FedEx Annual Report 2011

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FY2011 Annual Report · FedEx

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Fedex AnnuAl RepoRt 2011

Fedex CoRpoRAtion
942 South Shady Grove Road
Memphis, tennessee 38120
fedex.com

poweRFul, lonG-teRM

tRendS in GlobAl tRAde

Revolve ARound Fedex.

ImagIne

One world and one market.
a rising tide of commerce, connection, confluence.
Today global trade is the world’s largest economy.
Increasing growth, prosperity and well being.
energized by one force at the center of it all—Fedex.
One brand with unique global perspectives.
Dynamic solutions, innovations, people.
The strongest networks in the industry.
This is the defining momentum.
For us and the world.

The global shipping arrow poinTs up

We’ve reached a tipping point in how the world works. The largest economy in the
world is no longer the economy of any one country — it’s the economy of global trade of
goods and services. Value: $18.3 trillion in 2010. At FedEx, our job is to facilitate these
transactions, the heart of commerce, by providing access — moving goods across the
global supply chain.

Macroeconomic trends that drive global trade continue to intensify:
> Production of high-tech and high-value-added goods continues to rise.
> Global sourcing and selling are increasing.
> Supply chains are accelerating.
> E-commerce is expanding.

Manufacturing and emerging markets, including China, India and Brazil, are leading the
charge. Thanks to the disciplined execution of our long-term strategies, FedEx is at the
center of these powerful global trends:

x
5
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2
-
2

%
0
5

%
0
3

x
4

The amount by which
we expect global trade to
outpace projected annual
global GDP growth of
3.3% from 2010 to 2015.

The percentage emerging
markets are expected to
contribute to global
GDP by 2013.1

The percentage of
global GDP represented
by total trade in goods
and services in 2010,
which continues to grow.2

The amount the
international express
market is expected
to grow as part of the
total air cargo market —
from 3.7% in 1991 to
17.7% in 2015.3

1. International Monetary Fund
2. Economic Intelligence Unit
3. 2008-2009 Boeing World Air Cargo Forecast and FedEx Analysis

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leTTer from The Chairman

the largest single region for air freight,
enjoyed a growth rate of 24 percent in 2010.

Because of these trends, FedEx is reaching
a tipping point. We expect higher-margin
revenue from international operations will
approach U.S. domestic revenues at FedEx
Express for the first time in our history.

Our commitment to provide companies of
all sizes with access to new markets in
every corner of the world has never been
stronger. Our strategy, network, people and
commitment will get the job done. FedEx
not only sits at the nexus of global trade —
we are indispensible to global trade.

Committed to superior solutions
The delivery of superior solutions for custom-
ers is our No. 1 focus. With our unmatched
portfolio of solutions that includes FedEx
Express®, FedEx Ground®, FedEx Freight®, and
other FedEx® services such as FedEx Trade
Networks® and FedEx Custom Critical®, we
offer customers plug-and-play flexibility in
deciding when, where and how they do busi-
ness — a big advantage in today’s economy.

During the past fiscal year, we continued
to enhance our solutions and extend our
leadership in all aspects of our business.

FedEx Express strengthened our competitive
advantage by adding larger, more fuel-
efficient 777Fs on international routes
connecting key global markets. Unlike our
competition, the 777Fs fly nonstop from Asia
to the contiguous United States with a full
cargo payload. As a result of our later cutoff
times, many of our customers in China have
more time in their business day. Also, we
completed acquisitions in India and Mexico
to provide customers in those countries
with better service and more access to
global markets.

FedEx Ground increased market share by
offering customers superior solutions, such
as faster service to more locations than any
other ground carrier. The new FedEx Ground

hub in Portland, Ore., is an example of how
we’re using highly automated processes to
sort 3.5 million ground packages a day across
our network. For online retailers and direct
marketers who need a cost-effective option
to ship low-weight packages to residential
customers, FedEx SmartPost® is increasingly
the solution of choice.

We returned FedEx Freight to profitability in
the fourth quarter by aggressively improving
our pricing and successfully integrating and
simplifying our networks and services. We
are reshaping the LTL (less-than-truckload)
industry. FedEx Freight now offers our
customers two levels of service in one
nationwide pickup and delivery network,
a game-changing first for the industry.

Our commitment to customer solutions
includes a planned $4.2 billion in FY12 capital
expenditures. Nearly 60 percent of that will
support growth initiatives. Two billion dollars
is designated for more fuel-efficient aircraft,
such as 777Fs and 757s. These aircraft expen-
ditures are necessary to achieve significant
operating savings over the long run and to
support the long-term international growth
we’re projecting. Capital expenditures are
also planned for network expansion at FedEx
Ground and for vehicles at FedEx Freight. The
company will benefit from the tax-expensing
and accelerated depreciation provisions
included in the Tax Relief Act of 2010.

energized by technology
Technology has also helped accelerate our
momentum by making our customers’ lives
easier. FedEx Office rolled out free Wi-Fi
internet access at our U.S. locations and
FedEx Office® Print & Go for mobile devices,
which helps customers access and print
documents directly from their smartphone or
USB flash drive. Specific to the sophisticated
needs of the growing healthcare industry, we
launched a suite of technology solutions and
organized them on a new, more customer-
friendly website.

To our shareowners,

This is a defining moment for FedEx.

During 2011, an improved economy, robust
customer demand and decisive actions to
grow our business increased volumes and
yields across all FedEx transportation seg-
ments. Revenues reached nearly $40 billion,
a 13 percent year-over-year increase, and
earnings per share grew more than 20 percent
year over year. With our positive momentum,
moderate economic growth and diminishing
cost head winds, we are well-positioned to
achieve stronger earnings in 2012.

We’re reaping the benefits of the strategies
we executed during tougher times. We said
we would position ourselves for success, and
we have.

Driven by trade
Today, we all benefit from a world that’s
more connected than ever. In fact, the largest
economy in the world no longer belongs to
a single country but to the realm of global
trade. It’s driven by emerging markets, such
as China and India, and worldwide gains in
manufacturing. What’s more, with a growing
middle class, these countries are transitioning
from producing nations to consumer nations,
and their domestic markets represent rich
opportunities.

Global trade will continue to be our prime
source of growth, especially in Asia, where
we have the strongest transportation network
in the industry. According to the International
Air Transportation Association, Asia Pacific,

The new FedEx Data Center in Colorado
Springs represents a major milestone in our
commitment to use advanced technologies
to benefit our customers. It not only supports
our plans for growth but also provides an
additional level of data protection. It’s
LEED-certified and is one of the most
energy-efficient data centers in the country.

Dedicated to energy efficiency
At FedEx, our goal is to connect the world in
responsible and resourceful ways. It starts
with reducing our own fuel consumption and
advocating that our nation lessen its depen-
dence on foreign oil. We’re embracing new
energy alternatives and have a head start on
transitioning to alternative power sources.

By 2030, we want to obtain 30 percent of
our jet fuel from alternative fuel sources. We
are working with the FAA, the Department
of Energy and the Commercial Aviation
Alternative Fuel Initiative to develop
certification standards for biofuels. We’re
also collaborating with the U.S. Department
of Agriculture and other agencies.

On the ground, our vision is to help develop
a new short-haul transportation system
powered by electricity. The Electrification
Coalition, of which I’m a member, has
recommended the creation of “electrification
deployment communities” — areas where
incentives would support electrification on a
broad scale. Today we’re testing all-electric
vehicles in the U.S. and Europe. As the cost of
these electric vehicles comes down, we’ll
add more to our fleet.

focused on the future
As we continue to gain ground in the world
marketplace, we will stay focused on three
pillars supporting our reputation.

First, we are committed to growing our
earnings. We exist to serve our customers and
to earn a profit for our shareowners. As we’ve
shown with our most recent earnings results,
we’re on track to achieve the long-term
financial goals to which we’ve adhered for
many years: growing our revenue, achieving
10 percent-plus operating margins, improving
earnings per share 10 percent to 15 percent,
increasing cash flows, and increasing returns
on invested capital.

Second, we intend to improve on our
established reputation as an ethical
company. We’re dedicated to conducting our
business around the world in an honest and
forthright way. It starts with our transparency
in financial reporting, for which we’ve been
recognized consistently.

We will continue do the right things for
our shareowners, our customers, our team
members and the communities we serve. We
leveraged our long-standing relationships with
humanitarian organizations to deliver critical
medical and emergency supplies to Japan
following the recent earthquake and tsunami.
To support these relief efforts, we committed
$1 million in cash and in-kind transportation.
Overall in FY11, FedEx donated nearly
$5 million in in-kind disaster relief shipping.

Finally, we’ll reinforce our reputation as a
great place to work. Nothing inspires more
pride than our team members delivering
the Purple Promise — “I will make every
FedEx experience outstanding.” Because
of their relentless dedication, we’re ranked
among the Top Ten on FORTUNE’s World’s
Most Admired Companies list and on the
Reputation Institute’s list of most admirable
U.S. companies.

That’s why we’re committed to giving our
team members the career opportunities, the
rewards and the recognition they deserve for
doing a great job. Thanks, FedEx team, for
being a powerhouse in the marketplace
and for bringing tremendous momentum
to our business.

We’ve set the stage for success, but at the
same time, we serve a higher purpose —
to provide unique access for individuals,
businesses and markets around the world.
The more individual economies are connected,
the more the world will prosper. That’s why
FedEx is more than a transportation
business. We are in the transformation
business, making a positive difference in
people’s lives every single day.

Frederick W. Smith
Chairman, President and Chief Executive Officer

“we’re reaping
The benefiTs of

The sTraTegies we

exeCuTeD During
Tougher Times.”

MORE > fedex.com/annualreport2011 3

our no. 1 foCus

is Delivering

superior soluTions

for CusTomers.

globalizeD soluTions for a global markeTplaCe

When customers choose FedEx Express®, FedEx Ground®, FedEx Freight®, and other
services such as FedEx Trade Networks®, FedEx Custom Critical® and FedEx Office®,
they’re choosing FedEx — one brand, many solutions. Whether customers are shipping
between Paris and Hong Kong or between Dubai and Detroit, our network solutions allow
them to choose where, when and how they do business. Coming or going. Near or far.

During FY11, we strengthened our position in each transportation service segment —
express, ground and freight. Our momentum is helping customers of every size more
easily access world markets, ultimately creating prosperity and improving the quality
of life for people, businesses and nations.

fedex express:
growing globally

> Several new nonstop
777F routes between
key global markets depart
later in the day than
the competition, giving
customers more time.
U.S. customers can
receive FedEx® shipments
by 10:30 a.m. the next
business day from more
international cities than
any other transportation
company.

> We completed strategic
acquisitions in India and
Mexico that augment our
global network. AFL, Pvt.
Ltd. of India serves 144
cities, which in turn funnel
shipments into our global
network. Our acquisition

fedex ground:
gaining speed

> With faster transit times
in more U.S. traffic lanes
than our competition,
FedEx Ground is also
faster to more residential
locations via FedEx
Home Delivery® service.
More transit-time
improvements are on
the way.

> FedEx Home Delivery
provides convenient
delivery options that
are designed to fit
the lifestyle of busy
customers. Many of
these services aren’t
offered by anyone else
in today’s market.

of Multipack enhances our
domestic and international
solutions in Mexico.

> We’ve opened 38 FedEx
Trade Networks freight
forwarding offices
worldwide since 2008.
That’s in addition to
more than 70 locations
in the U.S. and Canada,
providing customers
with international ocean,
air and freight solutions.

> Cologne is home to
the new FedEx Express
Central and Eastern
European hub. It features
one of the largest
FedEx solar-electric
installations worldwide.

> The growing
e-commerce economy
is driving increased
residential deliveries
via FedEx Home Delivery
and FedEx SmartPost®,
which had 31 percent
revenue growth in FY11.
FedEx SmartPost is an
economical way for e-
tailers to ship low-weight
packages to customers.
By using the United
States Postal Service®
for final delivery, we can
reach every U.S. address,
a competitive advantage
for FedEx.

fedex freight:
reinventing lTl

> “Simple” describes the
new FedEx Freight —
one company, two
choices (priority or
economy). Not only
does FedEx Freight give
customers the options
they’ve been seeking,
we’ve streamlined
our network and are
reshaping the LTL (less-
than-truckload) industry.
No other LTL competitor
provides the same level
of convenience backed by
a money-back guarantee.
This strategy, along
with improved revenue
per shipment, helped
return FedEx Freight to
profitability by the end
of FY11.

> CIO magazine named
FedEx Freight as a
recipient of the 2011
CIO 100 award for
integrating its
businesses and
improving the customer
experience. The award
recognizes FedEx Freight
for operational and
strategic excellence in
information technology
and for creating genuine
business value for
customers.

our no. 1 foCus

is Delivering

superior soluTions

for CusTomers.

fedex services:
enhancing solutions and revenues

> Revenues from packages
tendered at FedEx Office
locations hit record levels
during December 2010.
The new FedEx Office®
Print & Go feature enables
anyone to conveniently
print from a smartphone
or USB flash drive.

> Newly combined
package and freight sales
teams focus on selling
an unmatched portfolio
of express, ground and
LTL solutions.

> Technology solutions
recently designed for
the healthcare industry
include SenseAwareSM.
Placed into a shipment,
the small monitoring
device gauges and
transmits temperature,
light exposure, location
and other information
for quality assurance.

> FedEx® Deep Frozen
Shipping Solution uses
nonhazardous technology
to maintain a temperature
as low as -150 degrees C.
for up to 10 days. It’s
designed for temperature-
sensitive healthcare
products.

fedex healthCare® solutions are on Call

IMagInE

a field engineer
receives an emergency
call to replace a vital
part on a cancer-treating
medical device in a
small Canadian town.
Instead of stocking
parts at its central
warehouse, the company
relies on FedEx Critical
Inventory Logistics®
forward stocking
centers worldwide. a
FedEx center in Toronto
delivers the part the
same day. The medical
device is back on line
and saving lives.

as a patient waits
for a spinal implant, a
Kansas City surgical
team and a spinal
implant company
collaboratively monitor
the implant shipment’s
temperature, light
exposure and location
all the way to the
operating room. a
SenseawareSM device
placed in the implant
shipment is a first-of-
its-kind sensor
information sharing
service.

With no time to spare,
a pharmaceutical
company must send
a shipment of sensitive
therapeutics from
Paris to Hong Kong for
clinical trials. FedEx®
Deep Frozen Shipping
Solution is a secure
end-to-end service that
relies on nonhazardous
technology to maintain
extremely low
temperatures for days.

MORE > fedex.com/annualreport2011 5

we’re making exCellenT
progress TowarD greaTer
fuel effiCienCy anD
implemenTing alTernaTive
sourCes of energy.

we’re CreaTing a more seCure energy fuTure

The business of global trade can be complex, but we’ve kept our goal simple: to connect
the world in responsible and resourceful ways. We believe that our success and the future
of our environment are deeply intertwined.

Following are highlights of how we’re systematically increasing the efficiency of our
aircraft, vehicles and facilities. For a more comprehensive analysis, go to
and view our latest Global Citizenship Update. The report includes more information about
the four areas of our corporate citizenship: people and workplace, economics and access,
environment and efficiency, and community and disaster relief.

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Our progress toward
the goal we set in 2005
to reduce aircraft CO2
emissions intensity
20 percent by 2020.

Adding more 777Fs to
our fleet dramatically
enhances our ability
to move more freight
worldwide while
reducing aircraft
emissions per shipment.

The reduction in fuel
consumption per pound
of payload by replacing
727 aircraft with 757s.

The 777F, which can

fly directly from Asia
to our Memphis hub
without refueling,
allows later cutoff
times for customers
and represents an 18
percent increase in fuel
efficiency compared
with the MD11.

Our hybrid-electric and
all-electric vehicles in
service worldwide. By
the end of FY11, we
increased the fleet by
nearly 20 percent.
The fleet has logged
9.5 million miles of
service — that’s almost
20 trips to the moon and
back. We’ll add close to
4,000 new, fuel-efficient
Sprinters this year.
Each vehicle is at least
100 percent more fuel
efficient than the most
common vehicle
it replaces.

Our progress toward
the goal we set in 2005
to increase vehicle fuel
efficiency 20 percent by

2020. We’ve made

excellent progress each

year and are closing

in on our goal. Early

results for our all-electric

vehicles indicate that

operational and

maintenance costs could

be 70 to 80 percent

lower than those costs

for internal combustion

engines.

The number of facilities
that generate solar
energy onsite worldwide.
These facilities increase
our energy efficiency and
reduce CO2 emissions
by an estimated 3,918
metric tons per year.
We’ve also installed a
Bloom Energy ServerSM
in our Oakland Facility,
complementing our
existing solar array
there. The solid oxide
fuel cell technology
provides a cleaner, more
reliable and affordable
alternative to the
electric grid.

The number of FedEx
facilities that are ISO
14001-certified. This
international standard
specifies a process
for controlling and
improving an organiza-
tion’s environmental
performance. This year
we received Leadership
in Energy and Environ-
mental Design (LEED)
certification for our
first environmentally
sustainable data center

in Colorado Springs

and our FedEx World

Headquarters in Memphis.

MORE > fedex.com/annualreport2011 7

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FINANCIAL HIGHLIGHTS

(in millions, except earnings per share)
Operating Results
Revenues

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REVENUE (in billions)

Operating income

OPERATING MARGIN

Operating margin

Net income

Diluted earnings per share
Average common and common

equivalent shares

Capital expenditures

Financial Position
Cash and cash equivalents

Total assets

1,452

4.57

317

3,434

1,184

3.76

314

2,816

2,328

27,385

$ 1,952

24,902

Long-term debt, including current portion

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Common stockholders’ investment

15,220

13,811

Comparison of Five-Year Cumlative Total Return
Comparison of five-year Cumulative Total return*

2011 (1)

2010

percent Change

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DILUTED EARNINGS
PER SHARE

2,378

6.1%

1,998

RETURN ON AVERAGE
EQUITY

5.8%

30bp

DEBT TO TOTAL
CAPITALIZATION

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STOCK PRICE
(May 31 close)

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REVENUE (in billions)

OPERATING MARGIN

DILUTED EARNINGS
PER SHARE

RETURN ON AVERAGE

EQUITY

DEBT TO TOTAL

CAPITALIZATION

STOCK PRICE

(May 31 close)

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7
0
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2

9
0
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0
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9
0
0
2

REVENUE (in billions)

7
0
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REVENUE (in billions)

OPERATING MARGIN

DILUTED EARNINGS
PER SHARE

RETURN ON AVERAGE
EQUITY

DEBT TO TOTAL
CAPITALIZATION

Comparison of Five-Year Cumlative Total Return

STOCK PRICE

(May 31 close)

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5/06 5/07 5/08 5/09 5/10 5/11

FedEx Corporation

fedex Corporation

S&P 500

s&p 500

Dow Jones Transportaion Average

Dow Jones u.s. 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
*$100 invested on 5/31/06 in stock or index, including reinvestment of dividends. Fiscal year ending May 31.

related to impairment charges associated with goodwill and aircraft.

(1) Results for 2011 include charges of approximately $199 million ($104 million, net of tax and applicable variable
(2) Results for 2008 include a charge of $891 million ($696 million, net of tax, or $2.23 per diluted share)
incentive compensation impacts, or $0.33 per diluted share) for the combination of our FedEx Freight and
predominately related to impairment charges associated with intangible assets from the FedEx Ofﬁce
FedEx National LTL operations and a reserve associated with a legal matter at FedEx Express.
acquisition.

)
2
(

)
1
(

)
2
(

)
3
(

)
2
(

)
1
(

)
2
(

)
3
(

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2
(

)
1
(

)
2
(

)
3
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7
0
0
2

9
0
0
2

8
0
0
2

1
1
0
2

9
0
0
2

7
0
0
2

8
0
0
2

1
1
0
2

0
1
0
2

(2) Results for 2009 include a charge of $1.2 billion ($1.1 billion, net of tax, or $3.45 per diluted share) primarily for
(3) Shows the value, at the end of each of the last ﬁve ﬁscal years, of $100 invested in FedEx Corporation common
impairment charges associated with goodwill and aircraft.
stock or the relevant index on May 31, 2005, and assumes reinvestment of dividends. Fiscal year ended May 31.
DILUTED EARNINGS
DILUTED EARNINGS
RETURN ON AVERAGE
(3) Results for 2008 include a charge of $891 million ($696 million, net of tax, or $2.23 per diluted share) recorded
PER SHARE
PER SHARE
EQUITY
during the fourth quarter, predominantly for impairment charges associated with intangible assets from the
FedEx Office acquisition.

OPERATING MARGIN

1
1
0
2

0
1
0
2

1
1
0
2

0
1
0
2

1
1
0
2

0
1
0
2

9
0
0
2

8
0
0
2

7
0
0
2

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9
0
0
2

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0
0
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1
(

1
1
0
2

0
1
0
2

$140

Comparison of Five-Year Cumlative Total Return

$50
Comparison of Five-Year Cumlative Total Return
$40

RETURN ON AVERAGE
EQUITY

DEBT TO TOTAL
CAPITALIZATION

7
0
0
2

8
0
0
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7
0
0
2

8
0
0
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0
0
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0
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STOCK PRICE
(May 31 close)

$50

$40

5/06 5/07 5/08 5/09 5/10 5/11

FedEx Corporation

S&P 500

Dow Jones Transportaion 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

(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)

(2) Results for 2008 include a charge of $891 million ($696 million, net of tax, or $2.23 per diluted share)

related to impairment charges associated with goodwill and aircraft.

predominately related to impairment charges associated with intangible assets from the FedEx Ofﬁce

acquisition.

(3) Shows the value, at the end of each of the last ﬁve ﬁscal years, of $100 invested in FedEx Corporation common

stock or the relevant index on May 31, 2005, and assumes reinvestment of dividends. Fiscal year ended May 31.

Comparison of Five-Year Cumlative Total Return

$40

5/06 5/07 5/08 5/09 5/10 5/11

FedEx Corporation

S&P 500

Dow Jones Transportaion 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 Ofﬁce

acquisition.

(3) Shows the value, at the end of each of the last ﬁve ﬁscal years, of $100 invested in FedEx Corporation common

stock or the relevant index on May 31, 2005, and assumes reinvestment of dividends. Fiscal year ended May 31.

$130

$120

$110

$100

$90

$80

$70

$60

$50

$140

$130

$120

$110

$100

$90

$80

$70

$60

$50

$40

5/06 5/07 5/08 5/09 5/10 5/11

FedEx Corporation

S&P 500

Dow Jones Transportaion 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 Ofﬁce

acquisition.

(3) Shows the value, at the end of each of the last ﬁve ﬁscal years, of $100 invested in FedEx Corporation common

stock or the relevant index on May 31, 2005, and assumes reinvestment of dividends. Fiscal year ended May 31.

OVERVIEW OF FINANCIAL SECTION

The financial 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 significant accounting
policies, practices and the transactions that underlie our financial
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 financial 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 composed of three major sections: Results of
Operations, Financial Condition and Critical Accounting Estimates.
These sections include the following information:

> Results of Operations includes an overview of our consolidated 2011
results compared to 2010, and 2010 results compared to 2009. This
section also includes a discussion of key actions and events that
impacted our results, as well as our outlook for 2012.

> The overview is followed by a financial summary and analysis
(including a discussion of both historical operating results and our
outlook for 2012) for each of our reportable transportation segments.

> Our financial condition is reviewed through an analysis of key
elements of our liquidity, capital resources and contractual cash
obligations, including a discussion of our cash flows and our financial
commitments.

> We conclude with a discussion of the critical accounting estimates
that we believe are important to understanding certain of the
material judgments and assumptions incorporated in our reported
financial results.

description of Business
We provide a broad portfolio of transportation, e–commerce and
business services through companies competing collectively, operat-
ing independently and managed collaboratively, under the respected
FedEx brand. Our primary operating companies are Federal Express
Corporation (“FedEx Express”), the world’s largest express transporta-
tion company; FedEx Ground Package System, Inc. (“FedEx Ground”),
a leading provider of small–package ground delivery services; and
FedEx Freight, Inc. (“FedEx Freight”), a leading U.S. provider of less–
than–truckload (“LTL”) freight services. These companies represent
our major service lines and, along with FedEx Corporate Services, Inc.
(“FedEx Services”), form the core of our reportable segments. Our
FedEx Services segment provides sales, marketing and information
technology support to our transportation segments. In addition, the
FedEx Services segment provides customers with retail access to

ManageMent’s discussion and analysis of
results of operations and financial condition

FedEx Express and FedEx Ground shipping services through FedEx
Office and Print Services, Inc. (“FedEx Office”) and provides customer
service, technical support and billing and collection services through
FedEx TechConnect, Inc. (“FedEx TechConnect”). See “Reportable
Segments” for further discussion.

The key indicators necessary to understand our operating results
include:

> the overall customer demand for our various services;

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

> the mix of services purchased by our customers;

> the prices we obtain for our services, primarily measured by yield
(revenue per package or pound or revenue per hundredweight for
LTL freight shipments);

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

> the timing and amount of fluctuations in fuel prices and our ability to
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 operating
expenses to fluctuate on a year–over–year basis consistent with the
change in revenues and volumes. Therefore, the discussion of operat-
ing expense captions focuses on the key drivers and trends impacting
expenses other than changes in revenues and volume.

Except as otherwise specified, references to years indicate our fiscal
year ended May 31, 2011 or ended May 31 of the year referenced and
comparisons are to the prior year. References to our transportation
segments include, collectively, our FedEx Express, FedEx Ground and
FedEx Freight segments.

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

2011(1)

2010

2009(2)

2011/2010

2010/2009

percent change

$ 39,304

$ 34,734

$ 35,497

2,378

6.1%

$ 1,452

$ 4.57

1,998

5.8%

$ 1,184

$ 3.76

747

2.1%

$ 98

$ 0.31

30 bp

(2)

167

370 bp

(1) Operating expenses include $133 million in costs associated with the combination of our FedEx Freight and FedEx National LTL operations, effective January 30, 2011, and a $66 million legal

reserve associated with the ATA Airlines lawsuit against FedEx Express.

(2) Operating expenses include charges of $1.2 billion ($1.1 billion, net of tax, or $3.45 per diluted share), primarily for impairment charges associated with goodwill and aircraft (described below).

The following table shows changes in revenues and operating income by reportable segment for 2011 compared to 2010, and 2010 compared to
2009 (dollars in millions):

revenues

operating income

dollar change

percent change

dollar change

percent change

2011/2010

2010/2009

2011/2010

2010/2009

2011/2010

2010/2009

2011/2010

2010/2009

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

$ 3,026

1,046

590

(86)

(6)

$ (809)

392

(94)

(207)

(45)

$ 4,570

$ (763)

(5)

(4)

(2)

(10)

(2 )

$ 101

$ 333

301

(22)

–

217

(109)

810

–

$ 380

$ 1,251

(14)

–

(248)

100

–

167

(1) FedEx Express segment 2011 operating expenses include a $66 million legal reserve associated with the ATA Airlines lawsuit, and 2009 operating expenses include a charge of $260 million,

primarily for aircraft–related asset impairments.

(2) FedEx Freight segment 2011 operating expenses include $133 million in costs associated with the combination of our FedEx Freight and FedEx National LTL operations, effective January 30,

2011, and 2009 operating expenses include a charge of $100 million, primarily for 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 for impairment charges associated with goodwill related to the FedEx Office acquisition.

ManageMent’s discussion and analysis

Other program costs include $15 million in 2011 of accelerated
depreciation expense due to a change in the estimated useful life of
certain assets impacted by the combination of these operations and
other incremental costs directly associated with the program. The net
cash effect of the program was immaterial, as cash proceeds from
asset sales of $88 million offset severance and other cash outlays for
the program.

In 2010, our results reflected the impact of the global recession, which
negatively impacted volumes and yields, principally in the first half of
the fiscal year. As the global and U.S. economies began to emerge
from recession in the second half of 2010, we experienced significant
volume growth across all of our transportation segments. Our FedEx
Ground segment continued 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 difficult year, resulting in an
operating loss caused by the highly competitive pricing environment in
the LTL market due to excess industry capacity.

overview
Our results for 2011 reflect the momentum of improved global eco-
nomic conditions and strong demand for our services, which drove
yield growth and volume increases across all our transportation
segments during 2011, particularly in FedEx International Priority (“IP”)
package shipments at FedEx Express. Our FedEx Ground segment
continued its exceptional performance, increasing volume, yield and
operating margins. The FedEx Freight segment returned to profit-
ability in the fourth quarter of 2011 primarily due to higher LTL yield.
All of our transportation segments benefited from our yield manage-
ment initiatives in 2011. Despite the strength in our businesses and
significantly improved results, we incurred increased retirement plans
and medical costs, higher aircraft maintenance expenses, higher costs
associated with the restoration of compensation programs curtailed
during the recession and one–time costs associated with the combina-
tion of our LTL operations (described below) during 2011.

The combination of our FedEx Freight and FedEx National LTL opera-
tions was completed on January 30, 2011. Our combined LTL network
will increase efficiencies, reduce operational costs and provide
customers both Priority and Economy LTL freight services across
all lengths of haul from one integrated company. The combination
resulted in the following incremental costs and charges which were
incurred primarily in the second and third quarters of 2011 (in millions):

Severance

Lease terminations

Asset impairments

Impairment and other charges

Other program costs

Total program costs

2011

$ 40

$ 133

ManageMent’s discussion and analysis

FedEx Express
FedEx Express
Average Daily Package Volume
Average Daily Package Volume

3,700

FedEx Express
Average Daily Package Volume

FedEx Ground(1)
FedEx Ground(1)
Average Daily Package Volume
Average Daily Package Volume

3,900

FedEx Ground(1)
Average Daily Package Volume

The following graphs for FedEx Express, FedEx Ground and FedEx Freight show selected volume trends (in thousands) for the years ended May 31:
3,600
3,700

3,900
3,607
3,800

3,700
3,900
3,600
3,800
3,500
3,700
3,400
3,900
3,600
3,300
3,800
3,500
2011
3,200
3,700
3,400
3,600
3,300
3,500
3,200
3,400

3,900

3,746

FedEx Ground(1)
Average Daily Package Volume

FedEx Ground(1)
3,800
3,746
3,800
Average Daily Package Volume
3,700
3,700
3,900
FedEx Ground(1)
3,600
FedEx Ground(1)
3,523
3,523
3,800
3,746
Average Daily Package Volume
Average Daily Package Volume
3,500
3,365
3,700
3,365
3,365
3,400
3,900
3,600
3,300
3,800
3,500
3,200
3,365
3,700
2008
3,400

3,300
3,746
3,200

3,404
2009

3,365
2008

3,746
3,500

3,400

3,600

3,404

3,523

3,404

2011

2010

2008
2011

3,746

3,523

3,404

2009

2010

2011

3,600
3,300

3,500
3,200
2008
3,365
3,400

3,523

3,404
2009

2008
3,365

3,404
2009

2010

2011

2010

2011

3,300

FedEx Freight
FedEx Freight
3,200
2010
2008
Average Daily LTL Shipments
2008
2010
2009
Average Daily LTL Shipments

2011

2009

FedEx Freight
Average Daily LTL Shipments
2011

FedEx Freight
FedEx Freight
90.0
Average Daily LTL Shipments
Average Daily LTL Shipments

86.0

85.0

90.0

82.3
82.3
FedEx Freight
FedEx Freight
79.7
Average Daily LTL Shipments
Average Daily LTL Shipments
80.0
85.0

80.0
86.0

79.7

86.0

82.3

74.4

79.7

74.4

82.3

74.4

75.0

86.0
70.0

74.4
2009

2008

79.7

82.3
2010

74.4
2009

82.3
2010

2011

86.0

2008
2011

2009

2010

2011

3,479

3,376

2009

2010

3,300
FedEx Express and FedEx Ground(1)
3,200
Total Average Daily Package Volume

7,002

6,780

2009

2010

90.0

7,353

85.0
90.0

80.0
85.0

90.0
75.0
80.0

85.0
2011
70.0
75.0

80.0

70.0

75.0

3,700

FedEx Express
Average Daily Package Volume

FedEx Express
Average Daily Package Volume
3,607
3,600
3,600
3,536
3,700

3,536
FedEx Express
FedEx Express
3,479
3,479
3,500
3,607
Average Daily Package Volume
Average Daily Package Volume
3,600
3,536
3,536
3,700
3,400
3,500

3,500
3,607

3,376

3,479

3,400

3,479

3,376

3,607
3,536

2009
3,376

2008
3,536

2010

2009
3,376

2011

2010

3,479

3,607
3,300

3,607
2008
2011

2008

2009
3,376

2010

2009
3,376

2011

2010

2011

3,600
3,300
2008
3,536
3,400

3,500

3,300
2008

3,400

2010

2009

3,300
2008

FedEx Express and FedEx Ground(1)
2008
2011
Total Average Daily Package Volume

FedEx Express and FedEx Ground(1)
2011
Total Average Daily Package Volume
7,600
FedEx Express and FedEx Ground(1)
Total Average Daily Package Volume
7,400
7,353

FedEx Express and FedEx Ground(1)
Total Average Daily Package Volume
7,353

7,600

2010

7,400

7,600
7,200

7,200
FedEx Express and FedEx Ground(1)
Total Average Daily Package Volume
7,353
7,000

FedEx Express and FedEx Ground(1)
Total Average Daily Package Volume
7,353
6,901

7,002

6,901

6,780

6,901
2008

2009
6,780

6,780

7,002

2010

2009
6,780

6,800

7,002

7,353
6,600

2011

2010

7,002

7,353
2008
2011

6,901
2008

2009
6,780

2010

2009
6,780

2011

2010

2011

2009

2010
2010
2008
FedEx Express
FedEx Express
Revenue per Package – Yield
Revenue per Package – Yield

2009

2011

$23.00

FedEx Express
FedEx Express
Revenue per Package – Yield
$22.08
Revenue per Package – Yield

$22.00

$22.08

$21.30

$21.30
FedEx Express
FedEx Express
$22.08
$21.00
Revenue per Package – Yield
Revenue per Package – Yield
$22.00
$21.30

$21.25
$21.00

$22.08

$21.25
$20.00

$21.30

$19.72

$21.25

3,700

3,500
3,600

3,700
3,400
3,500

3,600
3,300
3,400

3,500

3,300

3,400

3,300

7,600

7,400

7,600
7,200

7,400
7,000

7,600
7,200
6,800

7,400
7,000
6,600

7,200
6,800

7,000
6,600

6,800

$23.00

$22.00
$23.00

$21.00
$22.00

$23.00
$20.00
$21.00

$22.00
$19.00
$20.00

$21.00

$19.00

$20.00

$21.00
$19.00

$20.00

$21.00
$19.00

$20.00
$18.00

$21.00
$19.00
$17.00

$20.00
$18.00
$16.00

7,400
7,000
6,901

7,600
7,200
6,800

7,400
7,000
6,901
6,600
2008
7,200
6,800

6,901
7,000
6,600
2008

6,800

6,600
2008

$23.00

$22.08

$22.00
$23.00

$23.00
$20.00
$21.00
$22.08

$22.00
$19.00
2008
$20.00

$21.00

$19.00
2008

$21.00

$21.00
$19.00

$21.00
$19.00
$17.00
$19.65
$20.00
$18.00
$16.00
2008
$19.00
$17.00

$21.30

$19.72

$22.08

$19.00

2009
$21.30

2008

$19.72
2010

2009
$21.30

$19.72
2010

2011
$21.25

2008
2011
$21.25

2009

2010

The following graphs for FedEx Express, FedEx Ground and FedEx Freight show selected yield trends for the years ended May 31:
6,600

70.0

2011

FedEx Express
Revenue per Package – Yield

FedEx Ground (1)
Revenue per Package – Yield

2008

2009
74.4

2010

2009
74.4

2011

2010

2011

2010

2009
2009
2008
FedEx Ground (1)
FedEx Ground (1)
Revenue per Package – Yield
Revenue per Package – Yield

2010

2011

$8.50

FedEx Ground (1)
FedEx Ground (1)
$8.25
$8.17
Revenue per Package – Yield
Revenue per Package – Yield

$8.17

$8.00
FedEx Ground (1)
FedEx Ground (1)
$8.17
$7.70
$7.73
$7.75
Revenue per Package – Yield
Revenue per Package – Yield

$7.70

$7.73

$8.17

$7.48

$7.70

$7.73

$7.70

2009

$7.48
2008

2010

2009

$7.50

$7.73

$8.17
$7.25

2011

2010

$8.17
2008
2011

$7.70

$7.73

$7.70

$7.73

$8.50

$8.25
$21.25
$8.50
$8.00

$8.25
$7.75

$8.50
$8.00
$7.50

$8.25
$7.75
2011
$7.25

$8.00
$7.50

$7.50
$3.75

$8.17

$3.25

$2.66

$7.70

$7.73

2009

2010

2011

$3.04

$2.62

$2.69

$2.15

2009

2010

2011

FedEx Freight
2010
2011
2009
FedEx Freight
2009
$19.72
LTL Revenue per Hundredweight – Yield
LTL Revenue per Hundredweight – Yield

2010
$19.72

$20.00

2008

$21.00

FedEx Freight
LTL Revenue per Hundredweight – Yield

$7.75
$7.25

2011

2009

2008
$7.48

$7.75
$7.25
2008
2010
$7.48
Average Fuel Cost per Gallon
$7.50
$3.75

Average Fuel Cost per Gallon

$3.75

2011

2010

2009

Average Fuel Cost per Gallon

2011

FedEx Freight
FedEx Freight
2011
2009
$20.00
2009
2010
LTL Revenue per Hundredweight – Yield
LTL Revenue per Hundredweight – Yield

$19.00
2008
$19.65
$20.00

2008
$19.65

$19.65
2011

2010

$19.07

$19.00

FedEx Freight
LTL Revenue per Hundredweight – Yield

$19.65
$20.00
$18.00

$18.24
$18.00

$18.24

$19.07

$19.65

$19.07

$17.07

$17.00
$18.24

$19.65

$16.00

$19.07
2009

2008

$17.07
2010

$19.07
2009

$17.07
2010

2011

$19.00
$17.00
(1) Package statistics do not include the operations of FedEx SmartPost.

$18.24

2009

2008

2009

2010
$17.07

2011

2010
$17.07

$18.24

2008
2011

$18.24

2011

$18.00
$16.00

12
$17.00

$16.00

$18.00
$16.00
2008

$17.00

$16.00
2008

$19.07

$17.07

2009

2010

$7.25

$3.25
$3.75

$18.24
$2.75
$3.25

$3.75
$2.25
$2.75

$3.25
$1.75
2011
$2.25

$2.75

$1.75

$2.25

$1.75

$7.25
$3.31
2008

2009

Average Fuel Cost per Gallon
2010

2010
$3.31
Average Fuel Cost per Gallon
2008
$3.04

$3.25
$3.75
$2.77
$3.31
$2.69
$2.75
Average Fuel Cost per Gallon
$3.25

$2.62
Average Fuel Cost per Gallon
$3.04

$2.75
$2.66
$3.25

$2.77
$3.31

2011
$3.25
$3.25

$2.69

$2.62

$3.04

$3.31

2011
$3.25

$2.77

$2.66
$3.25

$2.77

$3.31

$2.62

2008
$2.77

$3.04
2009

$2.62

2009

2008

$2.15
$2.69

$2.62

$3.04
2009

2010
$2.15

$2.69

$2.62

2009

2010
$2.15

$2.25

$2.15
$2.69

$2.66
$3.25
$1.75

2011

2010
$2.15

$2.66

$2.69

2011

2010
$2.15

$2.66
$3.25
2008
2011

$2.66

2011

2009

2008

2010

2009

2011

2010

2011

2009

2008

2010

2009

2011

2010

2011

85.0
90.0
79.7

90.0
75.0
79.7
80.0

85.0
70.0
2008
75.0
79.7

80.0

70.0
2008

75.0

70.0
2008

$8.50

$8.25

$8.50
$8.00

$8.25
$7.75
$7.48
$8.50
$8.00
$7.50

$8.25
$7.75
$7.25
$7.48
2008

$8.00
$7.50

$3.75
$2.77
$2.25
$2.75
$3.31

$3.25
$1.75
2008
$2.25
$2.77

$2.75

$1.75
2008

$2.25

$1.75
2008

ManageMent’s discussion and analysis

revenue
Revenues increased 13% during 2011 due to yield increases and vol-
ume growth across all our transportation segments. Yields improved
due to higher fuel surcharges and increased base rates under our yield
improvement programs, including our dimensional pricing changes
for package shipments effective January 1, 2011. At FedEx Express,
revenues increased 14% in 2011 led by IP volume growth in Asia, as
well as domestic and IP package yield increases. At the FedEx Ground
segment, revenues increased 14% in 2011 due to continued volume
growth driven by market share gains and yield growth at both FedEx
Ground and FedEx SmartPost. At FedEx Freight, yield increases due to
our yield management programs and higher LTL fuel surcharges, and
higher average daily LTL volumes led to a 14% increase in revenues
in 2011.

Revenues decreased 2% during 2010 primarily due to yield decreases
at FedEx Express and FedEx Freight as a result of lower fuel sur-
charges and a continued competitive pricing environment for our
services. Increased volumes at all of our transportation segments due
to improved economic conditions in the second half of the fiscal year
partially offset the yield decreases in 2010. At FedEx Express, IP pack-
age 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 volumes at FedEx Ground and a 48%
increase in volumes at FedEx SmartPost during 2010. At FedEx Freight,
discounted pricing drove an increase in average daily LTL freight ship-
ments, but also resulted in significant yield declines during 2010.

impairment and other charges
In 2011, we incurred impairment and other charges of $89 million
related to the combination of our LTL operations at FedEx Freight (see
“Overview” above for additional information). In 2010, we recorded
a charge of $18 million for the impairment of goodwill related to the
FedEx National LTL acquisition, eliminating the remaining goodwill
attributable to this reporting unit. Our operating 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 for the
impairment of goodwill related to the FedEx Office 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 Office’s and FedEx National LTL’s actual and forecasted
financial performance as a result of weak economic conditions. The
FedEx National LTL 2010 and 2009 goodwill impairment charges were
included in the results of the FedEx Freight segment. The FedEx Office
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, 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–efficient aircraft.

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:

Operating expenses:

Salaries and employee benefits

$ 15,276

$ 14,027

$ 13,767

2011

2010

2009

Purchased transportation

Rentals and landing fees

Depreciation and amortization

Fuel

Maintenance and repairs

Impairment and other charges

5,674

2,462

1,973

4,151

1,979

89 (1)

4,728

2,359

1,958

3,106

1,715

Other

5,322 (3)

4,825

4,534

2,429

1,975

3,811

1,898

1,204(2)

5,132

Total operating expenses

$ 36,926

$ 32,736

$ 34,750

(1) Represents charges associated with the combination of our FedEx Freight and FedEx

National LTL operations, effective January 30, 2011.

(2) Includes charges of $1.2 billion ($1.1 billion, net of tax, or $3.45 per diluted share), primarily

for impairment charges associated with goodwill and aircraft (described above).

(3) Includes a $66 million legal reserve associated with the ATA Airlines lawsuit against FedEx

Express.

Operating expenses:

Salaries and employee benefits

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

2011

2010

2009

38.9 %

14.4

40.4 %

13.6

38.8 %

12.8

6.3

5.0

10.6

5.0

0.2

13.5

93.9

6.8

5.6

8.9

4.9

0.1

13.9

94.2

6.8

5.6

10.7

5.3

3.4

14.5

97.9

6.1%

5.8 %

2.1 %

In 2011, operating income increased 19% primarily due to yield and
volume increases across all our transportation segments. Higher
compensation and benefits, including retirement plans and medi-
cal costs, and increased maintenance and repairs expenses had a
negative impact on our performance for 2011. Costs related to the
combination of our FedEx Freight and FedEx National LTL operations
also negatively impacted our 2011 results by $133 million. Unusually
severe weather in the second half of 2011 caused widespread disrup-
tions to our networks, which led to lost revenues and drove higher
purchased transportation, salaries and wages and other operational
costs. Additionally, a $66 million reserve associated with an adverse
jury decision in the ATA Airlines lawsuit against FedEx Express was
recognized in 2011.

FedEx Express

Average Daily Package Volume

3,536

3,479

3,376

3,607

7,353

7,002

6,901

6,780

2008

2009

2010

2011

FedEx Express

Revenue per Package – Yield

$22.08

$21.30

$21.25

$19.72

2008

2009

2010

2011

FedEx Freight

LTL Revenue per Hundredweight – Yield

$20.00

$19.65

$19.07

$18.24

$17.07

2008

2009

2010

2011

3,700

3,600

3,500

3,400

3,300

7,600

7,400

7,200

7,000

6,800

6,600

$23.00

$22.00

$21.00

$20.00

$19.00

$21.00

$19.00

$18.00

$17.00

$16.00

2008

2009

2010

2011

2008

2009

2010

2011

FedEx Express and FedEx Ground(1)

Total Average Daily Package Volume

FedEx Freight

Average Daily LTL Shipments

FedEx Ground(1)

Average Daily Package Volume

3,746

3,523

3,365

3,404

86.0

82.3

79.7

74.4

2008

2009

2010

2011

3,900

3,800

3,700

3,600

3,500

3,400

3,300

3,200

90.0

85.0

80.0

75.0

70.0

ManageMent’s discussion and analysis

$8.50

$8.25

Salaries and employee benefits increased 9% in 2011 due to the rein-
statement of merit salary increases, increases in pension and medical
FedEx Ground (1)
costs and the reinstatement of full 401(k) company–matching contribu-
Revenue per Package – Yield
tions effective January 1, 2011. Purchased transportation increased
20% in 2011 due to volume growth, higher fuel surcharges and higher
rates paid to our independent contractors at FedEx Ground, as well as
costs associated with the expansion of our freight forwarding business
at FedEx Trade Networks. Maintenance and repairs expense increased
15% in 2011 primarily due to an increase in maintenance events, as a
result of timing, and higher utilization of our fleet driven by increased
volumes. Other operating expense increased 10% primarily due to
volume– and weather–related expenses.
2010

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

$8.17

$7.73

$7.70

$7.48

$7.25

$7.50

$7.75

$8.00

2008

2009

2011

$3.75

$3.25

$2.75

$2.25

$1.75

Average Fuel Cost per Gallon

$3.31

$2.77

$3.04

$2.62

2008

2009

Vehicle

$2.69

$2.15

2010

Jet

$3.25

$2.66

2011

Fuel expense increased 34% during 2011 primarily due to increases
in the average price per gallon of fuel and fuel consumption driven
by volume increases. 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 positive impact on operating
income in 2011, predominantly at FedEx Express.

Our analysis considers the estimated impact of the reduction in fuel
surcharges included in the base rates charged for FedEx Express and
FedEx Ground services. However, this analysis does not consider the
negative effects that fuel surcharge levels may have on our business,
including reduced demand and shifts by our customers to lower–
yielding services. While fluctuations in fuel surcharge rates can be
significant from period to period, fuel surcharges represent one of the
many individual components of our pricing structure that impact our
overall revenue and yield. Additional components include the mix of
services sold, the base price and extra service charges we obtain for
these services and the level of pricing discounts offered. 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 2011, 2010 and 2009 in the accompanying
discussions of each of our transportation segments.

Operating income and operating margin increased in 2010 primar-
ily as a result of the inclusion in 2009 of the impairment and other
charges described above. Volume increases at our package businesses,
particularly in higher–margin IP package and freight services at FedEx

Express, also benefited our 2010 results. Additionally, we benefited
in 2010 from several actions implemented in 2009 to lower our cost
structure, including reducing base salaries, optimizing our networks by
adjusting routes and equipment types, permanently and temporarily
idling certain equipment and consolidating facilities; however, these
benefits 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 constrained the earnings increase.

Maintenance and repairs expense decreased 10% in 2010 primarily
due to the timing of maintenance events. Other operating expense
decreased 6% in 2010 due to actions to control spending and the inclu-
sion 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.

Fuel expense decreased 18% during 2010 primarily due to decreases
in the average price per gallon of fuel and fuel consumption, as we
lowered flight hours and improved route efficiencies. 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
significant negative impact to operating income in 2010.

other income and expense
Interest expense increased $7 million during 2011 primarily due to
a decrease in capitalized interest related to the timing of construc-
tion projects and progress payments on aircraft purchases. 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 financ-
ing fees and foreign currency losses.

income taxes
Our effective tax rate was 35.9% in 2011, 37.5% in 2010 and 85.6%
in 2009. Our 2011 rate was lower than our 2010 rate primarily due to
increased permanently reinvested foreign earnings and a lower state
tax rate driven principally by favorable audit and legislative develop-
ments. In 2011, our permanent reinvestment strategy with respect to
unremitted earnings of our foreign subsidiaries provided a 1.3% benefit
to our effective tax rate. Our total permanently reinvested foreign
earnings were $640 million at the end of 2011 and $325 million at the
end of 2010. Our 2009 rate was significantly impacted by goodwill
impairment charges that were not deductible for income tax purposes.

Our current federal income tax expenses in 2011, 2010, and 2009
were significantly reduced by accelerated depreciation deductions
we claimed under provisions of the Tax Relief and the Small Business
Jobs Acts of 2010, the American Recovery and Reinvestment Tax Act
of 2009, and the Economic Stimulus Act of 2008. Those acts, designed
to stimulate new business investment in the U.S., accelerated our
depreciation deductions for new qualifying investments, such as our

ManageMent’s discussion and analysis

in industrial production, the pace of which is uncertain due to several
factors, including the impact of higher fuel prices on demand. We
expect growth in international trade to substantially outpace growth
in the U.S. domestic economy, and our unmatched global network is
uniquely positioned to service customer needs in this sector. While
cost headwinds in pension plans and maintenance and repairs are
expected to abate, we expect higher incentive compensation expense
as a result of higher earnings and higher expenses related to the
full restoration of the company–matching contributions on our
401(k) programs.

Our capital expenditures for 2012 are expected to be approximately
$4.2 billion, an increase over 2011, driven primarily by replacement
vehicles and equipment to support international growth at FedEx
Express. Our strategic investments in our more fuel efficient B777F
and Boeing 757 (“B757”) aircraft will continue in 2012. We are com-
mitted 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 2012 capital projects, refer to the
“Liquidity Outlook” section of this MD&A.

Our outlook is dependent upon a stable pricing environment for fuel, as
volatility in fuel prices impacts our fuel surcharge levels, fuel expense
and demand for our services. 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 significantly affect our earnings
either positively or negatively in the short–term.

As described in Note 17 of the accompanying consolidated financial
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 numerous future events. We cannot reasonably estimate
the potential impact of any such changes or a meaningful range of
potential outcomes, although they could be material. However, we do
not believe that any such changes will impair our ability to operate and
profitably grow our FedEx Ground business.

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

new Boeing 777 Freighter (“B777F”) aircraft. These are timing benefits
only, in that the depreciation would have otherwise been recognized in
later years.

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

Current

Deferred

Total Federal Provision

2011

2010

2009

$ 79

$ 36

$ (35)

485

408

327

$ 564

$ 444

$ 292

For 2012, we expect our effective tax rate to be in the range of 36.0%
to 38.0%. The actual rate, however, will depend on a number of fac-
tors, including the amount and source of operating income.

Additional information on income taxes, including our effective tax rate
reconciliation and liabilities for uncertain tax positions, can be found in
Note 11 of the accompanying consolidated financial statements.

Business acquisitions
On February 22, 2011, FedEx Express completed the acquisition of the
Indian logistics, distribution and express businesses of AFL Pvt. Ltd.
and its affiliate Unifreight India Pvt. Ltd. for $96 million in cash. The
financial results of the acquired businesses are included in the FedEx
Express segment from the date of acquisition and were not material to
our results of operations or financial condition. Substantially all of the
purchase price was allocated to goodwill.

On December 15, 2010, FedEx entered into an agreement to acquire
Servicios Nacionales Mupa, S.A. de C.V. (MultiPack), a Mexican
domestic express package delivery company. This acquisition will be
funded with cash from operations and is expected to be completed
during the first quarter of 2012, subject to customary closing condi-
tions. The financial results of the acquired company will be included
in the FedEx Express segment from the date of acquisition and will be
immaterial to our 2012 results.

These acquisitions will give us more robust domestic transportation
networks and added capabilities in these important global markets.

outlook
We expect moderate growth in the global economy, combined with
ongoing yield improvement actions, to drive a significant improvement
in earnings in 2012. Results at FedEx Express, driven by international
services, are expected to be the primary driver of earnings growth
during 2012. In addition, we expect our FedEx Freight segment to be
profitable throughout 2012 and anticipate our FedEx Ground segment
to continue to grow significantly. However, our outlook is dependent
on continued strengthening in global economic conditions, particularly

ManageMent’s discussion and analysis

seasonality of Business
Our businesses are cyclical in nature, as seasonal fluctuations affect
volumes, revenues and earnings. Historically, the U.S. express pack-
age business experiences an increase in volumes in late November
and December. International business, particularly in the Asia–to–U.S.
market, peaks in October and November in advance of the U.S. holiday
sales season. Our first and third fiscal quarters, because they are
summer vacation and post winter–holiday seasons, have historically
experienced lower volumes relative to other periods. Normally, the fall
is the busiest shipping period for FedEx Ground, while late December,
June and July are the slowest periods. For FedEx Freight, the spring
and fall are the busiest periods and the latter part of December,
January and February are the slowest periods. For FedEx Office, 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 the impact of
severe winter weather in our third fiscal quarter.

neW accounting guidance
New accounting rules and disclosure requirements can significantly
impact our reported results and the comparability of our financial
statements. New accounting guidance that has impacted our financial
statements can be found in Note 2 of the accompanying consolidated
financial statements.

In June 2011, the Financial Accounting Standards Board issued new
guidance to make the presentation of items within other comprehen-
sive income (“OCI”) more prominent. The new standard will require
companies to present items of net income, items of OCI and total
comprehensive income in one continuous statement or two separate
consecutive statements, and companies will no longer be allowed
to present items of OCI in the statement of stockholders’ equity.
Reclassification adjustments between OCI and net income will be
presented separately on the face of the financial statements. This
new standard is effective for our fiscal year ending May 31, 2013.

We believe there is no additional new accounting guidance adopted
but not yet effective that is relevant to the readers of our financial
statements. However, there are numerous new proposals under devel-
opment which, if and when enacted, may have a significant impact on
our financial reporting.

reportaBle segMents
FedEx Express, FedEx Ground and FedEx Freight represent our major
service lines and, along with FedEx Services, form the core of our
reportable segments. Our reportable segments include the following
businesses:

fedex express segment

fedex ground segment

fedex freight segment

fedex services segment

> FedEx Express
(express transportation)
> FedEx Trade Networks
(global trade services)
> FedEx SupplyChain Systems
(logistics services)
> FedEx Ground
(small–package ground delivery)
> FedEx SmartPost
(small–parcel consolidator)

> FedEx Freight
(LTL freight transportation)
> FedEx Custom Critical
(time–critical transportation)
> FedEx Services
(sales, marketing and information
technology functions)
> FedEx TechConnect
(customer service, technical support,
billings and collections)
> FedEx Office
(document and business services and
package acceptance)

Effective January 30, 2011, our FedEx Freight and FedEx National LTL
businesses were merged into a single operation. FedEx Freight now
offers two standard services: FedEx Freight Priority, a faster transit
service with a price premium; and FedEx Freight Economy, an economi-
cal service.

fedeX serVices segMent
The FedEx Services segment operates combined sales, marketing,
administrative and information technology functions in shared services
operations that support our transportation businesses and allow us to
obtain synergies from the combination of these functions. The FedEx
Services segment includes: FedEx Services, which provides sales,
marketing and information technology support to our other compa-
nies; FedEx TechConnect, which is responsible for customer service,
technical support, billings and collections for U.S. customers of our
major business units; and FedEx Office, which provides an array of
document and business services and retail access to our customers for
our package transportation businesses. 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 segment. Prior year amounts have not been reclassified
to conform to the current year segment presentation because these
reclassifications are immaterial.

The FedEx Services segment provides direct and indirect support to
our transportation businesses, and we allocate all of the net operat-
ing costs of the FedEx Services segment (including the net operating
results of FedEx Office) to reflect the full cost of operating our
transportation businesses in the results of those segments. Within
the FedEx Services segment allocation, the net operating results of
FedEx Office are allocated to FedEx Express and FedEx Ground. 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. We review and
evaluate the performance of our transportation segments based on
operating income (inclusive of FedEx Services segment allocations).
For the FedEx Services segment, performance is evaluated based on
the impact of its total allocated net operating costs on our transporta-
tion segments.

The operating expenses line item “Intercompany charges” on the
accompanying unaudited financial summaries of our transportation
segments reflects the allocations from the FedEx Services segment to
the respective transportation segments. The “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 officers and certain legal and
finance functions. We believe these allocations approximate the net
cost of providing these functions.

Effective August 1, 2009, approximately 3,600 employees (predomi-
nantly from the FedEx Freight segment) were transferred to entities
within the FedEx Services segment. This internal reorganization further
centralized most customer support functions, such as sales, customer
service and information technology, into our shared services organiza-
tions. 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 significantly with cor-
responding decreases to other expense captions, such as salaries and
employee benefits. 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 reportable segment.
Billings for such services are based on negotiated rates, which we
believe approximate fair value, and are reflected as revenues of the
billing segment. These rates are adjusted from time to time based
on market conditions. Such intersegment revenues and expenses are
eliminated in our consolidated results and are not separately identified
in the following segment information, because the amounts are
not material.

ManageMent’s discussion and analysis

fedeX eXpress segMent
The following tables compare revenues, operating expenses, operat-
ing expenses as a percent of revenue, operating income and operating
margin (dollars in millions) for the years ended May 31:

2011

2010

2009

percent change

2011
2010

/
/ 2010
2009

Revenues:

Package:

U.S. overnight box

$ 6,128

$ 5,602

$ 6,074

U.S. overnight envelope

U.S. deferred
Total U.S. domestic
package revenue

International priority
International domestic(1)
Total package revenue

1,736

2,805

10,669

8,228

653

1,640

2,589

9,831

7,087

578

1,855

2,789

10,718

6,978

565

19,550

17,496

18,261

Freight:

U.S.

International priority

International airfreight

Total freight revenue
Other(2)
Total revenues

Operating expenses:
Salaries and employee
benefits

Purchased transportaion

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

2,188

1,722

283

4,193

838

1,980

1,303

251

3,534

525

2,165

1,104

369

3,638

465

24,581

21,555

22,364

9,183

1,573

1,672

1,059

3,553

1,353

–

2,043

2,917(4)

8,402

1,177

1,577

1,016

2,651

1,131

–

1,940

2,534

8,217

1,112

1,613

961

3,281

1,351

260(3)

2,103

2,672

23,353

20,428

21,570

$ 1,228

$ 1,127

794

–

(8)

(12)

(7)

(8)

(4)

(9)

(32)

(3)

(4)

(2)

(19)

(16)

(8)

(5)

5.0%

5.2%

3.6% (20)bp 160bp

(1) International domestic revenues include our international intra–country domestic express

operations.

(2) Other revenues include 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.

(4) Includes a $66 million legal reserve associated with the ATA Airlines lawsuit.

ManageMent’s discussion and analysis

percent of revenue

2011

2010

2009

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

Operating expenses:

Salaries and employee benefits

37.4 %

39.0 %

36.7 %

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

6.4

6.8

4.3

14.4

5.5

–

8.3

11.9 (2)

95.0

5.0 %

5.5

7.3

4.7

12.3

5.2

–

9.0

11.8

94.8

5.0

7.2

4.3

14.7

6.0

1.2 (1)

9.4

11.9

96.4

5.2 %

3.6 %

(1) Includes a charge of $260 million related to aircraft–related asset impairments and other
charges primarily associated with aircraft–related lease and contract termination costs
and employee severance.

(2) Includes a $66 million legal reserve associated with the ATA Airlines lawsuit.

percent change

2011

2010

2009

/
2011
2010

/
2010
2009

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

U.S. overnight box

1,184

1,157

1,127

U.S. overnight envelope

U.S. deferred

627

873

614

867

627

849

Total U.S. domestic ADV

2,684

2,638

2,603

International priority
International domestic(2)
Total ADV

575

348

523

318

475

298

3,607

3,479

3,376

Revenue per package (yield):

U.S. overnight box

$ 20.29 $ 19.00 $ 21.21

U.S. overnight envelope

10.86

10.47

11.65

U.S. deferred

12.60

11.70

12.94

U.S. domestic composite

15.59

14.61

16.21

International priority
International domestic(2)
Composite package yield

56.08

53.10

57.81

7.38

7.14

7.50

21.25

19.72

21.30

(2)

(10)

(8)

(5)

(7)

Freight Statistics(1)
Average daily freight pounds:

U.S.

7,340

7,141

7,287

International priority

3,184

2,544

1,959

(2)

International airfreight

1,235

1,222

1,475

(17)

Total average daily
freight pounds

Revenue per pound (yield):

11,759 10,907

10,721

U.S.

$ 1.17 $ 1.09 $ 1.17

International priority

International airfreight

Composite freight yield

2.12

0.90

1.40

2.01

0.81

1.27

2.22

0.99

1.34

(7)

(9)

(18)

(5)

(1) Package and freight statistics include only the operations of FedEx Express.
(2) International domestic statistics include our international intra–country domestic

express operations.

fedex express segment revenues
FedEx Express segment revenues increased 14% in 2011 driven by
higher yield and volumes. In 2011, IP package volume increased
10% led by volume growth from Asia, Europe and the U.S. FedEx
Express U.S. domestic package yields increased 7% due to higher fuel
surcharges, rate increases and increased package weights. IP package
yields increased 6% due to higher fuel surcharges, increased package
weights and favorable exchange rates. IP freight pounds increased
25% led by volume growth in Europe.

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 composite
package and freight yield in 2010. U.S. domestic package yield also
decreased during 2010 due to lower rates and lower package weights.
In addition to lower fuel surcharges, IP package yield decreased during
2010 due to lower rates, partially offset by higher package weights
and favorable exchange rates.

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:

U.S. Domestic and Outbound Fuel Surcharge:

Low

High

Weighted–average

International Fuel Surcharges:

Low

High

Weighted–average

2011

2010

2009

7.00%

1.00%

– %

15.50

8.50

34.50

9.77

6.20

17.45

7.00

1.00

–

21.00

13.50

34.50

12.36

9.47

16.75

In January 2011, we implemented a 5.9% average list price increase
on FedEx Express U.S. domestic and U.S. outbound express package
and freight shipments and made various changes to other surcharges,
while we lowered our fuel surcharge index by two percentage points.
In January 2010, we implemented a 5.9% average list price increase
on FedEx Express U.S. domestic and U.S. outbound express package
and freight shipments and made various changes to other surcharges,
while we lowered our fuel surcharge index by two percentage points.

ManageMent’s discussion and analysis

fedex express segment operating income
FedEx Express segment operating income increased in 2011 due to
yield and volume growth, particularly in our higher–margin IP pack-
age services, although operating margin was down slightly. Higher
revenues in 2011 were partially offset by higher retirement plans and
medical expenses, increased aircraft maintenance costs, the reinstate-
ment of certain employee compensation programs, and the negative
impact of severe weather during the second half of the year. Results
in 2011 were also negatively impacted by a $66 million legal reserve
associated with the ATA Airlines lawsuit (see Note 17 of the accompa-
nying consolidated financial statements).

Salaries and benefits increased 9% in 2011 due to volume–related
increases in labor hours, the reinstatement of several employee com-
pensation programs including merit salary increases, higher pension
and medical costs, and full 401(k) company–matching contributions.
Purchased transportation costs increased 34% in 2011 due to costs
associated with the expansion of our freight forwarding business at
FedEx Trade Networks and IP package and freight volume growth.
Other operating expenses increased 15% due to volume–related
expenses and the ATA Airlines legal reserve. Maintenance and repairs
expense increased 20% in 2011 primarily due to an increase in aircraft
maintenance expenses as a result of timing of maintenance events and
higher utilization of our fleet driven by increased volumes.

Fuel costs increased 34% in 2011 due to increases in the average price
per gallon of fuel and fuel consumption driven by volume increases.
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 positive impact in 2011. This analysis considers
the estimated impact of the reduction in fuel surcharges included in
the base rates charged for FedEx Express services.

FedEx Express segment operating income and operating margin
increased during 2010 due to volume growth, particularly in higher–
margin IP package and freight services. Reductions in network
operating costs driven by lower flight hours and improved route
efficiencies, 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 for aircraft–
related asset impairments and other charges primarily associated with
aircraft–related lease and contract termination costs and employee
severance.

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

ManageMent’s discussion and analysis

Fuel costs decreased 19% in 2010 due to decreases in the average
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
significant negative impact to operating income in 2010. This analysis
considers the estimated impact of the reduction in fuel surcharges
included in the base rates charged for FedEx Express services.

fedex express segment outlook
In 2012, we expect revenue growth at FedEx Express to be driven by
continued growth in our international services as international eco-
nomic conditions are expected to improve at a faster rate than in the
U.S. We also anticipate improvement in both domestic and interna-
tional yields through ongoing yield management initiatives.

FedEx Express segment operating income and operating margin are
expected to increase in 2012, driven by continued growth in interna-
tional package and freight services, and productivity enhancements
such as improving on–road productivity, sort efficiency and efficiencies
in our aircraft maintenance processes. We anticipate that increases in
merit pay, higher incentive compensation and increased depreciation
will dampen our earnings growth in 2012.

Capital expenditures at FedEx Express are expected to increase in 2012
driven by replacement vehicle and equipment purchases. In 2012,
capital expenditures will also include continued investments for the
new B777F and B757 aircraft. These aircraft capital expenditures are
necessary to achieve significant long–term operating savings and to
support projected long–term international volume growth.

fedeX ground segMent
The following tables compare revenues, operating expenses, operat-
ing expenses as a percent of revenue, operating income and operating
margin (dollars in millions) and selected package statistics (in thou-
sands, except yield amounts) for the years ended May 31:

Revenues:

FedEx Ground

FedEx SmartPost

Total revenues

Operating expenses:
Salaries and employee
benefits

Purchased transportation

Rentals
Depreciation and
amortization

Fuel

Maintenance and repairs

Intercompany charges

Other

2011

2010

2009

$ 7,855

$ 6,958

$ 6,670

630

481

377

8,485

7,439

7,047

1,282

3,431

263

1,158

2,966

244

1,102

2,918

222

337

169

897

769

334

166

795

744

337

147

710

795

Total operating expenses

7,160

6,415

6,240

Operating income

$ 1,325

$ 1,024

$ 807

percent change

/
2011
2010

/
2010
2009

(1)

(11)

(6)

Operating margin
Average daily package
volume:

FedEx Ground

FedEx SmartPost

Revenue per package (yield):

15.6% 13.8% 11.5% 180bp 230bp

3,746

1,432

3,523

1,222

3,404

827

–

(14)

FedEx Ground

FedEx SmartPost

$ 8.17

$ 7.73

$ 7.70

$ 1.72

$ 1.56

$ 1.81

Operating expenses:
Salaries and employee
benefits

Purchased transportation

Rentals
Depreciation and
amortization

Fuel

Maintenance and repairs

Intercompany charges

Other

Total operating expenses

percent of revenue

2011

2010

2009

15.1 % 15.5 % 15.6 %

40.4

3.1

4.0

0.1

2.0

10.6

9.1

84.4

39.9

3.3

4.5

0.1

2.2

10.7

10.0

86.2

41.4

3.1

4.8

0.1

2.1

10.1

11.3

88.5

Operating margin

15.6 % 13.8 % 11.5 %

fedex ground segment revenues
FedEx Ground segment revenues increased 14% during 2011 due
to volume and yield increases at both FedEx Ground and FedEx
SmartPost.

FedEx Ground average daily package volume increased 6% during 2011
due to continued growth in our commercial business and our FedEx
Home Delivery service. The 6% yield improvement at FedEx Ground
during 2011 was primarily due to rate increases, higher fuel surcharges
and higher extra service revenue, particularly in residential surcharges.

FedEx SmartPost average daily volume grew 17% during 2011 primar-
ily as a result of growth in e–commerce business, gains in market
share and the introduction of new service offerings. Yields increased
10% during 2011 primarily due to growth in higher yielding services,
improved fuel surcharges and lower postage costs as a result of
increased deliveries to United States Postal Service (“USPS”) final
destination facilities.

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 package volume increased 3% during 2010 due to 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.

The FedEx Ground fuel surcharge is based on a rounded average of the
national U.S. on–highway average price for a gallon of diesel fuel, as
published by the Department of Energy. Our fuel surcharge ranged as
follows for the years ended May 31:

Low

High

Weighted–average

2011

2010

2009

5.50%

2.75%

2.25 %

8.50

6.20

5.50

10.50

4.23

6.61

In January 2011, we implemented a 4.9% list price increase for FedEx
Ground and FedEx Home Delivery services. The full average rate
increase of 5.9% was partially offset by adjusting the fuel price thresh-
old at which the fuel surcharge begins, reducing the fuel surcharge by
one percentage point. Additional changes were made to other FedEx
Ground surcharges and FedEx SmartPost rates. 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.

ManageMent’s discussion and analysis

fedex ground segment operating income
During 2011, FedEx Ground segment operating income increased 29%
and operating margin increased 180 basis points due to improved
yield and higher volume resulting from market share growth. We have
realized a higher retention of our annual rate increase this year as
more customers recognize the competitive advantage that we maintain
across many shipping lanes in the U.S. We have also improved our
customers’ experience by dramatically reducing our package loss
and damage claims while maintaining exceptional service levels.
Purchased transportation costs increased 16% in 2011 primarily due to
volume growth, higher fuel costs and higher rates paid to our indepen-
dent contractors. Salaries and employee benefits expense increased
11% in 2011 due primarily to increased staffing at FedEx Ground and
FedEx SmartPost to support volume growth and higher pension and
medical costs. Intercompany charges increased in 2011 primarily due
to higher allocated information technology costs.

FedEx Ground segment operating income and operating margin
increased during 2010 due to higher package volume, lower self–insur-
ance expenses and improved productivity. Improved performance
at FedEx SmartPost also contributed to the operating income and
operating margin increase. The increase in salaries and employee
benefits expense during 2010 was primarily due to accruals for our
variable incentive compensation programs, increased staffing at FedEx
SmartPost to support volume growth and increased healthcare costs.
Purchased transportation costs increased 2% during 2010 primarily
as a result of higher package volume. Rent expense increased during
2010 primarily due to higher spending on facilities associated 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.

evolution of independent contractor Model
Although FedEx Ground is involved in numerous lawsuits and other
proceedings (such as state tax audits or other administrative chal-
lenges) where the classification of its independent contractors is at
issue, a number of recent judicial decisions support our classification
and we believe our relationship with the contractors is generally excel-
lent. For a description of these proceedings, see “Risk Factors” and
Note 17 of the accompanying consolidated financial statements.

FedEx Ground has made changes to its relationships with contrac-
tors that, among other things, provide incentives for improved service
and enhanced regulatory and other compliance by the contractors.
For example, FedEx Ground has implemented or is implementing its
Independent Service Provider (“ISP”) model in a number of states. The
ISP model 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 standard contract.

ManageMent’s discussion and analysis

As of May 31, 2011, FedEx Ground has transitioned to the ISP model
in Maryland, New Hampshire, Rhode Island and Vermont, and plans to
complete transition to the ISP model in Connecticut, Delaware, Illinois,
Iowa, Maine, Massachusetts, Minnesota, Mississippi, Missouri,
Montana, North Dakota, South Dakota and Tennessee during 2012.
Based upon the success of this model, FedEx Ground may possibly
transition to it in other states as well.

In addition, because of state–specific legal and regulatory issues,
FedEx Ground only contracts with contractors that (i) are organized
as corporations registered and in good standing under applicable
state law, and (ii) ensure that their personnel who provide services
under an operating agreement with FedEx Ground are treated as their
employees. FedEx Ground also has an ongoing nationwide program to
incentivize contractors who choose to grow their businesses by add-
ing routes. During May 2011, approximately 80% of FedEx Ground’s
package volume was delivered by multiple route owner–operators or
independent service providers.

fedex ground segment outlook
In 2012, we expect the FedEx Ground segment revenue growth will be
led by continued improvement in commercial, FedEx Home Delivery
and FedEx SmartPost volumes, resulting in additional market share
gains. FedEx SmartPost is expected to continue to strengthen its
market position by continuing to leverage the FedEx Ground network
to enter the optimal USPS entry point. Yields for FedEx Ground are
expected to improve in 2012 as a result of yield management initia-
tives and growth in our higher yielding FedEx Home Delivery service.

We expect the FedEx Ground segment to provide strong operating
income growth in 2012 due to efficiency improvements such as an
automated operational planning system and improved transit time
across numerous shipping lanes. However, we expect to incur higher
purchased transportation costs due to higher rates paid to our indepen-
dent contractors and higher variable incentive compensation in 2012.

We are committed to investing in the FedEx Ground network because
of the anticipated growth opportunities within this market. Capital
spending is expected to increase in 2012, with the majority of our
spending resulting from our continued network expansion and produc-
tivity–enhancing technologies.

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–opera-
tors are properly classified as independent contractors, 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 profitably grow our FedEx Ground
business.

fedeX freigHt segMent
The following tables compare revenues, operating expenses, operating
expenses as a percent of revenue, operating loss and operating margin
(dollars in millions) and selected statistics for the years ended May 31:

percent change

2011

2010

2009 (3)

/
2011
2010

$ 4,911

$ 4,321

$ 4,415

/
2010
2009

(2)

2,303

2,128

2,247

779

122

205

585

182

427

394

690

116

198

445

148

351

380

540

139

224

520

153

100

109

427

5,086

4,474

4,459

394

(5)

(17)

(12)

(14)

(3)

(82)

222

(11)

–

$ (175)

$ (153)

$ (44)

(14)

(248)

(3.6)% (3.5)% (1.0)% (10)bp (250)bp

86.0

1,144

82.3

1,134

74.4

1,126

$ 18.24

$ 17.07

$ 19.07

(10)

Revenues
Operating expenses:
Salaries and employee
benefits
Purchased transportation
Rentals
Depreciation and
amortization
Fuel
Maintenance and repairs
Impairment and other
charges(1)
Intercompany charges(2)
Other
Total operating expenses
Operating loss
Operating margin
Average daily LTL shipments
(in thousands)
Weight per LTL shipment (lbs)
LTL yield (revenue per
hundredweight)

(1) Includes severance, impairment and other charges associated with the combination of our
FedEx Freight and FedEx National LTL operations, effective January 30, 2011. In 2010 and
2009, this charge 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.

(2) Certain functions were transferred from the FedEx Freight segment to FedEx Services and

FedEx TechConnect effective August 1, 2009. For 2011 and 2010, the costs associated with
these functions, previously a direct charge, were allocated to the FedEx Freight segment
through intercompany allocations.

(3) Includes Caribbean Transportation Services, which was merged into FedEx Express effective

June 1, 2009.

percent of revenue

2011

2010

2009

50.9%

4.6

2.7

4.2

2.5

11.9

15.9

16.0

49.2%

46.9%

Operating expenses:
Salaries and employee benefits
Purchased transportation
Rentals
Depreciation and amortization
Fuel
Maintenance and repairs
Impairment and other charges(1)
Intercompany charges(2)
Other
Total operating expenses
Operating margin
(1) Includes severance, impairment and other charges associated with the combination of our
FedEx Freight and FedEx National LTL operations, effective January 30, 2011. In 2010 and
2009, this charge 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.

(3.5)%

(3.6)%

103.5

103.6

10.3

3.4

0.4

3.7

8.1

1.8

8.8

8.7

8.0

12.2

3.1

5.0

11.8

3.5

2.3

2.5

9.7

101.0

(1.0)%

(2) Certain functions were transferred from the FedEx Freight segment to FedEx Services and

FedEx TechConnect effective August 1, 2009. For 2011 and 2010, the costs
associated with these functions, previously a direct charge, were allocated to the FedEx
Freight segment through intercompany allocations.

ManageMent’s discussion and analysis

fedex freight segment revenues
FedEx Freight segment revenues increased 14% in 2011 due to higher
LTL yield and average daily LTL shipments. LTL yields increased 7%
during 2011 due to our yield management programs, which began
during the fourth quarter of 2010 and continued throughout 2011,
and higher fuel surcharges. Under these programs, LTL yields have
increased sequentially in each of the past four quarters, while average
daily LTL shipments fell during the second half of 2011. For the full
year, average daily LTL shipments increased 4% in 2011 primarily due
to volume increases during the first half of 2011 resulting from the
impact of discounted pricing in contracts signed during 2010.

In 2010, FedEx Freight segment revenues decreased primarily 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 the highly competitive LTL freight market, resulting from excess
capacity and lower fuel surcharges. Discounted pricing drove an
increase in average daily LTL shipments of 11% during 2010.

The indexed LTL fuel surcharge is based on the average of the national
U.S. on–highway average price 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

2011

2010

2009

15.10%

10.80%

8.30 %

20.70

16.10

23.90

17.00

14.00

15.70

In November 2010, we implemented a 6.9% general rate increase for
FedEx Freight shipments. In February 2010, we implemented 5.9%
general rate increases for FedEx Freight and FedEx National
LTL shipments.

fedex freight segment operating loss
The FedEx Freight segment operating loss in 2011 included costs asso-
ciated with the combination of our FedEx Freight and FedEx National
LTL operations and the significant impact from severe weather in the
second half of the year. We incurred costs associated with the com-
bination of $133 million in 2011, including $89 million recorded in the
“Impairment and other charges” caption of the consolidated income
statement (see “Overview” above for additional information).

Salaries and employee benefits increased 8% in 2011 primarily due to
volume–related increases in labor, wage increases, higher healthcare
and pension costs, and the reinstatement of full 401(k) company–
matching contributions. Purchased transportation costs increased 13%
in 2011 due to higher shipment volumes and higher rates. Fuel costs
increased 31% in 2011 due to a higher average price per gallon of die-
sel fuel and increased fuel consumption as a result of higher shipment
volumes. 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 slightly favorable impact to operating
income in 2011. Maintenance and repairs expense increased 23%

in 2011 due to higher volumes and the aging of our fleet. Also,
higher intercompany charges in 2011 reflect the transfer of sales and
customer service employees from the FedEx Freight segment entities in
the first quarter of 2010 (described below).

A weak pricing environment, which led to aggressive discounting 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 significantly higher
shipment levels required increased purchased transportation and other
expenses during 2010. In addition, we recorded a charge of $18 mil-
lion for the impairment of the remaining goodwill related to the FedEx
National LTL acquisition.

Intercompany charges increased in 2010 due to expenses associated
with the functions of approximately 2,700 FedEx Freight segment
employees that were transferred to FedEx Services and FedEx
TechConnect in the first quarter of 2010. The costs of these func-
tions were previously a direct charge. Purchased transportation costs
increased 28% in 2010 due to increased utilization of third–party
transportation providers, which were required to support higher ship-
ment volumes. Fuel costs decreased 14% during 2010 due to a lower
average price per gallon of diesel fuel, partially offset by increased
fuel consumption as a result of higher shipment volumes. 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 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 amortization
expense decreased 12% in 2010 due to the impact of the transfer of
employees from the FedEx Freight segment to FedEx Services and
FedEx TechConnect during the first quarter of 2010.

fedex freight segment outlook
In 2012, we expect revenue growth at the FedEx Freight segment to be
driven by continued growth in our Priority and Economy service lines
as customers increase their utilization of our new integrated LTL net-
work. We expect yield improvement across all service and customer
segments due to our unique value proposition and yield management
initiatives.

We expect the FedEx Freight segment to be profitable throughout 2012
due to continued yield management initiatives and the successful
integration of our operations and optimization of our LTL network. In
addition, we will continue to improve productivity and efficiency across
our integrated network through technology investments focused on
network and equipment planning and customer automation. These
investments will further enhance our already outstanding customer
service levels.

Capital expenditures are expected to increase significantly in 2012
with the majority of our spending for replacement of vehicles and
freight handling equipment.

ManageMent’s discussion and analysis

FINANCIAL CONDITION

liQuidity
Cash and cash equivalents totaled $2.3 billion at May 31, 2011, com-
pared to $2.0 billion at May 31, 2010. The following table provides a
summary of our cash flows for the periods ended May 31 (in millions):

Operating activities:
Net income
Noncash impairment and other charges
Other noncash charges and credits
Changes in assets and liabilities
Cash provided by operating activities
Investing activities:
Capital expenditures
Business acquisition, net of cash
acquired
Proceeds from asset dispositions
and other
Cash used in investing activities
Financing activities:
Proceeds from debt issuance
Principal payments on debt
Dividends paid
Other
Cash (used in) provided by

financing activities

Effect of exchange rate changes on cash
Net increase (decrease) in cash and
cash equivalents

2011

2010

2009

$ 1,452
29
2,892
(332)
4,041

$ 1,184
18
2,514
(578)
3,138

$ 98
1,103
2,554
(1,002)
2,753

(3,434)

(2,816)

(2,459)

(96)

–

111
(3,419)

35
(2,781)

76
(2,383)

–
(262)
(151)
126

(287)
41

–
(653)
(138)
99

(692)
(5)

1,000
(501)
(137)
38

400
(17)

$ 376

$ (340)

$ 753

CASH PROVIDED BY OPERATING ACTIVITIES. Cash flows from operat-
ing activities increased $903 million in 2011 primarily due to increased
earnings in 2011 and lower pension contributions. Cash flows from
operating activities increased $385 million in 2010 primarily due to the
receipt of income tax refunds of $279 million and increased income.
We made contributions of $480 million to our tax–qualified U.S.
domestic pension plans (“U.S. Pension Plans”) during 2011, includ-
ing $121 million in voluntary contributions and contributions of $848
million to our U.S. Pension Plans during 2010, including $495 million in
voluntary contributions. We made contributions of $1.1 billion to our
U.S. Pension Plans during 2009.

CASH USED IN INVESTING ACTIVITIES. Capital expenditures were
22% higher in 2011 and 15% higher in 2010 largely due to increased
spending at FedEx Express. See “Capital Resources” for a discussion
of capital expenditures during 2011 and 2010.

FINANCING ACTIVITIES. We have a shelf registration statement filed
with the Securities and Exchange Commission (“SEC”) that allows
us to sell, in one or more future offerings, any combination of our
unsecured debt securities and common stock. During 2011, we repaid
our $250 million 7.25% unsecured notes that matured on February
15, 2011. 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. During 2011, we made principal payments in the amount of
$12 million related to capital lease obligations. 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 finance our
operations and other cash flow needs and to provide support for the
issuance of commercial paper. This five–year credit agreement was
entered into on April 26, 2011, and replaced the $1 billion three–year
credit agreement dated July 22, 2009. The agreement contains a
financial 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 fiscal quarters’ rentals and land-
ing 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, 2011. Under this financial
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, 2011, no commercial paper was outstanding and the entire $1
billion under the revolving credit facility was available for
future borrowings.

capital resources
Our operations are capital intensive, characterized by significant
investments in aircraft, vehicles, technology, facilities, and pack-
age–handling and sort equipment. The amount and timing of capital
additions depend on various factors, including pre–existing contractual
commitments, anticipated volume growth, domestic and international
economic conditions, new or enhanced services, geographical expan-
sion of services, availability of satisfactory financing and actions of
regulatory authorities.

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

percent change

2011

2010

2009

/
2011
2010

/
2010
2009

Aircraft and related equipment

$ 1,988 $ 1,537 $ 925

Facilities and sort equipment

Vehicles

Information and technology
investments

Other equipment

555

282

455

154

630

220

289

140

742

319

298

175

Total capital expenditures

$ 3,434 $ 2,816 $ 2,459

FedEx Express segment

FedEx Ground segment

FedEx Freight segment

FedEx Services segment

Other

2,467

1,864

1,348

426

153

387

400

212

340

–

636

240

235

–

Total capital expenditures

$ 3,434 $ 2,816 $ 2,459

(12)

(28)

–

(15)

(31)

(3)

(20)

(37)

(12)

–

Capital expenditures during 2011 were higher than the prior–year
period primarily due to increased spending at FedEx Express for aircraft
and aircraft–related equipment and at FedEx Services for information
technology investments. Aircraft and aircraft–related equipment
purchases at FedEx Express during 2011 included the delivery of six
new B777Fs and 22 B757s. Capital expenditures during 2010 were
higher than the prior year primarily due to increased spending at
FedEx Express for aircraft and aircraft–related equipment. Aircraft
and aircraft–related equipment purchases at FedEx Express during
2010 included six new B777Fs and 12 B757s. FedEx Services capital
expenditures increased in 2010 due to information technology facility
expansions and projects. Capital spending at FedEx Ground decreased
in 2010 due to decreased spending for facilities and sort equipment
and vehicles.

liQuidity outlooK
We believe that our existing cash and cash equivalents, cash flow
from operations, and available financing sources will be adequate
to meet our liquidity needs, including working capital, capital expen-
diture requirements and debt payment obligations. Our cash and cash
equivalents balance at May 31, 2011 includes $300 million of cash
in offshore jurisdictions associated with our permanent reinvestment
strategy. We do not believe that the indefinite reinvestment of these
funds offshore impairs our ability to meet our domestic debt or working
capital obligations. Although we expect higher capital expenditures
in 2012, we anticipate that our cash flow from operations will be
sufficient to fund these expenditures. Historically, we have been
successful in obtaining unsecured financing, from both domestic
and international sources, although the marketplace for such
investment capital can become restricted depending on a variety
of economic factors.

ManageMent’s discussion and analysis

Our capital expenditures are expected to be $4.2 billion in 2012 and
will include spending for aircraft and aircraft–related equipment at
FedEx Express, network expansion at FedEx Ground and revenue equip-
ment at the FedEx Freight segment. We expect approximately 59% of
capital expenditures in 2012 will be designated for growth initiatives
and 41% dedicated to maintaining our existing operations. Our capital
expenditures are expected to increase in 2012 due to spending for
vehicle equipment and on–going investments in aircraft programs. Our
expected capital expenditures for 2012 include $2.0 billion in invest-
ments for delivery of aircraft as well as progress payments toward
future aircraft deliveries at FedEx Express, including B757s and the
B777F which are significantly more fuel–efficient per unit than the
aircraft type previously utilized. Our B757 aircraft are replacing our
Boeing 727 aircraft, and we expect to be completely transitioned out of
this aircraft type by 2016. We will benefit from the tax expensing and
accelerated depreciation provisions of the Tax Relief Act of 2010 on
qualifying capital investments we make in 2012.

We have agreed to purchase a total of 45 B777F aircraft (12 of which
were in service at May 31, 2011, and an additional seven to be
delivered in 2012). 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 significant 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 significant costs to modify existing purchase agreements.

For 2012, we anticipate making required contributions to our U.S.
Pension Plans totaling approximately $500 million. Our U.S. Pension
Plans have ample funds to meet expected benefit payments. In 2012,
we have scheduled principal and interest payments of $25 million on
capital leases.

Standard & Poor’s has assigned us a senior unsecured debt credit rat-
ing 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 reaffirmed 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 ratings drop below current levels, we may
have difficulty utilizing the commercial paper market. If our senior
unsecured debt credit ratings drop below investment grade, our access
to financing may become limited.

ManageMent’s discussion and analysis

contractual casH oBligations and off–Balance sHeet arrangeMents
The following table sets forth a summary of our contractual cash obligations as of May 31, 2011. Certain of these contractual obligations are
reflected in our balance sheet, while others are disclosed as future obligations under accounting principles generally accepted in the United
States. Except for the current portion of 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, 2011. Accordingly, this table is not meant to represent a forecast of our total cash expendi-
tures 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. Pension Plans

Investing activities:

Aircraft and aircraft–related capital commitments

Other capital purchase obligations

Financing activities:

Debt

Capital lease obligations

Total

payments due by fiscal year (undiscounted)

2012

2013

2014

2015

2016

thereafter

total

$ 1,794

$ 1,654

$ 1,465

$ 1,354

$ 1,192

$ 6,533

$ 13,992

209

126

500

1,480

210

–

1,086

300

119

–

781

250

–

569

584

–

132

1,659

–

1,470

–

989

508

2,136

500

5,970

232

1,539

163

$ 4,344

$ 3,362

$ 2,638

$ 2,033

$ 1,867

$ 10,796

$ 25,040

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

We have other long–term liabilities reflected in our balance sheet,
including deferred income taxes, qualified and nonqualified pension
and postretirement healthcare plan liabilities and other self–insurance
accruals. The payment obligations associated with these liabilities are
not reflected in the table above due to the absence of scheduled maturi-
ties. 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. Pension Plans totaling approximately
$500 million for 2012 that begin in the first quarter.

Open purchase orders that are cancelable are not considered uncon-
ditional purchase obligations for financial reporting purposes and are
not included in the table above. Such purchase orders often represent
authorizations to purchase rather than binding agreements. See Note
16 of the accompanying consolidated financial statements for more
information.

operating activities
In accordance with accounting principles generally accepted in the
United States, future contractual payments under our operating leases
(totaling $14.0 billion on an undiscounted basis) 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 reflected in the table above
for operating leases represent future minimum lease payments under
noncancelable operating leases (principally aircraft and facilities) with an
initial or remaining term in excess of one year at May 31, 2011. In the
past, we financed a significant portion of our aircraft needs (and certain
other equipment needs) using operating leases (a type of “off–balance
sheet financing”). At the time that the decision to lease was made, we
determined that these operating leases would provide economic benefits
favorable to ownership with respect to market values, liquidity or after–
tax cash flows.

The amounts reflected for purchase obligations represent noncancelable
agreements to purchase goods or services that are not capital–related.
Such contracts include those for printing and advertising and promotions
contracts.

ManageMent’s discussion and analysis

The estimates discussed below include the financial statement ele-
ments that are either the most judgmental or involve the selection or
application of alternative accounting policies and are material to our
financial statements. Management has discussed the development
and selection of these critical accounting estimates with the Audit
Committee of our Board of Directors and with our independent regis-
tered public accounting firm.

retireMent plans
OVERVIEW. We sponsor programs that provide retirement benefits to
most of our employees. These programs include defined benefit pen-
sion plans, defined contribution plans and postretirement healthcare
plans.

Pension benefits for most employees are accrued under a cash balance
formula we call the Portable Pension Account. Under the Portable
Pension Account, the retirement benefit is expressed as a dollar
amount in a notional account that grows with annual credits based
on pay, age and years of credited service, and interest on the notional
account balance. The Portable Pension Account benefit is payable as a
lump sum or an annuity at retirement at the election of the employee.
The plan interest credit rate varies from year to year based on a U.S.
Treasury index. Prior to 2009, certain employees earned benefits using
a traditional pension formula (based on average earnings and years
of service); however, benefits under this formula were capped on
May 31, 2008.

The current rules for pension accounting are complex and can produce
tremendous volatility in our results, financial 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 liabilities at
a single point in time at the end of our fiscal year (the measurement
date). Both of these factors are significantly influenced by the stock
and bond markets, which in recent years have experienced substantial
volatility.

In addition to expense volatility, we are required to record year–end
adjustments to our balance sheet on an annual basis for the net
funded status of our pension and postretirement healthcare plans.
These adjustments have fluctuated significantly 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 aggressive funding levels for our pension plans.
However, the cash funding rules operate under a completely differ-
ent set of assumptions and standards than those used for financial
reporting purposes, so our actual cash funding requirements can differ
materially from our reported funded status.

Included in the table above within the caption entitled “Non–capital
purchase obligations and other” is our estimate of the current portion of
the liability ($1 million) for uncertain tax positions. We cannot reason-
ably estimate the timing of the long–term payments or the amount by
which the liability will increase or decrease over time; therefore, the
long–term portion of the liability ($68 million) is excluded from the table.
See Note 11 of the accompanying consolidated financial statements for
further information.

The amounts reflected in the table above for interest on long–term debt
represent future interest payments due on our long–term debt, all of
which are fixed rate.

investing activities
The amounts reflected in the table above for capital purchase obliga-
tions represent noncancelable agreements to purchase capital–related
equipment. Such contracts include those for certain purchases of
aircraft, aircraft modifications, vehicles, facilities, computers and other
equipment. Commitments to purchase aircraft in passenger configura-
tion do not include the attendant costs to modify these aircraft for
cargo transport unless we have entered into noncancelable commit-
ments to modify such aircraft.

financing activities
We have certain financial instruments representing potential com-
mitments, not reflected 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 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 reflected in our balance sheets,
where applicable. Therefore, no additional liability is reflected for the
surety bonds and letters of credit themselves.

The amounts reflected in the table above for long–term debt represent
future scheduled payments on our long–term debt. We currently have
no scheduled debt payments in 2012.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires manage-
ment to make significant judgments and estimates to develop amounts
reflected and disclosed in the financial statements. In many cases,
there are alternative policies or estimation techniques that could be
used. We maintain a thorough process to review the application of our
accounting policies and to evaluate the appropriateness of the many
estimates that are required to prepare the financial statements of a
complex, global corporation. However, even under optimal circum-
stances, estimates routinely require adjustment based on changing
circumstances and new or better information.

ManageMent’s discussion and analysis

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

U.S. domestic and international
pension plans

U.S. domestic and international defined
contribution plans

Postretirement healthcare plans

PENSION COST. The accounting for pension and postretirement health-
care plans includes numerous assumptions, such as: discount rates;
expected long–term investment returns on plan assets; future salary
increases; employee turnover; mortality; and retirement ages. These
assumptions most significantly impact our U.S. Pension Plans. The
components of pension cost for all pension plans are as follows
(in millions):

2011

2010

2009

$ 543

$ 308

$ 177

257

136

237

Service cost

Interest cost

$ 860

$ 486

$ 471

Expected return on plan assets

2011

2010

2009

$ 521

$ 417

$ 499

900

(1,062 )

823

(955 )

798

(1,059)

Total retirement plans cost for 2011 increased $374 million due to a
significantly lower discount rate used to measure our benefit obli-
gations at our May 31, 2010 measurement date. Additionally, we
incurred higher expenses for our 401(k) plans due to the partial rein-
statement of the company–matching contributions on January 1, 2010,
and the full restoration of company–matching contributions on January
1, 2011 (previously suspended in February 2009). 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 suspension of the company–match-
ing contributions.

Retirement plans cost is expected to increase in 2012 due to the full
restoration of company–matching contributions on our 401(k) plans
noted above. However, our pension costs in 2012 are expected to
remain flat, as the benefit of significant investment returns on our pen-
sion plan assets will offset the negative impact of a lower
discount rate.

Recognized actuarial losses (gains)
and other

184

(61)

Net periodic benefit cost

$ 543

$ 308

$ 177

Following is a discussion of the key estimates we consider in deter-
mining our pension cost:

DISCOUNT RATE. This is the interest rate used to discount the
estimated future benefit payments that have been accrued to date (the
projected benefit 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 measurement 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

5/31/2011

5/31/2010

5/31/2009

6/01/2008

2/29/2008

5.76 % 2011 pBo and 2012 expense

6.37

7.68

7.15

6.96

2010 pBo and 2011 expense

2009 pBo and 2010 expense

2009 expense

2008 pBo

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

ManageMent’s discussion and analysis

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 flows designed to match
our expected benefit payments in future years. In developing this
theoretical portfolio, we select bonds that match cash flows to benefit
payments, limit our concentration by industry and issuer, and apply
screening criteria to ensure bonds with a call feature have a low prob-
ability of being called. To the extent scheduled bond proceeds exceed
the estimated benefit payments in a given period, the calculation
assumes those excess proceeds are reinvested at one–year forward
rates.

The decrease in the discount rate at May 31, 2011 was driven by
conditions in the market for high–grade corporate bonds, where yields
have continued to decrease from May 31, 2010. The discount rate
assumption is highly sensitive, as the following table illustrates for our
largest tax–qualified U.S. domestic pension plan:

One–basis–point change in
discount rate

sensitivity (in millions)

effect on 2012
pension expense

effect on 2011
pension expense

$ 1.9

$ 1.7

At our May 31, 2011 measurement date, a 50–basis–point increase
in the discount rate would have decreased our 2011 PBO by approxi-
mately $1.1 billion and a 50–basis–point decrease in the discount rate
would have increased our 2011 PBO by approximately $1.2 billion.
From 2009 to 2011, the discount rate used to value our liabilities has

declined by nearly 200 basis points, which increased the valuation of
our liabilities by over $4 billion.

PLAN ASSETS. The estimated average rate of return on plan assets is
a long–term, forward–looking assumption that also materially 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 transitioned to a liability–driven investment strategy with a
greater concentration of fixed–income securities to better align plan
assets with liabilities. We review the expected long–term rate of
return on an annual basis and revise it as appropriate.

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

> the duration of our pension plan liabilities, which drives the invest-
ment strategy we can employ with our pension plan assets;

> the types of investment classes in which we invest our pension plan
assets and the expected compound geometric return we can reason-
ably expect those investment classes to earn over time; and

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

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

2011

2010

plan assets at Measurement date

actual

actual%

target%

actual

actual %

target%

$ 5,761

37%

33%

$ 4,569

35%

33%

2,013

403

8,177

6,995

346

1,502

399

6,470

6,205

380

$ 15,518

100%

$ 13,055

100%

ManageMent’s discussion and analysis

We have assumed an 8.0% compound geometric long–term rate of
return on our U.S. Pension Plan assets for 2012, 2011 and 2010, as
described in Note 12 of the accompanying consolidated financial
statements. A one–basis–point change in our expected return on plan
assets impacts our pension expense by $1.5 million.

The actual historical return on our U.S. Pension Plan assets, calculated
on a compound geometric basis, was approximately 7.8%, net of
investment manager fees, for the 15–year period ended May 31, 2011
and 7.9%, net of investment manager fees, for the 15–year period
ended May 31, 2010.

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 performance
(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 measure-
ment date. For purposes of valuing plan assets for determining
2012 pension expense, we used the calculated–value method, as
our actual returns on plan assets significantly exceeded our assump-
tions. However, as previously indicated, our pension costs in 2012 are
expected to remain flat. The calculated–value method resulted in the
same value as the market value in 2011. The calculated–value method
significantly mitigated the impact of asset value declines in the deter-
mination of our 2010 pension expense, reducing our 2010 expense by
approximately $135 million.

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

Funded Status of Plans:
Projected benefit obligation (PBO)

Fair value of plan assets

Funded status of the plans
Components of Funded Status by Plans:
U.S. qualified plans

U.S. nonqualified plans

International plans

Net funded status
Components of Amounts Included
in Balance Sheets:
Current pension and other benefit obligations

2011

2010

$ 17,372

$ 14,484

15,841

13,295

$ (1,531)

$ (1,189)

$ (927)

$ (580)

(339)

(265)

(348)

(261)

$ (1,531)

$ (1,189)

(33)

(30)

Noncurrent pension and other benefit obligations

(1,498)

(1,159)

Net amount recognized
Cash Amounts:
Cash contributions during the year

Benefit payments during the year

$ (1,531)

$ (1,189)

$ 557

$ 900

$ 468

$ 391

The amounts recognized in the balance sheet reflect a snapshot of the
state of our long–term pension liabilities at the plan measurement
date and the effect of year–end accounting on plan assets. At May
31, 2011, we recorded a decrease to equity through OCI of $350 million
(net of tax) to reflect unrealized actuarial losses during 2011 related to
a decline in the discount rate. Those losses are subject to amortization
over future years and may be reflected in future income statements
unless they are recovered. At May 31, 2010, we recorded a decrease
to equity through OCI of $1.0 billion (net of tax) attributable to our
pension plans.

The funding requirements for our U.S. Pension Plans are governed
by the Pension Protection Act of 2006, which has aggressive fund-
ing requirements in order to avoid benefit payment restrictions that
become effective if the funded status determined under Internal
Revenue Service rules falls below 80% at the beginning of a plan year.
All of our U.S. Pension Plans have funded status levels in excess of
80% and our plans remain adequately funded to provide benefits to our
employees as they come due. Additionally, current benefit payments
are nominal compared to our total plan assets (benefit payments for
our U.S. Pension Plans for 2011 were approximately $411 million or
3% of plan assets).

During 2011, we made $480 million in contributions to our U.S.
Pension Plans, including $121 million in voluntary contributions. Over
the past several years, we have made voluntary contributions to our
U.S. Pension 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 requirements in future years. For 2012, we anticipate
making required contributions to our U.S. Pension Plans totaling
approximately $500 million.

Cumulative unrecognized actuarial losses were $5.4 billion through
May 31, 2011, compared to $5.2 billion through May 31, 2010. These
unrecognized losses reflect changes in the discount rates and differ-
ences between expected and actual asset returns, which are being
amortized over future periods. These unrecognized losses may be
recovered in future periods through actuarial gains. However, unless
they are below a corridor amount, these unrecognized actuarial losses
are required to be amortized and recognized in future periods. Our
pension expense includes amortization of these actuarial losses of
$276 million in 2011, $125 million in 2010 and $44 million in 2009.

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 benefits 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, 2011 and 2010, there were $1.6 billion of self–insurance
accruals reflected in our balance sheet. Approximately 40% of these
accruals were classified as current liabilities.

ManageMent’s discussion and analysis

Our self–insurance accruals are primarily based on the actuarially
estimated, undiscounted cost of claims to provide us with estimates
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 operating company and type
of risk. Periodically, we evaluate the level of insurance coverage and
adjust insurance levels based on risk tolerance and premium expense.
Historically, it has been infrequent 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.

Because of the lengthy lead times for aircraft manufacture and
modifications, we must anticipate volume levels and plan our fleet
requirements years in advance, and make commitments for aircraft
based on those projections. Furthermore, the timing and availabil-
ity of certain used aircraft types (particularly those with better fuel
efficiency) may create limited opportunities to acquire these aircraft
at favorable prices in advance of our capacity needs. These activi-
ties create risks that asset capacity may exceed demand and that
an impairment of our assets may occur. Aircraft purchases (primar-
ily aircraft in passenger configuration) that have not been placed in
service totaled $173 million at May 31, 2011 and $101 million at May
31, 2010. We plan to modify these assets in the future and place them
into operations.

We believe the use of actuarial methods to account for these liabilities
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 magnitude 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.

long–liVed assets
PROPERTY AND EQUIPMENT. Our key businesses are capital intensive,
with approximately 57% of our total assets invested in our transporta-
tion and information systems infrastructures. We capitalize only those
costs that meet the definition of capital assets under accounting stan-
dards. 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.

The depreciation or amortization of our capital assets over their
estimated useful lives, and the determination of any salvage val-
ues, 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 depreciated over 15 to 18
years), we periodically evaluate whether adjustments to our estimated
service lives or salvage values are necessary to ensure these esti-
mates properly match the economic 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 configuration, which results in little to no value at the end of
their useful life. These estimates affect the amount of depreciation
expense recognized in a period and, ultimately, the gain or loss on
the disposal of the asset. Changes in the 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 (typically aggregating less than $10
million annually). However, such amounts may differ materially in the
future due to changes in business levels, technological obsolescence,
accident frequency, regulatory changes and other factors beyond our
control.

The accounting test for whether an asset held for use is impaired
involves first comparing the carrying value of the asset with its esti-
mated future undiscounted cash flows. If the cash flows do not exceed
the carrying value, the asset must be adjusted to its current fair value.
We operate integrated transportation networks and, accordingly, cash
flows 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 2011 (see “Overview” for additional information on
certain asset impairments in our FedEx Freight segment in 2011) or
2010. 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 finance certain of our aircraft,
facilities and equipment. Such arrangements typically shift the risk
of loss on the residual value of the assets at the end of the lease
period to the lessor. As disclosed in “Contractual Cash Obligations”
and Note 7 of the accompanying consolidated financial statements, at
May 31, 2011 we had approximately $14 billion (on an undiscounted
basis) of future commitments for payments under operating leases.
The weighted–average remaining lease term of all operating leases
outstanding at May 31, 2011 was approximately six years. The future
commitments for operating leases are not reflected as a liability in our
balance sheet under current U.S. accounting rules.

ManageMent’s discussion and analysis

Under a proposed revision to the accounting standards for leases, we
would be required to record an asset and a liability for our outstanding
operating leases similar to the current accounting for capital leases.
Notably, the amount we record in the future would be the net present
value of our future lease commitments at the date of adoption. This
proposed guidance has not been issued and has been subjected to
numerous revisions since the proposal was issued. Accordingly, we
cannot make any judgments about the specific impact of the new
proposed standard to us. However, our existing financing agreements
and the rating agencies that evaluate our credit worthiness already
take our operating leases into account.

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 judg-
ments 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–defined and controlled processes for making
these evaluations, including obtaining third–party appraisals for
material transactions to assist us in making these evaluations.

goodWill
We have $2.3 billion of recorded goodwill from our acquisitions, repre-
senting 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 benefit from synergies of the combination and the
existing workforce of the acquired entity.

Our annual evaluation of goodwill impairment requires management
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 participant considerations and management’s
assumptions on revenue growth rates, operating margins, discount
rates and expected capital expenditures. Estimates used by manage-
ment can significantly affect the outcome of the impairment test.
Changes in forecasted operating results and other assumptions could
materially 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.

Our businesses with significant recorded goodwill include our FedEx
Express, FedEx Freight and FedEx Office reporting units. We evaluated
these reporting units during the fourth quarter of 2011. The estimated
fair value of each of these reporting units exceeded their carrying
values in 2011, and we do not believe that any of these reporting units
are at risk as of May 31, 2011. However, as noted below, we have
recorded goodwill impairment charges associated with our FedEx
Office reporting unit in recent years. While the performance of this
business has improved, the realization of the value of the remaining
attributable goodwill ($362 million) is dependent upon execution of our
growth strategies and initiatives in the future.

goodwill impairment charges – 2010
In connection with our annual impairment testing of goodwill con-
ducted in the fourth quarter of 2010, we recorded a charge of $18
million for impairment of the value of the remaining goodwill at our
FedEx National LTL reporting unit. The impairment charge resulted
from the significant negative impact of the U.S. recession on the LTL
industry, which resulted in volume and yield declines and operating
losses. In connection with the combination of our LTL networks in
2011, this unit was merged into the FedEx Freight reporting unit.

goodwill impairment charges – 2009
FEDEX OFFICE. During 2009, in response to the lower revenues and
continued operating losses at FedEx Office resulting from the U.S.
recession, the company initiated an internal reorganization designed
to improve revenue–generating capabilities and reduce costs including
headcount reductions, the termination of operations in some interna-
tional locations and substantially curtailing future network expansion.
Despite these actions, operating losses and weak economic conditions
significantly impacted our FedEx Office reporting unit.

In connection with our annual impairment testing in 2009, we
concluded that the recorded goodwill was impaired and recorded
an impairment charge of $810 million during the fourth quarter of
2009. The goodwill 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.

contingencies
We are subject to various loss contingencies, including tax proceed-
ings and litigation, in connection with our operations. Contingent
liabilities are difficult to measure, as their measurement 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, significant management
judgment is required to assess these matters and to make determina-
tions about the measurement of a liability, if any. Our material pending
loss contingencies are described in Note 17 of the accompanying
consolidated financial statements. In the opinion of management, the
aggregate liability, if any, of individual matters or groups of matters not
specifically described in Note 17 is not expected to be material to our
financial position, results of operations or cash flows. The following
describes our methods and associated processes for evaluating
these matters.

ManageMent’s discussion and analysis

We account for operating taxes based on multi–state, local and
foreign taxing jurisdiction rules in those areas in which we operate.
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.

We measure and record operating tax contingency accruals in
accordance with accounting guidance for contingencies. As discussed
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 esti-
mated 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.

During the preparation of our financial statements, we evaluate our
contingencies to determine whether it is probable, reasonably possible
or remote that a liability has been incurred. A loss is recognized for all
contingencies deemed probable and estimable, regardless of amount.
For unresolved contingencies with potentially material exposure that
are deemed reasonably possible, we evaluate whether a potential loss
or range of loss can be reasonably estimated.

Our evaluation of these matters is the result of a comprehensive
process designed to ensure that accounting recognition of a loss or
disclosure of these contingencies is made in a timely manner and
involves our legal and accounting personnel, as well as external
counsel where applicable. The process includes regular communica-
tions during each quarter and scheduled meetings shortly before the
completion of our financial statements to evaluate any new legal
proceedings and the status of any existing matters.

TAX CONTINGENCIES. We are subject to income and operating tax
rules of the U.S., its states and municipalities, and of the foreign
jurisdictions in which we operate. Significant judgment is required in
determining income tax provisions, as well as deferred tax asset and
liability balances and related deferred tax valuation allowances, if nec-
essary, 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.

Tax contingencies arise from uncertainty in the application of tax
rules throughout the many jurisdictions in which we operate and are
impacted by several factors, including tax audits, appeals, litigation,
changes in tax laws and other rules and their interpretations, and
changes in our business. 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 first 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
litigation processes, if any. The second step requires us to estimate
and measure the tax benefit as the largest amount that is more than
50% likely to be realized upon ultimate settlement. It is inherently
difficult 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, successfully
settled issues under audit and new audit activity. Such a change in
recognition or measurement could result in the recognition of a tax
benefit 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 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. These noncurrent income tax liabilities are
recorded in the caption “Other liabilities” in the accompanying consoli-
dated balance sheets.

ManageMent’s discussion and analysis

In determining whether a loss should be accrued or a loss contingency
disclosed, we evaluate, among other factors:

> the current status of each matter within the scope and context of the
entire lawsuit (i.e., the lengthy and complex nature of class–action
matters);

> the procedural status of each lawsuit;

> any opportunities to dispose of the lawsuit on its merits before trial
(i.e., motion to dismiss or for summary judgment);

> the amount of time remaining before the trial date;

> the status of discovery;

> the status of settlement, arbitration or mediation proceedings; and

> our judgment regarding the likelihood of success prior to or at trial.

In reaching our conclusions with respect to accrual of a loss or loss
contingency disclosure, we take a holistic view of each matter based
on these factors and the information available prior to the issuance of
our financial statements. Uncertainty with respect to an individual fac-
tor or combination of these factors may impact our decisions related to
accrual or disclosure of a loss contingency, including a conclusion that
we are unable to establish an estimate of possible loss or a meaning-
ful range of possible loss. We update our disclosures to reflect our
most current understanding of the contingencies at the time we issue
our financial statements. However, 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 or range
of possible loss.

Despite the inherent complexity in the accounting and disclosure of
contingencies, we believe that our processes are robust and thorough
and provide a consistent framework for management in evaluating the
potential outcome of contingencies for proper accounting recognition
and disclosure.

QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

INTEREST RATES. While we currently have market risk sensitive
instruments related to interest rates, we have no significant exposure
to changing interest rates on our long–term debt because the interest
rates are fixed on all of our long–term debt. As disclosed in Note 6
to the accompanying consolidated financial statements, we had out-
standing fixed–rate, long–term debt (exclusive of capital leases) with
estimated fair values of $1.9 billion at May 31, 2011 and $2.1 billion at
May 31, 2010. Market risk for fixed–rate, long–term debt is estimated
as the potential decrease in fair value resulting from a hypothetical
10% increase in interest rates and amounts to $36 million as of May
31, 2011 and $41 million as of May 31, 2010. 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.

We have interest rate risk with respect to our pension and postre-
tirement benefit obligations. Changes in interest rates impact our
liabilities associated with these benefit plans as well as the amount
of pension and postretirement benefit expense recognized. Declines
in the value of plan assets could diminish the funded status of our
pension plans and potentially increase our requirement to make contri-
butions to the plans. Substantial investment losses on plan assets will
also increase pension and postretirement benefit expense in the years
following the losses.

FOREIGN CURRENCY. While we are a global provider of transportation,
e–commerce and business services, the substantial majority of our
transactions 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 fluctuations is more
significant with respect to our revenues than our expenses, as a
significant portion of our expenses are denominated in U.S. dollars,
such as aircraft and fuel expenses. During 2011 and 2010, operating
income was positively impacted due to foreign currency fluctuations.
However, favorable foreign currency fluctuations also may have had
an offsetting impact on the price we obtained or the demand for our
services, which is not quantifiable. At May 31, 2011, the result of a
uniform 10% strengthening in the value of the dollar relative to the
currencies in which our transactions are denominated would result in a
decrease in operating income of $38 million for 2012. This theoretical
calculation assumes that each exchange rate would change in the
same direction relative to the U.S. dollar. This calculation is not
indicative of our actual experience in foreign currency transactions.
In addition to the direct effects of changes in exchange rates,
fluctuations in exchange rates also affect the volume of sales or the
foreign currency sales price as competitors’ services become more or
less attractive. The sensitivity analysis of the effects of changes in
foreign currency exchange rates does not factor in a potential change
in sales levels or local currency prices.

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

However, our fuel surcharges have a timing lag (approximately six
to eight weeks for FedEx Express and FedEx Ground) before they are
adjusted for changes in fuel prices. Our fuel surcharge index also
allows fuel prices to fluctuate approximately 2% for FedEx Express
and approximately 4% for FedEx Ground before an adjustment to the
fuel surcharge occurs. Accordingly, our operating income in a specific
period may be significantly affected should the spot price of fuel sud-
denly 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 financial instru-
ments for trading purposes.

ManageMent’s discussion and analysis

RISK FACTORS

Our financial and operating results are subject to many risks and uncer-
tainties, as described below.

We are directly affected by the state of the economy. While
macro–economic risks 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 companies
purchase and produce fewer goods, we transport fewer goods. In
addition, we have a relatively high fixed–cost structure, 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
had a disproportionately negative impact on us and our recent financial
results.

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 addi-
tion, 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 significant resources to promoting and protecting them.
Adverse publicity (whether or not justified) relating to activities by
our employees, contractors or agents, such as noncompliance with
anti–corruption laws, 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 financial condition, liquidity and results of operations, as well as
require additional resources to rebuild our reputation and restore the
value of our brand.

We rely heavily on information and 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,
including our ability to provide features of service that are important to
our customers. External and internal risks, such as malware, insecure
coding, “Acts of God,” attempts to penetrate our networks, data leak-
age and human error, pose a direct threat to our products, services and
data. Any disruption to the Internet or our complex, global technology
infrastructure, including those impacting our computer systems and
customer Web sites, could adversely impact our customer service,
volumes, and revenues and result in increased costs. These types
of adverse impacts could also occur in the event the confidentiality,
integrity, or availability of company and customer information was
compromised due to a data loss by FedEx or a trusted third party.
While we have invested and continue to invest in technology security

initiatives, information technology risk management and disaster
recovery plans, these measures cannot fully insulate us from technol-
ogy disruptions or data loss and the resulting adverse effect on our
operations and financial 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. In addi-
tion, disruptions in the supply of fuel could have a negative impact on
our ability to operate our transportation networks.

our businesses are capital intensive, and we must make
capital expenditures based upon projected volume levels. We
make significant 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 sig-
nificant 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 fleet 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.

We face intense competition. The transportation and business
services markets are both highly competitive and sensitive to price and
service, especially in periods of little or no macro–economic growth.
Some of our competitors have more financial 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, 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, maintain-
ing a broad portfolio of services is important to keeping and attracting
customers. While we believe we compete effectively through our
current service offerings, if our competitors offer a broader range of
services or more effectively bundle their services, it could impede our
ability to maintain or grow our market share.

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

ManageMent’s discussion and analysis

to continue to maintain good relationships with our employees and
prevent labor organizations from organizing groups of our employees,
our operating costs could significantly increase and our operational
flexibility could be significantly reduced. Despite continual organiz-
ing 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 has, in the past, considered adopting changes in labor
laws, however, that would make it easier for unions to organize small
units of our employees. For example, there is always a possibility
that Congress could remove most FedEx Express employees from the
purview of the Railway Labor Act of 1926, as amended (the “RLA”).
Such legislation 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 flow of shipments
of time–sensitive, high–value goods throughout our global network.
Such disruptions could threaten our ability to provide competitively
priced shipping options and ready access to global markets. There is
also the possibility that Congress could pass other labor 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”). In addition, federal
and state governmental agencies, such as the National Labor Relations
Board, have and may continue to take actions that could make it easier
for our employees to organize under the RLA or NLRA. Finally, changes
to federal or state laws governing employee classification could
impact the status of FedEx Ground’s owner–operators as independent
contractors.

if we do not effectively operate, integrate, leverage and grow
acquired businesses, our financial results and reputation
may suffer. Our strategy for long–term growth, productivity and
profitability depends in part on our ability to make prudent strategic
acquisitions and to realize the benefits we expect when we make
those acquisitions. In furtherance of this strategy, we recently made
strategic moves in India and Mexico. While we expect our past and
future acquisitions to enhance our value proposition to customers
and improve our long–term profitability, 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.

fedex ground relies on owner–operators to conduct its
linehaul 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
independent 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 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 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 con-
tractors 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 benefit of wage–and–hour laws and result in employ-
ment and withholding tax and benefit liability for FedEx Ground, and
could result in changes to the independent contractor status of FedEx
Ground’s owner–operators. 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 significant capital outlays.

increased security or pilot safety requirements could impose
substantial costs on us. 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 and potentially slow service for busi-
nesses, including those in the transportation industry. For example,
the U.S. Transportation Security Administration has issued to us a Full
All–Cargo Aircraft Operator Standard Security Plan, which contains
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. The
Federal Aviation Administration, in September 2010, proposed rules
that would significantly reduce the maximum number of hours on duty
and increase the minimum amount of rest time for our pilots, and thus
require us to hire additional pilots and modify certain of our aircraft.
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 or flight safety requirements could impose material
costs on us.

the regulatory environment for global aviation or other
transportation rights may impact our operations. Our extensive
air network is critical to our success. 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 governments. In addition, we must obtain the permission
of foreign governments to provide specific flights and services. Our
operations outside of the United States, such as FedEx Express’s grow-
ing international domestic operations, are also subject to current and
potential regulations that restrict, and sometimes prohibit, our ability
to compete in parts of the transportation and logistics market. As an
example, the Chinese government has adopted postal regulations that
exclude foreign–owned companies such as FedEx from competing in
the mainland China domestic document delivery market. Regulatory
actions affecting global aviation or transportation rights or a failure to
obtain or maintain aviation or other transportation rights in important
international markets could impair our ability to operate our networks.

We may be affected by global climate change or by legal,
regulatory or market responses to such change. Concern over
climate change, including the impact of global warming, has led to
significant U.S. and international legislative and regulatory efforts to
limit greenhouse gas (“GHG”) emissions. For example, during 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 flights to and

ManageMent’s discussion and analysis

from any airport in any member state of the European Union will be
covered by the ETS requirements beginning in 2012, and each year we
will be required to submit emission allowances in an amount equal to
the carbon dioxide emissions from such flights. In addition, the U.S.
Congress has, in the past, considered bills that would regulate GHG
emissions, and some form of federal climate change legislation is
possible in the future. Increased regulation regarding GHG emissions,
especially aircraft or diesel engine emissions, could impose substantial
costs on us, especially at FedEx Express. These costs include an
increase in the cost of the fuel and other energy we purchase and
capital costs 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
structure or our operating results. It is reasonably possible, however,
that it could impose material costs on us. Moreover, even without
such regulation, increased awareness and any adverse publicity in
the global marketplace about the GHGs emitted by companies in the
airline and transportation industries could harm our reputation 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 climate change that
could affect all of humankind, such as shifts in world ecosystems.

a localized disaster in a key geography could adversely impact
our business. While we operate several integrated networks with
assets distributed throughout the world, there are concentrations of
key assets within our networks that are exposed to localized risks from
natural or manmade disasters such as tornados, floods, earthquakes or
terrorist attacks. The loss of a key location such as our Memphis super
hub or one of our information technology centers could cause a sig-
nificant disruption to our operations and cause us to incur significant
costs to relocate or reestablish these functions. Moreover, resulting
economic dislocations, including supply chain and fuel disruptions,
could adversely impact demand for our services.

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

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

> the increasing costs of compliance with federal and state govern-
mental agency mandates and defending against inappropriate or
unjustified enforcement or other actions by such agencies;

> the impact of any international conflicts or terrorist activities on the
United States and global economies in general, the transportation
industry or us in particular, and what effects these events will have
on our costs or the demand for our services;

> any impacts on our businesses resulting from new domestic or inter-
national government laws and regulation;

> 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;

> market acceptance of our new service and growth initiatives;

> any liability resulting from and the costs of defending against
class–action litigation, such as wage–and–hour, discrimination and
retaliation claims, and any other legal proceedings;

> the outcome of future negotiations to reach new collective bargain-
ing agreements — including with the union that represents the pilots
of FedEx Express (the current pilot contract is scheduled to become
amendable in March 2013 unless the union exercises its option to
shorten the contract, in which case the agreement would be amend-
able in March 2012);

> 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;

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

> availability of financing on terms acceptable to us and our ability
to maintain our current credit ratings, especially given the capital
intensity of our operations.

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 consolidated financial
statements, are “forward–looking” statements within the meaning
of the Private Securities Litigation Reform Act of 1995 with respect
to our financial condition, results of operations, cash flows, plans,
objectives, future performance and business. Forward–looking
statements include those preceded by, followed by or that include
the words “may,” “could,” “would,” “should,” “believes,” “expects,”
“anticipates,” “plans,” “estimates,” “targets,” “projects,” “intends” or
similar expressions. These forward–looking statements involve risks
and uncertainties. Actual results may differ materially from those con-
templated (expressed or implied) by such forward–looking statements,
because of, among other things, the risk factors identified above and
the other risks and uncertainties you can find in our press releases and
other SEC filings.

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

fedeX corporation

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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

Management, with the participation of our principal executive and financial officers, assessed our internal control over financial reporting as of
May 31, 2011, the end of our fiscal 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, 2011.

The effectiveness of our internal control over financial reporting as of May 31, 2011, has been audited by Ernst & Young LLP, the independent
registered public accounting firm who also audited the Company’s consolidated financial statements included in this Annual Report. Ernst &
Young LLP’s report on the Company’s internal control over financial reporting is included in this Annual Report.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
FedEx Corporation

We have audited FedEx Corporation’s internal control over financial reporting as of May 31, 2011, based on criteria established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). FedEx
Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

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

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

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

In our opinion, FedEx Corporation maintained, in all material respects, effective internal control over financial reporting as of May 31, 2011,
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, 2011 and 2010, and the related consolidated statements of income, changes in stockholders’
investment and comprehensive income, and cash flows for each of the three years in the period ended May 31, 2011 of FedEx Corporation and
our report dated July 12, 2011 expressed an unqualified opinion thereon.

Memphis, Tennessee
July 12, 2011

fedeX corporation

CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share amounts)
revenues
operating expenses:
Salaries and employee benefits

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 financial statements.

years ended May 31,

2011

$ 39,304

2010

$ 34,734

2009

$ 35,497

15,276

14,027

13,767

5,674

2,462

1,973

4,151

1,979

5,322

36,926

2,378

(86)

(36)

(113)

2,265

813

$ 1,452

$ 4.61

$ 4.57

4,728

2,359

1,958

3,106

1,715

4,825

32,736

1,998

(79)

(33)

(104)

1,894

710

$ 1,184

$ 3.78

$ 3.76

4,534

2,429

1,975

3,811

1,898

1,204

5,132

34,750

747

(85)

(11)

(70)

677

579

$ 98

$ 0.31

CONSOLIDATED BALANCE SHEETS

(in millions, except share data)
assets
Current Assets
Cash and cash equivalents
Receivables, less allowances of $182 and $166
Spare parts, supplies and fuel, less allowances of $169 and $170
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
Other assets
Total other long–term assets

liabilities and stockholders’ investment
Current Liabilities
Current portion of long–term debt
Accrued salaries and employee benefits
Accounts payable
Accrued expenses
Total current liabilities
Long–Term Debt, Less Current Portion
Other Long–Term Liabilities
Deferred income taxes
Pension, postretirement healthcare and other benefit 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; 317 million shares issued as of May 31, 2011
and 314 million shares issued as of May 31, 2010
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 financial statements.

fedeX corporation

May 31,

2011

2010

$ 2,328
4,581
437
610
329
8,285

13,146
5,591
4,408
3,294
7,247
33,686
18,143
15,543

2,326
1,231
3,557
$ 27,385

$ 18
1,268
1,702
1,894
4,882
1,667

1,336
2,124
977
779
246
154
5,616

32
2,484
15,266
(2,550)
(12)
15,220
$ 27,385

$ 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

years ended May 31,

2011

2010

2009

$ 1,452

$ 1,184

$ 98

1,973
152
669
29
98

(400)
(114)
(169)
370
(19)
4,041

(3,434)
(96)
111
(3,419)

(262)
–
108
23
(151)
(5)
(287)
41
376
1,952
$ 2,328

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

fedeX corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)
operating activities
Net Income
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization
Provision for uncollectible accounts
Deferred income taxes and other noncash items
Impairment and other 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
Business acquisition, net of cash acquired
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 benefit on the exercise of stock options
Dividends paid
Other, net
Cash (used in) provided by 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

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

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
INVESTMENT AND COMPREHENSIVE INCOME

fedeX corporation

common
stock

additional
paid–in
capital

–

$ 31

31
–

(in millions, except share data)
Balance at May 31, 2008
Adjustment to opening balances for
retirement plans measurement date
transition, net of tax benefit 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
(2,375,753 shares issued)
Balance at May 31, 2010
Net income
Foreign currency translation adjustment,
net of tax of $27
Retirement plans adjustments,
net of tax of $141
Total comprehensive income
Purchase of treasury stock
Cash dividends declared ($0.48 per share)
Employee incentive plans and other
(2,229,051 shares issued)
Balance at May 31, 2011
The accompanying notes are an integral part of these consolidated financial statements.

31
–

–
–

$ 32

–

$ 1,922

–

1,922
–

–

131

2,053
–

–

–
–

208

2,261
–

–

–
–

223

$ 2,484

accumulated
other
comprehensive
income (loss)

$ (425)

retained
earnings

$ 13,002

treasury
stock

$ (4)

total

$ 14,526

(44)

12,958
98

–

(137)

–

12,919
1,184

–

–
(137)

–

13,966
1,452

–

–
(152)

–

369

(56)
–

(112)

(1,205)

–

(1,373)
–

(25)

(1,042)

–
–

–

(2,440)
–

125

(235)

–
–

–

$ 15,266

$ (2,550)

–

(4)
–

–

(4)
–

–

(3)
–

–

(7)
–

–

(5)
–

325

14,851
98

(112)

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

131

13,626
1,184

(25)

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

208

13,811
1,452

125

(235)
1,342
(5)
(152)

–

$ (12)

224

$ 15,220

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 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–package ground delivery services; and FedEx Freight, Inc.
(“FedEx Freight”), a leading U.S. provider of less–than–truckload
(“LTL”) freight services. These companies represent our major service
lines and, along with FedEx Corporate Services, Inc. (“FedEx Services”),
form the core of our reportable segments. Our FedEx Services segment
provides sales, marketing and information technology support to our
transportation segments. In addition, the FedEx Services segment
provides customers with retail access to FedEx Express and FedEx
Ground shipping services through FedEx Office and Print Services, Inc.
(“FedEx Office”) and provides customer service, technical support and
billing and collection services through FedEx TechConnect, Inc. (“FedEx
TechConnect”).

FISCAL YEARS. Except as otherwise specified, references to years
indicate our fiscal year ended May 31, 2011 or ended May 31 of the
year referenced.

PRINCIPLES OF CONSOLIDATION. The consolidated financial state-
ments include the accounts of FedEx and its subsidiaries, substantially
all of which are wholly owned. All significant intercompany accounts
and transactions have been eliminated in consolidation.

REVENUE RECOGNITION. We recognize revenue upon delivery of
shipments for our transportation 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
transactions 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 accompa-
nying 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 transportation
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 billings 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 transportation 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 transac-
tion 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 receiv-
able. Historically, credit losses have been within management’s
expectations.

ADVERTISING. Advertising and promotion costs are expensed as
incurred and are classified in other operating expenses. Advertising
and promotion expenses were $375 million in 2011, $374 million in
2010 and $379 million in 2009.

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 air-
craft–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 estimated useful life of the related aircraft and
engines. Additionally, allowances for obsolescence are provided for
spare parts currently identified as excess or obsolete. These allow-
ances are based on management estimates, which are subject to
change. Supplies and fuel are reported at weighted average cost.

PROPERTY AND EQUIPMENT. Expenditures for major additions,
improvements, flight equipment modifications 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 acquir-
ing the asset. Maintenance and repairs are charged to expense as
incurred. 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 classified within
operating expenses.

For financial reporting purposes, we record depreciation and amortiza-
tion 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 accelerated methods when applicable.
The depreciable lives and net book value of our property and equip-
ment are as follows (dollars in millions):

notes to consolidated financial stateMents

net Book Value at May 31,

range

2011

2010

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.

Wide–body aircraft and
related equipment

15 to 30 years

$ 6,536

$ 5,897

Narrow–body and feeder
aircraft and related equipment 5 to 18 years

1,517

1,049

Package handling and ground
support equipment

Vehicles
Computer and electronic
equipment

Facilities and other

3 to 30 years

3 to 15 years

2 to 10 years

2 to 40 years

1,985

1,076

776

3,653

1,895

1,095

649

3,800

Substantially all property and equipment have no material residual
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 depreciate 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 2011 and 2010, and $1.8 billion in 2009.
Depreciation and amortization expense includes amortization of assets
under capital lease.

CAPITALIZED INTEREST. Interest on funds used to finance the
acquisition and modification 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 construc-
tion. Capitalized interest was $71 million in 2011, $80 million in 2010
and $71 million in 2009.

IMPAIRMENT OF LONG–LIVED ASSETS. Long–lived assets are
reviewed for impairment when circumstances indicate the carrying
value of an asset may not be recoverable. For assets that are to be
held and used, an impairment is recognized when the estimated undis-
counted cash flows 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 values are
determined based on quoted market values, discounted cash flows
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
flows for most of our operating assets are assessed at a network
level, not at an individual asset level, for our analysis of impairment.
In 2011, we incurred asset impairment charges of $29 million related
to the combination of our LTL operations at FedEx Freight (see “FedEx
Freight Network Combination” below for additional information).

There were no material property and equipment impairment charges
recognized in 2010. During 2009, we recorded $202 million in property

GOODWILL. Goodwill is recognized for the excess of the purchase
price over the fair value of tangible and identifiable intangible net
assets of businesses acquired. Several factors give rise to goodwill
in our acquisitions, such as the expected benefit from synergies of
the combination and the existing workforce of the acquired entity.
Goodwill is reviewed at least annually for impairment by comparing
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 partici-
pant considerations and management’s assumptions on revenue
growth rates, operating margins, discount rates and expected capital
expenditures. Fair value determinations may include both internal and
third–party valuations. Unless circumstances otherwise dictate, we
perform our annual impairment testing in the fourth quarter.

INTANGIBLE ASSETS. Intangible assets include customer relation-
ships, technology assets and contract–based intangibles acquired in
business combinations. Intangible assets are amortized over periods
ranging from 3 to 12 years, either on a straight–line basis or an
accelerated basis depending upon the pattern in which the economic
benefits are realized.

PENSION AND POSTRETIREMENT HEALTHCARE PLANS. Our defined
benefit plans are measured using actuarial techniques that reflect
management’s assumptions for discount rate, expected long–term
investment returns on plan assets, salary increases, expected retire-
ment, 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 benefit obligation could be effectively
settled as of the measurement date) with the assistance of actuar-
ies, who calculate the yield on a theoretical portfolio of high–grade
corporate bonds (rated Aa or better) with cash flows that are designed
to match our expected benefit 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
tax–qualified U.S. domestic pension plans (“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 defined benefit pension
and other postretirement benefit plans, and the recognition in other
comprehensive income (“OCI”) of unrecognized gains or losses and
prior service costs or credits. Additionally, the guidance requires the
measurement date for plan assets and liabilities to coincide with the
plan sponsor’s year end.

At May 31, 2011, we recorded a decrease to equity through OCI of
$350 million (net of tax) based primarily on year–end adjustments
related to increases in our projected benefit obligation due to a
decrease in the discount rate used to measure the liability at May 31,
2011. At May 31, 2010, we recorded a decrease to equity through
OCI of $1.0 billion (net of tax) based primarily on year–end adjust-
ments related to increases in our projected benefit obligation due to a
decrease in the discount rate used to measure the liability at
May 31, 2010.

notes to consolidated financial stateMents

INCOME TAXES. Deferred income taxes are provided for the tax effect
of temporary differences between the tax basis of assets and liabilities
and their reported amounts in the financial statements. The liability
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 first 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 litigation processes,
if any. The second step requires us to estimate and measure the tax
benefit as the largest amount that is more than 50% likely to be real-
ized upon ultimate settlement. It is inherently difficult and subjective
to estimate such amounts, as we must determine the probability of
various possible outcomes. We reevaluate these uncertain tax posi-
tions 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, successfully settled issues under audit, and new audit activ-
ity. Such a change in recognition or measurement could result in the
recognition of a tax benefit 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 component
of income tax expense. The income tax liabilities and accrued inter-
est 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 the
accompanying consolidated balance sheets.

SELF–INSURANCE ACCRUALS. We are self–insured for workers’
compensation claims, vehicle accidents and general liabilities, benefits
paid under employee healthcare programs and long–term disability
benefits. 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 liability, employee healthcare claims and long–term disability
are included in accrued expenses. We self–insure up to certain limits
that vary by operating company and type of risk. Periodically, we
evaluate the level of insurance coverage and adjust insurance levels
based on risk tolerance and premium expense.

LEASES. We lease certain aircraft, facilities, equipment and vehicles
under capital and operating leases. The commencement date of all
leases is the earlier of the date we become legally obligated to make
rent payments or the date we may exercise control over the use of
the property. In addition to minimum rental payments, certain leases
provide for contingent rentals based on equipment usage principally
related to aircraft leases at FedEx Express and copier usage at FedEx
Office. Rent expense associated with contingent rentals is recorded
as incurred. Certain of our leases contain fluctuating or escalating

payments and rent holiday periods. The related rent expense is
recorded on a straight–line basis over the lease term. The cumula-
tive excess of rent payments over rent expense is accounted for as
a deferred lease asset and recorded in “Other assets” in the accom-
panying 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 component of accumulated other comprehensive
income within common stockholders’ investment. Transaction gains
and losses that arise from exchange rate fluctuations on transactions
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 translation gains in accumulated other compre-
hensive income were $156 million at May 31, 2011, $30 million at May
31, 2010 and $56 million at May 31, 2009.

EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS. The
pilots of Federal Express Corporation (“FedEx Express”), which repre-
sent a small number of FedEx Express’s total employees, are employed
under a collective bargaining agreement. During the fourth quarter
of 2011, the pilots ratified a new labor contract that includes safety
initiatives, increases in hourly pay rates and travel per diem rates,
and provisions for opening a European crew base. The new contract
is scheduled to become amendable in March 2013 unless the union
exercises its option to shorten the contract, in which case the agree-
ment would be amendable in March 2012 and a portion of the hourly
pay increases would be canceled. In addition to our pilots at FedEx
Express, certain of FedEx Express’s non–U.S. employees are unionized.

STOCK–BASED COMPENSATION. We recognize compensation
expense for stock–based awards under the provisions of the account-
ing 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 6, 2011, our
Board of Directors declared a quarterly dividend of $0.13 per share of
common stock. The dividend was paid on July 1, 2011 to stockholders
of record as of the close of business on June 17, 2011. Each quarterly
dividend payment is subject to review and approval by our Board of
Directors, and we evaluate our dividend payment amount on an annual
basis at the end of each fiscal year.

FEDEX FREIGHT NETWORK COMBINATION. The previously announced
combination of our FedEx Freight and FedEx National LTL operations
was completed on January 30, 2011. Our combined LTL network will
increase efficiencies, reduce operational costs and provide custom-
ers both Priority and Economy LTL freight services across all lengths
of haul from one integrated company. These actions resulted in the
following incremental costs, including an impairment charge recorded
during 2011. Charges for the year ended May 31, 2011 include the
following (in millions):

Severance

Lease terminations

Asset impairments

Impairment and other charges

Other program costs

Total program costs

2011

$ 40

$ 133

Other program costs include $15 million of accelerated depreciation
expense due to a change in the estimated useful life of certain assets
impacted by the combination of these operations and other incremen-
tal costs directly associated with the program. Substantially all of the
severance accruals were paid during the fourth quarter of 2011 and
the remaining severance accruals will be paid during the first quarter
of 2012. We have received $88 million related to asset sales, which
offset the total cash outlays for the program. The estimates recorded
at May 31, 2011 are not subject to any material risk of change.

USE OF ESTIMATES. The preparation of our consolidated financial
statements requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities, the reported amounts
of revenues 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 financial 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 avail-
able 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 allowances; 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 significantly
impact our reported results and the comparability of our financial
statements. We believe the following new accounting guidance is
relevant to the readers of our financial statements.

On June 1, 2008, we adopted the authoritative guidance issued by the
Financial Accounting Standards Board (“FASB”) on fair value measure-
ments, which provides a common definition of fair value, establishes a
uniform framework for measuring fair value and requires expanded

notes to consolidated financial stateMents

disclosures about fair value measurements. On June 1, 2009, we
implemented the previously deferred provisions of this guidance for
nonfinancial assets and liabilities recorded at fair value, as required. The
adoption of this new guidance had no impact on our financial statements.

On June 1, 2009, we adopted the authoritative guidance issued by FASB
on employers’ disclosures about postretirement benefit plan assets. This
guidance provides objectives that an employer should consider when
providing detailed disclosures about assets of a defined benefit pension
or other postretirement plan, including disclosures about investment poli-
cies and strategies, categories of plan assets, significant concentrations
of risk and the inputs and valuation techniques used to measure the fair
value of plan assets. See Note 12 for related disclosures.

On June 1, 2009, we adopted the authoritative guidance issued by
FASB related to interim disclosures about the fair value of financial
instruments. This guidance requires disclosures about the fair value of
financial instruments for interim reporting periods in addition to annual
reporting periods.

In June 2011, the FASB issued new guidance to make the presentation
of items within OCI more prominent. The new standard will require
companies to present items of net income, items of OCI and total
comprehensive income in one continuous statement or two separate con-
secutive statements, and companies will no longer be allowed to present
items of OCI in the statement of stockholders’ equity. Reclassification
adjustments between OCI and net income will be presented separately
on the face of the financial statements. This new standard is effective
for our fiscal year ending May 31, 2013.

We believe there is no additional new accounting guidance adopted but
not yet effective that is relevant to the readers of our financial state-
ments. However, there are numerous new proposals under development
which, if and when enacted, may have a significant impact on our
financial reporting.

NOTE 3: BUSINESS COMBINATIONS

On February 22, 2011, FedEx Express completed the acquisition of the
Indian logistics, distribution and express businesses of AFL Pvt. Ltd.
and its affiliate Unifreight India Pvt. Ltd. for $96 million in cash. The
financial results of the acquired businesses are included in the FedEx
Express segment from the date of acquisition and were not material to
our results of operations or financial condition. Substantially all of the
purchase price was allocated to goodwill.

These acquisitions will give us more robust domestic transportation
networks and added capabilities in these important global markets.

notes to consolidated financial stateMents

NOTE 4: 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, 2009
Accumulated impairment charges
Balance as of May 31, 2009
Impairment charge
Purchase adjustments and other(1)
Transfer between segments(2)
Balance as of May 31, 2010
Goodwill acquired(3)
Purchase adjustments and other(1)
Balance as of May 31, 2011
Accumulated goodwill impairment
charges as of May 31, 2011

fedex express
segment
$ 1,090
–
1,090
–
(11)
66
1,145
89
38
$ 1,272

fedex ground
segment
$ 90
–
90
–
–
–
90
–
–
$ 90

fedex freight
segment
$ 802
(115)
687
(18)
–
(66)
603
–
(1)
$ 602

fedex services
segment
$ 1,539
(1,177)
362
–
–
–
362
–
–
$ 362

total
$ 3,521
(1,292)
2,229
(18)
(11)
–
2,200
89
37
$ 2,326

$ –

$ (133)

$ (1,177)

$ (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.
(3) Goodwill acquired in 2011 relates to the acquisition of the Indian logistics, distribution and express businesses of AFL Pvt. Ltd. and its affiliate Unifreight India Pvt. Ltd.

See Note 3 for related disclosures.

Our reporting units with significant recorded goodwill include our
FedEx Express, FedEx Freight and FedEx Office reporting units. We
evaluated these reporting units during the fourth quarter of 2011.
The estimated fair value of each of these reporting units exceeded
their carrying values in 2011, and we do not believe that any of these
reporting units are at risk as of May 31, 2011.

goodwill impairment charges – 2010
In connection with our annual impairment testing of goodwill con-
ducted in the fourth quarter of 2010, we recorded a charge of $18
million for impairment of the value of the remaining goodwill at our
FedEx National LTL reporting unit. In connection with the combina-
tion of our LTL networks in 2011, this unit was merged into the FedEx
Freight reporting unit. The impairment charge resulted from the signifi-
cant negative impact of the U.S. recession on the LTL industry, which
resulted in volume and yield declines and operating losses.

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.

OTHER INTANGIBLE ASSETS. The net book value of our intangible
assets was $38 million in 2011 and $69 million in 2010. Amortization
expense for intangible assets was $32 million in 2011, $51 million
in 2010 and $73 million in 2009. Estimated amortization expense is
expected to be immaterial in 2012.

NOTE 5: SELECTED CURRENT LIABILITIES

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

Accrued Salaries and Employee Benefits
Salaries
Employee benefits, including
variable compensation
Compensated absences

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

May 31,

2011

2010

$ 256

$ 230

468
544
$ 1,268

$ 696
357
841
$ 1,894

386
530
$ 1,146

$ 675
347
693
$ 1,715

NOTE 6: 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, 2011, are as
follows (in millions):

Senior unsecured debt
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,

2011

2010

$ –
300
250
750
239
1,539
146
1,685
18
$ 1,667

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

Interest on our fixed–rate notes is paid semi–annually. Long–term
debt, exclusive of capital leases, had carrying values of $1.5 billion
compared with estimated fair values of $1.9 billion at May 31, 2011,
and $1.8 billion compared with estimated fair values of $2.1 billion
at May 31, 2010. The estimated fair values were determined based
on quoted market prices or on the current rates offered for debt with
similar terms and maturities.

We have a shelf registration statement filed with the Securities and
Exchange Commission that allows us to sell, in one or more future
offerings, any combination of our unsecured debt securities and com-
mon stock.

During 2011, we repaid our $250 million 7.25% unsecured notes that
matured on February 15, 2011. 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. During 2011, we made principal pay-
ments in the amount of $12 million related to capital lease obligations.
During 2010, we made principal payments in the amount of $153 mil-
lion related to capital lease obligations.

notes to consolidated financial stateMents

our operations, including our liquidity or borrowing capacity. As of
May 31, 2011, no commercial paper was outstanding and the entire
$1 billion under the revolving credit facility was available for future
borrowings.

We issue other financial instruments in the normal course of business
to support our operations, including letters of credit and surety bonds.
We had a total of $619 million in letters of credit outstanding at May
31, 2011, with $93 million unused under our primary $500 million letter
of credit facility, and $460 million in outstanding surety bonds placed
by third–party insurance providers. 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 reflected in our balance sheets,
where applicable. Therefore, no additional liability is reflected for the
letters of credit and surety bonds themselves.

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

NOTE 7: LEASES

We utilize certain aircraft, land, facilities, retail locations and equip-
ment under capital and operating leases that expire at various dates
through 2046. We leased 11% of our total aircraft fleet under capital
or operating leases as of May 31, 2011 as compared to 12% as of
May 31, 2010. A portion of our supplemental aircraft are leased by us
under agreements that provide for cancellation 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):

May 31,

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

Less accumulated amortization

2011
$ 8

165
17
145
335
307
$ 28

2010
$ 15

165
17
146
343
312
$ 31

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

Minimum rentals
Contingent rentals(1)

2011
$ 2,025
193
$ 2,218

2010
$ 2,001
152
$ 2,153

(1) Contingent rentals are based on equipment usage.

2009
$ 2,047
181
$ 2,228

notes to consolidated financial stateMents

A summary of future minimum lease payments under capital leases
and noncancelable operating leases with an initial or remaining term
in excess of one year at May 31, 2011 is as follows (in millions):

operating leases

aircraft and
related
equipment
$ 494
499
473
455
458
1,545
$ 3,924

facilities
and other
$ 1,300
1,155
992
899
734
4,988
$ 10,068

total
operating
leases
$ 1,794
1,654
1,465
1,354
1,192
6,533
$ 13,992

2012
2013
2014
2015
2016
Thereafter
Total
Less amount representing
interest
Present value of net
minimum lease payments

capital
leases
$ 25
119
2
2
2
13
163

$ 146

The weighted–average remaining lease term of all operating leases
outstanding at May 31, 2011 was approximately six years. While cer-
tain of our lease agreements contain covenants governing the use of
the leased assets or require us to maintain certain levels of insurance,
none of our lease agreements include material financial covenants
or limitations.

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

We are the lessee in a series of operating leases covering a portion
of our leased aircraft. The lessors are trusts established specifically
to purchase, finance and lease aircraft to us. These leasing entities
meet the criteria for variable interest entities. We are not the primary
beneficiary 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, fixed–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 consolidate the entity as the primary beneficiary. Our
maximum exposure under these leases is included in the summary of
future minimum lease payments shown above.

NOTE 8: PREFERRED STOCK

Our Certificate 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, 2011, none of these
shares had been issued.

NOTE 9: STOCK–BASED COMPENSATION

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

Stock–based compensation expense

2011
$ 98

2010
$ 101

2009
$ 99

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. Vesting requirements are deter-
mined 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 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.

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 benefits” 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 assumptions 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 calculations for the options
granted during the years ended May 31, and then a discussion of
our methodology for developing each of the assumptions used in the
valuation model:

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

2011

2010

2009

$ 28.12
$ 80

$ 20.47
$ 77

$ 23.66
$ 7

5.9 years

5.7 years

5.5 years

34 %
2.36 %
0.558 %

32 %
3.24%
0.742 %

23 %
3.28%
0.492%

notes to consolidated financial stateMents

expected lives. This is the period of time over which the options granted are expected to remain outstanding. Options granted have a maxi-
mum 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 compensation expense.

expected Volatility. Actual changes in the market value of our stock are used to calculate the volatility assumption. We calculate 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 compensation expense.

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

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

The following table summarizes information about stock option activity for the year ended May 31, 2011:

Outstanding at June 1, 2010

Granted

Exercised

Forfeited

Outstanding at May 31, 2011

Exercisable

Expected to vest

Available for future grants

stock options

Weighted–average
exercise price

Weighted–average
remaining
contractual term

aggregate
intrinsic Value

(in millions)(1)

$ 78.32

81.86

53.13

104.38

$ 81.20

$ 84.74

$ 74.83

5.7 years

4.3 years

8.2 years

$ 327

$ 181

$ 135

20,238,056

2,474,603

(2,043,050)

(506,446)

20,163,163

12,968,690

6,618,915

11,928,567

(1) Only presented for options with market value at May 31, 2011 in excess of the exercise price of the option.

The options granted during the year ended May 31, 2011 are primarily
related to our principal annual stock option grant in June 2010.

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

The following table summarizes information about vested and
unvested restricted stock for the year ended May 31, 2011:

Unvested at June 1, 2010
Granted
Vested
Forfeited
Unvested at May 31, 2011

restricted stock

shares
637,296
235,998
(234,716)
(12,198)
626,380

Weighted–average
grant date fair Value
$ 74.02
78.74
81.11
70.91
$ 73.20

During the year ended May 31, 2010, there were 391,786 shares
of restricted stock granted with a weighted–average fair value of
$57.07. 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.

2009
2010
2011

stock options

Vested during
the year
2,414,815
2,296,211
2,721,602

fair value
(in millions)
$ 64
63
67

As of May 31, 2011, there was $132 million of total unrecognized
compensation cost, net of estimated forfeitures, related to unvested
share–based compensation arrangements. This compensation
expense is expected to be recognized on a straight–line basis over
the remaining weighted–average vesting period of approximately
two years.

Total shares outstanding or available for grant related to equity com-
pensation at May 31, 2011 represented 10% of the total outstanding
common and equity compensation shares and equity compensation
shares available for grant.

notes to consolidated financial stateMents

NOTE 10: 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):

2011

2010

2009

Basic earnings per common share:

Net earnings allocable to common shares(1)

$ 1,449

$ 1,182

$ 97

Weighted–average common shares

315

312

311

Basic earnings per common share

$ 4.61 $ 3.78

$ 0.31

Diluted earnings per common share:

Net earnings allocable to common shares(1)

$ 1,449 $ 1,182

$ 97

Weighted–average common shares

315

312

311

Dilutive effect of share–based awards

Weighted–average diluted shares

317

314

312

Diluted earnings per common share
Anti–dilutive options excluded from
diluted earnings per common share

$ 4.57 $ 3.76

$ 0.31

9.3

11.5

12.6

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

NOTE 11: INCOME TAXES

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

2011

2010

2009

$ 79
48
198
325

485
12
(9)
488
$ 813

$ 36
54
207
297

408
15
(10)
413
$ 710

$ (35)
18
214
197

327
48
7
382
$ 579

Current provision (benefit)
Domestic:
Federal
State and local
Foreign

Deferred provision (benefit)
Domestic:
Federal
State and local
Foreign

Pre–tax earnings of foreign operations for 2011, 2010 and 2009 were
$472 million, $555 million and $106 million, respectively, which
represent only a portion of total results associated with international
shipments.

A reconciliation of the statutory federal income tax rate to the effec-
tive 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 benefit
Other, net
Effective tax rate

2011
35.0 %

2009

2010
35.0 % 35.0 %

–

48.0

1.7
(0.8)
35.9 %

2.4
0.1
37.5 % 85.6 %

1.9
0.7

Our 2011 rate was lower than our 2010 rate primarily due to increased
permanently reinvested foreign earnings and a lower state tax rate
driven principally by favorable audit and legislative developments. Our
2009 rate was significantly impacted by goodwill impairment charges
that are not deductible for income tax purposes.

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

2011

2010

deferred
tax
assets

deferred
tax
liabilities

deferred
tax
assets

deferred
tax
liabilities

$ 274
1,016
519
422

$ 2,675
34
–
269

$ 377
783
416
490

172
(151)
$ 2,252

–
–
$ 2,978

142
(139)
$ 2,069

$ 2,157
36
–
238

–
–
$ 2,431

Property, equipment,
leases and intangibles
Employee benefits
Self–insurance accruals
Other
Net operating loss/credit
carryforwards
Valuation allowances

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

A reconciliation of the beginning and ending amount of unrecognized
tax benefits is as follows (in millions):

notes to consolidated financial stateMents

Current deferred tax asset
Noncurrent deferred tax liability

2011
$ 610
(1,336)
$ (726)

2010
$ 529
(891)
$ (362)

We have $484 million of net operating loss carryovers in various for-
eign jurisdictions and $524 million of state operating loss carryovers.
The valuation allowances primarily represent amounts reserved for
operating loss and tax credit carryforwards, which expire over varying
periods starting in 2012. 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 $640 mil-
lion at the end of 2011 and $325 million at the end of 2010. We have
not recognized deferred taxes for U.S. federal income tax purposes on
the unremitted earnings of our foreign subsidiaries that are perma-
nently reinvested. In 2011, our permanent reinvestment strategy with
respect to unremitted earnings of our foreign subsidiaries provided
a 1.3% benefit to our effective tax rate. Were the earnings to be
distributed, in the form of dividends or otherwise, these unremitted
earnings would be subject to U.S. federal income tax and non–U.S.
withholding taxes. Unrecognized foreign tax credits potentially 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 due to uncertainties related to the timing and source of any
potential distribution of such funds, along with other important factors
such as the amount of associated foreign tax credits. As of May 31,
2011, we had $300 million of cash in offshore jurisdictions associated
with our permanent reinvestment strategy.

We file income tax returns in the U.S., various U.S. state and local
jurisdictions, and various foreign jurisdictions. The Internal Revenue
Service is currently auditing 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
specific U.S. federal income tax positions that are in various stages of
appeal and/or litigation. No resolution date can be reasonably esti-
mated at this time for these appeals and litigation, but their resolution
is not expected to have a material effect on our consolidated financial
statements. We are also subject to ongoing audits in state, local and
foreign tax jurisdictions throughout the world.

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

2011
$ 82

2010
$ 72

2009
$ 88

(10)
(11)
$ 69

(4)
(3)
$ 82

(30)
(3)
$ 72

Our liabilities recorded for uncertain tax positions include $56 million
at May 31, 2011 and $67 million at May 31, 2010 associated with
positions that if favorably resolved would provide a benefit 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 $18 million on May 31, 2011 and $20 million on
May 31, 2010. Total interest and penalties included in our consoli-
dated statements of income are immaterial. Included in the 2011 and
2010 balances are $9 million of tax positions for which the ultimate
deductibility or income inclusion is certain but for which there may be
uncertainty about the timing of such deductibility or income inclusion.

It is difficult 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 juris-
dictions, 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 or collectively material to us.
It is reasonably possible that the amount of the benefit 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 12: RETIREMENT PLANS

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

The accounting guidance related to postretirement benefits requires
recognition in the balance sheet of the funded status of defined benefit
pension and other postretirement benefit 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

notes to consolidated financial stateMents

and the projected benefit obligation (“PBO”) of the plan. At May 31,
2011, we recorded a decrease to equity of $350 million (net of tax)
attributable to our plans. At May 31, 2010, we recorded a decrease
to equity of $1 billion (net of tax) to reflect unrealized actuarial losses
during 2010.

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 defined
contribution plans
Postretirement healthcare plans

2011

2010

2009

$ 543

$ 308

$ 177

257

60
$ 860

136

42
$ 486

237

57
$ 471

PENSION PLANS. Our largest pension plan covers certain U.S.
employees age 21 and over, with at least one year of service. Pension
benefits for most employees are accrued under a cash balance formula
we call the Portable Pension Account. Under the Portable Pension
Account, the retirement benefit is expressed as a dollar amount in a
notional account that grows with annual credits based on pay, age and
years of credited service, and interest on the notional account balance.
The Portable Pension Account benefit is payable as a lump sum or an
annuity at retirement at the election of the employee. The plan inter-
est credit rate varies from year to year based on a U.S. Treasury index.
Prior to 2009, certain employees earned benefits using a traditional
pension formula (based on average earnings and years of service);
however, benefits under this formula were capped on May 31, 2008.
We also sponsor or participate in nonqualified benefit plans covering
certain of our U.S. employee groups and other pension plans covering
certain of our international employees. The international defined

benefit pension plans provide benefits primarily based on final 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 coverage to eligible U.S. retirees
and their eligible dependents. U.S. employees covered by the principal
plan become eligible for these benefits 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 attainment of age 35 if hired on or after January 1,
1988. Postretirement healthcare benefits are capped at 150% of the
1993 per capita projected employer cost, which has been reached and,
therefore, these benefits are not subject to additional future inflation.

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

We use a measurement date of May 31 for our pension and postretire-
ment healthcare plans. 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. Actuarial gains or
losses are generated for changes in assumptions and to the extent that
actual results differ from those assumed. These actuarial gains and
losses are amortized over the remaining average service lives of our
active employees if they exceed a corridor amount in the aggregate.
Additional information about our pension plans can be found in the
Critical Accounting Estimates section of Management’s Discussion and
Analysis of Results of Operations and Financial Condition (“MD&A”) in
this Annual Report.

Weighted–average actuarial assumptions for our primary U.S. retirement plans, which represent substantially all of our PBO and accumulated
postretirement benefit obligation (“APBO”), are as follows:

Discount rate used to determine benefit obligation

Discount rate used to determine net periodic
benefit cost

Rate of increase in future compensation levels
used to determine benefit obligation
Rate of increase in future compensation levels
used to determine net periodic benefit cost

Expected long–term rate of return on assets

pension plans

postretirement Healthcare plans

2011

5.76 %

2010

6.37 %

2009

7.68 %

2011

5.67 %

2010

6.11 %

2009

7.27 %

6.37

7.68

7.15

6.11

7.27

7.13

4.58

4.63

8.00

4.63

4.42

8.00

4.42

4.49

8.50

–

The estimated average rate of return on plan assets is a long–term,
forward–looking assumption that also materially affects our pen-
sion 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. We
review the expected long–term rate of return on an annual basis and
revise it as appropriate. Management considers the following factors
in determining this assumption:

> the duration of our pension plan liabilities, which drives the invest-
ment strategy we can employ with our pension plan assets;

> the types of investment classes in which we invest our pension plan
assets and the expected compound geometric return we can reason-
ably expect those investment classes to earn over time; and

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

Our estimated long–term rate of return on plan assets remains at 8%
for 2012, consistent with our expected rate of return in 2011 and 2010.
For the 15–year period ended May 31, 2011, our actual returns
were 7.8%.

notes to consolidated financial stateMents

The investment strategy for pension plan assets is to utilize a diversi-
fied mix of global public and private equity portfolios, together with
fixed–income portfolios, to earn a long–term investment return that
meets our pension plan obligations. 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 are U.S. Large Cap Equities, which is indexed
to an S&P 500 fund, and Corporate and U.S. Government Fixed Income
Securities. Accordingly, we do not have any significant concentrations
of risk. Active management strategies are utilized within the plan in
an effort to realize investment 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 fixed–income securities to
better align plan assets with liabilities. Our investment strategy also
includes the limited use of derivative financial instruments on a discre-
tionary 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 permitted to use
derivatives to leverage a portfolio.

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

> cash and cash equivalents. These Level 1 investments include
cash, cash equivalents and foreign currency valued using exchange
rates. The Level 2 investments include commingled funds valued
using the net asset value.

> domestic and international equities. These Level 1 investments
are valued at the closing price or last trade reported on the major
market on which the individual securities are traded. The Level 2
investments are commingled funds valued using the net asset value.

> private equity. The valuation of these Level 3 investments requires
significant 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 perfor-
mance multiples.

> fixed income. We determine the fair value of these Level 2
corporate bonds, U.S. government securities and other fixed income
securities by using bid evaluation pricing models or quoted prices of
securities with similar characteristics.

notes to consolidated financial stateMents

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
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

plan assets at Measurement date

2011

fair Value
$ 409

actual %
3 %

Quoted prices in
active Markets
level 1
$ 107

other observable
inputs
level 2
$ 302

target %
1 %

unobservable
inputs
level 3

4,280
1,481
2,013
403

3,794
3,135
66
(63)
$ 15,518

27
10
13
3

24
20
–
–
100 %

26
1,481
1,702

24
9
12
5
49

–
100 %

(59)
$ 3,257

2010

4,254

311

3,794
3,135
66
(4)
$ 11,858

$ 403

fair Value
$ 427

actual %
3 %

Quoted prices in
active Markets
level 1
$ 145

other observable
inputs
level 2
$ 282

target %
1 %

unobservable
inputs
level 3

3,374
1,195
1,502
399

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

26
9
12
3

27
19
1
–
100 %

24
9
12
5
49

1,195
1,262

–
100 %

(46)
$ 2,556

3,374

240

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

$ 399

The change in fair value of Level 3 assets that use significant 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

Balance at May 31, 2010

Actual return on plan assets:

Assets held at May 31, 2011

Assets sold during the year

Purchases, sales and settlements

Ending balance May 31, 2011

$ 341

(4)

399

(59)

$ 403

The following table provides a reconciliation of the changes in the pension and postretirement healthcare plans’ benefit obligations and fair
value of assets over the two–year period ended May 31, 2011 and a statement of the funded status as of May 31, 2011 and 2010 (in millions):

notes to consolidated financial stateMents

Accumulated Benefit Obligation ("ABO")
Changes in Projected Benefit Obligation ("PBO") and
Accumulated Postretirement Benefit Obligation (“APBO”)
PBO/APBO at the beginning of year
Service cost
Interest cost
Actuarial loss
Benefits paid
Other
PBO/APBO at the end of year
Change in Plan Assets
Fair value of plan assets at the beginning of year
Actual return on plan assets
Company contributions
Benefits paid
Other
Fair value of plan assets at the end of year
Funded Status of the Plans
Amount Recognized in the Balance Sheet at May 31:
Current pension, postretirement healthcare and other
benefit obligations
Noncurrent pension, postretirement healthcare and other
benefit obligations
Net amount recognized
Amounts Recognized in AOCI and not yet reflected in
Net Periodic Benefit Cost:
Net actuarial loss (gain)
Prior service (credit) cost and other
Total
Amounts Recognized in AOCI and not yet reflected in
Net Periodic Benefit Cost expected to be amortized in
next year’s Net Periodic Benefit Cost:
Net actuarial loss (gain)
Prior service credit and other
Total

pension plans

2011
$ 16,806

2010
$ 14,041

postretirement
Healthcare plans

2011

2010

$ 14,484
521
900
1,875
(468)
60
$ 17,372

$ 13,295
2,425
557
(468)
32
$ 15,841
$ (1,531)

$ 11,050
417
823
2,607
(391)
(22)
$ 14,484

$ 10,812
1,994
900
(391)
(20)
$ 13,295
$ (1,189)

$ 565
31
34
44
(48)
22
$ 648

$ –
–
26
(48)
22
$ –
$ (648)

$ 433
24
30
102
(45)
21
$ 565

$ –
–
24
(45)
21
$ –
$ (565)

$ (33)

$ (30)

$ (31)

$ (28)

(1,498)
$ (1,531)

(1,159)
$ (1,189)

(617)
$ (648)

(537)
$ (565)

$ 5,386
(993)
$ 4,393

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

$ 307
(112)
$ 195

$ 284
(113)
$ 171

$ (85)
2
$ (83)

$ (1)
–
$ (1)

$ (134)
2
$ (132)

$ (5)
–
$ (5)

notes to consolidated financial stateMents

Our pension plans included the following components at May 31, 2011 and 2010 (in millions):

2011
Qualified
Nonqualified
International Plans
Total
2010
Qualified
Nonqualified
International Plans
Total

aBo

pBo

$ 16,024
335
447
$ 16,806

$ 13,311
346
384
$ 14,041

$ 16,445
339
588
$ 17,372

$ 13,635
348
501
$ 14,484

fair Value of
plan assets

$ 15,518
–
323
$ 15,841

$ 13,055
–
240
$ 13,295

funded
status

$ (927)
(339)
(265)
$ (1,531)

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

The table above provides the ABO, PBO, fair value of plan assets and funded status of our pension plans on an aggregated basis. The following
table presents our plans on a disaggregated basis to show those plans (as a group) whose assets did not exceed their liabilities. These plans
are comprised of our unfunded nonqualified plans, certain international plans and our U.S. Pension Plans. At May 31, 2011 and 2010, 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

2011

2010

$ 15,815
(17,346)
$ (1,531)

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

aBo exceeds the fair Value
of plan assets

2011
$ (16,530)
15,538
(17,014)
$ (1,476)

2010
$ (14,014)
13,263
(14,441)
$ (1,178)

Pension Benefits
Fair value of plan assets
PBO
Net funded status

Pension Benefits
ABO(1)
Fair value of plan assets
PBO
Net funded status

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

Contributions to our U.S. Pension Plans for the years ended May 31
were as follows (in millions):

2011
$ 359
121
$ 480

2010
$ 353
495
$ 848

Required
Voluntary

notes to consolidated financial stateMents

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

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

2011
$ 521
900
(1,062)
184
$ 543

pension plans

2010
$ 417
823
(955)
23
$ 308

2009
$ 499
798
(1,059)
(61)
$ 177

2011
$ 31
34
–
(5)
$ 60

postretirement
Healthcare plans

2010
$ 24
30
–
(12)
$ 42

2009
$ 31
33
–
(7)
$ 57

The increase in pension costs from 2010 to 2011 was due to a significantly lower discount rate used to measure our benefit obligations at our
May 31, 2010 measurement date.

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

2011

2010

Net loss and other arising during period
Loss from settlements and curtailments
Amortizations:
Prior services credit
Actuarial (losses) gains and other
Total recognized in OCI

gross
amount
$ 511
(13)

113
(284)
$ 327

pension plans

net of tax
amount
$ 321
(8)

postretirement
Healthcare plans

gross
amount
$ 44
–

net of tax
amount
$ 26
–

pension plans

gross
amount
$ 1,562
–

net of tax
amount
$ 986
–

postretirement
Healthcare plans

gross
amount
$ 102
–

net of tax
amount
$ 59
–

71
(178)
$ 206

–
5
$ 49

–
3
$ 29

113
(130)
$ 1,545

99
(114)
$ 971

–
12
$ 114

–
12
$ 71

Benefit payments, which reflect expected future service, are expected
to be paid as follows for the years ending May 31 (millions):

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

2012
2013
2014
2015
2016
2017–2021

pension plans
$ 562
633
694
754
843
5,667

postretirement
Healthcare plans
$ 31
31
33
35
37
225

Future medical benefit claims costs are estimated to increase at an
annual rate of 8.3% during 2012, decreasing to an annual growth rate
of 4.5% in 2029 and thereafter. Future dental benefit costs are esti-
mated to increase at an annual rate of 7.0% during 2012, 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 significant impact on the
APBO at May 31, 2011 or 2011 benefit expense because the level of
these benefits is capped.

notes to consolidated financial stateMents

NOTE 13: BUSINESS SEGMENT INFORMATION

FedEx Express, FedEx Ground and FedEx Freight represent our major
service lines and, along with FedEx Services, form the core of our
reportable segments. Our reportable segments include the following
businesses:

fedex express segment

fedex ground segment

fedex freight segment

fedex services segment

The operating expenses line item “Intercompany charges” on the
accompanying unaudited financial summaries of our transporta-
tion segments in MD&A 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 management fees related to
services received for general corporate oversight, including executive
officers and certain legal and finance functions. We believe these
allocations approximate the net cost of providing these functions.

notes to consolidated financial stateMents

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

fedex express
segment(1)

fedex ground
segment

fedex freight
segment(2)

fedex services
segment(3)

other and
eliminations

consolidated
total

Revenues
2011
2010
2009
Depreciation and amortization
2011
2010
2009
Operating income (loss)
2011
2010
2009
Segment assets(4)
2011
2010
2009

$ 24,581
21,555
22,364

$ 1,059
1,016
961

$ 1,228
1,127
794

$ 16,463
14,819
13,483

$ 8,485
7,439
7,047

$ 337
334
337

$ 1,325
1,024
807

$ 5,048
4,118
3,291

$ 4,911
4,321
4,415

$ 205
198
224

$ (175 )
(153 )
(44 )

$ 2,664
2,786
3,044

$ 1,684
1,770
1,977

$ 371
408
451

$ –
–
(810 )

$ 4,278
4,079
3,240

$ (357)
(351)
(306)

$ 1
2
2

$ –
–
–

$ (1,068)
(900)
1,186

$ 39,304
34,734
35,497

$ 1,973
1,958
1,975

$ 2,378
1,998
747

$ 27,385
24,902
24,244

(1) FedEx Express segment 2011 operating expenses include a $66 million legal reserve associated with the ATA Airlines lawsuit, and 2009 operating expenses include a charge of $260 million

primarily for aircraft–related asset impairments.

(2) FedEx Freight segment 2011 operating expenses include $133 million in costs associated with the combination of our FedEx Freight and FedEx National LTL operations, effective January 30,

2011, and 2009 operating expenses include a charge of $100 million primarily for 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 for impairment of goodwill related to the Kinko’s (now known as FedEx Office) 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):

2011
2010
2009

fedex express
segment

fedex ground
segment

fedex freight
segment

fedex services
segment

$ 2,467
1,864
1,348

$ 426
400
636

$ 153
212
240

$ 387
340
235

other

$ 1
–
–

consolidated
total

$ 3,434
2,816
2,459

notes to consolidated financial stateMents

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

2011

2010

2009

NOTE 14: SUPPLEMENTAL CASH FLOW
INFORMATION

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

2011

2010

2009

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

$ 93

$ 493

(106)

$ 387

$ 88

$ 322

(279)

$ 43

$ 61

$ 517

(8)

$ 509

NOTE 15: 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 indemnifications
(e.g., environmental, fuel, tax and software infringement), the terms
of which range in duration, and often they are not limited and have
no specified maximum obligation. As a result, the overall maximum
potential amount of the obligation under such guarantees and indem-
nifications cannot be reasonably estimated. Historically, we have
not been required to make significant payments under our guarantee
or indemnification obligations and no amounts have been recognized
in our financial statements for the underlying fair value of these
obligations.

Special facility revenue bonds have been issued by certain municipali-
ties primarily to finance the acquisition and construction 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 guaranteed $667 million in principal
of these bonds (with total future principal and interest payments of
approximately $886 million as of May 31, 2011) 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,
2011. The remaining $551 million has been accounted for as operating
leases.

Revenue by Service Type
FedEx Express segment:

Package:

U.S. overnight box

$ 6,128

$ 5,602

$ 6,074

U.S. overnight envelope

U.S. deferred

1,736

2,805

Total domestic package revenue

10,669

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

Freight:

U.S.

International priority

International airfreight

Total freight revenue

Other(2)
Total FedEx Express segment

FedEx Ground segment

FedEx Freight segment

FedEx Services segment

Other and eliminations

Geographical Information(3)
Revenues:

U.S.

International:

FedEx Express segment

FedEx Ground segment

FedEx Freight segment

FedEx Services segment

1,640

2,589

9,831

7,087

578

1,855

2,789

10,718

6,978

565

8,228

653

19,550

17,496

18,261

2,188

1,722

283

4,193

838

1,980

1,303

251

3,534

525

2,165

1,104

369

3,638

465

24,581

21,555

22,364

8,485

4,911

1,684

(357)

7,439

4,321

1,770

(351)

7,047

4,415

1,977

(306)

$ 39,304

$ 34,734

$ 35,497

$ 27,461

$ 24,852

$ 25,819

11,437

9,547

9,363

177

145

140

135

124

152

Total international revenue

11,843

9,882

9,678

$ 39,304

$ 34,734

$ 35,497

Noncurrent assets:

U.S.

International

$ 17,235

$ 16,089

$ 15,615

1,865

1,529

1,513

$ 19,100

$ 17,618

$ 17,128

(1) International domestic revenues include our international intra–country domestic express

operations.

(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. Our flight equipment registered in the U.S. is included as U.S.
assets; however, many of our aircraft operate internationally.

NOTE 16: COMMITMENTS

NOTE 17: CONTINGENCIES

notes to consolidated financial stateMents

Annual purchase commitments under various contracts as of
May 31, 2011 were as follows (in millions):

2012
2013
2014
2015
2016
Thereafter

aircraft and
aircraft related

facilities
and other(1)

$ 1,480

1,086

781

569

584

1,470

$ 918

105

132

total

$ 2,398

1,191

824

599

595

1,602

(1) Primarily vehicles, facilities, advertising and promotions contracts.

The amounts reflected in the table above for purchase commitments
represent noncancelable agreements to purchase goods or services.
Our obligation to purchase 15 of these B777F aircraft is conditioned
upon there being no event that causes FedEx Express or its employees
not to be covered by the Railway Labor Act of 1926, as amended.
Commitments to purchase aircraft in passenger configuration do not
include the attendant costs to modify these aircraft for cargo transport
unless we have entered into noncancelable commitments to modify
such aircraft. Open purchase orders that are cancelable are not
considered unconditional purchase obligations for financial reporting
purposes and are not included in the table above.

We had $604 million in deposits and progress payments as of May 31,
2011 (an increase of $167 million from May 31, 2010) on aircraft pur-
chases and other planned aircraft–related transactions. These deposits
are classified in the “Other assets” caption of our consolidated balance
sheets. In addition to our commitment to purchase B777Fs, our aircraft
purchase commitments include the Boeing 757 (“B757”) in passenger
configuration, which will require additional costs to modify for cargo
transport. 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, 2011, with the
year of expected delivery:

2012
2013
2014

2015
2016
Thereafter
Total

B757

B777f

total

16
4
–

–

–
–
20

7
6
7

3
7
33

23
10
7

3
7
53

WAGE–AND–HOUR. We are a defendant in a number of lawsuits con-
taining various class–action allegations of wage–and–hour violations.
The plaintiffs in these lawsuits allege, among other things, that they
were forced to work “off the clock,” were not paid overtime or were
not provided work breaks or other benefits. The complaints generally
seek unspecified monetary damages, injunctive relief, or both. The fol-
lowing describes the wage–and–hour matters that have been certified
as class actions.

In September 2008, in Tidd v. Adecco USA, Kelly Services and FedEx
Ground, a Massachusetts federal court conditionally certified a class
limited to individuals who were employed by two temporary employ-
ment agencies and who worked as temporary pickup–and–delivery
drivers for FedEx Ground in the New England region within the past
three years. Potential claimants must voluntarily “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 certified class of plaintiffs was limited to a claim of fail-
ure to pay minimum wage due under the federal Fair Labor Standards
Act. During the fourth quarter of fiscal 2011, FedEx Ground reached an
agreement to settle this action for an immaterial amount.

In September 2009, in Taylor v. FedEx Freight, a California state court
granted class certification, certifying a class of all current and former
drivers employed by FedEx Freight in California who performed linehaul
services since June 2003. The plaintiffs alleged, among other things,
that they were forced to work “off the clock” and were not provided
with required rest or meal breaks. We entered into a tentative settle-
ment agreement with the plaintiffs in June 2011 for an immaterial
amount, and the court’s hearing to approve the settlement is antici-
pated to occur during the first half of fiscal 2012.

In April 2009, in Bibo v. FedEx Express, a California federal court
granted class certification, 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. The U.S. Court of Appeals for the Ninth Circuit has refused
to accept a discretionary appeal of the class certification order at this
time. In April 2011, the court granted our motion for partial summary
judgment regarding the proper method for calculating a split–shift
premium, effectively eliminating the certified subclass for split–shift
premiums. Although the claims for alleged off–the–clock work and
missed meal periods are still pending, we do not believe that a mate-
rial loss is reasonably possible with respect to these remaining claims.
We have denied any liability and intend to vigorously defend ourselves
in this matter.

notes to consolidated financial stateMents

INDEPENDENT CONTRACTOR — LAWSUITS AND STATE
ADMINISTRATIVE PROCEEDINGS. FedEx Ground is involved in
numerous class–action lawsuits (including 30 that have been certified
as class actions), individual lawsuits and state tax and other admin-
istrative proceedings that claim that the company’s owner–operators
should be treated as employees, rather than independent contractors.

Most of the class–action lawsuits were consolidated for administra-
tion of the pre–trial proceedings by a single federal court, the U.S.
District Court for the Northern District of Indiana. The multidistrict liti-
gation court granted class certification in 28 cases and denied it in 14
cases. On December 13, 2010, the court entered an opinion and order
addressing all outstanding motions for summary judgment on the sta-
tus of the owner–operators (i.e., independent contractor vs. employee).
In sum, the court has now ruled on our summary judgment motions and
entered judgment in favor of FedEx Ground on all claims in 20 of the 28
multidistrict litigation cases that had been certified as class actions,
finding that the owner–operators in those cases were contractors as a
matter of the law of the following states: Alabama, Arizona, Georgia,
Indiana, Kansas (the court previously dismissed without prejudice
the nationwide class claim under the Employee Retirement Income
Security Act of 1974 based on the plaintiffs’ failure to exhaust admin-
istrative remedies), Louisiana, Maryland, Minnesota, New Jersey, New
York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina,
Tennessee, Texas, Utah, West Virginia and Wisconsin. The plaintiffs
filed notices of appeal in all of these 20 cases.

In the other eight certified class actions in the multidistrict litigation,
the court ruled in favor of FedEx Ground on some of the claims and
against FedEx Ground on at least one claim in three of the cases (filed
in Kentucky, Nevada and New Hampshire) and then remanded all eight
cases back to district court in the following states for resolution of the
remaining claims: Arkansas, California, Florida, Kentucky, Nevada,
New Hampshire and Oregon (two certified classes). In January 2011,
we asked the court to issue final judgments in these eight cases, and
the court denied our motion. In July 2011, we filed a petition for man-
damus to the Seventh Circuit asking the appeals court to require these
cases to be returned to the multidistrict litigation court for issuance of
a final judgment so that all appeals of the December 2010 summary
judgment rulings would be heard by the Seventh Circuit.

In January 2008, one of the contractor–model lawsuits that is not
part of the multidistrict litigation, Anfinson v. FedEx Ground, was
certified as a class action by a Washington state court. The plaintiffs
in Anfinson represent a class of 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 uniform expenses and should
receive overtime pay. In March 2009, a jury trial in the Anfinson case
was held, and the jury returned a verdict in favor of FedEx Ground,
finding that all 320 class members were independent contractors, not
employees. The plaintiffs appealed the verdict. In December 2010,
the Washington Court of Appeals reversed and remanded for further
proceedings, including a new trial. We filed a motion to reconsider,
and this motion was denied. In March 2011, we filed a discretionary
appeal with the Washington Supreme Court.

In August 2010, another one of the contractor–model lawsuits that is
not part of the multidistrict litigation, Rascon v. FedEx Ground, was
certified as a class action by a Colorado state court. The plaintiff
in Rascon represents a class of single–route, pickup–and–delivery
owner–operators in Colorado who drove vehicles weighing less than
10,001 pounds at any time from August 27, 2005 through the pres-
ent. The lawsuit seeks unpaid overtime compensation, and related
penalties and attorneys’ fees and costs, under Colorado law. Our
applications for appeal challenging this class certification decision
have been rejected.

Other contractor–model cases that are not or are no longer part of the
multidistrict litigation are in varying stages of litigation.

With respect to the state administrative proceedings relating to the
classification of FedEx Ground’s owner–operators as independent
contractors, during the second quarter of 2011, the attorneys general
in New York and Kentucky each filed lawsuits against FedEx Ground
challenging the validity of the contractor model.

While the granting of summary judgment in favor of FedEx Ground by
the multidistrict litigation court in 20 of the 28 cases that had been
certified as class actions remains subject to appeal, we believe that
it significantly improves the likelihood that our independent contrac-
tor model will be upheld. Adverse determinations in the remaining
matters related to FedEx Ground’s independent contractors, however,
could, among other things, entitle certain of our contractors and their
drivers to the reimbursement of certain expenses and to the benefit of
wage–and–hour laws and result in employment and withholding tax
and benefit liability for FedEx Ground, and could result in changes to
the independent contractor status of FedEx Ground’s owner–operators
in certain jurisdictions. We believe that FedEx Ground’s owner–opera-
tors are properly classified as independent contractors and that FedEx
Ground is not an employer of the drivers of the company’s independent
contractors. While it is reasonably possible that potential loss in some
of these lawsuits or such changes to the independent contractor status
of FedEx Ground’s owner–operators could be material, we cannot yet
determine the amount or reasonable range of potential loss. A number
of factors contribute to this. The number of plaintiffs in these lawsuits
continues to change, with some being dismissed and others being
added and, as to new plaintiffs, no discovery has been conducted. In
addition, the parties have not yet conducted any discovery into dam-
ages, which could vary considerably from plaintiff to plaintiff. Further,
the range of potential loss could be impacted considerably by future
rulings on the merits of certain claims and FedEx Ground’s various
defenses, and on evidentiary issues. In any event, we do not believe
that a material loss is probable in these matters.

ATA AIRLINES. In October 2010, a jury returned a verdict in favor
of ATA Airlines in its lawsuit against FedEx Express and awarded
damages of $66 million, and in January 2011, the court awarded ATA
pre–judgment interest of $5 million. The suit was filed in Indiana
federal court and alleged that we had 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. While we do not agree with the verdict or the
amount of damages awarded and have appealed the matter to the
U.S. Court of Appeals for the Seventh Circuit, accounting standards

notes to consolidated financial stateMents

required an accrual of a $66 million loss in the second quarter of 2011.
We did not accrue the $5 million of interest as a loss because we have
additional arguments on appeal that lead us to believe that loss of that
amount is not probable.

employees suffered injury; whether remedial action was undertaken;
whether there was knowledge of any violation; whether any violation
was intentional; and whether any award would be unjust under the
circumstances.

CALIFORNIA PAYSTUB CLASS ACTION. A federal court in California
ruled in April 2011 that paystubs for certain FedEx Express employ-
ees in California did not meet that state’s requirements to reflect
pay period begin date, total overtime hours worked and the correct
overtime wage rate. The ruling came in a class action lawsuit filed by
a former courier seeking damages on behalf of herself and all other
FedEx Express employees in California that allegedly received non-
compliant paychecks. The court certified the class in June 2011. The
court has ruled that FedEx Express is liable to the State of California,
and there will be a ruling as to whether FedEx Express is liable to class
members who can prove they were injured by the paystub deficien-
cies. The judge has not yet decided on the amount, if any, of liability
to the State of California or to the class, but has wide discretion. A
material loss in this matter is reasonably possible but not estimable
because both the number of class members and the amount, if any,
to which some class members may be entitled is uncertain, and in
ruling the judge may consider some or all of the following: whether

OTHER. FedEx and its subsidiaries are subject to other legal proceed-
ings that arise in the ordinary course of their business. In the opinion
of management, the aggregate liability, if any, with respect to these
other actions will not have a material adverse effect on our financial
position, results of operations or cash flows.

NOTE 18: RELATED PARTY TRANSACTIONS

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

NOTE 19: SUMMARY OF QUARTERLY OPERATING RESULTS (UNAUDITED)

(in millions, except per share amounts)
2011
Revenues

Operating income

Net income
Basic earnings per common share(1)
Diluted earnings per common share

2010

Revenues

Operating income

Net income

Basic earnings per common share
Diluted earnings per common share(1)

first
Quarter

second
Quarter

third
Quarter

fourth
Quarter

$ 9,457

$ 9,632

$ 9,663

$ 10,552

628

380

1.21

1.20

469

283

0.90

0.89

393

231

0.73

888

558

1.76

1.75

$ 8,009

$ 8,596

$ 8,701

$ 9,428

315

181

0.58

571

345

1.10

416

239

0.76

(1) The sum of the quarterly earnings per share may not equal annual amounts due to differences in the weighted–average number of shares outstanding during the respective period.

696

419

1.34

1.33

notes to consolidated financial stateMents

NOTE 20: CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

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

The guarantor subsidiaries, which are wholly owned by FedEx, guarantee $1 billion of our debt. The guarantees are full and unconditional
and joint and several. Our guarantor subsidiaries were not determined using geographic, service line or other similar criteria, and as a result,
the “Guarantor Subsidiaries” and “Non–guarantor Subsidiaries” columns each include portions of our domestic and international operations.
Accordingly, this basis of presentation is not intended to present our financial condition, results of operations or cash flows for any purpose other
than to comply with the specific requirements for subsidiary guarantor reporting.

Condensed consolidating financial statements for our guarantor subsidiaries and non–guarantor subsidiaries are presented in the following
tables (in millions):

condensed consolidating Balance sHeets

parent

guarantor
subsidiaries

non–guarantor
subsidiaries

eliminations

consolidated

May 31, 2011

$ 1,589

$ 279

$ 546

$ (86)

$ 2,328

–

3,696

912

(27)

4,581

77
–
1,666
24
18
6
–
–
15,404
1,652
$ 18,728

$ –
50
–
198
248
1,000
1,095

–
1,165
1,165
15,220
$ 18,728

645
598
5,218
31,916
17,071
14,845
–
1,564
2,705
1,039
$ 25,371

$ 18
1,071
1,385
1,563
4,037
667
222

2,842
3,001
5,843
14,602
$ 25,371

44
12
1,514
1,746
1,054
692
1,317
762
–
63
$ 4,348

$ –
147
430
133
710
–
–

17
114
131
3,507
$ 4,348

–
–
(113)
–
–
–
(1,317)
–
(18,109)
(1,523)
$ (21,062)

$ –
–
(113)
–
(113)
–
(1,317)

(1,523)
–
(1,523)
(18,109)
$ (21,062)

766
610
8,285
33,686
18,143
15,543
–
2,326
–
1,231
$ 27,385

$ 18
1,268
1,702
1,894
4,882
1,667
–

1,336
4,280
5,616
15,220
$ 27,385

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

condensed consolidating Balance sHeets

assets
Current Assets
Cash and cash equivalents

Receivables, less allowances
Spare parts, supplies, fuel, prepaid expenses

and other, less allowances

notes to consolidated financial stateMents

parent

guarantor
subsidiaries

non–guarantor
subsidiaries

eliminations

consolidated

May 31, 2010

$ 1,310

$ 258

$ 443

$ (59)

$ 1,952

3,425

782

(45)

4,163

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

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

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

–
–
(104)
–
–
–
(1,132)
–
(16,469)
(1,394)
$ (19,099)

$ –
–
(104)
–
(104)
–
(1,132)

(1,394)
–
(1,394)
(16,469)
$ (19,099)

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

notes to consolidated financial stateMents

condensed consolidating stateMents of incoMe

revenues
operating expenses:
Salaries and employee benefits
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

Year Ended May 31, 2011

parent
$ –

guarantor
subsidiaries
$ 33,124

non–guarantor
subsidiaries
$ 6,498

eliminations
$ (318)

consolidated
$ 39,304

109
–
4
1
–
1
–
(222)
107
–
–

1,452
(88)
104
(16)
1,452
–
$ 1,452

13,206
4,034
2,209
1,784
4,003
1,862
28
(317)
4,392
31,201
1,923

200
13
(135)
(14)
1,987
677
$ 1,310

1,961
1,745
253
188
148
116
61
539
1,032
6,043
455

–
(2)
31
(6)
478
136
$ 342

–
(105)
(4)
–
–
–
–
–
(209)
(318)
–

(1,652)
–
–
–
(1,652)
–
$ (1,652)

15,276
5,674
2,462
1,973
4,151
1,979
89
–
5,322
36,926
2,378

–
(77)
–
(36)
2,265
813
$ 1,452

condensed consolidating stateMents of incoMe

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

year ended May 31, 2010

parent
$ –

guarantor
subsidiaries
$ 29,360

non–guarantor
subsidiaries
$ 5,700

eliminations
$ (326)

consolidated
$ 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

condensed consolidating stateMents of incoMe

notes to consolidated financial stateMents

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

year ended May 31, 2009

parent
$ –

guarantor
subsidiaries
$ 29,923

non–guarantor
subsidiaries
$ 5,851

eliminations
$ (277)

consolidated
$ 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

notes to consolidated financial stateMents

condensed consolidating stateMents of casH floWs

cash provided by (used in) operating activities
investing activities
Capital expenditures
Business acquisition, net of cash acquired
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 benefit on the exercise of stock options
Dividends paid
Other, net
cash (used in) provided by 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

Year Ended May 31, 2011

parent

$ 25

guarantor
subsidiaries

non–guarantor
subsidiaries

eliminations

consolidated

$ 3,978

$ 65

$ (27)

$ 4,041

(1)
–
–
(1)

530
–
–
(250)
108
23
(151)
(5)

255
–
279
1,310
$ 1,589

(3,263)
(96)
110
(3,249)

(994)
235
61
(12)
–
–
–
(9)

(719)
11
21
258
$ 279

(170)
–
1
(169)

464
(235)
(61)
–
–
–
–
9

177
30
103
443
$ 546

–
–
–
–

–
–
–
–
–
–
–
–

–
–
(27)
(59)
$ (86)

(3,434)
(96)
111
(3,419)

–
–
–
(262)
108
23
(151)
(5)

(287)
41
376
1,952
$ 2,328

condensed consolidating stateMents of casH floWs

year ended May 31, 2010

parent
$ (450)

guarantor
subsidiaries
$ 2,942

non–guarantor
subsidiaries
$ 653

eliminations
$ (7)

consolidated
$ 3,138

–
–
–

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

(2,661)
38
(2,623)

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

(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

cash provided by (used in) operating activities
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 benefit 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

notes to consolidated financial stateMents

condensed consolidating stateMents of casH floWs

cash provided by (used in) operating activities
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 benefit 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

year ended May 31, 2009

parent
$ (924)

guarantor
subsidiaries
$ 3,156

non–guarantor
subsidiaries
$ 573

eliminations
$ (52)

consolidated
$ 2,753

–
–
–

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

(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

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, 2011 and 2010, and the related consoli-
dated statements of income, changes in stockholders’ investment and comprehensive income, and cash flows for each of the three years in the
period ended May 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstate-
ment. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of FedEx
Corporation at May 31, 2011 and 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period
ended May 31, 2011, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), FedEx Corporation’s
internal control over financial reporting as of May 31, 2011, 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 12, 2011 expressed an unqualified
opinion thereon.

Memphis, Tennessee
July 12, 2011

fedeX corporation

SELECTED FINANCIAL DATA

The following table sets forth (in millions, except per share amounts and other operating data) certain selected consolidated financial and
operating data for FedEx as of and for the five years ended May 31, 2011. This information should be read in conjunction with the Consolidated
Financial Statements, MD&A and other financial data appearing elsewhere in this Annual Report.

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

other operating data
FedEx Express aircraft fleet

Average full–time equivalent employees and contractors

2011(1)

2010

2009(2)

2008(3)

2007(4)

$ 39,304

$ 34,734

$ 35,497

$ 37,953

$ 35,214

2,378

2,265

1,452

1,998

1,894

1,184

747

677

2,075

2,016

1,125

3,276

3,215

2,016

$ 4.61

$ 4.57

315

317

$ 3.78

$ 3.76

312

314

$ 0.31

311

312

$ 3.64

$ 3.60

309

312

$ 6.57

$ 6.48

307

311

$ 0.48

$ 0.44

$ 0.30

$ 0.37

$ 15,543

$ 14,385

$ 13,417

$ 13,478

$ 12,636

27,385

1,667

15,220

24,902

1,668

13,811

24,244

1,930

13,626

25,633

1,506

14,526

24,000

2,007

12,656

688

255,573

667

245,109

654

247,908

677

254,142

669

241,903

(1) Results for 2011 include charges of approximately $199 million ($104 million, net of tax and applicable variable incentive compensation impacts, or $0.33 per diluted share) for the combina-
tion of our FedEx Freight and FedEx National LTL operations and a reserve associated with a legal matter at FedEx Express. See Notes 1 and 17 to the accompanying consolidated financial
statements.

(2) Results for 2009 include a charge of $1.2 billion ($1.1 billion, net of tax, or $3.45 per diluted share) primarily for impairment charges associated with goodwill and aircraft. See Note 4 to the

accompanying consolidated financial statements. Additionally, common stockholders’ investment includes an other comprehensive income charge of $1.2 billion, net of tax, for the funded status
of our retirement plans at May 31, 2009.

(3) 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 for impairment charges associated
with intangible assets from the FedEx Office acquisition. See Note 4 to the accompanying consolidated financial statements. Additionally, results for 2008 and 2007 include several 2007
acquisitions.

(4) Results for 2007 include a charge of $143 million at FedEx Express associated with upfront compensation and benefits under our labor contract with our pilots.

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 officer
fedex corporation

Joshua i. smith (1)
chairman and Managing partner
coaching group, llc
Management consulting firm

david p. steiner (1)
chief executive officer
Waste Management, inc.
Integrated waste management services company

paul s. Walsh (2)
chief executive officer
diageo plc
Beverage company

fedeX corporation

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 officer
cdW llc
Technology products and services company

J.r. Hyde, iii (3)
chairman
gtx, inc.
Biopharmaceutical company

shirley ann Jackson (2) (4*)
president
rensselaer polytechnic institute
Technological research university

steven r. loranger (2*) (4)
chairman, president and
chief executive officer
itt corporation
Engineering and manufacturing company

gary W. loveman (1) (3)
chairman, president and
chief executive officer
caesars entertainment corporation
Branded gaming entertainment company

(1) Audit Committee
(2) Compensation Committee
(3) Information Technology Oversight Committee
(4) Nominating & Governance Committee
* Committee Chair

EXECUTIVE OFFICERS AND SENIOR MANAGEMENT

fedeX corporation

fedex corporation

frederick W. smith
chairman, president and chief executive officer

alan B. graf, Jr.
executive Vice president and chief financial officer

robert B. carter
executive Vice president,
fedex information services and chief information officer

fedex express segment

david J. Bronczek
president and chief executive officer
fedex express

Michael l. ducker
executive Vice president and chief operating officer
fedex express

James r. parker
executive Vice president, air operations
fedex express

cathy d. ross
executive Vice president and chief financial officer
fedex express

Manfred schardt
president and chief executive officer
fedex trade networks

craig M. simon
president and chief executive officer
fedex supplychain systems

fedex freight segment

William J. logue
president and chief executive officer
fedex freight

donald c. Brown
executive Vice president, finance and administration
and chief financial officer
fedex freight

patrick l. reed
executive Vice president and chief operating officer
fedex freight

Virginia c. albanese
president and chief executive officer
fedex custom critical

christine p. richards
executive Vice president, general counsel and secretary

t. Michael glenn
executive Vice president,
Market development and corporate communications

John l. Merino
corporate Vice president and principal accounting officer

fedex ground segment

david f. rebholz
president and chief executive officer
fedex ground

Henry J. Maier
executive Vice president
strategic planning and communications
fedex ground

Michael p. Mannion
executive Vice president and chief operating officer
fedex ground

Ward B. strang
president and chief executive officer
fedex smartpost

fedex services segment

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 officer
fedex office

cary c. pappas
president and chief executive officer
fedex techconnect

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 26, 2011,
10:00 a.m. local time, FedEx World Technology Center, 50 FedEx
Parkway, Collierville, Tennessee 38017

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

SHAREOWNERS: As of July 11, 2011, there were 14,370 shareowners
of record.

MARKET INFORMATION: Following are high and low sale prices and
cash dividends paid, by quarter, for FedEx Corporation’s common stock
in 2011 and 2010:

first
Quarter

second
Quarter

third
Quarter

fourth
Quarter

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 dividends to purchase additional shares
of FedEx common stock.

FY2011
High

Low

Dividend
FY2010
High

Low

Dividend

$ 87.74

$ 93.03

$ 98.52

$ 96.89

69.78

0.12

79.04

0.12

87.54

0.12

85.03

0.12

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

$ 70.27

$ 85.43

$ 92.59

$ 97.75

49.76

0.11

68.06

0.11

75.17

0.11

78.29

0.11

FINANCIAL INFORMATION: Copies of FedEx Corporation’s Annual Report
on Form 10–K, other documents filed with the Securities and Exchange
Commission (SEC) and other financial and statistical information are
available through our Web site at fedex.com. Company documents filed
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.

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

EQUAL EMPLOYMENT OPPORTUNITY: Our greatest asset is our people.
We are committed to providing a workplace where our employees
and contractors feel respected, satisfied 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.

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 CouncilTM–certified,
responsibly forested paper containing 10% recycled post–consumer waste fiber. 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 environmental impacts.
Our efforts net the following savings:

> 110 trees preserved for the future
> 44 million BTUs of energy conserved
> 6,077.5 kWh of electricity offset
> 11,145 pounds of greenhouse gas reduced
> 50,256 gallons of water waste eliminated
> 3,185 pounds of solid waste eliminated

Sources: Environmental impact estimates were made using the Environmental Paper Network
Paper Calculator and the U.S. EPA’s power profiler.

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Fedex AnnuAl RepoRt 2011

Fedex CoRpoRAtion
942 South Shady Grove Road
Memphis, tennessee 38120
fedex.com