FedEx Annual Report 2009

FY2009 Annual Report · FedEx

Loading PDF…

The Long Future

In times like these, it’s easy to define the future
narrowly: How do we get through this year?
Or this quarter?

But the strongest companies take a longer view.

FedEx has always looked at the world of commerce
with uncommon foresight. Our greatest strength
has been our ability to deliver what the future requires.
That should never change, even in times as difficult
as the world faces today.

FedEx sees the long future.

“I’m right where I’m needed.”

THE LOnG FUTUrE rEqUIrES ACCESS

Billions of people all over the world need fast access to ideas, goods, opportunities and to each other. That’s why FedEx is
investing strategically to match emerging trade patterns and business models. Our new hub in Guangzhou, China, puts us
in the heart of Asia’s fastest-growing production and trade center. Because of Mexico’s growth as a manufacturing center,
we’ve launched domestic express service there. And we’re constantly opening and expanding FedEx Ground hubs to match
trade patterns within the United States. Seeing the long future means having the ability to deliver exactly what the world
needs next.

“ I’m working smarter and

more efficiently than ever.”

THE LOnG FUTUrE rEqUIrES EFFICIEnCy

FedEx is committed to connecting people around the world with each other and what they need. We’re equally
committed to getting the job done with fewer resources. That’s why we’ve launched our “20 by 20” initiative, aiming to
reduce our aircraft’s carbon emissions by 20 percent and increase our delivery vehicles’ fuel efficiency by 20 percent, all
by 2020. We’re adding zero-emission, all-electric trucks and converting conventional trucks to hybrid-electric technology.
And our new hub in Cologne, Germany, with its 1.4-megawatt solar power system, will be the latest in a growing list of
on-site renewable energy investments. Seeing the long future means doing more with less.

“ They know what I’m

bringing before I get there.”

THE LOnG FUTUrE rEqUIrES UnDErSTAnDInG

Markets — and what businesses must create to participate in those markets — change at lightning speed. That’s why FedEx
is investing in technologies that increase the visibility of everything in motion, that translate data into knowledge, that make
it easy for businesses to understand and alter their supply chains and delivery patterns on the fly. FedEx has always believed
the information about the package is just as important as the package itself. Hundreds of thousands of businesses have
created supply chains that depend on FedEx’s ability to move goods and information for them. Seeing the long future means
giving businesses the ability to see and understand — in real time — how they should respond to changing markets.

THE LOnG FUTUrE rEqUIrES GOOD PEOPLE

“Putting our team members’ interests first — and giving them

the power to see and respond to what their customers need —
was arguably the best business decision we ever made.”

Frederick W. Smith Chairman, President and CEO

no matter how fast global commerce changes, our team members’ commitment to each other — and to serve our
customers — never changes. Every day, our team keeps our Purple Promise: to make every FedEx experience outstanding.
We consistently place at the top of customer service rankings, and we stay near the top of the most-admired and best-
places-to-work lists. Our philosophy is simple: Because FedEx is a great place to work, our people serve our customers very
well, and our business succeeds as a result. Seeing the long future means understanding that our team members are the
very heart of our business.

MESSAGE FrOM THE CHAIrMAn

To Our Shareowners:

In times like these, it’s easy for companies to let the
economy manage them. It’s easy to get swept up in
putting out the next fire. It’s easy to think short-term.

But FedEx has always been focused on the future, and
we believe tough times only punctuate the need to
think long-term.

Accordingly, we continue to look at what the world
of commerce needs for the long haul, even when the
economy is in a recession.

SO WHAT DO WE SEE?
• A growing need for access, as the world’s people and

economies become more interconnected.

• An expectation, shared between FedEx and our

customers, that we’ll provide our services in responsible
and resourceful ways.

• A demand for new levels of understanding — not just

information — about supply chains and everything in them.

These are three critical areas in which FedEx continues to
invest — access, efficiency, and understanding — to stay
competitive in good times and bad.

A WIDEr nET
Billions of people the world over need fast access
to ideas, goods, and opportunities. We continue to
strategically expand our networks to provide more access
points to more customers. For example, in the past year,
we opened our new Guangzhou, China, hub, our largest
outside the United States. It will help us better serve
customers doing business in China and the broader
Asia-Pacific markets. In addition, we added domestic
express service within Mexico, expanded next-day
service from Europe to the U.S. East Coast, and initiated
ocean-ground distribution on the West Coast through
FedEx Trade networks. In Canada, we launched FedEx
SmartPost service. Despite the weak economy, we
continue to expand our service portfolio — putting the
right capabilities in the right places and expanding access
to the global economy for our customers.

IMPrOVED EFFICIEnCy
To conserve energy and improve profitability, we need to
move more things with fewer resources. That’s why we
continue to invest in efficient equipment and processes.
We have three solar facilities already running in California,
and we have broken ground this past fiscal year on what
will be our largest solar plant and our first outside the U.S.,
in Cologne, Germany. We are investing in alternative fuels
as well as more fuel-efficient aircraft that lower emissions
and use significantly less fuel per pound transported. With
a goal of making our vehicles 20 percent more efficient by
2020, we continue to invest in our hybrid-electric vehicle
fleet and in all-electric prototypes. Furthermore, we are
cutting transit times and fuel use through smarter routing
based on new proprietary software.

We are also streamlining our processes. Through quality
Driven Management (qDM) we’ve taken a whole new
approach to standardizing quality across the entire
company. We aim to make sure every FedEx experience
is not only outstanding but also consistent — for
every customer, every time. We’re also realigning our
organization and resources to concentrate on those
things that matter most — how to improve the customer
experience and be easier to do business with. qDM
simultaneously lowers costs and improves efficiency.

nEW TECHnOLOGIES
To keep pace with a fast-changing marketplace,
companies need to develop a greater understanding of
market tools and customer needs. As a consequence,
we’re providing new technologies that anticipate and
respond to rapid changes in global supply chains. These
aren’t just bells and whistles, but changes that really
count. For instance, we are exploring ways to expand our
frozen-shipping capabilities for the life sciences industry,
so that products can remain frozen for extended periods,
unlike dry-ice shipping, which often requires re-icing
during transit. We’ve refreshed our online tracking tools
to increase the visibility of shipments via the Web through
desktop or mobile devices. We pioneered a new aircraft
avionics system that will dramatically improve efficiency

during takeoff and landing of our aircraft. FedEx Freight
initiated a 10:30 a.m. delivery commitment option, a first
for the less-than-truckload freight industry. FedEx Trade
Networks introduced a service to help customers meet
new U.S. Customs filing requirements.

PURPLE CULTURE
As we invest in the future, we continue to stay true to
our core values and to our team members. Our Purple
Promise — to make every FedEx experience outstanding
— is the foundation of our business. And that promise
begins with our FedEx culture. Even in difficult times, we
are focused on our talented team members. They are the
face of FedEx in the marketplace, and they’re the ones who
continually improve our customer experience. Through
their extraordinary efforts, we have weathered the stormy
economy better than most.

Even during a recession, our people make the great FedEx
reputation shine. They helped us net several awards such
as FORTUNE’s “Top 10 World’s Most Admired” and “100
Best Companies to Work for” as well as a No. 1 ranking
in customer service on the Harris Interactive Reputation
Quotient™ survey. We have also been cited as one of the
best places to work in more than 27 countries around
the world. We are proud of this recognition and always
remember it is the FedEx team that earned this!

MANAGING CHALLENGE AND CHANGE
Looking ahead means looking out for issues that can
undermine our long-term success.

We have faced challenges to our independent business-
owner model at FedEx Ground, but are pleased by two
recent court victories. Both a Washington Superior Court
decision and the D.C. Circuit Court of Appeals affirmed
that FedEx Ground contractors are not employees. These
decisions validate our long-standing position that FedEx
Ground contractors are independent, small-business owners
who are dedicated to managing their own companies.

Another major issue is the attempt by UPS and its allies
to disrupt the operation of our express company by
changing the Railway Labor Act (RLA) under which it has
been classified since it began operations in 1973. The RLA,
passed in 1926, is designed to keep large, capital-intensive
transport networks operating for the public good without
exposure to local labor disputes. The status of FedEx
Express as an RLA carrier has been upheld by the courts
for many years, and we will vigorously oppose this clearly
anti-competitive, self-serving legislation, given its potential
injury to FedEx Express and our millions of customers.

FedEx also continues to press for access to open
markets and open skies. Ninety-five percent of the
world’s consumers live outside the United States, so
we reject any protectionist measures in the U.S. or in
other countries that penalize the goods and services of
another country. International trade represents over a
quarter of United States gross domestic product (GDP),

with exports alone supporting more than 12 million jobs.
We will continue to take a strong stand in favor of trade
equality in the marketplace and healthy competition that
benefits consumers the world over. The post World War II
record is clear: Opening markets creates new wealth and
new employment. That’s what access is all about.

LOOKING LONG
Despite the strong economic headwinds, we are building
on our strengths to produce outstanding results when the
recovery occurs.
• We’ve built shock absorbers into our networks — that is,
the ability to flex up or down as economic conditions and
volumes shift. It gives us the resiliency to power through
hard times like the present.

• We are rich in committed people. Our team members
are the best in the industry, always ready to serve our
customers and communities. In fact, we have continued
to improve service levels during this tough economy. Our
leadership team is more focused and collaborative than at
any time in our history.

• Our Board of Directors shares a firm commitment to

the highest standards of corporate governance, and we
welcome Ambassador Susan C. Schwab, former U.S.
Trade Representative, who joined our board in June.
She is an expert on international trade policy and will
serve on our Compensation Committee.

• We have a very strong balance sheet. In the last five

years, we have reduced our debt by a billion dollars, while
shareowner equity has risen from $8 billion to
$13.6 billion.

From the day this company was created, we’ve tried to
envision, then build, what the commerce of the future
will require. As a result, we’ve given millions of people
new access to one another’s products and ideas. We’ve
changed what’s possible for our customers and allowed
them to improve their businesses. With global economies
in turmoil, we are not blind to reality. But we will not forget
what has guided our company from the start: foresight.
For more than 35 years we’ve been confident about a
more prosperous future because we’ve been a big part of
creating it.

In this respect, nothing has changed.

Sincerely,

Frederick W. Smith
Chairman, President and Chief Executive Officer

Financial Highlights

In millions, except earnings per share

2009 (1)

2008 (2)

Percent Change

Operating Results
revenues
Operating income
Operating margin
net income
Diluted earnings per share
Average common and common equivalent shares
Capital expenditures

Financial Position
Total assets
Long-term debt, including current portion
Common stockholders’ investment

$35,497
747
2.1 %
98
0.31
312
2,459

$24,244
2,583
13,626

$37,953
2,075

5.5 %

1,125
3.60
312
2,947

$25,633
2,008
14,526

(6 )
(64 )

(91 )
(91 )
0
(17 )

(5 )
29
(6 )

REVENUE (IN BILLIONS)

OPERATING MARGIN

DILUTED EARNINGS PER SHARE

$29.4

$32.3

$35.2

$38.0

$35.5

8.4%

9.3%

5.5%

2.1%

$4.72

$5.83

$6.48

$3.60

$0.31

2005

2006

2007

2008

2009

2005

2006

2007

2008(2)

2009(1)

2005

2006

2007

2008(2)

2009(1)

RETURN ON AVERAGE EQUITY

DEBT TO TOTAL CAPITALIZATION

STOCK PRICE (MAY 31 CLOSE)

16.4%

17.1%

16.7%

8.3%

0.7%

22.6%

17.5%

17.3%

12.1%

15.9%

$89.42

$109.27

$111.62

$91.71

$55.43

2005

2006

2007

2008(2)

2009(1)

2005

2006

2007

2008

2009

2005

2006

2007

2008

2009

COMPArISOn OF FIVE-yEAr CUMULATIVE TOTAL rETUrn(3)

$160 ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

$150 ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

$140 ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

$130 ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

$120 ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

$110 ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

$100 ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

$90 ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

$80 ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

$70 ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2004

2005

2006

2007

2008

2009

FedEx Corporation

Dow Jones Transportation Average

S&P 500

(1) Results for 2009 include a charge of $1.2 billion ($1.1 billion, net of tax, or $3.45 per diluted share) primarily related to impairment charges associated with
goodwill and aircraft.
(2) Results for 2008 include a charge of $891 million ($696 million, net of tax, or $2.23 per diluted share) predominately related to impairment charges associated
with intangible assets from the Kinko’s acquisition.
(3) Shows the value, at the end of each of the last five fiscal years, of $100 invested in FedEx Corporation common stock or the relevant index on May 31, 2004,
and assumes reinvestment of dividends. Fiscal year ended May 31.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Overview of Financial Section

The ﬁ nancial section of the FedEx Corporation (“FedEx”) Annual
Report (“Annual Report”) consists of the following Management’s
Discussion and Analysis of Results of Operations and Financial
Condition (“MD&A”), the Consolidated Financial Statements and
the notes to the Consolidated Financial Statements, and Other
Financial Information, all of which include information about our
signiﬁ cant accounting policies, practices and the transactions
that underlie our ﬁ nancial results. The following MD&A describes
the principal factors affecting the results of operations, liquidity,
capital resources, contractual cash obligations and the critical
accounting estimates of FedEx. The discussion in the ﬁ nancial
section should be read in conjunction with the other sections
of this Annual Report and our detailed discussion of risk factors
included in this MD&A.

ORGANIZATION OF INFORMATION
Our MD&A is comprised of three major sections: Results
of Operations, Financial Condition and Critical Accounting
Estimates. These sections include the following information:

• Results of Operations includes an overview of our consolidated
2009 results compared to 2008, and 2008 results compared to
2007. This section also includes a discussion of key actions and
events that impacted our results, as well as a discussion of our
outlook for 2010.

• The overview is followed by a ﬁ nancial summary and analysis
(including a discussion of both historical operating results and
our outlook for 2010) for each of our reportable transportation
segments.

• Our ﬁ nancial condition is reviewed through an analysis of key
elements of our liquidity, capital resources and contractual cash
obligations, including a discussion of our cash ﬂ ow statements
and our ﬁ nancial commitments.

• We conclude with a discussion of the critical accounting esti-
mates that we believe are important to understanding certain
of the material judgments and assumptions incorporated in our
reported ﬁ nancial results.

DESCRIPTION OF BUSINESS
We provide a broad portfolio of transportation, e-commerce and
business services through companies competing collectively,
operating independently and managed collaboratively, under
the respected FedEx brand. Our primary operating companies
include Federal Express Corporation (“FedEx Express”), the
world’s largest express transportation company; FedEx Ground
Package System, Inc. (“FedEx Ground”), a leading provider of
small-package ground delivery services; and FedEx Freight
Corporation, a leading U.S. provider of less-than-truckload (“LTL”)
freight services. Our FedEx Services segment provides customer-
facing sales, marketing, information technology and customer
service support to our transportation segments. In addition, the
FedEx Services segment provides customers with retail access
to FedEx Express and FedEx Ground shipping services through
FedEx Ofﬁ ce and Print Services, Inc. (“FedEx Ofﬁ ce”). These
companies represent our major service lines and form the core
of our reportable segments. See “Reportable Segments” for fur-
ther discussion.

The key indicators necessary to understand our operating results
include:

• the overall customer demand for our various services;

• the volumes of transportation services provided through our
networks, primarily measured by our average daily volume and
shipment weight;

• the mix of services purchased by our customers;

• the prices we obtain for our services, primarily measured by
yield (revenue per package or pound or revenue per hundred-
weight for LTL freight shipments);

• our ability to manage our cost structure (capital expenditures
and operating expenses) to match shifting volume levels; and

• the timing and amount of ﬂ uctuations in fuel prices and our
ability to recover incremental fuel costs through our fuel
surcharges.

The majority of our operating expenses are directly impacted by
revenue and volume levels. Accordingly, we expect these operat-
ing expenses to ﬂ uctuate on a year-over-year basis consistent
with the change in revenues and volume. The following discus-
sion of operating expenses describes the key drivers impacting
expense trends beyond changes in revenues and volume.

Except as otherwise speciﬁ ed, references to years indicate our
ﬁ scal year ended May 31, 2009 or ended May 31 of the year ref-
erenced and comparisons are to the prior year. References to our
transportation segments include, collectively, our FedEx Express,
FedEx Ground and FedEx Freight segments.

FEDEX CORPORATION

Results of Operations

CONSOLIDATED RESULTS
The following table compares revenues, operating income, operating margin, net income and diluted earnings per share (dollars in
millions, except per share amounts) for the years ended May 31:

Revenues
Operating income
Operating margin
Net income
Diluted earnings per share

2009 (1)

2008 (2)

2007 (3)

2009/2008

2008/2007

Percent Change

$ 35,497
747
2.1%
98
$ 0.31

$ 37,953
2,075

5.5%

$ 1,125
$ 3.60

$ 35,214
3,276

9.3%

$ 2,016
$ 6.48

(6)
(64)
(340)bp
(91)
(91)

8
(37)
(380)bp
(44)
(44)

(1) Operating expenses include a charge of $1.2 billion ($1.1 billion, net of tax, or $3.45 per diluted share), primarily related to impairment charges associated with goodwill and aircraft (described below).
(2) Operating expenses include a charge of $891 million ($696 million, net of tax, or $2.23 per diluted share), predominantly related to impairment charges associated with intangible assets from the
Kinko’s acquisition (described below).
(3) Operating expenses include a charge of $143 million at FedEx Express associated with upfront compensation and beneﬁ ts under a labor contract with our pilots ratiﬁ ed in October 2006. The impact of
this contract on second quarter net income was $78 million net of tax, or $0.25 per diluted share.

The following table shows changes in revenues and operating income by reportable segment for 2009 compared to 2008, and 2008
compared to 2007 (in millions):

FedEx Express segment (1)
FedEx Ground segment
FedEx Freight segment (2)
FedEx Services segment (3)
Other and Eliminations

Revenues

Operating Income (Loss)

Dollar Change

Percent Change

Dollar Change

Percent Change

2009/2008

2008/2007

2009/2008

2008/2007

2009/2008

2008/2007

2009/2008

2008/2007

$ (2,057)
296
(519)
(161)
(15)
$ (2,456)

$ 1,740
708
348
2
(59)
$ 2,739

(8)
4
(11)
(8)
NM
(6)

8
12
8
–
NM
8

$ (1,107)
71
(373)
81
–
$ (1,328)

(90)
(86)
(134)
(891)
–
$ (1,201)

(58)
10
(113)
9
–
(64)

(5)
(10)
(29)
NM
–
(37)

(1) FedEx Express segment 2009 operating expenses include a charge of $260 million, primarily related to aircraft-related asset impairments. FedEx Express segment 2007 operating expenses include a
charge of $143 million associated with upfront compensation and beneﬁ ts under our pilot labor contract.
(2) FedEx Freight segment 2009 operating expenses include a charge of $100 million, primarily related to impairment charges associated with goodwill related to the Watkins Motor Lines (now known as
FedEx National LTL) acquisition. FedEx Freight segment results include the results of FedEx National LTL from the date of its acquisition on September 3, 2006.
(3) FedEx Services segment 2009 operating expenses include a charge of $810 million, related to impairment charges associated with goodwill related to the Kinko’s acquisition. FedEx Services segment
2008 operating expenses include a charge of $891 million, predominantly related to impairment charges associated with intangible assets from the Kinko’s acquisition. The normal, ongoing net operating
costs of the FedEx Services segment are allocated back to the transportation segments.

The following graphs for FedEx Express, FedEx Ground and the FedEx Freight LTL Group, which comprises the FedEx Freight and FedEx
National LTL businesses of FedEx Freight Corporation, show selected volume statistics (in thousands) for the years ended May 31:

Average Daily Package Volume
FedEx Express and FedEx Ground

(1)

3,536

3,365

3,376

3,404

3,399

3,126

3,329

2,815

2006

2007

2008

2009

3,800

3,600

3,400

3,200

3,000

2,800

2,600

2,400

Average Daily LTL Shipments
FedEx Freight LTL Group

78.2

79.7

74.4

66.7

2006

2007

2008

2009

85.0

80.0

75.0

70.0

65.0

60.0

FedEx Express

FedEx Ground

FedEx Freight LTL Group

(1) Package statistics do not include the operations of FedEx SmartPost.

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following graphs for FedEx Express, FedEx Ground and the FedEx Freight LTL Group show selected yield statistics for the years
ended May 31:

FedEx Express
Revenue per Package – Yield

$22.08

$21.28

$21.30

$23.00

$22.00

$21.00

$20.72

$20.00

$19.00

2006

2007

2008

2009

FedEx Ground
Revenue per Package – Yield

(1)

$7.70

$7.48

$7.21

$7.02

2006

2007

2008

2009

$8.00

$7.75

$7.50

$7.25

$7.00

$6.75

FedEx Express

FedEx Ground

$21.00

$20.00

$19.00

$18.00

$17.00

$16.00

$15.00

FedEx Freight LTL Group
LTL Revenue per Hundredweight – Yield

$19.65

$19.07

$18.65

$16.84

2006

2007

2008

2009

FedEx Freight LTL Group

(1) Package statistics do not include the operations of FedEx SmartPost.

Overview
Global economic conditions deteriorated significantly during
2009, resulting in lower revenue and earnings. Our results for 2009
reﬂ ect reduced demand for most of our services, particularly at
our FedEx Express and FedEx Freight segments. Business and
consumer spending, a key driver of volumes shipped across our
networks, contracted signiﬁ cantly in 2009. Declines in U.S. domes-
tic volumes at FedEx Express were partially mitigated by the exit
of a key competitor (DHL) from the market, as we gained approxi-
mately half of this competitor’s total U.S. domestic shipments.
While we acquired signiﬁ cant volumes from this competitor, these
shipments generally were at lower weights and yields than our
other volumes. We experienced the weakest LTL freight environ-
ment in decades, resulting in an extraordinary decline in demand
for our LTL freight services, although we were able to maintain our
market share. FedEx Express package yields and FedEx Freight
LTL Group yields were negatively impacted by a more competitive
pricing environment, as competitors are seeking to protect market
share and sustain operations during the current recession.

In response to weak business conditions, we implemented several
actions in 2009 to lower our cost structure, including base salary
reductions for U.S. salaried personnel effective January 1, 2009,

a suspension of 401(k) company-matching contributions effective
February 1, 2009, elimination of variable compensation payouts,
implementation of a hiring freeze and signiﬁ cant volume-related
reductions in labor hours and line-haul expenses. In addition, we
have exercised stringent control over discretionary spending,
such as travel, entertainment and professional fees. Further, we
optimized our networks by adjusting routes and equipment types,
temporarily idling equipment, consolidating facilities and defer-
ring facility expansions and aircraft purchases to better match
current demand levels. These cost-reduction activities partially
mitigated the impact of the weak global economy on our results
for 2009. Rapidly declining fuel costs during 2009 and the timing lag
between such declines and adjustments to our fuel surcharges
provided a signiﬁ cant beneﬁ t to our results, predominantly at
FedEx Express and FedEx Ground.

Our operating results for 2009 were negatively impacted by
fourth quarter charges of $1.2 billion ($1.1 billion, net of tax, or
$3.45 per diluted share), related primarily to the impairment of
goodwill related to the Kinko’s and Watkins Motor Lines
acquisitions and certain aircraft-related assets at FedEx Express
(described below).

FEDEX CORPORATION

In addition, at May 31, 2009, in accordance with the provisions
of Financial Accounting Standards Board (“FASB”) Statement
of Financial Accounting Standards (“SFAS”) 158, “Employers’
Accounting for Deﬁ ned Beneﬁ t Pension and Other Postretirement
Plans,” we recorded a decrease to equity through other compre-
hensive income (“OCI”) of $1.2 billion (net of tax) based primarily
on mark-to-market adjustments related to unrealized losses in
our pension plan assets during 2009.

In 2008, the combination of record high fuel prices and the weak
U.S. economy signiﬁ cantly impacted our proﬁ tability. Persistently
higher fuel prices and the related impact on our fuel surcharges
reduced demand for our services, particularly U.S. domestic
express package and LTL freight services, and pressured over-
all yield growth across our transportation segments. In addition,
our operating results for 2008 included a charge of $891 million,
predominantly related to impairment charges associated with
intangible assets from the Kinko’s acquisition. Lower variable
incentive compensation, reduced retirement plans costs and
cost-containment activities partially mitigated the impact of
higher net fuel costs and the weak U.S. economy on our 2008
overall results.

Revenue
Revenues decreased during 2009 due to significantly lower
volumes at FedEx Express and the FedEx Freight LTL Group as
a result of reduced demand and lower yields resulting from
an aggressive pricing environment. At FedEx Express, FedEx
International Priority® package (“IP”) volume declined in every
major region of the world, although the rate of decline began
to slow late in 2009. Reductions in U.S. domestic package and
freight volumes at FedEx Express also contributed to the revenue
decrease during 2009. However, declines in U.S. domestic pack-
age volumes were partially offset by volumes gained from DHL’s
exit from the U.S. market. These volume decreases were partially
offset by yield increases in FedEx Express freight services driven
by higher base rates and higher fuel surcharges in the ﬁ rst half
of 2009. FedEx Freight LTL Group volumes decreased as a result
of the recession despite maintaining market share. Within our
FedEx Ground segment, volumes increased during 2009 due to
market share gains, including volumes gained from DHL, and
FedEx Express customers who chose to use our more economi-
cal ground delivery services in light of the recession.

Revenue growth for 2008 was primarily attributable to continued
growth in international services at FedEx Express, increases
in FedEx Express U.S. domestic package yields and volume
growth at FedEx Ground. Higher fuel surcharges were the key
driver of increased yields in our transportation segments in 2008.
Additionally, FedEx Express international yields beneﬁ ted from
favorable currency exchange rates. Revenue growth for 2008
also improved due to a full year of operations for businesses
acquired in 2007 at FedEx Express and FedEx Freight. Revenue
growth during 2008 was partially offset by reduced U.S. domestic
express volumes as a result of the ongoing weak U.S. economy.
The impact of the weak U.S. economy became progressively
worse during the year and drove U.S. domestic express shipping
volumes to pre-2000 levels during the fourth quarter of 2008.

Impairment and Other Charges
During the fourth quarter of 2009, we took actions in addition
to those described above to align the size of our networks to
current demand levels by removing equipment and facilities
from service and reducing personnel. These actions, com-
bined with the impairment of goodwill related to the Kinko’s
and Watkins Motor Lines acquisitions, resulted in a charge of
$1.2 billion ($1.1 billion, net of tax, or $3.45 per diluted share), which
is included in our operating results for the fourth quarter of 2009.

The components of the fourth quarter charge include the follow-
ing (in millions):

Goodwill impairment
Asset impairment
Other charges

$ 900
202
102
$ 1,204

The goodwill impairment charge includes an $810 million charge
related to reduction of the value of the goodwill recorded as a
result of the February 2004 acquisition of Kinko’s, Inc. (now known
as FedEx Ofﬁ ce) and a $90 million charge related to reduction of
the value of the goodwill recorded as a result of the September
2006 acquisition of the U.S. and Canadian less-than-truckload
freight operations of Watkins Motor Lines and certain afﬁ liates
(now known as FedEx National LTL). The key factor contributing
to the goodwill impairment was a decline in FedEx Ofﬁ ce’s and
FedEx National LTL’s recent and forecasted ﬁ nancial performance
as a result of weak economic conditions.

The Watkins Motor Lines goodwill impairment charge is included
in the results of the FedEx Freight segment. The Kinko’s good-
will impairment charge is included in the results of the FedEx
Services segment and was not allocated to our transportation
segments, as the charge was unrelated to the core performance
of those businesses. For additional information concerning these
impairment charges, see Note 4 to the accompanying consoli-
dated ﬁ nancial statements and the Critical Accounting Estimates
section of this MD&A.

We had several property and equipment impairment charges dur-
ing 2009 resulting from decisions to remove assets from service
due to the impact of the recession on our business, principally
during the fourth quarter. The majority of our asset impairment
charges during the fourth quarter of 2009 resulted from our fourth
quarter decision to permanently remove from service 10 Airbus
A310-200 aircraft and four Boeing MD10-10 aircraft that we own,
along with certain excess aircraft engines, at FedEx Express.
This decision was a result of our ongoing efforts to optimize our
express network in light of continued excess aircraft capacity
due to weak economic conditions and the delivery of newer,
more fuel-efficient aircraft. Other charges during the fourth
quarter of 2009 were primarily associated with aircraft-related
lease and contract termination costs at FedEx Express and
employee severance.

Our operating results for 2008 include a charge of $891 million
($696 million, net of tax, or $2.23 per diluted share) recorded
during the fourth quarter, predominantly related to impairment
charges associated with the decision to minimize the use of
the Kinko’s trade name and goodwill resulting from the Kinko’s
acquisition.

MANAGEMENT’S DISCUSSION AND ANALYSIS
MANAGEMENT’S DISCUSSION AND ANALYSIS

The impairment of the Kinko’s trade name was due to the deci-
The impairment of the Kinko’s trade name was due to the deci-
sion to minimize the use of the Kinko’s trade name and rebrand
sion to minimize the use of the Kinko’s trade name and rebrand
the company as FedEx Ofﬁce over the next several years. We
the company as FedEx Ofﬁ ce over the next several years. We
believe the FedEx Ofﬁce name better describes the wide range of
believe the FedEx Ofﬁ ce name better describes the wide range of
services available at the company’s retail centers and takes full
services available at the company’s retail centers and takes full
advantage of the FedEx brand. The goodwill impairment charge
advantage of the FedEx brand. The goodwill impairment charge
resulted from a decline in the fair value of the FedEx Office
resulted from a decline in the fair value of the FedEx Office
reporting unit in light of economic conditions, the unit’s recent
reporting unit in light of economic conditions, the unit’s recent
and forecasted ﬁnancial performance and the decision to reduce
and forecasted ﬁ nancial performance and the decision to reduce
the rate of network expansion. These 2008 impairment charges
the rate of network expansion. These 2008 impairment charges
are included in operating expenses in the accompanying consoli-
are included in operating expenses in the accompanying consoli-
dated statements of income. The charges were included in the
dated statements of income. The charges were included in the
results of the FedEx Services segment and were not allocated to
results of the FedEx Services segment and were not allocated to
our transportation segments, as the charges were unrelated to
our transportation segments, as the charges were unrelated to
the core performance of those businesses.
the core performance of those businesses.

Operating Income
Operating Income
The following table compares operating expenses as a percent
The following table compares operating expenses as a percent
of revenue for the years ended May 31:
of revenue for the years ended May 31:

Operating expenses:
Operating expenses:
Salaries and employee beneﬁts
Salaries and employee beneﬁ ts
Purchased transportation
Purchased transportation
Rentals and landing fees
Rentals and landing fees
Depreciation and amortization
Depreciation and amortization
Fuel
Fuel
Maintenance and repairs
Maintenance and repairs

Impairment and other charges
Impairment and other charges

Other
Other

Total operating expenses
Total operating expenses

Operating margin
Operating margin

Percent of Revenue
Percent of Revenue
2008
2008

2009
2009

2007
2007

38.8%
38.8%
12.8
12.8
6.8
6.8
5.6
5.6
10.7
10.7
5.3
5.3
3.4
3.4
14.5
14.5
97.9
97.9

2.1%
2.1%

37.4%
37.4%
12.2
12.2
6.4
6.4
5.1
5.1
11.6
11.6
5.5
5.5
2.3
2.3
14.0
14.0
94.5
94.5

5.5%
5.5%

39.0%
39.0%
11.3
11.3
6.7
6.7
5.0
5.0
9.7
9.7
5.5
5.5
–
–

13.5
13.5
90.7
90.7

9.3%
9.3%

Operating income and operating margin declined signiﬁ cantly in
Operating income and operating margin declined signiﬁcantly in
2009, as weak economic conditions drove decreases in volumes
2009, as weak economic conditions drove decreases in volumes
at FedEx Express and the FedEx Freight LTL Group and contributed
at FedEx Express and the FedEx Freight LTL Group and contributed
to a more competitive pricing environment that pressured yields.
to a more competitive pricing environment that pressured yields.
The impairment and other charges described above also nega-
The impairment and other charges described above also nega-
tively impacted operating income and margin in 2009. Operating
tively impacted operating income and margin in 2009. Operating
income and margin in 2009 were also negatively impacted by
income and margin in 2009 were also negatively impacted by
reduced base copy revenues and expenses associated with
reduced base copy revenues and expenses associated with
organizational changes at FedEx Ofﬁce. The cost-reduction ini-
organizational changes at FedEx Ofﬁ ce. The cost-reduction ini-
tiatives (described above) partially mitigated the negative impact
tiatives (described above) partially mitigated the negative impact
of these factors.
of these factors.

The following graphs for our transportation segments show our
The following graphs for our transportation segments show our
average cost of jet and vehicle fuel per gallon and the year-over-
average cost of jet and vehicle fuel per gallon and the year-over-
year percentage change in total fuel expense for the years ended
year percentage change in total fuel expense for the years ended
May 31:
May 31:

$3.75
$3.75

$3.25
$3.25

$2.75
$2.75

$2.56
$2.56

$2.04
$2.04

Average Fuel Cost
Average Fuel Cost
per Gallon
per Gallon

$3.31
$3.31

$2.77
$2.77

$3.04
$3.04

$2.62
$2.62

$2.65
$2.65

$2.12
$2.12

$2.25
$2.25

$1.75
$1.75

$1.25
$1.25

45%
45%

30%
30%

15%
15%

0%
0%

-15%
-15%

-30%
-30%

2006
2006

2007
2007

2008
2008

2009
2009

Vehicle
Vehicle

Jet
Jet

Year-Over-Year Percentage Change in
Year-Over-Year Percentage Change in
Total Fuel Expense
Total Fuel Expense

29%
29%

8%
8%

-14%
-14%

2006/2007
2006/2007

2007/2008
2007/2008

2008/2009
2008/2009

Fuel Expense
Fuel Expense

Fuel expenses decreased 14% during 2009, primarily due to
Fuel expenses decreased 14% during 2009, primarily due to
decreases in fuel consumption and the average price per gallon
decreases in fuel consumption and the average price per gallon
of fuel. Jet fuel usage decreased 9% during 2009, as we reduced
of fuel. Jet fuel usage decreased 9% during 2009, as we reduced
ﬂight hours in light of lower business levels.
ﬂ ight hours in light of lower business levels.

13
13

FEDEX CORPORATION

Other Income and Expense
Interest expense decreased $13 million during 2009 due to
increased capitalized interest primarily related to progress
payments on aircraft purchases, which was partially offset
by interest costs on higher debt balances. Interest income
decreased $18 million during 2009, primarily due to lower inter-
est rates. Net interest expense decreased $1 million during 2008
primarily due to decreased interest expense related to lower debt
balances and increased capitalized interest. The 2008 decrease
in interest expense was partially offset by decreased interest
income due to lower cash balances.

Income Taxes
Our effective tax rates of 85.6% for 2009 and 44.2% for 2008
were signiﬁ cantly impacted by the goodwill impairment charges
related to the Kinko’s acquisition, which are not deductible for
income tax purposes. Our effective tax rate was 37.3% in 2007,
which was favorably impacted by the conclusion of various
state and federal audits and appeals. The 2007 rate reduction
was partially offset by tax charges incurred as a result of a
reorganization in Asia associated with our acquisition in China.
For 2010, we expect our effective tax rate to be between 38%
and 39%. The actual rate, however, will depend on a number of
factors, including the amount and source of operating income.
Additional information on income taxes, including our effec-
tive tax rate reconciliation and liabilities recorded under FASB
Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in
Income Taxes,” can be found in Note 11 of the accompanying
consolidated ﬁ nancial statements.

Fuel prices decreased rapidly and signiﬁ cantly during 2009 after
peaking during the ﬁ rst quarter, while changes in fuel surcharges
for FedEx Express and FedEx Ground lagged these decreases by
approximately six to eight weeks. We experienced the opposite
effect during 2008, as fuel prices signiﬁ cantly increased. This
volatility in fuel prices and fuel surcharges resulted in a net ben-
eﬁ t to income in 2009, based on a static analysis of the impact to
operating income of year-over-year changes in fuel prices com-
pared to changes in fuel surcharges. This analysis considers the
estimated beneﬁ ts of the reduction in fuel surcharges included
in the base rates charged for FedEx Express services. However,
this analysis does not consider the negative effects that the
signiﬁ cantly higher fuel surcharge levels have on our business,
including reduced demand and shifts by our customers to lower-
yielding services. While ﬂ uctuations in fuel surcharge rates can
be signiﬁ cant from period to period, fuel surcharges represent
one of the many individual components of our pricing structure
that impact our overall revenue and yield. Additional components
include the mix of services purchased, the base price and extra
service charges we obtain for these services and the level of
pricing discounts offered. In order to provide information about
the impact of fuel surcharges on the trend in revenue and yield
growth, we have included the comparative fuel surcharge rates
in effect for 2009, 2008 and 2007 in the accompanying discussions
of each of our transportation segments.

Operating income and operating margin declined during 2008, as
the weak U.S. economy and substantially higher fuel costs pres-
sured volume growth at FedEx Express and the FedEx Freight LTL
Group. The impairment charges at FedEx Ofﬁ ce also negatively
affected operating income and margin in 2008. As described
above, fuel volatility negatively affected earnings in 2008.

Operating income and margin in 2008 were also negatively
impacted by increased net operating costs at FedEx Ofﬁ ce and
costs of expansion of our domestic express services in China.
Higher purchased transportation expenses at FedEx Ground,
primarily due to costs associated with independent contractor
incentive programs and higher rates paid to our contractors
(including higher fuel supplement costs), also had a negative
impact on 2008 results. Other operating expenses increased
during 2008 primarily due to the full-year inclusion of our 2007
business acquisitions, including the consolidation of the results
of our China joint venture at FedEx Express, and higher legal,
consulting and insurance costs at FedEx Ground. Lower variable
incentive compensation and reduced retirement plans costs,
combined with cost-containment activities, partially mitigated
the impact of higher net fuel costs and the weak U.S. economy
on our overall results for 2008.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Business Acquisitions
During 2007, we made the following acquisitions:

Segment

Business Acquired

Rebranded

Date Acquired

Purchase Price
(in millions)

FedEx Freight
FedEx Express
FedEx Express

Watkins Motor Lines
ANC Holdings Ltd.
Tianjin Datian W. Group Co., Ltd. (“DTW Group”)

FedEx National LTL
FedEx U.K.
N/A

September 3, 2006
December 16, 2006
March 1, 2007

$787
241
427

Our capital expenditures for 2010 are expected to be approxi-
mately $2.6 billion, as we will continue to balance the need to
control spending with the opportunity to make investments
with high returns, such as in substantially more fuel-efﬁ cient
Boeing 757 (“B757”) and Boeing 777 Freighter (“B777F”) aircraft.
Moreover, we will continue to invest in critical long-term strategic
projects focused on enhancing and broadening our service offer-
ings to position us for stronger growth under improved economic
conditions. However, we could reduce 2010 capital expenditures
should conditions worsen. For additional details on key 2010 capi-
tal projects, refer to the Liquidity Outlook section of this MD&A.

All of our businesses operate in a competitive pricing environ-
ment, exacerbated by continuing volatile fuel prices, which
impact our fuel surcharge levels. Historically, our fuel surcharges
have largely offset incremental fuel costs; however, volatility in
fuel costs may impact earnings because adjustments to our fuel
surcharges lag changes in actual fuel prices paid. Therefore,
the trailing impact of adjustments to our fuel surcharges can
signiﬁ cantly affect our earnings either positively or negatively
in the short-term.

As described in Note 17 of the accompanying consolidated
ﬁ nancial statements and the “Independent Contractor Matters”
section of our FedEx Ground segment MD&A, we are involved
in a number of litigation matters and other proceedings that
challenge the status of FedEx Ground’s owner-operators as
independent contractors. FedEx Ground anticipates continuing
changes to its relationships with its contractors. The nature, tim-
ing and amount of any changes are dependent on the outcome
of numerous future events. We cannot reasonably estimate the
potential impact of any such changes or a meaningful range of
potential outcomes, although they could be material. However,
we do not believe that any such changes will impair our ability to
operate and proﬁ tably grow our FedEx Ground business.

See “Risk Factors” for a discussion of these and other poten-
tial risks and uncertainties that could materially affect our
future performance.

These acquisitions expanded our portfolio of services to include
long-haul LTL freight services and domestic express services
in the United Kingdom and China. See Note 3 of the accompa-
nying consolidated ﬁ nancial statements for further information
about these acquisitions. We paid the purchase price for these
acquisitions from available cash balances, which included the
net proceeds from our $1 billion senior unsecured debt offer-
ing completed during 2007. During 2009, 2008 and 2007, we also
made other immaterial acquisitions that are not presented in the
table above.

Employees Under Collective Bargaining Arrangements
The pilots of FedEx Express, who represent a small percent-
age of our total employees, are employed under a collective
bargaining agreement. During the second quarter of 2007, the
pilots ratiﬁ ed a new four-year labor contract that included signing
bonuses and other upfront compensation of $143 million, as well
as pay increases and other beneﬁ t enhancements. These costs
were partially mitigated by reductions in the variable incentive
compensation of our other employees. The effect of this new
agreement on second quarter 2007 net income was $78 million
net of tax, or $0.25 per diluted share.

Outlook
We expect continued softness in demand for our services in 2010,
as shipping volumes are expected to remain relatively ﬂ at as the
global recession persists, particularly in the ﬁ rst half of 2010. Our
results for the ﬁ rst half of 2009 included the beneﬁ t of signiﬁ -
cantly stronger economic activity and rapidly declining fuel costs,
creating difﬁ cult year-over-year comparisons. The timing and
pace of any economic recovery is difﬁ cult to predict, and our
outlook for 2010 reﬂ ects our expectations for continued chal-
lenges in growing volume and yield in this environment. Revenues
in 2010 are expected to be negatively impacted by lower yields
resulting from lower fuel surcharges due to more stable fuel
prices and an aggressive pricing environment for our services.
We anticipate volume growth at the FedEx Ground segment due
to continued market share gains and ﬂ at volumes at the FedEx
Express segment for 2010. Further, we expect LTL shipments
to decrease for 2010 due to the continued excess capacity in
this market. However, if excess capacity exits the LTL industry
in 2010, we have the network, resources and capabilities to
manage any resulting incremental volumes. Despite the beneﬁ t
of numerous cost-reduction activities in 2009 (described above),
earnings in 2010 will be negatively impacted by lower revenues
as a result of the yield and volume pressures described above.
If economic conditions deteriorate further, additional actions will be
necessary to reduce the size of our networks. However, we will
not compromise our outstanding service levels or take actions
that negatively impact the customer experience in exchange for
short-term cost reductions.

FEDEX CORPORATION

Seasonality of Business
Our businesses are seasonal in nature. Seasonal ﬂ uctuations
affect volumes, revenues and earnings. Historically, the U.S.
express package business experiences an increase in volumes
in late November and December. International business, particu-
larly in the Asia-to-U.S. market, peaks in October and November
in advance of the U.S. holiday sales season. Our ﬁ rst and third
ﬁ scal quarters, because they are summer vacation and post win-
ter-holiday seasons, have historically experienced lower volumes
relative to other periods. Normally, the fall is the busiest shipping
period for FedEx Ground, while late December, June and July are
the slowest periods. For the FedEx Freight LTL Group, the spring
and fall are the busiest periods and the latter part of December,
January and February are the slowest periods. For FedEx Ofﬁ ce,
the summer months are normally the slowest periods. Shipment
levels, operating costs and earnings for each of our companies
can also be adversely affected by inclement weather, particularly
in our third ﬁ scal quarter.

NEW ACCOUNTING PRONOUNCEMENTS
New accounting rules and disclosure requirements can
signiﬁ cantly impact our reported results and the comparability
of our financial statements. We believe the following new
accounting pronouncements are relevant to the readers of our
ﬁ nancial statements.

On May 31, 2007, we adopted SFAS 158. SFAS 158 requires recog-
nition in the balance sheet of the funded status of deﬁ ned beneﬁ t
pension and other postretirement beneﬁ t plans, and the recogni-
tion in OCI of unrecognized gains or losses and prior service costs
or credits. The adoption of SFAS 158 resulted in a $982 million
charge to shareholders’ equity at May 31, 2007 through accumu-
lated other comprehensive income (“AOCI”).

Additionally, SFAS 158 requires the measurement date for plan
assets and liabilities to coincide with the plan sponsor’s year
end. On June 1, 2008, we made our transition election for the
measurement date provision of SFAS 158 using the two-measure-
ment approach. Under this approach, we completed two actuarial
measurements, one at February 29, 2008 and the other at June 1,
2008. This approach required us to record the net periodic beneﬁ t
cost for the transition period from March 1, 2008 through May
31, 2008 as an adjustment to beginning retained earnings ($44
million, net of tax) and actuarial gains and losses for the period
(a gain of $372 million, net of tax) as an adjustment to the open-
ing balance of AOCI. These adjustments increased the amount
recorded for our pension assets by $528 million. Our actuarial
gains resulted primarily from a 19-basis-point increase in the
discount rate for our primary pension plan and an increase in plan
assets at June 1, 2008. For additional information on the adop-
tion of SFAS 158, see Note 12 to the accompanying consolidated
ﬁ nancial statements.

On June 1, 2008, we adopted SFAS 157, “Fair Value
Measurements,” which provides a common deﬁ nition of fair
value, establishes a uniform framework for measuring fair
value and requires expanded disclosures about fair value
measurements. There is a one-year deferral of the adoption of
the standard as it relates to nonﬁ nancial assets and liabilities.
Therefore, the adoption of SFAS 157 had no impact on our ﬁ nan-
cial statements at June 1, 2008.

In December 2007, the FASB issued SFAS 141R, “Business
Combinations,” and SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting
Research Bulletin (“ARB”) No. 51.” These new standards sig-
niﬁ cantly change the accounting for and reporting of business
combination transactions, including noncontrolling interests
(previously referred to as minority interests). For example, these
standards require the acquiring entity to recognize the full fair
value of assets acquired and liabilities assumed in the transaction
and require the expensing of most transaction and restructuring
costs. Both standards are effective for us beginning June 1, 2009
(ﬁ scal 2010) and are applicable only to transactions occurring
after the effective date.

In December 2008, the FASB issued FASB Staff Position (“FSP”)
132(R)-1, “Employers’ Disclosures about Postretirement Beneﬁ t
Plan Assets.” This FSP provides guidance on the objectives an
employer should consider when providing detailed disclosures
about assets of a deﬁ ned beneﬁ t pension plan or other postre-
tirement plan. These disclosure objectives include investment
policies and strategies, categories of plan assets, signiﬁ cant
concentrations of risk and the inputs and valuation techniques
used to measure the fair value of plan assets. This FSP will be
effective for our ﬁ scal year ending May 31, 2010.

In April 2009, the FASB issued FSP No. 107-1 and Accounting
Principles Board Opinion (“APB”) No. 28-1, “Interim Disclosures
about Fair Value of Financial Instruments.” This FSP and APB
amends SFAS 107, “Disclosures about Fair Value of Financial
Instruments,” to require disclosures about the fair value of ﬁ nan-
cial instruments for interim reporting periods in addition to annual
reporting periods. This FSP and APB will be effective for our ﬁ rst
quarter of ﬁ scal year 2010.

In May 2009, the FASB issued SFAS No. 165, “Subsequent
Events,” which establishes general standards of accounting for
and disclosures of events that occur after the balance sheet date
but before ﬁ nancial statements are issued or are available to be
issued. This standard will require us to disclose the date through
which we have evaluated subsequent events and the basis for
that date. This standard will be effective for our ﬁ rst quarter of
ﬁ scal year 2010.

MANAGEMENT’S DISCUSSION AND ANALYSIS

REPORTABLE SEGMENTS
FedEx Express, FedEx Ground and the FedEx Freight LTL Group
represent our major service lines and, along with FedEx Services,
form the core of our reportable segments. Our reportable seg-
ments as of May 31, 2009 included the following businesses:

FedEx Express Segment

FedEx Express

(express transportation)

FedEx Trade Networks

(global trade services)

FedEx Ground Segment

FedEx Ground

(small-package ground delivery)

FedEx SmartPost

(small-parcel consolidator)

FedEx Freight Segment

FedEx Freight LTL Group:

FedEx Services Segment

FedEx Freight (regional LTL
freight transportation)

FedEx National LTL

(long-haul LTL freight
transportation)
FedEx Custom Critical

(time-critical transportation)
Caribbean Transportation Services

(airfreight forwarding)

FedEx Services (sales,
marketing and information
technology functions)
FedEx Ofﬁ ce (document and

business services and package
acceptance)

FedEx Customer Information
Services (“FCIS”) (customer

service, billings and collections)
FedEx Global Supply Chain Services

(logistics services)

Effective June 1, 2009, Caribbean Transportation Services, Inc.
(“CTS”), a business in the FedEx Freight segment, was integrated
into FedEx Express to leverage synergies between CTS and FedEx
Express and to gain cost efﬁ ciencies by maximizing the use of
FedEx Express assets for this service offering.

FEDEX SERVICES SEGMENT
The FedEx Services segment includes: FedEx Services, which pro-
vides sales, marketing and information technology support to our
other companies; FCIS, which is responsible for customer service,
billings and collections for FedEx Express and FedEx Ground U.S.
customers; FedEx Global Supply Chain Services, which provides
a range of logistics services to our customers; and FedEx Ofﬁ ce,
which provides retail access to our customers for our package
transportation businesses and an array of document and busi-
ness services.

The costs of the sales, marketing and information technology
support provided by FedEx Services and the customer service
functions of FCIS, together with the normal, ongoing net oper-
ating costs of FedEx Global Supply Chain Services and FedEx
Ofﬁ ce, are allocated primarily to the FedEx Express and FedEx
Ground segments based on metrics such as relative revenues
or estimated services provided. We believe these allocations
approximate the net cost of providing these functions. The
$810 million fourth quarter 2009 impairment charge for the
Kinko’s goodwill and the $891 million 2008 charge predominantly
associated with impairment charges for the Kinko’s trade name
and goodwill were not allocated to the FedEx Express or FedEx
Ground segments, as the charges were unrelated to the core
performance of those businesses.

FedEx Services segment revenues, which reflect the opera-
tions of FedEx Ofﬁ ce and FedEx Global Supply Chain Services,
decreased 8% during 2009. Revenue generated from new FedEx
Ofﬁ ce locations added in 2008 and 2009 did not offset declines in
base copy revenues, incremental operating costs associated with
the new locations and expenses associated with organizational
changes. Therefore, the allocated net operating costs of FedEx
Ofﬁ ce increased during 2009 despite ongoing cost management
efforts. In September 2008, FedEx Ofﬁ ce began implementation
of organizational changes intended to improve proﬁ tability and
enhance the customer experience.

The operating expenses line item “Intercompany charges” on
the accompanying unaudited ﬁ nancial summaries of our trans-
portation segments includes the allocations from the FedEx
Services segment to the respective transportation segments.
The “Intercompany charges” caption also includes allocations
for administrative services provided between operating com-
panies and certain other costs such as corporate management
fees related to services received for general corporate oversight,
including executive ofﬁ cers and certain legal and ﬁ nance func-
tions. Management evaluates transportation segment ﬁ nancial
performance based on operating income.

OTHER INTERSEGMENT TRANSACTIONS
Certain FedEx operating companies provide transportation and
related services for other FedEx companies outside their report-
able segment. Billings for such services are based on negotiated
rates, which we believe approximate fair value, and are reﬂ ected
as revenues of the billing segment. These rates are adjusted from
time to time based on market conditions. Such intersegment rev-
enues and expenses are eliminated in the consolidated results
and are not separately identiﬁ ed in the following segment infor-
mation, as the amounts are not material.

FEDEX CORPORATION
FEDEX CORPORATION

FEDEX EXPRESS SEGMENT
FEDEX EXPRESS SEGMENT
The following table compares revenues, operating expenses,
The following table compares revenues, operating expenses,
operating income and operating margin (dollars in millions) for
operating income and operating margin (dollars in millions) for
the years ended May 31:
the years ended May 31:

2009
2009

2008
2008

2007
2007

Percent Change
Percent Change
2008/
2008/
2007
2007

2009/
2009/
2008
2008

The following table compares selected statistics (in thousands,
The following table compares selected statistics (in thousands,
except yield amounts) for the years ended May 31:
except yield amounts) for the years ended May 31:

2009
2009

2008
2008

2007
2007

Percent Change
Percent Change
2008/
2008/
2007
2007

2009/
2009/
2008
2008

Revenues:
Revenues:
Package:
Package:

U.S. overnight box
U.S. overnight box
U.S. overnight
U.S. overnight
envelope
envelope
U.S. deferred
U.S. deferred

Total U.S. domestic
Total U.S. domestic

$ 6,074
$ 6,074

$ 6,578 $ 6,485
$ 6,578 $ 6,485

1,855
1,855
2,789
2,789

2,012
2,012
2,995
2,995

1,990
1,990
2,883
2,883

package revenue 10,718
package revenue 10,718

11,585
11,585

11,358
11,358

(8)
(8)

(8)
(8)
(7)
(7)

(7)
(7)

(9)
(9)

6,978
6,978

7,666
7,666

6,722
6,722

565
565

663
663

370
370

(15)
(15)

18,261
18,261

19,914
19,914

18,450
18,450

(8)
(8)

2,165
2,165

2,398
2,398

2,412
2,412

(10)
(10)

(1)
(1)

1,104
1,104

1,243
1,243

1,045
1,045

(11)
(11)

369
369

406
406

394
394

(9)
(9)

3,638
3,638
465
465
22,364
22,364

4,047
4,047
460
460
24,421
24,421

3,851
3,851
380
380
22,681
22,681

(10)
(10)
1
1
(8)
(8)

International
International
Priority (IP)
Priority (IP)
International
International
domestic (1)
domestic (1)
Total package
Total package
revenue
revenue

Freight:
Freight:
U.S.
U.S.

International
International
Priority Freight
Priority Freight
International
International
airfreight
airfreight
Total freight
Total freight
revenue
revenue

Other (2)
Other (2)

Total revenues
Total revenues

Operating expenses:
Operating expenses:
Salaries and
Salaries and

Rentals and
Rentals and

landing fees
landing fees
Depreciation and
Depreciation and
amortization
amortization

Fuel
Fuel
Maintenance and
Maintenance and

employee beneﬁts
employee beneﬁ ts

8,217
8,217

8,451
8,451

8,234(4)
8,234(4)

(3)
(3)

Purchased
Purchased

transportation
transportation

1,112
1,112

1,208
1,208

1,098
1,098

(8)
(8)

(4)
(4)

1,613
1,613

1,673
1,673

1,610
1,610

961
961
3,281
3,281

944
944
3,785
3,785

856
856
2,946
2,946

2
2
(13)
(13)

repairs
repairs

1,351
1,351

1,512
1,512

1,444
1,444

(11)
(11)

Impairment and
Impairment and
other charges
other charges
Intercompany charges 2,103
Intercompany charges 2,103
2,672
2,672

Other
Other

260 (3)
260 (3)

–
–
2,134
2,134
2,813
2,813

– NM
– NM
(1)
(1)
(5)
(5)

2,046
2,046
2,456
2,456

Package Statistics (1)
Package Statistics (1)
Average daily package volume (ADV):
Average daily package volume (ADV):

U.S. overnight box
U.S. overnight box
U.S. overnight
U.S. overnight
envelope
envelope
U.S. deferred
U.S. deferred
Total U.S.
Total U.S.

domestic ADV
domestic ADV

IP
IP
International
International
domestic (2)
domestic (2)
Total ADV
Total ADV

1,127
1,127

1,151
1,151

1,174
1,174

627
627
849
849

677
677
895
895

706
706
898
898

2,603
2,603
475
475

2,723
2,723
517
517

2,778
2,778
487
487

298
298
3,376
3,376

296
296
3,536
3,536

134
134
3,399
3,399

Revenue per package (yield):
Revenue per package (yield):

$ 21.21
$ 21.21

$ 22.40 $ 21.66
$ 22.40 $ 21.66

11.65
11.65
12.94
12.94

11.66
11.66
13.12
13.12

11.06
11.06
12.59
12.59

16.21
16.21
57.81
57.81

16.68
16.68
58.11
58.11

16.04
16.04
54.13
54.13

U.S. overnight box
U.S. overnight box
U.S. overnight
U.S. overnight
envelope
envelope
U.S. deferred
U.S. deferred

U.S. domestic
U.S. domestic
composite
composite

IP
IP
International
International
domestic (2)
domestic (2)
Composite
Composite

(2)
(2)

(7)
(7)
(5)
(5)

(4)
(4)
(8)
(8)

1
1
(5)
(5)

(5)
(5)

–
–
(1)
(1)

(3)
(3)
(1)
(1)

(2)
(2)

(4)
(4)
–
–

(2)
(2)
6
6

121
121
4
4

3
3

5
5
4
4

4
4
7
7

7.50
7.50

8.80
8.80

10.77
10.77

(15)
(15)

(18)
(18)

package yield
package yield

21.30
21.30

22.08
22.08

21.28
21.28

(4)
(4)

4
4

Freight Statistics (1)
Freight Statistics (1)
Average daily freight pounds:
Average daily freight pounds:

U.S.
U.S.

7,287
7,287

8,648
8,648

9,569
9,569

(16)
(16)

(10)
(10)

International
International
Priority Freight
Priority Freight
International
International
airfreight
airfreight
Total average
Total average
daily freight
daily freight
pounds
pounds

1,959
1,959

2,220
2,220

1,878
1,878

(12)
(12)

18
18

1,475
1,475

1,817
1,817

1,831
1,831

(19)
(19)

(1)
(1)

10,721
10,721

12,685
12,685

13,278
13,278

(15)
(15)

(4)
(4)

Revenue per pound (yield):
Revenue per pound (yield):

U.S.
U.S.

$ 1.17
$ 1.17

$ 1.09 $ 0.99
$ 1.09 $ 0.99

2.22
2.22

2.20
2.20

2.18
2.18

0.99
0.99

0.88
0.88

0.84
0.84

13
13

7
7

1
1

10
10

1
1

5
5

International
International
Priority Freight
Priority Freight
International
International
airfreight
airfreight
Composite
Composite

1
1

1
1
4
4

2
2

14
14

79
79

8
8

19
19

3
3

5
5
21
21
8
8

3
3

10
10

4
4

10
10
28
28

5
5

–
–
4
4
15
15

Total operating
Total operating
expenses
expenses
Operating income
Operating income
Operating margin
Operating margin

21,570
21,570
794
794
$
$
3.6%
3.6%

20,690
22,520
22,520
20,690
$ 1,901 $ 1,991
$ 1,901 $ 1,991
7.8%
7.8%

(4)
(4)
(58)
(58)

9
9
(5)
(5)

8.8% (420)bp (100)bp
8.8% (420)bp (100)bp

freight yield
freight yield

1.34
1.34

1.25
1.25

1.14
1.14

7
7

10
10

(1) Package and freight statistics include only the operations of FedEx Express.
(1) Package and freight statistics include only the operations of FedEx Express.
(2) International domestic statistics include our international domestic express operations,
(2) International domestic statistics include our international domestic express operations,
primarily in the United Kingdom, Canada, China and India.
primarily in the United Kingdom, Canada, China and India.

(1) International domestic revenues include our international domestic express operations,
(1) International domestic revenues include our international domestic express operations,
primarily in the United Kingdom, Canada, China and India. We reclassiﬁ ed the prior period
primarily in the United Kingdom, Canada, China and India. We reclassiﬁed the prior period
international domestic revenues previously included within other revenues to conform to the
international domestic revenues previously included within other revenues to conform to the
current period presentation.
current period presentation.
(2) Other revenues includes FedEx Trade Networks.
(2) Other revenues includes FedEx Trade Networks.
(3) Represents charges associated with aircraft-related asset impairments and other charges
(3) Represents charges associated with aircraft-related asset impairments and other charges
primarily associated with aircraft-related lease and contract termination costs and employee
primarily associated with aircraft-related lease and contract termination costs and employee
severance.
severance.
(4) Includes a charge of $143 million for signing bonuses and other upfront compensation
(4) Includes a charge of $143 million for signing bonuses and other upfront compensation
associated with a four-year labor contract with our pilots.
associated with a four-year labor contract with our pilots.

18
18

MANAGEMENT’S DISCUSSION AND ANALYSIS

FedEx Express Segment Revenues
FedEx Express segment revenues decreased 8% in 2009 due to
a decrease in volumes in virtually all services as a result of the
signiﬁ cant deterioration in global economic conditions and lower
yields driven by unfavorable exchange rates, lower package
weights and a more competitive pricing environment. IP volume
declined in every major region of the world. During 2009, volume
gains resulting from DHL’s exit from the U.S. domestic market
were not enough to offset the negative impact of weak global
economic conditions. While we acquired signiﬁ cant volumes
from this competitor, these shipments were generally at lower
weights and yields than our other volumes.

The decrease in composite package yield in 2009 was driven
by decreases in U.S. domestic package, international domes-
tic and IP yields. U.S. domestic package yield decreased 3% in
2009 due to lower package weights and a lower rate per pound.
International domestic yield decreased 15% during 2009 due to
unfavorable exchange rates and a lower rate per pound. IP yield
decreased 1% during 2009 due to unfavorable exchange rates
and lower package weights, partially offset by a higher rate per
pound. Composite freight yield increased in 2009 due to general
rate increases and higher fuel surcharges.

FedEx Express revenues increased in 2008 primarily due to
increases in fuel surcharges, growth in IP volume and the impact
of favorable currency exchange rates. Revenue increases during
2008 were partially offset by decreased volumes in U.S. domestic
package and freight services, as the weak U.S. economy and
persistently higher fuel prices and the related impact on our fuel
surcharges restrained demand for these services.

The increase in composite package yield in 2008 was driven
by increases in IP and U.S. domestic yields, partially offset by
decreased international domestic yield. IP yield increased in 2008,
primarily due to favorable exchange rates, higher fuel surcharges
and increases in package weights. U.S. domestic package yield
increased in 2008 primarily due to higher fuel surcharges and
general rate increases. International domestic yield decreased
during 2008 as a result of the inclusion of lower-yielding services
from the companies acquired in 2007. Composite freight yield
increased in 2008 due to the impact of changes in service mix,
higher fuel surcharges and favorable exchange rates.

IP volume growth during 2008 resulted from increased demand in
Asia, U.S. outbound and Europe. Increased international domestic
volumes during 2008 were driven by business acquisitions in the
second half of 2007. U.S. domestic package and freight volumes
decreased during 2008, as the weak U.S. economy and rising fuel
prices negatively impacted demand for these services.

In January 2009 and 2008, we implemented a 6.9% average list
price increase on FedEx Express U.S. domestic and U.S. outbound
package and freight shipments and made various changes to
other surcharges, while we lowered our fuel surcharge index
by two percentage points. Our fuel surcharges are indexed to
the spot price for jet fuel. Using this index, the U.S. domestic and
outbound fuel surcharge and the international fuel surcharges
ranged as follows, for the years ended May 31:

2009

2008

2007

–%

U.S. Domestic and Outbound Fuel Surcharge:
Low
High
Weighted-Average
International Fuel Surcharges:
Low
High
Weighted-Average

–
34.50
16.75

34.50
17.45

13.50%
25.00
17.06

8.50%
17.00
12.91

12.00
25.00
16.11

8.50
17.00
12.98

FedEx Express Segment Operating Income
The following table compares operating expenses as a percent
of revenue for the years ended May 31:

Operating expenses:
Salaries and employee beneﬁ ts
Purchased transportation
Rentals and landing fees
Depreciation and amortization
Fuel
Maintenance and repairs

Impairment and other charges
Intercompany charges

Other

Total operating expenses

Operating margin

Percent of Revenue
2008

2007

2009

36.7%
5.0
7.2
4.3
14.7
6.0
1.2 (1)
9.4
11.9
96.4

3.6%

34.6%
4.9
6.9
3.9
15.5
6.2
–
8.7
11.5
92.2

7.8%

36.3% (2)
4.8
7.1
3.8
13.0
6.4
–
9.0
10.8
91.2

8.8%

(1) Includes a charge of $260 million related to impairment charges associated with aircraft-
related assets and other charges primarily associated with aircraft-related lease and contract
termination costs and employee severance.
(2) Includes a charge of $143 million for signing bonuses and other upfront compensation
associated with a four-year labor contract with our pilots.

FedEx Express segment operating income and operating margin
declined in 2009 as a result of the continued weak global econ-
omy and high fuel prices in the ﬁ rst half of 2009, both of which
limited demand for our U.S. domestic package and IP services.

During 2009, in response to weak business conditions, we imple-
mented several actions (in addition to those described above
in the Overview section) to lower our cost structure, including
signiﬁ cant volume-related reductions in ﬂ ight hours. We also low-
ered fuel consumption and maintenance costs, as we temporarily
grounded a limited number of aircraft due to excess capacity in
the current economic environment. Our cost-containment activi-
ties also included deferral of merit-based pay increases. All of
these actions partially mitigated the impact of lower volumes on
our results.

During the fourth quarter of 2009, we took additional actions to
align the size of our networks to current demand levels by remov-
ing equipment and facilities from service and reducing personnel.
As a result of these actions, we recorded charges of $199 million
for the impairment of certain aircraft and aircraft engines and
$57 million for aircraft-related lease and contract termination and
employee severance costs related to workforce reductions.

FEDEX CORPORATION

FedEx Express Segment Outlook
We expect revenues to decline at FedEx Express in 2010 as a
result of signiﬁ cantly lower fuel surcharges and the ongoing
global recession. U.S. domestic and IP package volumes are
expected to be ﬂ at, and yields are expected to be negatively
impacted by a competitive pricing environment and the ongoing
global recession.

FedEx Express segment operating income and operating margin
are expected to increase slightly in 2010. We expect the full year
impact of actions taken in 2009 to lower our cost structure, com-
bined with additional cost-containment initiatives in 2010, will be
mostly offset by a signiﬁ cant decline in revenues.

Capital expenditures at FedEx Express are expected to increase
in 2010 driven by incremental investments for the new B777F
aircraft, the ﬁ rst of which is expected to enter revenue service
in 2010. These aircraft capital expenditures are necessary to
achieve signiﬁ cant long-term operating savings and to support
projected long-term international volume growth.

FEDEX GROUND SEGMENT
The following table compares revenues, operating expenses,
operating income and operating margin (dollars in millions) and
selected package statistics (in thousands, except yield amounts)
for the years ended May 31:

2009

2008

2007

Percent Change
2008/
2009/
2007
2008

Revenues
Operating expenses:
Salaries and

$ 7,047

$ 6,751

$ 6,043

employee beneﬁ ts

1,102

1,073

1,006

Purchased

transportation (1)

Rentals
Depreciation and
amortization

Fuel (1)
Maintenance

and repairs
Intercompany charges

Other

Total operating
expenses

2,918
222

2,878
189

2,430
166

1
17

337
9

147
710
795

305
14

145
658
753

268
13

10
(36)

134
569
635

1
8
6

6,240
$ 807

11.5%

6,015
$ 736

5,221
$ 822
10.9% 13.6% 60bp

4
10

Operating income
Operating margin
Average daily package volume:
FedEx Ground
FedEx SmartPost
Revenue per package (yield):
FedEx Ground
FedEx SmartPost

3,404
827

$ 7.70
$ 1.81

3,365
618

3,126
599

1
34

$ 7.48
$ 2.09

$ 7.21
$ 1.88

3
(13)

8
3

4
11

18
14

14
8

8
16
19

15
(10)
(270)bp

(1) We reclassiﬁ ed certain fuel supplement costs related to our independent contractors
from fuel expense to purchased transportation expense to conform to the current period
presentation.

Fuel costs decreased 13% in 2009 due to decreases in fuel
consumption and the average price per gallon of fuel. Fuel sur-
charges were sufﬁ cient to offset fuel costs for 2009, based on
a static analysis of the impact to operating income of the year-
over-year changes in fuel prices compared to changes in fuel
surcharges. This analysis considers the estimated benefits
of the reduction in fuel surcharges included in the base rates
charged for FedEx Express services. However, this analysis does
not consider the negative effects that the signiﬁ cantly higher
fuel surcharge levels have on our business, including reduced
demand and shifts to lower-yielding services. Maintenance and
repairs expense decreased 11% primarily due to a volume-related
reduction in flight hours and the permanent and temporary
grounding of certain aircraft due to excess capacity in the
current economic environment.

Operating results for 2008 were negatively impacted by record
high fuel prices, the continued weak U.S. economy and our
continued investment in domestic express services in China.
However, revenue growth in IP services, reduced retirement plan
costs, the favorable impact of foreign currency exchange rates
and lower variable incentive compensation partially offset the
impact of these factors on operating income during 2008.

Fuel costs increased in 2008 due to an increase in the average
price per gallon of fuel. The volatility in fuel prices and fuel sur-
charges resulted in a net beneﬁ t to income in 2008, based on a
static analysis of the year-over-year changes in fuel prices com-
pared to changes in fuel surcharges. This analysis considers the
estimated beneﬁ ts of the reduction in fuel surcharges included in
the base rates charged for FedEx Express services.

Other operating expenses increased during 2008 principally
due to the inclusion of our 2007 business acquisitions, including
the full consolidation of the results of our China joint venture.
Purchased transportation costs increased in 2008 primarily due
to the inclusion of our 2007 business acquisitions, the impact
of higher fuel costs and IP volume growth, which requires a
higher utilization of contract pickup and delivery services. These
increases in purchased transportation costs were partially offset
by the elimination of payments by us for pickup and delivery ser-
vices provided by our former China joint venture partner, as we
acquired this business in the second half of 2007. The increase in
depreciation expense during 2008 was principally due to aircraft
purchases and our 2007 business acquisitions. Intercompany
charges increased during 2008 primarily due to increased net
operating costs at FedEx Ofﬁ ce associated with declines in copy
revenues, as well as higher expenses associated with store
expansion, advertising and promotions, and service improvement
activities. This increase was partially offset by lower allocated
fees from FedEx Services due to cost-containment activities.

MANAGEMENT’S DISCUSSION AND ANALYSIS

FedEx Ground Segment Revenues
FedEx Ground segment revenues increased 4% in 2009 due to
yield improvement at FedEx Ground and volume growth at both
FedEx SmartPost and FedEx Ground. FedEx Ground volume
growth during 2009 resulted from market share gains, including
volumes gained from DHL’s exit from the U.S. market, and con-
tinued growth in the FedEx Home Delivery service. FedEx Ground
volumes also beneﬁ ted from existing FedEx Express customers’
opting for lower-cost FedEx Ground offerings. Yield improvement
at FedEx Ground during 2009 was primarily due to higher base
rates (partially offset by higher customer discounts), increased
extra service revenue and higher fuel surcharges.

FedEx SmartPost picks up shipments from customers and deliv-
ers them to various points within the United States Postal Service
(“USPS”) network for ﬁ nal delivery. FedEx SmartPost revenue
and yield represent the amount charged to customers net of post-
age paid to the USPS. FedEx SmartPost volume growth during
2009 resulted from market share gains, including volumes gained
from DHL’s exit from the U.S. market. Yields at FedEx SmartPost
decreased 13% during 2009 due to changes in customer and
service mix.

FedEx Ground segment revenues increased during 2008 due
to volume and yield growth. Volume growth at FedEx Ground
resulted from market share gains and the customer appeal of
our cost-effective alternative to overnight air delivery services.
Average daily volumes at FedEx Ground increased during 2008
due to increased commercial business and the continued growth
of our FedEx Home Delivery service. Yield improvement during
2008 was primarily due to the impact of general rate increases,
higher extra service revenue (primarily through our residential,
additional handling and large package surcharges) and higher
fuel surcharges, partially offset by higher customer discounts
and a lower average weight and zone per package.

In January 2009, we implemented a 5.9% average list price
increase and made various changes to other surcharges on
FedEx Ground shipments. In January 2008, we implemented a
4.9% average list price increase and made various changes to
other surcharges on FedEx Ground shipments. The FedEx Ground
fuel surcharge is based on a rounded average of the national U.S.
on-highway average prices for a gallon of diesel fuel, as pub-
lished by the Department of Energy. Our fuel surcharge ranged
as follows for the years ended May 31:

Low
High
Weighted-Average

2009

2008

2007

2.25%
10.50
6.61

4.50%
7.75
5.47

3.50%
5.25
4.18

FedEx Ground Segment Operating Income
The following table compares operating expenses as a percent
of revenue for the years ended May 31:

Operating expenses:
Salaries and employee beneﬁ ts
Purchased transportation
Rentals
Depreciation and amortization
Fuel
Maintenance and repairs
Intercompany charges

Other

Total operating expenses

Operating margin

Percent of Revenue
2008

2007

2009

15.6%
41.4
3.1
4.8
0.1
2.1
10.1
11.3
88.5
11.5%

15.9%
42.6
2.8
4.5
0.2
2.1
9.8
11.2
89.1
10.9%

16.7%
40.2
2.8
4.4
0.2
2.2
9.4
10.5
86.4
13.6%

FedEx Ground segment operating income and operating margin
increased during 2009 primarily due to the timing impact of fuel
surcharges and yield growth. Rapidly declining fuel costs and
the timing lag between such declines and adjustments to our
fuel surcharges provided a signiﬁ cant beneﬁ t to FedEx Ground
results for 2009.

Rent expense increased 17% and depreciation expense increased
10% during 2009 primarily due to higher spending on material
handling equipment and facilities associated with our multi-
year network expansion plan. Purchased transportation costs
increased slightly in 2009 as a result of higher rates paid to our
independent contractors and costs associated with our indepen-
dent contractor programs (described below), partially offset by
a decrease in fuel costs. The increase in salaries and employee
beneﬁ ts expense during 2009 was partially offset by the base
salary reductions and suspension of 401(k) company-matching
contributions described in the Overview section. Intercompany
charges increased 8% during 2009 primarily due to allocated
telecommunication expenses (formerly a direct charge), higher
general and administrative costs and higher allocated customer
service costs. Other operating expenses increased 6% during
2009 primarily due to higher reserve requirements for liability
insurance. Lower legal costs, including settlements, partially
offset the increase in other operating expenses in 2009.

FedEx Ground segment operating income decreased during 2008,
as revenue growth was more than offset by higher independent
contractor-related costs, the net impact of increased fuel costs,
costs associated with our multi-year network expansion plan,
higher intercompany charges and higher legal costs (including
fees paid to external counsel, settlement costs and loss accruals).
However, lower variable incentive compensation partially offset
the net impact of these factors on operating income during 2008.

FEDEX CORPORATION

FedEx Ground Segment Outlook
We expect the FedEx Ground segment to have continued revenue
growth in 2010, led by increases in commercial and FedEx Home
Delivery average daily volumes due to market share gains. FedEx
SmartPost volumes are also expected to grow due to market
share gains and the introduction of new services. Yield improve-
ment at FedEx Ground is expected to be limited in 2010 as a result
of a competitive pricing environment and decreases in fuel sur-
charges. Yields at FedEx SmartPost are expected to decline due
to service mix changes.

FedEx Ground segment operating income in 2010 is expected to
increase slightly, as revenue growth will be mostly offset by costs
associated with network expansion and ongoing enhancements
to our independent contractor model.

Capital spending is expected to decline slightly in 2010 with the
majority of our spending resulting from our continued network
expansion and productivity-enhancing technologies. We are com-
mitted to investing in the FedEx Ground network because of the
long-term beneﬁ ts we will experience from these investments.

We will continue to vigorously defend various attacks against
our independent contractor model and incur ongoing legal costs
as a part of this process. While we believe that FedEx Ground’s
owner-operators are properly classiﬁ ed as independent contrac-
tors, it is reasonably possible that we could incur a material loss
in connection with one or more of these matters or be required
to make material changes to our contractor model. However, we
do not believe that any such changes will impair our ability to
operate and proﬁ tably grow our FedEx Ground business.

Purchased transportation costs increased during 2008 as a result
of higher rates paid to our independent contractors (including
the impact of higher fuel costs) and costs associated with our
independent contractor programs (described below). Fuel sur-
charges were not sufﬁ cient to offset the effect of fuel costs on
our year-over-year operating results for 2008, due to the timing
lag that exists between when we purchase fuel and when our
indexed fuel surcharges automatically adjust.

Intercompany charges increased during 2008 primarily due to
increased net operating costs at FedEx Ofﬁ ce associated with
declines in copy revenues, as well as higher expenses asso-
ciated with store expansion, advertising and promotions, and
service improvement activities. In addition, higher allocated sales
and marketing and customer service costs from FedEx Services
contributed to the increase in intercompany charges for 2008.
Other operating expenses increased during 2008, primarily due
to higher legal, consulting and insurance costs. Depreciation
expense and rent expense increased in 2008 primarily due to
higher spending on material handling equipment and facilities
associated with our multi-year capacity expansion plan.

Independent Contractor Matters
FedEx Ground faces increased regulatory and legal uncertainty
with respect to its independent contractors. As part of its opera-
tions, FedEx Ground has made changes to its relationships with
contractors that, among other things, provide incentives for
improved service and enhanced regulatory and other compli-
ance by our contractors. During the second quarter of 2008,
FedEx Ground announced an ongoing nationwide program,
which provides greater incentives to certain of its contractors
who choose to grow their businesses by adding routes. Also,
during the second quarter of 2008, FedEx Ground offered special
incentives to encourage California-based single route contrac-
tors to transform their operations into multiple-route businesses
or sell their routes to others.

During 2009, because of state-specific legal and regulatory
issues, FedEx Ground offered special incentives to encourage
each New Hampshire-based and Maryland-based single-route
pickup-and-delivery contractor to assume responsibility for the
pickup-and-delivery operations of an entire geographic service
area that includes multiple routes. These programs were well
received, and the aggregate amount of these incentives was
immaterial.

As of May 31, 2009, approximately 60% of all service areas
nationwide are supported by multiple-route contractors, which
comprise approximately 35% of all FedEx Ground pickup-and-
delivery contractors.

FedEx Ground is involved in numerous purported or certiﬁ ed
class-action lawsuits, state tax and other administrative pro-
ceedings and Internal Revenue Service audits that claim or are
examining whether the company’s owner-operators should be
treated as employees, rather than independent contractors. For a
description of these proceedings, see Note 17 of the accompany-
ing consolidated ﬁ nancial statements.

MANAGEMENT’S DISCUSSION AND ANALYSIS

FEDEX FREIGHT SEGMENT
The following table shows revenues, operating expenses, operat-
ing (loss)/income and operating margin (dollars in millions) and
selected statistics for the years ended May 31:

2009

2008

2007 (2)

Percent Change
2008/
2009/
2007
2008

$ 4,415

$ 4,934

$ 4,586

(11)

Revenues
Operating expenses:
Salaries and

employee beneﬁ ts

2,247

2,381

2,250

(6)

Purchased

transportation

Rentals
Depreciation and
amortization

Fuel
Maintenance

and repairs
Impairment and
other charges
Intercompany
charges

Other

Total operating
expenses

Operating (loss)/income
Operating margin
Average daily LTL
shipments

540
139

224
520

582
119

465
112

227
608

195
468

(7)
17

(1)
(14)

153

175

165

(13)

100 (1)

–

– NM

109
427

81
432

61
407

35
(1)

25
6

16
30

–

33
6

12
(29)

4,459
(44)
$
(1.0)%

4,605
$ 329

4,123
$ 463

(3)
(113)

6.7% 10.1% (770)bp (340)bp

(in thousands)

74.4

79.7

78.2

Weight per LTL
shipment (lbs)
LTL yield (revenue
per hundredweight)

1,126

1,136

1,130

$ 19.07

$ 19.65

$ 18.65

(7)

(1)

(3)

(1) Represents impairment charges associated with goodwill related to the Watkins Motor Lines
acquisition and other charges primarily associated with employee severance.
(2) Includes the results of FedEx National LTL from the date of its acquisition on September 3, 2006.

FedEx Freight Segment Revenues
FedEx Freight segment revenues decreased 11% in 2009 primarily
due to a decrease in average daily LTL shipments and lower LTL
yield. Average daily LTL shipments decreased 7% during 2009 as
a result of the current economic recession, which has resulted
in the weakest LTL environment in decades. Despite these con-
ditions, we maintained market share. LTL yield decreased 3%
during 2009 due to the continuing effects of the competitive pric-
ing environment and lower fuel surcharges.

FedEx Freight segment revenues increased in 2008 primarily due
to the full-year inclusion of the FedEx National LTL acquisition.
LTL yield increased during 2008, reﬂ ecting higher yields from
longer-haul FedEx National LTL shipments, higher fuel surcharges
(despite a fuel surcharge rate reduction in the ﬁ rst quarter of
2008) and the impact of the January 2008 general rate increase.
Average daily LTL shipments grew slightly in 2008, reﬂ ecting the
full-year inclusion of FedEx National LTL.

In January 2009, we implemented 5.7% general rate increases for
FedEx Freight and FedEx National LTL shipments. In January 2008,
we implemented a 5.48% general rate increase for FedEx Freight
and a commensurate general rate increase for FedEx National
LTL. The indexed LTL fuel surcharge is based on the average of
the national U.S. on-highway average prices for a gallon of diesel
fuel, as published by the Department of Energy. The indexed LTL
fuel surcharge ranged as follows for the years ended May 31:

Low
High
Weighted-Average

2009

8.3%

23.9
15.7

2008

2007

14.5%
23.7
17.7

14.0%
21.2
17.8

FedEx Freight Segment Operating (Loss)/Income
The following table compares operating expenses as a percent
of revenue for the years ended May 31:

Operating expenses:
Salaries and employee beneﬁ ts
Purchased transportation
Rentals
Depreciation and amortization
Fuel
Maintenance and repairs

Impairment and
other charges
Intercompany charges

Other

Total operating expenses

Operating margin

Percent of Revenue
2008

2007

2009

50.9%
12.2
3.1
5.0
11.8
3.5

2.3 (1)
2.5
9.7
101.0

48.3%
11.8
2.4
4.6
12.3
3.5

–
1.6
8.8
93.3

(1.0)%

6.7%

49.1%
10.1
2.4
4.3
10.2
3.6

–
1.3
8.9
89.9
10.1%

(1) Represents impairment charges associated with goodwill related to the Watkins Motor Lines
acquisition and other charges primarily associated with employee severance.

The decrease in average daily LTL shipments and the com-
petitive pricing environment driven by the U.S. recession and
excess capacity in the market had a signiﬁ cant negative impact
on operating income and operating margin in 2009. In addition,
we recorded a charge of $90 million related to the impairment of
goodwill related to the Watkins Motor Lines acquisition and a
charge of $10 million primarily related to employee severance.

In response to the current economic environment, excess
capacity in the LTL market and reduced shipment volumes, we
implemented several actions throughout 2009 to lower our cost
structure. These actions included consolidating FedEx Freight
regional ofﬁ ces, removing equipment from service and reducing
hours and personnel to better match current demand levels.

Fuel costs decreased 14% during 2009 due primarily to a lower
average price per gallon of diesel fuel and decreased fuel con-
sumption due to lower volume levels. Based on a static analysis
of the year-over-year changes in fuel costs compared to changes
in fuel surcharges, fuel surcharges offset the impact of fuel costs
for 2009. However, this analysis does not consider other effects
that fuel prices and related fuel surcharges levels have on our
business, including changes in customer demand and the impact
on base rates and rates paid to our third-party transportation
providers. Purchased transportation costs decreased 7% dur-
ing 2009 primarily due to lower shipment volumes and decreased

FEDEX CORPORATION

Financial Condition

LIQUIDITY
Cash and cash equivalents totaled $2.292 billion at May 31, 2009,
compared to $1.539 billion at May 31, 2008 and $1.569 billion at
May 31, 2007. The following table provides a summary of our cash
ﬂ ows for the years ended May 31 (in millions):

2009

2008

2007

Operating activities:
98
Net income
$
Noncash impairment charges
1,103
Other noncash charges and credits 2,554
Changes in assets and liabilities
(1,002)
Cash provided by
operating activities
Investing activities:
Business acquisitions,

2,753

$ 1,125
882
2,305
(847)

$ 2,016
–
1,988
(447)

3,465

3,557

net of cash acquired

Capital expenditures and other
Cash used in

investing activities

Financing activities:
Proceeds from debt
issuances

Principal payments on debt
Dividends paid
Other
Cash provided by (used in)
ﬁ nancing activities
Effect of exchange rate changes

on cash

Net increase (decrease) in cash

(3)
(2,380)

(4)
(2,893)

(1,310)
(2,814)

(2,383)

(2,897)

(4,124)

1,000
(501)
(137)
38

–
(639)
(124)
146

1,054
(906)
(110)
155

400

(617)

193

(17)

and cash equivalents

$ 753

(30)

$ (368)

Cash Provided by Operating Activities. Cash ﬂ ows from oper-
ating activities decreased $712 million in 2009 primarily due to
reduced income and a $600 million increase in contributions to
our tax-qualiﬁ ed U.S. domestic pension plans (“U.S. Retirement
Plans”), partially offset by a $307 million reduction in income tax
payments. Noncash charges and credits increased in 2009 due
to our goodwill and asset impairment charges. Cash ﬂ ows from
operating activities decreased $92 million in 2008 primarily due
to higher operating costs, particularly fuel and purchased trans-
portation, partially offset by year-over-year reductions in income
tax payments of $248 million. We made tax-deductible voluntary
contributions to our U.S. Retirement Plans of $1.1 billion during
2009, $479 million during 2008 and $482 million during 2007.

utilization of third-party providers. Maintenance and repairs
expense decreased 13% in 2009 primarily due to lower shipment
volumes and rebranding costs for FedEx National LTL incurred in
2008. Rent expense increased 17% during 2009 primarily due to
service center expansions related to strategically investing in key
markets for long-term growth. Intercompany charges increased
35% during 2009 primarily due to allocated telecommunication
expenses (formerly a direct charge) and higher allocated informa-
tion technology costs from FedEx Services.

FedEx Freight segment operating income and operating margin
decreased substantially in 2008 primarily due to the net impact
of higher fuel costs and a fuel surcharge rate reduction in the
ﬁ rst quarter of 2008, along with higher purchased transportation
costs due to increased utilization of and rates paid to third-party
transportation providers. Lower variable incentive compensa-
tion partially offset the net impact of these factors on operating
income during 2008.

In 2008, the full-year inclusion of FedEx National LTL in our results
impacted the comparability of all our operating expenses. Fuel
costs increased during 2008 due to an increase in the average
price per gallon of diesel fuel, which also increased rates paid
to our third-party transportation providers. Fuel surcharges were
not sufﬁ cient to offset incremental fuel costs for 2008, based on
a static analysis of the year-over-year changes in fuel prices
compared to changes in fuel surcharges. Purchased transpor-
tation costs increased in 2008 primarily due to the inclusion of
FedEx National LTL, which uses a higher proportion of these
services, and higher rates paid to our third-party transportation
providers. Including incremental costs from FedEx National LTL,
depreciation expense increased during 2008 due to investments
in information technology and equipment purchased to sup-
port ongoing replacement requirements and long-term volume
growth. Intercompany charges increased during 2008 primarily
due to higher allocated marketing and information technology
costs from FedEx Services.

FedEx Freight Segment Outlook
We expect a decline in demand for LTL freight services in 2010 as
a result of the continued weak economic conditions and excess
capacity in the LTL industry. Ultimately, we believe it is prob-
able that excess capacity will be reduced within the LTL industry
given the current economic environment. Industry conditions will
result in lower revenues and negatively impact operating income
at the FedEx Freight LTL Group, particularly in the ﬁ rst half of
2010. However, we expect volume growth in the second half of
2010. Given the cost-reduction actions taken in 2009, we are well
positioned to manage through the current economic recession. If
excess capacity exits the LTL industry in 2010, we have the net-
work, resources and capabilities to manage resulting incremental
volumes. We will continue to focus on cost-containment activi-
ties during 2010, including further productivity improvements and
ongoing integration of information technology platforms across
our LTL business.

Capital spending is expected to increase slightly in 2010 with
the majority of our spending resulting from the replacement
of transportation and handling equipment and information
technology projects.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Cash Used for Investing Activities. Capital expenditures dur-
ing 2009 were 17% lower largely due to decreased spending at
FedEx Express and FedEx Services. Capital expenditures during
2008 were 2% higher largely due to planned expenditures for
facility expansion at FedEx Express and FedEx Ground. During
2007, $1.3 billion of cash was used for the FedEx National LTL,
FedEx U.K., DTW Group and other acquisitions. See Note 3 of
the accompanying consolidated ﬁ nancial statements for further
discussion of these acquisitions. See “Capital Resources” for a
discussion of capital expenditures during 2009 and 2008.

Debt Financing Activities. We have a shelf registration statement
ﬁ led with the Securities and Exchange Commission (“SEC”) that
allows us to sell, in one or more future offerings, any combination
of our unsecured debt securities and common stock.

In January 2009, we issued $1 billion of senior unsecured debt
under our shelf registration statement, comprised of ﬁ xed-rate
notes totaling $250 million due in January 2014 and $750 million
due in January 2019. The ﬁ xed-rate notes due in January 2014
bear interest at an annual rate of 7.375%, payable semi-annually,
and the ﬁ xed-rate notes due in January 2019 bear interest at an
annual rate of 8.00%, payable semi-annually. A portion of the net
proceeds were used for repayment of our $500 million aggre-
gate principal amount of 3.5% notes that matured on April 1, 2009.
We plan to use the remaining net proceeds for working capital
and general corporate purposes, including the repayment upon
maturity of all or a portion of our $500 million aggregate principal
amount of 5.50% notes maturing on August 15, 2009.

A $1 billion revolving credit agreement is available to ﬁ nance
our operations and other cash ﬂ ow needs and to provide sup-
port for the issuance of commercial paper. This revolving credit
agreement expires in July 2010. Our revolving credit agreement
contains a ﬁ nancial covenant, which requires us to maintain a
leverage ratio of adjusted debt (long-term debt, including the
current portion of such debt, plus six times rentals and landing
fees) to capital (adjusted debt plus total common stockholders’
investment) that does not exceed 0.7 to 1.0. Our leverage ratio of
adjusted debt to capital was 0.6 to 1.0 at May 31, 2009. Under this
ﬁ nancial covenant, our additional borrowing capacity is capped.
While our fourth quarter 2009 goodwill impairment charges and
our SFAS 158 equity adjustment had a negative impact on our
borrowing capacity, we continue to have signiﬁ cant available
borrowing capacity under this covenant. We are in compliance
with this and all other restrictive covenants of our revolving credit
agreement and do not expect the covenants to affect our opera-
tions. As of May 31, 2009, no commercial paper was outstanding
and the entire $1 billion under the revolving credit facility was
available for future borrowings.

Dividends. We paid cash dividends of $137 million in 2009,
$124 million in 2008 and $110 million in 2007. On June 8, 2009, our
Board of Directors declared a dividend of $0.11 per share of com-
mon stock. The dividend was paid on July 1, 2009 to stockholders
of record as of the close of business on June 18, 2009. Each
quarterly dividend payment is subject to review and approval by
our Board of Directors, and we evaluate our dividend payment
amount on an annual basis at the end of each ﬁ scal year. In con-
nection with our most recent annual evaluation of the quarterly
dividend payment amount, and in light of current economic condi-
tions, we decided not to increase the amount at that time.

CAPITAL RESOURCES
Our operations are capital intensive, characterized by signiﬁ -
cant investments in aircraft, vehicles, technology, facilities and
package-handling and sort equipment. The amount and timing of
capital additions depend on various factors, including pre-existing
contractual commitments, anticipated volume growth, domes-
tic and international economic conditions, new or enhanced
services, geographical expansion of services, availability of
satisfactory ﬁ nancing and actions of regulatory authorities.

The following table compares capital expenditures by asset
category and reportable segment for the years ended May 31
(in millions):

2009

2008

2007

Percent Change
2008/
2009/
2007
2008

$ 925

$ 998

$ 1,107

(7)

(10)

742
319

900
404

674
445

(18)
(21)

(19)
(37)

366
279

431
225

$ 2,947
$ 1,716
509
266
455
1

$ 2,882
$ 1,672
489
287
432

(17)
(21)
25
(10)
(48)
2 NM

34
(9)

(15)
24

2
3
4
(7)
5
NM

Aircraft and related
equipment
Facilities and sort
equipment
Vehicles
Information and

technology investments 298
175

Other equipment
Total capital

expenditures

FedEx Express segment
FedEx Ground segment
FedEx Freight segment
FedEx Services segment
Other
Total capital

$ 2,459
$ 1,348
636
240
235
–

expenditures

$ 2,459

$ 2,947

$ 2,882

(17)

Capital expenditures during 2009 were lower than the prior
year primarily due to decreased spending at FedEx Express for
facilities and aircraft and aircraft-related equipment. Prior year
FedEx Express capital expenditures included construction of
a new regional hub in Greensboro, N.C., sort expansion of the
Indianapolis hub, expansion of the Memphis hub and construc-
tion of a new ofﬁ ce building in Memphis. FedEx Services capital
expenditures decreased in 2009 primarily due to the planned
reduction in FedEx Ofﬁ ce network expansion, decreased spend-
ing and the postponement of several information technology
projects, along with the substantial completion of information
technology facility expansions in the prior year. Capital spending
at FedEx Ground increased in 2009 due to increased spending on
facilities and sort equipment associated with its comprehensive
network expansion plan. Capital expenditures increased during
2008 primarily due to increased spending at FedEx Express for
facility expansion and expenditures at FedEx Services for infor-
mation technology facility expansions and the addition of new
FedEx Ofﬁ ce locations.

FEDEX CORPORATION

In December 2008, we reached an agreement with Boeing to
defer the delivery of certain B777F aircraft by up to 17 months. In
addition, in January 2009, we exercised our option with Boeing to
purchase an additional 15 B777F aircraft and obtained an option
to purchase an additional 15 B777F aircraft. Our obligation to pur-
chase these additional aircraft is conditioned upon there being no
event that causes FedEx Express or its employees not to be cov-
ered by the Railway Labor Act of 1926, as amended. Accordingly,
we have now agreed, subject to the above contractual condition,
to purchase a total of 30 B777F aircraft and hold an option to
purchase an additional 15 B777F aircraft.

During 2009, we made $1.1 billion in tax-deductible voluntary
contributions to our U.S. Retirement Plans in order to improve
their funded status. These contributions included $483 mil-
lion in September 2008 and $600 million in May 2009. Our U.S.
Retirement Plans have ample funds to meet beneﬁ t payments.
However, current market conditions have negatively impacted
our plan asset values, resulting in the 2009 recognition of a
$1.2 billion charge to OCI, and increasing our minimum expected
funding requirements for 2010. For 2010, we anticipate making
contributions to our U.S. Retirement Plans totaling approximately
$850 million, including approximately $500 million in voluntary
contributions and $350 million in minimum required contributions,
beginning in the second quarter of 2010.

In June 2009, Standard & Poor’s reafﬁ rmed our senior unsecured
debt credit rating of BBB and commercial paper rating of A-2
and our ratings outlook as “stable.” During the third quarter of
2009, Moody’s Investors Service reafﬁ rmed our senior unsecured
debt credit rating of Baa2 and commercial paper rating of P-2.
However, Moody’s downgraded our ratings outlook to “negative.”
If our credit ratings drop, our interest expense may increase. If
our commercial paper ratings drop below current levels, we may
have difﬁ culty utilizing the commercial paper market. If our senior
unsecured debt ratings drop below investment grade, our access
to ﬁ nancing may become limited.

In 2010, scheduled debt payments include $664 million of principal
payments on unsecured notes and capitalized leases.

LIQUIDITY OUTLOOK
We had $2.3 billion in cash and cash equivalents as of May 31,
2009. For 2010, we believe that our existing cash and cash
equivalents, cash ﬂ ow from operations, and available ﬁ nancing
sources will be adequate to meet our liquidity needs, including
working capital, capital expenditure requirements and debt pay-
ment obligations (described above). Although we expect higher
capital expenditures in 2010, we anticipate that our cash ﬂ ow
from operations will exceed our investing activities, excluding
any acquisitions. We are closely managing our capital spending
based on current and anticipated volume levels and will defer or
limit capital additions where economically feasible, while con-
tinuing to invest strategically for future growth.

Secured ﬁ nancing may be used to obtain capital assets if we
determine that it best suits our needs. Historically, we have been
successful in obtaining unsecured ﬁ nancing, from both domes-
tic and international sources, although the marketplace for such
investment capital can become restricted depending on a variety
of economic factors, as we experienced in 2009. During 2009,
global credit markets experienced signiﬁ cant liquidity disrup-
tions, and continued uncertainty in the credit markets has
made ﬁ nancing terms for borrowers less attractive and in cer-
tain cases resulted in the unavailability of certain types of debt
ﬁ nancing, such as commercial paper. Although these factors
may make it more difﬁ cult or expensive for us to access credit
markets, we still have access to credit, as evidenced by our debt
issuance in the third quarter of 2009.

The American Recovery and Reinvestment Act of 2009 was signed
into law in February 2009. Among other things, this law extends
the bonus tax depreciation deductions for qualified assets
acquired and placed into service during calendar year 2009. As
a result of this extension, we estimate that the net beneﬁ t from
bonus tax depreciation provisions passed in 2008 and 2009 could
be approximately $50 million in 2010; however, the actual amount
is subject to the nature and timing of our capital expenditures in
2010, which may be impacted by economic conditions.

Our capital expenditures are expected to be $2.6 billion in 2010
and will include spending for aircraft and related equipment at
FedEx Express, network expansion at FedEx Ground and revenue
equipment at FedEx Freight. We also continue to invest in produc-
tivity-enhancing technologies. We expect approximately 61% of
capital expenditures in 2010 will be designated for growth initia-
tives and 39% for ongoing maintenance activities. Our expected
capital expenditures for 2010 include $1.1 billion in investments
for aircraft and aircraft-related equipment at FedEx Express.
Aircraft-related capital outlays include the B757s, the ﬁ rst of
which entered revenue service in 2009 and which are substan-
tially more fuel-efﬁ cient per unit than the aircraft type they are
replacing, and the new B777Fs, the ﬁ rst of which is expected
to enter revenue service in 2010. These aircraft-related capital
expenditures are necessary to achieve signiﬁ cant long-term
operating savings and to support projected long-term interna-
tional volume growth. Our ability to delay the timing of these
aircraft-related expenditures is limited without incurring signiﬁ -
cant costs to modify existing purchase agreements.

MANAGEMENT’S DISCUSSION AND ANALYSIS

CONTRACTUAL CASH OBLIGATIONS
The following table sets forth a summary of our contractual cash obligations as of May 31, 2009. Certain of these contractual obligations
are reﬂ ected in our balance sheet, while others are disclosed as future obligations under accounting principles generally accepted in
the United States. Except for the current portion of long-term debt and capital lease obligations, this table does not include amounts
already recorded in our balance sheet as current liabilities at May 31, 2009. Accordingly, this table is not meant to represent a forecast
of our total cash expenditures for any of the periods presented.

(in millions)

2010

2011

Payments Due by Fiscal Year (Undiscounted)
2013

2012

2014

Thereafter

Total

Operating activities:
Operating leases
Non-capital purchase obligations and other

Interest on long-term debt

Required quarterly contributions to our

U.S. Retirement Plans

Investing activities:
Aircraft and aircraft-related capital commitments
Other capital purchase obligations
Financing activities:
Debt
Capital lease obligations

Total

$ 1,759
234
157

350

964
69

500
164
$ 4,197

$ 1,612
137
144

$ 1,451
111
126

$ 1,316
62
98

$ 1,166
11
97

$ 7,352
125
1,815

$ 14,656
680
2,437

–

350

791
–

250
20
$ 2,954

527
–

–
8
$ 2,223

425
–

300
119
$ 2,320

466
–

250
2
$ 1,992

1,924
–

989
15
$ 12,220

5,097
69

2,289
328
$ 25,906

We have certain contingent liabilities that are not accrued in our
balance sheet in accordance with accounting principles generally
accepted in the United States. These contingent liabilities are not
included in the table above. In addition, we have historically made
voluntary tax-deductible contributions to our U.S. Retirement
Plans. These amounts have not been legally required and
therefore are not reﬂ ected in the table above. However, included
in the table above are anticipated minimum required quarterly
contributions totaling $350 million for 2010 that begin in the
second quarter.

The amounts reflected for purchase obligations represent
noncancelable agreements to purchase goods or services that
are not capital related. Such contracts include those for printing
and advertising and promotions contracts. Open purchase orders
that are cancelable are not considered unconditional purchase
obligations for ﬁ nancial reporting purposes and are not included
in the table above. Such purchase orders often represent autho-
rizations to purchase rather than binding agreements. See Note
16 of the accompanying consolidated ﬁ nancial statements for
more information.

We have other long-term liabilities reflected in our balance
sheet, including deferred income taxes, qualiﬁ ed and nonquali-
ﬁ ed pension and postretirement healthcare plan liabilities and
other self-insurance accruals. The payment obligations associ-
ated with these liabilities are not reﬂ ected in the table above due
to the absence of scheduled maturities. Therefore, the timing
of these payments cannot be determined, except for amounts
estimated to be payable within 12 months, which are included
in current liabilities.

Included in the preceding table within the caption entitled “Non-
capital purchase obligations and other” is our estimate of the
current portion of the liability for uncertain tax positions under
FIN 48 of $5 million. We cannot reasonably estimate the timing of
the long-term payments or the amount by which the liability will
increase or decrease over time; therefore, the long-term portion
of the liability ($67 million) is excluded from the preceding table.
See Note 11 of the accompanying consolidated ﬁ nancial state-
ments for further information.

Operating Activities
In accordance with accounting principles generally accepted in
the United States, future contractual payments under our operat-
ing leases are not recorded in our balance sheet. Credit rating
agencies routinely use information concerning minimum lease
payments required for our operating leases to calculate our debt
capacity. The amounts reﬂ ected in the table above for operating
leases represent future minimum lease payments under noncan-
celable operating leases (principally aircraft and facilities) with
an initial or remaining term in excess of one year at May 31, 2009.
In the past, we ﬁ nanced a signiﬁ cant portion of our aircraft needs
(and certain other equipment needs) using operating leases (a
type of “off-balance sheet ﬁ nancing”). At the time that the deci-
sion to lease was made, we determined that these operating
leases would provide economic beneﬁ ts favorable to ownership
with respect to market values, liquidity or after-tax cash ﬂ ows.

The amounts reﬂ ected in the table above for interest on long-term
debt represent future interest payments due on our long-term
debt, all of which are ﬁ xed rate.

Investing Activities
The amounts reﬂ ected in the table above for capital purchase
obligations represent noncancelable agreements to purchase
capital-related equipment. Such contracts include those for
certain purchases of aircraft, aircraft modiﬁ cations, vehicles,
facilities, computers and other equipment contracts. In addition,
we have committed to modify our DC10 aircraft for two-man
cockpit configuration, which is reflected in the table above.
Commitments to purchase aircraft in passenger conﬁ guration
do not include the attendant costs to modify these aircraft for
cargo transport unless we have entered into noncancelable
commitments to modify such aircraft. Open purchase orders
that are cancelable are not considered unconditional purchase

FEDEX CORPORATION

obligations for ﬁ nancial reporting purposes and are not included
in the table above. Such purchase orders often represent autho-
rizations to purchase rather than binding agreements. See Note
16 of the accompanying consolidated ﬁ nancial statements for
more information.

Financing Activities
We have certain ﬁ nancial instruments representing potential
commitments, not reﬂ ected in the table above, that were incurred
in the normal course of business to support our operations,
including surety bonds and standby letters of credit. These instru-
ments are generally required under certain U.S. self-insurance
programs and are also used in the normal course of international
operations. The underlying liabilities insured by these instruments
are reﬂ ected in our balance sheets, where applicable. Therefore,
no additional liability is reﬂ ected for the surety bonds and letters
of credit themselves.

The amounts reﬂ ected in the table above for long-term debt rep-
resent future scheduled payments on our long-term debt. In 2010,
we have scheduled debt payments of $664 million, which includes
$500 million of principal payments on our 5.5% unsecured notes
maturing in August 2009 and principal and interest payments on
capital leases.

Critical Accounting Estimates

The preparation of financial statements in accordance with
accounting principles generally accepted in the United States
requires management to make signiﬁ cant judgments and esti-
mates to develop amounts reﬂ ected and disclosed in the ﬁ nancial
statements. In many cases, there are alternative policies or esti-
mation techniques that could be used. We maintain a thorough
process to review the application of our accounting policies
and to evaluate the appropriateness of the many estimates that
are required to prepare the ﬁ nancial statements of a complex,
global corporation. However, even under optimal circumstances,
estimates routinely require adjustment based on changing cir-
cumstances and new or better information.

The estimates discussed below include the ﬁ nancial statement
elements that are either the most judgmental or involve the selec-
tion or application of alternative accounting policies and are
material to our ﬁ nancial statements. Management has discussed
the development and selection of these critical accounting esti-
mates with the Audit Committee of our Board of Directors and
with our independent registered public accounting ﬁ rm.

RETIREMENT PLANS
Overview. We sponsor programs that provide retirement beneﬁ ts
to most of our employees. These programs include deﬁ ned ben-
eﬁ t pension plans, deﬁ ned contribution plans and postretirement
healthcare plans. The accounting for pension and postretirement
healthcare plans includes numerous assumptions, such as: dis-
count rates; expected long-term investment returns on plan
assets; future salary increases; employee turnover; mortality; and
retirement ages. These assumptions most signiﬁ cantly impact our
U.S. domestic pension plans.

We made signiﬁ cant changes to our retirement plans during 2008
and 2009. Beginning January 1, 2008, we increased the annual
company-matching contribution under the largest of our 401(k)
plans covering most employees from a maximum of $500 to a
maximum of 3.5% of eligible compensation. Employees not partic-
ipating in the 401(k) plan as of January 1, 2008 were automatically
enrolled at 3% of eligible pay with a company match of 2% of
eligible pay effective March 1, 2008. As a temporary cost-control
measure, we suspended 401(k) company-matching contributions
for a minimum of one year effective February 1, 2009.

Effective May 31, 2008, beneﬁ ts previously accrued under our
primary pension plans using a traditional pension beneﬁ t formula
(based on average earnings and years of service) were capped
for most employees, and those beneﬁ ts will be payable begin-
ning at retirement. Effective June 1, 2008, future pension beneﬁ ts
for most employees began to be accrued under a cash balance
formula we call the Portable Pension Account. These changes
did not affect the beneﬁ ts of previously retired and terminated
vested participants. In addition, these pension plans were modi-
ﬁ ed to accelerate vesting from ﬁ ve years to three years for most
participants.

Under the Portable Pension Account, the retirement beneﬁ t is
expressed as a dollar amount in a notional account that grows
with annual credits based on pay, age and years of credited ser-
vice, and interest on the notional account balance. Under the
tax-qualiﬁ ed plans, the pension beneﬁ t is payable as a lump sum
or an annuity at retirement at the election of the employee. An
employee’s pay credits are determined each year under a graded
formula that combines age with years of service for points.
The plan interest credit rate will vary from year to year based on
the selected U.S. Treasury index, with an interest rate equal to the
greater of 4% or the one-year Treasury Constant Maturities rate
plus 1%, but not greater than a rate based on the larger of the
average 30-year Treasury note or the applicable provisions of
the Internal Revenue Code.

Retirement Plans Costs. Retirement plans cost is included in the
“Salaries and Employee Beneﬁ ts” caption in our consolidated
income statements. A summary of our retirement plans costs
over the past three years is as follows (in millions):

U.S. domestic and international
pension plans
U.S. domestic and international
deﬁ ned contribution plans
Postretirement healthcare plans

2009

2008

2007

$ 177

$ 323

$ 467

237
57
$ 471

216
77
$ 616

176
55
$ 698

The determination of our annual retirement plans cost is highly
sensitive to changes in the assumptions related to these plans
because we have a large active workforce, a signiﬁ cant amount
of assets in the pension plans, and the payout of beneﬁ ts will
occur over an extended period in the future. Total retirement
plans cost decreased $145 million in 2009, primarily due to a
higher discount rate.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Retirement plans cost in 2010 is expected to be approximately
$500 million, an increase of approximately $29 million from 2009.
This increase is attributable to increased pension plan expense
as a result of the negative impact of current market conditions
on our pension plan assets, which will be substantially offset by
lower expenses on our 401(k) plans due to the temporary suspen-
sion of the company-matching contribution.

Pension Cost. The components of pension cost for all pension
plans are as follows (in millions):

estimated beneﬁ t payments in a given period, the yield calculation
assumes those excess proceeds are reinvested at the one-year
forward rates implied by the Citigroup Pension Discount Curve.

The increase in the discount rate for 2010 was driven by cur-
rent conditions in the market for high-grade corporate bonds, in
which yields have strengthened signiﬁ cantly since May 31, 2008.
The discount rate assumption is highly sensitive, as the follow-
ing table illustrates with our largest tax-qualiﬁ ed U.S. domestic
pension plan:

Service cost
Interest cost
Expected return on plan assets
Recognized actuarial (gains) losses
and other
Net periodic beneﬁ t cost

2009

$ 499
798
(1,059)

(61)
$ 177

2008

$ 518
720
(985)

70
$ 323

2007

$ 540
707
(930)

150
$ 467

Pension cost for our primary domestic pension plan was favor-
ably affected in 2009 by approximately $210 million due to an
increase in the discount rate driven by higher interest rates in
the bond market year over year. Pension cost will be higher in
2010 by approximately $125 million due to signiﬁ cant declines in
the value of our plan assets due to current market conditions,
partially offset by a higher discount rate.

Following is a discussion of the key estimates we consider in
determining our pension cost:

Discount Rate. This is the interest rate used to discount the esti-
mated future beneﬁ t payments that have been accrued to date
(the projected beneﬁ t obligation, or PBO) to their net present
value and to determine the succeeding year’s pension expense.
The discount rate is determined each year at the plan measure-
ment date. An increase in the discount rate decreases pension
expense. The discount rate affects the PBO and pension expense
based on the measurement dates, as described below.

Measurement Date (1)

Discount
Rate

Amounts Determined by Measurement
Date and Discount Rate

5/31/2009
6/01/2008
2/29/2008
2/28/2007
2/28/2006

7.68%
7.15
6.96
6.01
5.91

2009 PBO and 2010 expense
2009 expense
2008 PBO
2007 PBO and 2008 expense
2006 PBO and 2007 expense

(1) SFAS 158 required us to change our measurement date to May 31, beginning in 2009.

We determine the discount rate (which is required to be the
rate at which the projected beneﬁ t obligation could be effec-
tively settled as of the measurement date) with the assistance
of actuaries, who calculate the yield on a theoretical portfolio
of high-grade corporate bonds (rated Aa or better) with cash
ﬂ ows that generally match our expected beneﬁ t payments in
future years. In selecting bonds for this theoretical portfolio, we
focus on bonds that match cash ﬂ ows to beneﬁ t payments and
limit our concentration of bonds by industry and issuer. This bond
modeling technique allows for the use of non-callable and make-
whole bonds that meet certain screening criteria to ensure that
the selected bonds with a call feature have a low probability of
being called. To the extent scheduled bond proceeds exceed the

Sensitivity (in millions)

Effect on 2010
Pension Expense

May 31, 2009
Effect on PBO

One-basis-point change in discount rate
One-basis-point change in expected

return on assets

$1.5

1.2

$13.9

–

At the February 29, 2008 and June 1, 2008 measurement dates,
respectively, a one-basis-point change in the discount rate would
have impacted the 2008 PBO by $16 million and 2009 expense by
$1.7 million.

Plan Assets. The estimated average rate of return on plan assets
is a long-term, forward-looking assumption that also materi-
ally affects our pension cost. It is required to be the expected
future long-term rate of earnings on plan assets. Our pension
plan assets are invested primarily in listed securities, and our
pension plans hold only a minimal investment in FedEx common
stock that is entirely at the discretion of third-party pension fund
investment managers.

Establishing the expected future rate of investment return on our
pension assets is a judgmental matter. Management considers
the following factors in determining this assumption:

• the duration of our pension plan liabilities, which drives
the investment strategy we can employ with our pension
plan assets;

• the types of investment classes in which we invest our pension
plan assets and the expected compound geometric return we
can reasonably expect those investment classes to earn over
the next 10- to 15-year time period (or such other time period
that may be appropriate); and

• the investment returns we can reasonably expect our
investment management program to achieve in excess of the
returns we could expect if investments were made strictly in
indexed funds.

We review the expected long-term rate of return on an annual
basis and revise it as appropriate. As part of our strategy to
manage future pension costs and net funded status volatility,
we are transitioning to a more liability-driven investment
strategy, which will better align our plan assets and liabilities. This
strategy will ultimately result in a greater concentration of ﬁ xed-
income investments.

FEDEX CORPORATION

Asset Class

Domestic equities
International equities
Private equities
Total equities
Long-duration ﬁ xed-income securities
Other ﬁ xed-income securities

Plan Assets at Measurement Date

Actual

$ 4,129
1,724
357
6,210
2,535
1,861
$ 10,606

2009
Actual%

39%
16
3
58
24
18
100%

Target%

30%
15
5
50
45
5
100%

Actual

$ 5,694
2,481
406
8,581
1,778
1,302
$ 11,661

2008
Actual%

49%
21
4
74
15
11
100%

Target%

53%
17
5
75
15
10
100%

The target asset allocations in the table above for 2009 reﬂ ect tar-
gets established in connection with our liability-driven investment
strategy described above. Our actual asset allocations will con-
tinue to transition to the target levels over time as we continue
to implement this strategy. We have assumed an 8.0% compound
geometric long-term rate of return on our U.S. domestic pen-
sion plan assets for 2010, a decrease from 8.5% in 2009 and 2008
and 9.1% in 2007, as described in Note 12 of the accompanying
consolidated ﬁ nancial statements. This decrease was driven by
lower expectations for future returns in light of recent losses in
the equity markets and our shift in investment strategy, which will
yield lower returns due to a heavier percentage of ﬁ xed-income
securities.

The actual historical return on our U.S. pension plan assets,
calculated on a compound geometric basis, was approximately
7.5%, net of investment manager fees, for the 15-year period
ended May 31, 2009 and 9.4%, net of investment manager fees,
for the 15-year period ended February 29, 2008.

Pension expense is also affected by the accounting policy used
to determine the value of plan assets at the measurement date.
We use a calculated-value method to determine the value of
plan assets, which helps mitigate short-term volatility in mar-
ket performance (both increases and decreases) by amortizing
the actuarial gains or losses over four years. Another method
used in practice applies the market value of plan assets at the
measurement date. In determining our 2010 pension expense,
the calculated-value method signiﬁ cantly mitigated the impact of
asset value declines in the determination of our pension expense,
reducing our expected 2010 expense by $135 million.

Salary Increases. The assumed future increase in salaries
and wages is also a key estimate in determining pension cost.
Generally, we correlate changes in estimated future salary
increases to changes in the discount rate (since that is an indica-
tor of general inﬂ ation and cost of living adjustments) and general
estimated levels of proﬁ tability (since most incentive compensa-
tion is a component of pensionable wages). In the future, based
on the plan design changes discussed above, a one-basis-point
across-the-board change in the rate of estimated future salary
increases will have an immaterial impact on our pension costs.

Our assumed average future salary increases based on age and
years of service are below.

2010 Projected
2009
2008
2007

Assumed Average Future
Salary Increases

4.42%
4.49%
4.47%
3.46%

Funded Status. Following is information concerning the funded sta-
tus under SFAS 158 of our pension plans as of May 31 (in millions):

2009

2008

Funded Status of Plans:
Projected beneﬁ t obligation (PBO)
Fair value of plan assets
Funded status of the plans
Employer contributions after measurement date
Net funded status
Components of Funded Status by Plans:
Qualiﬁ ed plans
Nonqualiﬁ ed plans
International plans
Net funded status
$
Components of Amounts Included in Balance Sheets:
Noncurrent pension assets
$
Current pension and other beneﬁ t obligations
Noncurrent pension and other beneﬁ t obligations
Net amount recognized
$
Cash Amounts:
Cash contributions during the year
Beneﬁ t payments during the year

$ 11,050
10,812
(238)
–
(238)

$ 11,617
11,879
262
15
277

278
(318)
(198)
(238)

827
(331)
(219)
277

311
(31)
(518)
(238) $

827
(32)
(518)
277

$ 1,146
351
$

$
$

548
318

The amounts recognized in the balance sheet under SFAS 158
reﬂ ect a snapshot of the state of our long-term pension liabilities
at the plan measurement date and the effect of mark-to-market
accounting on plan assets. At May 31, 2009, in accordance with
the provisions of SFAS 158, we recorded a decrease to equity
through OCI of $1.2 billion (net of tax) to reﬂ ect unrealized market
losses during 2009. Those losses are subject to amortization over
future years and may be reﬂ ected in future income statements
unless they are recovered.

MANAGEMENT’S DISCUSSION AND ANALYSIS

The funding requirements for our tax-qualiﬁ ed U.S. domestic
pension plans are governed by the Pension Protection Act of
2006, which has aggressive funding requirements in order to
avoid beneﬁ t payment restrictions that become effective if the
funded status under IRS rules falls below 80% at the beginning of
a plan year. All of our qualiﬁ ed U.S. domestic pension plans had
funded status levels in excess of 80% for 2007, 2008 and 2009, and
are expected to for 2010 as well. Despite mark-to-market adjust-
ments required under SFAS 158, our plans remain adequately
funded to provide beneﬁ ts to our employees as they come due,
and current beneﬁ t payments are nominal compared to our total
plan assets (beneﬁ t payments for 2009 were approximately 3%
of plan assets).

In September 2008, we made $483 million in voluntary contri-
butions to our U.S. tax-qualified plans. We made additional
voluntary contributions of $600 million during the fourth quarter
of 2009 in order to improve the funded status of our principal
pension plans. While our U.S. tax-qualiﬁ ed plans have ample
funds to meet beneﬁ t payments, current market conditions have
negatively impacted asset values and could signiﬁ cantly impact
funding considerations in 2010. We anticipate making contribu-
tions to the U.S. tax-qualiﬁ ed plans totaling approximately $850
million in 2010, including $350 million in minimum required quar-
terly payments.

Cumulative unrecognized actuarial losses for pension plans
expense determination were $3.7 billion through May 31, 2009,
compared to $2.5 billion at February 29, 2008. These unrecog-
nized losses reﬂ ect changes in the discount rates and differences
between expected and actual asset returns, which are being
amortized over future periods. These unrecognized losses may
be recovered in future periods through actuarial gains. However,
unless they are below a corridor amount, these unrecognized
actuarial losses are required to be amortized and recognized in
future periods. For example, projected U.S. domestic pension plan
expense for 2010 includes $125 million of amortization of these
actuarial losses versus $44 million in 2009, $162 million in 2008
and $136 million in 2007.

SELF-INSURANCE ACCRUALS
We are self-insured up to certain limits for costs associated with
workers’ compensation claims, vehicle accidents and general
business liabilities, and beneﬁ ts paid under employee healthcare
and long-term disability programs. At May 31, 2009, there were
$1.5 billion of self-insurance accruals reﬂ ected in our balance
sheet ($1.4 billion at May 31, 2008). Approximately 40% of these
accruals were classiﬁ ed as current liabilities in 2009 and 2008.

The measurement of these costs requires the consideration of
historical cost experience, judgments about the present and
expected levels of cost per claim and self-insurance retention
levels. Accruals are primarily based on the actuarially estimated,
undiscounted cost of claims, which includes incurred-but-not-
reported claims. Cost trends on material accruals are updated
each quarter. These methods provide estimates of future ultimate
claim costs based on claims incurred as of the balance sheet
date. These estimates include consideration of factors such as
severity of claims, frequency of claims and future healthcare
costs. We self-insure up to certain limits that vary by operating
company and type of risk. Periodically, we evaluate the level of
insurance coverage and adjust insurance levels based on risk

tolerance and premium expense. Historically, it has been infre-
quent that incurred claims exceeded our self-insured limits. Other
acceptable methods of accounting for these accruals include
measurement of claims outstanding and projected payments
based on historical development factors.

We believe the use of actuarial methods to account for these lia-
bilities provides a consistent and effective way to measure these
highly judgmental accruals. However, the use of any estimation
technique in this area is inherently sensitive given the magni-
tude of claims involved and the length of time until the ultimate
cost is known. We believe our recorded obligations for these
expenses are consistently measured on a conservative basis.
Nevertheless, changes in healthcare costs, accident frequency
and severity, insurance retention levels and other factors can
materially affect the estimates for these liabilities. For example,
during 2009, FedEx Ground recorded $70 million in incremental
self-insurance reserves for liability insurance based on adverse
experience on bodily injury claims.

LONG-LIVED ASSETS
Property and Equipment. Our key businesses are capital inten-
sive, with approximately 55% of our total assets invested in our
transportation and information systems infrastructures. We
capitalize only those costs that meet the deﬁ nition of capital
assets under accounting standards. Accordingly, repair and
maintenance costs that do not extend the useful life of an asset
or are not part of the cost of acquiring the asset are expensed
as incurred. However, consistent with industry practice, we capi-
talize certain aircraft-related major maintenance costs on one
of our aircraft ﬂ eet types and amortize these costs over their
estimated service lives.

The depreciation or amortization of our capital assets over their
estimated useful lives, and the determination of any salvage
values, requires management to make judgments about future
events. Because we utilize many of our capital assets over
relatively long periods (the majority of aircraft costs are depre-
ciated over 15 to 18 years), we periodically evaluate whether
adjustments to our estimated service lives or salvage values are
necessary to ensure these estimates properly match the eco-
nomic use of the asset. This evaluation may result in changes in
the estimated lives and residual values used to depreciate our
aircraft and other equipment. These estimates affect the amount
of depreciation expense recognized in a period and, ultimately,
the gain or loss on the disposal of the asset. Changes in the esti-
mated lives of assets will result in an increase or decrease in the
amount of depreciation recognized in future periods and could
have a material impact on our results of operations. Historically,
gains and losses on operating equipment have not been material
(typically aggregating less than $10 million annually). However,
such amounts may differ materially in the future due to changes in
business levels, technological obsolescence, accident frequency,
regulatory changes and other factors beyond our control.

Because of the lengthy lead times for aircraft manufacture
and modiﬁ cations, we must anticipate volume levels and plan
our fleet requirements years in advance, and make commit-
ments for aircraft based on those projections. Furthermore,
the timing and availability of certain used aircraft types (par-
ticularly those with better fuel efﬁ ciency) may create limited
opportunities to acquire these aircraft at favorable prices in

FEDEX CORPORATION

advance of our capacity needs. These activities create risks
that asset capacity may exceed demand and that an impair-
ment of our assets may occur. Aircraft purchases (primarily
aircraft in passenger conﬁ guration) that have not been placed
in service totaled $130 million at May 31, 2009 and $127 million
at May 31, 2008. We plan to modify these assets in the future and
place them into operations.

The accounting test for whether an asset held for use is impaired
involves ﬁ rst comparing the carrying value of the asset with its
estimated future undiscounted cash ﬂ ows. If the cash ﬂ ows do
not exceed the carrying value, the asset must be adjusted to its
current fair value. We operate integrated transportation networks
and, accordingly, cash ﬂ ows for most of our operating assets are
assessed at a network level, not at an individual asset level for
our analysis of impairment. Further, decisions about capital invest-
ments are evaluated based on the impact to the overall network
rather than the return on an individual asset. We make decisions
to remove certain long-lived assets from service based on pro-
jections of reduced capacity needs or lower operating costs of
newer aircraft types, and those decisions may result in an impair-
ment charge. Assets held for disposal must be adjusted to their
estimated fair values when the decision is made to dispose of the
asset and certain other criteria are met. The fair value determi-
nations for such aircraft may require management estimates, as
there may not be active markets for some of these aircraft. Such
estimates are subject to revision from period to period.

During the fourth quarter of 2009, we recorded $202 million in
property and equipment impairment charges. These charges
are primarily related to our April 2009 decision to permanently
remove from service 10 Airbus A310-200 aircraft and four Boeing
MD10-10 aircraft owned by the company, along with certain
excess aircraft engines at FedEx Express. This decision resulted
in an impairment charge of $191 million, which was recorded in
the fourth quarter of 2009. A limited amount of our total aircraft
capacity remains temporarily grounded because of network
overcapacity due to the current economic environment. There
were no material property and equipment impairment charges
recognized in 2008 or 2007.

Leases. We utilize operating leases to ﬁ nance certain of our
aircraft, facilities and equipment. Such arrangements typically
shift the risk of loss on the residual value of the assets at the end
of the lease period to the lessor. As disclosed in “Contractual
Cash Obligations” and Note 7 to the accompanying consolidated
financial statements, at May 31, 2009 we had approximately
$15 billion (on an undiscounted basis) of future commitments for
payments under operating leases. The weighted-average remain-
ing lease term of all operating leases outstanding at May 31, 2009
was approximately six years.

The future commitments for operating leases are not reﬂ ected as
a liability in our balance sheet under U.S. accounting rules. The
determination of whether a lease is accounted for as a capital
lease or an operating lease requires management to make esti-
mates primarily about the fair value of the asset and its estimated
economic useful life. In addition, our evaluation includes ensuring
we properly account for build-to-suit lease arrangements and
making judgments about whether various forms of lessee involve-
ment during the construction period make the lessee an agent
for the owner-lessor or, in substance, the owner of the asset

during the construction period. We believe we have well-deﬁ ned
and controlled processes for making these evaluations, including
obtaining third-party appraisals for material transactions to assist
us in making these evaluations.

Goodwill. We have $2.2 billion of goodwill in our balance sheet
from our acquisitions, representing the excess of cost over the
fair value of the net assets we have acquired. Several factors
give rise to goodwill in our acquisitions, such as the expected
beneﬁ t from synergies of the combination and the existing work-
force of the acquired entity.

In accordance with SFAS 142, “Goodwill and Other Intangible
Assets,” a two-step impairment test is performed on goodwill. In
the ﬁ rst step, a comparison is made of the estimated fair value
of a reporting unit to its carrying value. If the carrying value of a
reporting unit exceeds the estimated fair value, the second step
of the impairment test is required. In the second step, an estimate
of the current fair values of all assets and liabilities is made to
determine the amount of implied goodwill and consequently the
amount of any goodwill impairment.

Our annual evaluation of goodwill impairment requires man-
agement judgment and the use of estimates and assumptions
to determine the fair value of our reporting units. Fair value is
estimated using standard valuation methodologies (principally
the income or market approach) incorporating market partici-
pant considerations and management’s assumptions on revenue
growth rates, operating margins, discount rates and expected
capital expenditures. Estimates used by management can sig-
niﬁ cantly affect the outcome of the impairment test. Each year,
independent of our goodwill impairment test, we update the
calculation of our weighted-average cost of capital (“WACC”)
and perform a long-range planning analysis to project expected
results of operations. Using this data, we complete a separate
fair value analysis for each of our reporting units. Changes in
forecasted operating results and other assumptions could materi-
ally affect these estimates. We perform our annual impairment
test in the fourth quarter unless circumstances indicate the need
to accelerate the timing of the test.

In connection with our annual impairment testing of goodwill and
other intangible assets conducted in the fourth quarter of 2009
in accordance with SFAS 142, we recorded a charge of $900 mil-
lion for impairment of the value of goodwill. This charge included
an $810 million charge related to reduction of the value of the
goodwill recorded as a result of the February 2004 acquisition of
Kinko’s, Inc. (now known as FedEx Ofﬁ ce) and a $90 million charge
related to reduction of the value of the goodwill recorded as a
result of the September 2006 acquisition of the U.S. and Canadian
less-than-truckload freight operations of Watkins Motor Lines
and certain afﬁ liates (now known as FedEx National LTL).

FedEx Ofﬁ ce Goodwill. In 2008, despite several management
changes and strategic actions focused on growing revenues
and proﬁ tability at FedEx Ofﬁ ce, we recorded a charge of $891
million in connection with our annual impairment testing. The
charge predominantly related to a $515 million impairment of
the Kinko’s trade name and a $367 million impairment of good-
will. This charge was a result of the decision to phase out the
use of the Kinko’s trade name and reduced proﬁ tability at FedEx
Ofﬁ ce over the forecast period. Additional discussion of the key

MANAGEMENT’S DISCUSSION AND ANALYSIS

assumptions related to these charges is included in Note 4 to our
consolidated ﬁ nancial statements.

During 2009, the U.S. recession had a signiﬁ cant negative impact
on demand for FedEx Ofﬁ ce services, resulting in lower revenues
and continued operating losses at this reporting unit. In response
to these conditions, FedEx Ofﬁ ce initiated an internal reorganiza-
tion designed to improve revenue-generating capabilities and
reduce costs. Several actions were taken during 2009 to reduce
FedEx Ofﬁ ce’s cost structure and position it for long-term growth
under better economic conditions. These actions included head-
count reductions, domestic store closures and the termination of
operations in some international locations. In addition, we sub-
stantially curtailed future network expansion in light of current
economic conditions.

The valuation methodology to estimate the fair value of the
FedEx Ofﬁ ce reporting unit was based primarily on an income
approach. We believe use of the income approach is an appro-
priate methodology for the FedEx Ofﬁ ce reporting unit because it
is the most direct method of measuring enterprise value for this
reporting unit. Because of the nature of the service offerings at
FedEx Ofﬁ ce, it exhibits characteristics of a retailer, a business
services provider and a printing provider. Accordingly, it is dif-
ﬁ cult to ﬁ nd directly comparable companies for use under the
market approach. However, market approach information was
incorporated into our test to ensure the reasonableness of our
conclusions on estimated value under the income approach. Key
assumptions considered were the revenue, operating income
and capital expenditure forecasts, the assessed growth rate
in the periods beyond the detailed forecast period, and the
discount rate.

For 2009, we used a discount rate of 12.0%, versus a discount
rate of 12.5% in 2008. Our discount rate of 12.0% for 2009 rep-
resents our WACC of the FedEx Ofﬁ ce reporting unit adjusted
for company-speciﬁ c risk premium to account for the estimated
uncertainty associated with our future cash ﬂ ows. The develop-
ment of the WACC used in our estimate of fair value considered
the following key factors:

• current market conditions for the equity-risk premium and risk-

free interest rate;

• benchmark capital structures for guideline companies with

characteristics similar to the FedEx Ofﬁ ce reporting unit;

• the size and industry of the FedEx Ofﬁ ce reporting unit; and

• risks related to the forecast of future revenues and proﬁ tability

of the FedEx Ofﬁ ce reporting unit.

The discount rate incorporates current market participant con-
siderations, as indicated above, and decreased year over year,
as increases in the WACC (due to general economic conditions)
were offset by reductions in the company-speciﬁ c risk premium.
The company-speciﬁ c risk premium was reduced primarily due to
lower long-term growth and proﬁ tability assumptions associated
with the 2009 forecast. The WACC used in the estimate of fair
value in future periods may be impacted by changes in market
conditions (including those of market participants), as well as the
speciﬁ c future performance of the FedEx Ofﬁ ce reporting unit
and are subject to change, based on changes in speciﬁ c facts
and circumstances.

The key drivers of enterprise value for FedEx Ofﬁ ce in 2008 were
signiﬁ cant improvements in long-term revenue and proﬁ tabil-
ity growth, as well as continued network expansion activities.
Despite the beneﬁ ts of the internal reorganization described
above, the current and projected impact of the recession and
the elimination of future network expansion signiﬁ cantly reduced
the value of the FedEx Ofﬁ ce reporting unit for 2009. The valua-
tion of the FedEx Ofﬁ ce reporting unit was sensitive to both the
underlying forecast assumptions and the discount rate assump-
tions. For example, a 50-basis-point increase or decrease in the
discount rate impacted the estimate of fair value by $40 million.
Further, a 100-basis-point improvement or deterioration in the
operating margin in each year of the forecast period impacted
the fair value by $220 million.

Upon completion of the impairment test, we concluded that the
recorded goodwill was impaired and recorded an impairment
charge of $810 million during the fourth quarter of 2009. The
remaining goodwill attributable to the FedEx Ofﬁ ce reporting
unit is $362 million as of May 31, 2009. The goodwill impairment
charge is included in operating expenses in the accompanying
consolidated statements of income. This charge is included in the
results of the FedEx Services segment and was not allocated to
our transportation segments, as the charge was unrelated to the
core performance of those businesses.

FedEx National LTL Goodwill. During 2009, the U.S. recession
had a signiﬁ cant negative impact on the LTL industry, resulting
in steep volume declines, intense yield pressure and the exit of
numerous small to medium competitors from the market. The out-
look for the LTL market is uncertain due to the recession and the
negative impact of aggressive pricing resulting from continued
excess capacity in the market. The results for the FedEx National
LTL reporting unit in 2009 reﬂ ect the impact of the recession, with
reduced revenues and increased operating losses.

The valuation methodology to estimate the fair value of the
FedEx National LTL reporting unit was based primarily on a mar-
ket approach (revenue multiples and/or earnings multiples) that
considered market participant assumptions. We believe use of
the market approach for FedEx National LTL is appropriate due to
the forecast risk associated with the projections used under the
income approach, particularly in the outer years of the forecast
period (as described below). Further, there are directly com-
parable companies to the FedEx National LTL reporting unit for
consideration under the market approach. The income approach
also was incorporated into the impairment test to ensure the rea-
sonableness of our conclusions under the market approach. Key
assumptions considered were the revenue, operating income and
capital expenditure forecasts and market participant assump-
tions on multiples related to revenue and earnings forecasts.

The forecast used in the valuation assumes operating losses will
continue in the near-term due to the current economic condi-
tions and excess capacity in the industry. However, the long-term
outlook assumes that this excess capacity exits the market. This
assumption drives signiﬁ cant volume and yield improvement
into the FedEx National LTL reporting unit in future periods. The
decision to include an assumption related to the elimination of
excess capacity from the market and the associated cash ﬂ ows
is signiﬁ cant to the valuation and reﬂ ects management’s outlook
on the industry for future periods as of the valuation date.

FEDEX CORPORATION

In 2008, the estimated value of the FedEx National LTL reporting
unit was attributable to its long-term cash-generating capa-
bilities, and the forecasts used to value the reporting unit were
prepared prior to the severe impact of the U.S. recession on its
business. Although the forecast used in the valuation assumes
long-term proﬁ tability resulting from the elimination of excess
capacity from the market, recent operating losses combined with
projected near-term operating losses for the FedEx National LTL
reporting unit, resulted in a signiﬁ cant reduction in the value of
this business from 2008. Accordingly, we recorded an impair-
ment charge of $90 million during the fourth quarter of 2009. This
charge represented substantially all of the goodwill resulting
from this acquisition. The goodwill impairment charge is included
in operating expenses in the accompanying consolidated state-
ments of income and is included in the results of the FedEx
Freight segment.

Other Reporting Units Goodwill. Our remaining reporting units
with signiﬁ cant recorded goodwill (excluding FedEx Ofﬁ ce and
FedEx National LTL) include our FedEx Express reporting unit
and our FedEx Freight reporting unit. We evaluated our remain-
ing reporting units during the fourth quarter of 2009, and while
the estimated fair value of these reporting units declined from
2008, the estimated fair value of each of our other reporting units
signiﬁ cantly exceeded their carrying values in 2009. As a result,
no additional testing or impairment charges were necessary.

CONTINGENCIES
We are subject to various loss contingencies, including tax
proceedings and litigation, in connection with our operations.
Contingent liabilities are difﬁ cult to measure, as their measure-
ment is subject to multiple factors that are not easily predicted
or projected. Further, additional complexity in measuring these
liabilities arises due to the various jurisdictions in which these
matters occur, which makes our ability to predict their outcome
highly uncertain. Moreover, different accounting rules must be
employed to account for these items based on the nature of the
contingency. Accordingly, signiﬁ cant management judgment is
required to assess these matters and to make determinations
about the measurement of a liability, if any. Our material pending
loss contingencies are described in Note 17 to our consolidated
ﬁ nancial statements. In the opinion of management, the aggre-
gate liability, if any, of individual matters or groups of matters not
speciﬁ cally described in Note 17 is not expected to be material
to our ﬁ nancial position, results of operations or cash ﬂ ows. The
following describes our method and associated processes for
evaluating these matters.

Tax Contingencies. We are subject to income and operating tax
rules of the U.S., and its states and municipalities, and of the
foreign jurisdictions in which we operate. Signiﬁ cant judgment is
required in determining income tax provisions, as well as deferred
tax asset and liability balances, due to the complexity of these
rules and their interaction with one another. We account for
income taxes under SFAS 109, “Accounting for Income Taxes,” by
recording both current taxes payable and deferred tax assets and
liabilities. Our provision for income taxes is based on domestic
and international statutory income tax rates in the jurisdictions in
which we operate, applied to taxable income, reduced by appli-
cable tax credits.

We account for operating taxes based on multi-state, local and
foreign taxing jurisdiction rules in those areas in which we oper-
ate. Provisions for operating taxes are estimated based upon
these rules, asset acquisitions and disposals, historical spend
and other variables. These provisions are consistently evaluated
for reasonableness against compliance and risk factors.

Tax contingencies arise from uncertainty in the application of
tax rules throughout the many jurisdictions in which we operate.
These tax contingencies are impacted by several factors, includ-
ing tax audits, appeals, litigation, changes in tax laws and other
rules, and their interpretations, and changes in our business,
among other things, in the various federal, state, local and foreign
tax jurisdictions in which we operate. We regularly assess the
potential impact of these factors for the current and prior years
to determine the adequacy of our tax provisions. We continu-
ally evaluate the likelihood and amount of potential adjustments
and adjust our tax positions, including the current and deferred
tax liabilities, in the period in which the facts that give rise to
a revision become known. In addition, management considers
the advice of third parties in making conclusions regarding
tax consequences.

Effective June 1, 2007, we began to measure and record income
tax contingency accruals in accordance with FIN 48. The cumula-
tive effect of adopting FIN 48 was immaterial.

Under FIN 48, we recognize liabilities for uncertain income tax
positions based on a two-step process. The ﬁ rst step is to evalu-
ate the tax position for recognition by determining if the weight
of available evidence indicates that it is more likely than not that
the position will be sustained on audit, including resolution of
related appeals or litigation processes, if any. The second step
requires us to estimate and measure the tax beneﬁ t as the largest
amount that is more than 50% likely to be realized upon ultimate
settlement. It is inherently difﬁ cult and subjective to estimate
such amounts, as we must determine the probability of various
possible outcomes. We reevaluate these uncertain tax positions
on a quarterly basis or when new information becomes avail-
able to management. These reevaluations are based on factors
including, but not limited to, changes in facts or circumstances,
changes in tax law, successfully settled issues under audit and
new audit activity. Such a change in recognition or measurement
could result in the recognition of a tax beneﬁ t or an increase to
the related provision.

We classify interest related to income tax liabilities as interest
expense, and if applicable, penalties are recognized as a com-
ponent of income tax expense. The income tax liabilities and
accrued interest and penalties that are due within one year of
the balance sheet date are presented as current liabilities. The
remaining portion of our income tax liabilities and accrued inter-
est and penalties are presented as noncurrent liabilities. These
noncurrent income tax liabilities are recorded in the caption
“Other liabilities” in our consolidated balance sheets.

We measure and record operating tax contingency accruals in
accordance with SFAS 5, “Accounting for Contingencies.” As
discussed below, SFAS 5 requires an accrual of estimated loss
from a contingency, such as a tax or other legal proceeding or
claim, when it is probable that a loss will be incurred and the
amount of the loss can be reasonably estimated.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Other Contingencies. Because of the complex environment in
which we operate, we are subject to other legal proceedings and
claims, including those relating to general commercial matters,
employment-related claims and FedEx Ground’s owner-operators.
We account for these contingencies in accordance with SFAS 5,
which requires an accrual of estimated loss from a contingency,
such as a tax or other legal proceeding or claim, when it is prob-
able (i.e., the future event or events are likely to occur) that a
loss will be incurred and the amount of the loss can be reason-
ably estimated. SFAS 5 requires disclosure of a loss contingency
matter when, in management’s judgment, a material loss is rea-
sonably possible or probable of occurring.

Our legal department maintains thorough processes to identify,
evaluate and monitor the status of litigation and other loss con-
tingencies as they arise and develop. Management has regular,
comprehensive litigation and contingency reviews, including
updates from internal and external counsel, to assess the need
for accounting recognition of a loss or disclosure of these con-
tingencies. In determining whether a loss should be accrued or
a loss contingency disclosed, we evaluate, among other factors,
the degree of probability of an unfavorable outcome or settlement
and the ability to make a reasonable estimate of the amount of
loss. Events may arise that were not anticipated and the outcome
of a contingency may result in a loss to us that differs materially
from our previously estimated liability.

Market Risk Sensitive
Instruments and Positions

INTEREST RATES
While we currently have market risk sensitive instruments related
to interest rates, we have no signiﬁ cant exposure to changing
interest rates on our long-term debt because the interest rates
are ﬁ xed on all of our long-term debt. As disclosed in Note 6 to
the accompanying consolidated ﬁ nancial statements, we had out-
standing ﬁ xed-rate, long-term debt (exclusive of capital leases)
with an estimated fair value of $2.4 billion at May 31, 2009 and
$1.9 billion at May 31, 2008. Market risk for ﬁ xed-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
$35 million as of May 31, 2009 and $27 million as of May 31, 2008.
The underlying 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.

FOREIGN CURRENCY
While we are a global provider of transportation, e-commerce
and business services, the substantial majority of our transac-
tions are denominated in U.S. dollars. The distribution of our
foreign currency denominated transactions is such that foreign
currency declines in some areas of the world are often offset by
foreign currency gains in other areas of the world. The principal
foreign currency exchange rate risks to which we are exposed
are in the euro, Chinese yuan, Canadian dollar, British pound and
Japanese yen. Historically, our exposure to foreign currency
ﬂ uctuations is more signiﬁ cant with respect to our revenues
than our expenses, as a signiﬁ cant portion of our expenses are

denominated in U.S. dollars, such as aircraft and fuel expenses.
During 2009, operating income was negatively impacted due
to foreign currency ﬂ uctuations. During 2008, foreign currency
ﬂ uctuations positively impacted operating income. However,
favorable foreign currency ﬂ uctuations also may have had an
offsetting impact on the price we obtained or the demand for our
services, which is not quantiﬁ able. At May 31, 2009, the result of
a uniform 10% strengthening in the value of the dollar relative
to the currencies in which our transactions are denominated
would result in a decrease in operating income of $2 million for
2010 (the comparable amount in the prior year was a decrease of
$77 million, reﬂ ecting higher international revenue in 2008). This
theoretical calculation assumes that each exchange rate would
change in the same direction relative to the U.S. dollar.

In practice, our experience has been that exchange rates in
the principal foreign markets where we have foreign currency
denominated transactions tend to have offsetting ﬂ uctuations.
Therefore, the calculation above is not indicative of our actual
experience in foreign currency transactions. In addition to the
direct effects of changes in exchange rates, fluctuations in
exchange rates also affect the volume of sales or the foreign
currency sales price as competitors’ services become more or
less attractive. The sensitivity analysis of the effects of changes
in foreign currency exchange rates does not factor in a potential
change in sales levels or local currency prices.

COMMODITY
While we have market risk for changes in the price of jet and
vehicle fuel, this risk is largely mitigated by our fuel surcharges
because our fuel surcharges are closely linked to market prices
for fuel. Therefore, a hypothetical 10% change in the price of fuel
would not be expected to materially affect our earnings.

However, our fuel surcharges have a timing lag (approximately
six to eight weeks for FedEx Express and FedEx Ground) before
they are adjusted for changes in fuel prices. Our fuel surcharge
index also allows fuel prices to ﬂ uctuate approximately 2% for
FedEx Express and approximately 3% for FedEx Ground before an
adjustment to the fuel surcharge occurs. Accordingly, our oper-
ating income in a speciﬁ c period may be signiﬁ cantly affected
should the spot price of fuel suddenly change by a substantial
amount or change by amounts that do not result in an adjustment
in our fuel surcharges.

OTHER
We do not purchase or hold any derivative ﬁ nancial instruments
for trading purposes.

Risk Factors

Our ﬁ nancial and operating results are subject to many risks and
uncertainties, as described below.

Our businesses depend on our strong reputation and the value of
the FedEx brand. The FedEx brand name symbolizes high-quality
service, reliability and speed. FedEx is one of the most widely
recognized, trusted and respected brands in the world, and the
FedEx brand is one of our most important and valuable assets. In
addition, we have a strong reputation among customers and the

FEDEX CORPORATION

general public for high standards of social and environmental
responsibility and corporate governance and ethics. The FedEx
brand name and our corporate reputation are powerful sales
and marketing tools, and we devote signiﬁ cant resources to pro-
moting and protecting them. Adverse publicity (whether or not
justiﬁ ed) relating to activities by our employees, contractors or
agents could tarnish our reputation and reduce the value of our
brand. Damage to our reputation and loss of brand equity could
reduce demand for our services and thus have an adverse effect
on our ﬁ nancial condition, liquidity and results of operations, as
well as require additional resources to rebuild our reputation and
restore the value of our brand.

Labor organizations attempt to organize groups of our employees
from time to time, and potential changes in labor laws could make
it easier for them to do so. If we are unable to continue to maintain
good relationships with our employees and prevent labor organi-
zations from organizing groups of our employees, our operating
costs could signiﬁ cantly increase and our operational ﬂ exibil-
ity could be signiﬁ cantly reduced. Despite continual organizing
attempts by labor unions, besides the pilots of FedEx Express,
all of our U.S. employees have thus far chosen not to unionize.
The U.S. Congress is considering adopting changes in labor laws,
however, that would make it easier for unions to organize small
units of our employees. For example, in May 2009, the U.S. House
of Representatives passed the FAA Reauthorization Act, which
includes a provision that would remove most FedEx Express
employees from the purview of the Railway Labor Act of 1926,
as amended (the “RLA”). Should the House version of the FAA
Reauthorization Act (or a similar bill removing FedEx Express from
RLA jurisdiction) be passed by the entire Congress and signed
into law by the President, it could expose our customers to the
type of service disruptions that the RLA was designed to prevent
— local work stoppages in key areas that interrupt the timely ﬂ ow
of shipments of time-sensitive, high-value goods throughout our
global network. Such disruptions could threaten our ability to pro-
vide competitively priced shipping options and ready access to
global markets. There is also the possibility that the U.S. Congress
could pass other labor legislation, such as the currently proposed
Employee Free Choice Act (the “EFCA”) (also called “card-check
legislation”), that could adversely affect our companies, such
as FedEx Ground and FedEx Freight, whose employees are gov-
erned by the National Labor Relations Act of 1935, as amended
(the “NLRA”). The EFCA would amend the NLRA to substantially
liberalize the procedures for union organization — for example,
by eliminating employees’ absolute right to a secret ballot vote
in union elections. The EFCA could also require imposition of an
arbitrated initial contract that could include pay, beneﬁ t and work
rules that could adversely impact employers.

We rely heavily on technology to operate our transportation
and business networks, and any disruption to our technology
infrastructure or the Internet could harm our operations and our
reputation among customers. Our ability to attract and retain
customers and to compete effectively depends in part upon the
sophistication and reliability of our technology network, includ-
ing our ability to provide features of service that are important to
our customers. Any disruption to the Internet or our technology
infrastructure, including those impacting our computer systems
and Web site, could adversely impact our customer service and
our volumes and revenues and result in increased costs. While

we have invested and continue to invest in technology security
initiatives and disaster recovery plans, these measures cannot
fully insulate us from technology disruptions and the resulting
adverse effect on our operations and ﬁ nancial results.

Our transportation businesses may be impacted by the price and
availability of fuel. We must purchase large quantities of fuel to
operate our aircraft and vehicles, and the price and availability
of fuel can be unpredictable and beyond our control. To date, we
have been mostly successful in mitigating the expense impact
of higher fuel costs through our indexed fuel surcharges, as the
amount of the surcharges is closely linked to the market prices for
fuel. If we are unable to maintain or increase our fuel surcharges
because of competitive pricing pressures or some other reason,
fuel costs could adversely impact our operating results. Even if
we are able to offset the cost of fuel with our surcharges, high
fuel surcharges could move our customers, especially in the U.S.
domestic market, away from our higher-yielding express services
to our lower-yielding ground services or even reduce customer
demand for our services altogether. These effects were evident
in the ﬁ rst quarter of 2009, as fuel prices reached all-time highs.
In addition, disruptions in the supply of fuel could have a negative
impact on our ability to operate our transportation networks.

Our businesses are capital intensive, and we must make capi-
tal expenditures based upon projected volume levels. We make
signiﬁ cant investments in aircraft, vehicles, technology, package
handling facilities, sort equipment, copy equipment and other
assets to support our transportation and business networks. We
also make signiﬁ cant investments to rebrand, integrate and grow
the companies that we acquire. The amount and timing of capital
investments depend on various factors, including our anticipated
volume growth. For example, we must make commitments to
purchase or modify aircraft years before the aircraft are actually
needed. We must predict volume levels and ﬂ eet requirements
and make commitments for aircraft based on those projections.
Missing our projections could result in too much or too little capac-
ity relative to our shipping volumes. Overcapacity could lead to
asset dispositions or write-downs and undercapacity could nega-
tively impact service levels. For example, recent and current weak
economic conditions and the delivery of newer, more fuel-efﬁ cient
aircraft have led to excess aircraft capacity at FedEx Express.
As a result, during the fourth quarter of 2009, we decided to per-
manently remove 14 aircraft and certain excess aircraft engines
from service and thus recorded a charge of $191 million. A limited
number of other aircraft remain temporarily grounded because
of network overcapacity, and any future decisions to further alter
our networks by eliminating additional aircraft or other assets may
lead to additional asset impairment charges.

We face intense competition, especially during the current global
recession. The transportation and business services markets are
both highly competitive and sensitive to price and service, espe-
cially in periods of little or no macro-economic growth. Some of
our competitors have more ﬁ nancial resources than we do, or
they are controlled or subsidized by foreign governments, which
enables them to raise capital more easily. We believe we compete
effectively with these companies — for example, by providing
more reliable service at compensatory prices. However, our com-
petitors determine the charges for their services, and the current
global recession has led to a very competitive pricing environ-
ment within our industries. If the pricing environment becomes

FEDEX CORPORATION

irrational, it could limit our ability to maintain or increase our
prices (including our fuel surcharges in response to rising fuel
costs) or to maintain or grow our market share. In addition, main-
taining a broad portfolio of services is important to keeping and
attracting customers. While we believe we compete effectively
through our current service offerings, if our competitors offer a
broader range of services or more effectively bundle their ser-
vices, it could impede our ability to maintain or grow our market
share.

If we do not effectively operate, integrate, leverage and grow
acquired businesses, our ﬁ nancial results and reputation may
suffer. Our strategy for long-term growth, productivity and proﬁ t-
ability depends in part on our ability to make prudent strategic
acquisitions and to realize the beneﬁ ts we expect when we make
those acquisitions. In furtherance of this strategy, during 2007
we acquired the LTL freight operations of Watkins Motor Lines
(renamed FedEx National LTL) and made strategic acquisitions in
China, the United Kingdom and India. During 2004, we acquired
Kinko’s, Inc. (now known as FedEx Ofﬁ ce). While we expect our
past and future acquisitions to enhance our value proposition
to customers and improve our long-term proﬁ tability, there can
be no assurance that we will realize our expectations within the
time frame we have established, if at all, or that we can continue
to support the value we allocate to these acquired businesses,
including their goodwill or other intangible assets. As an exam-
ple, during 2008 and 2009, we recorded aggregate charges of
$1.8 billion for impairment of the value of the Kinko’s trade name
and portions of the goodwill recorded as a result of the Kinko’s
and Watkins Motor Lines acquisitions. These charges were nec-
essary, among other reasons, because the recent and forecasted
ﬁ nancial performance of those companies did not meet our origi-
nal expectations as a result of weak economic conditions.

FedEx Ground relies on owner-operators to conduct its line-
haul and pickup-and-delivery operations, and the status of
these owner-operators as independent contractors, rather than
employees, is being challenged. FedEx Ground’s use of inde-
pendent contractors is well suited to the needs of the ground
delivery business and its customers, as evidenced by the strong
growth of this business segment. We are involved in numerous
class-action lawsuits (including many that have been certiﬁ ed
as class actions), several individual lawsuits and numerous tax
and other administrative proceedings that claim that the com-
pany’s owner-operators or their drivers should be treated as our
employees, rather than independent contractors. We expect to
incur certain costs, including legal fees, in defending the status
of FedEx Ground’s owner-operators as independent contractors.
We believe that FedEx Ground’s owner-operators are properly
classiﬁ ed as independent contractors and that FedEx Ground
is not an employer of the drivers of the company’s independent
contractors. However, adverse determinations in these matters
could, among other things, entitle certain of our contractors and
their drivers to the reimbursement of certain expenses and to
the beneﬁ t of wage-and-hour laws and result in employment
and withholding tax and beneﬁ t liability for FedEx Ground, and
could result in changes to the independent contractor status of
FedEx Ground’s owner-operators. If FedEx Ground is compelled
to convert its independent contractors to employees, labor
organizations could more easily organize these individuals, our

operating costs could increase materially and we could incur
signiﬁ cant capital outlays.

Increased security requirements could impose substantial costs
on us, especially at FedEx Express. As a result of concerns about
global terrorism and homeland security, governments around the
world are adopting or are considering adopting stricter security
requirements that will increase operating costs for businesses,
including those in the transportation industry. For example, in July
2007, the U.S. Transportation Security Administration issued to us
a Full All-Cargo Aircraft Operator Standard Security Plan, which
contained many new and enhanced security requirements. These
requirements are not static, but will change periodically as the
result of regulatory and legislative requirements, and to respond
to evolving threats. Until these requirements are adopted, we
cannot determine the effect that these new rules will have on our
cost structure or our operating results. It is reasonably possible,
however, that these rules or other future security requirements
could impose material costs on us.

The regulatory environment for global aviation rights may impact
our air operations. Our extensive air network is critical to our suc-
cess. Our right to serve foreign points is subject to the approval
of the Department of Transportation and generally requires a
bilateral agreement between the United States and foreign gov-
ernments. In addition, we must obtain the permission of foreign
governments to provide speciﬁ c ﬂ ights and services. Regulatory
actions affecting global aviation rights or a failure to obtain or
maintain aviation rights in important international markets could
impair our ability to operate our air network.

We may be affected by global climate change or by legal, regula-
tory or market responses to such change. Concern over climate
change, including the impact of global warming, has led to sig-
niﬁ cant U.S. and international legislative and regulatory efforts
to limit greenhouse gas (“GHG”) emissions. For example, dur-
ing 2009, the European Commission approved the extension of
the European Union Emissions Trading Scheme (“ETS”) for GHG
emissions, to the airline industry. We believe this decision vio-
lates international treaties and air services agreements and is
likely to be challenged by the U.S. Government. If the decision
stands, however, then all FedEx Express ﬂ ights to and from any
airport in any member state of the European Union would be
covered by the ETS requirements beginning in 2012, and each
year we would be required to submit emission allowances in an
amount equal to the carbon dioxide emissions from such ﬂ ights.
In addition, the U.S. House of Representatives has passed and
the Senate is currently considering a bill that would regulate GHG
emissions, and some form of federal climate change legislation
is possible in the relatively near future. Increased regulation
regarding GHG emissions, especially aircraft or diesel engine
emissions, could impose substantial costs on us, especially at
FedEx Express. These costs include an increase in the cost of
the fuel and other energy we purchase and capital costs associ-
ated with updating or replacing our aircraft or trucks prematurely.
Until the timing, scope and extent of such regulation becomes
known, we cannot predict its effect on our cost structure or
our operating results. It is reasonably possible, however, that it
could impose material costs on us. Moreover, even without such
regulation, increased awareness and any adverse publicity in the
global marketplace about the GHGs emitted by companies in the

FEDEX CORPORATION

industry is highly cyclical and especially susceptible to trends
in economic activity, such as the current global recession. Our
primary business is to transport goods, so our business levels
are directly tied to the purchase and production of goods — key
macro-economic measurements. When individuals and compa-
nies purchase and produce fewer goods, we transport fewer
goods. In addition, we have a relatively high ﬁ xed-cost struc-
ture, which is difﬁ cult to quickly adjust to match shifting volume
levels. Moreover, as we grow our international business, we are
increasingly affected by the health of the global economy. As a
result, the current global recession has had a disproportionately
negative impact on us and our recent ﬁ nancial results.

Forward-Looking Statements

Certain statements in this report, including (but not limited to)
those contained in “Outlook (including segment outlooks),”
“Liquidity,” “Capital Resources,” “Liquidity Outlook,” “Contractual
Cash Obligations” and “Critical Accounting Estimates,” and the
“Retirement Plans” and “Contingencies” notes to the consoli-
dated ﬁ nancial statements, are “forward-looking” statements
within the meaning of the Private Securities Litigation Reform
Act of 1995 with respect to our ﬁ nancial condition, results of
operations, cash ﬂ ows, plans, objectives, future performance and
business. Forward-looking statements include those preceded by,
followed by or that include the words “may,” “could,” “would,”
“should,” “believes,” “expects,” “anticipates,” “plans,” “esti-
mates,” “targets,” “projects,” “intends” or similar expressions.
These forward-looking statements involve risks and uncertain-
ties. Actual results may differ materially from those contemplated
(expressed or implied) by such forward-looking statements,
because of, among other things, the risk factors identiﬁ ed above
and the other risks and uncertainties you can ﬁ nd in our press
releases and SEC ﬁ lings.

As a result of these and other factors, no assurance can be
given as to our future results and achievements. Accordingly, a
forward-looking statement is neither a prediction nor a guarantee
of future events or circumstances and those future events or cir-
cumstances may not occur. You should not place undue reliance
on the forward-looking statements, which speak only as of the
date of this report. We are under no obligation, and we expressly
disclaim any obligation, to update or alter any forward-looking
statements, whether as a result of new information, future events
or otherwise.

airline and transportation industries could harm our reputation
and reduce customer demand for our services, especially our
air express services.

We are also subject to risks and uncertainties that affect many
other businesses, including:

• the impact of any international conﬂ icts or terrorist activities on
the United States and global economies in general, the trans-
portation industry or us in particular, and what effects these
events will have on our costs or the demand for our services;

• any impacts on our businesses resulting from new domestic or
international government laws and regulation, including tax,
accounting, trade (such as protectionist measures enacted
in response to the current weak economic conditions), labor
(such as card-check legislation), environmental (such as cli-
mate change legislation) or postal rules;

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

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

• increasing costs, the volatility of costs and legal mandates
for employee benefits, especially pension and healthcare
beneﬁ ts;

• signiﬁ cant changes in the volumes of shipments transported
through our networks, customer demand for our various ser-
vices or the prices we obtain for our services;

• market acceptance of our new service and growth initiatives;

• any liability resulting from and the costs of defending against
class-action litigation, such as wage-and-hour and discrimina-
tion and retaliation claims, patent litigation, and any other legal
proceedings;

• the impact of technology developments on our operations and

on demand for our services;

• adverse weather conditions or natural disasters, such as earth-
quakes and hurricanes, which can disrupt electrical service,
damage our property, disrupt our operations, increase fuel
costs and adversely affect shipment levels;

• widespread outbreak of an illness or any other communicable

disease, or any other public health crisis;

• availability of ﬁ nancing on terms acceptable to us and our abil-
ity to maintain our current credit ratings, especially given the
capital intensity of our operations and the current volatility of
credit markets; and

• credit losses from our customers’ inability or unwillingness to
pay for previously provided services as a result of, among other
things, weak economic conditions and tight credit markets.

We are directly affected by the state of the economy. While the
global, or macro-economic, risks listed above apply to most
companies, we are particularly vulnerable. The transportation

FEDEX CORPORATION

Management’s Report on Internal Control Over
Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over ﬁ nancial reporting (as deﬁ ned in Rules
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Our internal control over ﬁ nancial reporting includes,
among other things, deﬁ ned policies and procedures for conducting and governing our business, sophisticated information systems
for processing transactions and a properly staffed, professional internal audit department. Mechanisms are in place to monitor the
effectiveness of our internal control over ﬁ nancial reporting and actions are taken to correct deﬁ ciencies identiﬁ ed. Our procedures
for ﬁ nancial reporting include the active involvement of senior management, our Audit Committee and our staff of highly qualiﬁ ed
ﬁ nancial and legal professionals.

Management, with the participation of our principal executive and ﬁ nancial ofﬁ cers, assessed our internal control over ﬁ nancial
reporting as of May 31, 2009, the end of our ﬁ scal year. Management based its assessment on criteria established in Internal Control–
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).

Based on this assessment, management has concluded that our internal control over ﬁ nancial reporting was effective as of
May 31, 2009.

The effectiveness of our internal control over ﬁ nancial reporting as of May 31, 2009, has been audited by Ernst & Young LLP, the inde-
pendent registered public accounting ﬁ rm who also audited the Company’s consolidated ﬁ nancial statements included in this Annual
Report. Ernst & Young LLP’s report on the Company’s internal control over ﬁ nancial reporting is included in this Annual Report .

FEDEX CORPORATION

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
FedEx Corporation

We have audited FedEx Corporation’s internal control over financial reporting as of May 31, 2009, based on criteria established in
Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the
COSO criteria). FedEx Corporation’s management is responsible for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over
financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliabil-
ity of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial state-
ments in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, FedEx Corporation maintained, in all material respects, effective internal control over financial reporting as of May 31,
2009, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of FedEx Corporation as of May 31, 2009 and 2008, 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, 2009 of FedEx Corporation and our report dated July 10, 2009 expressed an unqualified opinion thereon.

Memphis, Tennessee
July 10, 2009

FEDEX CORPORATION

Consolidated Statements of Income

(In millions, except per share amounts)

REVENUES
OPERATING EXPENSES:
Salaries and employee beneﬁ ts
Purchased transportation
Rentals and landing fees
Depreciation and amortization
Fuel
Maintenance and repairs

Impairment and other charges

Other

OPERATING INCOME
OTHER INCOME (EXPENSE):

Interest expense
Interest income

Other, net

INCOME BEFORE INCOME TAXES
PROVISION FOR INCOME TAXES
NET INCOME
BASIC EARNINGS PER COMMON SHARE
DILUTED EARNINGS PER COMMON SHARE

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

2009

$ 35,497

13,767
4,534
2,429
1,975
3,811
1,898
1,204
5,132
34,750

747

(85)
26
(11)
(70)
677
579
98
$
$ 0.31
$ 0.31

Years ended May 31,

2008

$ 37,953

14,202
4,634
2,441
1,946
4,409
2,068
882
5,296
35,878

2,075

(98)
44
(5)
(59)
2,016
891
$ 1,125
3.64
$
3.60
$

2007

$ 35,214

13,740
3,978
2,343
1,742
3,428
1,952
–
4,755
31,938

3,276

(136)
83
(8)
(61)
3,215
1,199
$ 2,016
$ 6.57
$ 6.48

FEDEX CORPORATION

Consolidated Balance Sheets

(In millions, except share data)

ASSETS
Current Assets
Cash and cash equivalents
Receivables, less allowances of $196 and $158
Spare parts, supplies and fuel, less allowances of $175 and $163
Deferred income taxes
Prepaid expenses and other

Total current assets

Property and Equipment, at Cost
Aircraft and related equipment
Package handling and ground support equipment
Computer and electronic equipment
Vehicles
Facilities and other

Less accumulated depreciation and amortization

Net property and equipment

Other Long-Term Assets
Goodwill
Pension assets

Intangible and other assets
Total other long-term assets

LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current Liabilities
Current portion of long-term debt
Accrued salaries and employee beneﬁ ts
Accounts payable
Accrued expenses

Total current liabilities

Long-Term Debt, Less Current Portion
Other Long-Term Liabilities
Deferred income taxes
Pension, postretirement healthcare and other beneﬁ t obligations
Self-insurance accruals
Deferred lease obligations
Deferred gains, principally related to aircraft transactions
Other liabilities

Total other long-term liabilities

Commitments and Contingencies
Common Stockholders’ Investment
Common stock, $0.10 par value; 800 million shares authorized;

312 million shares issued for 2009 and 311 million shares issued for 2008

Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost

Total common stockholders’ investment

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

May 31,

2009

2008

$ 2,292
3,391
367
511
555
7,116

10,118
4,960
4,280
3,078
6,824
29,260
15,843
13,417

2,229
311
1,171
3,711
$ 24,244

653
861
1,372
1,638
4,524
1,930

1,071
934
904
802
289
164
4,164

31
2,053
12,919
(1,373)
(4)
13,626
$ 24,244

$ 1,539
4,359
435
544
367
7,244

10,165
4,817
5,040
2,754
6,529
29,305
15,827
13,478

3,165
827
919
4,911
$ 25,633

$
502
1,118
2,195
1,553
5,368
1,506

1,264
989
804
671
315
190
4,233

31
1,922
13,002
(425)
(4)
14,526
$ 25,633

FEDEX CORPORATION

Consolidated Statements of Cash Flows

(In millions)

OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to cash provided by operating activities:

Depreciation and amortization
Provision for uncollectible accounts
Deferred income taxes and other noncash items
Noncash impairment charges
Stock-based compensation
Changes in operating assets and liabilities,
net of the effects of businesses acquired:

Receivables
Other assets
Pension assets and liabilities, net
Accounts payable and other liabilities
Other, net

Cash provided by operating activities

INVESTING ACTIVITIES
Capital expenditures
Business acquisitions, net of cash acquired
Proceeds from asset dispositions and other
Cash used in investing activities

FINANCING ACTIVITIES
Principal payments on debt
Proceeds from debt issuances
Proceeds from stock issuances
Excess tax beneﬁ ts on the exercise of stock options
Dividends paid
Other, net
Cash provided by (used in) ﬁ nancing activities

CASH AND CASH EQUIVALENTS
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

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

2009

1,975
181
299
1,103
99

762
(196)
(913)
(628)
(27)
2,753

(2,459)
(3)
79
(2,383)

(501)
1,000
41
4
(137)
(7)
400

(17)
753
1,539
$ 2,292

Years ended May 31,

2008

$ 1,125

1,946
134
124
882
101

(447)
(237)
(273)
190
(80)
3,465

(2,947)
(4)
54
(2,897)

(639)
–
108
38
(124)
–
(617)

19
(30)
1,569
$ 1,539

2007

$ 2,016

1,742
106
37
–
103

(323)
(85)
(69)
66
(36)
3,557

(2,882)
(1,310)
68
(4,124)

(906)
1,054
115
45
(110)
(5)
193

6
(368)
1,937
$ 1,569

FEDEX CORPORATION

Consolidated Statements of Changes in Stockholders’
Investment and Comprehensive Income

Accumulated
Other
Comprehensive
Income (Loss)

Treasury
Stock

(In millions, except share data)

BALANCE AT MAY 31, 2006
Net income
Foreign currency translation adjustment,
net of tax of $8
Minimum pension liability adjustment,
net of tax of $24

Total comprehensive income

Retirement plans adjustment in connection with
the adoption of SFAS 158, net of tax of $582

Cash dividends declared ($0.37 per share)
Employee incentive plans and other

(2,508,850 shares issued)

BALANCE AT MAY 31, 2007
Net income
Foreign currency translation adjustment,
net of tax of $15
Retirement plans adjustment, net of tax of $296

Total comprehensive income

Cash dividends declared ($0.30 per share)
Employee incentive plans and other

(2,556,318 shares issued)
BALANCE AT MAY 31, 2008
Adjustment to opening balances for SFAS 158
measurement date transition, net of
deferred tax beneﬁ t of $26 and deferred

tax expense of $220, respectively

BALANCE AT JUNE 1, 2008
Net income
Foreign currency translation adjustment,
net of tax of $28
Retirement plans adjustment, net of tax of $718

Total comprehensive loss

Cash dividends declared ($0.44 per share)
Employee incentive plans and other

(995,271 shares issued)
BALANCE AT MAY 31, 2009

Common
Stock

$ 31
–

–

–
–

–

31
–

–
–

–

–
31

–
31
–

–
–

–

–
$ 31

Additional
Paid-in
Capital

$ 1,438
–

–

–
–

251

1,689
–

–
–

–

Retained
Earnings

$ 10,068
2,016

–

–
(114)

–

11,970
1,125

–
–

(93)

233
1,922

–
13,002

(24)
–

(50)

(982)
–

–

(1,030)
–

99
506

–

–
(425)

369
(56)
–

–
1,922
–

–
–

–

(44)
12,958
98

–
–

(112)
(1,205)

(137)

–

131
$ 2,053

–
$ 12,919

–
$ (1,373)

$ (2)
–

–

–
–

(2)

(4)
–

–
–

–

–
(4)

–
(4)
–

–
–

–

–
$ (4)

Total

$ 11,511
2,016

(50)
1,992

(982)
(114)

249

12,656
1,125

99
506
1,730
(93)

233
14,526

325
14,851
98

(112)
(1,205)
(1,219)
(137)

131
$ 13,626

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Description of Business
and Summary of Signiﬁ cant
Accounting Policies

DESCRIPTION OF BUSINESS
FedEx Corporation (“FedEx”) provides a broad portfolio of trans-
portation, e-commerce and business services through companies
competing collectively, operating independently and managed
collaboratively, under the respected FedEx brand. Our primary
operating companies include Federal Express Corporation
(“FedEx Express”), the world’s largest express transportation
company; FedEx Ground Package System, Inc. (“FedEx Ground”),
a leading provider of small-package ground delivery services;
and FedEx Freight Corporation, a leading U.S. provider of less-
than-truckload (“LTL”) freight services. Our FedEx Services
segment provides customer-facing sales, marketing, information
technology and customer service support to our transportation
segments. In addition, the FedEx Services segment provides cus-
tomers with retail access to FedEx Express and FedEx Ground
shipping services through FedEx Ofﬁ ce and Print Services, Inc.
(“FedEx Ofﬁ ce”). These companies represent our major service
lines and form the core of our reportable segments.

FISCAL YEARS
Except as otherwise specified, references to years indicate
our fiscal year ended May 31, 2009 or ended May 31 of the
year referenced.

PRINCIPLES OF CONSOLIDATION
The consolidated ﬁ nancial statements include the accounts of
FedEx and its subsidiaries, substantially all of which are wholly
owned. All signiﬁ cant intercompany accounts and transactions
have been eliminated in consolidation.

RECLASSIFICATIONS
Certain reclassiﬁ cations have been made to prior year ﬁ nan-
cial statements to conform to the current year presentation. For
example, at FedEx Ground certain fuel supplement costs related
to our independent contractors were reclassified from fuel
expense to purchased transportation to conform to the current
period presentation.

REVENUE RECOGNITION
We recognize revenue upon delivery of shipments for our trans-
portation businesses and upon completion of services for our
business services, logistics and trade services businesses.
Certain of our transportation services are provided with the use of
independent contractors. FedEx is the principal to the transaction
in most instances and in those cases revenue from these trans-
actions is recognized on a gross basis. Costs associated with
independent contractor settlements are recognized as incurred
and included in the caption “Purchased transportation” in the
accompanying consolidated statements of income. For shipments
in transit, revenue is recorded based on the percentage of service
completed at the balance sheet date. Estimates for future billing
adjustments to revenue and accounts receivable are recognized
at the time of shipment for money-back service guarantees and
billing corrections. Delivery costs are accrued as incurred.

Our contract logistics, global trade services and certain transpor-
tation businesses engage in some transactions wherein they act
as agents. Revenue from these transactions is recorded on a net
basis. Net revenue includes billings to customers less third-party
charges, including transportation or handling costs, fees, commis-
sions, and taxes and duties. These amounts are not material.

Certain of our revenue-producing transactions are subject to
taxes assessed by governmental authorities, such as sales tax.
We present these revenues net of tax.

CREDIT RISK
We routinely grant credit to many of our customers for transpor-
tation and business services without collateral. The risk of credit
loss in our trade receivables is substantially mitigated by our
credit evaluation process, short collection terms and sales to a
large number of customers, as well as the low revenue per trans-
action for most of our services. Allowances for potential credit
losses are determined based on historical experience and current
evaluation of the composition of accounts receivable. Historically,
credit losses have been within management’s expectations.

ADVERTISING
Advertising and promotion costs are expensed as incurred and
are classiﬁ ed in other operating expenses. Advertising and pro-
motion expenses were $379 million in 2009, $445 million in 2008
and $406 million in 2007.

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

SPARE PARTS, SUPPLIES AND FUEL
Spare parts (principally aircraft related) are reported at weighted-
average cost. Supplies and fuel are reported at average cost,
which approximates actual cost on a first-in, first-out basis.
Allowances for obsolescence are provided for spare parts
expected to be on hand at the date the aircraft are retired from
service. These allowances are provided over the estimated useful
life of the related aircraft and engines. Additionally, allowances
for obsolescence are provided for spare parts currently identiﬁ ed
as excess or obsolete. These allowances are based on manage-
ment estimates, which are subject to change.

PROPERTY AND EQUIPMENT
Expenditures for major additions, improvements, ﬂ ight equipment
modiﬁ cations and certain equipment overhaul costs are capitalized
when such costs are determined to extend the useful life of the
asset or are part of the cost of acquiring the asset. Maintenance
and repairs are charged to expense as incurred, except for certain
aircraft-related major maintenance costs on one of our aircraft
fleet types, which are capitalized as incurred and amortized
over their estimated service lives. We capitalize certain direct
internal and external costs associated with the development of
internal-use software. Gains and losses on sales of property used
in operations are classiﬁ ed within operating expenses.

For ﬁ nancial reporting purposes, we record depreciation and
amortization of property and equipment on a straight-line basis

FEDEX CORPORATION

over the asset’s service life or related lease term, if shorter. For
income tax purposes, depreciation is computed using acceler-
ated methods when applicable. The depreciable lives and net
book value of our property and equipment are as follows (dollars
in millions):

Net Book Value at May 31,
2008

2009

Range

Wide-body aircraft and
related equipment
Narrow-body and feeder
aircraft and related equipment
Package handling and
ground support equipment
Computer and electronic
equipment
Vehicles
Facilities and other

15 to 25 years

$5,139

$ 5,550

5 to 15 years

709

452

2 to 30 years

1,928

1,897

2 to 10 years
3 to 15 years
2 to 40 years

782
1,107
3,752

943
1,007
3,629

Substantially all property and equipment have no material resid-
ual values. The majority of aircraft costs are depreciated on a
straight-line basis over 15 to 18 years. We periodically evaluate
the estimated service lives and residual values used to depre-
ciate our property and equipment. This evaluation may result
in changes in the estimated lives and residual values. Such
changes did not materially affect depreciation expense in any
period presented. Depreciation expense, excluding gains and
losses on sales of property and equipment used in operations,
was $1.8 billion in 2009, $1.8 billion in 2008 and $1.7 billion in 2007.
Depreciation and amortization expense includes amortization of
assets under capital lease.

CAPITALIZED INTEREST
Interest on funds used to ﬁ nance the acquisition and modiﬁ cation
of aircraft, including purchase deposits, construction of certain
facilities, and development of certain software up to the date the
asset is ready for its intended use is capitalized and included in
the cost of the asset if the asset is actively under construction.
Capitalized interest was $71 million in 2009, $50 million in 2008
and $34 million in 2007.

IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment when circum-
stances indicate the carrying value of an asset may not be
recoverable. For assets that are to be held and used, an impair-
ment is recognized when the estimated undiscounted cash ﬂ ows
associated with the asset or group of assets is less than their
carrying value. If 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. Fair val-
ues are determined based on quoted market values, discounted
cash ﬂ ows or internal and external appraisals, as applicable.
Assets to be disposed of are carried at the lower of carrying
value or estimated net realizable value. We operate integrated
transportation networks, and accordingly, cash ﬂ ows for most of
our operating assets are assessed at a network level, not at an
individual asset level, for our analysis of impairment.

During the fourth quarter of 2009, we recorded $202 million in
property and equipment impairment charges. These charges are
primarily related to our April 2009 decision to permanently remove

from service 10 Airbus A310-200 aircraft and four Boeing MD10-10
aircraft owned by the company, along with certain excess aircraft
engines at FedEx Express. This decision resulted in an impairment
charge of $191 million, which was recorded in the fourth quarter
of 2009. A limited amount of our total aircraft capacity remains
temporarily grounded because of network overcapacity due to the
current economic environment. There were no material property
and equipment impairment charges recognized in 2008 or 2007.

GOODWILL
Goodwill is recognized for the excess of the purchase price over
the fair value of tangible and identiﬁ able intangible net assets of
businesses acquired. Several factors give rise to goodwill in our
acquisitions, such as the expected beneﬁ t from synergies of the
combination and the existing workforce of the acquired entity.
Goodwill is reviewed at least annually for impairment by compar-
ing the fair value of each reporting unit with its carrying value
(including attributable goodwill). Fair value for our reporting units
is determined using an income or market approach incorporating
market participant considerations and management’s assump-
tions on revenue growth rates, operating margins, discount rates
and expected capital expenditures. Fair value determinations
may include both internal and third-party valuations. Unless cir-
cumstances otherwise dictate, we perform our annual impairment
testing in the fourth quarter.

INTANGIBLE ASSETS
Intangible assets include customer relationships, trade names,
technology assets and contract-based intangibles acquired in
business combinations. Intangible assets are amortized over
periods ranging from 2 to 15 years, either on a straight-line basis
or an accelerated basis depending upon the pattern in which the
economic beneﬁ ts are realized.

PENSION AND POSTRETIREMENT
HEALTHCARE PLANS
On May 31, 2007, we adopted Statement of Financial Accounting
Standards (“SFAS”) 158, “Employers’ Accounting for Deﬁ ned
Benefit Pension and Other Postretirement Plans.” SFAS 158
requires recognition in the balance sheet of the funded status of
deﬁ ned beneﬁ t pension and other postretirement beneﬁ t plans,
and the recognition in other comprehensive income (“OCI”) of
unrecognized gains or losses and prior service costs or credits.
The adoption of SFAS 158 resulted in a $982 million charge to
shareholders’ equity at May 31, 2007 through accumulated other
comprehensive income (“AOCI”).

Additionally, SFAS 158 requires the measurement date for
plan assets and liabilities to coincide with the plan sponsor’s
year end. On June 1, 2008, we made our transition election for
the measurement date provision of SFAS 158 using the two-
measurement approach. Under this approach, we completed
two actuarial measurements, one at February 29, 2008 and the
other at June 1, 2008. This approach required us to record the
net periodic beneﬁ t cost for the transition period from March 1,
2008 through May 31, 2008 as an adjustment to beginning retained
earnings ($44 million, net of tax) and actuarial gains and losses
for the period (a gain of $372 million, net of tax) as an adjustment
to the opening balance of AOCI. These adjustments increased
the amount recorded for our pension assets by $528 million. Our

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

actuarial gains resulted primarily from a 19-basis-point increase
in the discount rate for our primary pension plan and an increase
in plan assets at June 1, 2008.

Our deﬁ ned beneﬁ t plans are measured using actuarial tech-
niques that reﬂ ect management’s assumptions for discount rate,
expected long-term investment returns on plan assets, salary
increases, expected retirement, mortality, employee turnover and
future increases in healthcare costs. We determine the discount
rate (which is required to be the rate at which the projected ben-
eﬁ t obligation could be effectively settled as of the measurement
date) with the assistance of actuaries, who calculate the yield
on a theoretical portfolio of high-grade corporate bonds (rated
Aa or better) with cash ﬂ ows that generally match our expected
beneﬁ t payments in future years. A calculated-value method is
employed for purposes of determining the expected return on the
plan asset component of net periodic pension cost for our quali-
ﬁ ed U.S. pension plans. We generally do not fund deﬁ ned beneﬁ t
plans when such funding provides no current tax deduction or
when such funding would be deemed current compensation to
plan participants.

At May 31, 2009, in accordance with the provisions of SFAS 158,
we recorded a decrease to equity through OCI of $1.2 billion (net
of tax) based primarily on mark-to-market adjustments related to
unrealized losses in our pension plan assets during 2009.

INCOME TAXES
Deferred income taxes are provided for the tax effect of tempo-
rary differences between the tax basis of assets and liabilities
and their reported amounts in the ﬁ nancial statements. The liabil-
ity method is used 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.

On June 1, 2007, we adopted Financial Accounting Standards
Board (“FASB”) Interpretation No. (“FIN”) 48, “Accounting for
Uncertainty in Income Taxes.” The cumulative effect of adop-
tion was immaterial. We follow FIN 48 guidance to record
uncertainties and make judgments in the application of complex
tax regulations.

We recognize liabilities for uncertain income tax positions based
on a two-step process. The ﬁ rst step is to evaluate the tax posi-
tion for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position
will be sustained on audit, including resolution of related appeals
or litigation processes, if any. The second step requires us to
estimate and measure the tax beneﬁ t as the largest amount that
is more than 50% likely to be realized upon ultimate settlement.
It is inherently difﬁ cult and subjective to estimate such amounts,
as we must determine the probability of various possible out-
comes. We reevaluate these uncertain tax positions on a quarterly
basis or when new information becomes available to manage-
ment. These reevaluations are based on factors including, but not
limited to, changes in facts or circumstances, changes in tax law,
successfully settled issues under audit, and new audit activity.
Such a change in recognition or measurement could result in the
recognition of a tax beneﬁ t or an increase to the tax accrual.

We classify interest related to income tax liabilities as inter-
est expense, and if applicable, penalties are recognized as a
component of income tax expense. The income tax liabilities

and accrued interest and penalties that are due within one year
of the balance sheet date are presented as current liabilities.
The remaining portion of our income tax liabilities and accrued
interest and penalties are presented as noncurrent liabilities
because payment of cash is not anticipated within one year of
the balance sheet date. These noncurrent income tax liabilities
are recorded in the caption “Other liabilities” in our consolidated
balance sheets.

SELF-INSURANCE ACCRUALS
We are primarily self-insured for workers’ compensation claims,
vehicle accidents and general liabilities, benefits paid under
employee healthcare programs and long-term disability beneﬁ ts.
Accruals are primarily based on the actuarially estimated, undis-
counted cost of claims, which includes incurred-but-not-reported
claims. Current workers’ compensation claims, vehicle and gen-
eral liability, employee healthcare claims and long-term disability
are included in accrued expenses. We self-insure up to certain
limits that vary by operating company and type of risk. Periodically,
we evaluate the level of insurance coverage and adjust insurance
levels based on risk tolerance and premium expense.

LEASES
We lease certain aircraft, facilities, equipment and vehicles
under capital and operating leases. The commencement date of
all leases is the earlier of the date we become legally obligated
to make rent payments or the date we may exercise control over
the use of the property. In addition to minimum rental payments,
certain leases provide for contingent rentals based on equip-
ment usage principally related to aircraft leases at FedEx Express
and copier usage at FedEx Ofﬁ ce. Rent expense associated with
contingent rentals is recorded as incurred. Certain of our leases
contain ﬂ uctuating or escalating payments and rent holiday peri-
ods. The related rent expense is recorded on a straight-line basis
over the lease term. The cumulative excess of rent payments
over rent expense is accounted for as a deferred lease asset
and recorded in “Intangible and other assets” in the accompa-
nying consolidated balance sheets. The cumulative excess of
rent expense over rent payments is accounted for as a deferred
lease obligation. Leasehold improvements associated with assets
utilized under capital or operating leases are amortized over the
shorter of the asset’s useful life or the lease term.

DEFERRED GAINS
Gains on the sale and leaseback of aircraft and other property
and equipment are deferred and amortized ratably over the life of
the lease as a reduction of rent expense. Substantially all of these
deferred gains are related to aircraft transactions.

FOREIGN CURRENCY TRANSLATION
Translation gains and losses of foreign operations that use local
currencies as the functional currency are accumulated and
reported, net of applicable deferred income taxes, as a compo-
nent of accumulated other comprehensive loss within common
stockholders’ investment. Transaction gains and losses that arise
from exchange rate ﬂ uctuations on transactions denominated
in a currency other than the local currency are included in the
caption “Other, net” in the accompanying consolidated state-
ments of income and were immaterial for each period presented.
Cumulative net foreign currency translation gains in accumulated

FEDEX CORPORATION

other comprehensive loss were $56 million at May 31, 2009,
$167 million at May 31, 2008 and $69 million at May 31, 2007.

EMPLOYEES UNDER COLLECTIVE BARGAINING
ARRANGEMENTS
The pilots of FedEx Express, who represent a small percent-
age of our total employees, are employed under a collective
bargaining agreement. During the second quarter of 2007, the
pilots ratiﬁ ed a new four-year labor contract that included signing
bonuses and other upfront compensation of $143 million, as well
as pay increases and other beneﬁ t enhancements. These costs
were partially mitigated by reductions in the variable incentive
compensation of our other employees. The effect of this new
agreement on second quarter 2007 net income was $78 million
net of tax, or $0.25 per diluted share.

STOCK-BASED COMPENSATION
We recognize compensation expense for stock-based awards
under the provisions of SFAS 123R, “Share-Based Payment,”
and related interpretations. SFAS 123R requires recognition of
compensation expense for stock-based awards using a fair value
method. We adopted SFAS 123R in 2007 using the modiﬁ ed pro-
spective method, which resulted in prospective recognition of
compensation expense for all outstanding unvested share-based
payments based on the fair value on the original grant date.

DIVIDENDS DECLARED PER COMMON SHARE
On June 8, 2009, our Board of Directors declared a dividend of
$0.11 per share of common stock. The dividend was paid on July 1,
2009 to stockholders of record as of the close of business on
June 18, 2009. Each quarterly dividend payment is subject to
review and approval by our Board of Directors, and we evaluate
our dividend payment amount on an annual basis at the end of
each ﬁ scal year.

USE OF ESTIMATES
The preparation of our consolidated ﬁ nancial statements requires
the use of estimates and assumptions that affect the reported
amounts of assets and liabilities, the reported amounts of rev-
enues and expenses and the disclosure of contingent liabilities.
Management makes its best estimate of the ultimate outcome
for these items based on historical trends and other information
available when the ﬁ nancial statements are prepared. Changes
in estimates are recognized in accordance with the accounting
rules for the estimate, which is typically in the period when new
information becomes available to management. Areas where the
nature of the estimate makes it reasonably possible that actual
results could materially differ from amounts estimated include:
self-insurance accruals; retirement plan obligations; long-term
incentive accruals; tax liabilities; accounts receivable allow-
ances; obsolescence of spare parts; contingent liabilities; loss
contingencies, such as litigation and other claims; and impairment
assessments on long-lived assets (including goodwill).

Note 2: Recent Accounting
Pronouncements

New accounting rules and disclosure requirements can signiﬁ -
cantly impact our reported results and the comparability of our
ﬁ nancial statements. We believe the following new accounting
pronouncements, in addition to FIN 48 and SFAS 158, are rel-
evant to the readers of our ﬁ nancial statements.

On June 1, 2008, we adopted SFAS 157, “Fair Value
Measurements,” which provides a common deﬁ nition of fair
value, establishes a uniform framework for measuring fair value
and requires expanded disclosures about fair value measure-
ments. There is a one-year deferral of the adoption of the standard
as it relates to nonﬁ nancial assets and liabilities. Therefore, the
adoption of SFAS 157 had no impact on our ﬁ nancial statements
at June 1, 2008.

In April 2009, the FASB issued FSP No. 107-1 and Accounting
Principles Board Opinion (“APB”) No. 28-1, “Interim Disclosures
about Fair Value of Financial Instruments.” This FSP and APB
amends SFAS 107, “Disclosures about Fair Value of Financial
Instruments,” to require disclosures about the fair value of
ﬁ nancial instruments for interim reporting periods in addition to
annual reporting periods. This FSP and APB will be effective for
our ﬁ rst quarter of ﬁ scal year 2010.

In May 2009, the FASB issued SFAS No. 165, “Subsequent
Events,” which establishes general standards of accounting for
and disclosures of events that occur after the balance sheet
date but before ﬁ nancial statements are issued or are available
to be issued. This standard will require us to disclose the date
through which we have evaluated subsequent events and the
basis for that date. This standard will be effective for our ﬁ rst
quarter of ﬁ scal year 2010.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3: Business Combinations

During 2007, we made the following acquisitions:

Segment

Business Acquired

Rebranded

Date Acquired

Purchase Price
(in millions)

FedEx Freight
FedEx Express
FedEx Express

Watkins Motor Lines
ANC Holdings Ltd.
Tianjin Datian W. Group Co., Ltd. (“DTW Group”)

FedEx National LTL
FedEx U.K.
N/A

September 3, 2006
December 16, 2006
March 1, 2007

$ 787
241
427

These acquisitions expanded our portfolio of services to include
long-haul LTL freight services and domestic express services
in the United Kingdom and China. These acquisitions were not
material to our results of operations or ﬁ nancial condition. The
portion of the purchase price allocated to goodwill and other
identiﬁ ed intangible assets for the FedEx National LTL, FedEx
U.K. and DTW Group acquisitions will be deductible for U.S. tax
purposes over 15 years. During 2009, 2008 and 2007, we also
made other immaterial acquisitions that are not presented in the
table above.

Pro forma results of these acquisitions, individually or in the
aggregate, would not differ materially from reported results in

any of the periods presented. The purchase prices were allocated
as follows (in millions):

Current assets
Property and equipment
Intangible assets
Goodwill
Other assets
Current liabilities
Long-term liabilities
Total purchase price

FedEx
National LTL

FedEx U.K.

DTW Group

$ 121
525
77
121
3
(60)
–
$ 787

$ 68
20
49
168
2
(56)
(10)
$ 241

$ 54
16
17
348
10
(18)
–
$ 427

The intangible assets acquired in the FedEx National LTL and FedEx U.K. acquisitions consist primarily of customer-related intangible
assets, which will be amortized on an accelerated basis over their average estimated useful lives of seven years for FedEx National
LTL and up to 12 years for FedEx U.K., with the majority of the amortization recognized during the ﬁ rst four years. The intangible assets
acquired in the DTW Group acquisition relate to the reacquired rights for the use of certain FedEx technology and service marks.
These intangible assets will be amortized over their estimated useful lives of approximately two years.

We paid the purchase price for these acquisitions from available cash balances, which included the net proceeds from our $1 billion
senior unsecured debt offering completed during 2007.

Note 4: Goodwill and Intangibles

GOODWILL
The carrying amount of goodwill attributable to each reportable operating segment and changes therein follows (in millions):

FedEx Express segment
FedEx Ground segment
FedEx Freight segment
FedEx Services segment

(1) Primarily currency translation adjustments.

May 31, 2007

Impairment
Charge

Purchase
Adjustments

and Other(1)

May 31, 2008

$ 1,088
90
777
1,542
$ 3,497

$ –
–
–
(367)
$ (367)

$ 35
–
–
–
$ 35

$ 1,123
90
777
1,175
$ 3,165

Impairment
Charge

–
–
(90)
(810)
$ (900)

Purchase
Adjustments

and Other (1)

May 31, 2009

$ (33)
–
–
(3)
$ (36)

$ 1,090
90
687
362
$ 2,229

FEDEX CORPORATION

In connection with our annual impairment testing of goodwill and
other intangible assets conducted in the fourth quarter of 2009 in
accordance with SFAS 142, we recorded a charge of $900 million
for impairment of the value of goodwill. This charge included an
$810 million charge related to reduction of the value of the
goodwill recorded as a result of the February 2004 acquisition
of Kinko’s, Inc. (now known as FedEx Ofﬁ ce), and a $90 million
charge related to reduction of the value of the goodwill recorded
as a result of the September 2006 acquisition of the U.S. and
Canadian less-than-truckload freight operations of Watkins Motor
Lines and certain afﬁ liates (now known as FedEx National LTL).

FedEx Ofﬁ ce Goodwill
During 2009, the U.S. recession had a signiﬁ cant negative impact
on demand for FedEx Ofﬁ ce services, resulting in lower revenues
and continued operating losses at this reporting unit. In response
to these conditions, FedEx Ofﬁ ce initiated an internal reorganiza-
tion designed to improve revenue-generating capabilities and
reduce costs. Several actions were taken during 2009 to reduce
FedEx Ofﬁ ce’s cost structure and position it for long-term growth
under better economic conditions. These actions included head-
count reductions, domestic store closures and the termination of
operations in some international locations. In addition, we sub-
stantially curtailed future network expansion in light of current
economic conditions.

For 2009, we used a discount rate of 12.0%, versus a discount rate
of 12.5% in 2008. Our discount rate of 12.0% for 2009 represents
our estimated weighted-average cost of capital (“WACC”) of the
FedEx Ofﬁ ce reporting unit adjusted for company-speciﬁ c risk
premium to account for the estimated uncertainty associated
with our future cash ﬂ ows. The development of the WACC used in
our estimate of fair value considered the following key factors:

• current market conditions for the equity-risk premium and risk-

free interest rate;

• benchmark capital structures for guideline companies with

characteristics similar to the FedEx Ofﬁ ce reporting unit;

• the size and industry of the FedEx Ofﬁ ce reporting unit; and

• risks related to the forecast of future revenues and proﬁ tability

of the FedEx Ofﬁ ce reporting unit.

FedEx National LTL Goodwill
During 2009, the U.S. recession had a signiﬁ cant negative impact
on the LTL industry, resulting in steep volume declines, intense
yield pressure and the exit of numerous small to medium competi-
tors from the market. The outlook for the LTL market is uncertain
due to the recession and the negative impact of aggressive pric-
ing resulting from continued excess capacity in the market. The
results for the FedEx National LTL reporting unit in 2009 reﬂ ect the
impact of the recession, with reduced revenues and increased
operating losses.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We recorded an impairment charge of $90 million during the fourth
quarter of 2009. This charge represented substantially all of the
goodwill resulting from this acquisition. The goodwill impairment
charge is included in operating expenses in the accompanying
consolidated statements of income and is included in the results
of the FedEx Freight segment.

Other Reporting Units Goodwill
Our remaining reporting units with signiﬁ cant recorded good-
will (excluding FedEx Ofﬁ ce and FedEx National LTL) include our
FedEx Express reporting unit and our FedEx Freight reporting unit.
We evaluated our remaining reporting units during the fourth
quarter of 2009, and while the estimated fair value of these report-
ing units declined from 2008, the estimated fair value of each of
our other reporting units signiﬁ cantly exceeded their carrying
values in 2009. As a result, no additional testing or impairment
charges were necessary.

FedEx Ofﬁ ce Goodwill – 2008
During 2008, several developments and strategic decisions
occurred at FedEx Ofﬁ ce, including:

• FedEx Ofﬁ ce was reorganized as a part of the FedEx Services
segment. FedEx Ofﬁ ce provides retail access to our customers
for our package transportation businesses and an array of docu-
ment and business services. Under FedEx Services, FedEx Ofﬁ ce
beneﬁ ts from the full range of resources and expertise of FedEx
Services to continue to enhance the customer experience, pro-
vide greater, more convenient access to the portfolio of services
at FedEx, and increase revenues through our retail network.

• Senior management at FedEx Ofﬁ ce was reorganized with sev-
eral positions terminated and numerous reporting realignments,
including naming a new president and CEO.

• We determined that we would minimize the use of the Kinko’s

trade name over the next several years.

• We began implementing revenue growth and cost management

plans to improve ﬁ nancial performance.

• We began pursuing a more disciplined approach to the long-
term expansion of the retail network, reducing the overall level
of expansion.

In connection with our annual impairment testing in the fourth
quarter of 2008, the valuation methodology to estimate the fair
value of the FedEx Ofﬁ ce reporting unit was based primarily on
an income approach that considered market participant assump-
tions to estimate fair value. Key assumptions considered were
the revenue and operating income forecast, the assessed growth
rate in the periods beyond the detailed forecast period, and the
discount rate.

In performing our annual impairment test, the most signiﬁ cant
assumption used to estimate the fair value of the FedEx Ofﬁ ce
reporting unit was the discount rate. We used a discount rate
of 12.5%, representing the estimated WACC of the FedEx Ofﬁ ce
reporting unit. The development of the WACC used in our esti-
mate of fair value considered the following key factors:

• benchmark capital structures for guideline companies with

characteristics similar to the FedEx Ofﬁ ce reporting unit;

• current market conditions for the risk-free interest rate;

• the size and industry of the FedEx Ofﬁ ce reporting unit; and

• risks related to the forecast of future revenues and proﬁ tability

of the FedEx Ofﬁ ce reporting unit.

Upon completion of the impairment test, we concluded that the
recorded goodwill was impaired and recorded an impairment
charge of $367 million during the fourth quarter of 2008. The good-
will impairment charge is included in 2008 operating expenses
in the accompanying consolidated statements of income. This
charge was included in the results of the FedEx Services seg-
ment and was not allocated to our transportation segments,
as the charge was unrelated to the core performance of those
businesses.

INTANGIBLE ASSETS
The components of our identiﬁ able intangible assets were as follows (in millions):

Customer relationships
Contract related
Technology related and other
Kinko’s trade name
Total

Gross Carrying
Amount

May 31, 2009
Accumulated
Amortization

Net Book
Value

Gross Carrying
Amount

$ 207
79
74
52
$ 412

$ (133)
(72)
(62)
(27)
$ (294)

$ 74
7
12
25
$ 118

$ 205
79
74
52
$ 410

May 31, 2008
Accumulated
Amortization

$ (95)
(67)
(51)
(8)
$ (221)

Net Book
Value

$ 110
12
23
44
$ 189

FEDEX CORPORATION

Prior to 2008, the intangible asset associated with the Kinko’s
trade name was not amortized because it had an indefinite
remaining useful life and our intent was to use it indeﬁ nitely.
During the fourth quarter of 2008, we made the decision to
change the name of FedEx Kinko’s to FedEx Ofﬁ ce and rebrand
our retail locations over the next several years. We believe the
FedEx Ofﬁ ce name better describes the wide range of services
available at our retail centers and takes full advantage of the
FedEx brand. This change converted this asset to a ﬁ nite life
asset and resulted in an impairment charge of $515 million.
We estimated the fair value of this intangible asset based on
an income approach using the relief-from-royalty method. This
approach is dependent on a number of factors, including esti-
mates of future growth and trends, royalty rates in the category
of intellectual property, discount rates and other variables. We
base our fair value estimates on assumptions we believe to be
reasonable, but which are inherently uncertain.

The $515 million impairment charge recorded during the fourth
quarter of 2008 resulted in a remaining trade name balance of
$52 million, which we began amortizing in the fourth quarter of
2008 on an accelerated basis, which will be fully amortized by
May 2011. The trade name impairment charge is included in oper-
ating expenses in the accompanying consolidated statements
of income. The charge was included in the results of the FedEx
Services segment and was not allocated to our transportation
segments, as the charge was unrelated to the core performance
of those businesses.

Amortization expense for intangible assets was $73 million in
2009, $60 million in 2008 and $42 million in 2007. Estimated amorti-
zation expense for the next ﬁ ve years is as follows (in millions):

2010
2011
2012
2013
2014

$ 47
34
11
9
10

Note 5: Selected Current
Liabilities

The components of selected current liability captions were as
follows (in millions):

Accrued Salaries and Employee Beneﬁ ts
Salaries
Employee beneﬁ ts, including
variable compensation
Compensated absences

Accrued Expenses
Self-insurance accruals
Taxes other than income taxes
Other

May 31,

2009

2008

$ 201

$ 193

143
517
$ 861

$ 626
338
674
$ 1,638

404
521
$ 1,118

$ 577
339
637
$ 1,553

Note 6: Long-Term Debt and
Other Financing Arrangements

The components of long-term debt (net of discounts) were as
follows (in millions):

Senior unsecured debt

Interest rate of 3.50%, due in 2009
Interest rate of 5.50%, due in 2010
Interest rate of 7.25%, due in 2011
Interest rate of 9.65%, due in 2013
Interest rate of 7.38%, due in 2014
Interest rate of 8.00%, due in 2019
Interest rate of 7.60%, due in 2098

Capital lease obligations

Less current portion

May 31,

2009

2008

–
$
500
250
300
250
750
239
2,289
294
2,583
653
$ 1,930

$ 500
499
250
300
–
–
239
1,788
220
2,008
502
$ 1,506

Scheduled annual principal maturities of debt, exclusive of capi-
tal leases, for the ﬁ ve years subsequent to May 31, 2009, are as
follows (in millions):

2010
2011
2012
2013
2014

$ 500
250
–
300
250

Interest on our ﬁ xed-rate notes is paid semi-annually. Long-term
debt, exclusive of capital leases, had carrying values of $2.3 bil-
lion compared with an estimated fair value of $2.4 billion at May
31, 2009, and $1.8 billion compared with an estimated fair value
of $1.9 billion at May 31, 2008. The estimated fair values were
determined based on quoted market prices or on the current
rates offered for debt with similar terms and maturities.

We have a shelf registration statement ﬁ led with the Securities
and Exchange Commission that allows us to sell, in one or more
future offerings, any combination of our unsecured debt securi-
ties and common stock.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We issue other financial instruments in the normal course
of business to support our operations. Letters of credit at
May 31, 2009 were $606 million. The amount unused under
our primary $500 million letter of credit facility totaled
$45 million at May 31, 2009. This facility expires in July 2010. These
instruments are required under certain U.S. self-insurance pro-
grams and are also used in the normal course of international
operations. The underlying liabilities insured by these instruments
are reﬂ ected in our balance sheets, where applicable. Therefore,
no additional liability is reﬂ ected for the letters of credit.

Our capital lease obligations include leases for aircraft and
facilities. Our facility leases include leases that guarantee the
repayment of certain special facility revenue bonds that have
been issued by municipalities primarily to ﬁ nance the acquisition
and construction of various airport facilities and equipment. These
bonds require interest payments at least annually, with principal
payments due at the end of the related lease agreement.

Note 7: Leases

We utilize certain aircraft, land, facilities, retail locations and
equipment under capital and operating leases that expire at vari-
ous dates through 2040. We leased 13% of our total aircraft ﬂ eet
under capital or operating leases as of May 31, 2009, compared
with 14% as of May 31, 2008. In addition, supplemental aircraft
are leased by us under agreements that provide for cancella-
tion upon 30 days’ notice. Our leased facilities include national,
regional and metropolitan sorting facilities, retail facilities and
administrative buildings.

The components of property and equipment recorded under capi-
tal leases were as follows (in millions):

Aircraft
Package handling and
ground support equipment
Vehicles
Other, principally facilities

Less accumulated amortization

May 31,

2009

$ 50

165
17
147
379
300
$ 79

2008

$ –

165
20
150
335
290
$ 45

Rent expense under operating leases was as follows (in millions):

For years ended May 31,
2008

2007

2009

Minimum rentals
Contingent rentals (1)

$ 2,047
181
$ 2,228

$ 1,990
228
$ 2,218

$ 1,916
241
$ 2,157

(1) Contingent rentals are based on equipment usage.

A summary of future minimum lease payments under capital
leases and noncancelable operating leases with an initial or
remaining term in excess of one year at May 31, 2009 is as fol-
lows (in millions):

Operating Leases

Aircraft
Capital and Related
Equipment
Leases

Facilities and Total Operating
Leases

Other

$ 164
20
8
119
2
15
328

$ 512
526
504
499
472
2,458
$ 4,971

$ 1,247
1,086
947
817
694
4,894
$ 9,685

$ 1,759
1,612
1,451
1,316
1,166
7,352
$ 14,656

2010
2011
2012
2013
2014
Thereafter
Total
Less amount

representing interest

Present value of net
minimum lease
payments

$ 294

The weighted-average remaining lease term of all operating
leases outstanding at May 31, 2009 was approximately six years.
While certain of our lease agreements contain covenants gov-
erning the use of the leased assets or require us to maintain
certain levels of insurance, none of our lease agreements include
material ﬁ nancial covenants or limitations.

FedEx Express makes payments under certain leveraged operating
leases that are sufﬁ cient to pay principal and interest on certain
pass-through certiﬁ cates. The pass-through certiﬁ cates are not
direct obligations of, or guaranteed by, FedEx or FedEx Express.

Note 8: Preferred Stock

Our Certiﬁ cate of Incorporation authorizes the Board of Directors,
at its discretion, to issue up to 4,000,000 shares of 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, 2009, none
of these shares had been issued.

FEDEX CORPORATION

Note 9: Stock-Based
Compensation

Our total stock-based compensation expense for the years ended
May 31 was as follows (in millions):

Stock-based compensation expense

2009

$ 99

2008

$ 101

2007

$ 103

We have two types of equity-based compensation: stock options
and restricted stock.

STOCK OPTIONS
Under the provisions of our incentive stock plans, key employees
and non-employee directors may be granted options to purchase
shares of our common stock at a price not less than its fair market
value on 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 our Board of Directors.
Option-vesting periods range from one to four years, with 82% of
our options vesting ratably over four years.

RESTRICTED STOCK
Under the terms of our incentive stock plans, restricted shares of
our common stock are awarded to key employees. All restrictions
on the shares expire ratably over a four-year period. Shares are
valued at the market price on the date of award. Compensation
related to these awards is recognized as expense over the req-
uisite service period.

For unvested stock options granted prior to June 1, 2006 and
all restricted stock awards, the terms of these awards provide
for continued vesting subsequent to the employee’s retirement.
Compensation expense associated with these awards is recog-
nized on a straight-line basis over the shorter of the remaining
service or vesting period. This postretirement vesting provision
was removed from all stock option awards granted subsequent
to May 31, 2006.

VALUATION AND ASSUMPTIONS
We use the Black-Scholes option pricing model to calculate the
fair value of stock options. The value of restricted stock awards
is based on the stock price of the award on the grant date. We
recognize stock-based compensation expense on a straight-

line basis over the requisite service period of the award in the
“Salaries and employee beneﬁ ts” caption in the accompanying
consolidated statements of income.

The key assumptions for the Black-Scholes valuation method
include the expected life of the option, stock price volatility, a
risk-free interest rate, and dividend yield. Many of these assump-
tions are judgmental and highly sensitive. Following is a table of
the weighted-average Black-Scholes value of our stock option
grants, the intrinsic value of options exercised (in millions), and
the key weighted-average assumptions used in the valuation cal-
culations for the options granted during the years ended May 31,
and then a discussion of our methodology for developing each of
the assumptions used in the valuation model:

Weighted-average
Black-Scholes value
Intrinsic value of options exercised
Black-Scholes Assumptions:
Expected lives
Expected volatility
Risk-free interest rate
Dividend yield

2009

2008

2007

$ 23.66
7
$

$ 29.88
$ 126

$ 31.60
$ 145

5.5 years

5 years

23%
3.284%
0.492%

19%
4.763%
0.337%

22%
4.879%
0.302%

Expected Lives. This is the period of time over which the options
granted are expected to remain outstanding. Generally, options
granted have a maximum term of 10 years. We examine actual
stock option exercises to determine the expected life of the
options. An increase in the expected term will increase com-
pensation expense.

Expected Volatility. Actual changes in the market value of our
stock are used to calculate the volatility assumption. We cal-
culate daily market value changes from the date of grant over a
past period equal to the expected life of the options to determine
volatility. An increase in the expected volatility will increase com-
pensation expense.

Risk-Free Interest Rate. This is the U.S. Treasury Strip rate posted
at the date of grant having a term equal to the expected life of
the option. An increase in the risk-free interest rate will increase
compensation expense.

Dividend Yield. This is the annual rate of dividends per share over
the exercise price of the option. An increase in the dividend yield
will decrease compensation expense.

The following table summarizes information about stock option activity for the year ended May 31, 2009:

Outstanding at June 1, 2008
Granted
Exercised
Forfeited
Outstanding at May 31, 2009
Exercisable
Expected to vest
Available for future grants

Stock Options

Weighted-
Average
Exercise Price

Weighted-Average
Remaining
Contractual Term

Aggregate
Intrinsic Value

(in millions) (1)

$ 78.09
86.78
55.25
95.30
$ 79.90
$ 71.15
$ 99.25

5.6 years
4.5 years
8.1 years

$ 85
$ 83
$ 2

16,677,806
2,209,919
(788,091)
(456,545)
17,643,089
12,149,247
5,054,335
11,914,914

(1) Only presented for options with market value at May 31, 2009 in excess of the exercise price of the option.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The options granted during the year ended May 31, 2009 are
primarily related to our principal annual stock option grant in
June 2008.

Note 10: Computation of
Earnings Per Share

The following table summarizes information about vested and
unvested restricted stock for the year ended May 31, 2009:

Unvested at June 1, 2008
Granted
Vested
Forfeited
Unvested at May 31, 2009

Restricted Stock

424,985
197,180
(177,494)
(1,930)
442,741

Weighted-
Average Grant
Date Fair Value

$ 103.97
90.57
98.05
100.35
$ 100.40

During the year ended May 31, 2008, there were 174,418 shares
of restricted stock granted with a weighted-average fair value of
$114.40. During the year ended May 31, 2007, there were 175,005
shares of restricted stock granted with a weighted-average fair
value of $109.90.

The following table summarizes information about stock option
vesting during the years ended May 31:

The calculation of basic and diluted earnings per common share
for the years ended May 31 was as follows (in millions, except
per share amounts):

Net income
Weighted-average shares of
common stock outstanding
Common equivalent shares:

Incremental effect of shares from
exercise of stock options and
vesting of restricted stock

2009

2008

2007

$ 98

$ 1,125

$ 2,016

311

309

307

Weighted-average common and common
equivalent shares outstanding
Basic earnings per common share
Diluted earnings per common share
Antidilutive options excluded from
diluted earnings per common share

312
$ 0.31
$ 0.31

312
$ 3.64
$ 3.60

311
$ 6.57
$ 6.48

12.6

4.8

0.4

2007
2008
2009

Stock Options

Vested During
the Year

3,147,642
2,694,602
2,414,815

Fair Value
(in millions)

$ 65
64
64

Note 11: Income Taxes

The components of the provision for income taxes for the years
ended May 31 were as follows (in millions):

As of May 31, 2009, there was $110 million of total unrecog-
nized compensation cost, net of estimated forfeitures, related to
unvested share-based compensation arrangements. This com-
pensation expense is expected to be recognized on a straight-line
basis over the remaining weighted-average vesting period of
approximately two years.

Total shares outstanding or available for grant related to equity
compensation at May 31, 2009 represented 9% of the total out-
standing common and equity compensation shares and equity
compensation shares available for grant.

Current provision (beneﬁ t)
Domestic:

Federal
State and local

Foreign

Deferred provision (beneﬁ t)
Domestic:

Federal
State and local

Foreign

2009

2008

2007

$ (35)
18
214
197

$ 514
74
242
830

$ 829
72
174
1,075

327
48
7
382
$ 579

31
(2)
32
61
$ 891

62
27
35
124
$ 1,199

Pretax earnings of foreign operations for 2009, 2008 and 2007
were $106 million, $803 million and $648 million, respectively,
which represents only a portion of total results associated with
international shipments.

FEDEX CORPORATION

A reconciliation of the statutory federal income tax rate to
the effective income tax rate for the years ended May 31 was
as follows:

Statutory U.S. income tax rate
Increase resulting from:
Goodwill impairment
State and local income taxes,
net of federal beneﬁ t

Other, net
Effective tax rate

2009

2008

2007

35.0%

48.0

6.8

–

1.9
0.7
85.6%

2.1
0.3
44.2%

2.0
0.3
37.3%

Our 2009 and 2008 effective tax rates were signiﬁ cantly impacted
by goodwill impairment charges related to the Kinko’s acquisi-
tion, which are not deductible for income tax purposes. Our 2007
tax rate was favorably impacted by the conclusion of various
state and federal tax audits and appeals. The 2007 rate reduc-
tion was partially offset by tax charges incurred as a result of a
reorganization in Asia associated with our acquisition in China,
as described in Note 3.

The signiﬁ cant components of deferred tax assets and liabilities
as of May 31 were as follows (in millions):

2009

2008

Deferred

Deferred
Tax Assets Tax Liabilities Tax Assets Tax Liabilities

Deferred

Property, equipment,

leases and intangibles

Employee beneﬁ ts
Self-insurance accruals
Other
Net operating loss/credit
carryforwards
Valuation allowances

$ 406
384
392
491

131
(137)
$ 1,667

$ 1,862
143
–
222

–
–
$ 2,227

$ 321
401
359
426

135
(124)
$ 1,518

$ 1,650
364
–
224

–
–
$ 2,238

The net deferred tax liabilities as of May 31 have been classiﬁ ed
in the balance sheets as follows (in millions):

Current deferred tax asset
Noncurrent deferred tax liability

2009

2008

$ 511
(1,071)
$ (560)

$ 544
(1,264)
$ (720)

We have $385 million of net operating loss carryovers in vari-
ous foreign jurisdictions and $450 million of state operating loss
carryovers. The valuation allowances primarily represent amounts
reserved for operating loss and tax credit carryforwards, which
expire over varying periods starting in 2010. As a result of this
and other factors, we believe that a substantial portion of these
deferred tax assets may not be realized.

Unremitted earnings of our foreign subsidiaries amounted to
$191 million in 2009 and $147 million in 2008. We have not recog-
nized deferred taxes for U.S. federal income tax purposes on the
unremitted earnings of our foreign subsidiaries that are deemed
to be permanently reinvested. Upon distribution, in the form of
dividends or otherwise, these unremitted earnings would be sub-
ject to U.S. federal income tax. Unrecognized foreign tax credits
would be available to reduce a portion, if not all, of the U.S. tax
liability. Determination of the amount of unrecognized deferred
U.S. income tax liability is not practicable.

Our liabilities recorded under FIN 48 totaled $72 million at May 31,
2009 and $88 million at May 31, 2008, including $59 million at May
31, 2009 and $68 million at May 31, 2008 associated with positions
that if favorably resolved would provide a beneﬁ t to our effective
tax rate. The change from the prior year relates primarily to the
resolution of an immaterial state income tax matter during the
second quarter of 2009. We classify interest related to income
tax liabilities as interest expense, and if applicable, penalties are
recognized as a component of income tax expense. The balance
of accrued interest and penalties was $19 million on May 31,
2009 and $25 million on May 31, 2008. Total interest and penalties
included in our statement of operations is immaterial.

We ﬁ le income tax returns in the U.S., various U.S. states, and
various foreign jurisdictions. During 2009, the Internal Revenue
Service (“IRS”) completed its audit of our consolidated U.S.
income tax returns for the 2004 through 2006 tax years. The
completion of the audit did not have a material effect on our con-
solidated ﬁ nancial statements. We are no longer subject to U.S.
federal income tax examination for years through 2006 except
for speciﬁ c U.S. federal income tax positions that are in various
stages of appeal and/or litigation. No resolution date can be rea-
sonably estimated at this time for these appeals and litigation, but
their resolution is not expected to have a material effect on our
consolidated ﬁ nancial statements. We are also subject to ongo-
ing audits in state, local and foreign tax jurisdictions throughout
the world.

A reconciliation of the beginning and ending amount of unrecog-
nized tax beneﬁ ts is as follows (in millions):

Balance at June 1, 2007

Increases for tax positions taken in the current year
Increases for tax positions taken in prior years
Decreases for tax positions taken in prior years
Settlements
Balance at May 31, 2008

Increases for tax positions taken in the current year
Increases for tax positions taken in prior years
Decreases for tax positions taken in prior years
Settlements
Balance at May 31, 2009

$ 72
16
12
(9)
(3)
$ 88
7
10
(30)
(3)
$ 72

Included in the May 31, 2009 and May 31, 2008 balances are $7
million and $8 million, respectively, of tax positions for which the
ultimate deductibility or income inclusion is certain but for which
there may be uncertainty about the timing of such deductibility or
income inclusion. It is difﬁ cult to predict the ultimate outcome or
the timing of resolution for tax positions under FIN 48. Changes
may result from the conclusion of ongoing audits, appeals or
litigation in state, local, federal and foreign tax jurisdictions, or
from the resolution of various proceedings between the U.S. and
foreign tax authorities. Our liability for tax positions under FIN
48 includes no matters that are individually material to us. It is
reasonably possible that the amount of the beneﬁ t with respect
to certain of our unrecognized tax positions will increase or
decrease within the next 12 months, but an estimate of the range
of the reasonably possible changes cannot be made. However,
we do not expect that the resolution of any of our tax positions
under FIN 48 will be material.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12: Retirement Plans

We sponsor programs that provide retirement beneﬁ ts to most of
our employees. These programs include deﬁ ned beneﬁ t pension
plans, deﬁ ned contribution plans and postretirement healthcare
plans. The accounting for pension and postretirement healthcare
plans includes numerous assumptions, such as: discount rates;
expected long-term investment returns on plan assets; future
salary increases; employee turnover; mortality; and retirement
ages. These assumptions most significantly impact our U.S.
domestic pension plans.

Effective May 31, 2008, beneﬁ ts previously accrued under our
primary pension plans using a traditional pension beneﬁ t formula
(based on average earnings and years of service) were capped
for most employees, and those beneﬁ ts will be payable beginning
at retirement. Effective June 1, 2008, future pension beneﬁ ts for
most employees began to be accrued under a cash balance for-
mula we call the Portable Pension Account. These changes did
not affect the beneﬁ ts of previously retired and terminated vested
participants. In addition, these pension plans were modiﬁ ed
to accelerate vesting from five years to three years for
most participants.

Under the Portable Pension Account, the retirement beneﬁ t is
expressed as a dollar amount in a notional account that grows
with annual credits based on pay, age and years of credited ser-
vice, and interest on the notional account balance. Under the
tax-qualiﬁ ed plans, the pension beneﬁ t is payable as a lump sum
or an annuity at retirement at the election of the employee. An
employee’s pay credits are determined each year under a graded
formula that combines age with years of service for points. The
plan interest credit rate will vary from year to year based on the
selected U.S. Treasury index, with an interest rate equal to the
greater of 4% or the one-year Treasury Constant Maturities rate
plus 1%, but not greater than a rate based on the larger of the
average 30-year Treasury note or the applicable provisions of
the Internal Revenue Code.

A summary of our retirement plans costs over the past three
years is as follows (in millions):

2009

2008

2007

U.S. domestic and international
pension plans
U.S. domestic and international
deﬁ ned contribution plans
Postretirement healthcare plans

$ 177

$ 323

$ 467

237
57
$ 471

216
77
$ 616

176
55
$ 698

PENSION PLANS
Our largest pension plan covers certain U.S. employees age 21
and over, with at least one year of service. We also sponsor or
participate in nonqualiﬁ ed beneﬁ t plans covering certain of our
U.S. employee groups and other pension plans covering certain
of our international employees. The international deﬁ ned beneﬁ t
pension plans provide beneﬁ ts primarily based on ﬁ nal earnings
and years of service and are funded in compliance with local
laws and practices.

POSTRETIREMENT HEALTHCARE PLANS
Certain of our subsidiaries offer medical, dental and vision cov-
erage to eligible U.S. retirees and their eligible dependents.
U.S. employees covered by the principal plan become eligible
for these beneﬁ ts at age 55 and older, if they have permanent,
continuous service of at least 10 years after attainment of age 45
if hired prior to January 1, 1988, or at least 20 years after attain-
ment of age 35 if hired on or after January 1, 1988. Postretirement
healthcare beneﬁ ts are capped at 150% of the 1993 per capita
projected employer cost, which has been reached and, therefore,
these beneﬁ ts are not subject to additional future inﬂ ation.

RECENT ACCOUNTING PRONOUNCEMENT
As discussed in Note 1, we adopted the recognition and disclo-
sure provisions of SFAS 158 on May 31, 2007. The adoption of
SFAS 158 required recognition in the balance sheet of the funded
status of deﬁ ned beneﬁ t pension and other postretirement ben-
eﬁ t plans, and the recognition in AOCI of unrecognized gains or
losses and prior service costs or credits. The funded status is
measured as the difference between the fair value of the plan’s
assets and the projected beneﬁ t obligation (“PBO”) of the plan.
The adoption of SFAS 158 resulted in a $982 million charge to
shareholders’ equity at May 31, 2007 through AOCI. At May 31,
2009, under the provisions of SFAS 158, we recorded a decrease to
equity of $1.2 billion (net of tax) based on a $462 million decrease
in the funded status of our retirement plans since May 31, 2008.
At May 31, 2008, we recorded an increase to equity of $469 million
(net of tax) based on a $1 billion improvement in the funded status
of our retirement plans since May 31, 2007.

Additionally, SFAS 158 requires the measurement date for plan
assets and liabilities to coincide with the plan sponsor’s year
end. On June 1, 2008, we made our transition election for the
measurement date provision of SFAS 158 using the two-mea-
surement approach. Under this approach, we completed two
actuarial measurements, one at February 29, 2008 and the other
at June 1, 2008. This approach required us to record the net
periodic beneﬁ t cost for the transition period from March 1, 2008
through May 31, 2008 as an adjustment to beginning retained
earnings ($44 million, net of tax) and actuarial gains and losses
for the period (a gain of $372 million, net of tax) as an adjustment
to the opening balance of AOCI. These adjustments increased
the amount recorded for our pension assets by $528 million. Our
actuarial gains resulted primarily from a 19-basis-point increase
in the discount rate for our primary pension plan and an increase
in plan assets at June 1, 2008.

FEDEX CORPORATION

PENSION PLAN ASSUMPTIONS
Our pension cost is materially affected by the discount rate used to measure pension obligations, the level of plan assets available to
fund those obligations and the expected long-term rate of return on plan assets.

Beginning in 2009, we use a measurement date of May 31 for our pension and postretirement healthcare plans. Prior to 2009, our
measurement date was February 28 (February 29 in 2008). Management reviews the assumptions used to measure pension costs on an
annual basis. Economic and market conditions at the measurement date impact these assumptions from year to year and it is reason-
ably possible that material changes in pension cost may be experienced in the future. Additional information about our pension plans
can be found in the Critical Accounting Estimates section of Management’s Discussion and Analysis in this Annual Report.

Actuarial gains or losses are generated for changes in assumptions and to the extent that actual results differ from those assumed.
These actuarial gains and losses are amortized over the remaining average service lives of our active employees if they exceed a
corridor amount in the aggregate.

Predominantly all of our plan assets are actively managed. The investment strategy for pension plan assets is to utilize a diversiﬁ ed
mix of global public and private equity portfolios, together with public and private ﬁ xed-income portfolios, to earn a long-term invest-
ment return that meets our pension plan obligations. Active management strategies are utilized within the plan in an effort to realize
investment returns in excess of market indices.

The weighted-average asset allocations for our domestic pension plans at the measurement date were as follows (dollars in millions):

Asset Class

Domestic equities
International equities
Private equities
Total equities
Long-duration ﬁ xed-income securities
Other ﬁ xed-income securities

Plan Assets at Measurement Date

Actual

$ 4,129
1,724
357
6,210
2,535
1,861
$ 10,606

2009
Actual%

39%
16
3
58
24
18
100%

Target%

30%
15
5
50
45
5
100%

Actual

$ 5,694
2,481
406
8,581
1,778
1,302
$ 11,661

2008
Actual%

49%
21
4
74
15
11
100%

Target%

53%
17
5
75
15
10
100%

Establishing the expected future rate of investment return on our
pension assets is a judgmental matter. Management considers
the following factors in determining this assumption:

will better align our plan assets and liabilities. This strategy will
ultimately result in a greater concentration of fixed-income
investments.

• the duration of our pension plan liabilities, which drives
the investment strategy we can employ with our pension
plan assets;

• the investment returns we can reasonably expect our
investment management program to achieve in excess of the
returns we could expect if investments were made strictly in
indexed funds.

We review the expected long-term rate of return on an annual
basis and revise it as appropriate. As part of our strategy to man-
age future pension costs and net funded status volatility, we are
transitioning to a more liability-driven investment strategy, which

To support our conclusions, we periodically commission asset/
liability studies performed by third-party professional investment
advisors and actuaries to assist us in our reviews. These stud-
ies project our estimated future pension payments and evaluate
the efﬁ ciency of the allocation of our pension plan assets into
various investment categories. These studies also generate
probability-adjusted expected future returns on those assets. The
studies performed or updated supported the reasonableness of
our expected rate of return of 8.5% for 2009 and 2008 and 9.1%
for 2007. Based on conditions in global equity markets, we will
reduce our estimated long-term rate of return on plan assets from
8.5% to 8.0% for 2010. For the 15-year period ended May 31, 2009,
our actual returns were 7.5%.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides a reconciliation of the changes in the pension and postretirement healthcare plans’ beneﬁ t obligations
and fair value of assets over the two-year period ended May 31, 2009 and a statement of the funded status as of May 31, 2009 and
2008 (in millions):

Pension Plans (1)

Postretirement Healthcare Plans (1)

Accumulated Beneﬁ t Obligation (“ABO”)

Changes in Projected Beneﬁ t Obligation (“PBO”) and
Accumulated Postretirement Beneﬁ t Obligation (“APBO”)
PBO/APBO at the beginning of year
Adjustments due to change in measurement date

Service cost plus interest cost during gap period
Additional experience during gap period
Changes due to gap period cash ﬂ ow

Service cost
Interest cost

Actuarial (gain) loss
Beneﬁ ts paid
Amendments
Other
PBO/APBO at the end of year

Change in Plan Assets
Fair value of plan assets at beginning of year
Adjustments due to change in measurement date
Additional experience during gap period
Changes due to gap period cash ﬂ ow

Actual return on plan assets
Company contributions
Beneﬁ ts paid
Other
Fair value of plan assets at end of year

Funded Status of the Plans
Employer contributions after measurement date
Net amount recognized

Amount Recognized in the Balance Sheet at May 31:
Noncurrent pension assets
Current pension, postretirement healthcare

and other beneﬁ t obligations

Noncurrent pension, postretirement healthcare

and other beneﬁ t obligations

Net amount recognized

Amounts Recognized in AOCI and not yet reﬂ ected in
Net Periodic Beneﬁ t Cost:

Net actuarial loss (gain)
Prior service (credit) cost and other

Total

Amounts Recognized in AOCI and not yet reﬂ ected in
Net Periodic Beneﬁ t Cost expected to be amortized

in next year’s Net Periodic Beneﬁ t Cost:
Net actuarial loss (gain)
Prior service credit and other

Total

2009

$ 10,745

$ 11,617

309
(302)
(83)
499
798
(1,420)
(351)
(1)
(16)
$ 11,050

$ 11,879

522
(76)
(2,306)
1,146
(351)
(2)
$ 10,812

(238)
–
(238)

2008

$ 11,212

$ 12,209

–
–
–
518
720
(1,531)
(318)
1
18
$ 11,617

$ 11,506

–
–
141
548
(318)
2
$ 11,879

262
15
277

311

827

(31)

(32)

(518)
(238)

$ 3,731
(1,220)
$ 2,511

130
(113)
17

(518)
277

$ 2,455
(1,362)
$ 1,093

51
(114)
(63)

(1) The measurement date for 2009 is May 31, 2009, and the measurement date for 2008 is February 29, 2008.

2009

2008

$ 492

16
(19)
(5)
31
33
(94)
(42)
–
21
$ 433

–

–
–
–
21
(42)
21
–

$ (433)
–
$ (433)

–

(26)

(407)
$ (433)

$ (248)
2
$ (246)

$ (12)
–
$ (12)

$ 525

–
–
–
35
31
(56)
(40)
–
(3)
$ 492

$ –

–
–
–
64
(40)
(24)
$ –

$ (492)
5
$ (487)

$ –

(30)

(457)
$ (487)

$ (144)
2
$ (142)

(7)
–
(7)

FEDEX CORPORATION

Our pension plans included the following components at May 31, 2009 and 2008 (in millions):

2009
Qualiﬁ ed
Nonqualiﬁ ed

International Plans

Total
2008
Qualiﬁ ed
Nonqualiﬁ ed

International Plans

Total

ABO

PBO

Fair Value of
Plan Assets

$ 10,113
317
315
$ 10,745

$ 10,530
333
349
$ 11,212

$ 10,328
318
404
$ 11,050

$ 10,834
338
445
$ 11,617

$ 10,606
–
206
$ 10,812

$ 11,661
–
218
$ 11,879

Funded
Status

$ 278
(318)
(198)
$ (238)

$ 827
(338)
(227)
$ 262

Other (1)

Net Amount
Recognized

$ –
–
–
$ –

$ –
7
8
$ 15

$ 278
(318)
(198)
$ (238)

$ 827
(331)
(219)
$ 277

(1) Amounts in “Other” represent employer contributions after measurement date.

The table above provides the ABO, PBO, fair value of plan assets and funded status of our plans on an aggregated basis. The following
table, provided under the requirements of SFAS 158, presents our plans on a disaggregated basis to show those plans (as a group)
whose assets did not exceed their liabilities. These plans are primarily comprised of our unfunded nonqualiﬁ ed plans and certain
international plans, but do not include our principal U.S. domestic plan. At May 31, 2009 and 2008, the fair value of plan assets for pen-
sion plans with a PBO or ABO in excess of plan assets were as follows (in millions):

PBO Exceeds the Fair Value
of Plan Assets

2009

2008

The APBO exceeds plan assets for each of our postretirement
healthcare plans.

Pension Beneﬁ ts
Fair Value of Plan Assets
PBO
Net funded status

Pension Beneﬁ ts
ABO (1)
Fair Value of Plan Assets
PBO
Net funded status

(1) ABO not used in determination of funded status.

$ 375
(923)
$ (548)

$ 218
(783)
$ (565)

ABO Exceeds the Fair Value
of Plan Assets

2009

2008

$(778)
325
(869)
$ (544)

$ (682)
217
(782)
$ (565)

In September 2008, we made $483 million in voluntary contribu-
tions to our U.S. tax-qualiﬁ ed plans. We made additional voluntary
contributions of $600 million during the fourth quarter of 2009 in
order to improve the funded status of our principal pension plans.
During 2008, we made voluntary contributions of $479 million to
our U.S. tax-qualiﬁ ed plans. While our U.S. tax-qualiﬁ ed plans
have ample funds to meet beneﬁ t payments, current market con-
ditions have negatively impacted asset values over the near term.
We anticipate making contributions to the U.S. tax-qualiﬁ ed plans
totaling approximately $850 million in 2010, including $350 million
in required minimum quarterly payments.

Net periodic beneﬁ t cost for the three years ended May 31 were as follows (in millions):

Service cost
Interest cost
Expected return on plan assets
Recognized actuarial (gains) losses and other
Net periodic benefit cost

2009

$ 499
798
(1,059)
(61)
$ 177

Pension Plans

2008

$ 518
720
(985)
70
$ 323

2007

$ 540
707
(930)
150
$ 467

Postretirement Healthcare Plans
2008

2007

2009

$ 31
33
–
(7)
$ 57

$ 35
31
–
11
$ 77

$ 31
28
–
(4)
$ 55

The reduction in pension costs from 2008 to 2009 was attributable to the signiﬁ cantly higher discount rate that was used to determine
our 2009 expense. Decreases in pension costs from 2007 to 2008 are primarily the result of the plan changes discussed above and
in Note 1.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amounts recognized in OCI for all plans were as follows (in millions):

Net gain (loss) and other, arising during period
Gain (loss) from settlements and curtailments
Amortizations:
Prior service credit
Actuarial (losses) gains and other
Total recognized in OCI

Pension Plans

Gross
amount

Net of tax
amount

$ 1,944
2

$ 1,220
1

113
(49)
$ 2,010

71
(30)
$ 1,262

2009

Postretirement
Healthcare Plans
Gross
amount

Net of tax
amount

$ (94)
–

–
7
$ (87)

$ (61)
–

–
4
$ (57)

Pension Plans

Gross
amount

Net of tax
amount

$ (685)
(17)

113
(166)
$ (755)

$ (430)
(10)

70
(104)
$ (474)

2008

Postretirement
Healthcare Plans
Gross
amount

Net of tax
amount

$ (56)
6

–
3
$ (47)

$ (38)
4

–
2
$ (32)

Weighted-average actuarial assumptions for our primary U.S. pension plans, which represent substantially all of our PBO, are
as follows:

Discount rate used to determine beneﬁ t obligation (1)
Discount rate used to determine net periodic beneﬁ t cost
Rate of increase in future compensation levels
used to determine beneﬁ t obligation
Rate of increase in future compensation levels
used to determine net periodic beneﬁ t cost (2)
Expected long-term rate of return on assets

2009

7.68%
7.15

4.42

4.49
8.50

Pension Plans
2008

6.96%
6.01

4.51

4.47
8.50

2007

6.01%
5.91

4.47

3.46
9.10

(1) The assumed interest rate used to discount the estimated future beneﬁ t payments that have been accrued to date (the PBO) to their net present value.
(2) Average future salary increases based on age and years of service.

Postretirement Healthcare Plans
2008

2009

2007

7.27%
7.13

6.81%
6.08

6.08%
6.08

–

–
–

–

–
–

–

–
–

Beneﬁ t payments, which reﬂ ect expected future service, are
expected to be paid as follows for the years ending May 31 (in
millions):

2010
2011
2012
2013
2014
2015–2019

Postretirement
Pension Plans Healthcare Plans

$ 432
455
507
584
654
4,654

$ 27
29
30
31
32
188

FedEx Express Segment

FedEx Express

(express transportation)

FedEx Trade Networks

(global trade services)

FedEx Ground Segment

FedEx Ground

(small-package ground delivery)

FedEx SmartPost

(small-parcel consolidator)

FedEx Freight Segment

FedEx Freight LTL Group:

These estimates are based on assumptions about future
events. Actual benefit payments may vary significantly from
these estimates.

Future medical beneﬁ t claims costs are estimated to increase at
an annual rate of 9% during 2010, decreasing to an annual growth
rate of 4.5% in 2029 and thereafter. Future dental beneﬁ t costs
are estimated to increase at an annual rate of 7% during 2010,
decreasing to an annual growth rate of 4.5% in 2029 and there-
after. A 1% change in these annual trend rates would not have a
signiﬁ cant impact on the APBO at May 31, 2009 or 2009 beneﬁ t
expense because the level of these beneﬁ ts is capped.

Note 13: Business Segment
Information

FedEx Express, FedEx Ground and the FedEx Freight LTL Group
represent our major service lines and, along with FedEx Services,
form the core of our reportable segments. Our reportable seg-
ments as of May 31, 2009 included the following businesses:

FedEx Freight (regional

LTL freight transportation)

FedEx National LTL

(long-haul LTL freight
transportation)
FedEx Custom Critical

(time-critical transportation)
Caribbean Transportation Services

(airfreight forwarding)

FedEx Services Segment FedEx Services (sales,

marketing and information
technology functions)
FedEx Ofﬁ ce (document

and business services and
package acceptance)
FedEx Customer Information
Services (“FCIS”)
(customer service,
billings and collections)
FedEx Global Supply Chain
Services (logistics services)

FEDEX CORPORATION

Effective June 1, 2009, Caribbean Transportation Services, Inc. (“CTS”), a business in the FedEx Freight segment, was integrated into
FedEx Express to leverage synergies between CTS and FedEx Express and to gain cost efﬁ ciencies by maximizing the use of FedEx
Express assets for this service offering.

FEDEX SERVICES SEGMENT
The FedEx Services segment includes: FedEx Services, which provides sales, marketing and information technology support to our
other companies; FCIS, which is responsible for customer service, billings and collections for FedEx Express and FedEx Ground U.S.
customers; FedEx Global Supply Chain Services, which provides a range of logistics services to our customers; and FedEx Ofﬁ ce, which
provides retail access to our customers for our package transportation businesses and an array of document and business services.

The costs of the sales, marketing and information technology support provided by FedEx Services and the customer service functions
of FCIS, together with the normal, ongoing net operating costs of FedEx Global Supply Chain Services and FedEx Ofﬁ ce, are allocated
primarily to the FedEx Express and FedEx Ground segments based on metrics such as relative revenues or estimated services provided.
We believe these allocations approximate the net cost of providing these functions. The $810 million fourth quarter 2009 impairment
charge for the Kinko’s goodwill and the $891 million 2008 charge predominantly associated with impairment charges for the Kinko’s
trade name and goodwill were not allocated to the FedEx Express or FedEx Ground segments, as the charges were unrelated to the
core performance of those businesses.

The operating expenses line item “Intercompany charges” on the accompanying unaudited ﬁ nancial summaries of our transportation
segments in Management’s Discussion and Analysis of Operations and Financial Condition (“MD&A”) includes the allocations from the
FedEx Services segment to the respective transportation segments. The “Intercompany charges” caption also includes allocations for
administrative services provided between operating companies and certain other costs such as corporate management fees related to
services received for general corporate oversight, including executive ofﬁ cers and certain legal and ﬁ nance functions. Management
evaluates transportation segment ﬁ nancial performance based on operating income.

OTHER INTERSEGMENT TRANSACTIONS
Certain FedEx operating companies provide transportation and related services for other FedEx companies outside their reportable
segment. Billings for such services are based on negotiated rates, which we believe approximate fair value, and are reﬂ ected as
revenues of the billing segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenues
and expenses are eliminated in the consolidated results and are not separately identiﬁ ed in the following segment information, as the
amounts are not material.

The following table provides a reconciliation of reportable segment revenues, depreciation and amortization, operating income (loss)
and segment assets to consolidated ﬁ nancial statement totals for the years ended or as of May 31 (in millions):

Revenues
2009
2008
2007
Depreciation and amortization
2009
2008
2007
Operating income (loss)
2009
2008
2007
Segment assets (4)
2009
2008
2007

FedEx
Express
Segment (1)

FedEx
Ground
Segment

FedEx
Freight
Segment (2)

FedEx
Services
Segment (3)

Other and
Eliminations

Consolidated
Total

$ 22,364
24,421
22,681

961
944
856

$
794
1,901
1,991

$ 13,483
13,416
15,650

$ 7,047
6,751
6,043

$ 337
305
268

$ 807
736
822

$ 3,291
2,770
3,937

$ 4,415
4,934
4,586

$ 224
227
195

(44)
329
463

$ 3,044
3,276
3,150

$ 1,977
2,138
2,136

$ 451
469
420

$ (810)
(891)
–

$ 3,240
4,651
5,384

$ (306)
(291)
(232)

2
1
3

–
–
–

$ 1,186
1,520
(4,121)

$ 35,497
37,953
35,214

$ 1,975
1,946
1,742

$
747
2,075
3,276

$ 24,244
25,633
24,000

(1) FedEx Express segment 2009 operating expenses include a charge of $260 million primarily related to aircraft-related asset impairments. FedEx Express segment 2007 operating expenses include
a charge of $143 million associated with upfront compensation and beneﬁ ts under our pilot labor contract.
(2) FedEx Freight segment 2009 operating expenses include a charge of $100 million primarily related to impairment charges associated with goodwill related to the Watkins Motor Lines (now known
as FedEx National LTL) acquisition. FedEx Freight segment results include the results of FedEx National LTL from the date of its acquisition on September 3, 2006.
(3) FedEx Services segment 2009 operating expenses include a charge of $810 million related to impairment of goodwill resulting from the Kinko’s acquisition. FedEx Services segment 2008 operating
expenses include a charge of $891 million predominantly related to impairment charges associated with the decision to minimize the use of the Kinko’s trade name and goodwill resulting from the
Kinko’s acquisition. The normal, ongoing net operating costs of the FedEx Services segment are allocated back to the transportation segments.
(4) Segment assets include intercompany receivables.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides a reconciliation of reportable segment capital expenditures to consolidated totals for the years ended
May 31 (in millions):

2009
2008
2007

FedEx
Express
Segment

$ 1,348
1,716
1,672

FedEx
Ground
Segment

$ 636
509
489

FedEx
Freight
Segment

$ 240
266
287

FedEx
Services
Segment

$ 235
455
432

Other

$ –
1
2

Consolidated
Total

$ 2,459
2,947
2,882

The following table presents revenue by service type and
geographic information for the years ended or as of May 31
(in millions):

Note 14: Supplemental Cash
Flow Information

2009

2008

2007

Cash paid for interest expense and income taxes for the years
ended May 31 was as follows (in millions):

Revenue by Service Type

FedEx Express segment:
Package:

U.S. overnight box
U.S. overnight envelope
U.S. deferred

Total domestic

package revenue
International Priority (IP)
International domestic (1)

Total package revenue

Freight:
U.S.

International Priority Freight
International airfreight
Total freight revenue

Other (2)

Total FedEx Express segment

FedEx Ground segment
FedEx Freight segment (3)
FedEx Services segment
Other and eliminations

Geographical Information (4)
Revenues:
U.S.

International

Noncurrent assets:
U.S.

International

$ 6,074
1,855
2,789

$ 6,578
2,012
2,995

$ 6,485
1,990
2,883

10,718
6,978
565
18,261

11,585
7,666
663
19,914

11,358
6,722
370
18,450

2,165
1,104
369
3,638
465
22,364
7,047
4,415
1,977
(306)
$ 35,497

2,398
1,243
406
4,047
460
24,421
6,751
4,934
2,138
(291)
$ 37,953

2,412
1,045
394
3,851
380
22,681
6,043
4,586
2,136
(232)
$ 35,214

$ 25,819
9,678
$ 35,497

$ 27,306
10,647
$ 37,953

$ 26,132
9,082
$ 35,214

$ 13,560
3,568
$ 17,128

$ 14,920
3,469
$ 18,389

$ 14,191
3,180
$ 17,371

(1) International domestic revenues include our international domestic express operations,
primarily in the United Kingdom, Canada, China and India. We reclassiﬁ ed the prior period
international domestic revenues previously included within other revenues to conform to the
current period presentation.
(2) Other revenues includes FedEx Trade Networks.
(3) Includes the operations of FedEx National LTL from the date of acquisition, September 3, 2006.
(4) International revenue includes shipments that either originate in or are destined to
locations outside the United States. Noncurrent assets include property and equipment,
goodwill and other long-term assets. Flight equipment is allocated between geographic areas
based on usage.

Interest (net of capitalized interest)
Income taxes

2009

$ 61
509

2008

$ 105
816

2007

$ 136
1,064

Note 15: Guarantees and
Indemniﬁ cations

In conjunction with certain transactions, primarily the lease, sale
or purchase of operating assets or services in the ordinary course
of business, we may provide routine guarantees or indemniﬁ ca-
tions (e.g., environmental, fuel, tax and software infringement),
the terms of which range in duration, and often they are not lim-
ited and have no speciﬁ ed maximum obligation. As a result, the
overall maximum potential amount of the obligation under such
guarantees and indemniﬁ cations cannot be reasonably estimated.
Historically, we have not been required to make signiﬁ cant pay-
ments under our guarantee or indemniﬁ cation obligations and no
amounts have been recognized in our ﬁ nancial statements for the
underlying fair value of these obligations.

Special facility revenue bonds have been issued by certain
municipalities primarily to ﬁ nance the acquisition and construc-
tion of various airport facilities and equipment. These facilities
were leased to us and are accounted for as either capital leases
or operating leases. FedEx Express has unconditionally guaran-
teed $755 million in principal of these bonds (with total future
principal and interest payments of approximately $1.0 billion as
of May 31, 2009) through these leases. Of the $755 million bond
principal guaranteed, $204 million was included in capital lease
obligations in our balance sheet at May 31, 2009. The remaining
$551 million has been accounted for as operating leases.

FEDEX CORPORATION

Note 16: Commitments

Annual purchase commitments under various contracts as of
May 31, 2009 were as follows (in millions):

2010
2011
2012
2013
2014
Thereafter

Aircraft (1)

$ 710
765
527
425
466
1,924

Aircraft-
Related (2)

$ 254
26
–
–
–
–

Other (3)

$ 648
137
111
62
11
125

Total

$ 1,612
928
638
487
477
2,049

(1) Our obligation to purchase 15 of these aircraft (Boeing 777 Freighters, or B777Fs) is
conditioned upon there being no event that causes FedEx Express or its employees not
to be covered by the Railway Labor Act of 1926, as amended.
(2) Primarily aircraft modiﬁ cations.
(3) Primarily vehicles, facilities, computers, advertising and promotions contracts and for 2010,
a total of $350 million of required quarterly contributions to our U.S. domestic pension plans.

The amounts reﬂ ected in the table above for purchase commit-
ments represent noncancelable agreements to purchase goods
or services. Commitments to purchase aircraft in passenger
conﬁ guration do not include the attendant costs to modify these
aircraft for cargo transport unless we have entered into non-
cancelable commitments to modify such aircraft. Open purchase
orders that are cancelable are not considered unconditional pur-
chase obligations for ﬁ nancial reporting purposes and are not
included in the table above.

In December 2008, we reached an agreement with Boeing to
defer the delivery of certain B777F aircraft by up to 17 months.
The rescheduled delivery dates have been reﬂ ected in the table
above. In addition, in January 2009, we exercised our option with
Boeing to purchase an additional 15 B777F aircraft and obtained
an option to purchase an additional 15 B777F aircraft. Our obli-
gation to purchase these additional aircraft is conditioned upon
there being no event that causes FedEx Express or its employees
not to be covered by the Railway Labor Act of 1926, as amended.
Accordingly, we have now agreed, subject to the above contrac-
tual condition, to purchase a total of 30 B777F aircraft and hold an
option to purchase an additional 15 B777F aircraft.

Deposits and progress payments of $544 million have been made
toward aircraft purchases, options to purchase additional air-
craft and other planned aircraft-related transactions. These
deposits are classified in the “Intangible and other assets”
caption of our consolidated balance sheets. Our primary air-
craft purchase commitments include the B757 in passenger
conﬁ guration, which will require additional costs to modify for
cargo transport, and the new B777F aircraft. In addition, we
have committed to modify our DC10 aircraft for two-man cockpit
conﬁ gurations. Future payments related to these activities are
included in the table above. Aircraft and aircraft-related con-
tracts are subject to price escalations. The following table is

a summary of the number and type of aircraft we are commit-
ted to purchase as of May 31, 2009, with the year of expected
delivery:

B757

B777F

MD11

Total

2010
2011
2012
2013
2014
Thereafter
Total

12
16
8
–
–
–
36

4
4
3
3
3
13
30

2
–
–
–
–
–
2

18
20
11
3
3
13
68

Note 17: Contingencies

Wage-and-Hour. We are a defendant in a number of lawsuits
containing various class-action allegations of wage-and-hour
violations. The plaintiffs in these lawsuits allege, among other
things, that they were forced to work “off the clock,” were not
paid overtime or were not provided work breaks or other beneﬁ ts.
The complaints generally seek unspeciﬁ ed monetary damages,
injunctive relief, or both.

In February 2008, one of these wage-and-hour cases, Wiegele
v. FedEx Ground, was certiﬁ ed as a class action by a California
federal court, and in April 2008, the U.S. Court of Appeals for the
Ninth Circuit denied our petition to review the class certiﬁ ca-
tion ruling. The plaintiffs in Wiegele represent a class of FedEx
Ground sort managers and dock service managers in California
from May 10, 2002 to the present. The plaintiffs allege that FedEx
Ground has misclassified the managers as exempt from the
overtime requirements of California wage-and-hour laws and is
correspondingly liable for failing to pay them overtime compensa-
tion and provide them with rest and meal breaks. Subject to court
approval, the plaintiffs have agreed to dismiss the sort managers,
leaving only the dock service managers in the class.

In September 2008, in another one of these wage-and-hour
cases, Tidd v. Adecco USA, Kelly Services and FedEx Ground,
a Massachusetts federal court conditionally certiﬁ ed a class
limited to individuals who were employed by two temporary
employment agencies and who worked as temporary pick-
up-and-delivery drivers for FedEx Ground in the New England
region within the past three years. Potential claimants must vol-
untarily “opt in” to the lawsuit in order to be considered part
of the class. In addition, in the same opinion, the court granted
summary judgment in favor of FedEx Ground with respect to the
plaintiffs’ claims for unpaid overtime wages. Accordingly, as to
FedEx Ground, the conditionally certiﬁ ed class of plaintiffs is now
limited to a claim of failure to pay regular wages due under the
federal Fair Labor Standards Act.

In April 2009, in another one of these wage-and-hour cases, Bibo
v. FedEx Express, a California federal court granted class certiﬁ -
cation, certifying several subclasses of FedEx Express couriers
in California from April 14, 2006 (the date of the settlement of
the Foster class action) to the present. The plaintiffs allege that
FedEx Express violated California wage-and-hour laws after the
date of the Foster settlement. In particular, the plaintiffs allege,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

among other things, that they were forced to work “off the clock”
and were not provided with required meal breaks or split-shift
premiums. We have asked the U.S. Court of Appeals for the Ninth
Circuit to accept an appeal of the class certiﬁ cation ruling.

These class certiﬁ cation rulings do not address whether we will
ultimately be held liable. We have denied any liability and intend
to vigorously defend ourselves in these wage-and-hour lawsuits.
We do not believe that any loss is probable in these lawsuits.

Independent Contractor — Lawsuits and State Administrative
Proceedings. FedEx Ground is involved in approximately 50 class-
action lawsuits (including 21 that have been certiﬁ ed as class
actions), several individual lawsuits and approximately 40 state
tax and other administrative proceedings that claim that the com-
pany’s owner-operators should be treated as employees, rather
than independent contractors.

Most of the class-action lawsuits have been consolidated for
administration of the pre-trial proceedings by a single federal
court, the U.S. District Court for the Northern District of Indiana.
With the exception of recently ﬁ led cases that have been or will
be transferred to the multidistrict litigation, discovery on class
certiﬁ cation and classiﬁ cation issues and class certiﬁ cation
brieﬁ ng are now complete. In October 2007, we received a deci-
sion from the court granting class certiﬁ cation in a Kansas action
alleging state law claims on behalf of a statewide class and fed-
eral law claims under the Employee Retirement Income Security
Act of 1974 on behalf of a nationwide class. In January 2008,
the U.S. Court of Appeals for the Seventh Circuit declined our
request for appellate review of the class certiﬁ cation decision.
In March 2008, the court granted class certiﬁ cation in 19 addi-
tional cases and denied it in nine cases. The court has not yet
ruled on class certiﬁ cation in the other cases that are pending in
the multidistrict litigation. Motions for summary judgment on the
classiﬁ cation issue (i.e., independent contractor vs. employee)
are pending in all 20 of the multidistrict litigation cases that have
been certiﬁ ed as class actions.

In January 2008, one of the contractor-model lawsuits that is
not part of the multidistrict litigation, Anﬁ nson v. FedEx Ground,
was certiﬁ ed as a class action by a Washington state court. The
plaintiffs in Anﬁ nson represent a class of FedEx Ground single-
route, pickup-and-delivery owner-operators in Washington from
December 21, 2001 through December 31, 2005 and allege that the
class members should be reimbursed as employees for their uni-
form expenses and should receive overtime pay. In March 2009,
a jury trial in the Anﬁ nson case was held, and the jury returned a
verdict in favor of FedEx Ground, ﬁ nding that all 320 class mem-
bers were independent contractors, not employees. The plaintiffs
have appealed the verdict. The other contractor-model lawsuits
that are not part of the multidistrict litigation are not as far along
procedurally as Anﬁ nson and are all currently stayed pending
further developments in the multidistrict litigation.

FedEx Ground is also involved in several lawsuits, including one
purported class action, brought by drivers of the company’s inde-
pendent contractors who claim that they were jointly employed
by the contractor and FedEx Ground.

Adverse determinations in these matters could, among other
things, entitle certain of our contractors and their drivers to the
reimbursement of certain expenses and to the beneﬁ t of wage-
and-hour laws and result in employment and withholding tax and
beneﬁ t liability for FedEx Ground, and could result in changes
to the independent contractor status of FedEx Ground’s owner-
operators. We believe that FedEx Ground’s owner-operators
are properly classified as independent contractors and that
FedEx Ground is not an employer of the drivers of the company’s
independent contractors. Given the nature and status of these
lawsuits, we cannot yet determine the amount or a reasonable
range of potential loss, if any, but it is reasonably possible that
such potential loss or such changes to the independent contrac-
tor status of FedEx Ground’s owner-operators could be material.
However, we do not believe that a material loss is probable in
any of these matters.

Independent Contractor — IRS Audit. In October 2008, the IRS
withdrew its tentative assessment of tax and penalties for the
2002 calendar year ($319 million plus interest) against FedEx
Ground relating to the classiﬁ cation of FedEx Ground’s owner-
operators for federal employment tax purposes. The IRS is
continuing its employment tax audit of FedEx Ground for the 2002
calendar year. We are engaged in discussions with the IRS audit
team regarding this matter. We continue to believe that FedEx
Ground’s owner-operators are independent contractors and that
no loss is probable in this matter.

Independent Contractor — Shareholder Derivative Lawsuits. The
Plumbers and Pipeﬁ tters Local 51 Pension Fund and the Western
Pennsylvania Bricklayers Pension Fund each ﬁ led shareholder
derivative lawsuits (which have now been consolidated) in
Tennessee federal court naming FedEx Corporation as a nominal
defendant and the members of the Board of Directors of FedEx
Corporation as defendants (the Plumbers and Pipeﬁ tters suit was
ﬁ led in May 2008 and the Bricklayers suit was ﬁ led in June 2008).
The derivative lawsuits, which are purportedly brought to assert
the rights of FedEx Corporation, assert claims against the Board
members for breach of ﬁ duciary duty, abuse of control, gross
mismanagement, waste of corporate assets and unjust enrich-
ment in connection with the management of FedEx Ground — in
particular, the classiﬁ cation of FedEx Ground’s owner-operators
as independent contractors. Given the preliminary status of these
matters, we cannot yet determine the amount or a reasonable
range of potential loss. However, we do not believe that any loss
is probable.

Other. FedEx and its subsidiaries are subject to other legal pro-
ceedings that arise in the ordinary course of their business. In the
opinion of management, the aggregate liability, if any, with respect
to these other actions will not have a material adverse effect on
our ﬁ nancial position, results of operations or cash ﬂ ows.

Additional information about our contingencies can be found
in the Critical Accounting Estimates section of Management’s
Discussion and Analysis.

FEDEX CORPORATION

Note 18: Related Party Transactions

Our Chairman, President and Chief Executive Ofﬁ cer, Frederick W. Smith, currently holds an approximate 10% ownership interest in
the National Football League Washington Redskins professional football team (“Redskins”) and is a member of its board of directors.
FedEx has a multi-year naming rights agreement with the Redskins granting us certain marketing rights, including the right to name
the Redskins’ stadium “FedExField.”

Note 19: Summary of Quarterly Operating Results (Unaudited)

(in millions, except per share amounts)

2009 (1)
Revenues
Operating income (loss)
Net income (loss)
Basic earnings (loss) per common share
Diluted earnings (loss) per common share (2)

2008 (3)
Revenues
Operating income (loss)
Net income (loss)
Basic earnings (loss) per common share
Diluted earnings (loss) per common share

First
Quarter

$ 9,970
630
384
1.23
1.23

$ 9,199
814
494
1.60
1.58

Second
Quarter

$ 9,538
784
493
1.59
1.58

$ 9,451
783
479
1.55
1.54

Third
Quarter

$ 8,137
182
97
0.31
0.31

$ 9,437
641
393
1.27
1.26

Fourth
Quarter

$ 7,852
(849)
(876)
(2.82)
(2.82)

$ 9,866
(163)
(241)
(0.78)
(0.78)

(1) Operating expenses for the fourth quarter of 2009 include a charge of $1.2 billion ($1.1 billion, net of tax, or $3.46 per diluted share) primarily related to noncash impairment charges associated
with goodwill and aircraft-related asset impairments.
(2) The sum of the quarterly diluted earnings per share may not equal annual amounts due to differences in the weighted-average number of shares outstanding during the respective period.
(3) Results for the fourth quarter of 2008 include a charge of $891 million ($696 million, net of tax, or $2.22 per diluted share), predominantly related to noncash impairment charges associated with the
decision to minimize the use of the Kinko’s trade name and goodwill resulting from the Kinko’s acquisition. The earnings-per-share impact of the impairment charge differs for the fourth quarter and
full year due to differences in the weighted-average number of shares outstanding.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20: Condensed Consolidating Financial Statements

We are required to present condensed consolidating ﬁ nancial information in order for the subsidiary guarantors (other than FedEx
Express) of our public debt to continue to be exempt from reporting under the Securities Exchange Act of 1934.

The guarantor subsidiaries, which are wholly owned by FedEx, guarantee $1.7 billion of our debt. The guarantees are full and uncon-
ditional and joint and several. Our guarantor subsidiaries were not determined using geographic, service line or other similar criteria,
and as a result, the “Guarantor” and “Non-Guarantor” columns each include portions of our domestic and international operations.
Accordingly, this basis of presentation is not intended to present our ﬁ nancial condition, results of operations or cash ﬂ ows for any
purpose other than to comply with the speciﬁ c requirements for subsidiary guarantor reporting.

Condensed consolidating ﬁ nancial statements for our guarantor subsidiaries and non-guarantor subsidiaries are presented in the
following tables (in millions):

CONDENSED CONSOLIDATING BALANCE SHEETS

Parent

Guarantor
Subsidiaries

May 31, 2009
Non-Guarantor
Subsidiaries

Eliminations

Consolidated

ASSETS
Current Assets
Cash and cash equivalents
Receivables, less allowances
Spare parts, supplies and fuel, prepaid expenses

and other, less allowances

Deferred income taxes
Total current assets

Property and Equipment, at Cost
Less accumulated depreciation and amortization

Net property and equipment

Intercompany Receivable
Goodwill
Investment in Subsidiaries
Pension Assets
Other Assets

LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current Liabilities
Current portion of long-term debt
Accrued salaries and employee beneﬁ ts
Accounts payable
Accrued expenses

Total current liabilities

Long-Term Debt, Less Current Portion
Intercompany Payable
Other Liabilities
Deferred income taxes
Other liabilities

Total other long-term liabilities

Stockholders’ Investment

$ 1,768
1

1
–
1,770

23
17
6

758
–
11,973
311
911
$ 15,729

500
26
5
51
582
1,250
–

–
271
271
13,626
$ 15,729

$
272
2,717

838
486
4,313

26,984
14,659
12,325

–
1,485
2,129
–
994
$ 21,246

153
711
1,078
1,426
3,368
680
1,137

1,875
2,732
4,607
11,454
$ 21,246

$ 304
712

83
25
1,124

2,253
1,167
1,086

379
744
–
–
121
$ 3,454

$
–
124
380
161
665
–
–

51
90
141
2,648
$ 3,454

(52)
(39)

–
–
(91)

–
–
–

(1,137)
–
(14,102)
–
(855)
$ (16,185)

–
–
(91)
–
(91)
–
(1,137)

(855)
–
(855)
(14,102)
$ (16,185)

$ 2,292
3,391

922
511
7,116

29,260
15,843
13,417

–
2,229
–
311
1,171
$ 24,244

653
861
1,372
1,638
4,524
1,930
–

1,071
3,093
4,164
13,626
$ 24,244

FEDEX CORPORATION

CONDENSED CONSOLIDATING BALANCE SHEETS

Parent

Guarantor
Subsidiaries

May 31, 2008
Non-Guarantor
Subsidiaries

Eliminations

Consolidated

ASSETS
Current Assets
Cash and cash equivalents
Receivables, less allowances
Spare parts, supplies and fuel, prepaid expenses

and other, less allowances

Deferred income taxes
Total current assets

Property and Equipment, at Cost
Less accumulated depreciation and amortization

Net property and equipment

Intercompany Receivable
Goodwill
Investment in Subsidiaries
Pension Assets
Other Assets

LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current Liabilities
Current portion of long-term debt
Accrued salaries and employee beneﬁ ts
Accounts payable
Accrued expenses

Total current liabilities

Long-Term Debt, Less Current Portion
Intercompany Payable
Other Liabilities
Deferred income taxes
Other liabilities

Total other long-term liabilities

Stockholders’ Investment

$ 1,101
4

10
–
1,115

24
16
8

1,902
–
11,913
813
381
$ 16,132

500
41
3
25
569

749
–

–
288
288

14,526
$ 16,132

$
166
3,310

710
512
4,698

26,658
14,578
12,080

–
2,299
2,678
1
744
$ 22,500

–
881
1,774
1,301
3,956

756
2,235

1,518
2,549
4,067

11,486
$ 22,500

$ 272
1,083

82
32
1,469

2,623
1,233
1,390

333
866
–
13
153
$ 4,224

2
196
456
227
881

1
–

105
132
237

–
(38)

–
–
(38)

–
–
–

(2,235)
–
(14,591)
–
(359)
$ (17,223)

–
–
(38)
–
(38)

–
(2,235)

(359)
–
(359)

3,105
$ 4,224

(14,591)
$ (17,223)

$ 1,539
4,359

802
544
7,244

29,305
15,827
13,478

–
3,165
–
827
919
$ 25,633

$
502
1,118
2,195
1,553
5,368

1,506
–

1,264
2,969
4,233

14,526
$ 25,633

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

REVENUES

OPERATING EXPENSES:
Salaries and employee beneﬁ ts
Purchased transportation
Rentals and landing fees
Depreciation and amortization
Fuel
Maintenance and repairs

Impairment and other charges
Intercompany charges, net

Other

OPERATING INCOME

OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries

Interest, net
Intercompany charges, net

Other, net

INCOME BEFORE INCOME TAXES
Provision for income taxes
NET INCOME

REVENUES

OPERATING EXPENSES:
Salaries and employee beneﬁ ts
Purchased transportation
Rentals and landing fees
Depreciation and amortization
Fuel
Maintenance and repairs

Impairment charges
Intercompany charges, net

Other

OPERATING INCOME

OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries

Interest, net
Intercompany charges, net

Other, net

INCOME BEFORE INCOME TAXES
Provision for income taxes
NET INCOME

Parent

–

82
–
4
2
–
1
–
(193)
104
–

–

98
(73)
90
(17)

98
–
$ 98

Parent

–

98
–
4
2
–
1
–
(204)
99
–

–

1,125
(44)
51
(7)

1,125
–
$ 1,125

Guarantor
Subsidiaries

$ 29,923

Year Ended May 31, 2009
Non-Guarantor
Subsidiaries

Eliminations

Consolidated

$ 5,851

$ (277)

$ 35,497

11,483
3,362
2,134
1,706
3,554
1,755
1,098
81
4,198
29,371

552

103
28
(118)
(3)

562
514
48

2,202
1,211
296
267
257
142
106
112
1,063
5,656

195

–
(14)
28
9

218
65
$ 153

–
(39)
(5)
–
–
–
–
–
(233)
(277)

–

(201)
–
–
–

(201)
–
$ (201)

13,767
4,534
2,429
1,975
3,811
1,898
1,204
–
5,132
34,750

747

–
(59)
–
(11)

677
579
98

Guarantor
Subsidiaries

$ 31,464

Year Ended May 31, 2008
Non-Guarantor
Subsidiaries

Eliminations

Consolidated

$ 6,860

(371)

$ 37,953

11,660
3,392
2,127
1,651
4,095
1,907
882
(94)
4,400
30,020

1,444

310
4
(66)
3

1,695
687
$ 1,008

2,444
1,333
313
293
314
160
–
298
1,074
6,229

631

–
(14)
15
(1)

631
204
$ 427

–
(91)
(3)
–
–
–
–
–
(277)
(371)

–

(1,435)
–
–
–

(1,435)
–
$ (1,435)

14,202
4,634
2,441
1,946
4,409
2,068
882
–
5,296
35,878

2,075

–
(54)
–
(5)

2,016
891
$ 1,125

FEDEX CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

REVENUES

OPERATING EXPENSES:
Salaries and employee beneﬁ ts
Purchased transportation
Rentals and landing fees
Depreciation and amortization
Fuel
Maintenance and repairs

Intercompany charges, net

Other

OPERATING INCOME

OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries

Interest, net
Intercompany charges, net

Other, net

INCOME BEFORE INCOME TAXES
Provision for income taxes
NET INCOME

Parent

–

Guarantor
Subsidiaries

$ 29,894

Year Ended May 31, 2007
Non-Guarantor
Subsidiaries

Eliminations

Consolidated

$ 5,671

$ (351)

$ 35,214

103
–
3
2
–
1
(193)
84
–

–

2,016
(22)
29
(7)

2,016
–
$ 2,016

11,632
3,063
2,082
1,513
3,218
1,830
(170)
4,133
27,301

2,593

390
(29)
(34)
–

2,920
971
$ 1,949

2,005
950
261
227
210
121
363
851
4,988

683

–
(2)
5
(1)

685
228
$ 457

–
(35)
(3)
–
–
–
–
(313)
(351)

–

(2,406)
–
–
–

(2,406)
–
$ (2,406)

13,740
3,978
2,343
1,742
3,428
1,952
–
4,755
31,938

3,276

–
(53)
–
(8)

3,215
1,199
$ 2,016

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

INVESTING ACTIVITIES
Capital expenditures
Business acquisitions, net of cash acquired
Proceeds from asset dispositions and other
CASH USED IN INVESTING ACTIVITIES

FINANCING ACTIVITIES
Net transfers (to) from Parent
Payment on loan from Parent
Principal payments on debt
Proceeds from debt issuance
Proceeds from stock issuances
Excess tax beneﬁ ts on the exercise of stock options
Dividends paid
Other, net
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

Parent

$ (925)

Guarantor
Subsidiaries

$ 3,357

Year Ended May 31, 2009
Non-Guarantor
Subsidiaries

Eliminations

Consolidated

$ 373

$ (52)

$ 2,753

–
–
–
–

1,173
17
(500)
1,000
41
4
(137)
(7)
1,591

–
666
1,101
$ 1,767

(2,248)
–
69
(2,179)

(1,066)
–
–
–
–
–
–
–
(1,066)

(6)
106
166
$ 272

(211)
(3)
10
(204)

(107)
(17)
(1)
–
–
–
–
–
(125)

(11)
33
272
$ 305

–
–
–
–

–
–
–
–
–
–
–
–
–

–
(52)
–
$ (52)

(2,459)
(3)
79
(2,383)

–
–
(501)
1,000
41
4
(137)
(7)
400

(17)
753
1,539
$ 2,292

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

INVESTING ACTIVITIES
Capital expenditures
Business acquisitions, net of cash acquired
Collection on (payment of) loan to Parent
Proceeds from asset dispositions and other
CASH USED IN INVESTING ACTIVITIES

FINANCING ACTIVITIES
Net transfers (to) from Parent
Dividend paid (to) from Parent
Principal payments on debt
Proceeds from stock issuances
Excess tax beneﬁ ts on the exercise of stock options
Dividends paid
Other, net
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

CASH AND CASH EQUIVALENTS
Effect of exchange rate changes on cash
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

INVESTING ACTIVITIES
Capital expenditures
Business acquisitions, net of cash acquired
Proceeds from asset dispositions
CASH USED IN INVESTING ACTIVITIES

FINANCING ACTIVITIES
Net transfers (to) from Parent
Principal payments on debt
Proceeds from debt issuance
Proceeds from stock issuances
Excess tax beneﬁ ts on the exercise of stock options
Dividends paid
Other, net
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

Parent

(44)

(1)
–
(5,971)
–
(5,972)

463
5,971
(551)
108
38
(124)
–
5,905

–
(111)
1,212
$ 1,101

Parent

(57)

(1)
(175)
–
(176)

(578)
(700)
999
115
45
(110)
(5)
(234)

–
(467)
1,679
$ 1,212

Guarantor
Subsidiaries

$ 3,070

Year Ended May 31, 2008

Non-Guarantor
Subsidiaries

Eliminations

Consolidated

$ 439

$ –

$ 3,465

(2,683)
–
5,971
34
3,322

(296)
(5,971)
(85)
–
–
–
–
(6,352)

2
42
124
$ 166

(263)
(4)
–
20
(247)

(167)
–
(3)
–
–
–
–
(170)

17
39
233
$ 272

–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
$ –

(2,947)
(4)
–
54
(2,897)

–
–
(639)
108
38
(124)
–
(617)

19
(30)
1,569
$ 1,539

Year Ended May 31, 2007

Guarantor
Subsidiaries

$ 2,741

Non-Guarantor
Subsidiaries

$ 873

Eliminations

Consolidated

$ –

$ 3,557

(2,631)
(36)
47
(2,620)

40
(206)
55
–
–
–
–
(111)

–
10
114
$ 124

(250)
(1,099)
21
(1,328)

538
–
–
–
–
–
–
538

6
89
144
$ 233

–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
$ –

(2,882)
(1,310)
68
(4,124)

–
(906)
1,054
115
45
(110)
(5)
193

6
(368)
1,937
$ 1,569

FEDEX CORPORATION
FEDEX CORPORATION

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
FedEx Corporation

We have audited the accompanying consolidated balance sheets of FedEx Corporation as of May 31, 2009 and 2008, 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, 2009. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates 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 consolidated financial position
of FedEx Corporation at May 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the three
years in the period ended May 31, 2009, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, effective May 31, 2007 the Company adopted SFAS No. 158, “Employer’s
Accounting for Defined Benefit Pension and Other Postretirement Benefit Plans — An Amendment of FASB Statements No. 87, 88,
106 and 132(R).”

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), FedEx
Corporation’s internal control over financial reporting as of May 31, 2009, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 10, 2009
expressed an unqualified opinion thereon.

Memphis, Tennessee
July 10, 2009

FEDEX CORPORATION

Selected Financial Data

The following table sets forth (in millions, except per share amounts and other operating data) certain selected consolidated ﬁ nancial
and operating data for FedEx as of and for the ﬁ ve years ended May 31, 2009. This information should be read in conjunction with the
Consolidated Financial Statements, Management’s Discussion and Analysis of Results of Operations and Financial Condition and other
ﬁ nancial data appearing elsewhere in this Annual Report.

2009 (1)

2008 (2)

2007 (3)

2006 (4)

2005 (5)

Operating Results
Revenues
Operating income
Income before income taxes
Net income

Per Share Data
Earnings per share:
Basic
Diluted
Average shares of common stock outstanding
Average common and common equivalent
shares outstanding
Cash dividends declared

Financial Position
Property and equipment, net
Total assets
Long-term debt, less current portion
Common stockholders’ investment

$ 35,497
747
677
98

$
$

0.31
0.31
311

312
0.44

$ 13,417
24,244
1,930
13,626

$ 37,953
2,075
2,016
1,125

$
$

3.64
3.60
309

312
0.30

$ 13,478
25,633
1,506
14,526

Other Operating Data
FedEx Express aircraft ﬂ eet
Average full-time equivalent employees and contractors

654
247,908

677
254,142

$ 35,214
3,276
3,215
2,016

$
$

6.57
6.48
307

311
0.37

$ 12,636
24,000
2,007
12,656

669
241,903

$ 32,294
3,014
2,899
1,806

$
$

5.94
5.83
304

310
0.33

$ 10,770
22,690
1,592
11,511

671
221,677

$ 29,363
2,471
2,313
1,449

$
$

4.81
4.72
301

307
0.29

$ 9,643
20,404
2,427
9,588

670
215,838

(1) Operating expenses include a charge of $1.2 billion ($1.1 billion, net of tax, or $3.45 per diluted share) primarily related to impairment charges associated with goodwill and aircraft. Additionally,
common stockholders’ investment includes an other comprehensive income charge of $1.2 billion, net of tax, related to the funded status of our retirement plans at May 31, 2009.
(2) Results for 2008 include a charge of $891 million ($696 million, net of tax, or $2.23 per diluted share) recorded during the fourth quarter, predominantly related to impairment charges associated
with intangible assets from the Kinko’s acquisition. See Note 4 to the accompanying consolidated ﬁ nancial statements. Additionally, results for 2008 and 2007 include several 2007 acquisitions, as
described in Note 3 to the accompanying ﬁ nancial statements.
(3) Results for 2007 include a charge of $143 million at FedEx Express associated with upfront compensation and beneﬁ ts under our labor contract with our pilots. See Note 1 to the accompanying
consolidated ﬁ nancial statements.
(4) Results for 2006 include a charge of $79 million ($49 million, net of tax, or $0.16 per diluted share) to adjust the accounting for certain facility leases, predominantly at FedEx Express.
(5) Results for 2005 include a charge of $48 million ($31 million, net of tax, or $0.10 per diluted share) at FedEx Express related to the Airline Stabilization Act and a $12 million, or $0.04 per diluted
share, beneﬁ t from an income-tax adjustment.

FEDEX CORPORATION

Gary W. Loveman (1) (3)
Chairman, President and
Chief Executive Ofﬁ cer
Harrah’s Entertainment, Inc.
Casino entertainment company

Susan C. Schwab (2)
Professor
University of Maryland
School of Public Policy
Former U.S. Trade Representative

Frederick W. Smith
Chairman, President and
Chief Executive Ofﬁ cer
FedEx Corporation

Joshua I. Smith (1)
Chairman and Managing Partner
Coaching Group, LLC
Management consulting ﬁ rm

Paul S. Walsh (2)
Chief Executive Ofﬁ cer
Diageo plc
Beverage company

Peter S. Willmott (1) (4*)
Chairman and Chief Executive Ofﬁ cer
Willmott Services, Inc.
Retail and consulting ﬁ rm

Board of Directors

James L. Barksdale (3) (4)
Chairman and President
Barksdale Management Corporation
Investment management company

John A. Edwardson (1*)
Chairman and Chief Executive Ofﬁ cer
CDW Corporation
Technology products and services company

Judith L. Estrin (3*) (4)
Chief Executive Ofﬁ cer
JLABS, LLC
Technology company

J.R. Hyde III (3)
Chairman
GTx, Inc.
Biopharmaceutical company

Shirley A. Jackson (2) (4)
President
Rensselaer Polytechnic Institute
Technological research university

Steven R. Loranger (2)
Chairman, President and
Chief Executive Ofﬁ cer
ITT Corporation
Engineering and manufacturing company

(1) Audit Committee
(2) Compensation Committee
(3) Information Technology Oversight Committee
(4) Nominating & Governance Committee
* Committee Chair

FEDEX CORPORATION

Executive Ofﬁ cers and Senior Management

FedEx Corporation

Frederick W. Smith
Chairman, President and Chief Executive Ofﬁ cer

Christine P. Richards
Executive Vice President, General Counsel and Secretary

Alan B. Graf, Jr.
Executive Vice President and Chief Financial Ofﬁ cer

Robert B. Carter
Executive Vice President,
FedEx Information Services and Chief Information Ofﬁ cer

T. Michael Glenn
Executive Vice President,
Market Development and Corporate Communications

John L. Merino
Corporate Vice President and Principal Accounting Ofﬁ cer

FedEx Express Segment

FedEx Ground Segment

David J. Bronczek
President and Chief Executive Ofﬁ cer
FedEx Express

David F. Rebholz
President and Chief Executive Ofﬁ cer
FedEx Ground

Michael L. Ducker
Executive Vice President and President, International
FedEx Express

Rodger G. Marticke
Executive Vice President and Chief Operating Ofﬁ cer
FedEx Ground

William J. Logue
Executive Vice President and Chief Operating Ofﬁ cer, United States
FedEx Express

Ward B. Strang
President and Chief Executive Ofﬁ cer
FedEx SmartPost

G. Edmond Clark
President and Chief Executive Ofﬁ cer
FedEx Trade Networks

FedEx Freight Segment

FedEx Services Segment

Douglas G. Duncan
President and Chief Executive Ofﬁ cer
FedEx Freight

Donald C. Brown
Executive Vice President, Finance and Administration
and Chief Financial Ofﬁ cer
FedEx Freight

Patrick L. Reed
Executive Vice President and Chief Operating Ofﬁ cer
FedEx Freight

Virginia C. Albanese
President and Chief Executive Ofﬁ cer
FedEx Custom Critical

Sherry A. Aaholm
Executive Vice President, Information Technology
FedEx Services

Donald F. Colleran
Executive Vice President, Global Sales
FedEx Services

Brian D. Philips
President and Chief Executive Ofﬁ cer
FedEx Ofﬁ ce

Cary C. Pappas
President and Chief Executive Ofﬁ cer
FedEx Customer Information Services

Thomas Schmitt
President and Chief Executive Ofﬁ cer
FedEx Global Supply Chain Services

FEDEX CORPORATION

Corporate Information

FedEx Corporation: 942 South Shady Grove Road, Memphis,
Tennessee 38120, (901) 818-7500, fedex.com

Annual Meeting of Shareowners: Monday, September 28, 2009,
10:00 a.m. local time, The Peabody Hotel, Grand Ballroom,
149 Union Avenue, Memphis, Tennessee 38103.

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

Shareowners: As of July 13, 2009, there were 18,062 shareowners
of record.

Market Information: Following are high and low sale prices and
cash dividends paid, by quarter, for FedEx Corporation’s common
stock in 2009 and 2008:

FY 2009
High
Low
Dividend

FY 2008
High
Low
Dividend

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

$ 93.69
71.33
0.11

$ 96.65
53.90
0.11

$ 76.94
42.37
0.11

$ 119.10
99.30
0.10

$ 111.29
91.10
0.10

$ 101.53
80.00
0.10

$ 62.16
34.02
0.11

$ 99.46
82.50
0.10

Financial Information: Copies of FedEx Corporation’s Annual
Report on Form 10-K, other documents ﬁ led with the Securities
and Exchange Commission (SEC) and other ﬁ nancial and statis-
tical information are available through our Web site at fedex.com.
Company documents ﬁ led electronically with the SEC can
also be found at the SEC’s Web site at www.sec.gov. You will
be mailed a copy of the Form 10-K upon request to: FedEx
Corporation Investor Relations, 942 South Shady Grove Road,
Memphis, Tennessee 38120, (901) 818-7200, e-mail:
ir@fedex.com.

SEC and NYSE Certiﬁ cations: The most recent certiﬁ cations
by our principal executive and ﬁ nancial ofﬁ cers pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 are ﬁ led as
exhibits to our Form 10-K. We have also ﬁ led with the New York
Stock Exchange the most recent Annual CEO Certiﬁ cation as
required by section 303A.12(a) of the NYSE Listed Company
Manual.

Independent Registered Public Accounting Firm:
Ernst & Young LLP, Memphis, Tennessee

Customer Service: Call 1-800-Go-FedEx or visit fedex.com.

Media Inquiries: Global Communications, FedEx Corporation,
942 South Shady Grove Road, Memphis, Tennessee 38120,
(901) 434-8100, e-mail: mediarelations@fedex.com

Shareowner Account Services: Computershare Investor
Services, P.O. Box 43069, Providence, Rhode Island 02940-3069,
(800) 446-2617, www.computershare.com

Direct Stock Purchase and Dividend Reinvestment:
For information on the direct stock purchase and dividend
reinvestment plan for FedEx Corporation common stock, call
Computershare at (800) 446-2617 or visit their direct stock
purchase plan Web site at www.computershare.com. This plan
provides an alternative to traditional retail brokerage methods of
purchasing, holding and selling FedEx common stock. This plan
also permits shareowners to automatically reinvest their divi-
dends to purchase additional shares of FedEx common stock.

Investor Relations: Mickey Foster, Vice President, Investor
Relations, FedEx Corporation, 942 South Shady Grove Road,
Memphis, Tennessee 38120, (901) 818-7200, e-mail: ir@fedex.com

Equal Employment Opportunity: Our greatest asset is our
people. We are committed to providing a workplace where
our employees and contractors feel respected, satisﬁ ed and
appreciated. Our policies are designed to promote fairness
and respect for everyone. We hire, evaluate and promote
employees, and engage contractors, based on their skills and
performance. With this in mind, we will not tolerate certain
behaviors. These include harassment, violence, intimidation
and discrimination of any kind involving race, color, religion,
national origin, gender, sexual orientation, gender identity, age,
disability, veteran status or, where applicable, marital status.

Service Marks: The following are registered service marks of
Federal Express Corporation, registered with the U.S. Patent
& Trademark Ofﬁ ce and in other countries: FedEx®, FedEx
Express®, FedEx Ground®, FedEx Freight®, FedEx Custom
Critical®, FedEx International Priority®, FedEx International
Priority® Freight, FedEx SmartPost®, FedEx Home Delivery®,
FedEx Trade Networks® and FedEx National LTL®. Caribbean
Transportation ServicesSM, FedEx Ofﬁ ceSM, and FedEx Global
Supply Chain ServicesSM are service marks of Federal Express
Corporation.

This entire annual report is printed on paper certiﬁ ed by the Forest Stewardship Council,
which promotes environmentally appropriate, socially beneﬁ cial and economically viable
management of the world’s forests. The paper contains a mix of pulp derived from
FSC-certiﬁ ed well-managed forests and FSC-certiﬁ ed recycled paper ﬁ bers.

r
e

l
l
i

M
y
r
o
g
e
r
G
y
b
h
p
a
r
g
o
t
o
h
P
r
e
v
o
C

s
c
h
p
a
r
G
r
o
o
C
/
o
e
v
n
e
C
y
b
g
n
i
t
n
i
r
P

A
G

a
t
n
a
l
t

,
.

c
n
I

,
y
r
a
d
n
u
o
b
n
U
y
b
n
g
i
s
e
D
+
y
g
e
t
a
r
t

“ The global economy flows

through my hands every day.”

The LonG FuTuRe RequiReS The RiGhT inFRaSTRucTuRe

Fedex’s network of operating companies provides the access the world needs today — and tomorrow. Fedex express is
the world’s largest express transportation company, providing fast and reliable delivery to more than 220 countries and
territories. Fedex Ground provides low-cost, small-package shipping in the united States and canada. Fedex Freight is a
leading north american provider of less-than-truckload (LTL) freight services. Fedex Services provides support services
for our transportation businesses, while its Fedex office unit offers shipping and business services at more than 1,900
retail locations in eight countries.

F
e
d
E
x
C
o
r
p
o
r
a
t
i

o
n
A
n
n
u
a
l

R
e
p
o
r
t
2
0
0
9

The Long Future

FedEx Corporation
942 South Shady Grove Road
Memphis, Tennessee 38120
fedex.com