Federal Express 2006 Annual Report Download - page 88

With respect to the other wage-and-hour cases, we have denied
any liability and intend to vigorously defend ourselves. Given the
nature and preliminary status of these other wage-and-hour
claims, we cannot yet determine the amount or a reasonable
range of potential loss in these other matters, if any.
Race Discrimination. On September 28, 2005, a California federal
district court granted class certification in Satchell v. FedEx
Express, a lawsuit alleging discrimination by FedEx Express in the
Western region of the United States against certain current and
former minority employees in pay and promotion. The district
court’s ruling on class certification is not a decision on the merits
of the plaintiffs’ claim and does not address whether we will be
held liable. Trial is currently scheduled for February 2007. We have
denied any liability and intend to vigorously defend ourselves in
this case. Given the nature and preliminary status of the claim, we
cannot yet determine the amount or a reasonable range of poten-
tial loss in this matter, if any. It is reasonably possible, however,
that we could incur a material loss as this case develops.
On May 24, 2006, a jury ruled against FedEx Ground in Issa &
Rizkallah v. FedEx Ground, a California state court lawsuit brought
in July 2001 by two independent contractors who allege, among
other things, that a FedEx Ground manager harassed and dis-
criminated against them based upon their national origin. The jury
awarded the two plaintiffs a total of $60 million (which includes
$50 million of punitive damages), plus attorney’s fees and other
litigation expenses in an amount to be determined later. We
intend to vigorously contest the jury verdict, including the amount
of the damages award. We cannot yet determine the amount or a
range of probable loss, if any, in this matter. It is reasonably pos-
sible, however, that we could incur a material loss.
Independent Contractor. FedEx Ground is involved in numerous
purported class-action lawsuits and other proceedings that claim
that the company’s owner-operators should be treated as
employees, rather than independent contractors. These matters
include Estrada v. FedEx Ground, a class action involving single
work area contractors that is pending in California state court.
Although the trial court has granted some of the plaintiffs’ claims
for relief in Estrada ($18 million, inclusive of attorney’s fees, plus
equitable relief), we expect to prevail on appeal. Adverse deter-
minations 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. On
August 10, 2005, the Judicial Panel on Multi-District Litigation
granted our motion to transfer and consolidate the majority of the
class-action lawsuits for administration of the pre-trial proceed-
ings by a single federal court — the U.S. District Court for the
Northern District of Indiana.
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 these 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 gen-
eral partner of the minority limited partner of HOOPS. During 2002,
FedEx entered into a $90 million naming rights agreement with
HOOPS that will be amortized to expense over the term of the
agreement, which expires in 2024. Under this agreement, FedEx
has certain marketing rights, including the right to name the
Grizzlies’ arena “FedEx Forum.” Pursuant to a separate 25-year
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
term if HOOPS terminates its lease for the 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 were used to finance a portion of the construction costs
of the arena.
FEDEX CORPORATION
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