FedEx Annual Report 2012

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FY2012 Annual Report · FedEx

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to stay ahead, we go beyond

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

FedEx Annual Report 2012

“I wIll make every
Fedex experIence
outstandIng.”

— The Purple Promise

when we go beyond,
our customers stay ahead.

The marketplace is a world of opportunity, and our job is to put

it within reach. When we connect people, communities flourish,

countries prosper and the world becomes a richer place.

MORE > fedex.com/annualreport2012

When the going gets tough, FedEx shows the spirit and determination that have always set us apart. FY12 was

a year of challenges marked by economic and political disruptions and lagging growth around the globe. To stay

ahead, we go beyond — in the way we manage our business, deliver the quality service our customers expect

and create solutions for a more sustainable world.

A good or acceptable experience doesn’t cut it for us. We share a goal to deliver outstanding FedEx experiences,

a commitment we call the Purple Promise. Our team members around the world add up to a powerful advantage

for FedEx. One that goes beyond the ordinary to achieve the extraordinary.

When We go beyond, our customers and communities thrive.
each year we honor the best of the best of our team members
with the Purple Promise Chairman’s Award. Meet three of the
recipients, from left: Joe Reedy, supervisor, Fedex Custom Critical;
Megan hershberger, supervisor, Fedex Custom Critical; William
davis, customer advocate representative, Fedex TechConnect.
go to fedex.com/annualreport2012 to read their stories.

to stay ahead, we lead the way

Three things that differentiate FedEx — our people, our strategy and our
focused networks — will allow us to achieve this goal.

STRATegiC diSCiPline

How a business responds during difficult times is a true measure of its
resilience and a test of its strategy. In a volatile marketplace, dedicated
FedEx team members turned in a world-class performance last fiscal year.
Their dynamic, disciplined approach to some pretty stiff headwinds defines
FedEx at its best.

Our long-term strategies are working, and we believe we will improve our
competitive position and our financial performance over the next several
years, as a result. To do so, we must take advantage of our scale to improve
our efficiency. And second, we must remain nimble and responsive to our
customers. We try to manage the critical balance between the two every
day. In this regard, our flexibility kept FedEx profitable during the 2008-2009
recession, and we emerged stronger. In the same vein, we recognize many
residual challenges are ongoing and require us to run a lean and flexible
organization. All companies, including FedEx, face many rising costs they
cannot directly control, be it health care or energy. This, in turn, requires
relentless focus on quality, which has been embedded in our culture since
our first day of operations. Utilizing our Quality Driven Management system,
we are confident we can reduce costs while simultaneously improving
service levels.

FoCuSed neTWoRkS

Our customers’ expectations and needs evolve constantly, and so must we.
The Roman statesman Marcus Aurelius summed it up best: “Nothing
happens without change.” That’s why our operating companies relentlessly
adjust their networks to meet traffic flows and levels. Each network is
discrete so it can optimize its business without compromise. Hence our
competitive advantage of speed and flexibility: FedEx Express, FedEx Ground
and FedEx Freight are superior networks with industry-leading service
levels. Superior networks translate into superior solutions for customers.
That’s real value.

Take as an example the global rise of online buying, now growing at three to
four times the rate of retail sales growth overall. For FedEx, that means more
deliveries, whether a product is purchased or returned. It’s the perfect fuel
for growth, internationally and in the United States.

Retailers want a range of shipping options that satisfies their customers’
various expectations for cost and service. In the U.S. we offer express
service, customized ground home delivery, and FedEx SmartPost, our most
inexpensive shipping option. The low cost of FedEx SmartPost allows
retailers to offer free shipping as a marketing tactic. In fact, consumers

To Our Shareowners,

FedEx showed real grit in FY12. We committed to a strong performance, and
we delivered — no small feat, given the year’s challenges. Our earnings per
share increased 40 percent, and annual revenues exceeded $42 billion, a
9 percent increase, despite political gridlock in the United States, financial
turmoil in Europe, a slowing Asian economy and volatile fuel prices.

Despite these issues, we managed and improved yields across all of our
transportation businesses, allowing us to continue enhancing the services and
technology that make our customers more successful and more productive.

FedEx Ground had a stellar year, delivering 18.4 percent operating margins
and accounting for more than half of FedEx operating profit. Online
shipments spurred record volumes. More than one quarter of our FedEx
Ground lanes are now faster in terms of transit times than the competition,
boosting service and customer satisfaction to unprecedented levels. As a
result, including FedEx SmartPost, our overall U.S. ground parcel-market
share has increased to nearly 30 percent, doubling over the last decade.

The rapid transformation of FedEx Freight, which basically reinvented the
LTL freight industry a little more than a year ago, is paying off with a strong
return to profitability. Revenues grew 8 percent year over year. Offering both
priority and economy service options and industry-leading transit times have
made FedEx Freight a market share leader, and customers are delighted by
our LTL value proposition.

Global uncertainty, a slowdown of Asia exports and weakness in the
technology sector challenged FedEx Express in FY12. Although U.S. domestic
and international priority package volumes were down, yield improvements
helped FedEx Express maintain profitability. We’re taking advantage of the
flexibility we’ve built into our system to match our capacity to the demand;
we’ve accelerated the retirement of older, less efficient aircraft and
are replacing them with more fuel-efficient planes; and we are taking
other actions to increase FedEx Express margins in the future, despite the
low-growth environment.

“We’re keeping our eye on the ball —
loWering costs and improving our
efficiency for continued success.”

chose the free-shipping option for half of holiday ecommerce transactions
last November and December, according to comScore, a firm that analyzes
online commerce.

WoRld-ClASS SoluTionS

Growth in the U.S. and Europe is moderate, but there are positive signs
worldwide because of the strength of emerging markets. Countries such as
China, India, Mexico and Brazil are quickly becoming consumers as well as
producers, driving increased demand. The long-term future for global trade
remains solid, and we are committed to providing solutions for businesses
— large and small — to effectively compete in this important market.

Air express will continue to grow long term as the integration of the world’s
economies generate more small shipments moving directly from the point of
production to the end user. That’s why the unique capabilities of our Boeing
777Fs are a distinct advantage for us. Their long range and nonstop
capabilities provide shippers more time to process shipments each day.

Concurrently, air freight shipping is becoming more episodic. High-value
technology products make up a large portion of this market these days, and
more of these goods are being shipped as part of large new product
launches. As a consequence, it often takes a large fleet of wide-body aircraft
like ours to quickly flex capacity up and down. If a customer asks us to add
extra flights, FedEx can do it better than our competitors because we have
the largest all-cargo fleet in the world.

These trends are reinforced by improved production scheduling, reliability,
and logistics information systems. Better visibility into supply chains allows
greater use of ocean transportation to ship customers’ commodity freight,
a distinct advantage given higher fuel prices. As a result, we’ve been
expanding our FedEx Trade Networks capabilities. Since 2008, we’ve opened
47 freight-forwarding offices worldwide to help businesses reach their
markets via ocean or air. It’s a key part of our strategy to provide customers
with the world-class solutions they need to compete.

Despite the slowdown in Europe last year, our business there continues to
grow. To better serve customers, FedEx Express is opening stations across
Europe. We’ve also recently completed acquisitions of transportation
companies in Poland, France, and Brazil to provide customers in those
markets with better domestic service and improved access to global markets.

innovATion AT WoRk

As we grow, we know we must continue to connect the world responsibly. It
starts with the Purple Promise, which FedEx team members deliver millions
of times a day worldwide: “I will make every FedEx experience outstanding.”
If the Purple Promise is our heart, Quality Driven Management (QDM)
represents our hands — it’s how we do things at FedEx.

As noted earlier, our QDM philosophy and methods are built on the proven
premise that higher quality lowers costs, improves service levels, and
enhances the customer experience. It’s a three-legged stool that supports
our long-term growth strategies.

We apply QDM principles to our sustainability decisions, just as we do to
our business decisions, because it’s good business and good for the planet.
The FedEx Express vehicle fleet is ahead of plan to be 20 percent more fuel
efficient by 2020 than it was in 2005. To support our air fleet modernization
program, we have recently agreed to purchase additional Boeing 767 aircraft
that are substantially more fuel efficient than the aircraft they will replace.
In FY12, we invested about $4 billion in capital expenditures, about half
related to modernizing our air fleet.

We think such initiatives are an integral part of this year’s No. 6 ranking
on fortune’s World’s Most Admired Companies list and No. 7 on the
Reputation Institute’s list of the most socially responsible companies in
the United States.

FedEx provides the efficient access that businesses of all sizes need to
succeed, build prosperous communities and raise living standards world-
wide. Just ask a British mother who redesigned a simple handbag. In just
three years this FedEx customer turned her product into a $3.3 million global
business called Cambridge Satchel Company. Or talk to the founder of
OtterBox, a company that makes protective cases for mobile devices. Thanks
to the mastery of global supply chains, he grew his business from $5 million
to almost $169 million in just three years, while creating more than 500 jobs
in his hometown of Fort Collins, Colo.

We believe we can continue to improve FedEx’s financial performance
in fiscal year 2013 and beyond based on the strategy and initiatives
discussed above.

But we understand our achievements rely on the trust of our customers,
shareowners, and team members and we will continue to earn their
confidence by conducting our business with integrity, dependability, and
commitment every day, every transaction.

That’s our Purple Promise.

Sincerely,

Frederick W. Smith
Chairman, President and CEO

MORE > fedex.com/annualreport2012
to stay ahead, we change the game

As the speed of global change accelerates, the difference between leaders

and followers is defined by one word — agility. We not only have the ability

to quickly react to changing economic conditions and customer needs, but also

the agility to anticipate and effect change. FedEx is redefining our industry as

we continually reshape and refine our focused networks to gain speed and

efficiency. When we change the game, our customers win.

ACCeleRATing ACCeSS

gAining SPeed

FedEx Express is the largest all-cargo airline in the world and the
largest express transportation company. Our long-range Boeing 777F
aircraft directly link global markets, speeding customers’ shipments
door-to-door. In the last two years, we’ve improved global access by
completing acquisitions in India, Mexico, Poland, France and Brazil. To
accommodate evolving customer needs, the global offices of FedEx
Trade Networks offer end-to-end shipping services, including air and
ocean freight forwarding supported by customs brokerage.

FedEx Ground continues to delight customers by shortening transit
times throughout the U.S. and Canada. Businesses can reach more
locations faster than with any other ground carrier. Convenient FedEx
Ground home delivery and FedEx SmartPost services support the
growing consumer trend to buy online, which grew by double digits in
each of the last two years. In the United States, Cyber Monday online
sales rose 22 percent, to $1.25 billion last year — the largest online
shopping day ever, boosting holiday shipping volumes to record levels.

CuSToMeRS ARe in The FAST lAne thanks to a dedicated
Fedex ground team that continually fine-tunes the ground
network, much like a race car, to enhance speed, safety and
reliability. From left: kimberly Whigham, managing director,
vehicle Maintenance; Jeff grimm, managing director, linehaul
Planning; brian neal, manager, Safety Process Management;
Steve griffin, vice president, linehaul; Rich Sturges, senior
manager, linehaul engineering. go to fedex.com/annualreport2012
to read their story.

ShiFTing geARS

innovATing SoluTionS

FedEx Freight is the first carrier to offer less-than-truckload (LTL)
shipping customers two choices: priority and economy. In an industry
where most shipments are processed manually, we’re automating
much of the shipping process, improving customers’ productivity and
earning their loyalty. We’ve also made it much easier and faster for
shippers to classify freight with Freight Central, our convenient online
resource for LTL shippers. Combined with industry-leading transit
times, these changes have made FedEx Freight a market leader in
the U.S. LTL industry, a $31 billion market in 2011.

FedEx Services transforms our superior technology and delivery
services into shipping and business solutions for customers. Their
choices are based on what’s most important to them today. That’s
why our portfolio includes air and ocean freight forwarding solutions
to complement our express and air cargo services. Meanwhile, at
FedEx Office locations, we installed 8,000 pieces of printing equipment
in the last two years. The technology can deliver a variety of signage
and over-sized prints for customers ranging from big-box retailers with
multiple locations to large corporations to small businesses.

superior netWorks
deliver game-changing
customer solutions.

MORE > fedex.com/annualreport2012to stay ahead, we do what’s right

A passion for quality drives FedEx team members worldwide. Our culture of continuous improvement embraces

change and drives innovation. In turn, we enhance the lives of our customers and their communities so that our

customers remain among the most satisfied and loyal in the industry. Whether it’s the transportation services we

provide, the information technology we support or the sustainable solutions we implement, when we do the

right thing, we earn their trust.

QuAliTy dRiven MAnAgeMenT is how we successfully
respond to the pressures of today’s business environment. In a recent
improvement effort, we’ve reduced lost and damaged shipments,
demonstrating our commitment to service excellence and saving
millions of dollars. Global teams also worked on behalf of customers
to continue improving the customs clearance process. More accurate
clearance documentation, technology improvements and better
collaboration among global regulatory authorities give FedEx
customers an edge in the marketplace.

inFoRMATion about a shipment is as important as the shipment
itself. Whether it’s an overnight holiday gift or a supply chain that
stretches across the globe, our customers stay in-the-know thanks to
our superior technology. The new Colorado Springs Enterprise Data
Center is the heart of a cutting-edge IT transformation to hybrid cloud
architecture. This innovative technology enables FedEx to be more
productive and efficient by accessing computer resources even as
data expands at 40 percent per year. The size and scope of the
implementation is one of the largest within a commercial
real-time system.

iF knoWledge iS PoWeR, Fedex customers have a competitive
advantage thanks to the Fedex Trade networks team that
manages My global Trade data. They’re dedicated to providing
the quality tracking and reporting that are essential to manag-
ing international freight forwarding shipments. From left: Reneé
brown, product specialist; Paul kirkeby, senior programmer
analyst; Chauntisse Foster, senior product advisor; Alan hunt, iT
manager. go to fedex.com/annualreport2012 to read their story.

SuSTAinAbiliTy and innovation go hand in hand at FedEx.
We call it EarthSmart — FedEx solutions for a more sustainable
world. Our customers can now neutralize their carbon emissions
when they ship their documents by taking advantage of our new
FedEx carbon-neutral envelope shipping. FedEx Express is the first
global express transportation company to offer the program to
customers at no charge.

We’re modernizing our aircraft fleet with Boeing 757s, 767s and
777s, which are delivering significant increases in fuel efficiency and
reduced operating costs and emissions. After only six years into our
15-year plan, we have completed 69 percent of our goal to reduce
aircraft emissions intensity 20 percent by 2020. Because we’re
ahead of plan, our goal is to now reduce aircraft emissions intensity
30 percent by 2020.

FedEx is closing in on our vehicle fleet fuel-efficiency goal —
making our vehicle fleet 20 percent more fuel efficient by 2020
— years ahead of schedule. Our strategy has been to reduce the
number of vehicles that we need by continually making our routes
more efficient and then selecting the most efficient vehicle for
the job. We’re adding 87 all-electric trucks to the fleet to bring the
total to 130 in the United States, Asia and Europe. About 11,000
Sprinter vans will also be added. Each is 70 to 100 percent more
fuel efficient than the truck it replaces.

At FedEx Office, more than 5 million pounds of paper were recycled
in 2011, saving tens of thousands of trees. FedEx Office built
independent paper-recycling systems into all of its North America
locations, because many communities have inadequate recycling
or none at all.

MORE > fedex.com/annualreport2012
REVENUE (in billions)

OPERATING MARGIN

DILUTED EARNINGS PER SHARE

2008

2009

2010

2011

2012

2008(4)

2009(3)

2010

2011(2)

2012(1)

2008(4)

2009(3)

2010

2011(2)

REVENUE (in billions)

RETURN ON AVERAGE EQUITY

2012(1)

2008

2009

2010

2011

2008(4)

2012

2009(3)

2010

2011(2)

2012(1)

OPERATING MARGIN

DEBT TO TOTAL CAPITALIZATION

2008(4)

2009(3)
2008

2010

2009
2011(2)
2010
2012(1)
2011

2012

DILUTED EARNINGS PER SHARE

STOCK PRICE (May 31 close)

2008(4)
2008
2009(3)
2009

2010

2010
2011(2)
2011
2012(1)
2012

RETURN ON AVERAGE EQUITY

DEBT TO TOTAL CAPITALIZATION

STOCK PRICE (May 31 close)

2008(4)

2009(3)

2010

2011(2)

2012(1)

2008

2009

2010

2011

2012

2008

2009

2010

2011

2012

$38.0

$35.5

$34.7

$39.3

$42.7

5.5%

2.1%

5.8%

6.1%

7.5%

$3.60

$0.31

$3.76

$4.57

$6.41

$38.0

$35.5

$34.7

8.3%

$39.3

$42.7

0.7%

8.6%

10.0%

13.6%

5.5%

2.1%

5.8%

6.1%

7.5%

12.1%

15.9%

12.3%

10.0%

10.2%

$3.60

$0.31

$3.76

$4.57

$91.71

$55.43

$83.49

$93.64

$89.14

$6.41

8.3%

0.7%

8.6%

10.0%

13.6%

12.1%

15.9%

12.3%

10.0%

10.2%

$91.71

$55.43

$83.49

$93.64

$89.14

financial highlights

(in millions, except earnings per share)
Operating Results
Revenues
Operating income
Operating margin
Net income
Diluted earnings per common share
Average common and common

equivalent shares
Capital expenditures

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

2012(1)

2011(2)

Percent
Change

$ 42,680
3,186

$ 39,304
2,378

7.5%

6.1%

2,032
6.41

317
4,007

1,452
4.57

317
3,434

$ 2,843
29,903

$ 2,328
27,385

1,667
14,727

1,685
15,220

9
34
140 bp
40
40

–
17

22
9

(1)
(3)

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*

$120

$110

$100

$90

$80

$70

$60

$50

$40

5/07 5/08 5/09 5/10 5/11 5/12

FedEx Corporation

S&P 500

Dow Jones Transportation Average

* $100 invested on 5/31/07 in stock or index, including reinvestment of dividends. fiscal year
ending may 31.

(1) results for 2012 include a $134 million ($84 million, net of tax or $0.26 per diluted share)
impairment charge resulting from the decision to retire 24 aircraft and related engines at
fedex express and the reversal of a $66 million legal reserve initially recorded in 2011.

(2) 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
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
combination of our fedex freight and fedex national ltl operations and a $66 million reserve
associated with a legal matter at fedex express.

(3) 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.

(4) 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.

$120

$110

$100

$90

$80

$70

$60

$50

$40

5/07 5/08 5/09 5/10 5/11 5/12

FedEx Corporation

S&P 500

Dow Jones Transportation Average

our reportable segments. Our FedEx Services segment provides sales,
marketing, information technology, communications and back-office
support to our transportation segments. In addition, the FedEx Services
segment provides customers with retail access to FedEx Express
and FedEx Ground shipping services through FedEx Office and Print
Services, Inc. (“FedEx Office”) and provides customer service,
technical support and billing and collection services through
FedEx TechConnect, Inc. (“FedEx TechConnect”). See “Reportable
Segments” for further discussion.

The key indicators necessary to understand our operating results
include:

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

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

> the mix of services purchased by our customers;

> the prices we obtain for our services, primarily measured by yield
(revenue per package or pound or revenue per hundredweight 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, 2012 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.

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 2012
results compared to 2011, and 2011 results compared to 2010. This
section also includes a discussion of key actions and events that
impacted our results, as well as our outlook for 2013.

> The overview is followed by a financial summary and analysis
(including a discussion of both historical operating results and our
outlook for 2013) 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.

> Critical accounting estimates discusses those financial statement
elements that we believe are important to understanding certain
of the material judgments and assumptions incorporated in our
financial results.

> We conclude with a discussion of risks and uncertainties that may
impact our financial and operating 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 North American provider of small-package ground delivery
services; and FedEx Freight, Inc. (“FedEx Freight”), a leading North
American 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

ManageMent’s discussion and analysis of results of operations and financial conditionRESULTS OF OPERATIONS

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

Percent Change

Revenues
Operating income
Operating margin
Net income
Diluted earnings per share
(1) Operating expenses include an impairment charge of $134 million resulting from the decision to retire 24 aircraft and related engines at FedEx Express and the reversal of a $66 million legal

$ 2,032
$ 6.41

$ 1,184
$ 3.76

$ 1,452
$ 4.57

5.8%

7.5 %

6.1%

2012(1)
$ 42,680
3,186

2011(2)
$ 39,304
2,378

2010
$ 34,734
1,998

2012/2011
9
34
140 bp
40
40

2011/2010
13
19
30 bp
23
22

reserve associated with the ATA Airlines lawsuit which was initially recorded in 2011.

(2) 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.

The following table shows changes in revenues and operating income by reportable segment for 2012 compared to 2011, and 2011 compared to
2010 (dollars in millions):

Revenues

Operating Income

Dollar Change

Percent Change
2012/2011
8
13
8
(1)
NM
9
(1) FedEx Express segment 2012 operating expenses include an impairment charge of $134 million resulting from the decision to retire 24 aircraft and related engines at FedEx Express and the

Percent Change
2012/2011
3
33
193
–
–
34

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

2011/2010
$ 3,026
1,046
590
(86)
(6)
$ 4,570

2012/2011
$ 1,934
1,088
371
(13)
(4)
$ 3,376

2011/2010
14
14
14
(5)
NM
13

2011/2010
$ 101
301
(22)
–
–
$ 380

2012/2011
$ 32
439
337
–
–
$ 808

2011/2010
9
29
(14)
–
–
19

reversal of a $66 million legal reserve associated with the ATA Airlines lawsuit which was initially recorded in 2011.

(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.

management’s discussion and analysis

Overview
Revenues, operating income and operating margins increased in 2012
due to the exceptional performance of our FedEx Ground segment,
improved profitability at FedEx Freight and increased yields across all
our operating segments, despite moderating global economic condi-
tions. Our results for 2012 include the impact of certain charges and
credits as described below, which favorably impacted our year-over-
year results by $0.15 per diluted share, after considering the effect
of variable incentive compensation accruals. In addition, our results
significantly benefited in 2012 from the timing lag that exists between
when fuel prices change and when indexed fuel surcharges automati-
cally adjust. We also benefited from a milder winter, as our 2011
results were negatively impacted by unusually severe winter weather.

Our 2012 results include the reversal of a $66 million reserve associ-
ated with the ATA Airlines lawsuit at FedEx Express. This reserve was
initially recorded in 2011 when a loss was deemed probable as a result
of an adverse decision in the lawsuit. We reversed this reserve during
2012 when FedEx Express won the appeal of this case and the appeals
court overturned the prior ruling (See Note 17 of the accompanying
consolidated financial statements). Additionally, our 2012 results
include a noncash impairment charge of $134 million due to our
decision to retire from service 18 Airbus A310-200 aircraft and

26 related engines, as well as six Boeing MD10-10 aircraft and
17 related engines. The decision to retire these aircraft will better
align the U.S. domestic air network capacity of FedEx Express to
match current and anticipated shipment volumes. Our 2011 results
include one-time costs associated with the combination of our
FedEx Freight and FedEx National LTL operations of $133 million,
including $89 million of impairment and other charges.

Our results for 2011 reflected the momentum of improved global
economic conditions and strong demand for our services, which drove
yield growth and volume increases across all our transportation
segments, particularly in International Priority (“IP”) package shipments
at FedEx Express. Our FedEx Ground segment delivered strong results
through increasing volume, yield and operating margins. The FedEx
Freight segment returned to profitability in the fourth quarter of 2011,
primarily due to higher LTL yield. All of our transportation segments
benefited from our yield management initiatives in 2011.

The combination of our FedEx Freight and FedEx National LTL opera-
tions was completed in 2011. Our combined LTL network increases
efficiencies, reduces operational costs and provides customers both
Priority and Economy LTL freight services across all lengths of haul
from one integrated company.

management’s discussion and analysis1,000
3,000
2,000
2,603
475
500
2,500
1,500

0
2,000
2009
1,000

475
1,500
500

1,000
0
2009
475
500

7,600

7,400
7,800

7,200
7,600

7,000
7,800
7,400

6,780

6,800
7,600
7,200

6,600
7,400
2009
7,000

6,780

7,200
6,800

7,000
6,600
2009
6,780
6,800

6,600
2009

1,500
2,500

1,000
3,000
2,000

500
2,500
1,500

0
2,000
1,000

1,500
500

1,000
0

500

7,800

7,600

7,400
7,800

7,200
7,600

7,000
7,800
7,400

6,800
7,600
7,200

6,600
7,400
7,000

7,200
6,800

7,000
6,600

6,800

$70.00

$60.00

$50.00
$70.00

$40.00
$60.00

$30.00
$70.00
$50.00

$20.00
$60.00
$40.00

$10.00
$50.00
$30.00

$40.00
$20.00

$30.00
$10.00

$20.00
$21.00
$10.00

$20.00

$19.00
$21.00

$18.00
$20.00

$21.00
$17.00
$19.00

$20.00
$16.00
$18.00

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

FedEx Express(1)
Average Daily Package Volume

FedEx Ground(2)
Average Daily Package Volume

3,000

2,500

2,638

2,684
2,603
2,603
FedEx Express(1)
FedEx Express(1)
Average Daily Package Volume
Average Daily Package Volume

2,500
The following graphs for FedEx Express, FedEx Ground and FedEx Freight show selected volume trends (in thousands) for the years ended May 31:
2,000
3,000

FedEx Ground(2)
3,907
Average Daily Package Volume

2,603

2,638

2,684

2,000
3,000

3,900

2,577

2,684

2,638

2,000

2,577

3,900

2,500

2,577

4,100

3,000

1,000

500

FedEx Express(1)
FedEx Express(1)
2,684
2,603
2,603
2,577
2,577
Average Daily Package Volume
Average Daily Package Volume

1,500
2,500

2,684

1,500

2,638

523
2,638

2,603
475

523
2,638

575
2,684

559
2,577

2009

2010

2011
575
U.S. domestic package

523

2011
575
IP package

2012
559

IP package

U.S. domestic package

475

2009
475

2010
523

575
2011

559
2012

U.S. domestic package

IP package

559
2,577

475

2009

2012
559

523

575

2010

2011

U.S. domestic package

3,700

3,900
4,100
3,500

3,700
3,900
3,300

559

2012

3,500
IP package
3,700

3,300
3,500

3,900
4,100
3,500
3,404

3,700
3,900
3,300
2009
3,500
3,404
3,700

3,300
2009
3,500
3,404

FedEx Ground(2)
3,907
Average Daily Package Volume

3,746
FedEx Ground(2)
3,907
Average Daily Package Volume

3,700

3,746

3,700

3,523

3,907

3,746

3,523

3,404

3,746

3,500

3,907

3,404

2009

3,523
2010

2011
3,746

2012

3,300

2012

2009

2010

2011

2012

3,404

2009
3,404

3,523

2010

3,523

2010

2011

2012

2010

0
FedEx Express and FedEx Ground(2)
2009
2010
Total Average Daily Package Volume
IP package
7,800

FedEx Express and FedEx Ground(2)
2009
Total Average Daily Package Volume
IP package

U.S. domestic package

3,300
FedEx Express and FedEx Ground(2)
FedEx Freight
FedEx Freight
2009
2011
2010
2009
2010
2011
Total Average Daily Package Volume
Average Daily LTL Shipments
Average Daily LTL Shipments
90.0
90.0

3,300

2012

2011

2012

2011

2012

90.0

7,800

7,538

FedEx Express and FedEx Ground(2)
Total Average Daily Package Volume

FedEx Express and FedEx Ground(2)
7,600
Total Average Daily Package Volume
7,400
FedEx Express and FedEx Ground(2)
7,200
Total Average Daily Package Volume
7,002
7,000

FedEx Express and FedEx Ground(2)
Total Average Daily Package Volume

7,538

7,002

7,538

7,353

7,538

7,353

7,002

6,780

7,353

7,538

6,800

7,538

6,780

7,002
2010

2009

7,002
2010

7,353
2011

2012

6,600

2012

2009

2010

2011

6,780

2009
6,780

7,002

2010

2011

2012

7,538

86.0

84.9

82.3

FedEx Freight
Average Daily LTL Shipments
85.0

FedEx Freight
Average Daily LTL Shipments
85.0
90.0
FedEx Freight
80.0
86.0
Average Daily LTL Shipments
85.0
74.4
90.0
75.0

FedEx Freight
80.0
86.0
Average Daily LTL Shipments
74.4

84.9

75.0

82.3

2012

FedEx Freight
Average Daily LTL Shipments

86.0

84.9

82.3

84.9

74.4

2012

80.0
85.0
70.0
2009
74.4
75.0
80.0

70.0
74.4
2009
75.0

86.0

84.9

2009
74.4

2010
82.3

2011

2012

70.0

2012

2009

2010

2011

2012

74.4
2009

2010

2011

2012

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

2009

2010

2011

2012

2009

2010

2011

2012

70.0
2009

FedEx Express(1)
FedEx Express(1)
Revenue per Package – Yield
Revenue per Package – Yield
$70.00

$70.00

FedEx Express(1)
Revenue per Package – Yield
$9.25

FedEx Ground (2)
FedEx Ground (2)
Revenue per Package – Yield
Revenue per Package – Yield
$9.25

$9.25

FedEx Ground (2)
Revenue per Package – Yield

$57.81

$60.00

$57.81

FedEx Express(1)
FedEx Express(1)
$60.00
$56.08
$56.08
Revenue per Package – Yield
Revenue per Package – Yield
$50.00

$53.10

$60.83

$40.00
$60.00

$57.81

FedEx Express(1)
FedEx Express(1)
$40.00
$57.81
Revenue per Package – Yield
Revenue per Package – Yield
$56.08
$56.08
$30.00

$53.10

$60.83

$53.10

$60.83

$16.21
$57.81

$14.61
$53.10

$15.59
$56.08

$14.61
$53.10

$60.83
$17.12

$20.00

$60.83
$17.12

$15.59
$56.08

$50.00
$70.00

$30.00
$70.00
$50.00

$16.21
$57.81

$20.00
$60.00
$40.00

$10.00
$50.00
2009
$30.00

$57.81

$53.10

$56.08

$16.21

$14.61

$15.59

2009

2010

2011

$10.00

2012

2009

2010

2011

$40.00
$20.00

$16.21

U.S. domestic package

U.S. domestic package
$14.61

$14.61

$15.59

IP package
$15.59

$16.21

IP package
$17.12

$17.12

U.S. domestic package

$7.75
IP package
$8.25

$60.83

FedEx Ground (2)
FedEx Ground (2)
$8.75
Revenue per Package – Yield
Revenue per Package – Yield

$8.77

$8.75

$8.77

$8.25

$9.25
FedEx Ground (2)
FedEx Ground (2)
$8.25
$8.17
$8.17
Revenue per Package – Yield
Revenue per Package – Yield

$8.77

$8.75
$9.25
$7.70
$7.75

$17.12

2012

$8.25
$8.75
$7.25
2009
$7.70
$7.75
$8.25

$7.70

$7.73

$7.75

$7.70

$7.73

$8.17

$8.77

2009
$7.70

2010
$7.73

2011

2012

$7.25

$8.17

2012

2009

2010

2011

2012

FedEx Freight
LTL Revenue per Hundredweight – Yield

$7.25
$7.75

Average Fuel Cost per Gallon
$7.25
$7.70
2009
2011
$7.75

Average Fuel Cost per Gallon
$7.70
2009
2011

$7.73
2010

2012

Average Fuel Cost per Gallon

2012

2010

U.S. domestic package

FedEx Freight
FedEx Freight
$30.00
$10.00
2009
2011
2012
2009
2011
LTL Revenue per Hundredweight – Yield
LTL Revenue per Hundredweight – Yield
$17.12
$20.00
$16.21
$16.21
$15.59
$15.59
IP package
$21.00
$10.00
2012
2009
2009
FedEx Freight
FedEx Freight
$20.00
$19.57
U.S. domestic package
IP package
U.S. domestic package
LTL Revenue per Hundredweight – Yield
LTL Revenue per Hundredweight – Yield
$19.07

2012
$17.12
IP package
$21.00

2012
$20.00
$19.57
IP package

$14.61
U.S. domestic package

$14.61

$19.07

2011

2010

2011

2010

$19.00
$21.00

FedEx Freight
$18.24
LTL Revenue per Hundredweight – Yield
$19.57

FedEx Freight
$18.24
LTL Revenue per Hundredweight – Yield

$19.57

$18.00

$18.00
$20.00

$19.00

$18.24

$17.07

$19.07

$21.00
$17.00
$19.00

$19.07

$17.07

$18.24

$17.00

$19.57

$16.00

$19.07
2009

2010
$17.07

2011

$19.00
$17.00
(1) Excludes international domestic operations.
$18.00
(2) Package statistics do not include the operations of FedEx SmartPost.
$16.00

$18.24

$17.07
2010

2009

$17.07
2010

2011

2012

$20.00
$19.07
$16.00
$18.00
2009
$19.00
$17.00

$18.00
$16.00
2009
$17.00

$16.00
2009

2009

2010

2011

2012

$17.00

$16.00

2011

2012

2009

2010

2011

2012

$4.50
$7.25
2009
2011
Average Fuel Cost per Gallon
$4.00

2009
2011
Average Fuel Cost per Gallon
$4.00

2012
$3.80

2010

$4.50

2012
$3.80

$19.57

$3.31

$2.69

$3.25
$3.50
$3.04
Average Fuel Cost per Gallon
$3.00
$2.66
$2.62

$3.25
$3.50
$3.04
$4.50
Average Fuel Cost per Gallon
$3.00
$2.66
$2.62
$4.00
$2.50
$4.50
$3.50
$3.04
$2.00
$4.00
$3.00
$2.62
$1.50
$3.50
2009
$2.50
$3.04

$2.66
$3.25
2011

$3.31

$2.50

$3.31

$3.80

$2.00

$3.80

$3.31
2012

$1.50

$3.31
2012

2009

$3.04

$2.62

2009
$3.04

$3.80

$3.25

$2.69

$3.25

$2.69

$3.04

$2.62

$2.15

2010
$2.15

2010
$2.15
Vehicle
$2.69

Vehicle

$2.62

$2.69

$2.66

Jet

$2.66

$3.25

$2.66

$2.69

$2.15

2010

2011

2012

Vehicle

Jet

$3.00
$2.00
$2.62

$2.50
$1.50
2009
$2.00

$1.50
2009

2009

$2.15
2010

2011

2012

Vehicle

Jet

2009

2010

2011

2012

Vehicle

Jet

$8.17

$8.77

$3.80

$3.31

85.0

90.0

80.0

85.0
90.0
75.0

80.0
85.0
70.0

75.0
80.0

70.0
75.0

$8.75

$9.25

$8.25

$8.75
$9.25
$7.75

$8.25
$8.75
$7.25

$4.50
$7.25
$4.00

$3.50
$4.50
$3.00
$4.00
$2.50
$4.50
$3.50
$2.00
$4.00
$3.00
$1.50
$3.50
$2.50

$3.00
$2.00

$2.50
$1.50

$2.00

$1.50

management’s discussion and analysisrevenue
During 2012, revenues increased 9% due to yield growth across all our
transportation segments. At FedEx Express, revenues increased 8% in
2012 led by higher U.S. domestic and IP package yields. However, U.S.
domestic package and IP package volumes declined due to weakening
global economic conditions. Revenues increased 13% during 2012 at
our FedEx Ground segment due to higher yields and strong demand for
all our major services. At FedEx Freight, revenues increased 8% during
2012 due to higher LTL yield as a result of higher fuel surcharges and
yield management programs, despite a decrease in volume.

Revenues increased 13% during 2011 due to yield increases and
volume growth across all our transportation segments. Yields improved
due to higher fuel surcharges and increased base rates under our yield
improvement programs. At FedEx Express, revenues increased 14% in
2011 led by IP volume growth in Asia, as well as U.S. 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.

impairment and Other Charges
In May 2012, we made the decision to retire from service 18 Airbus
A310-200 aircraft and 26 related engines, as well as six Boeing
MD10-10 aircraft and 17 related engines. As a consequence of this
decision, a noncash impairment charge of $134 million ($84 million,
net of tax, or $0.26 per diluted share) was recorded in the fourth
quarter. The decision to retire these aircraft, the majority of which
were temporarily idled and not in revenue service, will better align the
U.S. domestic air network capacity of FedEx Express to match current
and anticipated shipment volumes.

In 2011, we incurred impairment and other charges of $89 million
related to the combination of our LTL operations at FedEx Freight.
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.

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:

2012

2011

2010

$ 16,099 $ 15,276 $ 14,027
4,728
2,359
1,958
3,106
1,715
18
4,825
$ 39,494 $ 36,926 $ 32,736

5,674
2,462
1,973
4,151
1,979
89 (2)
5,322

6,335
2,487
2,113
4,956
1,980
134 (1)
5,390

at FedEx Express.

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

FedEx National LTL operations, effective January 30, 2011.

(3) Includes the 2012 reversal of a $66 million legal reserve associated with the ATA Airlines

lawsuit which was initially recorded in 2011 (See Note 17 of the accompanying consolidated
financial statements).

Percent of Revenue
2011

2010

2012

37.7 %
14.9
5.8
5.0
11.6
4.6
0.3 (1)
12.6
92.5
7.5 %

38.9 %
14.4
6.3
5.0
10.6
5.0
0.2 (2)
13.5
93.9
6.1%

40.4 %
13.6
6.8
5.6
8.9
4.9
0.1
13.9
94.2
5.8 %

at FedEx Express.

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

National LTL operations effective January 30, 2011.

(3) Includes the 2012 reversal of a $66 million legal reserve associated with the ATA Airlines

lawsuit which was initially recorded in 2011 (See Note 17 of the accompanying consolidated
financial statements.)

Our 2012 operating income increased 34% and operating margin
increased 140 basis points driven by higher yields across all our
transportation segments due to higher fuel surcharges and our yield
management programs. Our results also significantly benefited in 2012
from the timing lag that exists between when fuel prices change and
when indexed fuel surcharges automatically adjust. FedEx Ground
segment operating income increased $439 million in 2012 driven by
higher yields and strong demand for all our major services. At our
FedEx Freight segment, operating income increased $337 million due
to higher LTL yield and efficiencies gained from the combination of our
LTL operations in 2011. Additionally, our year-over-year comparisons
were favorably impacted by several items as described above in the
“Overview” section.

management’s discussion and analysis
FedEx Ground(2)

Average Daily Package Volume

3,907

3,746

3,523

3,404

2009

2010

2011

2012

86.0

84.9

82.3

74.4

4,100

3,900

3,700

3,500

3,300

90.0

85.0

80.0

75.0

70.0

FedEx Express and FedEx Ground(2)

Total Average Daily Package Volume

FedEx Freight

Average Daily LTL Shipments

2009

2010

2011

2012

2009

2010

2011

2012

$9.25

FedEx Ground (2)
Revenue per Package – Yield
Salaries and benefits increased 5% in 2012 primarily due to higher
incentive compensation costs and the full reinstatement of 401(k)
company-matching contributions effective January 1, 2011. Purchased
transportation costs increased 12% in 2012 due to volume growth
and higher fuel surcharges at FedEx Ground, costs associated with the
expansion of our freight forwarding business at FedEx Trade Networks
and higher utilization of third-party transportation providers in interna-
tional locations primarily due to business acquisitions at FedEx Express.

$7.75

$8.25

$8.75

$8.77

$8.17

$7.73

$7.70

FedEx Express(1)

Average Daily Package Volume

2,603

2,638

2,684

2,577

475

523

575

559

2009

2010

2011

2012

U.S. domestic package

IP package

7,538

7,353

7,002

6,780

FedEx Express(1)

Revenue per Package – Yield

$57.81

$53.10

$56.08

$60.83

$20.00

$16.21

$14.61

$15.59

$17.12

2009

2010

2011

2012

U.S. domestic package

IP package

FedEx Freight

LTL Revenue per Hundredweight – Yield

$19.07

$19.57

$18.24

$17.07

2009

2010

2011

2012

3,000

2,500

2,000

1,500

1,000

500

7,800

7,600

7,400

7,200

7,000

6,800

6,600

$70.00

$60.00

$50.00

$40.00

$30.00

$10.00

$21.00

$20.00

$19.00

$18.00

$17.00

$16.00

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

$7.25

2012

2011

2010

2009

Average Fuel Cost per Gallon

$4.50

$4.00

$3.50

$3.00

$2.50

$2.00

$1.50

$3.80

$3.31

$3.04

$2.62

$2.69

$2.15

$3.25

$2.66

2009

2010

2011

2012

Vehicle

Jet

Fuel expense increased 19% during 2012 primarily due to price
increases. Our fuel surcharges, which are more fully described in the
“Quantitative and Qualitative Disclosures About Market Risk” section
of this MD&A, have a timing lag and are designed to pass through the
price of fuel not included in our base shipping rates to our customers.
Based on a static analysis of the impact to operating income of
year-over-year changes in fuel prices compared to changes in fuel
surcharges, fuel surcharges significantly exceeded incremental fuel
costs in 2012. If fuel prices remain at current levels, that effect is
expected to reverse in 2013.

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 trend in revenue
and yield growth, we have included the comparative fuel surcharge
rates in effect for 2012, 2011 and 2010 in the accompanying
discussions of each of our transportation segments.

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 medical

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 disruptions to our
networks, which led to lost revenues and drove higher purchased trans-
portation, 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.

Salaries and employee benefits increased 9% in 2011 due to the rein-
statement of merit salary increases, increases in pension and medical
costs and the reinstatement of full 401(k) company-matching contribu-
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.

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.

Other inCOme and expense
Interest expense decreased $34 million in 2012 due to debt maturities,
an increase in capitalized interest related to the timing of progress pay-
ments on aircraft purchases and lower financing fees. Interest expense
increased $7 million in 2011 due to a decrease in capitalized interest
related to timing of construction projects and progress payments on
aircraft purchases.

inCOme taxes
Our effective tax rate was 35.3% in 2012, 35.9% in 2011 and 37.5%
in 2010. Our 2012 rate was lower than our 2011 rate primarily due to
favorable audit developments. The 2011 rate was lower than our 2010
rate primarily due to increased permanently reinvested foreign earn-
ings and a lower state rate driven by favorable audit and legislative
developments. Our permanent reinvestment strategy with respect to
unremitted earnings of our foreign subsidiaries provided a 1.3% benefit
to our 2012 effective tax rate. Our total permanently reinvested foreign
earnings were $1.0 billion at the end of 2012 and $640 million at the
end of 2011.

Our current federal income tax expenses in 2012, 2011 and 2010
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

management’s discussion and analysisto stimulate new business investment in the U.S., accelerated our
depreciation deductions for new qualifying investments, such as our
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

2012
$ (120 )
947
$ 827

2011
$ 79
485
$ 564

2010
$ 36
408
$ 444

For 2013, we expect our effective tax rate to be between 37.0% and
38.0%. The actual rate, however, will depend on a number of factors,
including the amount and source of operating income. We also expect
our current federal income tax expense will increase in 2013, possibly
significantly, due to lower accelerated depreciation benefits than in
prior years.

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
During 2012, we continued to expand our FedEx Express international
network. On July 25, 2011, we completed our acquisition of Servicios
Nacionales Mupa, S.A. de C.V. (MultiPack), a Mexican domestic
express package delivery company, for $128 million in cash from opera-
tions. Last year, 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 on February 22,
2011. The financial results of these acquired businesses are included in
the FedEx Express segment from the date of acquisition and were not
material, individually or in the aggregate, to our results of operations
or financial condition. Substantially all of the purchase price was allo-
cated to goodwill, which was entirely attributed to our FedEx Express
reporting unit.

Subsequent to year-end, we completed the following acquisitions:

> Opek Sp. z o.o., a Polish domestic express package delivery company,
for $54 million in cash from operations on June 13, 2012

> TATEX, a French express transportation company, for $55 million in
cash from operations on July 3, 2012

> Rapidão Cometa Logística e Transportes S.A., a Brazilian transporta-
tion and logistics company, for $398 million in cash from operations
on July 4, 2012

Based on the timing of the completion of these acquisitions in
relation to the date of issuance of the financial statements, the initial
purchase price accounting was not completed for these acquisitions.
The financial results of these acquired businesses will be included in
the FedEx Express segment from the date of acquisition and will be
immaterial to our 2013 results. These acquisitions will give us more
robust transportation networks within these countries and added
capabilities in these important global markets.

OutlOOk
We anticipate revenue and earnings growth in 2013 despite only
modest growth in the global economy. We believe U.S. domestic and
global economic conditions will be impacted by the European debt
crisis, slowing growth in Asia, and the uncertainty these issues create
on the global economy and the demand for our services. These weaker
global economic conditions have driven a shift by our customers from
premium services to our deferred services, and we expect that trend to
continue in 2013.

Our anticipated earnings growth in 2013 is predicated on continued
improvement in profitability at our FedEx Freight segment from yield
growth and efficiency improvements and the sustained strong perfor-
mance of our FedEx Ground segment. International revenue growth
and network efficiency improvements at FedEx Express should also
contribute to our earnings growth in 2013. However, significant cost
headwinds in pension expense will hamper earnings growth in 2013 as
a historically low discount rate at our May 31, 2012 measurement date
will increase these costs by approximately $150 million.

During 2013, we will continue to evaluate actions and opportunities to
reduce costs, improve efficiencies and adjust our networks to match
anticipated demand. Initial actions were taken in 2012, as we made
the decision to retire 24 aircraft and related engines at FedEx Express
to better align the U.S. domestic air network capacity to match current
and anticipated shipment volumes. In addition, we remain focused on
modernizing our aircraft fleet at FedEx Express by adding newer aircraft
that are more reliable, fuel efficient and technologically advanced, and
retiring older, less-efficient aircraft. As a result of these efforts, FedEx
Express is shortening the depreciable lives of the following aircraft and
related engines: 31 additional Boeing MD10-10s, 18 additional Airbus
A310s, four Boeing 727s (“B727”) and one Boeing MD10-30. This will
accelerate the retirement of these aircraft to align with the delivery
schedule for replacement Boeing 767-300 Freighter (“B767F”) and
Boeing 757-200 (“B757”) aircraft. The accelerated depreciation on
these aircraft is expected to total $69 million in 2013, with a partial
offset from the avoidance of depreciation related to the aircraft
retirements (described in the “Impairment and Other Charges” section
above). FedEx Express is also developing an operating and cost
structure plan during 2013 to further improve its operational efficiency.

Our capital expenditures for 2013 are expected to decrease to
approximately $3.9 billion, with fewer aircraft deliveries in 2013.
We will continue to evaluate our investments in critical long-term
strategic projects to ensure our capital expenditures generate high
returns on investments and are balanced with our outlook for global
economic conditions. On June 29, 2012, FedEx Express entered into a
supplemental agreement to purchase nine additional B767F aircraft,
exercised ten B767F options available under the December 2011
agreement and purchased the right to 15 additional options. In
conjunction with the supplemental agreement to purchase B767F
aircraft, FedEx Express converted four B777F aircraft deliveries to
equivalent purchase value for B767F aircraft purchased under the
supplemental agreement. For additional details on key 2013 capital
projects, refer to the “Capital Resources” and “Liquidity Outlook”
sections of this MD&A.

management’s discussion and analysisOur 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 poten-
tial 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.

seasOnality Of Business
Our businesses are cyclical in nature, as seasonal fluctuations affect
volumes, revenues and earnings. Historically, the U.S. express package
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.

During our fiscal year, the Financial Accounting Standards Board issued
new guidance to make the presentation of items within other compre-
hensive 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. 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
(air and ocean freight forwarding and
customs brokerage)
> 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, information
technology, communications and
back-office functions)
> FedEx TechConnect
(customer service, technical support,
billings and collections)
> FedEx Office
(document and business services and
package acceptance)

management’s discussion and analysisFEDEX SERVICES SEGMENT
The FedEx Services segment operates combined sales, marketing,
administrative and information technology functions in shared services
operations that support our transportation businesses and allow us
to obtain synergies from the combination of these functions. For the
international regions of FedEx Express, some of these functions are
performed on a regional basis by FedEx Express and reported in the
FedEx Express segment in expense line items outside of intercompany
charges. The FedEx Services segment includes: FedEx Services, which
provides sales, marketing, information technology, communications
and back-office support to our other companies; 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.

The FedEx Services segment provides direct and indirect support
to our transportation businesses, and we allocate all of the net
operating costs of the FedEx Services segment (including the net
operating results of FedEx Office) to reflect the full cost of operating
our transportation businesses in the results of those segments.
Within the FedEx Services segment allocation, the net operating
results of FedEx Office, which are an immaterial component of our
allocations, are allocated to FedEx Express and FedEx Ground. 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
transportation 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.

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.

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:

2012

2011

2010

Percent
Change

2012
2011

/
/ 2011
2010

7
1
7

6
6
31
7

14
6
8
10
23
8

11,294
8,708
853
20,855

9,831
7,087
578
17,496

10,669
8,228
653
19,550

1,980
1,303
251
3,534
525
21,555

2,498
1,827
307
4,632
1,028
26,515

2,188
1,722
283
4,193
838
24,581

$ 6,546 $ 6,128 $ 5,602
1,640
1,736
2,589
2,805

Revenues:
Package:
U.S. overnight box
U.S. overnight envelope 1,747
3,001
U.S. deferred
Total U.S. domestic
package revenue
International priority(1)
International domestic(2)
Total package revenue
Freight:
U.S.
International priority(1)
International airfreight
Total freight revenue
Other(3)
Total revenues
Operating expenses:
Salaries and employee
benefits
9,657
Purchased transportation 1,828
Rentals and landing fees
1,680
Depreciation and
amortization
Fuel
Maintenance and repairs
Impairment and other
charges(4)
Intercompany charges
Other(5)
Total operating
expenses
Operating income
4.8%
Operating margin
(1) International Priority includes FedEx International Priority and FedEx International Economy

– NM
7
1

–
2,043
2,917

1,169
4,304
1,332

9,183
1,573
1,672

1,059
3,553
1,353

20,428
$ 1,127

134
2,193
2,958

8,402
1,177
1,577

1,016
2,651
1,131

23,353
$ 1,228

25,255
$ 1,260

1,940
2,534

10
21
(2)

5
16
–

5.0%

8
3

9
6
8

9
16
13
12

11
32
13
19
60
14

9
34
6

4
34
20

–
5
15

14
9

5.2% (20)bp (20)bp

services.

(2) International domestic revenues include our international intra-country domestic express

operations, including acquisitions in India (February 2011) and Mexico (July 2011).

(3) Other revenues include FedEx Trade Networks and, beginning in the second quarter of 2010,

FedEx SupplyChain Systems.

(4) Represents charges resulting from the decision to retire 24 aircraft and related engines.
(5) Includes the 2012 reversal of a $66 million legal reserve associated with the ATA Airlines

lawsuit which was initially recorded in 2011 (See Note 17 of the accompanying consolidated
financial statements).

management’s discussion and analysis

Percent of Revenue
2011

2012

2010

Operating expenses:
Salaries and employee benefits
Purchased transportation
Rentals and landing fees
Depreciation and amortization
Fuel
Maintenance and repairs
Impairment and other charges(1)
Intercompany charges
Other(2)
Total operating expenses
Operating margin
(1) Represents charges resulting from the decision to retire 24 aircraft and related engines.
(2) Includes the 2012 reversal of a $66 million legal reserve associated with the ATA Airlines
lawsuit which was initially recorded in 2011 (See Note 17 of the accompanying consoli-
dated financial statements).

36.4 %
6.9
6.3
4.4
16.2
5.0
0.5
8.3
11.2
95.2
4.8 %

37.4 %
6.4
6.8
4.3
14.4
5.5
–
8.3
11.9
95.0
5.0 %

39.0 %
5.5
7.3
4.7
12.3
5.2
–
9.0
11.8
94.8
5.2 %

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

Percent
Change

2012
2011

/
/ 2011
2010

2012

2011

2010

Package Statistics(1)
Average daily package
volume (ADV):
U.S. overnight box
U.S. overnight envelope
U.S. deferred
Total U.S. domestic ADV
International priority(2)
International domestic(3)
Total ADV
Revenue per package (yield):
U.S. overnight box
U.S. overnight envelope
U.S. deferred
U.S. domestic composite
International priority(2)
International domestic(3)
Composite package yield
Freight Statistics(1)
Average daily freight pounds:
U.S.
International priority(2)
International airfreight

586
845

1,146 1,184
627
873
2,577 2,684
575
348
3,631 3,607

559
495

1,157
614
867
2,638
523
318
3,479

$ 22.31 $ 20.29 $ 19.00
10.47
10.86
11.70
12.60
14.61
15.59
53.10
56.08
7.14
7.38
19.72
21.25

11.65
13.87
17.12
60.83
6.74
22.44

(3)
(7)
(3)
(4)
(3)
42
1

10
7
10
10
8
(9)
6

2
2
1
2
10
9
4

7
4
8
7
6
3
8

7,487
3,303
1,171

7,340
3,184
1,235

7,141
2,544
1,222

2
4
(5)

3
25
1

11,961 11,759 10,907

Total average daily
freight pounds
Revenue per pound (yield):
$ 1.30 $ 1.17 $ 1.09
U.S.
International priority(2)
2.01
2.12
0.81
0.90
International airfreight
1.27
1.40
Composite freight yield
(1) Package and freight statistics include only the operations of FedEx Express.
(2) International priority includes FedEx International Priority and FedEx International Economy

2.16
1.02
1.51

11
2
13
8

7
5
11
10

services.

(3) International domestic statistics include our international intra-country domestic express

operations, including acquisitions in India (February 2011) and Mexico (July 2011).

management’s discussion and analysis

fedex express segment revenues
FedEx Express segment revenues increased 8% in 2012 primarily due
to an increase in U.S. domestic and IP package yields, partially offset
by decreases in U.S. domestic and IP package volumes. In 2012, U.S.
domestic package yields increased 10% due to higher fuel surcharges
and increased rate per pound. IP package yields increased 8% in
2012 due to higher fuel surcharges, increased package weights and
increased rate per pound. Continued softness in the global economy
resulted in decreased demand for our U.S. domestic and IP package
services in 2012. IP revenue growth was negatively impacted by a
lower-yielding mix of services, consisting of growth in deferred services
and declines in premium services.

FedEx Express segment revenues increased 14% in 2011 on higher
yields 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. International priority freight
pounds increased 25% led by volume growth in Europe.

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 interna-
tional 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

2012

2011

2010

11.50%
16.50
14.23

7.00%
15.50
9.77

1.00 %
8.50
6.20

13.50
23.00
17.45

7.00
21.00
12.36

1.00
13.50
9.47

In January 2012, we implemented a 5.9% average list price increase
for FedEx Express U.S. domestic, U.S. export and U.S. import services,
while we lowered our fuel surcharge index by two percentage points.
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.

fedex express segment Operating inCOme
FedEx Express segment operating income increased 3% in 2012 primar-
ily due to the benefit from the timing lag that exists between when
fuel prices change and when indexed fuel surcharges automatically
adjust and U.S. domestic and IP package yield improvements. Results
of the FedEx Express segment reflect the impact of two one-time items
in 2012. FedEx Express segment results for 2012 were negatively
impacted by $134 million as a result of the decision to retire from
service 18 Airbus A310-200 aircraft and 26 related engines as well as
six Boeing MD10-10 aircraft and 17 related engines to better align the
U.S. domestic air network capacity of FedEx Express to match current
and anticipated shipment volumes. The 2012 operating results at the
FedEx Express segment were favorably impacted by the reversal of a
legal reserve of $66 million associated with the ATA Airlines lawsuit
which was initially recorded in 2011 (see Note 17 of the accompany-
ing consolidated financial statements). FedEx Express segment results
also benefited from a milder winter compared to the negative impact of
unusually severe winter weather in 2011.

Salaries and employee benefits increased 5% in 2012 due to higher
incentive compensation accruals and the full reinstatement of 401(k)
company-matching contributions effective January 1, 2011. Purchased
transportation costs increased 16% in 2012 due to costs associated
with the expansion of our freight forwarding business at FedEx Trade
Networks, recent business acquisitions in India and Mexico and higher
utilization of third-party transportation providers, primarily in Europe.
Intercompany charges increased 7% in 2012 due to higher allocated
variable incentive compensation expenses.

Fuel costs increased 21% in 2012 due to increases in the average price
per gallon of fuel. Fuel usage in 2012 was down slightly.

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 legal reserve associated with
the ATA Airlines lawsuit (see Note 17 of the accompanying consoli-
dated 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.

management’s discussion and analysis

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 OutlOOk
We expect increased revenues in 2013 at the FedEx Express segment in
our international services and moderately improved yields across all our
services as we continue to focus on our yield management programs.
We anticipate a slight decline in U.S. domestic package revenue in
2013 due to lower volumes.

FedEx Express segment operating income and operating margin are
expected to increase modestly in 2013, on continued growth in
international revenues led by IP package services. We also expect
improved operating results due to productivity enhancements such
as continued improvement in on-road productivity, air operations
initiatives and continued realignment of our network. FedEx Express is
developing an operating and cost structure plan during 2013 to further
improve its operational efficiency.

We will continue to modernize our aircraft fleet at FedEx Express during
2013 by adding newer aircraft that are more reliable, fuel efficient and
technologically advanced, and retiring older, less-efficient aircraft. Due
to the accelerated retirement of 54 aircraft and related engines to
better align with the delivery schedule for replacement aircraft, we
expect an additional $69 million in depreciation expense in 2013,
partially offset from the avoidance of depreciation related to aircraft
retirements (See the “Outlook” section for additional information).

Capital expenditures at FedEx Express are expected to decrease in
2013 as we have delayed the delivery of two B777F aircraft from 2013
related to our aircraft modernization programs (see “Liquidity Outlook”
for additional information) which will improve reliability, increase fuel
efficiency and reduce operating costs in future years.

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:

Percent
Change

2012
2011

/
/ 2011
2010

2012

2011

2010

1,451
3,762
284

$ 8,791
782
9,573

Revenues:
FedEx Ground
FedEx SmartPost
Total revenues
Operating expenses:
Salaries and employee
benefits
Purchased transportation
Rentals
Depreciation and
amortization
389
Fuel
14
Maintenance and repairs
176
Intercompany charges
978
755
Other
Total operating expenses 7,809
Operating income
$ 1,764
Operating margin
Average daily package
volume:
FedEx Ground
FedEx SmartPost
Revenue per package (yield):
FedEx Ground
FedEx SmartPost

$ 8.77
$ 1.81

3,907
1,692

$ 7,855
630
8,485

$ 6,958
481
7,439

1,282
3,431
263

1,158
2,966
244

12
24
13

13
10
8

13
31
14

11
16
8

337
12
169
897
769
7,160
$ 1,325

334
8
166
795
744
6,415
$ 1,024
18.4 % 15.6% 13.8% 280bp 180bp

15
17
4
9
(2)
9
33

1
50
2
13
3
12
29

3,746
1,432

3,523
1,222

$ 8.17
$ 1.72

$ 7.73
$ 1.56

4
18

7
5

6
17

6
10

Percent of Revenue
2011

2010

2012

Operating expenses:
Salaries and employee benefits
Purchased transportation
Rentals
Depreciation and amortization
Fuel
Maintenance and repairs
Intercompany charges
Other
Total operating expenses
Operating margin

15.2 %
39.3
3.0
4.1
0.1
1.8
10.2
7.9
81.6
18.4 %

15.1 %
40.4
3.1
4.0
0.1
2.0
10.6
9.1
84.4
15.6 %

15.5 %
39.9
3.3
4.5
0.1
2.2
10.7
10.0
86.2
13.8 %

management’s discussion and analysis

fedex grOund segment revenues
During 2012, FedEx Ground segment revenues increased 13% due to
yield and volume growth at both FedEx Ground and FedEx SmartPost.

FedEx Ground yields increased 7% during 2012 primarily due to rate
increases, higher fuel surcharges and higher extra service revenue.
Average daily package volume increased 4% at FedEx Ground in 2012
due to market share gains from continued growth in our FedEx Home
Delivery service and an increase in our commercial business.

At FedEx SmartPost, yields increased 5% in 2012 primarily due to
higher fuel surcharges and increased rates, partially offset by an
unfavorable service mix. FedEx SmartPost yield represents the amount
charged to customers net of postage paid to the United States Postal
Service (“USPS”). Average daily volume increased 18% at FedEx
SmartPost in 2012 as a result of growth in e-commerce.

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 primarily
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 USPS final destination facilities.

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

2012
7.50%
9.50
8.46

2011
5.50%
8.50
6.20

2010
2.75 %
5.50
4.23

In January 2012 and 2011, FedEx Ground and FedEx Home Delivery
implemented a 4.9% average list price increase. The full average
rate increase of 5.9% was partially offset by adjusting the fuel price
threshold at which the fuel surcharge begins, reducing the fuel
surcharge by one percentage point. FedEx SmartPost rates also
increased. In January 2011, FedEx Ground made additional changes
to dimensional weight charges and surcharges.

fedex grOund segment Operating inCOme
FedEx Ground segment operating income increased 33% and operating
margin increased 280 basis points during 2012 primarily due to higher
yields and volume growth. FedEx Ground has continued to shorten
transit times throughout 2012 by accelerating various lanes throughout
the U.S. and Canada, while maintaining consistently high on-time
service. Purchased transportation costs increased 10% in 2012
primarily as a result of volume growth and higher fuel surcharges.
Salaries and employee benefits increased 13% primarily due to
increased staffing to support volume growth and higher incentive
compensation accruals. Intercompany charges increased 9% in 2012
primarily due to higher allocated information technology costs.
Depreciation expense increased 15% in 2012 due to higher capital
spending across the network, including technology and transportation
equipment upgrades and an initiative to replace lighting fixtures
throughout the network in order to reduce energy costs.

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 realized a
higher retention of our annual rate increase in 2011 as more customers
recognized the competitive advantage that we maintain across many
shipping lanes in the U.S. We 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
surcharges and higher rates paid to our independent contractors.
Salaries and employee benefits 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.

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
excellent. 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 contractors
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.
To date, FedEx Ground has transitioned to the ISP model in 17 states.
Based upon the success of this model, FedEx Ground may transition
to it in some other states in the future.

management’s discussion and analysisfedex grOund segment OutlOOk
FedEx Ground segment revenues are expected to continue to grow in
2013, led by volume growth across all our major services due to market
share gains while continuing to improve U.S. transit times on additional
lanes. We also anticipate yield growth in 2013 through yield manage-
ment programs.

We expect continued growth in operating income at the FedEx Ground
segment in 2013 due to volume and yield increases as well as through
productivity enhancements such as automation of the planning
and execution of our preload, pickup and delivery processes, and
installation of GPS devices on all trailers and dollies to improve
fleet management.

Capital spending is expected to increase in 2013, with the majority
of our spending resulting from our hub expansions, and vehicle and
equipment purchases.

We will continue to vigorously defend various attacks against our
independent contractor model and incur ongoing legal costs as a part
of this process. While we believe that FedEx Ground’s owner-operators
are properly 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

2012
2011
8

/
/ 2011
2010
14

2012

2011
$ 5,282 $ 4,911

2010
$ 4,321

4
31
23

8
13
5

1
9
(7)

198
445
148

205
585
182

(10)
9
5

185
636
192

2,128
690
116

2,303
779
122

2,316
851
114

Revenues
Operating expenses:
Salaries and employee
benefits
Purchased transportation
Rentals
Depreciation and
amortization
Fuel
Maintenance and repairs
Impairment and other
charges(1)
-
433
Intercompany charges
Other
393
Total operating expenses 5,120
Operating income (loss)
Operating margin
Average daily LTL shipments
(in thousands)
84.9
Weight per LTL shipment (lbs) 1,156
LTL yield (revenue per
hundredweight)
(1) In 2011, this charge 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, this charge represents impairment charges associated with goodwill related to
the FedEx National LTL acquisition.

18 NM 394
89
22
1
351
427
-
380
4
394
14
1
5,086
4,474
(14)
193
$ 162 $ (175) $ (153)

$ 19.57 $ 18.24

82.3
1,134

86.0
1,144

$ 17.07

(1)
1

4
1

3.1% (3.6)% (3.5)% 670bp (10)bp

Percent of Revenue
2011

2012

2010

Operating expenses:
Salaries and employee benefits
Purchased transportation
Rentals
Depreciation and amortization
Fuel
Maintenance and repairs
Impairment and other charges(1)
Intercompany charges
Other
Total operating expenses
Operating margin
(1) In 2011, this charge 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, this charge represents impairment charges associated with goodwill related
to the FedEx National LTL acquisition.

46.9%
15.9
2.5
4.2
11.9
3.7
1.8
8.7
8.0
103.6

43.9 %
16.1
2.2
3.5
12.0
3.6
-
8.2
7.4
96.9
3.1%

49.2%
16.0
2.7
4.6
10.3
3.4
0.4
8.1
8.8
103.5

(3.6)%

(3.5)%

management’s discussion and analysisfedex freight segment revenues
During 2012, FedEx Freight revenues increased 8% due to increased
LTL yield and weight per LTL shipment, partially offset by lower average
daily LTL shipments. LTL yield increased 7% during 2012 due to higher
fuel surcharges and base yield improvement. Average daily LTL ship-
ments decreased 1% in 2012; however, during the second half of 2012,
LTL shipment year-over-year comparisons improved sequentially (2% in
the third quarter and 4% in the fourth quarter) due to enhanced service
levels, strong customer satisfaction from our service offerings and the
impact of severe weather in the prior year.

income in 2012. Depreciation and amortization expense decreased 10%
in 2012 primarily due to accelerated depreciation in 2011 associated
with the combination of our LTL operations.

The FedEx Freight segment operating loss in 2011 included costs
associated 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
combination of $133 million in 2011, including $89 million recorded in
the “Impairment and other charges” caption of the consolidated income
statement.

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.

fedex freight segment OutlOOk
We expect revenue growth at the FedEx Freight segment in 2013 as
customers increase their utilization of our integrated network. In addi-
tion, we expect yield and volume improvement driven by the unique
value proposition of our differentiated LTL services.

FedEx Freight operating income is expected to increase significantly
in 2013 driven by improvements in yields and the continued improve-
ment in productivity and efficiency across our integrated network. We
will continue to use investments in technology, focused on network
and equipment planning and customer automation, to further enhance
customer service levels throughout 2013.

Capital expenditures in 2013 are expected to be comparable to 2012,
with the majority of our spending for replacement of vehicles and
freight handling equipment.

FedEx Freight segment revenues increased 14% in 2011 due to higher
LTL yield and average daily LTL shipments. LTL yields increased 7% in
2011 due to our yield management programs and higher fuel sur-
charges. Under these programs, LTL yields increased sequentially in
each of the previous 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 dur-
ing the first half of 2011 resulting from the impact of discounted pricing
in contracts signed 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

2012

2011

2010

19.80 % 15.10 % 10.80 %

24.30

22.90

20.70

16.10

17.00

14.00

On June 8, 2012, FedEx Freight announced a general rate increase of
6.9% for LTL shipments to be effective on July 9, 2012. In June 2011,
FedEx Freight increased the fuel surcharge rate to a maximum of
3.6 percentage points above previous levels. In September 2011,
we implemented a general rate increase of 6.75% for LTL shipments.
In November 2010, we implemented a 6.9% general rate increase for
LTL shipments.

fedex freight segment Operating inCOme (lOss)
In 2012, the FedEx Freight segment operating income increased signifi-
cantly as a result of higher fuel surcharges, yield growth and ongoing
improvements in operational efficiencies due to the combination of our
FedEx Freight and FedEx National LTL operations in 2011 (see below).
Additionally, the FedEx Freight segment’s 2012 results benefited
from milder winter weather, while our 2011 results were negatively
impacted by unusually severe winter weather.

Purchased transportation costs increased 9% in 2012 due to higher
rates and the increased utilization of rail, partially offset by a lower
cost per mile due to our ability to optimize mode of transportation while
meeting service standards. Fuel costs increased 9% in 2012 due to
a higher average price per gallon of diesel fuel partially offset by the
increased utilization of rail. 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 to operating

management’s discussion and analysisFINANCIAL CONDITION

LIQUIDITY
Cash and cash equivalents totaled $2.8 billion at May 31, 2012, com-
pared to $2.3 billion at May 31, 2011. The following table provides a
summary of our cash flows for the periods ended May 31 (in millions):

FINANCING ACTIVITIES. During the second quarter of 2012, we
repurchased 2.8 million FedEx common shares at an average price
of $70 per share for a total of $197 million. As of May 31, 2012,
2.9 million shares remained under existing share repurchase
authorizations.

During 2011, we repaid our $250 million 7.25% notes that matured
on February 15, 2011.

Operating activities:
Net income
Impairment and other charges
Other noncash charges and credits
Changes in assets and liabilities
Cash provided by operating activities
Investing activities:
Capital expenditures
Business acquisitions, net of
cash acquired
Proceeds from asset dispositions
and other
Cash used in investing activities
Financing activities:
Purchase of treasury stock
Principal payments on debt
Dividends paid
Other
Cash used in financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and
cash equivalents

2012

2011

2010

$ 2,032 $ 1,452
29
2,892
(332)
4,041

134
3,504
(835)
4,835

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

(4,007)

(3,434)

(2,816)

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

(116)

(96)

–

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

74
(4,049)

111
(3,419)

35
(2,781)

(197)
(29)
(164)
146
(244)
(27)

–
(262)
(151)
126
(287)
41

–
(653)
(138)
99
(692)
(5)

Percent
Change

2012
2011
2010
(6)
Aircraft and related equipment $ 1,875 $ 1,988 $ 1,537
630
15
Facilities and sort equipment
220 156

638
723

555
282

2012

2011

/
/ 2011
2010
29
(12)
28

Vehicles
Information and technology
investments

$ 515

$ 376

$ (340)

Total capital expenditures

Other equipment

455
154

541
230

57
289
19
10
140
49
22
$ 4,007 $ 3,434 $ 2,816
17
32
1,864
9
7
26
400
(28)
212 122
13
14
340
– NM NM
22
17

2,689
536
340
437
5

2,467
426
153
387
1

$ 4,007 $ 3,434 $ 2,816

FedEx Express segment

FedEx Ground segment

FedEx Freight segment

FedEx Services segment

Other

Total capital expenditures

Capital expenditures during 2012 were higher than the prior year
primarily due to increased spending for vehicles at FedEx Express,
FedEx Freight and FedEx Ground, although spending for aircraft and
related equipment at FedEx Express decreased. Aircraft and aircraft-
related equipment purchases at FedEx Express during 2012 included
the delivery of seven B777Fs and 15 B757s. Capital expenditures during
2011 were higher than the prior year 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 six new B777Fs and 22 B757s.

CASH PROVIDED BY OPERATING ACTIVITIES. Cash flows from
operating activities increased $794 million in 2012 primarily due to
increased earnings, partially offset by higher pension contributions.
Cash flows from operating activities increased $903 million in 2011
primarily due to increased earnings and lower pension contributions.

We made contributions of $722 million to our tax-qualified U.S.
domestic pension plans (“U.S. Pension Plans”) during 2012,
including $226 million in voluntary contributions, and contributions
of $480 million to our U.S. Pension Plans during 2011, including
$121 million in voluntary contributions. We made contributions of
$848 million to our U.S. Pension Plans during 2010, including
$495 million in voluntary contributions.

CASH USED IN INVESTING ACTIVITIES. Capital expenditures were
17% higher in 2012 largely due to increased spending at FedEx Express
and FedEx Freight and 22% higher in 2011 primarily due to increased
spending at FedEx Express. See “Capital Resources” for a discussion
of capital expenditures during 2012 and 2011.

management’s discussion and analysisLIQUIDITY 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 expendi-
ture requirements and debt payment obligations. Our cash and cash
equivalents balance at May 31, 2012 includes $410 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.

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. 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.

A $1 billion revolving credit facility is available to finance our opera-
tions and other cash flow needs and to provide support for the issuance
of commercial paper. The revolving credit agreement expires in April
2016. The agreement contains a financial covenant, which requires us
to maintain a leverage ratio of adjusted debt (long-term debt, includ-
ing the current portion of such debt, plus six times our last four fiscal
quarters’ rentals and landing fees) to capital (adjusted debt plus total
common stockholders’ investment) that does not exceed 70%. Our
leverage ratio of adjusted debt to capital was 53% at May 31, 2012.
We believe the leverage ratio covenant is our only significant restrictive
covenant in our revolving credit agreement. Our revolving credit agree-
ment contains other customary covenants that do not, individually or in
the aggregate, materially restrict the conduct of our business. We are
in compliance with the leverage ratio covenant and all other covenants
of our revolving credit agreement and do not expect the covenants to
affect our operations, including our liquidity or expected funding needs.
As of May 31, 2012, no commercial paper was outstanding, and the
entire $1 billion under the revolving credit facility was available for
future borrowings.

Standard & Poor’s has assigned us a senior unsecured debt credit
rating of BBB, commercial paper rating of A-2 and a ratings outlook
of “stable.” During 2012, Moody’s Investors Service raised our senior
unsecured debt credit rating to Baa1 from Baa2 and affirmed a com-
mercial paper rating of P-2 and a ratings outlook of “stable.” If our
credit ratings drop, our interest expense may increase. If our com-
mercial 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.

Subsequent to year-end, we completed acquisitions in Poland, Brazil
and France for approximately $500 million (see “Business Acquisitions”
for additional information), and on June 15, 2012, we repaid our
$300 million 9.65% unsecured notes when they matured.

Our capital expenditures are expected to be $3.9 billion in 2013. We
anticipate that our cash flow from operations will be sufficient to
fund our capital expenditures in 2013, which will include spending for
aircraft and aircraft-related equipment at FedEx Express, sort facility
expansion at FedEx Express and FedEx Ground and vehicle replacement
at all our transportation segments. We expect approximately 46% of
capital expenditures in 2013 will be designated for growth initiatives
and 54% dedicated to maintaining our existing operations. Our capital
expenditures are expected to decrease in 2013 due to delayed delivery
of two B777F aircraft (see below) partially offset by increased spending
on facility investment. Our expected capital expenditures for 2013
include $1.3 billion in investments for delivery of aircraft as well as
progress payments toward future aircraft deliveries at FedEx Express.
For 2013, we anticipate making required contributions to our U.S.
Pension Plans totaling approximately $550 million. Our U.S. Pension
Plans have ample funds to meet expected benefit payments.

We have several aircraft modernization programs underway which
are supported by the purchase of B777F, B767F and B757 aircraft.
These aircraft are significantly more fuel-efficient per unit than the
aircraft type previously utilized, and these expenditures are necessary
to achieve significant long-term operating savings and to support pro-
jected 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. We will have
a benefit from the tax expensing and accelerated depreciation provi-
sions of the Tax Relief Act of 2010 on qualifying capital investments we
make until December 31, 2012.

B777F AIRCRAFT. We have agreed to purchase a total of 43 B777F
aircraft (19 of which were in service at May 31, 2012, and an additional
four to be delivered in 2013). During the second quarter of 2012, FedEx
Express delayed the delivery of two B777F aircraft from 2013, and in
conjunction with the execution of the December 2011 B767F aircraft
purchase agreement (described below), also delayed the delivery of
nine B777F aircraft, five of which were deferred from 2014 and one per
year from 2015 to 2018, to better align air network capacity to demand.
FedEx Express also exercised two B777F options for aircraft to be
delivered at the end of the delivery schedule.

In conjunction with the June 29, 2012 supplemental agreement to
purchase B767F aircraft (described below), we agreed to convert four
contracted B777F aircraft deliveries that were subject to the Railway
Labor Act of 1926, as amended (“RLA”) (two scheduled for delivery in
fiscal 2016 and two scheduled for delivery in fiscal 2017) to equivalent
purchase value for B767F aircraft acquired under the supplemental
agreement referenced below.

With consideration of the supplemental agreement, our obligation to
purchase 9 of these B777F aircraft is conditioned upon there being no
event that causes FedEx Express or its employees not to be covered by
the RLA.

management’s discussion and analysisB767F AIRCRAFT. We have agreed to purchase a total of 46 B767F
aircraft (the first three to be delivered in 2014). In December 2011,
FedEx Express entered into an agreement to acquire 27 new B767F
aircraft, with the first three arriving in 2014 followed by six per year
from 2015 to 2018. The B767F was selected as the best choice to
begin replacing FedEx Express’s MD10 aircraft, some of which are
more than 40 years old. The B767Fs will provide similar capacity as the
MD10s, with improved reliability, an approximate 30% increase in fuel
efficiency and a minimum of a 20% reduction in unit operating costs.

On June 29, 2012, FedEx Express entered into a supplemental
agreement to purchase nine additional B767F aircraft. Additionally,

FedEx Express exercised ten B767F options available under the
December 2011 agreement and purchased the right to 15 additional
options. Four of these 19 additional B767F aircraft purchases are
subject to the RLA condition. These 19 additional B767F aircraft are
expected to be delivered from fiscal 2015 to 2019 and will replace
current MD10-10 and A310-200 aircraft.

B757 AIRCRAFT. Our B757 aircraft are replacing our B727 aircraft,
and we expect to be completely transitioned out of the B727 aircraft
by 2015.

CONTRACTUAL CASH OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
The following table sets forth a summary of our contractual cash obligations as of May 31, 2012. 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, 2012. We have certain contingent liabilities that are not accrued in our balance sheet in accordance
with accounting principles generally accepted in the United States. These contingent liabilities are not included in the table below. We have
other long-term liabilities reflected in our balance sheet, including deferred income taxes, qualified and nonqualified pension and postretirement
healthcare plan liabilities and other self-insurance accruals. The payment obligations associated with these liabilities are not reflected in the
table below due to the absence of scheduled maturities. Accordingly, this table is not meant to represent a forecast of our total cash expenditures
for any of the periods presented.

(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

2013

Payments Due by Fiscal Year (Undiscounted)
2016

2015

2017

2014

Thereafter

Total

$ 1,872
173
98
550

$ 1,725
191
97
–

$ 1,572
139
78
–

$ 1,391
78
78
–

$ 1,433
52
78
–

$ 5,993
134
1,581
–

$ 13,986
767
2,010
550

965
127

558
–

824
–

912
–

1,009
–

5,166
–

9,434
127

300
120
$ 4,205

250
2
$ 2,823

–
2
$ 2,615

–
1
$ 2,460

–
1
$ 2,573

989
11
$ 13,874

1,539
137
$ 28,550

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

management’s discussion and analysisOperating aCtivities
In accordance with accounting principles generally accepted in the
United States, future contractual payments under our operating leases
(totaling $14 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, 2012. 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 eco-
nomic benefits favorable to ownership with respect to market values,
liquidity or after-tax cash flows.

The amounts reflected for purchase obligations represent non-
cancelable agreements to purchase goods or services that are not
capital-related. Such contracts include those for printing and advertis-
ing and promotions contracts.

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 rea-
sonably 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 ($50 million) is excluded from the
table. See Note 11 of the accompanying consolidated financial state-
ments 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 standby
letters of credit and surety bonds. 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.

The amounts reflected in the table above for long-term debt represent
future scheduled payments on our long-term debt. In 2013, we have
scheduled debt payments of $420 million, which includes $300 million
for principal payments on our 9.65% unsecured notes that matured in
June 2012, and principal and interest payments on capital leases.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires 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.

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.

management’s discussion and analysisRETIREMENT PLANS
OVERVIEW. We sponsor programs that provide retirement benefits
to most of our employees. These programs include defined benefit
pension plans, defined contribution plans and postretirement health-
care 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 and corporate bond rates. Prior to 2009, certain
employees earned benefits using a traditional pension formula (based
on average earnings and years of service). Benefits under this formula
were capped on May 31, 2008 for most employees.

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 different 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.

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

2012

2011

2010

$ 524

$ 543

$ 308

338
70
$ 932

257
60
$ 860

136
42
$ 486

Total retirement plans cost increased $72 million in 2012 primarily due
to higher expenses for our 401(k) plans due to the full restoration of
company matching contributions on January 1, 2011. Total retirement
plans cost increased $374 million in 2011 driven by lower discount
rates used to measure our benefit obligations at our May 31, 2010
measurement date. Additionally, we incurred higher expenses for our
401(k) plans in 2011 due to the partial reinstatement of company-
matching contributions on January 1, 2010 (previously suspended in
February 2009).

Our retirement plans costs are expected to increase significantly in
2013, as historically low discount rates at May 31, 2012 will increase
our expenses by over $165 million, of which $150 million is attributable
to U.S. Pension Plan expense.

PENSION COST. The accounting for pension and postretirement
healthcare plans includes numerous assumptions, including the dis-
count rate and expected long-term investment returns on plan assets.
These assumptions most significantly impact our U.S. Pension Plans.
The components of pension cost for all pension plans are as follows
(in millions):

Service cost

Interest cost

Expected return on plan assets
Recognized actuarial losses (gains)
and other

Net periodic benefit cost

2012
$ 593
976
(1,240 )

2011
$ 521
900
(1,062 )

2010
$ 417
823
(955)

195
$ 524

184
$ 543

23
$ 308

Following is a discussion of the key estimates we consider in determin-
ing 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
5/31/2012
5/31/2011
5/31/2010
5/31/2009

Amounts Determined by
Measurement Date and
Discount
Rate
Discount Rate
4.44 % 2012 PBO and 2013 expense
2011 PBO and 2012 expense
5.76
2010 PBO and 2011 expense
6.37
2009 PBO and 2010 expense
7.68

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 cor-
porate 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.

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 strat-
egy 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.

The discount rate assumption is highly sensitive, as the following table
illustrates for our largest tax-qualified U.S. domestic pension plan:

Sensitivity (in millions)

Effect on 2013
Pension Expense

Effect on 2012
Pension Expense

One-basis-point change
in discount rate

$ 2.3

$ 1.9

At our May 31, 2012 measurement date, a 50-basis-point increase
in the discount rate would have decreased our 2012 PBO by approxi-
mately $1.5 billion and a 50-basis-point decrease in the discount rate
would have increased our 2012 PBO by approximately $1.7 billion.
From 2009 to 2012, the discount rate used to value our liabilities has
declined by over 300 basis points, which increased the valuation of our
liabilities by over $7 billion.

Establishing the expected future rate of investment return on our
pension assets is a judgmental matter, which we review on an annual
basis and revise 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.

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

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

Plan Assets at Measurement Date

2012
Actual %
33%
10
2
45
52
3
100%

Actual
$ 5,616
1,657
402
7,675
8,799
539
$ 17,013

Target %
33%
12
5
50
49
1
100%

2011
Actual %
37%
13
3
53
45
2
100%

Actual
$ 5,761
2,013
403
8,177
6,995
346
$ 15,518

Target %
33%
12
5
50
49
1
100%

We have assumed an 8.0% compound geometric long-term rate of return on our U.S. Pension Plan assets for 2013, 2012 and 2011. The actual
returns during each of the last three fiscal years have exceeded that long-term assumption. The actual historical return on our U.S. Pension Plan
assets, calculated on a compound geometric basis, was approximately 7.4%, net of investment manager fees, for the 15-year period ended May
31, 2012 and 7.8%, net of investment manager fees, for the 15-year period ended May 31, 2011. A one-basis-point change in our expected return
on plan assets impacts our pension expense by $1.7 million.

Pension expense is also affected by the accounting policy used to determine the value of plan assets at the measurement date. We use a calcu-
lated-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 measurement date. For purposes of valuing plan assets for determining 2013 pension expense, the calculated
value method resulted in the same value as the market value.

management’s discussion and analysisFunded 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
noncurrent pension and other benefit obligations
net amount recognized
Cash Amounts:
Cash contributions during the year
Benefit payments during the year

2012

2011

$ 22,187
17,334
$ (4,853 )

$ 17,372
15,841
$ (1,531)

$ (4,179 )
(355 )
(319 )
$ (4,853 )

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

$ (35 )
(4,818 )
$ (4,853 )

$ (33)
(1,498)
$ (1,531)

$ 780
$ 502

$ 557
$ 468

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, 2012,
we recorded a decrease to equity through OCI of $2.4 billion (net of tax)
to reflect unrealized actuarial losses during 2012 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, 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.

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 2012 were approximately $465 million or 3% of
plan assets).

during 2012, we made $722 million in contributions to our u.S.
Pension Plans, including $226 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 2013, we anticipate
making required contributions to our u.S. Pension Plans totaling
approximately $550 million.

Cumulative unrecognized actuarial losses were $8.9 billion through
May 31, 2012, compared to $5.4 billion through May 31, 2011. 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
$302 million in 2012, $276 million in 2011 and $125 million in 2010.

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. Self-
insurances accruals reflected in our balance sheet were $1.6 billion at
May 31, 2012, and May 31, 2011. approximately 40% of these accruals
were classified as current liabilities.

Our self-insurance accruals are primarily based on the actuarially
estimated, undiscounted cost of 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.

We believe the use of actuarial methods to account for these liabili-
ties 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 58% of our total assets invested in our
transportation and information systems infrastructures. We capital-
ize only those costs that meet the definition of capital assets under
accounting standards. accordingly, repair and maintenance costs that
do not extend the useful life of an asset or are not part of the cost of
acquiring the asset are expensed as incurred.

the depreciation or amortization of our capital assets over their
estimated useful lives, and the determination of any salvage values,
requires management to make judgments about future events. Because
we utilize many of our capital assets over relatively long periods (the
majority of aircraft costs are depreciated over 15 to 30 years), we peri-
odically evaluate whether adjustments to our estimated service lives or

management’s discussion and analysis
salvage values are necessary to ensure these estimates 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. In May 2012, we made the decision to shorten
the depreciable lives for 54 aircraft and related engines to accelerate
the retirement of these aircraft to better align the u.S. domestic air
network capacity to match current and anticipated shipment volumes in
light of the delivery schedule for replacement aircraft. due to our deci-
sion to accelerate retirement of certain aircraft and related engines, our
depreciation expense will increase over the next three years, partially
offset from the avoidance of depreciation related to aircraft retire-
ments. (See the “Outlook” section for additional information). 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 deprecia-
tion recognized in future periods and could have a material impact on
our results of operations. Historically, gains and losses on disposals of
operating equipment have not been material. However, such amounts
may differ materially in the future due to changes in business levels,
technological obsolescence, accident frequency, regulatory changes
and other factors beyond our control.

Because of the lengthy lead times for aircraft manufacture and
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 availability 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 activities create risks
that asset capacity may exceed demand and that an impairment of our
assets may occur. aircraft purchases (primarily aircraft in passenger
configuration) that have not been placed in service totaled $127 million
at May 31, 2012 and $173 million at May 31, 2011. We plan to modify
these assets in the future and place them into operations.

the accounting test for whether an asset held for use is impaired
involves 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 determina-
tions for such aircraft may require management estimates, as there
may not be active markets for some of these aircraft. Such estimates
are subject to revision from period to period.

during the fourth quarter of 2012, we incurred a noncash impairment
charge of $134 million. this charge related to our May 2012 decision to
permanently retire 18 airbus a310-200 aircraft and 26 related engines
as well as six Boeing Md10-10 aircraft and 17 related engines to
better align the u.S. domestic air network capacity of Fedex express to
match current and anticipated shipment volumes. the majority of these
aircraft were temporarily idled and not in revenue service.

In 2011, we incurred asset impairment charges of $29 million related
to the combination of our LtL operations at Fedex Freight. there were
no material property and equipment impairment charges recognized
in 2010.

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, 2012 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, 2012 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.

the determination of whether a lease is accounted for as a capital
lease or an operating lease requires management to make estimates
primarily about the fair value of the asset and its estimated economic
useful life. In addition, our evaluation includes ensuring we properly
account for build-to-suit lease arrangements and making judgments
about whether various forms of lessee involvement during the
construction period make the lessee an agent for the owner-lessor or,
in substance, the owner of the asset during the construction period.
We believe we have well-defined and controlled processes for making
these evaluations, including obtaining third-party appraisals for mate-
rial transactions to assist us in making these evaluations.

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.

GOOdWILL. as of May 31, 2012, we had $2.4 billion of recorded
goodwill from our acquisitions, representing the excess of the purchase
price 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.

management’s discussion and analysisIn our evaluation of goodwill impairment, we perform a qualitative
assessment which requires management judgment and the use of
estimates to determine if it is more likely than not that the fair value
of a reporting unit is less than its carrying amount. If the qualitative
assessment is not conclusive, we would proceed to a two-step process
to test goodwill for impairment, including comparing the fair value
of each reporting unit with its carrying value (including attributable
goodwill). Fair value is estimated using standard valuation methodolo-
gies (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 management 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 reporting units with significant recorded goodwill include our Fedex
express, Fedex Freight and Fedex Office (reported in the Fedex Services
segment) reporting units. We evaluated these reporting units during the
fourth quarters of 2012 and 2011. the estimated fair value of each of
these reporting units exceeded their carrying values in 2012 and 2011,
and we do not believe that any of these reporting units were at risk
as of May 31, 2012. 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 ($351 million) is dependent
upon execution of our growth strategies and initiatives in the future.

In connection with our annual impairment testing of goodwill
conducted in the fourth quarter of 2010, we recorded a charge of
$18 million for impairment of the value of the remaining 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.

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.

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 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 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 noncur-
rent 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.

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.

management’s discussion and analysisWe measure and record operating tax contingency accruals in accor-
dance 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 reason-
ably 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, employ-
ment-related claims and Fedex Ground’s owner-operators. accounting
guidance for contingencies requires an accrual of estimated loss from
a contingency, such as a tax or other legal proceeding or claim, when
it is probable (i.e., the future event or events are likely to occur) that
a loss will be incurred and the amount of the loss can be reasonably
estimated. this guidance also requires disclosure of a loss contingency
matter when, in management’s judgment, a material loss is reasonably
possible or probable.

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 dis-
closure 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 communications 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.

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 $2.0 billion at May 31, 2012 and $1.9 billion at
May 31, 2011. 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 $30 million as of May 31,
2012 and $36 million as of May 31, 2011. 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 postretire-
ment 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 contributions 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 transporta-
tion, 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 British pound, Canadian dollar, Chinese yuan, euro, Hong Kong
dollar 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 2012 and 2011,
foreign currency fluctuations positively impacted operating income.
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, 2012, 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 $75 million for 2013. this theoretical

management’s discussion and analysiscalculation 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, fluctua-
tions 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 suddenly
change by a substantial amount or change by amounts that do not
result in an adjustment in our fuel surcharges.

OtHeR. We do not purchase or hold any derivative financial instru-
ments for trading purposes.

RISK FACTORS

Our financial and operating results are subject to many risks and
uncertainties, 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 dif-
ficult to quickly adjust to match shifting volume levels. Moreover, as
we continue to grow our international business, we are increasingly
affected by the health of the global economy. In 2012, global economic
conditions resulted in decreased demand for our u.S. domestic and
International Priority package services at Fedex express, as customers
utilized lower priced deferred services.

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 recog-
nized, trusted and respected brands in the world, and the Fedex brand
is one of our most important and valuable assets. In addition, we have
a strong reputation among customers and the general public for high
standards of social and environmental responsibility and corporate

governance and ethics. the Fedex brand name and our corporate
reputation are powerful sales and marketing tools, and we devote
significant resources to promoting and protecting them. adverse
publicity (whether or not justified) relating to activities by our
employees, contractors or agents, such as customer service mishaps or
noncompliance with anti-corruption laws, could tarnish our reputation
and reduce the value of our brand. With the increase in the use of
social media outlets such as Youtube and twitter, adverse publicity can
be disseminated quickly and broadly, making it increasingly difficult for
us to defend against. 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 opera-
tions 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 custom-
ers. external and internal risks, such as malware, code anomalies,
“acts of God,” attempts to penetrate our networks, data leakage
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 com-
promised 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 technology 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 oper-
ate 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 sur-
charges is closely linked to the market prices for fuel. If we are unable
to maintain or increase our fuel surcharges because of competitive pric-
ing 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 addition, disruptions in
the supply of fuel could have a negative impact on our ability to operate
our transportation networks.

management’s discussion and analysisOur businesses are capital intensive, and we must make capital
decisions based upon projected volume levels. We make signifi-
cant investments in aircraft, vehicles, technology, package handling
facilities, sort equipment, copy equipment and other assets to support
our transportation and business networks. We also make significant
investments to rebrand, integrate and grow the companies that we
acquire. the amount and timing of capital investments depend on vari-
ous factors, including our anticipated volume growth. We must make
commitments to purchase or modify aircraft years before the aircraft
are actually needed. We must predict volume levels and fleet require-
ments and make commitments for aircraft based on those projections.
Missing our projections could result in too much or too little capacity
relative to our shipping volumes. Overcapacity could lead to asset
dispositions or write-downs and undercapacity could negatively impact
service levels. For example, in the fourth quarter of 2012, in order to
better align the u.S. domestic air network capacity of Fedex express to
match current and anticipated shipment volumes, we made a decision
to retire from service certain aircraft and certain excess aircraft engines
and thus recorded a noncash impairment charge of $134 million.
We are also developing operating and cost structure plans to further
improve our efficiency at Fedex express.

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, high volume
package shippers could develop in-house ground delivery capabilities,
which would in turn reduce our revenues and market share. While we
believe we compete effectively through our current service offerings, if
our current competitors or potential future competitors offer a broader
range of services or more effectively bundle their services or our
current customers become competitors, it could impede our ability to
maintain or grow our market share.

If we do not effectively operate, integrate, leverage and grow
acquired businesses, our 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 acquisi-
tions. In furtherance of this strategy, we recently made strategic
acquisitions in Mexico, Poland, France and Brazil. 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 good-
will or other intangible assets.

Labor organizations attempt to organize groups of our employees
from time to time, and potential changes in labor laws could make
it easier for them to do so. If we are unable to continue to maintain
good relationships with our employees and prevent labor organizations
from organizing groups of our employees, our operating costs could
significantly increase and our operational flexibility could be signifi-
cantly reduced. despite continual organizing attempts by labor unions,
other than the pilots of Fedex express, all of our u.S. employees have
thus far chosen not to unionize. the u.S. Congress has, in the past,
considered adopting changes in labor laws, however, that would make
it easier for unions to organize units of our employees. For example,
there is always a possibility that Congress could remove most
Fedex express employees from the purview of 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.

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 busi-
ness 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 contractors and that
Fedex Ground is not an employer of the drivers of the company’s inde-
pendent 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 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.
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.

management’s discussion and analysisThe transportation infrastructure continues to be a target of ter-
rorist activities. Because transportation assets continue to be a target
of terrorist activities, governments around the world are adopting
or are considering adopting stricter security requirements that will
increase operating costs and potentially slow service for businesses,
including those in the transportation industry. For example, the u.S.
transportation Security administration continues to require Fedex
express to comply with a Full all-Cargo aircraft Operator Standard
Security Plan, which contains evolving and strict security requirements.
these requirements are not static, but change periodically as the result
of regulatory and legislative requirements, imposing additional security
costs and creating a level of uncertainty for our operations. thus, it is
reasonably possible that these rules or other future security require-
ments could impose material costs on us. Moreover, a terrorist attack
directed at Fedex or other aspects of the transportation infrastructure
could disrupt our operations and adversely impact demand for
our services.

Increased pilot safety requirements could impose substantial
costs on us. the Faa, 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.
When the Faa issued final regulations in december 2011, all-cargo
carriers, including Fedex express, were exempt from these new pilot
fatigue requirements, and instead required to continue complying with
previously enacted flight and duty time rules. In May 2012, however,
the Faa indicated that it would reconsider the exclusion of cargo pilots
from these new pilot fatigue requirements. thus, it is reasonably pos-
sible that these rules or other future flight safety requirements could
impose material costs on us.

The regulatory environment for global aviation or other transpor-
tation 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 growing inter-
national domestic operations, are also subject to current and potential
regulations, including certain postal regulations and licensing require-
ments, that restrict, make difficult and sometimes prohibit, the ability of
foreign-owned companies such as Fedex express to compete effec-
tively in parts of the international domestic transportation and logistics
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, including our aircraft and
diesel engine 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 from any airport
in any member state of the european union are now covered by the
etS requirements, and each year we are 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 regula-
tion 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 weather patterns and 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
significant disruption to our operations and cause us to incur significant
costs to reestablish or relocate these functions. Moreover, resulting
economic dislocations, including supply chain and fuel disruptions,
could adversely impact demand for our services.

Our business may be adversely impacted by disruptions or modi-
fications in service by the USPS. the uSPS is a significant customer
and vendor of Fedex, and thus, disruptions or modifications in services
by the uSPS as a consequence of the uSPS’s current financial difficul-
ties or any resulting structural changes to its operations, network,
service offerings or pricing could have an adverse effect on our opera-
tions and financial results. For instance, because Fedex SmartPost uses
the uSPS for final delivery to residences, any changes in uSPS services
(such as the cessation of Saturday delivery) could impact the terms and
cost of our Fedex SmartPost service.

In addition, the uSPS has informed us that it intends to solicit propos-
als for the provision of air transportation services currently provided
by Fedex express upon the expiration of the current agreement in
September 2013. accordingly, upon the expiration of the current agree-
ment, the transportation services we provide to the uSPS could be
transitioned, in whole or in part, to another provider. this would have
a negative impact on our asset utilization and profitability. Moreover,
to the extent that any such services are retained by us, the terms and

management’s discussion and analysisconditions of the new arrangement may be less favorable than those
currently in place.

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

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 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 British
pound, Canadian dollar, Chinese yuan, euro, Hong Kong dollar 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 and discrimination and
retaliation claims, and any other legal or governmental proceedings;

> the outcome of future negotiations to reach new collective bargaining
agreements — including with the union that represents the pilots
of Fedex express (the current pilot contract is scheduled to become
amendable in March 2013);

> 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 com-
plexity throughout the organization;

> availability of financing on terms acceptable to us and our ability to
maintain our current credit ratings, especially given the capital inten-
sity 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 state-
ments, 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, objec-
tives, future performance and business. Forward-looking statements
include those preceded by, followed by or that include the words
“may,” “could,” “would,” “should,” “believes,” “expects,” “antici-
pates,” “plans,” “estimates,” “targets,” “projects,” “intends” or similar
expressions. these forward-looking statements involve risks and uncer-
tainties. actual results may differ materially from those contemplated
(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-looking
statement is neither a prediction nor a guarantee of future events or
circumstances and those future events or circumstances may not occur.
You should not place undue reliance on the forward-looking state-
ments, 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 informa-
tion, future events or otherwise.

management’s discussion and analysisMANAGEMENT’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 transactions 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, 2012, 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, 2012.

the effectiveness of our internal control over financial reporting as of May 31, 2012, has been audited by ernst & Young LLP, the independent reg-
istered 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.

fedex corporationREPORT 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, 2012, 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, 2012,
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, 2012 and 2011, and the related consolidated statements of income, changes in stock-
holders’ investment and comprehensive income (loss), and cash flows for each of the three years in the period ended May 31, 2012 of
Fedex Corporation and our report dated July 16, 2012 expressed an unqualified opinion thereon.

Memphis, tennessee
July 16, 2012

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,

2012
$ 42,680

2011
$ 39,304

2010
$ 34,734

16,099
6,335
2,487
2,113
4,956
1,980
134
5,390
39,494
3,186

(52)
13
(6)
(45)
3,141
1,109
$ 2,032
$ 6.44
$ 6.41

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

(86)
9
(36)
(113)
2,265
813
$ 1,452
$ 4.61
$ 4.57

14,027
4,728
2,359
1,958
3,106
1,715
18
4,825
32,736
1,998

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

fedex corporation

CONSOLIDATED BALANCE SHEETS

(in millions, except share data)
Assets
Current Assets
Cash and cash equivalents
Receivables, less allowances of $178 and $182
Spare parts, supplies and fuel, less allowances of $184 and $169
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, 2012 and May 31, 2011
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.

May 31,

2012

2011

$ 2,843
4,704
440
533
536
9,056

14,360
5,912
4,646
3,654
7,592
36,164
18,916
17,248

2,387
1,212
3,599
$ 29,903

$ 417
1,635
1,613
1,709
5,374
1,250

836
5,582
963
784
251
136
8,552

32
2,595
17,134
(4,953)
(81)
14,727
$ 29,903

$ 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

fedex corporation

Years ended May 31,

2012

2011

2010

$ 2,032

$ 1,452

$ 1,184

2,113
160
1,126
134
105

(254)
(231)
(453)
144
(41)
4,835

(4,007)
(116)
74
(4,049)

(29)
128
18
(164)
(197)
–
(244)
(27)
515
2,328
$ 2,843

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

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 current assets
Pension assets and liabilities, net
accounts payable and other liabilities
Other, net
Cash provided by operating activities

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

Financing Activities
Principal payments on debt
Proceeds from stock issuances
excess tax benefit on the exercise of stock options
dividends paid
Purchase of treasury stock
Other, net
Cash 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
The accompanying notes are an integral part of these consolidated financial statements.

fedex corporation

Additional
Paid-in
Capital
$ 2,053
–

Accumulated
Other
Comprehensive
Income (Loss)
$ (1,373)
–

Retained
Earnings
$ 12,919
1,184

Treasury
Stock
$ (4)
–

Total
$ 13,626
1,184

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
INVESTMENT AND COMPREHENSIVE INCOME (LOSS)

Common
Stock
$ 31
–

–

–
–

–
31
–

(in millions, except share data)
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
net income
Foreign currency translation adjustment,
net of tax of $26
Retirement plans adjustments,
net of tax of $1,369
total comprehensive loss
Purchase of treasury stock
Cash dividends declared ($0.52 per share)
employee incentive plans and other
(2,359,659 shares issued)
Balance at May 31, 2012
The accompanying notes are an integral part of these consolidated financial statements.

–
$ 32

1
32
–

–
–

–

–
–

208
2,261
–

–

–
–

223
2,484
–

–

–
–

–

–
(137)

–
13,966
1,452

–

–
(152 )

–
15,266
2,032

–

–
(164 )

(25 )

(1,042)

–
–

–
(2,440)
–

125

(235 )

–
–

–
(2,550 )
–

(95 )

(2,308 )

–
–

111
$ 2,595

–
$ 17,134

–
$ (4,953)

–

(3)
–

–
(7)
–

–

(5 )
–

–
(12)
–

–

(197 )
–

128
$ (81)

(25 )

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

208
13,811
1,452

125

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

224
15,220
2,032

(95 )

(2,308 )
(371 )
(197 )
(164 )

239
$ 14,727

fedex corporation

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 $421 million in 2012, $375 million in 2011
and $374 million in 2010.

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

SPaRe PaRtS, SuPPLIeS and FueL. Spare parts (principally
aircraft-related) are reported at weighted-average cost. allowances for
obsolescence are provided for spare parts expected to be on hand at
the date the aircraft are retired from service. these allowances are pro-
vided 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 allowances 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 and flight equipment modifications are capitalized when
such costs are determined to extend the useful life of the asset or are
part of the cost of acquiring the asset. expenditures for equipment
overhaul costs of engines or airframes prior to their operational use are
capitalized as part of the cost of such assets as they are costs required
to ready the asset for its intended use. 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 equipment
are as follows (dollars in millions):

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 north
american provider of small-package ground delivery services; and
Fedex Freight, Inc. (“Fedex Freight”), a leading north american provider
of less-than-truckload (“LtL”) freight services. these companies
represent our major service lines and, along with Fedex Corporate
Services, Inc. (“Fedex Services”), form the core of our reportable
segments. Our Fedex Services segment provides sales, marketing,
information technology, communications and back-office support to
our transportation segments. In addition, the Fedex Services segment
provides customers with retail access to Fedex express and Fedex
Ground shipping services through Fedex Office and Print Services, Inc.
(“Fedex Office”) and provides customer service, technical support
and billing and collection services through Fedex techConnect, Inc.
(“Fedex techConnect”).

FISCaL YeaRS. except as otherwise specified, references to years
indicate our fiscal year ended May 31, 2012 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 busi-
nesses. transportation services are provided with the use of employees
and independent contractors. Fedex is the principal to the transaction
for these services and revenue from these transactions is recognized
on a gross basis (with the exception of Fedex SmartPost as described
below). Costs associated with independent contractor settlements are
recognized as incurred and included in the caption “Purchased trans-
portation” in the accompanying consolidated statements of income.
For shipments in transit, revenue is recorded based on the percentage
of service completed at the balance sheet date. estimates for future
billing adjustments to revenue and accounts receivable are recognized
at the time of shipment for money-back service guarantees and billing
corrections. delivery costs are accrued as incurred.

Our contract logistics, global trade services and certain 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.

notes to consolidated financial statementsNet Book Value at
May 31,
2012

2011

Range

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.

15 to 30 years

Wide-body aircraft and
related equipment
narrow-body and feeder
aircraft and related equipment 5 to 18 years
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

$ 7,161

$ 6,536

1,881

1,517

2,101
1,411

930
3,764

1,985
1,076

776
3,653

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 30 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 as it did in 2012 with certain aircraft. Such changes
did not materially affect depreciation expense in any period presented;
however, changes to the estimated lives of certain aircraft will impact
2013 depreciation expense. In May 2012, Fedex express made the deci-
sion to accelerate the retirement of 54 aircraft and related engines to
better align with the delivery schedule for replacement aircraft, and we
expect an additional $69 million in accelerated depreciation expense in
2013, with a partial offset from the avoidance of depreciation related
to the aircraft retirements (described in the “Impairment of Long-Lived
assets” section below).

depreciation expense, excluding gains and losses on sales of prop-
erty and equipment used in operations, was $2.1 billion in 2012 and
$1.9 billion in 2011 and 2010. 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 $85 million in 2012, $71 million in 2011
and $80 million in 2010.

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.

In May 2012, we made the decision to retire from service 18 airbus
a310-200 aircraft and 26 related engines, as well as six Boeing Md10-
10 aircraft and 17 related engines. as a consequence of this decision,
a noncash impairment charge of $134 million ($84 million, net of tax,
or $0.26 per diluted share) was recorded in the fourth quarter. the
decision to retire these aircraft, the majority of which were temporarily
idled and not in revenue service, will better align the u.S. domestic air
network capacity of Fedex express to match current and anticipated
shipment volumes.

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.

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. In our evaluation of good-
will impairment, we perform a qualitative assessment to determine if it
is more likely than not that the fair value of a reporting unit is less than
its carrying amount. If the qualitative assessment is not conclusive, we
would proceed to a two-step process to test goodwill for impairment
including comparing the fair value of each reporting unit with its carry-
ing value (including attributable goodwill). Fair value for our reporting
units is determined using an income or market approach incorporating
market participant considerations and management’s assumptions on
revenue growth rates, operating margins, discount rates and expected
capital expenditures. Fair value determinations may include both inter-
nal and third-party valuations. unless circumstances otherwise dictate,
we perform our annual impairment testing in the fourth quarter.

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
retirement, mortality, employee turnover and future increases in health-
care 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 asset values
for our tax-qualified u.S. domestic pension plans (“u.S. Pension Plans”).
Our expected rate of return is a judgmental matter which is reviewed
on an annual basis and revised as appropriate.

notes to consolidated financial statementsthe 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, 2012, we recorded a decrease to equity through OCI of
$2.4 billion (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,
2012. 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.

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 vari-
ous 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.

SeLF-InSuRanCe aCCRuaLS. We are self-insured for costs associ-
ated with workers’ compensation claims, vehicle accidents and general
business liabilities, and benefits paid under employee healthcare and
long-term disability programs. 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 pay-
ments and rent holiday periods. the related rent expense is recorded
on a straight-line basis over the lease term. the cumulative excess of
rent payments over rent expense is accounted for as a deferred lease
asset and recorded in “Other assets” in the accompanying consoli-
dated 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 operat-
ing 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 cur-
rency 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 comprehensive income
were $60 million at May 31, 2012, $156 million at May 31, 2011 and
$30 million at May 31, 2010.

notes to consolidated financial statementseMPLOYeeS undeR COLLeCtIVe BaRGaInInG aRRanGeMentS.
the pilots of Fedex express, which represent a small number of Fedex
express’s total employees, are employed under a collective bargaining
agreement. In 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 becomes amendable in March 2013. In addition to our pilots at
Fedex express, certain of Fedex’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.

tReaSuRY SHaReS. during the second quarter of 2012, we repur-
chased 2.8 million Fedex common shares at an average price of $70 per
share for a total of $197 million. as of May 31, 2012, 2.9 million shares
remained under existing share repurchase authorizations.

dIVIdendS deCLaRed PeR COMMOn SHaRe. On June 4, 2012,
our Board of directors declared a quarterly dividend of $0.14 per share
of common stock. the dividend was paid on July 2, 2012 to stock-
holders of record as of the close of business on June 18, 2012. 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 combination of our
Fedex Freight and Fedex national LtL operations was completed on
January 30, 2011. these actions resulted in total program costs of
$133 million, which includes $89 million of impairment and other
charges and $44 million of other program costs recorded during 2011.

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 state-
ments. We believe the following new accounting guidance is relevant
to the readers of our financial statements.

during our fiscal year, the Financial accounting Standards Board issued
new guidance to make the presentation of items within OCI more prom-
inent. the new standard will require companies to present items of net
income, items of OCI and total comprehensive income in one continu-
ous statement or two separate consecutive statements, and companies
will no longer be allowed to present items of OCI in the statement of
stockholders’ equity. this new standard is effective for our fiscal year
ending May 31, 2013.

NOTE 3: BUSINESS COMBINATIONS

during 2012, we continued to expand our Fedex express international
network. On July 25, 2011, we completed our acquisition of Servicios
nacionales Mupa, S.a. de C.V. (MultiPack), a Mexican domestic
express package delivery company, for $128 million in cash from opera-
tions. Last year, 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 on February 22,
2011. the financial results of these acquired businesses are included in
the Fedex express segment from the date of acquisition and were not
material, individually or in the aggregate, to our results of operations
or financial condition and therefore, pro forma financial information has
not been presented. Substantially all of the purchase price was allo-
cated to goodwill, which was entirely attributed to our Fedex express
reporting unit.

Subsequent to year-end, we completed the following acquisitions:

> Opek Sp. z o.o., a Polish domestic express package delivery company,
for $54 million in cash from operations on June 13, 2012

> tateX, a French express transportation company, for $55 million in
cash from operations on July 3, 2012

> Rapidão Cometa Logística e transportes S.a., a Brazilian transporta-
tion and logistics company, for $398 million in cash from operations
on July 4, 2012

Based on the timing of the completion of these acquisitions in relation
to the date of issuance of the financial statements, the initial purchase
price accounting was not completed for these acquisitions. the
financial results of these acquired businesses will be included in the
Fedex express segment from the date of acquisition and will be
immaterial to our 2013 results. these acquisitions will give us more
robust transportation networks within these countries and added
capabilities in these important global markets.

notes to consolidated financial statementsNOTE 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, 2010
accumulated impairment charges
Balance as of May 31, 2010
Goodwill acquired(1)
Purchase adjustments and other(2)
Balance as of May 31, 2011
Goodwill acquired(3)
Purchase adjustments and other(2)
Balance as of May 31, 2012
accumulated goodwill impairment
charges as of May 31, 2012
(1) 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

$ (1,177)

$ –

$ (133)

$ –

FedEx Ground
Segment
$ 90
–
90
–
–
90
–
–
$ 90

FedEx Freight
Segment
$ 736
(133)
603
–
(1 )
602
–
–
$ 602

FedEx Services
Segment
$ 1,539
(1,177)
362
–
–
362
–
(11 )
$ 351

FedEx Express
Segment
$ 1,145
–
1,145
89
38
1,272
104
(32 )
$ 1,344

Total
$ 3,510
(1,310)
2,200
89
37
2,326
104
(43 )
$ 2,387

$ (1,310)

related disclosures.

(2) Primarily currency translation adjustments.
(3) Goodwill acquired in 2012 relates to the acquisition of the Mexican domestic express package delivery company, Multipack. See Note 3 for related disclosures.

In 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.

OtHeR IntanGIBLe aSSetS. the net book value of our other intan-
gible assets was $34 million at May 31, 2012 and $38 million at May
31, 2011. amortization expense for intangible assets was $18 million
in 2012, $32 million in 2011 and $51 million in 2010. estimated
amortization expense is expected to be immaterial in 2013.

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,

2012

2011

$ 280

$ 256

803
552
$ 1,635

$ 678
386
645
$ 1,709

468
544
$ 1,268

$ 696
357
841
$ 1,894

notes to consolidated financial statements

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, 2012, are as
follows (in millions):

Senior unsecured debt
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,

2012

2011

$ 300
250
750
239
1,539
128
1,667
417
$ 1,250

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

Interest on our fixed-rate notes is paid semi-annually. Long-term debt,
exclusive of capital leases, had carrying values of $1.5 billion at
May 31, 2012 and May 31, 2011 compared with estimated fair values
of $2.0 billion at May 31, 2012 and $1.9 billion at May 31, 2011.
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 2012, we made principal payments in the amount of $29 million
related to capital lease obligations. during 2011, we repaid our
$250 million 7.25% unsecured notes that matured on February 15,
2011. during 2011, we made principal payments in the amount of
$12 million related to capital lease obligations.

a $1 billion revolving credit facility is available to finance our opera-
tions and other cash flow needs and to provide support for the issuance
of commercial paper. the revolving credit agreement expires in
april 2016. 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 landing fees) to capital (adjusted debt
plus total common stockholders’ investment) that does not exceed
70%. Our leverage ratio of adjusted debt to capital was 53% at May
31, 2012. We believe the leverage ratio covenant is our only significant
restrictive covenant in our revolving credit agreement. Our revolving
credit agreement contains other customary covenants that do not,
individually or in the aggregate, materially restrict the conduct of our
business. We are in compliance with the leverage ratio covenant
and all other covenants of our revolving credit agreement and do not
expect the covenants to affect our operations, including our liquidity
or expected funding needs. as of May 31, 2012, 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 standby letters of credit and surety
bonds. We had a total of $609 million in letters of credit outstanding
at May 31, 2012, with $107 million unused under our primary
$500 million letter of credit facility, and $458 million in outstanding
surety bonds placed by third-party insurance providers. these instru-
ments are required under certain u.S. self-insurance programs and are
also used in the normal course of international operations. the underly-
ing 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 facilities.
Our facility leases include leases that guarantee the repayment of
certain special facility revenue bonds that have been issued by munici-
palities 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 2045. We leased 10% of our total aircraft fleet under capital
or operating leases as of May 31, 2012 as compared to 11% as of
May 31, 2011. 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

2012
$ 7

165
16
147
335
319
$ 16

2011
$ 8

165
17
145
335
307
$ 28

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

Minimum rentals
Contingent rentals(1)

2012
$ 2,018
210
$ 2,228
(1) Contingent rentals are based on equipment usage.

2011
$ 2,025
193
$ 2,218

2010
$ 2,001
152
$ 2,153

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, 2012 is as follows (in millions):

Operating Leases

Aircraft and
Related
Equipment
$ 486
462
448
453
391
1,150
$ 3,390

Facilities
and Other
$ 1,386
1,263
1,124
938
1,042
4,843
$ 10,596

Total
Operating
Leases
$ 1,872
1,725
1,572
1,391
1,433
5,993
$ 13,986

2013
2014
2015
2016
2017
thereafter
total
Less amount
representing interest
Present value of
net minimum lease
payments

Capital
Leases
$ 120
2
2
1
1
11
137

$ 128

the weighted-average remaining lease term of all operating leases
outstanding at May 31, 2012 was approximately six years. While
certain of our lease agreements contain covenants governing the use of
the leased assets or require us to maintain certain levels of insurance,
none of our lease agreements include material financial covenants
or limitations.

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 ben-
eficiary 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 expo-
sure 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, 2012, 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

2012
$ 105

2011
$ 98

2010
$ 101

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

StOCK OPtIOnS. under the provisions of our incentive stock plans,
key employees and non-employee directors may be granted options to
purchase shares of our common stock at a price not less than its fair
market value on the date of grant. 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 consoli-
dated 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. 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 assump-
tions 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

2012

2011

2010

$ 29.92
$ 67

$ 28.12
$ 80

$ 20.47
$ 77

6.0 years

5.9 years

5.7 years

34 %
1.79 %
0.563 %

34 %
2.36 %
0.558 %

32 %
3.24%
0.742 %

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 maximum
term of 10 years. We examine actual stock option exercises to determine the expected life of the options. an increase in the expected term will
increase compensation expense.

Expected Volatility. actual changes in the market value of our stock are used to calculate the volatility assumption. We calculate daily mar-
ket 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, 2012:

Stock Options

Outstanding at June 1, 2011
Granted
exercised
Forfeited
Outstanding at May 31, 2012
exercisable
expected to vest
available for future grants
(1) Only presented for options with market value at May 31, 2012 in excess of the exercise price of the option.

Shares
20,163,163
3,303,368
(2,142,410)
(292,583)
21,031,538
13,608,746
6,977,189
8,912,829

Weighted-Average
Exercise Price
$ 81.20
87.90
59.73
84.70
$ 84.39
$ 87.59
$ 78.53

Weighted-Average
Remaining
Contractual Term

Aggregate
Intrinsic Value

(in millions)(1)

5.6 years
4.2 years
8.2 years

$ 193
$ 115
$ 73

the options granted during the year ended May 31, 2012 are primarily
related to our principal annual stock option grant in June 2011.

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, 2012:

unvested at June 1, 2011
Granted
Vested
Forfeited
unvested at May 31, 2012

Restricted Stock

Shares
626,380
214,435
(248,413)
(2,530)
589,872

Weighted-Average
Grant Date Fair Value
$ 73.20
88.95
78.25
74.98
$ 76.79

during the year ended May 31, 2011, there were 235,998 shares of
restricted stock granted with a weighted-average fair value of $78.74.
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.

2010
2011
2012

Stock Options

Vested during
the year
2,296,211
2,721,602
2,807,809

Fair value
(in millions)
$ 63
67
70

as of May 31, 2012, there was $150 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 three years.

total shares outstanding or available for grant related to equity
compensation at May 31, 2012 represented 9% of the total outstand-
ing common and equity compensation shares and equity compensation
shares available for grant.

notes to consolidated financial statements

Our current federal income tax expenses in 2012, 2011 and 2010
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
new Boeing 777 Freighter (“B777F”) aircraft. these are timing benefits
only, in that the depreciation would have otherwise been recognized in
later years.

Pre-tax earnings of foreign operations for 2012, 2011 and 2010 were
$358 million, $472 million and $555 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 effective
income tax rate for the years ended May 31 was as follows:

Statutory u.S. income tax rate
Increase (decrease) resulting from:
State and local income taxes,
net of federal benefit
Other, net
effective tax rate

2012
35.0 %

2010

2011
35.0 % 35.0 %

2.1
(1.8)
35.3 %

2.4
0.1

1.7
(0.8)
35.9 % 37.5 %

Our 2012 rate was lower than our 2011 rate primarily due to favorable
audit developments. the 2011 rate was lower than our 2010 rate pri-
marily due to increased permanently reinvested foreign earnings and a
lower state rate driven by favorable audit and legislative developments.

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

2012

2011

Deferred
Tax
Assets

Deferred
Tax
Liabilities

Deferred
Tax
Assets

Deferred
Tax
Liabilities

Property, equipment,
leases and intangibles
employee benefits
Self-insurance accruals
Other
net operating loss/credit
carryforwards
Valuation allowances

$ 248
2,300
495
338

179
(145)
$ 3,415

$ 3,436
11
-
271

$ 274
1,016
519
422

–
–
$ 3,718

172
(151)
$ 2,252

$ 2,675
34
–
269

–
–
$ 2,978

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):

2012

2011

2010

Basic earnings per common share:
net earnings allocable to common shares(1)
Weighted-average common shares
Basic earnings per common share

$ 2,029 $ 1,449 $ 1,182
312
$ 6.44 $ 4.61 $ 3.78

315

Diluted earnings per common share:
net earnings allocable to common shares(1)
Weighted-average common shares
dilutive effect of share-based awards
Weighted-average diluted shares
Diluted earnings per common share
anti-dilutive options excluded from
diluted earnings per common share
(1) Net earnings available to participating securities were immaterial in all periods presented.

$ 2,029 $ 1,449 $ 1,182
312
2
314
$ 6.41 $ 4.57 $ 3.76

315
2
317

12.6

11.5

9.3

NOTE 11: INCOME TAXES

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

2012

2011

2010

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

deferred provision (benefit)
domestic:
Federal
State and local
Foreign

$ (120)
80
181
141

947
21
–
968
$ 1,109

$ 79
48
198
325

485
12
(9)
488
$ 813

$ 36
54
207
297

408
15
(10)
413
$ 710

notes to consolidated financial statements

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):

Current deferred tax asset
noncurrent deferred tax liability

2012
$ 533
(836)
$ (303)

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

We have $560 million of net operating loss carryovers in various
foreign jurisdictions and $510 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 2013. as a result of this and other factors, we
believe that a substantial portion of these deferred tax assets may not
be realized.

Permanently reinvested earnings of our foreign subsidiaries amounted
to $1 billion at the end of 2012 and $640 million at the end of 2011.
We have not recognized deferred taxes for u.S. federal income tax
purposes on those earnings. In 2012, 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 earnings
could be subject to u.S. federal income tax and non-u.S. withholding
taxes. unrecognized foreign tax credits potentially could be available to
reduce a portion of any 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 dis-
tribution of such funds, along with other important factors such as the
amount of associated foreign tax credits. Cash in offshore jurisdictions
associated with our permanent reinvestment strategy totaled $410 mil-
lion at the end of 2012 and $300 million at the end of 2011.

We file income tax returns in the u.S., various u.S. state and local juris-
dictions, and various foreign jurisdictions. the Internal Revenue Service
is currently auditing our consolidated u.S. income tax returns for the
2010 and 2011 tax years. We are no longer subject to u.S. federal
income tax examination for years through 2009 except for specific and
immaterial u.S. federal income tax positions that are in various stages
of litigation. We anticipate resolution of part or all of this litigation
could occur within 2013, but it would not 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
Increases due to acquisitions
Changes due to currency translation
Balance at end of year

2012
$ 69

2011
$ 82

(35)
(3)
15
(1)
$ 51

(10)
(11)
–
–
$ 69

2010
$ 72

(4)
(3)
–
–
$ 82

Our liabilities recorded for uncertain tax positions include $47 million
at May 31, 2012 and $56 million at May 31, 2011 associated with posi-
tions 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 $29 million on May 31, 2012 and $18 million on May 31, 2011.
total interest and penalties included in our consolidated statements of
income are immaterial.

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
jurisdictions, or from the resolution of various proceedings between the
u.S. and foreign tax authorities. Our liability for uncertain tax positions
includes no matters that are individually 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
reasonably 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

notes to consolidated financial statementsassets and the projected benefit obligation (“PBO”) of the plan. at May
31, 2012, we recorded a decrease to equity of $2.4 billion (net of tax)
attributable to our plans. at May 31, 2011, we recorded a decrease to
equity of $350 million (net of tax) attributable to our plans.

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

2012

2011

2010

$ 524

$ 543

$ 308

338
70
$ 932

257
60
$ 860

136
42
$ 486

PenSIOn PLanS. Our largest pension plan covers certain u.S. employ-
ees 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 interest credit rate
varies from year to year based on a u.S. treasury index and corporate
bond rates. Prior to 2009, certain employees earned benefits using a
traditional pension formula (based on average earnings and years of
service). Benefits under this formula were capped on May 31, 2008 for
most employees. 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 attain-
ment 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. 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
2011

5.76 %

2012

4.44 %

2010

6.37 %

Postretirement Healthcare Plans
2010
2011
2012

4.55%

5.67 %

6.11 %

5.76

6.37

7.68

5.67

6.11

7.27

4.62

4.58

8.00

4.58

4.63

8.00

4.63

4.42

8.00

–

notes to consolidated financial statementsthe estimated average rate of return on plan assets is the expected
future long-term rate of earnings on plan assets and is a forward-
looking assumption that materially affects our pension cost.
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 2013, consistent with our expected rate of return in 2012 and 2011.
Our actual return in each of the past three years exceeded that amount
for our principal u.S. domestic pension plan. For the 15-year period
ended May 31, 2012, our actual returns were 7.4%.

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 measurement
date. For purposes of valuing plan assets for determining 2013 pension
expense, the calculated value method resulted in the same value as the
market value, as it did in 2011. For determining 2012 pension expense,
we used the calculated value method which resulted in a portion of the
asset gain in 2011 being deferred to future years because our actual
returns on plan assets significantly exceeded our assumptions.

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 Corporate Fixed Income Securities, u.S. Large Cap
equities, which is indexed to the S&P 500 Index, and Government Fixed
Income Securities. accordingly, we do not have any significant con-
centrations 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 invest-
ment 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 invest-
ment 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 statementsThe 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
Government
Mortgage backed and other
Other

Plan Assets at Measurement Date
2012

Fair Value
$ 618

Actual %
4 %

Target %
1 %

Quoted Prices in
Active Markets
Level 1
$ 8

Other Observable
Inputs
Level 2
$ 610

Unobservable
Inputs
Level 3

4,248
1,368
1,657
402

4,565
4,175
59
(79)
$ 17,013

25
8
10
2

27
24
–
–
100 %

9
1,368
1,395

24
9
12
5
49

–
100 %

(85)
$ 2,695

4,239

262

4,565
4,175
59
6
$ 13,916

$ 402

Fair Value
$ 409

Actual %
3 %

Target %
1 %

2011

Quoted Prices in
Active Markets
Level 1
$ 107

Other Observable
Inputs
Level 2
$ 302

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

4,254

311

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

$ 403

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

2012
$ 403

2011
$ 399

3
38
(42)
$ 402

27
36
(59)
$ 403

Balance at beginning of the year
Actual return on plan assets:
Assets held during current year
Assets sold during the year
Purchases, sales and settlements
Balance at end of the year

notes to consolidated financial statements

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, 2012 and a statement of the funded status as of May 31, 2012 and 2011 (in millions):

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

2012
$ 21,556

2011
$ 16,806

Postretirement
Healthcare Plans

2012

2011

$ 17,372
593
976
3,789
(502)
(41)
$ 22,187

$ 15,841
1,235
780
(502)
(20)
$ 17,334
$ (4,853)

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

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

$ 648
35
36
98
(51)
24
$ 790

$ –
–
27
(51)
24
$ –
$ (790)

$ 565
31
34
44
(48)
22
$ 648

$ –
–
26
(48)
22
$ –
$ (648)

$ (35)

$ (33)

$ (31)

(4,818)
$ (4,853)

(1,498)
$ (1,531)

$ 8,866
(897)
$ 7,969

$ 516
(114)
$ 402

$ 5,386
(993)
$ 4,393

$ 307
(112)
$ 195

(757)
$ (790)

$ 13
2
$ 15

$ –
–
$ –

(617)
$ (648)

$ (85)
2
$ (83)

$ (1)
–
$ (1)

notes to consolidated financial statements

Our pension plans included the following components at May 31, 2012 and 2011 (in millions):

ABO

PBO

Fair Value of
Plan Assets

2012
Qualified
Nonqualified
International Plans
Total
2011
Qualified
Nonqualified
International Plans
Total

$ 20,667
352
537
$ 21,556

$ 16,024
335
447
$ 16,806

$ 21,192
355
640
$ 22,187

$ 16,445
339
588
$ 17,372

$ 17,013
–
321
$ 17,334

$ 15,518
–
323
$ 15,841

Funded
Status

$ (4,179)
(355)
(319)
$ (4,853)

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

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, 2012 and 2011, 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

2012

2011

$ 17,334
(22,187)
$ (4,853)

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

ABO Exceeds the Fair Value
of Plan Assets

2012
$ (21,555)
17,333
(22,185)
$ (4,852)

2012
$ 496
226
$ 722

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

2011
$ 359
121
$ 480

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):

Required
Voluntary

notes to consolidated financial statementsNet 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

2012
$ 593
976
(1,240)
195
$ 524

Pension Plans

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

Postretirement
Healthcare Plans

2010
$ 417
823
(955)
23
$ 308

2012
$ 35
36
–
(1)
$ 70

2011
$ 31
34
–
(5)
$ 60

2010
$ 24
30
–
(12)
$ 42

Pension costs in 2012 were slightly lower than 2011, as the benefit of significant investment returns on our pension plan assets in 2011 offset the
negative impact of a lower discount rate at our May 31, 2011 measurement date.

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

2012

2011

Gross
Amount
Net loss and other arising during period $ 3,777
–
Loss from settlements and curtailments
Amortizations:
Prior services credit
Actuarial (losses) gains and other
Total recognized in OCI

113
(311)
$ 3,579

Pension Plans

Net of Tax
Amount
$ 2,371
–

Postretirement
Healthcare Plans

Gross
Amount
$ 97
–

Net of Tax
Amount
$ 61
–

Pension Plans
Gross
Amount
$ 511
(13)

Net of Tax
Amount
$ 321
(8)

Postretirement
Healthcare Plans

Gross
Amount
$ 44
–

Net of Tax
Amount
$ 26
–

71
(195)
$ 2,247

–
1
$ 98

–
–
$ 61

113
(284)
$ 327

71
(178)
$ 206

–
5
$ 49

–
3
$ 29

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.

2013
2014
2015
2016
2017
2018–2022

Pension Plans
$ 640
723
803
861
922
6,289

Postretirement
Healthcare Plans
$ 33
34
36
38
40
246

Future medical benefit claims costs are estimated to increase at an
annual rate of 8.0% during 2013, 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 6.9% during 2013, 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, 2012 or 2012 benefit expense because the level of
these benefits is capped.

notes to consolidated financial statements

The FedEx Services segment provides direct and indirect support to
our transportation businesses, and we allocate all of the net operating
costs of the FedEx Services segment (including the net operating
results of FedEx Office) to reflect the full cost of operating our transpor-
tation businesses in the results of those segments. Within the FedEx
Services segment allocation, the net operating results of FedEx Office,
which are an immaterial component of our allocations, are allocated to
FedEx Express and FedEx Ground. 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 transportation segments.

The operating expenses line item “Intercompany charges” on the
accompanying unaudited financial summaries of our transportation
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.

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.

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

FEdEx SERvIcES SEGMENT
The FedEx Services segment operates combined sales, marketing,
administrative and information technology functions in shared services
operations that support our transportation businesses and allow us
to obtain synergies from the combination of these functions. For the
international regions of FedEx Express, some of these functions are
performed on a regional basis by FedEx Express and reported in the
FedEx Express segment in expense line items outside of intercompany
charges. The FedEx Services segment includes: FedEx Services, which
provides sales, marketing, information technology, communications
and back-office support to our other companies; 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.

notes to consolidated financial statementsThe 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

Other and
Eliminations

Consolidated
Total

$ 9,573
8,485
7,439

$ 1,671
1,684
1,770

$ 5,282
4,911
4,321

$ 1,169
1,059
1,016

$ (361)
(357)
(351)

$ 26,515
24,581
21,555

Revenues
2012
2011
2010
Depreciation and amortization
2012
2011
2010
Operating income (loss)
2012
2011
2010
Segment assets(3)
2012
2011
2010
(1) FedEx Express segment 2012 operating expenses include an impairment charge of $134 million resulting from the decision to retire 24 aircraft and related engines and a reversal

$ 1
1
2

$ (1,585 )
(1,068)
(900)

$ –
–
–

$ 1,260
1,228
1,127

$ 17,981
16,463
14,819

$ 4,546
4,278
4,079

$ 185
205
198

$ 369
371
408

$ 162
(175 )
(153 )

$ –
–
–

$ 1,764
1,325
1,024

$ 2,807
2,664
2,786

$ 6,154
5,048
4,118

$ 389
337
334

$ 42,680
39,304
34,734

$ 2,113
1,973
1,958

$ 3,186
2,378
1,998

$ 29,903
27,385
24,902

of a $66 million legal reserve associated with the ATA Airlines lawsuit which was initially recorded in 2011.

(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.

(3) 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):

2012
2011
2010

FedEx Express
Segment
$ 2,689
2,467
1,864

FedEx Ground
Segment
$ 536
426
400

FedEx Freight
Segment
$ 340
153
212

FedEx Services
Segment
$ 437
387
340

Other
$ 5
1
–

Consolidated
Total
$ 4,007
3,434
2,816

notes to consolidated financial statements

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):

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

2012

2011

2010

$ 52
$ 403
(146)
$ 257

$ 93
$ 493
(106)
$ 387

$ 88
$ 322
(279)
$ 43

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
indemnifications 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 $852 million as of May 31, 2012) 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, 2012. The remaining $551 million has been accounted for
as operating leases.

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

2012

2011

2010

Revenue by Service Type
FedEx Express segment:
Package:
U.S. overnight box
U.S. overnight envelope
U.S. deferred
Total U.S. domestic package revenue
International priority(1)
International domestic(2)
Total package revenue
Freight:
U.S.
International priority(1)
International airfreight
Total freight revenue
Other(3)
Total FedEx Express segment
FedEx Ground segment:
FedEx Ground
FedEx SmartPost
Total FedEx Ground segment
FedEx Freight segment
FedEx Services segment
Other and eliminations

Geographical Information(4)
Revenues:
U.S.
International:
FedEx Express segment
FedEx Ground segment
FedEx Freight segment
FedEx Services segment
Total international revenue

Noncurrent assets:
U.S.
International

$ 6,546 $ 6,128 $ 5,602
1,640
2,589
9,831
7,087
578
17,496

1,747
3,001
11,294
8,708
853
20,855

1,736
2,805
10,669
8,228
653
19,550

2,498
1,827
307
4,632
1,028
26,515

2,188
1,722
283
4,193
838
24,581

1,980
1,303
251
3,534
525
21,555

8,791
782
9,573
5,282
1,671
(361)

6,958
481
7,439
4,321
1,770
(351)
$ 42,680 $ 39,304 $ 34,734

7,855
630
8,485
4,911
1,684
(357)

$ 29,837 $ 27,461 $ 24,852

12,370
216
101
156
12,843

9,547
11,437
140
177
60
84
135
145
9,882
11,843
$ 42,680 $ 39,304 $ 34,734

$ 18,874 $ 17,235 $ 16,089
1,529
$ 20,847 $ 19,100 $ 17,618

1,973

1,865

(1) International priority includes FedEx International Priority and FedEx International Economy

services.

(2) International domestic revenues include our international intra-country domestic express

operations, including acquisitions in India (February 2011) and Mexico (July 2011).

(3) Other revenues include FedEx Trade Networks and, beginning in the second quarter of 2010,

FedEx Supplychain Systems.

(4) International revenue includes shipments that either originate in or are destined to locations
outside the United States. Noncurrent assets include property and equipment, goodwill and
other long-term assets. Our flight equipment registered in the U.S. is included as U.S. assets;
however, many of our aircraft operate internationally.

notes to consolidated financial statements

NOTE 16: cOMMITMENTS

Annual purchase commitments under various contracts as of May 31,
2012 were as follows (in millions):

Aircraft and
Total
Aircraft Related
$ 1,814
$ 965
2013
749
558
2014
963
824
2015
990
912
2016
1,061
1,009
2017
5,300
5,166
Thereafter
(1) Primarily vehicles, facilities, advertising contracts and $550 million of quarterly contributions

Facilities
and Other(1)
$ 849
191
139
78
52
134

to our U.S. Pension Plans.

The amounts reflected in the table above for purchase commitments
represent noncancelable agreements to purchase goods or services. As
of May 31, 2012, our obligation to purchase 13 B777Fs was 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
(“RLA”). 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.

In December 2011, FedEx Express entered into an agreement to acquire
27 new Boeing 767-300 Freighter (“B767F”) aircraft, with the first
three arriving in 2014 followed by six per year from 2015 to 2018. In
conjunction with the execution of the B767F aircraft purchase agree-
ment, FedEx Express also delayed the delivery of nine B777F aircraft,
five of which were deferred from 2014 and one per year from 2015 to
2018, to better align air network capacity to demand. FedEx Express
also removed the RLA condition from two of the 15 B777F aircraft and
exercised two B777F options for aircraft to be delivered at the end of
the delivery schedule.

We had $661 million in deposits and progress payments as of May 31,
2012 on aircraft purchases and other planned aircraft-related transac-
tions. These deposits are classified in the “Other assets” caption of
our consolidated balance sheets. In addition to our commitment to
purchase B777Fs and B767Fs, 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 key aircraft we are committed
to purchase as of May 31, 2012, with the year of expected delivery:

2013
2014
2015
2016
2017
Thereafter
Total

B757
10
–
–
–
–
–
10

B767F
–
3
6
6
6
6
27

B777F
4
2
2
2
2
16
28

Total
14
5
8
8
8
22
65

On June 29, 2012, FedEx Express entered into a supplemental
agreement to purchase nine additional B767F aircraft. Additionally,
FedEx Express exercised ten B767F options available under the
December 2011 agreement and purchased the right to 15 additional
options. Four of these 19 additional B767F aircraft purchases are
subject to the RLA condition. These 19 additional B767F aircraft are
expected to be delivered from fiscal 2015 to 2019 and will replace
current MD10-10 and A310-200 aircraft to continue to improve
efficiency and technology of FedEx Express’s aircraft fleet.

In conjunction with the additional B767F aircraft purchases, four
currently contracted B777F aircraft deliveries that were subject to
the RLA condition (two scheduled for delivery in fiscal 2016 and two
scheduled for delivery in fiscal 2017) were converted to equivalent
purchase value for B767F aircraft. With consideration of these two
agreements, there are nine B777F purchase obligations subject to the
RLA condition. These aircraft transactions are not included in the table
above, as they occurred subsequent to May 31, 2012.

NOTE 17: cONTINGENcIES

WAGE-AND-HOUR. We are a defendant in a number of lawsuits
containing various class-action allegations of wage-and-hour viola-
tions. The plaintiffs in these lawsuits allege, among other things, that
they were forced to work “off the clock,” were not paid overtime or
were not provided work breaks or other benefits. The complaints
generally seek unspecified monetary damages, injunctive relief, or
both. We do not believe that a material loss is reasonably possible
with respect to any of these matters.

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 administration
of the pre-trial proceedings by a single federal court, the U.S. District
Court for the Northern District of Indiana. The multidistrict litigation
court granted class certification in 28 cases and denied it in 14 cases.
On December 13, 2010, the court entered an opinion and order address-
ing all outstanding motions for summary judgment on the status of the
owner-operators (i.e., independent contractor vs. employee). In sum,

notes to consolidated financial statements
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 multidis-
trict 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 administrative 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. The Seventh Circuit heard the appeal in the Kansas
case in January 2012 and, in July 2012, issued an opinion that did not
make a determination with respect to the correctness of the district
court’s decision and, instead, certified two questions to the Kansas
Supreme Court related to the classification of the plaintiffs as indepen-
dent contractors under the Kansas Wage Payment Act.

The multidistrict litigation court remanded the other eight certified
class actions back to the district courts where they were originally filed
because its summary judgment ruling did not completely dispose of all of
the claims in those lawsuits. Specifically, in the five cases in Arkansas,
California, Florida, and Oregon (two certified cases), the court’s ruling
granted summary judgment in FedEx Ground’s favor on all of the certified
claims but did not decide the uncertified claims. In the three cases filed
in Kentucky, Nevada and New Hampshire, the court ruled in favor of
FedEx Ground on some of the claims and against FedEx Ground on at
least one claim. In May 2012, the Oregon district court dismissed the
two Oregon cases, but in June 2012, the plaintiffs in both cases filed
notices of appeal with the Ninth Circuit Court of Appeals. In June 2012,
the Kentucky district court ruled in favor of FedEx Ground on certain
of the plaintiffs’ claims, thereby reducing our potential exposure in
the matter.

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, and in
August 2011, that petition was granted. The Washington Supreme Court
heard oral arguments in February 2012.

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 present. 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. We settled this mat-
ter for an immaterial amount, subject to court approval, in June 2012.

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 clas-
sification 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. In January 2012, FedEx Ground settled
the lawsuit filed by the Kentucky Attorney General for an immaterial
amount, and in April 2012, the lawsuit was dismissed.

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 signifi-
cantly improves the likelihood that our independent contractor model will
be upheld. Adverse determinations in 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-operators 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, discovery
is still ongoing. In addition, the parties have not yet conducted any
discovery into damages, which could vary considerably from plaintiff to
plaintiff. Further, the range of potential loss could be impacted consider-
ably 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 breach of contract lawsuit against FedEx Express
and awarded damages of $66 million, and in January 2011, the court
awarded ATA pre-judgment interest of $5 million. In December 2011,
the Seventh Circuit overturned the entire judgment entered against
FedEx Express. ATA Airlines requested the Seventh Circuit to rehear oral
argument on appeal, and in February 2012, the Seventh Circuit denied
the request. We have reversed the $66 million accrual established in the
second quarter of 2011. After the Seventh Circuit denied ATA Airlines’
request for the Seventh Circuit to rehear oral argument on appeal, ATA
Airlines asked the U.S. Supreme Court to accept a discretionary appeal
of the matter. We believe that it is unlikely that the U.S. Supreme Court
will accept the discretionary appeal.

CALIFORNIA PAYSTUB CLASS ACTION. A federal court in California
ruled in April 2011 that paystubs for certain FedEx Express employees
in California did not meet that state’s requirements to reflect pay period

notes to consolidated financial statementsbegin 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 noncompliant paystubs.
The court certified the class in June 2011. The court ruled that FedEx
Express was liable to the State of California and was prepared to rule as
to whether FedEx Express was liable to class members who could prove
they were injured by the paystub deficiencies. The judge did not decide
on the amount, if any, of liability to the State of California or to the class,
but had wide discretion. Prior to any decision on the amount of liability,
we reached an agreement to settle this matter for an immaterial amount
in October 2011, subject to approval by the court. The court granted final
approval of the settlement in July 2012.

OTHER MATTERS. In August 2010, a third-party consultant who works
with shipping customers to negotiate lower rates filed a lawsuit in
federal district court in California against FedEx and UPS alleging viola-
tions of U.S. antitrust law. This matter was dismissed in May 2011, but
the court granted the plaintiff permission to file an amended complaint,
which FedEx received in June 2011. In November 2011, the court granted
our motion to dismiss this complaint, but again allowed the plaintiff
to file an amended complaint. The plaintiff filed a new complaint in
December 2011, and the matter remains pending before the court. In
February 2011, shortly after the initial lawsuit was filed, we received a
demand for the production of information and documents in connection
with a civil investigation by the U.S. Department of Justice (“DOJ”) into
the policies and practices of FedEx and UPS for dealing with third-party
consultants who work with shipping customers to negotiate lower rates.
We are cooperating with the investigation, do not believe that we have
engaged in any anti-competitive activities and will vigorously defend
ourselves in any action that may result from the investigation. While the
litigation proceedings and the DOJ investigation are in an early stage

and the amount of loss, if any, is dependent on a number of factors that
are not yet fully developed or resolved, we do not believe that a material
loss is reasonably possible.

We have received requests for information from the DOJ in the Northern
District of California in connection with a criminal investigation relating
to the transportation of packages for online pharmacies that may have
shipped pharmaceuticals in violation of federal law. We responded to
grand jury subpoenas issued in June 2008 and August 2009 and to addi-
tional requests for information pursuant to those subpoenas, and
we continue to respond and cooperate with the investigation. We do not
believe that we have engaged in any illegal activities and will vigorously
defend ourselves in any action that may result from the investigation.
We cannot estimate the amount or range of loss, if any, in this matter,
as such analysis would depend on facts and law that are not yet fully
developed or resolved.

FedEx and its subsidiaries are subject to other legal proceedings that
arise in the ordinary course of their business. In the opinion of manage-
ment, 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)
2012(1)
Revenues
Operating income
Net income
Basic earnings per common share(2)
Diluted earnings per common share

First
Quarter

$ 10,521
737
464
1.46
1.46

Second
Quarter

$ 10,587
780
497
1.57
1.57

Third
Quarter

$ 10,564
813
521
1.66
1.65

Fourth
Quarter

$ 11,008
856
550
1.74
1.73

2011(3)
Revenues
$ 9,457
$ 10,552
Operating income
628
888
Net income
380
558
Basic earnings per common share(2)
1.21
1.76
1.75
1.20
Diluted earnings per common share
(1) The fourth quarter of 2012 includes an impairment charge of $134 million resulting from the decision to retire 24 aircraft and related engines at FedEx Express. The third quarter of 2012 includes

$ 9,663
393
231
0.73
0.73

$ 9,632
469
283
0.90
0.89

the reversal of a $66 million legal reserve associated with the ATA Airlines lawsuit.

(2) 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.
(3) The second quarter of 2011 includes a $66 million legal reserve associated with the ATA Airlines lawsuit. costs related to the combination of our FedEx Freight and FedEx National LTL opera-

tions in 2011 were $86 million in the second quarter and $43 million in the third quarter.

notes to consolidated financial statementsNOTE 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, 2012

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

and other, less allowances

Deferred income taxes
Total current assets
Property and Equipment, at Cost
Less accumulated depreciation and amortization
Net property and equipment
Intercompany Receivable
Goodwill
Investment in Subsidiaries
Other Assets

Liabilities and Stockholders’ Investment
Current Liabilities
Current portion of long-term debt
Accrued salaries and employee benefits
Accounts payable
Accrued expenses
Total current liabilities
Long-Term Debt, Less Current Portion
Intercompany Payable
Other Long-Term Liabilities
Deferred income taxes
Other liabilities
Total other long-term liabilities
Stockholders’ Investment

$ 1,906
3

261
–
2,170
29
20
9
–
–
17,163
2,845
$ 22,187

$ –
83
6
184
273
1,000
1,847

–
4,341
4,341
14,726
$ 22,187

$ 417
3,793

671
514
5,395
34,301
17,822
16,479
323
1,553
2,978
1,099
$ 27,827

$ 417
1,365
1,276
1,406
4,464
250
–

3,649
3,193
6,842
16,271
$ 27,827

$ 636
943

44
19
1,642
1,834
1,074
760
1,524
834
–
86
$ 4,846

$ –
187
482
119
788
–
–

5
182
187
3,871
$ 4,846

$ (116)
(35)

–
–
(151)
–
–
–
(1,847)
–
(20,141)
(2,818)
$ (24,957)

$ –
–
(151)
–
(151)
–
(1,847)

(2,818)
–
(2,818)
(20,141)
$ (24,957)

$ 2,843
4,704

976
533
9,056
36,164
18,916
17,248
–
2,387
–
1,212
$ 29,903

$ 417
1,635
1,613
1,709
5,374
1,250
–

836
7,716
8,552
14,727
$ 29,903

notes to consolidated financial statementscONdENSEd cONSOLIdATING BALANcE ShEETS

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

and other, less allowances

Parent

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations

Consolidated

May 31, 2011

$ 1,589
–

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

$ 279
3,696

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

$ 546
912

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

$ (86)
(27)

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

$ –
–
(113)
–
(113)
–
(1,317)

(1,523)
–
(1,523)
(18,109)
$ (21,062)

$ 2,328
4,581

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

notes to consolidated financial statementscONdENSEd 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, 2012

Parent
$ –

Guarantor
Subsidiaries
$ 36,412

Non-guarantor
Subsidiaries
$ 6,569

Eliminations
$ (301)

Consolidated
$ 42,680

114
–
5
1
–
1
–
(218)
97
–
–

2,032
(75)
80
(5)
2,032
–
$ 2,032

14,153
4,509
2,221
1,962
4,877
1,882
134
(323)
4,482
33,897
2,515

395
31
(102)
(10)
2,829
875
$ 1,954

1,832
1,944
267
150
79
97
–
541
988
5,898
671

–
5
22
9
707
234
$ 473

–
(118)
(6)
–
–
–
–
–
(177)
(301)
–

(2,427)
–
–
–
(2,427)
–
$ (2,427)

16,099
6,335
2,487
2,113
4,956
1,980
134
–
5,390
39,494
3,186

–
(39)
–
(6)
3,141
1,109
$ 2,032

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, 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

notes to consolidated financial statementscONdENSEd 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

notes to consolidated financial statementscONdENSEd 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
Intercompany dividends
Principal payments on debt
Proceeds from stock issuances
Excess tax benefit on the exercise of stock options
Dividends paid
Purchase of treasury stock
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, 2012

Parent
$ (88 )

Guarantor
Subsidiaries
$ 4,383

Non-guarantor
Subsidiaries
$ 570

Eliminations
$ (30)

Consolidated
$ 4,835

(5)
–
–
(5)

625
–
–
128
18
(164)
(197)
–
410
–
317
1,589
$ 1,906

(3,792)
–
74
(3,718)

(550)
76
(29)
–
–
–
–
(19)
(522)
(5 )
138
279
$ 417

(210)
(116 )
–
(326)

(75 )
(76)
–
–
–
–
–
19
(132)
(22 )
90
546
$ 636

–
–
–
–

–
–
–
–
–
–
–
–
–
–
(30)
(86)
$ (116)

(4,007)
(116)
74
(4,049)

–
–
(29)
128
18
(164)
(197)
–
(244)
(27 )
515
2,328
$ 2,843

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
$ 3,978

Non-guarantor
Subsidiaries
$ 65

Eliminations
$ (27)

Consolidated
$ 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

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 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

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

notes to consolidated financial statements

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, 2012 and 2011, and the related consolidated
statements of income, changes in stockholders’ investment and comprehensive income (loss), and cash flows for each of the three years in the
period ended May 31, 2012. 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, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the three years in the period
ended May 31, 2012, 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, 2012, 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 16, 2012 expressed an unqualified
opinion thereon.

Memphis, Tennessee
July 16, 2012

SELEcTEd FINANcIAL dATA

The following table sets forth (in millions, except per share amounts and other operating data) certain selected consolidated financial and operat-
ing data for FedEx as of and for the five years ended May 31, 2012. This information should be read in conjunction with the Consolidated Financial
Statements, MD&A and other financial data appearing elsewhere in this Annual Report.

2012(1)

2011(2)

2010

2009(3)

2008(4)

Operating Results
Revenues
Operating income
Income before income taxes
Net income

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

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

$ 42,680
3,186
3,141
2,032

$ 6.44
$ 6.41
315
317
$ 0.52

$ 17,248
29,903
1,250
14,727

$ 39,304
2,378
2,265
1,452

$ 4.61
$ 4.57
315
317
$ 0.48

$ 15,543
27,385
1,667
15,220

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

$ 3.78
$ 3.76
312
314
$ 0.44

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

$ 35,497
747
677
98

$ 0.31
$ 0.31
311
312
$ 0.44

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

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

$ 3.64
$ 3.60
309
312
$ 0.30

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

Other Operating Data
677
FedEx Express aircraft fleet
(1) Results for 2012 include a $134 million ($84 million, net of tax or $0.26 per share) impairment charge resulting from the decision to retire 24 aircraft and related engines at FedEx Express and the
reversal of a $66 million legal reserve associated with the ATA Airlines lawsuit which was initially recorded in the second quarter of 2011. See Notes 1 and 17 to the accompanying consolidated
financial statements.

688

654

667

660

(2) 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 combination 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.
(3) 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. 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.

(4) 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. Additionally, results for 2008 include several 2007 acquisitions.

fedex corporationJoshua Cooper Ramo(3)
Vice Chairman
Kissinger Associates, Inc.
Strategic advisory firm

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

BOARd OF dIREcTORS

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

John A. Edwardson (1*)
Chairman
CDW LLC
Technology products and services company

Shirley Ann Jackson (2) (4*) (5)
President
Rensselaer Polytechnic Institute
Technological research university

Steven R. Loranger (2*) (4)
Chairman Emeritus
Xylem Inc.
Water technology company

Gary W. Loveman (1) (3)
Chairman, President and
Chief Executive Officer
Caesars Entertainment Corporation
Branded gaming entertainment company

R. Brad Martin(4)
Chairman
RBM Venture Company
Private investment company

(1) Audit committee
(2) compensation committee
(3) Information Technology Oversight committee
(4) Nominating & Governance committee
(5) Lead Independent director
* committee chair

fedex corporationExEcUTIvE OFFIcERS ANd SENIOR MANAGEMENT

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

Ward B. Strang
Executive Vice President and Chief Operating Officer
FedEx Ground

Barbara B. Wallander
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 24, 2012,
10:00 a.m. local time, FedEx Express World Headquarters, 3670 Hacks
Cross Road, Building G, Memphis, Tennessee 38125.

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

SHAREOWNERS: As of July 13, 2012, there were 13,863 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 2012 and 2011:

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

FY2012
High
Low
Dividend
FY2011
High
Low
Dividend

$ 98.66
72.16
0.13

$ 87.74
69.78
0.12

$ 85.75
64.07
0.13

$ 93.03
79.04
0.12

$ 97.19
76.95
0.13

$ 98.52
87.54
0.12

$ 96.89
84.86
0.13

$ 96.89
85.03
0.12

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

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.

INVESTOR RELATIONS: Mickey Foster, Vice President, Investor
Relations, FedEx Corporation, 942 South Shady Grove Road, Memphis,
Tennessee 38120, (901) 818-7200, e-mail: ir@fedex.com

EQUAL EMPLOYMENT OPPORTUNITY: Our greatest asset is our
people. We are committed to providing a workplace where our
employees and contractors feel respected, 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,
retaliation, violence, intimidation and discrimination of any kind
involving race, color, religion, national origin, gender, sexual
orientation, gender identity, gender expression, age, disability,
veteran status or any other characteristic protected by federal,
state or local law.

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

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

> 136 trees preserved for the future

> 55 million BTUs of energy conserved

> 5,633 kWh of electricity offset

> 13,799 pounds of greenhouse gas reduced

> 62,226 gallons of water waste eliminated

> 3,944 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.

In line with FedEx’s commitment to sustainability, our Annual Report was produced using
environmentally and socially responsible procurement and manufacturing practices to ensure
a minimized environmental impact. This report was printed at EarthColor on FSC® certified
containing 10% recycled PCW fiber utilizing 100% renewable wind power (RECs) and lean
manufacturing principles, including green chemistry principles, the recycling of residual
materials as well as the use of low VOC inks and coatings. In addition, carbon and VOC
reduction strategies were employed to destroy residual VOCs via bio-oxidation. Carbon offsets
were purchased where carbon could not be eliminated rendering this report carbon-balanced.

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fedex corporation

“I wIll make every
Fedex experIence
outstandIng.”

— The Purple Promise

when we go beyond,
our customers stay ahead.

The marketplace is a world of opportunity, and our job is to put

it within reach. When we connect people, communities flourish,

countries prosper and the world becomes a richer place.

MORE > fedex.com/annualreport2012

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to stay ahead, we go beyond

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

FedEx Annual Report 2012