FDX FedEx Corp

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED February 28, 2015

OR

 

¨

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)

 

Delaware		62-1721435
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
942 South Shady Grove Road Memphis, Tennessee		38120
(Address of principal executive offices)		(ZIP Code)

(901) 818-7500

(Registrant’s 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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 ¨

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.

 

Large accelerated filer þ		Accelerated filer ¨		Non-accelerated filer ¨		Smaller reporting company ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Common Stock		Outstanding Shares at March 18, 2015
Common Stock, par value $0.10 per share		283,756,646

 

 

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FEDEX CORPORATION

INDEX

PART I. FINANCIAL INFORMATION

 

		PAGE
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets February 28, 2015 and May 31, 2014			3
Condensed Consolidated Statements of Income Three and Nine Months Ended February 28, 2015 and 2014			5
Condensed Consolidated Statements of Comprehensive Income Three and Nine Months Ended February  28, 2015 and 2014			6
Condensed Consolidated Statements of Cash Flows Nine Months Ended February 28, 2015 and 2014			7
Notes to Condensed Consolidated Financial Statements			8
Report of Independent Registered Public Accounting Firm			28
ITEM 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition			29
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			53
ITEM 4. Controls and Procedures			53
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings			53
ITEM 1A. Risk Factors			53
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			54
ITEM 6. Exhibits			54
Signature			56
Exhibit Index			E-1
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Exhibit 12.1
Exhibit 15.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 Instance Document
EX-101 Schema Document
EX-101 Calculation Linkbase Document
EX-101 Presentation Linkbase Document
EX-101 Definition Linkbase Document

 

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FEDEX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN MILLIONS)

 

		February 28,
		2015				May 31,
		(Unaudited)				2014
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	3,478			$	2,908
Receivables, less allowances of $184 and $164			5,584				5,460
Spare parts, supplies and fuel, less allowances of $197 and $212			488				463
Deferred income taxes			510				522
Prepaid expenses and other			422				330
Total current assets			10,482				9,683
PROPERTY AND EQUIPMENT, AT COST			42,652				40,691
Less accumulated depreciation and amortization			22,227				21,141
Net property and equipment			20,425				19,550
OTHER LONG-TERM ASSETS
Goodwill			3,805				2,790
Other assets			1,396				1,047
Total other long-term assets			5,201				3,837
		$	36,108			$	33,070

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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FEDEX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN MILLIONS, EXCEPT SHARE DATA)

 

		February 28,
		2015				May 31,
		(Unaudited)				2014
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Current portion of long-term debt		$	—			$	1
Accrued salaries and employee benefits			1,231				1,277
Accounts payable			2,050				1,971
Accrued expenses			1,962				2,063
Total current liabilities			5,243				5,312
LONG-TERM DEBT, LESS CURRENT PORTION			7,228				4,736
OTHER LONG-TERM LIABILITIES
Deferred income taxes			2,497				2,114
Pension, postretirement healthcare and other benefit obligations			2,962				3,484
Self-insurance accruals			1,092				1,038
Deferred lease obligations			694				758
Deferred gains, principally related to aircraft transactions			187				206
Other liabilities			193				145
Total other long-term liabilities			7,625				7,745
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS’ INVESTMENT
Common stock, $0.10 par value; 800 million shares authorized; 318 million shares issued as of February 28, 2015 and May 31, 2014			32				32
Additional paid-in capital			2,739				2,643
Retained earnings			21,880				20,429
Accumulated other comprehensive loss			(3,909	)			(3,694	)
Treasury stock, at cost			(4,730	)			(4,133	)
Total common stockholders’ investment			16,012				15,277
		$	36,108			$	33,070

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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FEDEX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

 

		Three Months Ended February 28,								Nine Months Ended February 28,
		2015				2014				2015				2014
REVENUES		$	11,716			$	11,301			$	35,339			$	33,728
OPERATING EXPENSES:
Salaries and employee benefits			4,411				4,167				12,904				12,392
Purchased transportation			2,165				2,063				6,404				5,982
Rentals and landing fees			686				662				2,009				1,950
Depreciation and amortization			652				652				1,954				1,938
Fuel			810				1,163				2,982				3,403
Maintenance and repairs			505				438				1,604				1,397
Other			1,525				1,515				4,520				4,403
			10,754				10,660				32,377				31,465
OPERATING INCOME			962				641				2,962				2,263
OTHER INCOME (EXPENSE):
Interest, net			(58	)			(38	)			(153	)			(95	)
Other, net			5				(9	)			8				(16	)
			(53	)			(47	)			(145	)			(111	)
INCOME BEFORE INCOME TAXES			909				594				2,817				2,152
PROVISION FOR INCOME TAXES			329				216				1,015				785
NET INCOME		$	580			$	378			$	1,802			$	1,367
EARNINGS PER COMMON SHARE:
Basic		$	2.05			$	1.24			$	6.34			$	4.38
Diluted		$	2.01			$	1.23			$	6.25			$	4.34
DIVIDENDS DECLARED PER COMMON SHARE		$	0.20			$	0.15			$	0.80			$	0.60

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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FEDEX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(IN MILLIONS)

 

		Three Months Ended February 28,								Nine Months Ended February 28,
		2015				2014				2015				2014
NET INCOME		$	580			$	378			$	1,802			$	1,367
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustments, net of tax of $18, $3, $41 and $7			(152	)			(30	)			(305	)			(64	)
Amortization of unrealized pension actuarial gains/losses and other, net of tax of $18, $25, $53 and $75			30				45				90				130
			(122	)			15				(215	)			66
COMPREHENSIVE INCOME		$	458			$	393			$	1,587			$	1,433

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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FEDEX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN MILLIONS)

 

		Nine Months Ended February 28,
		2015				2014
Operating Activities:
Net income		$	1,802			$	1,367
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization			1,954				1,938
Provision for uncollectible accounts			112				95
Stock-based compensation			106				94
Deferred income taxes and other noncash items			362				392
Changes in assets and liabilities:
Receivables			(200	)			(242	)
Other assets			(38	)			(150	)
Accounts payable and other liabilities			(599	)			(893	)
Other, net			(26	)			(23	)
Cash provided by operating activities			3,473				2,578
Investing Activities:
Capital expenditures			(2,969	)			(2,554	)
Business acquisitions, net of cash acquired			(1,429	)			—
Proceeds from asset dispositions and other			16				23
Cash used in investing activities			(4,382	)			(2,531	)
Financing Activities:
Principal payments on debt			(1	)			(254	)
Proceeds from debt issuances			2,491				1,997
Proceeds from stock issuances			272				462
Excess tax benefit on the exercise of stock options			31				27
Dividends paid			(171	)			(142	)
Purchase of treasury stock, including accelerated share repurchase agreements			(1,016	)			(3,984	)
Other, net			(23	)			(18	)
Cash provided by (used in) financing activities			1,583				(1,912	)
Effect of exchange rate changes on cash			(104	)			(10	)
Net increase (decrease) in cash and cash equivalents			570				(1,875	)
Cash and cash equivalents at beginning of period			2,908				4,917
Cash and cash equivalents at end of period		$	3,478			$	3,042

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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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, 2014 (“Annual Report”). Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed in our Annual Report.

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 February 28, 2015, the results of our operations for the three- and nine-month periods ended February 28, 2015 and 2014 and cash flows for the nine-month periods ended February 28, 2015 and 2014. Operating results for the three- and nine-month periods ended February 28, 2015 are not necessarily indicative of the results that may be expected for the year ending May 31, 2015.

Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2015 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year.

BUSINESS ACQUISITIONS. During the third quarter of 2015, we acquired two businesses, expanding our portfolio in e-commerce and supply chain solutions. On January 30, 2015, we acquired GENCO Distribution System, Inc. (“GENCO”), one of the largest third-party logistics providers in North America, for $1.4 billion, which was funded using a portion of the proceeds from our January 2015 debt issuance (see Note 3). The financial results of this business are included in the FedEx Ground segment from the date of acquisition.

In addition, on December 16, 2014, FedEx acquired Bongo International, LLC (“Bongo”), a leader in cross-border enablement technologies and solutions, for $42 million in cash from operations. The financial results of this acquired business are included in the FedEx Express segment from the date of acquisition.

These acquisitions will allow us to enter new markets, as well as strengthen our current service offerings to existing customers. We expect that the goodwill of $40 million associated with our Bongo acquisition will be entirely attributable to our FedEx Express reporting unit. We expect that the goodwill of approximately $1.1 billion associated with our GENCO acquisition will be primarily attributable to our FedEx Ground and FedEx Express reporting units.

The financial results of these acquired businesses from the date of acquisition were not material, individually or in the aggregate, to our results of operations and therefore, pro forma financial information has not been presented.

 

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FEDEX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

The estimated fair values of the assets and liabilities related to these acquisitions have been recorded in the FedEx Ground and FedEx Express segments and are included in the accompanying unaudited balance sheets based on a preliminary allocation of the purchase price (summarized in the table below in millions). These allocations will be completed during our fourth quarter.

 

Current assets		$	344
Property and equipment			96
Goodwill			1,112
Intangible assets			175
Other non-current assets			37
Current liabilities			(225	)
Long-term liabilities			(84	)
Total purchase price		$	1,455

The goodwill recorded of approximately $1.1 billion is primarily attributable to expected benefits from synergies of the combinations with existing businesses and other acquired entities. The majority of the purchase price allocated to goodwill is not deductible for U.S. income tax purposes. The intangible assets acquired consist primarily of customer-related intangible assets, which will be amortized over an estimated useful life of ten years.

EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS. The pilots of Federal Express Corporation (“FedEx Express”), which represent a small number of FedEx Express’s total employees, are employed under a collective bargaining agreement. The contract became amendable in March 2013, and the parties are currently in negotiations. In October 2014, FedEx Express formally requested assistance from the National Mediation Board (“NMB”) to mediate the negotiations. The NMB is the U.S. governmental agency that oversees labor agreements for entities covered by the Railway Labor Act of 1926, as amended (“Railway Labor Act”). The progression of negotiations into the mediation stage has no impact on our operations. In addition to our pilots at FedEx Express, certain non-U.S. employees are unionized.

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 stock-based compensation expense was $26 million for the three-month period ended February 28, 2015 and $106 million for the nine-month period ended February 28, 2015. Our stock-based compensation expense was $23 million for the three-month period ended February 28, 2014 and $94 million for the nine-month period ended February 28, 2014. Due to its immateriality, additional disclosures related to stock-based compensation have been excluded from this quarterly report.

RECENT ACCOUNTING GUIDANCE. New accounting rules and disclosure requirements can significantly impact our reported results and the comparability of our financial statements. These matters are described in our Annual Report.

We believe that no other new accounting guidance was adopted or issued during the first nine months of 2015 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.

TREASURY SHARES. In September 2014, our Board of Directors authorized the repurchase of up to 15 million shares of common stock. It is expected that the share authorization will primarily be utilized to offset equity compensation dilution over the next several years. During the third quarter of 2015, we repurchased 400,000 shares of FedEx common stock at an average price of $172 per share for a total of $69 million. As of February 28, 2015, 13.6 million shares remained under the share repurchase authorization.

 

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FEDEX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

DIVIDENDS DECLARED PER COMMON SHARE. On February 13, 2015, our Board of Directors declared a quarterly dividend of $0.20 per share of common stock. The dividend will be paid on April 1, 2015 to stockholders of record as of the close of business on March 11, 2015. 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) Accumulated Other Comprehensive Income (Loss)

The following table provides changes in accumulated other comprehensive income (loss) (“AOCI”), net of tax, reported in our condensed consolidated financial statements for the periods ended February 28 (in millions; amounts in parentheses indicate debits to AOCI):

 

		Three Months Ended								Nine Months Ended
		2015				2014				2015				2014
Foreign currency translation gain (loss):
Balance at beginning of period		$	(76	)		$	68			$	77			$	102
Translation adjustments			(152	)			(30	)			(305	)			(64	)
Balance at end of period			(228	)			38				(228	)			38
Retirement plans adjustments:
Balance at beginning of period			(3,711	)			(3,837	)			(3,771	)			(3,922	)
Reclassifications from AOCI			30				45				90				130
Balance at end of period			(3,681	)			(3,792	)			(3,681	)			(3,792	)
Accumulated other comprehensive loss at end of period		$	(3,909	)		$	(3,754	)		$	(3,909	)		$	(3,754	)

The following table presents details of the reclassifications from AOCI for the periods ended February 28 (in millions; amounts in parentheses indicate debits to earnings):

 

		Amount Reclassified from AOCI																Affected Line Item in the Income Statement
		Three Months Ended								Nine Months Ended
		2015				2014				2015				2014
Retirement plans:
Amortization of actuarial losses and other		$	(76	)		$	(98	)		$	(229	)		$	(290	)		Salaries and employee benefits
Amortization of prior service credits			28				28				86				85			Salaries and employee benefits
Total before tax			(48	)			(70	)			(143	)			(205	)
Income tax benefit			18				25				53				75			Provision for income taxes
AOCI reclassifications, net of tax		$	(30	)		$	(45	)		$	(90	)		$	(130	)		Net income

(3) Financing Arrangements

We have a shelf registration statement with the SEC that allows us to sell, in one or more future offerings, any combination of our unsecured debt securities and common stock.

 

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FEDEX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

During the quarter, we issued $2.5 billion of senior unsecured debt under our current shelf registration statement, comprised of $400 million of 2.30% fixed-rate notes due in February 2020, $700 million of 3.20% fixed-rate notes due in February 2025, $500 million of 3.90% fixed-rate notes due in February 2035, $650 million of 4.10% fixed-rate notes due in February 2045, and $250 million of 4.50% fixed-rate notes due in February 2065. Interest on these notes is paid semiannually. We utilized the net proceeds to fund our $1.4 billion acquisition of GENCO and the remaining proceeds for working capital and general corporate purposes.

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 agreement contains a financial covenant, which requires us to maintain a leverage ratio of adjusted debt to capital that does not exceed 70%. Our leverage ratio of adjusted debt to capital was 59% at February 28, 2015. 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. See our Annual Report for a description of the term and additional covenant details of our revolving credit facility.

Long-term debt, exclusive of capital leases, had a carrying value of $7.2 billion compared with an estimated fair value of $7.8 billion at February 28, 2015 and a carrying value of $4.7 billion compared with an estimated fair value of $5.0 billion at May 31, 2014. The estimated fair values were determined based on quoted market prices and the current rates offered for debt with similar terms and maturities. The fair value of our long-term debt is classified as Level 2 within the fair value hierarchy. This classification is defined as a fair value determined using market-based inputs other than quoted prices that are observable for the liability, either directly or indirectly.

(4) Computation of Earnings Per Share

The calculation of basic and diluted earnings per common share for the periods ended February 28 was as follows (in millions, except per share amounts):

 

		Three Months Ended								Nine Months Ended
		2015				2014				2015				2014
Basic earnings per common share:
Net earnings allocable to common shares(1)		$	579			$	377			$	1,799			$	1,365
Weighted-average common shares			283				303				284				312
Basic earnings per common share		$	2.05			$	1.24			$	6.34			$	4.38
Diluted earnings per common share:
Net earnings allocable to common shares(1)		$	579			$	377			$	1,799			$	1,365
Weighted-average common shares			283				303				284				312
Dilutive effect of share-based awards			4				4				4				3
Weighted-average diluted shares			287				307				288				315
Diluted earnings per common share		$	2.01			$	1.23			$	6.25			$	4.34
Anti-dilutive options excluded from diluted earnings per common share			2.0				0.5				2.1				4.3

 

(1)	Net earnings available to participating securities were immaterial in all periods presented.

 

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FEDEX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

(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 periods ended February 28 were as follows (in millions):

 

		Three Months Ended								Nine Months Ended
		2015				2014				2015				2014
U.S. domestic and international pension plans		$	66			$	124			$	199			$	366
U.S. domestic and international defined contribution plans			96				90				284				269
U.S. domestic and international postretirement healthcare plans			21				20				61				59
		$	183			$	234			$	544			$	694

Net periodic benefit cost of the pension and postretirement healthcare plans for the periods ended February 28 included the following components (in millions):

 

		Three Months Ended								Nine Months Ended
		2015				2014				2015				2014
Pension Plans
Service cost		$	165			$	164			$	493			$	492
Interest cost			274				264				824				790
Expected return on plan assets			(420	)			(374	)			(1,260	)			(1,121	)
Recognized actuarial losses and other			47				70				142				205
		$	66			$	124			$	199			$	366
		Three Months Ended								Nine Months Ended
		2015				2014				2015				2014
Postretirement Healthcare Plans
Service cost		$	10			$	10			$	30			$	29
Interest cost			11				10				31				30
		$	21			$	20			$	61			$	59

Contributions to our tax qualified U.S. domestic pension plans (“U.S. Pension Plans”) for the nine months ended February 28 were as follows:

 

						2015				2014
Required						$	380			$	480
Voluntary							115				15
						$	495			$	495

In March 2015, we made approximately $160 million in voluntary contributions to our U.S. Pension Plans. Our U.S. Pension Plans have ample funds to meet expected benefit payments.

(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 world’s largest express transportation company; FedEx Ground Package System, Inc. (“FedEx Ground”), a leading North American 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.

 

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FEDEX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Our reportable segments include the following businesses:

 

FedEx Express Segment		FedEx Express (express transportation)
		FedEx Trade Networks (air and ocean freight forwarding and customs brokerage)
		FedEx SupplyChain Systems (logistics services)
		Bongo (cross-border enablement technology and solutions)
FedEx Ground Segment		FedEx Ground (small-package ground delivery)
		FedEx SmartPost (small-parcel consolidator)
		GENCO (third-party logistics)
FedEx Freight Segment		FedEx Freight (LTL freight transportation)
		FedEx Custom Critical (time-critical transportation)
FedEx Services Segment		FedEx Services (sales, marketing, information technology, communications and back-office 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. For the international regions of FedEx Express, some of these functions are performed on a regional basis by FedEx Express and reported in the FedEx Express segment in their natural expense line items.

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, which are an immaterial component of our allocations, are allocated to FedEx Express and FedEx Ground. 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.

Operating expenses for each of our transportation segments include the allocations from the FedEx Services segment to the respective transportation segments. These allocations also include charges and credits for administrative services provided between operating companies. 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 and our allocation methodologies are refined as necessary to reflect changes in our businesses.

During the first quarter of 2015, we ceased allocating to our transportation segments the costs associated with our corporate headquarters division. These costs included services related to general oversight functions, including executive officers and certain legal and finance functions. This change allows for additional transparency and improved management of our corporate oversight costs. These costs are included in “Corporate, eliminations and other” in our segment reporting and reconciliations. Prior year amounts have been revised to conform to the current year segment presentation. This change did not impact our condensed consolidated financial statements included in Note 10.

 

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FEDEX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

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 to our unaudited condensed consolidated financial statement totals for the periods ended February 28 (in millions):

 

		Three Months Ended								Nine Months Ended
		2015				2014				2015				2014
Revenues
FedEx Express segment		$	6,656			$	6,674			$	20,542			$	20,123
FedEx Ground segment			3,393				3,031				9,416				8,610
FedEx Freight segment			1,428				1,347				4,622				4,205
FedEx Services segment			370				368				1,138				1,134
Eliminations and other			(131	)			(119	)			(379	)			(344	)
		$	11,716			$	11,301			$	35,339			$	33,728
Operating Income(1)
FedEx Express segment		$	384			$	168			$	1,237			$	798
FedEx Ground segment			558				490				1,568				1,412
FedEx Freight segment			68				35				348				217
Corporate, eliminations and other			(48	)			(52	)			(191	)			(164	)
		$	962			$	641			$	2,962			$	2,263

 

(1)	Prior year amounts have been revised to conform to the current year segment presentation regarding the allocation of corporate headquarters costs.

(7) Commitments

As of February 28, 2015, our purchase commitments under various contracts for the remainder of 2015 and annually thereafter were as follows (in millions):

 

		Aircraft and Aircraft-Related				Other(1)				Total
2015 (remainder)		$	415			$	180			$	595
2016			1,249				335				1,584
2017			1,013				186				1,199
2018			1,389				111				1,500
2019			1,033				68				1,101
Thereafter			4,429				111				4,540
Total		$	9,528			$	991			$	10,519

 

(1)	Primarily equipment, advertising contracts and contributions to our U.S. Pension Plans, which are further described in Note 5.

 

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FEDEX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

The amounts reflected in the table above for purchase commitments represent noncancelable agreements to purchase goods or services. As of February 28, 2015, our obligation to purchase four Boeing 767-300 Freighter (“B767F”) aircraft and nine Boeing 777 Freighter (“B777F”) aircraft is conditioned upon there being no event that causes FedEx Express or its employees not to be covered by the Railway Labor Act. 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 $401 million in deposits and progress payments as of February 28, 2015 on aircraft purchases and other planned aircraft-related transactions. These deposits are classified in the “Other assets” caption of our consolidated balance sheets. 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 February 28, 2015 with the year of expected delivery:

 

		B767F				B777F				Total
2015 (remainder)			4				—				4
2016			11				2				13
2017			12				—				12
2018			11				2				13
2019			6				2				8
Thereafter			—				12				12
Total			44				18				62

A summary of future minimum lease payments under noncancelable operating leases with an initial or remaining term in excess of one year at February 28, 2015 is as follows (in millions):

 

		Operating Leases
		Aircraft and Related Equipment				Facilities and Other				Total Operating Leases
2015 (remainder)		$	82			$	411			$	493
2016			461				1,628				2,089
2017			400				1,767				2,167
2018			329				1,335				1,664
2019			273				1,149				1,422
Thereafter			550				7,459				8,009
Total		$	2,095			$	13,749			$	15,844

Future minimum lease payments under capital leases were immaterial at February 28, 2015. 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.

(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.

 

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FEDEX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

Independent Contractor — Lawsuits and State Administrative Proceedings. FedEx Ground is involved in numerous class-action lawsuits (including 25 that have been certified as class actions), individual lawsuits and state tax and other administrative proceedings that claim that the company’s 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 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 20 states. The plaintiffs filed notices of appeal in all of these 20 cases. The Seventh Circuit heard the appeal in the Kansas case in January 2012 and, in July 2012, issued an opinion that did not make a determination with respect to the correctness of the district court’s decision and, instead, certified two questions to the Kansas Supreme Court related to the classification of the plaintiffs as independent contractors under the Kansas Wage Payment Act. The other 19 cases that are before the Seventh Circuit were stayed pending a decision of the Kansas Supreme Court.

On October 3, 2014, the Kansas Supreme Court determined that a 20 factor right to control test applies to claims under the Kansas Wage Payment Act and concluded that under that test, the class members were employees, not independent contractors. The case was subsequently transferred back to the Seventh Circuit, where both parties made filings requesting the action necessary to complete the resolution of the appeals. The parties also made recommendations to the court regarding next steps for the other 19 cases that are before the Seventh Circuit. FedEx Ground has requested that each of those cases be separately briefed given the potential differences in the applicable state law from that in Kansas. During the second quarter of 2015, we established an accrual for the estimated probable loss in the Kansas case that was required to be recognized pursuant to applicable accounting standards. This amount was immaterial.

The multidistrict litigation court remanded the other eight certified class actions back to the district courts where they were originally filed because its summary judgment ruling did not completely dispose of all of the claims in those lawsuits. Three of these matters settled for immaterial amounts and have received court approval. One of the cases is on appeal with the Court of Appeals for the Eleventh Circuit and one is currently pending in the Eastern District of Arkansas. Two cases in Oregon and one in California were appealed to the Ninth Circuit Court of Appeals, where the court reversed the district court decisions and held that the plaintiffs in California and Oregon were employees as a matter of law and remanded the cases to their respective district courts for further proceedings.

During the first quarter of 2015, we established an accrual for the estimated probable losses in the Oregon and California cases that were required to be recognized pursuant to applicable accounting standards. These amounts were immaterial. Material exposure above the accrued amounts, however, is reasonably possible, and accordingly we have undertaken a process to attempt to estimate a range of reasonably possible losses based on currently available information relating to the cases. This process has included attempting to evaluate what facts may arise in the course of discovery and what legal rulings the courts may render and how these facts and rulings might impact FedEx Ground’s loss. For a number of reasons, we are not currently able to estimate a range of reasonably possible losses in excess of the amounts accrued. The number and identities of plaintiffs in these lawsuits are uncertain, as they are dependent on how the class of full-time drivers is defined and how many individuals will qualify based on whatever criteria may be established. In addition, the parties have conducted only very limited discovery into damages, which could vary considerably from plaintiff to plaintiff and be dependent on evidence pertaining to individual plaintiffs, which has yet to be produced in the cases. Further, the range of potential losses could be impacted substantially by future rulings by the courts, including on the merits of the claims, on FedEx Ground’s defenses, and on evidentiary issues.

With respect to the matters that are pending outside of California and Oregon, it is reasonably possible that potential loss in some of these lawsuits or changes to the independent contractor status of FedEx Ground’s owner-operators could be material.

 

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FEDEX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

We have undertaken a process to attempt to estimate a range of reasonably possible loss based on currently available information relating to these cases. Similar to our analysis of loss contingency in the California and Oregon cases, this process has included attempting to evaluate what facts may arise in the course of discovery and what legal rulings the courts may render and how these facts and rulings might impact FedEx Ground’s loss. As a consequence of many of the same factors described above, as well as others that are specific to these cases, we are not currently able to estimate a range of reasonably possible loss. We do not believe that a material loss is probable in these matters.

In addition, we are defending contractor-model cases that are not or are no longer part of the multidistrict litigation. These cases are in varying stages of litigation, and we do not expect to incur a material loss in any of these matters.

Adverse determinations in matters related to FedEx Ground’s independent contractors, could, among other things, entitle certain of our owner-operators 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 Ground’s owner-operators in certain jurisdictions. We believe that FedEx Ground’s owner-operators are properly classified as independent contractors and that FedEx Ground is not an employer of the drivers of the company’s independent contractors.

City and State of New York Cigarette Suit. On December 30, 2013, the City of New York filed suit against FedEx Express and FedEx Ground arising from our alleged shipments of cigarettes to New York City residents. The claims against FedEx Express were subsequently dismissed. On March 30, 2014, the complaint was amended adding the State of New York as a plaintiff. Beyond the addition of the State as a plaintiff, the amended complaint contains several amplifications of the previous claims. First, the claims now relate to four shippers, none of which continues to ship in our network. Second, the amended complaint contains a count for violation of the Assurance of Compliance (“AOC”) we had previously entered into with the State of New York, claiming that since 2006, FedEx has made shipments of cigarettes to residences in New York in violation of the AOC. Lastly, the amendment contains new theories of Racketeer Influenced and Corrupt Organizations Act (“RICO”) violations. In May 2014, we filed a motion to dismiss almost all of the claims. On November 12, 2014 the City and State of New York filed a separate but almost identical lawsuit that includes two additional shippers. On March 9, the court ruled on our motion to dismiss, granting our motions to limit the applicable statute of limitations to four years and to dismiss a portion of the claims. The court, however, denied our motion to dismiss some of the claims, including the RICO claims. Loss in these lawsuits is reasonably possible, but the amount of any loss is expected to be immaterial.

Environmental Matters. SEC regulations require disclosure of certain environmental matters when a governmental authority is a party to the proceedings and the proceedings involve potential monetary sanctions that management reasonably believes could exceed $100,000.

In February 2014, FedEx Ground received oral communications from District Attorneys’ Offices (representing California’s county environmental authorities) and the California Attorney General’s Office (representing the California Division of Toxic Substances Control) that they were seeking civil penalties for alleged violations of the state’s hazardous waste regulations. Specifically, the California environmental authorities alleged that FedEx Ground improperly generates and/or handles, stores and transports hazardous waste from its stations to its hubs in California. In April 2014, FedEx Ground filed a declaratory judgment action in the United States District Court for the Eastern District of California against the Director of the California Division of Toxic Substances Control and the county District Attorneys with whom we have been negotiating. In June 2014, the California Attorney General filed a complaint against FedEx Ground in Sacramento County Superior Court alleging violations of FedEx Ground as described above. The County District Attorneys filed a similar complaint in Sacramento County Superior Court in July 2014. The county and state authorities filed a motion to dismiss FedEx Ground’s declaratory judgment action, and their motion was granted on January 22, 2015. FedEx Ground filed a notice of appeal with the Ninth Circuit Court of Appeals on February 23, 2015. Loss in this matter is reasonably possible, however, the amount of any loss is expected to be immaterial.

 

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FEDEX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

On January 14, 2014, the U.S. Department of Justice (“DOJ”) issued a Grand Jury Subpoena to FedEx Express relating to an asbestos matter previously investigated by the U.S. Environmental Protection Agency. On May 1, 2014, the DOJ informed us that it had determined to continue to pursue the matter as a criminal case, citing seven asbestos-related regulatory violations associated with removal of roof materials from a hangar in Puerto Rico during cleaning and repair activity, as well as violation of waste disposal requirements. Loss is reasonably possible; however, the amount of any loss is expected to be immaterial.

Department of Justice Indictment — Internet Pharmacy Shipments. In the past, we received requests for information from the DOJ in the Northern District of California in connection with a criminal investigation relating to the transportation of packages for online pharmacies that may have shipped pharmaceuticals in violation of federal law. In July 2014, the DOJ filed a criminal indictment in the United States District Court for the Northern District of California in connection with the matter. A superseding indictment was filed in August 2014. The indictment alleges that FedEx Corporation, FedEx Express and FedEx Services, together with certain pharmacies, conspired to unlawfully distribute controlled substances, unlawfully distributed controlled substances and conspired to unlawfully distribute misbranded drugs. The superseding indictment adds conspiracy to launder money counts related to services provided to and payments from online pharmacies. We continue to believe that our employees have acted in good faith at all times and that we have not engaged in any illegal activities.

Accordingly, we will vigorously defend ourselves in this matter. If we are convicted, remedies could include fines, penalties, forfeiture and compliance conditions. Given the early stage of this proceeding, we cannot estimate the amount or range of loss, if any; however, it is reasonably possible that it could be material if we are convicted.

Other Matters. In August 2010, a third-party consultant who works with shipping customers to negotiate lower rates filed a lawsuit in federal district court in California against FedEx and United Parcel Service, Inc. (“UPS”) alleging violations of U.S. antitrust law. This matter was dismissed in May 2011, but the court granted the plaintiff permission to file an amended complaint, which FedEx received in June 2011. In November 2011, the court granted our motion to dismiss this complaint, but again allowed the plaintiff to file an amended complaint. The plaintiff filed a new complaint in December 2011, and the matter remains pending before the court. In February 2011, shortly after the initial lawsuit was filed, we received a demand for the production of information and documents in connection with a civil investigation by the DOJ into the policies and practices of FedEx and UPS for dealing with third-party consultants who work with shipping customers to negotiate lower rates. In November 2012, the DOJ served a civil investigative demand on the third-party consultant seeking all pleadings, depositions and documents produced in the lawsuit. We are cooperating with the investigation, do not believe that we have engaged in any anti-competitive activities and will vigorously defend ourselves in any action that may result from the investigation. While the litigation proceedings and the DOJ investigation move forward, and the amount of loss, if any, is dependent on a number of factors that are not yet fully developed or resolved, the amount of any loss is expected to be immaterial.

On June 30, 2014, we received a Statement of Objections from the French Competition Authority (“FCA”) addressed to FedEx Express France, formerly known as TATEX, regarding an investigation by the FCA into anticompetitive behavior that is alleged to have occurred primarily in the framework of trade association meetings that included the former general managers of TATEX prior to our acquisition of that company in July 2012. In September 2014, FedEx Express France submitted its observations in response to the Statement of Objections to the FCA. Given the early stage of this matter, we cannot yet determine the amount or range of potential loss; however, it is reasonably possible that it could be material.

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.

 

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FEDEX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

(9) Supplemental Cash Flow Information

Cash paid for interest expense and income taxes for the nine-month periods ended February 28 was as follows (in millions):

 

		2015				2014
Cash payments for:
Interest (net of capitalized interest)		$	196			$	121
Income taxes		$	859			$	716
Income tax refunds received			(7	)			(50	)
Cash tax payments, net		$	852			$	666

(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 100% owned by FedEx, guarantee $7.0 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.

 

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FEDEX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

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)

February 28, 2015

 

		Parent				Guarantor Subsidiaries				Non- guarantor Subsidiaries				Eliminations				Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	2,142			$	492			$	886			$	(42	)		$	3,478
Receivables, less allowances			1				4,355				1,277				(49	)			5,584
Spare parts, supplies, fuel, prepaid expenses and other, less allowances			100				687				123				—				910
Deferred income taxes			—				476				34				—				510
Total current assets			2,243				6,010				2,320				(91	)			10,482
PROPERTY AND EQUIPMENT, AT COST			28				40,264				2,360				—				42,652
Less accumulated depreciation and amortization			23				20,973				1,231				—				22,227
Net property and equipment			5				19,291				1,129				—				20,425
INTERCOMPANY RECEIVABLE			—				1,406				1,578				(2,984	)			—
GOODWILL			—				1,552				2,253				—				3,805
INVESTMENT IN SUBSIDIARIES			23,736				3,753				—				(27,489	)			—
OTHER ASSETS			2,055				856				473				(1,988	)			1,396
		$	28,039			$	32,868			$	7,753			$	(32,552	)		$	36,108
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Accrued salaries and employee benefits		$	35			$	1,053			$	143			$	—			$	1,231
Accounts payable			60				1,327				754				(91	)			2,050
Accrued expenses			314				1,410				238				—				1,962
Total current liabilities			409				3,790				1,135				(91	)			5,243
LONG-TERM DEBT, LESS CURRENT PORTION			6,978				248				2				—				7,228
INTERCOMPANY PAYABLE			2,984				—				—				(2,984	)			—
OTHER LONG-TERM LIABILITIES
Deferred income taxes			—				4,294				191				(1,988	)			2,497
Other liabilities			1,656				3,229				243				—				5,128
Total other long-term liabilities			1,656				7,523				434				(1,988	)			7,625
STOCKHOLDERS’ INVESTMENT			16,012				21,307				6,182				(27,489	)			16,012
		$	28,039			$	32,868			$	7,753			$	(32,552	)		$	36,108

 

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FEDEX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

CONDENSED CONSOLIDATING BALANCE SHEETS

May 31, 2014

 

		Parent				Guarantor Subsidiaries				Non- guarantor Subsidiaries				Eliminations				Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	1,756			$	441			$	861			$	(150	)		$	2,908
Receivables, less allowances			2				4,338				1,151				(31	)			5,460
Spare parts, supplies, fuel, prepaid expenses and other, less allowances			59				674				60				—				793
Deferred income taxes			—				501				21				—				522
Total current assets			1,817				5,954				2,093				(181	)			9,683
PROPERTY AND EQUIPMENT, AT COST			28				38,303				2,360				—				40,691
Less accumulated depreciation and amortization			22				19,899				1,220				—				21,141
Net property and equipment			6				18,404				1,140				—				19,550
INTERCOMPANY RECEIVABLE			—				1,058				1,265				(2,323	)			—
GOODWILL			—				1,552				1,238				—				2,790
INVESTMENT IN SUBSIDIARIES			20,785				3,754				—				(24,539	)			—
OTHER ASSETS			2,088				747				250				(2,038	)			1,047
		$	24,696			$	31,469			$	5,986			$	(29,081	)		$	33,070
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Current portion of long-term debt		$	—			$	1			$	—			$	—			$	1
Accrued salaries and employee benefits			55				1,042				180				—				1,277
Accounts payable			2				1,530				620				(181	)			1,971
Accrued expenses			405				1,444				214				—				2,063
Total current liabilities			462				4,017				1,014				(181	)			5,312
LONG-TERM DEBT, LESS CURRENT PORTION			4,487				249				—				—				4,736
INTERCOMPANY PAYABLE			2,323				—				—				(2,323	)			—
OTHER LONG-TERM LIABILITIES
Deferred income taxes			—				4,059				93				(2,038	)			2,114
Other liabilities			2,147				3,230				254				—				5,631
Total other long-term liabilities			2,147				7,289				347				(2,038	)			7,745
STOCKHOLDERS’ INVESTMENT			15,277				19,914				4,625				(24,539	)			15,277
		$	24,696			$	31,469			$	5,986			$	(29,081	)		$	33,070

 

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FEDEX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

Three Months Ended February 28, 2015

 

		Parent				Guarantor Subsidiaries				Non- guarantor Subsidiaries				Eliminations				Consolidated
REVENUES		$	—			$	9,793			$	2,024			$	(101	)		$	11,716
OPERATING EXPENSES:
Salaries and employee benefits			25				3,784				602				—				4,411
Purchased transportation			—				1,527				695				(57	)			2,165
Rentals and landing fees			1				597				89				(1	)			686
Depreciation and amortization			—				593				59				—				652
Fuel			—				790				20				—				810
Maintenance and repairs			—				468				37				—				505
Intercompany charges, net			(48	)			(34	)			82				—				—
Other			22				1,231				315				(43	)			1,525
			—				8,956				1,899				(101	)			10,754
OPERATING INCOME			—				837				125				—				962
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries			580				90				—				(670	)			—
Interest, net			(66	)			6				2				—				(58	)
Intercompany charges, net			68				(74	)			6				—				—
Other, net			(2	)			(4	)			11				—				5
INCOME BEFORE INCOME TAXES			580				855				144				(670	)			909
Provision for income taxes			—				248				81				—				329
NET INCOME		$	580			$	607			$	63			$	(670	)		$	580
COMPREHENSIVE INCOME		$	607			$	596			$	(75	)		$	(670	)		$	458

 

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CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

Three Months Ended February 28, 2014

 

		Parent				Guarantor Subsidiaries				Non- guarantor Subsidiaries				Eliminations				Consolidated
REVENUES		$	—			$	9,509			$	1,876			$	(84	)		$	11,301
OPERATING EXPENSES:
Salaries and employee benefits			24				3,615				528				—				4,167
Purchased transportation			—				1,426				680				(43	)			2,063
Rentals and landing fees			1				576				86				(1	)			662
Depreciation and amortization			—				601				51				—				652
Fuel			—				1,138				25				—				1,163
Maintenance and repairs			1				406				31				—				438
Intercompany charges, net			(52	)			(17	)			69				—				—
Other			26				1,234				295				(40	)			1,515
			—				8,979				1,765				(84	)			10,660
OPERATING INCOME			—				530				111				—				641
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries			378				80				—				(458	)			—
Interest, net			(45	)			4				3				—				(38	)
Intercompany charges, net			46				(52	)			6				—				—
Other, net			(1	)			(9	)			1				—				(9	)
INCOME BEFORE INCOME TAXES			378				553				121				(458	)			594
Provision for income taxes			—				165				51				—				216
NET INCOME		$	378			$	388			$	70			$	(458	)		$	378
COMPREHENSIVE INCOME		$	419			$	388			$	44			$	(458	)		$	393

 

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FEDEX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

Nine Months Ended February 28, 2015

 

		Parent				Guarantor Subsidiaries				Non-guarantor Subsidiaries				Eliminations				Consolidated
REVENUES		$	—			$	29,488			$	6,136			$	(285	)		$	35,339
OPERATING EXPENSES:
Salaries and employee benefits			78				11,119				1,707				—				12,904
Purchased transportation			—				4,381				2,170				(147	)			6,404
Rentals and landing fees			4				1,746				263				(4	)			2,009
Depreciation and amortization			1				1,783				170				—				1,954
Fuel			—				2,913				69				—				2,982
Maintenance and repairs			—				1,497				107				—				1,604
Intercompany charges, net			(191	)			(82	)			273				—				—
Other			108				3,635				911				(134	)			4,520
			—				26,992				5,670				(285	)			32,377
OPERATING INCOME			—				2,496				466				—				2,962
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries			1,802				291				—				(2,093	)			—
Interest, net			(172	)			15				4				—				(153	)
Intercompany charges, net			176				(192	)			16				—				—
Other, net			(4	)			(5	)			17				—				8
INCOME BEFORE INCOME TAXES			1,802				2,605				503				(2,093	)			2,817
Provision for income taxes			—				836				179				—				1,015
NET INCOME		$	1,802			$	1,769			$	324			$	(2,093	)		$	1,802
COMPREHENSIVE INCOME		$	1,883			$	1,733			$	64			$	(2,093	)		$	1,587

 

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CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

Nine Months Ended February 28, 2014

 

		Parent				Guarantor Subsidiaries				Non- guarantor Subsidiaries				Eliminations				Consolidated
REVENUES		$	—			$	28,184			$	5,796			$	(252	)		$	33,728
OPERATING EXPENSES:
Salaries and employee benefits			79				10,697				1,616				—				12,392
Purchased transportation			—				4,008				2,092				(118	)			5,982
Rentals and landing fees			4				1,697				253				(4	)			1,950
Depreciation and amortization			1				1,785				152				—				1,938
Fuel			—				3,330				73				—				3,403
Maintenance and repairs			1				1,302				94				—				1,397
Intercompany charges, net			(163	)			(47	)			210				—				—
Other			78				3,559				896				(130	)			4,403
			—				26,331				5,386				(252	)			31,465
OPERATING INCOME			—				1,853				410				—				2,263
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries			1,367				323				—				(1,690	)			—
Interest, net			(114	)			14				5				—				(95	)
Intercompany charges, net			117				(134	)			17				—				—
Other, net			(3	)			(14	)			1				—				(16	)
INCOME BEFORE INCOME TAXES			1,367				2,042				433				(1,690	)			2,152
Provision for income taxes			—				648				137				—				785
NET INCOME		$	1,367			$	1,394			$	296			$	(1,690	)		$	1,367
COMPREHENSIVE INCOME		$	1,487			$	1,401			$	235			$	(1,690	)		$	1,433

 

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FEDEX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

 

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(UNAUDITED)

Nine Months Ended February 28, 2015

 

		Parent				Guarantor Subsidiaries				Non- guarantor Subsidiaries				Eliminations				Consolidated
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		$	(460	)		$	3,443			$	382			$	108			$	3,473
INVESTING ACTIVITIES
Capital expenditures			(1	)			(2,849	)			(119	)			—				(2,969	)
Business acquisitions, net of cash acquired			(1,429	)			—				—				—				(1,429	)
Proceeds from asset dispositions and other			—				35				(19	)			—				16
CASH USED IN INVESTING ACTIVITIES			(1,430	)			(2,814	)			(138	)			—				(4,382	)
FINANCING ACTIVITIES
Net transfers from (to) Parent			692				(681	)			(11	)			—				—
Payment on loan between subsidiaries			—				202				(202	)			—				—
Intercompany dividends			—				38				(38	)			—				—
Principal payments on debt			—				(1	)			—				—				(1	)
Proceeds from debt issuance			2,491				—				—				—				2,491
Proceeds from stock issuances			272				—				—				—				272
Excess tax benefit on the exercise of stock options			31				—				—				—				31
Dividends paid			(171	)			—				—				—				(171	)
Purchase of treasury stock			(1,016	)			—				—				—				(1,016	)
Other, net			(23	)			(105	)			105				—				(23	)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			2,276				(547	)			(146	)			—				1,583
Effect of exchange rate changes on cash			—				(31	)			(73	)			—				(104	)
Net increase in cash and cash equivalents			386				51				25				108				570
Cash and cash equivalents at beginning of period			1,756				441				861				(150	)			2,908
Cash and cash equivalents at end of period		$	2,142			$	492			$	886			$	(42	)		$	3,478

 

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CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(UNAUDITED)

Nine Months Ended February 28, 2014

 

		Parent				Guarantor Subsidiaries				Non- guarantor Subsidiaries				Eliminations				Consolidated
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		$	(104	)		$	2,386			$	341			$	(45	)		$	2,578
INVESTING ACTIVITIES
Capital expenditures			—				(2,342	)			(212	)			—				(2,554	)
Proceeds from asset dispositions and other			—				26				(3	)			—				23
CASH USED IN INVESTING ACTIVITIES			—				(2,316	)			(215	)			—				(2,531	)
FINANCING ACTIVITIES
Net transfers from (to) Parent			136				(123	)			(13	)			—				—
Payment on loan between subsidiaries			—				5				(5	)			—				—
Intercompany dividends			—				36				(36	)			—				—
Principal payments on debt			(250	)			(4	)			—				—				(254	)
Proceeds from debt issuance			1,997				—				—				—				1,997
Proceeds from stock issuances			462				—				—				—				462
Excess tax benefit on the exercise of stock options			27				—				—				—				27
Dividends paid			(142	)			—				—				—				(142	)
Purchase of treasury stock			(3,984	)			—				—				—				(3,984	)
Other, net			(18	)			—				—				—				(18	)
CASH USED IN FINANCING ACTIVITIES			(1,772	)			(86	)			(54	)			—				(1,912	)
Effect of exchange rate changes on cash			—				(9	)			(1	)			—				(10	)
Net (decrease) increase in cash and cash equivalents			(1,876	)			(25	)			71				(45	)			(1,875	)
Cash and cash equivalents at beginning of period			3,892				405				717				(97	)			4,917
Cash and cash equivalents at end of period		$	2,016			$	380			$	788			$	(142	)		$	3,042

 

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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 February 28, 2015, and the related condensed consolidated statements of income and comprehensive income for the three-month and nine-month periods ended February 28, 2015 and 2014 and the condensed consolidated statements of cash flows for the nine-month periods ended February 28, 2015 and 2014. These financial statements are the responsibility of the Company’s 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, 2014, and the related consolidated statements of income, comprehensive income, changes in stockholders’ investment, and cash flows for the year then ended not presented herein, and in our report dated July 14, 2014 (except for Note 14, as to which the date is January 6, 2015), 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, 2014, 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

March 19, 2015

 

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Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

GENERAL

The following Management’s 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, 2014 (“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 world’s largest express transportation company; FedEx Ground Package System, Inc. (“FedEx Ground”), a leading North American 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, information technology, communications and certain back-office 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. Additional information on our businesses can also be found in our Annual Report.

The key indicators necessary to understand our operating results include:

 

•

the overall customer demand for our various services based on macro-economic factors and the global economy;

 

•

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 and shipment 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 offset these fluctuations 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. The line item “Other operating expenses” predominantly includes costs associated with outside service contracts (such as security, facility services and cargo handling), insurance, professional fees, uniforms and advertising.

 

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Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2015 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.

RESULTS OF OPERATIONS

CONSOLIDATED RESULTS

The following table compares summary operating results (dollars in millions, except per share amounts) for the periods ended February 28:

 

		Three Months Ended								Percent				Nine Months Ended								Percent
		2015				2014				Change				2015				2014				Change
Revenues		$	11,716			$	11,301				4			$	35,339			$	33,728				5
Operating income			962				641				50				2,962				2,263				31
Operating margin			8.2	%			5.7	%			250	bp			8.4	%			6.7	%			170	bp
Net income		$	580			$	378				53			$	1,802			$	1,367				32
Diluted earnings per share		$	2.01			$	1.23				63			$	6.25			$	4.34				44

The following table shows changes in revenues and operating income by reportable segment for the periods ended February 28, 2015 compared to February 28, 2014 (dollars in millions):

 

		Change in Revenues								Change in Operating Income
		Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
FedEx Express segment		$	(18	)		$	419			$	216			$	439
FedEx Ground segment			362				806				68				156
FedEx Freight segment			81				417				33				131
FedEx Services segment			2				4				—				—
Corporate, eliminations and other			(12	)			(35	)			4				(27	)
		$	415			$	1,611			$	321			$	699

Overview

Our earnings for the third quarter and nine months of 2015 increased significantly due to the strong performance of each of our transportation segments. Higher volumes across all of our transportation segments and improved yields at FedEx Ground and FedEx Freight were key drivers of our results. In addition, earnings growth was driven by the positive net impact of fuel, benefits from our profit improvement program commenced in 2013, a lower year-over-year impact from severe winter weather and reduced pension expense. Our results for the third quarter of 2015 include higher incentive compensation accruals and in the nine months of 2015, higher maintenance expense primarily due to the timing of aircraft maintenance events at FedEx Express.

Treasury stock repurchases had a $0.11 year-over-year positive impact on the third quarter earnings per diluted share and a $0.42 impact on the nine months of 2015 earnings per diluted share.

 

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The following graphs for FedEx Express, FedEx Ground and FedEx Freight show selected volume trends (in thousands) over the five most recent quarters:

 

 

 

(1)	International domestic average daily package volume represents our international intra-country express operations.

 

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The following graphs for FedEx Express, FedEx Ground and FedEx Freight show selected yield trends over the five most recent quarters:

 

 

 

Revenue

Revenues increased 4% in the third quarter due to improved performance at our FedEx Ground and FedEx Freight segments and 5% in the nine months of 2015 due to improved performance at all our transportation segments. At FedEx Ground, revenues increased 12% in the third quarter and 9% in the nine months of 2015 due to higher volume from continued growth in both our commercial business and FedEx Home Delivery service, as well as increased yields. At FedEx Freight, revenues increased 6% in the third quarter and 10% in the nine months of 2015 primarily due to higher average daily shipments and revenue per shipment. Revenues at FedEx Express declined slightly in the third quarter due to the negative impact of lower fuel surcharges, which were partially offset by higher U.S. and international export volumes. FedEx Express revenues increased 2% during the nine months of 2015 due to U.S. and international export volume growth, which were partially offset by lower fuel surcharges.

 

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Operating Expenses

The following tables compare operating expenses expressed as dollar amounts (in millions) and as a percent of revenue for the periods ended February 28:

 

		Three Months Ended								Nine Months Ended
		2015				2014				2015				2014
Operating expenses:
Salaries and employee benefits		$	4,411			$	4,167			$	12,904			$	12,392
Purchased transportation			2,165				2,063				6,404				5,982
Rentals and landing fees			686				662				2,009				1,950
Depreciation and amortization			652				652				1,954				1,938
Fuel			810				1,163				2,982				3,403
Maintenance and repairs			505				438				1,604				1,397
Other			1,525				1,515				4,520				4,403
Total operating expenses		$	10,754			$	10,660			$	32,377			$	31,465
		Percent of Revenue
		Three Months Ended								Nine Months Ended
		2015				2014				2015				2014
Operating expenses:
Salaries and employee benefits			37.6	%			36.9	%			36.5	%			36.7	%
Purchased transportation			18.5				18.2				18.1				17.7
Rentals and landing fees			5.9				5.8				5.7				5.8
Depreciation and amortization			5.6				5.8				5.5				5.8
Fuel			6.9				10.3				8.4				10.1
Maintenance and repairs			4.3				3.9				4.6				4.1
Other			13.0				13.4				12.8				13.1
Total operating expenses			91.8				94.3				91.6				93.3
Operating margin			8.2	%			5.7	%			8.4	%			6.7	%

Operating expenses grew during the third quarter and nine months of 2015 primarily due to volume-related growth in salaries and employee benefits and purchased transportation expenses, higher incentive compensation accruals and in the nine months of 2015, higher maintenance and repairs expense. However, operating margin expanded due to revenue growth, a significant benefit from the net impact of fuel (as further described below), benefits from our profit improvement program, which we commenced in 2013, a lower year-over-year impact from severe winter weather and reduced pension expense.

Operating expenses included an increase in salaries and employee benefits expense of 6% in the third quarter and 4% in the nine months of 2015 due to additional staffing to support volume growth and higher incentive compensation accruals, partially offset by the positive impact of our voluntary buyout program and lower pension expense. Purchased transportation costs increased 5% in the third quarter due to volume growth and higher service provider rates at FedEx Ground and 7% in the nine months of 2015 due to volume growth and higher service provider rates at FedEx Ground and FedEx Freight. The timing of aircraft maintenance events at FedEx Express primarily drove an increase in maintenance and repairs expense of 15% in the third quarter and nine months of 2015.

 

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Fuel

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 decreased 30% in the third quarter and 12% in the nine months of 2015 due to lower aircraft fuel prices. However, fuel prices represent only one component of the two factors we primarily consider meaningful in understanding the impact of fuel on our business. Consideration must also be given to the fuel surcharge revenue we collect. Accordingly, we believe discussion of the net impact of fuel on our results, which is a comparison of the year-over-year change in these two factors, is important to understand the impact of fuel on our business. In order to provide information about the impact of fuel surcharges on the trend in revenue and yield growth, we have included the comparative weighted-average fuel surcharge percentages in effect for the third quarter and nine months of 2015 and 2014 in the accompanying discussions of each of our transportation segments.

The index used to determine the fuel surcharge percentage for our FedEx Freight business adjusts weekly, while our fuel surcharges for FedEx Express and FedEx Ground businesses incorporate a timing lag of approximately six to eight weeks before they are adjusted for changes in fuel prices. For example, the fuel surcharge index in effect at FedEx Express in February 2015 was set based on December 2014 fuel prices. In addition, the structure of the table that is used to determine our fuel surcharge at FedEx Express and FedEx Ground does not adjust immediately for changes in fuel price, but allows for the fuel surcharge revenue charged to our customers to remain unchanged as long as fuel prices remain within certain ranges.

Beyond these factors, the manner in which we purchase fuel also influences the net impact of fuel on our results. For example, our contracts for jet fuel purchases at FedEx Express are tied to various indices, including the U.S. Gulf Coast index. While many of these indices are aligned, each index may fluctuate at a different pace, driving variability in the prices paid for jet fuel. Furthermore, under these contractual arrangements, approximately 75% of our jet fuel is purchased based on the index price for the preceding week, with the remainder of our purchases tied to the index price for the preceding month, rather than based on daily spot rates. These contractual provisions mitigate the impact of rapidly changing daily spot rates on our jet fuel purchases.

Because of the factors described above, our operating results may be affected should the market price of fuel suddenly change by a significant amount or change by amounts that do not result in an adjustment in our fuel surcharges, which can significantly affect our earnings either positively or negatively in the short-term.

We routinely review our fuel surcharges and our fuel surcharge methodology. On February 2, 2015, we updated the tables used to determine our fuel surcharges at FedEx Express, FedEx Ground and FedEx Freight.

 

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The net impact of fuel had a significant benefit in the third quarter and nine months of 2015 to operating income. This was driven by decreased fuel prices during the third quarter and nine months of 2015 versus prior year, which was partially offset by the year-over-year decrease in fuel surcharge revenue during these periods.

The net impact of fuel on our operating results does not consider the effects that fuel surcharge levels may have on our business, including changes in demand and shifts in the mix of services purchased by our customers. While fluctuations in fuel surcharge percentages 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.

Income Taxes

Our effective tax rate was 36.2% for the third quarter of 2015 and 36.0% for the nine months of 2015, compared with 36.4% in the third quarter and 36.5% in the nine months of 2014. The tax rates in 2015 have decreased primarily due to discrete tax benefits related to changes in valuation allowances required in certain entities and jurisdictions. For 2015, we expect an effective tax rate between 36.0% and 36.5%. The actual rate, however, will depend on a number of factors, including the amount and source of operating income.

We are subject to taxation in the United States and various U.S. state, local and foreign jurisdictions. Substantially all U.S. federal income tax matters through fiscal year 2011 are concluded, and we are currently under examination by the Internal Revenue Service for the 2012 and 2013 tax years. It is reasonably possible that certain income tax return proceedings will be completed during the next twelve 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. As of February 28, 2015, there were no material changes to our liabilities for unrecognized tax benefits from May 31, 2014.

Business Acquisitions

During the third quarter of 2015, we acquired two businesses, expanding our portfolio in e-commerce and supply chain solutions. On January 30, 2015, we acquired GENCO Distribution System, Inc. (“GENCO”), one of the largest third-party logistics providers in North America, for $1.4 billion, which was funded using a portion of the proceeds from our January 2015 debt issuance. The financial results of this business are included in the FedEx Ground segment from the date of acquisition.

In addition, on December 16, 2014, FedEx acquired Bongo International, LLC (“Bongo”), a leader in cross-border enablement technologies and solutions, for $42 million in cash from operations. The financial results of this acquired business are included in the FedEx Express segment from the date of acquisition.

These acquisitions will allow us to enter new markets, as well as strengthen our current service offerings to existing customers. The financial results of these acquired businesses were immaterial to our results for the third quarter of 2015. See Note 1 of the accompanying unaudited financial statements for further discussion of these acquisitions.

Outlook

We expect revenue and earnings growth to continue into the fourth quarter of 2015, driven by ongoing improvements in the results of all of our transportation segments. We expect continued moderate global economic growth to drive volume and yield improvements. Our results in 2015 will continue to benefit from execution of the profit improvement programs announced in 2013 and which are further described in our Annual Report. Our results for the fourth quarter of 2015 will also benefit from lower pension expense due to strong asset returns in 2014; however, results for 2015 will be constrained by higher accruals for our incentive compensation programs to the extent our financial performance exceeds our business plan objectives. Our expectations for earnings growth in the fourth quarter of 2015 are dependent on key external factors, including fuel prices and the pace of improvement in the global economy.

 

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Other Outlook Matters. For details on key 2015 capital projects, refer to the “Liquidity Outlook” section of this MD&A.

As described in Note 8 of the accompanying unaudited condensed consolidated financial statements and the “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 Ground’s owner-operators as independent contractors. FedEx Ground anticipates continuing changes to its relationships with its owner-operators. 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.

On March 16, 2015, we announced that our FedEx SmartPost business will be merged into FedEx Ground effective September 1, 2015. The FedEx SmartPost service remains an important component of our service offerings and this internal structural change will enhance our ability to leverage the strengths of both the FedEx Ground and FedEx SmartPost networks to maximize operational efficiencies and will provide greater flexibility to meeting the needs of our e-commerce customers. There will be no personnel reductions associated with this merger and the estimated cost of the merger activities is immaterial to our results.

See “Forward-Looking Statements” for a discussion of these and other potential risks and uncertainties that could materially affect our future performance.

RECENT ACCOUNTING GUIDANCE

New accounting rules and disclosure requirements can significantly impact our reported results and the comparability of our financial statements. These matters are described in our Annual Report.

We believe that no other new accounting guidance was adopted or issued during the nine months of 2015 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, as described in our Annual Report.

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 (air and ocean freight forwarding and customs brokerage)
		FedEx SupplyChain Systems (logistics services)
		Bongo (cross-border enablement technology and solutions)
FedEx Ground Segment		FedEx Ground (small-package ground delivery)
		FedEx SmartPost (small-parcel consolidator)
		GENCO (third-party logistics)
FedEx Freight Segment		FedEx Freight (LTL freight transportation)
		FedEx Custom Critical (time-critical transportation)
FedEx Services Segment		FedEx Services (sales, marketing, information technology, communications and back-office functions)
		FedEx TechConnect (customer service, technical support, billings and collections)
		FedEx Office (document and business services and package acceptance)

FEDEX SERVICES SEGMENT

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 allocations of net operating costs are based on metrics such as relative revenues or estimated services provided.

 

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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, which are an immaterial component of our allocations, are allocated to FedEx Express and FedEx Ground. We believe these allocations approximate the net cost of providing these functions and our allocation methodologies are refined as necessary to reflect changes in our businesses.

During the first quarter of 2015, we ceased allocating to our transportation segments the costs associated with our corporate headquarters division. These costs included services related to general oversight functions, including executive officers and certain legal and finance functions. This change allows for additional transparency and improved management of our corporate oversight costs. These costs were previously included in the operating expenses line item “Intercompany charges” on the accompanying unaudited financial summaries of our transportation segments. These costs are included in “Corporate, eliminations and other” in our segment reporting and reconciliations. Prior year amounts have been revised to conform to the current year segment presentation. The increase in these unallocated costs in the nine months of 2015 from the prior year was driven by a legal contingency reserve recorded in the first quarter of 2015 associated with the multi-district litigation matters described in Note 8.

See Note 6 of the accompanying unaudited condensed consolidated financial statements and our Annual Report for more information.

 

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FEDEX EXPRESS SEGMENT

FedEx Express offers a wide range of U.S. domestic and international shipping services for delivery of packages and freight including priority services, which provide time-definite delivery within one, two or three business days worldwide, and deferred or economy services, which provide time-definite delivery within five business days worldwide. On December 16, 2014, we acquired Bongo, a leader in cross-border enablement technologies. Bongo’s financial results are included in the following table from the date of acquisition. The following table compares revenues, operating expenses, operating expenses as a percent of revenue, operating income and operating margin (dollars in millions) for the periods ended February 28:

 

		Three Months Ended								Percent				Nine Months Ended								Percent
		2015				2014				Change				2015				2014				Change
Revenues:
Package:
U.S. overnight box		$	1,653			$	1,643				1			$	5,040			$	4,852				4
U.S. overnight envelope			392				393				—				1,207				1,210				—
U.S. deferred			895				869				3				2,524				2,369				7
Total U.S. domestic package revenue			2,940				2,905				1				8,771				8,431				4
International priority			1,463				1,542				(5	)			4,742				4,760				—
International economy			560				540				4				1,729				1,639				5
Total international export package revenue			2,023				2,082				(3	)			6,471				6,399				1
International domestic(1)			328				347				(5	)			1,082				1,077				—
Total package revenue			5,291				5,334				(1	)			16,324				15,907				3
Freight:
U.S.			580				577				1				1,745				1,786				(2	)
International priority			375				379				(1	)			1,182				1,184				—
International airfreight			45				48				(6	)			133				157				(15	)
Total freight revenue			1,000				1,004				—				3,060				3,127				(2	)
Other(2)			365				336				9				1,158				1,089				6
Total revenues			6,656				6,674				—				20,542				20,123				2
Operating expenses:
Salaries and employee benefits			2,580				2,509				3				7,596				7,418				2
Purchased transportation			614				608				1				1,942				1,876				4
Rentals and landing fees			436				432				1				1,284				1,273				1
Depreciation and amortization			364				374				(3	)			1,106				1,116				(1	)
Fuel			697				1,010				(31	)			2,573				2,952				(13	)
Maintenance and repairs			324				273				19				1,060				888				19
Intercompany charges(3)			461				474				(3	)			1,363				1,413				(4	)
Other			796				826				(4	)			2,381				2,389				—
Total operating expenses(3)			6,272				6,506				(4	)			19,305				19,325				—
Operating income(3)		$	384			$	168				129			$	1,237			$	798				55
Operating margin(3)			5.8	%			2.5	%			330	bp			6.0	%			4.0	%			200	bp

 

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		Percent of Revenue
		Three Months Ended								Nine Months Ended
		2015				2014				2015				2014
Operating expenses:
Salaries and employee benefits			38.8	%			37.6	%			37.0	%			36.9	%
Purchased transportation			9.2				9.1				9.5				9.3
Rentals and landing fees			6.5				6.5				6.2				6.3
Depreciation and amortization			5.5				5.6				5.4				5.5
Fuel			10.5				15.1				12.5				14.7
Maintenance and repairs			4.9				4.1				5.2				4.4
Intercompany charges(3)			6.9				7.1				6.6				7.0
Other			11.9				12.4				11.6				11.9
Total operating expenses(3)			94.2				97.5				94.0				96.0
Operating margin(3)			5.8	%			2.5	%			6.0	%			4.0	%

 

(1)	International domestic revenues represent our international intra-country express operations.

(2)	Includes FedEx Trade Networks, FedEx SupplyChain Systems and Bongo.

(3)	Prior year amounts have been revised to the current year segment presentation regarding the allocation of corporate headquarters costs.

 

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The following table compares selected statistics (in thousands, except yield amounts) for the periods ended February 28:

 

		Three Months Ended								Percent				Nine Months Ended								Percent
		2015				2014				Change				2015				2014				Change
Package Statistics(1)
Average daily package volume (ADV):
U.S. overnight box			1,258				1,202				5				1,243				1,153				8
U.S. overnight envelope			516				515				—				521				538				(3	)
U.S. deferred			1,024				984				4				928				871				7
Total U.S. domestic ADV			2,798				2,701				4				2,692				2,562				5
International priority			398				399				—				410				409				—
International economy			175				168				4				175				168				4
Total international export ADV			573				567				1				585				577				1
International domestic(2)			831				780				7				854				822				4
Total ADV			4,202				4,048				4				4,131				3,961				4
Revenue per package (yield):
U.S. overnight box		$	20.85			$	21.70				(4	)		$	21.34			$	22.15				(4	)
U.S. overnight envelope			12.07				12.09				—				12.18				11.84				3
U.S. deferred			13.88				14.01				(1	)			14.32				14.31				—
U.S. domestic composite			16.68				17.07				(2	)			17.15				17.32				(1	)
International priority			58.40				61.38				(5	)			60.79				61.30				(1	)
International economy			50.60				51.01				(1	)			52.03				51.24				2
International export composite			56.01				58.30				(4	)			58.17				58.37				—
International domestic(2)			6.28				7.05				(11	)			6.67				6.90				(3	)
Composite package yield			19.99				20.91				(4	)			20.80				21.14				(2	)
Freight Statistics(1)
Average daily freight pounds:
U.S.			8,145				8,263				(1	)			7,831				7,850				—
International priority			2,823				2,823				—				2,866				2,917				(2	)
International airfreight			718				757				(5	)			673				839				(20	)
Total average daily freight pounds			11,686				11,843				(1	)			11,370				11,606				(2	)
Revenue per pound (yield):
U.S.		$	1.13			$	1.11				2			$	1.17			$	1.20				(3	)
International priority			2.11				2.13				(1	)			2.17				2.14				1
International airfreight			1.00				1.00				—				1.04				0.98				6
Composite freight yield			1.36				1.35				1				1.42				1.42				—

 

(1)	Package and freight statistics include only the operations of FedEx Express.

 

(2)	International domestic statistics represent our international intra-country express operations.

FedEx Express Segment Revenues

FedEx Express revenues declined slightly in the third quarter due to the negative impact of lower fuel surcharges and unfavorable exchange rates. These negative impacts were partially offset by increases in U.S. and international export base yields and volumes. Revenues during the nine months of 2015 increased 2% due to U.S. and international export base yield and volume growth, which were partially offset by lower fuel surcharges and unfavorable exchange rates.

U.S. domestic yields decreased in the third quarter and nine months of 2015 due to the negative impact of lower fuel surcharges, which were partially offset by higher rates. The decrease in international export yields in the third quarter and nine months of 2015 was due to the negative impact of lower fuel surcharges and exchange rates and was partially offset by higher rates and weight per package. U.S. domestic volumes increased 4% in the third quarter and 5% in the nine months of 2015 driven by both our overnight and deferred service offerings.

 

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Our U.S. domestic and outbound fuel surcharge and the international fuel surcharges ranged as follows for the periods ended February 28:

 

		Three Months Ended								Nine Months Ended
		2015				2014				2015				2014
U.S. Domestic and Outbound Fuel Surcharge:
Low			3.50	%			9.00	%			3.50	%			8.00	%
High			6.00				10.00				9.50				10.50
Weighted-average			4.80				9.49				7.62				9.34
International Fuel Surcharges:
Low			0.50				13.00				0.50				12.00
High			15.00				18.50				18.00				19.00
Weighted-average			11.57				16.31				14.49				16.16

On February 2, 2015, FedEx Express updated the tables used to determine fuel surcharges. On September 16, 2014, FedEx Express announced a 4.9% average list price increase for FedEx Express U.S. domestic, U.S. export and U.S. import services effective January 5, 2015. In January 2014, we implemented a 3.9% average list price increase for FedEx Express U.S. domestic, U.S. export and U.S. import services.

FedEx Express Segment Operating Income

FedEx Express operating income and operating margin increased in the third quarter and nine months of 2015, driven by U.S. domestic and international export base yield and volume growth, the positive net impact of fuel, benefits associated with our profit improvement program, a lower year-over-year impact from severe winter weather and reduced pension expense. These factors were partially offset by higher maintenance expense and higher incentive compensation accruals.

Within operating expenses, salaries and employee benefits increased 3% in the third quarter and 2% in the nine months of 2015 due to additional staffing to support volume growth and higher incentive compensation accruals, partially offset by the benefits from our voluntary employee severance program and lower pension expense. Maintenance and repairs expense increased 19% in the third quarter and nine months of 2015 primarily due to the timing of aircraft maintenance events. Higher utilization of third-party transportation providers and costs associated with the growth of our freight-forwarding business at FedEx Trade Networks drove an increase in purchased transportation costs of 1% in the third quarter and 4% in the nine months of 2015.

Fuel expense decreased 31% in the third quarter and 13% in the nine months of 2015 due to lower aircraft fuel prices. The net impact of fuel had a significant benefit in the third quarter and nine months of 2015 to operating income. See the “Fuel” section of this MD&A for a description and additional discussion of the net impact of fuel on our operating results.

 

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FEDEX GROUND SEGMENT

FedEx Ground service offerings include day-certain service delivery to businesses in the United States and Canada and to nearly 100% of U.S. residences. FedEx SmartPost consolidates high-volume, low-weight, less time-sensitive business-to-consumer packages and utilizes the United States Postal Service (“USPS”) for final delivery. On January 30, 2015, we acquired GENCO, one of the largest third-party logistics providers in North America. GENCO’s financial results are included in the following table from the date of acquisition, which has impacted the year-over-year comparability of revenue and operating expenses. 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 periods ended February 28:

 

		Three Months Ended								Percent				Nine Months Ended								Percent
		2015				2014				Change				2015				2014				Change
Revenues:
FedEx Ground		$	3,021			$	2,751				10			$	8,569			$	7,858				9
FedEx SmartPost			285				280				2				760				752				1
GENCO			87				—				NM				87				—				NM
Total revenues			3,393				3,031				12				9,416				8,610				9
Operating expenses:
Salaries and employee benefits			565				460				23				1,498				1,319				14
Purchased transportation			1,348				1,253				8				3,765				3,476				8
Rentals			126				105				20				349				299				17
Depreciation and amortization			136				121				12				381				350				9
Fuel			3				7				(57	)			9				14				(36	)
Maintenance and repairs			61				57				7				174				166				5
Intercompany charges(1)			281				274				3				834				821				2
Other			315				264				19				838				753				11
Total operating expenses(1)			2,835				2,541				12				7,848				7,198				9
Operating income(1)		$	558			$	490				14			$	1,568			$	1,412				11
Operating margin(1)			16.4	%			16.2	%			20	bp			16.7	%			16.4	%			30	bp
Average daily package volume
FedEx Ground			5,136				4,817				7				4,851				4,584				6
FedEx SmartPost			2,360				2,529				(7	)			2,117				2,276				(7	)
Revenue per package (yield)
FedEx Ground		$	9.32			$	9.04				3			$	9.28			$	9.00				3
FedEx SmartPost		$	1.97			$	1.82				8			$	1.91			$	1.76				9

 

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		Percent of Revenue
		Three Months Ended								Nine Months Ended
		2015				2014				2015				2014
Operating expenses:
Salaries and employee benefits			16.7	%			15.2	%			15.9	%			15.3	%
Purchased transportation			39.7				41.3				40.0				40.4
Rentals			3.7				3.5				3.7				3.5
Depreciation and amortization			4.0				4.0				4.0				4.1
Fuel			0.1				0.2				0.1				0.2
Maintenance and repairs			1.8				1.9				1.8				1.9
Intercompany charges(1)			8.3				9.0				8.9				9.5
Other			9.3				8.7				8.9				8.7
Total operating expenses(1)			83.6				83.8				83.3				83.6
Operating margin(1)			16.4	%			16.2	%			16.7	%			16.4	%

 

(1)	Prior year amounts have been revised to conform to the current year segment presentation regarding the allocation of corporate headquarters costs.

FedEx Ground Segment Revenues

FedEx Ground segment revenues increased 12% in the third quarter and 9% in the nine months of 2015 due to volume and yield growth at FedEx Ground and yield growth at FedEx SmartPost, partially offset by lower volumes at FedEx SmartPost.

Average daily volume at FedEx Ground increased 7% in the third quarter and 6% in the nine months of 2015 due to continued growth in our commercial business and FedEx Home Delivery service. Yield increased 3% in the third quarter and nine months of 2015 primarily due to rate increases and higher dimensional weight charges.

FedEx SmartPost average daily volume decreased 7% in the third quarter and nine months of 2015 due to the reduction in volume from a major customer. FedEx SmartPost yield increased 8% in the third quarter and 9% in the nine months of 2015 due to rate increases and improved customer mix, partially offset by higher postage costs. FedEx SmartPost yield represents the amount charged to customers net of postage paid to the USPS.

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 periods ended February 28:

 

		Three Months Ended								Nine Months Ended
		2015				2014				2015				2014
Low			5.50	%			6.50	%			5.50	%			6.50	%
High			6.00				6.50				7.00				7.00
Weighted-average			5.85				6.50				6.38				6.61

On February 2, 2015, FedEx Ground updated the tables used to determine fuel surcharges. On September 16, 2014, FedEx Ground and FedEx Home Delivery announced a 4.9% increase in average list price effective January 5, 2015. In addition, as announced in May 2014, FedEx Ground began applying dimensional weight pricing to all shipments effective January 5, 2015. In January 2014, FedEx Ground and FedEx Home Delivery implemented a 4.9% increase in average list price. FedEx SmartPost rates also increased.

FedEx Ground Segment Operating Income

FedEx Ground segment operating income increased 14% in the third quarter and 11% in the nine months of 2015 driven by higher revenue per package and volumes, the positive net impact of fuel, and a lower year-over-year impact from severe winter weather. The increase to operating income was partially offset by higher network expansion costs, as we continue to invest heavily in our FedEx Ground and FedEx SmartPost businesses.

 

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The inclusion of GENCO in the FedEx Ground segment results has impacted the year-over-year comparability of all operating expenses. Along with incremental costs from GENCO, purchased transportation expense increased 8% in the third quarter and nine months of 2015 due to volume growth and higher service provider rates. Additional staffing to support volume growth drove an increase in salaries and employee benefits expense of 23% in the third quarter and 14% in the nine months of 2015. Other expense increased 19% in the third quarter and 11% in the nine months of 2015 primarily due to self-insurance costs and real estate taxes. Network expansion caused rentals expense to increase 20% in the third quarter and 17% in the nine months of 2015. Depreciation and amortization expense increased 12% in the third quarter and 9% in the nine months of 2015 due to network expansion and trailer purchases.

Independent Contractor Model

FedEx Ground is involved in numerous lawsuits and other proceedings (such as state tax or other administrative challenges) where the classification of its independent contractors is at issue. We are vigorously defending ourselves in all of these proceedings and continue to believe that FedEx Ground’s owner-operators are properly classified as independent contractors and not employees of FedEx Ground. For a description of these proceedings, see Note 8 of the accompanying unaudited condensed consolidated financial statements.

For additional information on the FedEx Ground Independent Service Provider model, see Part 1, Item 1 of our Annual Report under the caption “Independent Contractor Model.”

 

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FEDEX FREIGHT SEGMENT

FedEx Freight service offerings include priority services when speed is critical and economy services when time can be traded for savings. The following table compares revenues, operating expenses, operating expenses as a percent of revenue, operating income (dollars in millions), operating margin and selected statistics for the periods ended February 28:

 

		Three Months Ended								Percent				Nine Months Ended								Percent
		2015				2014				Change				2015				2014				Change
Revenues		$	1,428			$	1,347				6			$	4,622			$	4,205				10
Operating expenses:
Salaries and employee benefits			663				598				11				2,005				1,807				11
Purchased transportation			235				231				2				792				715				11
Rentals			33				31				6				96				94				2
Depreciation and amortization			54				58				(7	)			170				172				(1	)
Fuel			109				146				(25	)			399				436				(8	)
Maintenance and repairs			49				42				17				148				134				10
Intercompany charges(1)			108				105				3				329				329				—
Other			109				101				8				335				301				11
Total operating expenses(1)			1,360				1,312				4				4,274				3,988				7
Operating income (1)		$	68			$	35				94			$	348			$	217				60
Operating margin(1)			4.8	%			2.6	%			220	bp			7.5	%			5.2	%			230	bp
Average daily LTL shipments (in thousands)
Priority			62.0				59.5				4				67.1				61.5				9
Economy			26.8				26.3				2				28.4				27.3				4
Total average daily LTL shipments			88.8				85.8				3				95.5				88.8				8
Weight per LTL shipment (lbs)
Priority			1,287				1,280				1				1,262				1,255				1
Economy			1,007				1,002				—				1,010				995				2
Composite weight per LTL shipment			1,203				1,195				1				1,187				1,175				1
LTL revenue per shipment
Priority		$	231.92			$	224.63				3			$	229.43			$	222.99				3
Economy			265.66				257.74				3				265.51				257.10				3
Composite LTL revenue per shipment		$	242.52			$	235.14				3			$	240.30			$	233.61				3
LTL yield (revenue per hundredweight)
Priority		$	18.02			$	17.54				3			$	18.18			$	17.77				2
Economy			26.38				25.71				3				26.29				25.83				2
Composite LTL yield		$	20.17			$	19.67				3			$	20.24			$	19.88				2

 

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		Percent of Revenue
		Three Months Ended								Nine Months Ended
		2015				2014				2015				2014
Operating expenses:
Salaries and employee benefits			46.4	%			44.4	%			43.4	%			43.0	%
Purchased transportation			16.5				17.2				17.1				17.0
Rentals			2.3				2.3				2.1				2.2
Depreciation and amortization			3.8				4.3				3.7				4.1
Fuel			7.6				10.8				8.6				10.4
Maintenance and repairs			3.4				3.1				3.2				3.2
Intercompany charges(1)			7.6				7.8				7.1				7.8
Other			7.6				7.5				7.3				7.1
Total operating expenses(1)			95.2				97.4				92.5				94.8
Operating margin(1)			4.8	%			2.6	%			7.5	%			5.2	%

 

(1)	Prior year amounts have been revised to conform to the current year segment presentation regarding the allocation of corporate headquarters costs.

FedEx Freight Segment Revenues

FedEx Freight segment revenues increased 6% in the third quarter and 10% in the nine months of 2015 due to higher average daily shipments and revenue per shipment. Average daily LTL shipments increased 3% in the third quarter and 8% in the nine months of 2015 due to higher demand for both of our service offerings. LTL revenue per shipment increased 3% in the third quarter due to higher rates and in the nine months of 2015 due to higher weight per LTL shipment and higher rates.

The weekly indexed LTL fuel surcharge is based on the average of the 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 periods ended February 28:

 

		Three Months Ended								Nine Months Ended
		2015				2014				2015				2014
Low			20.90	%			23.00	%			20.90	%			22.70	%
High			24.60				23.70				26.20				23.70
Weighted-average			22.70				23.20				24.70				23.10

On February 2, 2015, FedEx Freight updated the tables used to determine fuel surcharges. On September 16, 2014, FedEx Freight announced a 4.9% average increase in certain U.S. and other shipping rates effective January 5, 2015. In June 2014, FedEx Freight increased its published fuel surcharge indices by three percentage points. In March 2014, FedEx Freight increased certain U.S. and other shipping rates by an average of 3.9%. In July 2013, FedEx Freight increased certain U.S. and other shipping rates by an average of 4.5%.

FedEx Freight Segment Operating Income

FedEx Freight segment operating income and operating margin increased in the third quarter and nine months of 2015 due to higher LTL revenue per shipment and higher average daily LTL shipments.

Within operating expenses, salaries and employee benefits increased 11% in the third quarter and the nine months of 2015 due to additional staffing to support volume growth and higher incentive compensation accruals. Volume growth and higher service provider rates drove an increase to purchased transportation expense of 11% in the nine months of 2015. Other expense increased 11% in the nine months of 2015 driven partially by higher cargo claims.

 

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FINANCIAL CONDITION

LIQUIDITY

Cash and cash equivalents totaled $3.5 billion at February 28, 2015, compared to $2.9 billion at May 31, 2014. The following table provides a summary of our cash flows for the nine-month periods ended February 28 (in millions):

 

		2015				2014
Operating activities:
Net income		$	1,802			$	1,367
Noncash charges and credits			2,534				2,519
Changes in assets and liabilities			(863	)			(1,308	)
Cash provided by operating activities			3,473				2,578
Investing activities:
Capital expenditures			(2,969	)			(2,554	)
Business acquisitions, net of cash acquired			(1,429	)			—
Proceeds from asset dispositions and other			16				23
Cash used in investing activities			(4,382	)			(2,531	)
Financing activities:
Principal payments on debt			(1	)			(254	)
Proceeds from debt issuances			2,491				1,997
Proceeds from stock issuances			272				462
Dividends paid			(171	)			(142	)
Purchase of treasury stock, including accelerated share repurchase agreements			(1,016	)			(3,984	)
Other			8				9
Cash provided by (used in) financing activities			1,583				(1,912	)
Effect of exchange rate changes on cash			(104	)			(10	)
Net increase (decrease) in cash and cash equivalents		$	570			$	(1,875	)

Cash flows from operating activities increased $895 million in the nine months of 2015 primarily due to higher net income and the inclusion in the prior year of payments associated with our voluntary employee buyout program. Capital expenditures during the nine months of 2015 were higher primarily due to increased spending for aircraft at FedEx Express and sort facility expansion at FedEx Ground. See “Capital Resources” for a discussion of capital expenditures during 2015 and 2014.

During the quarter, we issued $2.5 billion of senior unsecured debt under our current shelf registration statement. We utilized the net proceeds to fund our $1.4 billion acquisition of GENCO and the remaining proceeds for working capital and general corporate purposes. See Note 3 of the accompanying unaudited financial statements for further discussion of this debt issuance and Note 1 for discussion of business acquisitions.

In September 2014, our Board of Directors authorized the repurchase of up to 15 million shares of common stock. It is expected that the additional share authorization will primarily be utilized to offset equity compensation dilution over the next several years. During the third quarter of 2015, we repurchased 400,000 shares of FedEx common stock at an average price of $172 per share for a total of $69 million. As of February 28, 2015, 13.6 million shares remained under the share repurchase authorization.

 

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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 periods ended February 28 (in millions):

 

																		Percent Change 2015/2014
		Three Months Ended								Nine Months Ended								Three Months Ended				Nine Months Ended
		2015				2014				2015				2014
Aircraft and related equipment		$	472			$	308			$	1,270			$	1,001				53				27
Facilities and sort equipment			294				215				746				545				37				37
Vehicles			184				210				523				634				(12	)			(18	)
Information and technology investments			59				91				209				253				(35	)			(17	)
Other equipment			71				40				221				121				78				83
Total capital expenditures		$	1,080			$	864			$	2,969			$	2,554				25				16
FedEx Express segment		$	569			$	472			$	1,649			$	1,467				21				12
FedEx Ground segment			291				199				794				609				46				30
FedEx Freight segment			147				110				285				250				34				14
FedEx Services segment			73				83				240				228				(12	)			5
Other			—				—				1				—				—				NM
Total capital expenditures		$	1,080			$	864			$	2,969			$	2,554				25				16

Capital expenditures during the nine months of 2015 were higher than the prior-year period primarily due to increased spending for aircraft at FedEx Express and increased spending for sort facility expansion at FedEx Ground. Aircraft and related equipment purchases at FedEx Express during the nine months of 2015 included the delivery of ten Boeing 767-300 Freighter (“B767F”) and thirteen Boeing 757 (“B757”) aircraft, as well as the modification of certain aircraft before being placed into service.

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 and business acquisition requirements and debt payment obligations. Our cash and cash equivalents balance at February 28, 2015 includes $488 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 2015, 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.

Our capital expenditures are expected to be approximately $4.2 billion in 2015 and include spending for aircraft and aircraft-related equipment at FedEx Express, sort facility expansion, primarily at FedEx Ground, and vehicle replacement at all our transportation segments. We invested $1.3 billion in aircraft and aircraft-related equipment in the nine months of 2015 and expect to invest an additional $485 million for aircraft and aircraft-related equipment during the remainder of 2015. In March 2015, we made $165 million in contributions to our U.S. Pension Plans. Our U.S. Pension Plans have ample funds to meet expected benefit payments. See Note 5 of the accompanying unaudited condensed consolidated financial statements for expected future benefit payments for the remainder of 2015.

 

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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. As of February 28, 2015, no commercial paper was outstanding and the entire $1 billion under the revolving credit facility was available for future borrowings. See Note 3 and our Annual Report for a description of the term and significant covenants of our revolving credit facility.

Standard & Poor’s has assigned us a senior unsecured debt credit rating of BBB and commercial paper rating of A-2 and a ratings outlook of “stable.” Moody’s Investors Service has assigned us a senior unsecured debt credit rating of Baa1 and commercial paper rating of P-2 and a ratings outlook of “stable.” 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.

CONTRACTUAL CASH OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

The following table sets forth a summary of our contractual cash obligations as of February 28, 2015. 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 interest on long-term debt, this table does not include amounts already recorded in our balance sheet as current liabilities at February 28, 2015. 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)
		2015(1)				2016				2017				2018				2019				Thereafter				Total
Operating activities:
Operating leases		$	493			$	2,089			$	2,167			$	1,664			$	1,422			$	8,009			$	15,844
Non-capital purchase obligations and other			152				333				182				111				68				111				957
Interest on long-term debt			14				325				320				320				320				5,591				6,890
Quarterly contributions to our U.S. Pension Plans			8				—				—				—				—				—				8
Investing activities:
Aircraft and aircraft-related capital commitments			415				1,249				1,013				1,389				1,033				4,429				9,528
Other capital purchase obligations			21				2				4				—				—				—				27
Financing activities:
Debt			—				—				—				—				750				6,490				7,240
Total		$	1,103			$	3,998			$	3,686			$	3,484			$	3,593			$	24,630			$	40,494

 

(1)	Cash obligations for the remainder of 2015.

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.

 

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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 February 28, 2015.

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 ($34 million) is excluded from the table.

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.

We had $401 million in deposits and progress payments as of February 28, 2015 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. For the remainder of 2015, we have no scheduled principal debt payments.

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 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 February 28, 2015, nor do we believe the goodwill of our reporting units is at risk of failing impairment testing. For additional details on goodwill impairment testing, refer to Note 1 of our Annual Report.

 

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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.

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:

 

•

economic conditions in the global markets in which we operate;

 

•

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;

 

•

damage to our reputation or loss of brand equity;

 

•

disruptions to the Internet or our technology infrastructure, including those impacting our computer systems and website, or data breaches or leakage, including those arising from malware, attempts to penetrate our network or human error, which can adversely affect our operations and reputation among customers;

 

•

the price and availability of jet and vehicle fuel;

 

•

our ability to manage our cost structure for capital expenditures and operating expenses, and match it to shifting and future customer volume levels;

 

•

the impact of intense competition on our ability to maintain or increase our prices (including our fuel surcharges in response to fluctuating fuel price) or to maintain or grow our market share;

 

•

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;

 

•

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;

 

•

the impact of costs related to (i) challenges to the status of FedEx Ground’s owner-operators as independent contractors, rather than employees, and (ii) any related changes to our relationship with these owner-operators;

 

•

our ability to execute on our profit improvement programs;

 

•

the impact of any international conflicts 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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•

any impacts on our businesses resulting from new domestic or international government laws and regulation, including regulatory actions affecting global aviation or other transportation rights, increased air cargo and other security or 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 of 1926, as amended affecting FedEx Express employees), environmental (such as global climate change legislation), information security or postal rules;

 

•

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;

 

•

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 USPS’s current financial difficulties or any resulting structural changes to its operations, network, service offerings or pricing;

 

•

increasing costs, the volatility of costs and funding requirements and other legal mandates for employee benefits, especially pension and healthcare benefits;

 

•

the increasing costs of compliance with federal, state and foreign governmental agency mandates (including the Foreign Corrupt Practices Act and the U.K. Bribery Act) and defending against inappropriate or unjustified enforcement or other actions by such agencies;

 

•

changes in foreign currency exchange rates, especially in the Chinese yuan, euro, Brazilian real, British pound and the Canadian dollar, which can affect our sales levels and foreign currency sales prices;

 

•

market acceptance of our new service and growth initiatives;

 

•

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 or governmental proceedings;

 

•

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 became amendable in March 2013, and the parties are currently in negotiations);

 

•

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;

 

•

governmental underinvestment in transportation infrastructure, which could increase our costs and adversely impact our service levels due to traffic congestion or sub-optimal routing of our vehicles and aircraft;

 

•

widespread outbreak of an illness or any other communicable disease, or any other public health crisis;

 

•

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; and

 

•

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 “Management’s Discussion and Analysis of Results of Operations and Financial Condition” in our Annual Report, as updated by our quarterly reports on Form 10-Q.

 

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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 the forward-looking statements, which speak only as of the date of this report. We are under no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of February 28, 2015, 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 Chinese yuan, euro, Brazilian real, British pound and the Canadian dollar. 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 nine months of 2015, the U.S. dollar strengthened relative to the currencies of the foreign countries in which we operate, as compared to May 31, 2014; however, this strengthening 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 indexed fuel surcharges. For additional discussion of our indexed fuel surcharges see the “Fuel” section of “Management’s Discussion and Analysis of Results of Operations and Financial Condition.”

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 SEC’s 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 February 28, 2015 (the end of the period covered by this Quarterly Report on Form 10-Q).

During our fiscal quarter ended February 28, 2015, 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.

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

There have been no material changes from the risk factors disclosed in our Annual Report (under the heading “Risk Factors” in “Management’s Discussion and Analysis of Results of Operations and Financial Condition”) in response to Part I, Item 1A of Form 10-K.

 

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information on FedEx’s repurchases of our common stock during the third quarter of 2015:

ISSUER PURCHASES OF EQUITY SECURITIES

 

Period		Total Number of Shares Purchased				Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Program				Maximum Number of Shares That May Yet Be Purchased Under the Program
Dec. 1-31, 2014			200,000				173.22				200,000				13,800,000
Jan. 1-31, 2015			—				—				—				13,800,000
Feb. 1-28, 2015			200,000				171.01				200,000				13,600,000
Total			400,000								400,000

The repurchases were made under the stock repurchase program approved by our Board of Directors and announced on September 29, 2014 and through which we were authorized to purchase, in the open market or in privately negotiated transactions, up to an aggregate of 15 million shares of our common stock. As of March 18, 2015, 13.6 million shares remained authorized for purchase under the September 2014 stock repurchase program, which is the only such program that currently exists. The program does not have an expiration date.

Item 6. Exhibits

 

Exhibit     Number		Description of Exhibit
4.1		Indenture, dated as of August 8, 2006, between FedEx Corporation, the Guarantors named therein and The Bank of New York Mellon Trust Company, N.A. (formerly, The Bank of New York Trust Company, N.A.), as trustee. (Filed as Exhibit 4.3 to FedEx Corporation’s Registration Statement on Form S-3 filed with the Securities and Exchange Commission on September 19, 2012, and incorporated herein by reference).
4.2		Supplemental Indenture No. 6, dated as of January 9, 2015, between FedEx Corporation, the Guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee. (Filed as Exhibit 4.1 to FedEx Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2015, and incorporated herein by reference).
4.3		Form of 2.300% Note due 2020. (Included in Exhibit 4.1 to FedEx Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2015, and incorporated herein by reference).
4.4		Form of 3.200% Note due 2025. (Included in Exhibit 4.1 to FedEx Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2015, and incorporated herein by reference).
4.5		Form of 3.900% Note due 2035. (Included in Exhibit 4.1 to FedEx Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2015, and incorporated herein by reference).
4.6		Form of 4.100% Note due 2045. (Included in Exhibit 4.1 to FedEx Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2015, and incorporated herein by reference).

 

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4.7		Form of 4.500% Note due 2065. (Included in Exhibit 4.1 to FedEx Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2015, and incorporated herein by reference).
10.1		Amendment dated December 23, 2014 (but effective as of October 27, 2014), amending the Transportation Agreement dated April 23, 2013 between the United States Postal Service and Federal Express Corporation (the “Transportation Agreement”). Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
10.2		Amendment dated December 10, 2014 (but effective as of November 24, 2014), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
10.3		Amendment dated December 23, 2014 (but effective as of January 5, 2015), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
10.4		Amendment dated February 19, 2015 (but effective as of December 1, 2014), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
10.5		Letter Agreement dated as of January 22, 2015, amending the Boeing 767-3S2 Freighter Purchase Agreement dated as of December 14, 2011 between The Boeing Company and Federal Express Corporation. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
12.1		Computation of Ratio of Earnings to Fixed Charges.
15.1		Letter re: Unaudited Interim Financial Statements.
31.1		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.
31.2		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.
32.1		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.
32.2		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.
101.1		Interactive Data Files.

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

						FEDEX CORPORATION
Date: March 19, 2015						/s/ JOHN L. MERINO
						JOHN L. MERINO CORPORATE VICE PRESIDENT AND PRINCIPAL ACCOUNTING OFFICER

 

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EXHIBIT INDEX

 

Exhibit     Number		Description of Exhibit
4.1		Indenture, dated as of August 8, 2006, between FedEx Corporation, the Guarantors named therein and The Bank of New York Mellon Trust Company, N.A. (formerly, The Bank of New York Trust Company, N.A.), as trustee. (Filed as Exhibit 4.3 to FedEx Corporation’s Registration Statement on Form S-3 filed with the Securities and Exchange Commission on September 19, 2012, and incorporated herein by reference).
4.2		Supplemental Indenture No. 6, dated as of January 9, 2015, between FedEx Corporation, the Guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee. (Filed as Exhibit 4.1 to FedEx Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2015, and incorporated herein by reference).
4.3		Form of 2.300% Note due 2020. (Included in Exhibit 4.1 to FedEx Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2015, and incorporated herein by reference).
4.4		Form of 3.200% Note due 2025. (Included in Exhibit 4.1 to FedEx Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2015, and incorporated herein by reference).
4.5		Form of 3.900% Note due 2035. (Included in Exhibit 4.1 to FedEx Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2015, and incorporated herein by reference).
4.6		Form of 4.100% Note due 2045. (Included in Exhibit 4.1 to FedEx Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2015, and incorporated herein by reference).
4.7		Form of 4.500% Note due 2065. (Included in Exhibit 4.1 to FedEx Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2015, and incorporated herein by reference).
10.1		Amendment dated December 23, 2014 (but effective as of October 27, 2014), amending the Transportation Agreement dated April 23, 2013 between the United States Postal Service and Federal Express Corporation (the “Transportation Agreement”). Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
10.2		Amendment dated December 10, 2014 (but effective as of November 24, 2014), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
10.3		Amendment dated December 23, 2014 (but effective as of January 5, 2015), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

 

E-1

---

Table of Contents

10.4		Amendment dated February 19, 2015 (but effective as of December 1, 2014), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
10.5		Letter Agreement dated as of January 22, 2015, amending the Boeing 767-3S2 Freighter Purchase Agreement dated as of December 14, 2011 between The Boeing Company and Federal Express Corporation. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
12.1		Computation of Ratio of Earnings to Fixed Charges.
15.1		Letter re: Unaudited Interim Financial Statements.
31.1		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.
31.2		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.
32.1		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.
32.2		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.
101.1		Interactive Data Files.

 

E-2

Exhibit 10.1

 

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT		1. CONTRACT ID CODE		PAGE OF   1        2

2. AMENDMENT/MODIFICATION NO. 028		3. EFFECTIVE DATE   10/27/2014		4. REQUISITION/PURCHASE REQ. NO.		5. PROJECT NO. (If applicable)
6. ISSUED BY                         CODE		5ASNET		7. ADMINISTERED BY (If other than Item 6)		CODE		5ASNET
ALAINA EARL Air Transportation CMC United States Postal Service 475 L’Enfant Plaza SW Room 1P 650 Washington DC 20260-0650 (202) 268-6580				Air Transportation CMC Air Transportation CMC United States Postal Service 475 L’Enfant Plaza SW, Room 1P650 Washington DC 20260-0650

8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code) FEDERAL EXPRESS CORPORATION 3610 HACKS CROSS ROAD MEMPHIS, TN 38125-8800				(x)		9A. AMENDMENT OF SOLICITATION NO.
						9B. DATED (SEE ITEM 11)
				x		10A. MODIFICATION OF CONTRACT/ORDER NO. ACN-13-FX
						10B. DATED (SEE ITEM 13)   04/23/2013
SUPPLIER CODE    000389122		FACILITY CODE

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

 

¨						¨  is extended,         ¨  is not extended.

Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing Items 8 and 15, and returning                     copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment number. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.

12. ACCOUNTING AND APPROPRIATION DATA     (If required). See Schedule		Net Decrease [*]

13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS. IT MODIFIES THE CONTRACT/ORDER   NO. AS DESCRIBED IN ITEM 14

(x)		A.		THIS CHANGE BY CLAUSE IS ISSUED PURSUANT TO: (Specify clause) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
x				Monthly Fuel Adjustment
¨		B.		THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14.
¨		C.		THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
¨		D.		OTHER (such as no cost change/cancellation, termination, etc.) (Specify type of modification and authority): THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.

E. IMPORTANT:     Contractor ¨ is not, x is required to sign this document and return          1           copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.) In accordance with contract ACN-13-FX and the “Fuel Adjustment” section, the following Line Haul Rate (fuel) for the Day Network as set out in Attachment 10 is modified for performance during the period of October 27, 2014 to November 30, 2014 (Operating Period 14) as follows:   From: [*] per cubic foot   To:   Continued…

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print)   Paul J. Herron, Vice President		16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)       Brian McKain

15B. CONTRACTOR/OFFEROR       /s/ PAUL J. HERRON (Signature of person authorized to sign)		15C. DATE SIGNED     12/21/14		16B. CONTRACT AUTHORITY       /s/ Brian McKain (Signature of Contracting Officer)		16C. DATE SIGNED   12/23/14

*Blank spaces contained confidential information which has been filed separately with the Securities and Exchange Commission

pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

---

CONTINUATION SHEET						REQUISITION NO.		PAGE OF 2        2

CONTRACT/ORDER NO. ACN-13-FX/028		AWARD/ EFFECTIVE DATE   10/27/2014		MASTER/AGENCY CONTRACT NO.		SOLICITATION NO.		SOLICITATION ISSUE DATE

ITEM NO.		SCHEDULE OF SUPPLIES / SERVICES		QUANTITY		UNIT		UNIT PRICE		AMOUNT
00001		[*] per cubic foot   This is a decrease of [*].   [*]   Sub Rept Req’d: Y Carrier Code: FX Route Termini S: Various Route Termini End: Various Payment Terms: SEE CONTRACT Delivery: 10/27/2014 Discount Terms:   See Schedule   Accounting Info: BFN: 670167 FOB: Destination Period of Performance: 10/27/2014 to 09/30/2020   Change Item 00001 to read as follows:   Day Network Account Number: 53503								[*]

*Blank spaces contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

Exhibit 10.2

 

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT		1. CONTRACT ID CODE		PAGE OF   1        2

2. AMENDMENT/MODIFICATION NO. 029		3. EFFECTIVE DATE   11/24/2014		4. REQUISITION/PURCHASE REQ. NO.		5. PROJECT NO. (If applicable)
6. ISSUED BY                         CODE		5ASNET		7. ADMINISTERED BY (IF OTHER THAN ITEM 6)		CODE		5ASNET
ALAINA EARL Air Transportation CMC United States Postal Service 475 L’Enfant Plaza SW Room 1P 650 Washington DC 20260-0650 (202) 268-6580				Air Transportation CMC Air Transportation CMC United States Postal Service 475 L’Enfant Plaza SW, Room 1P650 Washington DC 20260-0650

8. NAME AND ADDRESS OF CONTRACTOR (No., Street, County, State, and Zip Code) FEDERAL EXPRESS CORPORATION 3610 HACKS CROSS ROAD MEMPHIS TN 38125-8800				(x)		9A. AMENDMENT OF SOLICITATION NO.
						9B. DATED (SEE ITEM 11)
				x		10A. MODIFICATION OF CONTRACT/ORDER NO. ACN-13-FX
						10B. DATED (SEE ITEM 13)   04/23/2013
SUPPLIER CODE:    000389122		FACILITY CODE

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

 

¨						¨  is extended,         ¨  is not extended.

Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing items 8 and 15, and returning                copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment number. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.

 

12. ACCOUNTING AND APPROPRIATION DATA     (If Required) See Schedule		$0.00

13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS. IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

(x)		A.		THIS CHANGE BY CLAUSE IS ISSUED PURSUANT TO: (Specify Clause) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
¨
¨		B.		THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14.
¨		C.		THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
x		D.		OTHER (such as no cost change/cancellation, termination, etc.) (Specify type of modification and authority): THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A. By Mutual Agreement of the Contracting Parties

E. IMPORTANT:     Contractor ¨ is not, x is required to sign this document and return          1           copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.) This modification is applicable to Operating Period 15 (Peak).   1. FedEx will accept up to a total of [*] cubic feet per day in the form of Ad Hoc Trucks and/or charter flights on the Day Network at the Memphis Hub.   FedEx must approve any additional charters or rerouting of a scheduled charter flight in advance. All Domestic Charter flights must arrive by 10:00 AM daily at the Memphis Hub.   2. Ad hoc trucks accepted by FedEx will be paid at 3,000 cubic feet per truck.   3. In return for taking ad hoc trucks the Postal Service will grant a waiver of any reductions in payment for delivery performance and missing scans.   Continued …   Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

 

15A. NAME AND TITLE OF SIGNER (Type or print)       Paul J. Herron, Vice President		16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)       Brian McKain

15B. CONTRACTOR/OFFEROR        /s/ PAUL J. HERRON (Signature of person authorized to sign)		15C. DATE SIGNED   12-8-2014		16B. CONTRACT AUTHORITY       /s/ BRIAN MCKAIN (Signature of Contracting Officer)		16C. DATE SIGNED   12/10/14

* Blank spaces contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

---

CONTINUATION SHEET						REQUISITION NO.		PAGE OF 2        2

CONTRACT/ORDER NO. ACN-13-FX/029		AWARD/ EFFECTIVE DATE   11/24/2014		MASTER/AGENCY CONTRACT NO.		SOLICITATION NO.		SOLICITATION ISSUE DATE

ITEM NO		SCHEDULE OF SUPPLIES / SERVICES		QUANTITY		UNIT		UNIT PRICE		AMOUNT
		4. For the period of December 1, 2014 through December 24, 2014, MEM will serve as co-terminus for all mail destinating to LAX.   5. FedEx is to supply Unit Load Device (ULD) containers or pallets and nets for charter operations during the Peak Season 2014, per the attached, “Peak 2014 (FY15) Charter ULD Agreement.” FedEx will have the ULD containers or pallets and nets in place for operations effective November 24, 2014, through December 28, 2014. Payment for the use of the FedEx ULD containers will be based on agreed upon terms outlined in the attached “Peak 2014 (FY15) Charter ULD Agreement.” Payment will be made through the reconciliation process.   6. In order to balance the ULD’s needed each day, FedEx will load the LAX outbound mail from Memphis on the charter flight first and then load the remaining Postal containers on the scheduled FedEx Flights. Sub Rept Req’d: Y Carrier Code: FX Route Termini S: Various Route Termini End: Various Payment Terms: SEE CONTRACT Period of Performance: 10/27/2014 to 09/30/2020

---

Peak 2014 (FY15) Charter ULD Agreement

 

Nov Week 5, Nov 24 to 30

Dec Week 1, Dec 1 to 7

Dec Week 2, Dec 8 to 14

Dec Week 3, Dec 15 to 21

Dec Week 4,  Dec 22 to 28

Charters

AMJ

LD3

AMJ

LD3

AMJ

LD3

AMJ

LD3

AMJ

LD3

LAX

[*]

[*]

[*]

[*]

[*]

[*]

[*]

[*]

HNL

[*]

[*]

[*]

[*]

[*]

[*]

[*]

[*]

[*]

[*]

SJU

[*]

[*]

[*]

[*]

[*]

[*]

[*]

[*]

[*]

[*]

ANC

[*]

[*]

[*]

[*]

[*]

[*]

[*]

[*]

[*]

[*]

Total ULDs by Week

[*]

[*]

[*]

[*]

[*]

[*]

[*]

[*]

[*]

[*]

Total AMJs for the  Period

[*]

Total LD3s for the Period

[*]

ULD Charges for Period

ULD Type

AMJ

LD3

Amount of containers

[*]

[*]

Charge per ULD

[*]

[*]

Total Charges Per ULD type

[*]

[*]

Total Charges

[*]

Assumptions:

1. [*]

2. [*]

3. [*]

4. HNL ops from Nov. 30th through Dec. 23rd. ANC ops from Dec. 3rd through Dec. 21st. SJU ops from Nov. 30th to Dec. 23rd. LAX ops from December 2nd through December 23rd

5. ULDs are provided the day prior to the start of the first operation and are returned to FedEx the day after the last operation.

The day prior and after operations are included in the rental agreement.

6. The total amount of ULDs charged is based on the 3 offshore locations and LAX, 2 ULD sets per operational leg and length of operational periods as outlined above.

7. The amounts charged per container type are AMJ - [*] and LD3s - [*] based on current IATA rates.

8. The LAX 747 charter in weeks 3 and 4 may have different combinations of ULDs based on availability at the time of operation:

Uppers: AMJ, AAD, pallet, or a combination. Bellies: LD3, pallet, or a combination. The uppers ULD charge is [*] and the bellies ULD charge is [*] per position for whatever combination of ULDs available for weeks 3 and 4.

9. No contingency dates were provided, but additional charges are due for dates prior to or after the schedule dates listed in item 4

 

*	Blank spaces contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

Exhibit 10.3

 

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT		1. CONTRACT ID CODE		PAGE OF   1        3

2. AMENDMENT/MODIFICATION NO. 030		3. EFFECTIVE DATE   01/05/2015		4. REQUISITION/PURCHASE REQ. NO.		5. PROJECT NO. (If applicable)
6. ISSUED BY                         CODE		5ASNET		7. ADMINISTERED BY (IF OTHER THAN ITEM 6)		CODE		5ASNET
ALAINA EARL Air Transportation CMC United States Postal Service 475 L’Enfant Plaza SW Room 1P 650 Washington DC 20260-0650 (202) 268-6580				Air Transportation CMC Air Transportation CMC United States Postal Service 475 L’Enfant Plaza SW, Room 1P650 Washington DC 20260-0650

8. NAME AND ADDRESS OF CONTRACTOR (No., Street, County, State, and Zip Code) FEDERAL EXPRESS CORPORATION 3610 HACKS CROSS ROAD MEMPHIS TN 38125-8800				(x)		9A. AMENDMENT OF SOLICITATION NO.
						9B. DATED (SEE ITEM 11)
				x		10A. MODIFICATION OF CONTRACT/ORDER NO. ACN-13-FX
						10B. DATED (SEE ITEM 13)   04/23/2013
SUPPLIER CODE:    000389122		FACILITY CODE

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

 

¨						¨  is extended,         ¨  is not extended.

Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing items 8 and 15, and returning                     copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment number. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.

 

12. ACCOUNTING AND APPROPRIATION DATA     (If Required) See Schedule		$0.00

13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS. IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

(x)		A.		THIS CHANGE BY CLAUSE IS ISSUED PURSUANT TO: (Specify Clause) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
¨
¨		B.		THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14.
¨		C.		THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
x		D.		OTHER (such as no cost change/cancellation, termination, etc.) (Specify type of modification and authority): THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A. By Mutual Agreement of the Contracting Parties

E. IMPORTANT:     Contractor ¨ is not, x is required to sign this document and return          1          copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)   The purpose of this modification is to incorporate the following adjustments into ACN-13-FX beginning with Operating Period 16. The terms below apply to the Day Network only.   1-    FedEx will accept mail from Origin air stops as identified in Attachment 3 Operating Plan – Day Network in excess of 105% of Planned Capacity on a space available basis.   2-    FedEx will accept up to a total of fifteen (15) Ad Hoc Trucks per day on the Day Network at the Memphis Hub.   a. All ad hoc trucks must arrive at the Memphis Hub before 10:00 a.m. local time and must be coordinated with FedEx in advance. Required Delivery Time (RDT) will be established in   Continued ...

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print)       Paul J. Herron, Vice President		16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)       Brian Mckain

15B. CONTRACTOR/OFFEROR       /s/ PAUL J. HERRON (Signature of person authorized to sign)		15C. DATE SIGNED   12/21/14		16B. CONTRACT AUTHORITY       /s/ BRIAN MCKAIN (Signature of Contracting Officer)		16C. DATE SIGNED   12/23/14

---

CONTINUATION SHEET						REQUISITION NO.		PAGE OF 2        3

CONTRACT/ORDER NO. ACN-13-FX/030		AWARD/ EFFECTIVE DATE   01/05/2015		MASTER/AGENCY CONTRACT NO.		SOLICITATION NO.		SOLICITATION ISSUE DATE

ITEM NO		SCHEDULE OF SUPPLIES / SERVICES		QUANTITY		UNIT		UNIT PRICE		AMOUNT
		accordance with Attachment 3, Operating Plan, Day Network contingent on the ad hoc trucks arriving at the Memphis Hub before 10:00 a.m. local time. Late arriving trucks (after 10:00 a.m. local time) will be assigned an RDT based on arrival on the next operational day. All RDT’s will be adjusted to reflect the first FedEx operational scan at the Memphis Hub.   b. Initial Payment for ad hoc trucks will be made in the amount of 3,000 cubic feet per truck on an Operating Period basis, no later than 30 days after the last day of each Operating Period. Final payment for ad hoc trucks will be adjusted, if applicable, for any reductions of payment under Part 1: Statement of Work Reduction of Payment and will also be adjusted, if applicable, based upon the Day Turn Scan Requirements under contract section Payment Procedures, Rates and Payment General (with the exception that the volumes moving via ad hoc trucks will not require a Possession Scan). Any adjustments described here, if applicable, will be made through the reconciliation process.   3- Handling Units that represent the amount of mail that FedEx accepts in excess of 105% of the Operating Period’s Planned Capacity by Operating Day will not be assessed a reduction of payment under Part 1: Statement of Work Reduction of Payment or be taken into account under Part 1: Statement of Work Performance Requirements and Measurement.   a. Handling Units in excess of 105% of the Operating Period’s Planned Capacity will be identified by determining the actual volume, in cubic feet (weight of the Handling Units divided by contract density for the applicable Operating Period), delivered each day to each destination that is in excess of 105% of the Planned Capacity for the relevant destination.   b. In each instance, “volume in excess of 105% will be the latest volume to arrive as evidenced by the delivery scans.   Continued…

---

CONTINUATION SHEET						REQUISITION NO.		PAGE OF 3        3

CONTRACT/ORDER NO. ACN-13-FX/030		AWARD/ EFFECTIVE DATE   01/05/2015		MASTER/AGENCY CONTRACT NO.		SOLICITATION NO.		SOLICITATION ISSUE DATE

ITEM NO		SCHEDULE OF SUPPLIES / SERVICES		QUANTITY		UNIT		UNIT PRICE		AMOUNT
		4- Part 1: Statement of Work Reduction of Payment, Section a, will be modified as follows:   a. All Handling Units delivered up to thirty (30) minutes late will be subject to a [*]% reduction of the Transportation Payment.   5- Clause B-1: Definitions will be modified to replace the definition of Delivery Scan with the following:   Delivery Scan: A scan performed by the aviation supplier that indicates that the aviation supplier has tendered volume to the Postal Service. In instances where a Delivery Scan is indicated by a combination of evidence of any scan performed by the aviation supplier and a CARDIT 3 from the THS indicating delivery of the Handling Unit to the third party ground handler, the time indicated for the latest ULD tendered on that Operating Day will be used for the purposes of determining service performance and associated payment reductions described in Part 1: Statement of Work; Performance Requirements and Measurement and Part 1: Statement of Work; Reduction of Payment.   All other requirements, terms, and conditions of the Contract remain unchanged and in full force and effect.   Sub Rept Req’d: Y Carrier Code: FX Route Termini S: Various Route Termini End: Various Payment Terms: SEE CONTRACT Period of Performance: 10/27/2014 to 09/30/2020

 

*	Blank spaces contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

Exhibit 10.4

 

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT		1. CONTRACT ID CODE		PAGE OF   1        2

2. AMENDMENT/MODIFICATION NO. 031		3. EFFECTIVE DATE   12/01/2014		4. REQUISITION/PURCHASE REQ. NO.		5. PROJECT NO. (If applicable)
6. ISSUED BY                         CODE		5ASNET		7. ADMINISTERED BY (IF OTHER THAN ITEM 6)		CODE		5ASNET
ALAINA EARL Air Transportation CMC United States Postal Service 475 L’Enfant Plaza SW Room 1P 650 Washington DC 20260-0650 (202) 268-6580				Air Transportation CMC Air Transportation CMC United States Postal Service 475 L’Enfant Plaza SW, Room 1P650 Washington DC 20260-0650

8. NAME AND ADDRESS OF CONTRACTOR (No., Street, County, State, and Zip Code) FEDERAL EXPRESS CORPORATION 3610 HACKS CROSS ROAD MEMPHIS TN 38125-8800				(x)		9A. AMENDMENT OF SOLICITATION NO.
						9B. DATED (SEE ITEM 11)
				x		10A. MODIFICATION OF CONTRACT/ORDER NO. ACN-13-FX
						10B. DATED (SEE ITEM 13)   04/23/2013
SUPPLIER CODE:    000389122		FACILITY CODE

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

 

¨						¨  is extended,         ¨  is not extended.

Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing items 8 and 15, and returning                     copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment number. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.

12. ACCOUNTING AND APPROPRIATION DATA     (If Required) See Schedule		NET DECREASE: [*]

13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS. IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

(x)		A.		THIS CHANGE BY CLAUSE IS ISSUED PURSUANT TO: (Specify Clause) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
x				Monthly Fuel Adjustment
¨		B.		THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14.
¨		C.		THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
x		D.		OTHER (such as no cost change/cancellation, termination, etc.) (Specify type of modification and authority): THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A. By Mutual Agreement of the Contracting Parties

E. IMPORTANT:     Contractor ¨ is not, x is required to sign this document and return          1           copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.) In accordance with contract ACN-13-FX and the “Fuel Adjustment” section, the following Line Haul Rate (fuel) for the Day Network as set out in Attachment 10 is modified for performance during the period of December 1, 2014 to January 4, 2015 (Operating Period 15) as follows:   From: [*] per cubic foot   To: [*] per cubic foot   Continued…

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print)   Paul J. Herron, Vice President		16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)       Brian Mckain

15B. CONTRACTOR/OFFEROR       /s/ PAUL J. HERRON (Signature of person authorized to sign)		15C. DATE SIGNED   02/13/2015		16B. CONTRACT AUTHORITY       /s/ BRIAN MCKAIN (Signature of Contracting Officer)		16C. DATE SIGNED   02/19/15

* Blank spaces contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

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CONTINUATION SHEET						REQUISITION NO.		PAGE OF 2        2

CONTRACT/ORDER NO. ACN-13-FX/031		AWARD/ EFFECTIVE DATE   12/01/2014		MASTER/AGENCY CONTRACT NO.		SOLICITATION NO.		SOLICITATION ISSUE DATE

ITEM NO		SCHEDULE OF SUPPLIES / SERVICES		QUANTITY		UNIT		UNIT PRICE		AMOUNT
00001		This is a decrease of [*].   [*]   This modification also incorporates the language from Modification 30 into the contract document as shown in the attached. A summary of these changes are as follows:   Page 9: “Aviation Supplier Planned Accommodation – Day Network”   Page 22: “Reduction of Payment”   Page 28: “Payment Processing – Day Network – Per Cube”   Page 34: “Clause B-1: Definitions (March 2006) (Tailored)”   An additional language change from Modification 30 is the removal of the following sentence from Line 1262 of the contract language:   “The invoiced cubic feet for ad hoc trucks will be calculated by dividing the Handling Unit’s Postal Service assigned rounded weight by the applicable contract density.”   Sub Rept Req’d: Y Carrier Code: FX Route Termini S: Various Route Termini End: Various Payment Terms: SEE CONTRACT Delivery: 12/01/2014 Discount Terms:   See Schedule   Accounting Info: BFN: 670167 FOB: Destination Period of Performance: 12/01/2014 to 09/30/2020   Change Item 00001 to read as follows:   Day Network Account Number: 53503								[*]

* Blank spaces contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

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United States Postal Service

AIR CARGO NETWORK

Contract ACN-13-FX

Awarded By:

Air Transportation CMC

Transportation Portfolio

Supply Management

475 L’Enfant Plaza SW

Room 1P 650

Washington, DC 20260-0650

April 23, 2013

Modification 1 Issued May 28, 2013

Modification 2 Issued June 24, 2013

Modification 3 Issued September 24, 2013

Modification 7 Issued October 22, 2013

Modification 11 Issued January 6, 2014

Modification 12 February 3, 2014

Modification 13 March 3, 2014

Modification 14 March 31, 2014

Modification 15 April 28, 2014

Modification 16 May 27, 2014

Modification 17, May 11, 2014

Modification 18, June 18, 2014

Modification 19, June 27, 2014

Modification 21, June 27, 2014

Modification 22, June 30, 2014

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Air Cargo Network

Contract ACN-13-FX

Table of Contents

 

Modification 23, July 28, 2014

Modification 24, September 1, 2014

Modification 25, September 29, 2014

Modification 26, September 29, 2014

Modification 28, October 27, 2014

Modification 30, January 5, 2015

Modification 31, January 13, 2015

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Air Cargo Network

Contract ACN-13-FX

Table of Contents

 

Table of Contents

 

Part 1: Statement of Work			6
Purpose and Scope			6
Scale			6
Services Provided			6
Service Points			7
Management Plan			7
Frequency			8
Mail Assignment and Transport - Day Network			8
Mail Assignment and Transport - Night Network			8
Local Agreements			8
Postal Service Performs Terminal Handling Service (THS) Operation - Day Network			8
Aviation Supplier Planned Accommodation - Day Network			9
Aviation Supplier Planned Accommodation - Night Network			10
Delivery - Day Network			10
Delivery - Night Network			10
Saturday Delivery - Day Network			10
Specific Delivery Instructions			10
Boarding Priority - Day Network			10
Boarding Priority - Night Network			11
Repossession of Mail by the Postal Service			11
Treatment of Exceptional Types of Mail			11
Perishable Mail and Live Mail			13
Registered Mail			13
Offshore Capacity Requirement - Day Network			13
Volume Commitment - General Information			14
Volume Commitment - Contract Volume Minimum - Day Network			14
Operating Period Volume Minimum - Day Network			14
Operating Period Volume Minimum - Night Network			14
Volume Commitment - Holiday - Day Network			15
Volume Commitment - Holiday - Night Network			15
Operating Periods			16
Ordering Process - Non-Peak - Day Network			16
Ordering Process - Non-Peak - Night Network			16
Ordering Process - Peak - Day Network			17
Ordering Process - Peak - Night Network			17
Electronic Data Interchange (EDI)			18
Operational Condition Reports			18
Dimensional Weight Reports			19
Scanning and Data Transmission			19
Performance Requirements and Measurement			20
Reduction of Payment			21
Performance Management			22
Sustainability			22
Security			23
Postal Service Employees Allowed Access			23
Personnel Screening			23
Payment Procedures			27
Rates and Payment General			27
Payment Processing - Day Network - Per Cube			28
Payment Processing - Night Network - Per Pound			31
Reconciliation Process			31

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Part 3: Contract Clauses					33
Clause B-1:		Definitions (March 2006) (Tailored)			33
Clause B-3:		Contract Type (March 2006) (Tailored)			36
Clause B-9:		Claims and Disputes (March 2006) (Tailored)			36
Clause B-10:		Pricing of Adjustments (March 2006) (Tailored)			37
Clause B-15:		Notice of Delay (March 2006) (Tailored)			37
Clause B-22:		Interest (March 2006) (Tailored)			38
Clause B-25:		Advertising of Contract Awards (March 2006)			38
Clause B-30:		Permits and Responsibilities (March 2006) (Tailored)			38
Clause B-39:		Indemnification (March 2006) (Tailored)			38
Clause B-45:		Other Contracts (March 2006) (Tailored)			38
Clause B-65:		Adjustments to Compensation (March 2006) (Tailored)			38
Clause B-69:		Events of Default (March 2006) (Tailored)			40
Clause B-75:		Accountability of the Aviation Supplier (Non-Highway) (March 2006) (Tailored)			40
Clause B-77:		Protection of the Mail (Non-Highway) (March 2006) (Tailored)			41
Clause B-80:		Laws and Regulations Applicable (March 2006) (Tailored)			42
Clause B-81:		Information or Access by Third Parties (March 2006) (Tailored)			42
Clause B-82:		Access by Officials (March 2006) (Tailored)			42
Clause 1-1:		Privacy Protection (July 2007)			43
Clause 1-5:		Gratuities or Gifts (March 2006)			44
Clause 1-6:		Contingent Fees (March 2006)			44
Clause 1-11:		Prohibition Against Contracting with Former Officers or PCES Executives (March 2006) (Tailored)			45
Clause 1-12:		Use of Former Postal Service Employees (March 2006) (Tailored)			45
Clause 2-11:		Postal Service Property - Fixed-Price (March 2006) (Tailored)			45
Clause 2-22:		Value Engineering Incentive (March 2006)			47
Clause 3-1:		Small, Minority, and Woman-owned Business Subcontracting Requirements (March 2006)			50
Clause 3-2:		Participation of Small, Minority, and Woman-owned Businesses (March 2006)			51
Clause 4-1:		General Terms and Conditions (July 2007) (Tailored)			51
Clause 4-2:		Contract Terms and Conditions Required to Implement Policies, Statutes, or Executive Orders (July 2009) (Tailored)			55
Clause 4-7:		Records Ownership (March 2006)			56
Clause 6-1:		Contracting Officer’s Representative (March 2006)			56
Clause 9-1:		Convict Labor (March 2006)			56
Clause 9-2:		Contract Work Hours and Safety Standards Act - Overtime Compensation (March 2006)			57
Clause 9-7:		Equal Opportunity (March 2006) (Tailored)			57
Clause 9-9:		Equal Opportunity Preaward Compliance of Subcontracts (March 2006) (Tailored)			58
Clause 9-10:		Service Contract Act (March 2006)			58
Clause 9-12:		Fair Labor Standards Act and Service Contract Act - Price Adjustment (February 2010)			65
Clause 9-13:		Affirmative Action for Workers with Disabilities (March 2006) (Tailored)			66
Clause 9-14:		Equal Opportunity for Disabled Veterans, Recently Separated Veterans, Other Protected Veterans, and Armed Forces Service Medal Veterans (February 2010) (Tailored)			67
Contract Term					69
Renewal Process					69
Amendments or Modifications					69
Assignment					69
Bankruptcy					70

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Contract ACN-13-FX

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Confidentiality					70
Entire Agreement					70
Force Majeure					71
Frequency Adjustment					71
Notices					72
Severability					72
Third Party Governmental Delays					73
Waiver of Breach					73
Part 4 - List of Attachments and Forms					74
Attachment 1		Postal Service Operating Periods, dated June 27, 2014			73
Attachment 2		Air Stops & Projected Volumes, dated January 8, 2013			75
Attachment 3		Operating Plan, Day Network, dated June 27, 2014			76
Attachment 4		Operating Plan, Night Network, dated June 27, 2014			83
Attachment 5		Reserved
Attachment 6		Postal Furnished Property, April 16, 2013			91
Attachment 7		Electronic Data Interchange Service Requirements, dated September 1, 2012			92
Attachment 8		Investigative / Security Protocol and Guidelines, dated July 2012			93
Attachment 9		Wage Determination, dated October 31, 2012			97
Attachment 10		Pricing, dated January 13, 2015			99
Attachment 11		Perishable Mail and Lives, June 27, 2014			102
Attachment 12		Reserved
Attachment 13		Service Contract Act Wage Determinations, dated June 24, 2014			104
Attachment 14		Contract Density, dated June 27, 2014			124
Attachment 15		Average Weight Process, dated June 27, 2014			126
Attachment 16		Re-labeling Process, dated June 27, 2014			127
Attachment 17		Handling Unit Types, dated June 27, 2014			129

 

Forms
DOT Form F 5800.1		Hazardous Materials Incident Report
I-9 Form		Employment Eligibility Verification
PS Form 2025		Contract Personnel Questionnaire
PS Form 8203		Order / Solicitation / Offer / Award
US Treasury Form 941		Quarterly Federal Tax Return

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Air Cargo Network

Contract ACN-13-FX

Part 1: Statement of Work

 

1		Part 1: Statement of Work
2
3
4		Purpose and Scope
5		The United States Postal Service is seeking to purchase air transportation and ancillary services for
6		mail to and from destinations within the contiguous forty-eight (48) states as well as non-contiguous
7		areas to include Alaska, Hawaii, and Puerto Rico. This statement of work (SOW) provides for the
8		transportation of mail on any flight in the aviation supplier’s air transportation network. It also provides
9		for services associated with the transportation of mail by the aviation supplier. The air carrier’s
10		network or transportation system may include its own flights, flights of its approved subcontractors,
11		flights that may be dedicated to Postal operations, and Road Feeder Service.
12
13
14		Scale
15		The volume of mail (expressed in pounds and cubic feet) transported as contracted under this air
16		cargo network contract may increase or decrease significantly over the term of the contract consistent
17		with the needs of the Postal Service.
18
19
20		Services Provided
21		The aviation supplier shall provide sufficient resources to efficiently and effectively take possession,
22		sort (if necessary), transport, scan, load, and deliver all mail to the designated destination Service
23		Points specified by the Postal Service in Attachment 2: Air Stops & Projected Volumes, Attachment 3:
24		Operating Plan, Day Network, and Attachment 4: Operating Plan, Night Network.
25
26		The aviation supplier will present scan data for these events electronically to the Postal Service. See
27		Attachment 7: Electronic Data Interchange Service Requirements.
28
29		[*]
30
31
32
33
34
35		The aviation supplier will be expected to (this list is not all inclusive):
36		a.      Coordinate and oversee its own operations; supervise and protect its own employees.
37		b.      Ensure that the necessary facility support and administrative functions are performed.
38		c.      Monitor performance.
39		d.      Provide feedback to the Postal Service.
40		e.      Ensure the integrity of data entry.
41		f.       Coordinate the exchange of information.
42		g.      Provide notification of changes or anticipated changes in services provided (including
43		subcontractors) to the Postal Service.
44		h.      Scan material Handling Units.
45		i.       Assist in unloading or loading Unit Load Devices (ULDs) to or from surface transportation.
46		j.       Provide the correct type and quantity of equipment necessary to support the service
47		requirements of this contract.
48		k.      Process mail for dispatch from the aviation supplier’s facility to the Postal Service facility.
49		l.       Close-out, receive, and dispatch all surface vehicles.
50		m.     Handle overflow volumes per Postal Service general directions.
51		n.      Cooperate with all aviation suppliers in the transportation service chain.
52		o.      Enter data timely and accurately.
53		p.      Prepare required reports.
54		q.      Perform verification of security seals on surface transportation.
55		r.       Ensure the security of all mail.
56

 

*	Blank spaces contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

 

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Part 1: Statement of Work

 

57
58		Service Points
59		Service Points are the locations where tender and / or delivery takes place. The locations and tender
60		and delivery specifications are listed in Attachment 3: Operating Plan, Day Network, and Attachment
61		4: Operating Plan, Night Network.
62
63		The Day Network will service approximately eighty (80) origin and destination Service Points.
64
65		The Night Network will service approximately one hundred forty-five (145) origin and destination
66		Service Points
67
68
69		Management Plan
70		The aviation supplier shall develop and maintain a current Management Plan for dealing with normal
71		daily operations as well as unscheduled and unexpected events affecting the expeditious operation of
72		the facility, including aviation and surface service failure and delays. The Management Plan must also
73		address the key personnel involved on a day to day basis.
74
75		Updates to this plan shall be submitted to the Contracting Officer within ten (10) days of any changes
76		to the plan. The aviation supplier shall review and verify, at least annually, that its management plan
77		is current.
78
79		The aviation supplier must train its employees to a level of familiarity that ensures a contingency plan
80		can be exercised without delay. The following items must be addressed by the Management Plan; the
81		list is not all inclusive.
82
83		a.      Late arriving aircraft and trucks
84		•    Ability to conduct two operations – Originating and Destinating
85
86		b.      Early arriving aircraft and trucks
87		c.      Mail arriving out of normal sequence
88		d.      Trucks not on-site for dispatch
89		e.      Inclement weather during operations
90		•    Snow issues
91		•    Ice storms
92		•    Airport closures
93
94		f.       Protection of the mail during inclement weather
95		g.      Labor actions
96		h.      Inadequate staffing
97		i.       An inability to complete all loading in time to meet tender
98		j.       Overflow mail
99		k.      Damaged and / or non air worthy containers
100		l.       Damaged surface containers
101		m.     Damaged or non-labeled mail
102		n.      Plan and schedule changes
103		o.      Loose load mail
104		p.      Hazardous Material (HAZMAT)-acceptable and non-acceptable pieces
105		q.      Handling and staging of live animals
106		r.       Running out of supplies such as placards, bypass tape, etc.
107		s.      Power losses – Describe in detail all steps to be taken in the event of power loss to
108		include specific actions for back up power at the Terminal Handling Service (THS) location
109		such as generators and other systems.
110		t.       Natural disasters
111		u.      Equipment breakdowns
112		v.      Airport closings
113		w.     Air Traffic Control (ATC) impact mitigation plan

 

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114
115
116		Frequency
117		The initial frequency of service for the Day Network (Priority Mail / First Class network) is based on six
118		(6) days of Postal Service delivery and shall be Tuesday through Sunday (X1).1 This will provide for
119		approximately 307 (308 in a leap year) operating days annually. This excludes the widely observed
120		holidays as listed in the sections titled, Volume Commitment – Holiday – Day Network and Volume
121		Commitment – Holiday – Night Network.
122
123		The initial frequency of service for the Night Network (Express Mail network) is based on five (5) days
124		of Postal Service delivery and shall be Monday through Friday (X67).2 This will provide for
125		approximately 254 (255 in a leap year) operating days annually. This excludes the widely observed
126		holidays as listed in the sections titled, Volume Commitment – Holiday – Day Network and Volume
127		Commitment – Holiday – Night Network.
128
129
130		Mail Assignment and Transport - Day Network
131		The aviation supplier shall provide flight schedules at least thirty (30) days in advance of the Operating
132		Period. The Postal Service will create dispatch routing instructions based on the aviation supplier’s
133		flight schedule and subsequently shown on the Postal Service Dispatch and Routing (D&R) Tag.
134
135		The Postal Service agrees to provide up to seventy-five (75%) percent of the total volume assigned to
136		the outbound flights to the aviation supplier one (1) hour before the scheduled ‘All Mail Due Aviation
137		Supplier’ column as listed in Attachment 3: Operating Plan, Day Network. The Postal Service agrees
138		to provide the remaining twenty-five (25%) percent by the ‘All Mail Due Aviation Supplier’ column listed
139		in Attachment 3: Operating Plan, Day Network.
140
141
142		Mail Assignment and Transport - Night Network
143		The Postal Service agrees to provide up to seventy-five (75%) percent of the total volume assigned to
144		the outbound flights to the aviation supplier thirty (30) minutes before the scheduled ‘All Mail Due
145		Aviation Supplier’ column as listed in Attachment 4: Operating Plan, Night Network. The Postal
146		Service agrees to provide the remaining twenty-five (25%) percent by the ‘All Mail Due Aviation
147		Supplier’ column listed in Attachment 4: Operating Plan, Night Network.
148
149
150		Local Agreements
151		No Local Agreement (any informal agreement or working arrangement made between representatives
152		of the aviation supplier, the Postal Service, or their agents who lack authority to bind either company)
153		shall be binding, obligate the Postal Service or the aviation supplier, or otherwise give rise to any claim
154		under this contract.
155
156
157		Postal Service Performs Terminal Handling Service (THS) Operation - Day
158		Network
159		Mail will be tendered to the aviation supplier in accordance with the Operating Plan provided by the
160		aviation supplier. The aviation supplier’s Operating Plan will be provided thirty (30) days before the
161		start up of the Operating Period. The aviation supplier’s Operating Plan will specify the following
162		information:
163
164		Specific Type of Airline ULD per origin / destination
165		Destination of Airline ULD – Direct (bypass)
		1    X1 refers to the day of the week that service will not be performed. The days of the week are numbered consecutively from 1 through 7 beginning with Monday (1). “X1” means that service will operate each day of the week except Monday. 2    X67 refers to the days of the week that service will not be performed. “X67” means that service will operate each day of the week except Saturday and Sunday.

 

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166		Destination of Airline ULD – Mixed (to be sorted at hub)
167
168		The Operating Plan will be mutually agreed upon prior to implementation.
169
170		The aviation supplier will transport, scan, and deliver the ULDs to the specific Service Points listed in
171		Attachment 3: Operating Plan, Day Network. The Postal Service or its representative will build the
172		ULDs in conformance with the aviation supplier’s Operating Plan.
173
174		The aviation supplier will perform the following activities including, but not limited to:
175
176		a.      Sorting and scanning mail at an aviation supplier hub, as necessary, which also may include
177		re-wrap and reapplication of Distribution & Routing (D&R) Tags to mail requiring such
178		treatment, and dispatch on service responsive transportation
179
180		b.       In the unlikely event that mail tendered to the aviation supplier is in excess (overflow) of what
181		may be transported, the aviation supplier shall:
182		i.       Secure the mail.
183		ii.      Scan all Handling Units and record the number of pieces, weight, and destination of
184		all overflow Handling Units.
185		iii.     Immediately notify the local Postal official after becoming aware of an overflow
186		situation. The Postal official will direct the aviation supplier to either hold the mail for
187		the next outbound flight or return it to the designated Postal facility.
188		iv.     Prepare all overflow mail for delivery to the local designated Postal facility within
189		twenty (20) minutes of receipt of Postal direction.
190		v.      Provide a written report of the overflow to the local Postal official with a copy to the
191		COR.
192
193		When transporting mail in carts, containers, or other vehicles, the mail must be securely enclosed to
194		protect it from loss, depredation, and damage. The aviation supplier will stage mail in a secure area
195		while in its possession. The aviation supplier is not allowed to transport mail in the cabs of its vehicles
196		except for mail containing live animals.
197
198
199		Aviation Supplier Planned Accommodation - Day Network
200		The aviation supplier will guarantee space to accommodate up to 105% of the Planned Capacity from
201		each origin daily. All mail accepted by the aviation supplier is subject to the service commitments set
202		forth in this contract.
203
204		FedEx will accept mail from Origin air stops as identified in Attachment 3 Operating Plan - Day
205		Network in excess of 105% of Planned Capacity on a space available basis.
206
207		If the Postal Service tenders mail to the aviation supplier after the ‘All Mail Due Aviation Supplier’
208		column as shown in Attachment 3: Operating Plan, Day Network, the aviation supplier has the right to
209		refuse that volume.
210
211		Mail accepted after the agreed upon ‘All Mail Due Aviation Supplier’ column in Attachment 3:
212		Operating Plan, Day Network, shall be subject to the same service commitments as mail tendered at
213		or before the ‘All Mail Due Aviation Supplier’ column.
214
215

 

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Part 1: Statement of Work

 

216
217		Aviation Supplier Planned Accommodation - Night Network
218		The aviation supplier will guarantee space to accommodate up to 120% of the Planned Capacity from
219		each origin daily. All mail accepted by the aviation supplier is subject to the service commitments set
220		forth in this contract.
221
222		If the Postal Service tenders mail in excess of 120% of the Planned Capacity for that Service Point,
223		the aviation supplier may refuse to transport the excess tender. If the volume is accepted, the same
224		service requirements apply.
225
226		If the Postal Service tenders mail to the aviation supplier after the ‘All Mail Due Aviation Supplier’
227		column as shown in Attachment 4: Operating Plan, Night Network, the aviation supplier has the right to
228		refuse that volume.
229
230		Mail accepted after the agreed upon ‘All Mail Due Aviation Supplier’ column in Attachment 4:
231		Operating Plan, Night Network, shall be subject to the same service commitments as mail tendered at
232		or before the ‘All Mail Due Aviation Supplier’ column.
233
234
235		Delivery - Day Network
236		The aviation supplier will deliver mail to a destination Service Point by the scheduled ‘Latest Delivery
237		Time to Postal Service’ column in Attachment 3: Operating Plan, Day Network.
238
239
240		Delivery - Night Network
241		The aviation supplier will deliver mail to a Service Point by the scheduled ‘Latest Delivery Time to
242		Postal Service’ column in Attachment 4: Operating Plan, Night Network, on or before the scheduled
243		delivery day (D+1) on Attachment 4: Operating Plan, Night Network. “D+1” is defined as the day
244		following acceptance by the aviation supplier.
245
246		At destination, the aviation supplier is required to unload the mail from the ULDs received, scan, and
247		deliver the mail to the Postal Service.
248
249
250		Saturday Delivery - Day Network
251		See Attachment 3: Operating Plan, Day Network, for details on Saturday delivery.
252
253
254		Specific Delivery Instructions
255		The aviation supplier shall:
256		a.      Assist in loading and dispatching all outbound surface vehicles, as required
257
258		b.      Must develop a cooperative line of communication with the Postal Service to ensure the timely
259		delivery and dispatch of mail. All efforts shall be made to provide an efficient and effective
260		delivery to the Postal Service.
261
262
263		Boarding Priority - Day Network
264		The aviation supplier must board accepted mail using the following mail boarding preference order:
265		a.      Registered (Con-Con) Mail
266
267		b.      Lives
268
269		c.      Perishables
270
271		d.      HAZMAT, regardless of mail class

 

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Part 1: Statement of Work

 

272
273		e.      Domestic Priority and Express Mail
274
275		f.       First-Class Mail
276
277		g.      All Other Mail
278
279		The Manager, Air Transportation Operations, or a Postal Service designee, will determine if the Postal
280		Service should repossess any mail without exercising rights as described in the section titled
281		Repossession of Mail by the Postal Service.
282
283
284		Boarding Priority - Night Network
285		The aviation supplier must board accepted mail using the following mail boarding preference order:
286		a.      Express Mail
287		b.      All other classes of mail
288
289
290		Repossession of Mail by the Postal Service
291		The Postal Service may, at any time, require the aviation supplier to return to the local Postal Service
292		representative or agent at a Service Point, any or all of the mail in its possession at that location or the
293		Postal Service may take possession of such mail from the aviation supplier.
294
295
296		Treatment of Exceptional Types of Mail
297		1.      Tagging of Hazardous Material
298		The aviation supplier may carry mailable HAZMAT, subject to applicable law, rules and
299		regulations, including, without limitation:
300
301		a.      ORM-D Air
302		“ORM-D” stands for “Other Regulated Material-Class D.” ORM-D is a term developed by
303		the Department of Transportation (DOT) that signifies the hazard class associated with a
304		consumer commodity. Most hazardous materials accepted by the Postal Service for
305		mailing are classified as ORM-D. A package marked ORM-D meets the standards for
306		surface transportation only. “ORM-D-Air” signifies that the item meets the requirements
307		for air and surface transportation.
308
309		The Postal Service currently accepts limited quantity alternative marking options (square
310		on point) for ORM-D and ORM-D-Air and plans to adopt mandatory effective dates as
311		identified by the Department of Transportation. There are no intended changes to
312		quantity limits, package weights, or documentation requirements for these mailable
313		materials.
314
315		b.       Division Class 6.2
316		Division Class 6.2 materials are not permitted in international mail or domestic mail,
317		except when they are intended for medical or veterinary use, research, or laboratory
318		certification related to the public health. These materials are permitted only when they are
319		properly prepared for mailing to withstand shocks, pressure changes, and other conditions
320		related to ordinary handling in transit.
321
322		c.       Division Class 9
323		Division Class 9 items are miscellaneous hazardous materials or substance articles that
324		present a hazard during transportation but do not meet the definition of any other hazard
325		class. Examples of miscellaneous hazardous materials (not all of which are mailable)
326		include solid dry ice, elevated temperature substances, environmentally hazardous
327		substances, life-saving appliances, and asbestos.
328

 

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329		d.      Hazardous and Dangerous Goods
330		The aviation supplier will accept all Dangerous Goods as defined in the Domestic Mail
331		Manual, section 601.10. All Dangerous Goods will be tendered on the Night Network.
332		The Postal Service will be in compliance with the current International Air Transport
333		Association (IATA) allowed variations as listed for the aviation supplier. The Postal
334		Service will tender all Dangerous Goods at least two hours prior to the tender time shown
335		in Attachment 4: Operating Plan, Night Network. The Postal Service shall not tender any
336		used sharps. Any future changes to Hazardous and Dangerous Goods requirements will
337		be reviewed and must be acceptable to the aviation supplier prior to implementation of the
338		changes.
339
340		e.       All other hazardous material that is packaged and distributed in a quantity and form
341		intended or suitable for retail sale and designed for consumption by individuals for their
342		personal care or household use purposes; reference
343		http://pe.usps.gov/text/dmm300/601.htm#wp1065003.
344
345		2.      Assignment of Hazardous Materials
346		a.      The tender of all hazardous materials will be performed a minimum of two (2) hours prior
347		to the final tender time of the intended flight.
348
349		b.      The desired flight assignment of HAZMAT is to non-stop or direct flights.
350
351		c.      No surcharge is offered for the transportation of HAZMAT mail.
352
353		d.      A copy of the manifest and the assigned item MUST be handed to an aviation supplier
354		representative a minimum of two (2) hours prior to the closeout time of the intended flight.
355		The aviation supplier representative will be responsible for ensuring that the information
356		on the postal manifest which includes the number of pieces, weight, and appropriate
357		shipper’s certification detail is incorporated onto the aircraft load manifest and pilot
358		notification paperwork as outlined in CFR 49, Part 175, Carriage by Aircraft.
359
360		e.      Aviation supplier Refusal to Accept Hazardous Materials: If the aviation supplier refuses
361		to accept a properly prepared HAZMAT item, it shall document the reasons leading to the
362		refusal. Documentation will include:
363		i.       Name and address of mailer and air carrier;
364		ii.      The type and amount of hazardous material; and
365		iii.     The reason for refusal.
366
367		f.       HAZMAT Spills, Releases, Incidents, and Emergencies
368		i.       While in the possession of the aviation supplier, but not on board an aircraft:
369		Hazardous Material items which are damaged must not be boarded on the
370		aircraft. HAZMAT incidents which occur following the tender but prior to
371		boarding of the aircraft, or after unloading from an aircraft and before delivery
372		to the Postal Service, causing injury, illness, significant property damage, or
373		disruption in operations will require the aviation supplier to enter the required
374		information into the Mail Piece Incident Reporting Tool (MIRT), a Postal
375		Service intranet tool for the collection of information on leaking and other non-
376		mailable items.
377
378		ii.      While on board an aircraft:
379		Any incident which occurs while on board an aircraft will require the aviation
380		supplier to complete a Department of Transportation (DOT) Form F 5800.1
381		(01-2004), Hazardous Materials Incident Report. A copy of this form must be
382		sent to the COR within twenty-four (24) hours of the incident with all
383		information available. The incident type is not limited to hazardous material
384		and may include hazardous cargo spills which come in contact with the mail.
385

 

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386
387		Perishable Mail and Live Mail
388		The aviation supplier will be required to transport as mail perishable items which the Postal Service
389		has accepted as mailable under Domestic Mail Manual (DMM) 601, sub section 9.0, including live
390		animals as discussed at DMM 601 subsection 9.3. The Postal Service will notify the aviation supplier
391		a minimum of two (2) hours prior to the ‘All Mail Due Aviation Supplier’ time as listed in Attachment 3:
392		Operating Plan, Day Network, and Attachment 4: Operating Plan, Night Network, of the intended flight
393		of known perishable mail, including live animals.
394
395		Attachment 11: Perishable Mail and Lives, details the requirements for preparation and tender of
396		perishable mail and live animal shipments.
397
398
399		Registered Mail
400		The aviation supplier will accept Registered Mail provided in Con-Cons for the Day Network only.
401
402		Registered Mail Con-Cons will be a part of the Planned Capacity and will be tendered in accordance
403		with Attachment 3: Operating Plan, Day Network.
404
405		Upon request, the aviation supplier shall furnish the Postal Service the following information
406		concerning Registered Mail:
407		•    Aircraft number,
408		•    Aircraft compartment location,
409		•    Actual flight departure time, and
410		•    Any accident or irregularity which occurs to a flight containing Registered Mail.
411
412		Registered Mail Handling Units will have a D&R Tag affixed indicating the final destination air stop.
413		This Handling Unit shall remain intact and shall not be opened by the aviation supplier. The desired
414		routing for Registered Mail shipments will be to non-stop or direct flights only.
415
416		The aviation supplier shall advise the U.S. Postal Inspection Service, local Postal Service
417		representatives, and will send an email message to the COR of any Registered Mail that does not
418		make its planned dispatch for disposition instructions.
419
420
421		Offshore Capacity Requirement - Day Network
422		The aviation supplier will make available at least the following daily volumes into and out of the
423		following locations.
424
425		Cube Based:
426		[*] cube (Originating) and [*] cube Destinating Anchorage (ANC)
427		[*] cube (Originating) and [*] cube Destinating Honolulu (HNL)
428		[*] cube (Originating) and [*] cube Destinating San Juan (SJU)
429
430		The Postal Service may increase this capacity as needed through the planning process through the
431		mutual agreement of the parties.
432
433		In the event that destinating offshore volumes exceed the volumes listed in “Offshore Capacity
434		Requirement - Day Network” at the Aviation Supplier’s Memphis hub, the excess volume will receive a
435		scan in Memphis that qualifies as a Delivery Scan. This scan will fulfill the requirement that the
436		aviation supplier obtain a destination Delivery Scan under Payment Procedures. The time of the scan
437		will also be used to measure performance under Performance Requirements and Measurement and in
438		the assessment of reductions under Reduction of Payment.
439
440		All destinating offshore volume will move to the offshore destination as part of the Aviation Supplier’s
441		services under this contract, on a first-in, first-out basis. The Aviation Supplier is still responsible for

 

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442		performing a Delivery Scan when the volume is tendered to the Postal Service at the offshore
443		destination.
444
445
446		Volume Commitment - General Information
447		The Day Network operating week is defined as Tuesday through Sunday inclusive (X1).
448
449		The Night Network operating week is defined as Monday through Friday inclusive (X67).
450
451		The Postal Service is not obligated to request consistent capacity by day of the week. Requests for
452		capacity are detailed in the Ordering Process sections.
453
454		The following constitute the only minimum volume guarantees under this contract:
455		•       Contract Volume Minimum of [*] cubic feet on the Day Network.
456		•       The Contract Volume Minimum may be reduced in accordance with Clause 4-1:
457		General Terms and Conditions, paragraph m, and Frequency Adjustment found in
458		Part 3: Contract Clauses.
459
460		[*]
461
462
463
464
465		•       90% of Planned Capacity for the Night Network for each Operating Period
466
467		Any monies due as a result of the Postal Service not meeting its Contract Volume Minimum or its
468		Operating Period Volume Minimum as measured and calculated at the end of each Operating Period
469		will be included as part of the Operating Period’s reconciliation process.
470
471		On operating days where volume for lanes with Planned Capacity is withdrawn, withheld, or not
472		transported under the Repossession of Mail by the Postal Service or Force Majeure sections, that
473		volume will not be included in calculating the Operating Period Volume Minimum. The Contract
474		Volume Minimum will be reduced for the Operating Period by the amount of that volume.
475
476
477		Volume Commitment - Contract Volume Minimum - Day Network
478		A minimum of [*] cubic feet per operational day, averaged across six (6) days per week, and measured
479		across each Operating Period, will constitute the Contract Volume Minimum guaranteed to be paid by
480		the Postal Service.
481
482
483		Operating Period Volume Minimum - Day Network
484		[*]
485
486
487
488
489
490
491
492
493
494
495		Operating Period Volume Minimum - Night Network
496		[*]
497

 

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498		[*]
499
500
501
502
503
504
505
506		Volume Commitment - Holiday - Day Network
507		Each holiday will be addressed separately between the parties during the Ordering Process. The
508		holidays are:
509		•    New Year’s Day (widely observed)
510		•    Martin Luther King Day
511		•    Presidents’ Day
512		•    Memorial Day (widely observed)
513		•    Independence Day (widely observed)
514		•    Labor Day (widely observed)
515		•    Columbus Day
516		•    Veterans Day
517		•    Thanksgiving (widely observed)
518		•    Christmas (widely observed)
519
520		For purposes of Contract Volume Minimum and Operating Period Volume Minimum calculations, the
521		following days will not be included:
522		•    Widely observed holidays
523		•    The day following the widely observed holidays that occur on a Monday
524		•    Non-widely observed holidays that occur on a Monday
525
526		For purposes of Contract Volume Minimum and Operating Period Volume Minimum calculations, the
527		following days will be included at a 50% volume level:
528		•    The day following widely observed holidays not occurring on a Monday
529		•    Non-widely observed holidays not occurring on a Monday
530		•    The day after a non-widely observed holiday
531
532
533		Volume Commitment - Holiday - Night Network
534		Each holiday will be addressed separately between the parties during the Ordering Process. The
535		holidays are:
536		•    New Year’s Day (widely observed)
537		•    Martin Luther King Day
538		•    Presidents’ Day
539		•    Memorial Day (widely observed)
540		•    Independence Day (widely observed)
541		•    Labor Day (widely observed)
542		•    Columbus Day
543		•    Veterans’ Day
544		•    Thanksgiving (widely observed)
545		•    Christmas (widely observed)
546
547		The widely observed holidays will not be included in the Operating Period Volume Minimum
548		calculation.
549
550		The non-widely observed holidays will be included at a 50% volume level in the Operating Period
551		Volume Minimum calculation.
552

 

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553
554		Operating Periods
555		The Operating Periods are incorporated as Attachment 1: Postal Service Operating Periods. No
556		Operating Period will exceed five weeks. The Peak Operating Periods are designated in Attachment
557		1: Postal Service Operating Periods.
558
559
560		Ordering Process - Non-Peak - Day Network
561		The Postal Service will provide the aviation supplier mail volumes in accordance with the identified
562		schedule specified below. The forecasting structure will specify each origin / destination lane pair
563		including cubic feet by day of week for the pairs. The Postal Service will request capacity based on
564		specific plans for a Tuesday / Wednesday plan, a Thursday / Friday plan, a Saturday plan, and a
565		Sunday plan.
566
567		[*]
568
569
570
571
572
573
574
575
576
577
578
579
580
581
582
583		Over the course of the Ordering Process for two (2) Operating Periods, the Postal Service may reduce
584		volume down to the Contract Volume Minimum.
585
586		The request for capacity shall be presented to the aviation supplier in a mutually agreed upon
587		electronic origin / destination format.
588
589		Bypass containers will be allocated in lanes where the requested capacity is greater than one hundred
590		and ten (110) percent of the cubic capacity of the ULD configuration for the aircraft planned for the
591		Service Point provided there is sufficient space to flow the Bypass container from the origin to the final
592		destination on the scheduled flights. To facilitate this process, the Postal Service and the aviation
593		supplier will jointly agree upon both Bypass and Mixed containers to be built at all origins during the
594		Ordering Process.
595
596
597		Ordering Process - Non-Peak - Night Network
598		The Postal Service will provide the aviation supplier mail volumes in accordance with the identified
599		schedule specified below. The forecasting structure will specify each origin / destination lane pair
600		including weight.
601
602		[*]
603
604
605
606
607
608

 

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609		[*]
610
611
612		The request for capacity shall be presented to the aviation supplier in a mutually agreed upon
613		electronic origin / destination format.
614
615
616		Ordering Process - Peak - Day Network
617		The Peak Operating Period will consist of four or five individual weeks, measured and planned as
618		independent of each other. One of the five weeks of the Peak Operating Period will include the week
619		of Christmas. As such, the requested volume capacity will include the Christmas week. The
620		forecasting structure will specify each origin / destination lane pair including weight or cubic feet by
621		day of week for the pairs. The Postal Service will request capacity based on specific plans for a
622		Tuesday / Wednesday plan, a Thursday / Friday plan, a Saturday plan and a Sunday plan.
623
624		The aviation supplier will make available at least [*] cubic feet of capacity per week for the Peak
625		Operating Period for the Day Network. As a general planning guideline, the historical volume
626		transported per day during the Peak Operating Period ranges between [*] to [*] cubic feet. The Peak
627		season tab included in Attachment 2: Air Stops & Projected Volumes provides the historic mail volume
628		in pounds by mail class by week during the Peak Operating Period. These volumes are provided for
629		initial planning purposes and do not constitute a guarantee of volume for the Peak Ordering Period.
630
631		For the Peak Operating Period, the Postal Service will provide the aviation supplier a request for
632		capacity by lane, expressed in cubic feet, one hundred fifty (150) days prior to the beginning of the
633		Peak Operating Period. The request for capacity shall be presented to the aviation supplier in a
634		mutually agreed upon electronic origin / destination format. The aviation supplier will reply to the
635		request by providing the Postal Service with its response expressed in cubic feet one hundred twenty
636		(120) days prior to the start of the Peak Operating Period. The Postal Service will communicate its
637		acceptance of the aviation supplier’s response ninety (90) days prior to the commencement of the
638		Peak Operating Period. The Postal Service acceptance establishes the Planned Capacity for the
639		Peak Operating Period.
640
641		The Operating Period Minimum Volume for Peak will be [*] of the Planned Capacity.
642
643		The aviation supplier will guarantee space to accommodate up to 105% of the Planned Capacity from
644		each origin daily.
645
646
647		Ordering Process - Peak - Night Network
648		The Peak Operating Period will consist four or five individual weeks, measured and planned as
649		independent of each other. One of the five weeks of the Peak Operating Period will include the week
650		of Christmas. As such, the requested volume capacity will include the Christmas week. The
651		forecasting structure will specify each origin / destination lane pair including weight.
652
653		For the Peak Operating Period, the Postal Service will provide the aviation supplier a request for
654		capacity by lane, expressed in pounds, one hundred fifty (150) days prior to the beginning of the Peak
655		Operating Period. The request for capacity shall be presented to the aviation supplier in a mutually
656		agreed upon electronic origin / destination format. The aviation supplier will reply to the request by
657		providing the Postal Service with its response expressed in pounds one hundred twenty (120) days
658		prior to the start of the Peak Operating Period. The Postal Service will communicate its acceptance of
659		the aviation supplier’s response ninety (90) days prior to the commencement of the Peak Operating
660		Period. The Postal Service acceptance establishes the Planned Capacity for the Peak Operating
661		Period.
662
663
664		The Operating Period Minimum Volume for Peak will be [*] of the Planned Capacity.

 

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665
666		The aviation supplier will guarantee space to accommodate up to 120% of the Planned Capacity from
667		each origin daily.
668
669
670		Electronic Data Interchange (EDI)
671		The aviation supplier will provide status and operational data as specified in Attachment 7: Electronic
672		Data Interchange Service Requirements. The aviation supplier will use the EDI methods specified in
673		the attachment to transmit and receive volume, and appropriate scans from its system to the Postal
674		Service system.
675
676
677		Operational Condition Reports
678		The aviation supplier shall submit reports of hub and Service Point operating conditions on a daily
679		basis for the Day Network and the Night Network.
680
681		Some examples of these daily reports (more may be required) are: service performance reports,
682		operations reports for departures / arrivals late due to mechanical issues, operations reports for
683		departures / arrivals late due to weather and other issues, sort mail volume, mis-sent mail volume,
684		surface truck utilization, etc. The format of the report and the items reported will be mutually agreed
685		upon by the COR and the aviation supplier.
686
687		In addition to these daily reports, the aviation supplier will coordinate with and advise the COR of any
688		contingency plans to move mail delayed in transit, as soon as practical.
689
690		The table below lists the reports required initially.
691

 

Report Type		Name		Frequency
Operational Planning		[*]		Prior to Operating Period
Operational Planning		[*]		Prior to Operating Period
Operational Planning		[*]		Prior to Operating Period
Operational Planning		[*]		Prior to Operating Period
Operational Planning		[*]		Prior to Operating Period
Operational Planning		[*]		Monthly
Operational Reports		[*]		Tuesday through Sunday
Operational Reports		[*]		Monday through Friday
Operational Reports		[*]		Tuesday through Sunday
Operational Reports		[*]		Monday through Friday
Operational Reports		[*]		Tuesday / Wednesday / Thursday / Saturday
Operational Reports		[*]		Monday through Thursday
Operational Reports		[*]		Tuesday through Sunday
Operational Reports		[*]		Tuesday / Wednesday / Thursday / Saturday
Operational Reports		[*]		Tuesday through Sunday

 

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Operational Reports		[*]		Tuesday through Sunday
Operational Reports		[*]		Monday through Friday
Operational Reports		[*]		Monday through Friday
Operational Reports		[*]		Daily
Operational Reports		[*]		Tuesday through Sunday
Operational Reports		[*]		Monday through Friday
Operational Reports		[*]		Tuesday through Sunday
Operational Reports		[*]		Tuesday through Sunday
Operational Reports		[*]		Tuesday through Sunday

 

692
693
694		Dimensional Weight Reports
695		The aviation supplier will provide a weekly report electronically for the Day Network of the dimensional
696		weights [*]. This report will provide the following information for each Outside Piece’s Handling Unit
697		D&R tag:
698		•    Time of each Handling Unit through the sort
699		•    The length of each Handling Unit
700		•    The width of each Handling Unit
701		•    The height of each Handling Unit
702		•    The D&R tag of each Handling Unit
703
704		A sample of the report is below:
705
706		Sorter’, ‘Time Stamp’,‘Length’,‘Width’,‘Height’,‘D&R Tag’
707		‘AS002’,‘10170703012011’,‘1863’,‘1663’,‘1005’,‘1GBNP673BF’
708		‘AS002’,‘10172003012011’,‘2413’,‘1107’,‘0460’,‘1ICK9H2YF/’
709		‘AS002’,‘10172703012011’,‘3425’,‘1911’,‘0968’,‘15HPP8W7D6’
710		‘AS002’,‘10175003012011’,‘1864’,‘1200’,‘1149’,‘1FZFOM73BX’
711		‘AS002’,‘10175103012011’,‘2404’,‘1153’,‘0460’,‘17MKSORVBQ’
712
713
714		Scanning and Data Transmission
715		All scanning data required to be presented to the Postal Service shall be in an electronic format
716		acceptable to the Postal Service, containing all required data elements, and reported within two (2)
717		hours after the occurrence of a reportable event. Available data will be transmitted in EDI message
718		format at fifteen (15) minute intervals.
719
720		Scanning will be used to measure performance and serve as the basis for payment for both the Day
721		Network and the Night Network.
722
723		Technical aspects of Electronic Data Interchange and the types of messaging events are discussed in
724		Attachment 7: Electronic Data Interchange Service Requirements.
725

 

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726		The aviation supplier will be responsible for providing technology compatible with Postal Service
727		systems for purposes of sending and receiving scanning data.
728
729		The aviation supplier will be responsible for performing the following scans of D&R Tags and ULD
730		identification tags.
731		a.      Possession or Load Scan of all Handling Units and ULDs at origin Service Points, including
732		Outside Handling Units
733
734		b.      Load Scan that associates the ULD to an aircraft
735
736		c.      [*]
737
738
739		d.      [*]
740
741
742
743
744
745
746
747
748
749
750
751
752
753
754
755
756
757
758
759
760
761
762
763
764
765
766
767
768
769
770
771
772		e.      [*]
773
774
775		f.       Delivery Scan of each Handling Unit and ULD at the specified delivery Service Point.
776
777
778		Performance Requirements and Measurement
779		Mail delivery performance will be measured against the contract requirements based upon transmitted
780		scan data.
781
782		Delivery performance requirements are:

 

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783
784		Day Network: [*]%
785
786		Night Network: [*]%
787
788		Peak Operating Period: [*]% for the Day and Night Networks
789
790		Delivery performance will be measured across an Operating Period on a lane-by-lane basis, using
791		actual scan delivery time versus Required Delivery Time (RDT), as outlined in Attachment 3:
792		Operating Plan, Day Network, and Attachment 4: Operating Plan, Night Network.
793
794		Delivery performance will be measured using the following methodology:
795
796		a.      The Postal Service will scan all Handling Units at origin.
797		b.      The Postal Service will nest all Handling Units into ULDs at origin.
798		c.      The Postal Service will tender the nested ULDs to the aviation supplier at origin.
799		d.      The aviation supplier will scan the ULDs with a Possession Scan at origin.
800		e.      The aviation supplier will scan all Handling Units processed through the sort at the hub.
801		f.       The aviation supplier will nest all Handling Units to ULDs departing from the hub.
802		g.      The aviation supplier will scan the ULDs as delivered to the Postal Service upon arrival at
803		destination.
804		h.      The Postal Service will break the ULDs and scan / de-nest all Handling Units.
805
806		Delivery performance will be measured for all ULDs and Handling Units receiving at least a Delivery
807		Scan by the aviation supplier.
808
809		The Postal Service will provide data to the aviation supplier via electronic files. The electronic file will
810		show the nested date and time into the ULD, the possession time and date from the aviation supplier,
811		the delivery time and date from the aviation supplier, and the de-nested break time and date from the
812		Postal Service. Additionally, the files will show the weights of each Handling Unit.
813
814		Delivery performance on a lane level basis will be calculated as follows:
815
816
817		Total on-time Handling Units, by lane, for the Operating Period, receiving a Delivery Scan
818
819		Divided by
820
821		Total Handling Units, by lane, for the Operating Period, receiving a Delivery Scan
822
823
824		Reduction of Payment
825		If the calculated delivery performance is less than the delivery performance requirement, the late D&R
826		tags will be ordered chronologically by the RDT. The percentage of D&R tags corresponding to the
827		difference between [*]% and the delivery performance requirement (i.e., [*]% Day Network), [*]%
828		(Night Network) or [*]% (Peak Operating Period)) will not be assessed a reduction in payment. The
829		remaining late D&R tags will be assessed a reduction in payment as follows:
830
831		a.      All Handling Units delivered up to thirty (30) minutes late will be subject to a [*]% reduction of
832		the Transportation Payment.
833
834		b.      All Handling Units delivered from thirty-one (31) minutes up to one (1) hour to late will be
835		subject to a [*]% reduction of the Transportation Payment.
836
837		c.      All Handling Units delivered 1 hour and one minute late or later will be subject to a [*]%
838		reduction of the Transportation Payment.
839

 

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840		The reduction in payment will be based on a conversion of the weight of the late Handling Units to
841		cubic feet by the applicable contract density and will be applied at the base or the tier in which the late
842		delivery occurred.
843
844		Handling Units that represent the amount of mail that FedEx accepts in excess of 105% of the
845		Operating Period’s Planned Capacity by Operating Day will not be assessed a reduction of payment
846		under Part 1: Statement of Work Reduction of Payment or be taken into account under Part 1:
847		Statement of Work Performance Requirements and Measurement.
848
849		a.      Handling Units in excess of 105% of the Operating Period’s Planned Capacity will be identified
850		by determining the actual volume, in cubic feet (weight of the Handling Units divided by the
851		contract density for the applicable Operating Period), delivered each day to each destination
852		that is in excess of 105% of the Planned Capacity for the relevant destination.
853
854		b.      In each instance, “volume in excess of 105%” will be the latest volume to arrive as evidenced
855		by the delivery scans.
856
857
858		Performance Management
859		The aviation supplier and the Postal Service will meet once a quarter (at a minimum) to discuss items
860		such as the following:
861
862		a.      Cost Control
863		b.      Holiday Operations and Planning
864		c.      Aviation Supplier Performance
865		d.      Peak Season Planning
866		e.      Quality
867		f.       Ramp Operations
868		g.      Reconciliation of Irregularities
869		h.      Security
870		i.       Technology Issues
871		j.       Tender and Delivery Hygiene
872		k.      Volume Planning
873		l.       Other Pertinent Topics
874
875
876		Sustainability
877		The aviation supplier must provide following sustainability metrics at the times specified below:
878
879		a.      All greenhouse gas emission estimates that are attributed to the transport of Postal Service
880		mail products via air and (if applicable) ground transport by the aviation supplier.
881		i.       Emissions in a standard unit – CO2e
882		ii.      Total weight of Postal Service products contributing to the emissions in the Calendar
883		Year.
884		iii.    Total air miles travelled to transport the Postal Service products per Calendar Year.
885		iv.     High level summary describing methodology which could include the basis for the
886		Postal Service emissions allocation such as space, cost, weight, number of packages
887		or other methods used to derive numbers. For example, estimates based on gallons
888		used, flight characteristics, or both.
889		v.      Assurance letter of independent verification of Scope 1, 2, and 3 data.
890		•    Scope 1: Emissions arising from when the aviation supplier burns fuel in its
891		aircraft or its owned buildings
892		•    Scope 2: Emissions from purchased electricity or steam.
893		•    Scope 3: Emissions arising from activities over which the aviation supplier
894		has less control.
895

 

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896		b.      Fiscal Year (October through September) and Calendar Year (January through December)
897		greenhouse gas emissions data to be received by the Postal Service no later than three (3)
898		months after the close of the fiscal and calendar year.
899
900		The aviation supplier will convene a meeting with the Postal Service no later thirty (30) days after
901		contract award to discuss high level greenhouse gas emissions estimation methodologies and network
902		boundaries.
903
904		The aviation supplier will hold quarterly meetings with the Postal Service to discuss reporting
905		methodology developments, boundaries and notification of estimation methodology or boundary
906		changes.
907
908
909		Security
910		See Attachment 8: Investigative / Security Protocol and Guidelines.
911
912
913		Postal Service Employees Allowed Access
914		The aviation supplier shall allow escorted Postal officials showing proper credentials access to all
915		buildings, field areas, ground equipment being used to sort, stage, or transport mail under this contract
916		or under any subcontract services performed under this contract. Government regulations (e.g.,
917		Transportation Security Administration) will supersede this section.
918
919		The aviation supplier will allow unescorted access to Postal Service employees stationed on the
920		aviation supplier’s premises pending compliance with all required processes. Photography or
921		videotaping will not be permitted except as outlined in the security protocols.
922
923
924		Personnel Screening
925		In general, the Postal Service accepts air carrier security program requirements set forth by the
926		Transportation Security Administration (TSA). In addition to these, the Postal Service also mandates
927		additional requirements.
928
929		The Postal Service is aware that the aviation supplier must implement its human resources programs
930		in accordance with certain state laws and that in that respect there may be certain deviations to the
931		literal application of some of the Postal Service requirements set forth herein.
932
933		In the event the aviation supplier establishes that a state law prohibits it from requesting from its
934		employees or prospective employees any or all of the information requested in responses to questions
935		21a through 21e of PS Form 2025, Contract Personnel Questionnaire, as required by 1.c below, or
936		from certifying, as the result of a criminal records check, to any of the items requested under 1.b,
937		Criminal History, below, the aviation supplier shall be relieved of its contractual obligation to require
938		employees or prospective employees to respond to the portions of those questions requesting the
939		prohibited information or to provide that information as part of its criminal records check. In these
940		situations, the Postal Service Security Investigations Service Center (SISC) shall conduct the required
941		criminal checks as outlined in 1.b. below.
942
943		To establish the existence and the extent of the prohibitory effect of any such state law referenced
944		above, the aviation supplier shall provide to the SISC documentary evidence (including a copy of the
945		state law) demonstrating the stated prohibition. The Postal Service’s concurrence about the
946		prohibitory nature of a state law shall not be unreasonably withheld.
947
948		The Contracting Officer may, in consultation with the aviation supplier and the U.S. Postal Inspection
949		Service, grant other appropriate deviations or implement alternate processes to the standard U.S.
950		Postal Inspection Service requirements by letter.
951
952		Applicability

 

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953		Individuals providing services to the Postal Service under this contract (including aviation suppliers,
954		employees of aviation suppliers, and subcontractors and their employees at all levels), hereinafter,
955		“individuals,” who have been hired after the effective date of this contract and whose duties will or
956		likely may involve handing the mail must obtain a security clearance from the Postal Service, as
957		provided herein. Access to the mail as defined by 3.a below is permitted as soon as the security
958		clearance package has been submitted to the SISC in Memphis.
959
960		If the aviation supplier commences a new operation (internally or with an aviation supplier) for the
961		purpose of processing Postal volume, the employees hired since the effective date of this contract will
962		be subject to Personnel Screening.
963
964		Access to the mail is permitted as soon as the security clearance package has been submitted to the
965		SISC in Memphis. If the aviation supplier has ground handling services performed at air stops by
966		another aviation supplier (subcontractor), and if, to the best knowledge of the prime aviation supplier,
967		that subcontractor is in compliance with the provisions of this clause, the prime aviation supplier may
968		certify that fact to the Contracting Officer in writing, and thereby be relieved of the primary
969		responsibility for personnel screening. Prime aviation suppliers are in all cases responsible for
970		meeting these screening requirements for all persons having access to the mail who are their direct
971		employees. For example, if ABC, Inc. is an aviation supplier, and it performs ground handling services
972		at one or more air stops for CDE, Inc., CDE must certify in writing that:
973
974		I certify that at the following air stops ground handling services are being performed by ABC,
975		and that to the best of my knowledge, ABC is an aviation supplier of air transportation services
976		under contract number    . A listing of airports served by ABC is attached hereto as follows.
977
978		Aviation suppliers must have clauses in their contracts with subcontractors requiring adherence to the
979		Postal Service screening procedures contained in this contract.
980
981		1.      Requirements: The aviation supplier, when employing individuals who will or are likely to
982		handle the mail in the performance of their duties under this contract, must provide the
983		following documentation as early as possible to the Security Investigations Services Center
984		(SISC), 225 N. Humphreys Blvd., 4th floor, Memphis, Tennessee, 38161-0001 for those
985		individual aviation supplier employees who will or are likely to handle the mail in the
986		performance of their duties. (Form can be obtained by calling the SISC at (901) 747-7712 or
987		by email at Meg@uspis.gov.)
988		The items listed in sub-sections 1 through 4 and a through c below must be completed prior to
989		the employee being granted permission to handle mail. For purposes of this requirement, the
990		term “completed” means that all tasks have been done, and the required submissions to the
991		SISC in Memphis have been made.
992
993		1.      Completed PS Form 2181-C. This form must be dated within 90 days of receipt by
994		the SISC.
995
996		2.      PS Form 2025. Each item on the PS Form 2025 must be addressed. Applicants
997		must provide their complete residential address, including city, state, and ZIP+4. The
998		form must be signed and dated by the applicant within 90 days of receipt by the SISC.
999
1000		3.      The aviation supplier must obtain and provide to the SISC two original fingerprint
1001		cards (FD-258) for each applicant. The signature of the applicant and the individual
1002		taking the prints must be on each FD-258. In lieu of submitting fingerprint cards, a
1003		FBI rap sheet may be submitted, provided it is dated within 90 days of receipt by the
1004		SISC. The Postal Inspection Service will provide additional fingerprint cards for
1005		aviation supplier use. These additional forms may be obtained by calling the
1006		Memphis office at (901) 747-7712 or via email at Meg@uspis.gov
1007
1008		4.      Certification and Transmittal Cover Sheet documenting Criminal History records check
1009		as required by subsection (b) below. The Certification and Transmittal cover sheet

 

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1010		must include the administrative officer’s name, telephone number, facility name, email
1011		address and mailing address.
1012
1013		The aviation supplier is required to maintain all certifications required in sections a., b., and c
1014		for the length of the contract.
1015
1016		a.      Drug Screening: The aviation supplier must certify that individuals providing service
1017		under this contract have passed a screening test for those substances identified by the
1018		Substance Abuse and Mental Health Services Administration (SAMHSA) as the five (5)
1019		most abused substances which are cocaine, marijuana, amphetamine /
1020		methamphetamine, opiates, and phencyclidine (PCP). The tests must be performed by a
1021		SAMHSA approved certified laboratory. The drug test must meet the cut-off levels
1022		established by SAMHSA. All drug screening tests must be completed within ninety (90)
1023		days prior to having access to the mail since drug tests older than ninety (90) days are
1024		invalid and must be redone. The prime aviation suppliers and all subcontractors must
1025		maintain the name of the institution conducting the test and a document indicating if the
1026		employee passed or tested positive.
1027
1028		b.      Criminal History: The aviation supplier must certify, based upon a criminal records
1029		check (a state records check) of each employee through local agencies (state, county, or
1030		city) where the applicant has resided and worked for the past five (5) years (this may
1031		require multiple checks for applicants who live in one location and work in another
1032		location, or for applicants who have moved within that time period), that each individual:
1033
1034		i.       Has not been convicted of a felony criminal violation in the past five (5) years;
1035
1036		ii.      Has not been convicted of serious criminal charges (e.g. murder, rape, robbery,
1037		burglary, physical assaults, weapons violations, or drug charges [felony or
1038		misdemeanor]);
1039
1040		iii.    Does not have any pending felony or serious criminal charges; and
1041
1042		iv.     Is not on parole for or probation for any felony or serious criminal charges.
1043
1044		This will be documented on the Certification and Transmittal Cover Sheet. This form is
1045		provided under Personnel Security Administrative Instructions, and may be reproduced by
1046		the aviation supplier.
1047
1048		c.      Citizenship: Certification of U.S. citizenship must be documented on PS Form 2025,
1049		Contract Personnel Questionnaire, or legal work status authorizing the individual to work
1050		in the United States is required. (I-9 Form, Employment Eligibility Verification, is to be
1051		used for non-citizens).
1052
1053		2.      Processing:
1054		a.      The Postal Service agrees to use reasonable efforts to insure that security clearance
1055		decisions are issued within thirty (30) days after the aviation supplier submits the required
1056		documents and information to the SISC. The Postal Service, however, cannot guarantee
1057		that processing will be complete within thirty (30) days due to circumstances beyond its
1058		control.
1059
1060		b.      For each individual employed by the aviation supplier or any subcontractor, the aviation
1061		supplier will submit to the SISC:
1062		•    Full name
1063		•    Social security number
1064		•    Drug screening data (1.a)
1065		•    Criminal history certifications (1.b)
1066		•    Both sets of fingerprints (1.c)

 

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1067		•    Citizenship certifications (1.d)
1068
1069		Upon receipt of the required documentation, the SISC will submit the fingerprint cards
1070		(1.c) to the Federal Bureau of Investigation, and perform a search of the National Crime
1071		Information Center (NCIC) Wants and Warrants and Inspection Service databases at its
1072		cost.
1073
1074		c.      In cases where an individual business entity is predominant at a given airport, the
1075		Contracting Officer in consultation with the Inspection Service may approve the receipt of
1076		screening documents from that entity.
1077
1078		d.      The aviation supplier shall maintain supporting documentation for the drug screening
1079		(1.a), criminal history inquiries (1.b), and citizenship verifications (1.d) subject to review by
1080		the Postal Service, for the life of this contract in accordance with its internal procedures,
1081		advising the Inspection Service SISC on the Certification and Transmittal Cover Sheet.
1082
1083		At the employee’s local station, aviation suppliers are only required to maintain a copy of
1084		the Certification and Transmittal Cover Sheet. The Certification and Transmittal Cover
1085		Sheet is provided under Personnel Security Administrative Instructions and may be
1086		reproduced by the aviation supplier, as needed.
1087
1088		Aviation suppliers currently maintaining security screening files under existing Postal
1089		Service contracts shall continue to maintain those files.
1090
1091		Submit all forms and certifications to:
1092
1093		Memphis SISC
1094		Security Investigations Service Center
1095		225 North Humphreys Boulevard
1096		Fourth Floor, South
1097		Memphis, TN 38161-0008
1098
1099		The Postal Service intends to make its best efforts to position itself to eliminate the
1100		requirement for its set of FD-258 forms, and other submissions to be determined, through
1101		cooperation with the Federal Aviation Administration, Transportation Security
1102		Administration, and other agencies or associations to share relevant information for its
1103		regulatory purposes.
1104
1105		3.      Access to the Mail – Screening Requirements:
1106		“Access to the mail” refers to individuals who scan, transport, sort, load, and unload mail to
1107		and from ground equipment and to and from the aircraft. This includes employees handling
1108		sealed ULDs. This includes individuals who have direct supervisory duties in directing the
1109		transporting, sorting, loading, and unloading of mail to and from ground equipment and
1110		aircraft. Individuals providing services to the Postal Service under this contract (including
1111		aviation suppliers, employees of aviation suppliers, and subcontractors and their employees at
1112		any tier), hereinafter, “individuals,” who have access to the mail, must obtain a security
1113		clearance from the Postal Service before such access to the mail is granted.
1114
1115		4.      Denial:
1116		Persons who meet the following criteria are not permitted to have access to the mail under this
1117		contract:
1118
1119		a.      An aviation supplier, subcontractor, or employee of an aviation supplier or subcontractor
1120		who has not received a security screening in accordance with the criteria listed above
1121		under Personnel Screening.
1122

 

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1123		b.      An aviation supplier, subcontractor, or employee of an aviation supplier or subcontractor
1124		who has been convicted of, or is on probation or parole for, or under suspended sentence
1125		for assault, theft, or weapons charges or for the illegal use, possession, sale, or transfer of
1126		controlled substances during the past five (5) years.
1127
1128		c.      An aviation supplier, subcontractor, or employee of an aviation supplier or subcontractor
1129		who has been convicted of any criminal felony violation during the past five (5) years, who
1130		is on parole, probation, or suspended sentence for commission of a criminal felony during
1131		the past five (5) years.
1132
1133		d.      An aviation supplier, subcontractor, or employee of an aviation supplier or subcontractor
1134		who has ever been convicted of theft of mail or other Postal offense.
1135
1136		e.      An aviation supplier, subcontractor, or employee of an aviation supplier or subcontractor
1137		who has an active warrant or is on probation or is on parole.
1138
1139		f.       An aviation supplier, subcontractor, or employee of an aviation supplier or subcontractor
1140		who has any pending felony or serious criminal charges.
1141
1142		g.      Any other circumstance that in the determination of the Postal Service makes the
1143		individual unfit to provide services under this contract.
1144
1145		In the event an employee is disqualified under the above criteria, the aviation supplier has the
1146		responsibility to insure that the employee’s duties no longer involve handling mail.
1147
1148		5.      Appeal Process:
1149		An individual may appeal a decision to deny access made by the Postal Inspection Service
1150		SISC by sending a letter to the Inspector In Charge, Security and Crime Prevention,
1151		Washington, DC, within three (3) weeks of the date of the denial letter. An individual may not
1152		handle the mail during the appeal process. The letter must contain the following information:
1153
1154		a.      A statement that reconsideration of the decision is requested and the basis on which it is
1155		sought.
1156
1157		b.      Additional information on the appellant’s behalf.
1158
1159		c.      A copy of the denial letter.
1160
1161		6.      Training: The Postal Service may, but is not required to, provide orientation / training for
1162		aviation suppliers during the term of this contract to clarify security clearance requirements,
1163		processes, and procedures necessary to fully implement this program.
1164
1165
1166		Payment Procedures
1167
1168		Rates and Payment General
1169		The aviation supplier will be compensated based upon properly scanned ULDs and Handling Units.
1170		The payment for each ULD and Handling Unit will be based on the network (i.e., Day or Night) to
1171		which the mail is assigned by the Postal Service. This process will allow for automated payment.
1172
1173		[*]
1174
1175
1176
1177
1178		Scan Requirements
1179		All scan requirements listed below are specified in the Scanning and Data Transmission section.

 

*	Blank spaces contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

 

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1180
1181		Night Turn Scan Requirements
1182		a.      Possession Scan of all ULDs and Handling Units at the origin
1183
1184		b.      Delivery Scan of all ULDs and Handling Units delivered at destination
1185
1186		Day Turn Scan Requirements
1187		a.      The aviation supplier will conduct a Possession Scan of all ULDs and Handling Units at the
1188		origin.
1189
1190		b.      The aviation supplier will conduct a Nest Scan associating the Handling Unit with a ULD at the
1191		hub.
1192
1193		c.      The aviation supplier will conduct a Delivery Scan of all ULDs and Handling Units delivered at
1194		destination.
1195
1196		The Hub Sort Scans will be paid in accordance with the pricing listed in Attachment 10: Pricing for
1197		Handling Units sorted at the hub on the Day Network for which scans are provided. Hub Sort Scans
1198		will not be paid for Handling Units assigned to a Bypass ULD or for the Night Network.
1199
1200		[*]
1201
1202
1203
1204
1205
1206		The base and tier pricing from Attachment 10: Pricing will be applied to the volume measured in each
1207		Operating Period as follows. Volume within the base will be paid at the Base Rate. The portion of
1208		volume exceeding the base volume and falling within the Tier 1 volume will be paid at the Tier 1 rate.
1209		A similar incremental process will be applied to volume that falls within subsequent tiers.
1210
1211		Payments will be made by Electronic Funds Transfer (EFT).
1212
1213		[*]
1214
1215
1216
1217		The aviation supplier will bill additional charges not covered within the automated payments system on
1218		a weekly basis. For correct and sufficient invoices received by noon Wednesday of a given week, the
1219		Postal Service will process them so as to generate a payment by Wednesday, three (3) weeks
1220		following the receipt of the invoice through the EFT process.
1221
1222
1223		Payment Processing - Day Network - Per Cube
1224
1225		Invoicing
1226		All invoices for the transportation of Handling Units or ULDs under this contract will be paid by the
1227		cubic foot and payment will be based on completing the required scans.
1228
1229		Mail Tendered in ULDs
1230		The Line Haul rate for each ULD will be comprised of two components: Non-Fuel Line Haul and Fuel
1231		Line Haul. The Non-Fuel Line Haul rate will include all of the transportation and handling associated
1232		with a ULD. Hub Sort Scanning rates are separate from the Non-Fuel Line Haul rate.
1233
1234		ULD cubic feet will be paid at the agreed cubic feet size for each ULD type described in Attachment
1235		10: Pricing.
1236

 

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1237		The cubic feet paid will be based on the Postal assigned ULD type. If the Postal ULD type is missing,
1238		the aviation supplier’s ULD type will be used for invoicing. Any discrepancies between the types of
1239		ULD processed will be resolved during the Reconciliation Process.
1240
1241		The transportation payment for mixed ULDs will be based on the applicable cubic feet of the
1242		originating ULD. These transportation payments will be reduced for Handling Units not receiving a
1243		Delivery Scan by converting the weight of the Handling Units without a Delivery Scan at the correct
1244		destination to cubic feet by the applicable contract density.
1245
1246		The transportation payment for bypass ULDs will be based on the applicable cubic feet of the
1247		originating ULD. These transportation payments will not be made for Bypass ULDs without a Delivery
1248		Scan at the correct destination.
1249
1250		Recognizing operational inefficiencies filling the last ULD at every location, the Postal Service will
1251		incorporate within the daily invoice a daily credit of [*] cubic feet for each origin air stop per day. The
1252		rate used will be the applicable base or tier cubic foot rate used at the beginning of the invoice day.
1253
1254		Mail Tendered from Surface Trucks
1255		If mail is tendered to the aviation supplier from a defined truck location as identified in Attachments 3
1256		and 4 at contract award, the invoiced cubic feet will be calculated by dividing the Handling Unit’s
1257		Postal Service assigned rounded weight by the applicable contract density.
1258
1259
1260		Mail Tendered from Ad Hoc Trucks into the Aviation Supplier Hub
1261		The aviation supplier will accept ad hoc trucks from the Postal Service at the proposed hub locations.
1262		The Postal Service will incorporate ad hoc truck payments in the weekly electronic payment.
1263
1264		FedEx will accept up to a total of fifteen (15) Ad Hoc Trucks per day on the Day Network at the
1265		Memphis Hub.
1266
1267		a.      All ad hoc trucks must arrive at the Memphis Hub before 10:00 a.m. local time and must be
1268		coordinated with FedEx in advance. Required Delivery Time (RDT) will be established in
1269		accordance with Attachment 3, Operating Plan, Day Network contingent on the ad hoc trucks
1270		arriving at the Memphis Hub before 10:00 a.m. local time. Late arriving trucks (after 10:00
1271		a.m. local time) will be assigned an RDT based on arrival on the next operational day. All
1272		RDT’s will be adjusted to reflect the first FedEx operational scan at the Memphis Hub.
1273
1274		b.      Initial Payment for ad hoc trucks will be made in the amount of 3,000 cubic feet per truck on
1275		an Operating Period basis, no later than 30 days after the last day of each Operating Period.
1276		Final payment for ad hoc trucks will be adjusted, if applicable, for any reductions of payment
1277		under Part 1: Statement of Work Reduction of Payment and will also be adjusted, if applicable,
1278		based upon the Day Turn Scan Requirements under contract section Payment Procedures,
1279		Rates and Payment General (with the exception that the volumes moving via ad hoc trucks
1280		will not require a Possession Scan). Any adjustments described here, if applicable, will be
1281		made through the reconciliation process.
1282
1283		Aviation Supplier Surface Transportation – Not Included in the Transportation Payment
1284		The aviation supplier will include a separate rate per mile for Highway Transportation in Attachment
1285		10: Pricing which will be applied when the Postal Service requires the aviation supplier to operate
1286		unplanned surface transportation of mail.
1287
1288		Hub Sort Scan Charge
1289		The Postal Service will pay a Hub Sort Scan charge for mail sorted and scanned at a hub per Handling
1290		Unit (i.e., D&R Tag) as shown in Attachment 10: Pricing. This rate will not be subject to an increase
1291		for the full term of the contract.
1292

 

*	Blank spaces contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

 

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1293		Handling Units sorted at a hub must receive a Hub Sort Scan for payment purposes. The Postal
1294		Service will not pay a Hub Sort Scan charge for sorts not supported by EDI scan information. The
1295		pieces scanned into a tendered Bypass container are not eligible to receive Hub Sort Scan charges.
1296
1297		Re-Labeling Charge
1298		The Postal Service will pay an additional charge to the aviation supplier for re-labeling Postal Service
1299		Handling Units at the hub for which the D&R tag is missing or becomes illegible. The Postal Service
1300		will also provide all equipment necessary to perform this function. The re-labeling charge per Handling
1301		Unit is shown in Attachment 10: Pricing.
1302
1303		This rate will not be subject to an increase for the full term of the contract.
1304
1305		Payment to the aviation supplier for the transport of re-labeled Handling Units will be based upon data
1306		received from the Hub Scan plus (combined and matched with) the Delivery Scan for the Handling
1307		Unit. An average weight per Handling Unit will be established based upon the previous month’s data
1308		for average weight per Handling Unit, and for Handling Units that are not properly scanned due to
1309		conditions beyond the aviation supplier’s control.
1310
1311		The average weight process is detailed in Attachment 15, Average Weights.
1312
1313		The equipment to be supplied by the Postal Service for this function will be listed in Attachment 6:
1314		Postal Furnished Property, and will be covered by Clause 2-22, Postal Service Property. Attachment
1315		6: Postal Furnished Property will be created upon successful installation of the equipment. Upon
1316		reasonable advance notice to the aviation supplier, the Postal Service shall be permitted to perform
1317		maintenance on any of the equipment located in an aviation supplier’s facility listed in Attachment 6:
1318		Postal Service Furnished Property.
1319
1320		The Re-Labeling Process is described in Attachment 16, Re-labeling / Type M Matching Process.
1321
1322		Fuel Adjustment
1323		There will be a monthly fuel adjustment to the Fuel Line Haul rate. Each “month” is defined in
1324		Attachment 1: Postal Service Operating Periods. The adjustment will become effective on the first
1325		operating day of each operating period after contract commencement. The adjustment may be
1326		upward or downward.
1327
1328		The adjustment will be based on the U.S. Gulf Coast (USGC) prices for Kerosene-type jet fuel
1329		reported by the U.S. Department of Energy for the month that is two (2) months prior to the
1330		adjustment. The adjustment will be calculated and applied monthly.
1331
1332		For example, assume the Fuel Line Haul rate is $0.10. If the June 20XX USGC price for Kerosene-
1333		type jet fuel is $2.68 per gallon and the July 20XX price is $3.00 per gallon, then the adjustment for
1334		September XX would be calculated as follows:
1335
1336		($3.00 / $2.68) = 1.12
1337		1.12 x $0.10 = $0.11
1338
1339		The new Fuel Line Haul rate would be $0.11 per cubic foot.
1340
1341		In August 20XX, if the USGC price is $2.70 per gallon, the calculation for the October 20XX rate would
1342		be:
1343
1344		($2.70 / $3.00) = 0.90
1345		0.90 X $0.11 = $0.10 per cubic foot
1346
1347		This calculation will be rounded after the decimal to four digits.
1348

 

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1349		The proposal pricing should be based on the August 2012 U.S. Gulf Coast Kerosene-type jet fuel
1350		reported by the U.S. Department of Energy ($3.156 per gallon).
1351
1352		Fuel will be adjusted for October 2013 based on the August 2013 U.S. Gulf Coast Kerosene-type jet
1353		fuel reported by the U.S. Department of Energy.
1354
1355
1356		Payment Processing - Night Network - Per Pound
1357
1358		Invoicing
1359		All Handling Units tendered to the aviation supplier for the Night Network will be paid by the pound and
1360		payment will be based on required scanning. The weight will be derived from the assigned rounded
1361		weight of the Handling Unit. The Non-Fuel Line Haul rate will include all of the transportation and
1362		handling associated with a Handling Unit. The Fuel Line Haul rate for the Night Network will not be
1363		subject to a fuel adjustment.
1364
1365		Re-Labeling Charge
1366		The Postal Service will pay an additional charge to the aviation supplier for re-labeling Postal Service
1367		Handling Units for which the D&R tag is missing or becomes illegible. The Postal Service will also
1368		provide all equipment necessary to perform this function. The re-labeling charge per Handling Unit is
1369		shown in Attachment 10: Pricing. This rate will not be subject to an increase for the full term of the
1370		contract.
1371
1372		Payment to the aviation supplier for transport of re-labeled Handling Units will be based upon data
1373		received from the Hub Scan plus (combined and matched with) the Delivery Scan for the Handling
1374		Unit. An average weight per Handling Unit will be established based upon the previous month’s data
1375		for average weight per Handling Unit and for Handling Units that are not properly scanned due to
1376		conditions beyond the aviation supplier’s control.
1377
1378		The equipment to be supplied by the Postal Service for this function will be listed in Attachment 6:
1379		Postal Furnished Property, and will be covered by Clause 2-22, Postal Service Property. Attachment
1380		6 will be created upon successful installation of the equipment. Upon reasonable advance notice to
1381		the aviation supplier, the Postal Service shall be permitted to perform maintenance on any of the
1382		equipment located in an aviation supplier’s facility listed in Attachment 6.
1383
1384		The payment for the Night Network re-labeled Handling Units will be adjusted to reflect the percentage
1385		of re-labeled Handling Units that have already been scanned. This percentage of previously scanned
1386		Handling Units will be mutually agreed upon by the Postal Service and the aviation supplier through an
1387		audit sampling of re-labeled Handling Units. Contingency Handling Units are excluded from this
1388		adjustment.
1389
1390		The average weight process is detailed in Attachment 15, Average Weights.
1391
1392
1393		Reconciliation Process
1394		Reconciliation of scanning and payment records between the Postal Service and the aviation supplier
1395		will be conducted in a scheduled meeting attended by the Postal Service and the aviation supplier on
1396		an Operating Period basis not more than ninety (90) days after the close of an Operating Period, or a
1397		time frame as agreed mutually by the parties. The following procedures will be observed for the
1398		reconciliation process:
1399
1400		a.      All data exchanges between the aviation supplier and the Postal Service for the reconciliation
1401		process will be performed electronically and sent to specified mailboxes operated by each
1402		organization. Each file will have an individually specified transmission interval.
1403

 

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1404		b.      For all files exchanged between the aviation supplier and the Postal Service, any changes to
1405		layout or data definition must be communicated to the receiving party at a minimum of sixty
1406		(60) calendar days prior to implementation, or sooner if mutually agreed.
1407
1408		c.      All file transfers must adhere to Postal Service Security and Privacy rules.
1409
1410		d.      Supplemental Charges / Assessments may be assessed each Operating Period. The charges
1411		shall include but not be limited to the following:
1412		i.       Operating Period Volume Minimum and Contract Volume Minimum
1413		ii.      Non-achievement of performance standards
1414
1415		e.      Once the parties have mutually agreed on the Operating Period reconciliation, both parties
1416		agree that neither can re-open the Operating Period for further adjustments. By mutually
1417		agreeing to the Operating Period reconciliation, the parties thereby agree to waive their right
1418		to pursue a claim under the Contract Disputes Act based upon the Operating Period
1419		reconciliation.
1420
1421		In the event there is a catastrophic equipment or information system failure, the aviation supplier will
1422		provide electronic files to the Postal Service identifying all D&R Tags the aviation supplier scanned
1423		that were lost. The aviation supplier will notify the Contracting Officer and the COR as soon as the
1424		aviation supplier becomes aware of such a failure.
1425
1426		If the Postal Service cannot produce D&R Tags, an emergency contingency will be developed and
1427		implemented. Such a plan will include specifications for operational and information technology
1428		issues, as well as payment.
1429

 

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1430		Part 3: Contract Clauses
1431
1432
1433		Clause B-1: Definitions (March 2006) (Tailored)
1434		For purposes of this Contract, the following terms shall have the following meanings:
1435
1436		1.      Acceptable Dangerous Goods and Acceptable Hazardous Material: Those articles or
1437		substances which satisfy the air transportation requirements for the transportation of
1438		Hazardous Goods set forth in Chapter 601.10.0 of the Domestic Mail Manual and which are
1439		not required by applicable federal regulation to be accessible to crew members during flight.
1440
1441		2.      Advertisement: A free or paid mass or targeted communication under the control of a party
1442		intended for the general public or a specific potential or existing customer, the ultimate
1443		purpose of which is to promote the sale of such party’s products or services, including, but not
1444		limited to, television, radio and internet commercials, out-of-home ads (e.g., billboards, sports
1445		stadium displays, transit signs), direct mail ads, print ads and free standing inserts in
1446		newspapers, magazines, and electronic media.
1447
1448		3.      All Mail Due Aviation Supplier: A designated time predetermined when the Postal Service
1449		provides all mail to the aviation supplier as shown in Attachments 3: Operating Plan, Day
1450		Network, and Attachment 4: Operating Plan, Night Network
1451
1452		4.      Aviation Supplier: The person or persons, partnership, or corporation named that has been
1453		awarded the contract.
1454
1455		5.      Bypass Container: A ULD of mail designated for delivery to destination Service Point on the
1456		network which is transferred directly from one aircraft to another without going through the sort
1457		operation.
1458
1459		6.      Con-Con: (Convoy and Conveyance) The concentration in a container of Registered Mail for
1460		single, daily, daylight, or authorized night air dispatch
1461
1462		7.      Contract Volume Minimum: The volume (in cubic feet) per operational day, averaged
1463		across six (6) days per week, and measured across each Operating Period that is guaranteed
1464		by the Postal Service for the Day Network
1465
1466		8.      Contracting Officer: The person executing this contract on behalf of the Postal Service and
1467		any other officer or employee who is a properly designated Contracting Officer; the term
1468		includes, except as otherwise provided in the contract, the authorized representative of a
1469		Contracting Officer acting within the limits of the authority conferred upon that person.
1470
1471		9.      Contracting Officer’s Representative (COR): A person who acts within the limits of
1472		authority delegated by the Contracting Officer.
1473
1474		10.    Contingency Handling Units: Handling Units entered into the transportation network without
1475		an appropriate D&R tag. These Handling Units are subsequently processed at the aviation
1476		supplier’s hub through the re-labeling process.
1477
1478		11.    Dangerous Goods (Hazardous Material): Articles or substances which are capable of
1479		posing a significant risk to health, safety or to property when transported by air and which are
1480		classified according to Section 3 (Classification) of the International Air Transport Association
1481		(IATA) Dangerous Good Regulations, regardless of variations, exceptions, exemptions, or
1482		limited quantity allowances.
1483
1484		12.    Day Network: Planned network that operates Tuesday through Sunday primarily for the
1485		transportation of the Priority and First Class Mail.
1486

 

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1487		13.    Delivery: The hand-off, at a destination Service Point, of all mail to the Postal Service in
1488		accordance with contract requirements.
1489
1490		14.    Delivery Scan: A scan performed by the aviation supplier that indicates that the aviation
1491		supplier has tendered volume to the Postal Service. In instances where a Delivery Scan is
1492		indicated by a combination of evidence of any scan performed by the aviation supplier and a
1493		CARDIT 3 from the THS indicating delivery of the Handling Unit to the third party ground
1494		handler, the time indicated for the latest ULD tendered on that Operating Day will be used for
1495		the purposes of determining service performance and associated payment reductions
1496		described in Part 1: Statement of Work; Performance Requirements and Measurement and
1497		Part 1: Statement of Work; Reduction of Payment.
1498
1499		15.    D&R (Dispatch and Routing) Tag: Bar coded tag that identifies the origin and destination
1500		airports, mail class, Handling Unit weight, and the assigned network air carrier.
1501
1502		16.    Exception Sort Scan: A Hub Scan performed on mail Handling Units that require re-labeling
1503		due to a missing or unreadable D&R tag.
1504
1505		17.    Express Mail: As defined in the U.S. Postal Service Domestic Mail Manual.
1506
1507		18.    Failure to Load: A failure to accept and load mail as specified in the contract.
1508
1509		19.    Failure to Protect: Is a failure to protect and safeguard mail from depredation, rifling,
1510		inclement weather, mistreatment, or other hazard while in the aviation supplier’s control.
1511
1512		20.    Failure to Protect Postal Service Equipment: A failure to protect, return or safeguard
1513		Postal Service provided equipment. This includes MTE and Postal provided scanning
1514		equipment (if supplied by the Postal Service).
1515
1516		21.    First-Class Mail: As defined in the U.S. Postal Service Domestic Mail Manual.
1517
1518		22.    Feeder: An aircraft normally used for local transport (for carriage of cargo and / or containers)
1519		to and from locations not scheduled to be serviced by primary aircraft from a hub, directly
1520		connecting these locations to a hub.
1521
1522		23.    Ground Handling: Handling of mail, including unloading of mail from aircraft or ground
1523		vehicles, drayage, staging of mail, and loading of mail on receiving aircraft or ground vehicles.
1524
1525		24.    Handling Unit: A piece of mail (an outside) or a receptacle (such as loose sacks, pouches,
1526		trays, flat tubs) that contains multiple pieces of mail which is individually processed.
1527
1528		25.    Hub: A central sort facility that supports multiple markets via air and ground networks on a
1529		regional or national level by means of connecting flights and ground transportation.
1530
1531		26.    Hub Sort Scan: A scan performed by the aviation supplier at a hub location.
1532
1533		27.    Line Haul: Transporting mail by air between origin and destination locations.
1534
1535		28.    Live Animals: Animals accepted by the Postal Service in accordance with Chapter 601.9.3 of
1536		the Domestic Mail Manual.
1537
1538		29.    Mail: Product that carries U.S. postage and the receptacles in which it is tendered for
1539		transportation. The term includes supplies and empty mail transportation equipment of the
1540		U.S. Postal Service.
1541
1542		30.    Mail Bags: Postal Service bags which are used by the Postal Service in the transportation of
1543		mail.

 

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1544
1545		31.    Mis-delivered: Any mail delivered to the wrong destination. This includes, but is not limited
1546		to, mail placed in the wrong ULD, ULDs loaded onto an incorrect flight or truck, and ULDs
1547		incorrectly placarded.
1548
1549		32.    Mixed Container: A Unit Load Device (ULD) containing mail for multiple destinations that
1550		requires sortation at the aviation supplier hub.
1551
1552		33.    Nest Scan: The scan that associates the Handling Unit with the ULD (air container).
1553
1554		34.    Night Network: Planned network that operates Monday through Friday, primarily for the
1555		transportation of Express Mail.
1556
1557		35.    Operating Period: A scheduled period ranging from four (4) to five (5) weeks as agreed
1558		between the Postal Service and aviation supplier.
1559
1560		36.    Operating Period Volume Minimum: The volume minimum resulting from the Planned
1561		Capacity established through the Ordering Process for the Day and Night Networks.
1562
1563		37.    Overflow Mail: Mail that is tendered in excess of the Planned Capacity.
1564
1565		38.    Outsides: Individual mail piece, with dimensions no greater than 108 inches in combined
1566		length and girth and with no single dimension greater than 84 inches which is not otherwise
1567		containerized and must be processed as a Handling Unit.
1568
1569		39.    Package: Any box or envelope that is accepted by the Postal Service for delivery to a
1570		consignee.
1571
1572		40.    Payment Week: The period each week of an Operating Period between 00:00 Saturday and
1573		23:59 Friday.
1574
1575		41.    Perishables: Those items which are susceptible to decay, spoilage or destruction.
1576
1577		42.    Planned Capacity: Volume that the parties have agreed to by way of the Ordering Process
1578		for the Day and Night Networks.
1579
1580		43.    Possession Scan: A scan performed by the aviation supplier that indicates the aviation
1581		supplier has accepted the volume from the Postal Service.
1582
1583		44.    Priority Mail: Priority Mail and First-Class zone rated (Priority) mail as defined in the U.S.
1584		Postal Service Domestic Mail Manual, Chapter 3, Section 314.
1585
1586		45.    Registered Mail: A mail piece which is mailed in accordance with the requirements of
1587		Chapter 501.2.0 of the Domestic Mail Manual. Registered Mail provides added protection for
1588		valuable or important mail. Registered Mail provides a receipt to the sender, special security
1589		between shipment points, a record of acceptance and delivery maintained by the Postal
1590		Service and, at the option of the mailer and for an additional fee, indemnity in case of loss or
1591		damage.
1592
1593		46.    Re-Possessed: Regain possession of assigned mail.
1594
1595		47.    Required Delivery Time (RDT): The latest delivery time to the Postal Service as indicated in
1596		Attachment 3: Operating Plan, Day Network, and Attachment 4: Operating Plan, Night
1597		Network.
1598

 

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1599		48.    Service Point: The physical location at which the aviation supplier must hand-off mail to the
1600		Postal Service or its duly appointed agent as specified in Attachment 3: Operating Plan, Day
1601		Network, and Attachment 4: Operating Plan, Night Network.
1602
1603		49.    Tender: The drop-off, at an origin Service Point, of mail assigned by the Postal Service to the
1604		aviation supplier.
1605
1606		50.    Tender Point: The physical location at which the Postal Service or its duly appointed agent
1607		provides mail to the aviation supplier.
1608
1609		51.    Tender Time: The latest time at which the aviation supplier is required to accept mail from
1610		the Postal Service at an origin Service Point in accordance with contract requirements.
1611
1612		52.    Terminal Handling: The receipt, scanning, sorting, delivery and / or tug and dolly
1613		transportation of mail tendered under this contract.
1614
1615		53.    Trans Log File: The Postal Service data file that contains, for each D&R Tag, the actual
1616		weight, origin, and destination market for each Handling Unit.
1617
1618		54.    Transportation Payment:: Four items are included in the Transportation Payment:
1619		a.      Non-Fuel Line Haul
1620		b.      Fuel Line Haul
1621		c.      Aircraft Ground Handling
1622		d.      Scanning
1623
1624		55.    Trucking Location: Those Service Points to which mail volume is transported via highway.
1625
1626		56.    Unit Load Device (ULD): Airline container or pallet provided by the aviation supplier
1627
1628
1629		Clause B-3: Contract Type (March 2006) (Tailored)
1630		This Contract is a fixed-price, indefinite quantity with adjustments contract for the purchase of
1631		commercial services pursuant to 39 Code of Federal Regulations, Part 601 et seq.
1632
1633		This is not a requirements-type contract.
1634
1635
1636		Clause B-9: Claims and Disputes (March 2006) (Tailored)
1637		a.      This contract is subject to the Contract Disputes Act of 1978 (41 U.S.C. 601-613) (“the Act” or
1638		“CDA”).
1639
1640		b.      Except as provided in the Act, all disputes arising under or relating to this contract must be
1641		resolved under this clause.
1642
1643		c.      “Claim,” as used in this clause, means a written demand or written assertion by one of the
1644		contracting parties seeking, as a matter of right, the payment of money in a sum certain, the
1645		adjustment or interpretation of contract terms, or other relief arising under or relating to this
1646		contract. However, a written demand or written assertion by the aviation supplier seeking the
1647		payment of money exceeding $100,000 is not a claim under the Act until certified as required
1648		by subparagraph d.2 below. A voucher, invoice, or other routine request for payment that is
1649		not in dispute when submitted is not a claim under the Act. The submission may be converted
1650		to a claim under the Act by complying with the submission and certification requirements of
1651		this clause, if it is disputed either as to liability or amount is not acted upon in a reasonable
1652		time.
1653
1654		d.

 

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1655		1.      A claim by the aviation supplier must be made in writing and submitted to the
1656		Contracting Officer for a written decision. A claim by the Postal Service against the
1657		aviation supplier is subject to a written decision by the Contracting Officer.
1658
1659		2.      For aviation supplier claims exceeding $100,000, the aviation supplier must submit
1660		with the claim the following certification:
1661
1662		“I certify that the claim is made in good faith, that the supporting data are
1663		accurate and complete to the best of my knowledge and belief, that the
1664		amount requested accurately reflects the contract adjustment for which the
1665		aviation supplier believes the Postal Service is liable, and that I am duly
1666		authorized to certify the claim on behalf of the aviation supplier.”
1667
1668		3.      The certification may be executed by any person duly authorized to bind the aviation
1669		supplier with respect to the claim.
1670
1671		e.      For aviation supplier claims of $100,000 or less, the Contracting Officer must, if requested in
1672		writing by the aviation supplier, render a decision within 60 days of the request. For aviation
1673		supplier-certified claims over $100,000, the Contracting Officer must, within 60 days, decide
1674		the claim or notify the aviation supplier of the date by which the decision will be made.
1675
1676		f.       The Contracting Officer’s decision is final unless the aviation supplier appeals or files a suit as
1677		provided in the Act.
1678
1679		g.      When a CDA claim is submitted by or against an aviation supplier, the parties shall make a
1680		good faith attempt to resolve the dispute, including an exchange of relevant information toward
1681		a mutual resolution. Accordingly, by mutual consent, the parties may agree to use an
1682		alternative dispute resolution (ADR) process to assist in resolving the claim. A certification as
1683		described in d (2) of this clause must be provided for any claim, regardless of dollar amount,
1684		before ADR is used. If either party declares the matter to be at an impasse, the dispute will be
1685		resolved through the CDA process as contemplated by Clause B-9.
1686
1687		h.      The Postal Service will pay interest in the amount found due and unpaid from:
1688		1.      The date the Contracting Officer receives the claim (properly certified, if required); or
1689
1690		2.      The date payment otherwise would be due, if that date is later, until the date of
1691		payment.
1692
1693		i.       Simple interest on claims will be paid at a rate determined in accordance with the Interest
1694		clause.
1695
1696		j.       The aviation supplier must proceed diligently with performance of this contract, pending final
1697		resolution of any request for relief, claim, appeal, or action arising under the contract
1698		regardless of the initiating party, and comply with any decision of the Contracting Officer.
1699
1700
1701		Clause B-10: Pricing of Adjustments (March 2006) (Tailored)
1702		When costs are a factor in determining any contract price adjustment under the Changes clause, the
1703		process set forth in Clause 4-1.c will be followed. For any other provision of this contract, the parties
1704		agree to use the process set forth in Attachment 10: Pricing and in the Payment Processing sections
1705		of Part 1 for negotiating the adjustment.
1706
1707
1708		Clause B-15: Notice of Delay (March 2006) (Tailored)
1709		Immediately upon becoming aware of any difficulties that might delay deliveries under this contract,
1710		the aviation supplier will notify the Postal Service in writing. The notification must identify the

 

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1711		difficulties, the reasons for them, and the estimated period of delay anticipated. Failure to give notice
1712		may preclude later consideration of any request for an extension of contract time.
1713
1714
1715		Clause B-22: Interest (March 2006) (Tailored)
1716		The Postal Service will pay interest on late payments and unearned prompt payment discounts in
1717		accordance with the Prompt Payment Act, 31 U.S.C. 3901 et. seq., as amended by the Prompt
1718		Payment Act Amendments of 1988, P.L. 100-496. The aviation supplier will pay interest on any
1719		payment to the Postal Service at a rate equivalent to the prevailing Contract Disputes Act interest rate.
1720
1721
1722		Clause B-25: Advertising of Contract Awards (March 2006)
1723		Except with the Contracting Officer’s prior approval, the aviation supplier agrees not to refer in its
1724		commercial advertising to the fact that it was awarded a Postal Service contract or to imply in any
1725		manner that the Postal Service endorses its products.
1726
1727
1728		Clause B-30: Permits and Responsibilities (March 2006) (Tailored)
1729		The aviation supplier is responsible, without additional expense to the Postal Service, for obtaining
1730		any necessary licenses and permits, and for complying with any applicable federal, state, and
1731		municipal laws, codes, and regulations in connection with the performance of the contract. The
1732		aviation supplier is responsible for all damage to persons or property, including environmental damage
1733		that occurs as a result of its omission(s) or negligence. While in performance of the contract, the
1734		aviation supplier must take proper safety and health precautions to protect the work, the workers, the
1735		public, the environment, and the property of others.
1736
1737
1738		Clause B-39: Indemnification (March 2006) (Tailored)
1739		The aviation supplier must save harmless and indemnify the Postal Service and its officers, agents,
1740		representatives, and employees from all claims, losses, damage, actions, causes of action, expenses,
1741		and/or liability resulting from, brought forth, or on account of any personal injury or property damage
1742		received or sustained by any person, persons, or property growing out of, occurring, or attributable to
1743		any work performed under or related to this contract, resulting in whole or in part from negligent acts or
1744		omissions of the aviation supplier, any subcontractor of the aviation supplier, or any employee, agent,
1745		or representative of the aviation supplier or of the aviation supplier’s subcontractor.
1746
1747		The Postal Service must save harmless and indemnify the aviation supplier and its officers, agents,
1748		representatives, and employees from all claims, losses, damage, actions, causes of action, expenses,
1749		and / or liability resulting from, brought forth, or on account of any personal injury or property damage
1750		received or sustained by any person, persons, or property growing out of, occurring, or attributable to
1751		any work performed under or related to this contract, resulting in whole or in part from negligent acts or
1752		omissions of the Postal Service, or any employee, agent, or representative of the Postal Service.
1753
1754
1755		Clause B-45: Other Contracts (March 2006) (Tailored)
1756		The Postal Service may award other contracts for additional work, and the aviation supplier must
1757		cooperate fully with the other aviation suppliers and Postal Service employees. The aviation supplier
1758		must not commit or permit any act that will interfere with the performance of work by any other aviation
1759		supplier or by Postal Service employees.
1760
1761
1762		Clause B-65: Adjustments to Compensation (March 2006) (Tailored)
1763		Contract compensation may be adjusted, from time to time, by mutual agreement of the aviation
1764		supplier and the Contracting Officer. No adjustment to compensation will be made for changes arising
1765		from Clause 9-10: Service Contract Act or from Clause 9-12: Fair Labor Standards Act and Service

 

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1766		Contract Act – Price Adjustment. Adjustments in compensation pursuant to this clause shall be
1767		memorialized by formal modification to the contract. All negotiations between the parties shall be
1768		conducted with respect to the implied covenant of good faith and fair dealing.
1769

 

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1770
1771		Clause B-69: Events of Default (March 2006) (Tailored)
1772 1773 1774		The aviation supplier’s right to perform this contract is subject to termination, in whole or in part, in the event of any of the following events of default.
1775 1776		a.      The aviation supplier’s failure to perform service according to the terms of the contract;
1777 1778 1779		b.      If the aviation supplier has been administratively determined to have violated Postal laws and regulations and other laws related to the performance of the service;
1780 1781 1782		c.      Failure to follow the instructions of the Contracting Officer that fall within the scope of the contract;
1783 1784 1785 1786 1787		d.      If the aviation supplier transfers or assigns his contract, except as authorized herein, or sublets the whole or a portion of this contract contrary to the applicable provisions of the U.S. Postal Service Supplying Principles and Practices or without any required approval of the Contracting Officer;
1788 1789 1790		e.      If the aviation supplier combines to prevent others from proposing for the performance of Postal Service contracts;
1791 1792 1793 1794 1795		f.       If the aviation supplier or corporate officer has been or is, during the term of the contract, convicted of a crime affecting his or her reliability or trustworthiness as a mail transportation aviation supplier, such as any form of fraud or embezzlement that has impacted the Postal Service or the U.S. Government;
1796 1797 1798 1799		g.      If at any time the aviation supplier, its principal owners, corporate officers or personnel are disqualified by law or regulation from performing services under this contract, and upon notice thereof, the aviation supplier fails to remove any such disqualification;
1800 1801 1802		h.      If the aviation supplier fails to provide any notification of a change in corporate officers which this contract may require; or
1803 1804 1805		i.       If the aviation supplier materially breaches any other requirement or clause of this contract.
1806 1807		Clause B-75: Accountability of the Aviation Supplier (Non-Highway) (March 2006) (Tailored)
1808 1809 1810 1811 1812		a.      The aviation supplier shall supervise its operations and the operations of its subcontractors that provide services under this contract personally or through representatives. The aviation supplier or its supervising representatives must be easily accessible in the event of emergencies or interruptions in service.
1813 1814 1815 1816 1817 1818 1819 1820		b.      In all cases, the aviation supplier shall be liable to the Postal Service for the Postal Service’s damages if mail is subject to loss, rifling, damage, wrong delivery, depredation, and other mistreatment while in the custody and control of the aviation supplier or its subcontractors. The aviation supplier shall also be accountable and answerable in damages for the faithful performance of all other obligations assumed under this contract, whether or not it has entrusted part or all of its performance to another, except for any failure to perform that is excused by the Force Majeure clause of this contract.
1821		c.      The aviation supplier shall faithfully account for and deliver to the Postal Service all:
1822		1.      Mail,
1823		2.      Moneys, and
1824 1825		3.      Other property of any kind belonging to or entrusted to the care of the Postal Service, that come into the possession of the aviation supplier during the term of this contract.

 

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1826
1827		d.      The aviation supplier shall, promptly upon discovery, refund (i) any overpayment made by the
1828		Postal Service for service performed, or (ii) any payment made by the Postal Service for
1829		service not rendered.

1830
1831
1832		Clause B-77: Protection of the Mail (Non-Highway) (March 2006) (Tailored)
1833		The aviation supplier must protect and safeguard the mail from loss, theft, or damage while it is in the
1834		aviation supplier’s custody or control, and prevent unauthorized persons from having access to the
1835		mail.
1836
1837		a.      Classification of Irregularities
1838		The following classifications of irregularities are those that preclude the Postal Service from
1839		accomplishing its mission. The damage caused from these irregularities result in actual
1840		damage and degradation to its brand, and therefore, is associated with liquidated damages as
1841		stated:
1842
1843		1.      Failure to Protect
1844		Failure to protect the mail consists of: failure to protect or safeguard the mail from
1845		inclement weather, from damage caused by the mechanized sort, from acts of the
1846		aviation supplier’s employees or contractors, and from loss, depredation, or other
1847		hazards while in the control or custody of the aviation supplier.
1848
1849		2.      Theft of Mail
1850		The theft of mail can cause immeasurable damage to the Postal Service, both in
1851		terms of actual economic loss to our customers and to the competitive standing of our
1852		products and services. The aviation supplier will support law enforcement efforts to
1853		prevent theft of mail, and will support enforcement officials in the apprehension of
1854		those who may be perpetrating such crimes.
1855
1856		b.      Damages and Liquidated Damages
1857		The following liquidated damages for damaged and unprotected mail are applicable to the
1858		associated classifications of irregularities:
1859
1860		1.      Damaged and Unprotected Mail
1861		Liquidated damages may be assessed for damaged and unprotected mail. For
1862		purposes of this section, damaged mail will consist of mail pieces whether inside or
1863		outside of Postal Service MTE. This category includes but may not be limited to:
1864
1865		i.       Failure to Protect – Causing Damage to Mail
1866		Failure to protect causing physical damage to the U.S. Mail or MTE for which
1867		there may be damage assessed equal to the actual costs incurred by the
1868		Postal Service necessary to remedy the situation and forward the mail onward
1869		to its next processing or delivery operation. Such actual costs may include
1870		items such as administrative time at an appropriate hourly rate for
1871		documenting the irregular condition and implementing the damage, labor time
1872		used to repossess the mail, unpack, sort, dry, repack / repackage, and re-
1873		dispatch to a subsequent destination or processing operation.
1874
1875		If actual damages are not ascertainable, a liquidated damage may be
1876		assessed as follows, taking into account the actual damage that may typically
1877		result from such situations:
1878
1879		Per Letter Tray:		[*] per letter tray
1880		Per Flat Tub:		[*] per flat tub
1881		Per Mail Sack or Pouch:		[*] per sack or pouch
1882		Per Outside Parcel:		[*] per piece

 

*	Blank spaces contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

 

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1883
1884		ii.      Failure to Protect - Dropped or Abandoned Pouch or Piece
1885		When U.S. Mail is discovered unprotected in an unsecured location or on the
1886		airport ramp, Liquidated Damages may be assessed at $50.00 per incident.

1887
1888		c.      Investigative Costs for Theft of Mail
1889		In cases where a mail theft is committed by the aviation supplier’s or its subcontractor’s
1890		personnel, actual investigative costs to the U.S. Postal Inspection Service and/or the Office of
1891		the Inspector General may be assessed as actual damages. These costs will be reasonably
1892		determined and may begin accruing only when a specific investigation begins on the basis of
1893		probable cause. The costs of routine surveillance not associated with a specific theft or series
1894		of thefts will not be assessed. In addition to allocable investigative expenses, the Postal
1895		Service may assess actual damages for loss of product value resulting from insurance claims
1896		where payouts to postal customers can be traced to the incident(s).
1897
1898		In addition to the above, in cases where mail theft occurs and the Postal Service determines
1899		that the aviation supplier’s failure to properly execute the mail handling employee screening
1900		requirements set forth in the Contract was a proximate cause of the theft, and that by reason
1901		of the theft it is necessary to conduct a complete audit of the aviation supplier’s adherence to
1902		the screening requirements with respect to the employment of other employees subject to
1903		those requirements, the Postal Service may assess an administrative damage in the amount
1904		of $5,000 in lieu of actual costs associated with that audit.
1905
1906		Depending upon the circumstances of the incident, the Vice President, Network Operations, in
1907		consultation with the Postal Inspection Service or Office of the Inspector General, and the
1908		Contracting Officer, may determine that damages pursuant to this section are not appropriate,
1909		and may waive all or a portion of the amounts that may otherwise be due the Postal Service
1910		hereunder. Factors such as the seriousness of the misconduct, the aviation supplier’s level of
1911		cooperation in investigations, implementing corrective actions, and efforts directed at loss
1912		recovery will be considered in reaching that determination.
1913
1914
1915		Clause B-80: Laws and Regulations Applicable (March 2006) (Tailored)
1916		This contract and the services performed under it are subject to all applicable federal, state, and local
1917		laws and regulations. The aviation supplier assumes sole responsibility to faithfully discharge all
1918		duties and obligations imposed by such laws and regulations, and shall obtain and pay for all permits,
1919		licenses, and other authorities required to perform this contract. The aviation supplier shall hold
1920		harmless, save, and defend the Postal Service from any consequence of the aviation supplier’s failure
1921		to abide by all applicable federal, state, and local laws and regulations (including but not limited to
1922		regulations promulgated by the DOL and IRS) relating to the contract and throughout the term of the
1923		contract and any subsequent renewal periods.
1924
1925
1926		Clause B-81: Information or Access by Third Parties (March 2006) (Tailored)
1927		The Postal Service retains exclusive authority to release any or all information about mail matter in the
1928		custody of the aviation supplier and to permit access to that mail in the custody of the aviation
1929		supplier. All requests by non-postal individuals for information about mail matter in the custody of the
1930		aviation supplier or for access to mail in the custody of the aviation supplier must be referred to the
1931		Contracting Officer or his or her designee.
1932
1933
1934		Clause B-82: Access by Officials (March 2006) (Tailored)
1935		The aviation supplier shall deny access to the cargo compartment of aircrafts or a vehicle containing
1936		mail therein to state or local officials except at a postal facility or in the presence of a postal employee
1937		or a Postal Inspection Service officer, unless to prevent immediate damage to the aircraft, vehicle, or
1938		their contents. If authorized Federal law enforcement seeks access to the cargo compartment of

 

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1939		aircrafts or vehicles contained mail therein, the aviation supplier shall notify the Postal Inspection
1940		Service before permitting access, unless to prevent immediate damage to the aircraft, vehicle, or their
1941		contents.
1942
1943
1944		Clause 1-1: Privacy Protection (July 2007)
1945		In addition to other provisions of this contract, the aviation supplier agrees to the following:
1946		a.      Privacy Act. If the aviation supplier operates a system of records on behalf of the Postal
1947		Service, the Privacy Act (5 U.S.C. 522a) and Postal Service regulations at 39 CFR Parts 266-
1948		267 apply to those records. The aviation supplier is considered to operate a system of
1949		records if it manages records (including collecting, revising, or disseminating records) from
1950		which information is retrieved by the name of an individual or by some number, symbol, or
1951		other identifier assigned to the individual. The aviation supplier agrees to comply with the Act
1952		and the Postal Service regulations in designing, developing, and operating the system of
1953		records, including ensuring that records are current and accurate for their intended use, and
1954		incorporating adequate safeguards to prevent misuse or improper disclosure of personal
1955		information. Violations of the Act may subject the violator to criminal penalties.
1956
1957		b.      Customer or Employee Information. If the aviation supplier has access to Postal Service
1958		customer or employee information, including address information, whether collected online or
1959		offline by the Postal Service or by a aviation supplier acting on its behalf, the aviation supplier
1960		must comply with the following:
1961
1962		1.      General. With regard to the Postal Service customer information to which it has access
1963		pursuant to this contract, the aviation supplier has that access as an agent of the Postal
1964		Service and must adhere to its postal privacy policy at
1965		www.usps.com/common/docs/privpol.htm.
1966
1967		2.      Use, Ownership, and Nondisclosure. The aviation supplier may use Postal Service
1968		customer or employee information solely for purposes of this contract, and may not collect
1969		or use such information for non-Postal Service marketing, promotion, or any other
1970		purpose without the prior written approval of the Contracting Officer. The aviation supplier
1971		must restrict access to such information to those employees who need the information to
1972		perform work under this contract, and must ensure that each such employee (including
1973		subcontractors’ employees) sign a nondisclosure agreement, in a form suitable to the
1974		Contracting Officer, prior to being granted access to the information. The Postal Service
1975		retains sole ownership and rights to its customer or employee information. Unless the
1976		contract states otherwise, upon completion of the contract, the aviation supplier must turn
1977		over all Postal Service customer or employee information in its possession to the Postal
1978		Service, and must certify that no Postal Service customer or employee information has
1979		been retained unless otherwise authorized in writing by the Contracting Officer.
1980
1981		3.      Security Plan. When applicable, and unless waived in writing by the Contracting Officer,
1982		the aviation supplier must work with the Postal Service to develop and implement a
1983		security plan that addresses the protection of customer or employee information. The
1984		plan will be incorporated into the contract and followed by the aviation supplier, and must,
1985		at a minimum, address notification to the Postal Service of any security breach. If the
1986		contract does not include a security plan at the time of contract award, it must be added
1987		within 60 days after contract award.
1988
1989		4.      Breach Notification. If there is a breach of any nature in the security of Postal Service
1990		data, including customer or employee data, the aviation supplier must follow the breach
1991		notification requirements included in the security plan discussed in (3) above. The aviation
1992		supplier will be required to follow Postal Service policies regarding breach notification to
1993		customers and/or employees.
1994

 

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1995		5.      Legal Demands for Information. If a legal demand is made for Postal Service customer or
1996		employee information (such as by subpoena), the aviation supplier must immediately
1997		notify the Contracting Officer and the nearest office of the Postal Inspection Service. After
1998		notification, the Postal Service will determine whether and to what extent to comply with
1999		the legal demand. Should the Postal Service agree to or unsuccessfully resist a legal
2000		demand, the aviation supplier may, with the written permission of the Contracting Officer,
2001		release the information specifically demanded.
2002
2003		c.      Online Assistance. If the aviation supplier assists in the design, development, or operation of
2004		a Postal Service customer Web site, or if it designs or places an ad banner, button, or link on
2005		a Postal Service Web site or any Web site on the Postal Service’s behalf, the aviation supplier
2006		must comply with the limitations in subparagraph b (1) above relating to ad banners, buttons,
2007		or links, and the use of cookies, web beacons, or other web analysis tools. Exceptions to
2008		these limitations require the prior written approval of the Contracting Officer and the Postal
2009		Service’s chief privacy officer.
2010
2011		d.      Marketing E-Mail. If the aviation supplier assists the Postal Service in conducting a marketing
2012		e-mail campaign, the aviation supplier does so as an agent of the Postal Service and must
2013		adhere to the Postal Service policies set out in Postal Service Management Instruction AS-
2014		350-2004-4, Marketing E-mail. Aviation suppliers wishing to conduct marketing email
2015		campaigns to postal employees must first obtain the prior written approval of the Contracting
2016		Officer.
2017
2018		e.      Audits. The Postal Service may audit the aviation supplier’s compliance with the requirements
2019		of this clause, including through the use of online compliance software.
2020
2021		f.       Indemnification. The aviation supplier will indemnify the Postal Service against all liability
2022		(including costs and fees) for damages arising out of violations of this clause.
2023
2024		g.      Flow-down. The aviation supplier will flow this clause down to subcontractors that would be
2025		covered by any portion of this clause if they were the aviation supplier.
2026
2027
2028		Clause 1-5: Gratuities or Gifts (March 2006)
2029		a.      The Postal Service may terminate this contract for default if, after notice and a hearing, the
2030		Postal Service Board of Contract Appeals determines that the aviation supplier or the aviation
2031		supplier’s agent or other representative:
2032		1.      Offered or gave a gratuity or gift (as defined in 5 CFR 2635) to an officer or employee
2033		of the Postal Service; and
2034		2.      Intended by the gratuity or gift to obtain a contract or favorable treatment under a
2035		contract.
2036
2037		b.      The rights and remedies of the Postal Service provided in this clause are in addition to any
2038		other rights and remedies provided by law or under this contract.
2039
2040
2041		Clause 1-6: Contingent Fees (March 2006)
2042		a.      The aviation supplier warrants that no person or selling agency has been employed or
2043		retained to solicit or obtain this contract for a commission, percentage, brokerage, or
2044		contingent fee, except bona fide employees or bona fide, established commercial or selling
2045		agencies employed by the aviation supplier for the purpose of obtaining business.
2046
2047		b.      For breach or violation of this warranty, the Postal Service has the right to annul this contract
2048		without liability or to deduct from the contract price or otherwise recover the full amount of the
2049		commission, percentage, brokerage fee, or contingent fee.
2050

 

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2051
2052		Clause 1-11: Prohibition Against Contracting with Former Officers or PCES
2053		Executives (March 2006) (Tailored)
2054		During the performance of this contract, former Postal officers or Postal Career Executive Service
2055		(PCES) executives are prohibited from employment by the contractor as key personnel, experts or
2056		consultants, if such individuals, within two years after their retirement from the Postal Service, would
2057		be performing substantially the same duties as they performed during their career with the Postal
2058		Service.
2059
2060
2061		Clause 1-12: Use of Former Postal Service Employees (March 2006) (Tailored)
2062		During the term of this contract, the aviation supplier must identify any former Postal Service officers
2063		or Postal Career Executive Service (PCES) employees it proposes to be engaged, directly or
2064		indirectly, in contract performance. Such individuals may not commence performance without the
2065		Contracting Officer’s prior approval. If the Contracting Officer does not provide such approval, the
2066		aviation supplier must replace the proposed individual former employee with another individual equally
2067		qualified to provide the services called for in the contract.
2068
2069
2070		Clause 2-11: Postal Service Property - Fixed-Price (March 2006) (Tailored)
2071		a.      Postal Service-Furnished Property
2072		1.      The Postal Service will deliver to the aviation supplier, for use in connection with and
2073		under the terms of this contract, the property described as Postal Service-furnished
2074		property in the Schedule or specifications, together with any related information the
2075		aviation supplier may request that may reasonably be required for the intended use of
2076		the property (hereinafter referred to as “Postal Service-furnished property”).
2077
2078		2.      The contract delivery or performance dates are based on the expectation that Postal
2079		Service-furnished property suitable for use (except for property furnished “as is”) will
2080		be delivered at the times stated in the Schedule or, if not so stated, in sufficient time to
2081		enable the aviation supplier to meet these delivery or performance dates. If Postal
2082		Service-furnished property is not delivered by these times, the Contracting Officer will,
2083		upon timely written request from the aviation supplier, make a determination of any
2084		delay occasioned the aviation supplier and will equitably adjust the delivery or
2085		performance dates or the contract price, or both, and any other contractual provision
2086		affected by the delay, in accordance with the Changes clause.
2087
2088		3.      Except for Postal Service-furnished property furnished “as is,” if the Postal Service-
2089		furnished property is received in a condition not suitable for its intended use, the
2090		aviation supplier must notify the Contracting Officer and (as directed by the
2091		Contracting Officer) either (a) return it at the expense of the Postal Service or
2092		otherwise dispose of it, or (b) effect repairs or modifications. Upon the completion of
2093		(a) or (b), the Contracting Officer (upon written request from the aviation supplier) will
2094		equitably adjust the delivery or performance dates or the contract price, or both, and
2095		any other affected contractual provision, in accordance with the Changes clause.
2096
2097		4.      The provisions for adjustment in this paragraph a are exclusive, and the Postal
2098		Service is not liable to suit for breach of contract by reason of any delay in delivery of
2099		Postal Service-furnished property or its delivery in a condition not suitable for its
2100		intended use.
2101
2102		b.      Changes in Postal Service-Furnished Property
2103		1.      By written notice, the Contracting Officer may (a) decrease the property provided or to
2104		be provided by the Postal Service under this contract, or (b) substitute other Postal
2105		Service-owned property for the property to be provided by the Postal Service, or to be
2106		acquired by the aviation supplier for the Postal Service under this contract. The

 

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2107		aviation supplier must promptly take any action the Contracting Officer may direct
2108		regarding the removal and shipping of the property covered by this notice.
2109
2110		2.      In the event of any decrease in or substitution of property pursuant to subparagraph
2111		b.1 above, or any withdrawal of authority to use property provided under any other
2112		contract or lease, which property the Postal Service had agreed in the Schedule to
2113		make available for the performance of this contract, the Contracting Officer, upon the
2114		aviation supplier’s written request (or - if substitution causes a decrease in the cost of
2115		performance - on the Contracting Officer’s own initiative), will equitably adjust any
2116		contractual provisions affected by the decrease, substitution, or withdrawal, in
2117		accordance with the Changes clause.
2118
2119		c.      Use of Postal Service Property. The Postal Service property, unless otherwise provided in
2120		this contract or approved by the Contracting Officer, must be used only for performing this
2121		contract.
2122
2123		d.      Utilization, Maintenance, and Repair of Postal Service Property. The aviation supplier must
2124		maintain and administer, in accordance with sound industrial practice, a program or system for
2125		the utilization, maintenance, repair, protection, and preservation of Postal Service property
2126		until it is disposed of in accordance with this clause. If any damage occurs to Postal Service
2127		property, the risk of which has been assumed by the Postal Service under this contract, the
2128		Postal Service will replace the items or the aviation supplier must make such repairs as the
2129		Postal Service directs; provided, however, that if the aviation supplier cannot effect these
2130		repairs within the time required, the aviation supplier will dispose of the property in the manner
2131		directed by the Contracting Officer. The contract price includes no compensation to the
2132		aviation supplier for performing any repair or replacement for which the Postal Service is
2133		responsible, and an equitable adjustment will be made in any contractual provisions affected
2134		by such repair or replacement made at the direction of the Postal Service, in accordance with
2135		the Changes clause. Any repair or replacement for which the aviation supplier is responsible
2136		under the provisions of this contract must be accomplished by the aviation supplier at the
2137		aviation supplier’s own expense.
2138
2139		e.      Risk of Loss. Unless otherwise provided in this contract, the aviation supplier assumes the
2140		risk of, and becomes responsible for, any loss or damage to Postal Service property provided
2141		under this contract upon its delivery to the aviation supplier or upon passage of title to the
2142		Postal Service as provided in paragraph i below, except for reasonable wear and tear and
2143		except to the extent that it is consumed in performing this contract.
2144
2145		f.       Access. The Postal Service, and any persons designated by it, must at reasonable times
2146		have access to premises where any Postal Service property is located, for the purpose of
2147		inspecting it.
2148
2149		g.      Final Accounting for and Disposition of Postal Service Property. Upon completion, or at such
2150		earlier dates as may be fixed by the Contracting Officer, the aviation supplier must submit, in a
2151		form acceptable to the Contracting Officer, inventory schedules covering all items of Postal
2152		Service property not consumed in performing this contract (including any resulting scrap) or
2153		not previously delivered to the Postal Service, and will prepare for shipment, deliver f.o.b.
2154		origin, or dispose of this property, as the Contracting Officer may direct or authorize. The net
2155		proceeds of disposal will be credited to the contract price or will be paid in such other manner
2156		as the Contracting Officer may direct.
2157
2158		h.      Restoration of Aviation Supplier’s Premises and Abandonment. Unless otherwise provided in
2159		this contract, the Postal Service:
2160		1.      May abandon any Postal Service property in place, whereupon all obligations of the
2161		Postal Service regarding it will cease; and
2162

 

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2163		2.      Has no obligation with regard to restoration or rehabilitation of the aviation supplier’s
2164		premises, either in case of abandonment, disposition on completion of need or of the
2165		contract, or otherwise, except for restoration or rehabilitation costs properly included
2166		in an equitable adjustment under paragraph b or e above.
2167
2168		i.       Title.
2169		1.      Title to all Postal Service-furnished property remains in the Postal Service. To define
2170		the obligations of the parties under this clause, title to each item of facilities, special
2171		test equipment, or special tooling (other than that subject to a special-tooling clause)
2172		acquired by the aviation supplier on behalf of the Postal Service under this contract
2173		will pass to and vest in the Postal Service when its use in the performance of this
2174		contract begins, or upon payment for it by the Postal Service, whichever is earlier,
2175		whether or not title was previously vested.
2176
2177		2.      Title to all material purchased by the aviation supplier for whose cost the aviation
2178		supplier is entitled to be reimbursed as a direct item of cost under this contract will
2179		pass to and vest in the Postal Service upon delivery of the material to the aviation
2180		supplier by the vendor.
2181
2182		3.      Title to other material whose cost is reimbursable to the aviation supplier under this
2183		contract will pass to and vest in the Postal Service upon:
2184		a)      Its issuance for use in the performance of this contract; or
2185		b)      Reimbursement of its cost by the Postal Service, whichever occurs first.
2186
2187		4.      All Postal Service-furnished property, together with all property acquired by the
2188		aviation supplier, title to which vests in the Postal Service under this subsection i, is
2189		subject to the provisions of this clause and is hereinafter collectively referred to as
2190		“Postal Service property.” Title to Postal Service property is not affected by its
2191		incorporation into or attachment to any property not owned by the Postal Service, nor
2192		does Postal Service property become a fixture or lose its identity as personal property
2193		by being attached to any real property.
2194
2195
2196		Clause 2-22: Value Engineering Incentive (March 2006)
2197		a.      General.
2198		The right of each party to improve its own methods for its own benefit, absent a change to the
2199		obligations of the other party which requires an modification to this Contract, and to retain
2200		such savings for itself is not affected by this clause.
2201
2202		The aviation supplier is encouraged to develop and submit Value Engineering Change
2203		Proposals (VECPs) voluntarily. The aviation supplier will share in savings realized from an
2204		accepted VECP as provided in paragraph (h) below. No document submitted by the aviation
2205		supplier shall be considered to be a VECP unless the aviation supplier specifically marks on
2206		the document that it is to be considered a VECP and contains a statement that the aviation
2207		supplier intends the document to be a VECP subject to the provisions of this Clause of the
2208		Contract.
2209
2210		b.      Definitions
2211		1.      Value Engineering Change Proposal (VECP). A proposal that:
2212		i.       Requires a change to the instant contract;
2213		ii.      Results in savings to the instant contract; and
2214		iii.     Does not involve a change in:
2215		a)      Deliverable end items only;
2216		b)      Test quantities due solely to results of previous testing under the instant
2217		contract;or
2218		c)      Contract type only.
2219

 

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2220 2221		2.      Instant Contract. The contract under which a VECP is submitted. It does not include additional contract quantities.
2222
2223 2224 2225		3.      Additional Contract Quantity. An increase in quantity after acceptance of a VECP due to contract modification, exercise of an option, or additional orders (except orders under indefinite-delivery contracts within the original maximum quantity limitations).
2226
2227 2228 2229 2230		4.      Postal Service Costs. Costs to the Postal Service resulting from developing and implementing a VECP, such as net increases in the cost of testing, operations, maintenance, logistics support, or property furnished. Normal administrative costs of processing the VECP are excluded.
2231
2232 2233 2234		5.      Instant Contract Savings. The estimated cost of performing the instant contract without implementing a VECP minus the sum of: (a) the estimated cost of performance after implementing the VECP, and (b) Postal Service costs.
2235
2236 2237 2238 2239		6.      Additional Contract Savings. The estimated cost of performance or delivering additional quantities without the implementation of a VECP minus the sum of (a) the estimated cost of performance after the VECP is implemented and (b) Postal Service cost.
2240
2241 2242 2243 2244		7.      Aviation Supplier’s Development and Implementation Costs. Aviation supplier’s cost in developing, testing, preparing, and submitting a VECP. Also included are the aviation supplier’s cost to make the contractual changes resulting from the Postal Service acceptance of the VECP.
2245
2246		c.      Content. A VECP must include the following:
2247
2248 2249 2250 2251		1.      A description of the difference between the existing contract requirement and that proposed, the comparative advantages and disadvantages of each, a justification when an item’s function or characteristics are being altered, the effect of the change on the end item’s performance, and any pertinent objective test data.
2252
2253 2254		2.      A list and analysis of the contract requirements that must be changed if the VECP is accepted, including any suggested specification revisions.
2255
2256 2257 2258 2259		3.      A separate, detailed cost estimate for: (a) the affected portions of the existing contract requirement and, (b) the VECP. The cost reduction associated with the VECP must take into account the aviation supplier’s allowable development and implementation costs.
2260
2261 2262		4.      A description and estimate of costs the Postal Service may incur in implementing the VECP, such as test and evaluation and operating and support costs.
2263
2264		5.      A prediction of any effects the proposed change would have on Postal Service costs.
2265
2266 2267 2268		6.      A statement of the time by which a contract modification accepting the VECP must be issued in order to achieve the maximum cost reduction, noting any effect on the contract completion time or delivery schedule.
2269
2270 2271 2272		7.      Identification of any previous submissions of the VECP to the Postal Service, including the dates submitted, purchasing offices, contract numbers, and actions taken.
2273
2274		d.      Submission. The aviation supplier must submit VECPs to the Contracting Officer.
2275

2276		e.      Postal Service Action

 

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2277
2278 2279 2280 2281 2282		1.      The Contracting Officer will give the aviation supplier written notification of action taken on a VECP within 60 days after receipt. If additional time is needed, the Contracting Officer will notify the aviation supplier, within the 60-day period, of the expected date of a decision. The Postal Service will process VECPs expeditiously but will not be liable for any delay in acting upon a VECP.
2283
2284 2285		2.      If a VECP is not accepted, the Contracting Officer will so notify the aviation supplier, explaining the reasons for rejection.
2286
2287 2288		f.       Withdrawal. The aviation supplier may withdraw a VECP, in whole or in part, at any time before its acceptance.
2289
2290		g.      Acceptance
2291
2292 2293 2294 2295 2296 2297		1.      Acceptance of a VECP, in whole or in part, will be by execution of a supplemental agreement modifying this contract and citing this clause. If agreement on price (see paragraph h below) is reserved for a later supplemental agreement, and if such agreement cannot be reached, the disagreement is subject to the Claims and Disputes clause of this contract, or another clause of the contract dealing with disputes.
2298
2299 2300		2.      Until a VECP is accepted by contract modification, both parties must perform in accordance with the existing contract.
2301
2302 2303 2304		3.      The Contracting Officer’s decision to accept or reject all or any part of a VECP is final and not subject to the Claims and Disputes clause or otherwise subject to litigation under the Contract Disputes Act of 1978.
2305
2306 2307 2308 2309 2310 2311		h.      Sharing. If a VECP is accepted, the aviation supplier and the Postal Service shall negotiate their respective shares of the contract savings. The contract savings are calculated by subtracting the estimated cost of performing the contract with the VECP, Postal Service costs, and the allowable development and implementation costs from the estimated cost of performing the contract without the VECP. Profit is excluded when calculating contract savings.
2312
2313		i.       Data
2314
2315 2316		1.      The aviation supplier may restrict the Postal Service’s right to use any part of a VECP or the supporting data by marking the following legend on the affected parts:
2317
2318 2319 2320 2321 2322 2323 2324		“These data, furnished under the Value Engineering Incentive clause of contract, may not be disclosed outside the Postal Service or duplicated, used, or disclosed, in whole or in part, for any purpose other than to evaluate a value engineering change proposal submitted under the clause. This restriction does not limit the Postal Service’s right to use information contained in these data if it has been obtained or is otherwise available from the aviation supplier or from another source without limitation.”
2325
2326 2327 2328 2329 2330		2.      If a VECP is accepted, the aviation supplier hereby grants the Postal Service unlimited rights in the VECP and supporting data, except that, with respect to data qualifying and submitted as limited rights technical data, the Postal Service will have the rights specified in the contract modification implementing the VECP and will appropriately mark the data.
2331
2332

 

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2333 2334		Clause 3-1: Small, Minority, and Woman-owned Business Subcontracting Requirements (March 2006)
2335 2336 2337 2338 2339 2340 2341 2342		a.      All aviation suppliers, except small businesses, must submit a subcontracting plan that is specific to this contract and that separately addresses subcontracting with small, minority, and woman-owned businesses. A plan approved by the Postal Service must be included in and made a part of the contract. Lack of an approved plan may make the aviation supplier ineligible for award. A subcontract is defined as any agreement (other than one involving an employer-employee relationship) entered into by a Postal Service aviation supplier or subcontractor calling for supplies or services required for performance of the contract or subcontract.
2343
2344		b.      The aviation supplier’s subcontracting plan must include the following:
2345 2346 2347 2348 2349		1.      Goals, in terms of percentages of the total amount of this contract that the aviation supplier will endeavor to subcontract to small, minority, and woman-owned businesses. The aviation supplier must include all subcontracts that contribute to contract performance, and may include a proportionate share of supplies and services that are normally allocated as indirect costs.
2350
2351		2.      A statement of the:
2352		i.       Total dollars planned to be subcontracted under this contract; and
2353 2354		ii.      Total of that amount planned to be subcontracted to small, minority, and woman-owned businesses.
2355
2356 2357 2358		3.      A description of the principal types of supplies and services to be subcontracted under this contract, identifying the types planned for subcontracting to small, minority, and woman-owned businesses.
2359
2360		4.      A description of the method used to develop the subcontracting goals for this contract.
2361
2362 2363 2364 2365		5.      A description of the method used to identify potential sources for solicitation purposes and a description of efforts the aviation supplier will make to ensure that small, minority, and woman-owned businesses have an equitable opportunity to compete for subcontracts.
2366
2367 2368 2369 2370		6.      A statement as to whether the offer included indirect costs in establishing subcontracting goals for this contract and a description of the method used to determine the proportionate share of indirect costs to be incurred with small, minority, and woman-owned businesses.
2371
2372 2373		7.      The name of the individual employed by the aviation supplier who will administer the subcontracting program and a description of the individual’s duties.
2374
2375 2376 2377		8.      Assurances that the aviation supplier will require all subcontractors receiving subcontracts in excess of $1,000,000 to adopt a plan similar to the plan agreed to by the aviation supplier.
2378
2379 2380 2381		9.      A description of the types of records the aviation supplier will maintain to demonstrate compliance with the requirements and goals in the plan for this contract. The records must include at least the following:
2382 2383		i.     Source lists, guides, and other data identifying small, minority, and woman- owned businesses;
2384 2385		ii.      Organizations contacted in an attempt to locate sources that are small, minority, and woman-owned businesses;
2386 2387 2388		iii.    Records on each subcontract solicitation resulting in an award of more than $100,000, indicating whether small, minority, or woman-owned businesses were solicited and if not, why not; and

 

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2389 2390		iv.     Records to support subcontract award data, including the name, address, and business size of each subcontractor.
2391
2392 2393 2394		c.      Reports. The aviation supplier must provide reports on subcontracting activity under this contract on a calendar-quarter basis. The report must be one of the types described in Clause 3-2, Participation of Small, Minority, and Woman-owned Businesses.
2395
2396
2397 2398		Clause 3-2: Participation of Small, Minority, and Woman-owned Businesses (March 2006)
2399 2400 2401 2402		a.      The policy of the Postal Service is to encourage the participation of small, minority, and woman-owned business in its purchases of supplies and services to the maximum extent practicable consistent with efficient contract performance. The aviation supplier agrees to follow the same policy in performing this contract.
2403
2404 2405		b.      Subject to the agreement of the aviation supplier and the Postal Service, the aviation supplier will report subcontracting activity on one of the following bases:
2406		1.      Showing the amount of money paid to subcontractors during the reporting period;
2407 2408		2.      Showing subcontracting activity that is allocable to this contract using generally accepted accounting practices; or
2409		3.      A combination of the methods listed above.
2410
2411 2412 2413 2414		c.      The aviation supplier will submit a report to the Contracting Officer within 15 calendar days after the end of each calendar-year quarter, describing all subcontract awards to small, minority, or woman-owned businesses. The Contracting Officer may require more frequent reports.
2415
2416
2417		Clause 4-1: General Terms and Conditions (July 2007) (Tailored)
2418		a.      Inspection and Acceptance. Not applicable
2419
2420 2421 2422 2423 2424 2425 2426 2427 2428 2429		b.      Assignment. If this contract provides for payments aggregating $10,000 or more, claims for monies due or to become due from the Postal Service under it may be assigned to a bank, trust company, or other financing institution, including any federal lending agency, and may thereafter be further assigned and reassigned to any such institution. Any assignment or reassignment must cover all amounts payable and must not be made to more than one party, except that assignment or reassignment may be made to one party as agent or trustee for two or more parties participating in financing this contract. No assignment or reassignment will be recognized as valid and binding upon the Postal Service unless a written notice of the assignment or reassignment, together with a true copy of the instrument of assignment, is filed with:
2430		1.      The Contracting Officer;
2431		2.      The surety or sureties upon any bond; and
2432 2433		3.      The office, if any, designated to make payment, and the Contracting Officer has acknowledged the assignment in writing.
2434 2435 2436		4.      Assignment of this contract or any interest in this contract other than in accordance with the provisions of this clause will be grounds for termination of the contract for default at the option of the Postal Service.
2437
2438		c.      Changes
2439 2440		1.      The Contracting Officer may, in writing, without notice to any sureties, order changes within the general scope of this contract in the following:
2441 2442		i.    Drawings, designs, or specifications when supplies to be furnished are to be specially manufactured for the Postal Service in accordance with them;
2443		ii.    Statement of work or description of services;
2444		iii.    Method of shipment or packing;

 

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2445		iv.     Places of delivery of supplies or performance of services;
2446		v.     Delivery or performance schedule;
2447		vi.     Postal Service furnished property or facilities.
2448
2449 2450		2.      Changes pursuant to the Ordering Process and the Operating Period Volume Minimum sections in Part 1- Statement of Work are not applicable under this clause.
2451
2452 2453 2454 2455 2456		3.      Any other written or oral order (including direction, instruction, interpretation, or determination) from the Contracting Officer that causes a change will be treated as a change order under this paragraph, provided that the aviation supplier gives the Contracting Officer written notice stating: (a) the date, circumstances, and source of the order and (b) that the aviation supplier regards the order as a change order.
2457
2458 2459		4.      If any such change affects the cost of performance or the delivery schedule, the contract may be modified to effect an equitable adjustment.
2460
2461 2462 2463 2464		5.      The aviation supplier’s claim for equitable adjustment must be asserted within 60 days of receiving a written change order, or on a date otherwise agreed to by the parties in writing. A later claim may be acted upon — but not after final payment under this contract — if the Contracting Officer decides that the facts justify such action.
2465
2466 2467		6.      Failure to agree to any adjustment is a dispute under Clause B-9, Claims and Disputes.
2468
2469		d.      Reserved
2470
2471		e.      Reserved
2472
2473		f.       Reserved
2474
2475		g.      Invoices
2476 2477 2478 2479 2480 2481		The Postal Service intends to certify payment for services based, in part, upon collected scanned data. For services based upon scanned data, the aviation supplier need not submit an invoice for payment. Rather, payment will be automatically processed, on a weekly basis, based on the scan data. In addition, certain supplemental charges (including, but not limited to, charges related to minimum guaranteed volumes, surface transportation, and non- achievement of performance standards) may be assessed under the contract.
2482
2483 2484 2485 2486 2487 2488 2489 2490		Any service requiring invoicing must meet the requirements specified herein. The aviation supplier shall submit an original invoice (or electronic invoice if authorized) to the Contracting Officer’s Representative. All invoices must be submitted within ninety (90) days from completion of the service or the applicable Operating Period to be eligible for payment. Invoices received after ninety (90) days from completion of the service or Operating Period will be subject to a 10% deduction or a deduction of $10,000, whichever is less, as a liquidated damage. The aviation supplier shall allow at least twenty-eight (28) calendar days before submitting a second invoice to the Postal Service for the same service.
2491
2492 2493		To ensure prompt payment, an original paper invoice (or electronic invoice, if authorized) must contain:
2494 2495		1.      Aviation supplier’s name, remit to address (including ZIP+4), contact person and phone number;
2496		2.      Unique invoice number and invoice date;
2497		3.      Contract number;
2498		4.      A description of the supplies or services and the dates delivered or performed;
2499		5.      Points (air stops or facility) of shipment tender and delivery; if applicable;
2500 2501		6.      Quantity, unit of measure, unit price(s) and extension(s) of the items delivered; if applicable;

 

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2502		7.      Payment terms, including any discounts offered;
2503 2504		8.      Name, title, and phone number of the person to be notified in the event of a defective invoice; and
2505 2506		9.      Any additional information required by the contract or specified by the Contracting Officer.
2507
2508 2509 2510 2511		Invoices will be handled in accordance with the Prompt Payment Act (31 U.S.C. 3903) and Office of Management and Budget (OMB) Circular A-125, Prompt Payment. Further guidelines may be found in the Payment Processing and Reconciliation Process sections of Part I – Statement of Work.
2512
2513 2514 2515 2516 2517		h.      Patent Indemnity. The aviation supplier will indemnify the Postal Service and its officers, employees and agents against liability, including costs for actual or alleged direct or contributory infringement of, or inducement to infringe, any United States or foreign patent, trademark, or copyright, arising out of the performance of this contract, provided the aviation supplier is reasonably notified of such claims and proceedings.
2518
2519		i.       Payment
2520		Payment will only be made for:
2521 2522		1.      Items that have been properly scanned and delivered to the correct delivery destination Service Points set forth in this contract, and
2523
2524		2.      Other services and charges agreed upon by the parties.
2525
2526 2527 2528		The Postal Service will make payment in accordance with the Prompt Payment Act (31 U.S.C. 3903) and 5 CFR 1315. Payments under this contract may be made by the Postal Service either by electronic funds transfer or other method agreed upon by the parties.
2529
2530 2531 2532 2533 2534		j.       Risk of Loss. The Postal Service shall be liable for all third-party customer claims arising from or in connection with the loss, damage, or delay of any mail transported under this contract, except to the extent of any insurance proceeds received by the aviation supplier as a result of a catastrophic loss of an aircraft or other transport vehicle and attributable to Postal Service mail.
2535
2536 2537 2538 2539 2540 2541 2542 2543		k.      Taxes. The contract price includes all applicable federal, state, and local taxes and duties except the applicable Federal excise tax on the transportation of property via air. The aviation supplier is required to report to the Postal Service on an annual basis (October 1), the portion of the rates listed in Attachment 10: Pricing that are subject to federal excise tax. The Postal Service shall hold harmless, save, and defend the aviation supplier from any demand or claim of, or on behalf of, the IRS or the United States based on the application of federal excise taxes applicable to the transportation services performed by the aviation supplier under this contract.
2544
2545		l.       Termination on Notice.
2546
2547 2548 2549 2550		1.      This contract does not contain a Termination for Convenience clause. In lieu of a Termination for Convenience, either party may terminate this contract without cause by providing advanced written notice to the non-terminating party and a termination fee as follows:
2551

 

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2552

		Advanced Notice Provided		Postal Service Termination Fee		Aviation Supplier Termination Fee
		[*]		[*]		[*]
		[*]		[*]		[*]
		[*]		[*]		[*]
		[*]		[*]		[*]

2553
2554
2555
2556 2557		2.      The terminating party must pay the termination fee corresponding to the advanced written notice within ninety (90) of the written notice of termination.
2558
2559 2560 2561 2562 2563 2564 2565 2566		3.      If the aviation supplier terminates the contract under this provision, the aviation supplier guarantees to provide the Postal Service a daily average capacity through the effective date of the termination of not less than the daily average capacity offered in the two most recently completed Operating Periods prior to the date of the receipt of the notice of termination, or, if two Operating Periods have not been completed when the notice of termination is received, the daily average capacity offered shall be at least equal to the average daily capacity transported prior to the receipt of the written notice of termination.
2567
2568 2569 2570 2571		4.      Either party’s termination under this provision shall not prejudice the aviation supplier’s right to payment for services rendered, but neither party shall be liable to the other for any other damages, fees, or payment except for the termination fee above.
2572
2573 2574 2575		5.      This clause does not apply to changes in service resulting from the Postal Service changing from six (6) days to less than six (6) days of delivery per week. If such a scenario should occur, refer to the Frequency Adjustment clause of this contract.
2576
2577 2578 2579 2580 2581 2582 2583 2584 2585 2586 2587		m.     Termination for Default. The Postal Service may terminate this contract, or any part hereof, for default if the aviation supplier fails to cure such default within thirty (30) days of being advised in writing of such by the Postal Service, or if the aviation supplier fails to provide the Postal Service, upon request, with adequate assurances of future performance. In the event of termination for default, the Postal Service will not be liable to the aviation supplier for any amount for supplies or services not provided, and the Postal Service shall have any and all rights and remedies provided by law, including the right to assess reasonable excess re- procurement costs. The Postal Service may withhold payment otherwise due the aviation supplier for services already performed in order to protect its interest in recouping excess re- procurement costs, and will promptly determine such costs so as to mitigate damage to the aviation supplier.
2588
2589		n.      Title. Not applicable
2590
2591 2592 2593 2594 2595 2596 2597 2598		o.      Warranty. The aviation supplier warrants and represents that the services delivered under this contract shall be in accordance with the requirements and performance standards set forth in the contract. With respect to services for which performance standards are set forth in the contract, the Postal Service’s exclusive remedy (other than termination for default) shall be price adjustments as provided in this contract. With respect to all other services, the Postal Service’s exclusive remedy (other than termination for default) shall be for the aviation supplier to promptly correct, replace, or otherwise cure such performance at no cost to the Postal Service.

* Blank spaces contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

 

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2599 2600 2601		p.      Limitation of Liability. Except as otherwise provided by an express or implied warranty, the supplier will not be liable to the Postal Service for consequential damages resulting from any defect or deficiencies in accepted items or services.
2602
2603 2604 2605		q.      Other Compliance Requirements. The aviation supplier will comply with all applicable Federal, State, and local laws, executive orders, rules and regulations applicable to its performance under this contract.
2606
2607 2608		r.       Order of Precedence. Any inconsistencies in this solicitation or contract will be resolved by giving precedence in the following order:
2609		1.      Contract clauses;
2610		2.      Statement of Work;
2611		3.      Attachments to the Statement of Work;
2612		4.      Solicitation provisions
2613		5.      Form 8203;
2614		6.      Other documents and attachments associated with the contract.
2615
2616		s.      Incorporation by Reference. Not applicable
2617
2618		t.       Shipping. Not applicable
2619
2620
2621 2622		Clause 4-2: Contract Terms and Conditions Required to Implement Policies, Statutes, or Executive Orders (July 2009) (Tailored)
2623		a.      Incorporation by Reference. Not applicable
2624
2625		b.      Examination of Records.
2626 2627 2628		1.      Records. “Records” includes books, documents, accounting procedures and practices, and other data, regardless of type and regardless of whether such items are in written form, in the form of computer data, or in any other form.
2629
2630 2631 2632 2633 2634 2635 2636		2.      Examination of Costs. If this is a cost-type contract, the aviation supplier must maintain, and the Postal Service will have the right to examine and audit all records and other evidence sufficient to reflect properly all costs claimed to have been incurred or anticipated to be incurred directly or indirectly in performance of this contract. This right of examination includes inspection at all reasonable times of the aviation supplier’s plants, or parts of them, engaged in the performance of this contract.
2637
2638 2639 2640 2641 2642		3.      Cost or Pricing Data. If the aviation supplier is required to submit cost or pricing data in connection with any pricing action relating to this contract, the Postal Service, in order to evaluate the accuracy, completeness, and currency of the cost or pricing data, will have the right to examine and audit all of the aviation supplier’s records, including computations and projections directly, related to:
2643		a.      The proposal for the contract, subcontract, or modification;
2644		b.      Pricing of the contract, subcontract, or modification; or
2645		c.      Performance of the contract, subcontract or modification.
2646
2647 2648 2649 2650		4.      Reports. If the aviation supplier is required to furnish cost, funding or performance reports, the Contracting Officer or any authorized representative of the Postal Service will have the right to examine and audit the supporting records and materials, for the purposes of evaluating:
2651 2652		a.      The effectiveness of the aviation supplier’s policies and procedures to produce data compatible with the objectives of these reports; and
2653		b.      The data reported.
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2655 2656 2657 2658 2659		5.      Availability. The aviation supplier must maintain and make available at its office at all reasonable times the records, materials, and other evidence described in (b)(1)-(4) of this clause, for examination, audit, or reproduction, until three years after final payment under this contract or any longer period required by statute or other clauses in this contract. In addition:
2660 2661 2662		a.      If this contract is completely or partially terminated, the aviation supplier must make available the records related to the work terminated until three years after any resulting final termination settlement; and
2663
2664 2665 2666 2667		b.      The aviation supplier must make available records relating to appeals under the claims and disputes clause or to litigation or the settlement of claims arising under or related to this contract. Such records must be made available until such appeals, litigation or claims are finally resolved.
2668
2669
2670		Clause 4-7: Records Ownership (March 2006)
2671 2672 2673 2674		Notwithstanding any state law providing for retention of rights in the records, the aviation supplier agrees that the Postal Service may, at its option, demand and take without additional compensation all records relating to the services provided under this agreement. The aviation supplier must turn over all such records upon request but may retain copies of documents produced by the aviation supplier.
2675
2676
2677		Clause 6-1: Contracting Officer’s Representative (March 2006)
2678 2679 2680 2681		The Contracting Officer will appoint a Contracting Officer’s representative (COR), responsible for the day-to-day administration of the contract, who will serve as the Postal Service’s point of contact with the aviation supplier on all routine matters. A copy of the notice of appointment defining the COR’s authority will be furnished to the aviation supplier upon award of the contract.
2682
2683 2684 2685 2686		a.      The COR may be changed at any time by the Postal Service without prior notice to the aviation supplier, but notification of the change, including the name and address of the successor COR, will be promptly provided to the aviation supplier by the Contracting Officer in writing.
2687
2688		b.      The responsibilities and limitations of the COR are as follows:
2689 2690 2691 2692		1.      The COR is responsible for the operational and administrative aspects of the contract and technical liaison with the aviation supplier. The COR is responsible also for the final inspection and acceptance of aviation supplier performance and submitted reports and has other responsibilities as specified by the contract.
2693
2694 2695 2696 2697 2698		2.      The COR is not authorized to make any commitments or otherwise obligate the Postal Service or authorize any changes affecting the contract price, terms, or conditions. Any aviation supplier request for changes must be referred to the Contracting Officer directly or through the COR. No such changes may be made without the Contracting Officer’s express prior authorization.
2699
2700 2701		3.      The COR may place orders for the aviation supplier to transport and process mail in accordance with the provisions of the contract at the agreed-upon rate only.
2702
2703
2704		Clause 9-1: Convict Labor (March 2006)
2705 2706 2707		In connection with the work under this contract, the aviation supplier agrees not to employ any person undergoing sentence of imprisonment, except as provided by E.O. 11755, December 28, 1973, as amended and 18 USC 3621 and 3622.
2708
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2710 2711		Clause 9-2: Contract Work Hours and Safety Standards Act - Overtime Compensation (March 2006)
2712 2713 2714 2715 2716		a.      No aviation supplier or subcontractor contracting for any part of the contract work may require or permit any laborer or mechanic to work more than 40 hours in any workweek on work subject to the provisions of the Contract Work Hours and Safety Standards Act, unless the laborer or mechanic receives compensation at a rate not less than one-and-one-half times the laborer’s or mechanic’s basic rate of pay for all such hours worked in excess of 40 hours.
2717
2718 2719 2720 2721 2722 2723		b.      Violation, Liability for Unpaid Wages, and Liquidated Damages. In the event of any violation of paragraph a above, the aviation supplier and any subcontractor responsible for the violation are liable to any affected employee for unpaid wages. The aviation supplier and subcontractor are also liable to the Postal Service for liquidated damages, which will be computed for each laborer or mechanic at $10 for each day on which the employee was required or permitted to work in violation of paragraph a above.
2724
2725 2726 2727 2728 2729 2730 2731		c.      Withholding for Unpaid Wages and Liquidated Damages. The Contracting Officer may withhold from the aviation supplier, from any moneys payable to the aviation supplier or subcontractor under this or any other contract with the same aviation supplier, or any other federally assisted contract subject to the Contract Work Hours and Safety Standards Act held by the same aviation supplier, sums as may administratively be determined necessary to satisfy any liabilities of the aviation supplier or subcontractor for unpaid wages and liquidated damages pursuant to paragraph b above.
2732
2733 2734 2735 2736 2737 2738 2739 2740 2741 2742 2743		d.      Records. The aviation supplier or subcontractor must maintain for 3 years from the completion of the contract for each laborer and mechanic (including watchmen and guards) working on the contract payroll records which contain the name, address, social security number, and classification(s) of each such employee, hourly rates of wages paid, number of daily and weekly hours worked, deductions made, and actual wages paid. The aviation supplier or subcontractor must make these records available for inspection, copying, or transcription by authorized representatives of the Contracting Officer and the Department of Labor, and must permit such representatives to interview employees during working hours on the job. (The Department of Labor information collection and record keeping requirements in this paragraph d have been approved by the Office of Management and Budget under OMB control numbers 1215-0140 and 1215-0017.)
2744
2745 2746		e.      Subcontracts. The aviation supplier must insert paragraphs a through d of this clause in all subcontracts, and must require their inclusion in all subcontracts at any tier.
2747
2748
2749		Clause 9-7: Equal Opportunity (March 2006) (Tailored)
2750		During the performance of this contract, the contractor agrees as follows:
2751 2752 2753 2754 2755 2756 2757 2758 2759		1.      The contractor may not discriminate against employees or applicants for employment because of race, color, religion, sex, or national origin. The contractor will take affirmative action to ensure that applicants are employed, and that employees are treated during employment, without regard to race, color, religion, sex, or national origin. Such action shall include, but not be limited to the following: Employment, upgrading, demotion, or transfer; recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship. The contractor agrees to post in conspicuous places, available to employees and applicants for employment, notices to be provided by the Contracting Officer setting forth the provisions of this nondiscrimination clause.
2760
2761 2762 2763		2.      The contractor, in all solicitations or advertisements for employees placed by or on behalf of the contractor, state that all qualified applicants will receive consideration for employment without regard to race, color, religion, sex, or national origin.
2764
2765 2766		3.      The contractor will send to each labor union or representative of workers with which he has a collective bargaining agreement or other contract or understanding, a notice, provided by the

 

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2767 2768 2769 2770		agency Contracting Officer, advising the labor union or workers’ representative of the contractor’s commitments under section 202 of Executive Order 11246 of September 24, 1965, and must post copies of the notice in conspicuous places available to employees and applicants for employment.
2771
2772 2773 2774		4.      The contractor will comply with all provisions of Executive Order (EO) 11246 of September 24, 1965, as amended, and of the rules, regulations, and relevant orders of the Secretary of Labor.
2775
2776 2777 2778 2779 2780		5.      The contractor will furnish all information and reports required by Executive Order, 11246 of September 24, 1964, and by the rules, regulations, and orders of the Secretary of Labor, or pursuant thereto, and will permit access to his books, records, and accounts by the contracting agency and the Secretary of Labor for purposes of investigation to ascertain compliance with such rules, regulations, and orders.
2781
2782 2783 2784 2785 2786 2787 2788		6.      In the event of the contractor’s non-compliance with the non-discrimination clauses of this contract or with any of such rules, regulations, or orders, this contract may be canceled, terminated, or suspended, in whole or in part and the contractor may be declared ineligible for further Government contracts in accordance with procedures authorized in Executive Order 11246 of September 24, 1965, and such other sanctions may be imposed and remedies invoked as provided in Executive Order 11246 of September 24, 1965, or by rule, regulation, or order of the Secretary of Labor, or as otherwise provided by law.
2789
2790 2791 2792 2793 2794 2795 2796 2797 2798 2799		7.      The contractor will include the provisions of paragraphs (1) through (7) in every subcontract or purchase order under this contract unless exempted by rules, regulations, or orders of the Secretary of Labor issued pursuant to section 204 of Executive Order 11246 of September 24, 1965, so that such provisions will be binding upon each subcontractor or vendor. The contractor will take such action with respect to any subcontract or purchase order as may be directed by the Secretary of Labor as a means of enforcing such provisions including sanctions for noncompliance, provided, however, that in the event the contractor becomes involved in, or is threatened with, litigation with a subcontractor or vendor as a result of such direction, the contractor may request the United States to enter into such litigation to protect the interest of the United States.
2800
2801
2802 2803		Clause 9-9: Equal Opportunity Preaward Compliance of Subcontracts (March 2006) (Tailored)
2804 2805 2806		The aviation supplier may not enter into a first-tier subcontract for an estimated or actual amount of $1 million or more without obtaining in writing from the Contracting Officer a clearance that the proposed subcontractor is in compliance with equal opportunity requirements and therefore eligible for award.
2807
2808
2809		Clause 9-10: Service Contract Act (March 2006)
2810 2811 2812		a.      This contract is subject to the Service Contract Act of 1965, as amended (41 U.S.C. 351 et seq.), and to the following provisions and all other applicable provisions of the Act and regulations of the Secretary of Labor issued under the Act (29 CFR Part 4).
2813
2814		b.
2815 2816 2817 2818 2819		1)      Each service employee employed in the performance of this contract by the aviation supplier or any subcontractor must be: a) paid not less than the minimum monetary wages and b) furnished fringe benefits in accordance with the wages and fringe benefits determined by the Secretary of Labor or an authorized representative, as specified in any wage determination attached to this contract.
2820

 

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2821
2822		2)
2823 2824 2825 2826 2827 2828 2829 2830 2831 2832 2833 2834		a)      If a wage determination is attached to this contract, the Contracting Officer must require that any class of service employees not listed in it and to be employed under the contract (that is, the work to be performed is not performed by any classification listed in the wage determination) be classified by the aviation supplier so as to provide a reasonable relationship (that is, appropriate level of skill comparison) between the unlisted classifications and the classifications in the wage determination. The conformed class of employees must be paid the monetary wages and furnished the fringe benefits determined under this clause. (The information collection requirements contained in this paragraph b have been approved by the Office of Management and Budget under OMB control number 1215- 0150.)
2835
2836 2837 2838 2839 2840 2841 2842 2843 2844 2845 2846 2847 2848 2849 2850 2851		b)      The conforming procedure must be initiated by the aviation supplier before the performance of contract work by the unlisted class of employees. A written report of the proposed conforming action, including information regarding the agreement or disagreement of the authorized representative of the employees involved or, if there is no authorized representative, the employees themselves, must be submitted by the aviation supplier to the Contracting Officer no later than 30 days after the unlisted class of employees performs any contract work. The Contracting Officer must review the proposed action and promptly submit a report of it, together with the agency’s recommendation and all pertinent information, including the position of the aviation supplier and the employees, to the Wage and Hour Division, Employment Standards Administration, U.S. Department of Labor, for review. Within 30 days of receipt, the Wage and Hour Division will approve, modify, or disapprove the action, render a final determination in the event of disagreement, or notify the Contracting Officer that additional time is necessary.
2852
2853 2854 2855 2856 2857		c)      The final determination of the conformance action by the Wage and Hour Division will be transmitted to the Contracting Officer, who must promptly notify the aviation supplier of the action taken. The aviation supplier must give each affected employee a written copy of this determination, or it must be posted as a part of the wage determination.
2858
2859		d)
2860 2861 2862 2863 2864 2865 2866 2867 2868 2869 2870 2871 2872 2873		i.       The process of establishing wage and fringe benefit rates bearing a reasonable relationship to those listed in a wage determination cannot be reduced to any single formula. The approach used may vary from determination to determination, depending on the circumstances. Standard wage and salary administration practices ranking various job classifications by pay grade pursuant to point schemes or other job factors may, for example, be relied upon. Guidance may also be obtained from the way various jobs are rated under federal pay systems (Federal Wage Board Pay System and the General Schedule) or from other wage determinations issued in the same locality. Basic to the establishment of conformable wage rates is the concept that a pay relationship should be maintained between job classifications on the basis of the skill required and the duties performed.
2874

 

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2875
2876 2877 2878 2879 2880 2881 2882 2883 2884 2885 2886 2887 2888 2889		ii.      If a contract is modified or extended or an option is exercised, or if a contract succeeds a contract under which the classification in question was previously conformed pursuant to this clause, a new conformed wage rate and fringe benefits may be assigned to the conformed classification by indexing (that is, adjusting) the previous conformed rate and fringe benefits by an amount equal to the average (mean) percentage increase change in the wages and fringe benefits specified for all classifications to be used on the contract that are listed in the current wage determination, and those specified for the corresponding classifications in the previously applicable wage determination. If these conforming actions are accomplished before the performance of contract work by the unlisted class of employees, the aviation supplier must advise the Contracting Officer of the action taken, but the other procedures in b.2(c) above need not be followed.
2890
2891 2892 2893		iii.    No employee engaged in performing work on this contract may be paid less than the currently applicable minimum wage specified under section 6(a)(1) of the Fair Labor Standards Act of 1938, as amended.
2894
2895 2896 2897 2898 2899 2900 2901		e)      The wage rate and fringe benefits finally determined pursuant to b.2 (a) and (b) above must be paid to all employees performing in the classification from the first day on which contract work is performed by them in the classification. Failure to pay unlisted employees the compensation agreed upon by the interested parties and/or finally determined by the Wage and Hour Division retroactive to the date the class of employees began contract work is a violation of the Service Contract Act and this contract.
2902
2903 2904 2905 2906		f)      Upon discovery of failure to comply with b.2 (a) through (e) above, the Wage and Hour Division will make a final determination of conformed classification, wage rate, and / or fringe benefits that will be retroactive to the date the class of employees commenced contract work.
2907
2908 2909 2910 2911 2912 2913		3)      If, as authorized pursuant to section 4(d) of the Service Contract Act, the term of this contract is more than one year, the minimum monetary wages and fringe benefits required to be paid or furnished to service employees will be subject to adjustment after one year and not less often than once every two years, pursuant to wage determinations to be issued by the Wage and Hour Division, Employment Standards Administration of the Department of Labor.
2914
2915 2916 2917 2918 2919		c.      The aviation supplier or subcontractor may discharge the obligation to furnish fringe benefits specified in the attachment or determined conformably to it by furnishing any equivalent combinations of bona fide fringe benefits, or by making equivalent or differential payments in cash in accordance with the applicable rules set forth in Subpart D of 29 CFR Part 4, and not otherwise.
2920
2921		d.
2922 2923 2924 2925 2926 2927 2928		1)      In the absence of a minimum-wage attachment for this contract, neither the aviation supplier nor any subcontractor under this contract may pay any person performing work under the contract (regardless of whether they are service employees) less than the minimum wage specified by section 6(a)(1) of the Fair Labor Standards Act of 1938. Nothing in this provision relieves the aviation supplier or any subcontractor of any other obligation under law or contract for the payment of a higher wage to any employee.
2929

 

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2930
2931		2)
2932 2933 2934 2935 2936 2937 2938 2939 2940 2941 2942 2943 2944		a)      If this contract succeeds a contract subject to the Service Contract Act, under which substantially the same services were furnished in the same locality, and service employees were paid wages and fringe benefits provided for in a collective bargaining agreement, in the absence of a minimum wage attachment for this contract setting forth collectively bargained wage rates and fringe benefits, neither the aviation supplier nor any subcontractor under this contract may pay any service employee performing any of the contract work (regardless of whether or not the employee was employed under the predecessor contract), less than the wages and fringe benefits provided for in the agreement, to which the employee would have been entitled if employed under the predecessor contract, including accrued wages and fringe benefits and any prospective increases in wages and fringe benefits provided for under the agreement.
2945
2946 2947 2948 2949 2950 2951 2952 2953 2954		b)      No aviation supplier or subcontractor under this contract may be relieved of the foregoing obligation unless the limitations of section 4.1(b) of 29 CFR Part 4 apply or unless the Secretary of Labor or an authorized representative finds, after a hearing as provided in section 4.10 of 29 CFR Part 4, that the wages and/or fringe benefits provided for in the agreement vary substantially from those prevailing for services of a similar character in the locality, or determines, as provided in section 4.11 of 29 CFR Part 4, that the agreement applicable to service employees under the predecessor contract was not entered into as a result of arm’s-length negotiations.
2955
2956 2957 2958 2959 2960 2961 2962 2963 2964 2965 2966 2967 2968 2969 2970		c)      If it is found in accordance with the review procedures in 29 CFR 4.10 and/or 4.11 and Parts 6 and 8 that wages and/or fringe benefits in a predecessor aviation supplier’s collective bargaining agreement vary substantially from those prevailing for services of a similar character in the locality, and/or that the agreement applicable to service employees under the predecessor contract was not entered into as a result of arm’s-length negotiations, the Department will issue a new or revised wage determination setting forth the applicable wage rates and fringe benefits. This determination will be made part of the contract or subcontract, in accordance with the decision of the Administrator, the Administrative Law Judge, or the Board of Service Contract Appeals, as the case may be, irrespective of whether its issuance occurs before or after award (53 Comp. Gen. 401 (1973)). In the case of a wage determination issued solely as a result of a finding of substantial variance, it will be effective as of the date of the final administrative decision.
2971
2972 2973 2974 2975 2976 2977 2978		e.      The aviation supplier and any subcontractor under this contract must notify each service employee starting work on the contract of the minimum monetary wage and any fringe benefits required to be paid pursuant to the contract, or must post the wage determination attached to this contract. The poster provided by the Department of Labor (Publication WH 1313) must be posted in a prominent and accessible place at the worksite. Failure to comply with this requirement is a violation of section 2(a) (4) of the Act and of this contract. (Approved by the Office of Management and Budget under OMB control number 1215-0150.)
2979
2980 2981 2982 2983 2984 2985		f.       The aviation supplier or subcontractor may not permit services called for by this contract to be performed in buildings or surroundings or under working conditions provided by or under the control or supervision of the aviation supplier or subcontractor that are unsanitary or hazardous or dangerous to the health or safety of service employees engaged to furnish these services, and the aviation supplier or subcontractor must comply with the safety and health standards applied under 29 CFR Part 1925.
2986

 

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2987		g.
2988 2989 2990 2991 2992 2993 2994		1)      The aviation supplier and each subcontractor performing work subject to the Act must maintain for 3 years from the completion of the work records containing the information specified in (a) through (f) following for each employee subject to the Service Contract Act and must make them available for inspection and transcription by authorized representatives of the Wage and Hour Division, Employment Standards Administration of the U.S. Department of Labor (approved by the Office of Management and Budget under OMB control numbers 1215-0017 and 1215-0150):
2995		a)      Name, address, and social security number of each employee.
2996
2997 2998 2999		b)      The correct work classification, rate or rates of monetary wages paid and fringe benefits provided, rate or rates of fringe benefit payments in lieu thereof, and total daily and weekly compensation of each employee.
3000
3001		c)      The number of daily and weekly hours so worked by each employee.
3002
3003 3004		d)      Any deductions, rebates, or refunds from the total daily or weekly compensation of each employee.
3005
3006 3007 3008 3009 3010 3011		e)      A list of monetary wages and fringe benefits for those classes of service employees not included in the wage determination attached to this contract but for whom wage rates or fringe benefits have been determined by the interested parties or by the Administrator or authorized representative pursuant to paragraph b above. A copy of the report required by b.2 (b) above is such a list.
3012
3013 3014		f)      Any list of the predecessor aviation supplier’s employees furnished to the aviation supplier pursuant to section 4.6(1) (2) of 29 CFR Part 4.
3015
3016 3017		2)      The aviation supplier must also make available a copy of this contract for inspection or transcription by authorized representatives of the Wage and Hour Division.
3018
3019 3020 3021 3022 3023 3024		3)      Failure to make and maintain or to make available the records specified in this paragraph g for inspection and transcription is a violation of the regulations and this contract, and in the case of failure to produce these records, the Contracting Officer, upon direction of the Department of Labor and notification of the aviation supplier, must take action to suspend any further payment or advance of funds until the violation ceases.
3025
3026 3027 3028		4)      The aviation supplier must permit authorized representatives of the Wage and Hour Division to conduct interviews with employees at the worksite during normal working hours.
3029
3030 3031 3032 3033 3034 3035		h.      The aviation supplier must unconditionally pay to each employee subject to the Service Contract Act all wages due free and clear and without subsequent deduction (except as otherwise provided by law or regulations, 29 CFR Part 4), rebate, or kickback on any account. Payments must be made no later than one pay period following the end of the regular pay period in which the wages were earned or accrued. A pay period under the Act may not be of any duration longer than semimonthly.
3036
3037 3038 3039 3040 3041 3042 3043		i.       The Contracting Officer must withhold or cause to be withheld from the Postal Service aviation supplier under this or any other contract with the aviation supplier such sums as an appropriate official of the Department of Labor requests or the Contracting Officer decides may be necessary to pay underpaid employees employed by the aviation supplier or subcontractor. In the event of failure to pay employees subject to the Act wages or fringe benefits due under the Act, the Postal Service may, after authorization or by direction of the Department of Labor and written notification to the aviation supplier, suspend any further

 

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3044 3045 3046 3047		payment or advance of funds until the violations cease. Additionally, any failure to comply with the requirements of this clause may be grounds for termination of the right to proceed with the contract work. In this event, the Postal Service may enter into other contracts or arrangements for completion of the work, charging the aviation supplier in default with any additional cost.
3048
3049 3050 3051		j.       The aviation supplier agrees to insert this clause in all subcontracts subject to the Act. The term “aviation supplier,” as used in this clause in any subcontract, is deemed to refer to the subcontractor, except in the term “aviation supplier.”
3052
3053 3054 3055 3056 3057 3058		k.      Service employee means any person engaged in the performance of this contract other than any person employed in a bona fide executive, administrative, or professional capacity, as those terms are defined in Part 541 of Title 29, Code of Federal Regulations, as of July 30, 1976, and any subsequent revision of those regulations. The term includes all such persons regardless of any contractual relationship that may be alleged to exist between an aviation supplier or subcontractor and them.
3059
3060		l.
3061 3062 3063 3064 3065 3066 3067 3068 3069 3070 3071 3072 3073		1)      If wages to be paid or fringe benefits to be furnished service employees employed by the aviation supplier or a subcontractor under the contract are provided for in a collective bargaining agreement that is or will be effective during any period in which the contract is being performed, the aviation supplier must report this fact to the Contracting Officer, together with full information as to the application and accrual of these wages and fringe benefits, including any prospective increases, to service employees engaged in work on the contract, and furnish a copy of the agreement. The report must be made upon starting performance of the contract, in the case of collective bargaining agreements effective at the time. In the case of agreements or provisions or amendments thereof effective at a later time during the period of contract performance, they must be reported promptly after their negotiation. (Approved by the Office of Management and Budget under OMB control number 1215-0150.)
3074
3075 3076 3077 3078 3079 3080 3081 3082 3083 3084 3085 3086 3087		2)      Not less than 10 days before completion of any contract being performed at a Postal facility where service employees may be retained in the performance of a succeeding contract and subject to a wage determination containing vacation or other benefit provisions based upon length of service with a aviation supplier (predecessor) or successor (section 4.173 of Regulations, 29 CFR Part 4), the incumbent aviation supplier must furnish to the Contracting Officer a certified list of the names of all service employees on the aviation supplier’s or subcontractor’s payroll during the last month of contract performance. The list must also contain anniversary dates of employment on the contract, either with the current or predecessor aviation suppliers of each such service employee. The Contracting Officer must turn over this list to the successor aviation supplier at the commencement of the succeeding contract. (Approved by the Office of Management and Budget under OMB control number 1215-0150.)
3088
3089 3090		m.     Rulings and interpretations of the Service Contract Act of 1965, as amended, are contained in Regulations, 29 CFR Part 4.
3091
3092		n.
3093 3094 3095 3096		1)      By entering into this contract, the aviation supplier and its officials certify that neither they nor any person or firm with a substantial interest in the aviation supplier’s firm are ineligible to be awarded government contracts by virtue of the sanctions imposed pursuant to section 5 of the Act.
3097
3098 3099		2)      No part of this contract may be subcontracted to any person or firm ineligible for award of a government contract pursuant to section 5 of the Act.
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3101		3)      The penalty for making false statements is prescribed in the U.S. Criminal Code, 18
3102		U.S.C. 1001.

3103
3104		o.      Notwithstanding any of the other provisions of this clause, the following employees may be
3105		employed in accordance with the following variations, tolerances, and exemptions, which the
3106		Secretary of Labor, pursuant to section 4(b) of the Act before its amendment by Public Law
3107		92-473, found to be necessary and proper in the public interest or to avoid serious impairment
3108		of the conduct of government business:
3109
3110		1)      Apprentices, student-learners, and workers whose earning capacity is impaired by
3111		age, or physical or mental deficiency or injury may be employed at wages lower than
3112		the minimum wages otherwise required by section 2(a)(1) or 2(b)(1) of the Service
3113		Contract Act without diminishing any fringe benefits or cash payments in lieu thereof
3114		required under section 2(a)(2) of the Act, in accordance with the conditions and
3115		procedures prescribed for the employment of apprentices, student-learners,
3116		handicapped persons, and handicapped clients of sheltered workshops under section
3117		14 of the Fair Labor Standards Act of 1938, in the regulations issued by the
3118		Administrator (29 CFR Parts 520, 521, 524, and 525).
3119
3120		2)      The Administrator will issue certificates under the Service Contract Act for the
3121		employment of apprentices, student-learners, handicapped persons, or handicapped
3122		clients of sheltered workshops not subject to the Fair Labor Standards Act of 1938, or
3123		subject to different minimum rates of pay under the two Acts, authorizing appropriate
3124		rates of minimum wages (but without changing requirements concerning fringe
3125		benefits or supplementary cash payments in lieu thereof), applying procedures
3126		prescribed by the applicable regulations issued under the Fair Labor Standards Act of
3127		1938 (29 CFR Parts 520, 521, 524, and 525).
3128
3129		3)      The Administrator will also withdraw, annul, or cancel such certificates in accordance
3130		with the regulations in Parts 525 and 528 of Title 29 of the Code of Federal
3131		Regulations.
3132
3133		p.      Apprentices will be permitted to work at less than the predetermined rate for the work they
3134		perform when they are employed and individually registered in a bona fide apprenticeship
3135		program registered with a State Apprenticeship Agency recognized by the U.S. Department of
3136		Labor, or if no such recognized agency exists in a state, under a program registered with the
3137		Bureau of Apprenticeship and Training, Employment and Training Administration, U.S.
3138		Department of Labor. Any employee not registered as an apprentice in an approved program
3139		must be paid the wage rate and fringe benefits contained in the applicable wage determination
3140		for the journeyman classification of work actually performed. The wage rates paid apprentices
3141		may not be less than the wage rate for their level of progress set forth in the registered
3142		program, expressed as the appropriate percentage of the journeyman’s rate contained in the
3143		applicable wage determination. The allowable ratio of apprentices to journeymen employed
3144		on the contract work in any craft classification may not be greater than the ratio permitted to
3145		the aviation supplier for its entire workforce under the registered program.
3146
3147		q.      An employee engaged in an occupation in which he or she customarily and regularly receives
3148		more than $30 a month tips may have the amount of tips credited by the employer against the
3149		minimum wage required by section 2(a) (1) or section 2(b) (1) of the Act in accordance with
3150		section 3(m) of the Fair Labor Standards Act and Regulations, 29 CFR Part 531. However, the
3151		amount of this credit may not exceed $1.24 per hour beginning January 1, 1980, and $1.34
3152		per hour after December 31, 1980. To utilize this proviso:
3153		1)      The employer must inform tipped employees about this tip credit allowance before the
3154		credit is utilized;
3155

 

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3156		2)      The employees must be allowed to retain all tips (individually or through a pooling
3157		arrangement and regardless of whether the employer elects to take a credit for tips
3158		received);
3159
3160		3)      The employer must be able to show by records that the employee receives at least
3161		the applicable Service Contract Act minimum wage through the combination of direct
3162		wages and tip credit (approved by the Office of Management and Budget under OMB
3163		control number 1214-0017); and
3164
3165		4)      The use of tip credit must have been permitted under any predecessor collective
3166		bargaining agreement applicable by virtue of section 4(c) of the Act.
3167
3168		r.       Disputes arising out of the labor standards provisions of this contract are not subject to the
3169		Claims and Disputes clause but must be resolved in accordance with the procedures of the
3170		Department of Labor set forth in 29 CFR Parts 4, 6, and 8. Disputes within the meaning of this
3171		clause include disputes between the aviation supplier (or any of its subcontractors) and the
3172		Postal Service, the U.S. Department of Labor, or the employees or their representatives.
3173
3174
3175		Clause 9-12: Fair Labor Standards Act and Service Contract Act - Price
3176		Adjustment (February 2010)
3177		a.      The aviation supplier warrants that the contract prices do not include allowance for any
3178		contingency to cover increased costs for which adjustment is provided under this clause.
3179
3180		b.      The minimum prevailing wage determination, including fringe benefits, issued under the
3181		Service Contract Act of 1965 by the Department of Labor (DOL), current at least every two
3182		years after the original award date, current at the beginning of any option or renewal period, or
3183		in the case of a significant change in labor requirements, applies to this contract and any
3184		exercise of an option or renewal of this contract. When no such determination has been made
3185		as applied to this contract, the minimum wage established in accordance with the Fair Labor
3186		Standards Act applies to any exercise of an option or renewal of this contract.
3187
3188		c.      When, as a result of the determination of minimum prevailing wages and fringe benefits
3189		applicable (1) every two years after original award date, (2) at the beginning of any option or
3190		renewal period, or (3) in the case of a significant change in labor requirements, an increased
3191		or decreased wage determination is applied to this contract, or when as a result of any
3192		amendment to the Fair Labor Standards Act enacted after award that affects minimum wage,
3193		and whenever such a determination becomes applicable to this contract under law, the
3194		aviation supplier increases or decreases wages or fringe benefits of employees working on the
3195		contract to comply, the aviation supplier and the Contracting Officer will negotiate whether and
3196		to what extent either party will absorb the costs of the wage change. Any resulting change in
3197		contract price is limited to increases or decreases in wages or fringe benefits, and the
3198		concomitant increases or decreases in Social Security, unemployment taxes, and workers’
3199		compensation insurance, but may not otherwise include any amount for general and
3200		administrative costs, overhead, or profit.
3201
3202		d.      The aviation supplier or Contracting Officer may request a contract price adjustment within 30
3203		days of the effective date of a wage change. If a request for contract price adjustment has
3204		been made, and the parties have not reached an agreement within thirty days of that request,
3205		the Contracting Officer should issue a unilateral change order in the amount considered to be
3206		a fair and equitable adjustment. The aviation supplier may then either accept the amount, or
3207		the aviation supplier may file a claim under Clause B-9: Claims and Disputes unless the
3208		Contracting Officer and aviation supplier extend this period in writing. Upon agreement of the
3209		parties, the contract price or unit price labor rates will be modified in writing. Pending
3210		agreement on or determination of any such adjustment and its effective date, the aviation
3211		supplier must continue performance.
3212

 

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3213		e.      The Contracting Officer or the Contracting Officer’s authorized representative must, for 3
3214		years after final payment under the contract, be given access to and the right to examine any
3215		directly pertinent books, papers, and records of the aviation supplier.

 

3216
3217
3218		Clause 9-13: Affirmative Action for Workers with Disabilities (March 2006)
3219		(Tailored)
3220		a.      The contractor will not discriminate against any employee or applicant for employment
3221		because of physical or mental disability in regard to any position for which the employee or
3222		applicant for employment is qualified. The contractor agrees to take affirmative action to
3223		employ, advance in employment, and otherwise treat qualified individuals with disabilities
3224		without discrimination based on their physical or mental disability in all employment practices,
3225		including the following:
3226		1.      Recruitment, advertising, and job application procedures;
3227
3228		2.      Hiring, upgrading, promotion, award of tenure, demotion, transfer, layoff, termination,
3229		right of return from layoff and rehiring
3230
3231		3.      Rates of pay or any other form of compensation and changes in compensation
3232
3233		4.      Job assignments, job classifications, organizational structures, position descriptions,
3234		lines of progression, and seniority lists
3235
3236		5.      Leaves of absence, sick leave, or any other leave
3237		6.      Fringe benefits available by virtue of employment, whether or not administered by the
3238		contractor
3239
3240		7.      Selection and financial support for training, including apprenticeship, professional
3241		meetings, conferences, and other related activities, and selection for leaves of
3242		absence to pursue training
3243
3244		8.      Activities sponsored by the contractor including social or recreational programs; and
3245
3246		9.      Any other term, condition, or privilege of employment.
3247
3248		b.      The contractor agrees to comply with the rules, regulations, and relevant orders of the
3249		Secretary of Labor issued pursuant to the Rehabilitation Act of 1973, as amended.
3250
3251		c.      In the event of the contractor’s noncompliance with the requirements, actions for
3252		noncompliance may be taken in accordance with the rules, regulations, and relevant orders of
3253		the Secretary of Labor issued pursuant to the act.
3254
3255		d.      The contractor agrees to post in conspicuous places, available to employees and applicants
3256		for employment, notices in a form to be prescribed by the Deputy Assistant Secretary for
3257		Federal Contract Compliance Programs, provided by or through the Contracting Officer. Such
3258		notices shall state the rights of applicants and employees as well as the contractor’s obligation
3259		under the law to take affirmative action to employ and advance in employment qualified
3260		employees and applicants with disabilities. The contractor must ensure that applicants and
3261		employees with disabilities are informed of the contents of the notice (e.g., the contractor may
3262		have the notice read to a visually disabled individual, or may lower the posted notice so that it
3263		might be read by a person in a wheelchair).
3264
3265		e.      The contractor will notify each labor organization or representative of workers with which it has
3266		a collective bargaining agreement or other understanding that the contractor is bound by the
3267		terms of section 503 of the Rehabilitation Act of 1973, as amended, and is committed to take
3268		affirmative action to employ and advance in employment individuals with physical or mental
3269		disabilities.

 

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3270
3271		f.       The contractor must include the provisions of this clause in every subcontract or purchase
3272		order in excess of $10,000, unless exempted by the rules, regulations, or orders of the
3273		Secretary issued pursuant to section 503 of the Act, as amended, so that such provisions will
3274		be binding upon each subcontractor or vendor. The contractor will take such action with
3275		respect to any subcontract or purchase order as the Deputy Assistant Secretary for Federal
3276		Contract Compliance Programs may direct to enforce such provisions, including action for
3277		noncompliance.
3278
3279
3280		Clause 9-14: Equal Opportunity for Disabled Veterans, Recently Separated
3281		Veterans, Other Protected Veterans, and Armed Forces Service Medal Veterans
3282		(February 2010) (Tailored)
3283		a.      The contractor will not discriminate against any employee or applicant for employment
3284		because he or she is a disabled veteran, recently separated veteran, other protected veteran,
3285		or Armed Forces service medal veteran in regard to any position for which the employee or
3286		applicant for employment is qualified. The contractor agrees to take affirmative action to
3287		employ, advance in employment and otherwise treat qualified individuals without
3288		discrimination based on their status as a disabled veteran, recently separated veteran, other
3289		protected veteran, or Armed Forces service medal veteran in all employment practices,
3290		including the following:
3291
3292		1.      Recruitment, advertising, and job application procedures;
3293
3294		2.      Hiring, upgrading, promotion, award of tenure, demotion, transfer, layoff, termination,
3295		right of return from layoff and rehiring;
3296
3297		3.      Rates of pay or any other form of compensation and changes in compensation;
3298
3299		4.      Job assignments, job classifications, organizational structures, position descriptions,
3300		lines of progression, and seniority lists;
3301
3302		5.      Leaves of absence, sick leave, or any other leave;
3303
3304		6.      Fringe benefits available by virtue of employment, whether or not administered by the
3305		contractor;
3306
3307		7.      Selection and financial support for training, including apprenticeship, and on-the-job
3308		training under 38 U.S.C. 3687, professional meetings, conferences, and other related
3309		activities, and selection for leaves of absence to pursue training;
3310
3311		8.      Activities sponsored by the contractor including social or recreational programs; and
3312
3313		9.      Any other term, condition, or privilege of employment.
3314
3315		b.      The contractor agrees to immediately list all employment openings which exist at the time of
3316		the execution of this contract and those which occur during the performance of this contract,
3317		including those not generated by this contract and including those occurring at an
3318		establishment of the contractor other than the one where the contract is being performed, but
3319		excluding those of independently operated corporate affiliates, with the appropriate
3320		employment service delivery system where the opening occurs. Listing employment openings
3321		with the state workforce agency job bank or with the local employment service delivery system
3322		where the opening occurs will satisfy the requirement to list jobs with the appropriate
3323		employment service delivery system.
3324

 

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3325
3326		c.      Listing of employment openings with the appropriate employment service delivery system
3327		pursuant to this clause shall be made at least concurrently with the use of any other
3328		recruitment source or effort and shall involve the normal obligations which attach to the
3329		placing of a bona fide job order, including the acceptance of referrals of veterans and
3330		nonveterans. The listing of employment openings does not require the hiring of any particular
3331		job applicants or from any particular group of job applicants, and nothing herein is intended to
3332		relieve the contractor from any requirements in Executive orders or regulations regarding
3333		nondiscrimination in employment.
3334
3335		d.      Whenever a contractor, other than a state or local governmental contractor, becomes
3336		contractually bound to the listing provisions in paragraphs 2 and 3 of this clause, it shall advise
3337		the state workforce agency in each state where it has establishments of the name and location
3338		of each hiring location in the state. As long as the contractor is contractually bound to these
3339		provisions and has so advised the state agency, there is no need to advise the state agency of
3340		subsequent contracts. The contractor may advise the state agency when it is no longer bound
3341		by this contract clause.
3342
3343		e.      The provisions of paragraphs 2 and 3 of this clause do not apply to the listing of employment
3344		openings which occur and are filled outside of the 50 states, the District of Columbia, the
3345		Commonwealth of Puerto Rico, Guam, the Virgin Islands, American Samoa, the
3346		Commonwealth of the Northern Mariana Islands, Wake Island, and the Trust Territories of the
3347		Pacific Islands.
3348
3349		f.       As used in this clause:
3350
3351		1.      All employment openings includes all positions except executive and senior
3352		management, those positions that will be filled from within the contractor’s
3353		organization, and positions lasting three days or less. This term includes full-time
3354		employment, temporary employment of more than three days’ duration, and part-time
3355		employment.
3356
3357		2.      Executive and senior management means: (1) Any employee (a) compensated on a
3358		salary basis at a rate of not less than $455 per week (or $380 per week, if employed
3359		in American Samoa by employers other than the Federal Government), exclusive of
3360		board, lodging or other facilities; (b) whose primary duty is management of the
3361		enterprise in which the employee is employed or of a customarily recognized
3362		department or subdivision thereof; (c) who customarily and regularly directs the work
3363		of two or more other employees; and (d) who has the authority to hire or fire other
3364		employees or whose suggestions and recommendations as to the hiring, firing,
3365		advancement, promotion or any other change of status of other employees are given
3366		particular weight; or (2) any employee who owns at least a bona fide 20-percent
3367		equity interest in the enterprise in which the employee is employed, regardless of
3368		whether the business is a corporate or other type of organization, and who is actively
3369		engaged in its management.
3370
3371		3.      Positions that will be filled from within the contractor’s organization means
3372		employment openings for which no consideration will be given to persons outside the
3373		contractor’s organization (including any affiliates, subsidiaries, and parent companies)
3374		and includes any openings which the contractor proposes to fill from regularly
3375		established “recall” lists. The exception does not apply to a particular opening once
3376		an employer decides to consider applicants outside of his or her own organization.
3377
3378		g.      The contractor agrees to comply with the rules, regulations, and relevant orders of the
3379		Secretary of Labor issued pursuant to the Act.
3380

 

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3381		h.      In the event of the contractor’s noncompliance with the requirements of this clause, actions for
3382		noncompliance may be taken in accordance with the rules, regulations, and relevant orders of
3383		the Secretary of Labor issued pursuant to the Act.
3384
3385		i.       The contractor agrees to post in conspicuous places, available to employees and applicants
3386		for employment, notices in a form to be prescribed by the Deputy Assistant Secretary for
3387		Federal Contract Compliance, provided by or through the Contracting Officer. Such notices
3388		shall state the rights of applicants and employees as well as the contractor’s obligation under
3389		the law to take affirmative action to employ and advance in employment qualified employees
3390		and applicants who are disabled veterans, recently separated veterans, other protected
3391		veterans, or Armed Forces service medal veterans. The contractor must ensure that
3392		applicants or employees who are disabled veterans are informed of the contents of the notice
3393		(e.g., the contractor may have the notice read to a visually disabled individual, or may lower
3394		the posted notice so that it might be read by a person in a wheelchair).
3395
3396		j.       The contractor will notify each labor organization or representative of workers with which it has
3397		a collective bargaining agreement or other contract understanding, that the contractor is
3398		bound by the terms of the Vietnam Era Veterans’ Readjustment Assistance Act of 1974, as
3399		amended, and is committed to take affirmative action to employ and advance in employment
3400		qualified disabled veterans, recently separated veterans, other protected veterans, and Armed
3401		Forces service medal veterans.
3402
3403		k.      The contractor will include the provisions of this clause in every subcontract or purchase order
3404		of $100,000 or more, unless exempted by the rules, regulations, or orders of the Secretary
3405		issued pursuant to the Vietnam Era Veterans’ Readjustment Assistance Act of 1974, as
3406		amended, so that such provisions will be binding upon each subcontractor or vendor. The
3407		contractor will take such action with respect to any subcontract or purchase order as the
3408		Deputy Assistant Secretary for Federal Contract Compliance may direct to enforce such
3409		provisions, including action for noncompliance.
3410
3411
3412		Contract Term
3413		The contract base period of performance will be October 1, 2013, through September 30, 2020, with
3414		two, five year renewal periods to be exercised by mutual agreement of the parties. The Night Network
3415		will begin operation on September 30, 2013; the Day Network will begin operation on October 1, 2013.
3416
3417
3418		Renewal Process
3419		[*]
3420
3421
3422
3423
3424		Amendments or Modifications
3425		In order to be binding upon the Postal Service or the aviation supplier, any amendment or modification
3426		of this Contract must be in writing signed by the Contracting Officer on behalf of the Postal Service
3427		and an officer of the aviation supplier authorized to bind the company.
3428
3429
3430		Assignment
3431		Neither Party shall, directly or indirectly (whether by succession, merger, or otherwise) assign,
3432		delegate, novate, or otherwise transfer this Contract or any of its rights or obligations hereunder,
3433		without the prior written approval of the other. However, the aviation supplier may assign this contract
3434		to any of its internal business affiliates upon written notice to the Postal Service.
3435
3436

 

*	Blank spaces contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

 

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3437		Bankruptcy
3438		In the event the aviation supplier enters into proceedings relating to bankruptcy, whether voluntary or
3439		involuntary, the aviation supplier will furnish, by certified mail, written notification of the bankruptcy to
3440		the Contracting Officer responsible for administering the contract. The notification must be furnished
3441		within five days of the initiation of the bankruptcy proceedings. The notification must include the date
3442		on which the bankruptcy petition was filed, the court in which the petition was filed, and a list of Postal
3443		Service contracts and Contracting Officers for all Postal Service contracts for which final payment has
3444		not yet been made. This obligation remains in effect until final payment under this contract.
3445
3446
3447		Confidentiality
3448		a.      During the term of this contract and until the earlier of five (5) years after such termination or
3449		until such time as the information is no longer confidential as described below, each party
3450		shall treat as confidential and appropriately safeguard and shall not use for the benefit of any
3451		person or corporation other than the other party:
3452
3453		1.      Written information identified in writing as confidential or oral information promptly
3454		confirmed in writing as being confidential;
3455
3456		2.      Written information or oral information disclosed by the parties during the negotiation
3457		of this contract and written information or oral information promptly confirmed in
3458		writing as confidential pertaining to a party’s pricing, business or assets which is
3459		received at any time from a party that is identified in writing; or
3460
3461		3.      Any information or knowledge concerning the methods of operation, promotion, sale,
3462		or distribution used by a party which may be communicated to the other party or which
3463		a party may otherwise acquire by virtue of its performance of this Agreement.
3464
3465		b.      Notwithstanding the provisions of subparagraphs 1 through 3, above, neither party shall be
3466		required to obtain prior written approval before providing information regarding this contract:
3467
3468		1.       To Members of Congress serving on a committee or subcommittee with oversight
3469		responsibility of the Postal Service;
3470
3471		2.       In response to legal process or otherwise required by law;
3472
3473		3.       In response to a request from the Department of Justice Antitrust Division attorneys or
3474		economists in pursuit of a non-public investigation; or
3475
3476		4.       In response to requests submitted to the Postal Service under the Freedom of
3477		Information Act. In this regard, the Postal Service shall follow the procedures
3478		promulgated at 39 CFR Section 265.8.
3479
3480		c.      Information shall not be considered confidential if it is:
3481		1.       Generally known to the trade or public;
3482		2.       Rightfully possessed by a party prior to the effective date of this contract;
3483		3.       Received by a party from a third party which rightfully possesses it;
3484		4.       Independently developed by the other party; or
3485		5.       Releasable pursuant to Postal Service regulations addressing how information is
3486		maintained by the Postal Service.
3487
3488
3489		Entire Agreement
3490		This Contract, together with all Attachments, constitutes the entire agreement and understanding
3491		between the Parties in connection with the subject matter described, and supersedes and cancels all
3492		previous negotiations, commitments, and writings related to the subject matter.

 

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3493
3494
3495		Force Majeure
3496		Both the Postal Service and the aviation supplier shall be excused from their obligations for volume
3497		guarantees or service performance, respectively, under this Contract, and neither Party shall be liable
3498		to the other or any other person or entity for loss, damage, delay, mis-delivery or non-delivery of
3499		shipments transported pursuant to this Contract, resulting in whole or in part from any of the following:
3500
3501		a.      When there occurs a State or Federal government-declared State of Emergency and / or
3502		instructions by a government agency that has actual or apparent powers or authority
3503		(including, but not limited to, the Federal Aviation Administration (FAA) or the Transportation
3504		Security Administration (TSA)) to order airport closures or limitations on airport activity;
3505
3506		b.      When the failure to meet contractual obligations results in whole or in part from public
3507		enemies, terrorist acts, criminal acts of any person or entity, public authorities acting with
3508		actual or apparent authority (including U.S. Postal Inspectors), civil commotion, hazards
3509		incident to a state of war, national disruptions in transportation networks or operations (of any
3510		mode) of the aviation supplier, Postal Service, or any other entity, strikes, natural disasters, or
3511		disruption or failure of third-party communication and information systems; or
3512
3513		c.      When there exist any conditions that present a danger to each Party’s personnel.
3514
3515		d.      In every case the failure to perform must be beyond the control and without the fault or
3516		negligence of the party claiming that its performance is excused. Each Party is required to
3517		continue and attempt to recommence performance to the greatest extent possible without
3518		delay.
3519
3520		It is the responsibility of the Party asserting the Force Majeure event to formally declare that a Force
3521		Majeure event has taken place within twenty-four (24) hours of the event, except when the event
3522		occurs on a Friday, Saturday or Sunday. Declaration of a Force Majeure event that occurs on a Friday,
3523		Saturday, or Sunday must be made by the close of business on the following Monday, except when
3524		the Monday falls on a holiday, then it must be declared by the close of business on the following
3525		Tuesday. The party declaring the Force Majeure event must document the circumstances of the event
3526		in writing to the Contracting Officer’s Representative, who will review the information with the
3527		Manager, Air Transportation Operations, and relevant aviation supplier officials. In the absence of a
3528		formal request for relief under this clause, all appropriate volume guarantees and performance
3529		standards will remain in force. Except for the calculation of the service levels, nothing in this section
3530		shall relieve or excuse the aviation supplier of its service obligations. Subsequent to a Force Majeure
3531		event being declared, the declaring party must provide reasonable, written documentation with
3532		sufficient detail to support the declaration.
3533
3534		If, as a result of the occurrence of one of the foregoing events, the aviation supplier is excused from
3535		performance, and the Postal Service is excused from meeting its minimum volume commitment for the
3536		identified period, the Parties will meet to agree upon the pro-rata adjustments to be made.
3537
3538		On days where mail volume is withdrawn, withheld, or not transported under this provision, the
3539		minimum volume commitment for the identified period will be reduced for that period by the amount of
3540		that volume.
3541
3542
3543		Frequency Adjustment
3544		If, during the term of this contract, the Postal Service decides to reduce, in whole or in part, the
3545		number of delivery days, for any mail type it provides, to fewer than six (6) per week, the Postal
3546		Service reserves the right to effectuate a change in delivery days by adjusting the Statement of Work
3547		of this contract, including, but not limited to, the annual number of operating days or the frequency of
3548		service hereunder. The parties agree that such an adjustment does not constitute a partial termination
3549		of the contract, nor will it give rise to an equitable adjustment.

 

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3550
3551		If the number of delivery days is reduced, in whole or in part, to five (5) and the Postal Service decides
3552		to reduce the number of operating days under this contract, in whole or in part, to five (5), the parties
3553		agree to reduce the Contract Volume Minimum calculation. The Contract Volume Minimum calculation
3554		will be reduced by the average daily volume for the previous twelve (12) months excluding the weeks
3555		of Peak associated with the removed day of service without adjustment to the tier structure, the
3556		contract rate, or be subject to any other price-related adjustment. The monies associated with the
3557		volume removed from the calculation will be eliminated.
3558
3559		If the number of delivery days is reduced to fewer than five (5), and the Postal Service decides to
3560		reduce the number of operating days under this contract, in whole or in part, to fewer than five (5), the
3561		parties will negotiate an equitable adjustment if necessary.
3562
3563		No later than 120 days prior to the effective date of such reduction in delivery days, the parties shall
3564		commence discussions as to how to implement the change. Within 90 days of such notice, the
3565		supplier must implement the changes outlined above.
3566
3567
3568		Notices
3569		Any notice, report, demand, acknowledgement or other communication which under the terms of this
3570		Contract or otherwise must be given or made by either Party, unless specifically otherwise provided in
3571		this Contract, shall be in the English language and in writing, and shall be given or made by express
3572		delivery service with proof of delivery, certified air mail (return receipt requested). The parties may
3573		also send a copy of the same communication through electronic mail, facsimile with acknowledgement
3574		of receipt/proof of receipt, or personal delivery. If a party sends a copy of the official correspondence
3575		by electronic mail or facsimile, the correspondence shall not be deemed received until the receiving
3576		party confirms receipt.
3577
3578		Such notice, report, demand, acknowledgement or other communication shall be deemed to have
3579		been given or made in the case of express delivery service with tracking and tracing capability on the
3580		date of signature of the proof of delivery, and in the case of certified mail on the fifth business day in
3581		the place of receipt after the date sent.
3582
3583		The notice address for the Postal Service shall be:
3584		U.S. Postal Service
3585		Air Transportation CMC
3586		Attention: Manager
3587		475 L’Enfant Plaza SW, Room 1P 650
3588		Washington, DC 20260-0650
3589
3590		The notice address for the aviation supplier shall be:
3591		Federal Express Corporation
3592		Attention: Vice President, Postal Transportation Management
3593		3610 Hacks Cross Road
3594		Building A 1st Floor
3595		Memphis, TN 38125-8800
3596
3597
3598		Severability
3599 3600 3601 3602 3603 3604 3605		a.      If any term, provision, covenant or condition of this Contract is held by a court or Board of competent jurisdiction or by a request, direction or indication of an agency or department of a Governmental Body having subject matter jurisdiction to be invalid or unenforceable, the remainder of the provisions shall continue in full force and effect unless the rights and obligations of the parties have been materially altered or abridged by such invalidation or unenforceability.

 

Page 72 of 130

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Air Cargo Network

Contract ACN-13-FX

Part 3: Contract Clauses

 

3606 3607 3608 3609 3610 3611		b.      If a material provision of this Contract is materially altered or abridged as the result of a final and binding order of a Governmental Body having subject matter jurisdiction, then the Postal Service and the aviation supplier will meet to negotiate in good faith to reach a mutually satisfactory modification to this Contract. If the Parties are unable to reach a mutually satisfactory resolution, then either Party may declare the negotiations to be at an impasse and the parties shall resolve the dispute in accordance with the provisions of this contract.
3612
3613 3614		c.      Notwithstanding the foregoing, the Parties agree to make their best efforts to oppose any changes requested by a Governmental Body to any material provision of this Contract.
3615
3616
3617		Third Party Governmental Delays
3618		If, during the term of this contract, a governmental entity with subject matter jurisdiction enacts laws,
3619		promulgates regulations, or issues orders mandating that the aviation supplier screen mail dispatched
3620		for transportation by aircraft within the United States for bombs, explosives, or other hazardous
3621		materials, and aviation supplier does not have a method for otherwise complying at no additional cost
3622		to the Postal Service, either party may, at no cost to the other party, suspend performance under the
3623		contract during the period in which such screening is actually required to be accomplished.
3624
3625		Within fourteen (14) days of the enactment of any law, promulgation of any regulation, or issuance of
3626		any order referenced above, the parties shall commence negotiations in an attempt to modify this
3627		contract to address any adverse impacts and / or other concerns asserted by one or both parties that
3628		may arise as a result of additional screening requirements.
3629
3630		If the parties cannot agree upon such a modification within 180 days, or within such longer period as
3631		the parties may mutually agree, the contract and all orders hereunder may be terminated at no cost to
3632		either party.
3633
3634
3635		Waiver of Breach
3636		No waiver of breach of any of the provisions of this Contract shall be construed to be a waiver of any
3637		succeeding breach of the same or any other provision.
3638

 

Page 73 of 130

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Air Cargo Network

Contract ACN-13-FX

Part 4: List of Attachments

 

Part 4 - List of Attachments and Forms

 

Attachments:
		Attachment 1		Postal Service Operating Periods, dated June 27, 2014
		Attachment 2		Air Stops & Projected Volumes, dated January 8, 2013
		Attachment 3		Operating Plan, Day Network, dated June 27, 2014
		Attachment 4		Operating Plan, Night Network, dated June 27, 2014
		Attachment 5		Reserved
		Attachment 6		Postal Furnished Property, April 16, 2013
		Attachment 7		Electronic Data Interchange Service Requirements, dated September 1, 2012
		Attachment 8		Investigative / Security Protocol and Guidelines, dated July 2012
		Attachment 9		Wage Determination, dated October 31, 2012
		Attachment 10		Pricing, dated September 29, 20141
		Attachment 11		Perishable Mail and Lives, April 22, 2013
		Attachment 12		Reserved
		Attachment 13		Service Contract Act Wage Determinations, dated April 17, 2013
		Attachment 14		Contract Density, dated June 27, 2014
		Attachment 15		Average Weight Process, dated June 27, 2014
		Attachment 16		Re-labeling Process, dated June 27, 2014
		Attachment 17		Handling Unit Types, dated June 27, 2014

Forms:
		DOT Form F 5800.1		Hazardous Materials Incident Report
		I-9 Form		Employment Eligibility Verification
		PS Form 2025		Contract Personnel Questionnaire
		PS Form 8203		Order / Solicitation / Offer / Award
		US Treasury Form 941		Quarterly Federal Tax Return

 

1	Included herein

 

Page 74 of 130

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Air Cargo Network

Contract ACN-13-FX

Attachment 10: Pricing

 

Exercised Option 1, 2, and 3

Attachment 10

Pricing

January 13, 2015

 

Attachment 10 – Pricing Day Network (Proposal 2F)		1/13/2015

[*]

 

*	Blank spaces contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

 

Page 101 of 130

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Air Cargo Network

Contract ACN-13-FX

Attachment 10: Pricing

 

Attachment 10 – Pricing Night Network (Proposal 2B)		18-Apr-13

[*]

 

Attachment 10 – Pricing		6/27/2014

[*]

 

*	Blank spaces contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

 

Page 102 of 130

Exhibit 10.5

 

		The Boeing Company
		P.O. Box 3707
		Seattle, WA 98124-2207

 

 

6-1162-LKJ-0696R6

Federal Express Corporation

3131 Democrat Road

Memphis, TN 38118

 

Subject:		[*]
Reference:		Purchase Agreement No. PA-3712 (Purchase Agreement) between The Boeing Company (Boeing) and Federal Express Corporation (Customer) relating to Model 767-3S2F aircraft (Aircraft)

All terms used but not defined in this letter agreement (Letter Agreement) have the same meaning as in the Purchase Agreement. Other than as provided in this Letter Agreement all terms and conditions of the Purchase Agreement are hereby ratified and confirmed.

1. [*]

2. Customer understands that Boeing considers certain commercial and financial information contained in this offer as confidential. Customer agrees that it will treat this offer and the information contained herein as confidential and will not, without the prior written consent of Boeing, disclose this offer or any information contained herein to any other person or entity without the written consent of Boeing.

Please sign and return this offer on or before January 22, 2015.

 

6-1162-LKJ-0696R6 January 22, 2015 [*]		Page 1

BOEING PROPRIETARY

 

*	Blank spaces contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

---

 

 

6-1162-LKJ-0696R6 January 22, 2015 [*]		Page 2

BOEING PROPRIETARY

 

*	Blank spaces contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

---

Attachment to Letter Agreement 6-1162-LKJ-0696R6

 

[ * ]

Note: Boeing acknowledges that as of the date of this Letter Agreement Customer has executed a definitive agreement (Supplemental Agreement No. 5) for four (4) LDS Additional Aircraft.

[ * ]

 

BOEING PROPRIETARY

 

*	Blank spaces contained confidential information which has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

EXHIBIT 12.1

FEDEX CORPORATION

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(UNAUDITED)

(IN MILLIONS, EXCEPT RATIOS)

 

		Nine Months Ended February 28,								Year Ended May 31,
		2015				2014				2014				2013				2012				2011				2010
Earnings:
Income before income taxes		$	2,817			$	2,152			$	3,289			$	2,455			$	3,141			$	2,265			$	1,894
Add back:
Interest expense, net of capitalized interest			164				106				160				82				52				86				79
Amortization of debt issuance costs			4				4				4				5				5				16				14
Portion of rent expense representative of interest factor			668				666				876				864				797				852				806
Earnings as adjusted		$	3,653			$	2,928			$	4,329			$	3,406			$	3,995			$	3,219			$	2,793
Fixed Charges:
Interest expense, net of capitalized interest		$	164			$	106			$	160			$	82			$	52			$	86			$	79
Capitalized interest			26				22				29				45				85				71				80
Amortization of debt issuance costs			4				4				4				5				5				16				14
Portion of rent expense representative of interest factor			668				666				876				864				797				852				806
		$	862			$	798			$	1,069			$	996			$	939			$	1,025			$	979
Ratio of Earnings to Fixed Charges			4.2				3.7				4.0				3.4				4.3				3.1				2.9

EXHIBIT 15.1

The Board of Directors and Stockholders

FedEx Corporation

We are aware of the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-192957, 333-171232, 333-03443, 333-45037, 333-71065, 333-34934, 333-100572, 333-111399, 333-121418, 333-130619, 333-156333 and Form S-3 No. 333-183989) of FedEx Corporation and in the related Prospectuses of our report dated March 19, 2015, relating to the unaudited condensed consolidated interim financial statements of FedEx Corporation that are included in its Form 10-Q for the quarter ended February 28, 2015.

/s/ Ernst & Young LLP

Memphis, Tennessee

March 19, 2015

EXHIBIT 31.1

CERTIFICATION 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

I, Frederick W. Smith, certify that:

 

1.	I have reviewed this quarterly report on Form 10-Q of FedEx Corporation (the “registrant”);

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: March 19, 2015

/s/ Frederick W. Smith

Frederick W. Smith

Chairman, President and Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION 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

I, Alan B. Graf, Jr., certify that:

 

1.	I have reviewed this quarterly report on Form 10-Q of FedEx Corporation (the “registrant”);

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: March 19, 2015

/s/ Alan B. Graf, Jr.

Alan B. Graf, Jr.

Executive Vice President and Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of FedEx Corporation (“FedEx”) on Form 10-Q for the period ended February 28, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Frederick W. Smith, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of FedEx.

 

Date: March 19, 2015

/s/ Frederick W. Smith

Frederick W. Smith

Chairman, President and Chief Executive Officer

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of FedEx Corporation (“FedEx”) on Form 10-Q for the period ended February 28, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Alan B. Graf, Jr., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of FedEx.

 

Date: March 19, 2015

/s/ Alan B. Graf, Jr.

Alan B. Graf, Jr.

Executive Vice President and Chief Financial Officer