Federal Express 2005 Annual Report Download - page 84

FEDEX CORPORATION
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NOTE 19: CONTINGENCIES
Wage-and-Hour . We are a defendant in a number of lawsuits
filed in federal or California state courts containing various class-
action allegations under federal or California wage-and-hour
laws. The plaintiffs in these lawsuits are employees of FedEx
operating companies who allege, among other things, that they
were forced to work “off the clock” and were not provided work
breaks or other benefits. The plaintiffs generally seek unspeci-
fied monetary damages, injunctive relief, or both.
To date, one of these wage-and-hour cases, Foster v. FedEx
Express, has been certified as a class action. The plaintiffs rep-
resent a class of hourly FedEx Express employees in California
from October 14, 1998 to present. The plaintiffs allege that hourly
employees are routinely required to work “off the clock” and are
not paid for this additional work. The court issued a ruling on
December 13, 2004 granting class certification on all issues.
The ruling, however, does not address whether we will ultimately
be held liable.
We have denied any liability with respect to these claims and
intend to vigorously defend ourself in these cases. However, it is
reasonably possible that material losses could be incurred on
one or more of these matters as these cases develop.
Independent Contractor. FedEx Ground is involved in numerous
purported class-action lawsuits and other proceedings in which
the threshold issue is whether some or all of FedEx Ground’s
owner-operators are in fact employees, rather than independent
contractors. Adverse determinations in these matters could,
among other things, entitle certain of our contractors to the
reimbursement of certain expenses and to the benefit of
wage-and-hour laws and result in employment and withholding
tax liability for FedEx Ground. We have filed a motion with the
Judicial Panel on Multi-District Litigation to transfer and consol-
idate all the class-action lawsuits for administration by a single
federal court. All but one of these lawsuits has been stayed pend-
ing a ruling on our motion.
We strongly believe that FedEx Ground’s owner-operators are
properly classified as independent contractors and that we will
prevail in these proceedings. Given the nature and preliminary
status of the claims, we cannot yet determine the amount or a
reasonable range of potential loss in these matters, if any.
Other . FedEx and its subsidiaries are subject to other legal pro-
ceedings 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 materially adversely affect
our financial position, results of operations or cash flows.
NOTE 20: RELATED PARTY TRANSACTIONS
In November 1999, FedEx entered into a multi-year naming rights
agreement with the National Football League Washington
Redskins professional football team. Under this agreement, FedEx
has certain marketing rights, including the right to name the
Redskins’ stadium “FedExField.” In August 2003, Frederick W.
Smith, Chairman, President and Chief Executive Officer of FedEx,
personally acquired an approximate 10% ownership interest in
the Washington Redskins and joined its board of directors.
A member of our Board of Directors, J.R. Hyde, III, and his wife
together own approximately 13% of HOOPS, L.P. (“HOOPS”), the
owner of the NBA Memphis Grizzlies professional basketball
team. Mr. Hyde, through one of his companies, also is the general
partner of the minority limited partner of HOOPS. During 2002,
FedEx entered into a multi-year, $90 million naming rights agree-
ment with HOOPS that will be amortized to expense over the life
of the agreement. Under this agreement, FedEx has certain mar-
keting rights, including the naming of the new arena where the
Grizzlies play as FedExForum. Pursuant to a separate agreement
with HOOPS, the City of Memphis and Shelby County, FedEx has
agreed to pay $2.5 million a year for the balance of the
25-year term of the agreement if HOOPS terminates its lease for
the new arena after 17 years. FedEx also purchased $2 million of
municipal bonds issued by the Memphis and Shelby County
Sports Authority, the proceeds of which are to be used to finance
a portion of the construction costs of the new arena.
On March 26, 2004, FedEx purchased an aggregate of 94 acres of
real estate in Olive Branch, Mississippi for $4.7 million. FedEx is
constructing a FedEx Ground hub on this site, which is just south of
Memphis. The 94-acre site is divided into three parcels, two of
which were owned by entities in which Mr. Hyde has a 50% own-
ership interest. These two parcels total approximately 3.4 acres.
An independent appraisal of the property determined its fair
market value to be not less than the negotiated purchase price.