Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED August 31, 2011
OR
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o |
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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: 1-15829
FEDEX CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation or organization)
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62-1721435
(I.R.S. Employer Identification No.) |
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942 South Shady Grove Road
Memphis, Tennessee
(Address of principal executive offices)
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38120
(ZIP Code) |
(901) 818-7500
(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 þ No o
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 þ No o
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.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Common Stock
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Outstanding Shares at September 21, 2011 |
Common Stock, par value $0.10 per share
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317,217,726 |
FEDEX CORPORATION
INDEX
- 2 -
FEDEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
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August 31, |
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2011 |
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May 31, |
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(Unaudited) |
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2011 |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
1,959 |
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$ |
2,328 |
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Receivables, less allowances of $178 and $182 |
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4,624 |
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4,581 |
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Spare parts, supplies and fuel, less
allowances of $175 and $169 |
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418 |
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437 |
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Deferred income taxes |
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610 |
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610 |
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Prepaid expenses and other |
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352 |
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329 |
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Total current assets |
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7,963 |
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8,285 |
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PROPERTY AND EQUIPMENT, AT COST |
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34,224 |
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33,686 |
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Less accumulated depreciation and amortization |
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18,404 |
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18,143 |
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Net property and equipment |
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15,820 |
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15,543 |
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OTHER LONG-TERM ASSETS |
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Goodwill |
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2,435 |
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2,326 |
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Other assets |
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1,620 |
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1,231 |
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Total other long-term assets |
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4,055 |
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3,557 |
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$ |
27,838 |
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$ |
27,385 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -
FEDEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
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August 31, |
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2011 |
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May 31, |
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(Unaudited) |
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2011 |
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LIABILITIES AND STOCKHOLDERS INVESTMENT |
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CURRENT LIABILITIES |
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Current portion of long-term debt |
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$ |
301 |
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$ |
18 |
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Accrued salaries and employee benefits |
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1,245 |
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1,268 |
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Accounts payable |
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1,563 |
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1,702 |
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Accrued expenses |
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1,872 |
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1,894 |
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Total current liabilities |
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4,981 |
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4,882 |
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LONG-TERM DEBT, LESS CURRENT PORTION |
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1,367 |
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1,667 |
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OTHER LONG-TERM LIABILITIES |
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Deferred income taxes |
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1,441 |
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1,336 |
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Pension, postretirement healthcare
and other benefit obligations |
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2,123 |
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2,124 |
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Self-insurance accruals |
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964 |
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977 |
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Deferred lease obligations |
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824 |
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779 |
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Deferred gains, principally related to
aircraft transactions |
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240 |
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246 |
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Other liabilities |
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184 |
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154 |
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Total other long-term liabilities |
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5,776 |
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5,616 |
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COMMITMENTS AND CONTINGENCIES |
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COMMON STOCKHOLDERS INVESTMENT |
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Common stock, $0.10 par value; 800 million shares
authorized; 317 million shares issued as of August 31, 2011
and May 31, 2011 |
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32 |
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32 |
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Additional paid-in capital |
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2,547 |
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2,484 |
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Retained earnings |
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15,648 |
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15,266 |
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Accumulated other comprehensive loss |
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(2,501 |
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(2,550 |
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Treasury stock, at cost |
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(12 |
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(12 |
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Total common stockholders investment |
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15,714 |
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15,220 |
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$ |
27,838 |
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$ |
27,385 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
FEDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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Three Months Ended |
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August 31, |
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2011 |
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2010 |
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REVENUES |
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$ |
10,521 |
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$ |
9,457 |
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OPERATING EXPENSES: |
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Salaries and employee benefits |
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4,004 |
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3,803 |
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Purchased transportation |
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1,518 |
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1,327 |
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Rentals and landing fees |
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620 |
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601 |
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Depreciation and amortization |
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509 |
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479 |
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Fuel |
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1,244 |
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887 |
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Maintenance and repairs |
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551 |
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517 |
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Other |
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1,338 |
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1,215 |
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9,784 |
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8,829 |
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OPERATING INCOME |
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737 |
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628 |
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OTHER INCOME (EXPENSE): |
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Interest, net |
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(11 |
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(18 |
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Other, net |
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(2 |
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(7 |
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(13 |
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(25 |
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INCOME BEFORE INCOME TAXES |
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724 |
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603 |
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PROVISION FOR INCOME TAXES |
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260 |
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223 |
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NET INCOME |
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$ |
464 |
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$ |
380 |
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EARNINGS PER COMMON SHARE: |
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Basic |
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$ |
1.46 |
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$ |
1.21 |
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Diluted |
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$ |
1.46 |
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$ |
1.20 |
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DIVIDENDS DECLARED PER COMMON SHARE |
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$ |
0.26 |
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$ |
0.24 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 5 -
FEDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
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Three Months Ended |
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August 31, |
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2011 |
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2010 |
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Operating Activities: |
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Net income |
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$ |
464 |
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$ |
380 |
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Adjustments to reconcile net income to cash
provided by operating activities: |
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Depreciation and amortization |
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509 |
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479 |
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Provision for uncollectible accounts |
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43 |
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31 |
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Stock-based compensation |
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37 |
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34 |
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Deferred income taxes and other noncash items |
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131 |
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33 |
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Changes in assets and liabilities: |
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Receivables |
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(41 |
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38 |
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Other assets |
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1 |
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(30 |
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Accounts payable and
other liabilities |
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(263 |
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(160 |
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Other, net |
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(21 |
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(9 |
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Cash provided by operating activities |
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860 |
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796 |
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Investing Activities: |
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Capital expenditures |
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(1,110 |
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(1,012 |
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Business acquisition, net of cash acquired |
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(111 |
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Proceeds from asset dispositions and other |
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5 |
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3 |
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Cash used in investing activities |
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(1,216 |
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(1,009 |
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Financing Activities: |
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Principal payments on debt |
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(17 |
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(12 |
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Proceeds from stock issuances |
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28 |
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8 |
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Excess tax benefit on the exercise of stock options |
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4 |
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1 |
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Dividends paid |
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(41 |
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(38 |
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Cash used in financing activities |
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(26 |
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(41 |
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Effect of exchange rate changes on cash |
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13 |
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11 |
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Net decrease in cash and cash equivalents |
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(369 |
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(243 |
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Cash and cash equivalents at beginning of period |
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2,328 |
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1,952 |
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Cash and cash equivalents at end of period |
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$ |
1,959 |
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$ |
1,709 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 6 -
FEDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) General
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. These interim financial statements of FedEx
Corporation (FedEx) have been prepared in accordance with accounting principles generally
accepted in the United States and Securities and Exchange Commission (SEC) 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, 2011 (Annual Report). 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 (including normal recurring adjustments) necessary to present
fairly our financial position as of August 31, 2011, and the results of our operations and cash
flows for the three-month periods ended August 31, 2011 and 2010. Operating results for the
three-month period ended August 31, 2011 are not necessarily indicative of the results that may be
expected for the year ending May 31, 2012.
Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2012 or
ended May 31 of the year referenced and comparisons are to the corresponding period of the prior
year.
BUSINESS ACQUISITION. On July 25, 2011, we completed our acquisition of Servicios Nacionales Mupa,
S.A. de C.V. (MultiPack), a Mexican domestic express package delivery company, for $128 million in
cash from operations. The financial results of the acquired business are included in the Federal
Express Corporation (FedEx Express) segment from the date of acquisition and were not material to
our results of operations or financial condition. Substantially all of the purchase price was
allocated to goodwill, which was entirely attributed to our FedEx Express reporting unit. This
acquisition gives us a more robust domestic transportation network in Mexico and added capability
in this important global market.
STOCK-BASED COMPENSATION. We have two types of equity-based compensation: stock options and
restricted stock. The key terms of the stock option and restricted stock awards granted under our
incentive stock plans and all financial disclosures about these programs are set forth in our
Annual Report.
Our total stock-based compensation expense was immaterial ($37 million for the three months ended
August 31, 2011 and $34 million for the three months ended August 31, 2010). Therefore, additional
disclosures related to stock-based compensation have been excluded from this quarterly report.
NEW
ACCOUNTING GUIDANCE. New accounting rules and disclosure
requirements can significantly impact our reported results and the
comparability of our financial statements. See our Annual Report for
a discussion of the impact of new accounting guidance issued but not
yet effective as of May 31, 2011. We believe that no new
accounting guidance was adopted or issued during the first three months
of 2012 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.
- 7 -
DIVIDENDS DECLARED PER COMMON SHARE. On August 19, 2011, our Board of Directors declared a
dividend of $0.13 per share of common stock. The dividend will be paid on October 3, 2011 to
stockholders of record as of the close of business on September 12, 2011. Each quarterly dividend
payment is subject to review and approval by our Board of Directors, and we evaluate our dividend
payment amount on an annual basis at the end of each fiscal year.
(2) Comprehensive Income
The following table provides a reconciliation of net income reported in our financial statements to
comprehensive income for the three-month periods ended August 31 (in millions):
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2011 |
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2010 |
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Net income |
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$ |
464 |
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$ |
380 |
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Other comprehensive income: |
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Foreign currency translation adjustments, net of
tax of $4 in 2011 and $6 in 2010 |
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19 |
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28 |
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Amortization of unrealized pension actuarial
gains/losses and other, net of tax of $18 in 2011 and $15 in 2010 |
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30 |
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26 |
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Comprehensive income |
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$ |
513 |
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$ |
434 |
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(3) Financing Arrangements
We have a shelf registration statement filed with the SEC that allows us to sell, in one or more
future offerings, any combination of our unsecured debt securities and common stock.
A $1 billion revolving credit facility is available to finance our operations and other cash flow
needs and to provide support for the issuance of commercial paper. The revolving credit agreement
expires in April 2016. The agreement contains a financial covenant, which requires us to maintain
a leverage ratio of adjusted debt (long-term debt, including the current portion of such debt, plus
six times our last four fiscal quarters rentals and landing fees) to capital (adjusted debt plus
total common stockholders investment) that does not exceed 0.7 to 1.0. Our leverage ratio of
adjusted debt to capital was 0.5 at August 31, 2011. We believe
the leverage ratio covenant
is our only significant restrictive covenant in our revolving credit agreement. Our revolving
credit agreement contains other customary covenants that do not, individually or in the aggregate,
materially restrict the conduct of our business. We are in compliance with the leverage ratio
covenant and all other covenants of our revolving credit agreement and do not expect the covenants
to affect our operations, including our liquidity or expected funding
needs. As of August 31, 2011, no
commercial paper was outstanding and the entire $1 billion under the revolving credit facility was
available for future borrowings.
Long-term debt, exclusive of capital leases, had a carrying value of $1.5 billion compared with an
estimated fair value of $1.9 billion at August 31, 2011 and May 31, 2011. The estimated fair
values were determined based on quoted market prices or on the current rates offered for debt with
similar terms and maturities.
- 8 -
(4) Computation of Earnings Per Share
The calculation of basic and diluted earnings per common share for the three-month periods ended
August 31 was as follows (in millions, except per share amounts):
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2011 |
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2010 |
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Basic earnings per common share: |
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Net earnings allocable to common shares(1) |
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$ |
463 |
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$ |
379 |
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Weighted-average common shares |
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316 |
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|
314 |
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|
|
Basic earnings per common share |
|
$ |
1.46 |
|
|
$ |
1.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
Net earnings allocable to common shares(1) |
|
$ |
463 |
|
|
$ |
379 |
|
|
|
|
|
|
|
|
|
Weighted-average common shares |
|
|
316 |
|
|
|
314 |
|
Dilutive effect of share-based awards |
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
Weighted-average diluted shares |
|
|
318 |
|
|
|
315 |
|
Diluted earnings per common share |
|
$ |
1.46 |
|
|
$ |
1.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive options excluded from diluted
earnings per common share |
|
|
13.2 |
|
|
|
11.4 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net earnings available to participating securities were immaterial in all periods
presented. |
(5) Retirement Plans
We sponsor programs that provide retirement benefits to most of our employees. These programs
include defined benefit pension plans, defined contribution plans and postretirement healthcare
plans. Key terms of our retirement plans are provided in our Annual Report. Our retirement plans
costs for the three-month periods ended August 31 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
U.S. domestic and international pension plans |
|
$ |
132 |
|
|
$ |
141 |
|
U.S. domestic and international defined contribution plans |
|
|
86 |
|
|
|
54 |
|
Postretirement healthcare plans |
|
|
18 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
$ |
236 |
|
|
$ |
210 |
|
|
|
|
|
|
|
|
The three-month period ended August 31, 2011 reflects the full restoration on January 1, 2011 of
company-matching contributions for our 401(k) plans.
Net periodic benefit cost of the pension and postretirement healthcare plans for the three-month
periods ended August 31 included the following components (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement |
|
|
|
Pension Plans |
|
|
Healthcare Plans |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Service cost |
|
$ |
148 |
|
|
$ |
130 |
|
|
$ |
9 |
|
|
$ |
8 |
|
Interest cost |
|
|
244 |
|
|
|
224 |
|
|
|
9 |
|
|
|
8 |
|
Expected return on plan assets |
|
|
(309 |
) |
|
|
(265 |
) |
|
|
|
|
|
|
|
|
Recognized actuarial losses (gains) and other |
|
|
49 |
|
|
|
52 |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
132 |
|
|
$ |
141 |
|
|
$ |
18 |
|
|
$ |
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 9 -
Required contributions to our tax qualified U.S. domestic pension plans (U.S. Pension Plans) for
the three-month periods ended August 31 were $99 million in
2011 and $118 million in 2010.
Our U.S. Pension Plans have ample funds to meet expected benefit payments. In September 2011, we
made an additional contribution of $127 million to our U.S. Pension Plans.
(6) Business Segment Information
We provide a broad portfolio of transportation, e-commerce and business services through companies
competing collectively, operating independently and managed collaboratively under the respected
FedEx brand. Our primary operating companies include FedEx Express, the worlds largest express
transportation company; FedEx Ground Package System, Inc. (FedEx Ground), a leading provider of
small-package ground delivery services; and FedEx Freight, Inc. (FedEx Freight), a leading U.S.
provider of less-than-truckload (LTL) freight services.
Our reportable segments include the following businesses:
|
|
|
FedEx Express Segment
|
|
FedEx Express (express transportation) |
|
|
FedEx Trade Networks (global trade services) |
|
|
FedEx SupplyChain Systems (logistics services) |
|
|
|
FedEx Ground Segment
|
|
FedEx Ground (small-package ground delivery) |
|
|
FedEx SmartPost (small-parcel consolidator) |
|
|
|
FedEx Freight Segment
|
|
FedEx Freight (LTL freight transportation) |
|
|
FedEx Custom Critical (time-critical transportation) |
|
|
|
FedEx Services Segment
|
|
FedEx Services (sales, marketing and information technology functions) |
|
|
FedEx TechConnect (customer service, technical support,
billings and collections) |
|
|
FedEx Office (document and business services and package acceptance) |
FedEx Services Segment
The FedEx Services segment operates combined sales, marketing, administrative and information
technology functions in shared services operations that support our transportation businesses and
allow us to obtain synergies from the combination of these functions. The FedEx Services segment
includes: FedEx Services, which provides sales, marketing and information technology support to our
other companies; FedEx TechConnect, which is responsible for customer service, technical support,
billings and collections for U.S. customers of our major business units; and FedEx Office, which
provides an array of document and business services and retail access to our customers for our
package transportation businesses.
The FedEx Services segment provides direct and indirect support to our transportation businesses,
and we allocate all of the net operating costs of the FedEx Services segment (including the net
operating results of FedEx Office) to reflect the full cost of operating our transportation
businesses in the results of those segments. Within the FedEx Services segment allocation, the net
operating results of FedEx Office are allocated to FedEx Express and FedEx Ground. The allocations
of net operating costs are based on metrics such as relative revenues or estimated services
provided. We believe these allocations approximate the net cost of providing these functions. We
review and evaluate the performance of our transportation segments based on operating income
(inclusive of FedEx Services segment allocations). For the FedEx Services segment, performance is
evaluated based on the impact of its total allocated net operating costs on our transportation
segments.
- 10 -
The operating expenses line item Intercompany charges on the accompanying unaudited financial
summaries of our transportation segments in Managements Discussion and Analysis of Results of
Operations and Financial Condition reflects the allocations from the FedEx Services segment to the
respective transportation segments. The Intercompany charges caption also includes charges and
credits for administrative services provided between operating companies and certain other costs
such as corporate management fees related to services received for general corporate oversight,
including executive officers and certain legal and finance functions. We believe these allocations
approximate the net cost of providing these functions.
Other Intersegment Transactions
Certain FedEx operating companies provide transportation and related services for other FedEx
companies outside their reportable segment. Billings for such services are based on negotiated
rates, which we believe approximate fair value, and are reflected as revenues of the billing
segment. These rates are adjusted from time to time based on market conditions. Such intersegment
revenues and expenses are eliminated in our consolidated results and are not separately identified
in the following segment information because the amounts are not material.
The following table provides a reconciliation of reportable segment revenues and operating income
(loss) to our unaudited condensed consolidated financial statement totals for the three-month periods ended
August 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
2011 |
|
|
2010 |
|
Revenues |
|
|
|
|
|
|
|
|
FedEx Express segment |
|
$ |
6,592 |
|
|
$ |
5,912 |
|
FedEx Ground segment |
|
|
2,278 |
|
|
|
1,961 |
|
FedEx Freight segment |
|
|
1,328 |
|
|
|
1,258 |
|
FedEx Services segment |
|
|
411 |
|
|
|
415 |
|
Other and eliminations |
|
|
(88 |
) |
|
|
(89 |
) |
|
|
|
|
|
|
|
|
|
$ |
10,521 |
|
|
$ |
9,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
|
|
|
|
|
|
FedEx Express segment |
|
$ |
288 |
|
|
$ |
357 |
|
FedEx Ground segment |
|
|
407 |
|
|
|
287 |
|
FedEx Freight segment |
|
|
42 |
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
$ |
737 |
|
|
$ |
628 |
|
|
|
|
|
|
|
|
(7) Commitments
As of August 31, 2011, our purchase commitments under various contracts for the remainder of 2012
and annually thereafter were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft and |
|
|
|
|
|
|
|
|
|
Aircraft-Related |
|
|
Other(1) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 (remainder) |
|
$ |
874 |
|
|
$ |
839 |
|
|
$ |
1,713 |
|
2013 |
|
|
1,162 |
|
|
|
121 |
|
|
|
1,283 |
|
2014 |
|
|
781 |
|
|
|
55 |
|
|
|
836 |
|
2015 |
|
|
555 |
|
|
|
31 |
|
|
|
586 |
|
2016 |
|
|
580 |
|
|
|
15 |
|
|
|
595 |
|
Thereafter |
|
|
1,464 |
|
|
|
132 |
|
|
|
1,596 |
|
|
|
|
(1) |
|
Primarily vehicles, facilities, advertising and promotions contracts, and for the
remainder of 2012, a total of $418 million of quarterly contributions to our U.S. Pension Plans. |
- 11 -
The amounts reflected in the table above for purchase commitments represent noncancelable
agreements to purchase goods or services. Our obligation to purchase 15 of these Boeing 777
Freighters (B777F) is conditioned upon there being no event that causes FedEx Express or its
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.
We had $1 billion in deposits and progress payments as of August 31, 2011 on aircraft purchases and
other planned aircraft-related transactions. These deposits are classified in the Other assets
caption of our condensed consolidated balance sheets. In addition to our commitment to purchase
B777Fs, our aircraft purchase commitments include the Boeing 757 (B757) 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, 2011, with the year of expected
delivery:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B777F |
|
|
B757 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 (remainder) |
|
|
6 |
|
|
|
15 |
|
|
|
21 |
|
2013 |
|
|
6 |
|
|
|
5 |
|
|
|
11 |
|
2014 |
|
|
7 |
|
|
|
|
|
|
|
7 |
|
2015 |
|
|
3 |
|
|
|
|
|
|
|
3 |
|
2016 |
|
|
3 |
|
|
|
|
|
|
|
3 |
|
Thereafter |
|
|
7 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
32 |
|
|
|
20 |
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
A summary of future minimum lease payments under capital leases and noncancelable operating leases
with an initial or remaining term in excess of one year at August 31, 2011 is as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases |
|
|
|
|
|
|
|
Aircraft |
|
|
|
|
|
|
Total |
|
|
|
Capital |
|
|
and Related |
|
|
Facilities |
|
|
Operating |
|
|
|
Leases |
|
|
Equipment |
|
|
and Other |
|
|
Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 (remainder) |
|
$ |
6 |
|
|
$ |
418 |
|
|
$ |
1,010 |
|
|
$ |
1,428 |
|
2013 |
|
|
119 |
|
|
|
499 |
|
|
|
1,227 |
|
|
|
1,726 |
|
2014 |
|
|
2 |
|
|
|
473 |
|
|
|
1,064 |
|
|
|
1,537 |
|
2015 |
|
|
2 |
|
|
|
455 |
|
|
|
936 |
|
|
|
1,391 |
|
2016 |
|
|
1 |
|
|
|
458 |
|
|
|
766 |
|
|
|
1,224 |
|
Thereafter |
|
|
13 |
|
|
|
1,545 |
|
|
|
4,940 |
|
|
|
6,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
143 |
|
|
$ |
3,848 |
|
|
$ |
9,943 |
|
|
$ |
13,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease
payments |
|
$ |
129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
- 12 -
(8) Contingencies
Wage-and-Hour. We are a defendant in a number of lawsuits containing various class-action
allegations of wage-and-hour violations. The plaintiffs in these lawsuits allege, among other
things, that they were forced to work off the clock, were not paid overtime or were not provided
work breaks or other benefits. The complaints generally seek unspecified monetary damages,
injunctive relief, or both. We do not believe that a material loss
is reasonably possible with respect to any of these matters.
In September 2009, in Taylor v. FedEx Freight, a California state court granted class
certification, certifying a class of all current and former drivers employed by FedEx Freight in
California who performed linehaul services since June 2003. The plaintiffs alleged, among other
things, that they were forced to work off the clock and were not provided with required rest or
meal breaks. We entered into a tentative settlement agreement with the plaintiffs in June 2011 for
an immaterial amount. The order of preliminary approval of settlement was entered by
the court in September 2011.
Independent Contractor Lawsuits and State Administrative Proceedings. FedEx Ground is involved
in numerous class-action lawsuits (including 30 that have been certified as class actions),
individual lawsuits and state tax and other administrative proceedings that claim that the
companys owner-operators should be treated as employees, rather than independent contractors.
Most of the class-action lawsuits were consolidated for administration of the pre-trial proceedings
by a single federal court, the U.S. District Court for the Northern District of Indiana. The
multidistrict litigation court granted class certification in 28 cases and denied it in 14 cases.
On December 13, 2010, the court entered an opinion and order addressing all outstanding motions for
summary judgment on the status of the owner-operators (i.e., independent contractor vs. employee).
In sum, the court has now ruled on our summary judgment motions and entered judgment in favor of
FedEx Ground on all claims in 20 of the 28 multidistrict litigation cases that had been certified
as class actions, finding that the owner-operators in those cases were contractors as a matter of
the law of the following states: Alabama, Arizona, Georgia, Indiana, Kansas (the court previously
dismissed without prejudice the nationwide class claim under the Employee Retirement Income
Security Act of 1974 based on the plaintiffs failure to exhaust administrative remedies),
Louisiana, Maryland, Minnesota, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode
Island, South Carolina, Tennessee, Texas, Utah, West Virginia and Wisconsin. The plaintiffs filed
notices of appeal in all of these 20 cases.
In the other eight certified class actions in the multidistrict litigation, the court ruled in
favor of FedEx Ground on some of the claims and against FedEx Ground on at least one claim in three
of the cases (filed in Kentucky, Nevada and New Hampshire) and then remanded all eight cases back
to district court in the following states for resolution of the remaining claims: Arkansas,
California, Florida, Kentucky, Nevada, New Hampshire and Oregon (two certified classes). In January
2011, we asked the court to issue final judgments in these eight cases, and the court denied our
motion. In July 2011, we filed a petition to the Seventh Circuit asking the appeals court to
require these cases to be returned to the multidistrict litigation court for issuance of a final
judgment so that all appeals of the December 2010 summary judgment rulings would be heard by the
Seventh Circuit, and we have not yet received a ruling on that petition.
In January 2008, one of the contractor-model lawsuits that is not part of the multidistrict
litigation, Anfinson v. FedEx Ground, was certified as a class action by a Washington state court.
The plaintiffs in Anfinson represent a class of single-route, pickup-and-delivery owner-operators
in Washington from December 21, 2001 through December 31, 2005 and allege that the class members
should be reimbursed as employees for their uniform expenses and should receive overtime pay. In
March 2009, a jury trial in the Anfinson case was held, and the jury returned a verdict in favor of
FedEx Ground, finding that all 320 class members were independent contractors, not employees. The
plaintiffs appealed the verdict. In December 2010, the Washington Court of Appeals reversed and
remanded for further proceedings, including a new trial. We filed a motion to reconsider, and this
motion was denied. In March 2011, we filed a discretionary appeal with the Washington Supreme
Court, and in August 2011, that petition was granted.
- 13 -
In August 2010, another one of the contractor-model lawsuits that is not part of the multidistrict
litigation, Rascon v. FedEx Ground, was certified as a class action by a Colorado state court. The
plaintiff in Rascon represents a class of single-route, pickup-and-delivery owner-operators in
Colorado who drove vehicles weighing less than 10,001 pounds at any time from August 27, 2005
through the present. The lawsuit seeks unpaid overtime compensation, and related penalties and
attorneys fees and costs, under Colorado law. Our applications for appeal challenging this class
certification decision have been rejected.
Other contractor-model cases that are not or are no longer part of the multidistrict litigation are
in varying stages of litigation.
With respect to the state administrative proceedings relating to the classification of FedEx
Grounds owner-operators as independent contractors, during the second quarter of 2011, the
attorneys general in New York and Kentucky each filed lawsuits against FedEx Ground challenging the
validity of the contractor model.
While the granting of summary judgment in favor of FedEx Ground by the multidistrict litigation
court in 20 of the 28 cases that had been certified as class actions remains subject to appeal, we
believe that it significantly improves the likelihood that our independent contractor model will be
upheld. Adverse determinations in the remaining matters related to FedEx Grounds independent
contractors, however, could, among other things, entitle certain of our contractors and their
drivers to the reimbursement of certain expenses and to the benefit of wage-and-hour laws and
result in employment and withholding tax and benefit liability for FedEx Ground, and could result
in changes to the independent contractor status of FedEx Grounds owner-operators in certain
jurisdictions. We believe that FedEx Grounds owner-operators are properly classified as
independent contractors and that FedEx Ground is not an employer of the drivers of the companys
independent contractors. While it is reasonably possible that potential loss in some of these
lawsuits or such changes to the independent contractor status of FedEx Grounds owner-operators
could be material, we cannot yet determine the amount or reasonable range of potential loss. A
number of factors contribute to this. The number of plaintiffs in these lawsuits continues to
change, with some being dismissed and others being added and, as to new plaintiffs, no discovery
has been conducted. In addition, the parties have not yet conducted any discovery into damages,
which could vary considerably from plaintiff to plaintiff. Further, the range of potential loss
could be impacted considerably by future rulings on the merits of certain claims and FedEx Grounds
various defenses, and on evidentiary issues. In any event, we do not believe that a material loss
is probable in these matters.
ATA Airlines. In October 2010, a jury returned a verdict in favor of ATA Airlines in its breach of
contract lawsuit against FedEx Express and awarded damages of $66 million, and in January 2011, the
court awarded ATA pre-judgment interest of $5 million. While we do not agree with the verdict or
the amount of damages awarded and have appealed the matter to the U.S. Court of Appeals for the
Seventh Circuit, accounting standards required an accrual of a $66 million loss in the second
quarter of 2011. We did not accrue the $5 million of interest as a loss because we have additional
arguments on appeal that lead us to believe that loss of that amount is not probable.
California Paystub Class Action. A federal court in California ruled in April 2011 that paystubs
for certain FedEx Express employees in California did not meet that states requirements to reflect
pay period begin date, total overtime hours worked and the correct overtime wage rate. The ruling
came in a class action lawsuit filed by a former courier seeking damages on behalf of herself and
all other FedEx Express employees in California that allegedly received noncompliant paystubs. The
court certified the class in June 2011. The court has ruled that FedEx Express is liable to the
State of California, and there will be a ruling as to whether FedEx Express is liable to class
members who can prove they were injured by the paystub deficiencies. The judge has not yet decided
on the amount, if any, of liability to the State of California or to the class, but has wide
discretion. A material loss in this matter is reasonably possible but not estimable because both
the number of class members and the amount, if any, to which some class members may be entitled is
uncertain, and in ruling the judge may consider some or all of the following: whether employees
suffered injury; whether remedial action was undertaken; whether there was knowledge of any
violation; whether any violation was intentional; and whether any award would be unjust under the
circumstances.
- 14 -
Other. FedEx 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.
(9) 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):
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
Cash payments for: |
|
|
|
|
|
|
|
|
Interest (net of capitalized interest) |
|
$ |
43 |
|
|
$ |
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
65 |
|
|
$ |
73 |
|
Income tax refunds received |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
Cash tax payments, net |
|
$ |
65 |
|
|
$ |
72 |
|
|
|
|
|
|
|
|
(10) Condensed Consolidating Financial Statements
We are required to present condensed consolidating financial information in order for the
subsidiary guarantors (other than FedEx Express) of our public debt to continue to be exempt from
reporting under the Securities Exchange Act of 1934, as amended.
The guarantor subsidiaries, which are wholly owned by FedEx, guarantee $1.0 billion of our debt.
The guarantees are full and unconditional and joint and several. Our guarantor subsidiaries were
not determined using geographic, service line or other similar criteria, and as a result, the
Guarantor Subsidiaries and Non-guarantor Subsidiaries columns each include portions of our
domestic and international operations. Accordingly, this basis of presentation is not intended to
present our financial condition, results of operations or cash flows for any purpose other than to
comply with the specific requirements for subsidiary guarantor reporting.
- 15 -
Condensed consolidating financial statements for our guarantor subsidiaries and non-guarantor
subsidiaries are presented in the following tables (in millions):
CONDENSED CONSOLIDATING BALANCE SHEETS
(UNAUDITED)
August 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,314 |
|
|
$ |
261 |
|
|
$ |
553 |
|
|
$ |
(169 |
) |
|
$ |
1,959 |
|
Receivables, less allowances |
|
|
|
|
|
|
3,662 |
|
|
|
985 |
|
|
|
(23 |
) |
|
|
4,624 |
|
Spare parts, supplies, fuel, prepaid expenses
and other, less allowances |
|
|
38 |
|
|
|
684 |
|
|
|
48 |
|
|
|
|
|
|
|
770 |
|
Deferred income taxes |
|
|
|
|
|
|
591 |
|
|
|
19 |
|
|
|
|
|
|
|
610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,352 |
|
|
|
5,198 |
|
|
|
1,605 |
|
|
|
(192 |
) |
|
|
7,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, AT COST |
|
|
25 |
|
|
|
32,422 |
|
|
|
1,777 |
|
|
|
|
|
|
|
34,224 |
|
Less accumulated depreciation and amortization |
|
|
19 |
|
|
|
17,293 |
|
|
|
1,092 |
|
|
|
|
|
|
|
18,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
6 |
|
|
|
15,129 |
|
|
|
685 |
|
|
|
|
|
|
|
15,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERCOMPANY RECEIVABLE |
|
|
|
|
|
|
|
|
|
|
1,260 |
|
|
|
(1,260 |
) |
|
|
|
|
GOODWILL |
|
|
|
|
|
|
1,565 |
|
|
|
870 |
|
|
|
|
|
|
|
2,435 |
|
INVESTMENT IN SUBSIDIARIES |
|
|
15,878 |
|
|
|
2,784 |
|
|
|
|
|
|
|
(18,662 |
) |
|
|
|
|
OTHER ASSETS |
|
|
1,638 |
|
|
|
1,381 |
|
|
|
106 |
|
|
|
(1,505 |
) |
|
|
1,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,874 |
|
|
$ |
26,057 |
|
|
$ |
4,526 |
|
|
$ |
(21,619 |
) |
|
$ |
27,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS INVESTMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
|
|
|
$ |
301 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
301 |
|
Accrued salaries and employee benefits |
|
|
54 |
|
|
|
1,046 |
|
|
|
145 |
|
|
|
|
|
|
|
1,245 |
|
Accounts payable |
|
|
42 |
|
|
|
1,285 |
|
|
|
428 |
|
|
|
(192 |
) |
|
|
1,563 |
|
Accrued expenses |
|
|
246 |
|
|
|
1,480 |
|
|
|
146 |
|
|
|
|
|
|
|
1,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
342 |
|
|
|
4,112 |
|
|
|
719 |
|
|
|
(192 |
) |
|
|
4,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT, LESS CURRENT PORTION |
|
|
1,000 |
|
|
|
367 |
|
|
|
|
|
|
|
|
|
|
|
1,367 |
|
INTERCOMPANY PAYABLE |
|
|
682 |
|
|
|
578 |
|
|
|
|
|
|
|
(1,260 |
) |
|
|
|
|
OTHER LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
2,938 |
|
|
|
8 |
|
|
|
(1,505 |
) |
|
|
1,441 |
|
Other liabilities |
|
|
1,136 |
|
|
|
3,042 |
|
|
|
157 |
|
|
|
|
|
|
|
4,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other long-term liabilities |
|
|
1,136 |
|
|
|
5,980 |
|
|
|
165 |
|
|
|
(1,505 |
) |
|
|
5,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS INVESTMENT |
|
|
15,714 |
|
|
|
15,020 |
|
|
|
3,642 |
|
|
|
(18,662 |
) |
|
|
15,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,874 |
|
|
$ |
26,057 |
|
|
$ |
4,526 |
|
|
$ |
(21,619 |
) |
|
$ |
27,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 16 -
CONDENSED CONSOLIDATING BALANCE SHEETS
May 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,589 |
|
|
$ |
279 |
|
|
$ |
546 |
|
|
$ |
(86 |
) |
|
$ |
2,328 |
|
Receivables, less allowances |
|
|
|
|
|
|
3,696 |
|
|
|
912 |
|
|
|
(27 |
) |
|
|
4,581 |
|
Spare parts, supplies, fuel, prepaid expenses
and other, less allowances |
|
|
77 |
|
|
|
645 |
|
|
|
44 |
|
|
|
|
|
|
|
766 |
|
Deferred income taxes |
|
|
|
|
|
|
598 |
|
|
|
12 |
|
|
|
|
|
|
|
610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,666 |
|
|
|
5,218 |
|
|
|
1,514 |
|
|
|
(113 |
) |
|
|
8,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, AT COST |
|
|
24 |
|
|
|
31,916 |
|
|
|
1,746 |
|
|
|
|
|
|
|
33,686 |
|
Less accumulated depreciation and amortization |
|
|
18 |
|
|
|
17,071 |
|
|
|
1,054 |
|
|
|
|
|
|
|
18,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
6 |
|
|
|
14,845 |
|
|
|
692 |
|
|
|
|
|
|
|
15,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERCOMPANY RECEIVABLE |
|
|
|
|
|
|
|
|
|
|
1,317 |
|
|
|
(1,317 |
) |
|
|
|
|
GOODWILL |
|
|
|
|
|
|
1,564 |
|
|
|
762 |
|
|
|
|
|
|
|
2,326 |
|
INVESTMENT IN SUBSIDIARIES |
|
|
15,404 |
|
|
|
2,705 |
|
|
|
|
|
|
|
(18,109 |
) |
|
|
|
|
OTHER ASSETS |
|
|
1,652 |
|
|
|
1,039 |
|
|
|
63 |
|
|
|
(1,523 |
) |
|
|
1,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,728 |
|
|
$ |
25,371 |
|
|
$ |
4,348 |
|
|
$ |
(21,062 |
) |
|
$ |
27,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS INVESTMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
|
|
|
$ |
18 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
18 |
|
Accrued salaries and employee benefits |
|
|
50 |
|
|
|
1,071 |
|
|
|
147 |
|
|
|
|
|
|
|
1,268 |
|
Accounts payable |
|
|
|
|
|
|
1,385 |
|
|
|
430 |
|
|
|
(113 |
) |
|
|
1,702 |
|
Accrued expenses |
|
|
198 |
|
|
|
1,563 |
|
|
|
133 |
|
|
|
|
|
|
|
1,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
248 |
|
|
|
4,037 |
|
|
|
710 |
|
|
|
(113 |
) |
|
|
4,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT, LESS CURRENT PORTION |
|
|
1,000 |
|
|
|
667 |
|
|
|
|
|
|
|
|
|
|
|
1,667 |
|
INTERCOMPANY PAYABLE |
|
|
1,095 |
|
|
|
222 |
|
|
|
|
|
|
|
(1,317 |
) |
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
2,842 |
|
|
|
17 |
|
|
|
(1,523 |
) |
|
|
1,336 |
|
Other liabilities |
|
|
1,165 |
|
|
|
3,001 |
|
|
|
114 |
|
|
|
|
|
|
|
4,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other long-term liabilities |
|
|
1,165 |
|
|
|
5,843 |
|
|
|
131 |
|
|
|
(1,523 |
) |
|
|
5,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS INVESTMENT |
|
|
15,220 |
|
|
|
14,602 |
|
|
|
3,507 |
|
|
|
(18,109 |
) |
|
|
15,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,728 |
|
|
$ |
25,371 |
|
|
$ |
4,348 |
|
|
$ |
(21,062 |
) |
|
$ |
27,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 17 -
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended August 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES |
|
$ |
|
|
|
$ |
9,007 |
|
|
$ |
1,584 |
|
|
$ |
(70 |
) |
|
$ |
10,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee
benefits |
|
|
33 |
|
|
|
3,531 |
|
|
|
440 |
|
|
|
|
|
|
|
4,004 |
|
Purchased transportation |
|
|
|
|
|
|
1,080 |
|
|
|
464 |
|
|
|
(26 |
) |
|
|
1,518 |
|
Rentals and landing fees |
|
|
1 |
|
|
|
555 |
|
|
|
65 |
|
|
|
(1 |
) |
|
|
620 |
|
Depreciation and
amortization |
|
|
|
|
|
|
471 |
|
|
|
38 |
|
|
|
|
|
|
|
509 |
|
Fuel |
|
|
|
|
|
|
1,224 |
|
|
|
20 |
|
|
|
|
|
|
|
1,244 |
|
Maintenance and repairs |
|
|
|
|
|
|
528 |
|
|
|
23 |
|
|
|
|
|
|
|
551 |
|
Intercompany charges, net |
|
|
(58 |
) |
|
|
(90 |
) |
|
|
148 |
|
|
|
|
|
|
|
|
|
Other |
|
|
24 |
|
|
|
1,125 |
|
|
|
232 |
|
|
|
(43 |
) |
|
|
1,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,424 |
|
|
|
1,430 |
|
|
|
(70 |
) |
|
|
9,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
|
|
|
|
583 |
|
|
|
154 |
|
|
|
|
|
|
|
737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of
subsidiaries |
|
|
464 |
|
|
|
71 |
|
|
|
|
|
|
|
(535 |
) |
|
|
|
|
Interest, net |
|
|
(20 |
) |
|
|
8 |
|
|
|
1 |
|
|
|
|
|
|
|
(11 |
) |
Intercompany charges, net |
|
|
21 |
|
|
|
(28 |
) |
|
|
7 |
|
|
|
|
|
|
|
|
|
Other, net |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
1 |
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES |
|
|
464 |
|
|
|
632 |
|
|
|
163 |
|
|
|
(535 |
) |
|
|
724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
|
|
|
|
215 |
|
|
|
45 |
|
|
|
|
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
464 |
|
|
$ |
417 |
|
|
$ |
118 |
|
|
$ |
(535 |
) |
|
$ |
464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended August 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES |
|
$ |
|
|
|
$ |
7,893 |
|
|
$ |
1,646 |
|
|
$ |
(82 |
) |
|
$ |
9,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee
benefits |
|
|
38 |
|
|
|
3,249 |
|
|
|
516 |
|
|
|
|
|
|
|
3,803 |
|
Purchased transportation |
|
|
|
|
|
|
920 |
|
|
|
432 |
|
|
|
(25 |
) |
|
|
1,327 |
|
Rentals and landing fees |
|
|
1 |
|
|
|
537 |
|
|
|
64 |
|
|
|
(1 |
) |
|
|
601 |
|
Depreciation and
amortization |
|
|
|
|
|
|
432 |
|
|
|
47 |
|
|
|
|
|
|
|
479 |
|
Fuel |
|
|
|
|
|
|
841 |
|
|
|
46 |
|
|
|
|
|
|
|
887 |
|
Maintenance and repairs |
|
|
|
|
|
|
483 |
|
|
|
34 |
|
|
|
|
|
|
|
517 |
|
Intercompany charges, net |
|
|
(71 |
) |
|
|
(92 |
) |
|
|
163 |
|
|
|
|
|
|
|
|
|
Other |
|
|
32 |
|
|
|
986 |
|
|
|
253 |
|
|
|
(56 |
) |
|
|
1,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,356 |
|
|
|
1,555 |
|
|
|
(82 |
) |
|
|
8,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
|
|
|
|
537 |
|
|
|
91 |
|
|
|
|
|
|
|
628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of
subsidiaries |
|
|
380 |
|
|
|
26 |
|
|
|
|
|
|
|
(406 |
) |
|
|
|
|
Interest, net |
|
|
(24 |
) |
|
|
8 |
|
|
|
(2 |
) |
|
|
|
|
|
|
(18 |
) |
Intercompany charges, net |
|
|
27 |
|
|
|
(35 |
) |
|
|
8 |
|
|
|
|
|
|
|
|
|
Other, net |
|
|
(3 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES |
|
|
380 |
|
|
|
532 |
|
|
|
97 |
|
|
|
(406 |
) |
|
|
603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
|
|
|
|
196 |
|
|
|
27 |
|
|
|
|
|
|
|
223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
380 |
|
|
$ |
336 |
|
|
$ |
70 |
|
|
$ |
(406 |
) |
|
$ |
380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 18 -
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended August 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
|
$ |
70 |
|
|
$ |
758 |
|
|
$ |
115 |
|
|
$ |
(83 |
) |
|
$ |
860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(1 |
) |
|
|
(1,095 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
(1,110 |
) |
Business acquisition, net of cash acquired |
|
|
|
|
|
|
|
|
|
|
(111 |
) |
|
|
|
|
|
|
(111 |
) |
Proceeds from asset dispositions and other |
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH USED IN INVESTING ACTIVITIES |
|
|
(1 |
) |
|
|
(1,090 |
) |
|
|
(125 |
) |
|
|
|
|
|
|
(1,216 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfers from (to) Parent |
|
|
(335 |
) |
|
|
356 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
Payment on loan between subsidiaries |
|
|
|
|
|
|
(15 |
) |
|
|
15 |
|
|
|
|
|
|
|
|
|
Principal payments on debt |
|
|
|
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
(17 |
) |
Proceeds from stock issuances |
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 |
|
Excess tax benefit on the exercise of
stock options |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Dividends paid |
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41 |
) |
Other, net |
|
|
|
|
|
|
(15 |
) |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES |
|
|
(344 |
) |
|
|
309 |
|
|
|
9 |
|
|
|
|
|
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
|
|
|
|
5 |
|
|
|
8 |
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(275 |
) |
|
|
(18 |
) |
|
|
7 |
|
|
|
(83 |
) |
|
|
(369 |
) |
Cash and cash equivalents at beginning of period |
|
|
1,589 |
|
|
|
279 |
|
|
|
546 |
|
|
|
(86 |
) |
|
|
2,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
1,314 |
|
|
$ |
261 |
|
|
$ |
553 |
|
|
$ |
(169 |
) |
|
$ |
1,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended August 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
|
$ |
19 |
|
|
$ |
701 |
|
|
$ |
78 |
|
|
$ |
(2 |
) |
|
$ |
796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(978 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
(1,012 |
) |
Proceeds from asset dispositions and other |
|
|
|
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH USED IN INVESTING ACTIVITIES |
|
|
|
|
|
|
(976 |
) |
|
|
(33 |
) |
|
|
|
|
|
|
(1,009 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfers from (to) Parent |
|
|
(193 |
) |
|
|
211 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
Payment on loan between subsidiaries |
|
|
|
|
|
|
40 |
|
|
|
(40 |
) |
|
|
|
|
|
|
|
|
Intercompany dividends |
|
|
|
|
|
|
4 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
Principal payments on debt |
|
|
|
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
(12 |
) |
Proceeds from stock issuances |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
Excess tax benefit on the exercise of
stock options |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Dividends paid |
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES |
|
|
(222 |
) |
|
|
243 |
|
|
|
(62 |
) |
|
|
|
|
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
|
|
|
|
8 |
|
|
|
3 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(203 |
) |
|
|
(24 |
) |
|
|
(14 |
) |
|
|
(2 |
) |
|
|
(243 |
) |
Cash and cash equivalents at beginning of period |
|
|
1,310 |
|
|
|
258 |
|
|
|
443 |
|
|
|
(59 |
) |
|
|
1,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
1,107 |
|
|
$ |
234 |
|
|
$ |
429 |
|
|
$ |
(61 |
) |
|
$ |
1,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 19 -
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
FedEx Corporation
We have reviewed the condensed consolidated balance sheet of FedEx Corporation as of August 31,
2011, and the related condensed consolidated statements of income for the three-month periods ended
August 31, 2011 and 2010 and the condensed consolidated statements of cash flows for the
three-month periods ended August 31, 2011 and 2010. 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 FedEx Corporation as of May 31,
2011, and the related consolidated statements of income, changes in stockholders investment and
comprehensive income, and cash flows for the year then ended not presented herein, and in our
report dated July 12, 2011, 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, 2011, 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 23, 2011
- 20 -
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
(MD&A) describes the principal factors affecting the results of operations, liquidity, capital
resources, contractual cash obligations and critical accounting estimates of FedEx Corporation
(FedEx). 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, 2011 (Annual Report). Our Annual Report includes additional information about our
significant accounting policies, practices and the transactions that underlie our financial
results, as well as a detailed discussion of the most significant risks and uncertainties
associated with our financial condition and operating results.
We provide a broad portfolio of transportation, e-commerce and business services through companies
competing collectively, operating independently and managed collaboratively, under the respected
FedEx brand. Our primary operating companies are Federal Express Corporation (FedEx Express),
the worlds largest express transportation company; FedEx Ground Package System, Inc. (FedEx
Ground), a leading provider of small-package ground delivery services; and FedEx Freight, Inc.
(FedEx Freight), a leading U.S. provider of less-than-truckload (LTL) freight services. These
companies represent our major service lines and, along with FedEx Corporate Services, Inc. (FedEx
Services), form the core of our reportable segments. Our FedEx Services segment provides sales,
marketing and information technology support to our transportation segments. In addition, the
FedEx Services segment provides customers with retail access to FedEx Express and FedEx Ground
shipping services through FedEx Office and Print Services, Inc. (FedEx Office) and provides
customer service, technical support and billing and collection services through FedEx TechConnect,
Inc. (FedEx TechConnect). See Reportable Segments for further discussion.
The key indicators necessary to understand our operating results include:
|
|
the overall customer demand for our various services; |
|
|
the volumes of transportation services provided through our networks, primarily measured by
our average daily volume and shipment weight; |
|
|
the mix of services purchased by our customers; |
|
|
the prices we obtain for our services, primarily measured by yield (revenue per package or
pound or revenue per hundredweight for LTL freight shipments); |
|
|
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.
Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2012 or
ended May 31 of the year referenced and comparisons are to the corresponding period of the prior
year. References to our transportation segments include, collectively, our FedEx Express, FedEx
Ground and FedEx Freight segments.
- 21 -
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
The following table compares summary operating results (dollars in millions, except per share
amounts) for the three-month periods ended August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
Revenues |
|
$ |
10,521 |
|
|
$ |
9,457 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
737 |
|
|
|
628 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
|
7.0 |
% |
|
|
6.6 |
% |
|
40 |
bp |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
464 |
|
|
$ |
380 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
1.46 |
|
|
$ |
1.20 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
The following table shows changes in revenues and operating income by reportable segment for
the three-month periods ended August 31, 2011 compared to August 31, 2010 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
Operating Income |
|
|
|
Dollar |
|
|
Percent |
|
|
Dollar |
|
|
Percent |
|
|
|
Change |
|
|
Change |
|
|
Change |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FedEx Express segment |
|
$ |
680 |
|
|
|
12 |
|
|
$ |
(69 |
) |
|
|
(19 |
) |
FedEx Ground segment |
|
|
317 |
|
|
|
16 |
|
|
|
120 |
|
|
|
42 |
|
FedEx Freight segment |
|
|
70 |
|
|
|
6 |
|
|
|
58 |
|
|
|
363 |
|
FedEx Services segment |
|
|
(4 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
Other and eliminations |
|
|
1 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,064 |
|
|
|
11 |
|
|
$ |
109 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overview
Our revenue and earnings increased significantly in the first quarter of 2012 due to the strong
performance of our FedEx Ground segment, improved performance at our FedEx Freight segment and our
yield management programs, despite the impact of slowing global economic growth on our volumes.
Our FedEx Ground segment reported increased yields, volume and operating margin in the first
quarter of 2012 driven by continued market share gains. Our FedEx Freight segment achieved its
second consecutive profitable quarter during the first quarter of 2012, driven by higher yields and
increased efficiencies across our newly integrated LTL network. While higher package yields led to
an increase in revenue at FedEx Express, operating income and operating margin decreased as package
volume declines accelerated during the quarter due to slowing global economic growth. These volume
declines were more pronounced in some of our premium service offerings and outpaced our ability to
reduce operating costs to match demand levels.
- 22 -
The following graphs for FedEx Express, FedEx Ground and FedEx Freight show selected volume trends
(in thousands) over the five most recent quarters:
|
|
|
(1) |
|
Package statistics do not include the operations of FedEx SmartPost. |
- 23 -
The following graphs for FedEx Express, FedEx Ground and FedEx Freight show selected yield trends
over the five most recent quarters:
|
|
|
(1) |
|
Package statistics do not include the operations of FedEx SmartPost. |
Revenue
Revenues increased 11% during the first quarter of 2012 due to increased yields as a result of
higher fuel surcharges and our yield management efforts, and volume increases at our FedEx Ground
segment. At FedEx Express, domestic package yields increased 13% and IP package yields increased
16% primarily due to higher fuel surcharges, increased rates and favorable exchange rates.
Softness in global economic conditions resulted in accelerating volume declines during the quarter
for FedEx Express package shipments. At the FedEx Ground segment, yields improved during the first
quarter of 2012 primarily due to higher fuel surcharges and yield management initiatives. Market
share gains resulted in volume increases of 5% at FedEx Ground and
29% at FedEx SmartPost in the
first quarter of 2012. At FedEx Freight, LTL yield increased 11% in the first quarter of 2012 due
to higher fuel surcharges and our ongoing yield management initiatives. However, these initiatives
resulted in declines for LTL shipments in the first quarter of 2012.
- 24 -
Operating Income
The following table compares operating expenses expressed as dollar amounts (in millions) and as a
percent of revenue for the three-month periods ended August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Revenue |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
$ |
4,004 |
|
|
$ |
3,803 |
|
|
|
38.1 |
% |
|
|
40.2 |
% |
Purchased transportation |
|
|
1,518 |
|
|
|
1,327 |
|
|
|
14.4 |
|
|
|
14.0 |
|
Rentals and landing fees |
|
|
620 |
|
|
|
601 |
|
|
|
5.9 |
|
|
|
6.4 |
|
Depreciation and amortization |
|
|
509 |
|
|
|
479 |
|
|
|
4.8 |
|
|
|
5.1 |
|
Fuel |
|
|
1,244 |
|
|
|
887 |
|
|
|
11.8 |
|
|
|
9.4 |
|
Maintenance and repairs |
|
|
551 |
|
|
|
517 |
|
|
|
5.3 |
|
|
|
5.5 |
|
Other |
|
|
1,338 |
|
|
|
1,215 |
|
|
|
12.7 |
|
|
|
12.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
9,784 |
|
|
$ |
8,829 |
|
|
|
93.0 |
|
|
|
93.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
|
|
|
|
|
|
|
|
|
7.0 |
% |
|
|
6.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income and operating margin increased in the first quarter of 2012 as a result of
strong earnings growth at FedEx Ground, improving profitability at FedEx Freight and our yield
management programs. However, growth in operating income in the first quarter of 2012 was
negatively impacted by reduced profitability at FedEx Express due to the impact of slower global
economic growth on our operations.
Operating expenses in the first quarter of 2012 included an increase of 5% in salaries and employee
benefits expenses due to wage increases, higher incentive compensation and full 401(k)
company-matching contributions effective January 1, 2011. Purchased transportation expenses
increased 14% in the first quarter of 2011 due to higher fuel costs, increases in services
requiring a high utilization of contract services at FedEx Express and costs associated with the
expansion of our freight forwarding business at FedEx Trade Networks.
The following graph for our transportation segments shows our average cost of jet and vehicle fuel
per gallon for the five most recent quarters:
Fuel expense increased 40% during the first quarter of 2012 due to increases in the average price
per gallon of fuel. Based on a static analysis of the impact to operating income of year-over-year
changes in fuel prices compared to changes in fuel surcharges, fuel surcharges more than offset
incremental fuel costs for the first quarter of 2012.
- 25 -
Our analysis considers the estimated impact of the reduction in fuel surcharges included in the
base rates charged for FedEx Express and FedEx Ground services. However, this analysis does not
consider the negative effects that fuel surcharge levels may have on our business, including
reduced demand and shifts by our customers to lower-yielding services. While fluctuations in fuel
surcharge rates can be significant from period to period, fuel surcharges represent one of the many
individual components of our pricing structure that impact our overall revenue and yield.
Additional components include the mix of services sold, the base price and extra service charges we
obtain for these services and the level of pricing discounts offered. In order to provide
information about the impact of fuel surcharges on the trend in revenue and yield growth, we have
included the comparative fuel surcharge rates in effect for the first quarter of 2012 and 2011 in
the accompanying discussions of each of our transportation segments.
Income Taxes
Our effective tax rate was 35.9% for the first quarter of 2012 and 37.0% for the first quarter of
2011. Our lower effective tax rate in the first quarter of 2012 was primarily due to the benefit
derived from permanently reinvested international earnings, which are generally taxed at lower
rates than in the U.S. For the remainder of 2012, we expect the effective tax rate to be 36.0% to
37.0%. The actual rate, however, will depend on a number of factors, including the amount and
source of operating income.
Other than tax risks and related indemnifications recorded in connection with the business
acquisition described below, there were no material changes to our liabilities for unrecognized tax
benefits from May 31, 2011. We file income tax returns in the U.S. and various U.S. state, local
and foreign jurisdictions. It is reasonably possible that certain income tax return proceedings,
including an Internal Revenue Service audit of our 2007-2009 U.S. income tax returns, 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 Acquisition
On July 25, 2011, we completed our acquisition of Servicios Nacionales Mupa, S.A. de C.V.
(MultiPack), a Mexican domestic express package delivery company, for $128 million in cash from
operations. The financial results of the acquired business are included in the FedEx Express
segment from the date of acquisition and were not material to our results of operations or
financial condition. Substantially all of the purchase price was allocated to goodwill, which was
entirely attributed to our FedEx Express reporting unit. This acquisition gives us a more robust
domestic transportation network in Mexico and added capability in this important global market.
Outlook
While we expect a weaker global economic environment for the remainder of 2012, we anticipate
continued growth in revenue and earnings in the second quarter of 2012 driven by yield increases
across all our transportation segments due to our active yield management programs. Weakness and
uncertainty in global economic conditions, particularly from Asia, are negatively impacting the
demand for our services, making the pace of revenue and earnings growth for the remainder of 2012
difficult to predict. Given the weaker global economic climate, we are taking actions for the
remainder of 2012 to adjust operating expenses and capacity to match demand levels. However, we
remain committed to investing in critical long-term strategic projects focused on enhancing and
broadening our service offerings to position us for stronger growth as global economic conditions
improve. For additional details on key 2012 capital projects, refer to the Liquidity Outlook
section of this MD&A.
All of our businesses operate in a competitive pricing environment, exacerbated by continuing
volatile fuel prices, which impact our fuel surcharge levels. Historically, our fuel surcharges
have largely offset incremental fuel costs; however, volatility in fuel costs may impact earnings
because adjustments to our fuel surcharges lag
changes in actual fuel prices paid. Therefore, the trailing impact of adjustments to our fuel
surcharges can significantly affect our earnings either positively or negatively in the short-term.
- 26 -
As described in Note 8 of the accompanying unaudited condensed consolidated financial statements
and the Evolution of Independent Contractor Model section of our FedEx Ground segment MD&A, we
are involved in a number of lawsuits and other proceedings that challenge the status of FedEx
Grounds owner-operators as independent contractors. FedEx Ground anticipates continuing changes
to its relationships with its contractors. The nature, timing and amount of any changes are
dependent on the outcome of numerous future events. We cannot reasonably estimate the potential
impact of any such changes or a meaningful range of potential outcomes, although they could be
material. However, we do not believe that any such changes will impair our ability to operate and
profitably grow our FedEx Ground business.
See Forward-Looking Statements for a discussion of these and other potential risks and
uncertainties that could materially affect our future performance.
NEW ACCOUNTING GUIDANCE
New accounting rules and disclosure requirements can significantly impact our reported results and
the comparability of our financial statements. See our Annual Report
for a discussion of the impact of new accounting guidance issued but not
yet effective as of May 31, 2011. We believe that no new accounting
guidance was adopted or issued during the first three months of 2012 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.
REPORTABLE SEGMENTS
FedEx Express, FedEx Ground and FedEx Freight represent our major service lines and, along with
FedEx Services, form the core of our reportable segments. Our reportable segments include the
following businesses:
|
|
|
FedEx Express Segment |
|
FedEx Express (express transportation) |
|
|
FedEx Trade Networks (global trade services) |
|
|
FedEx SupplyChain Systems (logistics services) |
|
|
|
FedEx Ground Segment |
|
FedEx Ground (small-package ground delivery) |
|
|
FedEx SmartPost (small-parcel consolidator) |
|
|
|
FedEx Freight Segment |
|
FedEx Freight (LTL freight transportation) |
|
|
FedEx Custom Critical (time-critical transportation) |
|
|
|
FedEx Services Segment |
|
FedEx Services (sales, marketing and information technology functions) |
|
|
FedEx TechConnect (customer service, technical support, billings and collections) |
|
|
FedEx Office (document and business services and package acceptance) |
FEDEX SERVICES SEGMENT
The FedEx Services segment operates combined sales, marketing, administrative and information
technology functions in shared services operations that support our transportation businesses and
allow us to obtain synergies from the combination of these functions. The FedEx Services segment
includes: FedEx Services, which provides sales, marketing and information technology support to our
other companies; FedEx TechConnect, which is responsible for customer service, technical support,
billings and collections for U.S. customers of our major business units; and FedEx Office, which
provides an array of document and business services and retail access to our customers for our
package transportation businesses.
- 27 -
The FedEx Services segment provides direct and indirect support to our transportation businesses,
and we allocate all of the net operating costs of the FedEx Services segment (including the net
operating results of FedEx Office) to reflect the full cost of operating our transportation
businesses in the results of those segments. Within the FedEx Services segment allocation, the net
operating results of FedEx Office are allocated to FedEx Express and FedEx Ground. The allocations
of net operating costs are based on metrics such as relative revenues or estimated services
provided. We believe these allocations approximate the net cost of providing these functions. We
review and evaluate the performance of our transportation segments based on operating income
(inclusive of FedEx Services segment allocations). For the FedEx Services segment, performance is
evaluated based on the impact of its total allocated net operating costs on our transportation
segments.
The operating expenses line item Intercompany charges on the accompanying unaudited financial
summaries of our transportation segments reflects the allocations from the FedEx Services segment
to the respective transportation segments. The Intercompany charges caption also includes
charges and credits for administrative services provided between operating companies and certain
other costs such as corporate management fees related to services received for general corporate
oversight, including executive officers and certain legal and finance functions. We believe these
allocations approximate the net cost of providing these functions.
OTHER INTERSEGMENT TRANSACTIONS
Certain FedEx operating companies provide transportation and related services for other FedEx
companies outside their reportable segment. Billings for such services are based on negotiated
rates, which we believe approximate fair value, and are reflected as revenues of the billing
segment. These rates are adjusted from time to time based on market conditions. Such intersegment
revenues and expenses are eliminated in our consolidated results and are not separately identified
in the following segment information because the amounts are not material.
- 28 -
FEDEX EXPRESS SEGMENT
The
following table compares revenues, operating expenses, operating expenses as a percent of
revenue, operating income and operating margin (dollars in millions) for the three-month periods
ended August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Package: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. overnight box |
|
$ |
1,640 |
|
|
$ |
1,491 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
U.S. overnight envelope |
|
|
451 |
|
|
|
432 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
U.S. deferred |
|
|
731 |
|
|
|
661 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. domestic package revenue |
|
|
2,822 |
|
|
|
2,584 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International priority |
|
|
2,198 |
|
|
|
1,974 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
International domestic (1) |
|
|
207 |
|
|
|
148 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total package revenue |
|
|
5,227 |
|
|
|
4,706 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
Freight: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
591 |
|
|
|
523 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
International priority |
|
|
449 |
|
|
|
406 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
International airfreight |
|
|
77 |
|
|
|
70 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
freight revenue |
|
|
1,117 |
|
|
|
999 |
|
|
|
12 |
|
|
Percent of Revenue
|
|
Other (2) |
|
|
248 |
|
|
|
207 |
|
|
|
20 |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
6,592 |
|
|
|
5,912 |
|
|
|
12 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
2,413 |
|
|
|
2,258 |
|
|
|
7 |
|
|
|
36.6 |
|
|
|
38.2 |
|
Purchased transportation |
|
|
449 |
|
|
|
369 |
|
|
|
22 |
|
|
|
6.8 |
|
|
|
6.2 |
|
Rentals and landing fees |
|
|
423 |
|
|
|
403 |
|
|
|
5 |
|
|
|
6.4 |
|
|
|
6.8 |
|
Depreciation and amortization |
|
|
282 |
|
|
|
255 |
|
|
|
11 |
|
|
|
4.3 |
|
|
|
4.3 |
|
Fuel |
|
|
1,077 |
|
|
|
754 |
|
|
|
43 |
|
|
|
16.3 |
|
|
|
12.8 |
|
Maintenance and repairs |
|
|
380 |
|
|
|
352 |
|
|
|
8 |
|
|
|
5.8 |
|
|
|
6.0 |
|
Intercompany charges |
|
|
548 |
|
|
|
513 |
|
|
|
7 |
|
|
|
8.3 |
|
|
|
8.7 |
|
Other |
|
|
732 |
|
|
|
651 |
|
|
|
12 |
|
|
|
11.1 |
|
|
|
11.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
6,304 |
|
|
|
5,555 |
|
|
|
13 |
|
|
|
95.6 |
% |
|
|
94.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
288 |
|
|
$ |
357 |
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
|
4.4 |
% |
|
|
6.0 |
% |
|
(160 |
)bp |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
International domestic revenues include our international intra-country express
operations, including our February 2011 business acquisition in India and our July 2011 business
acquisition in Mexico. |
|
(2) |
|
Other revenues include FedEx Trade Networks and FedEx SupplyChain Systems. |
- 29 -
The following table compares selected statistics (in thousands, except yield amounts) for the
three-month periods ended August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
Package Statistics(1) |
|
|
|
|
|
|
|
|
|
|
|
|
Average daily package volume (ADV): |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. overnight box |
|
|
1,134 |
|
|
|
1,168 |
|
|
|
(3 |
) |
U.S. overnight envelope |
|
|
596 |
|
|
|
624 |
|
|
|
(4 |
) |
U.S. deferred |
|
|
829 |
|
|
|
846 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total U.S. domestic ADV |
|
|
2,559 |
|
|
|
2,638 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
International priority |
|
|
543 |
|
|
|
566 |
|
|
|
(4 |
) |
International domestic(2) |
|
|
445 |
|
|
|
323 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
Total ADV |
|
|
3,547 |
|
|
|
3,527 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue per package (yield): |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. overnight box |
|
$ |
22.24 |
|
|
$ |
19.65 |
|
|
|
13 |
|
U.S. overnight envelope |
|
|
11.64 |
|
|
|
10.64 |
|
|
|
9 |
|
U.S. deferred |
|
|
13.57 |
|
|
|
12.01 |
|
|
|
13 |
|
U.S. domestic composite |
|
|
16.97 |
|
|
|
15.07 |
|
|
|
13 |
|
International priority |
|
|
62.30 |
|
|
|
53.70 |
|
|
|
16 |
|
International domestic(2) |
|
|
7.16 |
|
|
|
7.04 |
|
|
|
2 |
|
Composite package yield |
|
|
22.67 |
|
|
|
20.52 |
|
|
|
10 |
|
Freight Statistics(1) |
|
|
|
|
|
|
|
|
|
|
|
|
Average daily freight pounds: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
6,969 |
|
|
|
6,908 |
|
|
|
1 |
|
International priority |
|
|
3,132 |
|
|
|
3,027 |
|
|
|
3 |
|
International airfreight |
|
|
1,165 |
|
|
|
1,240 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total average daily freight pounds |
|
|
11,266 |
|
|
|
11,175 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue per pound (yield): |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
1.31 |
|
|
$ |
1.16 |
|
|
|
13 |
|
International priority |
|
|
2.21 |
|
|
|
2.06 |
|
|
|
7 |
|
International airfreight |
|
|
1.02 |
|
|
|
0.87 |
|
|
|
17 |
|
Composite freight yield |
|
|
1.53 |
|
|
|
1.38 |
|
|
|
11 |
|
|
|
|
(1) |
|
Package and freight statistics include only the operations of FedEx Express. |
|
(2) |
|
International domestic statistics include our international intra-country express
operations, including our February 2011 business acquisition in India and our July 2011 business
acquisition in Mexico. |
FedEx Express Segment Revenues
FedEx Express segment revenues increased 12% in the first quarter of 2012 due to yield
improvements. U.S. domestic package yields increased 13% due to higher fuel surcharges, rate
increases and increased package weights. In total, IP package and freight pounds increased 2% and
revenue increased 11% year-over-year. IP package yields increased 16% primarily due to higher fuel
surcharges, favorable exchange rates and increased rate per pound. IP
freight pounds increased 3%
with revenue per pound up 7% due to higher fuel surcharges and the favorable impact of exchange
rates. However, slower global economic growth, particularly from Asia, resulted in a shift to our
lower yielding services and reduced demand in general for our IP package and U.S. domestic
services.
- 30 -
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:
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
U.S. Domestic and Outbound Fuel
Surcharge: |
|
|
|
|
|
|
|
|
Low |
|
|
15.00 |
% |
|
|
7.50 |
% |
High |
|
|
16.50 |
|
|
|
10.00 |
|
Weighted-average |
|
|
15.52 |
|
|
|
8.50 |
|
|
|
|
|
|
|
|
|
|
International Fuel Surcharges: |
|
|
|
|
|
|
|
|
Low |
|
|
15.00 |
|
|
|
7.50 |
|
High |
|
|
23.00 |
|
|
|
14.00 |
|
Weighted-average |
|
|
17.80 |
|
|
|
11.08 |
|
On September 22, 2011, we announced a 5.9% average list price increase effective January 2,
2012, for FedEx Express U.S. domestic, U.S. export and U.S. import services, while we lowered our
fuel surcharge index by two percentage points.
FedEx Express Segment Operating Income
FedEx
Express segment operating income and U.S. operating margin decreased in the first quarter of 2012
due to lower volumes in our higher-yielding IP services, as well as
lower U.S. domestic package
volumes. The decline in economic conditions that occurred during the first quarter of 2012
outpaced reductions in variable operating costs, such as flight hours and other reductions in the
network.
Salaries and employee benefits costs increased 7% in the first quarter of 2012 due to merit
increases, higher incentive compensation accruals and the reinstatement of full 401(k)
company-matching contributions effective January 1, 2011. Other operating expenses increased 12%
in the first quarter of 2012 primarily due to higher rates paid for outside service contracts
associated with our international operations and costs related to our recent business acquisitions.
In the first quarter of 2012, purchased transportation costs increased 22% due to higher fuel
costs, increases in services requiring a high utilization of contract services in Europe, India and
Mexico and costs associated with the expansion of our freight forwarding business at FedEx Trade
Networks. The comparability of these expense categories was
negatively impacted by foreign currency fluctuations; however, these
fluctuations had an immaterial impact on our operating income for the
quarter.
Fuel costs increased 43% during the first quarter of 2012 due to increases in the average price per
gallon of fuel. 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 positive impact to
operating income in the first quarter of 2012. This analysis considers the estimated impact of the
reduction in fuel surcharges included in the base rates charged for FedEx Express services.
- 31 -
FEDEX GROUND SEGMENT
The
following table compares revenues, operating expenses, operating expenses as a percent of
revenue, operating income and operating margin (dollars in millions) and selected package
statistics (in thousands, except yield amounts) for the three-month periods ended August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FedEx Ground |
|
$ |
2,116 |
|
|
$ |
1,839 |
|
|
|
15 |
|
|
Percent of Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FedEx SmartPost |
|
|
162 |
|
|
|
122 |
|
|
|
33 |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
2,278 |
|
|
|
1,961 |
|
|
|
16 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
351 |
|
|
|
307 |
|
|
|
14 |
|
|
|
15.4 |
|
|
|
15.6 |
|
Purchased transportation |
|
|
886 |
|
|
|
782 |
|
|
|
13 |
|
|
|
38.9 |
|
|
|
39.9 |
|
Rentals |
|
|
66 |
|
|
|
62 |
|
|
|
6 |
|
|
|
2.9 |
|
|
|
3.2 |
|
Depreciation and amortization |
|
|
93 |
|
|
|
82 |
|
|
|
13 |
|
|
|
4.1 |
|
|
|
4.2 |
|
Fuel |
|
|
2 |
|
|
|
1 |
|
|
NM |
|
|
|
0.1 |
|
|
|
0.1 |
|
Maintenance and repairs |
|
|
44 |
|
|
|
44 |
|
|
|
|
|
|
|
1.9 |
|
|
|
2.2 |
|
Intercompany charges |
|
|
241 |
|
|
|
221 |
|
|
|
9 |
|
|
|
10.6 |
|
|
|
11.3 |
|
Other |
|
|
188 |
|
|
|
175 |
|
|
|
7 |
|
|
|
8.2 |
|
|
|
8.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
1,871 |
|
|
|
1,674 |
|
|
|
12 |
|
|
|
82.1 |
% |
|
|
85.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
407 |
|
|
$ |
287 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
|
17.9 |
% |
|
|
14.6 |
% |
|
|
330 |
bp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily package volume |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FedEx Ground |
|
|
3,722 |
|
|
|
3,534 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
FedEx SmartPost |
|
|
1,415 |
|
|
|
1,100 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue per package (yield) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FedEx Ground |
|
$ |
8.73 |
|
|
$ |
7.99 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
FedEx SmartPost |
|
$ |
1.76 |
|
|
$ |
1.68 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
FedEx Ground Segment Revenues
FedEx Ground segment revenues increased 16% during the first quarter of 2012 due to yield and
volume growth at both FedEx Ground and FedEx SmartPost.
FedEx Ground yield improvement during the first quarter of 2012 was primarily due to higher fuel
surcharges, yield management initiatives and increased extra service revenue, particularly in
residential surcharges. Average daily volume at FedEx Ground increased during the first quarter of
2012 due to market share gains resulting from continued growth in our commercial business and our
FedEx Home Delivery service.
FedEx SmartPost volumes grew 29% during the first quarter of 2012 as a result of growth in
e-commerce and gains in market share. Yields at FedEx SmartPost increased 5% during the first
quarter of 2012 primarily due to higher fuel surcharges. FedEx SmartPost yield represents the
amount charged to customers net of postage paid to the United States
Postal Service (USPS).
- 32 -
The FedEx Ground fuel surcharge is based on a rounded average of the national U.S. on-highway
average price for a gallon of diesel fuel, as published by the Department of Energy. Our fuel
surcharge ranged as follows for the three-month periods ended August 31:
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Low |
|
|
9.00 |
% |
|
|
5.50 |
% |
High |
|
|
9.50 |
|
|
|
6.00 |
|
Weighted-average |
|
|
9.32 |
|
|
|
5.83 |
|
FedEx Ground Segment Operating Income
During the first quarter of 2012, FedEx Ground segment operating income and operating margin
increased due to yield and package volume growth. Purchased transportation costs increased 13%
during the first quarter of 2012 primarily as a result of volume growth and higher fuel rates paid
to our independent contractors. Salaries and employee benefits expense increased 14% during the
first quarter of 2012 primarily due to increased staffing to support volume growth and wage increases. Intercompany charges increased 9% in the first quarter
of 2012 primarily due to higher allocated information technology costs.
Evolution of Independent Contractor Model
Although FedEx Ground is involved in numerous lawsuits and other proceedings (such as state tax
audits or other administrative challenges) where the classification of its independent contractors
is at issue, a number of recent judicial decisions support our classification and we believe our
relationship with the contractors is generally excellent. For a description of these proceedings,
see Risk Factors and Note 8 of the accompanying unaudited condensed consolidated financial
statements.
FedEx Ground has made changes to its relationships with contractors that, among other things,
provide incentives for improved service and enhanced regulatory and other compliance by the
contractors. For example, FedEx Ground has implemented or is implementing its Independent Service
Provider (ISP) model in a number of states. The ISP model requires pickup-and-delivery
contractors based in those states to, among other things: (i) assume responsibility for the
pickup-and-delivery operations of an entire geographic service area that includes multiple routes,
and (ii) negotiate independent agreements with FedEx Ground, rather than agree to a standard
contract.
As of August 31, 2011, FedEx Ground has transitioned to the ISP model in Maryland, New Hampshire,
Rhode Island, Vermont, Illinois, Massachusetts, Minnesota, Montana and Tennessee, and plans to
complete transition to the ISP model in Connecticut, Delaware, Iowa, Maine, Mississippi, Missouri,
North Dakota and South Dakota during 2012. Based upon the success of this model, FedEx Ground may
possibly transition to it in some other states in the future.
In addition, because of state-specific legal and regulatory issues, FedEx Ground only contracts
with contractors that (i) are organized as corporations registered and in good standing under
applicable state law, and (ii) ensure that their personnel who provide services under an operating
agreement with FedEx Ground are treated as their employees. FedEx Ground also has an ongoing
nationwide program to incentivize contractors who choose to grow their businesses by adding routes.
During August 2011, approximately 80% of FedEx Grounds package volume was delivered by multiple
route owner-operators or independent service providers.
- 33 -
FEDEX FREIGHT SEGMENT
The
following table compares revenues, operating expenses, operating expenses as a percent of
revenue, operating income (loss) and operating margin (dollars in millions) and selected statistics
for the three-month periods ended August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
Percent of Revenue |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
2011 |
|
|
2010 |
|
Revenues |
|
$ |
1,328 |
|
|
$ |
1,258 |
|
|
|
6 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
578 |
|
|
|
600 |
|
|
|
(4 |
) |
|
|
43.5 |
|
|
|
47.7 |
|
Purchased transportation |
|
|
207 |
|
|
|
204 |
|
|
|
1 |
|
|
|
15.6 |
|
|
|
16.2 |
|
Rentals |
|
|
28 |
|
|
|
34 |
|
|
|
(18 |
) |
|
|
2.1 |
|
|
|
2.7 |
|
Depreciation and amortization |
|
|
44 |
|
|
|
48 |
|
|
|
(8 |
) |
|
|
3.3 |
|
|
|
3.8 |
|
Fuel |
|
|
165 |
|
|
|
131 |
|
|
|
26 |
|
|
|
12.4 |
|
|
|
10.4 |
|
Maintenance and repairs |
|
|
50 |
|
|
|
46 |
|
|
|
9 |
|
|
|
3.8 |
|
|
|
3.7 |
|
Intercompany charges |
|
|
109 |
|
|
|
109 |
|
|
|
|
|
|
|
8.2 |
|
|
|
8.7 |
|
Other |
|
|
105 |
|
|
|
102 |
|
|
|
3 |
|
|
|
7.9 |
|
|
|
8.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
1,286 |
|
|
|
1,274 |
|
|
|
1 |
|
|
|
96.8 |
% |
|
|
101.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
42 |
|
|
$ |
(16 |
) |
|
|
363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
|
3.2 |
% |
|
|
(1.3 |
)% |
|
|
450 |
bp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily LTL shipments (in thousands) |
|
|
85.0 |
|
|
|
91.8 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
Weight per LTL shipment (lbs) |
|
|
1,157 |
|
|
|
1,134 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
LTL yield (revenue per hundredweight) |
|
$ |
19.29 |
|
|
$ |
17.32 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
FedEx Freight Segment Revenues
FedEx Freight segment revenues increased 6% during the first quarter of 2012 as a result of higher
LTL yield and weight per LTL shipment, partially offset by lower LTL volume. LTL yield increased
11% during the first quarter of 2012 due to higher fuel surcharges and our ongoing yield management
programs, which began during the fourth quarter of 2010.
The indexed LTL fuel surcharge is based on the average of the national U.S. on-highway average
prices for a gallon of diesel fuel, as published by the Department of Energy. The indexed LTL fuel
surcharge ranged as follows for the three-month periods ended August 31:
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
Low |
|
|
19.80 |
% |
|
|
15.10 |
% |
High |
|
|
23.40 |
|
|
|
15.60 |
|
Weighted-average |
|
|
22.90 |
|
|
|
15.40 |
|
In June 2011, FedEx Freight increased the fuel surcharge rate to a maximum of 3.6 percentage
points above previous levels. In August 2011, FedEx Freight announced a general rate increase of
6.75% effective September 6, 2011.
FedEx Freight Segment Operating Income
Operating income and operating margin were both higher in the first quarter of 2012 for the FedEx
Freight segment primarily due to higher LTL yield. Our newly integrated network improved
efficiencies and contributed to FedEx Freights second consecutive profitable quarter.
- 34 -
In the first quarter of 2012, salaries and employee benefits decreased 4% primarily due to
volume-related decreases in labor hours and lower healthcare costs, partially offset by wage increases,
the reinstatement of full 401(k) company-matching contributions, and higher funding of incentive
compensation programs. Fuel costs increased 26% during the first quarter of 2012 due to a higher
average price per gallon of diesel fuel. 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 positive impact on operating income in the first quarter of 2012.
FINANCIAL CONDITION
LIQUIDITY
Cash and cash equivalents totaled $2.0 billion at August 31, 2011, compared to $2.3 billion at
May 31, 2011. The following table provides a summary of our cash flows for the three-month periods
ended August 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
464 |
|
|
$ |
380 |
|
Noncash charges and credits |
|
|
720 |
|
|
|
577 |
|
Changes in assets and liabilities |
|
|
(324 |
) |
|
|
(161 |
) |
|
|
|
|
|
|
|
Cash provided by operating activities |
|
|
860 |
|
|
|
796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(1,110 |
) |
|
|
(1,012 |
) |
Business acquisition, net of cash acquired |
|
|
(111 |
) |
|
|
|
|
Proceeds from asset dispositions and other |
|
|
5 |
|
|
|
3 |
|
|
|
|
|
|
|
|
Cash used in investing activities |
|
|
(1,216 |
) |
|
|
(1,009 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Principal payments on debt |
|
|
(17 |
) |
|
|
(12 |
) |
Proceeds from stock issuances |
|
|
28 |
|
|
|
8 |
|
Excess tax benefit on the exercise of stock options |
|
|
4 |
|
|
|
1 |
|
Dividends paid |
|
|
(41 |
) |
|
|
(38 |
) |
|
|
|
|
|
|
|
Cash used in financing activities |
|
|
(26 |
) |
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
13 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
$ |
(369 |
) |
|
$ |
(243 |
) |
|
|
|
|
|
|
|
Cash flows from operating activities increased $64 million in the first quarter of 2012
primarily due to increased earnings. In addition, we made contributions of $99
million to our tax qualified U.S. domestic pension plans (U.S. Pension Plans) during the first quarter of 2012
and $118 million in contributions to our U.S. Pension Plans during the first quarter of 2011.
Capital expenditures during the first three months of 2012 were higher primarily due to increased
spending at FedEx Express for replacement vehicles and at FedEx Services for information technology
investments. See Capital Resources for a discussion of capital expenditures during 2012 and
2011.
- 35 -
We have a shelf registration statement filed with the Securities and Exchange Commission
(SEC) that allows us to sell, in one or more future offerings, any combination of our unsecured
debt securities and common stock.
A $1 billion revolving credit facility is available to finance our operations and other cash
flow needs and to provide support for the issuance of commercial paper. The revolving credit
agreement expires in April 2016. The agreement contains a financial covenant, which requires us to
maintain a leverage ratio of adjusted debt (long-term debt, including the current portion of such
debt, plus six times our last four fiscal quarters rentals and landing fees) to capital (adjusted
debt plus total common stockholders investment) that does not exceed 0.7 to 1.0. Our leverage
ratio of adjusted debt to capital was 0.5 at August 31, 2011. We believe the
leverage ratio covenant is our only significant restrictive covenant in our revolving credit agreement. Our
revolving credit agreement contains other customary covenants that do not, individually or in the
aggregate, materially restrict the conduct of our business. We are in compliance with the leverage
ratio covenant and all other covenants of our revolving credit agreement and do not expect the
covenants to affect our operations, including our liquidity or
expected funding needs. As of August
31, 2011, no commercial paper was outstanding and the entire $1 billion under the revolving credit
facility was available for future borrowings.
CAPITAL RESOURCES
Our operations are capital intensive, characterized by significant investments in aircraft,
vehicles, technology, facilities, and package-handling and sort equipment. The amount and timing
of capital additions depend on various factors, including pre-existing contractual commitments,
anticipated volume growth, domestic and international economic conditions, new or enhanced
services, geographical expansion of services, availability of satisfactory financing and actions of
regulatory authorities.
The following table compares capital expenditures by asset category and reportable segment for the
three-month periods ended August 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar |
|
|
Percent |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
Change |
|
Aircraft and related equipment |
|
$ |
700 |
|
|
$ |
747 |
|
|
$ |
(47 |
) |
|
|
(6 |
) |
Facilities and sort equipment |
|
|
95 |
|
|
|
70 |
|
|
|
25 |
|
|
|
36 |
|
Vehicles |
|
|
174 |
|
|
|
104 |
|
|
|
70 |
|
|
|
67 |
|
Information and technology investments |
|
|
128 |
|
|
|
71 |
|
|
|
57 |
|
|
|
80 |
|
Other equipment |
|
|
13 |
|
|
|
20 |
|
|
|
(7 |
) |
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
1,110 |
|
|
$ |
1,012 |
|
|
$ |
98 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FedEx Express segment |
|
|
872 |
|
|
|
844 |
|
|
|
28 |
|
|
|
3 |
|
FedEx Ground segment |
|
|
94 |
|
|
|
72 |
|
|
|
22 |
|
|
|
31 |
|
FedEx Freight segment |
|
|
29 |
|
|
|
32 |
|
|
|
(3 |
) |
|
|
(9 |
) |
FedEx Services segment |
|
|
115 |
|
|
|
64 |
|
|
|
51 |
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
1,110 |
|
|
$ |
1,012 |
|
|
$ |
98 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures during the first quarter of 2012 were higher than the prior-year period
primarily due to increased spending for replacement vehicles at FedEx Express and for technology
investments at FedEx Services. Aircraft and related equipment purchases at FedEx Express during
the first quarter of 2012 included the delivery of one Boeing
757 (B757) and one Boeing 777 Freighter
(B777F).
LIQUIDITY OUTLOOK
We believe that our existing cash and cash equivalents, cash flow from operations, and available
financing sources are adequate to meet our liquidity needs, including working capital, capital
expenditure requirements and debt payment obligations. Our cash and cash equivalents balance at
August 31, 2011 includes $320 million of cash in offshore jurisdictions associated with our
permanent reinvestment strategy. We do not believe that the indefinite reinvestment of these funds
offshore impairs our ability to meet our domestic debt or working capital obligations. Although we
expect higher capital expenditures in 2012, we anticipate that our cash flow from operations will
be sufficient to fund these expenditures. Historically, we have been successful in obtaining
unsecured financing, from both domestic and international sources, although the marketplace for
such investment capital can become restricted depending on a variety of economic factors.
- 36 -
Our capital expenditures are expected to be approximately $4.2 billion in 2012 and include spending
for aircraft and related equipment at FedEx Express, network expansion at FedEx Ground and revenue
equipment at the FedEx Freight segment. We invested $700 million in aircraft and aircraft-related
equipment in the first quarter of 2012 and expect to invest an additional $1.3 billion for aircraft
and aircraft-related equipment during the remainder of 2012. Aircraft-related capital outlays
include the B777Fs and the B757s, which are substantially more fuel-efficient per unit than the
aircraft types they are replacing. These aircraft-related capital expenditures are necessary to
achieve significant long-term operating savings and to support projected long-term international
volume growth. Our ability to delay the timing of these aircraft-related expenditures is limited
without incurring significant costs to modify existing purchase agreements.
In September 2011, we made $127 million in required contributions to our U.S. Pension Plans. Our
U.S. Pension Plans have ample funds to meet expected benefit payments. For the remainder of 2012,
we have $270 million in required contributions and $21 million in voluntary contributions to our
U.S. Pension Plans.
We plan to begin acquiring FedEx common shares under our share repurchase program. A total of 5.7
million shares may be repurchased under existing share repurchase authorizations. The repurchases
will be subject to market conditions and will be made from time to time either in the open market
or through private transactions in accordance with the requirements of the SEC. The companys
repurchase program may be suspended, discontinued or resumed at any time.
Standard & Poors has assigned us a senior unsecured debt credit rating of BBB and commercial paper
rating of A-2 and a ratings outlook of stable. In July 2011, Moodys Investors Service
reaffirmed our senior unsecured debt credit rating of Baa2 and commercial paper rating of P-2 and
increased our ratings outlook to positive. If our credit ratings drop, our interest expense may
increase. If our commercial paper ratings drop below current levels, we may have difficulty
utilizing the commercial paper market. If our senior unsecured debt credit ratings drop below
investment grade, our access to financing may become limited.
- 37 -
CONTRACTUAL CASH OBLIGATIONS
The following table sets forth a summary of our contractual cash obligations as of August 31, 2011.
Certain of these contractual obligations are reflected in our balance sheet, while others are
disclosed as future obligations under accounting principles generally accepted in the United
States. Except for the current portion of long-term debt and capital lease obligations, this table
does not include amounts already recorded in our balance sheet as current liabilities at August 31,
2011. We have certain contingent liabilities that are not accrued in our balance sheet in
accordance with accounting principles generally accepted in the United States. These contingent
liabilities are not included in the table below. We have other long-term liabilities reflected in
our balance sheet, including deferred income taxes, qualified and nonqualified pension and
postretirement healthcare plan liabilities and other self-insurance accruals. The payment
obligations associated with these liabilities are not reflected in the table below due to the
absence of scheduled maturities. Accordingly, this table is not meant to represent a forecast of
our total cash expenditures for any of the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Fiscal Year (Undiscounted) |
|
|
|
(in millions) |
|
|
|
2012 (1) |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
2016 |
|
|
Thereafter |
|
|
Total |
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
$ |
1,428 |
|
|
$ |
1,726 |
|
|
$ |
1,537 |
|
|
$ |
1,391 |
|
|
$ |
1,224 |
|
|
$ |
6,485 |
|
|
$ |
13,791 |
|
Non-capital purchase obligations and other |
|
|
157 |
|
|
|
102 |
|
|
|
39 |
|
|
|
25 |
|
|
|
12 |
|
|
|
132 |
|
|
|
467 |
|
Interest on long-term debt |
|
|
75 |
|
|
|
98 |
|
|
|
97 |
|
|
|
78 |
|
|
|
78 |
|
|
|
1,659 |
|
|
|
2,085 |
|
Quarterly contributions to our U.S. Pension Plans |
|
|
418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft and aircraft-related capital commitments |
|
|
874 |
|
|
|
1,162 |
|
|
|
781 |
|
|
|
555 |
|
|
|
580 |
|
|
|
1,464 |
|
|
|
5,416 |
|
Other capital purchase obligations |
|
|
265 |
|
|
|
19 |
|
|
|
16 |
|
|
|
6 |
|
|
|
3 |
|
|
|
|
|
|
|
309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt |
|
|
|
|
|
|
300 |
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
989 |
|
|
|
1,539 |
|
Capital lease obligations |
|
|
6 |
|
|
|
119 |
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
13 |
|
|
|
143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,223 |
|
|
$ |
3,526 |
|
|
$ |
2,722 |
|
|
$ |
2,057 |
|
|
$ |
1,898 |
|
|
$ |
10,742 |
|
|
$ |
24,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Cash obligations for the remainder of 2012. |
Open purchase orders that are cancelable are not considered unconditional purchase obligations
for financial reporting purposes and are not included in the table above. Such purchase orders
often represent authorizations to purchase rather than binding agreements. See Note 7 of the
accompanying unaudited condensed consolidated financial statements for more information.
Operating Activities
The amounts reflected in the table above for operating leases represent future minimum lease
payments under noncancelable operating leases (principally aircraft and facilities) with an initial
or remaining term in excess of one year at August 31, 2011.
Included in the table above within the caption entitled Non-capital purchase obligations and
other is our estimate of the current portion of the liability ($1 million) for uncertain tax
positions and amounts for purchase obligations that represent noncancelable agreements to purchase
goods or services that are not capital related. Such contracts include those for printing and
advertising and promotions contracts. We cannot reasonably estimate the timing of the long-term
payments or the amount by which the liability for uncertain tax positions will increase or decrease
over time; therefore, the long-term portion of the liability for uncertain tax positions ($116
million) is excluded from the table.
- 38 -
The amounts reflected in the table above for interest on long-term debt represent future interest
payments due on our long-term debt, all of which are fixed rate.
Included in the table above are anticipated quarterly contributions to our U.S. Pension Plans
totaling $418 million for the remainder of 2012 ($127 million of which was paid in September 2011).
FedEx Express had $1 billion in deposits and progress payments as of August 31, 2011 on aircraft
purchases and other planned aircraft-related transactions.
Investing Activities
The amounts reflected in the table above for capital purchase obligations represent noncancelable
agreements to purchase capital-related equipment. Such contracts include those for certain
purchases of aircraft, aircraft modifications, vehicles, facilities, computers and other equipment.
Financing Activities
The amounts reflected in the table above for long-term debt represent future scheduled payments on
our long-term debt. We have no scheduled principal debt payments for the remainder of 2012 and
principal and interest payments on capital leases of $6 million.
Additional information on amounts included within the operating, investing and financing activities
captions in the table above can be found in our Annual Report.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance
with accounting principles generally
accepted in the United States requires management to make significant judgments and estimates to
develop amounts reflected and disclosed in the financial statements. In many cases, there are
alternative policies or estimation techniques that could be used. We maintain a thorough process
to review the application of our accounting policies and to evaluate the appropriateness of the
many estimates that are required to prepare the financial statements of a complex, global
corporation. However, even under optimal circumstances, estimates routinely require adjustment
based on changing circumstances and new or better information.
GOODWILL. Goodwill is reviewed at least annually for impairment by comparing the fair value of each
reporting unit with its carrying value (including attributable goodwill). Fair value for our
reporting units is determined by incorporating market participant considerations and managements
assumptions on revenue growth rates, operating margins, expected capital expenditures and discount
rates. Goodwill is tested for impairment between annual tests whenever events or circumstances
make it more likely than not that the fair value of a reporting unit has fallen below its carrying
value. We do not believe there has been any change of events or circumstances that would indicate
that a reevaluation of the goodwill of our reporting units is required as of August 31, 2011, nor
do we believe the goodwill of our reporting units is at risk of failing impairment testing.
Information regarding our critical accounting estimates can be found in our Annual Report,
including Note 1 to the financial statements therein. Management has discussed the development and
selection of these critical accounting estimates with the Audit Committee of our Board of Directors
and with our independent registered public accounting firm.
- 39 -
FORWARD-LOOKING STATEMENTS
Certain statements in this report, including (but not limited to) those contained in Outlook,
Liquidity, Capital Resources, Liquidity Outlook, Contractual Cash Obligations and Critical
Accounting Estimates, and the General, Retirement Plans, and Contingencies notes to the
consolidated financial statements, 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:
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economic conditions in the global markets in which we operate; |
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damage to our reputation or loss of brand equity; |
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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; |
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the price and availability of jet and vehicle fuel; |
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our ability to manage our cost structure for capital expenditures and operating expenses,
and match it to shifting and future customer volume levels; |
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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; |
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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; |
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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; |
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the impact of costs related to (i) challenges to the status of FedEx Grounds
owner-operators as independent contractors, rather than employees, and (ii) any related
changes to our relationship with these owner-operators; |
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any impacts on our businesses resulting from new domestic or international government laws
and regulation, including regulatory actions affecting global aviation rights, increased air
cargo and other security or pilot 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 FedEx Express employees),
environmental (such as global climate change legislation) or postal rules; |
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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; |
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increasing costs, the volatility of costs and funding requirements and other legal mandates
for employee benefits, especially pension and healthcare benefits; |
- 40 -
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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; |
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changes in foreign currency exchange rates, especially in the euro, Chinese yuan, Canadian
dollar, British pound and Japanese yen, which can affect our sales levels and foreign currency
sales prices; |
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market acceptance of our new service and growth initiatives; |
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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
proceedings; |
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the outcome of future negotiations to reach new collective bargaining agreements
including with the union that represents the pilots of FedEx Express (the current pilot
contract is scheduled to become amendable in March 2013 unless the union exercises its option
to shorten the contract, in which case the agreement would be amendable in March 2012); |
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any impact on our business from disruptions or modifications in service by the USPS, which is a significant customer and vendor of FedEx, as a
consequence of the USPSs current financial difficulties or any resulting structural changes
to its operations, network, service offerings or pricing; |
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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; |
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widespread outbreak of an illness or any other communicable disease, or any other public
health crisis; |
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availability of financing on terms acceptable to us and our ability to maintain our current
credit ratings, especially given the capital intensity of our operations; |
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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; and |
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other risks and uncertainties you can find in our press releases and SEC 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.
- 41 -
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of August 31, 2011, there had been no material changes in our market risk sensitive instruments
and positions since our disclosures in our Annual Report.
The principal foreign currency exchange rate risks to which we are exposed are in the euro, Chinese
yuan, Canadian dollar, British pound and Japanese yen. Historically, our exposure to foreign
currency fluctuations is more significant with respect to our revenues than our expenses, as a
significant portion of our expenses are denominated in U.S. dollars, such as aircraft and fuel
expenses. During the first three months of 2012, the U.S. dollar has weakened relative to the
currencies of the foreign countries in which we operate as compared to May 31, 2011; however, this
weakening did not have a material effect on our results.
While we have market risk for changes in the price of jet and vehicle fuel, this risk is largely
mitigated by our variable fuel surcharges. However, our fuel surcharges for FedEx Express and
FedEx Ground have a timing lag of approximately six to eight weeks before they are adjusted for
changes in fuel prices. Our fuel surcharge index also allows fuel prices to fluctuate
approximately 2% for FedEx Express and approximately 4% for FedEx Ground before an adjustment to
the fuel surcharge occurs. Therefore, our operating income may be affected should the spot price
of fuel suddenly change by a significant amount or change by amounts that do not result in an
adjustment in our fuel surcharges.
Item 4. Controls and Procedures
The management of FedEx, 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
SECs rules and forms, including ensuring that such information is accumulated and communicated to
FedEx 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, 2011 (the end of the period covered by this
Quarterly Report on Form 10-Q).
During our fiscal quarter ended August 31, 2011, 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.
- 42 -
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a description of all material pending legal proceedings,
see Note 8 of the accompanying unaudited
condensed consolidated financial statements.
Item 1A. Risk Factors
With the
exception of the inclusion in Forward-Looking Statements
of a risk factor relating to our relationship, as a significant
customer and vendor, with the USPS, 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
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Exhibit |
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Number |
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Description of Exhibit |
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12.1 |
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Computation of Ratio of Earnings to Fixed Charges. |
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15.1 |
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Letter re: Unaudited Interim Financial Statements. |
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31.1 |
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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. |
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31.2 |
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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. |
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32.1 |
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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. |
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32.2 |
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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. |
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101.1 |
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Interactive Data Files. |
- 43 -
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.
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FEDEX CORPORATION
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Date: September 23, 2011 |
/s/ JOHN L. MERINO
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JOHN L. MERINO |
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CORPORATE VICE PRESIDENT AND
PRINCIPAL ACCOUNTING OFFICER |
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- 44 -
EXHIBIT INDEX
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Exhibit |
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Number |
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Description of Exhibit |
|
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12.1 |
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Computation of Ratio of Earnings to Fixed Charges. |
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15.1 |
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Letter re: Unaudited Interim Financial Statements. |
|
|
|
|
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31.1 |
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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. |
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31.2 |
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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. |
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32.1 |
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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. |
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32.2 |
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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. |
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101.1 |
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Interactive Data Files. |
E-1