-----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, CSHYw1Pohc8DDW42wyhgN7E8JIx8E9vQtmOQzgOYaRk+OVJLTC8/TwpKDfnitehC 6aiY/rz7oylbV7XumunS9g== 0001047469-99-014629.txt : 19990414 0001047469-99-014629.hdr.sgml : 19990414 ACCESSION NUMBER: 0001047469-99-014629 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990413 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: 99592864 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 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED FEBRUARY 28, 1999, OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________. COMMISSION FILE NUMBER: 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 38132 (Address of principal (Zip Code) executive offices) (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, 1999 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, 1999 and May 31, 1998................................. 3-4 Condensed Consolidated Statements of Income Three and Nine Months Ended February 28, 1999 and 1998............. 5 Condensed Consolidated Statements of Cash Flows Nine Months Ended February 28, 1999 and 1998....................... 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............................................ 13-22 PART II. OTHER INFORMATION Legal Proceedings....................................................... 23 Exhibits and Reports on Form 8-K........................................ 23 EXHIBIT INDEX........................................................... E-1
- 2 - FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS - -------
February 28, 1999 May 31, (Unaudited) 1998 -------------- ----------- (In thousands) Current Assets: Cash and cash equivalents................................................ $ 79,988 $ 104,606 Receivables, less allowances of $44,202,000 and $43,245,000........................................................ 1,802,063 1,669,568 Spare parts, supplies and fuel........................................... 281,636 338,745 Deferred income taxes.................................................... 192,046 183,063 Prepaid expenses and other............................................... 93,830 80,696 ----------- ----------- Total current assets................................................. 2,449,563 2,376,678 ----------- ----------- Property and Equipment, at Cost............................................. 11,890,954 11,063,893 Less accumulated depreciation and amortization........................... 6,275,918 5,863,325 ----------- ----------- Net property and equipment........................................... 5,615,036 5,200,568 ----------- ----------- Other Assets: Goodwill................................................................. 342,345 351,507 Equipment deposits and other assets...................................... 408,574 504,353 ----------- ----------- Total other assets................................................... 750,919 855,860 ----------- ----------- $ 8,815,518 $ 8,433,106 ----------- ----------- ----------- -----------
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, 1999 May 31, (Unaudited) 1998 ------------- ----------- (In thousands) Current Liabilities: Current portion of long-term debt........................................ $ 114,102 $ 257,529 Salaries, wages and benefits............................................. 511,994 547,073 Accounts payable......................................................... 894,286 965,167 Accrued expenses ........................................................ 662,152 631,530 Due to parent company.................................................... 113,293 - ----------- ----------- Total current liabilities............................................ 2,295,827 2,401,299 ----------- ----------- Long-Term Debt, Less Current Portion ...................................... 1,161,484 1,185,180 Deferred Income Taxes...................................................... 209,129 218,328 Other Liabilities.......................................................... 1,456,766 1,226,570 Commitments and Contingencies (Notes 3 and 4) Owner's Equity: Common Stock, $.10 par value; 1,000 shares authorized, issued and outstanding........................ - - Additional paid-in capital 893,469 893,469 Retained earnings........................................................ 2,824,768 2,535,537 Cumulative foreign currency translation adjustments................................................ (25,925) (27,277) ----------- ------------ Total owner's equity................................................. 3,692,312 3,401,729 ----------- ----------- $ 8,815,518 $ 8,433,106 ----------- ----------- ----------- -----------
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, --------------------------- ------------------------------ 1999 1998 1999 1998 ---------- ---------- ----------- ---------- (In thousands) Revenues.............................................. $3,430,708 $3,232,799 $10,330,127 $9,829,176 Operating Expenses: Salaries and employee benefits..................... 1,546,285 1,448,313 4,628,789 4,324,273 Rentals and landing fees........................... 343,827 321,112 985,345 912,059 Depreciation and amortization...................... 233,268 214,510 675,156 625,856 Maintenance and repairs............................ 219,363 199,789 666,195 594,265 Fuel............................................... 143,664 185,963 441,097 542,126 Merger expenses.................................... - 14,000 - 14,000 Other.............................................. 849,027 751,057 2,368,260 2,240,532 ---------- ---------- ----------- ---------- 3,335,434 3,134,744 9,764,842 9,253,111 ---------- ---------- ----------- ---------- Operating Income...................................... 95,274 98,055 565,285 576,065 Other Income (Expense): Interest, net...................................... (21,967) (30,024) (64,816) (84,501) Other, net......................................... (8,063) 1,027 (14,230) 8,998 ---------- ---------- ----------- ---------- (30,030) (28,997) (79,046) (75,503) ---------- ---------- ----------- ---------- Income Before Income Taxes............................ 65,244 69,058 486,239 500,562 Provision for Income Taxes............................ 22,214 34,884 196,927 216,116 ---------- ---------- ----------- ---------- Net Income............................................ $ 43,030 $ 34,174 $ 289,312 $ 284,446 ---------- ---------- ----------- ---------- ---------- ---------- ----------- ----------
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, ------------------------------ 1999 1998 ------------ ------------ (In thousands) Net Cash Provided by Operating Activities............................... $ 950,433 $ 683,638 Investing Activities: Purchases of property and equipment, including deposits on aircraft of $7,792,000 in 1998.......................... (1,175,822) (1,189,420) Proceeds from disposition of property and equipment: Sale-leaseback transactions....................................... 80,995 247,852 Reimbursements of A300 deposits................................... 25,130 106,991 Other dispositions................................................ 141,955 37,916 Other, net........................................................... 5,088 (3,386) ----------- ----------- Net cash used in investing activities................................... (922,654) (800,047) ----------- ----------- Financing Activities: Proceeds from debt issuances......................................... - 267,105 Principal payments on debt........................................... (167,668) (235,952) Net receipts from parent company..................................... 115,271 69,311 Other, net........................................................... - 14,443 ----------- ----------- Net cash (used in) provided by financing activities................................................ (52,397) 114,907 ----------- ----------- Net decrease in cash and cash equivalents............................... (24,618) (1,502) Cash and cash equivalents at beginning of period........................ 104,606 122,023 ----------- ----------- Cash and cash equivalents at end of period.............................. $ 79,988 $ 120,521 ----------- ----------- ----------- ----------- Cash payments for: Interest (net of capitalized interest)............................... $ 65,454 $ 72,712 ----------- ----------- ----------- ----------- Income taxes......................................................... $ 247,918 $ 297,001 ----------- ----------- ----------- ----------- Non-cash investing and financing activities: Fair value of assets surrendered under exchange agreements (with two airlines)............................. $ 39,881 $ 78,758 Fair value of assets acquired under exchange agreements................................................. 21,603 64,904 ----------- ----------- Fair value of assets surrendered in excess of assets acquired.................................................. $ 18,278 $ 13,854 ----------- ----------- ----------- -----------
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 Federal Express Corporation (the "Company") is a wholly-owned subsidiary of FDX Corporation ("FDX"). These interim financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X, and should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended May 31, 1998. Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed therein. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly the consolidated financial position of the Company as of February 28, 1999 and the consolidated results of its operations for the three and nine-month periods ended February 28, 1999 and 1998, and its consolidated cash flows for the nine-month periods ended February 28, 1999 and 1998. Operating results for the three and nine-month periods ended February 28, 1999 are not necessarily indicative of the results that may be expected for the year ending May 31, 1999. Effective June 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." The Statement requires the Company to include within its financial statements information on comprehensive income, which is defined as all activity impacting equity from non-owner sources. For the Company, comprehensive income includes net income and foreign currency translation adjustments. Total comprehensive income, net of taxes, for the three months ended February 28, 1999 and 1998 was $38,875,000 and $28,401,000, respectively. For the nine months ended February 28, 1999 and 1998, total comprehensive income, net of taxes, was $290,664,000 and $268,112,000, respectively. Also effective June 1, 1998, the Company adopted Statement of Position ("SOP") 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance on accounting for these costs, requiring certain of them to be capitalized. For the three and nine months ended February 28, 1999, incremental costs of $7,000,000 and $21,300,000, respectively, were capitalized. The Company estimates the pre-tax benefit of the adoption of this Statement to be approximately $30,000,000 for 1999. Certain prior period amounts have been reclassified to conform to the current presentation. - 7 - (2) LONG-TERM DEBT
February 28, 1999 May 31, (Unaudited) 1998 ------------ ----------- (In thousands) Unsecured notes payable, interest rates of 7.60% to 10.57%, due through 2098.......................................$ 888,050 $1,053,770 Unsecured sinking fund debentures, interest rate of 9.63%, due through 2020......................................... 98,581 98,529 Capital lease obligations and tax exempt bonds, interest rates of 5.35% to 7.88%, due through 2017........................................................ 253,425 253,425 Less bond reserves...................................................... 9,024 9,024 ---------- ---------- 244,401 244,401 Other, interest rates of 9.68% to 9.98%................................... 44,554 46,009 ---------- ---------- 1,275,586 1,442,709 Less current portion.................................................... 114,102 257,529 ---------- ---------- $1,161,484 $1,185,180 ---------- ---------- ---------- ----------
Unsecured notes payable as of February 28, 1999, include $648,675,000 due through 2013 and $239,375,000 due in 2098. (3) COMMITMENTS As of February 28, 1999, the Company's purchase commitments for the remainder of 1999 and annually thereafter under various contracts are as follows (in thousands):
Aircraft- Aircraft Related(1) Other(2) Total -------- ---------- -------- -------- 1999 (remainder) $186,200 $149,700 $171,100 $507,000 2000 507,200 292,200 149,700 949,100 2001 281,000 561,100 59,600 901,700 2002 306,000 178,300 - 484,300 2003 494,800 150,500 200 645,500
(1) Primarily aircraft modifications, rotables and spare parts and engines. (2) Vehicles, facilities, computers and other equipment. The Company is committed to purchase six Airbus A300s, 33 MD11s, nine DC10s (in addition to those discussed in the following paragraph) and 75 Ayres ALM 200s to be delivered through 2007. Deposits and progress payments of $68,446,000 have been made toward these purchases. The Company has 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 20 additional DC10s along with additional aircraft engines and equipment. In January 1999, put options were exercised by an airline requiring the Company to purchase nine DC10s for a total purchase price of $29,700,000. Delivery of the aircraft began in March 1999. During the nine-month period ended February 28, 1999, the Company acquired six Airbus A300s under operating leases. These aircraft were included as purchase commitments as of May 31, 1998. At the time of delivery, the Company - 8 - 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, 1998 for the six Airbus A300s and one MD11 purchased and subsequently sold and leased back are as follows (in thousands): 1999 $ 19,800 2000 37,100 2001 36,800 2002 38,400 2003 38,200 Thereafter 788,700
(4) 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 excise 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 for 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 stay was lifted in July 1998. Summary judgement was granted to the Company dismissing all claims in all three consolidated cases in Minnesota. The plaintiffs did not appeal the dismissal, which is now final. 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 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 October 7, 1997. The Court found that there was no breach of contract and that the other causes of action were preempted by federal law. The plaintiffs appealed the dismissal. This case originally alleged that 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 dismissal was affirmed by the appellate court on March 2, 1999 and is now a final decision. 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 the remaining Alabama case, which is still pending. No amount has been reserved for this contingency. 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. - 9 - (5) RELATED PARTY TRANSACTIONS As of February 28, 1999, the Company had a total amount due to its parent, FDX Corporation, of $178,646,000. This amount comprises an intercompany operating payable of $113,293,000 included in Current Liabilities and $65,353,000 included in Other Liabilities which represents the net activity from participation in FDX's consolidated cash management program. - 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, 1999, and the related condensed consolidated statements of income for the three and nine-month periods ended February 28, 1999 and 1998 and the condensed consolidated statements of cash flows for the nine-month periods ended February 28, 1999 and 1998 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, 1999 and the related condensed consolidated statements of income for the three and nine-month periods ended February 28, 1999 and 1998 and the condensed consolidated statements of cash flows for the nine-month periods ended February 28, 1999 and 1998. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical 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, 1998 and the related consolidated statements of income, changes in owner's equity and cash flows for the year then ended. In our report dated July 8, 1998, 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, 1998 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. /s/ Arthur Andersen LLP Memphis, Tennessee March 17, 1999 - 12 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS For the third quarter ended February 28, 1999, the Company recorded consolidated net income of $43 million on revenues of $3.4 billion compared with net income of $34 million on revenues of $3.2 billion for the same period in the prior year. For the nine months ended February 28, 1999, the Company recorded consolidated net income of $289 million on revenues of $10.3 billion compared with net income of $284 million on revenues of $9.8 billion for the same period in the prior year. Earnings for the quarter and year-to-date periods, excluding the following non-recurring items, reflect improved domestic and international results, partially offset by continued weakness in trans-Pacific traffic. On October 30, 1998, contract negotiations between the Company and the FedEx Pilots Association ("FPA") were discontinued. In November, the FPA began actively encouraging its members to decline all overtime work and issued ballots seeking strike authorization. To avoid service interruptions related to a threatened strike, the Company and its parent company, FDX Corporation ("FDX"), began strike contingency planning including entering into agreements for additional third party air and ground transportation and establishing special financing arrangements. Subsequently, the FPA agreed to end all job actions for 60 days and negotiations resumed. Such negotiations resulted in a five-year collective bargaining agreement that was ratified by the FPA membership in February 1999 and will take effect on May 31, 1999. Costs associated with these contingency plans, including contracts for supplemental airlift and ground transportation and a business interruption credit facility established in December 1998 by FDX, reduced the third quarter's pretax earnings by approximately $91 million. The prior year's third quarter results included $14 million of expenses related to the acquisition of Caliber System, Inc. These expenses were primarily investment banking fees. The prior year's year-to-date results of operations included the impact of the Teamsters strike against United Parcel Service ("UPS") in August 1997. The Company analytically calculated that the volume not retained at the end of the first quarter of 1998 contributed approximately $150 million and $50 million in U.S. domestic revenues and operating income, respectively, in that quarter. Revenues The following table shows a comparison of revenues (in millions):
Third Quarter YTD Period Ended Ended February 28, February 28, ------------------ Percent ------------------- Percent 1999 1998 Change 1999 1998 Change ------ ------ ------- ------- ------ ------- U.S. domestic express......................... $2,445 $2,301 + 6 $ 7,310 $6,902 + 6 International Priority (IP)................... 730 663 +10 2,217 2,018 +10 International Express Freight (IXF) and Airport-to-Airport (ATA)....................................... 129 140 - 7 402 456 -12 Charter, Logistics services and other................................... 127 129 - 2 401 453 -11 ------ ------ ------- ------ $3,431 $3,233 + 6 $10,330 $9,829 + 5 ------ ------ ------- ------ ------ ------ ------- ------
- 13 - The following table shows a comparison of selected operating statistics (packages and pounds in thousands):
Third Quarter YTD Period Ended Ended February 28, February 28, ------------------ Percent ------------------ Percent 1999 1998 Change 1999 1998 Change ------ ------ ------- ------ ------ ------- U.S. domestic express: Average daily packages........................ 2,972 2,819 + 5 2,850 2,747 + 4 Revenue per package........................... $13.27 $12.95 + 2 $13.43 $13.22 + 2 IP: Average daily packages........................ 279 255 +10 276 255 + 8 Revenue per package........................... $42.14 $41.28 + 2 $42.02 $41.58 + 1 IXF/ATA: Average daily pounds.......................... 2,645 2,690 - 2 2,661 2,775 - 4 Revenue per pound............................. $ .79 $ .82 - 4 $ .79 $ .87 - 9 Operating weekdays............................. 62 63 191 190
The Company's U.S. domestic express package revenue rose as both package volume and revenue per package (yield) increased for the quarter and year-to-date periods. During these periods, the Company experienced increased volume of its higher-priced, overnight services and increased average weight per package. Each of these factors contributed to the rise in U.S. domestic yield for the quarter and nine-month periods. The year-to-date results for the prior year included the additional volume during the UPS strike, which was primarily in the deferred service category and generally at list price. Excluding the revenue and volume associated with the UPS strike and the proceeds from a temporary fuel surcharge in the prior year, U.S. domestic average daily package volume and yield increased 5% and 3% year over year, respectively, for the nine-month period. Management expects total U.S. domestic express package volume in the fourth quarter of 1999 to grow at a rate consistent with the current year year-to-date growth rate. Management believes that U.S. domestic yield should continue to increase slightly, year over year, during the fourth quarter of 1999 due to continued effects of yield-management actions, including a list rate increase averaging 2.8% for U.S. domestic shipments effective March 15, 1999. Also, through enhanced technology, the Company has improved its ability to capture incremental revenue based upon certain package characteristics, such as weight and package dimensions. Actual results may vary depending on the impact of domestic economic conditions, competitive pricing changes, customer responses to yield-management initiatives and changing customer demand patterns. IP revenue increased 10% for the quarter and year-to-date periods as average daily packages and yield increased during these periods. The Company's IP volume growth rates are less than those experienced in prior years primarily due to weakness in Asian markets, especially in U.S. outbound traffic to that region. Management expects the fourth quarter IP volume growth rate to be consistent with the current year year-to-date growth rate. IP yield increased 2% and 1% for the quarter and year-to-date periods, respectively, primarily as a result of increased weight per package. Management expects IP yield to remain constant or improve slightly as a result of increased weight per package. Actual IP results will depend on international economic conditions, actions by the Company's competitors and regulatory conditions for international aviation rights. - 14 - The Company's airfreight (IXF/ATA) volume, revenue and yield declined year over year for the quarter and nine-month periods. IXF volume (a space-confirmed, time-definite service) increased 1% for the quarter and year-to-date periods, but yield declined 2% and 8% for the same periods. ATA volume (a lower-priced, space-available service) decreased 8% and 14% for the quarter and year-to-date periods, respectively, with yield lower by 12% and 13% for the same periods. Airfreight yield has declined year over year since the second quarter of 1996, with both volume and yield declining for the past three quarters. Management expects these trends to continue through the balance of 1999 and has adjusted the Company's expansion and aircraft deployment plans accordingly. These adjustments include deferring additional flights, reducing capacity on certain routes, suspending flights and redeploying aircraft to areas with capacity constraints. Actual airfreight results will depend on 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 increased 7% for both the quarter and year-to-date periods, primarily due to package volume-related increases in the number of employees and increased provisions for the Company's performance-based incentive compensation plans. Increases of 7% and 8% in rentals and landing fees for the quarter and year-to-date periods, respectively, were primarily due to additional facilities leased by the Company. The current year's expense includes additional building leases at the Indianapolis and Alliance-Fort Worth hubs. In the third quarter, supplemental aircraft lease and equipment lease expense declined year over year. As discussed below, incremental leases associated with strike contingency planning are included in other operating expenses. In the prior year's third quarter, supplemental leased aircraft were added to meet the demands of increased package volume and to replace an MD11 destroyed in July 1997. In the current quarter, supplemental leased aircraft were not as extensively required (excluding strike contingency costs described below) because sufficient leased fleet aircraft were available for the Company's capacity needs. As of February 28, 1999, the Company had 93 wide-bodied aircraft under operating lease compared with 85 as of February 28, 1998. During the nine-month period, the additional leased fleet aircraft contributed to the rise in rental and landing fees. The prior year's first quarter expense was favorably impacted by approximately $9 million of a $17 million net gain resulting from the destruction of a leased MD11 aircraft in an accident in July 1997 (described below in Other Income and Expense). Management expects year-over-year increases in lease expense to continue as the Company enters into additional aircraft rental agreements during 1999 and thereafter, including the conversion of A300 purchase commitments into direct operating leases. (See Note 3 of Notes to Condensed Consolidated Financial Statements.) Maintenance and repairs expense increased 10% and 12% for the quarter and year-to-date periods, respectively, primarily due to higher year-over-year engine maintenance expense on MD11 and B727 aircraft. In the first quarter of 1998, an accrual for the disposition of leased B747 aircraft was increased $9 million, with the majority of this increase recorded 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 increasing size and age of the Company's fleet and the variety of aircraft types. Fuel expense fell 23% and 19% for the quarter and nine-month periods, respectively, primarily as a result of declines in jet fuel price per gallon (29% and 25%, respectively), partially offset by increases in jet fuel gallons consumed (8% and 6%, respectively). The prior year's fuel expense included payments made by the Company under contracts which were 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 certain U.S. domestic and U.S. export shipments. This surcharge was implemented on February 3, 1997 to mitigate the impact of rising jet fuel prices. - 15 - Other operating expense increased 13% and 6% for the quarter and year-to-date periods, respectively, primarily due to approximately $76 million recorded in the current year third quarter associated with strike contingency planning. These contingency costs consist principally of aircraft lease expense and lease termination fees. The prior year's first quarter included incremental expenses associated with the additional volume during the UPS strike. Other operating expense includes transportation of packages by third parties, temporary labor and other outside service contracts, communications expense and the cost of sales of engine noise reduction kits. Operating Income The Company's consolidated operating income decreased 3% for the quarter and 2% for the year-to-date period from the prior year. Excluding the impact of strike contingency expenses in the current year and merger-related expenses and the benefit of the UPS strike in the prior year, operating income increased 57% and 20% for the quarter and year-to-date periods primarily due to improved results in the Company's U.S. domestic operations. Improved international results, excluding the contingency costs, also contributed to the increased operating income for the third quarter. U.S. domestic operating income was $112 million and $535 million for the quarter and year-to-date periods ended February 28, 1999. Prior year amounts were $105 million and $513 million for these same periods. During the current quarter, approximately $52 million of contingency costs were incurred by U.S. domestic operations. Included in the third quarter of the prior year were $14 million of expenses related to the acquisition of Caliber System, Inc. The prior year's first quarter operating income included approximately $50 million related to the UPS strike as well as proceeds from a 2% temporary fuel surcharge through August 1, 1997. Excluding these non-recurring items in the current and prior years, operating income increased 38% and 29% for the quarter and year-to-date periods. These increases were due to yield increases (2.5% and 2.6% for the quarter and year-to-date periods, respectively) and package volume growth (5% for both the quarter and year-to-date periods). Cost per package remained constant for the periods. Sales of engine noise reduction kits contributed $24 million and $81 million to U.S. domestic operating income in the third quarter and year-to-date periods ended February 28, 1999, compared with $26 million and $97 million in the same periods in the prior year. U.S. domestic operating margins were 4.5% and 7.1% (6.5% and 7.8% excluding the contingency costs) for the quarter and nine-month periods, respectively, compared with 4.4% and 7.2% (5.0% and 6.5%, excluding the aforementioned prior year items) for the same periods in the prior year. The Company's international operations reported an operating loss of $17 million for the third quarter and operating income of $31 million for the year-to-date period, compared with a loss of $7 million and income of $63 million for the same periods of the prior year. During the current quarter, approximately $29 million of contingency costs were incurred by international operations. Excluding these expenses, international operating results improved for the third quarter primarily due to lower fuel costs and cost controls. Both the quarter and year-to-date results were negatively impacted by slower IP volume growth, declining airfreight volume and yield at a time of year-over-year capacity increases and fixed costs associated with the increased capacity, including salaries and employee benefits and aircraft lease expense. International operating margins were -1.9% and 1.1% (1.3% and 2.1%, excluding contingency costs) for the quarter and year-to-date periods, respectively, compared with -0.8% and 2.4% for the same periods in the prior year. - 16 - Other Income and Expense Net interest expense declined 27% and 23% for the quarter and year-to-date periods, respectively, due to lower average debt levels. Other, net for the current quarter includes approximately $10 million of expenses related to the Company's contingency plans, primarily costs associated with the business interruption credit facility discussed below. Other, net for the prior year's first quarter included a gain from an insurance settlement for an MD11 aircraft destroyed in an accident in July 1997. At that time, the Company realized a net gain of $17 million from the insurance settlement and the release from certain related liabilities on the leased aircraft. Approximately $8 million of this gain was recorded in non-operating income. The Company's effective tax rates of 34.0% and 40.5% for the quarter and year-to-date periods, respectively, compare with rates of 50.5% and 43.2% for these periods in the prior year. The decline in the year-to-date rate from 41.5% recorded in the first half of 1999 to 40.5% is primarily due to the combination of stronger than expected year-to-date results from international operations and lower worldwide income taxes on foreign earnings. The prior year rates were affected by certain one-time, merger-related costs which were nondeductible for federal and state income tax purposes. Excluding the impact of those nondeductible costs, the effective tax rate was 42.0% for the prior year's quarter and year-to-date periods. FINANCIAL CONDITION Liquidity Cash and cash equivalents totaled $80 million at February 28, 1999, a decrease of $25 million since May 31, 1998. Cash provided from operations for the first nine months of 1999 was $950 million compared with $684 million for the same period in the prior year. In December 1998, FDX Corporation established a $1.0 billion business interruption credit facility with a 364-day maturity to fund working capital needs and contingency plan expenses in the event of an actual or threatened business interruption due to labor issues with the FPA. In addition, FDX Corporation amended its existing revolving credit agreement to allow for this business interruption credit facility and to extend part of the agreement, previously expiring in January 1999, to January 2000. On February 4, 1999, the business interruption credit facility was canceled following the ratification of the contract by the members of the FPA. Approximately $10 million in fees and interest were incurred in connection with this facility. Management believes that cash flow from operations, FDX Corporation's commercial paper program and bank revolving credit facility will adequately meet the Company's working capital needs for the foreseeable future. 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 depend on various factors including global economic conditions, volume growth, new or enhanced services, geographical expansion of services, competition, availability of satisfactory financing and actions of regulatory authorities. - 17 - Capital expenditures for the first nine months of 1999 totaled $1.2 billion and included one MD11, aircraft modifications, vehicles and ground support equipment and customer automation and computer equipment. Prior year expenditures also totaled $1.2 billion and included three MD11s, two A310s, aircraft modifications, vehicles and ground support equipment and customer automation and computer equipment. An MD11 purchased in June 1998 was sold and leased back in September 1998. In June and September 1997 and February 1998, three MD11s purchased in February, June and November 1997 were sold and leased back. For information on the Company's purchase commitments, see Note 3 of Notes to Condensed Consolidated Financial Statements. Management believes that the capital resources available to the Company provide flexibility to access the most efficient markets for financing capital acquisitions, including aircraft, and are adequate for the Company's future capital needs. Market Risk Sensitive Instruments and Positions There have been no material changes in the Company's market risk sensitive instruments and positions since its disclosure in its Annual Report on Form 10-K for the year ended May 31, 1998. Euro Currency Conversion On January 1, 1999, 11 of the 15 member countries of the European Union fixed conversion rates between their existing sovereign currencies ("legacy currencies") and a single currency called the euro. On January 4, 1999, the euro began trading on currency exchanges and became available for non-cash transactions. The legacy currencies will remain legal tender through December 31, 2001. Beginning January 1, 2002, euro-denominated bills and coins will be introduced, and by July 1, 2002, legacy currencies will no longer be legal tender. The Company established a euro task force to develop and implement euro conversion plans. The work of the task force in preparing for the introduction of the euro and the phasing out of the various legacy currencies includes numerous facets such as converting information technology systems, adapting billing and payment systems and modifying processes for preparing financial reports and records. Since January 1, 1999, the Company has been prepared to quote rates to customers, generate billings and accept payments, in both euros and legacy currencies. Based on the work of the Company's euro task force to date, the Company believes that the introduction of the euro, any price transparency brought about by its introduction and the phasing out of the legacy currencies will not have a material impact on the Company's consolidated financial position, results of operations or cash flows. Costs associated with the euro project are being expensed as incurred and are being funded entirely by internal cash flows. - 18 - YEAR 2000 COMPLIANCE Introduction The Company relies heavily on sophisticated information technology ("IT") for its business operations. For example, the Company maintains electronic connections with more than a million customers via its proprietary products and technologies. The Company's Year 2000 ("Y2K") computer compliance issues are, therefore, broad and complex. The Y2K Project Office, which was established in 1996, coordinates and supports the Company's Y2K compliance effort. The Company has also engaged a major international consulting firm to assist it in its Y2K program management. The Company's Y2K compliance efforts are focused on business-critical items. Hardware, software, systems, technologies and applications are considered "business-critical" if a failure would either have a material adverse impact on the Company's business, financial condition or results of operations or involve a safety risk to employees or customers. State of Readiness Generally, the Company believes that its Y2K compliance effort is on schedule. IT SYSTEMS The Company's compliance effort for all business-critical infrastructure and applications software (collectively, "IT Systems") is 98% complete. The Company has inventoried all IT Systems. Assessment/design (researching the compliance status and determining the impact of, and renovation requirements for, the IT Systems) and renovation (making IT Systems compliant) are substantially complete. Testing, which involves validating compliance, is also substantially complete. Within IT Systems, certification of application software, which involves the Company's independent, internal review to verify whether the appropriate testing process has occurred, is approximately 96% complete. Certification of the operating system software and program product software (collectively, "infrastructure") is 85% complete. The Company's IT Systems compliance effort is targeted to be 100% complete by September 1, 1999. At present, a substantial portion of the key IT Systems are expected to be compliant by May 31, 1999. Those IT Systems which will most likely not be compliant until after May 31, 1999 include systems dependent upon external government or vendor interfaces. While all IT Systems are still expected to be compliant by September 1, 1999, contingency plans will be in place to mitigate any negative impact of the non-compliance of such systems. NON-IT SYSTEMS The inventory and assessment phases of the Company's Y2K program relating to business-critical purchased hardware and software, customized software applications, facilities/equipment and other embedded chip systems (collectively, "Non-IT Systems") are 100% complete. The remaining phases relating to the Company's Non-IT Systems are targeted for completion by May 31, 1999. The Company is 85% complete with the remediation effort on Non-IT Systems. All development and implementation scheduled from the present until May 31, 1999 is being closely monitored, and while there is the possiblity that some activities may take place after the target date, the Company believes that it will be substantially complete by May 31, 1999. Possible exceptions include implementation of the Company's automated shipping solutions by customers and rollout to the Company's customers of the FedEx Onsite Server upgrade, which may require some development on the part of the customer. - 19 - The Company has established several definitions for compliance related to Non-IT Systems. For air infrastructure components (such as airports and air traffic systems), the Company defines compliant to mean that these components are being aggressively assessed and that approved processes are in place to monitor their evolving status and develop specific operational contingency plans. For business critical suppliers and affiliates, the Company defines compliant to mean that the suppliers and affiliates have been assessed, and a contingency plan has been developed as necessary. For the automated shipping solutions offered to customers, the Company defines compliant to mean that the Company has made available a compliant version of the associated shipping solution. A customer may choose to remain on a non-compliant version of software if the customer is willing to assume the associated risks and there are no potentially unfavorable impacts on the Company's internal systems. For electronic interfaces with customers and suppliers, the Company defines compliant to mean that it has made compliant transaction sets available and has made systems modifications that enable the Company to translate non-compliant versions that mitigate the potential impact to the Company's internal systems. Y2K Interfaces with Material Third Parties The Company is making concerted efforts to understand the Y2K status of third parties (including, among others, domestic and international government agencies, customs bureaus, U.S. and international airports and air traffic control systems, customers, independent contractors, vendors and suppliers) whose Y2K standing could either have a material adverse effect on the Company's business, financial condition or results of operations or involve a safety risk to employees or customers. The Company is actively encouraging Y2K compliance on the part of third parties and is developing contingency plans in the event of their Y2K non-compliance. In conjunction with the International Air Transport Association (IATA) and the Air Transport Association of America (ATA), the Company is involved in a global and industry-wide effort to understand the Y2K compliance status of airports, air traffic systems, customs clearance and other U.S. and international government agencies, and common vendors and suppliers. The Company has developed contingency plans to minimize the impact of Y2K issues on its air operations. Contingency plans will be implemented, as necessary, to mitigate the impact of Y2K problems that might arise during the transition into 2000. The Company's vendor and product compliance program includes the following tasks: assessing vendor compliance status; product testing; tracking vendor compliance progress; developing contingency plans, including identifying alternate suppliers, as needed; addressing contract language; replacing, renovating or upgrading parts; requesting presentations from vendors or making on-site assessments, as required; and sending questionnaires. Failure to respond to these questionnaires results in further mail or phone correspondence, contingency plan development and/or vendor/product replacement. - 20 - Testing The Company's Y2K testing effort includes functional testing of remedial measures and regression testing to validate that changes have not altered existing functionality. The Company's test plans include sections which define the scope of the testing effort, roles and responsibilities of test participants, the test approach planned, software, hardware and data requirements, and test environments/techniques to be used as well as other sections defining the test effort. System functionality for future date accuracy is being verified and documented. The Company uses an independent, internal process to verify that the appropriate testing process has occurred. A separate homogenous Y2K mainframe environment has been created to test operating system software and program product software. The Y2K mainframe environment is designed to accomplish future date "end to end" testing of the larger applications and to validate interface communications between applications. Costs to Address Y2K Compliance Since 1996, the Company has incurred approximately $75 million on Y2K compliance, which includes internal and external software/hardware analysis, repair, vendor and supplier assessments, risk mitigation planning, and related costs. The Company continues to monitor its total expected costs associated with Y2K compliance efforts, and currently expects that it will incur additional total costs of approximately $45 million, including depreciation of $10 million. Forty percent of the remaining expenses, excluding depreciation, relate to the Y2K remediation efforts during the fourth quarter. Y2K expenditures after May 31, 1999 will include project management of the corporate contingency effort and the command and control center, further system audit and validation, and project management to ensure compliance of new systems development. The Company classifies costs as Y2K for reporting purposes if they remedy only Y2K risks or result in the formulation of contingency plans and would otherwise be unnecessary in the normal course of business. The Company's Y2K compliance effort is being funded entirely by internal cash flows. For the fiscal year ending May 31, 1999, Y2K expenditures are expected to represent less than 10% of the Company's total IT expense budget. Although there are opportunity costs to the Company's Y2K compliance effort, management believes that no significant information technology projects have been deferred due to this work. Contingency Planning and Risks The Company's key contingency plans were completed by January 31, 1999. These plans address the activities to be performed by personnel in preparation for and during a Y2K-related failure that could have an immediate and significant impact on normal operations. A Y2K-related failure could include, but is not limited to, power outages, system or equipment failures, erroneous data, loss of communications and failure of a supplier or vendor. The contingency plans include, among other things, items such as pre-arranging alternative operating locations, replacing non-Y2K compliant suppliers and vendors, using back-up systems equipment and stockpiling additional inventory and supplies. They also outline alternative procedures, including manual ones, personnel can perform in order to carry out their mission-critical functions and trouble-shooting procedures the IT organization can follow to bring internal systems and equipment back into operation after a Y2K-related failure. The plans also establish procedures for company-wide communications. These are in addition to the Company's operational contingency plans for the pick-up, delivery and movement of packages. The Company expects to have a Y2K contingency command and control center by April 30, 1999 that will link to the Company's other operations command and control centers. Key personnel will be on call beginning November 1999 and on site beginning December 31, 1999. - 21 - The Company's goal for completing all other contingency plans is September 30, 1999. Plans covering vendor and supplier issues are targeted for completion by May 31, 1999 to minimize the risks, if any, that these third parties may not be on schedule in their own Y2K efforts. The Company's goal for developing testing plans is May 31, 1999. Testing will include structured walk-throughs, mock drills and simulations and is expected to be completed by October 31, 1999. Although the cost of developing contingency plans is included in the total project costs described above, the cost of implementing any necessary contingency plans is not known at this time. Due to the general uncertainty inherent in the Company's Y2K compliance, mainly resulting from the Company's dependence upon the Y2K compliance of the government agencies and third-party suppliers, vendors and customers with whom the Company deals, the Company believes that there is no single most reasonably likely worst case scenario. However, the Company believes that a most reasonably likely worst case scenario could include, but is not limited to, the following situations: delivery delays and the related re-routing costs due to the lack of readiness of airports and air traffic systems, principally outside the United States; the inability to serve certain customers or geographic areas due to their lack of compliance and business continuance capabilities of suppliers, vendors, customers and independent contractors, including third party pick-up and delivery providers on whom the Company relies in some offshore locations; and service delays or failures due to the global utilities and telecommunications infrastructure. The Company's Y2K program, including related contingency planning, is designed to substantially lessen the possibility of significant interruptions of normal operations. Despite its efforts to date, the Company may still incur substantial expenditures or experience significant delays in delivering its services as Y2K problems, both domestic and international, become known. Non-compliant systems of vendors, suppliers, customers and other third parties could also adversely affect the Company. While costs related to the lack of Y2K compliance of third parties, business interruptions, litigation and other liabilities related to Y2K issues could materially and adversely affect the Company's business, results of operations and financial condition, the Company expects its Y2K compliance efforts to reduce significantly the Company's level of uncertainty about the impact of Y2K issues affecting both its IT Systems and Non-IT Systems. * * * 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 "Management's Discussion and Analysis of Results of Operations and Financial Condition." - 22 - PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Note 4 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 ------- ---------------------- 10.1 Amendment dated March 19, 1998 to Sales Agreement dated April 7, 1995 between American Airlines, Inc. 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 the exhibit and filed separately. 10.2 Amendment dated January, 1999 to Sales Agreement dated April 7, 1995 between American Airlines, Inc. 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 the exhibit and filed separately. 10.3 Letter Agreement No. 9 dated January 27, 1999, 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 the exhibit and filed separately. 10.4 Amendment No. 1 dated January 22, 1999, 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 the exhibit and filed separately. 12.1 Computation of Ratio of Earnings to Fixed Charges. 15.1 Letter re Unaudited Interim Financial Statements. 27 Financial Data Schedule (electronic filing only).
(b) Reports on Form 8-K. No Current Reports on Form 8-K were filed during the quarter ended February 28, 1999. - 23 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FEDERAL EXPRESS CORPORATION (Registrant) Date: April 12, 1999 /s/ MICHAEL W. HILLARD -------------------------------------- MICHAEL W. HILLARD VICE PRESIDENT & CONTROLLER (PRINCIPAL ACCOUNTING OFFICER) - 24 - EXHIBIT INDEX
Exhibit Number Description of Exhibit - ------- ---------------------- 10.1 Amendment dated March 19, 1998 to Sales Agreement dated April 7, 1995 between American Airlines, Inc. 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 the exhibit and filed separately. 10.2 Amendment dated January, 1999 to Sales Agreement dated April 7, 1995 between American Airlines, Inc. 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 the exhibit and filed separately. 10.3 Letter Agreement No. 9 dated January 27, 1999, 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 the exhibit and filed separately. 10.4 Amendment No. 1 dated January 22, 1999, 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 the exhibit and filed separately. 12.1 Computation of Ratio of Earnings to Fixed Charges. 15.1 Letter re Unaudited Interim Financial Statements. 27 Financial Data Schedule (electronic filing only).
E-1 EX-10.1 2 EXHIBIT 10.1 AGREEMENT AND AMENDMENT TO AIRCRAFT SALES AGREEMENT THIS AGREEMENT AND AMENDMENT TO AIRCRAFT SALES AGREEMENT (this "Agreement") dated as of March 19, 1998 between AMERICAN AIRLINES, INC., a Delaware corporation ("American") and FEDERAL EXPRESS CORPORATION, a Delaware corporation ("FedEx"). RECITALS 1. American and FedEx entered into that certain Aircraft Sales Agreement dated as of April 7, 1995 (as amended, the "Purchase Agreement") pursuant to which American agreed to sell and FedEx agreed to purchase, among other things, twelve (12) Firm Aircraft for the Purchase Prices and on the Scheduled Delivery Dates described in the Purchase Agreement. FedEx also granted to American Put Options to sell to FedEx up to seven (7) Put Option Aircraft. 2. FedEx has agreed to reschedule the Scheduled Delivery Dates of the three (3) Firm Aircraft (collectively, the "Rescheduled Delivery Aircraft") with Scheduled Delivery Dates of October 14, 1998, February 17, 1999 and June 16, 1999 to June 14, 2002, October 11, 2002 and February 14, 2003, respectively (the "Rescheduled Delivery Dates") in consideration of and for American's agreement to (i) reduce the Purchase Price for the Rescheduled Delivery Aircraft, (ii) reduce the Spare Purchase Price for one (1) Spare Engine, (iii) exercise the Put Options for all seven (7) Put Option Aircraft and (iv) reschedule the purchase and delivery dates of certain Spare Parts, all of the foregoing as more particularly described below. 3. American and FedEx desire to document the terms and conditions of their agreements as provided below. AGREEMENT NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, American and FedEx agree as follows: A. EXERCISE OF PUT OPTIONS American hereby exercises all seven (7) Put Options granted by FedEx as set forth in Section 2.02. of the Purchase Agreement for the sale of all seven (7) Put Option Aircraft to FedEx with the Scheduled Delivery Dates described in Section 2.02. A Designation and an Engine Designation will be provided by American to FedEx for each Put Option Aircraft in accordance with Section 2.04 -1- of the Purchase Agreement designating the Airframe and Engines that will be tendered to FedEx by American on each Scheduled Delivery Date for the Put Option Aircraft. FedEx acknowledges and accepts receipt of the notice of exercise of all seven (7) Put Options and agrees that, notwithstanding any provision in the Purchase Agreement to the contrary, this Agreement shall constitute a Put Option Exercise of all seven (7) Put Options in compliance with the form, content, delivery and other requirements of exercise of the Put Options pursuant to the terms of the Purchase Agreement, and to the extent such notice does not comply with the terms of the Purchase Agreement, FedEx waives any such non-compliance. Pursuant to the Purchase Agreement, American and FedEx agree that each of the seven (7) Put Options have been validly exercised in accordance with the terms of the Purchase Agreement, and American hereby agrees to sell and deliver to FedEx, and FedEx hereby agrees to purchase and accept delivery of, the seven (7) Put Option aircraft on the Scheduled Delivery Dates and for the Purchase Prices listed in Section 2.02 of the Purchase Agreement and otherwise in accordance with the terms of the Purchase Agreement. FedEx agrees to deliver the Deposits for each of the seven (7) Put Option Aircraft in accordance with Section 2.06. B. AMENDMENTS TO THE PURCHASE AGREEMENT 1. Section 2.01 of the Purchase Agreement is amended by deleting the table in Section 2.01 and replacing it with the following table:
LATEST DESIGNATION SCHEDULED DELIVERY DELIVERY DATE DATE PURCHASE NUMBER PRICE --------- ------------------ ------------ ---------- 1 7-May-95 17-Jan-96 $* 2 12-June-95 12-June-96 * 3 16-Oct-95 20-Sept-96 * 4 12-Feb-96 28-Feb-97 * 5 11-June-96 11-June-97 * 6 15-Oct-96 15-Oct-97 * 7 14-Jan-97 14-Jan-98 * 8 17-June-97 17-June-98 * 9 13-Oct-98 13-Oct-99 * 10 14-June-01 14-June-02 * 11 11-Oct-01 11-Oct-02 * 12 14-Feb-02 14-Feb-03 *
The agreement to reschedule the original Scheduled Delivery Dates of the Rescheduled Delivery Aircraft to the Rescheduled Delivery Dates is not considered a delay by either FedEx or American under the Purchase Agreement, and neither party is entitled to any further compensation or any further reduction in the _______________________ *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. -2- Purchase Price for rescheduling the original Scheduled Delivery Dates to the Rescheduled Delivery Dates. 2. Section 4.02 is amended by deleting the following text: "; provided, however, that so long as the Delivery of three Aircraft occurs in each of the years from 1996 through 1999 (i) the aggregate Average Unit Prices of MD-11 Spare Parts that shall be sold by American to FedEx, and purchased by FedEx from American, in each year from 1996 through 1999 shall be $[*]". 3. The Purchase Agreement is amended by inserting the following line to the end of the table in Table A to Exhibit L to the Purchase Agreement under the appropriate headings: Twelve-Month Period Ended C Check First Interval Second Interval May 31 Cost Items Cost Items Cost [ * ] 4. The Purchase Agreement is amended by deleting Exhibit Q to the Purchase Agreement in its entirety and replacing it with the attachment to this Agreement attached as Schedule 1. C. REVISIONS TO DELIVERY DATES American and FedEx may (but without any obligation to do so) by written agreement amend the Purchase Agreement to reschedule the Scheduled Delivery Dates of the Rescheduled Delivery Aircraft (as rescheduled pursuant to Section B.1 of this Agreement) to delivery dates in the years 2000, 2001 and 2002 mutually satisfactory to American and FedEx, provided, however, such amendment would not require American to deliver to FedEx more than four (4) Aircraft during any twelve (12) month period of time and FedEx notifies American of its desire to so amend the Purchase Agreement on or before May 15, 1998 by providing written notice in the manner prescribed by Section 17.01 of the Purchase Agreement. D. MISCELLANEOUS 1. Except as expressly set forth herein, all terms and provisions contained in the Purchase Agreement shall remain unmodified and in full force and effect. 2. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without regard to the laws of conflicts of the State of New York. _______________________ *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. -3- 3. The parties agree to treat this Agreement and the information contained herein as confidential information in accordance with Section 15.01 of the Purchase Agreement. 4. Capitalized but undefined terms used in this Agreement have the meanings assigned to such terms in the Purchase Agreement. 5. This Agreement may be executed in several counterparts, all of which shall be deemed an original, and all such counterparts shall constitute one and the same instrument. [Signature Page Follows] -4- IN WITNESS WHEREOF, American and FedEx have caused this Agreement to be duly executed and delivered as of the date and year first above written. AMERICAN AIRLINES, INC. By: /s/ JEFFREY C. CAMPBELL -------------------------------- Jeffrey C. Campbell Vice President-Corporate Development and Treasurer FEDERAL EXPRESS CORPORATION APPROVED AS TO LEGAL FORM By: /s/ JAMES R. PARKER KHS 3-20-98 ----------------------------------- ------------------ James R. Parker LEGAL DEPT. Vice President-Fleet Development & Acquisitions -5- SCHEDULE 1 EXHIBIT Q TO AIRCRAFT SALES AGREEMENT BETWEEN AMERICAN AIRLINES, INC. ("AMERICAN") AND FEDERAL EXPRESS CORPORATION ("FEDEX") DATED APRIL 7, 1995 (THE "AGREEMENT") SECTION 1--MD-11 SPARE PARTS PURCHASE DATES, PURCHASE OBLIGATIONS, AND DELIVERY OBLIGATIONS TO BE PURCHASED IN CONJUNCTION WITH DELIVERIES OF FIRM AIRCRAFT AND PUT OPTION AIRCRAFT SOLD PURSUANT TO THE PUT OPTIONS
SPARES PURCHASE SPARES PRICE OF SPARES PURCHASE A PAIR OF PURCHASE PRICE OF SPARE SCHEDULED AVERAGE PRICE TO BE NUMBER OF A SPARE SPARE THRUST DATE OR UNIT PRICE PAID FOR SPARE APU THRUST REVERSERS YEAR FOR THE MD-11 OF MD-11 MD-11 APU'S PURCHASED REVERSERS PURCHASED PURCHASE OF SPARE SPARE PARTS SPARE SCHEDULED ON SCHEDULE ON THE THE MD-11 PARTS TO BE PARTS TO BE TO BE THE DATE TO BE DATE SPARE PARTS PERCENTAGE PURCHASED PURCHASED PURCHASED SHOWN* PURCHASED SHOWN* [ * ]
_______________________ *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. EXHIBIT Q TO AIRCRAFT SALES AGREEMENT BETWEEN AMERICAN AIRLINES, INC. ("AMERICAN") AND FEDERAL EXPRESS CORPORATION ("FEDEX") DATED APRIL 7, 1995 (THE "AGREEMENT") SECTION 2-MD -11 SPARE PARTS PURCHASE DATES, PURCHASE OBLIGATIONS, AND DELIVERY OBLIGATIONS TO BE PURCHASED IN CONJUNCTION WITH DELIVERIES OF PURCHASE OPTION AIRCRAFT SOLD PURSUANT TO THE PURCHASE OPTIONS Any capitalized term used herein shall have the meaning ascribed to it in the Agreement unless expressly defined herein. [ * ] _______________________ *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. EXHIBIT Q TO AIRCRAFT SALES AGREEMENT BETWEEN AMERICAN AIRLINES, INC. ("AMERICAN") AND FEDERAL EXPRESS CORPORATION ("FEDEX") DATED APRIL 7, 1995 (THE "AGREEMENT") SECTION 3-- SPARE ENGINE PURCHASE DATES AND PURCHASE PRICES Any capitalized term used herein shall have the meaning ascribed to it in the Agreement unless expressly defined herein. The dates on which FedEx shall purchase from American and American shall sell the Spare Engines to FedEx in conjunction with the sale of the Firm Aircraft and the Spares Purchase Price for each such Spare Engine are as follows:
SPARE PURCHASE PRICE SPARE ENGINE PURCHASE DATE FOR SPARE ENGINE -------------------------- -------------------- * $* * $* * $* * $* * $*
In the event that all the Put Option Aircraft are purchased pursuant to an exercise of the Put Options by American or the Purchase Options by FedEx, FedEx will purchase from American and American will sell to FedEx on the following Spare Engines on the following dates:
SPARE PURCHASE PRICE ORIGINAL SALE DATE FOR SPARE ENGINE ------------------ -------------------- * $* * $* * $* * $* * $* [ * ]
_______________________ *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. EX-10.2 3 EXHIBIT 10.2 Exhibit 10.2 AMENDMENT TO AIRCRAFT SALES AGREEMENT THIS AMENDMENT TO AIRCRAFT SALES AGREEMENT (this "Agreement") dated as of January ___, 1999 between AMERICAN AIRLINES, INC., a Delaware corporation ("American") and FEDERAL EXPRESS CORPORATION, a Delaware corporation ("FedEx"). RECITALS 1. American and FedEx entered into that certain Aircraft Sales Agreement dated as of April 7, 1995 (as amended, the "Purchase Agreement") pursuant to which American agreed to sell and FedEx agreed to purchase, among other things, twelve (12) Firm Aircraft for the Purchase Prices and on the Scheduled Delivery Dates described in the Purchase Agreement. FedEx also granted to American Put Options to sell to FedEx up to seven (7) Put Option Aircraft. 2. American and FedEx have agreed to (i) reschedule the Scheduled Delivery Dates of four (4) Firm Aircraft and seven (7) Put Option aircraft (collectively, the "Rescheduled Delivery Aircraft"), (ii) adjust the Purchase Price for the Rescheduled Delivery Aircraft, and (iii) reschedule the purchase and delivery dates of certain Spare Parts, all of the foregoing as more particularly described below. 3. American and FedEx desire to document the terms and conditions of their agreements as provided below. AGREEMENT NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, American and FedEx agree as follows: A. AMENDMENTS TO THE PURCHASE AGREEMENT 1. Section 2.01 of the Purchase Agreement is amended by deleting the table in Section 2.01 and replacing it with the following table: -1-
DELIVERY LATEST DESIGNATION SCHEDULED DELIVERY PURCHASE NUMBER DATE DATE PRICE ------ ---- ---- ----- 1 7-May-95 17-Jan-96 $* 2 12-June-95 12-June-96 $* 3 16-Oct-95 20-Sept-96 $* 4 12-Feb-96 28-Feb-97 $* 5 11-June-96 11-June-97 $* 6 15-Oct-96 15-Oct-97 $* 7 14-Jan-97 14-Jan-98 $* 8 17-June-97 17-June-98 $* 9 18-Feb-99 18-Feb-00 $* 10 15-Mar-01 15-Mar-02 $* 11 07-Jun-01 07-Jun-02 $* 12 03-Jul-01 03-Jul-02 $*
2. Section 2.02(c) of the Purchase Agreement is amended by deleting the table in Section 2.02(c) and replacing it with the following table:
LATEST LATEST SCHEDULED DELIVERY EXERCISE DESIGNATION DELIVERY PURCHASE NUMBER DATE DATE DATE PRICE ------ ---- ---- ---- ----- 13 * * 16-June-00 $* 14 * * 15-Sep-00 $* 15 * * 15-Dec-00 $* 16 * * 16-Mar-01 $* 17 * * 15-June-01 $* 18 * * 14-Sep-01 $* 19 * * 14-Dec-01 $*
3. The agreement to reschedule the original Scheduled Delivery Dates of the Rescheduled Delivery Aircraft to the Rescheduled Delivery Dates pursuant to this Agreement is not considered a delay by either FedEx or American under the Purchase Agreement, and neither party is entitled to any further compensation or any further reduction in the Purchase Price for rescheduling the original Scheduled Delivery Dates to the Rescheduled Delivery Dates. 4. The Purchase Agreement is amended by deleting Exhibit Q to the Purchase Agreement in its entirety and replacing it with the attachment to this Agreement attached as Schedule 1. B. MISCELLANEOUS - ---------- *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. -2- 1. Except as expressly set forth herein, all terms and provisions contained in the Purchase Agreement shall remain unmodified and in full force and effect. 2. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without regard to the laws of conflicts of the State of New York. 3. The parties agree to treat this Agreement and the information contained herein as confidential information in accordance with Section 15.01 of the Purchase Agreement. 4. Capitalized but undefined terms used in this Agreement have the meanings assigned to such terms in the Purchase Agreement. 5. This Agreement may be executed in several counterparts, all of which shall be deemed an original, and all such counterparts shall constitute one and the same instrument. [Signature Page Follows] -3- IN WITNESS WHEREOF, American and FedEx have caused this Agreement to be duly executed and delivered as of the date and year first above written. AMERICAN AIRLINES, INC. By:/s/ JEFFREY C. CAMPBELL ------------------------------------ Jeffrey C. Campbell Vice President-Corporate Development and Treasurer FEDERAL EXPRESS CORPORATION By:/s/ JAMES R. PARKER APPROVED ------------------------------------ LEGAL DEPARTMENT James R. Parker Vice President-Fleet Development CSB 3/10/99 & Acquisitions
-4- SCHEDULE 1 EXHIBIT Q TO AIRCRAFT SALES AGREEMENT BETWEEN AMERICAN AIRLINES, INC. ("AMERICAN") AND FEDERAL EXPRESS CORPORATION ("FEDEX") DATED APRIL 7, 1995 (THE "AGREEMENT") SECTION 1--MD-11 SPARE PARTS PURCHASE DATES, PURCHASE OBLIGATIONS, AND DELIVERY OBLIGATIONS TO BE PURCHASED IN CONJUNCTION WITH DELIVERIES OF FIRM AIRCRAFT AND PUT OPTION AIRCRAFT SOLD PURSUANT TO THE PUT OPTIONS
SPARES PURCHASE SPARES PRICE OF SPARES PURCHASE A PAIR OF PURCHASE PRICE OF SPARE SCHEDULED AVERAGE PRICE TO BE NUMBER OF A SPARE SPARE THRUST DATE OR UNIT PRICE PAID FOR SPARE APU THRUST REVERSERS YEAR FOR THE MD-11 OF MD-11 MD-11 APU'S PURCHASED REVERSERS PURCHASED PURCHASE OF SPARE SPARE PARTS SPARE SCHEDULED ON SCHEDULE ON THE THE MD-11 PARTS TO BE PARTS TO BE TO BE THE DATE TO BE DATE SPARE PARTS PERCENTAGE PURCHASED PURCHASED PURCHASED SHOWN* PURCHASED SHOWN* [ * ]
- ---------- *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. Q-1 EXHIBIT Q TO AIRCRAFT SALES AGREEMENT BETWEEN AMERICAN AIRLINES, INC. ("AMERICAN") AND FEDERAL EXPRESS CORPORATION ("FEDEX") DATED APRIL 7, 1995 (THE "AGREEMENT") SECTION 2-MD -11 SPARE PARTS PURCHASE DATES, PURCHASE OBLIGATIONS, AND DELIVERY OBLIGATIONS TO BE PURCHASED IN CONJUNCTION WITH DELIVERIES OF PURCHASE OPTION AIRCRAFT SOLD PURSUANT TO THE PURCHASE OPTIONS Any capitalized term used herein shall have the meaning ascribed to it in the Agreement unless expressly defined herein. [ * ] - ---------- *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. Q-2 EXHIBIT Q TO AIRCRAFT SALES AGREEMENT BETWEEN AMERICAN AIRLINES, INC. ("AMERICAN") AND FEDERAL EXPRESS CORPORATION ("FEDEX") DATED APRIL 7, 1995 (THE "AGREEMENT") SECTION 3-- SPARE ENGINE PURCHASE DATES AND PURCHASE PRICES Any capitalized term used herein shall have the meaning ascribed to it in the Agreement unless expressly defined herein. The dates on which FedEx shall purchase from American and American shall sell the Spare Engines to FedEx in conjunction with the sale of the Firm Aircraft and the Spares Purchase Price for each such Spare Engine are as follows:
SPARE PURCHASE PRICE SPARE ENGINE PURCHASE DATE FOR SPARE ENGINE * $* * $* * $* * $* * $*
In the event that all the Put Option Aircraft are purchased pursuant to an exercise of the Put Options by American or the Purchase Options by FedEx, FedEx will purchase from American and American will sell to FedEx on the following Spare Engines on the following dates:
SPARE PURCHASE PRICE ORIGINAL SALE DATE FOR SPARE ENGINE * $* * $* * $* * $* * $* [ * ]
- ---------- *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. Q-3 EX-10.3 4 EXHIBIT 10.3 Exhibit 10.3 01-27-99 Letter Agreement No. 9 DAC 96-29-M Federal Express Corporation 2005 Corporate Avenue Memphis, Tennessee 38132 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 "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. 9 shall constitute a part of said Agreement. WHEREAS, Boeing and FedEx have jointly concluded that it is in the best interests of the MD-10 Program to allow FedEx to accept responsibility to accomplish, either directly or by contracting with a subcontractor, only the touch labor, administration of such contract and oversight related to the following tasks (collectively the "Specified Services"): - - The work cards listed in Attachments B1 through B5 of Exhibit K to the Agreement (the "Heavy Maintenance Check") - - The work cards from Exhibit C to the Agreement (Standardization) - - The work cards from Exhibit F to the Agreement (Refurbishment) - - The Non Routine Services associated with the above NOW, THEREFORE, contingent on MDC executing an agreement with Aeronavali in which MDC is relieved of its obligations to Aeronavali to provide any additional Heavy Maintenance Check work packages for accomplishment by Aeronavali, and contingent on Aeronavali and FedEx executing an agreement to accomplish the Specified Services, and in consideration of the mutual covenants herein, MDC and Federal Express agree to amend the Agreement to reflect the reduction of 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 twentieth (20th) Aircraft Delivered to MDC (designated as fuselage 42) and subsequent (collectively the "Non-Mx Aircraft") shall not include [ * ] a) 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 the prices noted in Exhibit K, Attachment A or C to the Agreement, or an individually negotiated and executed Additional Services Request (ASR) via the ASR process defined in the Agreement, as applicable. The fixed labor price for such an ASR shall be calculated [ * ] - ---------- * 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. 1-27-99 Letter Agreement No. 9 DAC 96-29-M Page 2 [ * ] b) The prices set forth in Exhibit K shall be due and payable by FedEx for any given Non-Mx Aircraft only to the extent that the Services specified in Exhibit K (i) have been issued on the FedEx MJCS applicable to that specific Non-Mx Aircraft (ii) the applicable MJCS was submitted to MDC and (iii) the Services specified on the applicable MJCS were actually accomplished by MDC on the applicable Non-Mx Aircraft. c) The Aircraft shall be deemed completed when the Services required to be accomplished by MDC have been substantially accomplished, without regard to the level of completion of the Specified Services accomplished or yet to be accomplished by FedEx or its subcontractor. FedEx and Boeing shall mutually establish a milestone or group of milestones and associated progress payment schedule by no later than February 12, 1999. The milestone and progress payment schedule shall be used to determine when specific Services are complete and the associated progress payment is due. The final balance payment shall be due and payable upon Redelivery, subsequent to the completion of the Services and the Specified Services. 2. FedEx and MDC shall each be responsible for the costs associated with preparation for ferry flight, and the subsequent ferry flight(s) for each Non-Mx Aircraft as stipulated below: a) FedEx shall be responsible for [ * ] as noted in Exhibit O - Schedule for commencement of the Services by MDC. FedEx and MDC acknowledge that in certain instances, the same subcontractor will concurrently accomplish the Specified Services on behalf of FedEx and the Services on behalf of MDC. (See Paragraph 6. below) b) Notwithstanding Paragraph 2.a) above, for a Non-Mx Aircraft currently in storage at Goodyear, AZ, [ * ] c) For a Non-Mx Aircraft currently in storage at Goodyear, AZ, [ * ] 3. At the request of FedEx or its subcontractor, MDC shall provide Parts in connection with non-routine tasks accomplished on an Aircraft in accordance with the process outlined in "Non-Routine Part Processing", included as Attachment A herein. All such Parts - ---------- * 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. 1-27-99 Letter Agreement No. 9 DAC 96-29-M Page 3 provided by MDC will be charged to FedEx in accordance with the Agreement, plus a handling charge of [ * ] of such price. The handling charge for each Part shall not exceed [ * ]. 4. FedEx hereby irrevocably and unconditionally waives any of MDC's warranties which are exclusively related to workmanship for the Specified Services on the Non-Mx Aircraft performed by or for FedEx (unless performed by MDC), provided, however, nothing in this Paragraph 4. shall extend to or otherwise affect warranties which may be applicable to Parts. 5. Except as expressly set forth in Paragraph 4. above, the performance of the Services by FedEx or its subcontractor as contemplated herein shall in no manner change, modify, terminate or otherwise affect MDC's warranties regarding the Non-Mx Aircraft or in any manner whatsoever modify the terms and conditions 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 a subcontractor entering into two separate contracts with MDC and FedEx 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 Non-Mx Aircraft Redelivery Date. If a resource conflict arises, then the party identifying the conflict shall immediately notify the other party. If the resource conflict cannot 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 the subcontractor, then any resultant delay in the Redelivery Date will constitute an Excusable Delay as defined in the Agreement. 7. All of the terms of the Agreement shall remain in full force and effect, except as herein expressly changed, modified or supplemented, or except insofar as the terms thereof have been completed, performed or complied with prior to the date hereof. 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/MICHAEL CUKOR /s/CHARLES STREITZ - ---------------------------------- --------------------------------------- Signature Signature Michael Cukor Charles Streitz - ---------------------------------- --------------------------------------- Printed Name Printed Name Acting VP Contracts Manager - ---------------------------------- --------------------------------------- Title Title APPROVED AS TO LEGAL FORM 1-28-99 SSL 1/28/99 Legal Dept. --------------------------------------- - ---------- * 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. EX-10.4 5 EXHIBIT 10.4 Exhibit 10.4 1-22-99 CONTRACT NO. DAC 98-29-M AMENDMENT NO. 1 THIS AMENDMENT NO. 1 dated 1-22-99 , is made by and between MCDONNELL DOUGLAS CORPORATION, a wholly-owned subsidiary of The Boeing Company ("MDC"), having an office in the City of Long Beach, State of California, and FEDERAL EXPRESS CORPORATION ("Federal Express"), having its principal place of business in the City of Memphis, Tennessee. WITNESSETH: In consideration of the mutual covenants herein, MDC and Federal Express agree to amend Modification Services Agreement DAC 96-29-M dated September 16, 1996 (the "Agreement") as follows: 1. Article 2, is hereby amended to delete paragraph B.4) in its entirety and the following is inserted in lieu thereof to correct the punctuation in line 12 of the Agreement: "4) The items listed in the Standardization Specification, Exhibit C, Refurbish & Restoration Package, Exhibit F, and Reliability Specification, Exhibit E, constitute a catalog of work which will be selected for each Aircraft or Option Aircraft by Federal Express through issuance of an MJCS. The labor price chargeable to Federal Express by MDC for accomplishment of these Services shall be determined by adding the total of applicable items shown on the applicable MJCS at the labor prices specified in Exhibit K (or Article 3 if performed under an ASR) as applicable. Parts for these Services shall be charged to Federal Express at prices determined in accordance with Article 4. It is understood that the work defined in Exhibit C is based on aircraft effectivities which are different from the Aircraft. Federal Express has the responsibility to adapt the engineering orders to the Aircraft. To the extent the work content (in man-hours) for the revised engineering orders is materially different from the work content for the revisions defined herein, the line item costs defined herein will be adjusted by mutual agreement. The MJCS shall be delivered to MDC forty-five (45) days prior to the Delivery of each Aircraft or Option Aircraft and shall concur with the Services previously indicated in accordance with Paragraph 2.B.2) and 2.B.3), and shall further specify the specific Services described in Exhibits C, F and E which are to be performed on each Aircraft or Option Aircraft." -1- 1-22-99 Amendment No.1 DAC 96-29-M 2. Article 2, is hereby amended to add the following paragraphs B.5) and B.6): "5) Airworthiness Directives (ADs), and AD driven service bulletins shall be accomplished on the Aircraft as follows: a) MDC shall be responsible for the incorporation of all ADs that are required to be incorporated prior to Redelivery which affect in any way the ACF design, operation, hardware, installation or integration of ACF modifications into the Aircraft (or which are deemed to affect the operation, hardware, installation or integration of ACF modifications into the Aircraft as determined by certification authorities), with respect to form, fit or function ("ACF Design ADs"). MDC shall be responsible, at no additional cost to FedEx, for the accomplishment of all ACF Design ADs (i) which are required to be accomplished or terminated by the FAA prior to granting an MD-10 type certificate, or (ii) which must be complied with in order to obtain a certificate of airworthiness for any Aircraft receiving ACF modifications or (iii) which are issued prior to FedEx's acceptance (i.e. Redelivery) of an Aircraft which has been modified to the ACF configuration. b) MDC shall incorporate all ADs that exist today or that are issued and that are required to be incorporated prior to Redelivery which are mandated by the FAA as required to obtain MD-10 certification, but that are not ACF Design ADs ("MD-10 Certification ADs"), including the rectification of all discrepancies (non-routines) discovered and corrected as a result of performing MD-10 Certification ADs. FedEx shall be charged MDC's actual labor and material costs for the accomplishment of such ADs and any non-routines associated with such ADs via the ASR process. FedEx and MDC shall use their joint best efforts to negotiate with the FAA to minimize the requirement for MD-10 Certification ADs. c) FedEx shall be responsible for compliance with all ADs against the Aircraft which are required to operate conventional DC-10-10F and DC-10-30F freighter configurations under FAR Part 121, and are not ACF Design ADs or MD-10 Certification ADs. Any such AD compliance that is outstanding against the Aircraft at the time of Delivery shall be accomplished by MDC via the terms of the Agreement. d) The ADs noted in Exhibit U - MD-10 CMR ADs, have been resolved with respect to the requirement for termination of these ADs on the MD-10 by documented concurrence of the FAA that the particular AD shall be accomplished as a Certification Maintenance Requirement (CMR) on the MD-10. Should the FAA require additional ADs to be converted into CMRs, these ADs shall be added to Exhibit U, as well as the actual material cost data for such added CMRs as described further in this paragraph 5.d). Any costs incurred in converting any given AD to CMR status shall be the responsibility of MDC. The costs associated with the accomplishment of -2- 1-22-99 Amendment No.1 DAC 96-29-M CMR inspections shall be the responsibility of FedEx and such amounts shall be determined as set forth in Paragraph 5.b) above. If the FAA should elect to remove any given AD from CMR status, and joint MDC/FedEx best efforts per Paragraph 5.b) fail to be successful in eliminating terminating action requirements for MD-10 certification, then MDC shall accomplish the terminating action for such AD and FedEx shall be charged MDC's actual labor costs as noted in Paragraph 5.b) above. For all ADs listed in Exhibit U, MDC agrees to develop actual material cost data via separate letter to FedEx by no later than February 19, 1999, and such cost data shall be incorporated into Exhibit U in a future revision, as may be mutually agreed upon between FedEx and MDC. e) Any FedEx selected work items listed in Exhibit C (Standardization), Exhibit F (Refurbishment) or Exhibit E (Reliability), not otherwise governed by Paragraph 5.a) or 5.b) above which FedEx incorporates into the workscope of an Aircraft ("FedEx Workscope"), shall be the responsibility of FedEx. Any service bulletin that is not an AD driven service bulletin and that is not required nor part of the FedEx Workscope and is required as part of the MDC Design, shall be the responsibility of MDC, and the intent of such service bulletin shall be included in the MDC Design at no additional charge to FedEx." 6) For each firm Aircraft and exercised Option Aircraft in which the ACF Modification is to be accomplished, MDC shall procure three engine wire harnesses and main landing gear wire harnesses that meet the HIRF/lightning certification requirements (the "HIRF Harnesses") and supply them in a timely manner to the engine and landing gear overhaul vendors designated by FedEx or to FedEx directly as follows: a) For Aircraft in which the engines and/or landing gear have not had HIRF Harnesses previously provided by MDC, MDC shall ship the applicable HIRF Harnesses to the appropriate location: i) If the engines and/or landing gear are being sent out for overhaul, MDC shall ship the harnesses to the overhaul vendor for installation by the vendor. ii) If the engines and/or landing gear are not being sent out for overhaul, MDC shall ship the harnesses to the modification site for installation by MDC. b) For Aircraft in which the engines have not had HIRF Harnesses previously provided by MDC, but one or more of the engines on that Aircraft have already had HIRF Harnesses installed by FedEx, MDC shall: -3- 1-22-99 Amendment No.1 DAC 96-29-M i) provide as loose load equipment at the Redelivery of that particular Aircraft the appropriate quantity of engine HIRF Harnesses for those components that have HIRF Harnesses already installed, and ii) ship the appropriate quantity of HIRF Harnesses to the overhaul vendors for installation by the vendor, or to the modification site for installation by MDC for those components that have not had HIRF Harnesses already installed. c) For Aircraft in which three engine and main landing gear HIRF Harnesses were previously provided by MDC, MDC shall not be obligated to provide additional HIRF Harnesses for that particular Aircraft, irrespective of whether or not the engines and/or landing gear on that particular Aircraft have HIRF Harnesses installed at the time of Delivery. d) Incremental installation costs, mutually agreed to by FedEx and MDC, for installation of engine and/or landing gear HIRF Wiring Harnesses, as compared to original DC-10 Harnesses, shall be at MDC expense. e) Any other HIRF wiring requirements required for MD-10 certification shall be satisfied at MDC expense. The harness specifications that will include the HIRF/lightning requirements will be updated through the engine and landing gear Original Equipment Manufacturer (OEM) vendor Component Maintenance Manual (CMM). FedEx shall provide a credit to MDC as noted in Exhibit K, Price, for its portion of the engine and landing gear wire harness costs. This credit is reflected in the ACF price in Exhibit K." 3. Article 5, is hereby amended to delete paragraph A.1) in its entirety and the following is inserted in lieu thereof to clarify Aircraft delivery induction: "1) Federal Express shall cause each Aircraft to be delivered to the Conversion Facility. It is agreed that delivery of an Aircraft by Federal Express to the Conversion Facility and acceptance of the aircraft into work by MDC through execution of Exhibit Q shall constitute Delivery. At the time of Delivery each Aircraft shall be configured in its then current configuration. MDC shall complete the Services and Redeliver each Aircraft to Federal Express at the Conversion Facility in accordance with the Schedule. If, during the accomplishment of the Services defined in Exhibits B and D, MDC discovers a structural repair that was accomplished by a previous owner of the Aircraft or by Federal Express that is serviceable under Federal Express' maintenance program standards, and such repair directly impacts the existing MDC engineering design for the previously noted Services, then MDC shall modify the engineering design and/or fabricate new parts in lieu of the standard parts for the area affected, as required, to accomplish the previously noted Services in a manner mutually agreed by MDC and Federal Express. MDC and Federal -4- 1-22-99 Amendment No.1 DAC 96-29-M Express shall share equally in the costs for the engineering design change effort, and share equally in the incremental costs for parts and touch labor required to accommodate such repairs. Federal Express' share of the costs for such repairs as detailed above shall be charged to Federal Express via the ASR process and negotiations. 4. Article 11, is hereby amended to delete paragraph A. in its entirety and the following is inserted in lieu thereof: "A. All notices, approvals, requests, consents, invoices and other communications given pursuant to the Agreement shall be in writing and shall be deemed to have been duly given when received if hand-delivered, sent by courier or Federal Express service or sent by certified or registered mail, addressed as follows: IF TO MDC: McDonnell Douglas Corporation 3855 Lakewood Blvd. Long Beach, California 90846 Attn.: MD-10 Contracts Manager Fax No. 562-593-0191 SITA Code TOAMD7X IF TO FEDERAL EXPRESS: Federal Express Corporation 3131 Democrat Road Mail Stop 5432 Memphis, Tennessee 38118 Attn.: Managing Director, Aircraft Conversions Fax No. 901-224-4847 5. Exhibit I., is hereby deleted in its entirety and replaced in lieu thereof with Exhibit I, included as Attachment A herein, Federal Express Engineering Report No. 96-051 entitled "Specification for a Rigid Cargo Barrier and Forward Cabin for FedEx DC-10-10 Aircraft", revision F, dated December 5, 1997. 6. Exhibit K., page EXH K-1, is hereby deleted in its entirety and the following is inserted in lieu thereof: [ * ] - ---------- * 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. -5- 1-22-99 Amendment No.1 DAC 96-29-M [ * ] 7. Exhibit K., Attachment E, is hereby deleted in its entirety and replaced in lieu thereof with Exhibit K, Attachment E, included as Attachment F herein, entitled "ER# 95-055 - Reliability Improvement Specification", dated November 25, 1998. 8. Exhibit K., Attachment C, is hereby deleted in its entirety and replaced in lieu thereof with Exhibit K, Attachment C, included as Attachment G herein, entitled "ER # 95-056 - Refurbish and Restoration", dated January 21, 1999. 9. Exhibit N., paragraph 3., is hereby deleted in its entirety and the following is inserted in lieu thereof: [ * ] - ---------- * 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. -6- 1-22-99 Amendment No.1 DAC 96-29-M [ * ] 10. Exhibit N., paragraph 6., is hereby deleted in its entirety and the following is inserted in lieu thereof [ * ] - ---------- * 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. -7- 1-22-99 Amendment No.1 DAC 96-29-M "6. [ * ] 11. Exhibit N., paragraph 9., is hereby deleted in its entirety and the following is inserted in lieu thereof to correct the paragraph reference in lines 1 and 8: "9. [ * ] 12. Exhibit P., is hereby deleted in its entirety and replaced in lieu thereof with Exhibit P, included as Attachment B herein, entitled "Federal Express Supplied Parts Listing." 13. Exhibit S., is hereby deleted in its entirety and replaced in lieu thereof with Exhibit S, included as Attachment C herein, entitled "FedEx Additional Services Request Authorization Form." 14. Exhibit B., is hereby deleted in its entirety and replaced in lieu thereof with Exhibit B, included as Attachment D herein, Federal Express Engineering Report No. 95-051 entitled "Passenger to Freighter Conversion DC-10-10 / DC-10-30", revision C, dated June 12, 1998. 15. Exhibit D., is hereby deleted in its entirety and replaced in lieu thereof with Exhibit D, included as Attachment E herein, Federal Express Engineering Report No. 95-054 entitled "DC-10 ACF", revision E, dated November 26, 1998. 16. Exhibit E., is hereby deleted in its entirety and replaced in lieu thereof with Exhibit E, included as Attachment H herein, Federal Express Engineering Report No. 95-055 - ---------- * 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. -8- 1-22-99 Amendment No.1 DAC 96-29-M entitled "DC-10 Reliability Improvement Development", revision D, dated November 25, 1998. 17. Exhibit F., is hereby deleted in its entirety and replaced in lieu thereof with Exhibit F, included as Attachment I herein, Federal Express Engineering Report No. 95-056 entitled "DC-10 Refurbish and Restoration Specification", revision D, dated January 21, 1999. IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be executed as of the date first above written by their officers and agents thereunto duly authorized. AGREED AND ACCEPTED: FEDERAL EXPRESS CORPORATION APPROVED AS TO LEGAL FORM Signature /s/RONALD D. WICKENS -------------------------------- SSL 1/22/99 Printed Name RONALD D. WICKENS - ---------------------- ----------------------------- LEGAL DEPT. Title V.P. Strategic Projects OK BGW 1-22-99 ------------------------------------- MCDONNELL DOUGLAS CORPORATION Signature /s/ Charles Streitz --------------------------------- Printed Name CHARLES STREITZ ----------------------------- Title Contracts Manager -----------------------------------
-9- 1-22-99 Attachment B to Amendment No. 1 to DAC 96-29-M EXHIBIT P FEDERAL EXPRESS SUPPLIED PARTS LISTING [ * ] - ---------- * 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. 1-22-99 Attachment B to Amendment No. 1 to DAC 96-29-M EXHIBIT P [ * ] - ---------- * 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. 1-22-99 Attachment B to Amendment No. 1 to DAC 96-29-M EXHIBIT P [ * ] - ---------- * 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. 1-22-99 Attachment B to Amendment No. 1 to DAC 96-29-M EXHIBIT P [ * ] - ---------- * 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. 1-22-99 Attachment C to Amendment No. 1 to DAC 96-29-M EXHIBIT S FEDEX ADDITIONAL SERVICES REQUEST AUTHORIZATION FORM ASR NUMBER ______ - -------------------------------------------------------------------------------- FedEx Generating Item: MDC W/O Number: - -------------------------------------------------------------------------------- Technical Documents and Specifications: - -------------------------------------------------------------------------------- General Description: - -------------------------------------------------------------------------------- MATERIALS: FedEx will be responsible for the cost, as defined in Agreement DAC 96-29-M, of all material associated with this ASR. Except for parts that FedEx procures from MDC, FedEx will be responsible to provide the remaining parts on the ASR as expeditiously as possible. For those parts that FedEx procures from MDC, MDC will be responsible to provide those parts as expeditiously as possible. Any impact to schedule will be as mutually agreed between FedEx and MDC. - -------------------------------------------------------------------------------- MATERIAL PROVISIONING RESPONSIBILITY: SCHEDULING IMPACT: / / MDC / / FedEx - -------------------------------------------------------------------------------- ESTIMATED MATERIAL COST: ESTIMATED MANHOURS: - -------------------------------------------------------------------------------- SCHEDULED REDELIVERY DATE: MDC ENGINEERING: - -------------------------------------------------------------------------------- REVISED REDELIVERY DATE: AGREED TO FIXED PRICE: - -------------------------------------------------------------------------------- OTHER: (SPECIFY)
AUTHORIZED BY: ________________________________________ DATE: __________ FEDERAL EXPRESS CORPORATION AUTHORIZED BY: ________________________________________ DATE: __________ MCDONNELL DOUGLAS CORPORATION EXH S-1 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, ---------------------------------------------------------- -------------------- 1994 1995 1996 1997 1998 1998 1999 -------- -------- ---------- ---------- --------- -------- -------- (In thousands, except ratios) Earnings: Income before income taxes............. $378,462 $522,084 $ 539,959 $ 628,221 $ 735,213 $500,562 $486,239 Add back: Interest expense, net of capitalized interest............... 152,170 130,923 105,449 95,689 117,726 90,736 68,282 Amortization of debt issuance costs..................... 2,860 2,493 1,628 1,328 1,339 1,091 8,949 Portion of rent expense representative of interest factor.................... 285,261 329,370 386,254 434,846 499,823 373,246 403,904 -------- -------- ---------- ---------- ---------- -------- --------- Earnings as adjusted................... $818,753 $984,870 $1,033,290 $1,160,084 $1,354,101 $965,635 $967,374 -------- -------- ---------- ---------- ---------- -------- --------- -------- -------- ---------- ---------- ---------- -------- --------- Fixed Charges: Interest expense, net of capitalized interest................. $152,170 $130,923 $ 105,449 $ 95,689 $ 117,726 $ 90,736 $ 68,282 Capitalized interest................... 29,738 27,381 39,254 39,449 31,443 22,257 27,500 Amortization of debt issuance costs....................... 2,860 2,493 1,628 1,328 1,339 1,091 8,949 Portion of rent expense representative of interest factor...................... 285,261 329,370 386,254 434,846 499,823 373,246 403,904 -------- -------- ---------- ---------- ---------- -------- --------- $470,029 $490,167 $ 532,585 $ 571,312 $ 650,331 $487,330 $508,635 -------- -------- ---------- ---------- ---------- -------- --------- -------- -------- ---------- ---------- ---------- -------- --------- Ratio of Earnings to Fixed Charges..... 1.7 2.0 1.9 2.0 2.1 2.0 1.9 -------- -------- ---------- ---------- ---------- -------- --------- -------- -------- ---------- ---------- ---------- -------- ---------
EX-15.1 7 EXHIBIT 15.1 EXHIBIT 15.1 March 17, 1999 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 333-49411 its Report on Form 10-Q for the quarter ended February 28, 1999, which includes our report dated March 17, 1999 covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered part of these registration statements prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, /s/ Arthur Andersen LLP EX-27 8 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF INCOME ON PAGES 3-5 OF THE COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDING FEBRUARY 28, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS MAY-31-1999 JUN-01-1998 FEB-28-1999 79,988 0 1,846,265 44,202 281,636 2,449,563 11,890,954 6,275,918 8,815,518 2,295,827 1,161,484 0 0 0 3,692,312 8,815,518 0 10,330,127 0 9,764,842 0 0 64,816 486,239 196,927 0 0 0 0 289,312 0 0
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