-----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, II9jKudgyw0IwA+paljFKQYwaiumamGfD72bcDR38u3HuSu0eqPxFFphp88BGkfE wj9/+IrqEIbVjJiJoMCJ4g== 0001047469-98-014590.txt : 19980413 0001047469-98-014590.hdr.sgml : 19980413 ACCESSION NUMBER: 0001047469-98-014590 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980410 SROS: NONE 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: 98591877 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 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 FEBRUARY 28, 1998, 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.) 2005 Corporate Avenue Memphis, Tennessee (Address of principal 38132 executive offices) (Zip Code) (901) 369-3600 (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 / / The number of shares of common stock outstanding as of March 31, 1998 was 1,000. The Registrant is a wholly-owned subsidiary of FDX 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 AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION PAGE Condensed Consolidated Balance Sheets February 28, 1998 and May 31, 1997 . . . . . . . . . . . . . . . . . 3-4 Condensed Consolidated Statements of Income Three and Nine Months Ended February 28, 1998 and 1997 . . . . . . . 5 Condensed Consolidated Statements of Cash Flows Nine Months Ended February 28, 1998 and 1997 . . . . . . . . . . . . 6 Notes to Condensed Consolidated Financial Statements . . . . . . . . . 7-10 Review of Condensed Consolidated Financial Statements by Independent Public Accountants. . . . . . . . . . . . . . . . . . 11 Report of Independent Public Accountants . . . . . . . . . . . . . . . 12 Management's Discussion and Analysis of Results of Operations and Financial Condition. . . . . . . . . . . . . . . . . . . . . . . 13-18 PART II. OTHER INFORMATION Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 19 EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1 - 2 - FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS February 28, 1998 May 31, (Unaudited) 1997 ------------ ----------- (In thousands) Current Assets: Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 120,521 $ 122,023 Receivables, less allowance for doubtful accounts of $46,089,000 and $36,175,000. . . . . . . . . . . . . . 1,714,130 1,512,939 Spare parts, supplies and fuel . . . . . . . . . . . . . . . . 359,350 313,337 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . 183,291 149,158 Prepaid expenses and other . . . . . . . . . . . . . . . . . . 86,141 35,132 ----------- ---------- Total current assets. . . . . . . . . . . . . . . . . . . 2,463,433 2,132,589 ----------- ---------- Property and Equipment, at Cost (Note 5) . . . . . . . . . . . . 10,648,328 9,818,936 Less accumulated depreciation and amortization . . . . . . . . 5,683,806 5,196,856 ----------- ---------- Net property and equipment. . . . . . . . . . . . . . . . 4,964,522 4,622,080 ----------- ---------- Other Assets: Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . 354,686 365,327 Equipment deposits and other assets (Note 5) . . . . . . . . . 405,211 505,490 ----------- ---------- Total other assets. . . . . . . . . . . . . . . . . . . . 759,897 870,817 ----------- ---------- $ 8,187,852 $7,625,486 ----------- ---------- ----------- ----------
See accompanying Notes to Condensed Consolidated Financial Statements. - 3 - FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND OWNER'S EQUITY February 28, 1998 May 31, (Unaudited) 1997 ------------ ----------- (In thousands) Current Liabilities: Current portion of long-term debt (Note 3) . . . . . . . . . . $ 273,487 $ 126,666 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 865,017 828,421 Accrued expenses (Note 2). . . . . . . . . . . . . . . . . . . 1,083,176 1,007,696 ----------- ----------- Total current liabilities . . . . . . . . . . . . . . . . 2,221,680 1,962,783 ----------- ----------- Long-Term Debt, Less Current Portion (Note 3). . . . . . . . . . 1,286,741 1,397,954 ----------- ----------- Deferred Income Taxes. . . . . . . . . . . . . . . . . . . . . . 172,575 159,165 ----------- ----------- Other Liabilities. . . . . . . . . . . . . . . . . . . . . . . . 1,240,699 1,143,070 ----------- ----------- Commitments and Contingencies (Notes 5 and 6) Owner's Equity (Note 4): Common Stock, $.10 par value; 1,000 shares authorized, issued and outstanding . . . . . - - Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,266,157 2,962,514 ----------- ----------- Total owner's equity. . . . . . . . . . . . . . . . . . . 3,266,157 2,962,514 ----------- ----------- $ 8,187,852 $ 7,625,486 ----------- ----------- ----------- -----------
See accompanying Notes to Condensed Consolidated Financial Statements. - 4 - FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended February 28, February 28, ------------------------- ------------------------ 1998 1997 1998 1997 ---------- ---------- ---------- ---------- (In thousands) Revenues . . . . . . . . . . . . . . . . . . . . . $3,232,799 $2,906,819 $9,829,176 $8,451,500 ---------- ---------- ---------- ---------- Operating Expenses: Salaries and employee benefits . . . . . . . . . 1,448,313 1,298,727 4,324,273 3,777,361 Rentals and landing fees . . . . . . . . . . . . 321,112 277,798 912,059 798,375 Depreciation and amortization. . . . . . . . . . 214,510 195,751 625,856 576,923 Maintenance and repairs. . . . . . . . . . . . . 211,738 176,524 626,858 546,388 Fuel . . . . . . . . . . . . . . . . . . . . . . 185,963 189,377 542,126 517,377 Merger expenses. . . . . . . . . . . . . . . . . 14,000 - 14,000 - Other. . . . . . . . . . . . . . . . . . . . . . 739,108 635,715 2,207,939 1,787,304 ---------- ---------- ---------- ---------- 3,134,744 2,773,892 9,253,111 8,003,728 ---------- ---------- ---------- ---------- Operating Income . . . . . . . . . . . . . . . . . 98,055 132,927 576,065 447,772 ---------- ---------- ---------- ---------- Other Income (Expense): Interest, net. . . . . . . . . . . . . . . . . . (30,024) (23,018) (84,501) (66,052) Other, net . . . . . . . . . . . . . . . . . . . 1,027 (365) 8,998 15,941 ---------- ---------- ---------- ---------- (28,997) (23,383) (75,503) (50,111) ---------- ---------- ---------- ---------- Income Before Income Taxes . . . . . . . . . . . . 69,058 109,544 500,562 397,661 Income Tax Provision . . . . . . . . . . . . . . . 34,884 46,556 216,116 169,006 ---------- ---------- ---------- ---------- Net Income . . . . . . . . . . . . . . . . . . . . $ 34,174 $ 62,988 $ 284,446 $ 228,655 ---------- ---------- --------- ---------- ---------- ---------- --------- ----------
See accompanying Notes to Condensed Consolidated Financial Statements. - 5 - FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended February 28, ------------------- 1998 1997 ---------- ----------- (In thousands) Net Cash Provided by Operating Activities. . . . . . . . . . . . . . . . $ 683,638 $ 610,242 ----------- ----------- Investing Activities: Purchases of property and equipment, including deposits on aircraft of $7,792,000 and $25,007,000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,189,420) (1,111,085) Proceeds from disposition of property and equipment: Sale-leaseback transactions. . . . . . . . . . . . . . . . . . . . 247,852 162,400 Reimbursements of A300 deposits. . . . . . . . . . . . . . . . . . 106,991 63,039 Other dispositions . . . . . . . . . . . . . . . . . . . . . . . . 10,573 27,838 Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,268 25,359 ----------- ----------- Net cash used in investing activities. . . . . . . . . . . . . . . . . . (730,736) (832,449) ----------- ----------- Financing Activities: Proceeds from debt issuances . . . . . . . . . . . . . . . . . . . . . 267,105 225,752 Principal payments on debt . . . . . . . . . . . . . . . . . . . . . . (235,952) (7,761) Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,443 11,138 ----------- ----------- Net cash provided by financing activities. . . . . . . . . . . . . . . . 45,596 229,129 ----------- ----------- Net increase (decrease) in cash and cash equivalents . . . . . . . . . . (1,502) 6,922 Cash and cash equivalents at beginning of period . . . . . . . . . . . . 122,023 93,419 ----------- ----------- Cash and cash equivalents at end of period . . . . . . . . . . . . . . . $ 120,521 $ 100,341 ----------- ---------- ----------- ---------- Cash payments for: Interest (net of capitalized interest) . . . . . . . . . . . . . . . . $ 72,712 $ 54,320 ----------- ---------- ----------- ---------- Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 297,001 $ 145,669 ----------- ---------- ----------- ---------- Non-cash investing and financing activities: Fair value of assets surrendered under exchange agreements (with two airlines). . . . . . . . . . . . . . . $ 78,758 $ 32,841 Fair value of assets acquired under exchange agreements. . . . . . . . . . . . . . . . . . . . . . . . . 64,904 25,314 ----------- ---------- Fair value of assets receivable under exchange agreements. . . . . . . . . . . . . . . . . . . . . . . . . $ 13,854 $ 7,527 ----------- ---------- ----------- ----------
See accompanying Notes to Condensed Consolidated Financial Statements. - 6 - FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The interim financial statements 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 Federal Express Corporation's Annual Report on Form 10-K for the year ended May 31, 1997. 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 Federal Express Corporation and subsidiaries as of February 28, 1998, the consolidated results of their operations for the three- and nine-month periods ended February 28, 1998 and 1997, and their consolidated cash flows for the nine-month periods ended February 28, 1998 and 1997. Operating results for the three- and nine-month periods ended February 28, 1998 are not necessarily indicative of the results that may be expected for the year ending May 31, 1998. Federal Express Corporation (the "Company") has entered into contracts which are designed to limit its exposure to fluctuations in jet fuel prices. Under these contracts, the Company makes (or receives) payments based on the difference between a specified lower (or upper) limit 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. Certain prior period amounts have been reclassified to conform to the current presentation. (2) ACCRUED EXPENSES
February 28, 1998 May 31, (Unaudited) 1997 ------------ ---------- (In thousands) Compensated absences. . . . . . . . . $ 255,999 $ 234,284 Insurance . . . . . . . . . . . . . . 239,701 207,059 Taxes other than income taxes . . . . 174,009 143,541 Salaries. . . . . . . . . . . . . . . 108,410 101,694 Employee benefits . . . . . . . . . . 92,694 108,679 Aircraft overhaul . . . . . . . . . . 65,814 84,006 Interest. . . . . . . . . . . . . . . 46,189 28,165 Other . . . . . . . . . . . . . . . . 100,360 100,268 ---------- ---------- $1,083,176 $1,007,696 ---------- ---------- ---------- ----------
- 7 - (3) LONG-TERM DEBT
February 28, 1998 May 31, (Unaudited) 1997 ------------ ---------- (In thousands) Unsecured notes payable, interest rates of 6.25% to 10.57%, due through 2098 . . . . . $1,171,206 $ 928,525 Unsecured sinking fund debentures, interest rate of 9.63%, due through 2020 . . . . . . 98,512 98,461 Commercial paper, effective interest rate of 5.75% . . . . . . . . . . . . . . . - 200,904 Capital lease obligations and tax exempt bonds, due through 2017, interest rates of 5.35% to 8.30%. . . . . . . . . . . . . . . 253,425 255,100 Less bond reserves. . . . . . . . . . . . . 9,024 11,096 ---------- ---------- 244,401 244,004 Other debt, interest rates of 9.68% to 9.98% . 46,109 52,726 ---------- ---------- 1,560,228 1,524,620 Less current portion. . . . . . . . . . . . 273,487 126,666 ---------- ---------- $1,286,741 $1,397,954 ---------- ---------- ---------- ----------
In July 1997, the Memphis-Shelby County Airport Authority ("MSCAA") issued $20,105,000 of 5.35% Special Facilities Revenue Bonds. The proceeds of the bonds in combination with other funds were used to refund outstanding MSCAA 1982B 8.3% bonds on September 2, 1997. The 1997 bonds have a maturity date of July 1, 2012. The Company is obligated under an operating lease agreement with MSCAA to pay rentals equal to the principal and interest on the bonds. In July 1997, the Company issued $250,000,000 of 7.6% unsecured senior notes due July 1, 2097, under its July 1996 shelf registration with the Securities and Exchange Commission. (4) OWNER'S EQUITY On January 27, 1998, the Company became a wholly-owned subsidiary of FDX Corporation in connection with its acquisition of Caliber System, Inc. ("Caliber"). The acquisition was accounted for as a pooling of interests. FDX Corporation exchanged 0.8 shares of its common stock for each share of Caliber common stock. Each share of the Company's common stock was automatically converted into one share of FDX Corporation common stock. As a part of the transaction, the Company was recapitalized with 1,000 shares of common stock, $.10 par value. Owner's equity for prior periods has been restated to reflect the Company's change in capitalization. - 8 - (5) COMMITMENTS As of February 28, 1998, the Company's purchase commitments for the remainder of 1998 and annually thereafter under various contracts are as follows (in thousands):
Aircraft- Aircraft Related(1) Other(2) Total -------- ---------- -------- ----- 1998 (remainder) $ 26,400 $181,800 $304,900 $513,100 1999 405,700 280,400 183,600 869,700 2000 369,500 400,800 15,000 785,300 2001 278,000 393,000 - 671,000 2002 38,000 188,500 200 226,700
(1) Primarily aircraft modifications, rotables and spare parts and engines. (2) Primarily vehicles, facilities, computers and other equipment. The Company is committed to purchase 12 Airbus A300s, two Airbus A310s, five MD11s and 50 Ayres ALM 200s to be delivered through 2002. Deposits and progress payments of $34,142,000 have been made toward these purchases. The Company has entered into agreements with two airlines to acquire 53 DC10 aircraft, 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 the Company to purchase up to 29 additional DC10s along with additional aircraft engines and equipment. During the nine-month period ended February 28, 1998, the Company acquired five Airbus A300s under operating leases. These aircraft were included as purchase commitments as of May 31, 1997. At the time of delivery, the Company sold its rights to purchase these aircraft to third parties who reimbursed the Company for its deposits on the aircraft and paid additional consideration. The Company then entered into operating leases with each of the third parties who purchased the aircraft from the manufacturer. Lease commitments added since May 31, 1997 for the five Airbus A300s and three MD11s, purchased (in 1997 and 1998) and subsequently sold and leased back, are as follows (in thousands):
1998 $ 18,500 1999 47,200 2000 48,300 2001 46,400 2002 46,400 Thereafter 964,700
In March 1998, put options were exercised by an airline requiring the Company to purchase seven MD11s for a total purchase price of $416,000,000. Delivery of the aircraft will begin in 2000. - 9 - (6) LEGAL PROCEEDINGS Customers of the Company have filed four separate class-action lawsuits against the Company generally alleging that the Company has breached its contract with the plaintiffs in transporting packages shipped by them. These lawsuits allege that the Company continued to collect a 6.25% federal excise tax on the transportation of property shipped by air after the tax expired on December 31, 1995, until it was reinstated in August 1996. The plaintiffs seek certification as a class action, damages, an injunction to enjoin the Company from continuing to collect the excise tax referred to above, and an award of attorneys' fees and costs. Three of those cases were consolidated in Minnesota Federal District Court. That court stayed the consolidated cases in favor of a case filed in Circuit Court of Greene County, Alabama. The complaint in the Alabama case also alleges that the Company continued to collect the excise tax on the transportation of property shipped by air after the tax expired again on December 31, 1996. A fifth case, filed in the Supreme Court of New York, New York County, containing allegations and requests for relief substantially similar to the other four cases was dismissed with prejudice on the Company's motion on September 23, 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 have appealed. This case originally alleged that the Company 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 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 the Company 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 10 years through September 30, 2007. The Company intends to vigorously defend itself in these cases. No amount has been reserved for these contingencies. The Company is subject to other legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the aggregate liability, if any, with respect to these other actions will not materially adversely affect the financial position or results of operations of the Company. - 10 - 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 February 28, 1998, and the related condensed consolidated statements of income for the three- and nine-month periods ended February 28, 1998 and 1997 and the condensed consolidated statements of cash flows for the nine-month periods ended February 28, 1998 and 1997, included herein, as indicated in their report thereon included on page 12. - 11 - 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 and subsidiaries as of February 28, 1998 and the related condensed consolidated statements of income for the three- and nine-month periods ended February 28, 1998 and 1997 and the condensed consolidated statements of cash flows for the nine-month periods ended February 28, 1998 and 1997. 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 review 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 Federal Express Corporation and subsidiaries as of May 31, 1997 and the related consolidated statements of income, changes in common stockholders' investment and cash flows for the year then ended. In our report dated June 30, 1997, 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, 1997 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. Arthur Andersen LLP Memphis, Tennessee, March 25, 1998 - 12 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION On January 27, 1998, Federal Express Corporation ("the Company") and Caliber System, Inc. ("Caliber") became wholly-owned subsidiaries of a newly formed holding company, FDX Corporation ("FDX"). In this transaction, which was accounted for as a pooling of interests, Caliber shareholders received 0.8 shares of FDX common stock for each share of Caliber stock. Each share of the Company's common stock was automatically converted into one share of FDX common stock. The accompanying financial statements have been restated as if the Company had always been owned by FDX. RESULTS OF OPERATIONS For the three months ended February 28, 1998, the Company recorded net income of $34 million on revenues of $3.2 billion compared with net income of $63 million on revenues of $2.9 billion for the same period in the prior year. For the nine months ended February 28, 1998, the Company recorded net income of $284 million on revenues of $9.8 billion compared with net income of $229 million on revenues of $8.5 billion for the same period in the prior year. The decline in net income for the quarter reflects an international operating loss and expenses related to the acquisition of Caliber of $14 million (discussed below), moderated by strong U.S. domestic results. Year-to-date results reflect increased express package volumes and revenue per package (yield), partially offset by the incremental costs of handling these additional packages. Current quarter results included $14 million of expenses related to the acquisition of Caliber. These expenses were primarily investment banking fees. The year-to-date results of operations included the impact of the Teamsters strike against United Parcel Service ("UPS") in August 1997. During the 12 operating days of the strike, the Company delivered approximately 800,000 additional U.S. domestic express packages per day. It is difficult to estimate with precision the impact of this additional volume. However, the Company has retained a portion of this volume. The Company analytically calculated that the volume not retained at the end of the first quarter contributed approximately $150 million in U.S. domestic revenues to that quarter. Also in the year-to-date period, the Company realized a net gain of $17 million from the insurance settlement and the release from certain related liabilities on a leased MD11 aircraft destroyed in an accident in July 1997. This gain was almost equally divided between operating and non-operating income. An unrelated expense, which partially offset this gain, was an addition of $9 million to an operating reserve for the disposition of leased B747 aircraft. In recording the additional reserve, maintenance and repairs and rentals and landing fees expenses were increased. These aircraft, which were subleased, are undergoing certain maintenance and repairs before being transferred to a new lessee. The net effect of the MD11 gain and the B747 reserve on domestic and international operating income was immaterial. During the prior year's second quarter, domestic operating income included a $13.5 million pre-tax benefit from the settlement of a Tennessee personal property tax matter. A $17.1 million gain from an insurance settlement for a DC10 aircraft destroyed by fire in September 1996 was included in 1997's second quarter other income. - 13 - Revenues The following table shows a comparison of revenues (in millions):
Three Months Nine Months Ended Ended February 28, February 28, ---------------- Percent --------------- Percent 1998 1997 Change 1998 1997 Change ------ ------ ------- ------ ------ ------ U.S. domestic express. . . . . . . . . $2,301 $2,062 +12 $6,902 $5,940 +16 International Priority (IP). . . . . . 663 586 +13 2,018 1,712 +18 International Express Freight (IXF) and Airport-to-Airport (ATA) . . . . . . . . . . . . . . 140 150 - 7 456 450 + 1 Charter, Logistics services and other . . . . . . . . . . . . 129 109 +19 453 350 +30 ------ ------ ------ ------ $3,233 $2,907 +11 $9,829 $8,452 +16 ------ ------ ------ ------ ------ ------ ------ ------
The following table shows a comparison of selected express and airfreight (IXF/ATA) statistics (in thousands, except dollar amounts):
Three Months Nine Months Ended Ended February 28, February 28, ---------------- Percent --------------- Percent 1998 1997 Change 1998 1997 Change ------ ------ ------- ------ ------ ------ U.S. domestic express: Average daily packages . . . . . . . . 2,819 2,623 + 7 2,747 2,467 +11 Revenue per package. . . . . . . . . . $12.95 $12.48 + 4 $13.22 $12.67 + 4 IP: Average daily packages . . . . . . . . 255 226 +13 255 220 +16 Revenue per package. . . . . . . . . . $41.28 $41.22 - $41.58 $40.97 + 1 IXF/ATA: Average daily pounds . . . . . . . . . 2,690 2,474 + 9 2,775 2,519 +10 Revenue per pound. . . . . . . . . . . $ .82 $ .96 -15 $ .87 $ .94 - 7
The increases in the Company's U.S. domestic package volume for the quarter and year-to-date periods were primarily due to continued rapid growth of its deferred services, including FedEx Express Saver, a three-day deferred service. In addition, the first quarter volume growth was augmented by incremental volume resulting from the UPS strike. The majority of the strike-related volume was in the deferred service category. Yields increased 4% for the quarter and year-to-date periods largely due to the effects of continuing yield management initiatives, including pursuing price increases on low-yielding accounts and discontinuing unprofitable accounts. Also positively impacting yields was a substantial rise in average weight per package primarily due to heavier weights associated with the rapidly growing FedEx Express Saver service. Management expects total U.S. domestic package volume in 1998 to grow at a rate similar to that experienced in the past two years. Management believes that U.S. domestic yields should remain stable or increase slightly year over year during the remainder of 1998 due to continued effects of yield-management actions and the introduction of distance-based pricing. In addition, the Company implemented a 3% to 4% price increase targeted to list price and standard discount matrix - 14 - customers for U.S. domestic shipments effective February 15, 1998. Actual results may vary depending on the impact of competitive pricing changes, including distance-based pricing, customer responses to yield management initiatives and changing customer demand patterns. The expiration of the air transportation excise tax added $21 million and $49 million to U.S. domestic revenues for the quarter and year-to-date periods ended February 28, 1997, respectively, and 1% to U.S. domestic yields for each of these same periods. The excise tax expired on December 31, 1995, was reenacted by Congress effective August 27, 1996, and expired again on December 31, 1996. The Company was not obligated to pay the tax during the periods in which it was expired. The excise tax was reenacted by Congress effective March 7, 1997, and, in August 1997, it was extended for 10 years through September 30, 2007. The Company's IP revenue and volume year-over-year growth rates slowed to 13% for the quarter and were 18% and 16%, respectively, for the year-to-date period. Slower growth in the current quarter was primarily due to weakness in Asian markets. Yields remained stable during these periods compared to the same periods of the prior year. For the fourth quarter of 1998, management expects revenue and volume growth to approximate current quarter levels, with yields remaining relatively constant. Actual IP results will depend on the impact of international economic conditions, actions by the Company's competitors, and regulatory conditions for international aviation rights. The Company's airfreight volumes grew year over year for the quarter and year-to-date periods, while yields experienced year-over-year declines. IXF volumes (a space-confirmed, time-definite service) increased 15% and 20% for the quarter and year-to-date periods, respectively, but yields declined 16% and 10% for the same periods. ATA volumes (a lower-priced, space-available service) decreased 2% and 5% for the quarter and year-to-date periods, respectively, with yields lower by 14% and 10% for the same periods. Management expects airfreight yields to continue to decline, year over year, through the balance of 1998. Actual results, however, will depend on the impact of international economic conditions, actions by the Company's competitors, including capacity fluctuations, and regulatory conditions for international aviation rights. Operating Expenses Salaries and employee benefits rose 12% and 14% for the quarter and year-to-date periods, respectively, primarily as a result of volume-related growth. In addition, increased provisions under the Company's performance-based, incentive compensation plans contributed to the year-to-date rise. Also included in the year-to-date expense was a $25 million special appreciation bonus for U.S. operations employees for their extra efforts during the UPS strike. Increases in rentals and landing fees of 16% and 14% for the quarter and year-to-date periods were primarily due to additional aircraft leased by the Company. Supplemental leased aircraft were also added to meet the demands of increased package volume during peak season and to replace an MD11 destroyed in July. As of February 28, 1998, the Company had 85 wide-bodied aircraft under operating lease compared with 79 as of February 28, 1997. The year-to-date expense is net of approximately half of a $17 million net gain resulting from the destruction of an MD11 aircraft in an accident in July (described above). Management expects year-over-year increases in lease expense to continue as the Company enters into additional aircraft rental agreements during 1998 and thereafter. The Company expects to be able to convert its A300 purchase commitments into direct operating leases. (See Note 5 of Notes to Condensed Consolidated Financial Statements.) - 15 - Fuel expense fell 2% for the quarter and rose only 5% for the year-to-date period due to declines in average jet fuel price per gallon (14% and 8% for the quarter and year-to-date periods, respectively), partially offset by increases in gallons consumed (11% and 13% for the quarter and year-to-date periods, respectively). The quarter and year-to-date fuel expense included payments made by the Company under contracts which are designed to limit the Company's exposure to fluctuations in jet fuel prices. Effective August 1, 1997, the Company lifted its temporary 2% fuel surcharge that had been in place on U.S. domestic shipments except FedEx SameDay service and including Puerto Rico and all U.S. export IP shipments, except those to the People's Republic of China and Hong Kong. This surcharge was implemented on February 3, 1997 to mitigate the impact of rising jet fuel prices. Maintenance and repairs expense increased 20% and 15% for the quarter and year-to-date periods primarily due to higher year-over-year engine maintenance on B727, DC10 and A310 aircraft. As discussed above, most of the increase in an operating reserve for the disposition of B747 aircraft was recorded in the first quarter as maintenance and repairs expense. Management believes that maintenance and repairs expense will continue a long-term trend of year-over-year increases for the foreseeable future due to the Company's increasing fleet size, aging fleet and variety of aircraft types. Increases in other operating expenses of 16% and 24% for the quarter and year-to-date periods were primarily volume related, including transportation of packages by third parties, temporary manpower and professional fees for the quarter and year-to-date periods. The cost of sales of engine noise reduction kits also increased year over year for both periods. In 1996, the Company initiated a program to address Year-2000 compliance issues relating to the Company's computer systems and applications. This program has included generating awareness of the Year-2000 issue throughout the Company, inventorying affected computer systems and applications and developing a plan to modify or replace these systems and applications as well as investigating the Year-2000 compliance levels of entities supplying goods or services or doing business with the Company. The Company is seeking to raise the level of Year-2000 awareness among entities doing business with the Company and to determine the impact of their level of Year-2000 compliance on the Company. In these activities, the Company estimates that it has incurred approximately $40 million to date, including consulting fees, internal staff costs and other expenses. The Company expects to incur additional expenses at the rate of approximately $10 to $12 million per quarter through 1999 to be Year-2000 compliant. Operating Income The Company's consolidated operating income decreased 26% for the quarter ended February 28, 1998, from the prior year while year-to-date consolidated operating income increased 29% compared with the prior year. U.S. domestic operating income was $105 million and $513 million for the quarter and year-to-date periods ending February 28, 1998. Prior year amounts were $99 million and $366 million for these same periods. Package volume growth (7% and 11% for the quarter and year-to-date periods, respectively) and yield improvements (3.8% and 4.3% for the quarter and year-to-date periods, respectively) were partially offset by higher cost per package (4.3% and 3.2% for the quarter and year-to-date periods, respectively). The increases in cost per package were primarily due to the costs associated with the rapid growth of FedEx Express Saver volumes, including the transportation of packages by third parties - 16 - and increased aircraft usage and linehaul costs. Also included in the third quarter were $14 million of expenses related to the acquisition of Caliber, effective January 27, 1998. During the second quarter, the Company incurred additional expenses with the opening of a national hub at Fort Worth Alliance Airport and a small package sort system in Memphis. As noted above, year-to-date U.S. domestic operating results were significantly impacted by the UPS strike. Sales of aircraft engine noise reduction kits contributed an incremental $8 million and $38 million to U.S. domestic operating income for the quarter and year-to-date periods, respectively, compared with the same periods in the prior year. The prior year's second quarter operating income included a $13.5 million pre-tax benefit from the settlement of a Tennessee personal property tax matter. U.S. domestic margins were 4.4% and 7.2% for the quarter and year-to-date periods, respectively, compared with 4.7% and 6.0% for the same periods in the prior year. The Company's international operations reported an operating loss of $7 million for the third quarter and operating income of $63 million for the year-to-date period. Prior year amounts for these same periods were operating income of $34 million and $82 million, respectively. Despite strong growth in the Company's IP and IXF volumes, international operations experienced an operating loss in the third quarter and a lower operating margin for the year-to-date period primarily due to higher salaries and wages and aircraft lease expense. Lower airfreight yields for the quarter and year-to-date periods also negatively impacted international results. Also offsetting revenue gains were additional start-up costs for several new international flights and the net effect of foreign currency fluctuations. International operating margins were (0.8)% and 2.4% for the quarter and year-to-date periods, respectively, compared with 4.3% and 3.5% for the same periods in the prior year. Other Income and Expense and Income Taxes Net interest expense rose 30% and 28% for the quarter and year-to-date periods, respectively, due to a lower level of capitalized interest and slightly higher debt levels. Other, net for the year-to-date period ended February 28, 1998, includes a gain from an insurance settlement for an MD11 aircraft destroyed in an accident in July 1997. Other, net for the year-to-date period ended February 28, 1997, includes a $17.1 million gain from an insurance settlement for a DC10 aircraft destroyed by fire in September 1996. The Company's effective tax rates of 50.5% and 43.2% for the quarter and year-to-date periods, respectively, compare with a rate of 42.5% for both of these periods in the prior year. The current year rates reflect the effect of certain one-time, merger-related costs which are nondeductible for federal and state income tax purposes. Excluding the impact of these nondeductible costs, the effective tax rate was 42.0% for both the quarter and year-to-date periods. FINANCIAL CONDITION Liquidity Cash and cash equivalents totaled $121 million at February 28, 1998, a decrease of $2 million since May 31, 1997. Cash provided from operations was $684 million compared with $610 million for the same period in the prior year. Management believes that cash flow from operations and the commercial paper program and revolving bank credit facility of FDX will adequately meet the Company's working capital needs for the foreseeable future. - 17 - Capital Resources The Company's operations are capital intensive, characterized by significant investments in aircraft, vehicles, computer and telecommunication equipment, package handling facilities and sort equipment. The amount and timing of capital additions are dependent on various factors including volume growth, new or enhanced services, geographical expansion of services, competition, availability of satisfactory financing and actions of regulatory authorities. Capital expenditures for the first nine months of 1998 totaled $1.2 billion and included three MD11s, two A310s, aircraft modifications, vehicles and ground support equipment and customer automation and computer equipment. Three MD11s purchased in February, June and November 1997 were sold and leased back in June and September 1997 and February 1998, respectively. In comparison, prior year expenditures totaled $1.1 billion and included nine A310s, two MD11s, vehicles and ground support equipment, and customer automation and computer equipment. In September and December 1996, the Company sold and leased back two MD11s acquired in May and September 1996, respectively. For information on the Company's purchase commitments, see Note 5 of Notes to Condensed Consolidated Financial Statements. In July 1997, $20 million of Memphis-Shelby County Airport Authority ("MSCAA") Special Facilities Revenue Bonds were issued. The proceeds of the bonds in combination with other funds were used to refund outstanding MSCAA 1982B bonds on September 2, 1997. Also in July 1997, the Company issued $250 million of unsecured senior notes with a maturity date of July 1, 2097, under the Company's July 1996 shelf registration with the Securities and Exchange Commission. 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. Statements in this "Management's Discussion and Analysis of Results of Operations and Financial Condition" or made by management of the Company which 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. - 18 - PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Note 6 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 Restated Certificate of Incorporation of Registrant, as amended. 10.1 Letter Agreement No. 5 dated January 12, 1998, amending the Modification Services Agreement dated September 16, 1996, between McDonnell Douglas Corporation and Registrant. Confidential treatment has been requested for certain confidential portions of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. In accordance with Rule 24b-2, these confidential portions have been omitted from this exhibit and filed separately with the Commission. 10.2 Letter Agreement No. 6 dated March 16, 1998, amending the Modification Services Agreement dated September 16, 1996, between McDonnell Douglas Corporation and Registrant. Confidential treatment has been requested for certain confidential portions of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. In accordance with Rule 24b-2, these confidential portions have been omitted from this exhibit and filed separately with the Commission. 10.3 Letter Agreement No. 7 dated February 26, 1998, amending the Modification Services Agreement dated September 16, 1996, between McDonnell Douglas Corporation and Registrant. Confidential treatment has been requested for certain confidential portions of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. In accordance with Rule 24b-2, these confidential portions have been omitted from this exhibit and filed separately with the Commission. 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 February 28, 1998, the Registrant filed one Current Report on Form 8-K. The report was dated February 26, 1998 and filed under Item 7, Financial Statements, Pro Forma Financial Information and Exhibits. The report contained documents related to 1997-1 Pass Through Certificates. - 19 - 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 (Registrant) Date: April 10, 1998 /s/ MICHAEL W. HILLARD ----------------------------------- MICHAEL W. HILLARD VICE PRESIDENT & CONTROLLER (PRINCIPAL ACCOUNTING OFFICER) - 20 - EXHIBIT INDEX
Exhibit Number Description of Exhibit - ------- ---------------------- 3.1 Restated Certificate of Incorporation of Registrant, as amended. 10.1 Letter Agreement No. 5 dated January 12, 1998, amending the Modification Services Agreement dated September 16, 1996, between McDonnell Douglas Corporation and Registrant. Confidential treatment has been requested for certain confidential portions of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. In accordance with Rule 24b-2, these confidential portions have been omitted from this exhibit and filed separately with the Commission. 10.2 Letter Agreement No. 6 dated March 16, 1998, amending the Modification Services Agreement dated September 16, 1996, between McDonnell Douglas Corporation and Registrant. Confidential treatment has been requested for certain confidential portions of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. In accordance with Rule 24b-2, these confidential portions have been omitted from this exhibit and filed separately with the Commission. 10.3 Letter Agreement No. 7 dated February 26, 1998, amending the Modification Services Agreement dated September 16, 1996, between McDonnell Douglas Corporation and Registrant. Confidential treatment has been requested for certain confidential portions of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. In accordance with Rule 24b-2, these confidential portions have been omitted from this exhibit and filed separately with the Commission. 12.1 Computation of Ratio of Earnings to Fixed Charges. 15.1 Letter re Unaudited Interim Financial Statements.
E-1 EX-3.1 2 EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF FEDERAL EXPRESS CORPORATION (Incorporated June 24, 1971) FEDERAL EXPRESS CORPORATION, a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: FIRST: that at a meeting of the Board of Directors of the Corporation, resolutions were duly adopted setting forth the Restated Certificate of Incorporation of the Corporation which declared (i) that such Restatement only restated and integrated and did not further amend the provisions of the Corporation's Certificate of Incorporation, as theretofore amended and supplemented, (ii) that there was no discrepancy between the provisions of the Certificate of Incorporation, as theretofore amended and supplemented, and the Restatement, and (iii) that approval of the Restatement by the stockholders of the Corporation was not required. The resolutions setting forth the adopted Restatement are as follows: RESOLVED, that in accordance with Section 245 of the General Corporation Law of the State of Delaware, there is hereby adopted a Restatement of the Corporation's Certificate of Incorporation which (i) restates and integrates and does not further amend the provisions of the Corporation's Certificate of Incorporation, as heretofore amended and supplemented, (ii) contains no discrepancies as compared to the provisions of the Certificate of Incorporation, as heretofore amended and supplemented, and (iii) need not, and will not, be submitted to the stockholders of the Corporation for their approval. FURTHER RESOLVED, that the Certificate of Incorporation is accordingly restated in its entirety to read as follows: ARTICLE FIRST: The name of the corporation is FEDERAL EXPRESS CORPORATION. ARTICLE SECOND: The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle 19801. The name of its registered agent at such address is The Corporation Trust 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 104,000,000 shares consisting of 4,000,000 shares of Series Preferred Stock, no par value (herein called the "Series Preferred Stock"), and 100,000,000 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 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 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 as may be permitted by Delaware law or this 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 Certificate of Incorporation or a Series Resolution. 5. FILING OF AMENDMENTS. The Board of Directors shall adopt amendments to this 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. 2 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. 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 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 preemptive 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 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 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: 3 (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 (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. (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. 4 (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: (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 5 (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. 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 6 stock, the fair market value of such property on the date in question as determined by the Board of Directors in good faith. (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 Certificate of Incorporation, unless the Business Combination (as defined in ARTICLE FIFTH of this Certificate of Incorporation) has been approved by a majority of the Continuing Directors (as defined in ARTICLE FIFTH of this Certificate of Incorporation), a Business Combination with or upon a proposal by a Related Person (as defined in ARTICLE FIFTH of this 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 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 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 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 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 of 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 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 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 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. SECOND: that the Restated Certificate of Incorporation effected by this Certificate was duly authorized at a meeting of the Board of Directors of the Corporation in accordance with the provisions of Section 245 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, FEDERAL EXPRESS CORPORATION has caused its corporate seal to be hereunto affixed and this certificate to be signed by Frederick W. Smith, its Chairman, President and Chief Executive Officer, and attested by George W. Hearn, its Assistant Secretary, this 17th day of October, 1988. FEDERAL EXPRESS CORPORATION BY: /s/ FREDERICK W. SMITH ---------------------------- (Corporate Seal) Frederick W. Smith Chairman, President and Chief Executive Officer ATTEST: /s/ GEORGE W. HEARN - ------------------------------------ George W. Hearn, Assistant Secretary 9 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF FEDERAL EXPRESS CORPORATION (Incorporated June 24, 1971) Federal Express Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), hereby certifies as follows: FIRST: That at a meeting of the Board of Directors of the Corporation, the following resolutions were duly adopted setting forth a proposed amendment to the Restated Certificate of Incorporation of the Corporation, to increase the number of authorized shares of common stock of the Corporation from 100,000,000 to 200,000,000 shares: RESOLVED, that an amendment to the Corporation's 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; and FURTHER RESOLVED, that the Restated Certificate of Incorporation of this Corporation be amended by changing Article Fourth so that, as amended said Article shall be and read as follows: ARTICLE FOURTH. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 204,000,000 shares consisting of 4,000,000 shares of Series Preferred Stock, no par value (herein called the "Series Preferred Stock"), and 200,000,000 shares of Common Stock, par value $.10 per share (herein called the "Common Stock"). FURTHER RESOLVED, that in connection with the foregoing, the officers of the Corporation be, and each of them hereby is, authorized and directed to execute and deliver any and all documents and to take such other actions as they in their discretion, with the advice of counsel, deem to be in the best interest of the Corporation. SECOND: That thereafter, at the annual meeting of the 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 said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, FEDERAL EXPRESS CORPORATION has caused this Certificate to be signed by George W. Hearn, its Vice President, Law - Corporate and Business Transactions, and attested by Scott E. Hansen, its Assistant Secretary, this 20th day of October, 1994. FEDERAL EXPRESS CORPORATION BY: /s/ GEORGE W. HEARN ---------------------------------- George W. Hearn Vice President, Law - Corporate and Business Transactions ATTEST: /s/ SCOTT E. HANSEN - ------------------------------------ Scott E. Hansen, Assistant Secretary CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF FEDERAL EXPRESS CORPORATION (Incorporated June 24, 1971) Federal Express Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), hereby certifies as follows: FIRST: That at a meeting of the Board of Directors of the Corporation, the following resolutions were duly adopted setting forth a proposed amendment to the Restated Certificate of Incorporation of the Corporation, to increase the number of authorized shares of common stock of the Corporation from 200,000,000 to 400,000,000 shares: RESOLVED, that an amendment to the Corporation's 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; and FURTHER RESOLVED, that the Restated Certificate of Incorporation of this Corporation be amended by changing Article Fourth so that, as amended said Article shall be and read as follows: 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 $.10 per share (herein called the "Common Stock"). FURTHER RESOLVED, that in connection with the foregoing, the officers of the Corporation be, and each of them hereby is, authorized and directed to execute and deliver any and all documents and to take such other actions as they in their discretion, with the advice of counsel, deem to be in the best interest of the Corporation. SECOND: That thereafter, at the annual meeting of the 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 said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, FEDERAL EXPRESS CORPORATION has caused this Certificate to be signed by George W. Hearn, its Vice President, Law - Corporate and Business Transactions, this 2nd day of October, 1997. FEDERAL EXPRESS CORPORATION BY: /s/ GEORGE W. HEARN ---------------------------------- George W. Hearn Vice President, Law - Corporate and Business Transactions AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF FEDERAL EXPRESS CORPORATION ***** As of the Merger Date, the Certificate of Incorporation of Federal Express Corporation shall be amended as follows: 1. The first paragraph of ARTICLE FOURTH is hereby amended and restated to read in its entirety as follows: "ARTICLE FOURTH: The total number of shares of all classes of stock which the Corporatin shall have the authority to issue is 2,000 shares consisting of 1,000 shares of Series Preferred Stock, no par value (herein called the "Series Preferred Stock"), and 1,000 shares of Common Stock, par value $0.10 per share (herein called the "Common Stock")" 2. A new ARTICLE FOURTEENTH is herby added to read in its entirety: "ARTICLE FOURTEENTH: Any act or transaction by or involving the Corporation that requires fo rits adoption under Chapter 251 of the General Corporation Law of the State of Delaware or this certificate of incorporation the approval of the stockholders of the Corporation shall, pursuant to Section 251(g) of the General Corporation Law of the State of Delaware, require, in addition, the approval of the stockholders of FDX Corporation (or any successor by merger), by the same vote as is required by Chapter 251 of the General Corporation Law of the State of Delaware and/or by this certificate of incorporation." Except as provided above, the Certificate of Incorporation of Federal Express Corporation of Federal Express Corporationshall remain in full force and effect. EX-10.1 3 AGREEMENT #5 01-12-98 Letter Agreement No. 5 DAC 96-29-M Federal Express Corporation 2005 Corporate Avenue Memphis, Tennessee 38132 Federal Express Corporation (FedEx) and McDonnell Douglas Corporation, a wholly-owned subsidiary of The Boeing Company (MDC), have entered into Modification Services Agreement Document No. DAC 96-29-M (the "Agreement") dated September 16, 1996, which Agreement covers Federal Express' desire to incorporate certain modifications in its DC-10 aircraft (the "Aircraft", as defined in the Agreement) and MDC desires to perform such modifications. As a further consideration of the parties hereto, this Letter Agreement No. 5 shall constitute a part of said Agreement. MDC acknowledges that FedEx ferried an Aircraft, specifically fuselage Number 140 (N387FE) (the "Moved Aircraft"), to their maintenance facility at Los Angeles International Airport (LAX) ("FedEx's Facility") in order for FedEx to accomplish a substantial portion of the Heavy Maintenance Check (the work cards listed in Attachments B1 through B5 of Exhibit K to the Agreement) and associated Non Routine work (collectively the "Specified Services") to the Moved Aircraft. MDC hereby agrees to the reduction in work scope resulting from FedEx accomplishing the Specified Services subject to the following terms and conditions: 1. In consideration of FedEx's performance of the Specified Services set forth above, the Price to be paid to MDC by FedEx upon Redelivery of the Moved Aircraft shall be reduced in an amount equal to [ * ]. a) Any of the Services not performed by FedEx which are required by the Specified Services shall, at FedEx's request, be performed by MDC pursuant to an executed Additional Services Request (ASR). Services requested to be done after a Moved Aircraft's visit to FedEx's Facility shall be documented in an MJCS to be provided by FedEx to MDC no later than five business days after the date this Letter Agreement is executed. b) The prices set forth in Exhibit K shall be due and payable by FedEx only to the extent that the Services specified in Exhibit K have been issued on the FedEx MJCS applicable to the Moved Aircraft submitted to MDC and actually accomplished by MDC on the Moved Aircraft. - --------------------- *Blank space contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. 01-12-98 Letter Agreement No. 5 DAC 96-29-M Page 2 c) Carry-over elements of the Services which are assigned to the Moved Aircraft but which were not previously designated as fixed price and which are deferred to MDC from the Services performed at FedEx's Facility will be individually negotiated via the ASR process as defined in the Agreement. 2. FedEx agrees to Deliver the Moved Aircraft to Venice, Italy at the Aeronavali facility (OAN) for commencement of the Services on January 8, 1998. The Redelivery Date of the Moved Aircraft shall be June 15, 1999. 3. Subject to the timely performance of Services at OAN, FedEx shall ferry the Moved Aircraft for Delivery to MDC's Long Beach, California facility on or about July 3, 1998 for the commencement of the ACF Modification and completion of any remaining Services not accomplished at OAN. 4. Except for fuel, FedEx shall be responsible for all costs (flight preparation, crew, insurance, landing fees, etc.) associated with the Moved Aircraft's ferry flights to the FedEx Facility at LAX as well as the ferry flights to the modification site at Venice, Italy and MDC's facility at Long Beach, California. MDC shall be responsible for fuel costs required to ferry the Moved Aircraft to the noted facilities. 5. FedEx hereby irrevocably and unconditionally waives any of MDC's warranties which are exclusively related to workmanship and only for the portion of the Services on the Moved Aircraft exclusively performed by FedEx under FedEx's direct supervision, specifically, the Specified Services defined in this Letter Agreement, provided, however, nothing in this Section 5. shall extend to or otherwise affect warranties which may be applicable to Parts. 6. Except as expressly set forth in Section 5. above, the performance of the Services by FedEx at FedEx's Facility as contemplated pursuant this Letter Agreement shall in no manner change, modify, terminate or otherwise affect MDC's warranties regarding the Moved Aircraft or in any manner whatsoever modify the terms and conditions of the Agreement except as expressly set forth herein. 7. With respect to Aircraft bearing fuselage number 138 ("Aircraft 138"), MDC and FedEx intend to negotiate and execute, within thirty days of the date hereof, a letter agreement concerning portions of Aircraft 138's Heavy Maintenance Check, Delivery of Aircraft 138 to the appropriate modification site(s) and warranty matters, all upon substantially the same terms and conditions as contained in this Letter Agreement. 8. MDC shall, within ten (10) days of the date of this Letter Agreement, submit to FedEx for review a production plan to establish an additional modification facility(ies) such that the total, concurrent capacity of Services being performed under the Modification Agreement can accommodate a six (6) Aircraft line with total modification Services being performed on each Aircraft in six (6) months or less. 01-12-98 Letter Agreement No. 5 DAC 96-29-M Page 3 If the foregoing correctly sets forth our understanding, please execute this Letter Agreement in the space provided below. FEDERAL EXPRESS CORPORATION MCDONNELL DOUGLAS CORPORATION /S/ TERRY NORD /S/ CAROL A. MILLER - ------------------------------------ --------------------------------- Signature Signature TERRY NORD CAROL A. MILLER - ------------------------------------ --------------------------------- Printed Name Printed Name Vice President Director - Contracts - ------------------------------------ --------------------------------- Title Title February 9, 1998 --------------------------------- Date APPROVED AS TO LEGAL FORM KHS 2/2/98 - ---------------- LEGAL DEPT. EX-10.2 4 AGREEMENT #6 03-16-98 Letter Agreement No. 6 to DAC 96-29-M Federal Express Corporation 2005 Corporate Avenue Memphis, TN 38118 Federal Express Corporation ("Federal Express") and McDonnell Douglas Corporation, a wholly owned subsidiary of the Boeing Company ("MDC"), have entered into Modification Services Agreement Document No. DAC 96-29-M (the "Modification Agreement") dated September 16, 1996, which Modification Agreement covers Federal Express' desire to incorporate certain modifications in its DC-10 aircraft (the "Aircraft", as defined in the Modification Agreement) and MDC desires to perform such modifications. As a further consideration of the parties hereto, this Letter Agreement No. 6 shall amend and constitute a part of said Modification Agreement. MDC acknowledges that FedEx ferried an Aircraft, specifically fuselage Number 138 (N386FE) (the "Moved Aircraft"), to their maintenance facility at Los Angeles International Airport (LAX) ("FedEx's Facility") in order for FedEx to accomplish a substantial portion of the Heavy Maintenance Check (the work cards listed in Attachments B1 through B5 of Exhibit K to the Agreement), the associated Non Routine Services, and selected cards from Exhibit C (Standardization) and Exhibit F (Refurbishment) (collectively the "Specified Services") to the Moved Aircraft. MDC hereby agrees to the reduction in work scope resulting from FedEx accomplishing the Specified Services subject to the following terms and conditions: 1. In consideration of FedEx's performance of the Specified Services set forth above, MJCS #38698079 dated March 16, 1998 (Standardization FedEx EOs) (Attachment A enclosed herein), and the associated transition check card lists (B, C, X, S and 056 cards) dated March 15, 1998 (Attachment B enclosed herein) which corresponds to control number S001 on the MJCS noted above, shall define the reduced maintenance work scope to be accomplished by MDC (Standardardization, Refurbishment and Heavy Maintenance). Those cards in Attachment B that are "suspended" (i.e. designated as "S" under the "STAT" column of the B, C, X, S and 056 card lists in Attachment B) are not included in the work scope to be accomplished by MDC. The Price to be paid to MDC by FedEx upon Redelivery of the Moved Aircraft for the work delineated in Attachments A and B shall be an amount equal to [ * ] for Standardization, [* ] for Refurbishment (056 cards) and [ * ] for Heavy Maintenance (B, C, X and S cards) which amounts shall be reflected as line items on the final invoice submitted to FedEx at Redelivery of the Moved Aircraft. a) Any of the Services not performed by FedEx which are required by the Specified Services, or any additional workscope added to the MJCS in a - -------------------- *Blank space contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. 03-16-98 Letter Agreement No. 6 to DAC 96-29-M subsequent revision, shall, at FedEx's request, be performed by MDC pursuant to an executed Additional Services Request (ASR). Any Standardization or Refurbishment tasks (cards listed in Exhibit C or F respectively of the Agreement) that are added via subsequent revisions to the MJCS shall be priced in accordance with the price established in Attachments A or C respectively of Exhibit K - Price of the Agreement, or priced via the ASR process, if a price had not been previously established. b) Should the FAA or FedEx require that certain cards currently identified as "suspended" in Attachment B be accomplished prior to the commencement of the ACF flight testing, the price to accomplish each such required card, excluding the suspended 056 cards, shall be as noted in Attachment C. The cumulative price to accomplish all the cards in Attachment C shall not exceed [* ]. The price to accomplish each 056 card currently designated as suspended shall be in accordance with the price established in Attachment C of Exhibit K - Price of the Agreement, or priced via the ASR process, if a price had not been previously established. 2. FedEx agrees to Deliver the Moved Aircraft to MDC's Long Beach, CA facility for commencement of the Services on March 16, 1998. The Redelivery Date of the Moved Aircraft shall be January 14, 2000. FedEx shall be responsible for ensuring that the required Federal Express Supplied Parts are delivered to MDC at Long Beach in support of the modification in accordance with the requirements stipulated in the Agreement. 3. Except for fuel, FedEx shall be responsible for all costs (flight preparation, crew, insurance, landing fees, etc.) associated with the Moved Aircraft's ferry flights to the FedEx Facility at LAX as well as the ferry flight to MDC's facility at Long Beach, California. MDC shall be responsible for fuel costs required to ferry the Moved Aircraft to the noted facilities. 4. FedEx hereby irrevocably and unconditionally waivers any of MDC's warranties which are exclusively related to workmanship and only for the portion of the Specified Services on the Moved Aircraft exclusively performed by FedEx, provided, however, nothing in this Section 4, shall extend to or otherwise affect warranties which may be applicable to Parts. 5. The performance of the Specified Services by FedEx shall in no manner change, modify, terminate or otherwise affect MDC's warranties regarding the Moved Aircraft or in any manner whatsoever modify the terms and conditions of the Agreement except as expressly set forth herein. 6. MDC shall be responsible for sign-off of those work cards accomplished by MDC under authority of the MDC repair station license. 7. FedEx shall provide to MDC a complete turnover summary of the FedEx heavy maintenance package to include the status of all open and closed routine work cards, and all open and closed non-routine work cards. - ------------------ *Blank space contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. 03-16-98 Letter Agreement No. 6 to DAC 98-29-M 8. FedEx shall provide the appropriately qualified personnel on-site at Long Beach to provide material support, sign off on the FedEx MJCS and to provide any needed engineering support. 9. The line item pricing provided in Attachment B of this Letter Agreement, as well as the prices stated in Paragraph 1. above, shall be applicable to the Moved Aircraft only. All pricing stated in this Letter Agreement represent calendar year 1996 dollars and are subject to escalation in accordance with Exhibit N - Price Adjustments of the Agreement. If the foregoing correctly sets forth our understanding, please execute this Letter Agreement in the space provided below. FEDERAL EXPRESS CORPORATION MCDONNELL DOUGLAS CORPORATION /S/ TERRY NORD /S/CAROL A. MILLER - --------------------------------- -------------------------------- SIGNATURE SIGNATURE TERRY NORD CAROL A. MILLER - --------------------------------- -------------------------------- PRINTED NAME PRINTED NAME VICE PRESIDENT DIRECTOR-CONTRACTS - --------------------------------- -------------------------------- TITLE TITLE MARCH 17, 1998 -------------------------------- DATE APPROVED AS TO LEGAL FORM KHS 3/17/98 - ----------------- LEGAL DEPT. EX-10.3 5 AGREEMENT #7 Letter Agreement No. 7 DAC 96-29-M Federal Express Corporation 2005 Corporate Avenue Memphis, Tennessee 38132 Federal Express Corporation (FedEx) and McDonnell Douglas Corporation, a wholly-owned subsidiary of The Boeing Company (MDC), have entered into Modification Services Agreement Document No. DAC 96-29-M (the "Agreement") dated September 16, 1996, which Agreement covers Federal Express' desire to incorporate certain modifications in its DC-10 aircraft (the "Aircraft", as defined in the Agreement) and MDC desires to perform such modifications. As a further consideration of the parties hereto, this Letter Agreement No. 7 shall constitute a part of said Agreement. This Letter Agreement No. 7 provides notice to FedEx that fuselage 119, Factory Serial Number 46619 (the "MAE Aircraft"), shall be modified at ST Mobile Aerospace, Inc. (MAE) located in Mobile, AL, MDC acknowledges that FedEx desires to remove the Heavy Maintenance Check (the work cords listed in Attachments B1 through B5 of Exhibit K to the Agreement), the associated Non-routine Services, and selected work cards from Exhibit C (Standardization) and Exhibit F (Refurbishment) (collectively the "Specified Services") from the Agreement. MDC also acknowledges that FedEx intends to contract directly with MAE to accomplish the Specified Services concurrently with the accomplishment of the Passenger to Freighter modification by MAE under separate contract with MDC. MDC hereby agrees to the reduction in work scope resulting from FedEx or its subcontractor accomplishing the Specified Services subject to the following terms and conditions: 1. In consideration of FedEx's or its subcontractor's performance of the Specified Services, the Price to be paid to MDC by FedEx upon Redelivery of the MAE Aircraft shall be reduced a total of [ * ], as calculated by the difference between a credit to FedEx in the amount of [* ] for the deletion of the Specified Services, and a debit to FedEx in the amount of [* ] for an increase in price to Exhibit B - Passenger to Freighter Modification. a) The MJCS submitted by FedEx to MDC will detail the Passenger to Freighter work to be accomplished by MDC, and such MJCS shall be submitted to MDC no later than ten business days after the date this Letter Agreement is executed. ________________ *Blank space contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. Letter Agreement No. 7 DAC 96-29-M b) Any of the Services not performed by FedEx or its subcontractor which are required by the Specified Services, or any additional workscope added to the MJCS in a subsequent revision, shall, at FedEx's request, be performed by MDC pursuant to an executed Additional Services Request (ASR). 2. FedEx agrees to Deliver the MAE Aircraft to Mobile, AL at the MAE facility for commencement of the Services on February 26, 1998. The Redelivery Date of the MAE Aircraft shall be November 30, 1998. FedEx shall be responsible for ensuring that the required Federal Express Supplied Parts are delivered to MAE in support of the modification in accordance with the requirements stipulated in the Agreement. 3. Except for fuel, FedEx shall be responsible for all costs (flight prepration, crew, insurance, landing fees, etc.) associated with the MAE Aircraft's ferry flight to the modification site at MAE. MDC shall be responsible for fuel costs required to ferry the MAE Aircraft to the noted facility. 4. FedEx hereby irrevocably and unconditionally waives any of MDC's warranties which are exclusively related to workmanship and only for the portion of the Specified Services on the MAE Aircraft exclusively performed by FedEx or its subcontractor, provided, however, nothing in this Section 4, shall extend to or otherwise affect warranties which may be applicable to Parts. 5. The performance of the Specified Services by FedEx or its subcontractor shall in no manner change, modify, terminate or otherwise affect MDC's warranties regarding the MAE Aircraft or in any manner whatsoever modify the terms and conditons of the Agreement except as expressly set forth herein. 6. FedEx and MDC mutually acknowledge that a potential resource conflict exists as a result of MAE entering into two separate contracts to accomplish work concurrently on one aircraft. FedEx and MDC agree to mutually develop a priority of tasks, and mutually resolve any resource conflicts that arise to prevent any materially adverse impact to the MAE Aircraft Redelivery Date. If a resource conflict arises, then the party identifying the conflict shall immediately notify the other party. If the resource conflict connot be resolved within two days of notification of the conflict by MDC or FedEx, and such conflict results in a delay of MDC's or FedEx's ability to accomplish the services in accordance with the scheduled planning in MDC's or FedEx's respective contract with MAE, then any resultant delay in the Redelivery Date will constitute an Excusable Delay as defined in the Agreement. Letter Agreement No. 7 DAC 96-29-M If the foregoing correctly sets forth our understanding, please execute this Letter Agreement in the space provided below. FEDERAL EXPRESS CORPORATION MCDONNELL DOUGLAS CORPORATION /S/ RONALD D. WICKENS /S/ CAROL A. MILLER - ----------------------------------- ------------------------------- Signature Signature RONALD D. WICKENS CAROL A. MILLER - ----------------------------------- ------------------------------- Printed Name Printed Name V.P. Engineering & Q.A. Director-Contracts - ----------------------------------- ------------------------------ Title Title February 26, 1998 ------------------------------ Date APPROVED AS TO LEGAL FORM KHS 2/26/98 ---------------- LEGAL DEPT. EX-12.1 6 EXHIBIT 12.1 EXHIBIT 12.1 FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited)
Nine Months Ended Year Ended May 31, February 28, ---------------------------------------------------------- ---------------------- 1993 1994 1995 1996 1997 1997 1998 -------- -------- -------- -------- ---------- -------- -------- (In thousands, except ratios) Earnings: Income before income taxes . . . . . . $203,576 $378,462 $522,084 $ 539,959 $ 628,221 $397,661 $500,562 Add back: Interest expense, net of capitalized interest . . . . . . . 168,762 152,170 130,923 105,449 95,689 69,986 90,736 Amortization of debt issuance costs . . . . . . . . . . 4,906 2,860 2,493 1,628 1,328 997 1,091 Portion of rent expense representative of interest factor. . . . . . . . . . 262,724 285,261 329,370 386,254 434,846 324,341 373,246 -------- -------- -------- ---------- ---------- -------- -------- Earnings as adjusted . . . . . . . . . $639,968 $818,753 $984,870 $1,033,290 $1,160,084 $792,985 $965,635 -------- -------- -------- ---------- ---------- -------- -------- -------- -------- -------- ---------- ---------- -------- -------- Fixed Charges: Interest expense, net of capitalized interest . . . . . . . . $168,762 $152,170 $130,923 $ 105,449 $ 95,689 $ 69,986 $ 90,736 Capitalized interest . . . . . . . . . 31,256 29,738 27,381 39,254 39,449 29,133 22,257 Amortization of debt issuance costs . . . . . . . . . . . 4,906 2,860 2,493 1,628 1,328 997 1,091 Portion of rent expense representative of interest factor. . . . . . . . . . . 262,724 285,261 329,370 386,254 434,846 324,341 373,246 -------- -------- -------- ---------- ---------- -------- -------- $467,648 $470,029 $490,167 $ 532,585 $ 571,312 $424,457 $487,330 -------- -------- -------- ---------- ---------- -------- -------- -------- -------- -------- ---------- ---------- -------- -------- Ratio of Earnings to Fixed Charges . . . 1.4 1.7 2.0 1.9 2.0 1.9 2.0 -------- -------- -------- ---------- ---------- -------- -------- -------- -------- -------- ---------- ---------- -------- --------
EX-15.1 7 EXHIBIT 15.1 EXHIBIT 15.1 March 25, 1998 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. 2-74000, 2-95720, 33-20138, 33-38041, 33-55055, 333-03443, and 333-07691 its Report on Form 10-Q for the quarter ended February 28, 1998, which includes our report dated March 25, 1998 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, Arthur Andersen LLP EX-27.1 8 EXHIBIT 27.1
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 FEBRUARY 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS MAY-31-1998 JUN-01-1997 FEB-28-1998 120,521 0 1,760,219 46,089 359,350 2,463,433 10,648,328 5,683,806 8,187,852 2,221,680 1,286,741 0 0 0 3,266,157 8,187,852 0 9,829,176 0 9,253,111 0 0 84,501 500,562 216,116 0 0 0 0 284,446 0 0 On January 27, 1998, Federal Express Corporation became a wholly-owned subsidiary of FDX Corporation; thus earnings per share is no longer applicable.
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