FedEx Annual Report 2010

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FY2010 Annual Report · FedEx

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Fedex CorporAtion
942 South Shady Grove Road
Memphis, Tennessee 38120
fedex.com

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Dear ShareownerS:

You Ain’t Seen nothing Yet.

the Future oF Fuel

We call it “30 by 30” — our goal to get 30 percent of our jet
fuel from alternative fuels by the year 2030. New advances
bring that goal closer to reality every day, with jet fuel already
being produced from algae (at left) and from plants such as
jatropha and camelina.

AnnuAl report 2010

Fedex expreSS is the world’s largest
express transportation company,
providing time-certain delivery to more
than 220 countries and territories.

Fedex ground provides low-cost,
small-package shipping to businesses
and residences in the United States
and Canada.

Fedex Freight is the leading North
American provider of fast-transit and
economical less-than-truckload (LTL)
freight services.

Fedex ServiCeS supports our
transportation units, while FedEx
Office offers shipping and business
services at nearly 2,000 retail locations
in eight countries.

Letter from the chairman

This pasT year, we did
whaT sTrong companies
should do in a downTurn:
emerge sTronger Than ever.

I have never been more proud of our FedEx team. Why? Because today, I can look to
the future of FedEx and say, like the old ’70s rock song, “You ain’t seen nothing yet.”

Coming through the toughest economic contraction since World War II, we stuck to
our strategy, to our long view of the future. Despite the downturn, we kept making
smart investments that put us far ahead of any competitor. We kept breaking techno-
logical ground to give our customers better service and to make our operations more
sustainable. We worked as a team to keep our Purple Promise — to make every FedEx
experience outstanding. The greatest thanks for these achievements go to more than
a quarter million FedEx team members around the world.

Letter from the chairman

They are Fedex.
Their dedicaTion To service,
To innovaTion, and To
responsibiliTy broughT
us To where we are Today.

As we moved through the downturn, we cut billions in costs to adjust to the “new
normal.” Every FedEx team member was asked to share in that sacrifice. But
today, I’m pleased to report that we’ve restored many compensation programs
and 401(k) matching contributions.

By sticking to our long-term strategy, combined with our cost-reduction efforts,
we finished FY10 with positive momentum. In the first half of the fiscal year, earnings
were down year over year, but in the second half, major global economies began
emerging from the recession, and our volumes grew accordingly. We finished the year
strong with net income of $1.2 billion. Our share price rose by more than 50 percent
over the course of the fiscal year, outpacing the S&P 500, the Dow Jones Industrial
Average, and the Dow Jones Transportation Average.

Over the years, we have built a business model that allowed us to adjust shipping
capacity to demand. In other words, we’ve built quite a few “shock absorbers” into
our networks, and when the downturn hit, they cushioned our results. We have also
built and maintained an exceptionally strong balance sheet.

In short, commitment and preparation were the main reasons we emerged from this
downturn stronger than ever. We made calculated decisions during the recession to
leverage our unique global network and be ready to take advantage of the economic
recovery we knew would come. One of those decisions involved using state-of-the-art
Boeing 777F aircraft on Asian routes.

The 777F sets the new standard for freighter aircraft. No other company in our industry
flies these planes nonstop across the Pacific Ocean. Because we do, our customers now
have more of that irreplaceable commodity — time.

Letter from the chairman

we gained an advanTage
ThaT will Take years For
our compeTiTors To maTch
— and one ThaT will give
our cusTomers Their own
compeTiTive advanTage.

FedEx pioneered global just-in-time supply chains, and these aircraft represent a giant
step forward. Our 777Fs give FedEx customers a meaningful edge in the modern global
marketplace. We can now fly directly between Asia and the United States with no
refueling stops. This gives our customers later cutoffs to prepare shipments in an era
when every extra minute is critical. Many companies’ strategies depend on inventory
turning over at maximum speed and new goods moving directly to customers — even
if they have to move all the way across the Pacific Ocean.

Under the right circumstances, FedEx would like to have at least twenty-two 777Fs in
service by 2014 and another 16 by 2020. The 777Fs fly farther on less fuel, and they
carry nearly 14,000 more pounds of freight than the MD-11s they replace. Put those
things together, and they create a meaningful advantage for FedEx: a steep reduction
in cost and emissions per unit transported.

The 777Fs are the most visible examples of how, during the worst recession in our
history, we kept investing to produce real value for our customers, their customers,
and for us. We also continued replacing our 727s with 757s, which have 47 percent
lower fuel consumption per pound of payload, greater operational efficiencies, and
lower maintenance costs. And we expanded the list of countries where we operate
branded FedEx Express domestic services to include India, along with the United
States, China, Canada, Mexico, and the United Kingdom.

At FedEx Ground, we continued network expansion and accelerated transit times.
Since 2002, FedEx Ground has opened nine new hubs, featuring the most advanced
material-handling technology. We’ve expanded and/or relocated more than 500
local facilities. What’s the payoff? We now deliver more than 50 percent of packages
in two days or less and more than 80 percent in three days or less — a benefit for our
customers. It’s a boon to FedEx, too. FedEx Ground’s average daily package volume
has increased by more than 50 percent, from 2.2 million daily packages in 2003 to
more than 3.5 million in FY10.

On the other hand, it was a tough year at FedEx Freight, but we have a strategy in place
to turn things around. Essentially, since the economic downturn, too much less-than-
truckload (LTL) capacity has been chasing too little inventory. This put downward
pressure on prices and resulted in lower profits. Our focus now is to balance growth
and yield. Having integrated our Freight Sales and Customer Service units with FedEx
Services during FY10, we are now able to do so in more exacting and efficient ways. In
addition, we’re reducing costs and improving productivity, for example, in our pickup-
and-delivery and linehaul operations. Our long-term goals for FedEx Freight are to be
the premier LTL provider, to be the market leader, and to be the most profitable carrier.

Li tao
Senior Ramp Agent, FedEx Express, Shanghai

“I previously worked loading the MD-11 airplanes. With the MD-11,
the flight schedule was from Shanghai to Anchorage for refueling
and then to Memphis. Now that we use the 777, we have a nonstop
flight from Shanghai to Memphis. The flight leaves Shanghai two
hours later, so the cutoff time for our customers is two hours later.
The other difference is operation time. With its power-loading
system, we can load an additional 14,000 pounds into this plane
15 minutes faster than we could load the MD-11.”

Letter from the chairman

We are confident we have the strategy, leadership, and resources in place to achieve
our goals.

In January, we launched FedEx International DirectDistribution Ocean Solutions, which
can replace a maze of shipping channels with one global distribution command-and-
control center. Through this service, we can pick up shipments at factories or container
yards in Asia or Europe, consolidate them, forward them by ocean transport, provide
customs brokerage service in the U.S. and Canada, then handle final delivery to
multiple destinations via FedEx Ground, FedEx SmartPost, FedEx Freight, or FedEx
Custom Critical.

In April, we introduced FedEx Electronic Trade Documents (ETD), which lets customers
submit customs documents electronically, which reduces paper usage and saves them
time and money. FedEx ETD is available for shipments to 71 countries, and we plan to
expand its reach as fast as possible.

FedEx Office has rolled out an alliance with Canon/HP that means deployment of
more than 12,000 new state-of-the-art printing and production machines in all 1,800
U.S. FedEx Office centers over the next few years. This alliance will also open doors
for new customer-facing solutions such as smart phone printing and other creative
publishing solutions. Our retail network is an increasingly important channel for
express and ground shipping. Also, FedEx Office has completed its rebranding and is
now testing different store prototypes to identify the best model for the future — the
one that makes it easier for customers to access what they want and for our team
members to do a better job of selling our shipping and business solutions.

The entire history of our company is built around a singular vision: to make it
possible for people and businesses to connect and collaborate with each other, no
matter where they are in the world. Our networks are critical elements of a global
force we call Access, the ability to transform through connectivity. We know from years
of research and inquiry that Access has the power to change millions of lives for the
better. We work constantly to expand Access. Every year, we do that more responsibly
and resourcefully, and FY10 was no exception. In this regard, we continue to promote
the great advantages of open global markets to political leaders and the public.

every day, Through boTh
our acTions and our
advocacy, we work To
Turn FuTurisTic dreams
inTo modern realiTy.

We’ve devoted a great deal of time this past year to advocating a shift in how our
nation powers its transportation sector — by using electricity as the power source for
short-haul ground vehicles. Electricity is diverse, domestic, stable, and a fundamentally
scalable energy source with fuel inputs almost completely free of oil. Vehicle miles
fueled by electricity emit less carbon than those fueled by gasoline, even if all of the
electricity used to charge the vehicle is generated through conventional sources.
High penetration rates of grid-enabled vehicles — propelled in whole or in part by

DaviD Hong
Courier, FedEx Express, Los Angeles

“The Modec truck runs so smoothly and so quietly and has the
power to do whatever I need. And the most important thing is
that it’s friendly to the environment. My route is inside the
University of Southern California campus. When people see me
drive through, they give me the thumbs up and say, ‘That’s the
way to go!’ I drive an average of 20 miles every day. One time I
tested it, and I didn’t plug it in for three days. It still had enough
battery life for me to go on to the next day.“

Letter from the chairman

electricity drawn from the grid and stored onboard in a battery — could radically
reduce oil consumption in the United States. Electric vehicles would strengthen our
economy, reduce national security and economic risks, and dramatically reduce
emissions of greenhouse gases.

Today, we have our industry’s largest fleet of hybrid electric package-delivery trucks.
We’re still expanding that fleet, but not just by buying new hybrids. We’ve also learned
how to expand the useful lives of some conventional diesel trucks by retrofitting them
with hybrid electric drive trains.

We’ve worked with Modec and Navistar to develop a new all-electric commercial
delivery truck that we’re now using in London and Los Angeles. These electric delivery
vehicles are particularly well suited for densely populated, moderate-climate urban
areas, where they cut our direct operating costs by 60-80 percent per vehicle mile.
As the capital costs of these electric vehicles come down — and their battery capacity
and range go up — we’ll be able to convert more of our fleet.

Of course, no one has figured out (just yet) how to power freighter aircraft with
electricity. That’s why FedEx has a goal of getting 30 percent of our jet fuel from
alternative fuels by 2030. We call it “30 by 30.”

Aviation represents a great opportunity for a transition to renewable fuel sources, if
only because the infrastructure requirements are much lower. There are about 250,000
gasoline or diesel fueling points in the world, but there are only about 1,700 major
aviation fueling points. Transitioning aviation to alternative fuels will be much easier
than surface transport if renewable fuels become cost effective. The prospects look
brighter every day, with jet fuel already being produced from algae and plants such as
jatropha and camelina, albeit at cost levels that are not yet competitive with petroleum.

I can’t write about such far-reaching goals without offering our deepest thanks to
Judy Estrin, the chief executive officer of JLabs LLC, whose more than 20 years of
service on our Board of Directors will end with her retirement in September at our
annual meeting. Her deep knowledge of science, information technology, and
innovation made her counsel extremely valuable to our company.

Over almost four decades of operation, all of us at FedEx have broadened our view
of what’s possible and why our work matters. We make about eight million deliveries
every day, but we deliver more than packages, freight, and business services. We
deliver the opportunity for people to live the way they want to live. We deliver access
to global supply chains and marketplaces. Millions of times every day, we efficiently
put the products of the world within everyone’s easy reach. This creates value not only
for our shareowners, but also for other stakeholders, whose lives we touch daily.

FedEx moves into FY11 in a strong position as the global economy recovers. Because
we stayed focused on smart investments, service, and responsibility during the
downturn, we believe we will increase earnings, cash flow, and capital returns as the
global economy expands.

Sincerely,

FreDerick W. SmitH
Chairman, President and Chief Executive Officer

MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL HIGHLIGHTS

$35.2

$38.0

$35.5

$34.7

$32.3

9.3%

REVENUE
(IN BILLIONS)

OPERATING
MARGIN

5.5%

5.8%

2.1%

$6.48

$5.83

DILUTED
EARNINGS
PER SHARE

$3.60

$3.76

$0.31

2006

2007

2008

2009

2010

2006

2007

2008(2)

2009(1)

2010

2006

2007

2008(2)

2009(1)

2010

17.1%

16.7%

8.3%

8.6%

17.5%

17.3%

15.9%

12.1%

12.3%

$109.27

$111.62

$91.71

$83.49

$55.43

RETURN
ON AVERAGE
EQUITY

0.7%

DEBT TO TOTAL
CAPITALIZATION

STOCK PRICE
(MAY 31 CLOSE)

2006

2007

2008(2)

2009(1)

2010

2006

2007

2008

2009

2010

2006

2007

2008

2009

2010

In millions, except earnings per share

OPERATING RESULTS

Revenues
Operating income
Operating margin
Net income
Diluted earnings per share
Average common and common equivalent shares
Capital expenditures

FINANCIAL POSITION

Cash and cash equivalents
Total assets
Long-term debt, including current portion
Common stockholders’ investment

2010

2009(1)

Percent Change

$ 34,734
1,998

5.8 %

1,184
3.76
314
2,816

$ 1,952
24,902
1,930
13,811

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

$ 2,292
24,244
2,583
13,626

(2)
167
370bp
NM
NM
1
15

(15)
3
(25)
1

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN(3)

$160

$150

$140

$130

$120

$110

$100

$90

$80

$70

2005

2006

2007

2008

2009

2010

FedEx Corporation

S&P 500

Dow Jones Transportation Average

(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 FedEx Ofﬁ ce acquisition.

(3) Shows the value, at the end of each of the last ﬁ ve ﬁ scal years, of $100 invested in FedEx Corporation common stock or the relevant index

on May 31, 2005, 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:

(cid:129) Results of Operations includes an overview of our consolidated
2010 results compared to 2009, and 2009 results compared
to 2008. This section also includes a discussion of key actions
and events that impacted our results, as well as our outlook
for 2011.

(cid:129) The overview is followed by a ﬁ nancial summary and analysis
(including a discussion of both historical operating results and
our outlook for 2011) for each of our reportable transportation
segments.

(cid:129) 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.

(cid:129) 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
are Federal Express Corporation (“FedEx Express”), the world’s
largest express transportation company; FedEx Ground Package
System, Inc. (“FedEx Ground”), a leading provider of small-pack-
age ground delivery services; and the FedEx Freight LTL Group,
which comprises the FedEx Freight and FedEx National LTL busi-
nesses of FedEx Freight Corporation, a leading U.S. provider of
less-than-truckload (“LTL”) freight services. These companies
represent our major service lines and, along with FedEx Corporate
Services, Inc. (“FedEx Services”), form the core of our reportable
segments. Our FedEx Services segment provides sales, market-
ing, information technology and customer service support to our
transportation segments. In addition, the FedEx Services seg-
ment provides customers with retail access to FedEx Express and
FedEx Ground shipping services through FedEx Ofﬁ ce and Print
Services, Inc. (“FedEx Ofﬁ ce”). See “Reportable Segments” for
further discussion.

The key indicators necessary to understand our operating results
include:

(cid:129) the overall customer demand for our various services;

(cid:129) the volumes of transportation services provided through our
networks, primarily measured by our average daily volume and
shipment weight;

(cid:129) the mix of services purchased by our customers;

(cid:129) 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);

(cid:129) our ability to manage our cost structure (capital expenditures
and operating expenses) to match shifting volume levels; and

(cid:129) 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 oper-
ating expenses to ﬂ uctuate on a year-over-year basis consistent
with the change in revenues and volumes. Therefore, the discus-
sion of operating expense captions focuses on the key drivers
and trends impacting expenses other than changes in revenues
and volume.

Except as otherwise speciﬁ ed, references to years indicate our
ﬁ scal year ended May 31, 2010 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.

1010

MANAGEMENT’S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS

CONSOLIDATED RESULTS
The following table compares summary operating results (dollars in millions, except per share amounts) for the years ended May 31:

Revenues
Operating income
Operating margin
Net income
Diluted earnings per share

2010

$ 34,734
1,998

5.8%

$ 1,184
3.76

2009 (1)

2008 (2)

2010/2009

2009/2008

Percent Change

$ 35,497
747
2.1%
98
0.31

$
$

$ 37,953
2,075

5.5%

$ 1,125
3.60
$

(2)
167
370bp
NM
NM

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

(1) Operating expenses include charges 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
FedEx Ofﬁ ce acquisition (described below).

The following table shows changes in revenues and operating income by reportable segment for 2010 compared to 2009, and 2009
compared to 2008 (dollars in millions):

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

Revenues

Operating Income

Dollar Change

Percent Change

Dollar Change

Percent Change

2010/2009

2009/2008

2010/2009

2009/2008

2010/2009

2009/2008

2010/2009

2009/2008

$ (809)
392
(94)
(207)
(45)
$ (763)

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

(4)
6
(2)
(10)
NM
(2)

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

$ 333
217
(109)
810
–
$ 1,251

$ (1,107)
71
(373)
81
–
$ (1,328)

42
27
(248)
100
–
167

(58)
10
(113)
9
–
(64)

(1) FedEx Express segment 2009 operating expenses include a charge of $260 million, primarily related to aircraft-related asset impairments.
(2) FedEx Freight segment 2009 operating expenses include a charge of $100 million, primarily related to impairment charges associated with goodwill related to the FedEx National LTL acquisition.
(3) FedEx Services segment 2009 operating expenses include a charge of $810 million, related to impairment charges associated with goodwill related to the FedEx Ofﬁ ce acquisition. FedEx Services
segment 2008 operating expenses include a charge of $891 million, predominantly related to impairment charges associated with intangible assets from the FedEx Ofﬁ ce acquisition. The normal,
ongoing net operating costs of the FedEx Services segment are allocated back to the transportation segments.

OVERVIEW
Our results for 2010 reﬂ ect the continued impact of the global
recession, which negatively impacted volumes and yields prin-
cipally in the ﬁ rst half of the ﬁ scal year. A gradual improvement
in economic conditions during the third quarter and a strong
fourth quarter performance, particularly in international shipping
volumes at FedEx Express, allowed us to end 2010 with positive
momentum. Although revenues declined, our earnings improved
in 2010 due to the inclusion in 2009 of a $1.2 billion charge related
to goodwill and other asset impairments. As the global and U.S.
economies began to emerge from recession in the second half
of 2010, we experienced signiﬁ cant volume growth across all of
our transportation segments. Our FedEx Ground segment contin-
ued to grow throughout the recession, as customers opted for
lower-priced ground transportation services and we continued to
gain market share. Despite higher shipment volumes in 2010, our
FedEx Freight segment had a difﬁ cult year resulting in an operat-
ing loss, as the pricing environment in the LTL market remained
highly competitive due to excess industry capacity.

Changes in fuel surcharges and fuel prices also had a signiﬁ cant
negative impact on our earnings year over year, particularly in the
ﬁ rst half of 2010. In addition, our results in 2010 were impacted by
costs associated with the partial reinstatement of several of our
employee compensation programs as a result of improved global
economic conditions. The beneﬁ ts of numerous cost containment
activities implemented in 2009 continued to favorably impact our
2010 results, principally in the ﬁ rst half of the ﬁ scal year.

In 2009, global economic conditions deteriorated signiﬁ cantly,
resulting in lower revenue and earnings. Our results for 2009
reﬂ ected reduced demand for most of our services. Declines in
U.S. domestic volumes at FedEx Express were partially mitigated
by the exit of a key competitor (DHL) from the market, as we gained
approximately half of this competitor’s total U.S. domestic ship-
ments. FedEx Express package yields and FedEx Freight LTL Group
yields were negatively impacted by a more competitive pricing
environment, as competitors were aggressively seeking to protect
market share and sustain operations during the recession.

Our operating results for 2009 were also negatively impacted
by fourth quarter charges of $1.2 billion, related primarily to the
impairment of goodwill related to the Kinko’s, Inc. (now FedEx
Ofﬁ ce) and Watkins Motor Lines (now FedEx National LTL) acqui-
sitions and certain aircraft-related assets at FedEx Express. 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, a suspension of 401(k)
company-matching contributions, elimination of variable com-
pensation payouts, and signiﬁ cant volume-related reductions in
labor hours and linehaul expenses. These cost-reduction activi-
ties 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.

11
11

FEDEX CORPORATION

The following graphs for FedEx Express, FedEx Ground and the FedEx Freight LTL Group show selected volume trends (in thousands)
for the years ended May 31:

Average Daily Package Volume
FedEx Express

3,536

3,399

2007

2008

3,376

2009

3,479

2010

Total Average Daily Package Volume
FedEx Express and FedEx Ground
(1)

6,901

7,002

6,525

6,780

2007

2008

2009

2010

3,600

3,500

3,400

3,300

7,400

7,200

7,000

6,800

6,600

6,400

3,600

3,500

3,400

3,300

3,200

3,100

3,000

85.0

80.0

75.0

70.0

3,126

2007

78.2

Average Daily Package Volume
FedEx Ground

(1)

3,523

3,365

3,404

2008

2009

2010

Average Daily LTL Shipments
FedEx Freight LTL Group

79.7

2007

2008

74.4

2009

82.3

2010

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

FedEx Express
Revenue per Package – Yield

$ 22.08

$ 21.30

$ 23.00

$ 22.00

$ 21.00

$ 21.28

$ 20.00

$ 19.00

2007

2008

2009

$ 19.72

2010

FedEx Ground
Revenue per Package – Yield

(1)

$ 7.70

$ 7.73

$ 7.48

$ 7.21

2007

2008

2009

2010

$ 8.00

$ 7.75

$ 7.50

$ 7.25

$ 7.00

$ 6.75

FedEx Freight LTL Group
LTL Revenue per Hundredweight – Yield

$ 19.65

$ 19.07

$ 18.65

2007

2008

2009

$ 17.07

2010

$ 21.00

$ 20.00

$ 19.00

$ 18.00

$ 17.00

$ 16.00

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

REVENUE
Revenues decreased 2% during 2010 primarily due to yield
decreases at FedEx Express and the FedEx Freight LTL Group
as a result of lower fuel surcharges and a continued competi-
tive pricing environment for our services. At FedEx Express, our
weighted-average U.S. domestic and outbound fuel surcharge
was 6.20% in 2010 versus 17.45% in 2009. Increased volumes at
all of our transportation segments due to improved economic
conditions in the second half of the ﬁ scal year partially offset the
yield decreases in 2010. At FedEx Express, International Priority
(“IP”) package volume increased 10%, led by volume growth in
Asia. IP freight and U.S. domestic package volume growth also
contributed to the revenue increase in 2010. At the FedEx Ground
segment, market share gains resulted in a 3% increase in vol-
umes at FedEx Ground and a 48% increase in volumes at FedEx
SmartPost during 2010. At the FedEx Freight LTL Group, discounted
pricing drove an increase in average daily LTL freight shipments,
but also resulted in signiﬁ cant yield declines during 2010.

Revenues decreased during 2009 due to signiﬁ cantly lower vol-
umes at FedEx Express and the FedEx Freight LTL Group as a result
of reduced demand due to weak economic conditions and lower
yields resulting from an aggressive pricing environment. At FedEx
Express, U.S. domestic package and freight volumes declined and
IP volume declined in every major region of the world. However,
declines in U.S. domestic package volumes were partially offset
by volumes gained from DHL’s exit from the U.S. market. These
volume decreases were also 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. 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 economical
ground delivery services during the recession.

IMPAIRMENT AND OTHER CHARGES
In 2010, we recorded a charge of $18 million for the impairment of
goodwill related to the FedEx National LTL acquisition. Our operat-
ing results for 2009 included charges of $1.2 billion ($1.1 billion, net
of tax, or $3.45 per diluted share) recorded during the fourth quarter,
primarily related to the impairment of goodwill related to the FedEx
Ofﬁ ce and FedEx National LTL acquisitions and certain aircraft-
related assets at FedEx Express. The key factor contributing to the
goodwill impairment was a decline in FedEx Ofﬁ ce’s and FedEx
National LTL’s actual and forecasted ﬁ nancial performance as a
result of weak economic conditions. The FedEx National LTL 2009
goodwill impairment charge was included in the results of the FedEx
Freight segment. The FedEx Ofﬁ ce 2009 goodwill impairment 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.

The majority of our property and equipment impairment charges
during 2009 resulted from our decision to permanently remove from
service certain aircraft that we own, along with certain excess
aircraft engines, at FedEx Express. This decision was the result of
efforts to optimize our express network in light of excess aircraft
capacity due to weak economic conditions and the delivery of
newer, more fuel-efﬁ cient aircraft.

Our operating results for 2008 included a charge of $891 million
($696 million, net of tax, or $2.23 per diluted share) recorded during
the fourth quarter, predominantly related to the impairment of the
Kinko’s trade name and goodwill resulting from the FedEx Ofﬁ ce
acquisition.

The impairment of the Kinko’s trade name was due to the decision
to minimize the use of the Kinko’s trade name and rebrand the com-
pany as FedEx Ofﬁ ce. The goodwill impairment charge resulted
from a decline in the fair value of the FedEx Ofﬁ ce reporting unit
in light of economic conditions, the unit’s recent and forecasted
financial performance and the decision to reduce the rate of
network expansion. The charges were included in the results of
the FedEx Services segment and were not allocated to our trans-
portation segments, as the charges were unrelated to the core
performance of those businesses.

FEDEX CORPORATION

OPERATING INCOME
The following tables compare operating expenses expressed as
dollar amounts (in millions) and as a percent of revenue for the
years ended May 31:

2010

2009

2008

the inclusion in the prior year of higher self-insurance reserve
requirements at FedEx Ground. Purchased transportation costs
increased 4% in 2010 due to increased utilization of third-party
transportation providers associated primarily with our LTL freight
service as a result of higher shipment volumes.

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

Total operating expenses

$ 14,027
4,728
2,359
1,958
3,106
1,715
18
4,825
$ 32,736

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

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

(1) Includes 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 above).
(2) Includes 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 FedEx
Ofﬁ ce acquisition (described above).

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

Total operating expenses

Operating margin

Percent of Revenue (1)
2009

2010

2008

40.4%
13.6
6.8
5.6
8.9
4.9
0.1
13.9
94.2

5.8%

38.8%
12.8
6.8
5.6
10.7
5.3
3.4
14.5
97.9

2.1%

37.4%
12.2

6.4
5.1

11.6
5.5
2.3
14.0
94.5

5.5%

Operating income and operating margin increased in 2010 pri-
marily as a result of the inclusion in 2009 of the impairment and
other charges described above. Volume increases at our pack-
age businesses, particularly in higher-margin IP package and
freight services at FedEx Express, also beneﬁ ted our 2010 results.
Additionally, we continued to beneﬁ t in 2010 from several actions
implemented in 2009 to lower our cost structure, including reduc-
ing base salaries, optimizing our networks by adjusting routes
and equipment types, permanently and temporarily idling certain
equipment and consolidating facilities; however, these beneﬁ ts
were partially offset by increased costs in 2010 associated with
our variable incentive compensation programs. An operating loss
at the FedEx Freight segment due to continued weakness in the
LTL freight market partially offset the earnings increase.

Maintenance and repairs expense decreased 10% in 2010 pri-
marily due to the timing of maintenance events, as lower aircraft
utilization as a result of weak economic conditions in the ﬁ rst half
of 2010 lengthened maintenance cycles. Other operating expense
decreased 6% in 2010 due to actions to control spending and

The following graph for our transportation segments shows our
average cost of jet and vehicle fuel per gallon for the years ended
May 31:

Average Fuel Cost per Gallon

$ 3.75

$ 3.25

$ 2.75

$ 2.25

$ 1.75

$ 1.25

$ 3.31

$ 2.77

$ 3.04

$ 2.62

$ 2.69

$ 2.15

$ 2.65

$ 2.12

2007

2008

2009

2010

Vehicle

Jet

Fuel expense decreased 18% during 2010 primarily due to
decreases in the average price per gallon of fuel and fuel
consumption, as we lowered ﬂ ight hours and improved route
efﬁ ciencies. In 2010, fuel prices rose during the beginning of the
ﬁ rst quarter and slowly increased, with signiﬁ cantly less volatility
than in 2009. The change in our fuel surcharges for FedEx Express
and FedEx Ground lagged the price increase by approximately
six to eight weeks. Accordingly, based on a static analysis of the
net impact of year-over-year changes in fuel prices compared
to year-over-year changes in fuel surcharges, fuel had a signiﬁ -
cant negative impact to operating income in 2010. In contrast, we
experienced signiﬁ cant fuel price and fuel surcharge volatility
in 2009, when fuel prices peaked at their historical highs before
beginning to rapidly decrease, which resulted in a signiﬁ cant
beneﬁ t to operating income in 2009.

Our analysis considers the estimated impact 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 fuel surcharge levels may have on our busi-
ness, 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 sold, 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 trends in revenue and yield
growth, we have included the comparative fuel surcharge rates
in effect for 2010, 2009 and 2008 in the accompanying discussions
of each of our transportation segments.

Operating income and operating margin declined signiﬁ cantly in
2009, as weak economic conditions drove decreases in volumes
at FedEx Express and the FedEx Freight LTL Group and contributed
to a more competitive pricing environment that pressured yields.

MANAGEMENT’S DISCUSSION AND ANALYSIS

The impairment and other charges described above also nega-
tively impacted operating income and margin in 2009. Operating
income and margin in 2009 were also negatively impacted by
reduced base copy revenues and expenses associated with
organizational changes at FedEx Ofﬁ ce. Cost-reduction initiatives
partially mitigated the negative impact of these factors.

Fuel expenses decreased 14% during 2009, primarily due to
decreases in fuel consumption and the average price per gal-
lon of fuel. Jet fuel usage decreased 9% during 2009, as we
reduced ﬂ ight hours in light of lower business levels. Fuel prices
decreased rapidly and signiﬁ cantly during 2009 after peaking dur-
ing the ﬁ rst quarter, while changes in fuel surcharges for FedEx
Express and FedEx Ground lagged these decreases by approxi-
mately 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 beneﬁ t to
income in 2009, based on a static analysis of the impact to oper-
ating income of year-over-year changes in fuel prices compared
to changes in fuel surcharges.

OTHER INCOME AND EXPENSE
Interest expense decreased $6 million during 2010 due to
increased capitalized interest primarily related to progress
payments on aircraft purchases. Interest income decreased
$18 million during 2010 primarily due to lower interest rates and
invested balances. Other expense increased $22 million during
2010 primarily due to higher amortization of ﬁ nancing fees and
foreign currency losses. Interest expense decreased during 2009
due to increased capitalized interest, partially offset by interest
costs on higher debt balances. Interest income decreased during
2009 primarily due to lower interest rates.

INCOME TAXES
Our effective tax rate was 37.5% in 2010, 85.6% in 2009 and 44.2%
in 2008. Our 2009 and 2008 rates were signiﬁ cantly impacted by
goodwill impairment charges that are not deductible for income
tax purposes. For 2011, we expect our effective tax rate to be
between 37.0% and 38.0%. The actual rate, however, will depend
on a number of factors, including the amount and source of oper-
ating income. Additional information on income taxes, including
our effective tax rate reconciliation and liabilities for uncertain
tax positions, can be found in Note 10 of the accompanying con-
solidated ﬁ nancial statements.

OUTLOOK
We expect stronger demand for our services in 2011 and con-
tinued growth in revenue and earnings as global economic
conditions continue to improve. We believe the improving econ-
omy will result in a more stable pricing environment, enhancing
our ability to execute our strategy to improve yields across our
transportation segments. These yield management initiatives,
combined with continued growth in volumes, are anticipated to
improve our margins in 2011. However, we expect our earnings
growth in 2011 to be constrained by a signiﬁ cant increase in pen-
sion and retiree medical expenses ($260 million) primarily as a
result of a signiﬁ cantly lower discount rate at our May 31, 2010
measurement date. In addition, we anticipate that volume-related

increases in aircraft maintenance expenses, the reinstatement
of employee compensation programs and higher healthcare
expense due to continued inﬂ ation in the cost of medical ser-
vices will dampen our earnings growth in 2011. Our expectations
for continued improvement in our results in 2011 are based on a
continued recovery in global economic conditions, the sustain-
ability of which is difﬁ cult to predict, and fuel prices remaining
at current forecasted levels.

Our capital expenditures for 2011 are expected to be approxi-
mately $3.2 billion, as we will continue to make strategic
investments in Boeing 777 Freighter (“B777F”) and Boeing 757
(“B757”) aircraft, which are substantially more fuel-efﬁ cient per
unit than the aircraft type they are replacing. We are committed
to investing in critical long-term strategic projects focused on
enhancing and broadening our service offerings to position us
for stronger growth as global economic conditions continue to
improve. For additional details on key 2011 capital 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 16 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 lawsuits and other proceedings that challenge
the status of FedEx Ground’s owner-operators as independent
contractors. FedEx Ground anticipates continuing changes to
its relationships with its contractors. The nature, timing and
amount of any changes are dependent on the outcome of numer-
ous 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 potential
risks and uncertainties that could materially affect our future
performance.

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

FEDEX CORPORATION

FEDEX SERVICES SEGMENT
The FedEx Services segment operates combined sales, mar-
keting, administrative and information technology functions
in shared services operations that support our transportation
businesses and allow us to pursue synergies from the combina-
tion of these functions. The FedEx Services segment includes:
FedEx Services, which provides sales, marketing and informa-
tion technology support to our other companies; FCIS, which is
responsible for customer service, billings and collections for U.S.
customers of our major business units; and FedEx Ofﬁ ce, which
provides an array of document and business services and retail
access to our customers for our package transportation busi-
nesses. Effective September 1, 2009, FedEx SupplyChain Systems,
formerly included in the FedEx Services reporting segment, was
realigned to become part of the FedEx Express reporting seg-
ment. Prior year amounts have not been reclassiﬁ ed to conform
to the current year segment presentation, as the ﬁ nancial results
are materially comparable.

The FedEx Services segment provides direct and indirect support
to our transportation businesses and accordingly we allocate all
of the net operating costs of the FedEx Services segment (includ-
ing the net operating results of FedEx Ofﬁ ce) to reﬂ ect the full
cost of operating our transportation businesses in the results
of those segments. Within the FedEx Services segment alloca-
tion, the net operating results of FedEx Ofﬁ ce are allocated to
FedEx Express and FedEx Ground. We review and evaluate the
performance of our transportation segments based on operating
income (inclusive of FedEx Services segment allocations). For
the FedEx Services segment, performance is evaluated based
on the impact of the total allocated net operating costs of the
FedEx Services segment on our transportation segments. The
allocations of net operating costs are based on metrics such as
relative revenues or estimated services provided. We believe
these allocations approximate the net cost of providing these
functions. The $810 million 2009 impairment charge for the FedEx
Ofﬁ ce goodwill and the $891 million 2008 charge predominantly
associated with impairment of the Kinko’s trade name and good-
will were not allocated to the FedEx Express or FedEx Ground
segments, as the charges were unrelated to the core perfor-
mance of those businesses.

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 GUIDANCE
New accounting rules and disclosure requirements can sig-
niﬁ cantly impact our reported results and the comparability of
our ﬁ nancial statements. New accounting guidance that has
impacted our ﬁ nancial statements can be found in Note 2 of the
accompanying consolidated ﬁ nancial statements. We believe that
there is no new accounting guidance adopted but not yet effec-
tive that is relevant to the readers of our ﬁ nancial statements.
However, there are numerous new proposals under development
which, if and when enacted, may have a signiﬁ cant impact on our
ﬁ nancial reporting.

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 include the following businesses:

FEDEX EXPRESS SEGMENT

FedEx Express

(express transportation)

FedEx Trade Networks

(global trade services)
FedEx SupplyChain Systems

(logistics services)

FEDEX GROUND SEGMENT

FedEx Ground

(small-package ground delivery)

FedEx SmartPost

(small-parcel consolidator)

FEDEX FREIGHT SEGMENT

FedEx Freight LTL Group:

FedEx Freight (fast-transit LTL

freight transportation)

FedEx National LTL

(economical LTL freight
transportation)
FedEx Custom Critical

(time-critical transportation)

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)

MANAGEMENT’S DISCUSSION AND ANALYSIS

The operating expenses line item “Intercompany charges” on
the accompanying unaudited ﬁ nancial summaries of our trans-
portation segments reflects the allocations from the FedEx
Services segment to the respective transportation segments.
The “Intercompany charges” caption also includes charges and
credits for administrative services provided between operating
companies and certain other costs such as corporate manage-
ment fees related to services received for general corporate
oversight, including executive officers and certain legal and
ﬁ nance functions. We believe these allocations approximate the
net cost of providing these functions.

Effective August 1, 2009, approximately 3,600 employees (pre-
dominantly from the FedEx Freight segment) were transferred to
entities within the FedEx Services segment. This internal reor-
ganization further centralized most customer support functions,
such as sales, customer service and information technology, into
our shared services organizations. While the reorganization had
no impact on the net operating results of any of our transportation
segments, the net intercompany charges to our FedEx Freight
segment increased signiﬁ cantly with corresponding decreases to
other expense captions, such as salaries and employee beneﬁ ts.
The impact of this internal reorganization to the expense captions
in our other segments was immaterial.

FedEx Services segment revenues, which reflect the opera-
tions of only FedEx Ofﬁ ce as of September 1, 2009, decreased
10% during 2010 due to revenue declines at FedEx Ofﬁ ce and
the realignment of FedEx SupplyChain Systems into the FedEx
Express segment effective September 1, 2009. Although revenue
at FedEx Ofﬁ ce declined during 2010 due to lower demand for
copy services, the allocated net loss of FedEx Ofﬁ ce decreased,
as we continued to see beneﬁ ts from initiatives implemented in
2009 to reduce that company’s cost structure. FedEx Services
segment revenues decreased 8% during 2009 as revenue gener-
ated 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 associ-
ated with organizational changes. Therefore, the allocated net
loss of FedEx Ofﬁ ce increased during 2009 despite ongoing cost
management efforts.

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 EXPRESS SEGMENT
The following tables compare revenues, operating expenses, oper-
ating expenses as a percent of revenue, operating income and
operating margin (dollars in millions) for the years ended May 31:

2010

2009

2008

Percent Change
2009/
2008

2010/
2009

$ 5,602 $ 6,074 $ 6,578

(8)

1,640
2,589

1,855
2,789

2,012
2,995

(12)
(7)

(8)

(8)
(7)

Revenues:
Package:

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

Total U.S. domestic

package revenue

9,831
International priority
7,087
International domestic (1) 578
Total package

10,718
6,978
565

11,585
7,666
663

(8)
2
2

(7)
(9)
(15)

revenue

17,496

18,261

19,914

(4)

(8)

Freight:
U.S.

International priority
International airfreight
Total freight
revenue

Other (2)

Total revenues
Operating expenses:
Salaries and

1,980
1,303
251

3,534
525
21,555

2,165
1,104
369

2,398
1,243
406

3,638
465
22,364

4,047
460
24,421

employee beneﬁ ts

8,402

8,217

8,451

Purchased

transportation

1,177

1,112

1,208

(9)
18
(32)

(3)
13
(4)

(10)
(11)
(9)

(10)
1
(8)

(3)

(8)

(4)

Rentals and

landing fees

Depreciation and
amortization

Fuel
Maintenance and

repairs

Impairment and
other charges
Intercompany charges

Other

Total operating
expenses
Operating income
Operating margin

1,577

1,613

1,673

(2)

1,016
2,651

961
3,281

944
3,785

6
(19)

2
(13)

1,131

1,351

1,512

(16)

(11)

–
1,940
2,534

260(3)

2,103
2,672

– NM NM
(1)
(8)
(5)
(5)

2,134
2,813

20,428
$ 1,127 $

5.2%

21,570

22,520
794 $ 1,901
3.6%

(5)
42

(4)
(58)

7.8% 160bp (420)bp

(1) International domestic revenues include our international domestic express operations,
primarily in the United Kingdom, Canada, China, India and Mexico.
(2) Other revenues includes FedEx Trade Networks and, beginning in the second quarter of 2010,
FedEx SupplyChain Systems.
(3) Represents charges associated with aircraft-related asset impairments and other charges
primarily associated with aircraft-related lease and contract termination costs and employee
severance.

FEDEX CORPORATION

Percent of Revenue (1)
2009

2010

2008

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

2010

2009

Percent Change
2010/ 2009/
2009 2008

2008

Package Statistics (1)
Average daily package volume (ADV):
1,157

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

1,127

1,151

(2)

614
867

627
849

677
895

domestic ADV
International priority
International domestic (2)
Total ADV

2,638
523
318
3,479

2,603
475
298
3,376

2,723
517
296
3,536

(2)
2

1
10
7
3

(7)
(5)

(4)
(8)
1
(5)

Revenue per package (yield):

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

U.S. domestic
composite

International priority
International domestic (2)
Composite

$ 19.00 $ 21.21 $ 22.40

(10)

(5)

10.47
11.70

11.65
12.94

11.66
13.12

(10)
(10)

–
(1)

14.61
53.10
7.14

16.21
57.81
7.50

16.68
58.11
8.80

(3)
(10)
(1)
(8)
(5) (15)

package yield

19.72

21.30

22.08

(7)

(4)

Freight Statistics (1)
Average daily freight pounds:

U.S.

International priority
International airfreight
Total average daily
freight pounds

7,141
2,544
1,222

7,287
1,959
1,475

8,648
2,220
1,817

(2) (16)
(12)
30
(17) (19)

10,907

10,721

12,685

(15)

Revenue per pound (yield):

U.S.

International priority
International airfreight
Composite

$ 1.09 $ 1.17 $ 1.09
2.20
2.22
2.01
0.88
0.99
0.81

7
(7)
1
(9)
(18) 13

freight yield

1.27

1.34

1.25

(5)

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

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

39.0%
5.5
7.3
4.7
12.3
5.2
–
9.0
11.8
94.8

5.2%

36.7%
5.0
7.2
4.3
14.7
6.0
1.2(2)
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%

MANAGEMENT’S DISCUSSION AND ANALYSIS

FEDEX EXPRESS SEGMENT REVENUES
FedEx Express segment revenues decreased 4% in 2010 due to
lower yields primarily driven by a decrease in fuel surcharges.
Yield decreases during 2010 were partially offset by increased
IP package volume, particularly from Asia, IP freight volume and
U.S. domestic package volume due to improved global economic
conditions.

Lower fuel surcharges were the primary driver of decreased com-
posite package and freight yield in 2010. Our weighted-average
U.S. domestic and outbound fuel surcharge was 6.20% in 2010,
compared with 17.45% in 2009. U.S. domestic package yield also
decreased 10% during 2010 due to lower rates and lower package
weights. In addition to lower fuel surcharges, IP package yield
decreased 8% during 2010 due to lower rates, partially offset by
higher package weights and favorable exchange rates.

FedEx Express segment revenues decreased 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.

The decrease in composite package yield in 2009 was driven
by decreases in U.S. domestic package, international domestic
and IP yields. U.S. domestic package yield decreased in 2009
due to lower package weights and a lower rate per pound.
International domestic yield decreased during 2009 due to unfa-
vorable exchange rates and a lower rate per pound. IP yield
decreased 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.

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:

2010

2009

2008

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

1.00
13.50
9.47

1.00%
8.50
6.20

–%

34.50
17.45

–
34.50
16.75

13.50%
25.00
17.06

12.00
25.00
16.11

In January 2010, we implemented a 5.9% average list price
increase on FedEx Express U.S. domestic and U.S. out-
bound express package and freight shipments and made
various changes to other surcharges, while we lowered our fuel
surcharge index by two percentage points. Furthermore, in con-
nection with these changes, the structure of the FedEx Express
fuel surcharge table was modiﬁ ed. In January 2009, we imple-
mented a 6.9% average list price increase on FedEx Express U.S.
domestic and U.S. outbound express package and freight ship-
ments and made various changes to other surcharges, while we
lowered our fuel surcharge index by two percentage points.

FEDEX EXPRESS SEGMENT OPERATING INCOME
FedEx Express segment operating income and operating mar-
gin increased during 2010 due to volume growth, particularly in
higher-margin IP package and freight services. Continued reduc-
tions in network operating costs driven by lower ﬂ ight hours and
improved route efﬁ ciencies, as well as other actions to control
spending, positively impacted our results for 2010. Our 2010 year-
over-year results were also positively impacted by a $260 million
charge in 2009 related to aircraft-related asset impairments and
other charges primarily associated with aircraft-related lease
and contract termination costs and employee severance.

Fuel costs decreased 19% in 2010 due to decreases in the aver-
age price per gallon of fuel and fuel consumption. Based on a
static analysis of the net impact of year-over-year changes in fuel
prices compared to year-over-year changes in fuel surcharges,
fuel had a signiﬁ cant negative impact to operating income in
2010. This analysis considers the estimated impact of the reduc-
tion in fuel surcharges included in the base rates charged for
FedEx Express services.

Maintenance and repairs expense decreased 16% in 2010 pri-
marily due to the timing of maintenance events, as lower aircraft
utilization as a result of weak economic conditions, particularly in
the ﬁ rst half of 2010, lengthened maintenance cycles. Purchased
transportation costs increased 6% in 2010 primarily due to higher
air volume and costs in our freight forwarding business at FedEx
Trade Networks. Depreciation expense increased 6% in 2010 pri-
marily due to the addition of 21 aircraft placed into service during
the year. Intercompany charges decreased 8% in 2010 primarily
due to lower allocated information technology costs and lower
net operating costs at FedEx Ofﬁ ce.

FedEx Express segment operating income and operating margin
declined in 2009 as a result of the weak global economy 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.

FEDEX CORPORATION

FEDEX GROUND SEGMENT
The following tables compare revenues, operating expenses,
operating expenses as a percent of revenue, operating income
and operating margin (dollars in millions) and selected pack-
age statistics (in thousands, except yield amounts) for the years
ended May 31:

Revenues
Operating expenses:
Salaries and

employee beneﬁ ts

Purchased transportation
Rentals
Depreciation and
amortization

Fuel
Maintenance and repairs
Intercompany charges

Other

Total operating
expenses

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

2010

2009

2008

Percent Change
2009/
2008

2010/
2009

$ 7,439 $ 7,047 $ 6,751

1,158
2,966
244

334
8
166
795
744

1,102
2,918
222

1,073
2,878
189

337
9
147
710
795

305
14
145
658
753

5
2
10

(1)
(11)
13
12
(6)

3
1
17

10
(36)
1
8
6

6,415
6,015
6,240
$ 1,024 $ 807 $ 736

13.8% 11.5%

3
27
10.9% 230bp 60bp

4
10

3,523
1,222

3,404
827

3,365
618

3
48

1
34

$ 7.73 $ 7.70 $ 7.48
$ 1.56 $ 1.81 $ 2.09

–
(14)

3
(13)

Percent of Revenue
2009

2008

2010

Operating expenses:
Salaries and

employee beneﬁ ts

15.5%

Purchased transportation 39.9
Rentals
3.3
Depreciation and
amortization

Fuel
Maintenance and repairs
Intercompany charges

4.5
0.1
2.2
10.7
10.0

Other

Total operating
expenses
Operating margin

15.6%
41.4
3.1

15.9%
42.6
2.8

4.8
0.1
2.1
10.1
11.3

4.5
0.2
2.1
9.8
11.2

86.2
13.8%

88.5
11.5%

89.1
10.9%

During 2009, in response to weak business conditions, we imple-
mented several actions to lower our cost structure, including
signiﬁ cant volume-related reductions in ﬂ ight and labor hours.
We also lowered fuel consumption and maintenance costs, as we
temporarily grounded a limited number of aircraft due to excess
capacity. Our cost-containment activities also included deferral
of merit-based pay increases. All of these actions partially miti-
gated 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.

Fuel costs decreased in 2009 due to decreases in fuel consump-
tion and the average price per gallon of fuel. Fuel surcharges
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 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 lev-
els have on our business, including reduced demand and shifts
to lower-yielding services. Maintenance and repairs expense
decreased primarily due to a volume-related reduction in ﬂ ight
hours and the permanent and temporary grounding of certain
aircraft due to excess capacity.

FEDEX EXPRESS SEGMENT OUTLOOK
We expect revenue growth at FedEx Express in 2011 to be driven
by international package and freight volumes as global economic
conditions continue to improve. Revenue growth in 2011 will also
be driven by continued expansion of our international economy
services, as well as improved yields primarily due to higher fuel
surcharges.

FedEx Express segment operating income and operating margin
are expected to increase in 2011, driven by continued growth
in international package and freight services and productivity
enhancements. However, we anticipate that volume-related
increases in aircraft maintenance expenses, the reinstatement
of several employee compensation programs, increased pension
and retiree medical expenses and higher healthcare expense due
to continued inﬂ ation in the cost of medical services will dampen
our earnings growth in 2011.

Capital expenditures at FedEx Express are expected to increase
in 2011, driven by incremental investments for the new B777F
aircraft. These aircraft capital expenditures are necessary to
achieve signiﬁ cant long-term operating savings and to support
projected long-term international volume growth.

MANAGEMENT’S DISCUSSION AND ANALYSIS

FEDEX GROUND SEGMENT REVENUES
FedEx Ground segment revenues increased 6% during 2010 due
to volume growth at both FedEx Ground and FedEx SmartPost,
partially offset by declines in yield at FedEx SmartPost.

FedEx Ground average daily volume increased 3% during 2010
due to continued growth in our commercial business and our
FedEx Home Delivery service. The slight yield improvement at
FedEx Ground during 2010 was primarily due to higher base rates
and increased extra service revenue, but was mostly offset by
higher customer discounts and lower fuel surcharges.

FedEx SmartPost volumes grew 48% during 2010 primarily as a
result of market share gains, while yields decreased 14% during
2010 due to changes in customer and service mix. For example,
certain customers elected to utilize lower-yielding service offer-
ings that did not require standard pickup and linehaul services.

FedEx Ground segment revenues increased in 2009 due to yield
improvement at FedEx Ground and volume growth at both FedEx
SmartPost and FedEx Ground. FedEx Ground volume growth dur-
ing 2009 resulted from market share gains, including volumes
gained from DHL’s exit from the U.S. market, and continued 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
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 during 2009 due to changes
in customer and service mix.

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 published by the Department of Energy. Our fuel
surcharge ranged as follows for the years ended May 31:

Low
High
Weighted-Average

2010

2009

2008

2.75%
5.50
4.23

2.25%
10.50
6.61

4.50%
7.75
5.47

In January 2010, we implemented a 4.9% average list price
increase and made various changes to other surcharges,
including modifying the fuel surcharge table, on FedEx Ground
shipments. In January 2009, we implemented a 5.9% average list
price increase and made various changes to other surcharges
on FedEx Ground shipments.

FEDEX GROUND SEGMENT OPERATING INCOME
FedEx Ground segment operating income and operating mar-
gin increased during 2010 due to higher package volume, lower
self-insurance expenses and improved productivity. Improved
performance at FedEx SmartPost also contributed to the operat-
ing income and operating margin increase. In 2010, FedEx Ground
segment operating income exceeded $1 billion on an annual basis
for the ﬁ rst time.

The increase in salaries and employee beneﬁ ts expense dur-
ing 2010 was primarily due to accruals for our variable incentive
compensation programs, increased stafﬁ ng at FedEx SmartPost
to support volume growth and increased healthcare costs.
Purchased transportation costs increased 2% during 2010 primar-
ily as a result of higher package volume. Rent expense increased
during 2010 primarily due to higher spending on facilities associ-
ated with our multi-year network expansion plan. Intercompany
charges increased 12% in 2010 primarily due to higher allocated
information technology costs (formerly direct charges). Other
operating expense decreased during 2010 due to higher self-
insurance reserve requirements in 2009.

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 and depreciation expense increased 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 in 2009 as a
result of higher rates paid to our independent contractors and
costs associated with our independent 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 sus-
pension of 401(k) company matching contributions described in
the Overview section. Intercompany charges increased during
2009 primarily due to allocated telecommunication expenses (for-
merly a direct charge), higher general and administrative costs
and higher allocated customer service costs. Other operating
expenses increased during 2009 primarily due to higher reserve
requirements for liability insurance. Lower legal costs, includ-
ing settlements, partially offset the increase in other operating
expenses in 2009.

FEDEX CORPORATION

FEDEX GROUND SEGMENT OUTLOOK
We expect the FedEx Ground segment to have continued rev-
enue growth in 2011, led by increases in commercial, FedEx Home
Delivery and FedEx SmartPost volumes due to market share
gains. Yields for all services at FedEx Ground are expected to
improve in 2011 as a result of increases in list prices.

FedEx Ground segment operating income in 2011 is expected
to increase due to revenue growth and productivity enhance-
ments. Higher purchased transportation costs due to higher rates
paid to our independent contractors will offset a portion of these
beneﬁ ts.

Capital spending is expected to increase in 2011 with the majority
of our spending resulting from our continued network expansion
and productivity-enhancing technologies. We are committed 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.

INDEPENDENT CONTRACTOR MATTERS
FedEx Ground relies on owner-operators to conduct its linehaul
and pickup-and-delivery operations, as the use of independent
contractors is well suited to the needs of the ground delivery
business and its customers. Although FedEx Ground believes its
relationship with independent contractors is generally excel-
lent, the company is involved in numerous lawsuits and other
proceedings (such as state tax audits or other administrative
challenges) where the classiﬁ cation of the contractors is at
issue. For a description of these proceedings, see Note 16 of the
accompanying consolidated ﬁ nancial statements.

FedEx Ground has made changes to its relationships with con-
tractors that, among other things, provide incentives for improved
service and enhanced regulatory and other compliance by the
contractors. For example:

(cid:129) FedEx Ground has an ongoing nationwide program to provide
greater incentives to contractors who choose to grow their
businesses by adding routes.

(cid:129) In New Hampshire and Maryland, because of state-speciﬁ c
legal and regulatory issues, FedEx Ground has implemented its
Independent Service Provider (“ISP”) model, which requires
pickup-and-delivery contractors based in those states to,
among other things: (i) assume responsibility for the pickup-
and-delivery operations of an entire geographic service area
that includes multiple routes, and (ii) negotiate independent
agreements with FedEx Ground, rather than agree to a stan-
dard contract. FedEx Ground is transitioning to the ISP model
in Tennessee, Illinois, Massachusetts, Minnesota, Rhode Island
and Vermont during 2011 and, based upon the success of this
model, may in the company’s ordinary course transition to it in
other states as well.

(cid:129) Because of state-speciﬁ c legal and regulatory issues, FedEx
Ground is requiring its contractors to (i) be organized as cor-
porations registered and in good standing under applicable
state law, and (ii) treat their personnel who provide services
under their operating agreement with FedEx Ground as their
employees. While many contractors already satisfy these
requirements, other contractors will be required to meet these
requirements prior to renewal of their contract, and special
incentives are being offered to those who adopt the change
and meet the requirements by the end of February 2011.

(cid:129) As of May 31, 2010, two thirds of all FedEx Ground service
areas nationwide were supported by multiple-route contrac-
tors, which comprise approximately 39% of all FedEx Ground
pickup-and-delivery contractors.

We anticipate continuing changes to FedEx Ground’s relation-
ships with its contractors, the nature, timing and amount of which
are dependent on the outcome of numerous future events. We
do not believe that any of these changes will impair our ability to
operate and proﬁ tably grow our FedEx Ground business.

MANAGEMENT’S DISCUSSION AND ANALYSIS

FEDEX FREIGHT SEGMENT
The following tables compare revenues, operating expenses,
operating expenses as a percent of revenue, operating (loss)/
income and operating margin (dollars in millions) and selected
statistics for the years ended May 31:

2010

2009 (2)

2008 (2)

Percent Change
2009/
2010/
2008
2009

$ 4,321 $ 4,415 $ 4,934

(2)

(11)

Revenues
Operating expenses:
Salaries and

employee beneﬁ ts

2,128
Purchased transportation 690
Rentals
116
Depreciation and
amortization

198
Fuel
445
Maintenance and repairs 148

Impairment and
other charges(3)
18
Intercompany charges(1) 351
380

Other

Total operating
expenses

4,474

Operating (loss)/income $ (153) $
Operating margin
(3.5)%
Average daily LTL shipments

2,247
540
139

2,381
582
119

224
520
153

100
109
427

227
608
175

–
81
432

(5)
28
(17)

(12)
(14)
(3)

(6)
(7)
17

(1)
(14)
(13)

(82) NM
35
222
(1)
(11)

4,459

4,605
(44) $ 329
(1.0)% 6.7%

(3)
(113)

–
(248)
(250)bp (770)bp

(in thousands)

82.3

74.4

79.7

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

1,134

1,126

1,136

$ 17.07 $ 19.07 $ 19.65

(10)

(7)

(1)

(3)

(1) Certain functions were transferred from the FedEx Freight segment to FedEx Services and FCIS
effective August 1, 2009 (as described below). For 2010, the costs associated with these functions,
previously a direct charge, were allocated to the FedEx Freight segment through intercompany
allocations.
(2) Includes Caribbean Transportation Services, which was merged into FedEx Express effective
June 1, 2009.
(3) Represents impairment charges associated with goodwill related to the FedEx National LTL
acquisition. The charge in 2009 also includes other charges primarily associated with employee
severance.

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

Impairment and other charges (2)
Intercompany charges (3)

Other

Total operating expenses

Operating margin

Percent of Revenue (1)
2009

2008

2010

49.2%
16.0
2.7
4.6
10.3
3.4
0.4
8.1
8.8
103.5

50.9%
12.2
3.1
5.0
11.8
3.5
2.3
2.5
9.7
101.0

48.3%
11.8
2.4
4.6
12.3
3.5
–
1.6
8.8
93.3

(3.5)%

(1.0)%

6.7%

(1) Given the ﬁ xed-cost structure of our transportation networks, the year-over-year comparison
of our operating expenses as a percentage of revenue has been affected by a number of
factors, including the impact of lower fuel surcharges, the competitive pricing environment,
weak economic conditions and our cost-containment activities. Collectively, these factors have
distorted the comparability of certain of our operating expense captions on a relative basis.
(2) Represents impairment charges associated with goodwill related to the FedEx National
LTL acquisition. The charge in 2009 also includes other charges primarily associated with
employee severance.
(3) Certain functions were transferred from the FedEx Freight segment to FedEx Services and
FCIS effective August 1, 2009 (as described below). For 2010, the costs associated with these
functions, previously a direct charge, were allocated to the FedEx Freight segment through
intercompany allocations.

FEDEX FREIGHT SEGMENT REVENUES
FedEx Freight segment revenues decreased 2% during 2010 due
to lower LTL yield and the merger of Caribbean Transportation
Services into FedEx Express effective June 1, 2009, mostly offset
by higher average daily LTL shipments. LTL yield decreased 10%
during 2010 due to a continuing highly competitive LTL freight
market, resulting from excess capacity and lower fuel sur-
charges. Discounted pricing drove an increase in average daily
LTL shipments of 11% during 2010.

FedEx Freight segment revenues decreased in 2009 primarily due
to a decrease in average daily LTL shipments and lower LTL yield.
Average daily LTL shipments decreased during 2009 as a result
of the economic recession, which resulted in the weakest LTL
environment in decades. LTL yield decreased during 2009 due
to the effects of the competitive pricing environment and lower
fuel surcharges.

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

2010

2009

2008

10.80%
16.10
14.00

8.30%
23.90
15.70

14.50%
23.70
17.70

In February 2010, we implemented 5.9% general rate increases
for FedEx Freight and FedEx National LTL shipments. In January
2009, we implemented 5.7% general rate increases for FedEx
Freight and FedEx National LTL shipments.

FEDEX CORPORATION

Fuel costs decreased during 2009 due primarily to a lower average
price per gallon of diesel fuel and decreased fuel consumption
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 surcharge levels have on our
business, including changes in customer demand and the impact
on base rates and rates paid to our third-party transportation pro-
viders. Purchased transportation costs decreased during 2009
primarily due to lower shipment volumes and decreased utiliza-
tion of third-party providers. Maintenance and repairs expense
decreased in 2009 primarily due to lower shipment volumes and
rebranding costs for FedEx National LTL incurred in 2008. Rent
expense increased during 2009 primarily due to service center
expansions related to strategically investing in key markets for
long-term growth. Intercompany charges increased during 2009
primarily due to allocated telecommunication expenses (formerly
a direct charge) and higher allocated information technology
costs from FedEx Services.

FEDEX FREIGHT SEGMENT OUTLOOK
During 2011, the FedEx Freight segment will focus on several stra-
tegic initiatives to improve productivity and yields. We expect
volume growth to moderate later in 2011 as we continue to
enhance our pricing discipline in an improving economy. This
pricing discipline, which will come through a combination of
general rate increases and renewal of terms with contractual
customers, is expected to improve yields in 2011. Even with these
expected improvements in yield, excess industry capacity is likely
to remain and will continue to negatively impact our short-term
operating performance. We expect productivity to improve as our
LTL networks stabilize and we continue to evaluate our networks
in light of the pricing environment and the competitive landscape,
and will make changes where appropriate to improve our long-
term proﬁ tability.

Capital spending is expected to decline in 2011 with the majority
of our spending resulting from the replacement of transportation
and handling equipment.

FEDEX FREIGHT SEGMENT OPERATING (LOSS)/INCOME
A weak pricing environment, which led to aggressive discount-
ing for our LTL freight services, resulted in an operating loss in
2010 at the FedEx Freight segment. The actions implemented in
2009 to lower our cost structure were more than offset by the
negative impacts of lower LTL yields and higher volume-related
costs, as signiﬁ cantly higher shipment levels required increased
purchased transportation and other expenses during 2010. In
addition, we recorded a charge of $18 million for the impairment
of the remaining goodwill related to the FedEx National LTL acqui-
sition. Year-over-year comparisons in 2010 were affected by a $90
million goodwill impairment charge in 2009 related to the FedEx
National LTL acquisition and a $10 million charge in 2009 primarily
related to employee severance.

Intercompany charges increased in 2010 due to expenses asso-
ciated with the functions of approximately 2,700 FedEx Freight
segment employees that were transferred to FedEx Services
and FCIS in the ﬁ rst quarter of 2010. The costs of these func-
tions were previously a direct charge. As described above in the
FedEx Services Segment section, these employees represented
the sales, information technology, marketing, pricing, customer
service, claims and credit and collection functions of the FedEx
Freight segment and were transferred to allow further centraliza-
tion of these functions into the FedEx Services segment shared
service organization. For 2010, the costs of the functions were
charged to the FedEx Freight segment through intercompany
charges with an offsetting reduction in direct charges, primar-
ily salaries and employee beneﬁ ts. These transfers had no net
impact to operating income, although they signiﬁ cantly increased
our intercompany allocations.

Purchased transportation costs increased 28% in 2010 due to
increased utilization of third-party transportation providers, which
were required to support higher shipment volumes. Fuel costs
decreased 14% during 2010 due to a lower average price per gal-
lon of diesel fuel, partially offset by increased fuel consumption
as a result of higher shipment volumes. Based on a static analy-
sis of the net impact of year-over-year changes in fuel prices
compared to year-over-year changes in fuel surcharges, fuel
had a negative impact to operating income in 2010. Rent expense
decreased 17% and other operating expense decreased 11% in
2010 due to the merger of Caribbean Transportation Services into
FedEx Express effective June 1, 2009. Depreciation and amorti-
zation expense decreased 12% in 2010 due to the impact of the
transfer of employees from the FedEx Freight segment to FedEx
Services and FCIS during the ﬁ rst quarter of 2010.

In 2009, the decrease in average daily LTL shipments and the
competitive 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 addition,
during 2009, we recorded a charge of $90 million related to the
impairment of goodwill related to the FedEx National LTL acqui-
sition and a charge of $10 million primarily related to employee
severance.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Debt Financing Activities. We have a shelf registration statement
ﬁ led with the SEC that allows us to sell, in one or more future
offerings, any combination of our unsecured debt securities and
common stock. During 2010, we repaid our $500 million 5.50%
notes that matured on August 15, 2009 using cash from opera-
tions and a portion of the proceeds of our January 2009 $1 billion
senior unsecured debt offering. During 2010, we made principal
payments in the amount of $153 million related to capital lease
obligations.

A $1 billion revolving credit facility is available to ﬁ nance our
operations and other cash ﬂ ow needs and to provide support for
the issuance of commercial paper. The revolving credit agree-
ment expires in July 2012. The 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 our last four ﬁ scal quarters’ 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 0.5 at May 31, 2010.
Under this ﬁ nancial covenant, our additional borrowing capacity
is capped, although this covenant continues to provide us with
ample liquidity, if needed. 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 operations, including
our liquidity or borrowing capacity. As of May 31, 2010, no com-
mercial paper was outstanding and the entire $1 billion under the
revolving credit facility was available for future borrowings.

Dividends. We paid cash dividends of $138 million in 2010, $137
million in 2009 and $124 million in 2008. On June 7, 2010, our Board
of Directors declared a quarterly dividend of $0.12 per share of
common stock, an increase of $0.01 per share. The dividend was
paid on July 1, 2010 to stockholders of record as of the close of
business on June 17, 2010. 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.

FINANCIAL CONDITION

LIQUIDITY
Cash and cash equivalents totaled $2.0 billion at May 31, 2010,
compared to $2.3 billion at May 31, 2009. The following table pro-
vides a summary of our cash ﬂ ows for the years ended May 31
(in millions):

2010

2009

2008

Operating activities:
$ 1,184
Net income
Noncash impairment charges
18
Other noncash charges and credits 2,514
(578)
Changes in assets and liabilities

Cash provided by

$
98
1,103
2,554
(1,002)

$ 1,125
882
2,305
(847)

operating activities

3,138

2,753

3,465

Investing activities:
Capital expenditures
Proceeds from asset dispositions

and other
Cash used in

(2,816)

(2,459)

(2,947)

investing activities

(2,781)

(2,383)

(2,897)

Financing activities:
Proceeds from debt issuance
Principal payments on debt
Dividends paid
Other

Cash (used in) provided by
ﬁ nancing activities
Effect of exchange rate changes

on cash

Net (decrease) increase in cash

–
(653)
(138)
99

1,000
(501)
(137)
38

–
(639)
(124)
146

(692)

400

(617)

(5)

(17)

and cash equivalents

$ (340)

$ 753

(30)

Cash Provided by Operating Activities. Cash ﬂ ows from oper-
ating activities increased $385 million in 2010 primarily due to
the receipt of income tax refunds of $279 million and increased
income. Cash ﬂ ows from operating activities decreased $712 mil-
lion in 2009 primarily due to reduced income and a $600 million
increase in contributions to our tax-qualiﬁ ed U.S. domestic pen-
sion plans (“U.S. Retirement Plans”), partially offset by a $307
million reduction in income tax payments. We made tax-deduct-
ible contributions of $848 million to our U.S. Retirement Plans
during 2010, including $495 million in voluntary contributions. We
made tax-deductible voluntary contributions of $1.1 billion to our
U.S. Retirement Plans during 2009 and $479 million during 2008.

Cash Used in Investing Activities. Capital expenditures dur-
ing 2010 were 15% higher largely due to increased spending
at FedEx Express. Capital expenditures during 2009 were
17% lower largely due to decreased spending at FedEx
Express and FedEx Services. See “Capital Resources” for
a discussion of capital expenditures during 2010 and 2009.

FEDEX CORPORATION

to fund these expenditures. Historically, we have been success-
ful in obtaining unsecured ﬁ nancing, from both domestic and
international sources, although the marketplace for such invest-
ment capital can become restricted depending on a variety of
economic factors.

Our capital expenditures are expected to be $3.2 billion in 2011
and will include spending for aircraft and related equipment at
FedEx Express, network expansion at FedEx Ground and revenue
equipment at the FedEx Freight segment. We expect approxi-
mately 65% of capital expenditures in 2011 will be designated for
growth initiatives and 35% for ongoing maintenance activities.
Our expected capital expenditures for 2011 include $1.7 billion in
investments for aircraft and related equipment at FedEx Express,
such as the new B777Fs and the B757s, which are substantially
more fuel-efﬁ cient per unit than the aircraft type they are replac-
ing. Our aircraft spending is expected to be higher in 2011 than in
previous years due to the acceleration of delivery and additional
acquisitions of B777Fs. We have agreed to purchase a total of 38
B777F aircraft (34 from Boeing and four from other parties), six of
which have been delivered, and hold options to purchase up to 15
additional B777F aircraft from Boeing. Our obligation to purchase
15 of these 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. These aircraft-
related capital expenditures are necessary to achieve signiﬁ cant
long-term operating savings and to support projected long-term
international 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.

As noted above, during 2010, we made $848 million in tax-deduct-
ible contributions to our U.S. Retirement Plans, including $495
million in voluntary contributions. Our U.S. Retirement Plans have
ample funds to meet expected beneﬁ t payments. For 2011, we
anticipate making required contributions to our U.S. Retirement
Plans totaling approximately $500 million, a reduction from 2010
due to the use of an available credit balance to reduce otherwise
required pension contributions.

Standard & Poor’s has assigned us a senior unsecured debt
credit rating of BBB and commercial paper rating of A-2 and
a ratings outlook of “stable.” During the third quarter of 2010,
Moody’s Investors Service reafﬁ rmed our senior unsecured debt
credit rating of Baa2 and commercial paper rating of P-2 and
raised our ratings outlook to “stable.” If our credit ratings drop,
our interest expense may increase. If our commercial paper rat-
ings drop below current levels, we may have difﬁ culty utilizing
the commercial paper market. If our senior unsecured debt credit
ratings drop below investment grade, our access to ﬁ nancing
may become limited.

In 2011, we have scheduled debt payments of $270 million, which
includes $250 million of principal payments on unsecured notes
maturing in February 2011 and principal and interest payments
on capital leases.

CAPITAL RESOURCES
Our operations are capital intensive, characterized by signiﬁ cant
investments in aircraft, vehicles, technology, facilities, package-
handling and sort equipment. The amount and timing of capital
additions depend on various factors, including pre-existing con-
tractual commitments, anticipated volume growth, domestic 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):

2010

2009

2008

Percent Change
2009/
2010/
2008
2009

$ 1,537

$ 925

$ 998

(7)

630
220

742
319

900
404

Aircraft and related
equipment
Facilities and sort
equipment
Vehicles
Information and

technology investments 289
140

Other equipment
Total capital

expenditures

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

$ 2,816
1,864
400
212
340
–

298
175

366
279

$ 2,459
1,348
636
240
235
–

$ 2,947
1,716
509
266
455
1

(15)
(31)

(3)
(20)

15
38
(37)
(12)
45
–

(18)
(21)

(19)
(37)

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

expenditures

$ 2,816

$ 2,459

$ 2,947

(17)

Capital expenditures during 2010 were higher than the prior year
primarily due to increased spending at FedEx Express for air-
craft and aircraft-related equipment. Aircraft and aircraft-related
equipment purchases at FedEx Express during 2010 included six
new B777Fs, the ﬁ rst of which entered revenue service dur-
ing the second quarter of 2010, and 12 B757s. FedEx Services
capital expenditures increased in 2010 due to information tech-
nology facility expansions and projects. Capital spending at
FedEx Ground decreased in 2010 due to decreased spending for
facilities and sort equipment and vehicles. Capital expenditures
decreased during 2009 primarily due to decreased spending
at FedEx Express for facilities and aircraft and aircraft-related
equipment and decreased spending at FedEx Services due to the
planned reduction in FedEx Ofﬁ ce network expansion, as well as
decreased spending and the postponement of several informa-
tion technology projects.

LIQUIDITY OUTLOOK
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 payment obligations.
Although we expect higher capital expenditures in 2011, we
anticipate that our cash ﬂ ow from operations will be sufﬁ cient

MANAGEMENT’S DISCUSSION AND ANALYSIS

CONTRACTUAL CASH OBLIGATIONS
The following table sets forth a summary of our contractual cash obligations as of May 31, 2010. 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, 2010. Accordingly, this table is not meant to represent a forecast
of our total cash expenditures for any of the periods presented.

(in millions)
Operating activities:
Operating leases
Non-capital purchase obligations and other

Interest on long-term debt

Quarterly contributions to our U.S. Retirement Plans
Investing activities:
Aircraft and aircraft-related capital commitments(1)
Other capital purchase obligations
Financing activities:
Debt
Capital lease obligations

Total

2011

2012

Payments Due by Fiscal Year (Undiscounted)
2014

2015

2013

Thereafter

Total

$ 1,776
226
144
500

$ 1,589
165
126
–

$ 1,425
66
98
–

$ 1,259
14
97
–

$ 1,172
12
78
–

$ 6,550
113
1,737
–

$ 13,771
596
2,280
500

928
46

849
1

641
–

480
–

493
–

1,431
–

4,822
47

250
20
$ 3,890

–
8
$ 2,738

300
119
$ 2,649

250
2
$ 2,102

–
1
$ 1,756

989
14
$ 10,834

1,789
164
$ 23,969

(1) Subsequent to May 31, 2010, we entered into an agreement replacing the previously disclosed non-binding letter of intent to acquire two additional B777Fs and expect to take delivery of these
aircraft in 2011. These aircraft are not included in the table above.

We have certain contingent liabilities that are not accrued in our
balance sheet in accordance with accounting principles gener-
ally accepted in the United States. These contingent liabilities are
not included in the table above.

We have other long-term liabilities reﬂ ected in our balance sheet,
including deferred income taxes, qualiﬁ ed and nonqualiﬁ ed pen-
sion and postretirement healthcare plan liabilities and other
self-insurance accruals. The payment obligations associated 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 table above are anticipated quarterly
contributions to our U.S. Retirement Plans totaling approximately
$500 million for 2011 that begin in the ﬁ rst quarter.

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, 2010.
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 for purchase obligations represent non-
cancelable 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 obli-
gations for ﬁ nancial reporting purposes and are not included in
the table above. Such purchase orders often represent authori-
zations to purchase rather than binding agreements. See Note
15 of the accompanying consolidated ﬁ nancial statements for
more information.

Included in the table above within the caption entitled “Non-
capital purchase obligations and other” is our estimate of the
current portion of the liability ($1 million) for uncertain tax posi-
tions. 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 liabil-
ity ($81 million) is excluded from the table. See Note 10 of the
accompanying consolidated financial statements for further
information.

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. 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 con-
sidered unconditional purchase obligations for ﬁ nancial reporting
purposes and are not included in the table above. Such purchase
orders often represent authorizations to purchase rather than
binding agreements. See Note 15 of the accompanying consoli-
dated ﬁ nancial statements for more information.

FEDEX CORPORATION

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 2011,
we have scheduled debt payments of $270 million, which includes
$250 million of principal payments on our 7.25% unsecured notes
maturing in February 2011, 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.

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 maxi-
mum of 3.5% of eligible compensation. Employees not participating
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 effective
February 1, 2009. We reinstated these contributions at 50% of pre-
vious levels for most employees effective January 1, 2010.

Effective May 31, 2008, beneﬁ ts previously accrued under our
primary pension plans using a traditional pension beneﬁ t for-
mula (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 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 modiﬁ 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 varies from year to year based on a U.S.
Treasury index.

Accounting and Reporting. The current rules for pension account-
ing are complex and can produce tremendous volatility in our
results, ﬁ nancial condition and liquidity. Our pension expense
is primarily a function of the value of our plan assets and the
discount rate used to measure our pension liability at a single
point in time at the end of our ﬁ scal year (the measurement date).
Both of these factors are signiﬁ cantly inﬂ uenced by the stock
and bond markets, which in recent years have experienced sub-
stantial volatility.

In addition to expense volatility, we are required to record mark-
to-market adjustments to our balance sheet on an annual basis
for the net funded status of our pension and postretirement
healthcare plans. These adjustments have ﬂ uctuated signiﬁ cantly
over the past several years and like our pension expense, are a
result of the discount rate and value of our plan assets at the
measurement date. The funded status of our plans also impacts
our liquidity, as current funding laws require increasingly aggres-
sive funding levels for our pension plans.

Our retirement plans cost is included in the “Salaries and
Employee Beneﬁ ts” caption in our consolidated income state-
ments. 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

2010

2009

2008

$ 308

$ 177

$ 323

136
42
$ 486

237
57
$ 471

216
77
$ 616

Total retirement plans cost increased $15 million in 2010, primarily
due to the negative impact of market conditions on our pension
plan assets at our May 31, 2009 measurement date, mostly offset
by lower expenses for our 401(k) plans due to the temporary sus-
pension of the company-matching contributions. Those matching

MANAGEMENT’S DISCUSSION AND ANALYSIS

The decrease in the discount rate for 2011 was driven by condi-
tions in the market for high-grade corporate bonds, where yields
have decreased signiﬁ cantly since May 31, 2009. The discount
rate assumption is highly sensitive, as the following table illus-
trates with our largest tax-qualiﬁ ed U.S. domestic pension plan:

Sensitivity (in millions)

Effect on 2011
Pension Expense

Effect on 2010
Pension Expense

One-basis-point change in discount rate

$ 1.7

$ 1.5

At our May 31, 2010 measurement date, a 50-basis-point increase
in the discount rate would have decreased our 2010 PBO by
approximately $900 million and a 50-basis-point decrease in the
discount rate would have increased our 2010 PBO by approxi-
mately $1.0 billion.

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. As part of our strategy to manage future
pension costs and net funded status volatility, we have transi-
tioned to a liability-driven investment strategy with a greater
concentration of ﬁ xed-income securities to better align plan
assets with liabilities.

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:

(cid:129) the duration of our pension plan liabilities, which drives the
investment strategy we can employ with our pension plan
assets;

(cid:129) 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
time; and

(cid:129) the investment returns we can reasonably expect our invest-
ment 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.

contributions were reinstated generally at 50% of their normal
levels on January 1, 2010. Total retirement plans cost decreased
$145 million in 2009, primarily due to a higher discount rate.

Retirement plans cost in 2011 is expected to increase signiﬁ -
cantly. This increase is attributable to an increase in pension
plan and retiree medical expense of approximately $260 million,
primarily as a result of a signiﬁ cantly lower discount rate.

Pension Cost. 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 signiﬁ cantly impact
our U.S. domestic pension plans. The components of pension
cost for all pension plans are as follows (in millions):

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

2010

2009

2008

$ 417
823
(955)

$ 499
798
(1,059)

$ 518
720
(985)

23
$ 308

(61)
$ 177

70
$ 323

Pension cost was higher in 2010 by $131 million due to signiﬁ cant
declines in the value of our plan assets due to market conditions
at the end of 2009, 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. A decrease in the discount rate increases 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

5/31/2010
5/31/2009
6/01/2008
2/29/2008
2/28/2007

6.37%
7.68
7.15
6.96
6.01

2010 PBO and 2011 expense
2009 PBO and 2010 expense
2009 expense
2008 PBO
2007 PBO and 2008 expense

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

We determine the discount rate 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 gen-
erally match our expected beneﬁ t payments in future years. In
developing this theoretical portfolio, we select bonds that match
cash ﬂ ows to beneﬁ t payments, limit our concentration by indus-
try and issuer, and apply screening criteria to ensure bonds with
a call feature have a low probability of being called. To the extent
scheduled bond proceeds exceed the estimated beneﬁ t pay-
ments in a given period, the calculation assumes those excess
proceeds are reinvested at one-year forward rates.

FEDEX CORPORATION

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 studies 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 following table summarizes our current asset allocation strategy (dollars in millions):

Asset Class

Domestic equities
International equities
Private equities
Total equities
Fixed-income securities
Cash and other

Plan Assets at Measurement Date

Actual

$ 4,569
1,502
399
6,470
6,205
380
$ 13,055

2010
Actual%

35%
12
3
50
47
3
100%

Target%

33%
12
5
50
49
1
100%

Actual

$ 4,029
1,668
341
6,038
3,456
1,112
$ 10,606

2009
Actual%

38%
16
3
57
33
10
100%

Target%

33%
12
5
50
49
1
100%

Funded Status. Following is information concerning the funded
status of our pension plans as of May 31 (in millions):

2010

2009

$ 14,484
13,295
$ (1,189) $

$ 11,050
10,812
(238)

Funded Status of Plans:
Projected beneﬁ t obligation (PBO)
Fair value of plan assets
Funded status of the plans
Components of Funded Status by Plans:
U.S. qualiﬁ ed plans
U.S. 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
(30)
Noncurrent pension and other beneﬁ t obligations (1,159)
Net amount recognized
Cash Amounts:
Cash contributions during the year
Beneﬁ t payments during the year

900
391

$
$

(580) $
(348)
(261)
$ (1,189) $

$ (1,189) $

278
(318)
(198)
(238)

311
(31)
(518)
(238)

$ 1,146
351
$

The amounts recognized in the balance sheet reﬂ ect a snapshot
of the state of our long-term pension liabilities at the plan mea-
surement date and the effect of mark-to-market accounting on
plan assets. At May 31, 2010, we recorded a decrease to equity
through OCI of $1.0 billion (net of tax) to reﬂ ect unrealized actu-
arial losses during 2010. Those losses are subject to amortization
over future years and may be reﬂ ected in future income state-
ments unless they are recovered. At May 31, 2009, we recorded a
decrease to equity through OCI of $1.2 billion (net of tax) attribut-
able to our pension plans.

We have assumed an 8% compound geometric long-term rate
of return on our U.S. domestic pension plan assets for 2011 and
2010 and 8.5% in 2009 and 2008, as described in Note 11 of the
accompanying consolidated ﬁ nancial statements. A one-basis-
point change in our expected return on plan assets impacts our
pension expense by $1.3 million.

The actual historical return on our U.S. pension plan assets,
calculated on a compound geometric basis, was approximately
7.9%, net of investment manager fees, for the 15-year period
ended May 31, 2010 and 7.5%, net of investment manager fees,
for the 15-year period ended May 31, 2009.

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 market per-
formance (both increases and decreases) by amortizing certain
actuarial gains or losses over a period no longer than four years.
Another method used in practice applies the market value of plan
assets at the measurement date. The calculated-value method
signiﬁ cantly mitigated the impact of asset value declines in the
determination of our 2010 pension expense, reducing our 2010
expense by approximately $135 million. For purposes of valuing
plan assets for determining 2011 pension expense, the calcu-
lated-value method will result in the same value as the market
value, as it did in 2009.

MANAGEMENT’S DISCUSSION AND ANALYSIS

The funding requirements for our tax-qualiﬁ ed U.S. domestic pen-
sion 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 determined under IRS rules falls below 80% at the begin-
ning of a plan year. All of our qualiﬁ ed U.S. domestic pension
plans had funded status levels in excess of 80% and our plans
remain adequately funded to provide beneﬁ ts to our employees
as they come due. Additionally, current beneﬁ t payments are
nominal compared to our total plan assets (beneﬁ t payments
for our tax-qualiﬁ ed U.S. domestic pension plans for 2010 were
approximately $355 million or 3% of plan assets).

During 2010, we made $848 million in tax-deductible contributions
to our U.S. Retirement Plans, including $495 million in voluntary
contributions. Over the past several years, we have made volun-
tary contributions to our U.S. Retirement Plans in excess of the
minimum required contributions. Amounts contributed in excess
of the minimum required result in a credit balance for funding
purposes that can be used to meet minimum contribution require-
ments in future years. For 2011, we anticipate making required
contributions to our U.S. Retirement Plans totaling approximately
$500 million, a reduction from 2010 due to the use of a portion of
our credit balance.

Cumulative unrecognized actuarial losses were $5.2 billion
through May 31, 2010, compared to $3.7 billion through May 31,
2009. These unrecognized losses reﬂ ect changes in the discount
rates and differences between expected and actual asset returns,
which are being amortized over future periods. These unrecog-
nized 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 2011 includes $276 million of
amortization of these actuarial losses versus $125 million in 2010,
$44 million in 2009 and $162 million in 2008.

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. Our reserves are established
for estimates of loss on reported claims, including incurred-but-
not-reported claims. At May 31, 2010, there were $1.6 billion of
self-insurance accruals reﬂ ected in our balance sheet ($1.5 bil-
lion at May 31, 2009). Approximately 40% of these accruals were
classiﬁ ed as current liabilities in 2010 and 2009.

Our self-insurance accruals are primarily based on the actuarially
estimated, undiscounted cost of claims to provide us with esti-
mates of future 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. Cost trends on material accruals are updated
each quarter. We self-insure up to certain limits that vary by oper-
ating 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.

FEDEX CORPORATION

LONG-LIVED ASSETS
Property and Equipment. Our key businesses are capital inten-
sive, with approximately 58% 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. For our aircraft, we typically
assign no residual value due to the utilization of these assets in
cargo conﬁ guration, which results in little to no value at the end
of their useful life. These estimates affect the amount of depre-
ciation expense recognized in a period and, ultimately, the gain or
loss on the disposal of the asset. Changes in the estimated 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 (typi-
cally 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
ﬂ eet requirements years in advance, and make commitments for
aircraft based on those projections. Furthermore, the timing and
availability of certain used aircraft types (particularly those with
better fuel efﬁ ciency) may create limited opportunities to acquire
these aircraft at favorable prices in advance of our capacity
needs. These activities create risks that asset capacity may
exceed demand and that an impairment of our assets may occur.
Aircraft purchases (primarily aircraft in passenger conﬁ guration)
that have not been placed in service totaled $101 million at May
31, 2010 and $130 million at May 31, 2009. 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
investments 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 projections of reduced capacity needs or lower operating
costs of newer aircraft types, and those decisions may result in
an impairment charge. Assets held for disposal must be adjusted
to their estimated fair values less costs to sell when the decision
is made to dispose of the asset and certain other criteria are
met. The fair value determinations 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.

There were no material property and equipment impairment
charges recognized in 2010 or 2008. However, during 2009, we
recorded $202 million in property and equipment impairment
charges. These charges were primarily related to our decision
to permanently remove from service certain aircraft, along with
certain excess aircraft engines, at FedEx Express.

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 6 to the accompanying consolidated
ﬁ nancial statements, at May 31, 2010 we had approximately $14
billion (on an undiscounted basis) of future commitments for pay-
ments under operating leases. The weighted-average remaining
lease term of all operating leases outstanding at May 31, 2010
was approximately six years.

The future commitments for operating leases are not reﬂ ected
as a liability in our balance sheet under current 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 estimates 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 involvement 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 mate-
rial transactions to assist us in making these evaluations.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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.

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. Changes in
forecasted operating results and other assumptions could materi-
ally affect these estimates. We perform our annual impairment
tests 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 2010, we
recorded an impairment charge of $18 million for the remaining
value of goodwill attributable to our FedEx National LTL reporting
unit. Beginning in 2009, the U.S. recession had a signiﬁ cant nega-
tive impact on the LTL industry resulting in volume declines, yield
pressures and operating losses. These difﬁ cult conditions have
continued in 2010 and the resulting excess capacity and competi-
tive pricing environment has continued to negatively impact our
FedEx National LTL reporting unit. Given these market conditions
and our forecast for this business, we concluded the remaining
goodwill was not recoverable.

Our other reporting units with signiﬁ cant recorded goodwill include
our FedEx Express, FedEx Freight (excluding FedEx National LTL)
and FedEx Ofﬁ ce reporting units. We evaluated these remaining
reporting units during the fourth quarter of 2010. The estimated fair
value of each of these reporting units signiﬁ cantly exceeded their
carrying values in 2010. Although we recorded goodwill impair-
ment charges associated with our FedEx Ofﬁ ce reporting unit in
2009 and 2008, better-than-expected results in 2010, combined
with an improved long-term outlook, drove an increase in the valu-
ation of this reporting unit. As a result, no additional testing or
impairment charges were necessary and we do not believe that
any of these reporting units are at risk.

FedEx Ofﬁ ce Goodwill. During 2009 and 2008, we recorded aggre-
gate charges of $1.7 billion for impairment of the Kinko’s trade
name and the goodwill recorded as a result of the FedEx Ofﬁ ce
acquisition. In 2008, we recorded a charge of $891 million pre-
dominantly related to a $515 million impairment of the Kinko’s
trade name and a $367 million impairment of goodwill. 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. In 2009, despite several actions taken to reduce
FedEx Ofﬁ ce’s cost structure and the initiation of an internal reor-
ganization designed to improve revenue-generating capabilities
and reduce costs, we recorded a goodwill impairment charge of
$810 million. This charge was a result of reduced proﬁ tability at
FedEx Ofﬁ ce over the forecast period. Additional discussion of
the key assumptions related to these charges is included in Note
3 to our consolidated ﬁ nancial statements.

FedEx National LTL Goodwill. In 2009, we recorded a goodwill
impairment charge of $90 million at our FedEx National LTL
reporting unit. This charge was a result of reduced revenues and
increased operating losses due to the negative impact of the U.S.
recession. The forecast used in the valuation assumed operating
losses would continue in the near-term due to the weak eco-
nomic conditions and excess capacity in the industry which had a
signiﬁ cant negative impact on the valuation of the FedEx National
LTL reporting unit. Additional discussion of the key assumptions
related to these charges is included in Note 3 to our consolidated
ﬁ nancial statements.

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 16 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 16 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.

FEDEX CORPORATION

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 judg-
ment is required in determining income tax provisions, as well
as deferred tax asset and liability balances and related deferred
tax valuation allowances, if necessary, due to the complexity of
these rules and their interaction with one another. We account
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 applicable 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 oper-
ate. These tax contingencies are impacted by several factors,
including tax audits, appeals, litigation, changes in tax laws and
other rules, and their interpretations, and changes in our busi-
ness, 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 continually 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.

We recognize liabilities for uncertain income tax positions based
on a two-step process. The ﬁ rst step is to evaluate 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 liti-
gation 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 inher-
ently 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 available to management. These
reevaluations are based on factors including, but not limited to,
changes in facts or circumstances, changes in tax law, success-
fully settled issues under audit and new audit activity. Such a
change in recognition or measurement could result in the recog-
nition 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 compo-
nent 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 por-
tion 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.

We measure and record operating tax contingency accruals in
accordance with accounting guidance for contingencies. As dis-
cussed below, this guidance 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.

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.
Accounting guidance for contingencies requires an accrual of
estimated loss from a contingency, such as a tax or other legal
proceeding or claim, when it is probable (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 reasonably estimated. This guidance
also requires disclosure of a loss contingency matter when, in
management’s judgment, a material loss is reasonably 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 5
to the accompanying consolidated financial statements, we
had outstanding ﬁ xed-rate, long-term debt (exclusive of capital
leases) with estimated fair values of $2.1 billion at May 31, 2010
and $2.4 billion at May 31, 2009. 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 $41 million as of May 31, 2010 and $35 million as of
May 31, 2009. 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

FOREIGN CURRENCY
While we are a global provider of transportation, e-commerce
and business services, the substantial majority of our trans-
actions are denominated in U.S. dollars. 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 2010, oper-
ating income was positively impacted due to foreign currency
ﬂ uctuations. During 2009, foreign currency ﬂ uctuations negatively
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, 2010, 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 oper-
ating income of $33 million for 2011. This theoretical calculation
assumes that each exchange rate would change in the same
direction relative to the U.S. dollar. This calculation is not indica-
tive of our actual experience in foreign currency transactions.
In addition to the direct effects of changes in exchange rates,
ﬂ uctuations 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 5% 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
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, other than 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”). This labor provision was not in the version
of the bill passed in March 2010 by the U.S. Senate. 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 disrup-
tions could threaten our ability to provide competitively priced
shipping options and ready access to global markets. There is
also the possibility that the U.S. Congress could pass other labor

FEDEX CORPORATION

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 governed 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. Finally, changes to federal or state laws gov-
erning employee classiﬁ cation could impact the status of FedEx
Ground’s owner-operators as independent contractors.

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 over time 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 sup-
ply 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
capacity relative to our shipping volumes. Overcapacity could
lead to asset dispositions or write-downs and undercapacity
could negatively impact service levels. For example, during
2009, as a result of excess aircraft capacity at FedEx Express,
we permanently removed certain aircraft and certain excess
aircraft engines from service and thus recorded a charge of
$199 million.

We face intense competition, especially in the LTL freight indus-
try. 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 competitors determine the charges for their services, and
weak economic conditions have led to excess capacity and a
very competitive pricing environment, especially in the LTL freight
industry. As a result, the FedEx Freight segment experienced yield
declines and operating losses during 2009 and 2010. An irrational
pricing environment can limit our ability not only to maintain or
increase our prices (including our fuel surcharges in response to
rising fuel costs), but also to maintain or grow our market share.
In addition, maintaining a broad portfolio of services is impor-
tant 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 services, 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 example,
during 2008, 2009 and 2010, 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 FedEx
Ofﬁ ce and FedEx National LTL acquisitions. These charges were
necessary, among other reasons, because the recent and fore-
casted ﬁ nancial performance of those companies did not meet our
original expectations as a result of weak economic conditions.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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 indepen-
dent 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 lawsuits
(including many that have been certiﬁ ed as class actions) and
state tax and other administrative proceedings that claim that
the company’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 classified 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 contrac-
tor 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. Under this decision, all FedEx
Express ﬂ ights to and from any airport in any member state of the
European Union will be covered by the ETS requirements begin-
ning in 2012, and each year we will 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 continues to consider a bill that would
regulate GHG emissions, and some form of federal climate change
legislation is possible in the relatively near future. Increased reg-
ulation regarding GHG emissions, especially aircraft or diesel
engine emissions, could impose substantial costs on us, espe-
cially at FedEx Express. These costs include an increase in the
cost of the fuel and other energy we purchase and capital costs
associated with updating or replacing our aircraft or vehicles
prematurely. Until the timing, scope and extent of such regulation
becomes known, we cannot predict its effect on our cost struc-
ture 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 airline and transportation industries could harm our reputa-
tion and reduce customer demand for our services, especially our
air express services. Finally, given the broad and global scope of
our operations and our susceptibility to global macro-economic
trends, we are particularly vulnerable to the physical risks of cli-
mate change that could affect all of humankind, such as shifts in
world ecosystems.

We will soon be negotiating a new collective bargaining agree-
ment with the union that represents the pilots of FedEx Express.
FedEx Express pilots are employed under a collective bargain-
ing agreement that becomes amendable on October 31, 2010.
In accordance with applicable labor law, we will continue to
operate under our current agreement while we negotiate with
our pilots. We cannot predict the outcome of these negotiations.
The terms of any new collective bargaining agreement could
increase our operating costs and adversely affect our ability to
compete with other providers of express delivery services. On
the other hand, if we are unable to reach agreement on a new
collective bargaining agreement, we may be subject to a strike or
work stoppages by our pilots, subject to the requirements of the
RLA. These actions could have a negative impact on our ability to
operate our express transportation network and ultimately cause
us to lose customers.

FEDEX CORPORATION

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

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 pre-
ceded by, followed by or that include the words “may,” “could,”
“would,” “should,” “believes,” “expects,” “anticipates,” “plans,”
“estimates,” “targets,” “projects,” “intends” or similar expres-
sions. These forward-looking statements involve risks and
uncertainties. Actual results may differ materially from those
contemplated (expressed or implied) by such forward-looking
statements, because of, among other things, the risk factors
identiﬁ ed above and the other risks and uncertainties you can
ﬁ nd in our press releases and other 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.

(cid:129) increasing costs, the volatility of costs and funding requirements
and other legal mandates for employee beneﬁ ts, especially pen-
sion and healthcare beneﬁ ts;

(cid:129) 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;

(cid:129) any impacts on our businesses resulting from new domestic or

international government laws and regulation;

(cid:129) 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;

(cid:129) market acceptance of our new service and growth initiatives;

(cid:129) any liability resulting from and the costs of defending against
class-action litigation, such as wage-and-hour and discrimina-
tion and retaliation claims, and any other legal proceedings;

(cid:129) the impact of technology developments on our operations
and on demand for our services, and our ability to continue
to identify and eliminate unnecessary information technology
redundancy and complexity throughout the organization;

(cid:129) adverse weather conditions or natural disasters, such as
earthquakes, volcanoes, and hurricanes, which can disrupt
our electrical service, damage our property, disrupt our opera-
tions, increase our fuel costs and adversely affect our shipment
levels;

(cid:129) widespread outbreak of an illness or any other communicable

disease, or any other public health crisis; and

(cid:129) 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.

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
industry is highly cyclical and especially susceptible to trends
in economic activity, such as the recent 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 recent global recession has had a disproportionately
negative impact on us and our recent ﬁ nancial results.

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 moni-
tor the effectiveness of our internal control over ﬁ nancial reporting and actions are taken to correct all identiﬁ ed deﬁ ciencies. 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, 2010, 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 financial reporting was effective as of
May 31, 2010.

The effectiveness of our internal control over ﬁ nancial reporting as of May 31, 2010, 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 ﬁ nancial reporting as of May 31, 2010, 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 ﬁ nancial reporting, and for its
assessment of the effectiveness of internal control over ﬁ nancial 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 ﬁ nancial
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
ﬁ nancial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
ﬁ nancial 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 ﬁ nancial reporting is a process designed to provide reasonable assurance regarding the reliabil-
ity of ﬁ nancial reporting and the preparation of ﬁ nancial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over ﬁ nancial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reﬂ ect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁ nancial 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 ﬁ nancial statements.

Because of its inherent limitations, internal control over ﬁ nancial 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 ﬁ nancial reporting as of
May 31, 2010, 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, 2010 and 2009, and the related consolidated statements of income,
changes in stockholders’ investment and comprehensive income, and cash ﬂ ows for each of the three years in the period ended May
31, 2010 of FedEx Corporation and our report dated July 15, 2010 expressed an unqualiﬁ ed opinion thereon.

Memphis, Tennessee
July 15, 2010

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.

2010

$ 34,734

14,027
4,728
2,359
1,958
3,106
1,715
18
4,825
32,736

1,998

(79)
8
(33)
(104)
1,894
710
$ 1,184
3.78
$
3.76
$

Years ended May 31,

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

$
$
$

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
$

FEDEX CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)
ASSETS
Current Assets
Cash and cash equivalents
Receivables, less allowances of $166 and $196
Spare parts, supplies and fuel, less allowances of $170 and $175
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
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; 314 million shares issued

as of May 31, 2010 and 312 million shares issued as of May 31, 2009

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,

2010

2009

$ 1,952
4,163
389
529
251
7,284

11,640
5,193
4,218
3,170
7,081
31,302
16,917
14,385

2,200
–
1,033
3,233
$ 24,902

262
$
1,146
1,522
1,715
4,645
1,668

891
1,705
960
804
267
151
4,778

31
2,261
13,966
(2,440)
(7)
13,811
$ 24,902

$ 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

FEDEX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to cash provided by operating activities:

2010

Years ended May 31,

2009

2008

$ 1,184

$ 1,125

Depreciation and amortization
Provision for uncollectible accounts
Deferred income taxes and other noncash items
Noncash impairment charges
Stock-based compensation
Changes in assets and liabilities:

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

Cash provided by operating activities

INVESTING ACTIVITIES
Capital expenditures
Proceeds from asset dispositions and other
Cash used in investing activities

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

1,958
124
331
18
101

(906)
276
(611)
710
(47)
3,138

(2,816)
35
(2,781)

(653)
–
94
25
(138)
(20)
(692)
(5)
(340)
2,292
$ 1,952

1,975
181
299
1,103
99

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

(2,459)
76
(2,383)

(501)
1,000
41
4
(137)
(7)
400
(17)
753
1,539
$ 2,292

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

1,946
134
124
882
101

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

(2,947)
50
(2,897)

(639)
–
108
38
(124)
–
(617)
19
(30)
1,569
$ 1,539

Accumulated
Other
Comprehensive
Income (Loss)

$ (1,030)
–

Treasury
Stock

$
(4)
–

FEDEX CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
INVESTMENT AND COMPREHENSIVE INCOME

(In millions, except share data)

BALANCE AT MAY 31, 2007
Net income
Foreign currency translation adjustment,
net of tax of $15
Retirement plans adjustments, 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 retirement
plans measurement date transition, net of

tax beneﬁ t of $26 and expense

of $220, respectively
BALANCE AT JUNE 1, 2008
Net income
Foreign currency translation adjustment,
net of tax of $28
Retirement plans adjustments, 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
Net income
Foreign currency translation adjustment,
net of tax of $2
Retirement plans adjustments, net of tax of $617

Total comprehensive income

Purchase of treasury stock
Cash dividends declared ($0.44 per share)
Employee incentive plans and other

Common
Stock

$ 31
–

Additional
Paid-in
Capital

$ 1,689
–

–
–

–

–
31

–
31
–

–
–

–

–
31
–

–
–

–

233
1,922

–
1,922
–

–
–

–

131
2,053
–

–
–

Retained
Earnings

$ 11,970
1,125

–
–

(93)

–
13,002

(44)
12,958
98

99
506

–

–
(425)

369
(56)
–

–
–

(112)
(1,205)

(137)

–

–
12,919
1,184

–
–

–
(137)

–
(1,373)
–

(25)
(1,042)

–
–

(2,375,753 shares issued)
BALANCE AT MAY 31, 2010

–
$ 31

208
$ 2,261

–
$ 13,966

–
$ (2,440)

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

Total

$ 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
1,184

(25)
(1,042)
117
(3)
(137)

208
$ 13,811

–
–

–

–
(4)

–
(4)
–

–
–

–

–
(4)
–

–
–

(3)
–

–
$ (7)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: DESCRIPTION OF BUSINESS
AND SUMMARY OF SIGNIFICANT
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 are Federal Express Corporation (“FedEx
Express”), the world’s largest express transportation company;
FedEx Ground Package System, Inc. (“FedEx Ground”), a lead-
ing provider of small-package ground delivery services; and the
FedEx Freight LTL Group, which comprises the FedEx Freight and
FedEx National LTL businesses of FedEx Freight Corporation, a
leading U.S. provider of less-than-truckload (“LTL”) freight ser-
vices. These companies represent our major service lines and,
along with FedEx Corporate Services, Inc. (“FedEx Services”),
form the core of our reportable segments. Our FedEx Services
segment provides sales, marketing, information technology and
customer service support to our transportation segments. In addi-
tion, 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”).

FISCAL YEARS
Except as otherwise specified, references to years indicate
our ﬁ scal year ended May 31, 2010 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.

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 trans-
portation businesses, such as FedEx SmartPost, engage in some
transactions wherein they act as agents. Revenue from these
transactions is recorded on a net basis. Net revenue includes bill-
ings to customers less third-party charges, including transportation
or handling costs, fees, commissions, and taxes and duties.

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

CREDIT RISK
We routinely grant credit to many of our customers for trans-
portation 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
transaction for most of our services. Allowances for potential
credit losses are determined based on historical experience and
the impact of current economic factors on 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 $374 million in 2010, $379 million in 2009
and $445 million in 2008.

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. 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 esti-
mated useful life of the related aircraft and engines. Additionally,
allowances for obsolescence are provided for spare parts cur-
rently identiﬁ ed as excess or obsolete. These allowances are
based on management estimates, which are subject to change.
Supplies and fuel are reported at cost on a first-in, first-out
basis.

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
ﬂ eet 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
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

FEDEX CORPORATION

book value of our property and equipment are as follows (dollars
in millions):

Net Book Value at May 31,
2009

2010

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 30 years

$5,897

$5,139

5 to 18 years

1,049

709

3 to 30 years

1,895

1,928

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

649
1,095
3,800

782
1,107
3,752

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 $1.9 billion in 2010, $1.8 billion in 2009 and $1.8 billion in 2008.
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 $80 million in 2010, $71 million in 2009
and $50 million in 2008.

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.

There were no material property and equipment impairment
charges recognized in 2010 or 2008. During 2009, we recorded
$202 million in property and equipment impairment charges. These
charges were primarily related to our decision to permanently
remove from service certain aircraft, along with certain excess
aircraft engines, at FedEx Express.

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
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
qualiﬁ ed U.S. pension plans.

The accounting guidance related to employers’ accounting
for defined benefit pension and other postretirement plans
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 cred-
its. Additionally, the guidance requires the measurement date
for plan assets and liabilities to coincide with the plan sponsor’s
year end.

At May 31, 2010, we recorded a decrease to equity through OCI of
$1.0 billion (net of tax) based primarily on mark-to-market adjust-
ments related to increases in our projected beneﬁ t obligation due
to a decrease in the discount rate used to measure the liability
at May 31, 2010. At May 31, 2009, we recorded a decrease of
$1.2 billion based primarily on mark-to-market adjustments related
to unrealized losses in our pension plan assets during 2009.

4646

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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 posi-
tion 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 settle-
ment. It is inherently difﬁ cult and subjective to estimate such
amounts, as we must determine the probability of various pos-
sible 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 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 self-insured for workers’ compensation claims, vehicle
accidents and general liabilities, beneﬁ ts paid under employee
healthcare programs and long-term disability beneﬁ ts. Accruals
are primarily based on the actuarially estimated, undiscounted
cost of claims, which includes incurred-but-not-reported claims.
Current workers’ compensation claims, vehicle and general lia-
bility, 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 “Other assets” in the accompanying 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 com-
ponent of accumulated other comprehensive income within
common stockholders’ investment. Transaction gains and
losses that arise from exchange rate ﬂ uctuations on transac-
tions denominated in a currency other than the local currency
are included in the caption “Other, net” in the accompanying
consolidated statements of income and were immaterial for
each period presented. Cumulative net foreign currency trans-
lation gains in accumulated other comprehensive income were
$30 million at May 31, 2010, $56 million at May 31, 2009 and
$167 million at May 31, 2008.

EMPLOYEES UNDER COLLECTIVE
BARGAINING ARRANGEMENTS
The pilots of FedEx Express, which represent a small number of
FedEx Express total employees, are employed under a collective
bargaining agreement that will become amendable during the
second quarter of 2011. In accordance with applicable labor law,
we will continue to operate under our current agreement while
we negotiate with our pilots. We cannot estimate the ﬁ nancial
impact, if any, the results of these negotiations may have on our
future results of operations.

STOCK-BASED COMPENSATION
We recognize compensation expense for stock-based awards
under the provisions of the accounting guidance related to
share-based payments. This guidance requires recognition of
compensation expense for stock-based awards using a fair value
method.

DIVIDENDS DECLARED PER COMMON SHARE
On June 7, 2010, our Board of Directors declared a quarterly
dividend of $0.12 per share of common stock. The dividend was
paid on July 1, 2010 to stockholders of record as of the close of
business on June 17, 2010. 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.

4747

FEDEX CORPORATION

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
GUIDANCE

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
guidance, which has been adopted by us, is relevant to the read-
ers of our ﬁ nancial statements.

On June 1, 2008, we adopted the authoritative guidance issued
by the Financial Accounting Standards Board (“FASB”) on 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. On June 1, 2009, we implemented the previously deferred
provisions of this guidance for nonﬁ nancial assets and liabilities
recorded at fair value, as required. The adoption of this new guid-
ance had no impact on our ﬁ nancial statements.

In December 2007, the FASB issued authoritative guidance on
business combinations and the accounting and reporting for
noncontrolling interests (previously referred to as minority inter-
ests). This guidance signiﬁ cantly changed the accounting for
and reporting of business combination transactions, including
noncontrolling interests. For example, the acquiring entity is now
required to recognize the full fair value of assets acquired and
liabilities assumed in the transaction, and the expensing of most
transaction and restructuring costs is now required. This guid-
ance became effective for us beginning June 1, 2009 and had no
material impact on our ﬁ nancial statements because we have
not had any signiﬁ cant business combinations since that date.

In December 2008, the FASB issued authoritative guidance on
employers’ disclosures about postretirement beneﬁ t plan assets.
This guidance provides objectives that an employer should
consider when providing detailed disclosures about assets of a
deﬁ ned beneﬁ t pension or other postretirement plan, including
disclosures about 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 guidance became effective for our 2010 Annual
Report. See Note 11 for related disclosures.

In April 2009, the FASB issued new accounting guidance related
to interim disclosures about the fair value of ﬁ nancial instru-
ments. This guidance requires disclosures about the fair value of
ﬁ nancial instruments for interim reporting periods in addition to
annual reporting periods and became effective for us beginning
with the ﬁ rst quarter of ﬁ scal year 2010.

NOTE 3: GOODWILL AND OTHER INTANGIBLE ASSETS

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

Goodwill at May 31, 2008
Accumulated impairment charges
Balance as of May 31, 2008
Impairment charges
Purchase adjustments and other (1)
Balance as of May 31, 2009
Impairment charge
Purchase adjustments and other (1)
Transfer between segments (2)
Balance as of May 31, 2010
Accumulated goodwill impairment charges as of May 31, 2010

FedEx Express
Segment

FedEx Ground
Segment

FedEx Freight
Segment

FedEx Services
Segment

$ 1,123
–
1,123
–
(33)
1,090
–
(11)
66
$ 1,145
–
$

$ 90
–
90
–
–
90
–
–
–
$ 90
$ –

$ 802
(25)
777
(90)
–
687
(18)
–
(66)
$ 603
$ (133)

$ 1,542
(367)
1,175
(810)
(3)
362
–
–
–
$
362
$ (1,177)

Total

$ 3,557
(392)
3,165
(900)
(36)
2,229
(18)
(11)
–
$ 2,200
$ (1,310)

(1) Primarily currency translation adjustments.
(2) Transfer of goodwill related to the merger of Caribbean Transportation Services into FedEx Express effective June 1, 2009.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection with our annual impairment testing of goodwill
conducted in the fourth quarter of 2010, we recorded a charge
of $18 million for impairment of the value of the remaining good-
will at our FedEx National LTL reporting unit. Beginning in 2009,
the U.S. recession had a signiﬁ cant negative impact on the LTL
industry, resulting in volume declines, yield pressures and operat-
ing losses. These difﬁ cult conditions continued in 2010 and the
resulting excess capacity and competitive pricing environment
had a signiﬁ cant negative impact on our FedEx National LTL
reporting unit. Given these market conditions, our forecast for
this business did not support the recoverability of the remaining
goodwill attributable to our FedEx National LTL reporting unit.

We evaluated our remaining reporting units during the fourth
quarter of 2010, and the estimated fair value of each of our other
reporting units signiﬁ cantly exceeded their carrying values in
2010. Although we recorded goodwill impairment charges asso-
ciated with our FedEx Ofﬁ ce reporting unit in 2009 and 2008,
better-than-expected results in 2010 combined with an improved
long-term outlook drove an improvement in the valuation of this
reporting unit. As a result, no additional testing or impairment
charges were necessary and we do not believe that any of these
reporting units are at risk.

GOODWILL IMPAIRMENT CHARGES – 2009

FEDEX OFFICE
During 2009, in response to the lower revenues and continued
operating losses at FedEx Ofﬁ ce resulting from the U.S. reces-
sion, the company initiated an internal reorganization designed
to improve revenue-generating capabilities and reduce costs.
This reorganization resulted in actions that included headcount
reductions, domestic store closures and the termination of opera-
tions in some international locations. In addition, we substantially
curtailed future network expansion in light of weak economic
conditions.

In connection with our annual impairment testing in 2009, 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 assumptions to estimate fair
value. Key assumptions considered were the revenue and oper-
ating income forecast, the assessed growth rate in the periods
beyond the detailed forecast period, and the discount rate.

For 2009, our discount rate of 12.0% represented 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 current market conditions for the
equity-risk premium and risk-free interest rate, the size and
industry of the FedEx Ofﬁ ce reporting unit, and the 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 $810 million during the fourth quarter of 2009. The good-
will impairment charge is included in 2009 operating expenses
in the accompanying consolidated statements of income.
This 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.

FEDEX NATIONAL LTL
In 2009, we recorded a goodwill impairment charge of $90 million
at our FedEx National LTL unit. This charge was a result of reduced
revenues and increased operating losses due to the negative
impact of the U.S. recession.

The valuation methodology to estimate the fair value of the FedEx
National LTL reporting unit was based primarily on a market
approach (revenue multiples and/or earnings multiples) that con-
sidered market participant assumptions. We believe use of the
market approach for FedEx National LTL was 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 assumed operating losses
would continue in the near-term due to weak economic condi-
tions and excess capacity in the industry. However, the long-term
outlook assumed that this excess capacity would exit the market.
This assumption drove 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
was signiﬁ cant to the valuation and reﬂ ected management’s out-
look on the industry for future periods as of the valuation date.

GOODWILL IMPAIRMENT CHARGES – 2008

FEDEX OFFICE
During 2008, several developments and strategic decisions
occurred at FedEx Ofﬁ ce, including a reorganization of FedEx
Ofﬁ ce into the FedEx Services segment, a reorganization of senior
management, as well as a decision to minimize the use of the
Kinko’s trade name over the next several years. We also began
implementing revenue growth and cost management plans to
improve ﬁ nancial performance and pursuing a more disciplined
approach to the long-term expansion of the retail network, reduc-
ing the overall level of expansion.

Upon completion of the impairment test, these factors, com-
bined with forecasted losses resulted in our conclusion that the
recorded goodwill was impaired and we recorded an impair-
ment charge of $367 million during the fourth quarter of 2008.
The goodwill 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 segment and was not allocated to our transportation
segments, as the charge was unrelated to the core performance
of those businesses.

FEDEX CORPORATION

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 assumptions 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.

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

Customer relationships
Trade name and other
Total

Gross Carrying
Amount

$ 209
195
$ 404

May 31, 2010
Accumulated
Amortization

$ (160)
(175)
$ (335)

Net Book
Value

$ 49
20
$ 69

Gross Carrying
Amount

$ 207
205
$ 412

May 31, 2009
Accumulated
Amortization

$ (133)
(161)
$ (294)

Net Book
Value

$ 74
44
$ 118

Prior to 2008, we had an indeﬁ nite-lived intangible asset asso-
ciated with the Kinko’s trade name. 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. 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
change resulted in a remaining trade name balance of $52 mil-
lion, which we began amortizing in the fourth quarter of 2008 on
an accelerated basis, and which will be fully amortized by May
2011. The trade name impairment charge is included in 2008 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 $51 million in 2010,
$73 million in 2009 and $60 million in 2008. Estimated amortization
expense is expected to be $33 million in 2011 and immaterial in
subsequent years.

NOTE 4: 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,

2010

2009

$ 230

$ 201

386
530
$ 1,146

$ 675
347
693
$ 1,715

143
517
$ 861

$ 626
338
674
$ 1,638

NOTE 5: LONG-TERM DEBT AND
OTHER FINANCING ARRANGEMENTS

The components of long-term debt (net of discounts), along with
maturity dates for the years subsequent to May 31, 2010, are as
follows (in millions):

Senior unsecured debt

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,

2010

2009

–
$
250
300
250
750
239
1,789
141
1,930
262
$ 1,668

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

Interest on our ﬁ xed-rate notes is paid semi-annually. Long-
term debt, exclusive of capital leases, had carrying values of
$1.8 billion compared with estimated fair values of $2.1 billion
at May 31, 2010, and $2.3 billion compared with estimated fair
values of $2.4 billion at May 31, 2009. The estimated fair values
were determined based on quoted market prices or on the cur-
rent 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.

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. During 2010, we
repaid our $500 million 5.50% notes that matured on August 15,
2009 using cash from operations and a portion of the proceeds of
our January 2009 $1 billion senior unsecured debt offering.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A $1 billion revolving credit facility is available to ﬁ nance our
operations and other cash ﬂ ow needs and to provide support for
the issuance of commercial paper. The revolving credit agree-
ment expires in July 2012. The 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 our last four ﬁ scal quarters’ rentals and
landing fees) to capital (adjusted debt plus total common stock-
holders’ investment) that does not exceed 0.7 to 1.0. Our leverage
ratio of adjusted debt to capital was 0.5 at May 31, 2010. 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 operations, including our liquidity or borrowing capac-
ity. As of May 31, 2010, no commercial paper was outstanding
and the entire $1 billion under the revolving credit facility was
available for future borrowings.

We issue other ﬁ nancial instruments in the normal course of
business to support our operations, including letters of credit.
We had a total of $553 million in letters of credit outstanding
at May 31, 2010, with $94 million unused under our primary
$500 million letter of credit facility. These instruments are 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 bal-
ance 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 6: 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 12% of our total aircraft ﬂ eet
under capital or operating leases as of May 31, 2010 as compared
to 13% as of May 31, 2009. A portion of our 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
capital leases were as follows (in millions):

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

Less accumulated amortization

May 31,

2010

$ 15
165
17
146
343
312
$ 31

2009

$ 50
165
17
147
379
300
$ 79

Rent expense under operating leases for the years ended May 31
was as follows (in millions):

Minimum rentals
Contingent rentals (1)

(1) Contingent rentals are based on equipment usage.

2010

2009

2008

$ 2,001
152
$ 2,153

$ 2,047
181
$ 2,228

$ 1,990
228
$ 2,218

A summary of future minimum lease payments under capi-
tal leases and noncancelable operating leases with an initial
or remaining term in excess of one year at May 31, 2010 is as
follows (in millions):

Operating Leases

Aircraft
Capital and Related
Equipment
Leases

Facilities and Total Operating
Leases

Other

$ 20
8
119
2
1
14
164

526
504
499
473
455
2,003
$ 4,460

$ 1,250
1,085
926
786
717
4,547
$ 9,311

$ 1,776
1,589
1,425
1,259
1,172
6,550
$ 13,771

2011
2012
2013
2014
2015
Thereafter
Total
Less amount

representing interest

Present value of net
minimum lease
payments

$ 141

The weighted-average remaining lease term of all operating
leases outstanding at May 31, 2010 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 CORPORATION

FedEx Express makes payments under certain leveraged oper-
ating 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.

valued at the market price on the date of award. The terms of
our restricted stock provide for continued vesting subsequent to
the employee’s retirement. Compensation expense associated
with these awards is recognized on a straight-line basis over the
shorter of the remaining service or vesting period.

We are the lessee in a series of operating leases covering a
portion of our leased aircraft. The lessors are trusts established
speciﬁ cally to purchase, ﬁ nance and lease aircraft to us. These
leasing entities meet the criteria for variable interest entities. We
are not the primary beneﬁ ciary of the leasing entities, as the lease
terms are consistent with market terms at the inception of the
lease and do not include a residual value guarantee, ﬁ xed-price
purchase option or similar feature that obligates us to absorb
decreases in value or entitles us to participate in increases in
the value of the aircraft. As such, we are not required to consoli-
date the entity as the primary beneﬁ ciary. Our maximum exposure
under these leases is included in the summary of future minimum
lease payments shown above.

NOTE 7: 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, 2010, none
of these shares had been issued.

NOTE 8: STOCK-BASED
COMPENSATION

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

Stock-based compensation expense

$ 101

2010

2009

$ 99

2008

$ 101

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 discretion
of the Compensation Committee of our Board of Directors. Option-
vesting periods range from one to four years, with 83% of our
options vesting ratably over four years. Compensation expense
associated with these awards is recognized on a straight-line
basis over the requisite service period of the award.

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

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
record stock-based compensation expense 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:

2010

2009

2008

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

$ 20.47
77

5.7 years

$ 23.66
7
$

$ 29.88
126
$

5.5 years

5 years

32%
3.24%
0.742%

23%
3.28%
0.492%

19%
4.76%
0.337%

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes information about stock option activity for the year ended May 31, 2010:

Outstanding at June 1, 2009
Granted
Exercised
Forfeited
Outstanding at May 31, 2010
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)

$ 79.90
60.53
47.08
101.95
$ 78.32
$ 80.06
$ 75.58

6.0 years
4.4 years
8.5 years

$ 259
$ 143
$ 107

17,643,089
5,017,361
(1,993,967)
(428,427)
20,238,056
12,379,940
7,229,467
7,302,029

(1) Only presented for options with market value at May 31, 2010 in excess of the exercise price of the option.

NOTE 9: COMPUTATION OF
EARNINGS PER SHARE

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):

2010

2009

2008

Basic earnings per common share:
Net earnings allocable to
common shares
Weighted-average common shares
Basic earnings per common share

$ 1,182
312
$ 3.78

$
97
311
$ 0.31

$ 1,123
309
$ 3.64

Diluted earnings per common share:
Net earnings allocable to
common shares
Weighted-average common shares
Dilutive effect of share-based awards
Weighted-average diluted shares
Diluted earnings per common share
Anti-dilutive options excluded from
diluted earnings per common share

$ 1,182
312
2
314
$ 3.76

$
97
311
1
312
$ 0.31

$ 1,123
309
3
312
$ 3.60

11.5

12.6

4.8

The options granted during the year ended May 31, 2010 are primar-
ily related to our principal annual stock option grant in June 2009.

The following table summarizes information about vested and
unvested restricted stock for the year ended May 31, 2010:

Unvested at June 1, 2009
Granted
Vested
Forfeited
Unvested at May 31, 2010

Restricted Stock

442,741
391,786
(193,095)
(4,136)
637,296

Weighted-
Average Grant
Date Fair Value

$ 100.40
57.07
100.07
76.58
$ 74.02

During the year ended May 31, 2009, there were 197,180 shares
of restricted stock granted with a weighted-average fair value of
$90.57. 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.

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

2008
2009
2010

Stock Options

Vested During
the Year

2,694,602
2,414,815
2,296,211

Fair Value
(in millions)

$ 64
64
63

As of May 31, 2010, there was $139 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 three years.

Total shares outstanding or available for grant related to equity
compensation at May 31, 2010 represented 8% of the total out-
standing common and equity compensation shares and equity
compensation shares available for grant.

FEDEX CORPORATION

NOTE 10: INCOME TAXES

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

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

Current provision (beneﬁ t)
Domestic:

Federal
State and local

Foreign

Deferred provision (beneﬁ t)
Domestic:

Federal
State and local

Foreign

2010

2009

2008

$ 36
54
207
297

$ (35)
18
214
197

$ 514
74
242
830

408
15
(10)
413
$ 710

327
48
7
382
$ 579

31
(2)
32
61
$ 891

Pretax earnings of foreign operations for 2010, 2009 and 2008
were $555 million, $106 million and $803 million, respectively,
which represents only a portion of total results associated with
international shipments.

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

2010

2009

2008

35.0%

–

48.0

6.8

2.4
0.1
37.5%

1.9
0.7
85.6%

2.1
0.3
44.2%

Our 2009 and 2008 effective tax rates were signiﬁ cantly impacted
by goodwill impairment charges related to the FedEx Ofﬁ ce acqui-
sition, which are not deductible for income tax purposes.

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

2010

2009

Deferred

Deferred
Tax Assets Tax Liabilities Tax Assets Tax Liabilities

Deferred

Property, equipment,

leases and intangibles $ 377
783
416
490

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

$ 2,157
36
–
238

$ 406
384
392
491

142
(139)
$ 2,069

–
–
$ 2,431

131
(137)
$ 1,667

$ 1,862
143
–
222

–
–
$ 2,227

Current deferred tax asset
Noncurrent deferred tax liability

2010

2009

$ 529
(891)
$ (362)

$ 511
(1,071)
$ (560)

We have $394 million of net operating loss carryovers in various
foreign jurisdictions and $489 million of state operating loss carry-
overs. The valuation allowances primarily represent amounts
reserved for operating loss and tax credit carryforwards, which
expire over varying periods starting in 2011. 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
$325 million in 2010 and $191 million in 2009. We have not recog-
nized deferred taxes for U.S. federal income tax purposes on the
unremitted earnings of our foreign subsidiaries that are perma-
nently reinvested. Upon distribution, in the form of dividends or
otherwise, these unremitted earnings would be subject to U.S.
federal income tax. Unrecognized foreign tax credits would be
available to reduce a portion of the U.S. tax liability. Determination
of the amount of unrecognized deferred U.S. income tax liability
is not practicable.

Our liabilities recorded for uncertain tax positions totaled
$82 million at May 31, 2010 and $72 million at May 31, 2009, includ-
ing $67 million at May 31, 2010 and $59 million at May 31, 2009
associated with positions that if favorably resolved would provide
a beneﬁ t to our effective tax rate. 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 $20 million
on May 31, 2010 and $19 million on May 31, 2009. Total interest
and penalties included in our consolidated statements of income
is immaterial.

We ﬁ le income tax returns in the U.S., various U.S. state and
local jurisdictions, and various foreign jurisdictions. During 2010,
the Internal Revenue Service (“IRS”) commenced its audit of our
consolidated U.S. income tax returns for the 2007 through 2009
tax years. We are no longer subject to U.S. federal income tax
examination for years through 2006 except for speciﬁ c U.S. fed-
eral income tax positions that are in various stages of appeal and/
or litigation. No resolution date can be reasonably estimated at
this time for these appeals and litigation, but their resolution is
not expected to have a material effect on our consolidated ﬁ nan-
cial statements. We are also subject to ongoing audits in state,
local and foreign tax jurisdictions throughout the world.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Balance at beginning of year

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 end of year

2010

$ 72

(4)
(3)
$ 82

2009

$ 88

(30)
(3)
$ 72

2008

$ 72

(9)
(3)
$ 88

Included in the May 31, 2010 and May 31, 2009 balances are
$9 million and $7 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 deduct-
ibility or income inclusion. It is difﬁ cult to predict the ultimate
outcome or the timing of resolution for tax positions. 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 uncertain tax positions 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 reason-
ably possible changes cannot be made. However, we do not
expect that the resolution of any of our uncertain tax positions
will be material.

NOTE 11: 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 sal-
ary increases; employee turnover; mortality; and retirement ages.
These assumptions most signiﬁ cantly impact our U.S. domestic
pension plans.

The accounting guidance related to postretirement benefits
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 accumulated other comprehensive income
(“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. At May 31, 2010, under the
provisions of this guidance, we recorded a decrease to equity of
$1 billion (net of tax) to reﬂ ect unrealized actuarial losses dur-
ing 2010. At May 31, 2009, we recorded a decrease to equity of
$1.2 billion (net of tax) attributable to our plans.

Additionally, the accounting guidance requires the measurement
date for plan assets and liabilities to coincide with the plan spon-
sor’s year end. On June 1, 2008, we made our transition election
for the measurement date provision using the two-measurement
approach. Under this approach, we completed two actuarial mea-
surements, 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
$369 million, net of tax) as an adjustment to the opening balance
of AOCI.

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

2010

2009

2008

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

$ 308

$ 177

$ 323

136
42
$ 486

237
57
$ 471

216
77
$ 616

FEDEX CORPORATION

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.

PENSION PLAN ASSUMPTIONS
Our pension cost is materially affected by the discount rate used
to measure pension obligations, the level of plan assets avail-
able 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 reasonably 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 assump-
tions 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.

The investment strategy for pension plan assets is to utilize a
diversified mix of global public and private equity portfolios,
together with public and private ﬁ xed-income portfolios, to earn
a long-term investment return that meets our pension plan obli-
gations. 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. Our largest holding
classes, Corporate Fixed Income Securities and U.S. Large Cap
Equities, are indexed to an S&P 500 fund. Accordingly, we do not
have any signiﬁ cant concentrations of risk. Active management
strategies are utilized within the plan in an effort to realize invest-
ment returns in excess of market indices. As part of our strategy
to manage future pension costs and net funded status volatility,

we have transitioned to a liability-driven investment strategy with
a greater concentration of ﬁ xed-income securities to better align
plan assets with liabilities. Our investment strategy also includes
the limited use of derivative ﬁ nancial instruments on a discretion-
ary basis to improve investment returns and manage exposure to
market risk. In all cases, our investment managers are prohibited
from using derivatives for speculative purposes and are not per-
mitted to use derivatives to leverage a portfolio.

The estimated average rate of return on plan assets is a long-
term, forward-looking assumption that materially affects our
pension cost. It is required to be the expected future long-term
rate of earnings on plan assets. Establishing the expected future
rate of investment return on our pension assets is a judgmental
matter. Management considers the following factors in determin-
ing this assumption:

(cid:129) the duration of our pension plan liabilities, which drives the
investment strategy we can employ with our pension plan
assets;

(cid:129) the investment returns we can reasonably expect our invest-
ment 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.

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 8.0% for 2010 and 8.5% for 2009
and 2008. Our estimated long-term rate of return on plan assets
remains at 8.0% for 2011. For the 15-year period ended May 31,
2010, our actual returns were 7.9%.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Following is a description of the valuation methodologies used for investments measured at fair value:

(cid:129) Cash and cash equivalents. These investments include cash equivalents valued using exchange rates provided by an industry pricing

vendor and commingled funds valued using the net asset value. These investments also include cash.

(cid:129) Domestic and international equities. These investments are valued at the closing price or last trade reported on the major market on

which the individual securities are traded. In addition, commingled funds are valued using the net asset value.

(cid:129) Private equity. The valuation of these investments requires signiﬁ cant judgment due to the absence of quoted market prices, the
inherent lack of liquidity and the long-term nature of such assets. Investments are valued based upon recommendations of our
investment managers incorporating factors such as contributions and distributions, market transactions, market comparables and
performance multiples.

(cid:129) Fixed income. The fair values of Corporate, U.S. government securities and other ﬁ xed income securities are estimated by using bid

evaluation pricing models or quoted prices of securities with similar characteristics.

The fair values of investments by level and asset category and the weighted-average asset allocations for our domestic pension plans
at the measurement date are presented in the following table (in millions):

Asset Class

Fair Value

Actual %

Target %

Quoted Prices in
Active Markets
Level 1

Other Observable
Inputs
Level 2

Unobservable
Inputs
Level 3

Plan Assets at Measurement Date
2010

Cash and cash equivalents
Domestic equities
U.S. large cap equity
U.S. SMID cap equity
International equities
Private equities
Fixed income securities
Corporate
U.S. government
Mortgage backed and other
Other

Asset Class

Cash and cash equivalents
Domestic equities
U.S. large cap equity
U.S. SMID cap equity
U.S. small cap equity
International equities
Private equities
Fixed income securities
Corporate
U.S. government
Mortgage backed and other
Other

427

145

282

–

3,374
1,195
1,502
399

3,546
2,537
122
(47)
$ 13,055

26
9
12
3

27
19
1
–
100%

2009

24
9
12
5
49

–
100%

–
1,195
1,262
–

–
–
–
(46)
$ 2,556

3,374
–
240
–

3,546
2,537
122
(1)
$ 10,100

–
–
–
$ 399

–
–
–
–
$ 399

Fair Value

Actual %

Target %

$ 1,022

10%

2,908
794
327
1,668
341

1,946
842
668
90
$ 10,606

27
8
3
16
3

18
8
6
1
100%

24
9
–
12
5
49

–
100%

The change in fair value of Level 3 assets that use signiﬁ cant
unobservable inputs is shown in the table below (in millions):

Beginning balance May 31, 2009
Actual return on plan assets:
Assets held at May 31, 2010
Assets sold during the year
Purchases, sales and settlements
Ending balance May 31, 2010

$ 341

38
24
(4)
$ 399

FEDEX CORPORATION

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, 2010 and a statement of the funded status as of May 31, 2010 and
2009 (in millions):

Pension Plans

2010

$ 14,041

2009

$ 10,745

$ 11,050

$ 11,617

–
–
–
417
823
2,607
(391)
(22)
$ 14,484

309
(302)
(83)
499
798
(1,420)
(351)
(17)
$ 11,050

Postretirement Healthcare Plans
2009

2010

$ 433

–
–
–
24
30
102
(45)
21
$ 565

$ 492

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

$ 10,812

$ 11,879

–

–
–
1,994
900
(391)
(20)
$ 13,295

$ (1,189)

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

(238)

–

311

(30)

(31)

(1,159)
$ (1,189)

(518)
(238)

$ 5,157
(1,106)
$ 4,051

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

284
(113)
171

130
(113)
17

–
–
–
24
(45)
21
–

$ (565)

–

(28)

(537)
$ (565)

$ (134)
2
$ (132)

(5)
–
(5)

–
–
–
21
(42)
21
–

$ (433)

–

(26)

(407)
$ (433)

$ (248)
2
$ (246)

(12)
–
(12)

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 loss (gain)
Beneﬁ ts paid
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
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) cost and other

Total

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our pension plans included the following components at May 31, 2010 and 2009 (in millions):

2010
Qualiﬁ ed
Nonqualiﬁ ed

International Plans

Total
2009
Qualiﬁ ed
Nonqualiﬁ ed

International Plans

Total

ABO

PBO

$ 13,311
346
384
$ 14,041

$ 10,113
317
315
$ 10,745

$ 13,635
348
501
$ 14,484

$ 10,328
318
404
$ 11,050

Fair Value of
Plan Assets

$ 13,055
–
240
$ 13,295

$ 10,606
–
206
$ 10,812

Funded
Status

(580)
(348)
(261)
$ (1,189)

278
(318)
(198)
(238)

The table above provides the ABO, PBO, fair value of plan assets and funded status of our plans on an aggregated basis. The follow-
ing table presents our plans on a disaggregated basis to show those plans (as a group) whose assets did not exceed their liabilities.
The increase in plans included in the table in 2010 was driven by the decrease in our discount rate at our May 31, 2010 measurement
date, which increased the number of plans whose assets did not exceed their liability, including our U.S. domestic pension plans
(“U.S. Retirement Plans”). At May 31, 2010 and 2009, the fair value of plan assets for pension plans with a PBO or ABO in excess of
plan assets were as follows (in millions):

PBO Exceeds the Fair Value
of Plan Assets

2010

2009

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.

$ 13,295
(14,484)
$ (1,189)

$ 375
(923)
$ (548)

ABO Exceeds the Fair Value
of Plan Assets

2010

2009

$ (14,014)
$ 13,263
(14,441)
(1,178)
$

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

We made $848 million in tax-deductible contributions, including
$495 million in voluntary contributions, to our U.S. Retirement
Plans during 2010. During 2009, we made $1.1 billion in tax-
deductible voluntary contributions to our U.S. Retirement Plans.
Our U.S. Retirement Plans have ample funds to meet expected
beneﬁ ts. For 2011, we anticipate making required contributions
to our U.S. Retirement Plans totaling approximately $500 million,
a reduction from 2010 due to the use of a portion of our credit
balance.

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

Pension Plans

2010

2009

2008

Postretirement Healthcare Plans
2009

2008

2010

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

$ 417
823
(955)
23
$ 308

499
798
(1,059)
(61)
177

$ 518
720
(985)
70
$ 323

$ 24
30
–
(12)
$ 42

$ 31
33
–
(7)
$ 57

$ 35
31
–
11
$ 77

The increase in pension costs from 2009 to 2010 was due to the negative impact of market conditions on our pension plan assets at our
May 31, 2009 measurement date. 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.

FEDEX CORPORATION

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

Net gain (loss) and other arising during period
Gain 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

$ 1,562
–

$ 986
–

113
(130)
$ 1,545

99
(114)
$ 971

2010

Postretirement
Healthcare Plans
Gross Net of Tax
Amount

Amount

$ 102
–

–
12
$ 114

$ 59
–

–
12
$ 71

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)

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

2010

6.37%
7.68

4.63

4.42
8.00

Pension Plans
2009

7.68%
7.15

4.42

4.49
8.50

2008

6.96%
6.01

4.51

4.47
8.50

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

Postretirement Healthcare Plans
2009

2010

2008

6.11%
7.27

7.27%
7.13

6.81%
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):

2011
2012
2013
2014
2015
2016–2020

Postretirement
Pension Plans Healthcare Plans

$ 475
532
596
663
732
4,988

$ 28
31
32
33
35
209

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 8.5% during 2011, 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
2011, decreasing to an annual growth rate of 4.5% in 2029 and
thereafter. A 1% change in these annual trend rates would not
have a signiﬁ cant impact on the APBO at May 31, 2010 or 2010
beneﬁ t expense because the level of these beneﬁ ts is capped.

NOTE 12: 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 include the following businesses:

FEDEX EXPRESS SEGMENT

FedEx Express

(express transportation)

FedEx Trade Networks

(global trade services)
FedEx SupplyChain Systems

(logistics services)

FEDEX GROUND SEGMENT FedEx Ground

(small-package ground delivery)

FedEx SmartPost

(small-parcel consolidator)

FEDEX FREIGHT SEGMENT

FedEx Freight LTL Group:

FedEx Freight (fast-transit

LTL freight transportation)

FedEx National LTL

(economical LTL freight
transportation)
FedEx Custom Critical

(time-critical transportation)

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)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The operating expenses line item “Intercompany charges” on
the accompanying unaudited ﬁ nancial summaries of our trans-
portation segments in Management’s Discussion and Analysis
of Operations and Financial Condition (“MD&A”) reﬂ ects the
allocations from the FedEx Services segment to the respective
transportation segments. The “Intercompany charges” caption
also includes charges and credits 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. We believe these allocations
approximate the net cost of providing these functions.

Effective August 1, 2009, approximately 3,600 employees (pre-
dominantly from the FedEx Freight segment) were transferred to
entities within the FedEx Services segment. This internal reor-
ganization further centralizes most customer support functions,
such as sales, customer service and information technology, into
our shared services organizations. While the reorganization had
no impact on the net operating results of any of our transporta-
tion segments, the net intercompany charges to our FedEx Freight
segment increased signiﬁ cantly with corresponding decreases to
other expense captions, such as salaries and employee beneﬁ ts.
The impact of this internal reorganization to the expense captions
in our other segments was immaterial.

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 interseg-
ment 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.

FEDEX CORPORATION

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
2010
2009
2008
Depreciation and amortization
2010
2009
2008
Operating income (loss)
2010
2009
2008
Segment assets (4)
2010
2009
2008

FedEx
Express
Segment (1)

$ 21,555
22,364
24,421

$ 1,016
961
944

$ 1,127
794
1,901

$ 14,819
13,483
13,416

FedEx
Ground
Segment

$ 7,439
7,047
6,751

334
337
305

$ 1,024
807
736

$ 4,118
3,291
2,770

FedEx
Freight
Segment (2)

FedEx
Services
Segment (3)

Other and
Eliminations

Consolidated
Total

$ 4,321
4,415
4,934

198
224
227

(153)
(44)
329

$ 2,786
3,044
3,276

$ 1,770
1,977
2,138

$ 408
451
469

–
(810)
(891)

$ 4,079
3,240
4,651

$ (351)
(306)
(291)

2
2
1

–
–
–

$ (900)
1,186
1,520

$ 34,734
35,497
37,953

$ 1,958
1,975
1,946

$ 1,998
747
2,075

$ 24,902
24,244
25,633

(1) FedEx Express segment 2009 operating expenses include a charge of $260 million primarily related to aircraft-related asset impairments.
(2) FedEx Freight segment 2009 operating expenses include a charge of $100 million primarily related to impairment of goodwill related to the Watkins Motor Lines (now known as FedEx National LTL)
acquisition.
(3) FedEx Services segment 2009 operating expenses include a charge of $810 million related to impairment of goodwill related to the Kinko’s (now known as FedEx Ofﬁ ce) acquisition. FedEx Services
segment 2008 operating expenses include a charge of $891 million predominantly related to impairment of 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.
(4) Segment assets include intercompany receivables.

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

2010
2009
2008

FedEx
Express
Segment

$ 1,864
1,348
1,716

FedEx
Ground
Segment

$ 400
636
509

FedEx
Freight
Segment

$ 212
240
266

FedEx
Services
Segment

$ 340
235
455

Other

$ –
–
1

Consolidated
Total

$ 2,816
2,459
2,947

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 13: SUPPLEMENTAL
CASH FLOW INFORMATION

2010

2009

2008

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
FedEx Services segment
Other and eliminations

$ 5,602
1,640
2,589

$ 6,074
1,855
2,789

$ 6,578
2,012
2,995

9,831
7,087
578
17,496

10,718
6,978
565
18,261

11,585
7,666
663
19,914

1,980
1,303
251
3,534
525
21,555
7,439
4,321
1,770
(351)
$ 34,734

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

Geographical Information (3)
Revenues:
U.S.

International:
FedEx Express segment
FedEx Ground segment
FedEx Freight segment
FedEx Services segment

Total international revenue

Noncurrent assets:
U.S.

International

$ 24,852

$ 25,819

$ 27,306

9,547
140
60
135
9,882
$ 34,734

9,363
124
39
152
9,678
$ 35,497

10,298
129
36
184
10,647
$ 37,953

$ 13,343
4,275
$ 17,618

$ 13,560
3,568
$ 17,128

$ 14,920
3,469
$ 18,389

(1) International domestic revenues include our international domestic express operations,
primarily in the United Kingdom, Canada, China, India and Mexico. 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 and, beginning in the second quarter of
2010, FedEx SupplyChain Systems.
(3) 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.

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

2010

2009

2008

Cash payments for:
Interest (net of
capitalized interest)
Income taxes
Income tax refunds received

Cash tax payments, net

88
$
$ 322
(279)
43
$

$ 61
$ 517
(8)
$ 509

$ 105
$ 821
(5)
$ 816

NOTE 14: GUARANTEES AND
INDEMNIFICATIONS

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 $667 million in principal of these bonds (with total future
principal and interest payments of approximately $919 million as
of May 31, 2010) through these leases. Of the $667 million bond
principal guaranteed, $116 million was included in capital lease
obligations in our balance sheet at May 31, 2010. The remaining
$551 million has been accounted for as operating leases.

FEDEX CORPORATION

NOTE 15: COMMITMENTS

NOTE 16: CONTINGENCIES

Annual purchase commitments under various contracts as of
May 31, 2010 were as follows (in millions):

2011
2012
2013
2014
2015
Thereafter

Aircraft (1)

$ 824
839
622
480
493
1,431

Aircraft-
Related (2)

$ 104
10
19
–
–
–

Other (3)

Total

$ 771
166
66
14
12
113

$ 1,699
1,015
707
494
505
1,544

(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. Also, subsequent to May 31, 2010, we
entered into an agreement replacing the previously disclosed non-binding letter of intent with
another party to acquire two additional B777Fs and expect to take delivery of these aircraft in
2011. These aircraft are not included in the table above.
(2) Primarily aircraft modiﬁ cations.
(3) Primarily vehicles, facilities, advertising, promotions contracts and for 2011, a total of $500
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 noncan-
celable commitments to modify such aircraft. 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.

We had $437 million in deposits and progress payments as of
May 31, 2010 (a decrease of $107 million from May 31, 2009) on
aircraft purchases and other planned aircraft-related transac-
tions. These deposits are classiﬁ ed in the “Other assets” caption
of our consolidated balance sheets. In addition to our commit-
ment to purchase B777Fs, our aircraft purchase commitments
include the Boeing 757 (“B757”) in passenger conﬁ guration,
which will require additional costs to modify for cargo trans-
port. Aircraft and aircraft-related contracts are subject to price
escalations. The following table is a summary of the number and
type of aircraft we are committed to purchase as of May 31, 2010,
with the year of expected delivery:

2011
2012
2013
2014
2015
Thereafter
Total

B757

B777F (1)

ATR 72

Total

16
8
–
–
–
–
24

4
5
5
3
3
10
30

8
–
–
–
–
–
8

28
13
5
3
3
10
62

(1) Our obligation to purchase 15 of these 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. Also, subsequent to May 31, 2010, we entered into an agreement replacing the
previously disclosed non-binding letter of intent with another party to acquire two additional
B777Fs and expect to take delivery of these aircraft in 2011. These aircraft are not included in
the table above.

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. The following describes the wage-and-
hour matters that have been certiﬁ ed as class actions.

In February 2008, 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 cation ruling. The certiﬁ ed class ini-
tially included FedEx Ground sort managers and dock service
managers in California from May 10, 2002 to the present, but the
court subsequently approved the dismissal of the sort managers,
leaving only the dock service managers in the class. The plain-
tiffs allege that FedEx Ground has misclassiﬁ ed the managers as
exempt from the overtime requirements of California wage-and-
hour laws and is correspondingly liable for failing to pay them
overtime compensation and provide them with rest and meal
breaks. In April 2010, the court granted our motion to decertify
the class, and thus the lawsuit continues as a non-class matter.
Therefore, any potential loss in this matter is immaterial.

In September 2008, in Tidd v. Adecco USA, Kelly Services and
FedEx Ground, a Massachusetts federal court conditionally cer-
tiﬁ 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 volun-
tarily “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. The court has since granted
judgment in favor of the other two defendants with respect to the
overtime claims. Accordingly, 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 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, 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 asked the U.S. Court of Appeals for the Ninth
Circuit to accept a discretionary appeal of the class certiﬁ cation
order, but the court refused to accept it at this time.

In September 2009, in Taylor v. FedEx Freight, a California state
court granted class certiﬁ cation, certifying a class of all cur-
rent and former drivers employed by FedEx Freight in California
who performed linehaul services since June 2003. The plaintiffs
allege, among other things, that they were forced to work “off the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

have appealed the verdict. The other contractor-model purported
class actions that are not part of the multidistrict litigation are
not as far along procedurally as Anﬁ nson and many of the law-
suits are currently stayed pending further developments in the
multidistrict litigation.

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.

ATA Airlines. ATA Airlines has sued FedEx Express in Indiana
federal court alleging, among other things, that we breached a
contract by not including ATA on our 2009 Civil Reserve Air Fleet
(CRAF)/Air Mobility Command (AMC) team, which provides cargo
and passenger service to the U.S. military. After being advised
that it would not be a part of the 2009 team, ATA ceased opera-
tions and ﬁ led for bankruptcy. ATA has alleged damages of $94
million, including lost proﬁ ts and aircraft acquisition costs. We
have denied any liability and contend that ATA has suffered no
damages. In April 2010, the court granted our motion for par-
tial judgment on the pleadings and dismissed all of ATA’s claims
except for the breach of contract claim. In June 2010, the court
denied our motion for summary judgment on the breach of
contract claim, so that claim is still pending. Trial is currently
scheduled for August 2010, and we still do not believe that any
material 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.

clock” and were not provided with required rest or meal breaks.
In May 2010, we ﬁ led a notice to remove this matter to federal
court in California.

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.
Given the nature and status of these lawsuits, we cannot yet
determine the amount or a reasonable range of potential loss,
if any. However, 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 29 that are certiﬁ ed as class actions),
several individual lawsuits and approximately 40 state tax and
other administrative proceedings that claim that the company’s
owner-operators should be treated as employees, rather than
independent contractors.

Most of the class-action lawsuits 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 more recently ﬁ led cases that have been
or will be transferred to the multidistrict litigation, discovery on
class certiﬁ cation and classiﬁ cation issues is now complete.
Thus far, the court has granted class certiﬁ cation in 28 cases and
denied it in 14 cases. In June 2010, the court dismissed without
prejudice the previously certiﬁ ed nationwide class claim under
the Employee Retirement Income Security Act of 1974 based
on the plaintiff’s failure to exhaust administrative remedies;
this claim had been asserted as part of a Kansas case, and the
judge has not yet issued a summary judgment decision on the
remaining state law claims in that case. Motions for summary
judgment on the classiﬁ cation issue (i.e., independent contractor
vs. employee) are pending in all 28 of the pending multidistrict
litigation cases that are certiﬁ ed as class actions.

In May 2010, in an Illinois case pending in the multidistrict litiga-
tion in which class certiﬁ cation was denied, the court granted
the three named plaintiffs’ motion for summary judgment on their
claim under the Illinois wage law, holding that the three plain-
tiffs were employees under that law. The court has not yet ruled
on the plaintiffs’ motion for summary judgment on any of the
remaining claims in that case. The classiﬁ cation issue is state-
law speciﬁ c and varies from state to state and from law to law
within each state. Accordingly, the court’s ruling in the Illinois
case is not binding authority for any of the remaining claims in
that case or for any of the other cases pending in the multidistrict
litigation.

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

FEDEX CORPORATION

NOTE 17: 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 18: SUMMARY OF QUARTERLY OPERATING RESULTS (UNAUDITED)

(in millions, except per share amounts)
2010
Revenues
Operating income
Net income
Basic earnings per common share
Diluted earnings per common share (2)

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

First
Quarter

$ 8,009
315
181
0.58
0.58

$ 9,970
630
384
1.23
1.23

Second
Quarter

$ 8,596
571
345
1.10
1.10

$ 9,538
784
493
1.59
1.58

Third
Quarter

$ 8,701
416
239
0.76
0.76

$ 8,137
182
97
0.31
0.31

Fourth
Quarter

$ 9,428
696
419
1.34
1.33

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

(1) Operating expenses for the fourth quarter of 2009 include charges 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19: 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 $1.2 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

ASSETS
Current Assets
Cash and cash equivalents
Receivables, less allowances
Spare parts, supplies, 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
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 Long-Term Liabilities
Deferred income taxes
Other liabilities

Total other long-term liabilities

Stockholders’ Investment

Parent

Guarantor
Subsidiaries

May 31, 2010
Non-guarantor
Subsidiaries

Eliminations

Consolidated

$ 1,310
1

5
–
1,316

23
18
5

–
–
13,850
1,527
$ 16,698

250
36
8
47
341
1,000
702

–
844
844
13,811
$ 16,698

$
258
3,425

581
492
4,756

29,193
15,801
13,392

–
1,551
2,619
801
$ 23,119

12
955
1,196
1,488
3,651
668
430

2,253
2,921
5,174
13,196
$ 23,119

$ 443
782

54
37
1,316

2,086
1,098
988

1,132
649
–
99
$ 4,184

–
155
422
180
757
–
–

32
122
154
3,273
$ 4,184

(59)
(45)

–
–
(104)

–
–
–

(1,132)
–
(16,469)
(1,394)
$ (19,099)

–
–
(104)
–
(104)
–
(1,132)

(1,394)
–
(1,394)
(16,469)
$ (19,099)

$ 1,952
4,163

640
529
7,284

31,302
16,917
14,385

–
2,200
–
1,033
$ 24,902

$
262
1,146
1,522
1,715
4,645
1,668
–

891
3,887
4,778
13,811
$ 24,902

CONDENSED CONSOLIDATING BALANCE SHEETS

ASSETS
Current Assets
Cash and cash equivalents
Receivables, less allowances
Spare parts, supplies, 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 Long-Term Liabilities
Deferred income taxes
Other liabilities

Total other long-term liabilities

Stockholders’ Investment

FEDEX CORPORATION

Parent

Guarantor
Subsidiaries

May 31, 2009
Non-guarantor
Subsidiaries

Eliminations

Consolidated

$ 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

(52)
(39)

–
–
(91)

–
–
–

(1,137)
–
(14,102)
–
(855)
$ (16,185)

–
–
(91)
–
(91)

–
(1,137)

(855)
–
(855)

2,648
$ 3,454

(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

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 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

Parent

–

Guarantor
Subsidiaries

$ 29,360

Year Ended May 31, 2010
Non-guarantor
Subsidiaries

Eliminations

Consolidated

$ 5,700

(326)

$ 34,734

91
–
4
1
–
1
–
(202)
105
–

–

1,184
(100)
114
(14)

1,184
–
$ 1,184

12,026
3,424
2,118
1,751
2,946
1,589
–
(109)
3,950
27,695

1,665

161
41
(147)
(18)

1,702
625
$ 1,077

1,910
1,392
240
206
160
125
18
311
1,005
5,367

333

–
(12)
33
(1)

353
85
$ 268

–
(88)
(3)
–
–
–
–
–
(235)
(326)

–

(1,345)
–
–
–

(1,345)
–
$ (1,345)

14,027
4,728
2,359
1,958
3,106
1,715
18
–
4,825
32,736

1,998

–
(71)
–
(33)

1,894
710
$ 1,184

Parent

–

Guarantor
Subsidiaries

$ 29,923

Year Ended May 31, 2009
Non-guarantor
Subsidiaries

Eliminations

Consolidated

$ 5,851

$ (277)

$ 35,497

82
–
4
2
–
1
–
(193)
104
–

–

98
(73)
90
(17)

98
–
98

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

FEDEX CORPORATION

CONDENSED CONSOLIDATING STATEMENTS OF INCOME

Parent

–

Guarantor
Subsidiaries

$ 31,464

Year Ended May 31, 2008
Non-guarantor
Subsidiaries

Eliminations

Consolidated

$ 6,860

(371)

$ 37,953

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

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

$ (450)

Parent

INVESTING ACTIVITIES
Capital expenditures
Proceeds from asset dispositions and other
CASH USED IN INVESTING ACTIVITIES

FINANCING ACTIVITIES
Net transfers from (to) Parent
Payment on loan between subsidiaries

Intercompany dividends
Principal payments on debt
Proceeds from stock issuances
Excess tax beneﬁ t on the exercise of stock options
Dividends paid
Other, net
CASH USED IN FINANCING ACTIVITIES
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

–
–
–

531
–
–
(500)
94
25
(138)
(20)
(8)
–
(458)
1,768
$ 1,310

98
–
4
2
–
1
–
(204)
99
–

–

1,125
(44)
51
(7)

1,125
–
$ 1,125

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

Guarantor
Subsidiaries

$ 2,942

(2,661)
38
(2,623)

(397)
72
158
(153)
–
–
–
(5)
(325)
(8)
(14)
272
258

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

Year Ended May 31, 2010
Non-guarantor
Subsidiaries

Eliminations

Consolidated

$ 653

(7)

$ 3,138

(155)
(3)
(158)

(134)
(72)
(158)
–
–
–
–
5
(359)
3
139
304
$ 443

–
–
–

–
–
–
–
–
–
–
–
–
–
(7)
(52)
$ (59)

(2,816)
35
(2,781)

–
–
–
(653)
94
25
(138)
(20)
(692)
(5)
(340)
2,292
$ 1,952

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

$ (924)

Parent

Guarantor
Subsidiaries

$ 3,156

Year Ended May 31, 2009
Non-guarantor
Subsidiaries

Eliminations

Consolidated

$ 573

$ (52)

$ 2,753

INVESTING ACTIVITIES
Capital expenditures
Proceeds from asset dispositions and other
CASH USED IN INVESTING ACTIVITIES

FINANCING ACTIVITIES
Net transfers from (to) Parent
Payment on loan from Parent
Payment on loan between subsidiaries

Intercompany dividends
Principal payments on debt
Proceeds from debt issuance
Proceeds from stock issuances
Excess tax beneﬁ t on the exercise of stock options
Dividends paid
Other, net
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
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

–
–
–

1,173
17
–
–
(500)
1,000
41
4
(137)
(7)
1,591
–
667
1,101
$ 1,768

Parent

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

(44)

INVESTING ACTIVITIES
Capital expenditures
Collection on (payment of) loan to Parent
Proceeds from asset dispositions and other
CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES

FINANCING ACTIVITIES
Net transfers from (to) Parent
Payment on loans between subsidiaries
Dividend paid (to) from Parent

Intercompany dividends
Principal payments on debt
Proceeds from stock issuances
Excess tax beneﬁ t on the exercise of stock options
Dividends paid
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
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

(1)
(5,971)
–
(5,972)

463
–
5,971
–
(551)
108
38
(124)
5,905
–
(111)
1,212
$ 1,101

(2,248)
69
(2,179)

(1,066)
–
36
165
–
–
–
–
–
–
(865)
(6)
106
166
272

(211)
7
(204)

(107)
(17)
(36)
(165)
(1)
–
–
–
–
–
(326)
(11)
32
272
$ 304

–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
(52)
–
$ (52)

(2,459)
76
(2,383)

–
–
–
–
(501)
1,000
41
4
(137)
(7)
400
(17)
753
1,539
$ 2,292

Guarantor
Subsidiaries

$ 2,889

Year Ended May 31, 2008

Non-guarantor
Subsidiaries

Eliminations

Consolidated

$ 620

$ –

$ 3,465

(2,683)
5,971
34
3,322

(296)
16
(5,971)
165
(85)
–
–
–
(6,171)
2
42
124
166

(263)
–
16
(247)

(167)
(16)
–
(165)
(3)
–
–
–
(351)
17
39
233
$ 272

–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
$ –

(2,947)
–
50
(2,897)

–
–
–
–
(639)
108
38
(124)
(617)
19
(30)
1,569
$ 1,539

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, 2010 and 2009, and the related
consolidated statements of income, changes in stockholders’ investment and comprehensive income, and cash ﬂ ows for each of the
three years in the period ended May 31, 2010. These ﬁ nancial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these ﬁ nancial 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 ﬁ nancial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the ﬁ nancial
statements. An audit also includes assessing the accounting principles used and signiﬁ cant estimates made by management, as well
as evaluating the overall ﬁ nancial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the ﬁ nancial statements referred to above present fairly, in all material respects, the consolidated ﬁ nancial position
of FedEx Corporation at May 31, 2010 and 2009, and the consolidated results of its operations and its cash ﬂ ows for each of the three
years in the period ended May 31, 2010, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 11 to the consolidated ﬁ nancial statements, in 2008 the Company adopted the measurement date provisions
originally issued in Statement of Financial Accounting Standards No. 158, “Employer’s Accounting for Deﬁ ned Beneﬁ t Pension and
Other Post Retirement Beneﬁ t Plans — An Amendment of FASB Statements No. 87, 88, 106 and 132(R),” (codiﬁ ed in FASB Accounting
Standards Codiﬁ cation 715, Compensation — Retirement Beneﬁ ts).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), FedEx
Corporation’s internal control over ﬁ nancial reporting as of May 31, 2010, 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 15, 2010
expressed an unqualiﬁ ed opinion thereon.

Memphis, Tennessee
July 15, 2010

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, 2010. 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.

2010

2009 (1)

2008 (2)

2007 (3)

2006 (4)

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

$ 34,734
1,998
1,894
1,184

$
$

3.78
3.76
312

314
0.44

$ 14,385
24,902
1,668
13,811

$ 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

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

$
$

6.57
6.48
307

311
0.37

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

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

664
245,109

654
247,908

677
254,142

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

(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. See Note 3 to the
accompanying consolidated ﬁ nancial statements. 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 FedEx Ofﬁ ce acquisition. See Note 3 to the accompanying consolidated ﬁ nancial statements. Additionally, results for 2008 and 2007 include several 2007 acquisitions.
(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.
(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.

FEDEX CORPORATION

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

David P. Steiner (1)
Chief Executive Ofﬁ cer
Waste Management, Inc.
Integrated waste management services company

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

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*) (4)
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 OFFICERS 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

Michael L. Ducker
Executive Vice President and Chief Operating Ofﬁ cer
FedEx Express

Manfred Schardt
President and Chief Executive Ofﬁ cer
FedEx Trade Networks

Craig M. Simon
President and Chief Executive Ofﬁ cer
FedEx SupplyChain Systems

David F. Rebholz
President and Chief Executive Ofﬁ cer
FedEx Ground

Henry J. Maier
Executive Vice President
Strategic Planning and Communications

Michael P. Mannion
Executive Vice President and Chief Operating Ofﬁ cer
FedEx Ground

Ward B. Strang
President and Chief Executive Ofﬁ cer
FedEx SmartPost

FEDEX FREIGHT SEGMENT

FEDEX SERVICES SEGMENT

William J. Logue
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

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 27,
2010, 10:00 a.m. local time, FedEx Express World Headquarters,
Auditorium, 3670 Hacks Cross Road, Building G, Memphis,
Tennessee 38125.

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

SHAREOWNERS: As of July 12, 2010, there were 14,926 share-
owners of record.

MARKET INFORMATION: Following are high and low sale prices
and cash dividends paid, by quarter, for FedEx Corporation’s
common stock in 2010 and 2009:

FY 2010
High
Low
Dividend

FY 2009
High
Low
Dividend

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

$ 70.27
49.76
0.11

$ 85.43
68.06
0.11

$ 92.59
75.17
0.11

$ 93.69
71.33
0.11

$ 96.65
53.90
0.11

$ 76.94
42.37
0.11

$ 97.75
78.29
0.11

$ 62.16
34.02
0.11

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 statistical 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.

CUSTOMER SERVICE: Call 1-800-Go-FedEx or visit fedex.com.

MEDIA INQUIRIES: Jess Bunn, Manager, Investor Relations,
FedEx Corporation, 942 South Shady Grove Road, Memphis,
Tennessee 38120, (901) 818-7463, 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.

For more detail on the information in this report,
visit http://www.fedex.com/us/investorrelations

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM:
Ernst & Young LLP, Memphis, Tennessee

Our latest Global Citizenship Report is available
at http://csr.fedex.com

The minimized environmental footprint of this report is the result of an extensive,
collaborative effort between FedEx and EarthColor Inc. Environmental impact was a
main consideration from the inception of the project. This book is printed on Forest
Stewardship Council-certiﬁ ed, responsibly forested paper containing recycled post-
consumer waste ﬁ ber. This book was produced with the highest regard for the planet
and its ecosystems and was printed using 100 percent green renewable wind power
along with sustainable manufacturing principles employed in the printing process.
These practices include socially responsible procurement, lean manufacturing, green
chemistry principles, the recycling of residual materials and inks and coatings with
reduced volatile organic compounds.

Carbon reduction strategies have been used to minimize the carbon emissions.
Our efforts net the following savings:

116 trees preserved for the future

37 million BTUs of energy conserved

5,720 kWh of electricity offset

10,992 pounds of greenhouse gas reduced

52,939 gallons of water waste eliminated

3,214 pounds of solid waste eliminated

Sources: Estimates above were made using the Environmental Defense calculator 2.0
and the U.S. EPA’s power proﬁ ler.

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Fedex expreSS is the world’s largest
express transportation company,
providing time-certain delivery to more
than 220 countries and territories.

Fedex ground provides low-cost,
small-package shipping to businesses
and residences in the United States
and Canada.

Fedex Freight is the leading North
American provider of fast-transit and
economical less-than-truckload (LTL)
freight services.

Fedex ServiCeS supports our
transportation units, while FedEx
Office offers shipping and business
services at nearly 2,000 retail locations
in eight countries.

Fedex CorporAtion
942 South Shady Grove Road
Memphis, Tennessee 38120
fedex.com

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Dear ShareownerS:

You Ain’t Seen nothing Yet.

the Future oF Fuel

AnnuAl report 2010