FedEx Annual Report 2000

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FY2000 Annual Report · FedEx

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FedEx Corporation 2000 Annual Report

Time-deﬁnite, global
express transportation

Small-package ground
delivery (formerly RPS)

Integrated logistics and supply chain
solutions (formerly FDX Logistics)

Expedited, door-to-door, super-critical
delivery (formerly Roberts Express)

Customs brokerage and
trade facilitation solutions

After two years as FDX Corporation, we have adopted a new name

that, we believe, more accurately reﬂects our corporate identity:

FedEx Corporation, the parent company for the FedEx family of

services worldwide.

Changes have occurred quickly, including new names for our

major operating companies, new logos and new colors. And we are

already beginning to see the beneﬁts of a more focused, more effi-

cient FedEx family of companies.

But what has not changed is our fundamental business philoso-

phy – to operate independently yet compete collectively. And what

will never change is our mission – to produce superior financial

returns for our shareowners as we serve our customers with the

highest quality transportation, logistics and e-commerce solutions.

SELECTED FINANCIAL DATA

In thousands, except earnings per share

2000

1999

OPERATING RESULTS

Revenues

Operating income

Operating margin

Net income

$18,256,945

$16,773,470

1,221,074

1,163,086

6.7%

6.9%

688,336

631,333

Earnings per share, assuming dilution
Cash earnings per share, assuming dilution(1)
Average common and common equivalent shares
EBITDA(2)
Capital expenditures, including equivalent capital(3)

2.32

6.22

296,326

$ 2,398,663

$ 1,991,600

2.10

5.54

300,643

$ 2,194,373

$ 2,330,613

FINANCIAL POSITION

Total assets

Long-term debt

Common stockholders’ investment

$11,527,111

$10,648,211

1,782,790

4,785,243

1,374,606

4,663,692

(1) Net income plus depreciation and amortization divided by average common and common equivalent shares.

(2) Earnings before interest, taxes, depreciation and amortization.

(3) Represents actual cash expenditures plus the equivalent amount of cash that would have been expended for the acquisition of assets

(principally aircraft), whose use was obtained through long-term operating leases entered into during the period.

Percent
Change

+ 9

+ 5

+ 9

+10

+12

– 1

+ 9

–15

+ 8

+30

+ 3

$18.3

$16.8

$15.9

$2.32

$2.10

$1.69

14.6%

13.5%

FedEx

Corp.

REVENUES
(in billions)

EARNINGS
PER SHARE

RETURN ON
AVERAGE EQUITY

$2.4

$2.2

$2.0

$2.3

$2.0

29.3%

27.1%

22.8%

(2)

EBITDA
(in billions)

CAPITAL EXPENDITURES
AND EQUIVALENTS
(in billions)

(3)

DEBT TO TOTAL
CAPITALIZATION

MESSAGE FROM THE CEO

DEAR FELLOW SHAREOWNERS,

This new strategic plan is based on three

Just as we did in FY99 – when we overcame

sound principles:

significant challenges to post record rev-

enues, record earnings per share and record

service levels – FedEx Corporation has closed

FY00 with the strong financial results that

our shareowners have come to expect.

> To leverage a significant point of competi-

tive differentiation, we strengthened our

superior business philosophy – to operate

independently yet compete collectively.

Independently, each company is free to focus

For the 12 months ended May 31, 2000:

on the distinct needs of its market segment,

> Revenue rose 9% to $18.3 billion

> Net income increased 9% to

$688 million

> Earnings per share rose to $2.32 versus

$2.10 per diluted share a year ago, for

a 10% gain.

Continued economic strength – particularly

in the high-tech and high-value-added sec-

tors – led to improved growth rates in the

without compromising networks or service.

Collectively, the entire FedEx family works

together to cross-sell services and choreo-

graph customer solutions.

> To extend the strength of the powerful

FedEx brand name, we rebranded our major

operating companies to include FedEx Express,

FedEx Ground, FedEx Custom Critical, FedEx

Logistics and FedEx Trade Networks.

largest segment of our business, express

> To provide a single point of access for our

transportation. Our international express

customers, we reorganized and created the new

business continued to grow at the fastest pace,

FedEx Corporate Services company, which

with revenues rising 18%, led by increases in

integrates customer-related activities such as

Asia-Pacific and Europe. Combine our

sales, marketing and information technology.

improved growth rates with our demonstrated

Through FedEx Services, our customers now

fiscal responsibility – for example, holding

have one “touch point” to connect with the full

capital spending to less than $2 billion – and

range of FedEx services – one sales rep, one toll-

it’s evident that, for FY00, FedEx Corporation

free customer service line, one Web site, one

turned challenge into opportunity.

customer automation platform and, soon, one

FEDEX STRATEGIC PLAN

“Challenge” was also the operative word for

an increasingly competitive environment. To

turn that challenge into our competitive

advantage, FedEx Corporation conducted

extensive research to develop a new strategic

plan, which we unveiled in January and

called “Project ARISE.”

account number and one invoice.

It’s really very simple. Our strategic plan is

good for customers, good for shareowners

and good for FedEx. Customers benefit from

convenient, one-stop shopping for the full

range of FedEx transportation, logistics and

e-commerce solutions. Shareowners benefit

from tangible, strategic opportunities for

continued profitable growth. And, in the

process, more than 200,000 employees and

in the largest e-commerce distribution event

contractors of FedEx Corporation benefit

to date: the delivery of 250,000 Harry Potter

from increased opportunities at a company

books, with guaranteed Saturday delivery.

widely regarded as one of America’s great

places to work.

STRATEGIC GROWTH OPPORTUNITIES

Although our strategic initiatives will require

additional spending over the next three years,

we plan to mitigate those costs as we consoli-

date support functions, rationalize services,

and reduce administrative costs. More impor-

tantly, we expect our new strategic plan to

generate substantial incremental revenues

and profits beginning in FY01 as we focus on

the following growth opportunities:

> Generate incremental volume in our

core transportation businesses by

cross-selling all FedEx services.

For our customers, our diversified portfolio

strategy is the right approach, offering the

right FedEx service at the right time and the

right price.

> Attract new business from small and

medium-sized customers.

Our sales integration plan also calls for more

dedicated attention to small and medium-

sized customers. We plan to add more than

250 account executives – most dedicated

to our smaller customers – and increase

prospecting for new accounts by up to 35%.

Why the special attention to small and

medium-sized customers? First, these

smaller accounts generate nearly half of total

An estimated 1.7 million businesses ship

FedEx revenue. Second, in today’s “start-up”

both express and ground packages, account-

business environment, smaller accounts

ing for nearly 14 million shipments every day.

have unique needs for transportation, logis-

These “multi-mode” shippers need one con-

tics, and information services. Whether it’s a

venient, bundled solution, which is why our

new Internet-based company or a traditional

integrated sales force has been trained to

brick-and-mortar firm, smaller companies

cross-sell both FedEx Express and FedEx

are sourcing and selling worldwide, and they

Ground services.

Since we consolidated our sales teams on

April 1, we’ve already begun to see results.

Many companies that have looked to FedEx

only for reliable express transportation are

now expanding to use our other services as

well. In fact, our bundling strategy brought

immediate – and high-profile – business as

Amazon.com tapped FedEx Express and our

new FedEx Home Delivery service to participate

need a reliable business ally to help them

navigate this global economy.

> Create new revenue streams.

Since we announced our new strategic plan last

January, we have already taken two decisive

steps to create entirely new revenue streams

that complement our core businesses.

FedEx

Corp.

In February, we created the new FedEx Trade

electronic customs clearance to speed an inter-

Networks subsidiary to offer customs

national shipment on to its final destination.

brokerage and trade facilitation solutions for

our global customers. This new operating

company includes customs broker Tower

Group International and World Tariff, Limited,

the premier source of customs duty and tax

information around the globe.

Although ground transportation may be con-

strained by geographic boundaries, FedEx

Ground is uniquely positioned to take advan-

tage of the surge in U.S. imports and exports

as a member of the global FedEx family.

In addition, its trucks can be an important

In March, we launched the innovative new

source of cross-border transportation through-

FedEx Home Delivery service to major metro-

out the NAFTA region.

politan areas – and just three months later, as

we issued FY00 earnings, we took advantage

of our financial strength to accelerate plans

for expansion. With options for delivery by

appointment, at night, or on Saturdays, we

believe that FedEx Home Delivery truly fits the

way we live, work and shop today. It’s a perfect

solution for online merchants, many of whom

have learned the hard way that timely, accu-

rate fulfillment of orders is a virtual necessity.

> Expand the high-margin

international business.

The fastest growth during FY00 continued

We believe that international growth must

remain a high priority as manufacturing

becomes even more focused on high-tech and

high-value-added items that are sold globally.

> Capitalize on e-commerce.

As the global economy continues at its robust

pace, the evolution of e-commerce is having a

profound effect. While total e-commerce is

projected to generate about $450 billion in

sales this year, it’s the business-to-business

segment that will account for over 90% of

those transactions.

to be the FedEx Express international busi-

No matter what the ultimate destination –

ness, with revenue increasing 18% year over

business or consumer – e-commerce start-ups

year and gaining over 20% in the fourth quar-

and traditional firms alike need one seamless,

ter alone.

But the global economy is also the rising

tide for all FedEx companies – including the

expedited service of FedEx Custom Critical

throughout North America and Europe and

the worldwide operations of FedEx Logistics.

Our newest operating company, FedEx Trade

Networks, is truly a global player, providing

integrated system for Internet-based ordering

and procurement, linked to the physical

transportation and logistics solutions that

ensure timely order fulfillment. And FedEx is

positioned right at the heart of this trend.

With our unmatched global physical network

and our state-of-the-art information network,

FedEx helps our customers bridge the e-world

with the real world.

> Provide meaningful supply

chain solutions.

In addition to these e-commerce solutions,

FedEx enables companies of all sizes –

whether they do business online or through

traditional means – to streamline their sup-

ply chains.

The best way to explain the supply-chain

concept is by example. One semiconductor

company was sourcing components from

17 different countries. It took about three

weeks to get the components from suppliers

in those countries through the company’s

North American warehouses and on to the

end customers. But three weeks is a lifetime

in an industry with high obsolescence rates.

With a FedEx solution, the company cut its

order-to-delivery time from three weeks to

under five days, while increasing its ability to

track goods in transit. Plus, $8 million of

inventory was converted into usable product.

That’s the true power – and the bottom-line

impact – of innovative transportation, logis-

tics and information solutions. In today’s

business environment, it’s simply the smart

way to work. And that’s why we view these

integrated supply chain solutions as a major

growth opportunity for all FedEx companies.

As we move forward with our corporate

repositioning, we must recognize that change

is nothing new for FedEx. We’ve been chang-

ing since day one and, in the process, helping

to change the way the world works. To stay

ahead of today’s high-tech, high-speed global

economy, FedEx is changing in a very positive

way – becoming more collaborative, more

innovative and more efficient, with an

absolute focus on continued growth in earn-

ings and cash flow.

Over a quarter-century ago, Federal Express

invented the modern air/ground express indus-

try and changed the business world dramati-

cally. Now, we’re ready to reinvent ourselves –

and our industry – for the 21st century.

On a final note, I would like to express my

personal gratitude for three of our distin-

guished Board members: Charles Manatt,

who resigned in December 1999 to become

U.S. ambassador to the Dominican Republic;

Robert Allen, who reaches our Board retire-

ment age in September 2000; and Jackson

Smart, who passed away in June. We will

miss their keen intelligence, quick insight

and business acumen, which have helped

shape FedEx Corporation.

FEDEX STRENGTH

Frederick W. Smith

Chairman, President

As we close FY00, I am pleased to report that

and Chief Executive Officer

the state of FedEx Corporation is very strong

indeed – with strong financial results, strong

growth prospects and a strong business

philosophy to guide our operations.

FedEx

Corp.

MESSAGE FROM THE CFO

CONTINUED GROWTH, IMPROVED CASH FLOWS

up our international network – route authori-

FedEx Corporation posted solid financial

ties that are now the envy of our competitors.

performance in FY00 as we continued to suc-

cessfully implement our portfolio manage-

> Becoming less capital intensive

ment strategy of operating our subsidiaries

independently while competing collectively.

With the FedEx Express core global network

Nevertheless, it was a year of challenge and

in place, we were able to reduce capital expen-

change as we experienced some of the highest

ditures compared to last year as a percentage

fuel prices of the past decade and bore the ini-

of revenues and on an absolute basis. Also, we

tial costs of our new strategic plan. While

continued to reallocate funds to other growth

undertaking these repositioning actions, we

opportunities like FedEx Ground, which sig-

remained focused on our near-term commit-

nificantly expanded the capacity of its pri-

ment to our shareowners and achieved the

mary business-to-business ground service,

following results in FY00:

and began the FedEx Home Delivery rollout.

> Solid EPS growth of 10%

> Improved cash flow

Strong cost reductions, productivity gains and

With EBITDA increasing 9% to $2.4 billion,

service level improvements, combined with

we continued to make significant progress in

fuel surcharges and fuel hedging, partially off-

FY00 to becoming cash flow positive, which

set the $273 million increase in fuel costs due

we will achieve no later than FY03.

to higher prices and the initial costs of our new

go-to-market strategies. EPS growth also bene-

fited as we returned cash to shareowners

through the repurchase of 15 million shares of

FedEx common stock.

> Accelerated revenue growth of 9%

With continued strong growth in our interna-

tional express business and modest growth in

our domestic express and ground business,

FedEx Corporation achieved record revenues

of $18.3 billion. Our international express

business continued to benefit from our deci-

Looking ahead, FY01 promises to be a pivotal

year for our company as our new go-to-market

strategies begin to gain traction. While the

costs of these initiatives will cause some drag

on our earnings growth, especially in the first

half of the year, our growth and profitability

should improve substantially as these efforts

come to fruition and add to our base of busi-

ness in the latter part of the year. For the full

year, we expect our results will show a con-

tinuation of solid growth with improving

earnings, returns and cash flows.

sion several years ago to aggressively develop

Alan B. Graf, Jr.

the unparalleled route authorities that make

Executive Vice President

and Chief Financial Officer

MANAGEMENT’S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS

Consolidated Results
FedEx Corporation (also referred to herein as “FedEx”
or the “Company”) results for 2000 reflect strong
international package volume growth, particularly
in Asia and Europe, and improved revenue per
package (yield), which lessened the effect of higher
fuel prices. U.S. domestic package volume growth
during 2000 was below that experienced over the
past two years. However, the Company’s execution
of cost containment and productivity enhance-
ment programs helped mitigate the impact of a
decrease in U.S. domestic volume growth in 2000.

Increased prices caused fuel expense to increase by
$273 million in 2000. In response to higher fuel
costs, several of our subsidiaries implemented
fuel surcharges during 2000. At Federal Express
Corporation (“FedEx Express”), the Company’s
largest business segment, a 3% fuel surcharge on
most U.S. domestic and international services was
implemented effective February 1, 2000. Effective
April 1, 2000, this surcharge was increased to 4%.
The surcharge applies to all shipments tendered
within the United States and all U.S. export ship-
ments, where legally and contractually possible. We
have also entered into jet fuel hedging contracts
designed to limit our exposure to fluctuations in
fuel prices. In 2000, we received approximately
$18 million under these contracts, principally in the
fourth quarter. FedEx Ground Package System, Inc.
(“FedEx Ground”) also implemented a 1.25% fuel
surcharge on all of its services, effective August 7,
2000, in response to continued high fuel costs.

During 2000, we began a major rebranding and
reorganization initiative that management believes
will enable our operating subsidiaries to compete
collectively while retaining the independent oper-
ating structure of their business units. The new
branding strategy extended the FedEx brand name
to three subsidiaries and the Company, formerly
FDX Corporation. The reorganization is designed
to enhance revenue growth and improve financial
returns by centralizing the sales, marketing,
customer service and most of the information
technology functions of our two largest subsidi-
aries. Most of these functions were moved into a

new corporate services company called FedEx
Corporate Services, Inc. (“FedEx Services”) effec-
tive June 1, 2000. We also launched our FedEx
Home Delivery service in March 2000. This service
was initially offered to approximately 50% of the
U.S. population. The rebranding and reorganiza-
tion actions and FedEx Home Delivery negatively
affected 2000 operating income by approximately
$40 million.

As expected, operating profit from the sale of
engine noise reduction kits (“hushkits”) declined
by $50 million in 2000, following a $30 million
decline in 1999.

Operating results for 1999 included $81 million in
operating expenses associated with strike con-
tingency planning during contract negotiations
between FedEx Express and the Fedex Pilots
Association (“FPA”). To avoid service interruptions
related to a threatened strike, FedEx began strike
contingency planning, including entering into
agreements for additional third-party air and ground
transportation and establishing special financing
arrangements. Negotiations with the FPA ulti-
mately resulted in a five-year collective bargaining
agreement that took effect on May 31, 1999.

Operating results in 1998 included $88 million of
expenses related to the acquisition of Caliber
System, Inc. (“Caliber”) and the formation of
FedEx. These expenses were primarily investment
banking fees and payments to members of
Caliber’s management in accordance with pre-
existing management retention agreements. Exclud-
ing these expenses, consolidated net income for
1998 was $583 million.

Another significant item impacting 1998’s results of
operations was the Teamsters strike against United
Parcel Service (“UPS”) in August 1997. FedEx ana-
lytically calculated that the volume not retained at
the end of the first quarter of 1998 contributed
approximately $170 million in revenues and
approximately $.12 additional earnings per share.

Other Income and Expense and Income Taxes
Net interest expense increased 8% for 2000, due to
higher average debt levels, primarily incurred as
a result of FedEx’s stock repurchase program,

FedEx

Corp.

acquisitions and bond redemptions. For 1999, net
interest expense decreased 21% primarily due to
lower debt levels.

Other, net in 2000 included gains of approximately
$12 million from an insurance settlement for
a destroyed MD11 aircraft and approximately
$11 million from the sale of securities held. In 1999
this category included approximately $10 million
of expenses related to the Company’s strike contin-
gency plans described above, primarily costs associ-
ated with a business interruption credit facility.

FedEx’s effective tax rate was 39.5% in 2000,
40.5% in 1999 and 44.6% in 1998. Excluding non-
recurring items from the Caliber acquisition in
1998, the effective rate would have been 41.5% in
1998. The 39.5% effective tax rate in 2000 was
lower than the 1999 effective rate primarily due to
stronger results from international operations.
Generally, the effective tax rate exceeds the statu-
tory U.S. federal tax rate because of state income
taxes and other factors as identified in Note 10 of
Notes to Consolidated Financial Statements. For
2001, we expect the effective tax rate will not
exceed, and could possibly be lower than, the 2000
rate. The actual rate, however, will depend on a
number of factors, including the amount and
source of operating income.

Outlook
In 2001, we expect FedEx will realize increased vol-
umes and yields as a result of the rebranding and
reorganization initiative begun in 2000. Training of
the combined sales force was completed in the
fourth quarter of 2000 and sales and marketing
efforts to cross-sell express and ground services
have begun. While there will be continued front-
end costs associated with increasing the sales force
and emphasizing marketing efforts on small and
medium-sized customers, we expect the Company
may begin to realize benefits from this initiative
starting as early as the second quarter of 2001. Full
integration of the customer service function,
expected to be completed in the second half of
2001, will provide customers with one FedEx
account number and a single point of contact for

all express and ground services. However, there are
certain risks and uncertainties associated with
this initiative that could affect its success and
FedEx’s future financial performance. Those risks
and uncertainties include, but are not limited to,
the complexities and costs associated with inte-
grating the sales and marketing functions, includ-
ing the technologies supporting those functions;
market acceptance of the new branding strategy
and the combined sales force; competitive
responses to our actions, including those affecting
pricing, and general U.S. and international eco-
nomic conditions.

We will continue to invest in the expansion of
FedEx Home Delivery and have announced plans
to accelerate the rollout of this service to achieve
service coverage of approximately 80% of the U.S.
population by September 2001. We believe this
service will allow the Company to capture an
increased share of the business-to-consumer ship-
ping market, particularly in retail sales generated
through the Internet. FedEx Home Delivery oper-
ating losses are expected to approximate $50 mil-
lion in 2001. Actual results for 2001 will depend
upon a number of factors such as consumer
demand for and satisfaction with the FedEx Home
Delivery product, competitive responses to the
product, the extent of our ability to penetrate the
business-to-consumer electronic commerce mar-
ket, and the ability to attract and retain qualified
contractors for the delivery network.

For 2001, fuel costs are expected to remain at levels
approaching those experienced in the second half of
2000. FedEx currently has jet fuel hedges in place to
fix the price of approximately one-third of the
anticipated jet fuel usage for 2001 and anticipates
retaining its fuel surcharge until such time as fuel
costs have declined for a sustained period. The
actual effect of the cost of fuel and our ability to
mitigate price fluctuations through fuel surcharges
and the use of jet fuel hedging contracts is subject
to a number of uncertainties, including variability
in the spot price of jet fuel, actions taken by foreign
producers of crude oil, the actions of competitors
and others within the transportation industry
regarding fuel surcharges, and general U.S. and
international economic conditions.

FedEx Express
The following table compares revenues and operating income (in millions) and selected statistics (in thou-
sands, except dollar amounts) for the years ended May 31:

2000

1999

1998

Percent Change

2000/1999

1999/1998

Revenues:
Package:

U.S. overnight
U.S. deferred
International Priority (IP)

Total package revenue

Freight:
U.S.
International

Total freight revenue

Other

$ 7,538
2,428
3,552

13,518

$ 7,185
2,271
3,019

12,475

$ 6,810
2,179
2,731

11,720

566
492

1,058
492

440
531

971
533

337
598

935
600

Total revenues

$15,068

$13,979

$13,255

Operating income

900

871

837

Package:

Average daily packages:

U.S. overnight
U.S. deferred
IP

Total packages

Revenue per package (yield):

U.S. overnight
U.S. deferred
IP

Composite

Freight:

Average daily pounds:

U.S.
International

Total freight

Revenue per pound (yield):

U.S.
International
Composite

2,020
916
319

3,255

1,957
894
282

3,133

1,886
872
259

3,017

$ 14.52
10.31
43.36
16.16

$ 14.34
9.93
41.87
15.56

$ 14.22
9.84
41.45
15.30

4,693
2,420

7,113

4,332
2,633

6,965

3,356
2,770

6,126

.47
.79
.58

.40
.79
.54

.40
.85
.60

FedEx

Corp.

+ 5
+ 7
+18

+ 8

+29
– 7

+ 9
– 8

+ 8

+ 3

+ 3
+ 3
+13

+ 4

+ 1
+ 4
+ 4
+ 4

+ 8
– 8

+ 2

+18
–
+ 7

+ 6
+ 4
+11

+ 6

+ 30
–11

+ 4
–11

+ 5

+ 4

+ 4
+ 3
+ 9

+ 4

+ 1
+ 1
+ 1
+ 2

+29
– 5

+14

–
– 7
–10

Revenues
In 2000, total package revenue for FedEx Express
increased 8%, principally due to increases in
international package volume and yield. List price
increases, including an average 2.8% domestic
rate increase in March 1999, the fuel surcharges
implemented in the second half of the year, an ongo-
ing yield management program and a slight increase
in average weight per package, all contributed to
the increases in yields in 2000. While growth in
U.S. domestic package volume was lower than

anticipated, the higher-yielding IP services experi-
enced strong growth, particularly in Asia and Europe.

Total freight revenue increased in 2000 due to
higher average daily pounds and improved yields in
U.S. freight, offset by declines in international
freight pounds.

In 1999, FedEx Express experienced increased vol-
ume and slightly improved yields in its U.S.
overnight, U.S. deferred and IP services. Growth
in higher-priced U.S. overnight and IP services

and higher average weight per package were the
primary factors in revenue growth. List price
increases and other yield-management actions
contributed to the yield improvement in 1999.

The U.S. deferred package growth rate declined in
1999 in large part due to specific management
actions to restrict growth of these lower-yielding
services. IP package volume and international
freight pounds and yield were negatively affected
by weakness in Asian markets, especially in U.S.
outbound traffic destined for that region.

Other revenue included Canadian domestic rev-
enue, charter services, logistics services, sales of
hushkits and other. Revenue from hushkit sales
has continued to decline over the past three years
and is expected to be negligible hereafter.

Operating Income
Operating income increased 3% in 2000 despite
higher fuel costs and costs associated with the cor-
porate realignment and reorganization of the sales,
marketing and information technology functions.
A 48% increase in average fuel price per gallon had
a negative impact of approximately $260 million
on 2000 fuel costs, including the results of jet fuel
hedging contracts entered into to mitigate some of
the increased jet fuel costs. Fuel surcharges imple-
mented during 2000 offset the increase in fuel
costs in the fourth quarter. As anticipated, mainte-
nance and repairs increased in 2000 due to the
timing of scheduled maintenance and a greater
number of routine cycle checks resulting from
fleet usage and certain Federal Aviation
Administration directives.

Operating income increased in 1999 compared to
1998 in spite of $81 million in strike contingency
costs in 1999 and continued weakness in Asian
markets. Lower fuel prices and cost controls, includ-
ing adjustments in network expansion and aircraft
deployment plans, contributed to improved
results. A decline in average jet fuel price per gal-
lon of 23% was partially offset by an increase in
gallons consumed of 6%. Although international
freight pounds and revenue per pound continued to
decline in 1999, higher yielding IP volume contin-
ued to grow, utilizing capacity otherwise occupied
by freight.

In 1998, operating income improved as package
yield increased at a higher rate than costs. An
increase in average daily packages also contributed
to the improvement in operating income. In 1998,
fuel expense included amounts paid by FedEx
Express under jet fuel hedging contracts that were
designed to mitigate some of the increased jet fuel
costs. Lower international freight yield, rising
expenses associated with international expansion
and foreign currency fluctuations along with
expenses of $14 million related to the acquisition
of Caliber negatively affected 1998 results. Oper-
ating income for 1998 increased approximately
$50 million related to the UPS strike. Proceeds
from a 2% temporary fuel surcharge on U.S.
domestic shipments through August 1, 1997 also
had a favorable impact.

Year-over-year comparisons were also affected by
fluctuations in the contribution from sales of
hushkits. Operating profit from these sales declined
$50 million in 2000 and $30 million in 1999.

Outlook
We believe U.S. overnight package volumes for
FedEx Express will grow in 2001 at rates higher
than those experienced in 2000, with second half
growth rates exceeding those in the first half of
2001. We believe U.S. deferred package volume
growth rates at FedEx Express will be lower in 2001
as we implement the strategy of shifting a portion
of these shipments to FedEx Ground. Improved
domestic yields associated with the new sales ini-
tiatives are also expected in 2001. We expect IP
package volume growth rates to remain strong in
2001. Freight pounds are expected to continue to
increase in 2001, with increases in the U.S. partially
offset by continued declines in international freight,
as it is replaced by higher-yielding priority packages.

FedEx Express also plans to continue cost contain-
ment and productivity enhancement programs in
2001. By lowering discretionary spending and limit-
ing staffing additions, we expect to align control-
lable costs with business growth; however, these
actions will not affect plans for strategic spending
in support of long-term growth goals.

FedEx Express will continue to use the flexibility
of its global network infrastructure by reconfiguring
its system and flights to meet market demands.
While long-term profitability is expected to improve,
incremental costs incurred during periods of
strategic expansion and varying economic condi-
tions can affect short-term operating results.

Actual results may vary depending on the success-
ful implementation of our reorganization and
rebranding initiative, the impact of competitive
pricing changes, customer responses to yield
management initiatives, the timing and extent of
network refinement, actions by our competitors,
including capacity fluctuations, jet fuel prices,

regulatory conditions for aviation rights and the rate
of domestic and international economic growth.

In the past three years, the FedEx Express world-
wide aircraft fleet has increased, resulting in a
corresponding rise in maintenance expense. While
we expect a predictable pattern of aircraft mainte-
nance and repairs expense, unanticipated mainte-
nance events will occasionally disrupt this
pattern, resulting in periodic fluctuations in main-
tenance and repairs expense.

FedEx Express’s operating income from the sales of
hushkits, which peaked in 1998 and declined in
1999 and 2000, is expected to become insignificant
in 2001.

FedEx Ground
The following table compares revenues and operating income (in millions) and selected package statistics
(in thousands, except dollar amounts) for the years ended May 31:

Revenues

Operating income

Average daily packages
Revenue per package (yield)

2000

$2,033

$ 226

1,442
$ 5.55

1999

$1,878

$ 231

1,385
$ 5.36

1998

$1,711

$ 171

1,326
$ 5.04

Percent Change

2000/1999

1999/1998

+ 8

– 2

+ 4
+ 4

+10

+35

+ 4
+ 6

FedEx

Corp.

Revenues
Revenues for FedEx Ground increased 8% in 2000,
while average daily packages increased 4% and
yields increased 4%. The increase in yields is due
to a 2.3% price increase, which was effective in
February 1999 and a slight increase in the mix of
higher yielding packages.

In 1999, FedEx Ground’s revenue increased due
to improving yields and steady volume growth.
Yields were positively impacted by rate increases
of 2.3% and 3.7% in February 1999 and 1998,
respectively. During 1999, FedEx Ground recog-
nized a year-to-date, one-time benefit of approxi-
mately $6 million to align its estimation
methodology for in-transit revenue with that of
our other operating subsidiaries. Year-to-date
package yield was increased by $.02 because of
this one-time adjustment.

Results for 1998 included incremental volume
associated with the UPS strike. Excluding this
incremental volume, average daily packages
increased 6% for 1999.

Operating Income
Operating income for 2000 reflects higher operat-
ing costs, due primarily to increases in capacity
and technology, as well as the effects of FedEx
Home Delivery and the rebranding and reorganiza-
tion initiatives. Depreciation expense increased
20% in 2000 as new terminal facilities were
opened late in 1999 and throughout the first half of
2000. In March 2000, FedEx Ground launched its
new service, FedEx Home Delivery. This new serv-
ice is dedicated to meeting the needs of business-
to-consumer shippers. Currently, this service is
available for approximately 50% of the U.S. popu-
lation. An operating loss of $19 million was
incurred by the home delivery service in 2000.

Operating income increased in 1999 due to increased
volume and yield-management actions. Results
for 1998 contained approximately $6 million of
incremental operating income associated with the
UPS strike.

Outlook
FedEx Ground continues to expand capacity in
order to accommodate volume growth, while
maintaining or improving yields. FedEx Ground
opened two additional hub facilities in 2000 and
will continue to expand package processing capac-
ity to meet its growth plans. Package volume and
yields are expected to increase in 2001 as the
results of the new rebranding and reorganization
effort are realized.

FedEx Ground plans to accelerate its expansion of
the home delivery service to reach approximately
80% of the U.S. population by September 2001 and
full U.S. coverage by September 2002. We expect to
incur operating losses on the FedEx Ground home
delivery service of approximately $50 million in
2001, including costs associated with the accelera-
tion of the expansion of the service.

Actual results may vary depending on a number of
factors, such as consumer demand for and satisfac-
tion with the FedEx Ground product, the service
coverage and brand awareness of the FedEx Ground
product, competitive responses including pricing
and capacity fluctuations, the rate of U.S. domestic
economic growth, the extent of FedEx Ground’s abil-
ity to penetrate the business-to-consumer electronic
commerce market, and the ability to attract and
retain qualified contractors for the delivery network.

Other Operations
Other operations include FedEx Global Logistics,
Inc. (“FedEx Logistics”), a contract logistics pro-
vider; FedEx Custom Critical, Inc. (“FedEx Custom
Critical”), a critical-shipment carrier; FedEx Trade
Networks, Inc. (“FedEx Trade Networks”), a trade
services provider; Viking Freight, Inc. (“Viking”),
a regional less-than-truckload freight carrier oper-
ating in the western United States, and certain
unallocated corporate items.

Revenues
Revenues from other operations increased 26% in
2000. Excluding the effects of businesses acquired in
2000, the increase was 15% compared with 1% in
1999, due to substantially higher revenues at FedEx
Custom Critical combined with double-digit rev-
enue growth at Viking. Revenue growth for 1999

reflects an increase at FedEx Custom Critical, offset
by modest decreases at Viking and FedEx Logistics.

Operating Income
Increased operating income for 2000 is due to
strong earnings at Viking and continued earnings
growth at FedEx Custom Critical. Results for 2000
also include a $10 million favorable adjustment
related to estimated future lease costs from the
Viking restructuring. Operating income for 1999
reflected improved performances at FedEx Custom
Critical, offset by a decline at FedEx Logistics.

Operating income in 1998 includes $74 million in
expenses, which were not allocated to operating seg-
ments, for merger costs associated with the acquisi-
tion of Caliber. These expenses were primarily
investment banking fees and payments to mem-
bers of Caliber’s management in accordance with
pre-existing management retention agreements.

FINANCIAL CONDITION

Liquidity
Cash and cash equivalents totaled $68 million at
May 31, 2000, compared with $325 million at
May 31, 1999. Cash flows from operating activities
during 2000 totaled $1.6 billion, compared with
$1.8 billion for 1999 and $1.6 billion for 1998.

FedEx’s operations have generated increased cash
earnings over the past three years. The following
table compares cash earnings (in billions, except
per share amounts) for the years ended May 31:

EBITDA (earnings before

interest, taxes, deprecia-
tion and amortization)

Cash earnings per share

(net income plus depre-
ciation and amortization
divided by average
common and common
equivalent shares)

2000

1999

1998

$ 2.4

$ 2.2

$ 2.0

$6.22

$5.54

$4.92

The Company currently has a $1.0 billion revolv-
ing credit facility that is generally used to
finance temporary operating cash requirements
and to provide support for the issuance of com-
mercial paper. As of May 31, 2000, approximately

$478 million of the credit facility remains avail-
able. For more information regarding the credit
facility, see Note 5 of Notes to Consolidated
Financial Statements.

During 2000, FedEx acquired three businesses for
approximately $264 million, primarily in cash.
These purchases were funded from operations and
borrowings under our commercial paper program.

On September 27, 1999, the Company’s Board of
Directors approved a plan that authorized the pur-
chase of up to 15 million, or approximately 5%, of
FedEx’s outstanding shares of common stock. We
completed the purchase of 15 million shares at an
average cost of $39.75 per share. The purchase of
these shares was funded principally through the
issuance of commercial paper. Shares held in trea-
sury will be used for general corporate purposes.

FedEx Express redeemed $100 million of 9.625%
unsecured sinking fund debentures on March 1,
2000. The bond redemption was financed with
commercial paper borrowings.

In 1999, FedEx filed a $1 billion shelf registration
statement with the Securities and Exchange
Commission (“SEC”), indicating that we may issue
up to that amount in one or more offerings of either
unsecured debt securities, preferred stock or com-
mon stock, or a combination of such instruments.
The Company may, at its option, direct FedEx
Express to issue guarantees of the debt securities.

We believe that cash flow from operations, our
commercial paper program and revolving bank
credit facility will adequately meet the Company’s
working capital needs for the foreseeable future.

Capital Resources
FedEx’s operations are capital intensive, character-
ized by significant investments in aircraft, vehicles,
computer and telecommunications equipment,
package handling facilities and sort equipment. The
amount and timing of capital additions depend on
various factors including volume growth, domestic
and international economic conditions, new or
enhanced services, geographical expansion of serv-
ices, competition, availability of satisfactory financ-
ing and actions of regulatory authorities.

The following table compares capital expenditures
(including equivalent capital, which is defined
below) for the years ended May 31 (in millions):

Aircraft and related equipment
Facilities and sort equipment
Information and

technology equipment

Other equipment

Total capital expenditures
Equivalent capital, principally

aircraft-related

Total

2000

$ 469
437

378
343

1,627

1999

$ 606
466

366
332

1,770

365

561

$1,992

$2,331

FedEx finances a significant amount of its aircraft
and certain other equipment needs using long-
term operating leases. We believe the determina-
tion to lease versus buy equipment is a financing
decision, and both forms of financing are consid-
ered when evaluating the resources committed for
capital. The amount that the Company would have
expended to purchase these assets had it not cho-
sen to obtain their use through operating leases is
considered equivalent capital in the table above.
While capital expenditures over the past two years
have been reduced based on lower than expected
U.S. domestic volume growth at FedEx Express, we
plan to continue to make strategic capital invest-
ments in support of our long-term growth goals.
For 2001, we expect capital spending, including
equivalent capital, to approximate $2.3 billion.
For information on the Company’s purchase com-
mitments, see Note 14 of Notes to Consolidated
Financial Statements.

We have historically financed our capital invest-
ments through the use of lease, debt and equity
financing in addition to the use of internally gener-
ated cash from operations. Generally, our practice
in recent years with respect to funding new wide-
bodied aircraft acquisitions has been to finance
such aircraft through long-term lease transactions
that qualify as off-balance sheet operating leases
under applicable accounting rules. We have deter-
mined that these operating leases have provided
economic benefits favorable to ownership with
respect to market values, liquidity and after-tax
cash flows. In the future, other forms of secured
financing may be pursued to finance FedEx Express’s

FedEx

Corp.

aircraft acquisitions when we determine that it
best meets FedEx Express’s needs. FedEx Express
has been successful in obtaining investment capi-
tal, both domestic and international, for long-term
leases on terms acceptable to it although the mar-
ketplace for such capital can become restricted
depending on a variety of economic factors beyond
its control. See Note 5 of Notes to Consolidated
Financial Statements for additional information
concerning the Company’s debt facilities.

In July 1999, approximately $231 million of pass-
through certificates were issued to finance or refi-
nance the debt portion of leveraged operating leases
related to four A300 aircraft, which were delivered
in 2000. In June 1998, approximately $833 million
of pass-through certificates were issued to finance
or refinance the debt portion of FedEx Express’s
leveraged operating leases related to eight A300 and
five MD11 aircraft, which were delivered in 2000.
The pass-through certificates are not direct obliga-
tions of, or guaranteed by, the Company or FedEx
Express, but amounts payable by FedEx Express
under the leveraged operating leases are sufficient
to pay the principal of and interest on the certifi-
cates. In June 2000, FedEx Express filed a shelf reg-
istration with the SEC, indicating that it may issue
up to $450 million in pass-through certificates in
one or more offerings to finance or refinance lever-
aged operating aircraft leases.

We believe that the capital resources available to us
provide flexibility to access the most efficient mar-
kets for financing its capital acquisitions, includ-
ing aircraft, and are adequate for FedEx’s future
capital needs.

Market Risk Sensitive Instruments and Positions
FedEx currently has market risk sensitive instru-
ments related to interest rates; however, there is
no significant exposure to changing interest rates
on our long-term debt because the interest rates
are fixed. As disclosed in Note 5 of Notes to
Consolidated Financial Statements, FedEx has out-
standing unsecured long-term debt exclusive
of capital leases of $1.1 billion and $1.2 billion at
May 31, 2000 and 1999, respectively. Market risk
for fixed-rate long-term debt is estimated as the
potential decrease in fair value resulting from a
hypothetical 10% increase in interest rates and
amounts to approximately $54 million as of May 31,
2000 ($45 million as of May 31, 1999). The under-
lying fair values of our long-term debt were

estimated based on quoted market prices or on the
current rates offered for debt with similar terms
and maturities. FedEx does not use derivative
financial instruments to manage interest rate risk.

FedEx’s earnings are affected by fluctuations in the
value of the U.S. dollar, as compared with foreign
currencies, as a result of transactions in foreign
markets. At May 31, 2000, the result of a uniform
10% strengthening in the value of the dollar rela-
tive to the currencies in which the Company’s
transactions are denominated would result in a
decrease in operating income of approximately
$52 million for the year ending May 31, 2001 (the
comparable amount in the prior year was $25 mil-
lion). This calculation assumes that each exchange
rate would change in the same direction relative to
the U.S. dollar. In addition to the direct effects of
changes in exchange rates, which are a changed
dollar value of the resulting reported operating
results, changes in exchange rates also affect the
volume of sales or the foreign currency sales price as
competitors’ services become more or less attrac-
tive. FedEx’s sensitivity analysis of the effects of
changes in foreign currency exchange rates does not
factor in a potential change in sales levels or local
currency prices.

FedEx has entered into jet fuel hedging contracts
on behalf of its subsidiary FedEx Express, which
are designed to limit its exposure to fluctuations in
jet fuel prices. Under these contracts, FedEx makes
(or receives) payments based on the difference
between a fixed price and the market price of jet
fuel, as determined by an index of spot market
prices representing various geographic regions.
The difference is recorded as an increase or
decrease in fuel expense. Market risk for jet fuel is
estimated as the potential decrease in earnings
resulting from a hypothetical 10% increase in jet
fuel prices applied to projected 2001 usage and
amounts to approximately $49 million, net of
hedging settlements, as of May 31, 2000. There
were no such jet fuel hedging contracts at
May 31, 1999. As of May 31, 2000, jet fuel hedging
contracts cover approximately one-third of the
estimated usage in 2001. See Notes 2 and 14 of
Notes to Consolidated Financial Statements for
accounting policy and additional information
regarding jet fuel hedging contracts.

FedEx does not purchase or hold any derivative
financial instruments for trading purposes.

Deferred Tax Assets
At May 31, 2000, the Company had a net cumula-
tive deferred tax liability of $27 million, consisting
of $884 million of deferred tax assets and $911 mil-
lion of deferred tax liabilities. The reversals of
deferred tax assets in future periods will be offset
by similar amounts of deferred tax liabilities.

Euro Currency Conversion
Since the beginning of the European Union’s tran-
sition to the euro on January 1, 1999, our subsidiaries
have been prepared to quote rates to customers, gen-
erate billings and accept payments, in both euro and
legacy currencies. The legacy currencies will remain
legal tender through December 31, 2001. FedEx
believes that the introduction of the euro, any
price transparency brought about by its introduc-
tion and the phasing out of the legacy currencies
will not have a material impact on our consoli-
dated financial position, results of operations or
cash flows. Costs associated with the euro project
are being expensed as incurred and are being
funded entirely by internal cash flows.

Year 2000 Compliance
FedEx’s operating subsidiaries rely heavily on
sophisticated information technology for their
business operations. Our Year 2000 (“Y2K”) com-
puter compliance issues were, therefore, broad and
complex. Nothing has come to the Company’s
attention that would cause it to believe that its
Y2K compliance effort was not successful.

Since 1996, FedEx has incurred approximately
$115 million on Y2K compliance ($22 million in
2000), which was funded by internal cash flows.
We do not expect to incur any material additional
Y2K-related costs. We classified costs as Y2K for
reporting purposes if they remedied only Y2K risks
or resulted in the formulation of contingency plans
and would otherwise have been unnecessary in the
normal course of business. For 2000, Y2K expendi-
tures were less than 10% of the Company’s total
information technology expense budget. We believe
that no significant information technology projects
were deferred due to our Y2K compliance effort.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this report are
“forward-looking statements” within the meaning
of the Private Securities Litigation Reform Act of
1995, such as statements relating to management’s
views with respect to future events and financial
performance. Such forward-looking statements are
subject to risks, uncertainties and other factors
that could cause actual results to differ materially
from historical experience, or from future results
expressed or implied by such forward-looking state-
ments. Potential risks and uncertainties include,
but are not limited to, economic and competitive
conditions in the markets where FedEx operates,
matching capacity to volume levels and other
uncertainties detailed from time to time in FedEx’s
Securities and Exchange Commission filings.

FedEx

Corp.

CONSOLIDATED STATEMENTS OF INCOME

Years ended May 31
In thousands, except per share amounts

REVENUES

OPERATING EXPENSES

Salaries and employee benefits

Purchased transportation

Rentals and landing fees

Depreciation and amortization

Maintenance and repairs

Fuel
Other

OPERATING INCOME

OTHER INCOME (EXPENSE)

Interest, net
Other, net

INCOME FROM CONTINUING OPERATIONS

BEFORE INCOME TAXES
PROVISION FOR INCOME TAXES

INCOME FROM CONTINUING OPERATIONS

INCOME FROM DISCONTINUED OPERATIONS,

NET OF INCOME TAXES

NET INCOME

EARNINGS PER COMMON SHARE

Continuing operations
Discontinued operations

EARNINGS PER COMMON SHARE – ASSUMING DILUTION

Continuing operations
Discontinued operations

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

2000

1999

1998

$18,256,945

$16,773,470

$15,872,810

7,597,964

1,674,854

1,538,713

1,154,863

1,101,424

918,513
3,049,540

7,087,728

1,537,785

1,396,694

1,035,118

958,873

604,929
2,989,257

6,647,140

1,481,590

1,304,296

963,732

874,400

726,776
2,864,216

17,035,871

15,610,384

14,862,150

1,221,074

1,163,086

1,010,660

(106,060)
22,726

(98,191)
(3,831)

(83,334)

(102,022)

1,137,740
449,404

1,061,064
429,731

688,336

631,333

–

688,336

2.36
–

2.36

2.32
–

2.32

–

631,333

2.13
–

2.13

2.10
–

2.10

(124,413)
13,271

(111,142)

899,518
401,363

498,155

4,875

503,030

1.70
.02

1.72

1.67
.02

1.69

CONSOLIDATED BALANCE SHEETS

May 31
In thousands

ASSETS

CURRENT ASSETS

Cash and cash equivalents

Receivables, less allowances of $85,972 and $68,305

Spare parts, supplies and fuel

Deferred income taxes
Prepaid expenses and other

Total current assets

PROPERTY AND EQUIPMENT, AT COST

Flight equipment

Package handling and ground support equipment and vehicles

Computer and electronic equipment
Other

Less accumulated depreciation and amortization

Net property and equipment

OTHER ASSETS

Goodwill
Equipment deposits and other assets

Total other assets

LIABILITIES AND STOCKHOLDERS’ INVESTMENT

CURRENT LIABILITIES

Current portion of long-term debt

Accrued salaries and employee benefits

Accounts payable
Accrued expenses

Total current liabilities

LONG-TERM DEBT, LESS CURRENT PORTION

DEFERRED INCOME TAXES

OTHER LIABILITIES

COMMITMENTS AND CONTINGENCIES (Notes 6, 14 and 15)

COMMON STOCKHOLDERS’ INVESTMENT

Common stock, $.10 par value; 800,000 shares authorized;

298,573 and 297,987shares issued

Additional paid-in capital

Retained earnings
Accumulated other comprehensive income

Less treasury stock, at cost and deferred compensation

Total common stockholders’ investment

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

FedEx

Corp.

2000

1999

67,959

325,323

2,547,043

2,153,166

255,291

317,784
96,667

291,922

290,721
79,896

3,284,744

3,141,028

4,960,204

4,270,596

2,416,666
3,095,077

14,742,543
7,659,016

4,556,747

3,858,788

2,363,637
2,940,735

13,719,907
7,160,690

7,083,527

6,559,217

500,547
658,293

1,158,840

344,002
603,964

947,966

$11,527,111

$10,648,211

6,537

14,938

755,747

1,120,855
1,007,887

740,492

1,133,952
895,375

2,891,026

2,784,757

1,776,253

1,359,668

344,613

293,462

1,729,976

1,546,632

29,857

1,079,462

4,295,041
(36,074)

5,368,286
583,043

29,799

1,061,312

3,615,797
(24,688)

4,682,220
18,528

4,785,243

4,663,692

$11,527,111

$10,648,211

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended May 31
In thousands

OPERATING ACTIVITIES

Income from continuing operations

Adjustments to reconcile income from continuing operations

to cash provided by operating activities:

Depreciation and amortization

Provision for uncollectible accounts

Deferred income taxes and other noncash items

Gain from disposals of property and equipment

Changes in operating assets and liabilities, net of

businesses acquired:

Increase in receivables

Decrease (increase) in other current assets

Increase in accounts payable and other

operating liabilities

Other, net

2000

1999

1998

$ 688,336

$ 631,333

$ 498,155

1,154,863

1,035,118

963,732

71,107

(7,363)

(17,068)

(404,511)

70,720

107,543
(38,385)

55,649

(34,037)

(2,330)

(294,121)

(155,720)

555,565
(19,337)

72,700

29,570

(7,188)

(267,367)

(102,203)

450,836
(32,963)

Cash provided by operating activities

1,625,242

1,772,120

1,605,272

INVESTING ACTIVITIES

Purchases of property and equipment, including deposits on

aircraft of $1,500, $1,200 and $70,359

(1,627,418)

(1,769,946)

(1,880,173)

Proceeds from dispositions of property and equipment:

Sale-leaseback transactions

Reimbursements of A300 and MD11 deposits

Other dispositions

Acquisitions of businesses
Other, net

–

24,377

165,397

(257,095)
(13,378)

80,995

67,269

195,641

–
(22,716)

322,852

106,991

162,672

–
(471)

Cash used in investing activities

(1,708,117)

(1,448,757)

(1,288,129)

FINANCING ACTIVITIES

Principal payments on debt

Proceeds from debt issuances

Proceeds from stock issuances

Dividends paid

Purchase of treasury stock
Other, net

Cash used in financing activities

CASH AND CASH EQUIVALENTS
Cash (used in) provided by continuing operations

Cash used in discontinued operations
Balance at beginning of year

Balance at end of year

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

(115,090)

517,664

15,523

–

(606,506)
13,920

(174,489)

(257,364)

–
325,323

(269,367)

–

49,932

–

(8,168)
(2)

(533,502)

267,105

33,925

(7,793)

(7,049)
110

(227,605)

(247,204)

95,758

–
229,565

69,939

(1,735)
161,361

67,959

$ 325,323

$ 229,565

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ INVESTMENT AND COMPREHENSIVE INCOME

Common
Stock

Additional
Retained
Paid-in
Earnings
Capital
$14,762 $ 937,978 $2,618,492
503,030

–

Accumulated
Other Com-

Deferred
prehensive Treasury Compen-
sation

Stock

Income
Total
$ 3,019 $ (55,482) $(17,608) $3,501,161
503,030

–

(30,296)

–

–
–
–

492

(51,795)

–
–
–

(3,899)
–
–

–

–
–
586

(30,296)
472,734

(53,068)

(3,899)
(7,049)
(393)

System, Inc. treasury stock

(156)

156

(66,474)

135

54,195

–

7,918

(7,204)

55,044

57,357

–

(9,117)

(1,765)

–
(7,049)
(979)

–

–
–
–

–

–
–
–

–

5,817
(18,409)
–

5,817
3,961,230
631,333

FedEx

Corp.

–
14,741
–

–
992,821
–

–
2,999,354
631,333

–
(27,277)
–

–

–
–

14,890

–

–
–

–

–
–

(14,890)

168

68,491

–

(611)

3,200

–
–

–

(611)

3,200
633,922
(8,168)
(689)

(8,168)
(1,196)

–
507

–

8,083

(8,273)

68,469

–
29,799
–

–
1,061,312
–

–
3,615,797
688,336

–
(24,688)
–

–
(1,281)
–

8,928
(17,247)
–

8,928
4,663,692
688,336

–

–
–

–

–
–

–

–
–

(9,021)

(2,365)

–

– (606,506)
(790)
–

–
845

(9,021)

(2,365)
676,950
(606,506)
55

18,150

(9,092)

–

44,483

(14,725)

38,874

–

–
$29,857 $1,079,462 $4,295,041

–

12,178
$(36,074) $(564,094) $(18,949) $4,785,243

12,178

–

In thousands, except shares
BALANCE AT MAY 31, 1997
Net income
Foreign currency translation
adjustment, net of deferred
tax benefit of $2,793

Total comprehensive income

Adjustment to conform Caliber

System, Inc.’s fiscal year
Cash dividends declared by

Caliber System, Inc.
Purchase of treasury stock
Forfeiture of restricted stock
Issuance of stock under
employee incentive
plans (1,466,895 shares)

Cancellation of Caliber

Amortization of deferred

compensation

BALANCE AT MAY 31, 1998
Net income
Foreign currency translation
adjustment, net of deferred
tax benefit of $959

Unrealized gain on available-for-
sale securities, net of deferred
taxes of $2,100

Total comprehensive income

Purchase of treasury stock
Forfeiture of restricted stock
Two-for-one stock split by FedEx
Corporation in the form of a
100% stock dividend
(148,931,996 shares)
Issuance of stock under

employee incentive plans
(1,770,626 shares)

Amortization of deferred

compensation

BALANCE AT MAY 31, 1999
Net income
Foreign currency translation
adjustment, net of deferred
tax benefit of $1,881

Unrealized loss on available-for-
sale securities, net of deferred
tax benefit of $1,513

Total comprehensive income

Purchase of treasury stock
Forfeiture of restricted stock
Issuance of stock under employee

incentive plans and other
(1,715,585 shares)

Amortization of deferred

compensation

BALANCE AT MAY 31, 2000

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION
On January 19, 2000, a new branding strategy was
announced that resulted in name changes of the
holding company and certain operating com-
panies to include the FedEx brand name. The
name of the holding company was changed
from FDX Corporation to FedEx Corporation
(“FedEx”) and the following operating subsidiaries’
names were changed:

Former
Name

New
Name

RPS, Inc.

FedEx Ground
Package System, Inc.
FedEx Global
Logistics, Inc.
Roberts Express FedEx Custom

FDX Logistics

Critical, Inc.

Brand
Name

FedEx Ground

FedEx Logistics

FedEx Custom
Critical

The names of Federal Express Corporation (“FedEx
Express”) and Viking Freight, Inc. (“Viking”) did
not change.

NOTE 2: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consoli-
dated financial statements include the accounts of
FedEx Corporation and its subsidiaries. All signifi-
cant intercompany accounts and transactions have
been eliminated.

PROPERTY AND EQUIPMENT. Expenditures for
major additions, improvements, flight equipment
modifications and certain equipment overhaul
costs are capitalized. Maintenance and repairs are
charged to expense as incurred. The cost and
accumulated depreciation of property and equip-
ment disposed of are removed from the related
accounts, and any gain or loss is reflected in the
results of operations.

For financial reporting purposes, depreciation and
amortization of property and equipment is pro-
vided on a straight-line basis over the asset’s serv-
ice life or related lease term as follows:

Flight equipment
Package handling and ground support

equipment and vehicles

Computer and electronic equipment
Other

5 to 20 years

3 to 30 years
3 to 10 years
2 to 30 years

Aircraft airframes and engines are assigned resid-
ual values ranging from 10% to 20% of asset
cost. All other property and equipment have no

material residual values. Vehicles are depreciated
on a straight-line basis over five to 10 years.

For income tax purposes, depreciation is generally
computed using accelerated methods.

DEFERRED GAINS. Gains on the sale and lease-
back of aircraft and other property and equipment
are deferred and amortized over the life of the
lease as a reduction of rent expense. Included in
other liabilities at May 31, 2000 and 1999, were
deferred gains of $533,371,000 and $429,488,000,
respectively.

DEFERRED LEASE OBLIGATIONS. While certain
of FedEx’s aircraft and facility leases contain fluc-
tuating or escalating payments, the related rent
expense is recorded on a straight-line basis over
the lease term. Included in other liabilities at
May 31, 2000 and 1999, were $354,566,000 and
$321,248,000, respectively, representing the
cumulative difference between rent expense and
rent payments.

SELF-INSURANCE ACCRUALS. FedEx is self-
insured up to certain levels for workers’ compensa-
tion, employee health care and vehicle liabilities.
Accruals are based on the actuarially estimated
undiscounted cost of claims. Included in other lia-
bilities at May 31, 2000 and 1999, were $324,869,000
and $282,889,000, respectively, representing the long-
term portion of self-insurance accruals for FedEx’s
workers’ compensation and vehicle liabilities.

CAPITALIZED INTEREST. Interest on funds used
to finance the acquisition and modification of air-
craft, construction of certain facilities, and devel-
opment of certain software up to the date the asset
is placed in service is capitalized and included
in the cost of the asset. Capitalized interest was
$34,823,000, $38,880,000 and $33,009,000 for
2000, 1999 and 1998, respectively.

ADVERTISING. Advertising costs are generally
expensed as incurred and are included in other
operating expenses. Advertising expenses were
$221,511,000, $202,104,000 and $183,253,000 in
2000, 1999 and 1998, respectively.

CASH EQUIVALENTS. Cash equivalents in excess
of current operating requirements are invested
in short-term, interest-bearing instruments with
maturities of three months or less at the date of pur-
chase and are stated at cost, which approximates

market value. Interest income was $15,116,000,
$12,399,000 and $11,283,000 in 2000, 1999 and
1998, respectively.

MARKETABLE SECURITIES. FedEx’s marketable
securities are available-for-sale securities and are
reported at fair value. Unrealized gains and losses
are reported, net of related deferred income taxes, as
a component of accumulated other comprehensive
income within common stockholders’ investment.

SPARE PARTS, SUPPLIES AND FUEL. Spare parts
are stated principally at weighted-average cost;
supplies and fuel are stated principally at standard
cost, which approximates actual cost on a first-in,
first-out basis. Neither method values inventory in
excess of current replacement cost.

GOODWILL. Goodwill is the excess of the pur-
chase price over the fair value of net assets of
businesses acquired. It is amortized on a straight-
line basis over periods generally ranging from
15 to 40 years. Accumulated amortization was
$165,624,000 and $157,106,000 at May 31, 2000 and
1999, respectively.

IMPAIRMENT OF LONG-LIVED ASSETS. FedEx
reviews long-lived assets for impairment when cir-
cumstances indicate the carrying value of an asset
may not be recoverable. If an impairment exists, an
adjustment is made to write the asset down to its
fair value, and a loss is recorded as the difference
between the carrying value and fair value.

FOREIGN CURRENCY TRANSLATION. Trans-
lation gains and losses of FedEx’s foreign opera-
tions that use local currencies as the functional
currency are accumulated and reported, net of
related deferred income taxes, as a component of
accumulated other comprehensive income within
common stockholders’ investment. Transaction
gains and losses that arise from exchange rate fluc-
tuations on transactions denominated in a cur-
rency other than the local functional currency are
included in the results of operations.

INCOME TAXES. Deferred income taxes are pro-
vided for the tax effect of temporary differences
between the tax basis of assets and liabilities and
their reported amounts in the financial state-
ments. FedEx uses the liability method to account
for income taxes, which requires deferred taxes to
be recorded at the statutory rate expected to be in
effect when the taxes are paid.

FedEx has not provided for U.S. federal income
taxes on its foreign subsidiaries’ earnings deemed
to be permanently reinvested. Quantification of the
deferred tax liability, if any, associated with perma-
nently reinvested earnings is not practicable.

REVENUE RECOGNITION. Revenue is recorded
based on the percentage of service completed at
the balance sheet date.

RECENT PRONOUNCEMENTS. Statement of
Financial Accounting Standards (“SFAS”) No. 133,
“Accounting for Derivative Instruments and
Hedging Activities,” was issued in June 1998, was
subsequently amended by SFAS No. 137, and is now
effective for fiscal years beginning after June 15,
2000 (2002 for FedEx). The Statement requires an
entity to recognize all derivatives as either assets
or liabilities in the balance sheet and to measure
those instruments at fair value. The impact of the
adoption of SFAS No. 133, if any, on earnings, com-
prehensive income and financial position will
depend on the amount, timing and nature of any
agreements entered into by FedEx. As of May 31,
2000, FedEx has not adopted the provisions of
SFAS No. 133.

SFAS No. 138, “Accounting for Certain Derivative
Instruments and Certain Hedging Activities,” was
issued in June 2000, and amends SFAS No.133. SFAS
No. 138 must be adopted concurrently with FedEx’s
adoption of SFAS No. 133. FedEx does not believe
the amendment will affect its implementation of
SFAS No. 133.

RECLASSIFICATIONS. Certain prior year amounts
have been reclassified to conform to the 2000
presentation.

USE OF ESTIMATES. The preparation of the con-
solidated financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions
that affect the reported amounts of assets and lia-
bilities and disclosure of contingent assets and lia-
bilities at the date of the financial statements and
the reported amounts of revenues and expenses
during the reporting period. Actual results could
differ from those estimates.

FedEx

Corp.

NOTE 3: BUSINESS COMBINATION AND
ACQUISITIONS
On January 27, 1998, FedEx Express became
a wholly-owned subsidiary of FedEx Corporation
in connection with the acquisition of Caliber
System, Inc. (“Caliber”). The acquisition was
accounted for as a pooling of interests. FedEx
Corporation exchanged 0.8 shares of its common
stock for each share of Caliber common stock.
Each share of FedEx Express’s common stock was
automatically converted into one share of FedEx
Corporation common stock.

On September 10, 1999, FedEx Logistics acquired
the assets of GeoLogistics Air Services, Inc., an
airfreight forwarder servicing freight shipments
between the United States and Puerto Rico, for
approximately $116,000,000 in cash. This business
operates under the name Caribbean Transportation
Services, Inc. The excess of purchase price over the
estimated fair value of the net assets acquired
($103,000,000) has been recorded as goodwill and is
being amortized ratably over 15 years.

On February 29, 2000, FedEx acquired the com-
mon stock of Tower Group International, a leader
in the business of providing international customs
clearance services, for approximately $140,000,000
in cash. This business is operating as a subsidiary
of FedEx Trade Networks, Inc. (“FedEx Trade
Networks”). The excess of purchase price over the
estimated fair value of the net assets acquired
($30,000,000) has been recorded as goodwill and is
being amortized ratably over 25 years.

On March 31, 2000, FedEx acquired the common
stock of World Tariff, Limited, a premier source of
customs duty and tax information around the
globe, for approximately $8,400,000 in cash and
stock. This business is operating as a subsidiary of
FedEx Trade Networks. The excess of purchase
price over the estimated fair value of the net assets
acquired ($8,300,000) has been recorded
as goodwill and is being amortized ratably over
25 years.

The operating results of these acquired companies
are included in the operations of FedEx from the
date of acquisition. Pro forma results including
these acquisitions would not differ materially from
reported results in any of the periods presented.

NOTE 4: ACCRUED SALARIES AND EMPLOYEE
BENEFITS AND ACCRUED EXPENSES
The components of accrued salaries and employee
benefits and accrued expenses were as follows:

May 31
In thousands

Salaries
Employee benefits
Compensated absences

2000

1999

$ 216,705
225,192
313,850

$216,647
236,741
287,104

Total accrued salaries and

employee benefits

$ 755,747

$740,492

Insurance
Taxes other than income taxes
Other

$ 363,899
237,342
406,646

$345,804
225,378
324,193

Total accrued expenses

$1,007,887

$895,375

NOTE 5: LONG-TERM DEBT AND OTHER
FINANCING ARRANGEMENTS

May 31
In thousands

Unsecured debt, interest rates of

7.60% to 10.57%, due
through 2098

Unsecured sinking fund

2000

1999

$ 975,862 $ 988,120

debentures, interest rate of
9.63%, originally due through
2020, called during 2000

Commercial paper, effective

–

98,598

interest rate of 6.73%

521,031

–

Capital lease obligations and
tax exempt bonds, interest
rates of 5.35% to 7.88%,
due through 2017
Less bond reserves

Other debt, interest rates of

9.68% to 11.12%

Less current portion

253,569
9,024

244,545

253,425
9,024

244,401

41,352

43,487

1,782,790
6,537

1,374,606
14,938

$1,776,253 $1,359,668

FedEx has a $1,000,000,000 revolving credit agree-
ment with domestic and foreign banks. The revolv-
ing credit agreement comprises two parts. The first
part provides for a commitment of $800,000,000
through January 27, 2003. The second part provides
for a 364-day commitment for $200,000,000
through October 13, 2000. Interest rates on borrow-
ings under this agreement are generally determined
by maturities selected and prevailing market condi-
tions. The agreement contains certain covenants
and restrictions, none of which are expected to sig-
nificantly affect FedEx’s operations or its ability to
pay dividends. As of May 31, 2000, approximately

$2,093,000,000 was available for the payment of
dividends under the restrictive covenant of the
agreement. Commercial paper borrowings are
backed by unused commitments under this revolv-
ing credit agreement and reduce the amount avail-
able under the agreement. Borrowings under this
credit agreement and commercial paper borrow-
ings are classified as long-term based on FedEx’s
ability and intent to refinance such borrowings. At
May 31, 2000, $478,000,000 of the $1,000,000,000
commitment amount was available.

Unsecured sinking fund debentures in the amount
of $100,000,000, originally due through 2020, were
redeemed by FedEx Express on March 1, 2000.
Other income (expense) includes a charge of
approximately $6,000,000, which represents pre-
miums paid to the holders of the bonds retired and
the write-off of the related unamortized deferred
finance charges and discount.

The components of unsecured debt were as follows:

Scheduled annual principal maturities of long-term
debt for the five years subsequent to May 31, 2000,
are as follows: $6,500,000 in 2001; $202,600,000 in
2002; $6,100,000 in 2003; $25,100,000 in 2004; and
$5,500,000 in 2005.

FedEx’s long-term debt, exclusive of capital leases,
had carrying values of $1,063,000,000 and
$1,178,000,000 at May 31, 2000 and 1999, respec-
tively, compared with fair values of approximately
$1,055,000,000 and $1,250,000,000 at those dates.
The estimated fair values were determined based
on quoted market prices or on the current rates
offered for debt with similar terms and maturities.

NOTE 6: LEASE COMMITMENTS
FedEx utilizes certain aircraft, land, facilities and
equipment under capital and operating leases that
expire at various dates through 2027. In addition,
supplemental aircraft are leased under agree-
ments that generally provide for cancellation upon
30 days’ notice.

May 31
In thousands

Senior debt, interest rates of

7.80% to 9.88%, due
through 2013

Bonds, interest rate of 7.60%,

2000

1999

The components of property and equipment
recorded under capital leases were as follows:

$673,970

$673,779

May 31,
In thousands

due in 2098

239,382

239,376

Medium term notes, interest
rates of 9.95% to 10.57%,
due through 2007

62,510

74,965

$975,862

$988,120

Of the senior debt outstanding at May 31, 2000 and
1999, $200,000,000 was issued by Caliber. On
April 28, 2000, FedEx assumed all obligations
relating to the notes, including restrictive
covenants limiting the ability of FedEx and its sub-
sidiaries to incur liens on assets and enter into
leasing transactions. These notes mature on
August 1, 2006 and bear interest at 7.80%.

Tax exempt bonds were issued by the Memphis-
Shelby County Airport Authority (“MSCAA”) and
the City of Indianapolis. Lease agreements with
the MSCAA and a loan agreement with the City of
Indianapolis covering the facilities and equipment
financed with the bond proceeds obligate FedEx
Express to pay rentals and loan payments, respec-
tively, equal to the principal and interest due on
the bonds.

Package handling and ground

support equipment
and vehicles

Facilities
Computer and electronic
equipment and other

Less accumulated amortization

2000

1999

$226,580
134,442

$245,041
134,442

6,852

367,874
260,526

6,496

385,979
268,696

$107,348

$117,283

Rent expense under operating leases for the years
ended May 31 was as follows:

In thousands

2000

1999

1998

Minimum rentals $1,298,821 $1,246,259 $1,135,567
60,925
98,755
Contingent rentals

59,839

$1,397,576 $1,306,098 $1,196,492

Contingent rentals are based on hours flown under
supplemental aircraft leases.

A summary of future minimum lease payments
under capital leases and noncancellable operating
leases (principally aircraft and facilities) with an

FedEx

Corp.

initial or remaining term in excess of one year at
May 31, 2000 is as follows:

In thousands

2001
2002
2003
2004
2005
Thereafter

Capital
Leases

$ 15,195
15,174
15,024
14,894
14,828
287,673

Operating
Leases

$ 1,258,109
1,087,035
990,125
926,290
877,701
9,263,996

$362,788

$14,403,256

At May 31, 2000, the present value of future mini-
mum lease payments for capital lease obliga-
tions, including certain tax exempt bonds, was
$200,259,000.

FedEx Express makes payments under certain
leveraged operating leases that are sufficient to pay
principal and interest on certain pass-through cer-
tificates. The pass-through certificates are not
direct obligations of, or guaranteed by, FedEx or
FedEx Express.

NOTE 7: PREFERRED STOCK
The Certificate of Incorporation authorizes the
Board of Directors, at its discretion, to issue up to
4,000,000 shares of Series Preferred Stock. The
stock is issuable in series, which may vary as to
certain rights and preferences, and has no par
value. As of May 31, 2000, none of these shares had
been issued.

NOTE 8: COMMON STOCKHOLDERS’ INVESTMENT

Stock Compensation Plans
At May 31, 2000, FedEx had options and awards
outstanding under stock-based compensation
plans described below. As of May 31, 2000, there
were 25,210,811 shares of common stock reserved
for issuance under these plans. The Board of
Directors has authorized repurchase of FedEx’s
common stock necessary for grants under its
restricted stock plans. As of May 31, 2000,
13,418,185 of the 27,688,302 total shares repur-
chased by FedEx at an average cost of $27.42
(including the 15,000,000 shares repurchased
under the current year stock repurchase program,
see Note 9) had been reissued under the above-
mentioned plans.

FedEx applies Accounting Principles Board
Opinion No. 25, “Accounting for Stock Issued to
Employees,” and related interpretations to measure
compensation expense for its plans. Compensation
cost for the restricted stock plans was $12,178,000,
$8,928,000 and $5,817,000 for 2000, 1999 and
1998, respectively. If compensation cost for FedEx’s
stock-based compensation plans had been deter-
mined under SFAS No. 123, “Accounting for Stock-
Based Compensation,” FedEx’s net income and
earnings per share would have been the pro forma
amounts indicated below:

In thousands,
except per share data

Net income:

As reported
Pro forma

2000

1999

1998

$688,336
659,601

$631,333
609,960

$503,030
489,556

Earnings per share,

assuming dilution:
As reported
Pro forma

2.32
2.23

2.10
2.03

1.69
1.64

The pro forma disclosures, applying SFAS No. 123,
are not likely to be representative of pro forma
disclosures for future years. The pro forma effect
is not expected to be fully reflected until 2002,
since SFAS No. 123 is applicable to options granted
by FedEx after May 31, 1995, and because options
vest over several years and additional grants could
be made.

Fixed Stock Option Plans
Under the provisions of FedEx’s stock incentive
plans, options may be granted to certain key
employees (and, under the 1997 plan, to directors
who are not employees of FedEx) to purchase
shares of common stock of FedEx at a price not less
than its fair market value at the date of grant.
Options granted have a maximum term of 10 years.
Vesting requirements are determined at the discre-
tion of the Compensation Committee of the Board
of Directors. Presently, option vesting periods
range from one to eight years. At May 31, 2000,
there were 9,714,810 shares available for future
grants under these plans.

Beginning with the grants made on or after June 1, 1995, the fair value of each option grant was estimated
on the grant date using the Black-Scholes option-pricing model with the following assumptions for each
option grant:

Dividend yield
Expected volatility
Risk-free interest rate
Expected lives

2000

0%
30%
5.6%–6.8%
2.5–9.5 years

1999

0%
25%
4.2%–5.6%
2.5–5.5 years

1998

0%
25%
5.4%–6.5%
2.5–6.5 years

The following table summarizes information about FedEx’s fixed stock option plans for the years ended
May 31:

2000

1999

1998

Weighted-
Average
Exercise
Price

$23.11
50.79
18.81
33.81

29.12

21.44

Weighted-
Average
Exercise
Price

$19.74
31.80
17.86
26.59

23.11

18.57

Weighted-
Average
Exercise
Price

$17.09
28.20
13.45
19.51

19.74

16.92

13,523,460
2,485,544
(2,336,984)
(283,568)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)
13,388,452
5,349,626

13,388,452
3,377,500
(3,135,640)
(230,780)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)
13,399,532
4,404,146

13,399,532
3,218,450
(1,232,699)
(374,632)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)
15,010,651
5,781,855

Outstanding at beginning of year
Granted
Exercised
Forfeited

Outstanding at end of year

Exercisable at end of year

The weighted-average fair value of options granted during the year was $16.63, $9.12 and $8.25 for the
years ended May 31, 2000, 1999 and 1998, respectively.

The following table summarizes information about fixed stock options outstanding at May 31, 2000:

Range of
Exercise Prices

$ 8.63–$10.91
12.00– 16.50
17.50– 25.19
26.44– 37.25
38.69– 55.94

8.63– 55.94

Options Outstanding

Options Exercisable

Weighted-
Average
Remaining
Outstanding Contractual Life

Number

Weighted-
Average
Exercise
Price

281,246
2,095,522
4,523,806
5,068,127
3,041,950
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)
15,010,651

1.2 years
3.9 years
5.7 years
7.7 years
9.2 years

6.7 years

$ 9.73
15.48
20.16
30.61
51.15

29.12

Weighted-
Average
Exercise
Price

$ 9.73
15.51
20.65
29.73
40.07

21.44

Number
Exercisable

281,246
1,649,622
2,139,188
1,655,299
56,500
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)
5,781,855

Restricted Stock Plans
Under the terms of FedEx’s Restricted Stock Plans, shares of FedEx’s common stock are awarded to key
employees. All restrictions on the shares expire over periods varying from two to five years from their date
of award. Shares are valued at the market price of FedEx’s common stock at the date of award.
Compensation related to these plans is recorded as a reduction of common stockholders’ investment and
is being amortized to expense as restrictions on such shares expire. The following table summarizes infor-
mation about restricted stock awards for the years ended May 31:

Awarded
Forfeited

2000

1999

1998

Weighted-
Average
Shares Fair Value

283,750
20,000

$51.90
37.71

Weighted-
Average
Shares Fair Value

252,000
16,900

$32.71
44.38

Weighted-
Average
Shares Fair Value

240,000
28,000

$32.99
34.94

At May 31, 2000, there were 485,350 shares available for future awards under these plans.

FedEx

Corp.

NOTE 9: COMPUTATION OF EARNINGS PER SHARE
The calculation of basic earnings per share and earnings per share, assuming dilution, for the years ended
May 31 was as follows:

In thousands, except per share amounts

Income from continuing operations
Income from discontinued operations

Net income applicable to common stockholders

Average shares of common stock outstanding
Basic earnings per share:
Continuing operations
Discontinued operations

Average shares of common stock outstanding
Common equivalent shares:

Assumed exercise of outstanding dilutive options
Less shares repurchased from proceeds of assumed exercise of options

Average common and common equivalent shares

Earnings per share, assuming dilution:

Continuing operations
Discontinued operations

2000

1999

1998

$688,336
–

$631,333
–

$498,155
4,875

$688,336

$631,333

$503,030

291,727

295,983

293,401

2.36
–

2.36

2.13
–

2.13

1.70
.02

1.72

291,727

295,983

293,401

12,735
(8,136)

13,090
(8,430)

13,849
(8,842)

296,326

300,643

298,408

2.32
–

2.32

2.10
–

2.10

1.67
.02

1.69

In September 1999, FedEx’s Board of Directors approved a plan that authorized the purchase of up to
15,000,000, or approximately 5%, of FedEx’s outstanding shares of common stock. FedEx completed its
purchases under the plan in 2000 at an average cost of $39.75 per share. As of May 31, 2000, FedEx had
14,128,998 shares in treasury for general corporate purposes.

NOTE 10: INCOME TAXES
The components of the provision for income taxes
for the years ended May 31 were as follows:

In thousands

2000

1999

1998

Current provision:

Domestic
Federal
State and local

Foreign

Deferred provision

(credit):
Domestic
Federal
State and local

Foreign

$365,137
48,837
39,844

$385,164
49,918
22,730

$267,471
32,839
36,543

453,818

457,812

336,853

(3,444)
469
(1,439)

(4,414)

(21,773)
(4,437)
(1,871)

(28,081)

56,408
7,860
242

64,510

$449,404

$429,731

$401,363

Income taxes have been provided for foreign opera-
tions based upon the various tax laws and rates of
the countries in which FedEx’s operations are con-
ducted. There is no direct relationship between
FedEx’s overall foreign income tax provision and
foreign pretax book income due to the different
methods of taxation used by countries throughout
the world. In 1998, FedEx entities in foreign
locations reported a net foreign pretax loss of
$98,000,000, comprising foreign pretax income
of $208,000,000 and foreign pretax losses
of $306,000,000.

A reconciliation of the statutory federal income tax rate to FedEx’s effective income tax rate for the years
ended May 31 is as follows:

Statutory U.S. income tax rate
Increase resulting from:

State and local income taxes, net of federal benefit
Nonrecurring items (1998 Caliber acquisition)
Other, net

Effective tax rate

Effective tax rate (excluding nonrecurring item)

2000

35.0%

2.8
–
1.7

39.5%

1999

35.0%

1998

35.0%

2.8
–
2.7

40.5%

2.7
3.1
3.8

44.6%

41.5%

The significant components of deferred tax assets and liabilities as of May 31 were as follows:

In thousands

Property, equipment and leases
Employee benefits
Self-insurance accruals
Other

2000

1999

Deferred
Tax
Assets

$206,239
207,297
245,923
224,615

Deferred
Tax
Liabilities

$686,547
127,784
–
96,572

Deferred
Tax
Assets

$122,515
198,750
228,020
233,331

Deferred
Tax
Liabilities

$608,719
79,374
–
97,264

$884,074

$910,903

$782,616

$785,357

NOTE 11: EMPLOYEE BENEFIT PLANS
PENSION PLANS. FedEx sponsors defined benefit
pension plans covering a majority of all employees.
The largest plans cover certain U.S. employees age
21 and over, with at least one year of service, and
provide benefits based on average earnings and
years of service. Plan funding is actuarially deter-
mined, and is also subject to certain tax law limita-
tions. International defined benefit pension plans
provide benefits primarily based on final earnings
and years of service and are funded in accordance
with local laws and income tax regulations. Plan
assets consist primarily of marketable equity secu-
rities and fixed income instruments. During 1999,
benefits provided under certain of FedEx’s pension
plans were enhanced, principally in connection
with the ratification on February 4, 1999, of a col-
lective bargaining agreement between FedEx
Express and the Fedex Pilots Association (“FPA”).

These benefit enhancements are reflected in the
funded status of the plans at May 31, 2000 and
1999, but did not materially affect pension cost in
either year.

POSTRETIREMENT HEALTH CARE PLANS.
FedEx Express offers medical and dental coverage
to eligible U.S. retirees and their eligible depen-
dents. Vision coverage is provided for retirees, but
not their dependents. Substantially all FedEx
Express U.S. employees become eligible for these
benefits at age 55 and older, if they have perma-
nent, continuous service with FedEx Express of at
least 10 years after attainment of age 45 if hired
prior to January 1, 1988, or at least 20 years after
attainment of age 35 if hired on or after January 1,
1988. Life insurance benefits are provided only to
retirees of the former Tiger International, Inc. who
retired prior to acquisition. FedEx Ground offers
similar benefits to its eligible retirees.

FedEx

Corp.

The following table provides a reconciliation of the changes in the pension and postretirement health care
plans’ benefit obligations and fair value of assets over the two-year period ended May 31, 2000 and a state-
ment of the funded status as of May 31, 2000 and 1999:

In thousands

CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year

Service cost
Interest cost
Amendments, benefit enhancements and acquisitions
Actuarial gain
Plan participant contributions
Foreign currency exchange rate changes
Benefits paid

Benefit obligation at end of year

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year

Actual return on plan assets
Foreign currency exchange rate changes
Company contributions
Plan participant contributions
Benefits paid

Fair value of plan assets at end of year

FUNDED STATUS OF THE PLANS

Unrecognized actuarial gain
Unrecognized prior service cost
Unrecognized transition amount

Prepaid (accrued) benefit cost

Pension
Plans

Postretirement
Health Care Plans

2000

1999

2000

1999

$ 4,385,519 $4,121,795
331,005
288,221
125,145
(427,179)
–
3,112
(56,580)

337,780
336,143
12,853
(510,132)
–
(618)
(67,800)

$ 246,186
26,450
19,579
1,420
(28,607)
1,112
–
(9,133)

$ 217,027
23,676
16,962
1,681
(7,402)
679
–
(6,437)

$ 4,493,745 $4,385,519

$ 257,007

$ 246,186

$ 4,952,431 $4,434,870
451,738
(1,283)
123,686
–
(56,580)

630,706
(5,192)
217,271
–
(67,800)

–
–
–
8,021
1,112
(9,133)

–
–
–
5,758
679
(6,437)

$ 5,727,416 $4,952,431

–

$ 1,233,671 $ 566,912
(595,238)
132,116
(11,852)

(1,173,903)
121,697
(10,529)

$(257,007)
(49,286)
254
–

$(246,186)
(20,809)
291
–

$ 170,936 $

91,938

$(306,039)

$(266,704)

AMOUNTS RECOGNIZED IN THE BALANCE SHEET AT MAY 31:

Prepaid benefit cost
Accrued benefit liability
Minimum pension liability
Intangible asset

Prepaid (accrued) benefit cost

$ 302,935 $ 188,423
(96,485)
(86,000)
86,000

(131,999)
(12,662)
12,662

–
(306,039)
–
–

–
(266,704)
–
–

$ 170,936 $

91,938

$(306,039)

$(266,704)

Net periodic benefit cost for the years ended May 31 was as follows:

In thousands

Pension Plans

Postretirement
Health Care Plans

Service cost
Interest cost
Expected return on plan assets
Net amortization and deferral

2000

1999

1998

$ 337,780
336,143
(546,169)
5,977

$ 331,005
288,221
(483,709)
(1,948)

$ 250,753
245,697
(377,421)
(2,304)

$ 133,731

$ 133,569

$ 116,725

2000

$26,450
19,579
–
(93)

$45,936

1999

$23,676
16,962
–
(211)

$40,427

1998

$18,385
14,767
–
(709)

$32,443

WEIGHTED-AVERAGE ACTUARIAL ASSUMPTIONS

Discount rate
Rate of increase in future
compensation levels
Expected long-term rate of

return on assets

2000

8.5%

1999

7.5%

1998

7.0%

2000

8.3%

1999

7.3%

1998

7.2%

5.0

10.9

4.6

10.9

4.6

10.3

–

The projected benefit obligation, accumulated
benefit obligation, and fair value of plan assets for
the pension plans with accumulated benefit obli-
gations in excess of plan assets were $177,900,000,
$126,300,000 and $2,700,000, respectively, as of
May 31, 2000, and $201,700,000, $172,800,000 and
$2,600,000, respectively, as of May 31, 1999. The
minimum pension liability and corresponding
intangible asset recognized in the balance sheet at
May 31, 1999, relate principally to the collective
bargaining agreement between FedEx Express and
the FPA. During 2000, FedEx obtained the necessary
approvals to fund a substantial portion of these
benefits in the qualified pension plan, and the mini-
mum liability and related intangible asset have
been reduced accordingly.

FedEx Express’s future medical benefit costs were
estimated to increase at an annual rate of 8.5% dur-
ing 2001, decreasing to an annual growth rate of
6.3% in 2006 and thereafter. Future dental benefit
costs were estimated to increase at an annual rate
of 7.5% during 2001, decreasing to an annual
growth rate of 6.3% in 2006 and thereafter. FedEx
Express’s cost is capped at 150% of the 1993
employer cost and, therefore, will not be subject to
medical and dental trends after the capped cost is
attained, projected to be in 2001. A 1% change in
these annual trend rates would not have a signifi-
cant impact on the accumulated postretirement
benefit obligation at May 31, 2000, or 2000 benefit
expense. Claims are paid as incurred.

PROFIT SHARING PLANS. The profit sharing
plans cover a majority of U.S. employees age 21 and
over, with at least one year of service with FedEx as
of the contribution date. The plans provide for dis-
cretionary employer contributions, which are
determined annually by the Board of Directors.
Profit sharing expense was $125,300,000 in 2000,
$137,500,000 in 1999 and $124,700,000 in 1998.
Included in these expense amounts are cash distri-
butions made directly to employees of $39,100,000,
$46,800,000 and $43,100,000 in 2000, 1999 and
1998, respectively.

NOTE 12: BUSINESS SEGMENT INFORMATION
FedEx Corporation is a global transportation and
logistics provider primarily composed of FedEx
Express, the world’s largest express transportation
company, and FedEx Ground, a ground small-package
carrier. Other operating companies included in the
FedEx Corporation portfolio are FedEx Logistics, a
contract logistics provider; FedEx Custom Critical,
a critical-shipment carrier; FedEx Trade Networks, a
global trade services company; and Viking,
a regional less-than-truckload freight carrier operat-
ing principally in the western United States. Other
also includes certain unallocated corporate items.

FedEx has determined its reportable operating seg-
ments to be FedEx Express and FedEx Ground,
both of which operate in single lines of business.
FedEx evaluates financial performance based on
operating income.

The following table provides a reconciliation of reportable segment revenues, depreciation and amortiza-
tion, operating income and segment assets to FedEx’s consolidated financial statement totals:

FedEx

Corp.

In thousands

Revenues
2000
1999
1998

Depreciation and amortization

2000
1999
1998

Operating income

2000
1999
1998

Segment assets

2000
1999

(1) Includes $81,000,000 of strike contingency costs. See Note 16.

(2) Includes $74,000,000 of merger expenses.

FedEx
Express

FedEx
Ground

Consolidated
Total

Other

$15,068,338 $2,032,570 $1,156,037 $18,256,945
916,086 16,773,470
907,087 15,872,810

13,979,277
13,254,841

1,878,107
1,710,882

$ 997,735 $
912,002
844,606

99,140 $
82,640
79,835

57,988 $ 1,154,863
1,035,118
40,476
963,732
39,291

$ 899,610 $ 225,812 $

871,476(1)
836,733

231,010
171,203

95,652 $ 1,221,074
1,163,086
60,600
2,724(2) 1,010,660

$ 9,740,539 $1,057,519 $ 729,053 $11,527,111
635,513 10,648,211

9,115,975

896,723

The following table provides a reconciliation of reportable segment capital expenditures to FedEx’s
consolidated totals for the years ended May 31:

In thousands

2000
1999
1998

FedEx
Express

$1,330,904
1,550,161
1,761,963

FedEx
Ground

$244,073
179,969
78,041

Consolidated
Total

Other

$52,441 $1,627,418
1,769,946
1,880,173

39,816
40,169

The following table presents FedEx’s revenue by service type and geographic information for the years
ended or as of May 31:

In thousands

REVENUE BY SERVICE TYPE
FedEx Express:
Package:

U.S. overnight
U.S. deferred
International priority

Freight:
U.S.
International

Other

Total FedEx Express

FedEx Ground
Other

GEOGRAPHIC INFORMATION (1)
Revenues:
U.S.
International

Long-lived assets:

U.S.
International

2000

1999

1998

$ 7,537,844 $ 7,185,462 $ 6,810,211
2,179,188
2,731,140

2,428,002
3,551,593

2,271,151
3,018,828

566,259
492,280
492,360

439,855
530,759
533,222

337,098
597,861
599,343

15,068,338 13,979,277 13,254,841
1,710,882
1,878,107
907,087
916,086

2,032,570
1,156,037

$18,256,945 $16,773,470 $15,872,810

$13,804,849 $12,910,107 $12,231,537
3,641,273

3,863,363

4,452,096

$18,256,945 $16,773,470 $15,872,810

$ 7,224,219 $ 6,506,424
1,000,759

1,018,148

$ 8,242,367 $ 7,507,183

(1) Generally, international revenue includes shipments that either originate in or are destined to locations outside the United States. Long-lived assets include

property and equipment, goodwill and other long-term assets. Flight equipment is allocated between geographic areas based on usage.

NOTE 13: SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest expense and income taxes for the years ended May 31 was as follows:

In thousands

Interest (net of capitalized interest)
Income taxes

2000

1999

1998

$124,964
354,614

$114,326
437,340

$130,250
355,563

Noncash investing and financing activities for the years ended May 31 were as follows:

In thousands

Fair value of assets surrendered under exchange agreements (with two airlines)
Fair value of assets acquired under exchange agreements

Fair value of assets surrendered (under) over fair value of assets acquired

Fair value of treasury stock issued in business acquisition

2000

$19,450
28,018

$ (8,568)

$ 6,817

1999

$48,248
34,580

$13,668

1998

$90,428
78,148

$12,280

–

NOTE 14: COMMITMENTS AND CONTINGENCIES
FedEx’s annual purchase commitments under various contracts as of May 31, 2000, were as follows:

In thousands

2001
2002
2003
2004
2005

(1) Primarily aircraft modifications, rotables, spare parts and spare engines.

(2) Primarily facilities, vehicles, computer and other equipment.

At May 31, 2000, FedEx Express was committed to
purchase 28 MD11s, 13 DC10s (in addition to those
discussed in the following paragraph) and 75 Ayres
ALM 200s to be delivered through 2007. Deposits
and progress payments of $7,100,000 have been
made toward these purchases.

FedEx Express has agreements with two airlines to
acquire 53 DC10 aircraft (49 of which had been
received as of May 31, 2000), spare parts, aircraft
engines and other equipment, and maintenance
services in exchange for a combination of aircraft
engine noise reduction kits and cash. Delivery of
these aircraft began in 1997 and will continue
through 2001. Additionally, these airlines may exer-
cise put options through December 31, 2003,
requiring FedEx Express to purchase up to 11 addi-
tional DC10s along with additional aircraft engines
and equipment.

In April 2000, put options were exercised by an air-
line requiring FedEx Express to purchase six DC10s
(in addition to those discussed in the preceding
paragraph) for a total purchase price of $26,400,000.
Delivery of the aircraft is expected to be completed
by April 2001.

In January 1999, put options were exercised by an
airline requiring FedEx Express to purchase six
DC10s (in addition to those discussed above) for a
total purchase price of $21,150,000. Delivery of five
of the aircraft was completed by August 1999, and
the commitment to purchase the sixth aircraft has
been cancelled.

FedEx has entered into jet fuel hedging contracts
on behalf of its subsidiary FedEx Express, which
are designed to limit its exposure to fluctua-
tions in jet fuel prices. Under these jet fuel hedging

Aircraft

$222,500
252,000
441,700
235,000
165,400

Aircraft-
Related(1)

$427,600
381,300
456,900
446,500
452,200

Other(2)

Total

$376,300 $1,026,400
651,600
906,200
689,100
625,200

18,300
7,600
7,600
7,600

contracts, FedEx makes (or receives) payments
based on the difference between a fixed price and
the market price of jet fuel, as determined by an
index of spot market prices representing various
geographic regions. The difference is recorded as
an increase or decrease in fuel expense. Under jet
fuel hedging contracts, FedEx received $18,512,000
in 2000 and made payments of $28,764,000 in
1998. There was no jet fuel hedging activity in
1999. As of May 31, 2000, contracts in place to fix
the price of jet fuel cover a total notional volume
of 352,822,000 gallons, or approximately one-third
of the estimated usage in 2001. Based on current
market prices, the fair value of these jet fuel hedg-
ing contracts, which have no carrying value, was
an asset of approximately $51,060,000 at May 31,
2000. There were no such jet fuel hedging con-
tracts in place at May 31, 1999.

NOTE 15: LEGAL PROCEEDINGS
FedEx and its subsidiaries are subject to legal pro-
ceedings and claims that arise in the ordinary
course of their business. In the opinion of manage-
ment, the aggregate liability, if any, with respect to
these actions will not materially adversely affect
FedEx’s financial position or results of operations.

NOTE 16: OTHER EVENTS
In 2000, FedEx Express recorded nonoperating
gains of approximately $11,000,000 from the sale of
securities and approximately $12,000,000 from the
insurance settlement for a leased MD11 destroyed
in October 1999.

To avoid service interruptions related to a threat-
ened strike by the FPA in November 1998, FedEx
and FedEx Express implemented strike contingency
plans including entering into agreements for

FedEx

Corp.

additional third-party air and ground transportation
and establishing special financing arrangements.
Subsequently, a five-year collective bargaining
agreement was ratified by the FPA membership in
February 1999 and became effective May 31, 1999.
Costs associated with these contingency plans were
approximately $91,000,000. Of these costs, approx-
imately $81,000,000, primarily the cost of contracts
for supplemental airlift and ground transportation,
was included in operating expenses. The remaining
$10,000,000 was included in nonoperating expenses
and represents the costs associated with obtaining
additional short-term financing capabilities.

In 1998, FedEx Express realized a net gain of
$17,000,000 from the insurance settlement and the
release from certain related liabilities on a leased
MD11 aircraft destroyed in an accident in July 1997.
The gain was recorded in operating and non-
operating income in substantially equal amounts.

FedEx incurred $88,000,000 of merger expenses
related to the acquisition of Caliber and the forma-
tion of FedEx in 1998, primarily investment bank-
ing fees and payments to members of Caliber’s
management in accordance with pre-existing man-
agement retention agreements. There are no
remaining accrued costs at May 31, 2000 related to
the merger.

On March 27, 1997, Caliber announced a major
restructuring of its Viking subsidiary. In connection
with the restructuring, Viking recorded a pretax
restructuring charge of $85,000,000 ($56,400,000
net of tax) in the period from January 1, 1997 to
May 24, 1997. This restructuring charge is included
in the adjustment to conform Caliber’s fiscal year
in the accompanying Consolidated Statements
of Changes in Stockholders’ Investment and
Comprehensive Income and, therefore, is excluded
from the Consolidated Statements of Income.
Components of the $85,000,000 restructuring
charge included asset impairment charges, future
lease costs and other contractual obligations,
employee severance and other benefits and other
exit costs. Gains on assets sold in the restructur-
ing of $16,000,000 were recognized in the third
quarter of 1998 and estimates, primarily for future
lease costs, were revised in 2000 resulting in a
favorable adjustment of approximately $10,000,000.
There are no remaining accrued restructuring
costs at May 31, 2000.

On November 6, 1995, Caliber announced plans to
exit the airfreight business served by its wholly-
owned subsidiary, Roadway Global Air, Inc. Income
from discontinuance of $4,875,000, net of tax, in
1998 included the favorable settlement of leases
and other contractual obligations.

NOTE 17: SUMMARY OF QUARTERLY OPERATING RESULTS (UNAUDITED)

In thousands, except earnings per share

2000
Revenues
Operating income
Income before income taxes
Net income
Earnings per common share
Earnings per common share – assuming dilution

1999(1)
Revenues
Operating income
Income before income taxes
Net income
Earnings per common share
Earnings per common share – assuming dilution

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

283,807
262,880
159,034

$4,319,977 $4,570,104 $4,518,057 $4,848,807
426,260
404,934
244,991
.86
.85

206,472
186,998
113,128

304,535
282,928
171,183

.39 $
.39 $

.58 $
.57 $

.53 $
.52 $

$
$

283,843
255,348
149,379

$4,082,302 $4,209,237 $4,098,418 $4,383,513
390,218
372,043
221,365
.74
.73

336,987
312,404
182,756

152,038
121,269
77,833

.26 $
.26 $

.62 $
.61 $

.51 $
.50 $

$
$

(1) Third quarter 1999 results included approximately $91,000,000 of expenses ($54,100,000 net of tax or $.18 per share, assuming dilution) for contingency

plans made by FedEx related to the threatened strike by the FPA.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of FedEx Corporation:

We have audited the accompanying consolidated
balance sheets of FedEx Corporation (a Delaware
corporation) and subsidiaries as of May 31, 2000
and 1999, and the related consolidated statements
of income, changes in stockholders’ investment
and comprehensive income and cash flows for each
of the three years in the period ended May 31,
2000. These financial statements are the responsi-
bility of FedEx’s management. Our responsibility
is to express an opinion on these financial state-
ments based on our audits.

We conducted our audits in accordance with audit-
ing standards generally accepted in the United
States. Those standards require that we plan and
perform the audit to obtain reasonable assurance
about whether the financial statements are free
of material misstatement. An audit includes exam-
ining, on a test basis, evidence supporting the

amounts and disclosures in the financial state-
ments. An audit also includes assessing the
accounting principles used and significant esti-
mates made by management, as well as evaluating
the overall financial statement presentation. We
believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects,
the financial position of FedEx Corporation as of
May 31, 2000 and 1999, and the results of its opera-
tions and its cash flows for each of the three years in
the period ended May 31, 2000, in conformity with
accounting principles generally accepted in the
United States.

Memphis, Tennessee
June 27, 2000

FedEx

Corp.

SELECTED CONSOLIDATED FINANCIAL DATA

Years ended May 31,
In thousands, except per share amounts
and Other Operating Data

2000

1999

1998

1997

1996

OPERATING RESULTS

Revenues
Operating income(1)
Income from continuing operations

$18,256,945
1,221,074

$16,773,470
1,163,086

$15,872,810
1,010,660

$14,237,892
507,002

$12,721,791
779,552

before income taxes

1,137,740

Income from continuing operations

688,336

1,061,064

631,333

899,518

498,155

425,865

196,104

702,094

400,186

Income (loss) from

discontinued operations(2)

–

4,875

–

(119,614)

Net income(1)
PER SHARE DATA

Earnings (loss) per share:

Basic:

Continuing operations
Discontinued operations(2)

Assuming dilution:

Continuing operations
Discontinued operations(2)

688,336

631,333

503,030

196,104

280,572

2.36

–

2.36

2.32
–

2.32

2.13

–

2.13

2.10
–

2.10

1.70

.02

1.72

1.67
.02

1.69

.67

–

.67

.67
–

.67

1.38

(.41)

.97

1.37
(.41)

.96

Average shares of common stock

291,727

295,983

293,401

291,426

289,390

Average common and common

equivalent shares

Cash dividends (3)
FINANCIAL POSITION

296,326
–

300,643
–

298,408
–

294,456
–

291,686
–

Property and equipment, net

$ 7,083,527

$ 6,559,217

$ 5,935,050

$ 5,470,399

$ 4,973,948

Total assets

11,527,111

10,648,211

Long-term debt, less current portion

1,776,253

Common stockholders’ investment

4,785,243

1,359,668

4,663,692

9,686,060

1,385,180

3,961,230

9,044,316

1,597,954

3,501,161

8,088,241

1,325,277

3,312,440

OTHER OPERATING DATA

FedEx Express:

Operating weekdays

Aircraft fleet

FedEx Ground:

Operating weekdays

Average full-time

257

663

254

256

634

253

254

613

256

254

584

254

256

557

252

equivalent employees

163,324

156,386

150,823

145,995

(1) In connection with its restructuring, Viking recorded a pretax asset impairment charge of $225,000,000 ($175,000,000, net of tax) in 1997.

(2) Discontinued operations include the operations of Roadway Express, Inc., a wholly-owned subsidiary of Caliber, whose shares were distributed to Caliber

stockholders on January 2, 1996, and Roadway Global Air, Inc., a wholly-owned subsidiary of Caliber, which exited the airfreight business in calendar 1995.

(3) Caliber declared dividends of $3,899,000, $28,184,000, and $54,706,000, for 1998, 1997, and 1996, respectively. Caliber declared additional dividends of

$10,833,000 from January 1, 1997 to May 25, 1997 that are not included in the preceding amounts. FedEx has never paid cash dividends on its common stock.

BOARD OF DIRECTORS

ROBERT H. ALLEN (2)
Private Investor and Managing Partner
Challenge Investment Partners

Investment firm

JAMES L. BARKSDALE (3)
Founder
The Barksdale Group

Venture capital firm

ROBERT L. COX (1)
Partner
Waring Cox
Law firm

RALPH D. DENUNZIO (2*)
President
Harbor Point Associates, Inc.

Private investment and consulting firm

JUDITH L. ESTRIN (3*)
President and Chief Executive Officer
Packet Design, Inc.

Internet technology company

PHILIP GREER (1*)
Senior Managing Director
Weiss, Peck & Greer, L.L.C.

Investment management firm

J.R. HYDE, III (2)
Chairman
Pittco Management, LLC

Investment management company

DR. SHIRLEY A. JACKSON (3)
President
Rensselaer Polytechnic Institute
Technological university

GEORGE J. MITCHELL (1)
Special Counsel
Verner, Liipfert, Bernhard,
McPherson and Hand

Law firm

FREDERICK W. SMITH
Chairman, President and
Chief Executive Officer
FedEx Corporation

DR. JOSHUA I. SMITH (1)
Vice Chairman and President
iGate, Inc.

Broadband networking company

PAUL S. WALSH (2)
Group Chief Operating Officer
Diageo plc

Consumer food and beverage company

PETER S. WILLMOTT (1)
Chairman and Chief Executive Officer
Willmott Services, Inc.

Retail and consulting firm

(1) Audit Committee
(2) Compensation Committee
(3) Information Technology Oversight

Committee

(*) Committee Chair

FedEx

Corp.

EXECUTIVE OFFICERS

FedEx Corporation
FREDERICK W. SMITH
Chairman, President and
Chief Executive Officer

ALAN B. GRAF, JR.
Executive Vice President and
Chief Financial Officer

ROBERT B. CARTER
Executive Vice President and
Chief Information Officer

FedEx Express
DAVID J. BRONCZEK
President and Chief Executive Officer

DAVID F. REBHOLZ
Executive Vice President,
Operations and Systems Support

MICHAEL L. DUCKER
Executive Vice President,
International

KENNETH R. MASTERSON
Executive Vice President,
General Counsel and Secretary

T. MICHAEL GLENN
Executive Vice President,
Market Development and
Corporate Communications

JAMES S. HUDSON
Corporate Vice President and
Chief Accounting Officer

FedEx Ground
DANIEL J. SULLIVAN
President and Chief Executive Officer

IVAN T. HOFMANN
Executive Vice President and
Chief Operating Officer

RODGER G. MARTICKE
Executive Vice President

FedEx Logistics
JOSEPH C. MCCARTY
President and Chief Executive Officer

FedEx Custom Critical
R. BRUCE SIMPSON
President and Chief Executive Officer

FedEx Trade Networks
G. EDMOND CLARK
President and Chief Executive Officer

Viking Freight
DOUGLAS G. DUNCAN
President and Chief Executive Officer

FINANCIAL INFORMATION, INCLUDING
FORM 10-K: Copies of FedEx Corporation’s Annual
Report on Form 10-K (excluding exhibits), other
FedEx documents filed with the Securities and
Exchange Commission (SEC) and other FedEx
ﬁnancial and statistical information are available on
FedEx’s Web site at www.fedex.com. You will be
mailed a copy of the Form 10-K upon request to
Investor Relations, FedEx Corporation, 942 South
Shady Grove Road, Memphis, Tennessee 38120,
(901) 818-7200. FedEx documents ﬁled electron-
ically with the SEC can also be found on the
Internet at the SEC’s Web site at www.sec.gov.

INSTITUTIONAL INVESTOR INQUIRIES:
Contact J.H. Clippard, Jr., Vice President, Investor
Relations, FedEx Corporation, 942 South Shady Grove
Road, Memphis, Tennessee 38120, (901) 818-7200,
or visit FedEx’s Web site at www.fedex.com.

AUDITORS: Arthur Andersen LLP, Memphis,
Tennessee.

EQUAL EMPLOYMENT OPPORTUNITY: FedEx
Corporation is ﬁrmly committed to afford Equal
Employment Opportunity to all individuals regard-
less of age, sex, race, color, religion, national ori-
gin, citizenship, disability, or status as a Vietnam
era or special disabled veteran. We are strongly
bound to this commitment because adherence to
Equal Employment Opportunity principles is the
only acceptable way of life. We adhere to those
principles not just because they’re the law, but
because it’s the right thing to do.

SERVICE MARKS: Federal Express,® FedEx,® and
the FedEx ® logo are registered service marks of
Federal Express Corporation. Reg. U.S. Pat. & Tm.
Off. and in certain other countries. The FedEx
ExpressSM logo, the FedEx GroundSM logo and the
FedEx Custom CriticalSM logo are service marks of
Federal Express Corporation.

CORPORATE INFORMATION

STOCK LISTING: FedEx Corporation’s common
stock is listed on The New York Stock Exchange
under the ticker symbol FDX.

STOCKHOLDERS: At July 15, 2000, there were
16,293 stockholders of record.

MARKET INFORMATION: Following are high and
low sale prices, by quarter, for FedEx Corporation
common stock in 2000 and 1999 adjusting for a two-
for-one stock split in the form of a 100% stock divi-
dend that was paid on May 6, 1999, to stockholders
of record on April 15, 1999. No cash dividends have
been declared by the Company.

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

FY 2000
High
Low

FY 1999
High
Low

$57 1⁄800
38 1⁄200

$3329⁄32
2411⁄32

$47 5⁄160
34 7⁄80 0

$3323⁄32
2113⁄16

$4715⁄16
33 3⁄160

$49 00000
33 9⁄320

$427⁄16
309⁄16

$617⁄80
449⁄16

CORPORATE HEADQUARTERS: 942 South
Shady Grove Road, Memphis, Tennessee 38120,
(901) 369-3600.

ANNUAL MEETING: The annual meeting of
stockholders will be held at the Westin William
Penn Hotel, 530 William Penn Place, Pittsburgh,
Pennsylvania on Monday, September 25, 2000, at
10:00 a.m. EDT.

GENERAL AND MEDIA INQUIRIES: Contact
Shirlee M. Clark, Director, Public Relations,
FedEx Corporation, 942 South Shady Grove Road,
Memphis, Tennessee 38120, (901) 395-3460.

SHAREOWNER ACCOUNT INQUIRIES: Con-
tact Equiserve – First Chicago Trust Division,
Shareholder Services, P.O. Box 2500, Jersey City,
New Jersey 07303-2500, (800) 446-2617 / John H.
Ruocco (312) 407-5153. For information on the
DirectService™ Investment Program for Share-
owners of FedEx Corporation, call (800) 524-3120.
This program provides an alternative to traditional
retail brokerage methods of purchasing, holding
and selling FedEx common stock.

Portions of this annual report were printed on recycled paper.

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FedEx Corporation

942 South Shady Grove Road

Memphis, Tennessee 38120