UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED August 31, 2013
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 or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
3610 Hacks Cross Road Memphis, Tennessee |
38125 | |
(Address of principal executive offices) | (ZIP Code) |
(901) 369-3600
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller reporting company ¨ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares of common stock outstanding as of September 18, 2013 was 1,000. The Registrant is a wholly owned subsidiary of FedEx Corporation, and there is no market for the Registrants common stock.
The Registrant meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format permitted by General Instruction H(2).
FEDERAL EXPRESS CORPORATION
-2-
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
August 31, | ||||||||
2013 | May 31, | |||||||
(Unaudited) | 2013 | |||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and cash equivalents |
$ | 805 | $ | 769 | ||||
Receivables, less allowances of $84 and $84 |
1,568 | 1,595 | ||||||
Spare parts, supplies and fuel, less allowances of $209 and $204 |
380 | 385 | ||||||
Deferred income taxes |
418 | 359 | ||||||
Due from parent company and other FedEx subsidiaries |
547 | 430 | ||||||
Prepaid expenses and other |
89 | 94 | ||||||
|
|
|
|
|||||
Total current assets |
3,807 | 3,632 | ||||||
PROPERTY AND EQUIPMENT, AT COST |
24,358 | 24,384 | ||||||
Less accumulated depreciation and amortization |
11,552 | 11,538 | ||||||
|
|
|
|
|||||
Net property and equipment |
12,806 | 12,846 | ||||||
OTHER LONG-TERM ASSETS |
||||||||
Goodwill |
1,484 | 1,526 | ||||||
Other assets |
945 | 959 | ||||||
|
|
|
|
|||||
Total other long-term assets |
2,429 | 2,485 | ||||||
|
|
|
|
|||||
$ | 19,042 | $ | 18,963 | |||||
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
-3-
FEDERAL EXPRESS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
August 31, | ||||||||
2013 | May 31, | |||||||
(Unaudited) | 2013 | |||||||
LIABILITIES AND OWNERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Current portion of long-term debt |
$ | 3 | $ | | ||||
Accrued salaries and employee benefits |
850 | 990 | ||||||
Accounts payable |
1,302 | 1,270 | ||||||
Accrued expenses |
976 | 972 | ||||||
Due to other FedEx subsidiaries |
1,009 | 1,064 | ||||||
|
|
|
|
|||||
Total current liabilities |
4,140 | 4,296 | ||||||
LONG-TERM DEBT, LESS CURRENT PORTION |
240 | 240 | ||||||
OTHER LONG-TERM LIABILITIES |
||||||||
Deferred income taxes |
2,974 | 2,833 | ||||||
Pension, postretirement healthcare and other benefit obligations |
1,141 | 1,120 | ||||||
Self-insurance accruals |
657 | 650 | ||||||
Deferred lease obligations |
697 | 683 | ||||||
Deferred gains, principally related to aircraft transactions |
217 | 223 | ||||||
Other liabilities |
89 | 100 | ||||||
|
|
|
|
|||||
Total other long-term liabilities |
5,775 | 5,609 | ||||||
COMMITMENTS AND CONTINGENCIES |
||||||||
OWNERS EQUITY |
||||||||
Common stock, $0.10 par value; 1,000 shares authorized, issued and outstanding |
| | ||||||
Additional paid-in capital |
608 | 608 | ||||||
Retained earnings |
8,392 | 8,246 | ||||||
Accumulated other comprehensive loss |
(113 | ) | (36 | ) | ||||
|
|
|
|
|||||
Total owners equity |
8,887 | 8,818 | ||||||
|
|
|
|
|||||
$ | 19,042 | $ | 18,963 | |||||
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
-4-
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN MILLIONS)
Three Months Ended | ||||||||
August 31, | ||||||||
2013 | 2012 | |||||||
REVENUES |
$ | 6,346 | $ | 6,396 | ||||
OPERATING EXPENSES: |
||||||||
Salaries and employee benefits |
2,360 | 2,397 | ||||||
Purchased transportation |
430 | 376 | ||||||
Rentals and landing fees |
414 | 409 | ||||||
Depreciation and amortization |
366 | 320 | ||||||
Fuel |
956 | 986 | ||||||
Maintenance and repairs |
306 | 371 | ||||||
Intercompany charges, net |
489 | 529 | ||||||
Other |
795 | 808 | ||||||
|
|
|
|
|||||
6,116 | 6,196 | |||||||
|
|
|
|
|||||
OPERATING INCOME |
230 | 200 | ||||||
OTHER INCOME (EXPENSE): |
||||||||
Interest, net |
7 | 12 | ||||||
Other, net |
(21 | ) | (17 | ) | ||||
|
|
|
|
|||||
(14 | ) | (5 | ) | |||||
|
|
|
|
|||||
INCOME BEFORE INCOME TAXES |
216 | 195 | ||||||
PROVISION FOR INCOME TAXES |
70 | 69 | ||||||
|
|
|
|
|||||
NET INCOME |
$ | 146 | $ | 126 | ||||
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
-5-
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN MILLIONS)
Three Months Ended | ||||||||
August 31, | ||||||||
2013 | 2012 | |||||||
NET INCOME |
$ | 146 | $ | 126 | ||||
OTHER COMPREHENSIVE INCOME (LOSS): |
||||||||
Foreign currency translation adjustments, net of tax of $9 in 2013 and $2 in 2012 |
(78 | ) | 40 | |||||
Amortization of unrealized pension actuarial gains/losses and other, net of tax of $1 in 2013 |
1 | | ||||||
|
|
|
|
|||||
(77 | ) | 40 | ||||||
|
|
|
|
|||||
COMPREHENSIVE INCOME |
$ | 69 | $ | 166 | ||||
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
-6-
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
Three Months Ended | ||||||||
August 31, | ||||||||
2013 | 2012 | |||||||
Operating Activities: |
||||||||
Net income |
$ | 146 | $ | 126 | ||||
Noncash charges: |
||||||||
Depreciation and amortization |
366 | 320 | ||||||
Other, net |
52 | 38 | ||||||
Changes in assets and liabilities, net |
(224 | ) | 1,094 | |||||
|
|
|
|
|||||
Cash provided by operating activities |
340 | 1,578 | ||||||
Investing Activities: |
||||||||
Capital expenditures |
(304 | ) | (749 | ) | ||||
Business acquisitions, net of cash acquired |
| (483 | ) | |||||
Other |
7 | 9 | ||||||
|
|
|
|
|||||
Cash used in investing activities |
(297 | ) | (1,223 | ) | ||||
Financing Activities: |
||||||||
Principal payments on debt |
| (301 | ) | |||||
|
|
|
|
|||||
Cash used in financing activities |
| (301 | ) | |||||
|
|
|
|
|||||
Effect of exchange rate changes on cash |
(7 | ) | 11 | |||||
|
|
|
|
|||||
Net increase in cash and cash equivalents |
36 | 65 | ||||||
Cash and cash equivalents at beginning of period |
769 | 712 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ | 805 | $ | 777 | ||||
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
-7-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) General
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. These interim financial statements of Federal Express Corporation (FedEx Express) have been prepared in accordance with accounting principles generally accepted in the United States and Securities and Exchange Commission instructions for interim financial information, and should be read in conjunction with our Annual Report on Form 10-K for the year ended May 31, 2013 (Annual Report). Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed in our Annual Report.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to present fairly our financial position as of August 31, 2013, and the results of our operations and cash flows for the three-month periods ended August 31, 2013 and 2012. Operating results for the three-month period ended August 31, 2013 are not necessarily indicative of the results that may be expected for the year ending May 31, 2014.
We are a wholly owned subsidiary of FedEx Corporation (FedEx) engaged in a single line of business and operate in one business segment the worldwide express transportation and distribution of goods and documents.
Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2014 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year.
BUSINESS ACQUISITIONS. As discussed in our Annual Report, on June 20, 2013, we signed agreements to acquire the businesses operated by our current service provider Supaswift (Pty) Ltd. in five countries in Southern Africa. In addition, on September 2, 2013, we entered into an agreement to acquire Supaswifts business in two additional countries. This acquisition will be funded with cash from operations and is expected to be completed in the second half of 2014, subject to customary closing conditions. The financial results of the acquired businesses will be included in our results from the date of acquisition and will be immaterial to our 2014 results.
EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS. Our pilots, which represent a small number of our total employees, are employed under a collective bargaining agreement. The contract became amendable in March 2013, and the parties are currently in negotiations. In addition to our pilots, certain non-U.S. employees are unionized.
STOCK-BASED COMPENSATION. FedEx has two types of equity-based compensation: stock options and restricted stock. The key terms of the stock option and restricted stock awards granted under FedExs incentive stock plans are set forth in FedExs Annual Report.
Our stock-based compensation expense was $15 million for the three months ended August 31, 2013 and $14 million for the three months ended August 31, 2012. This amount represents the amount charged to us by FedEx for awards granted to our employees.
LONG-TERM DEBT. Long-term debt, exclusive of capital leases, had carrying values of $239 million at August 31, 2013 and May 31, 2013 compared with estimated fair values of $325 million at August 31, 2013 and $344 million at May 31, 2013. The estimated fair values were determined based on quoted market prices and the current rates offered for debt with similar terms and maturities. The fair value of our long-term debt is classified as Level 2 within the fair value hierarchy. This classification is defined as a fair value determined using market-based inputs other than quoted prices that are observable for the liability, either directly or indirectly.
RECENT ACCOUNTING GUIDANCE. New accounting rules and disclosure requirements can significantly impact our reported results and the comparability of our financial statements.
-8-
On June 1, 2013, we adopted the authoritative guidance issued by the Financial Accounting Standards Board requiring additional information about reclassification adjustments out of accumulated other comprehensive income, including changes in accumulated other comprehensive income balances by component and significant items reclassified out of accumulated other comprehensive income. We have adopted this guidance by including expanded accumulated other comprehensive income disclosure requirements in Note 2 of our condensed consolidated financial statements.
We believe that no other new accounting guidance was adopted or issued during the first three months of 2014 that is relevant to the readers of our financial statements. However, there are numerous new proposals under development which, if and when enacted, may have a significant impact on our financial reporting, as described in our Annual Report.
(2) Accumulated Other Comprehensive Income
The following table provides changes in accumulated other comprehensive income (AOCI), net of tax, reported in our condensed consolidated financial statements for the three-month periods ended August 31 (in millions):
2013 (1) | 2012 (1) | |||||||
Foreign currency translation gain (loss): |
||||||||
Balance at beginning of period |
$ | 90 | $ | 54 | ||||
Translation adjustments |
(78 | ) | 40 | |||||
|
|
|
|
|||||
Balance at end of period |
12 | 94 | ||||||
|
|
|
|
|||||
Retirement plans adjustments: |
||||||||
Balance at beginning of period |
(126 | ) | (124 | ) | ||||
Reclassifications from AOCI |
1 | | ||||||
|
|
|
|
|||||
Balance at end of period |
(125 | ) | (124 | ) | ||||
|
|
|
|
|||||
Accumulated other comprehensive income at end of period |
$ | (113 | ) | $ | (30 | ) | ||
|
|
|
|
(1) | Amounts in parentheses indicate debits to AOCI. |
Due to its immateriality, the table presenting details of reclassifications from AOCI has been excluded from this quarterly report.
(3) Retirement Plans
We sponsor or participate in programs that provide retirement benefits to most of our employees. These programs include defined benefit pension plans, defined contribution plans and postretirement healthcare plans. A majority of our employees are covered by the FedEx Corporation Employees Pension Plan (FedEx Plan), a defined benefit pension plan sponsored by FedEx. Defined contribution plans covering a majority of U.S. employees and certain international employees are in place. We also sponsor or participate in nonqualified benefit plans covering certain of our U.S. employee groups and other pension plans covering certain of our international employees. For more information, refer to the financial statements of FedEx included in its Form 10-Q for the quarter ended August 31, 2013 and in our Annual Report.
-9-
Our retirement plans costs for the three-month periods ended August 31 were as follows (in millions):
2013 | 2012 | |||||||
Pension plans sponsored by FedEx |
$ | 67 | $ | 108 | ||||
Other U.S. domestic and international pension plans |
13 | 11 | ||||||
U.S. domestic and international defined contribution plans |
58 | 58 | ||||||
U.S. domestic and international postretirement healthcare plans |
15 | 15 | ||||||
|
|
|
|
|||||
$ | 153 | $ | 192 | |||||
|
|
|
|
The components of the net periodic benefit cost of the pension and postretirement healthcare plans currently sponsored by us were individually immaterial for all periods presented. No material contributions were made during the first quarter of 2014 or 2013 to pension plans sponsored by us, and we do not expect to make material contributions in 2014.
(4) Commitments
As of August 31, 2013, our purchase commitments under various contracts for the remainder of 2014 and annually thereafter were as follows (in millions):
Aircraft and | ||||||||||||
Aircraft Related | Other(1) | Total | ||||||||||
2014 (remainder) |
$ | 828 | $ | 62 | $ | 890 | ||||||
2015 |
1,121 | 31 | 1,152 | |||||||||
2016 |
1,083 | 28 | 1,111 | |||||||||
2017 |
891 | 22 | 913 | |||||||||
2018 |
1,475 | 19 | 1,494 | |||||||||
Thereafter |
5,211 | 86 | 5,297 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 10,609 | $ | 248 | $ | 10,857 | ||||||
|
|
|
|
|
|
(1) | Primarily advertising and promotions contracts. |
The amounts reflected in the table above for purchase commitments represent noncancelable agreements to purchase goods or services. As of August 31, 2013, our obligation to purchase four Boeing 767-300 Freighter (B767F) aircraft and nine Boeing 777 Freighter (B777F) aircraft is conditioned upon there being no event that causes us or our employees not to be covered by the Railway Labor Act of 1926, as amended. Commitments to purchase aircraft in passenger configuration do not include the attendant costs to modify these aircraft for cargo transport unless we have entered into noncancelable commitments to modify such aircraft. Open purchase orders that are cancelable are not considered unconditional purchase obligations for financial reporting purposes and are not included in the table above.
During the first quarter of 2014, we entered into supplemental agreements to purchase the 16 Boeing 757 (B757) option aircraft pursuant to an agreement originally entered into in March 2013. Delivery of the aircraft will occur through 2015.
-10-
We had $416 million in deposits and progress payments as of August 31, 2013 on aircraft purchases and other planned aircraft-related transactions. These deposits are classified in the Other assets caption of our consolidated balance sheets. In addition to our commitment to purchase B777Fs and B767Fs, our aircraft purchase commitments include the B757 aircraft in passenger configuration, which will require additional costs to modify for cargo transport. Aircraft and aircraft-related contracts are subject to price escalations. The following table is a summary of the key aircraft we are committed to purchase as of August 31, 2013 with the year of expected delivery:
B757 | B767F | B777F | Total | |||||||||||||
2014 (remainder) |
16 | 4 | 2 | 22 | ||||||||||||
2015 |
11 | 12 | | 23 | ||||||||||||
2016 |
| 10 | 2 | 12 | ||||||||||||
2017 |
| 10 | | 10 | ||||||||||||
2018 |
| 10 | 2 | 12 | ||||||||||||
Thereafter |
| 4 | 14 | 18 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
27 | 50 | 20 | 97 | ||||||||||||
|
|
|
|
|
|
|
|
A summary of future minimum lease payments under noncancelable operating leases with an initial or remaining term in excess of one year at August 31, 2013 is as follows (in millions):
Operating Leases | ||||||||||||
Aircraft | Total | |||||||||||
and Related | Facilities | Operating | ||||||||||
Equipment | and Other | Leases | ||||||||||
2014 (remainder) |
$ | 416 | $ | 557 | $ | 973 | ||||||
2015 |
448 | 715 | 1,163 | |||||||||
2016 |
453 | 579 | 1,032 | |||||||||
2017 |
391 | 762 | 1,153 | |||||||||
2018 |
326 | 454 | 780 | |||||||||
Thereafter |
824 | 3,945 | 4,769 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 2,858 | $ | 7,012 | $ | 9,870 | ||||||
|
|
|
|
|
|
Future minimum lease payments under capital leases were immaterial at August 31, 2013. While certain of our lease agreements contain covenants governing the use of the leased assets or require us to maintain certain levels of insurance, none of our lease agreements include material financial covenants or limitations.
(5) Contingencies
In August 2010, a third-party consultant who works with shipping customers to negotiate lower rates filed a lawsuit in federal district court in California against FedEx and United Parcel Service, Inc. (UPS) alleging violations of U.S. antitrust law. This matter was dismissed in May 2011, but the court granted the plaintiff permission to file an amended complaint, which FedEx received in June 2011. In November 2011, the court granted our motion to dismiss this complaint, but again allowed the plaintiff to file an amended complaint. The plaintiff filed a new complaint in December 2011, and the matter remains pending before the court. In February 2011, shortly after the initial lawsuit was filed, we received a demand for the production of information and documents in connection with a civil investigation by the U.S. Department of Justice (DOJ) into the policies and practices of FedEx and UPS for dealing with third-party consultants who work with shipping customers to negotiate lower rates. In November 2012, the DOJ served a civil investigative demand on the third-party consultant seeking all pleadings, depositions and documents produced in the lawsuit. We are cooperating with the investigation, do not believe that we have engaged in any anti-competitive activities and will vigorously defend ourselves in any action that may result from the investigation. While the litigation proceedings and the DOJ investigation move forward, and the amount of loss, if any, is dependent on a number of factors that are not yet fully developed or resolved, we do not believe that a material loss is reasonably possible.
We have received requests for information from the DOJ in the Northern District of California in connection with a criminal investigation relating to the transportation of packages for online pharmacies that may have shipped pharmaceuticals in violation of federal law. We responded to grand jury subpoenas issued in June 2008 and August 2009 and to additional requests for information
-11-
pursuant to those subpoenas, and we continue to respond and cooperate with the investigation. We believe that our employees have acted in good faith at all times. We do not believe that we have engaged in any illegal activities and will vigorously defend ourselves in any action that may result from the investigation. The DOJ may pursue a criminal indictment and, if we are convicted, remedies could include fines, penalties, financial forfeiture and compliance conditions. We cannot estimate the amount or range of loss, if any, as such analysis would depend on facts and law that are not yet fully developed or resolved.
FedEx Express and its subsidiaries are subject to other legal proceedings that arise in the ordinary course of their business. In the opinion of management, the aggregate liability, if any, with respect to these other actions will not have a material adverse effect on our financial position, results of operations or cash flows.
(6) Parent/Affiliate Transactions
Affiliate company balances that are currently receivable or payable relate to charges for services provided to or by other FedEx affiliates, which are settled on a monthly basis, or the net activity from participation in FedExs consolidated cash management program. In addition, we are allocated net interest on these amounts at market rates.
We maintain an accounts receivable arrangement with FedEx TechConnect, Inc. (FedEx TechConnect), a wholly owned subsidiary of FedEx Corporate Services, Inc. (FedEx Services). FedEx Services is a wholly owned subsidiary of FedEx. Under this arrangement, we recognize revenue for the transportation services provided to our U.S. customers and factor the related receivables to FedEx TechConnect for collection. We have no continuing involvement with the receivables transferred to FedEx TechConnect. Our net receivables recorded by FedEx TechConnect totaled $1.5 billion at August 31, 2013 and $1.6 billion at May 31, 2013.
The costs of FedEx Services, FedEx TechConnect and FedEx Office and Print Services, Inc., as well as charges for management fees from our parent, are allocated to us and are included in the expense line item Intercompany charges, net based on metrics such as relative revenues or estimated services provided. We believe these allocations approximate the net cost of providing the functions. FedEx allocation methodologies are refined as necessary to reflect changes in our business.
(7) Supplemental Cash Flow Information
Cash paid for interest expense and income taxes for the three-month periods ended August 31 was as follows (in millions):
2013 | 2012 | |||||||
Cash payments for: |
||||||||
Interest (net of capitalized interest) |
$ | 1 | $ | 6 | ||||
|
|
|
|
|||||
Income taxes |
$ | 58 | $ | 68 | ||||
Income tax refunds received |
(36 | ) | (10 | ) | ||||
|
|
|
|
|||||
Cash tax payments, net |
$ | 22 | $ | 58 | ||||
|
|
|
|
-12-
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholder
Federal Express Corporation
We have reviewed the condensed consolidated balance sheet of Federal Express Corporation as of August 31, 2013, and the related condensed consolidated statements of income, comprehensive income and cash flows for the three-month periods ended August 31, 2013 and 2012. These financial statements are the responsibility of the Companys management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, 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 condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Federal Express Corporation as of May 31, 2013, and the related consolidated statements of income, comprehensive income, changes in owners equity and cash flows for the year then ended not presented herein, and in our report dated July 15, 2013, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of May 31, 2013, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
Memphis, Tennessee
September 19, 2013
-13-
Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
GENERAL
The following Managements Discussion and Analysis of Results of Operations and Financial Condition, which describes the principal factors affecting the results of operations and financial condition of Federal Express Corporation (FedEx Express), is abbreviated pursuant to General Instruction H(2)(a) of Form 10-Q. This discussion should be read in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements and our Annual Report on Form 10-K for the year ended May 31, 2013 (Annual Report). Our Annual Report includes additional information about our significant accounting policies, practices and the transactions that underlie our financial results. For additional information, including a discussion of outlook, liquidity, capital resources, contractual cash obligations and critical accounting estimates, see the Quarterly Report on Form 10-Q of our parent, FedEx Corporation (FedEx), for the quarter ended August 31, 2013.
We are the worlds largest express transportation company. Our sister company FedEx Corporate Services, Inc. (FedEx Services) provides us and our other sister companies, including FedEx Ground Package System, Inc. (FedEx Ground), with sales, marketing, information technology, communications and back-office support, as well as retail access for our customers through FedEx Office and Print Services, Inc. (FedEx Office) and customer service, technical support and billing and collection services through FedEx TechConnect, Inc..
The operating expenses line item Intercompany charges on the financial summary represents an allocation that primarily includes salaries and benefits, depreciation and other costs for the sales, marketing, information technology and customer service support provided to us by FedEx Services and FedEx Offices net operating costs. For the international regions of FedEx Express, similar functions are performed on a regional basis by FedEx Express and reported in expense line items outside of intercompany charges. These costs are allocated based on metrics such as relative revenues or estimated services provided. Intercompany charges also includes allocated charges from our parent for management fees related to services received for general corporate oversight, including executive officers and certain legal and finance functions. We believe the total amounts allocated approximate the net cost of providing these functions. FedEx allocation methodologies are refined as necessary to reflect changes in our business.
The key indicators necessary to understand our operating results include:
| the overall customer demand for our various services based on macro-economic factors and the global economy; |
| the volume of shipments transported through our network, as measured by our average daily volume and shipment weight; |
| the mix of services purchased by our customers; |
| the prices we obtain for our services, as measured by average revenue per package (yield); |
| our ability to manage our cost structure (capital expenditures and operating expenses) to match shifting volume levels; and |
| the timing and amount of fluctuations in fuel prices and our ability to recover incremental fuel costs through our fuel surcharges. |
The majority of our operating expenses are directly impacted by revenue and volume levels. Accordingly, we expect these operating expenses to fluctuate on a year-over-year basis consistent with the change in revenues and volumes. Therefore, the discussion of operating expense captions focuses on the key drivers and trends impacting expenses other than changes in revenues and volume.
-14-
Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2014 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year.
RESULTS OF OPERATIONS
We offer a wide range of U.S. domestic and international shipping services for delivery of packages and freight including priority services, which provide time-definite delivery within one, two or three business days worldwide, and deferred or economy services, which provide time-definite delivery within five business days worldwide. The following table compares revenues, operating expenses, operating expenses as a percent of revenue, operating income, net income and operating margin (dollars in millions) for the three-month periods ended August 31:
2013 | 2012 | Percent Change |
||||||||||||||||||
Revenues: |
||||||||||||||||||||
Package: |
||||||||||||||||||||
U.S. overnight box |
$ | 1,584 | $ | 1,604 | (1 | ) | ||||||||||||||
U.S. overnight envelope |
419 | 430 | (3 | ) | ||||||||||||||||
U.S. deferred |
729 | 702 | 4 | |||||||||||||||||
|
|
|
|
|||||||||||||||||
Total U.S. domestic package revenue |
2,732 | 2,736 | | |||||||||||||||||
|
|
|
|
|||||||||||||||||
International priority |
1,576 | 1,661 | (5 | ) | ||||||||||||||||
International economy |
532 | 487 | 9 | |||||||||||||||||
|
|
|
|
|||||||||||||||||
Total international export package revenue |
2,108 | 2,148 | (2 | ) | ||||||||||||||||
|
|
|
|
|||||||||||||||||
International domestic(1) |
345 | 309 | 12 | |||||||||||||||||
|
|
|
|
|||||||||||||||||
Total package revenue |
5,185 | 5,193 | | |||||||||||||||||
Freight: |
||||||||||||||||||||
U.S. |
624 | 610 | 2 | |||||||||||||||||
International priority |
388 | 439 | (12 | ) | ||||||||||||||||
International airfreight |
54 | 74 | (27 | ) | ||||||||||||||||
|
|
|
|
|||||||||||||||||
Total freight revenue |
1,066 | 1,123 | (5 | ) | Percent of Revenue | |||||||||||||||
|
|
|||||||||||||||||||
Other |
95 | 80 | 19 | 2013 | 2012 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total revenues |
6,346 | 6,396 | (1 | ) | 100.0 | % | 100.0 | % | ||||||||||||
Operating expenses: |
||||||||||||||||||||
Salaries and employee benefits |
2,360 | 2,397 | (2 | ) | 37.2 | 37.5 | ||||||||||||||
Purchased transportation |
430 | 376 | 14 | 6.8 | 5.9 | |||||||||||||||
Rentals and landing fees |
414 | 409 | 1 | 6.5 | 6.4 | |||||||||||||||
Depreciation and amortization |
366 | 320 | 14 | 5.8 | 5.0 | |||||||||||||||
Fuel |
956 | 986 | (3 | ) | 15.1 | 15.4 | ||||||||||||||
Maintenance and repairs |
306 | 371 | (18 | ) | 4.8 | 5.8 | ||||||||||||||
Intercompany charges |
489 | 529 | (8 | ) | 7.7 | 8.3 | ||||||||||||||
Other |
795 | 808 | (2 | ) | 12.5 | 12.6 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expenses |
6,116 | 6,196 | (1 | ) | 96.4 | % | 96.9 | % | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Operating income |
$ | 230 | $ | 200 | 15 | |||||||||||||||
|
|
|
|
|||||||||||||||||
Operating margin |
3.6 | % | 3.1 | % | 50 | bp | ||||||||||||||
Other income (expense): |
||||||||||||||||||||
Interest, net |
7 | 12 | (42 | ) | ||||||||||||||||
Other, net |
(21 | ) | (17 | ) | 24 | |||||||||||||||
|
|
|
|
|||||||||||||||||
(14 | ) | (5 | ) | 180 | ||||||||||||||||
|
|
|
|
|||||||||||||||||
Income before income taxes |
216 | 195 | 11 | |||||||||||||||||
Provision for income taxes |
70 | 69 | 1 | |||||||||||||||||
|
|
|
|
|||||||||||||||||
Net income |
$ | 146 | $ | 126 | 16 | |||||||||||||||
|
|
|
|
(1) | International domestic revenues include our international intra-country express operations including acquisitions in Poland (June 2012), France (July 2012) and Brazil (July 2012). |
-15-
The following table compares selected statistics (in thousands, except yield amounts) for the three-month periods ended August 31:
2013 | 2012 | Percent Change |
||||||||||
Package Statistics |
||||||||||||
Average daily package volume (ADV): |
||||||||||||
U.S. overnight box |
1,112 | 1,092 | 2 | |||||||||
U.S. overnight envelope |
563 | 575 | (2 | ) | ||||||||
U.S. deferred |
790 | 762 | 4 | |||||||||
|
|
|
|
|||||||||
Total U.S. domestic ADV |
2,465 | 2,429 | 1 | |||||||||
|
|
|
|
|||||||||
International priority |
406 | 408 | | |||||||||
International economy |
165 | 143 | 15 | |||||||||
|
|
|
|
|||||||||
Total international export ADV |
571 | 551 | 4 | |||||||||
|
|
|
|
|||||||||
International domestic(1) |
789 | 681 | 16 | |||||||||
|
|
|
|
|||||||||
Total ADV |
3,825 | 3,661 | 4 | |||||||||
|
|
|
|
|||||||||
Revenue per package (yield): |
||||||||||||
U.S. overnight box |
$ | 22.27 | $ | 22.59 | (1 | ) | ||||||
U.S. overnight envelope |
11.61 | 11.51 | 1 | |||||||||
U.S. deferred |
14.42 | 14.17 | 2 | |||||||||
U.S. domestic composite |
17.32 | 17.33 | | |||||||||
International priority |
60.65 | 62.68 | (3 | ) | ||||||||
International economy |
50.41 | 52.17 | (3 | ) | ||||||||
International export composite |
57.70 | 59.94 | (4 | ) | ||||||||
International domestic(1) |
6.84 | 7.00 | (2 | ) | ||||||||
Composite package yield |
21.18 | 21.82 | (3 | ) | ||||||||
Freight Statistics |
||||||||||||
Average daily freight pounds: |
||||||||||||
U.S. |
7,423 | 7,077 | 5 | |||||||||
International priority |
2,862 | 3,184 | (10 | ) | ||||||||
International airfreight |
850 | 1,104 | (23 | ) | ||||||||
|
|
|
|
|||||||||
Total average daily freight pounds |
11,135 | 11,365 | (2 | ) | ||||||||
|
|
|
|
|||||||||
Revenue per pound (yield): |
||||||||||||
U.S. |
$ | 1.31 | $ | 1.33 | (2 | ) | ||||||
International priority |
2.12 | 2.12 | | |||||||||
International airfreight |
0.99 | 1.03 | (4 | ) | ||||||||
Composite freight yield |
1.50 | 1.52 | (1 | ) |
(1) | International domestic statistics include our international intra-country operations including acquisitions in Poland (June 2012), France (July 2012) and Brazil (July 2012). |
Revenues
Our revenues decreased slightly in the first quarter of 2014 as revenue growth from stronger base U.S. business and prior year international domestic acquisitions was more than offset by the negative impact of lower fuel surcharges, one fewer operating day and continued shifts in demand from our priority international services to our economy international services. International export revenues were down in the first quarter of 2014 as revenue per package decreased 4% due to lower fuel surcharges, lower rates, and the demand shift to our lower-yielding economy services, while volume increased 4% driven by our economy services. Total average daily freight pounds decreased 2% in the first quarter of 2014 due to weakness in economic global conditions. International domestic revenues increased 12% during the first quarter of 2014 due to international business acquisitions during the first quarter of 2013.
-16-
Our fuel surcharges are indexed to the spot price for jet fuel. Using this index, the U.S. domestic and outbound fuel surcharge and the international fuel surcharges ranged as follows for the three-month periods ended August 31:
2013 | 2012 | |||||||
U.S. Domestic and Outbound Fuel Surcharge: |
||||||||
Low |
8.00 | % | 10.00 | % | ||||
High |
9.00 | 14.50 | ||||||
Weighted-average |
8.50 | 12.12 | ||||||
International Fuel Surcharges: |
||||||||
Low |
12.00 | 12.00 | ||||||
High |
17.00 | 20.50 | ||||||
Weighted-average |
15.36 | 16.13 |
In September 2013, we announced a 3.9% average list price increase effective January 6, 2014, for FedEx Express U.S. domestic, U.S. export and U.S. import services.
Operating Income
Our results for the first quarter of 2014 were significantly constrained by the net negative impact of fuel and one fewer operating day. Despite the negative impact of these factors, our operating income increased by 15% and operating margin increased by 50 basis points in the first quarter of 2014, driven by stronger base U.S. business, and lower aircraft maintenance and pension expense, partially offset by higher depreciation expense.
In the first quarter of 2014, salaries and employee benefits benefited from lower pension expense, one fewer operating day and the delayed timing or absence of annual merit increases for many of our employees, partially offset by the impact of prior year international domestic acquisitions. Intercompany charges decreased 8% due to lower allocated sales and information technology costs. Purchased transportation costs increased 14% due to prior year international business acquisitions and higher utilization of third-party transportation providers. Depreciation and amortization expense increased 14% during the first quarter of 2014 as a result of accelerated depreciation due to the shortened life of certain aircraft and aircraft recently placed into service.
Our aircraft maintenance and repairs costs are largely driven by aircraft utilization and required periodic maintenance events. When newer aircraft are introduced into our operating fleet, less maintenance costs are incurred. As a part of our fleet modernization program, we have retired older, less efficient aircraft prior to required periodic maintenance events and have introduced newly manufactured aircraft into the fleet. Our aircraft maintenance and repairs costs decreased 18% in the first quarter of 2014, due to the benefits from the fourth quarter of 2013 retirement of 10 aircraft and related engines as we eliminated maintenance events for certain of these engines, along with the timing of other major maintenance events.
Fuel costs decreased 3% during the first quarter of 2014 due to lower aircraft fuel usage. Based on a static analysis of the net impact of year-over-year changes in fuel prices compared to year-over-year changes in fuel surcharges, fuel had a significant negative impact on operating income in the first quarter of 2014. This analysis considers the estimated impact of the reduction in fuel surcharges included in the base rates charged for our services.
Other Income and Income Taxes
Net interest income decreased during the first quarter of 2014 due to lower capitalized interest related to progress payments on aircraft purchases, which was partially offset by regularly scheduled debt maturities. Other expense increased primarily due to higher management fees from FedEx, partially offset by foreign exchange gains.
Our effective tax rate was 32.4% for the first quarter of 2014 and 35.4% for the first quarter of 2013. Our effective tax rate in the first quarter of 2014 was positively impacted by a reduction in net costs of intercompany charges from other FedEx affiliates. For 2014, we expect an effective tax rate between 34.5% and 35.0%. The actual rate, however, will depend on a number of factors, including the amount and source of operating income.
-17-
As of August 31, 2013, there were no material changes to our liabilities for unrecognized tax benefits from May 31, 2013.
We are subject to taxation in the United States and various U.S. state, local and foreign jurisdictions. Substantially all U.S. federal income tax matters through fiscal year 2009 are concluded, and we are currently under examination by the Internal Revenue Service for the 2010 and 2011 tax years. It is reasonably possible that certain income tax return proceedings will be completed during the next 12 months and could result in a change in our balance of unrecognized tax benefits. The expected impact of any changes would not be material to our consolidated financial statements.
Business Acquisitions
As discussed in our Annual Report, on June 20, 2013, we signed agreements to acquire the businesses operated by our current service provider Supaswift (Pty) Ltd. in five countries in Southern Africa. In addition, on September 2, 2013, we entered into an agreement to acquire Supaswifts business in two additional countries. This acquisition will be funded with cash from operations and is expected to be completed in the second half of 2014, subject to customary closing conditions. The financial results of the acquired businesses will be included in our results from the date of acquisition and will be immaterial to our 2014 results.
RECENT ACCOUNTING GUIDANCE
New accounting rules and disclosure requirements can significantly impact our reported results and the comparability of our financial statements.
On June 1, 2013, we adopted the authoritative guidance issued by the Financial Accounting Standards Board requiring additional information about reclassification adjustments out of accumulated other comprehensive income, including changes in accumulated other comprehensive income balances by component and significant items reclassified out of accumulated other comprehensive income. We have adopted this guidance by including expanded accumulated other comprehensive income disclosure requirements in Note 2 of our condensed consolidated financial statements.
We believe that no other new accounting guidance was adopted or issued during the first three months of 2014 that is relevant to the readers of our financial statements. However, there are numerous new proposals under development which, if and when enacted, may have a significant impact on our financial reporting, as described in our Annual Report.
FORWARD-LOOKING STATEMENTS
Certain statements in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations, cash flows, plans, objectives, future performance and business. Forward-looking statements include those preceded by, followed by or that include the words may, could, would, should, believes, expects, anticipates, plans, estimates, targets, projects, intends or similar expressions. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated (expressed or implied) by such forward-looking statements, because of, among other things, potential risks and uncertainties, such as:
| economic conditions in the global markets in which we operate; |
-18-
| significant changes in the volumes of shipments transported through our networks, customer demand for our various services or the prices we obtain for our services; |
| damage to our reputation or loss of brand equity; |
| disruptions to the Internet or our technology infrastructure, including those impacting our computer systems and Web site, which can adversely affect our operations and reputation among customers; |
| the price and availability of jet and vehicle fuel; |
| our ability to manage our cost structure for capital expenditures and operating expenses, and match it to shifting and future customer volume levels; |
| the impact of intense competition on our ability to maintain or increase our prices (including our fuel surcharges in response to rising fuel costs) or to maintain or grow our market share; |
| our ability to effectively operate, integrate, leverage and grow acquired businesses, and to continue to support the value we allocate to these acquired businesses, including their goodwill; |
| our ability to maintain good relationships with our employees and prevent attempts by labor organizations to organize groups of our employees, which could significantly increase our operating costs and reduce our operational flexibility; |
| our ability to execute on our business realignment program; |
| the impact of any international conflicts or terrorist activities on the United States and global economies in general, the transportation industry or us in particular, and what effects these events will have on our costs or the demand for our services; |
| any impacts on our businesses resulting from new domestic or international government laws and regulation, including regulatory actions affecting global aviation or other transportation rights, increased air cargo and other security or safety requirements, and tax, accounting, trade (such as protectionist measures enacted in response to weak economic conditions), labor (such as card-check legislation or changes to the Railway Labor Act affecting our employees), environmental (such as global climate change legislation) or postal rules; |
| adverse weather conditions or localized natural disasters in key geographic areas, such as earthquakes, volcanoes, and hurricanes, which can disrupt our electrical service, damage our property, disrupt our operations, increase our fuel costs and adversely affect our shipment levels; |
| any impact on our business from disruptions or modifications in service by the United States Postal Service (USPS), which is a significant customer of ours, as a consequence of the USPSs current financial difficulties or any resulting structural changes to its operations, network, service offerings or pricing; |
| increasing costs, the volatility of costs and funding requirements and other legal mandates for employee benefits, especially pension and healthcare benefits; |
| the increasing costs of compliance with federal and state governmental agency mandates, including those related to healthcare benefits, and defending against inappropriate or unjustified enforcement of other actions by such agencies; |
-19-
| changes in foreign currency exchange rates, especially in the Chinese yuan, euro, Brazilian real, Canadian dollar and the British pound, which can affect our sales levels and foreign currency sales prices; |
| market acceptance of our new service and growth initiatives; |
| any liability resulting from and the costs of defending against class-action litigation, such as wage-and-hour and discrimination and retaliation claims, and any other legal or governmental proceedings; |
| the outcome of future negotiations to reach new collective bargaining agreements including with the union that represents our pilots (the current pilot contract became amendable in March 2013, and the parties are currently in negotiations); |
| the impact of technology developments on our operations and on demand for our services, and our ability to continue to identify and eliminate unnecessary information technology redundancy and complexity throughout the organization; |
| widespread outbreak of an illness or any other communicable disease, or any other public health crisis; |
| availability of financing on terms acceptable to FedEx and FedExs ability to maintain its current credit ratings, especially given the capital intensity of our operations; and |
| other risks and uncertainties you can find in FedExs press releases and Securities and Exchange Commission filings, including the risk factors identified under the heading Risk Factors in Managements Discussion and Analysis of Results of Operations and Financial Condition in our Annual Report, as updated by our quarterly reports on Form 10-Q. |
As a result of these and other factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.
-20-
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Omitted under the reduced disclosure format permitted by General Instruction H(2)(c) of Form 10-Q.
Item 4. | Controls and Procedures |
Our management, with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, including ensuring that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of August 31, 2013 (the end of the period covered by this Quarterly Report on Form 10-Q).
During our fiscal quarter ended August 31, 2013, no change occurred in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
-21-
Item 1. | Legal Proceedings |
For a description of all material pending legal proceedings, see Note 5 of the accompanying unaudited condensed consolidated financial statements.
Item 1A. | Risk Factors |
There have been no material changes from the risk factors disclosed in our Annual Report (under the heading Risk Factors in Managements Discussion and Analysis of Results of Operations and Financial Condition) in response to Part I, Item 1A of Form 10-K.
Item 6. | Exhibits |
Exhibit |
Description of Exhibit | |
10.1 | Amendment dated June 24, 2013, amending the Transportation Agreement dated April 23, 2013 between the United States Postal Service and Federal Express Corporation. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.1 to FedEx Corporations FY14 First Quarter Report on Form 10-Q, and incorporated herein by reference.) | |
12.1 | Computation of Ratio of Earnings to Fixed Charges. | |
15.1 | Letter re: Unaudited Interim Financial Statements. | |
31.1 | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.1 | Interactive Data Files. |
-22-
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
FEDERAL EXPRESS CORPORATION | ||||||||||
Date: September 19, 2013 | /s/ J. RICK BATEMAN |
|||||||||
J. RICK BATEMAN | ||||||||||
VICE PRESIDENT AND | ||||||||||
WORLDWIDE CONTROLLER | ||||||||||
(PRINCIPAL ACCOUNTING OFFICER) |
-23-
Exhibit |
Description of Exhibit | |
10.1 | Amendment dated June 24, 2013, amending the Transportation Agreement dated April 23, 2013 between the United States Postal Service and Federal Express Corporation. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.1 to FedEx Corporations FY14 First Quarter Report on Form 10-Q, and incorporated herein by reference.) | |
12.1 | Computation of Ratio of Earnings to Fixed Charges. | |
15.1 | Letter re: Unaudited Interim Financial Statements. | |
31.1 | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.1 | Interactive Data Files. |
E-1
FEDERAL EXPRESS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
(IN MILLIONS, EXCEPT RATIOS)
Three Months Ended August 31, |
Year Ended May 31, | |||||||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||||
Earnings: |
||||||||||||||||||||||||||||
Income before income taxes |
$ | 216 | $ | 195 | $ | 508 | $ | 1,237 | $ | 1,140 | $ | 1,059 | $ | 732 | ||||||||||||||
Add back: |
||||||||||||||||||||||||||||
Interest expense, net of capitalized interest |
| | | | | | 4 | |||||||||||||||||||||
Portion of rent expense representative of interest factor |
148 | 141 | 598 | 566 | 611 | 572 | 576 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Earnings as adjusted |
$ | 364 | $ | 336 | $ | 1,106 | $ | 1,803 | $ | 1,751 | $ | 1,631 | $ | 1,312 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Fixed Charges: |
||||||||||||||||||||||||||||
Interest expense, net of capitalized interest |
$ | | $ | | $ | | $ | | $ | | $ | | $ | 4 | ||||||||||||||
Capitalized interest |
7 | 18 | 43 | 80 | 61 | 65 | 58 | |||||||||||||||||||||
Portion of rent expense representative of interest factor |
148 | 141 | 598 | 566 | 611 | 572 | 576 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 155 | $ | 159 | $ | 641 | $ | 646 | $ | 672 | $ | 637 | $ | 638 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Ratio of Earnings to Fixed Charges |
2.3 | 2.1 | 1.7 | 2.8 | 2.6 | 2.6 | 2.1 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Board of Directors and Stockholder
Federal Express Corporation
We are aware of the incorporation by reference in the Registration Statement (Form S-3 No. 333-183989-10) of Federal Express Corporation and in the related Prospectus, of our report dated September 19, 2013, relating to the unaudited condensed consolidated interim financial statements of Federal Express Corporation that are included in its Form 10-Q for the quarter ended August 31, 2013.
/s/ Ernst & Young LLP
Memphis, Tennessee
September 19, 2013
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David J. Bronczek, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Federal Express Corporation (the registrant); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: September 19, 2013
/s/ David J. Bronczek |
David J. Bronczek |
President and Chief Executive Officer |
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Cathy D. Ross, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Federal Express Corporation (the registrant); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: September 19, 2013
/s/ Cathy D. Ross |
Cathy D. Ross |
Executive Vice President and |
Chief Financial Officer |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Federal Express Corporation (FedEx Express) on Form 10-Q for the period ended August 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, David J. Bronczek, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of FedEx Express. |
Date: September 19, 2013
/s/ David J. Bronczek |
David J. Bronczek |
President and Chief Executive Officer |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Federal Express Corporation (FedEx Express) on Form 10-Q for the period ended August 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Cathy D. Ross, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of FedEx Express. |
Date: September 19, 2013
/s/ Cathy D. Ross |
Cathy D. Ross |
Executive Vice President and Chief Financial Officer |
Commitments (Tables)
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2013
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments (Tables) [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Purchase Commitments |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Aircraft Purchase Commitments |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block] |
|
Condensed Consolidated Statements of Comprehensive Income (USD $)
In Millions, unless otherwise specified |
3 Months Ended | |
---|---|---|
Aug. 31, 2013
|
Aug. 31, 2012
|
|
Condensed Consolidated Statement of Comprehensive Income | ||
NET INCOME | $ 146 | $ 126 |
Other comprehensive income (loss): | ||
Foreign currency translation adjustments, net of tax of $9 in 2013 and $2 in 2012 | (78) | 40 |
Amortization of unrealized pension actuarial gains/losses and other, net of tax of $1 in 2013 | 1 | |
Other comprehensive income (loss) | (77) | 40 |
COMPREHENSIVE INCOME | $ 69 | $ 166 |
Commitments
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2013
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments | (4) Commitments
As of August 31, 2013, our purchase commitments under various contracts for the remainder of 2014 and annually thereafter were as follows (in millions):
The amounts reflected in the table above for purchase commitments represent noncancelable agreements to purchase goods or services. As of August 31, 2013, our obligation to purchase four Boeing 767-300 Freighter (“B767F”) aircraft and nine Boeing 777 Freighter (“B777F”) aircraft is conditioned upon there being no event that causes us or our employees not to be covered by the Railway Labor Act of 1926, as amended. Commitments to purchase aircraft in passenger configuration do not include the attendant costs to modify these aircraft for cargo transport unless we have entered into noncancelable commitments to modify such aircraft. Open purchase orders that are cancelable are not considered unconditional purchase obligations for financial reporting purposes and are not included in the table above.
During the first quarter of 2014, we entered into supplemental agreements to purchase the 16 Boeing 757 (“B757”) option aircraft pursuant to an agreement originally entered into in March 2013. Delivery of the aircraft will occur through 2015.
We had $416 million in deposits and progress payments as of August 31, 2013 on aircraft purchases and other planned aircraft-related transactions. These deposits are classified in the “Other assets” caption of our consolidated balance sheets. In addition to our commitment to purchase B777Fs and B767Fs, our aircraft purchase commitments include the B757 aircraft in passenger configuration, which will require additional costs to modify for cargo transport. Aircraft and aircraft-related contracts are subject to price escalations. The following table is a summary of the key aircraft we are committed to purchase as of August 31, 2013 with the year of expected delivery:
Future minimum lease payments under capital leases were immaterial at August 31, 2013. While certain of our lease agreements contain covenants governing the use of the leased assets or require us to maintain certain levels of insurance, none of our lease agreements include material financial covenants or limitations. |
Commitments (Details 3) (USD $)
In Millions, unless otherwise specified |
Aug. 31, 2013
|
---|---|
Schedule of Future Minimum Operating Lease Payments [Line Items] | |
2014 (remainder) | $ 973 |
2015 | 1,163 |
2016 | 1,032 |
2017 | 1,153 |
2018 | 780 |
Thereafter | 4,769 |
Total | 9,870 |
Aircraft and Related Equipment [Member]
|
|
Schedule of Future Minimum Operating Lease Payments [Line Items] | |
2014 (remainder) | 416 |
2015 | 448 |
2016 | 453 |
2017 | 391 |
2018 | 326 |
Thereafter | 824 |
Total | 2,858 |
Facilities and Other [Member]
|
|
Schedule of Future Minimum Operating Lease Payments [Line Items] | |
2014 (remainder) | 557 |
2015 | 715 |
2016 | 579 |
2017 | 762 |
2018 | 454 |
Thereafter | 3,945 |
Total | $ 7,012 |
Supplemental Cash Flow Information (Tables)
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2013
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Cash Flow (Tables) [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Cash Flow Table |
|
Supplemental Cash Flow Information (Details) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | |
---|---|---|
Aug. 31, 2013
|
Aug. 31, 2012
|
|
Supplemental Cash Flow Information [Abstract] | ||
Interest (net of capitalized interest) | $ 1 | $ 6 |
Income taxes | 58 | 68 |
Income tax refunds received | (36) | (10) |
Cash tax payments, net | $ 22 | $ 58 |
Parent/Affiliate Transactions (Details) (USD $)
In Billions, unless otherwise specified |
Aug. 31, 2013
|
May 31, 2013
|
---|---|---|
Parent/Affiliate Transactions [Abstract] | ||
Net Receivables Recorded by FedEx TechConnect | $ 1.5 | $ 1.6 |
Commitments (Details 4) (USD $)
In Millions, unless otherwise specified |
3 Months Ended |
---|---|
Aug. 31, 2013
|
|
Other Commitment Disclosures [Abstract] | |
Deposit and Progress Payments | $ 416 |
Other Aircraft Commitments Disclosure [Line Items] | |
Boeing 777F Conditional Aircraft Commitments | 9 |
Boeing 767F Conditional Aircraft Commitments | 4 |
B757 Aircraft Options Exercised | 16 |
Condensed Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified |
3 Months Ended | |
---|---|---|
Aug. 31, 2013
|
Aug. 31, 2012
|
|
Operating Activities: | ||
Net income | $ 146 | $ 126 |
Noncash charges: | ||
Depreciation and amortization | 366 | 320 |
Other, net | 52 | 38 |
Changes in assets and liabilities. net | (224) | 1,094 |
Cash provided by operating activities | 340 | 1,578 |
Investing Activities: | ||
Capital expenditures | (304) | (749) |
Business acquisitions, net of cash acquired | (483) | |
Other | 7 | 9 |
Cash used in investing activities | (297) | (1,223) |
Financing Activities: | ||
Principal payments on debt | (301) | |
Cash used in financing activities | (301) | |
Effect of exchange rate changes on cash | (7) | 11 |
Net increase in cash and cash equivalents | 36 | 65 |
Cash and cash equivalents at beginning of period | 769 | 712 |
Cash and cash equivalents at end of period | $ 805 | $ 777 |
Accumulated Other Comprehensive Income (Loss)
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2013
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income Loss Net Of Tax Abstract | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income (Loss) | (2) Accumulated Other Comprehensive Income The following table provides changes in accumulated other comprehensive income (“AOCI”), net of tax, reported in our condensed consolidated financial statements for the three-month periods ended August 31 (in millions):
Due to its immateriality, the table presenting details of reclassifications from AOCI has been excluded from this quarterly report. |
Contingencies
|
3 Months Ended |
---|---|
Aug. 31, 2013
|
|
Loss Contingency [Abstract] | |
Contingencies | (5) Contingencies
In August 2010, a third-party consultant who works with shipping customers to negotiate lower rates filed a lawsuit in federal district court in California against FedEx and United Parcel Service, Inc. (“UPS”) alleging violations of U.S. antitrust law. This matter was dismissed in May 2011, but the court granted the plaintiff permission to file an amended complaint, which FedEx received in June 2011. In November 2011, the court granted our motion to dismiss this complaint, but again allowed the plaintiff to file an amended complaint. The plaintiff filed a new complaint in December 2011, and the matter remains pending before the court. In February 2011, shortly after the initial lawsuit was filed, we received a demand for the production of information and documents in connection with a civil investigation by the U.S. Department of Justice (“DOJ”) into the policies and practices of FedEx and UPS for dealing with third-party consultants who work with shipping customers to negotiate lower rates. In November 2012, the DOJ served a civil investigative demand on the third-party consultant seeking all pleadings, depositions and documents produced in the lawsuit. We are cooperating with the investigation, do not believe that we have engaged in any anti-competitive activities and will vigorously defend ourselves in any action that may result from the investigation. While the litigation proceedings and the DOJ investigation move forward, and the amount of loss, if any, is dependent on a number of factors that are not yet fully developed or resolved, we do not believe that a material loss is reasonably possible.
We have received requests for information from the DOJ in the Northern District of California in connection with a criminal investigation relating to the transportation of packages for online pharmacies that may have shipped pharmaceuticals in violation of federal law. We responded to grand jury subpoenas issued in June 2008 and August 2009 and to additional requests for information pursuant to those subpoenas, and we continue to respond and cooperate with the investigation. We believe that our employees have acted in good faith at all times. We do not believe that we have engaged in any illegal activities and will vigorously defend ourselves in any action that may result from the investigation. The DOJ may pursue a criminal indictment and, if we are convicted, remedies could include fines, penalties, financial forfeiture and compliance conditions. We cannot estimate the amount or range of loss, if any, as such analysis would depend on facts and law that are not yet fully developed or resolved.
FedEx Express and its subsidiaries are subject to other legal proceedings that arise in the ordinary course of their business. In the opinion of management, the aggregate liability, if any, with respect to these other actions will not have a material adverse effect on our financial position, results of operations or cash flows.
|
Retirement Plans
|
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2013
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retirement Plans [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retirement Plans | (3) Retirement Plans
We sponsor or participate in programs that provide retirement benefits to most of our employees. These programs include defined benefit pension plans, defined contribution plans and postretirement healthcare plans. A majority of our employees are covered by the FedEx Corporation Employees' Pension Plan (“FedEx Plan”), a defined benefit pension plan sponsored by FedEx. Defined contribution plans covering a majority of U.S. employees and certain international employees are in place. We also sponsor or participate in nonqualified benefit plans covering certain of our U.S. employee groups and other pension plans covering certain of our international employees. For more information, refer to the financial statements of FedEx included in its Form 10-Q for the quarter ended August 31, 2013 and in our Annual Report.
The components of the net periodic benefit cost of the pension and postretirement healthcare plans currently sponsored by us were individually immaterial for all periods presented. No material contributions were made during the first quarter of 2014 or 2013 to pension plans sponsored by us, and we do not expect to make material contributions in 2014. |
Document and Entity Information
|
3 Months Ended | |
---|---|---|
Aug. 31, 2013
|
Sep. 18, 2013
|
|
Document and Entity Information [Abstract] | ||
Document Type | 10-Q | |
Document Period End Date | Aug. 31, 2013 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2014 | |
Document Fiscal Period Focus | Q1 | |
Entity Registrant Name | Federal Express Corporation | |
Entity Central Index Key | 0000230211 | |
Current Fiscal Year End Date | --05-31 | |
Entity Well-known Seasoned Issuer | No | |
Entity Voluntary Filers | No | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Common Stock, Shares Outstanding | 1,000 |