835 496,485 Intercompany charges (Note 5)................ 345,508 21,121 672,654 36,295 Other........................................ 542,441 639,781 1,078,352 1,254,137 ---------- ---------- ---------- ---------- 3,710,582 3,524,811 7,368,535 6,902,674 ---------- ---------- ---------- ---------- Operating Income.................................. 270,510 211,216 528,238 420,159 Other Income (Expense): Interest, net................................ (18,586) (19,525) (37,899) (38,549) Other, net................................... 725 4,218 (1,153) 3,069 ---------- ---------- ---------- ---------- (17,861) (15,307) (39,052) (35,480) ---------- ---------- ---------- ---------- Income Before Income Taxes........................ 252,649 195,909 489,186 384,679 Provision for Income Taxes........................ 97,270 77,384 188,337 151,948 ---------- ---------- ---------- ---------- Net Income........................................$ 155,379 $ 118,525 $ 300,849 $ 232,731 ========== ========== ========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements. - 5 - FEDERAL EXPRESS CORPORATION (FEDEX EXPRESS) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended November 30, --------------------------- 2000 1999 ---------- -------- (In thousands) Net Cash Provided by Operating Activities.........................................$ 692,130 $ 531,341 Investing Activities: Purchases of property and equipment.......................................... (516,972) (706,584) Proceeds from disposition of property and equipment: Sales-leaseback transaction.............................................. 80,000 - Reimbursements of A300 and MD11 deposits................................. - 24,377 Other dispositions....................................................... 5,053 139,647 Other, net................................................................... (1,655) 408 ----------- ---------- Net cash used in investing activities............................................. (433,574) (542,152) Financing Activities: Principal payments on debt................................................... - (12,500) Net (payments) receipts from parent company.................................. (254,595) 22,371 ----------- ----------- Net cash (used in) provided by financing activities............................... (254,595) 9,871 ----------- ----------- Net increase (decrease) in cash and cash equivalents.............................. 3,961 (940) Cash and cash equivalents at beginning of period.................................. 88,630 88,238 ----------- ----------- Cash and cash equivalents at end of period........................................$ 92,591 $ 87,298 =========== =========== Cash payments for: Interest (net of capitalized interest).......................................$ 41,933 $ 40,841 =========== =========== Income taxes.................................................................$ 256,108 $ 150,948 =========== =========== Non-cash investing and financing activities: Fair value of assets surrendered under exchange agreements (with two airlines)....................................$ - $ 19,450 Fair value of assets acquired under exchange agreements........................................................ 1,785 18,903 ----------- ----------- Fair value of assets surrendered (under) over fair value of assets acquired..............................................$ (1,785) $ 547 =========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements. - 6 - FEDERAL EXPRESS CORPORATION (FEDEX EXPRESS) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These interim financial statements of Federal Express Corporation ("FedEx Express" or 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, 2000. 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, 2000 and the consolidated results of its operations for the three- and six-month periods ended November 30, 2000 and 1999, and cash flows for the six-month periods ended November 30, 2000 and 1999. Operating results for the three- and six-month periods ended November 30, 2000 are not necessarily indicative of the results that may be expected for the year ending May 31, 2001. The Company is in a single line of business and operates in one business segment - the worldwide express transportation and distribution of goods and documents. In June 1998, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which was subsequently amended by SFAS No. 137 and SFAS No. 138 and is now 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 the adoption of this Statement. FedEx Corporation, the Company's parent, has entered into contracts on behalf of FedEx Express that are designed to limit its exposure to fluctuations in jet fuel prices. Under these contracts, the Company's parent 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 expense. Under jet fuel hedging contracts, the Company received $30,493,000 for the second quarter of 2001 and $57,427,000 for the first half of 2001. Through the first half of 2000, there were no such settlements. As of November 30, 2000, contracts in place to fix the price of jet fuel covered a total notional volume of 521,920,000 gallons through 2002. Based on current market prices, the fair value of these jet fuel hedging contracts was an asset of approximately $14,534,000 at November 30, 2000 and $51,060,000 at May 31, 2000. As of December 31, 2000, contracts in place to fix the price of jet fuel covered approximately 41% of the expected jet fuel usage for 2001 and approximately 33% through 2002. Certain prior period amounts have been reclassified to conform to the current presentation. - 7 - (2) COMPREHENSIVE INCOME The following table provides a reconciliation of net income reported in the Company's consolidated financial statements to comprehensive income:
Three Months Ended November 30, -------------------------- 2000 1999 -------- -------- (In thousands) Net income................................................................... $155,379 $118,525 Other comprehensive income: Foreign currency translation adjustments, net of deferred tax benefit of $2,486,000 and deferred taxes of $577,000............................................... (11,453) 2,476 -------- -------- Comprehensive income....................................................... $143,926 $121,001 ======== ========
Six Months Ended November 30, -------------------------- 2000 1999 -------- -------- (In thousands) Net income................................................................... $300,849 $232,731 Other comprehensive income: Foreign currency translation adjustments, net of deferred tax benefit of $3,749,000 and deferred taxes of $732,000............................................... (13,710) 3,681 -------- -------- Comprehensive income....................................................... $287,139 $236,412 ======== ========
(3) COMMITMENTS As of November 30, 2000, the Company's purchase commitments for the remainder of 2001 and annually thereafter under various contracts are as follows (in thousands):
Aircraft- Aircraft Related(1) Other(2) Total --------- ------------- -------- -------- 2001 (remainder) $186,700 $263,400 $145,500 $595,600 2002 400,500 421,500 15,100 837,100 2003 482,300 516,700 300 999,300 2004 354,100 479,900 - 834,000 2005 176,100 512,900 - 689,000
(1) Primarily aircraft modifications, rotables, spare parts and spare engines. (2) Primarily vehicles, facilities, computers and other equipment. The Company is committed to purchase 11 DC10s, 29 MD11s, 8 A300s, 8 A310s, and 75 Ayres ALM 200s to be delivered through 2006. Deposits and progress payments of $9,050,000 have been made toward these purchases. The Company has entered into agreements with two airlines to acquire 53 DC10 aircraft (49 of which had been received as of November 30, 2000), spare parts, aircraft engines and other equipment, and maintenance services, in exchange for a combination of aircraft engine noise reduction kits and cash. Delivery of these aircraft began in 1997 and will continue through 2001. Additionally, these airlines may exercise put options through December 31, 2003, requiring FedEx Express to purchase up to 12 additional DC10s along with additional aircraft engines and equipment. - 8 - Lease commitments added since May 31, 2000 for the one MD11 purchased in 2000 and subsequently sold and leased back, are as follows (in thousands): 2001 $ 1,025 2002 5,011 2003 6,719 2004 6,568 2005 7,076 Thereafter 116,122
(4) RELATED PARTY TRANSACTIONS The following table represents FedEx Express' related party balances outstanding at November 30, 2000 and May 31, 2000 (in thousands). The long-term amounts primarily represent the net activity from participation in FedEx Corporation's consolidated cash management program.
November 30, 2000 Other Current Other Assets Current Due From/ Assets (Non-Current) Liabilities (Due To) ------- ------------- ----------- -------- FedEx Corporation $ - $341,485 $ (8,468) $333,017 Other Corporate Subsidiaries 8,175 - (87,408) (79,233) - ------------------------------------------------------------------------------- May 31, 2000 Other Current Other Assets Current Due From/ Assets (Non-Current) Liabilities (Due To) ------- ------------- ----------- -------- FedEx Corporation $ - $ 86,890 $ (16,425) $ 70,465 Other Corporate Subsidiaries - - - - - -------------------------------------------------------------------------------
(5) INTERCOMPANY TRANSACTIONS The formation of FedEx Services Inc., ("FedEx Express"), a subsidiary of the Company's parent, FedEx Corporation, has changed the way certain costs are captured and allocated between the various FedEx Corporation operating segments. For example, salaries, wages and benefits, depreciation and other costs for the sales, marketing and information technology departments previously incurred at FedEx Express are now incurred at FedEx Services and allocated to FedEx Corporation's operating segments using various relevant metrics and are included in the line item "Intercompany charges". Consequently, certain expense data presented is not comparable to prior periods. The Company's parent believes the total amounts allocated to FedEx Express reasonably reflect the cost of providing such services. In addition, certain net assets owned by FedEx Express were transferred to FedEx Corporation in connection with the formation of FedEx Services. - 9 - 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, 2000, and the related condensed consolidated statements of income for the three- and six-month periods ended November 30, 2000 and 1999, and the condensed consolidated statements of cash flows for the six-month periods ended November 30, 2000 and 1999, included herein, as indicated in their report thereon included on page 11. - 10 - REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholder of Federal Express Corporation: We have reviewed the accompanying condensed consolidated balance sheet of Federal Express Corporation (a Delaware corporation) and subsidiaries as of November 30, 2000 and the related condensed consolidated statements of income for the three- and six-month periods ended November 30, 2000, and the condensed consolidated statements of cash flows for the six-month periods ended November 30, 2000 and 1999. 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 accounting principles generally accepted in the United States. We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of Federal Express Corporation as of May 31, 2000 and the related consolidated statements of income, changes in owner's equity and comprehensive income and cash flows for the year then ended. In our report dated June 27, 2000, we expressed an unqualified opinion on those financial statements, which are not presented herein. In our opinion, the accompanying condensed consolidated balance sheet as of May 31, 2000 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 19, 2000 - 11 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS 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 Six Months Ended ------------------ Percent ---------------- Percent 2000 1999(1) Change 2000 1999(1) Change ---- ---- ------ ---- ----- ------- Revenues: Package: U.S. overnight box(2) $1,484 $1,393 + 7 $2,964 $2,773 + 7 U.S. overnight envelope(3) 456 451 + 1 928 904 + 3 U.S. deferred 634 588 + 8 1,252 1,147 + 9 International Priority (IP) 1,023 881 +16 2,007 1,699 +18 ------ ------ ------ ------ Total package revenue 3,597 3,313 + 9 7,151 6,523 +10 Freight: U.S. 177 144 +23 339 274 +24 International 102 127 -20 217 253 -14 ------ ------ ------ ------ Total freight revenue 279 271 + 3 556 527 + 6 Other 105 152 -31 190 273 -30 ------ ------ ------ ------ Total revenues $3,981 $3,736 + 7 $7,897 $7,323 + 8 ====== ====== ====== ====== Operating Expenses: Salaries and employee benefits 1,582 3,178 Purchased transportation 147 297 Rentals and landing fees 354 698 Depreciation and amortization 201 398 Fuel 300 541 Maintenance and repairs 238 506 Intercompany charges 346 673 Other 542 1,078 ------ ----- Total operating expenses 3,710 3,525 + 5 7,369 6,903 + 7 ------ ------ ------ ------ Operating income $ 271 $ 211 +28 $ 528 $ 420 +26 ====== ====== ====== ====== - -------------------------------------------------------------------------------------------------------- Package statistics: Average daily packages: U.S. overnight box 1,292 1,241 + 4 1,273 1,222 + 4 U.S. overnight envelope 757 770 - 2 757 759 - U.S. deferred 924 913 + 1 900 876 + 3 IP 359 323 +11 348 310 +12 ------ ------ ------ ------ Composite 3,332 3,247 + 3 3,278 3,167 + 4 Revenue per package (yield): U.S. overnight box $18.23 $17.82 + 2 $18.19 $17.72 + 3 U.S. overnight envelope 9.56 9.29 + 3 9.58 9.30 + 3 U.S. deferred 10.88 10.22 + 6 10.87 10.24 + 6 IP 45.27 43.31 + 5 45.04 42.88 + 5 Composite 17.13 16.20 + 6 17.04 16.09 + 6 Freight statistics: Average daily pounds: U.S. 4,749 5,072 - 6 4,556 4,810 - 5 International 2,234 2,574 -13 2,273 2,539 -10 ------ ------ ------ ------ Composite 6,983 7,646 - 9 6,829 7,349 - 7 Revenue per pound (yield): U.S. $ .59 $ .45 +31 $ .58 $ .45 +29 International .73 .78 - 6 .75 .78 - 4 Composite .63 .56 +13 .64 .56 +14
1 Operating expense detail for the three- and six-month periods ended November 30, 1999 has been omitted, as this data is not comparable to the three- and six-month periods ended November 30, 2000. See Note 5 to Condensed Consolidated Financial Statements. 2 The U.S. Overnight Box category includes packages exceeding 8 ounces in weight. 3 The U.S. Overnight Envelope category includes envelopes weighing 8 ounces or less. =============================================================================== - 12 - Revenues Federal Express Corporation (referred to herein as the "Company") total package revenue increased 9% in the second quarter and 10% in the first half of 2001, principally due to increases in IP and U.S. overnight box volumes. Average daily package volume growth rates for U.S. domestic overnight box maintained a steady growth rate of 4% for the second quarter and the first half. Total package yield increased 6% for the second quarter and first half of 2001, continuing the upward trend resulting from our yield-management strategy, which includes restricting growth of less profitable business. Total freight revenue for the second quarter and first half of 2001 increased due to significantly improved yields in U.S. freight, offset by declines in domestic freight volume and international freight volume and yield. Other revenue included Canadian domestic revenue, charter services, logistics services, sales of hushkits and other. Hushkit sales have continued to decrease compared to the prior year periods and are expected to be immaterial for the remainder of 2001. Operating Income Operating income increased 28% for the second quarter and 26% for the first half of 2001 year over year, despite higher fuel costs. A 36% increase in average jet fuel price per gallon contributed to a negative impact of approximately $67 million on second quarter total fuel costs, including the results of jet fuel hedging contracts entered into to mitigate some of the increased jet fuel costs. For the first half, the impact was $110 million, net of hedging effects, resulting from a 33% increase in average jet fuel price per gallon. Fuel surcharges implemented during 2000 offset the increase in fuel costs in the second quarter. The Company's parent, FedEx Corporation, has also entered into jet fuel hedging contracts on behalf of the Company through 2002, as outlined in the table below:
2001 ----------------- Third Fourth Quarter Quarter 2002 ------- ------- ----- Percentage of usage hedged 23% 62% 33% Price per gallon (including $.727 $.786 $.964 taxes and fees)
Cost containment and productivity enhancement programs contributed to the increased second quarter and year-to-date operating margin. Staffing levels in general and administrative support functions were held flat, and discretionary spending was reduced. Maintenance and repairs expense decreased year over year for the second quarter due to the timing of scheduled aircraft maintenance; for the first half, these expenses were consistent with the prior year period. Year-over-year comparisons were also affected by the reduction in the contribution from sales of hushkits. Operating profit from these sales was $6 million for the second quarter and $7 million for the first half of 2001 compared to $14 million and $29 million in the respective prior year periods. - 13 - OUTLOOK Recently, the U.S. economy has slowed substantially. While softness in some market segments, such as the automotive sector, has been experienced over the past six months, the continued slowing of the economy has more recently been noted as a decrease in general consumer spending resulting in less demand for the transportation of all consumer goods. Volumes for the month of December 2000 were adversely affected by the current economic situation. Our fiscal third quarter will also be negatively affected by the recent severe winter weather in much of the U.S., causing increased costs for de-icing, overtime and re-deliveries. In response to these slowing volume growth rates, the Company has implemented cost controls, further reducing discretionary spending, and decreased capital spending from our original plan (see "Capital Resources"). In late December 2000, the Company announced list rate increases averaging 4.9% for shipments within the U.S. and 2.9% for U.S. export shipments, which will be effective February 1, 2001. We do not anticipate that the forecasted economic conditions will impact our pricing or pricing strategies. Despite the near-term outlook, we believe that we are well positioned for long-term growth. In January 2001, we entered into a business alliance with the U.S. Postal Service, which is expected to generate revenue of approximately $7 billion over seven years and is consistent with our goals of improving margins, cash flows and returns. Moreover, our strategic initiatives in support of long-term growth goals have not changed: we will continue to make expenditures for the expansion of our IP business through strategic alliances such as LaPoste in Europe and through global network enhancements such as adding routes and increasing capacity as well as for the design, testing and implementation of new customer-facing technologies such as e-commerce solutions, enhanced customer service tools and internet-based offerings, as well as internal technologies such as improved scanning and wireless transmissions. The globalization of markets will continue, and because of our extensive international network, we believe we are in a position to continue to capitalize on that expansion. We also believe the reliable service and tracking capabilities offered by the Company will become even more important to customers as they seek to shorten their supply chains and decrease inventory levels. FINANCIAL CONDITION Liquidity Cash and cash equivalents totaled $93 million at November 30, 2000 compared to $89 million at May 31, 2000. Cash flows from operating activities for the first half of 2001 totaled $692 million, compared to $531 million for the prior year period. We believe that cash flow from operations and the FedEx Corporation commercial paper program and credit facilities will adequately provide for the Company's working capital needs for the foreseeable future. Capital Resources Our operations require 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. - 14 - We have historically financed our capital investments through the use of lease, debt and equity financing in addition to the use of internally generated cash from operations. For information on the Company's purchase commitments, see Note 3 of Notes to Condensed Consolidated Financial Statements. We believe that the capital resources available to us provide flexibility to access the most efficient markets for financing capital acquisitions, including aircraft, and are adequate for the Company's future capital needs. Regulatory Matters In November 2000, the U.S. Occupational Safety and Health Administration, or OSHA, published final regulations to mandate an ergonomics standard that could require many businesses, including the Company, to make significant changes in the workplace in an effort to reduce the incidence of musculoskeletal disorders such as lower back pain. The new regulations do not specify which workplace changes would be required in order for businesses to be in compliance. We have joined other affected parties in lawsuits challenging the legality, as well as the economic and technical feasibility, of the proposed regulations. Pending the results of these legal challenges, the new regulations will go into effect in mid-January 2001 and will have an initial compliance date of October 15, 2001. If the new regulations are upheld and if OSHA applies the new regulations in the same way as it attempted unsuccessfully in the past to impose ergonomic measures under its general authority, we would be required to make extensive changes to the layout of our sorting facilities and hire a significant number of additional employees. We believe that the cost of compliance would be substantial and have a material adverse effect on our business. We expect that our competitors, along with the rest of American industry, would also incur substantial compliance costs. Euro Currency Conversion Since the beginning of the European Union's transition to the euro on January 1, 1999, we have been prepared to quote rates to customers, generate billings and accept payments, in both euro and legacy currencies. The legacy currencies will remain legal tender through December 31, 2001. We believe that the introduction of the euro, any price transparency brought about by its introduction and the phasing out of the legacy currencies will not have a material impact on our consolidated financial position, results of operations or cash flows. Costs associated with the euro transition are being expensed as incurred and are being funded entirely by internal cash flows. The devaluation of the Euro had an immaterial negative impact on the results of operations of the Company for the second quarter and first half of 2001. * * * CERTAIN STATEMENTS CONTAINED IN THIS REPORT ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, SUCH AS STATEMENTS RELATING TO MANAGEMENT'S VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL EXPERIENCE OR FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. POTENTIAL RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, ECONOMIC AND COMPETITIVE CONDITIONS IN THE MARKETS WHERE THE COMPANY OPERATES, CONTINUED INCREASES IN FUEL COSTS AND THE ABILITY TO MITIGATE THE EFFECTS OF SUCH INCREASES THROUGH FUEL SURCHARGES AND HEDGING ACTIVITIES, MATCHING CAPACITY TO VOLUME LEVELS AND OTHER UNCERTAINTIES DETAILED FROM TIME TO TIME IN THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS. EXCEPT AS OTHERWISE INDICATED, REFERENCES TO YEARS MEANS THE COMPANY'S FISCAL YEAR ENDING MAY 31 OF THE YEAR REFERENCED. - 15 - ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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, 2000. Foreign currency fluctuations during the second quarter of 2001 did not have a material effect on the results of operations for the period. Many of the Company's international sales transactions are denominated in U.S. dollars, which mitigates the impact of foreign currency fluctuations. - 16 - PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits.
Exhibit Number Description of Exhibit ------- ---------------------- 10.1 Amendment dated November 27, 2000 to Sales Agreement dated April 7, 1995 between Federal Express Corporation and American Airlines, Inc. (Filed as Exhibit 10.1 to FedEx Corporation's Quarterly Report on Form 10-Q for the quarter ended November 30, 2000, and incorporated herein by reference.) 10.2 Credit Agreement among FedEx Corporation, the Lenders named therein, Commerzbank AG, as Syndication Agent, Bank of America, N.A., as Documentation Agent, The Chase Manhattan Bank, as Administrative Agent, and Chase Securities Inc., as Lead Arranger and Book Manager, dated as of December 13, 2000 (filed as Exhibit (b)(2) to FedEx's Schedule TO (Amendment No. 2)). (Filed by FedEx Corporation with the SEC on December 15, 2000, and incorporated herein by reference.) 10.3 Guarantee of Federal Express Corporation dated as of December 13,2000, relating to Credit Agreement of FedEx Corporation dated December 13, 2000. 12.1 Computation of Ratio of Earnings to Fixed Charges. 15.1 Letter re: Unaudited Interim Financial Statements.
(b) Reports on Form 8-K. During the quarter ended November 30, 2000, the registrant filed one Current Report on Form 8-K dated January 10, 2001. The report disclosed the execution of a transportation agreement and a retail agreement with the United States Postal Service. - 17 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FEDERAL EXPRESS CORPORATION Date: January 12, 2001 /s/ MICHAEL W. HILLARD ------------------------------ MICHAEL W. HILLARD VICE PRESIDENT & CONTROLLER (PRINCIPAL ACCOUNTING OFFICER) - 18 - EXHIBIT INDEX
Exhibit Number Description of Exhibit - ------- ---------------------- 10.3 Guarantee of Federal Express Corporation dated as of December 13,2000, relating to Credit Agreement of FedEx Corporation dated December 13, 2000. 12.1 Computation of Ratio of Earnings to Fixed Charges. 15.1 Letter re: Unaudited Interim Financial Statements.
E-1 EX-10.3 2 a2034927zex-10_3.txt GUARANTEE OF FEDEX CORP Exhibit 10.3 GUARANTY THIS GUARANTY (this "Guaranty") is made as of the 13th day of December, 2000, by Federal Express Corporation, a Delaware corporation, Viking Freight, Inc., a California corporation, FedEx Ground Package System, Inc., a Delaware corporation, and FedEx Custom Critical, Inc., an Ohio corporation (collectively, the "Initial Guarantors" and along with any Significant Subsidiaries which become parties to this Agreement by executing an Addendum hereto in the form attached as Annex I, the "Guarantors") in favor of the Administrative Agent, for the ratable benefit of the Lenders, under (and as defined in) the Credit Agreement referred to below. Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to them in the Credit Agreement. W I T N E S S E T H: - - - - - - - - - -- WHEREAS, FedEx Corporation, a Delaware corporation (the "Borrower"), The Chase Manhattan Bank, as administrative agent (the "Administrative Agent"), and certain Lenders have entered into a certain Credit Agreement dated as of December 13, 2000 (as the same may be amended, modified, supplemented and/or restated, and as in effect from time to time, the "Credit Agreement"), providing, subject to the terms and conditions thereof, for extensions of credit to be made by the Lenders to the Borrower; WHEREAS, it is a condition precedent to the initial extensions of credit by the Lenders under the Credit Agreement that each of the Guarantors execute and deliver this Guaranty, whereby each of the Guarantors shall guarantee the payment when due, subject to SECTION 8 hereof, of any and all of the Obligations; and WHEREAS, in consideration of the financial and other support that the Borrower has provided, and such financial and other support as the Borrower may in the future provide, to the Guarantors, and in order to induce the Lenders and the Administrative Agent to enter into the Credit Agreement, each of the Guarantors is willing to guarantee the Obligations of the Borrower under the Credit Agreement; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 2 SECTION 1. DEFINITIONS. Terms defined in the Credit Agreement and not otherwise defined herein have, as used herein, the respective meanings provided for therein. SECTION 2. REPRESENTATIONS AND WARRANTIES. Each of the Guarantors represents and warrants (which representations and warranties shall be deemed to have been renewed at the time of the making of any Advance) that: (a) It is a corporation, limited liability company, partnership or other commercial entity duly incorporated or formed, validly existing and in good standing under the laws of its jurisdiction of incorporation or formation and has all requisite authority to conduct its business as a foreign Person in each jurisdiction in which its business is conducted, except where the failure to have such requisite authority would not have a Material Adverse Effect. (b) It has the power and authority and legal right to execute and deliver this Guaranty and to perform its obligations hereunder. The execution and delivery by it of this Guaranty and the performance by it of its obligations hereunder have been duly authorized by proper proceedings, and this Guaranty constitutes a legal, valid and binding obligation of such Guarantor enforceable against such Guarantor in accordance with its 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. (c) Neither the execution and delivery by it of this Guaranty, nor the consummation by it of the transactions herein contemplated, nor compliance by it with the terms and provisions hereof, will violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on it or its certificate or articles of incorporation or by-laws, limited liability company or partnership agreement or the provisions of any indenture, instrument or material agreement to which it is a party or is subject, or by which it, or its property, is bound, or conflict with or constitute a default thereunder, or result in the creation or imposition of any Lien in, of or on its property pursuant to the term of any such indenture, instrument or material agreement. No order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any governmental authority, is required to authorize, or is required in connection with the execution, delivery and performance by it of, or the legality, validity, binding effect or enforceability of, this Guaranty. 3 SECTION 3. THE GUARANTY. Subject to SECTION 8 hereof, each of the Guarantors hereby unconditionally guarantees, jointly with the other Guarantors and severally, the full and punctual payment when due (whether at stated maturity, upon acceleration or otherwise) of the Obligations, (the foregoing, subject to the provisions of SECTION 8 hereof, being referred to collectively as the "Guaranteed Obligations"). Upon failure by the Borrower to pay punctually any such amount, each of the Guarantors agrees that it shall forthwith on demand pay such amount at the place and in the manner specified in the Credit Agreement or the relevant Loan Document, as the case may be. Each of the Guarantors hereby agrees that this Guaranty is an absolute, irrevocable and unconditional guaranty of payment and is not a guaranty of collection. SECTION 4. GUARANTY UNCONDITIONAL. Subject to SECTION 8 hereof, the obligations of each of the Guarantors hereunder shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (i) any extension, renewal, settlement, indulgence, compromise, waiver or release of or with respect to the Guaranteed Obligations or any part thereof or any agreement relating thereto, or with respect to any obligation of any other guarantor of any of the Guaranteed Obligations, whether (in any such case) by operation of law or otherwise, or any failure or omission to enforce any right, power or remedy with respect to the Guaranteed Obligations or any part thereof or any agreement relating thereto, or with respect to any obligation of any other guarantor of any of the Guaranteed Obligations; (ii) any modification or amendment of or supplement to the Credit Agreement or any other Loan Document, including, without limitation, any such amendment which may increase the amount of the Obligations guaranteed hereby; (iii) any release, surrender, compromise, settlement, waiver, subordination or modification, with or without consideration, of any collateral securing the Guaranteed Obligations or any part thereof, any other guaranties with respect to the Guaranteed Obligations or any part thereof, or any other obligation of any person or entity with respect to the Guaranteed Obligations or any part thereof, or any nonperfection or invalidity of any direct or indirect security for the Guaranteed Obligations; (iv) any change in the corporate, partnership or other existence, structure or ownership of the Borrower or any other guarantor of any of the Guaranteed Obligations, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Borrower or any other guarantor of the Guaranteed Obligations, or any of their respective assets or any resulting release or discharge of any obligation of the Borrower or any other guarantor of any of the Guaranteed Obligations; (v) the existence of any claim, setoff or other rights which the Guarantors may have at any time against the Borrower, any other guarantor of any of the Guaranteed Obligations, the Administrative Agent, any Lender or any other Person, whether in connection herewith or in connection with any unrelated 4 transactions, PROVIDED that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; (vi) the enforceability or validity of the Guaranteed Obligations or any part thereof or the genuineness, enforceability or validity of any agreement relating thereto or with respect to any collateral securing the Guaranteed Obligations or any part thereof, or any other invalidity or unenforceability relating to or against the Borrower or any other guarantor of any of the Guaranteed Obligations, for any reason related to the Credit Agreement, any other Loan Document, or any provision of applicable law or regulation purporting to prohibit the payment by the Borrower or any other guarantor of the Guaranteed Obligations, of any of the Guaranteed Obligations; (vii) the failure of the Administrative Agent to take any steps to perfect and maintain any security interest in, or to preserve any rights to, any security or collateral for the Guaranteed Obligations, if any; (viii) the election by, or on behalf of, any one or more of the Lenders, in any proceeding instituted under Chapter 11 of Title 11 of the United States Code (11 U.S.C. 101 et seq.) (the "Bankruptcy Code"), of the application of Section 1111(b)(2) of the Bankruptcy Code; (ix) any borrowing or grant of a security interest by the Borrower, as debtor-in-possession, under Section 364 of the Bankruptcy Code; (x) the disallowance, under Section 502 of the Bankruptcy Code, of all or any portion of the claims of any of the Lenders or the Administrative Agent for repayment of all or any part of the Guaranteed Obligations; (xi) the failure of any other Guarantor to sign or become party to this Guaranty or any amendment, change, or reaffirmation hereof; or (xii) any other act or omission to act or delay of any kind by the Borrower, any other guarantor of the Guaranteed Obligations, the Administrative Agent, any Lender or any other Person or any other circumstance whatsoever which might, but for the provisions of this Section 4, constitute a legal or equitable discharge of any Guarantor's obligations hereunder. SECTION 5. DISCHARGE ONLY UPON PAYMENT IN FULL; REINSTATEMENT IN CERTAIN CIRCUMSTANCES. Except as otherwise provided in Section 9.16 of the Credit Agreement, each of the Guarantors' obligations hereunder shall remain in full force and effect until all Guaranteed Obligations shall have been paid in full and the Revolving Commitments under the Credit Agreement shall have terminated or expired. If at any time any payment of any portion of the Obligations is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, each Guarantor's obligations hereunder with respect to such payment shall be reinstated as though such payment had been due but not made at such time. SECTION 6. GENERAL WAIVERS. Each of the Guarantors irrevocably waives acceptance hereof, presentment, demand or action on delinquency, protest, the benefit of any statutes of 5 limitations and, to the fullest extent permitted by law, any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against the Borrower, any other guarantor of the Guaranteed Obligations, or any other Person. SECTION 7. SUBORDINATION OF SUBROGATION. Until the Obligations have been indefeasibly paid in full in cash, the Guarantors (i) shall have no right of subrogation with respect to such Obligations and (ii) waive any right to enforce any remedy which the Lenders or the Administrative Agent now have or may hereafter have against the Borrower, any endorser or any guarantor of all or any part of the Obligations or any other Person, and the Guarantors waive any benefit of, and any right to participate in, any security or collateral given to the Lenders and the Administrative Agent to secure the payment or performance of all or any part of the Obligations or any other liability of the Borrower to the Lenders. Should any Guarantor have the right, notwithstanding the foregoing, to exercise its subrogation rights, each Guarantor hereby expressly and irrevocably (a) subordinates any and all rights at law or in equity to subrogation, reimbursement, exoneration, contribution, indemnification or set off that the Guarantor may have to the indefeasible payment in full in cash of the Obligations and (b) waives any and all defenses available to a surety, guarantor or accommodation co-obligor until the Obligations are indefeasibly paid in full in cash. Each Guarantor acknowledges and agrees that this subordination is intended to benefit the Administrative Agent and the Lenders and shall not limit or otherwise affect such Guarantor's liability hereunder or the enforceability of this Guaranty, and that the Administrative Agent, the Lenders and their respective successors and assigns are intended third party beneficiaries of the waivers and agreements set forth in this SECTION 7. SECTION 8. LIMITATION. Notwithstanding any provision herein contained to the contrary, each Guarantor's liability under this Guaranty (which liability is in any event in addition to amounts for which such entity may be primarily liable) shall be limited to an amount not to exceed as of any date of determination the greater of: (a) the net amount of all Loans advanced to the Borrower under this Agreement and then re-loaned or otherwise transferred to, or for the benefit of, such Guarantor; and (b) the amount which could be claimed by the Administrative Agent and the Lenders from such Guarantor under this Guaranty without rendering such claim voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law after taking into account, among other things, such Guarantor's right of contribution and indemnification from each other Guarantor under SECTION 9. SECTION 9. CONTRIBUTION WITH RESPECT TO GUARANTY OBLIGATIONS. (a) To the extent that any Guarantor shall make a payment under this Guaranty (a "Guarantor Payment") which, taking into account all other Guarantor Payments then previously or concurrently made by any other Guarantor, exceeds the amount which such Guarantor would otherwise have paid if each Guarantor had paid the aggregate Obligations satisfied by such Guarantor Payment in the same proportion that such Guarantor's "Allocable Amount" (as defined below) (as determined immediately prior to such Guarantor 6 Payment) bore to the aggregate Allocable Amounts of each of the Guarantors as determined immediately prior to the making of such Guarantor Payment, THEN, following indefeasible payment in full in cash of the Obligations and termination of the Revolving Commitments, such Guarantor shall be entitled to receive contribution and indemnification payments from, and be reimbursed by, each other Guarantor for the amount of such excess, PRO RATA based upon their respective Allocable Amounts in effect immediately prior to such Guarantor Payment. (b) As of any date of determination, the "Allocable Amount" of any Guarantor shall be equal to the maximum amount of the claim which could then be recovered from such Guarantor under this Guaranty without rendering such claim voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law. (c) This SECTION 9 is intended only to define the relative rights of the Guarantors and nothing set forth in this SECTION 9 is intended to or shall impair the obligations of the Guarantors, jointly and severally, to pay any amounts as and when the same shall become due and payable in accordance with the terms of this Agreement. (d) The parties hereto acknowledge that the rights of contribution and indemnification hereunder shall constitute assets of the Guarantor to which such contribution and indemnification is owing. (e) The rights of the indemnifying Guarantors against other Guarantors under this SECTION 9 shall be exercisable upon the full and indefeasible payment of the Obligations and the termination of the Revolving Commitments. 7 SECTION 10. STAY OF ACCELERATION. If acceleration of the time for payment of any of the Obligations is stayed upon the insolvency, bankruptcy or reorganization of the Borrower, all such amounts otherwise subject to acceleration under the terms of the Credit Agreement, or any other Loan Document shall nonetheless be payable by each of the Guarantors hereunder forthwith on demand by the Administrative Agent. SECTION 11. NO WAIVERS. No failure or delay by the Administrative Agent or any Lender in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in this Guaranty, the Credit Agreement, and the other Loan Documents shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 12. SUCCESSORS AND ASSIGNS. This Guaranty is for the benefit of the Administrative Agent and the Lenders and their respective successors and permitted assigns and in the event of an assignment of any amounts payable under the Credit Agreement, or the other Loan Documents in accordance with the respective terms thereof, the rights hereunder, to the extent applicable to the indebtedness so assigned, may be transferred with such indebtedness. This Guaranty shall be binding upon each of the Guarantors and their respective successors and assigns. SECTION 13. CHANGES IN WRITING. Neither this Guaranty nor any provision hereof may be changed, waived, discharged or terminated orally, but only in writing signed by each of the Guarantors and the Administrative Agent with the consent of the Lenders required for such change, waiver, discharge or termination pursuant to the terms of the Credit Agreement. SECTION 14. GOVERNING LAW. ANY DISPUTE BETWEEN ANY GUARANTOR AND THE ADMINISTRATIVE AGENT OR ANY LENDER ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF NEW YORK. SECTION 15. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL. (A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH OF THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN NEW YORK, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK. EACH OF THE PARTIES HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION (A) ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. 8 (B) OTHER JURISDICTIONS. EACH OF THE GUARANTORS AGREES THAT THE ADMINISTRATIVE AGENT, ANY LENDER OR ANY INDEMNITEE SHALL HAVE THE RIGHT TO PROCEED AGAINST SUCH GUARANTOR OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL JURISDICTION OVER SUCH GUARANTOR OR (2) ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. EACH OF THE GUARANTORS AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. EACH OF THE GUARANTORS WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION (B). (C) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS GUARANTY OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS GUARANTY WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (D) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE PROVISIONS OF THIS SECTION 15, WITH ITS COUNSEL. SECTION 16. NO STRICT CONSTRUCTION. The parties hereto have participated jointly in the negotiation and drafting of this Guaranty. In the event an ambiguity or question of intent or interpretation arises, this Guaranty shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Guaranty. SECTION 17. TAXES, EXPENSES OF ENFORCEMENT, ETC. All payments required to be made by any of the Guarantors hereunder shall be made without setoff or counterclaim and free and clear of and without deduction or withholding for or on account of, any present or future taxes, levies, imposts, duties or other charges of whatsoever nature imposed by any government or any political or taxing authority thereof, PROVIDED, HOWEVER, that if any of the Guarantors is required by law to make such deduction or withholding, such Guarantor shall forthwith pay to the Administrative Agent or any Lender, as applicable, such additional amount as results in the net amount received by the Administrative Agent or any Lender, as applicable, equaling the full amount which would have been received by the Administrative Agent or any Lender, as applicable, had no such deduction or withholding been made. The Guarantors also agree to reimburse the Administrative Agent and the Lenders for any reasonable costs, internal charges and out-of-pocket expenses (including reasonable attorneys' fees and time charges of attorneys for the Administrative Agent and the Lenders, which attorneys may be employees of the Administrative Agent or the Lenders) paid or incurred by the 9 Administrative Agent or any Lender in connection with the collection and enforcement of amounts due under the Loan Documents, including without limitation this Guaranty. SECTION 18. SETOFF. At any time after all or any part of the Guaranteed Obligations have become due and payable (by acceleration or otherwise), each Lender and the Administrative Agent may, without notice to any Guarantor and regardless of the acceptance of any security or collateral for the payment hereof, appropriate and apply toward the payment of all or any part of the Guaranteed Obligations (i) any indebtedness due or to become due from such Lender or the Administrative Agent to any Guarantor, and (ii) any moneys, credits or other property belonging to any Guarantor, at any time held by or coming into the possession of such Lender or the Administrative Agent or any of their respective affiliates. SECTION 19. FINANCIAL INFORMATION. Each Guarantor hereby assumes responsibility for keeping itself informed of the financial condition of the Borrower and any and all endorsers and/or other Guarantors of all or any part of the Guaranteed Obligations, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations, or any part thereof, that diligent inquiry would reveal, and each Guarantor hereby agrees that none of the Lenders or the Administrative Agent shall have any duty to advise such Guarantor of information known to any of them regarding such condition or any such circumstances. If any Lender or the Administrative Agent, in its sole discretion, undertakes at any time or from time to time to provide any such information to a Guarantor, such Lender or the Administrative Agent shall be under no obligation (i) to undertake any investigation not a part of its regular business routine, (ii) to disclose any information which such Lender or the Administrative Agent, pursuant to accepted or reasonable commercial finance or banking practices, wishes to maintain confidential or (iii) to make any other or future disclosures of such information or any other information to such Guarantor. SECTION 20. SEVERABILITY. Wherever possible, each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Guaranty. SECTION 21. MERGER. This Guaranty represents the final agreement of each of the Guarantors with respect to the matters contained herein and may not be contradicted by evidence of prior or contemporaneous agreements, or subsequent oral agreements, between the Guarantor and any Lender or the Administrative Agent. SECTION 22. EXECUTION IN COUNTERPARTS. This Guaranty may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Guaranty by signing any such counterpart. SECTION 23. HEADINGS. Section headings in this Guaranty are for convenience of reference only and shall not govern the interpretation of any provision of this Guaranty. 10 IN WITNESS WHEREOF, each of the Guarantors has caused this Guaranty to be duly executed by its authorized officer as of the day and year first above written. FEDERAL EXPRESS CORPORATION By: /s/ Tracy G. Schmidt -------------------------------------- Name: Tracy G. Schmidt ----------------------------------- Title: Senior Vice President and Chief ------------------------------------ Financial Officer ----------------------------------- FEDEX GROUND PACKAGE SYSTEM, INC. By: /s/ Daniel J. Sullivan -------------------------------------- Name: Daniel J. Sullivan -------------------------------------- Title: President and Chief Executive Officer -------------------------------------- FEDEX CUSTOM CRITICAL, INC. By: /s/ R. Bruce Simpson -------------------------------------- Name: R. Bruce Simpson ----------------------------------- Title: President and Chief Executive Officer -------------------------------------- VIKING FREIGHT, INC. By: /s/ Douglas G. Duncan -------------------------------------- Name: Douglas G. Duncan ----------------------------------- Title: President and Chief Executive Officer -------------------------------------- ANNEX I TO GUARANTY Reference is hereby made to the Guaranty (the "Guaranty") made as of the _____ day of December, 2000 by Federal Express Corporation, a Delaware corporation, Viking Freight, Inc., a California corporation, FedEx Ground Package System, Inc., a Delaware corporation, and FedEx Custom Critical, Inc., an Ohio corporation (collectively, the "Initial Guarantors" and along with any Significant Subsidiaries which have become parties thereto and together with the undersigned, the "Guarantors") in favor of the Administrative Agent, for the ratable benefit of the Lenders, under the Credit Agreement. Capitalized terms used herein and not defined herein shall have the meanings given to them in the Guaranty. By its execution below, the undersigned [NAME OF NEW GUARANTOR], a _______________________, agrees to become, and does hereby become, a Guarantor under the Guaranty and agrees to be bound by such Guaranty as if originally a party thereto. By its execution below, the undersigned represents and warrants as to itself that all of the representations and warranties contained in SECTION 2 of the Guaranty are true and correct in all respects as of the date hereof. IN WITNESS WHEREOF, [NAME OF NEW GUARANTOR], a ________________________ has executed and delivered this Annex I counterpart to the Guaranty as of this ________________ day of _______________, ________________. [NAME OF NEW GUARANTOR] By: ------------------------------------------------- Name: ----------------------------------------------- Title: ---------------------------------------------- EX-12.1 3 a2034927zex-12_1.txt COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12.1 FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited)
Six Months Ended Year Ended May 31, November 30, -------------------------------------------------------------- ----------------------- 1996 1997 1998 1999 2000 1999 2000 ---------- ---------- ---------- ---------- ---------- -------- ---------- (In thousands, except ratios) Earnings: Income before income taxes ....... $ 539,959 $ 628,221 $ 735,213 $ 770,700 $ 843,547 $ 384,679 $ 489,186 Add back: Interest expense, net of capitalized interest ......... 105,449 95,689 117,726 90,595 81,646 40,407 40,134 Amortization of debt issuance costs ............... 1,628 1,328 1,339 9,199 602 308 283 Portion of rent expense representative of interest factor .............. 386,254 434,846 499,823 535,486 575,397 284,268 277,134 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Earnings as adjusted ............. $1,033,290 $1,160,084 $1,354,101 $1,405,980 $1,501,192 $ 709,662 $ 806,737 ========== ========== ========== ========== ========== ========== ========== Fixed Charges: Interest expense, net of capitalized interest ........... $ 105,449 $ 95,689 $ 117,726 $ 90,595 $ 81,646 $ 40,407 $ 40,134 Capitalized interest ............. 39,254 39,449 31,443 35,152 30,168 15,362 9,629 Amortization of debt issuance costs ................. 1,628 1,328 1,339 9,199 602 308 283 Portion of rent expense representative of interest factor ................ 386,254 434,846 499,823 535,486 575,397 284,268 277,134 ---------- ---------- ---------- ---------- ---------- ---------- ---------- $ 532,585 $ 571,312 $ 650,331 $ 670,432 $ 687,813 $ 340,345 $ 327,180 ========== ========== ========== ========== ========== ========== ========== Ratio of Earnings to Fixed Charges 1.9 2.0 2.1 2.1 2.2 2.1 2.5 ========== ========== ========== ========== ========== ========== ==========
EX-15.1 4 a2034927zex-15_1.txt LETTER RE: UNAUDITED INTERIM FIN ST EXHIBIT 15.1 December 19, 2000 Federal Express Corporation 2005 Corporate Avenue Memphis, Tennessee 38132 We are aware that Federal Express Corporation will be incorporating by reference in its previously filed Registration Statements No. 333-80001, 333-74701 and 333-39006 its Report on Form 10-Q for the quarter ended November 30, 2000, which includes our report dated December 19, 2000 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 -----END PRIVACY-ENHANCED MESSAGE-----