Federal Express 2001 Annual Report Download - page 18

Management’s Discussion and Analysis
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foreign currency sales price as competitors’ services become
more or less attractive. The sensitivity analysis of the effects of
changes in foreign currency exchange rates does not factor in
a potential change in sales levels or local currency prices.
Our earnings are also affected by fluctuations in jet fuel prices.
Market risk for jet fuel is estimated as the potential decrease in
earnings resulting from a hypothetical 10% increase in projected
jet fuel prices applied to projected 2002 usage and amounts
to approximately $100 million as of May 31, 2001, compared with
approximately $50 million, net of hedging settlements, as of
May 31, 2000. Because we also use fuel surcharges to adjust our
pricing in response to changes in fuel costs, the calculations
above are not necessarily indicative of the impact of changing
fuel prices on our earnings. As of May 31, 2001, all outstanding jet
fuel hedging contracts were effectively closed by entering into
offsetting jet fuel hedging contracts. See Notes 1 and 13 to our
financial statements for accounting policy and additional infor-
mation regarding jet fuel hedging contracts.
We do not purchase or hold any material derivative financial
instruments for trading purposes.
EURO CURRENCY CONVERSION
Since the beginning of the European Union’s transition to the euro
on January 1, 1999, our subsidiaries have been prepared to quote
rates to customers, generate billings and accept payments in
both euro and legacy currencies. The legacy currencies will remain
legal tender through December 31, 2001. We believe the introduc-
tion of the euro, any price transparency brought about by its
introduction and the phasing out of the legacy currencies will not
have a material impact on our consolidated financial position,
results of operations or cash flows. Costs associated with the
euro project are being expensed as incurred and are being
funded entirely by internal cash flows.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report are “forward-looking
statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, such as statements relating to man-
agement’s views with respect to future events and financial per-
formance. Such forward-looking statements are subject to risks,
uncertainties and other factors that could cause actual results to
differ materially from historical experience or from future results
expressed or implied by such forward-looking statements.
Accordingly, a forward-looking statement is not a prediction of
future events or circumstances, and those future events or circum-
stances may not occur. A forward-looking statement is usually
identified by our use of certain terminology, including “believes,”
“expects,” “may,” “will,” “should,” “seeks,” “pro forma,” “antici-
pates,” “intends” or “plans” or by discussions of strategies,
intentions or outlook. Potential risks and uncertainties include,
but are not limited to
• Economic conditions in the markets in which we operate, which
can affect demand for our services.
• Our ability to match aircraft, vehicle and sort capacity with cus-
tomer volume levels.
• The costs and complexities associated with the integration of
certain of our sales, marketing, customer service and informa-
tion technology functions.
• Market acceptance of our new sales, marketing and branding
strategies, as well as our residential home delivery service.
• Competition from other providers of transportation and logistics
services, including competitive responses to our new initiatives.
• Our ability to adapt to technological change and to compete
with new or improved services offered by our competitors.
• Changes in customer demand patterns, including the impact of
technology developments on demand for our services.
• Increases in aviation and motor fuel prices.
• Work stoppages, strikes or slowdowns by our employees.
• Our ability, and that of our principal competitors, to obtain and
maintain aviation rights in important international markets.
• Changes in government regulation.
• Changes in weather.
• Availability of financing on terms acceptable to us.
• Other uncertainties detailed herein and from time to time in our
Securities and Exchange Commission filings and press releases.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new infor-
mation, future events or otherwise.
Except as otherwise indicated, any reference to a year means
our fiscal year ended May 31 of the year referenced.