Federal Express 2000 Annual Report Download - page 33

FedEx
Corp.
31
At May 31, 2000, FedEx Express was com m itted to
purchase 28 MD11s,13 DC10s (in addition to those
discussed in the following paragraph) and 75 Ayres
ALM 200s to be delivered through 2007. Deposits
and progress paym ents of $7,100,000 have been
m ade toward these purchases.
FedEx Express has agreements with two airlines to
acquire 53 DC10 aircraft (49 of which had been
received as of May 31, 2000), spare parts, aircraft
engines and other equipm ent, and m aintenance
services in exchange for a com bination of aircraft
engine noise reduction kits and cash. Delivery of
these aircraft began in 1997 and will continue
through 2001. Additionally, these airlines may exer-
cise put options through December 31, 2003,
requiring FedEx Express to purchase up to 11 addi-
tional DC10s along with additional aircraft engines
and equipm ent.
In April 2000, put options were exercised by an air-
line requiring FedEx Express to purchase six DC10s
(in addition to those discussed in the preceding
paragraph) for a total purchase price of $26,400,000.
Delivery of the aircraft is expected to be com pleted
by April 2001.
In January 1999, put options were exercised by an
airline requiring FedEx Express to purchase six
DC10s (in addition to those discussed above) for a
total purchase price of $21,150,000. Delivery of five
of the aircraft was completed by August 1999, and
the com m itm ent to purchase the sixth aircraft has
been cancelled.
FedEx has entered into jet fuel hedging contracts
on behalf of its subsidiary FedEx Express, which
are designed to lim it its exposure to fluctua-
tions in jet fuel prices. Under these jet fuel hedging
contracts, FedEx makes (or receives) paym ents
based on the difference between a fixed price and
the m arket price of jet fuel, as determ ined by an
index of spot market prices representing various
geographic regions. The difference is recorded as
an increase or decrease in fuel expense. Under jet
fuel hedging contracts, FedEx received $18,512,000
in 2000 and made payments of $28,764,000 in
1998. There was no jet fuel hedging activity in
1999. As of May 31, 2000, contracts in place to fix
the price of jet fuel cover a total notional volum e
of 352,822,000 gallons, or approxim ately one-third
of the estimated usage in 2001. Based on current
m arket prices, the fair value of these jet fuel hedg-
ing contracts, which have no carrying value, was
an asset of approxim ately $51,060,000 at May 31,
2000. There were no such jet fuel hedging con-
tracts in place at May 31,1999.
NOTE 15: LEGAL PROCEEDINGS
FedEx and its subsidiaries are subject to legal pro-
ceedings and claims that arise in the ordinary
course of their business. In the opinion of m anage-
m ent, the aggregate liability, if any, with respect to
these actions will not m aterially adversely affect
FedEx’s financial position or results of operations.
NOTE 16: OTHER EVENTS
In 2000, FedEx Express recorded nonoperating
gains of approxim ately $11,000,000 from the sale of
securities and approximately $12,000,000 from the
insurance settlem ent for a leased MD11 destroyed
in October 1999.
To avoid service interruptions related to a threat-
ened strike by the FPA in November 1998, FedEx
and FedEx Express im plem ented strike contingency
plans including entering into agreem ents for
NOTE 14: COMMITMENTS AND CONTINGENCIES
FedEx’s annual purchase comm itments under various contracts as of May 31, 2000, were as follows:
Aircraft-
In thousands Aircraft Related(1) Other(2) Total
2001 $222,500 $427,600 $376,300 $1,026,400
2002 252,000 381,300 18,300 651,600
2003 441,700 456,900 7,600 906,200
2004 235,000 446,500 7,600 689,100
2005 165,400 452,200 7,600 625,200
(1) Primarily aircraft m odifications, rotables, spare parts and spare engines.
(2) Primarily facilities, vehicles, com puter and other equipm ent.