FedEx Annual Report 2013

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FY2013 Annual Report · FedEx

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North. South. East. West

Forward

Fedex Corporation
942 South Shady Grove road
Memphis, tennessee 38120
fedex.com

Fedex annual report 2013

In 40 years of doing business, we’ve experienced dynamic economic,

social and technological changes few could have envisioned. Yet,

we’ve stayed the course, guided by a steadfast commitment to our

customers, team members and shareowners. Regardless of what’s

— The Purple Promise

happening in the world, you can count on FedEx to approach our

business as we always have: moving in many directions to connect the

world, whether it’s adjusting our networks to meet customers’ needs

or by providing more innovative and sustainable ways of working.

North. South. East. West — they point in one direction. Forward.

powering possibilities
When people connect with each other,
anything is possible. Fair and open trade
unleashes innovation — the power of
technology, transportation, information
and ideas to compound and multiply. By
making it easier to bring new ideas to
new markets, everyone benefits.

Forward Thinking

To our shareowners,
In FY13, we took aggressive action to boost future
profitability and better align our global networks with
customer demand in a sluggish world economy. I am
pleased to say the profit improvement programs we
announced in October 2012 are on track and ahead of
schedule in many areas.

Thanks to a boost from e-commerce, FedEx Ground
posted another stellar year with industry-leading margins.
Revenue share has now increased for 54 consecutive
quarters — an outstanding performance driven by
superior service that’s faster to more locations than
any other ground service. The FedEx Ground outlook
is excellent as revenues are expected to continue to
increase in FY14, led by volume growth across all our
major services. We will continue to expand our capacity to
keep up with the demand for our ground services and the
growing popularity of online shopping.

FedEx Freight made solid progress in FY13 following its
return to profit in FY12. Revenues increased due to higher
yield and average daily shipments.

At FedEx Express, acquisitions in Brazil, France, Poland,
Mexico, and India are on course to deliver solid returns
in these key markets. We also signed a new seven-
year contract with the United States Postal Service,
a testament to the quality of service and the strong
relationship we’ve built during the past decade.

Once again, we were honored by FORTUNE magazine as
one of the world’s 10 most admired companies.

These positive accomplishments, however, did not offset
the effect of lower-than-expected international export
yields resulting from increasing customer use of slower,
less costly international shipping services. FedEx is
tackling these challenges head-on, and we are confident
our plans will position us for profitable long-term growth.

more > fedex.com/Annualreport2013 1

LeTTer from The ChAirmAn

our goals are set
All indicators suggest that a low-growth global economy
will persist, given high fuel costs, and policy decisions by
major world governments that impede global trade. Even
so, our profit improvement programs announced in FY13 are
targeting annual profitability improvement of $1.6 billion
at FedEx Express by the end of FY16 from the full-year
FY13 adjusted operating income level. Collectively, these
initiatives are expected to increase margins, improve cash
flows, and increase our competitiveness. In this regard, we
expect to begin realizing a portion of the benefits from the
profit improvement programs gradually in FY14. However,
the majority of the benefits, including those from our
voluntary buyout program, will not be fully realized until
FY15 and FY16.

our way forward is clear
FedEx is becoming a more efficient business, and we’re
more competitive than ever as we expand solutions
for customers. Our balance sheet is strong and, most
importantly, our 300,000 team members are dedicated to
implementing our plans with the can-do attitude you’d
expect from our Purple Promise: “I will make every FedEx
experience outstanding.”

Here’s a snapshot of the profit improvement programs we
began during FY13 and the progress we’ve made:

FedEx Express: Five pillars to increasing profitability
1 Make staff functions and processes more efficient
Multiple initiatives across FedEx Express and FedEx Services
are permanently reducing our overall cost structure. We
have completed a voluntary program offering cash buyouts
to eligible U.S.-based employees in certain staff functions,
and approximately 3,600 employees have voluntarily left or
will be leaving the company by the end of FY14. We are also
capitalizing on strategic sourcing opportunities, streamlining
support functions, and eliminating redundant systems and
processes. Increased use of information-technology service
providers and cloud-computing resources will significantly
reduce costs.

2 Modernize our air fleet
Replacing older, less efficient aircraft is lowering operating
costs globally. In FY13, we decided to permanently retire or
accelerate retirement of nearly 90 aircraft as we continue
to modernize our aircraft fleet. In June, FedEx Express
completed the final retirement of the B727 fleet. The B757
is significantly more fuel efficient per pound of payload and
has 20-percent additional payload capacity than the B727 it
replaces. Our new Boeing 767s will provide similar capacity
as the MD10s we are retiring, with improved reliability, and
about a 30-percent increase in fuel efficiency.

3 Transform our U.S. domestic network
We’re closing and realigning regional and district facilities
and streamlining pickup and delivery operations while
maintaining outstanding service levels. For example, we
merged five stations in Houston into two and eliminated a
regional package sort in Atlanta, thus consolidating more
than 100 weekly surface routes. We’re also improving flight
scheduling, on-road efficiency, refining aircraft maintenance
processes, and improving fuel efficiency in our vehicle fleets.

4 Improve international profits
Our international profit improvement programs are focused
on expanding our European footprint to build scale efficiency
to lower unit costs, expand our portfolio through new
offerings, reduce overhead expenses and grow the
capabilities of FedEx Trade Networks. Maintaining
leadership in the Priority market space and matching our
network cost-to-serve with Economy shipping yields are top
priorities as customers continue to trade speed for price in a
low-growth global economy. Accordingly, we are optimizing
our networks by using other lift alternatives to move
Economy traffic and making better use of capacity within the
FedEx Express international network for our Priority services.

Recent acquisitions in Brazil, France, Poland, Mexico, and
India helped drive significant increases in international
domestic revenues in FY13, and we expect the profitability
of these acquisitions to improve as their integrations near
completion. We also opened dozens of European facilities to
better serve customers, improve the density of our European
network, and lower costs.

FedEx Trade Networks, our fast-growing air and ocean
freight forwarding arm, will also add to our profitability as
it continues to grow. We recently opened new offices in
Latin America, Europe and Asia; expanded our alliances
with regional service providers; and launched new freight
forwarding service options.

5 Expand service offerings
Capitalizing on the reliability of our U.S. domestic air
network, we expanded our FedEx Express First Overnight
package and freight offerings and now serve more than
3,000 additional ZIP codes earlier in the morning. Improved
service offerings targeting small and medium shippers and
consignees as well as value added services for vertical
industries, such as healthcare and aerospace, will further
align the unique capabilities of FedEx Express with specific
customer needs.

our focus is on customers
Discrete customer needs are at the heart of our strategy
to operate focused systems (FedEx Express, FedEx Ground,
FedEx Freight) that operate independently, compete

“FedEx Ground
clearly has an
outstanding
business model,
as evidenced by
its growth and
industry-leading
margins.”

collectively, and are managed collaboratively. Our unique
model enables us to fine-tune our networks without
compromising service to our customers. Not only are our
solutions superior, but we can respond to marketplace
changes quickly and efficiently.

FedEx Ground clearly has an outstanding business
model, as evidenced by its growth and industry-leading
margins even in a time of slow economic growth. Our speed
advantage gives customers greater flexibility in their supply
chain and makes inventory management more efficient.
Since 2003, we have increased the speed of more than
87,000 lanes by at least a full day. And we’re not done yet.
Thousands more lanes will be accelerated in FY14. FedEx
Ground also continues to benefit from dramatic double-digit
e-commerce growth, which led to a 22-percent increase in
FedEx SmartPost shipments during FY13.

FedEx Express and FedEx Ground residential
customers are enjoying more convenience than ever with
the ability to customize deliveries to their home with FedEx
Delivery Manager, introduced this spring. Now customers
can request delivery dates, locations, and times, according
to their needs. They can also request that their packages be
held for pickup at more than 1,800 FedEx Office locations.

FedEx Freight customers are embracing the way we’ve
simplified less-than-truckload (LTL) shipping. About 80
percent of FedEx Freight customers use both our Priority
and Economy services through a single unique pickup-and-
delivery network. Our strategy was validated by a recent
survey in Logistics Management magazine, which ranked
FedEx Freight as best-in-class in both the multiregional and
national LTL sectors. To improve performance, automated
systems help FedEx Freight determine the most efficient
routing for shipments. Today, about 15 percent of our line-
haul miles have moved to rail, a decision that’s lowered
our costs without sacrificing reliability.

our future is bright
Executing our profit improvement programs and our other
long-term strategies will require the same focus and
discipline that has made FedEx an industry leader for four
decades. We’re proud of our success and are optimistic
about the future. Good things happen when FedEx provides
greater access to markets and new opportunities. The
record is clear. Businesses grow; jobs increase; and people’s
lives improve.

Farmers and villagers in northern India know firsthand what
this means. When Krishan Guptaa, CEO of Organic India,
rejuvenated a once-struggling brand by relaunching it in the
global marketplace, he was able to pay higher wages to
farmers who grew tea and herbs to supply his operations.
Today, the Organic India Foundation provides free healthcare
to thousands of local villagers.

Our success would not be possible without the personal
dedication of our 300,000 team members worldwide. They
earn the trust of customers like Organic India every day by
delivering on our Purple Promise. Few have done a better
job at that than Dave Rebholz, who retired this year as
CEO of FedEx Ground after 37 years of service to FedEx. He
leaves with our gratitude and respect for his outstanding
achievements. Dave is succeeded by Henry Maier, whose
more than 30 years of experience in the transportation
industry, including more than 25 years at FedEx companies,
will provide steady leadership for continued growth at
FedEx Ground.

You can count on FedEx, based on 40 years of operations as
of April, to continue doing what’s right for our shareowners,
customers, team members and the communities we serve.
We are dedicated to continuing to make a better and more
prosperous world as a result.

Frederick W. Smith
Chairman, President and CEO

more > fedex.com/Annualreport2013 3

onlInE SHoPPInG: fueL for growTh

The largest driving force in the global economy is e-commerce, which is projected
to reach $1 trillion in sales by 2016. The internet shopping boom is translating into
significant growth at FedEx, and it’s easy to see why. Our specialized e-commerce
services and tools are helping transform the U.S. retail industry, where online sales
are growing more than three times faster than offline sales.

Two notable changes are powering this trend, according to Forrester Research: Mobile
devices, such as smartphones and tablets, make it easier for shoppers to access the web
on the go (accounting for 11 percent of online transactions, says comScore). And rather
than risk losing sales to competitors, traditional retailers are heavily investing in their
web divisions.

For retailers — services that sell

What does this mean for FedEx? We know a sale isn’t
complete until the package is in the consumer’s hands.
Since delivering our first FedEx Express e-commerce
package, we’ve been systematically building a suite of
services and tools that meet retailers’ and shoppers’
needs for cost and service options.

In 2000 we launched FedEx Home delivery, the
first dedicated residential delivery service in our industry.
The service, which offers Saturday delivery at no extra
charge, set a one-day record for deliveries outside the
peak shipping season by delivering 1.7 million residential
packages this year on the Saturday before Mother’s Day.

Since its introduction in 2004, FedEx SmartPost
has changed the e-commerce delivery game and
continues to grow rapidly. It’s an economical option
that’s helped online retailers reduce costs for lightweight
shipments, making it easier for them to promote free
shipping as a marketing tool. In fact, about 50 percent of

online purchases come with free shipping. Last year,
FedEx SmartPost revenue soared more than 18 percent.

FedEx Sameday® City, dedicated to local delivery
within hours, was first offered in 2007 and enhanced
this year in 15 U.S. metro areas (see page 6).

FedEx Express Saturday delivery service now covers
more than 90 percent of the U.S. population so we can
better serve e-commerce customers.

our network of 1,800 FedEx office locations and
more than 600 FedEx Express service centers
can securely hold packages for consumers to pick up at
their convenience. Plus, the service cuts our costs by
reducing redelivery attempts.

Our e-commerce strategy serves FedEx as well as
customers, because the right package in the right
network makes us more efficient and profitable.

$1 trillion

Projected global
e-commerce sales
by 2016, representing
1 percent of global GDP.

42%

Projected increase in U.S.
online spending by 2017,
from $262 billion in 2013
to $371 billion in 2017.

1 10out of

Amount of U.S. retail dollars
projected to be spent shopping
online by 2017.

Sources: forrester research

Now recipients can be part of the solution by requesting
deliveries tailored to their schedules:

Schedule your
delivery

Deliver to
another address

Hold at FedEx
location

Sign for a
package

Provide delivery
instructions

Request
vacation hold

For recipients — FedEx delivery Manager

We are confident that our new FedEx Delivery Manager
service options will enhance the residential delivery
experience as powerfully as our online tracking did
decades ago. By signing up at fedex.com, customers
can be notified when FedEx packages are en route
to their homes. Recipients can then personalize their
delivery experience by requesting a time, date or
location that suits their needs.

Customers have responded well to the service. Large
e-commerce shippers value the convenience, flexibility
and options FedEx Delivery Manager provides. It helps
them satisfy their customers and lower their customer
service costs. Just as important, the service also
streamlines our operations by reducing the number of
times we attempt deliveries when recipients
aren’t home.

more > fedex.com/Annualreport2013 5

InnovaTIon: fuTure forwArd

What do information technology, sustainability and customer solutions have in common?
At FedEx, the answer is innovation.

It’s a state of mind that connects everything we do. Innovation not only makes life easier
for customers, but it also helps us work more efficiently and reduces our environmental
impact on the planet. Our commitment to a creative, open culture propels the development
of ideas, services and solutions that help our customers compete worldwide.

Whether it’s biofuel research or speedy, same-day delivery in select metro areas, we
approach innovation as a disciplined, strategic business practice. It makes us even more
competitive while saving millions of dollars for years to come.

Retailers can now save
local customers a trip
across town by offering
delivery within hours using
FedEx SameDay City. It
works the same way for
business-to-business
packages. Shippers receive
confirmation of delivery the
moment a package arrives.

6
6

30%

goal

To help meet our new goal
to increase FedEx Express
vehicle fuel efficiency
30 percent by 2020, we now operate
the largest fleet of lightweight,
composite-body vehicles in the
industry. In addition, we’ve grown
the FedEx Express alternative-
vehicle fleet by 18 percent, and
clean diesel vans now comprise
35 percent of our fleet. At FedEx
Ground we’re improving efficiency
by digitally scanning each package
to determine exactly how much
room it will take up during
shipment. We’ve eliminated
2,500 trailers from the road so far.

100%

emissions offset

anyone using FedEx
carbon-neutral envelope
shipping has our assurance that
all carbon dioxide (CO2) emissions
associated with their shipment will
be offset. FedEx is the first global
express transportation company to
offer carbon-neutral shipping at no
extra cost to our customers. We’ve
given customers other earth-friendly
options as well, such as FedEx Office
Print & Go. It’s easy to send a digital
file from a web-connected device
or flash drive to be printed in the
place where it’s needed — a digital
alternative to shipping documents.

More sustainable practices

Energy is top of mind at FedEx. We’re
motivated to connect the world responsibly
and resourcefully understanding the
challenges that face our planet. That’s why
FedEx works to achieve our goals through
EarthSmart®. It’s our road map to find or create
more innovative ways to improve our own
environmental performance and to lead the
way for others.

Smarter customer solutions

FedEx was launched with a big idea
40 years ago, and we haven’t stopped
looking forward. Our motivation is simple:
customers depend on us to stay ahead
of the game so they can connect to
opportunity, whether it’s in their own
city or another country.

Industry-leading technology

As global change accelerates, our ability
to turn on a dime will differentiate us from
the competition. Our transition to hybrid
cloud architecture is big because it gives us
the agility we need to grow and to allocate
crucial resources on demand. A cloud
platform delivers computing and storage
capacity to a community of applications
and users as they need it. It’s a much more
efficient and flexible way of working.

49 million gallons 1, 000 miles a day

our Fuel Sense program
looks for every possible way to
save fuel and reduce emissions
in aircraft operations. Last year
about 40 programs saved 49 million
gallons of fuel, avoiding 466,000
metric tons of CO2 emissions.
We’re scouring every phase of
aircraft operations from reducing
the time an aircraft has to wait
on the runway with its engines
running to creating new computer
technology that determines the
most efficient speed of an aircraft
during travel.

alternative energy sources
are a focus across FedEx.
In a beta test, FedEx Freight
tractors powered by liquefied
natural gas (LNG) are logging about
1,000 miles a day. FedEx Freight
also successfully tested a synthetic
diesel fuel derived from biomass.
We’re working with The Nature
Conservancy to create a biofuels
road map for the long-distance
transportation industry. Our
own goal is a 30-percent use of
alternative fuels in our aircraft
by 2030.

3 hours

FedEx Sameday City is
changing customer
expectations by offering priority
pickup and delivery service in as
little as three hours. The new
service is ideal for businesses
whose products must reach their
local customers within the same
day. The enhanced service is now
offered in 15 U.S. metro areas and
is popular with online and brick-
and-mortar retailers, the medical
industry, manufacturers and
businesses that rely on the quick
turnaround of packages. We’re
planning to expand the service to
more U.S. cities in the coming year.

30%

faster

Thanks to our move to
hybrid cloud computing,
FedEx customers can now enjoy
a 30-percent reduction in time to
ship a package from fedex.com.
Technology improvements have
streamlined our systems and helped
us introduce new services.

6 sensors in one

leading the way in
sensor-based logistics
is Senseaware®, a small
multi-sensor device that can sense
and transmit data about six key
shipment variables: temperature,
light exposure, humidity,
barometric pressure, shock and
location. Initially developed for
U.S. shipments, SenseAware
can now help customers monitor
valuable shipments and inventory
in 19 countries. We’ve also made it
available to a growing list of air and
ground transportation carriers.

CIO100 Award

CIo magazine recognized
FedEx with its 2013 CIo 100
award for FedEx Web Services, a
streamlined e-commerce connection
for businesses and consumers
around the world that handles more
than 25 million tracking requests
per day. InformationWeek 500
ranked FedEx Corp. No. 35 among
top U.S. technology innovators
for our Platinum Core program,
which enables an automated,
enterprisewide release of hardware
and software so IT can respond
more quickly to business needs.

more > fedex.com/Annualreport2013 7

Revenue (in billions)

Operating Margin

Diluted Earnings Per Share

Return on Average Equity

Debt to Total Capitalization

Stock Price (May 31 close)

2009

2010

2011

2012

2013

2009(4)

2010

2011(3)

2012(2)

2013(1)

2009(4)

2010

2011(3)

2012(2)

2013(1)

2009(4)

2010

2011(3)

2012(2)

2013(1)

2009

2010

2011

2012

2013

2009

2010

2011

2012

2013

$35.5

$34.7

$39.3

$42.7

$44.3

2.1%

5.8%

6.1%

7.5%

5.8%

$0.31

$3.76

$4.57

$6.41

$4.91

0.7%

8.6%

10.0%

13.6%

9.7%

15.9%

12.3%

10.0%

10.2%

14.7%

$55.43

$83.49

$93.64

$89.14

$96.34

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

2013(1)

2012(2)

Percent
Change

$ 44,287
2,551

$ 42,680
3,186

5.8%

7.5%

1,561
4.91

317
3,375

2,032
6.41

317
4,007

$ 4,917
33,567

$ 2,843
29,903

2,990
17,398

1,667
14,727

4
(20 )
(170 )bp
(23 )
(23 )

–
(16 )

73
12

79
18

Comparison of Five-Year Cumulative Total Return*

5/08 5/09 5/10 5/11 5/12 5/13

FedEx Corporation

S&P 500

Dow Jones Transportation Average

* $100 invested on 5/31/08 in stock or index, including reinvestment of dividends. Fiscal year
ending May 31.

(1) Results for 2013 include $560 million ($353 million, net of tax or $1.11 per diluted share) of
business realignment costs and a $100 million ($63 million, net of tax, or $0.20 per diluted
share) impairment charge resulting from the decision to retire 10 aircraft and related engines
at FedEx Express.

(3) 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 $66 million reserve
associated with a legal matter at FedEx Express.

(4) 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.

$140

$120

$100

$80

$60

$40

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.

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”). See “Reportable
Segments” for further discussion.

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 2013
results compared to 2012, and 2012 results compared to 2011. This
section also includes a discussion of key actions and events that
impacted our results, as well as our outlook for 2014.

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 overview is followed by a financial summary and analysis
(including a discussion of both historical operating results and our
outlook for 2014) for each of our reportable transportation segments.

> 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 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 finan-
cial 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,
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

> 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
operating 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, 2013 or ended May 31 of the year referenced and
comparisons are to the prior year. References to our transportation
segments include, collectively, our FedEx Express, FedEx Ground and
FedEx Freight segments.

MANAGEMENT’S DISCUSSION AND ANALYSIS Of rESULTS Of OPErATIONS AND fINANCIAL CONDITION RESULTS OF OPERATIONS

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

Percent Change

Revenues
Operating income
Operating margin
$ 1,561
Net income
$ 4.91
Diluted earnings per share
(1) Operating expenses include $560 million for business realignment costs and a $100 million impairment charge resulting from the decision to retire 10 aircraft and related engines at

$ 2,032
$ 6.41

$ 1,452
$ 4.57

7.5%

5.8%

6.1%

2013(1)
$ 44,287
2,551

2012(2)
$ 42,680
3,186

2011(3)
$ 39,304
2,378

2013/2012
4
(20 )
(170 )bp
(23 )
(23 )

2012/2011
9
34
140 bp
40
40

FedEx Express.

(2) 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

reserve which was initially recorded in 2011 at FedEx Express.

(3) 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 at FedEx Express.

The following table shows changes in revenues and operating income by reportable segment for 2013 compared to 2012, and 2012 compared to
2011 (dollars in millions):

Revenues

Operating Income

Dollar Change

Percent Change

Dollar Change

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

2012/2011
3
33
193
–
–
34
(1) FedEx Express segment 2013 operating expenses include $405 million of direct and allocated business realignment costs and an impairment charge of $100 million resulting from the decision to
retire 10 aircraft and related engines. Additionally, 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 the reversal of a $66 million legal reserve that was initially recorded in 2011.

2013/2012
$ 656
1,005
119
(91)
(82)
$ 1,607

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

2013/2012
2
10
2
(5)
NM
4

2012/2011
8
13
8
(1)
NM
9

2013/2012
$ (705 )
24
46
–
–
$ (635 )

2012/2011
$ 32
439
337
–
–
$ 808

Percent Change
2013/2012
(56 )
1
28
–
–
(20 )

(2) FedEx Ground segment 2013 operating expenses include $105 million of allocated business realignment costs.
(3) FedEx Freight segment 2013 operating expenses include $50 million of direct and allocated business realignment costs. Additionally, 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

2,800

2,700
2,800

2,600
2,700

2,500
2,600

2,400
2,500

2,400

4,500

4,000

3,500
4,500
3,000
4,000
2,500
3,500
2,000
3,000
1,500
2,500
1,000
2,000

1,500

1,000

10,500

10,000

10,500
9,500

10,000
9,000

9,500
8,500

9,000
8,000

8,500

8,000

$19.00

$18.00

$17.00

$19.00

$16.00

$18.00

$15.00

$17.00

$14.00

$16.00

$13.00

$15.00

$14.00

$13.00

$10.00

$8.00

$10.00

$6.00

$8.00

$4.00

$6.00

$2.00

$4.00

$2.00

$22.00

$20.00

$22.00

$18.00

$20.00

$16.00

$18.00

Overview
Our results for 2013 reflect a significant impact of certain charges
(described below), which negatively impacted our earnings by $1.31
per diluted share. Beyond these factors, our results for 2013 benefited
from the strong performance of FedEx Ground, which continued to
grow market share, and ongoing profit improvement at FedEx Freight.
However, a decline in profitability was experienced at our FedEx
Express segment resulting from ongoing shifts in demand from our
priority international services to economy international services
which could not be fully offset by network cost and capacity
reductions in 2013.

Our 2013 results include business realignment costs of $560 million,
primarily related to our voluntary cash buyout program (see “Business
FedEx Express U.S. Domestic
Realignment, Impairment and Other Charges” for additional
Average Daily Package Volume
information). Furthermore, in May 2013, we made the decision to

2,800

retire from service 10 aircraft and related engines, which resulted in a
noncash asset impairment charge of $100 million.

In addition, actions in 2012 at FedEx Express related to fleet modern-
ization resulted in the accelerated retirement of certain aircraft which
negatively impacted our 2013 results by $69 million due to additional
depreciation recorded for the shortened lives of the aircraft.

Our 2012 revenues, operating income and operating margins reflected
the exceptional performance of our FedEx Ground segment, improved
profitability at FedEx Freight and increased yields across all our
operating segments. Our results significantly benefited in 2012 from
the timing lag that exists between when fuel prices change and
when indexed fuel surcharges automatically adjust. Our 2012
FedEx Express International(1)
results included the reversal of a $66 million legal reserve initially
Average Daily Package Volume
recorded in 2011 and an aircraft impairment charge of $134 million
at FedEx Express.

1,200

FedEx Express International(1)
FedEx Express U.S. Domestic
Average Daily Package Volume
Average Daily Package Volume
The following graphs for FedEx Express, FedEx Ground and FedEx Freight show selected volume trends (in thousands) for the years ended May 31:

FedEx Express International(1)
Average Daily Package Volume

FedEx Express U.S. Domestic
Average Daily Package Volume

1,000

2,700

2,684

785

1,200

1,000

800
1,200

600
1,000

400
800

200
600

0
400

200

90.0

85.0
90.0

80.0
85.0

75.0
80.0

75.0

$70.00

$60.00

$50.00

$70.00

$40.00

$60.00

$30.00

$50.00

$20.00

$40.00

$10.00

$30.00

$20.00

$10.00

800
1,200

600
1,000

FedEx Express International(1)
FedEx Express International(1)
523
Average Daily Package Volume
Average Daily Package Volume
318
785

348

559

495

575

576

785

400
800
1,200

523

318

523

318
2010

2010

200
600
1,000

575

0
348
400
800

575

200
600

348
0
400
2011

523

559

575

2010
318

495

348
2011

576
785

International export

575

559

523

318
2010

495
2012

348
2011

576

2013

559

2012
495

559

495
2012

576
785
2013

International domestic

576

2013

International export

200

International export

International domestic

0
2011

International export

90.0

2012

FedEx Freight
2010
2013
Average Daily LTL Shipments
International domestic

International export

2011

2012

2013

International domestic

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

86.0

84.9

82.3
FedEx Freight
FedEx Freight
Average Daily LTL Shipments
Average Daily LTL Shipments
85.7

86.0

84.9

85.0
90.0

80.0
85.0
90.0

82.3

2010

82.3

84.9

86.0

2011

85.7

84.9
2012

82.3

2010

86.0

75.0
80.0
85.0

75.0
80.0

2011

2010

2012

2011

2013

2012

2013

85.7

85.7
2013

75.0

2010

2011

2013
(1) International domestic average daily package volume includes our international
intra-country express operations, including acquisitions in India (February 2011),
Mexico (July 2011), Poland (June 2012), France (July 2012) and Brazil (July 2012).

2012

2011

2010

2012

2013

2,638

2010

3,523

1,222

2010

2,800

FedEx Express U.S. Domestic
Average Daily Package Volume

2,638
FedEx Express U.S. Domestic
Average Daily Package Volume

2,600

2,577

2,684

2,543

2,638

2010
2,638

2,577

2,684
2011

2,577

2,543

2012

2,543
2013

2010

2012

2011

2,543
2013

2,577

2012

2,543
2013

2012

FedEx Ground
2010
2013
Average Daily Package Volume

2012

2011

2013

4,000

FedEx Ground
FedEx Ground
3,523
Average Daily Package Volume
Average Daily Package Volume

3,746

3,907

FedEx Ground
FedEx Ground
Average Daily Package Volume
Average Daily Package Volume
3,523
3,523

4,000
2,500

3,746

3,907

3,746

4,222

3,907

4,222

1,432
3,746

2011

2,058

1,692

FedEx Ground

1,432

1,222
3,523

2010

1,222

1,692
3,907

2012
1,692

4,222

2,058
4,222

2013
2,058

2,058
2013

SmartPost

1,222

FedEx Ground
1,500

1,222

FedEx Ground

2010

2012
1,692

2011
1,432
SmartPost

2,058
2013

2012
1,692

2010

1,000

2011

FedEx Ground

10,500

2012

2011

2010
2013
FedEx Express and FedEx Ground
Total Average Daily Package Volume

FedEx Ground

SmartPost

2012

2013

FedEx Express and FedEx Ground
Total Average Daily Package Volume

10,184
FedEx Express and FedEx Ground
Total Average Daily Package Volume

10,000

FedEx Express and FedEx Ground
10,184
Total Average Daily Package Volume

10,000
9,000

8,785

9,230

8,224

9,230

10,184

9,230

10,184

2,684

2,700
2,800
2,500

2,600
2,700
2,400

2,684

2,500
2,600

2,400
2,500

2011

2,400

2011

4,500

3,500

4,500
3,000

3,500
2,000
4,500
3,000
1,500
4,000
2,500
1,000
3,500
2,000
3,000
1,500
2,500
1,000
2,000

3,746

1,432

2011
1,432

10,500
9,500

10,500
9,500
8,500

10,000
9,000
8,000

8,785

9,500
8,500

2010

8,224

9,230

8,785
2011

8,785

2012

9,230

2013

$17.33

$8.94

2013

$8.94

$1.77

$8.94

2013

$1.77

2013

$1.77

$19.94

2013

2012

2011

2012

2011

8,785

9,000
8,000

2010
2013
FedEx Express U.S. Domestic
8,224
Revenue per Package – Yield

8,224

2010

8,224

2010

$7.73

$1.56

2010

$1.56

$17.07

2010

$17.07

FedEx Express International
Revenue per Package – Yield

$70.00

$50.00

$70.00

$40.00

$60.00

$30.00

$56.08

$50.00

$20.00

$70.00

$40.00

$10.00

$60.00

$56.08

$30.00

$50.00

$20.00

$40.00

$10.00

$30.00

$7.38

$20.00

2011

FedEx Express International

$60.00

$56.08

Revenue per Package – Yield

$53.10

$60.83

$58.72

FedEx Express International

$58.72

$60.83

$58.72

$53.10

Revenue per Package – Yield

$53.10

$56.08

$7.38

$56.08

2011

$7.14

$53.10

2010

$60.83

$58.72

$60.83

$6.74

$58.72

$6.99

2012

2013

International export composite

International domestic

$7.14

$6.74

$7.38

$6.99

$6.74

$6.99

2010

2012

2011

2013

2012

2013

$7.14

International export composite

$10.00

$7.38

$7.14

International export composite

International domestic

$6.99

$6.74

$7.38

$6.74

International domestic

$6.99

2010

2012

2011

2013

2012

2013

International export composite

International domestic

$53.10

$7.14

2010

2012

2011

2013

2012

FedEx Express U.S. Domestic

$18.00

Revenue per Package – Yield

$17.12

FedEx Express U.S. Domestic

$16.00

$15.59

Revenue per Package – Yield

$17.33

$14.61

$17.12

$14.61

$17.12

$14.61

2010

$17.33

$17.12

2012

$17.33

2013

$15.59

2011

$15.59

$14.61

2010

$13.00

$15.00

2011

$14.61

FedEx Ground

2010

2012

2011

2013

Revenue per Package – Yield

2012

2013

2010

FedEx Ground

2011

2010

FedEx Ground

2011

2012

2013

$8.17

$8.77

2012

$7.73

Revenue per Package – Yield

FedEx Ground

$8.17

FedEx Ground

$8.17

$8.77

$8.94

$8.77

$7.73

Revenue per Package – Yield

$7.73

$8.00

$4.00

$8.77

$1.72

$8.17

$8.94

2011

$1.81

FedEx Ground

$1.72

$1.77

SmartPost

$1.56

$7.73

2010

$1.56

FedEx Freight

2011

2012

2010

$1.81

$1.72

2013

$1.77

2012

$1.81

FedEx Ground

SmartPost

LTL Revenue per Hundredweight – Yield

$1.56

2010

FedEx Freight

2010

2012

FedEx Freight

2011

2013

2012

2013

LTL Revenue per Hundredweight – Yield

FedEx Ground

SmartPost

$19.94

FedEx Freight

LTL Revenue per Hundredweight – Yield

$18.24

$19.94

$17.07

$19.57

2010

$17.07

$19.57

$18.24

2011

$19.94

$18.24

2010

$17.07

2012

2011

2013

2012

2013

$1.81

$8.77

2012

$1.81

$19.57

2012

$19.57

Average Fuel Cost per Gallon

$4.00

$3.80

$3.81

Average Fuel Cost per Gallon

$3.81

$3.80

$5.00

$3.00

$4.00

$5.00

$2.00

$3.25

$3.00

$4.00

$1.00

$2.66

$3.25

$2.00

$3.00

$1.00

$2.66

2011

$2.00

$1.00

$3.25

$2.66

$3.25

2011

$2.66

$3.25

$3.22

$3.81

Vehicle

$3.22

$3.31

$3.80

2012

Jet

$3.31

$2.66

2011

2013

2012

$2.69

$2.15

$2.69

2010

$2.15

$2.69

2010

$2.15

$3.31

$3.80

$3.31

2012

Jet

Vehicle

Jet

Vehicle

Jet

Vehicle

Jet

$3.22

$3.81

$3.22

$3.81

2013

$3.22

2013

$5.00

$4.00

$5.00

$3.00

$4.00

$2.00

$3.00

$1.00

$2.00

$1.00

$2.69

$2.15

$2.69

2010

$2.15

$16.00

2010

$16.00

2011

2010

2012

2011

2013

2012

2013

2010

2011

2010

2012

2011

2013

2012

2013

8,500

8,000

$19.00

2011

$17.00

$19.00

$18.00

$15.00

$17.00

$19.00

$14.00

$16.00

$18.00

$15.59

$13.00

$15.00

$17.00

$14.00

$16.00

$15.59

$14.00

$10.00

$13.00

$8.00

$10.00

$6.00

$10.00

$6.00

$2.00

$8.17

$8.00

$4.00

$6.00

$2.00

$1.72

$4.00

2011

$1.72

$2.00

$22.00

2011

$20.00

$22.00

$18.00

$20.00

$22.00

$18.24

$16.00

$18.00

$20.00

$18.24

$16.00

$18.00

2011

ManageMent’s discussion and analysisFedEx Express U.S. Domestic

Average Daily Package Volume

FedEx Express International(1)

Average Daily Package Volume

2,684

2,638

2,577

2,543

523

318

575

348

559

495

785

576

2010

2011

2012

2013

2010

2011

2012

2013

International export

International domestic

FedEx Express U.S. Domestic

Average Daily Package Volume

FedEx Express U.S. Domestic

Average Daily Package Volume

FedEx Express International(1)

Average Daily Package Volume

FedEx Express International(1)

Average Daily Package Volume

2,800

2,700

2,600

2,500

2,400

1,200

1,000

800

4,500

600

4,000

400

3,500

3,000

200

2,500

2,000

1,500

1,000

90.0

85.0

10,500

80.0

10,000

9,500

75.0

9,000

8,500

8,000

$19.00

$18.00

$17.00

$16.00

$15.00

$14.00

$13.00

1,200

1,000

800

600

400

200

90.0

80.0

75.0

523

3,523

318

2010

1,222

2010

8,224

2010

785

576

2013

FedEx Ground

1,000

Average Daily Package Volume

575

3,746

348

523

318

559

3,907

575

495

348

785

4,222

576

559

495

2011

2010

2012

2011

1,692

2013

2,058

2012

International export

1,432

International export

International domestic

International export

International domestic

2011

2012

2013

FedEx Ground

SmartPost

FedEx Freight

Average Daily LTL Shipments

FedEx Express and FedEx Ground

86.0

84.9

85.7

84.9

Total Average Daily Package Volume

85.0

84.9

85.7

85.0

82.3

10,184

9,230

2012

2011

8,785

2010

2013

2012

2013

2011

2012

2013

FedEx Express U.S. Domestic

Revenue per Package – Yield

$17.12

$17.33

$15.59

$14.61

2010

2011

2012

2013

2,543

2013

4,222

2,058

2013

2,800

2,700

2,600

2,500

2,400

2,638

2,684

2,638

2,684

2,577

2,543

2010

2011

2010

2012

2011

2013

2012

FedEx Ground

Average Daily Package Volume

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

3,523

1,222

2010

3,746

3,523

1,432

1,222

2011

2010

3,907

3,746

4,222

3,907

1,692

1,432

2012

2011

2,058

1,692

2013

2012

FedEx Ground

SmartPost

FedEx Express and FedEx Ground

Total Average Daily Package Volume

FedEx Express and FedEx Ground

Total Average Daily Package Volume

10,184

10,500

10,000

9,500

9,000
9,000

8,500
8,500

8,000
8,000

8,224

2010

8,785

8,224
8,224

2011

2010
2010

9,230

8,785
8,785

9,230
9,230

2012

2011
2011

2013

2012
2012

2013
2013

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

FedEx Express U.S. Domestic
Revenue per Package – Yield

FedEx Express U.S. Domestic
FedEx Express U.S. Domestic
Revenue per Package – Yield
Revenue per Package – Yield

FedEx Express International
FedEx Ground
Revenue per Package – Yield
Revenue per Package – Yield

FedEx Express International
FedEx Express International
Revenue per Package – Yield
Revenue per Package – Yield

$70.00
$70.00
$60.00
$60.00
$50.00
$50.00
$40.00
$40.00
$30.00
$30.00
$20.00
$20.00
$10.00
$10.00
$0
$0

$53.10
$7.73

$7.14
$1.56

2010
2010

$8.17
$56.08

$53.10
$53.10

$60.83
$8.77

$56.08
$56.08

$8.94
$58.72

$60.83
$60.83

$58.72
$58.72

$1.72
$7.38

$7.14
$7.14

$1.81
$6.74

$7.38
$7.38

$1.77
$6.99

$6.74
$6.74

$6.99
$6.99

International export composite

FedEx Ground

2011
2011

2012
2012

2010
2010
International export composite
International domestic
SmartPost
International export composite

2011
2011

2012
2013
2012
2013
International domestic
International domestic

2013
2013

$19.00
$19.00
$18.00
$18.00
$17.00
$17.00
$16.00
$16.00
$15.00
$15.00
$14.00
$14.00
$13.00
$13.00

$14.61

2010

$17.33

$17.12
$17.12

$17.33
$17.33

$17.12

$15.59
$15.59

$15.59

$14.61
$14.61

2011

2010
2010

2012

2011
2011

2013

2012
2012

2013
2013

$10.00

$8.00

$7.73

FedEx Ground
Revenue per Package – Yield

FedEx Ground
FedEx Ground
Revenue per Package – Yield
Revenue per Package – Yield

$10.00
$10.00

$8.00
$8.00

$6.00
$6.00

$4.00
$4.00

$2.00
$2.00

$0
$0

$1.56

2010

FedEx Ground

$8.17

$7.73
$7.73

$1.72

$1.56
$1.56

2011

2010
2010

$8.77

$8.17
$8.17

$8.94

$8.77
$8.77

$8.94
$8.94

$1.81

$1.72
$1.72

2012

2011
2011

FedEx Ground
FedEx Ground

SmartPost

$1.77

$1.81
$1.81

2013

2012
2012

$1.77
$1.77

2013
2013

SmartPost
SmartPost

$70.00
$10.00

$60.00
$8.00
$50.00

$40.00
$6.00

$30.00
$4.00
$20.00

$2.00
$10.00

$0
$0

$22.00

$20.00

$18.00

$16.00

FedEx Freight
LTL Revenue per Hundredweight – Yield

$19.94

$19.57

$18.24

$17.07

2010

2011

2012

2013

Average Fuel Cost per Gallon

$3.80

$3.81

$3.31

$3.22

$3.25

$2.66

$2.69

$2.15

2010

2011

2013

2012

Jet

Vehicle

FedEx Freight

Average Daily LTL Shipments

86.0

84.9

85.7

82.3

2010

2011

2012

2013

FedEx Express International

Revenue per Package – Yield

$53.10

$56.08

$60.83

$58.72

$7.14

2010

$7.38

2011

$6.74

2012

$6.99

2013

International export composite

International domestic

1,200

1,000

800

600

400

200

90.0

85.0

80.0

75.0

$70.00

$60.00

$50.00

$40.00

$30.00

$20.00

$10.00

$5.00

$4.00

$3.00

$2.00

$1.00

2,800

2,700

2,600

2,500

2,400

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

10,500

10,000

9,500

9,000

8,500

8,000

$19.00

$18.00

$17.00

$16.00

$15.00

$14.00

$13.00

$6.00

$4.00

$2.00

$22.00

$20.00

$18.00

$16.00

$19.57

$19.94

$20.00
$20.00

$22.00
$22.00

FedEx Freight
FedEx Freight
Revenue
FedEx Freight
LTL Revenue per Hundredweight – Yield
LTL Revenue per Hundredweight – Yield
LTL Revenue per Hundredweight – Yield
Revenues increased 4% in 2013 primarily driven by increases in
international domestic revenue at FedEx Express and volume growth
at FedEx Ground. At FedEx Ground, revenues increased 10% in 2013
primarily due to volume growth from market share gains. At FedEx
Express, revenues increased 2% due to increases in international
domestic revenues from recent acquisitions and growth in our
$18.24
$18.24
freight-forwarding business at FedEx Trade Networks. Base revenue
growth at FedEx Express in 2013 was constrained by global economic
conditions as shifts in demand from our priority international services
to our economy international services and lower rates resulted in
declines in international export package yields. At FedEx Freight,
revenues increased 2% as a result of higher yield and average daily
LTL shipments.

$19.57
$19.57

$19.94
$19.94

$17.07
$17.07

$16.00
$16.00

$18.00
$18.00

2010
2010

2013
2013

2011
2011

2012
2012

$18.24

$17.07

2010

2011

2013

2012

$5.00

$4.00

$5.00
$5.00

Average Fuel Cost per Gallon

During 2012, revenues increased 9% due to yield growth across all
Average Fuel Cost per Gallon
Average Fuel Cost per Gallon
our transportation segments. At FedEx Express, revenues increased
8% in 2012 led by higher U.S. domestic and international export
package yields. However, U.S. domestic package and international
export package volumes declined due to weakening global economic
conditions. Revenues increased 13% during 2012 at our FedEx Ground
$3.22
$2.69
segment due to higher yields and strong demand for all our major
$3.22
$2.69
services. At FedEx Freight, revenues increased 8% during 2012 due
$2.66
$2.15
to higher LTL yield as a result of higher fuel surcharges and yield
$2.15
management programs, despite a decrease in volume.

$2.00
$2.00

$4.00
$4.00

$3.00
$3.00

$3.25
$3.25

$3.81
$3.81

$3.80
$3.80

$2.66
$2.66

$3.31
$3.31

$2.15

$3.25

$3.80

$3.31

$3.81

$2.69

$2.00

$3.00

$3.22

$1.00

$1.00
$1.00

2010

2011

2010
2010
Vehicle

2012

2011
2011

Jet

Vehicle
Vehicle

2013

2012
2012
Jet
Jet

2013
2013

ManageMent’s discussion and analysisFedEx Express U.S. Domestic

Average Daily Package Volume

FedEx Express International(1)

Average Daily Package Volume

2,684

2,638

2,577

2,543

523

318

575

348

559

495

785

576

2010

2011

2012

2013

2010

2011

2012

2013

International export

International domestic

2,800

2,700

2,600

2,500

2,400

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

10,500

10,000

9,500

9,000

8,500

8,000

$19.00

$18.00

$17.00

$16.00

$15.00

$14.00

$13.00

3,523

1,222

2010

8,224

2010

FedEx Ground

Average Daily Package Volume

3,746

3,907

1,432

1,692

2011

2012

2013

FedEx Ground

SmartPost

4,222

2,058

10,184

FedEx Express and FedEx Ground

Total Average Daily Package Volume

9,230

8,785

2011

2012

2013

FedEx Express U.S. Domestic

Revenue per Package – Yield

$17.12

$17.33

$15.59

$14.61

2010

2011

2012

2013

FedEx Ground
Revenue per Package – Yield

$10.00

$8.00

$7.73

$8.17

$8.77

$8.94

$6.00

$4.00

$2.00

$22.00

$20.00

$18.00

$16.00

Operating Income
The following tables compare operating expenses expressed as dollar
amounts (in millions) and as a percent of revenue for the years ended
$1.56
May 31:

$1.72

$1.77

$1.81

2010

2011

2012

SmartPost

FedEx Ground
Operating expenses:
FedEx Freight
Salaries and employee benefits
LTL Revenue per Hundredweight – Yield
Purchased transportation
Rentals and landing fees
Depreciation and amortization
Fuel
Maintenance and repairs
$18.24
Business realignment, impairment
and other charges
Other(4)
Total operating expenses
2010

$ 16,570
7,272
2,521
2,386
$19.94
4,746
1,909

660 (1)
5,672
$ 41,736
2013

$19.57

$17.07

2011

2012

$ 16,099 $ 15,276
5,674
2,462
1,973
4,151
1,979

6,335
2,487
2,113
4,956
1,980

134 (2)
5,390

89 (3)
5,322
$ 39,494 $ 36,926

Percent of Revenue
2013

2012

2011

37.7 %
14.9
5.8
5.0
11.6
4.6

37.4 %
16.4
5.7
5.4
10.7
4.3

Operating expenses:
Salaries and employee benefits
Purchased transportation
Rentals and landing fees
Depreciation and amortization
Fuel
Maintenance and repairs
Business realignment, impairment
and other charges
Other(4)
Total operating expenses
Operating margin
(1) Includes predominantly severance costs associated with our voluntary buyout program
and charges resulting from the decision to retire 10 aircraft and related engines at
FedEx Express.

1.5 (1)
12.8
94.2
5.8 %

0.3 (2)
12.6
92.5
7.5 %

38.9 %
14.4
6.3
5.0
10.6
5.0

0.2 (3)
13.5
93.9
6.1 %

(2) Represents charges resulting from the decision to retire 24 aircraft and related engines

at FedEx Express.

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

FedEx National LTL operations effective January 30, 2011.

(4) Includes the 2012 reversal of a $66 million legal reserve at FedEx Express that was

initially recorded in 2011.

Our 2013 operating income and operating margin decreased primarily
due to the impact of business realignment costs, aircraft impairment
charges and accelerated aircraft depreciation (see “Overview” section
above). Beyond these factors, operating income was positively impacted
in 2013 by higher volumes and increased yields at our FedEx Ground
segment and by increased yields and higher volumes at our FedEx
Freight segment. However, the ongoing shifts in demand from priority
international services to economy international services and lower rates
resulted in a substantial decline in profitability at FedEx Express.

Purchased transportation increased 15% in 2013 due to volume
growth at FedEx Ground, recent international business acquisitions
and the expansion of our freight forwarding business at FedEx Trade
Networks. Salaries and benefits increased 3% in 2013 primarily due to

1,200

1,000

800

600

400

200

90.0

85.0

80.0

75.0

$70.00

$60.00

$50.00

$40.00

$30.00

$20.00

$10.00

FedEx Freight

Average Daily LTL Shipments

86.0

84.9

85.7

82.3

2010

2011

2012

2013

FedEx Express International

Revenue per Package – Yield

$53.10

$56.08

$60.83

$58.72

$7.14

2010

$7.38

2011

$6.74

2012

$6.99

2013

International export composite

International domestic

increases in pension and group health insurance costs, partially offset
by lower incentive compensation accruals. Other expenses increased
5% in 2013 primarily due to the impact of business acquisitions and
the reversal in 2012 of a legal reserve.

$5.00

$4.00

$3.00

$2.00

$1.00

Average Fuel Cost per Gallon

$3.80

$3.81

$3.31

$3.22

$3.25

$2.66

$2.69

$2.15

2010

2011

Vehicle

2012

Jet

2013

Fuel expense decreased 4% during 2013 primarily due to lower
jet fuel prices and lower aircraft fuel usage. 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 year-over-year changes in fuel surcharges, fuel
had a negative impact on operating income 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 2013, 2012 and 2011 in the accompanying
discussions of each of our transportation segments.

In 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.

2013
2013

2012

2011

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

ManageMent’s discussion and analysis

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 international locations primarily due to business acquisitions at
FedEx Express.

For 2014, we expect our effective tax rate to be between 36.5% and
37.0%. 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 2014 due to
lower accelerated depreciation benefits than in prior years.

Additional information on income taxes, including our effective tax
rate reconciliation, liabilities for uncertain tax positions and our global
tax profile can be found in Note 12 of the accompanying consolidated
financial statements.

Fuel expense increased 19% during 2012 primarily due to price
increases. Based on a static analysis of the impact to operating
income of year-over-year changes in fuel prices compared to year-
over-year changes in fuel surcharges, fuel surcharges significantly
exceeded incremental fuel costs in 2012.

Other Income and Expense
Interest expense increased $30 million in 2013 primarily due to a
reduction in capitalized interest and increased interest expense from
2013 debt issuances. Other expense increased in 2013 driven by
foreign currency translation due to global currency volatility. 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.

Income Taxes
Our effective tax rate was 36.4% in 2013, 35.3% in 2012 and 35.9%
in 2011. Our 2012 rate was favorably impacted by the conclusion of
the Internal Revenue Service (“IRS”) audit of our 2007-2009 consoli-
dated income tax returns. Our permanent reinvestment strategy with
respect to unremitted earnings of our foreign subsidiaries provided
a 1.2% benefit to our 2013 effective tax rate. Our total permanently
reinvested foreign earnings were $1.3 billion at the end of 2013 and
$1.0 billion at the end of 2012.

Our current federal income tax expenses in 2013, 2012 and 2011
were significantly reduced by accelerated depreciation deductions we
claimed under provisions of the American Taxpayer Relief Act of 2013
and the Tax Relief and the Small Business Jobs Acts of 2010. Those
Acts, designed to stimulate new business investment in the U.S.,
accelerated our depreciation deductions for qualifying investments,
such as our Boeing 777 Freighter (“B777F”) aircraft. These were timing
benefits only, in that depreciation accelerated into an earlier year is
foregone in later years. Our 2013 current provision for federal income
taxes was, therefore, higher than in 2012 and 2011.

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

2013
$ 512
175
$ 687

2012
$ (120 )
947
$ 827

2011
$ 79
485
$ 564

Business Acquisitions
During 2013, we expanded the international service offerings of FedEx
Express by completing the following business acquisitions:

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

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

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

These acquisitions give us more robust transportation networks within
these countries and added capabilities in these important interna-
tional markets. See Note 3 of the accompanying consolidated financial
statements for further discussion of these acquisitions.

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
and therefore, pro forma financial information has not been presented.
Substantially all of the purchase price in each of these acquisitions
was allocated to goodwill, which was entirely attributed to our FedEx
Express reporting unit.

On June 20, 2013, we signed agreements to acquire the businesses
operated by our current service provider Supaswift (Pty) Ltd. in five
countries in Southern Africa. The acquisition will be funded with cash
from operations and is expected to be completed in the second half
of 2014, subject to customary closing conditions. The financial results
of the acquired businesses will be included in the FedEx Express
segment from the date of acquisition and will be immaterial to our
2014 results.

ManageMent’s discussion and analysisBusiness Realignment, Impairment and
Other Charges
During 2013, we announced profit improvement programs primarily
through initiatives at FedEx Express and FedEx Services that include
the following:

> Cost reductions in selling, general and administrative functions
through headcount reductions, streamlining of processes and elimi-
nation of less essential work, as well as deriving greater value from
strategic sourcing

> Modernization of our aircraft fleet, transformation of the U.S. domestic
operations and international profit improvements at FedEx Express

> Improved efficiencies and lower costs of information technology at
FedEx Services

During 2013, we conducted a program to offer voluntary cash buyouts
to eligible U.S.-based employees in certain staff functions. The
voluntary buyout program includes voluntary severance payments and
funding to healthcare reimbursement accounts, with the voluntary
severance calculated based on four weeks of gross base salary
for every year of FedEx service up to a maximum payment of two
years of pay. This program was completed in the fourth quarter and
approximately 3,600 employees have left or will be voluntarily leaving
the company by the end of 2014. Eligible employees are scheduled
to vacate positions in phases to ensure a smooth transition in the
impacted functions so that we maintain service levels to our custom-
ers. Of the total population leaving the company, approximately 40%
of the employees vacated positions on May 31, 2013. An additional
35% will depart throughout 2014 and approximately 25% of this popu-
lation will remain until May 31, 2014. Costs of the benefits provided
under the voluntary program were recognized as special termination
benefits in the period that eligible employees accepted their offers.

We incurred costs of $560 million ($353 million, net of tax, or $1.11
per diluted share) during 2013 associated with our business realign-
ment activities. These costs related primarily to severance for
employees who accepted voluntary buyouts in the third and fourth
quarters of 2013. Payments will be made at the time of departure.
Approximately $180 million was paid under this program during 2013.
The cost of the buyout program is included in the caption “Business
realignment, impairment and other charges” in our consolidated
statements of income. Also included in that caption are other external
costs directly attributable to our business realignment activities, such
as professional fees.

In addition, actions in 2012 at FedEx Express related to fleet modern-
ization resulted in accelerated depreciation of $69 million in
2013 included in the caption “Depreciation and amortization” in our
consolidated statements of income as we shortened the lives of
certain aircraft.

In May 2013, we made the decision to retire from service two Airbus
A310-200 aircraft and four related engines, three Airbus A310-300
aircraft and two related engines, and five Boeing MD10-10 aircraft
and 15 related engines. As a consequence of this decision, a noncash
impairment charge of $100 million ($63 million, net of tax, or $0.20

per diluted share) was recorded in the fourth quarter. The decision to
retire these aircraft, which were temporarily idled and not in revenue
service, aligns with the plans of FedEx Express to modernize its
aircraft fleet and improve its global network.

In May 2012, we retired from service 24 aircraft and related engines,
the majority of which were temporarily idled and not in revenue ser-
vice. 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 of 2012.

See the “Long-lived Assets” section of our “Critical Accounting
Estimates” for a discussion of our accounting for aircraft retirement
decisions.

Outlook
We anticipate revenue and earnings growth in 2014 driven by the
continued strong performance of our FedEx Ground and FedEx Freight
businesses and improving performance at FedEx Express. Our
expected results for 2014 will be constrained by moderate growth in
the global economy and continued challenges from the demand shift
trend from our priority international services to our economy interna-
tional services. In response to these trends, we will be evaluating
additional capacity reductions and other actions in 2014. During 2014
we will incur incremental costs to transform our information technol-
ogy operations at FedEx Services in connection with our profit
improvement programs, which will increase the costs allocated to our
transportation segments. In May 2013, in conjunction with the
retirement of aircraft, FedEx Express shortened the depreciable lives
of 76 aircraft and related engines. As a result of this decision and the
2012 decision to shorten the depreciable lives of 54 aircraft, we
expect to incur additional year-over-year accelerated depreciation
expense of $74 million in 2014. However, lower pension expense in
2014 will positively impact our operating results.

In addition to continued profit improvements in the base businesses
at FedEx Ground and FedEx Freight, our profit improvement programs
announced in 2013 are targeting annual profitability improvement of
$1.6 billion at FedEx Express by the end of 2016 (from the full year
2013 base business). Collectively, these initiatives are expected to
increase margins, improve cash flows and increase our competitive-
ness. However, the amount of benefit ultimately realized will vary
depending upon future customer demand, particularly for priority
international services. We expect to begin realizing a portion of the
benefits of these programs in 2014; however, the majority of the
benefits, including those from our voluntary severance program, will
not occur until 2015 and 2016.

Our capital expenditures for 2014 are expected to increase to approxi-
mately $4.0 billion for additional aircraft deliveries in 2014 to support
our fleet modernization program and continued expansion of the FedEx
Ground network. 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. For additional details on key
2014 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 18 of the accompanying consolidated financial
statements and the “Independent Contractor Model” 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 owner-operators. The
nature, timing and amount of any changes are dependent on the
outcome of numerous future events. We cannot reasonably estimate
the potential impact of any such changes or a meaningful range of
potential outcomes, although they could be material. However, we
do not believe that any such changes will impair our ability to operate
and profitably grow our FedEx Ground business.

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

Seasonality of Business
Our businesses are cyclical in nature, as seasonal fluctuations affect
volumes, revenues and earnings. Historically, the U.S. express pack-
age business experiences an increase in volumes in late November
and December. International business, particularly in the Asia-to-U.S.
market, peaks in October and November in advance of the U.S. holi-
day 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
through February is the slowest period. 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.

Recent Accounting Guidance
New accounting rules and disclosure requirements can significantly
impact our reported results and the comparability of our financial
statements.

On June 1, 2012, we adopted the authoritative guidance issued by the
Financial Accounting Standards Board (“FASB”) on the presentation
of comprehensive income. The new guidance requires companies to
report components of comprehensive income by including compre-
hensive income on the face of the income statement or in a separate
statement of comprehensive income. We have adopted this guidance
by including a separate statement of comprehensive income (loss)
for the three years ending May 31, 2013 and by including expanded
accumulated other comprehensive income disclosure requirements
in the notes to our consolidated financial statements. In addition, on
June 1, 2012, we adopted the FASB’s amendments to the fair value
measurements and disclosure requirements, which expanded existing
disclosure requirements regarding the fair value of our long-term debt.

In February 2013, the FASB issued new guidance requiring additional
information about reclassification adjustments out of comprehensive
income, including changes in comprehensive income balances by
component and significant items reclassified out of comprehensive
income. This new standard is effective for our fiscal year ending
May 31, 2014 and will have no impact on our financial condition or
results of operations.

In May 2013, the FASB issued a revised exposure draft outlining
proposed changes to the accounting for leases. Under the revised
exposure draft, the recognition, measurement and presentation of
expenses and cash flows arising from a lease would depend primarily
on whether the lessee is expected to consume more than an insig-
nificant portion of the economic benefits embedded in the underlying
asset. A right-of-use asset and a liability to make lease payments will
be recognized on the balance sheet for all leases (except short-term
leases). The enactment of this proposal will have a significant impact
on our accounting and financial reporting. The FASB has not yet
proposed an effective date of this proposal.

We believe that no other new accounting guidance was adopted or
issued during 2013 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.

ManageMent’s discussion and analysisReportable 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)

FedEx Services Segment
The FedEx Services segment operates combined sales, marketing,
administrative and information technology functions in shared ser-
vices 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 their natural expense line items. 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 operat-
ing costs of the FedEx Services segment (including the net operating
results of FedEx Office) to reflect the full cost of operating our
transportation businesses in the results of those segments. Within
the FedEx Services segment allocation, the net operating results of
FedEx Office, 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 rev-
enues or estimated services provided. We believe these allocations
approximate the net cost of providing these functions. We review and
evaluate the performance of our transportation segments based on
operating income (inclusive of FedEx Services segment allocations).
For the FedEx Services segment, performance is evaluated based on
the impact of its total allocated net operating costs on our transporta-
tion segments.

The operating expenses line item “Intercompany charges” on the
accompanying unaudited financial summaries of our transportation
segments reflects the allocations from the FedEx Services segment to
the respective transportation segments. The “Intercompany charges”
caption also includes charges and credits for administrative services
provided between operating companies and certain other costs such
as corporate management fees related to services received for gen-
eral 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 identi-
fied in the following segment information, because the amounts are
not material.

FedEx Express Segment
FedEx Express offers a wide range of U.S. domestic and international
shipping services for delivery of packages and freight including priority
services, which provide time-definite delivery within one, two, or three
business days worldwide, and deferred or economy services, which
provide time-definite delivery within five business days worldwide.

ManageMent’s discussion and analysis Percent of Revenue
2012

2013

2011

37.4 %
6.4
6.8
4.3
14.4
5.5

37.0 %
8.6
6.2
5.0
15.2
4.6

36.4 %
6.9
6.3
4.4
16.2
5.0

Operating expenses:
Salaries and employee benefits
Purchased transportation
Rentals and landing fees
Depreciation and amortization
Fuel
Maintenance and repairs
Business realignment, impairment
and other charges(3)
Intercompany charges(4)
Other(5)
Total operating expenses
Operating margin(6)
(1) International domestic revenues include our international intra-country express operations
including acquisitions in India (February 2011), Mexico (July 2011), Poland (June 2012),
France (July 2012) and Brazil (July 2012).

0.5
8.3
11.2
95.2
4.8 %

0.9
8.7
11.8
98.0
2.0 %

–
8.3
11.9
95.0
5.0 %

(2) Includes FedEx Trade Networks and FedEx SupplyChain Systems.
(3) 2013 includes $143 million of predominantly severance costs associated with our voluntary
buyout program and a $100 million impairment charge resulting from the decision to retire
10 aircraft and related engines. 2012 represents impairment charges resulting from the
decision to retire 24 aircraft and related engines.

(4) Includes allocations of $262 million in 2013 for business realignment costs.
(5) Includes the 2012 reversal of a $66 million legal reserve that was initially recorded in 2011.
(6) The direct and indirect charges described in notes (3) and (4) above reduced 2013 operating
margin by 190 basis points. The charges and credit described in notes (3) and (5) above
reduced 2012 operating margin by 20 basis points.

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

Percent
Change

2013
2012

/
/ 2012
2011

2013

2012

2011

$ 6,513 $ 6,546 $ 6,128
1,736
1,747
2,805
3,001

(1)
(2)
1

–
(4)
10

(1)
64
2

3
(8)
(10)
(3)
35
2

4
28
–

15
(4)
(7)

7
1
7

6
1
27

6
31
7

14
6
8
10
23
8

5
16
–

10
21
(2)

11,294
6,849
1,859

10,669
6,760
1,468

8,708
853
20,855

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

9,657
1,828
1,680

1,169
4,304
1,332

8,228
653
19,550

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

9,183
1,573
1,672

1,059
3,553
1,353

11,238
6,586
2,046

Revenues:
Package:
U.S. overnight box
U.S. overnight envelope 1,705
U.S. deferred
3,020
Total U.S. domestic
package revenue
International priority
International economy
Total international
export package
8,632
revenue
International domestic(1)
1,398
Total package revenue 21,268
Freight:
U.S.
International priority
International airfreight
Total freight revenue
Other(2)
Total revenues
Operating expenses:
Salaries and employee
10,045
benefits
Purchased transportation 2,331
Rentals and landing fees 1,684
Depreciation and
amortization
Fuel
Maintenance and repairs
Business realignment,
impairment and other
charges(3)
Intercompany charges(4)
Other(5)
Total operating
expenses
Operating income
Operating margin(6)

2,562
1,678
276
4,516
1,387
27,171

243
2,379
3,210

1,350
4,130
1,244

26,616
$

134
2,193
2,958

– NM NM
7
8
1
9

2,043
2,917

25,255

23,353
555 $ 1,260 $ 1,228
4.8%
2.0%

5
(56)

8
3

5.0% (280)bp (20)bp

ManageMent’s discussion and analysis

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

Percent
Change

2013
2012

/
/ 2012
2011

2013

2012

2011

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

574
835

1,134 1,146
586
845
2,543 2,577
421
138

421
155

576
785

559
495
3,904 3,631

1,184
627
873
2,684
459
116

575
348
3,607

$ 22.52 $ 22.31 $ 20.29
10.86
11.65
12.60
13.87
15.59
17.12
57.68
63.47
49.76
52.77

11.66
14.18
17.33
61.28
51.77

58.72 60.83
6.99
6.74
22.44
21.36

56.08
7.38
21.25

7,612
3,048
1,066

7,487
3,303
1,171

7,340
3,184
1,235

(1)
(2)
(1)
(1)
–
12

3
59
8

1
–
2
1
(3 )
(2)

(3)
4
(5 )

2
(8 )
(9)

(3)
(7)
(3)
(4)
(8)
19

(3)
42
1

10
7
10
10
10
6

8
(9)
6

2
4
(5)

(2 )

11,726 11,961 11,759

Total average daily
freight pounds
Revenue per pound (yield):
$ 1.32 $ 1.30 $ 1.17
U.S.
2.12
2.16
International priority
0.90
1.02
International airfreight
1.40
1.51
Composite freight yield
(1) Package and freight statistics include only the operations of FedEx Express.
(2) International domestic statistics include our international intra-country express operations,
including acquisitions in India (February 2011), Mexico (July 2011), Poland (June 2012),
France (July 2012) and Brazil (July 2012).

2.16
1.01
1.51

2
–
(1 )
–

11
2
13
8

FedEx Express Segment Revenues
FedEx Express segment revenues increased 2% in 2013 primarily due
to the impact of new business acquisitions and growth in our freight-
forwarding business at FedEx Trade Networks. Core revenue growth
was constrained by global economic conditions as revenue growth
from higher international export volume was offset by decreased yields
due to shifts in demand from our priority international services to
our economy international services, as well as lower rates. In 2013,
international domestic revenues increased 64% due to recent acquisi-
tions in Brazil, France and Poland. International export revenues were
down in 2013 as revenue per package decreased 3% due to the demand
shift to our lower-yielding economy services and lower rates, while
volume increased 3% driven by our economy services. A decrease
in U.S. domestic package volumes more than offset an increase in
U.S. domestic package yield, resulting in slightly lower U.S. domestic
package revenues in 2013. Total average daily freight pounds decreased
2% in 2013 due to weakness in economic global conditions.

FedEx Express segment revenues increased 8% in 2012 primarily
due to an increase in U.S. domestic and international export package
yields, partially offset by decreases in U.S. domestic and interna-
tional export package volumes. In 2012, U.S. domestic package yields
increased 10% due to higher fuel surcharges and increased rate per
pound. International export 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 international export
package services in 2012. International export revenue growth was
negatively impacted by a lower-yielding mix of services, consisting
of growth in deferred services and declines in premium services.

Our fuel surcharges are indexed to the spot price for jet fuel. Using
this index, the U.S. domestic and outbound fuel surcharge and the
international fuel surcharges ranged as follows for the years ended
May 31:

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

Low
High
Weighted-average

2013

2012

2011

10.00 % 11.50 % 7.00 %
16.50
14.50
14.23
11.84

15.50
9.77

12.00
20.50
17.02

13.50
23.00
17.45

7.00
21.00
12.36

In both January 2013 and 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.

ManageMent’s discussion and analysis

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, 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 Outlook
We expect revenues and earnings to increase at FedEx Express during
2014 due to slight growth in our international package and interna-
tional domestic services. In addition, we expect operating income
to improve through ongoing execution of our profit improvement
programs including improving yields, adjusting network capacity and
reducing structural costs. However, the demand shift from our priority
international services to our economy international services will
continue to constrain earnings growth in 2014. Base yields on priority
international services at FedEx Express continue to weaken based on
our customers’ accelerating preference for our lower-yielding services.
Given the persistence of this trend, we will continue evaluating
further actions to adjust our FedEx Express network capacity and shift
lower yielding services into lower cost delivery networks.

Capital expenditures at FedEx Express are expected to increase in
2014 driven by an increase in aircraft investment. We will continue to
modernize our aircraft fleet at FedEx Express during 2014 by adding
newer aircraft that are more reliable, fuel-efficient and technologi-
cally advanced, and retiring older, less-efficient aircraft. Due to the
accelerated retirement of certain aircraft and related engines to aid in
modernizing our fleet and improving our global network, we expect an
additional $74 million in year-over-year depreciation expense in 2014.

In April 2013, FedEx Express was selected as the sole awardee of the
recent U.S. Postal Service air cargo solicitation, representing the
majority of the United States Postal Service’s (“USPS”) air linehaul
traffic. This new seven year agreement begins on October 1, 2013. The
agreement provides reduced rates for the USPS versus the prior FedEx
Express agreement and offers the opportunity for incremental revenue.

FedEx Ground Segment
FedEx Ground service offerings include day-certain service delivery
to businesses in the U.S. and Canada and to nearly 100% of U.S.
residences. FedEx SmartPost consolidates high-volume, low-weight,
less time-sensitive business-to-consumer packages and utilizes the
USPS for final delivery.

FedEx Express Segment Operating Income
FedEx Express segment operating results were negatively impacted
by $405 million of costs associated with our business realignment
program, both directly and through intercompany allocations.
Additionally, results for 2013 were negatively impacted by a
$100 million impairment charge as a result of the decision to retire
10 aircraft and related engines from service. FedEx Express incurred
$69 million in year-over-year incremental depreciation costs in 2013 due
to the decision in 2012 to accelerate the retirement of certain aircraft.
Operating income and operating margin also decreased in 2013 due
to the demand shift toward lower-yielding international services.
Operating comparisons were also impacted by an aircraft impairment
charge in 2012 and a legal reserve accrual reversal as discussed below.

Purchased transportation costs increased 28% in 2013 due to recent
business acquisitions and costs associated with the expansion of
our freight forwarding business at FedEx Trade Networks. Salaries
and benefits increased 4% in 2013 due to recent acquisitions and
higher pension costs, partially offset by lower incentive compensation
accruals. Other operating expenses increased 9% due to the impact
of recent business acquisitions and the negative year-over-year com-
parison of the legal reserve accrual reversal in 2012. Depreciation and
amortization expense increased 15% in 2013 as a result of aircraft
recently placed into service and accelerated depreciation due to the
shortened life of certain aircraft.

FedEx Express aircraft maintenance and repairs costs are largely
driven by aircraft utilization and required periodic maintenance events.
When newer aircraft are introduced into our operating fleet, less
maintenance costs are incurred. As a part of our fleet modernization
program, FedEx Express has retired older, less efficient aircraft prior
to required periodic maintenance events and has introduced newly
manufactured aircraft into the fleet. As a result, a decrease in
maintenance and repairs costs was experienced in 2013 and 2012.

Fuel costs decreased 4% in 2013 due to lower jet fuel prices and lower
aircraft fuel usage. 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 positive impact in 2013. This analysis
considers the estimated impact of the reduction in fuel surcharges
included in the base rates charged for FedEx Express services.

FedEx Express segment operating income increased 3% in 2012
primarily due to the benefit from the timing lag that exists between
when fuel prices change and when indexed fuel surcharges automati-
cally adjust and U.S. domestic and international export 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 that was initially recorded in 2011. FedEx Express segment
results also benefited from a milder winter compared to the negative
impact of unusually severe winter weather in 2011.

ManageMent’s discussion and analysisThe following tables compare revenues, operating expenses, operating
expenses as a percent of revenue, operating income and operating
margin (dollars in millions) and selected package statistics (in thousands,
except yield amounts) for the years ended May 31:

Percent
Change

2013
2012

/
/ 2012
2011

2013

2012

2011

$ 9,652 $ 8,791 $ 7,855
630
8,485

782
9,573

1,451
3,762
284

1,282
3,431
263

337
12
169
897
769
7,160
$ 1,788 $ 1,764 $ 1,325

389
14
176
978
755
7,809

926
10,578

1,586
4,191
331

Revenues:
FedEx Ground
FedEx SmartPost
Total revenues
Operating expenses:
Salaries and employee
benefits
Purchased transportation
Rentals
Depreciation and
434
amortization
17
Fuel
190
Maintenance and repairs
Intercompany charges(1)
1,148
Other
893
Total operating expenses 8,790
Operating income
Operating margin(1)
Average daily package
volume:
FedEx Ground
FedEx SmartPost
Revenue per package (yield):
$
FedEx Ground
$
FedEx SmartPost

4,222
2,058

3,907
1,692

3,746
1,432

8.94 $ 8.77 $ 8.17
1.77 $ 1.81 $ 1.72

10
18
10

9
11
17

12
21
8
17
18
13
1

12
24
13

13
10
8

15
17
4
9
(2)
9
33

8
22

2
(2)

4
18

7
5

16.9% 18.4 % 15.6% (150)bp 280bp

Percent of Revenue
2012

2013

2011

Operating expenses:
Salaries and employee benefits
Purchased transportation
Rentals
Depreciation and amortization
Fuel
Maintenance and repairs
Intercompany charges(1)
Other
Total operating expenses
Operating margin(1)
(1) Includes allocations of $105 million in 2013 for business realignment costs which reduced
operating margin by 100 basis points.

15.0 %
39.6
3.1
4.1
0.2
1.8
10.9
8.4
83.1
16.9 %

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 %

FedEx Ground Segment Revenues

FedEx Ground segment revenues increased 10% during 2013 due to
volume increases at both FedEx Ground and FedEx SmartPost, as well
as yield growth at FedEx Ground.

FedEx Ground average daily package volume increased 8% during 2013
due to market share gains from continued growth in our FedEx Home
Delivery service and increases in our commercial business. FedEx
Ground yield increased 2% in 2013 primarily due to increased rates
and higher residential surcharge revenue, partially offset by lower fuel
surcharges and package weights.

FedEx SmartPost average daily volume grew 22% during 2013 primar-
ily as a result of growth in e-commerce. Yields at FedEx SmartPost
decreased 2% during 2013 primarily due to higher postage costs,
partially offset by increased rates. FedEx SmartPost yield represents
the amount charged to customers net of postage paid to the USPS.

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. Average daily volume increased 18% at FedEx SmartPost
in 2012 as a result of growth in e-commerce.

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

Low
High
Weighted-average

2011

2012
2013
6.50 % 7.50 % 5.50 %
9.50
8.50
8.46
7.60

8.50
6.20

In January 2013 and 2012, 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.

FedEx Ground Segment Operating Income
FedEx Ground segment operating income increased 1% during 2013
primarily due to volume growth and higher yields. However, operat-
ing margin decreased as the benefit of higher volume and revenue per
package was more than offset by intercompany charges of $105 million
associated with the business realignment program and a favorable
self-insurance true-up in the prior year. Purchased transportation costs

ManageMent’s discussion and analysis

increased 11% in 2013 primarily as a result of volume growth and
higher rates paid to our independent contractors. Other operating
expenses increased 18% primarily due to a favorable self-insurance
true-up in the prior year and higher legal expenses in the current
year. Salaries and employee benefits expense increased 9% in 2013
primarily due to increased staffing to support volume growth.

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 through-
out 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.

Independent Contractor Model
Although FedEx Ground is involved in numerous lawsuits and other
proceedings (such as state tax or other administrative challenges)
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 18 of
the accompanying consolidated financial statements.

FedEx Ground Segment Outlook
FedEx Ground segment revenues and operating income are expected
to continue to grow in 2014, led by volume growth across all our
major services due to market share gains. We also anticipate yield
growth in 2014 through yield management programs. We will
continue to make investments to grow our highly profitable FedEx
Ground network through hub expansion and vehicle and equipment
purchases. Earnings growth may be dampened slightly during periods
of increased network expansion.

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
FedEx Freight service offerings include priority services when speed
is critical and economy services when time can be traded for savings.
The following tables compare revenues, operating expenses, operat-
ing expenses as a percent of revenue, operating income (loss) and
operating margin (dollars in millions) and selected statistics for the
years ended May 31:

2013
$ 5,401

2012
$ 5,282

2011
$ 4,911

Percent
Change

2013
2012
2

/
/ 2012
2011
8

2,342
865
118

2,316
851
114

217
598
191

185
636
192

2,303
779
122

205
585
182

1
2
4

17
(6 )
(1 )

1
9
(7)

(10)
9
5

3
484
375
5,193
$ 208

–
433
393
5,120
$ 162

89 NM NM
1
12
427
–
(5 )
394
1
1
5,086
193
28
$ (175)

3.9%

3.1% (3.6)% 80bp 670bp

59.3

26.4

60.4

24.5

85.7

84.9

86.0

1,237
990

1,202
1,045

1,161

1,156

1,144

$ 17.80 $ 18.02
23.96
$ 19.94 $ 19.57 $ 18.24

25.90

(2)

3
(5)

–

(1)
8
2

(1)

Revenues
Operating expenses:
Salaries and employee
benefits
Purchased transportation
Rentals
Depreciation and
amortization
Fuel
Maintenance and repairs
Business realignment,
impairment and other
charges(1)
Intercompany charges(2)
Other
Total operating expenses
Operating income (loss)
Operating margin(3)
Average daily LTL shipments
(in thousands)(4)
Priority

Economy
Total average daily LTL
shipments
Weight per LTL shipment (lbs)(4)
Priority
Economy
Composite weight per
LTL shipment
LTL yield (revenue per
hundredweight)(4)
Priority
Economy
Composite LTL yield

ManageMent’s discussion and analysis Percent of Revenue
2012

2013

2011

43.9 %
16.1
2.2
3.5
12.0
3.6

43.4 %
16.0
2.2
4.0
11.1
3.5

Operating expenses:
Salaries and employee benefits
Purchased transportation
Rentals
Depreciation and amortization
Fuel
Maintenance and repairs
Business realignment, impairment
and other charges(1)
Intercompany charges(2)
Other
Total operating expenses
Operating margin(3)
(1) 2013 includes severance costs associated with our voluntary buyout program. 2011

–
9.0
6.9
96.1
3.9%

–
8.2
7.4
96.9
3.1%

46.9%
15.9
2.5
4.2
11.9
3.7

1.8
8.7
8.0
103.6

(3.6)%

includes severance, impairment and other charges associated with the combination of
our FedEx Freight and FedEx National LTL operations, effective January 30, 2011.

(2) Includes allocations of $47 million in 2013 for business realignment costs.
(3) The direct and indirect charges disclosed in notes (1) and (2) above reduced 2013

operating margin by 90 basis points.

(4) FedEx Freight introduced Priority and Economy services during the fourth quarter of 2011;

therefore, full-year detail has not been presented for 2011.

FedEx Freight Segment Revenues
FedEx Freight segment revenues increased 2% in 2013 due to higher
LTL yield and average daily LTL shipments. LTL yield increased 2%
in 2013 due to improvements in FedEx Freight Economy yield result-
ing from higher rates and lower weight per LTL shipment. Average
daily LTL shipments increased 1% in 2013 driven by our FedEx Freight
Economy services offering, partially offset by transitional challenges
encountered by some customers in the second half of 2013 while
migrating FedEx Freight functionality to the FedEx enterprise auto-
mated platform.

Revenue per hundredweight is a commonly-used indicator of pricing
trends, but this metric can be influenced by many other factors, such
as changes in fuel surcharges, weight per shipment, length of haul and
the mix of freight. Generally, LTL freight is rated using a standard class
system for the LTL industry and classes are assigned based on trans-
portation characteristics including density, risk and handling. Under
the class system, low-value freight that is easy to handle, unlikely to
damage and dense will receive lower class ratings (and lower yields)
than expensive, light, bulky freight which is highly susceptible to dam-
age (and produces higher yields). As a result, changes in revenue per
hundredweight do not necessarily indicate actual changes in underly-
ing base rates.

During 2012, FedEx Freight revenues increased 8% due to increased
LTL yield and weight per LTL shipment, partially offset by lower aver-
age daily LTL shipments. LTL yield increased 7% during 2012 due to
higher fuel surcharges and base yield improvement. Average daily LTL
shipments 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.

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

2013

2012

2011

21.80 % 19.80 % 15.10 %

24.40

23.38

24.30

20.70

22.90

17.00

On June 10, 2013, FedEx Freight announced it will increase U.S.
and certain other shipping rates by an average of 4.5% effective on
July 1, 2013. In July 2012, FedEx Freight implemented a rate increase
of 6.9% for LTL shipments. In June 2011, FedEx Freight increased the
fuel surcharge rate to a maximum of 3.6 percentage points above
previous levels.

FedEx Freight Segment Operating Income
The FedEx Freight segment operating results for 2013 improved as a
result of LTL yield growth and increased average daily LTL shipments,
along with ongoing improvement in operational efficiencies in our inte-
grated network. However, operating results for 2013 were negatively
impacted by $50 million of costs associated with our business realign-
ment program both directly and through intercompany allocations.

Depreciation and amortization expense increased 17% due to
continued investment in replacement transportation equipment.
Salaries and employee benefits increased 1% in 2013 primarily due
to increases in volume and higher healthcare, workers’ compensation
and pension costs, partially offset by operational efficiencies and
lower incentive compensation. Purchased transportation costs
increased 2% in 2013 due to increased utilization of rail and higher
rates, partially offset by a lower cost per mile due to our ability to
optimize mode of transportation.

Fuel costs decreased 6% in 2013 due to increased utilization of rail
and fuel efficiency improvements. 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 minimal impact on
operating income in 2013.

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. Additionally,
the FedEx Freight segment’s 2012 results benefited from milder winter
weather, while our 2011 results were negatively impacted by unusu-
ally 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 income in 2012. Depreciation and amortization expense

ManageMent’s discussion and analysisdecreased 10% in 2012 primarily due to accelerated depreciation
in 2011 associated with the combination of our LTL operations.

FedEx Freight Segment Outlook
We expect modest revenue growth at the FedEx Freight segment in
2014 driven by yield and volume initiatives from our differentiated
LTL services.

FedEx Freight operating income and operating margin are expected to
increase in 2014 driven by improvements in yields and volume, as well
as continued improvement 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 2014.

Capital expenditures in 2014 are expected to be comparable to 2013,
with the majority of our spending for replacement of vehicles and
freight handling equipment.

FINANCIAL CONDITION

Liquidity
Cash and cash equivalents totaled $4.9 billion at May 31, 2013, com-
pared to $2.8 billion at May 31, 2012. The following table provides a
summary of our cash flows for the periods ended May 31 (in millions):

Operating activities:
Net income
Business realignment, 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
Proceeds from debt issuance
Dividends paid
Other
Cash provided by (used in)
financing activities
Effect of exchange rate changes on cash
Net increase in cash and cash
equivalents

2013

2012

2011

$ 1,561 $ 2,032 $ 1,452

479
3,183
(535)
4,688

134
3,504
(835)
4,835

29
2,892
(332)
4,041

(3,375)

(4,007)

(3,434)

(483)

(116)

(96)

55
(3,803)

74
(4,049)

111
(3,419)

(246)
(417)
1,739
(177)
285

1,184
5

(197)
(29)
–
(164)
146

(244)
(27)

–
(262)
–
(151)
126

(287)
41

$ 2,074 $

515 $

376

CASH PROVIDED BY OPERATING ACTIVITIES. Cash flows from
operating activities decreased $147 million in 2013 primarily due
to decreased earnings and higher tax, variable compensation and
voluntary buyout payments, partially offset by a decrease in pension
contributions. Cash flows from operating activities increased
$794 million in 2012 primarily due to increased earnings, partially
offset by higher pension contributions. We made contributions of
$560 million to our tax-qualified U.S. domestic pension plans (“U.S.
Pension Plans”) during 2013 and contributions of $722 million to
our U.S. Pension Plans during 2012. We made contributions of
$480 million to our U.S. Pension Plans during 2011.

CASH USED IN INVESTING ACTIVITIES. Capital expenditures were
16% lower in 2013 largely due to decreased spending at FedEx
Express and 17% higher in 2012 primarily due to increased spending
at FedEx Express and FedEx Freight. See “Capital Resources” for a
discussion of capital expenditures during 2013 and 2012.

FINANCING ACTIVITIES. In April 2013, we issued $750 million of
senior unsecured debt under our current shelf registration statement,
comprised of $250 million of 2.70% fixed-rate notes due in April 2023
and $500 million of 4.10% fixed-rate notes due in April 2043. Interest
on these notes is payable semi-annually. We utilized the net proceeds
for working capital and general corporate purposes. In July 2012, we
issued $1 billion of senior unsecured debt under a then current shelf
registration statement, comprised of $500 million of 2.625%
fixed-rate notes due in August 2022 and $500 million of 3.875%
fixed-rate notes due in August 2042. Interest on these notes is
payable semi-annually. We utilized the net proceeds for working
capital and general corporate purposes.

During 2013, we made principal payments of $116 million related to
capital lease obligations and repaid our $300 million 9.65% unsecured
notes that matured in June 2012 using cash from operations.

During 2013, we repurchased 2.7 million shares of FedEx common
stock at an average price of $91 per share for a total of $246 million.
In March 2013, our Board of Directors authorized the repurchase of up
to 10 million shares of common stock. It is expected that the additional
share authorization will primarily be utilized to offset the effects of
equity compensation dilution over the next several years. As of
May 31, 2013, 10,188,000 shares remained under existing share
repurchase authorizations. During 2012, we repurchased 2.8 million
FedEx common shares at an average price of $70 per share for a total
of $197 million.

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

ManageMent’s discussion and analysis

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

Percent
Change

2013
2012
(37)
14
2

/
/ 2012
2011
(6)
15
156

2013

2011
Aircraft and related equipment $ 1,190 $ 1,875 $ 1,988
555
Facilities and sort equipment
282

727
734

638
723

2012

Vehicles
Information and technology
investments

Other equipment

Total capital expenditures

FedEx Express segment

FedEx Ground segment

FedEx Freight segment

FedEx Services segment

Other

Total capital expenditures

452
272

541
230

455
154
$ 3,375 $ 4,007 $ 3,434
$ 2,067 $ 2,689 $ 2,467
426
153
387

555
326
424
3

536
340
437
5

$ 3,375 $ 4,007 $ 3,434

19
(16)
49
18
17
(16)
9
(23)
26
4
122
(4)
13
(3)
1 NM NM
17
(16)

Capital expenditures during 2013 were lower than the prior year
primarily due to decreased spending for aircraft and related equip-
ment at FedEx Express. Aircraft and aircraft-related equipment
purchases at FedEx Express during 2013 included the delivery of
16 Boeing 757s (“B757”) to be modified for cargo transport and four
B777Fs. 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 delivery of seven B777Fs and 15 B757s.

Liquidity Outlook
We believe that our cash and cash equivalents, which totaled
$4.9 billion in 2013, cash flow from operations and available financ-
ing sources will be adequate to meet our liquidity needs, including
working capital, capital expenditure requirements and debt payment
obligations. Our cash and cash equivalents balance at May 31, 2013
includes $420 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.

A $1 billion revolving credit facility is available to finance our
operations and other cash flow needs and to provide support for the
issuance of commercial paper. In March 2013, we entered into an
amendment to our credit agreement to, among other things, extend
its maturity date from April 26, 2016 to March 1, 2018. The agree-
ment 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

MANAGEMENT’S DISCUSSION AND ANALySIS

and landing fees) to capital (adjusted debt plus total common stock-
holders’ investment) that does not exceed 70%. Our leverage ratio of
adjusted debt to capital was 51% at May 31, 2013. 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, 2013, 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 rat-
ing of BBB and a commercial paper rating of A-2 and a ratings outlook
of “stable.” Moody’s Investors Service has assigned us a senior
unsecured debt credit rating of Baa1 and a commercial paper rating
of P-2 and a ratings outlook of “stable.” If our credit ratings drop, our
interest expense may increase. If our commercial paper ratings drop
below current levels, we may have difficulty utilizing the commercial
paper market. If our senior unsecured debt credit ratings drop below
investment grade, our access to financing may become limited.

Our capital expenditures are expected to be $4.0 billion in 2014. We
anticipate that our cash flow from operations will be sufficient to fund
our increased capital expenditures in 2014, which will include spend-
ing for aircraft and aircraft-related equipment at FedEx Express, sort
facility expansion, primarily at FedEx Ground, and vehicle replacement
at all our transportation segments. We expect approximately 50% of
capital expenditures in 2014 will be designated for growth initiatives,
predominantly at FedEx Ground and 50% dedicated to maintaining
our existing operations. Our expected capital expenditures for 2014
include $1.4 billion in investments for delivery of aircraft, as well as
progress payments toward future aircraft deliveries at FedEx Express.
For 2014, we anticipate making required contributions totaling approx-
imately $650 million to our U.S. Pension Plans. 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, Boeing 767-300 Freighter
(“B767F”) and B757 aircraft. These aircraft are significantly more
fuel-efficient per unit than the aircraft types previously utilized, and
these expenditures are necessary to achieve significant long-term
operating savings and to replace older aircraft. Our ability to delay
the timing of these aircraft-related expenditures is limited without
incurring significant costs to modify existing purchase agreements.
During 2013, FedEx Express entered into an agreement to purchase
14 additional B757 aircraft, the delivery of which began in 2013 and
will continue through 2014. The agreement provides the option to pur-
chase up to 16 additional B757 aircraft, subject to the satisfaction of
certain conditions. In addition, FedEx Express entered into agreements
to purchase an additional 23 B767F aircraft, the delivery of which will
occur between 2014 and 2019. The delivery of two firm B777F
aircraft orders were also deferred from 2015 to 2016.

Effective as of June 14, 2013, FedEx Express entered into a supple-
mental agreement to purchase 13 of the 16 B757 option aircraft noted
above. Delivery of the aircraft will occur during 2014 and 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, 2013. 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, this table does not include amounts already recorded in our balance sheet as current
liabilities at May 31, 2013. 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
Contributions to our U.S. Pension Plans
Investing activities:
Aircraft and aircraft-related capital commitments
Other capital purchase obligations
Financing activities:
Debt
Total

2014

$ 1,936
285
157
650

Payments Due by Fiscal Year (Undiscounted)
2017

2018

2016

Thereafter

2015

Total

$ 1,834
183
138
–

$ 1,636
123
138
–

$ 1,689
101
138
–

$ 1,230
44
138
–

$ 6,650
109
2,582
–

$ 14,975
845
3,291
650

968
249

1,054
1

1,140
–

959
–

1,382
–

4,492
–

9,995
250

250
$ 4,495

–
$ 3,210

–
$ 3,037

–
$ 2,887

–
$ 2,794

2,740
$ 16,573

2,990
$ 32,996

Open purchase orders that are cancelable are not considered uncon-
ditional purchase obligations for financial reporting purposes and are
not included in the table above. Such purchase orders often represent
authorizations to purchase rather than binding agreements. See
Note 17 of the accompanying consolidated financial statements for
more information.

Operating Activities
In accordance with accounting principles generally accepted in the
United States, future contractual payments under our operating leases
(totaling $15 billion on an undiscounted basis) are not recorded in our
balance sheet. Credit rating agencies routinely use information con-
cerning 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, 2013.
Under the proposed new lease accounting rules, the majority of these
leases will be required to be recognized on the balance sheet as a
liability with an offsetting right-to-use asset. 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 financ-
ing”). At the time that the decision to lease was made, we determined
that these operating leases would provide economic benefits favor-
able to ownership with respect to market values, liquidity or after-tax
cash flows.

The amounts reflected for purchase obligations represent noncan-
celable 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 ($46 million) is excluded from the
table. See Note 12 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
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.

ManageMent’s discussion and analysisFinancing 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 liabili-
ties 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 2014, we have
scheduled debt payments of $250 million.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with account-
ing principles generally accepted in the United States requires
management 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 appropriate-
ness of the many estimates that are required to prepare the financial
statements of a complex, global corporation. However, even under
optimal circumstances, 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 develop-
ment and selection of these critical accounting estimates with the
Audit Committee of our Board of Directors and with our independent
registered public accounting firm.

Retirement 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 healthcare plans.

Pension benefits for most employees are accrued under a cash
balance formula we call the Portable Pension Account. Under the
Portable Pension Account, the retirement benefit is expressed as a
dollar amount in a notional account that grows with annual credits
based on pay, age and years of credited service, and interest on the
notional account balance. The Portable Pension Account benefit is
payable as a lump sum or an annuity at retirement at the election of
the employee. The plan interest credit rate varies from year to year
based on a U.S. Treasury index 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 differ-
ent set of assumptions and standards than those used for financial
reporting purposes, so our actual cash funding requirements can differ
materially from our reported funded status. Temporary funding relief
was passed in July 2012 that will improve our funded status for those
purposes over the next several years.

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
U.S. domestic and international
postretirement healthcare plans

2013

2012

2011

$ 679

$ 524

$ 543

354

338

257

78
$ 1,111

70
$ 932

60
$ 860

Total retirement plans cost increased $179 million in 2013 driven
by lower discount rates used to measure our benefit obligations at
our May 31, 2012 measurement date. 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.

Amounts recognized in our 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. Cumulative
unrecognized actuarial losses were $7.0 billion through May 31, 2013,
compared to $8.9 billion through May 31, 2012. These unrecognized
losses reflect changes in the discount rates and differences between
expected and actual asset returns, which are being amortized over
future periods. These unrecognized losses may be recovered in future
periods through actuarial gains. However, unless they are below a
corridor amount, these unrecognized actuarial losses are required to
be amortized and recognized in future periods. Our pension expense
includes amortization of these actuarial losses of $506 million in 2013,
$302 million in 2012 and $276 million in 2011.

ManageMent’s discussion and analysisPENSION 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.

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

DISCOUNT RATE. This is the interest rate used to discount the esti-
mated 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
5/31/2013
5/31/2012
5/31/2011
5/31/2010

Amounts Determined by
Measurement Date and
Discount
Discount Rate
Rate
4.79 % 2013 PBO and 2014 expense
2012 PBO and 2013 expense
4.44
2011 PBO and 2012 expense
5.76
2010 PBO and 2011 expense
6.37

We determine the discount rate with the assistance of actuaries, who
calculate the yield on a theoretical portfolio of high-grade corporate
bonds (rated Aa or better). 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 probability of being
called. To the extent scheduled bond proceeds exceed the estimated
benefit payments in a given period, the calculation assumes those
excess proceeds are reinvested at one-year forward rates.

The discount rate assumption is highly sensitive, as the following
table illustrates for our largest pension plan:

Sensitivity (in millions)

Effect on 2014
Pension Expense

Effect on 2013
Pension Expense

One-basis-point change
in discount rate

$ 2.1

$ 2.3

At our May 31, 2013 measurement date, a 50-basis-point increase
in the discount rate would have decreased our 2013 PBO by approxi-
mately $1.4 billion and a 50-basis-point decrease in the discount rate
would have increased our 2013 PBO by approximately $1.5 billion.
From 2010 to 2013, the discount rate used to value our liabilities has
declined by over 150 basis points, which increased the valuation of
our liabilities by over $3.8 billion.

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

part of our strategy to manage pension costs and funded status vola-
tility, we have transitioned to a liability-driven investment strategy to
better align plan assets with liabilities.

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.

We have assumed an 8.0% expected 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
6.9%, net of investment manager fees, for the 15-year period ended
May 31, 2013 and 7.4%, net of investment manager fees, for the
15-year period ended May 31, 2012. For 2014, we plan to lower our
expected return on plan assets assumption for long-term returns on
plan assets to 7.75% as we continue to refine our asset and liability
management strategy. In lowering this assumption we considered
our historical returns, our investment strategy for our plan assets,
including the impacts of the long duration of our plan liability and the
relatively low annual draw on plan assets on that investment strategy.
A one-basis-point change in our expected return on plan assets
impacts our pension expense by $1.9 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 calculated-value method to determine the value of plan assets,
which helps mitigate short-term volatility in market performance (both
increases and decreases) by amortizing certain actuarial gains or
losses over a period no longer than four years. Another method used
in practice applies the market value of plan assets at the measure-
ment date. For purposes of valuing plan assets for determining 2014
pension expense, the calculated value method resulted in the same
value as the market value.

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

Funded Status of Plans:
Projected benefit obligation (PBO)
Fair value of plan assets
Funded status of the plans
Cash Amounts:
Cash contributions during the year
Benefit payments during the year

2013

2012

$ 22,600 $ 22,187
17,334
19,433
$ (3,167) $ (4,853)

$ 615 $ 780
$ 589 $ 502

ManageMent’s discussion and analysisOur retirement plans costs are expected to decrease approximately
$190 million in 2014 due to significant increases in the value of our
plan assets in 2013 and an increase in our discount rates at our
May 31, 2013 measurement date.

FUNDING. The funding requirements for our U.S. Pension Plans are
governed by the Pension Protection Act of 2006, which has aggressive
funding requirements in order to avoid benefit payment restrictions
that become effective if the funded status determined under IRS 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 2013
were approximately $572 million or 3% of plan assets).

During 2013, we made $560 million in required contributions to our
U.S. Pension Plans. Over the past several years, we have made volun-
tary contributions to our U.S. Pension Plans in excess of the minimum
required contributions. Amounts contributed in excess of the minimum
required can result in a credit balance for funding purposes that can
be used to reduce minimum contribution requirements in future years.
Our current credit balance exceeds $2 billion at May 31, 2013. For
2014, we anticipate making required contributions to our U.S. Pension
Plans totaling approximately $650 million.

See Note 13 of the accompanying consolidated financial statements
for further information about our retirement plans.

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-
insurance accruals reflected in our balance sheet were $1.7 billion at
May 31, 2013, and $1.6 billion at May 31, 2012. Approximately 41%
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 55% 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 periodically evaluate whether adjustments to our estimated
service lives or salvage values are necessary to ensure these esti-
mates properly match the economic use of the asset. This evaluation
may result in changes in the estimated lives and residual values used
to depreciate our aircraft and other equipment. For our aircraft, we
typically assign no residual value due to the utilization of these assets
in cargo configuration, which results in little to no value at the end of
their useful life. These estimates affect the amount of depreciation
expense recognized in a period and, ultimately, the gain or loss on
the disposal of the asset. Changes in the estimated lives of assets
will result in an increase or decrease in the amount of depreciation
recognized in future periods and could have a material impact on our
results of operations. Historically, gains and losses on 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.

In May 2013, FedEx Express made the decision to accelerate the
retirement of 76 aircraft and related engines to aid in our fleet
modernization and improve our global network. In May 2012, we
shortened the depreciable lives for 54 aircraft and related engines
to accelerate the retirement of these aircraft, resulting in a deprecia-
tion expense increase of $69 million in 2013. As a result of these
accelerated retirements, we expect an additional $74 million in
year-over-year accelerated depreciation expense in 2014.

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 (primar-
ily aircraft in passenger configuration) that have not been placed in
service totaled $129 million at May 31, 2013 and $127 million at
May 31, 2012. 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

ManageMent’s discussion and analysisthe carrying value, the asset must be adjusted to its current fair value.
We operate integrated transportation networks and, accordingly, cash
flows for most of our operating assets are assessed at a network level,
not at an individual asset level for our analysis of impairment. Further,
decisions about capital investments are evaluated based on the impact
to the overall network rather than the return on an individual asset. We
make decisions to remove certain long-lived assets from service based
on projections of reduced capacity needs or lower operating costs of
newer aircraft types, and those decisions may result in an impairment
charge. Assets held for disposal must be adjusted to their estimated fair
values less costs to sell when the decision is made to dispose of the
asset and certain other criteria are met. The fair value determinations
for such aircraft may require management estimates, as there may not
be active markets for some of these aircraft. Such estimates are subject
to revision from period to period.

In the normal management of our aircraft fleet, we routinely idle
aircraft and engines temporarily due to maintenance cycles and
adjustments of our network capacity to match seasonality and overall
customer demand levels. Temporarily idled assets are classified as
available-for-use, and we continue to record depreciation expense
associated with these assets. These temporarily idled assets are
assessed for impairment on a quarterly basis. Factors which could
cause impairment include, but are not limited to, adverse changes
in our global economic outlook and the impact of our outlook on our
current and projected volume levels, including lower capacity needs
during our peak shipping seasons; the introduction of new fleet types
or decisions to permanently retire an aircraft fleet from operations;
or changes to planned service expansion activities. We currently
have one aircraft temporarily idled. This aircraft has been idled for
15 months and is expected to return to revenue service.

In May 2013, we made the decision to retire from service two Airbus
A310-200 aircraft and four related engines, three Airbus A310-300
aircraft and two related engines and five Boeing MD10-10 aircraft
and 15 related engines, to align with the plans of FedEx Express
to modernize its aircraft fleet and improve its global network. As
a consequence of this decision, a noncash impairment charge of
$100 million ($63 million, net of tax, or $0.20 per diluted share) was
recorded in the fourth quarter. All of these aircraft were temporarily
idled and not in revenue service.

In 2012, we incurred a noncash impairment charge of $134 million
($84 million, net of tax, or $0.26 per diluted share). This charge related
to our May 2012 decision to permanently retire 24 aircraft and
43 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.

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, 2013 we had approximately $15 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, 2013 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
material 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, most recently in
May 2013. While we are not required to quantify the effects of the
proposed rule changes until these rules are finalized, we believe that
a majority of the operating lease obligations reflected in the contractual
cash obligations table would be required to be reflected in our balance
sheet were the proposed rules to be adopted. Furthermore, our existing
financing agreements and the rating agencies that evaluate our
creditworthiness already take our operating leases into account.

GOODWILL. As of May 31, 2013, we had $2.8 billion of recorded good-
will 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.

In 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 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 methodologies
(principally the income or market approach) incorporating market
participant considerations and management’s assumptions on revenue
growth rates, operating margins, discount rates and expected capital
expenditures. Estimates used by 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 tests.

ManageMent’s discussion and analysisOur 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 2013 and 2012. The estimated fair value
of each of these reporting units exceeded their carrying values in 2013
and 2012, and we do not believe that any of these reporting units
were at risk as of May 31, 2013.

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 18 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 18 is not expected to be material to
our financial position, results of operations or cash flows. The follow-
ing 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
necessary, due to the complexity of these rules and their interaction
with one another. We account for income taxes by recording both
current taxes payable and deferred tax assets and liabilities. Our
provision for income taxes is based on domestic and international
statutory income tax rates in the jurisdictions in which we operate,
applied to taxable income, reduced by applicable tax credits.

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, man-
agement 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 rec-
ognition 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 noncurrent liabilities because payment of cash is not anticipated
within one year of the balance sheet date. These noncurrent income
tax liabilities are recorded in the caption “Other liabilities” in the
accompanying consolidated balance sheets.

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

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

OTHER CONTINGENCIES. Because of the complex environment in
which we operate, we are subject to other legal proceedings and
claims, including those relating to general commercial matters,
employment-related claims and FedEx Ground’s owner-operators.
Accounting guidance for contingencies requires an accrual of esti-
mated loss from a contingency, such as a tax or other legal proceeding
or claim, when it is probable (i.e., the future event or events are likely
to occur) that a loss has been 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.

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

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

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
factor 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 meaningful range of possible loss. We update our disclo-
sures 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
outstanding fixed-rate, long-term debt (exclusive of capital leases)
with estimated fair values of $3.2 billion at May 31, 2013 and
$2.0 billion at May 31, 2012. 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
$77 million as of May 31, 2013 and $30 million as of May 31, 2012.
The underlying fair values of our long-term debt were estimated based
on quoted market prices or on the current rates offered for debt with
similar terms and maturities.

We have interest rate risk with respect to our pension and postre-
tirement benefit obligations. Changes in interest rates impact our
liabilities associated with these benefit plans as well as the amount
of pension and postretirement benefit expense recognized. Declines
in the value of plan assets could diminish the funded status of our
pension plans and potentially increase our requirement to make con-
tributions 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 Chinese yuan, euro, Brazilian real, Canadian dollar and the British
pound. 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 2013 and 2012, foreign cur-
rency fluctuations had a slightly positive impact on 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, 2013, 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 $132 million for 2014. This theoreti-
cal calculation required under SEC guidelines assumes that each
exchange rate would change in the same direction relative to the U.S.
dollar, which is not consistent with our actual experience in foreign
currency transactions. In addition to the direct effects of changes in
exchange rates, fluctuations in exchange rates also affect the volume
of sales or the foreign currency sales price as competitors’ services
become more or less attractive. The sensitivity analysis of the effects
of changes in foreign currency exchange rates does not factor in a
potential change in sales levels or local currency prices.

ManageMent’s discussion and analysisCOMMODITY. 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 over the
long term.

However, our fuel surcharges have a timing lag (approximately six
to eight weeks for FedEx Express and FedEx Ground) before they are
adjusted for changes in fuel prices. Our fuel surcharge index also
allows fuel prices to fluctuate approximately 2% for FedEx Express
and approximately 4% for FedEx Ground before an adjustment to the
fuel surcharge occurs. Accordingly, our operating income in a specific
period may be significantly affected should the spot price of fuel sud-
denly change by a substantial amount or change by amounts that do
not result in an adjustment in our fuel surcharges.

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

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 espe-
cially susceptible to trends in economic activity. Our primary business
is to transport goods, so our business levels are directly tied to the
purchase and production of goods — key macro-economic measure-
ments. When individuals and companies purchase and produce fewer
goods, we transport fewer goods, and as companies expand the
number of distribution centers and move manufacturing closer to con-
sumer markets, we transport goods shorter distances. In addition, we
have a relatively high fixed-cost structure, which is difficult 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 and the typically more volatile econo-
mies of emerging markets. In 2013, slower than expected economic
growth resulted in a continued customer preference for slower,
less costly shipping services, which had a negative impact on our
profitability.

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 sig-
nificant 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 noncom-
pliance 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, includ-
ing our ability to provide features of service that are important to our
customers. External and internal risks, such as malware, code anoma-
lies, “Acts of God,” attempts to penetrate our networks, transitional
challenges in migrating operating company functionality to our FedEx
enterprise automation platform, 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 websites, 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 com-
pany and customer information was compromised due to a data loss
by FedEx or a trusted third party. While we have invested and continue
to invest in technology security initiatives, information technology risk
management and disaster recovery plans, these measures cannot fully
insulate us from technology disruptions or data loss and the resulting
adverse effect on our operations and financial results.

Our transportation businesses are impacted by the price and
availability of fuel. We must purchase large quantities of fuel to
operate our aircraft and vehicles, and the price and availability of
fuel can be unpredictable and beyond our control. To date, we have
been mostly successful in mitigating over time the expense impact of
higher fuel costs through our indexed fuel surcharges, as the amount
of the surcharges is closely linked to the market prices for fuel. If we
are unable to maintain or increase our fuel surcharges because of
competitive pricing pressures or some other reason, fuel costs could
adversely impact our operating results. Even if we are able to offset
the cost of fuel with our surcharges, high fuel surcharges could move
our customers away from our higher-yielding express services to our
lower-yielding deferred or ground services or even reduce customer
demand for our services altogether. In addition, disruptions in the sup-
ply 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
various 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
requirements and make commitments for aircraft based on those pro-
jections. 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 2013, we
made a decision to retire from service certain aircraft and excess
aircraft engines and thus recorded a noncash impairment charge of
$100 million.

We face intense competition. The transportation and business ser-
vices 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 com-
petitors 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, in 2013, we made strategic
acquisitions in 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 goodwill or
other intangible assets.

Labor organizations attempt to organize groups of our employ-
ees 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 significantly 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, how-
ever, 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
Railway Labor Act of 1926, as amended (the “RLA”). Such legislation
could expose our customers to the type of service disruptions that the
RLA was designed to prevent — local work stoppages in key areas
that interrupt the timely flow of shipments of time-sensitive, high-
value goods throughout our global network. Such disruptions could
threaten our ability to provide competitively priced shipping options
and ready access to global markets. There is also the possibility that
Congress could pass other labor legislation that could adversely affect
our companies, such as FedEx Ground and FedEx Freight, whose
employees are governed by the National Labor Relations Act of 1935,
as amended (the “NLRA”). In addition, federal and state governmental
agencies, such as the National Labor Relations Board, have and may
continue to take actions that could make it easier for our employees
to organize under the RLA or NLRA. Finally, changes to federal or state
laws governing employee classification could impact the status of
FedEx Ground’s owner-operators as independent contractors.

FedEx Ground relies on owner-operators to conduct its linehaul
and pickup-and-delivery operations, and the status of these
owner-operators as independent contractors, rather than
employees, is being challenged. FedEx Ground’s use of independent
contractors is well suited to the needs of the ground delivery business
and its customers, as evidenced by the strong growth of this business
segment. We are involved in numerous lawsuits and state tax and
other administrative proceedings that claim that the company’s
owner-operators or their drivers should be treated as our employees,
rather than independent contractors. We incur certain costs, including
legal fees, in defending the status of FedEx Ground’s owner-operators
as independent contractors. We believe that FedEx Ground’s owner-
operators are properly classified as independent contractors and that
FedEx Ground is not an employer of the drivers of the company’s
independent contractors. However, adverse determinations in these
matters could, among other things, entitle certain of our owner-
operators 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. Changes to state laws governing the
definition of independent contractors could impact the 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 analysisFailure to execute on our business realignment program will
cause our future financial results to suffer. In 2013, we announced
profit improvement programs primarily through initiatives at FedEx
Express and FedEx Services that include cost reductions, modern-
ization of our aircraft fleet, transformation of the U.S. domestic
operations and international profit improvements at FedEx Express,
and improved efficiencies and lower costs of information technology
at FedEx Services. To this end, during 2013, we conducted a program
to offer voluntary cash buyouts to eligible U.S.-based employees in
certain staff functions. Additionally, we announced in May 2013 our
decision to retire from service 10 aircraft and related engines, as
well as to shorten the depreciable lives of an additional 76 aircraft
and related engines, in an effort to modernize our aircraft fleet and
improve our global network. We will continue to work towards the
plan of annual profitability improvement of $1.6 billion by the end of
2016, but if we are not able to reach this goal in the face of challeng-
ing economic conditions, our future financial results may suffer.

The transportation infrastructure continues to be a target of
terrorist 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 requirements 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.

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 opera-
tions outside of the United States, such as FedEx Express’s growing
international domestic operations, are also subject to current and
potential regulations, including certain postal regulations and licens-
ing requirements, that restrict, make difficult and sometimes prohibit,
the ability of foreign-owned companies such as FedEx Express to
compete effectively in parts of the international domestic transporta-
tion 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. Because the European Union ETS is being contested by
many countries on a number of fronts, and the effective date for parts
of the ETS has been delayed until next year, the future impact on us
is unclear. 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 updat-
ing 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 emit-
ted 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.

ManageMent’s discussion and analysisFORWARD-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 uncertainties. Actual results may differ materially from those con-
templated (expressed or implied) by such forward-looking statements,
because of, among other things, the risk factors identified above and
the other risks and uncertainties you can find in our press releases and
other SEC filings.

As a result of these and other factors, no assurance can be given as
to our future results and achievements. Accordingly, a forward-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
statements, which speak only as of the date of this report. We are
under no obligation, and we expressly disclaim any obligation, to
update or alter any forward-looking statements, whether as a result of
new information, future events or otherwise.

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.

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 Chinese
yuan, euro, Brazilian real, Canadian dollar and the British pound, 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 bargain-
ing agreements — including with the union that represents the
pilots of FedEx Express (the current pilot contract became amendable
in March 2013, and the parties are currently in negotiations);

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

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

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

36
36

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 transac-
tions and a properly staffed, professional internal audit department. Mechanisms are in place to monitor the effectiveness of our internal
control over financial reporting and actions are taken to correct all identified deficiencies. Our procedures for financial reporting include the
active involvement of senior management, our Audit Committee and our staff of highly qualified financial and legal professionals.

Management, with the participation of our principal executive and financial officers, assessed our internal control over financial reporting as of
May 31, 2013, 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, 2013.

The effectiveness of our internal control over financial reporting as of May 31, 2013, has been audited by Ernst & Young LLP, the independent
registered public accounting firm who also audited the Company’s consolidated financial statements included in this Annual Report. Ernst &
Young LLP’s report on the Company’s internal control over financial reporting is included in this Annual Report.

37
37

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, 2013, 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
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.

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

In our opinion, FedEx Corporation maintained, in all material respects, effective internal control over financial reporting as of May 31, 2013,
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, 2013 and 2012, and the related consolidated statements of income, comprehensive income
(loss), changes in stockholders’ investment, and cash flows for each of the three years in the period ended May 31, 2013 of FedEx Corporation
and our report dated July 15, 2013 expressed an unqualified opinion thereon.

Memphis, Tennessee
July 15, 2013

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
Business realignment, 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.

2013
$ 44,287

Years ended May 31,
2012
$ 42,680

2011
$ 39,304

16,570
7,272
2,521
2,386
4,746
1,909
660
5,672
41,736
2,551

(82)
21
(35)
(96)
2,455
894
$ 1,561
4.95
$
4.91
$

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
$

fedex corporation

CONSOLIDATED STATEMENTS OF COMPREhENSIVE INCOME (LOSS)

(in millions)
Net Income
Other Comprehensive Income (Loss):
Foreign currency translation adjustments, net of tax benefit of
$12 and $26 in 2013 and 2012 and tax expense of $27 in 2011
Amortization of unrealized pension actuarial gains/losses and other, net of
tax expense of $677 in 2013 and tax benefit of $1,369 and $141 in 2012 and 2011

Comprehensive Income (Loss)
The accompanying notes are an integral part of these consolidated financial statements.

2013
$ 1,561

Years ended May 31,
2012
$ 2,032

2011
$ 1,452

(95)

125

1,092
1,133
$ 2,694

(2,308 )
(2,403)
(371 )

(235 )
(110)
$ 1,342

fedeX corporation

CONSOLIDATED BALANCE ShEETS

(in millions, except share data)
Assets
Current Assets
Cash and cash equivalents
Receivables, less allowances of $176 and $178
Spare parts, supplies and fuel, less allowances of $205 and $184
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; 318 million shares issued
as of May 31, 2013 and 317 million shares issued as of May 31, 2012
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,

2013

2012

$ 4,917
5,044
457
533
323
11,274

14,716
6,452
4,958
4,080
7,903
38,109
19,625
18,484

2,755
1,054
3,809
$ 33,567

251
1,688
1,879
1,932
5,750
2,739

1,652
3,916
987
778
227
120
7,680

32
2,668
18,519
(3,820)
(1)
17,398
$ 33,567

$ 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

fedex corporation

CONSOLIDATED STATEMENTS OF CASh FLOWS

(in millions)
Operating Activities
Net Income
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization
Provision for uncollectible accounts
Deferred income taxes and other noncash items
Business realignment, 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 debt issuances
Proceeds from stock issuances
Excess tax benefit on the exercise of stock options
Dividends paid
Purchase of treasury stock
Other, net
Cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Net increase 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.

Years ended May 31,
2012

2013

2011

$ 1,561

$ 2,032

$ 1,452

2,386
167
521
479
109

(451)
257
(335)
10
(16)
4,688

(3,375)
(483)
55
(3,803)

(417)
1,739
280
23
(177)
(246)
(18)
1,184
5
2,074
2,843
$ 4,917

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

fedeX corporation

CONSOLIDATED STATEMENTS OF ChANGES IN
STOCKhOLDERS’ INVESTMENT

Common
Stock
$ 31
–
–
–
–

(in millions, except share data)
Balance at May 31, 2010
Net income
Other comprehensive loss, net of tax of $114
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
Other comprehensive loss, net of tax of $1,395
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
Net income
Other comprehensive gain, net of tax of $665
Purchase of treasury stock
Cash dividends declared ($0.56 per share)
Employee incentive plans and other
(4,172,976 shares issued)
Balance at May 31, 2013
The accompanying notes are an integral part of these consolidated financial statements.

1
32
–
–
–
–

–
32
–
–
–
–

–
$ 32

Additional
Paid-in
Capital
$ 2,261
–
–
–
–

223
2,484
–
–
–
–

111
2,595
–
–
–
–

Retained
Earnings
$ 13,966
1,452
–
–
(152)

–
15,266
2,032
–
–
(164 )

–
17,134
1,561
–
–
(176 )

Accumulated
Other
Comprehensive
Income (Loss)
$ (2,440)
–
(110 )
–
–

Treasury
Stock
$ (7)
–
–
(5)
–

–
(2,550)
–
(2,403 )
–
–

–
(4,953 )
–
1,133
–
–

–
(12)
–
–
(197 )
–

128
(81)
–
–
(246 )
–

326
$ (1)

Total
$ 13,811
1,452
(110 )
(5)
(152)

224
15,220
2,032
(2,403 )
(197)
(164 )

239
14,727
1,561
1,133
(246 )
(176 )

399
$ 17,398

73
$ 2,668

–
$ 18,519

–
$ (3,820)

fedex corporationNOTE 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 pro-
vider 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, 2013 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. We are not
the primary beneficiary of, nor do we have a controlling financial
interest in, any variable interest entity. Accordingly, we have not
consolidated any variable interest entity.

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

Our contract logistics, global trade services and certain transportation
businesses, such as FedEx SmartPost, engage in some transactions
wherein they act as agents. Revenue from these transactions is
recorded on a net basis. Net revenue includes billings to customers
less third-party charges, including transportation or handling costs,
fees, commissions, and taxes and duties.

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

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

ADVERTISING. Advertising and promotion costs are expensed as
incurred and are classified in other operating expenses. Advertising
and promotion expenses were $424 million in 2013, $421 million in
2012 and $375 million in 2011.

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 provided over the estimated useful life of the related aircraft and
engines. Additionally, allowances for obsolescence are provided for
spare parts currently identified as excess or obsolete. These allow-
ances are based on management estimates, which are subject to
change. The majority of our supplies and our 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 equip-
ment 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.

notes to consolidated financial statementsFor financial reporting purposes, we record depreciation and amor-
tization 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):

Net Book Value at
May 31,
2013

2012

Range

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

2 to 10 years
2 to 40 years

3 to 30 years
3 to 15 years

$ 7,191

$ 7,161

2,284

1,881

2,311
1,748

993
3,957

2,101
1,411

930
3,764

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 2013 and 2012 with certain
aircraft. In May 2013, FedEx Express made the decision to accelerate
the retirement of 76 aircraft and related engines to aid in our fleet
modernization and improve our global network. In May 2012, we
shortened the depreciable lives for 54 aircraft and related engines to
accelerate the retirement of these aircraft, resulting in a deprecia-
tion expense increase of $69 million in 2013. As a result of these
accelerated retirements, we expect an additional $74 million in year-
over-year depreciation expense in 2014.

Depreciation expense, excluding gains and losses on sales of property
and equipment used in operations, was $2.3 billion in 2013, $2.1 billion
in 2012 and $1.9 billion in 2011. 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 $45 million in 2013, $85 million in 2012
and $71 million in 2011.

IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets are
reviewed for impairment when circumstances indicate the carry-
ing value of an asset may not be recoverable. For assets that are to
be held and used, an impairment is recognized when the estimated
undiscounted 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 val-
ues are determined based on quoted market values, discounted cash

flows or internal and external appraisals, as applicable. Assets to be
disposed of are carried at the lower of carrying value or estimated net
realizable value.

We operate integrated transportation networks, and accordingly, cash
flows for most of our operating assets are assessed at a network
level, not at an individual asset level, for our analysis of impairment.

In May 2013, we made the decision to retire from service two Airbus
A310-200 aircraft and four related engines, three Airbus A310-300
aircraft and two related engines and five Boeing MD10-10 aircraft
and 15 related engines to align with the plans of FedEx Express to
modernize its aircraft fleet and improve its global network. As a
consequence of this decision, a noncash impairment charge of
$100 million ($63 million, net of tax, or $0.20 per diluted share) was
recorded in the FedEx Express segment in the fourth quarter. All of
these aircraft were temporarily idled and not in revenue service.

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 FedEx
Express segment in the fourth quarter. The decision to retire these air-
craft, the majority of which were temporarily idled and not in revenue
service, better aligns the U.S. domestic air network capacity of FedEx
Express to match current and anticipated shipment volumes.

The combination of our FedEx Freight and FedEx National LTL opera-
tions was completed on January 30, 2011. These actions resulted
in total program costs of $133 million recorded during 2011, which
includes $89 million of impairment and other charges (recorded in the
“Business realignment, impairment and other charges” caption on the
consolidated income statements), and $44 million of other program
costs (primarily recorded in the “Depreciation and amortization”
caption on the consolidated income statements).

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 evalua-
tion of goodwill impairment, we perform a qualitative assessment to

notes to consolidated financial statementsdetermine 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 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 internal 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 retire-
ment, mortality, employee turnover and future increases in healthcare
costs. We determine the discount rate (which is required to be the
rate at which the projected benefit obligation could be effectively
settled as of the measurement date) with the assistance of actuar-
ies, who calculate the yield on a theoretical portfolio of high-grade
corporate bonds (rated Aa or better) with cash flows that are designed
to match our expected benefit payments in future years. A calculated-
value method is employed for purposes of determining the 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.

The accounting guidance related to employers’ accounting for defined
benefit pension and other postretirement plans requires recognition
in the balance sheet of the funded status of defined benefit pension
and other postretirement benefit plans, and the recognition in other
comprehensive income (“OCI”) of unrecognized gains or losses and
prior service costs or credits. Additionally, the guidance requires the
measurement date for plan assets and liabilities to coincide with the
plan sponsor’s year end.

At May 31, 2013, we recorded an increase to equity through OCI of
$861 million (net of tax) based primarily on year-end adjustments
related to an increase in the value of our plan assets and an increase
in the discount rate used to measure the liabilities at May 31, 2013.
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 liabilities at
May 31, 2012.

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.

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.

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
consolidated balance sheets. The cumulative excess of rent expense
over rent payments is accounted for as a deferred lease obligation.
Leasehold improvements associated with assets utilized under capital
or operating leases are amortized over the shorter of the asset’s use-
ful 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.

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

EMPLOYEES 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. The contract became amendable in March 2013, and the
parties are currently in negotiations. In addition to our pilots at FedEx
Express, certain FedEx non-U.S. employees are unionized.

STOCK-BASED COMPENSATION. We recognize compensation expense
for stock-based awards under the provisions of the accounting guidance
related to share-based payments. This guidance requires recognition
of compensation expense for stock-based awards using a fair value
method. We issue new shares or repurchase shares on the open market
to cover employee share option exercises and restricted stock grants.
Accordingly, we plan to repurchase approximately 3.7 million shares
in 2014.

TREASURY SHARES. During 2013, we repurchased 2.7 million shares
of FedEx common stock at an average price of $91 per share for a total
of $246 million. In March 2013, our Board of Directors authorized the
repurchase of up to 10 million shares of common stock. It is expected
that the additional share authorization will primarily be utilized to off-
set the effects of equity compensation dilution over the next several
years. As of May 31, 2013, 10,188,000 shares remained under existing
share repurchase authorizations.

DIVIDENDS DECLARED PER COMMON SHARE. On June 3, 2013, our
Board of Directors declared a quarterly dividend of $0.15 per share of
common stock. The dividend was paid on July 1, 2013 to stockholders
of record as of the close of business on June 17, 2013. 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.

BUSINESS REALIGNMENT COSTS. During 2013, we announced
profit improvement programs including reducing our selling, general
and administrative cost functions through a voluntary employee
separation program.

impacted functions so that we maintain service levels to our custom-
ers. Of the total population leaving the company, approximately 40%
of the employees vacated positions on May 31, 2013. An additional
35% will depart throughout 2014 and approximately 25% of this
population will remain until May 31, 2014. Costs of the benefits
provided under the voluntary program were recognized as special
termination benefits in the period that eligible employees accepted
their offers.

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

NOTE 2: RECENT ACCOUNTING
GUIDANCE

New accounting rules and disclosure requirements can significantly
impact our reported results and the comparability of our financial
statements.

On June 1, 2012, we adopted the authoritative guidance issued by the
Financial Accounting Standards Board (“FASB”) on the presentation
of comprehensive income. The new guidance requires companies to
report components of comprehensive income by including compre-
hensive income on the face of the income statement or in a separate
statement of comprehensive income. We have adopted this guidance
by including a separate statement of comprehensive income (loss)
for the three years ending May 31, 2013 and by including expanded
accumulated other comprehensive income disclosure requirements
in the notes to our consolidated financial statements. In addition on
June 1, 2012, we adopted the FASB’s amendments to the fair value

notes to consolidated financial statementsmeasurements and disclosure requirements, which expanded existing
disclosure requirements regarding the fair value of our long-term debt.

NOTE 3: BUSINESS COMBINATIONS

During 2013, we expanded the international service offerings of FedEx
Express by completing the following business acquisitions:

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

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

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

These acquisitions give us more robust transportation networks within
these countries and added capabilities in these important interna-
tional markets.

The estimated fair values of the assets and liabilities related to these
acquisitions have been recorded in the FedEx Express segment and
are included in the accompanying consolidated balance sheet based
on an allocation of the purchase prices (summarized in the table
below in millions).

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

$ 145
91
351
60
70
(174)
(36 )
$ 507

The goodwill of $351 million is primarily attributable to expected
benefits from synergies of the combinations with the existing FedEx
Express business and other acquired entities. The portion of the
purchase price allocated to goodwill is not deductible for U.S. income
tax purposes. The intangible assets acquired consist primarily of
customer-related intangible assets, which will be amortized on an
accelerated basis over their average estimated useful lives of nine
years, with the majority of the amortization recognized during the first
five years.

On June 20, 2013, we signed agreements to acquire the businesses
operated by our current service provider Supaswift (Pty) Ltd. in five coun-
tries in Southern Africa. The acquisition will be funded with cash from
operations and is expected to be completed in the second half of 2014,
subject to customary closing conditions. The financial results of the
acquired businesses will be included in the FedEx Express segment from
the date of acquisition and will be immaterial to our 2014 results.

In 2012, 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 operations on July 25, 2011.
In 2011, FedEx Express completed the acquisition of the Indian logistics,
distribution and express businesses of AFL Pvt. Ltd. and its affiliate
Unifreight India Pvt. Ltd. for $96 million in cash from operations 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 allocated to goodwill, which was entirely attributed to our
FedEx Express reporting unit.

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, 2011
Accumulated impairment charges
Balance as of May 31, 2011
Goodwill acquired(1)
Purchase adjustments and other(2)
Balance as of May 31, 2012
Goodwill acquired(3)
Purchase adjustments and other(2)
Balance as of May 31, 2013
Accumulated goodwill impairment
charges as of May 31, 2013
(1) Goodwill acquired in 2012 relates to the acquisition of the Mexican domestic express package delivery company, MultiPack. See Note 3 for related disclosures.
(2) Primarily currency translation adjustments.
(3) Goodwill acquired in 2013 relates to the acquisitions of transportation companies in Poland, France and Brazil. See Note 3 for related disclosures.

$ –

$ (133)

$ –

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

FedEx Freight
Segment
$ 735
(133)
602
–
–
602
–
–
$ 602

FedEx Express
Segment
$ 1,272
–
1,272
104
(32)
1,344
351
20
$ 1,715

FedEx Services
Segment
$ 1,539
(1,177)
362
–
(11 )
351
–
(3 )
$ 348

$ (1,177)

Total
$ 3,636
(1,310)
2,326
104
(43)
2,387
351
17
$ 2,755

$ (1,310)

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 quarter of 2013. The estimated fair value of each of
these reporting units exceeded their carrying values in 2013 and 2012,
and we do not believe that any of these reporting units were at risk as
of May 31, 2013.

OTHER INTANGIBLE ASSETS. The net book value of our other
intangible assets was $72 million at May 31, 2013 and $34 million
at May 31, 2012. Amortization expense for intangible assets was
$27 million in 2013, $18 million in 2012 and $32 million in 2011.
Estimated amortization expense is expected to be immaterial in
2014 and beyond.

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,

2013

2012

489

280

615
584
$ 1,688

$ 796
368
768
$ 1,932

803
552
$ 1,635

678
386
645
$ 1,709

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, 2013, are as
follows (in millions):

Senior unsecured debt:
Interest Rate %
9.65
7.38
8.00
2.625
2.70
3.875
4.10
7.60
Total senior unsecured debt
Capital lease obligations

Maturity
2013
2014
2019
2023
2023
2043
2043
2098

Less current portion

May 31,

2013

2012

–
250
750
499
249
493
499
239
2,979
11
2,990
251
$ 2,739

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

Interest on our fixed-rate notes is paid semi-annually. Long-term debt,
exclusive of capital leases, had estimated fair values of $3.2 billion
at May 31, 2013 and $2.0 billion at May 31, 2012. The estimated
fair values were determined based on quoted market prices and the
current rates offered for debt with similar terms and maturities. The
fair value of our long-term debt is classified as Level 2 within the fair

notes to consolidated financial statements

value hierarchy. This classification is defined as a fair value deter-
mined using market-based inputs other than quoted prices that are
observable for the liability, either directly or indirectly.

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
common stock.

In April 2013, we issued $750 million of senior unsecured debt under
our current shelf registration statement, comprised of $250 million of
2.70% fixed-rate notes due in April 2023 and $500 million of 4.10%
fixed-rate notes due in April 2043. We utilized the net proceeds for
working capital and general corporate purposes. In July 2012, we
issued $1 billion of senior unsecured debt under a then current shelf
registration statement, comprised of $500 million of 2.625% fixed-rate
notes due in August 2022 and $500 million of 3.875% fixed-rate notes
due in August 2042. We utilized the net proceeds for working capital
and general corporate purposes.

During 2013, we made principal payments of $116 million related to
capital lease obligations and repaid our $300 million 9.65% unsecured
notes that matured in June 2012 using cash from operations.

A $1 billion revolving credit facility is available to finance our
operations and other cash flow needs and to provide support for the
issuance of commercial paper. On March 1, 2013, we entered into an
amendment to our credit agreement to, among other things, extend
its maturity date from April 26, 2016 to March 1, 2018. The agree-
ment 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 stock-
holders’ investment) that does not exceed 70%. Our leverage ratio of
adjusted debt to capital was 51% at May 31, 2013. 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, 2013, no commercial paper was outstanding,
and the entire $1 billion under the revolving credit facility was avail-
able 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 $538 million in letters of credit out-
standing at May 31, 2013, with $128 million unused under our primary
$500 million letter of credit facility, and $539 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
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.

NOTE 7: LEASES

We utilize certain aircraft, land, facilities, retail locations and equip-
ment under capital and operating leases that expire at various dates
through 2046. We leased 10% of our total aircraft fleet under operat-
ing leases as of May 31, 2013 and 10% of our total aircraft fleet under
capital and operating leases as of May 31, 2012. 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.

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

Minimum rentals
Contingent rentals(1)

2013
$ 2,061
192
$ 2,253
(1) Contingent rentals are based on equipment usage.

2012
$ 2,018
210
$ 2,228

2011
$ 2,025
193
$ 2,218

A summary of future minimum lease payments under noncancelable
operating leases with an initial or remaining term in excess of one
year at May 31, 2013 is as follows (in millions):

Aircraft and
Related
Equipment
$ 462
448
453
391
326
824
$ 2,904

Operating Leases

Facilities and
Other
$ 1,474
1,386
1,183
1,298
904
5,826
$ 12,071

Total Operating
Leases
$ 1,936
1,834
1,636
1,689
1,230
6,650
$ 14,975

2014
2015
2016
2017
2018
Thereafter
Total

Property and equipment recorded under capital leases and future
minimum lease payments under capital leases were immaterial at
May 31, 2013. The weighted-average remaining lease term of all
operating leases outstanding at May 31, 2013 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
beneficiary of the leasing entities, as the lease terms are consistent
with market terms at the inception of the lease and do not include

notes to consolidated financial statementsa residual value guarantee, fixed-price purchase option or similar
feature that obligates us to absorb decreases in value or entitles us
to participate in increases in the value of the aircraft. As such, we are
not required to consolidate the entity as the primary beneficiary. Our
maximum exposure under these leases is included in the summary of
future minimum lease payments shown above.

NOTE 8: PREFERRED STOCK

Our Certificate of Incorporation authorizes the Board of Directors, at
its discretion, to issue up to 4,000,000 shares of preferred stock. The
stock is issuable in series, which may vary as to certain rights and
preferences, and has no par value. As of May 31, 2013, none of these
shares had been issued.

NOTE 9: ACCUMULATED OThER COMPREhENSIVE INCOME (LOSS)

The following table provides changes in accumulated other comprehensive income (loss), net of tax, reported in our financial statements
(in millions):

Balance at May 31, 2010
Other comprehensive gain (loss)
Balance at May 31, 2011
Other comprehensive gain (loss)
Balance at May 31, 2012
Other comprehensive gain (loss)
Balance at May 31, 2013

Foreign currency
translation adjustment
$ 31
125
156
(95)
61
41
$ 102

Retirement plans
adjustments
$ (2,471)
(235)
(2,706)
(2,308)
(5,014)
1,092
$ (3,922)

Accumulated other
comprehensive income (loss)
$ (2,440)
(110)
(2,550)
(2,403)
(4,953)
1,133
$ (3,820)

NOTE 10: STOCK-BASED
COMPENSATION

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

Stock-based compensation expense

2013
$ 109

2012
$ 105

2011
$ 98

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

STOCK OPTIONS. Under the provisions of our incentive stock plans,
key employees and non-employee directors may be granted options to
purchase shares of our common stock at a price not less than its fair
market value on the date of grant. Vesting requirements are deter-
mined at the discretion of the Compensation Committee of our Board
of Directors. Option-vesting periods range from one to four years, with
83% of our options vesting ratably over four years. Compensation
expense associated with these awards is recognized on a straight-line
basis over the requisite service period of the award.

RESTRICTED STOCK. Under the terms of our incentive stock plans,
restricted shares of our common stock are awarded to key employees.
All restrictions on the shares expire ratably over a four-year period.
Shares are valued at the market price on the date of award. The terms
of our restricted stock provide for continued vesting subsequent to the
employee’s retirement. Compensation expense associated with these
awards is recognized on a straight-line basis over the shorter of the
remaining service or vesting period.

VALUATION AND ASSUMPTIONS. We use the Black-Scholes option
pricing model to calculate the fair value of stock options. The value
of restricted stock awards is based on the stock price of the award
on the grant date. We record stock-based compensation expense in
the “Salaries and employee benefits” caption in the accompanying
consolidated statements of income.

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

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

2013

2012

2011

$ 29.20
$ 107

$ 29.92
$ 67

$ 28.12
$ 80

6.1 years

6.0 years

5.9 years

35 %
0.94%
0.609 %

34 %
1.79 %
0.563 %

34 %
2.36 %
0.558 %

notes to consolidated financial statementsThe expected life represents an estimate of the period of time options
are expected to remain outstanding, and we examine actual stock
option exercises to determine the expected life of the options. Options
granted have a maximum term of 10 years. Expected volatilities are
based on the actual changes in the market value of our stock and
are calculated using daily market value changes from the date of

grant over a past period equal to the expected life of the options. The
risk-free interest rate is the U.S. Treasury Strip rate posted at the date
of grant having a term equal to the expected life of the option. The
expected dividend yield is the annual rate of dividends per share over
the exercise price of the option.

The following table summarizes information about stock option activity for the year ended May 31, 2013:

Stock Options

Outstanding at June 1, 2012
Granted
Exercised
Forfeited
Outstanding at May 31, 2013
Exercisable
Expected to vest
Available for future grants
(1) Only presented for options with market value at May 31, 2013 in excess of the exercise price of the option.

Shares
21,031,538
2,547,290
(3,979,359)
(464,035)
19,135,434
12,447,517
6,288,642
6,482,410

Weighted-Average
Exercise Price
$ 84.39
88.08
70.41
91.44
$ 87.62
$ 90.23
$ 82.77

Weighted-Average
Remaining
Contractual Term

Aggregate
Intrinsic Value

(in millions)(1)

5.5 years
4.2 years
8.1 years

$ 229
$ 137
$ 87

The options granted during the year ended May 31, 2013 are primarily
related to our principal annual stock option grant in June 2012.

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, 2013:

Restricted Stock

Weighted-Average
Grant Date Fair Value
$ 76.79
85.45
75.46
80.13
$ 80.86

Shares
589,872
220,391
(253,423)
(27,506)
529,334

Unvested at June 1, 2012
Granted
Vested
Forfeited
Unvested at May 31, 2013

During the year ended May 31, 2012, there were 214,435 shares
of restricted stock granted with a weighted-average fair value of
$88.95. 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.

2013
2012
2011

Stock Options

Vested during
the year
2,824,757
2,807,809
2,721,602

Fair value
(in millions)
$ 81
70
67

As of May 31, 2013, there was $133 million of total unrecognized
compensation cost, net of estimated forfeitures, related to unvested
share-based compensation arrangements. This compensation expense
is expected to be recognized on a straight-line basis over the remaining
weighted-average vesting period of approximately two years.

Total shares outstanding or available for grant related to equity
compensation at May 31, 2013 represented 8% of the total
outstanding common and equity compensation shares and equity
compensation shares available for grant.

notes to consolidated financial statements

NOTE 11: 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):

2013

2012

2011

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

$ 1,558 $ 2,029 $ 1,449
315
$ 4.95 $ 6.44 $ 4.61

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.

$ 1,558 $ 2,029 $ 1,449
315
2
317
$ 4.91 $ 6.41 $ 4.57

315
2
317

11.1

12.6

9.3

NOTE 12: INCOME TAXES

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

2013

2012

2011

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

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

$ 512
86
170
768

175
(7)
(42)
126
$ 894

$ (120)
80
181
141

947
21
–
968
$ 1,109

$ 79
48
198
325

485
12
(9)
488
$ 813

were timing benefits only, in that depreciation accelerated into an
earlier year is foregone in later years. Our 2013 current provision for
federal income taxes was, therefore, higher than in 2012 and 2011.

Pre-tax (loss) earnings of foreign operations for 2013, 2012 and 2011
were $(55) million, $358 million and $472 million, respectively. These
amounts represent only a portion of total results associated with
international shipments and accordingly, do not represent our interna-
tional or domestic results of operations.

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

2013
35.0 %

2012
35.0 %

2011
35.0 %

2.1
(0.7)
36.4 %

2.1
(1.8)
35.3 %

1.7
(0.8)
35.9 %

Our 2012 rate was favorably impacted by the conclusion of the IRS
audit of our 2007-2009 consolidated income tax returns.

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

2013

2012

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

$ 157
1,771
533
251

298
(204)
$ 2,806

$ 3,676
11
–
238

$ 248
2,300
495
338

–
–
$ 3,925

179
(145)
$ 3,415

$ 3,436
11
–
271

–
–
$ 3,718

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

Current deferred tax asset
Noncurrent deferred tax liability

2013
$ 533
(1,652)
$ (1,119)

2012
$ 533
(836)
$ (303)

Our current federal income tax expenses in 2013, 2012 and 2011
were significantly reduced by accelerated depreciation deductions we
claimed under provisions of the American Taxpayer Relief Act of 2013
and the Tax Relief and the Small Business Jobs Acts of 2010. Those
Acts, designed to stimulate new business investment in the U.S.,
accelerated our depreciation deductions for new qualifying invest-
ments, such as our Boeing 777 Freighter (“B777F”) aircraft. These

We have $940 million of net operating loss carryovers in various
foreign jurisdictions and $500 million of state operating loss carry-
overs. The valuation allowances primarily represent amounts reserved
for operating loss and tax credit carryforwards, which expire over
varying periods starting in 2014. As a result of this and other factors,
we believe that a substantial portion of these deferred tax assets
may not be realized.

notes to consolidated financial statements

Permanently reinvested earnings of our foreign subsidiaries amounted
to $1.3 billion at the end of 2013 and $1 billion at the end of 2012. We
have not recognized deferred taxes for U.S. federal income tax purposes
on those earnings. In 2013, our permanent reinvestment strategy with
respect to unremitted earnings of our foreign subsidiaries provided
a 1.2% 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
distribution of such funds, along with other important factors such as
the amount of associated foreign tax credits. Cash in offshore jurisdic-
tions associated with our permanent reinvestment strategy totaled
$420 million at the end of 2013 and $410 million at the end of 2012.

In 2013, more than 85% of our total enterprise-wide income was
earned in U.S. companies of FedEx that are taxable in the United
States. As a U.S. airline, our FedEx Express unit is required by Federal
Aviation Administration and other rules to conduct its air operations,
domestic and international, through a U.S. company. However, we
serve more than 220 countries and territories around the world, and
are required to establish legal entities in many of them. Most of our
entities in those countries are operating entities, engaged in picking
up and delivering packages and performing other transportation
services. In the meantime, we are continually expanding our global
network to meet our customers’ needs, which requires increasing
investment outside the U.S. We typically use cash generated overseas
to fund these investments and have a foreign holding company which
manages our investments in several foreign operating companies,
including new acquisitions made in 2013 in Poland, France and Brazil.

We are subject to taxation in the U.S. and various U.S. state, local
and foreign jurisdictions. We are currently under examination by the
IRS for the 2010 and 2011 tax years. It is reasonably possible that
certain income tax return proceedings will be completed during the
next 12 months and could result in a change in our balance of unrec-
ognized tax benefits. The expected impact of any changes would not
be material to our consolidated financial statements.

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

Balance at beginning of year
Increases for tax positions taken in
the current year
Increases for tax positions taken in
prior years
Decreases for tax positions taken in
prior years
Settlements
Increases due to acquisitions
Decrease from lapse of statute
of limitations
Changes due to currency translation
Balance at end of year

2013
$ 51

2012
$ 69

2011
$ 82

(3)
(9)
4

(2)
2
$ 47

(35)
(3)
15

–
(1)
$ 51

(10)
(11)
–

–
–
$ 69

Our liabilities recorded for uncertain tax positions include $42 million
at May 31, 2013 and $47 million at May 31, 2012 associated with
positions that if favorably resolved would provide a benefit to our
effective tax rate. We classify interest related to income tax liabilities
as interest expense, and if applicable, penalties are recognized as
a component of income tax expense. The balance of accrued interest
and penalties was $29 million on both May 31, 2013 and May 31,
2012. Total interest and penalties included in our consolidated state-
ments 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 13: 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 bene-
fit pension and other postretirement benefit plans, and the recognition
in accumulated other comprehensive income (“AOCI”) of unrecognized
gains or losses and prior service costs or credits. The funded status is
measured as the difference between the fair value of the plan’s assets
and the projected benefit obligation (“PBO”) of the plan. We recorded
an increase to equity of $861 million (net of tax) at May 31, 2013,
and a decrease to equity of $2.4 billion (net of tax) at May 31, 2012,
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
U.S. domestic and international
postretirement healthcare plans

2013

2012

2011

$ 679

$ 524

$ 543

354

338

257

78
$ 1,111

70
$ 932

60
$ 860

notes to consolidated financial statementsTotal retirement plans costs in 2013 were higher than 2012 due to the
negative impact of a significantly lower discount rate at our May 31,
2012 measurement date. Total retirement plans cost increased 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.

PENSION PLANS. Our largest pension plan covers certain U.S.
employees age 21 and over, with at least one year of service. Pension
benefits for most employees are accrued under a cash balance
formula we call the Portable Pension Account. Under the Portable
Pension Account, the retirement benefit is expressed as a dollar
amount in a notional account that grows with annual credits based
on pay, age and years of credited service, and interest on the notional
account balance. The Portable Pension Account benefit is payable as a
lump sum or an annuity at retirement at the election of the employee.
The plan 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
attainment of age 45 if hired prior to January 1, 1988, or at least
20 years after attainment of age 35 if hired on or after January 1,
1988. Postretirement healthcare benefits are capped at 150% of the
1993 per capita projected employer cost, which has been reached and,
therefore, these benefits are not subject to additional future inflation.

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

We use a measurement date of May 31 for our pension and postre-
tirement 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
2012

4.44 %

2013

4.79 %

2011

5.76 %

Postretirement Healthcare Plans
2011
2012
2013

4.91%

4.55%

5.67 %

4.44

5.76

6.37

4.55

5.67

6.11

4.54

4.62

8.00

4.62

4.58

8.00

4.58

4.63

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 appropri-
ate. 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 expected long-term rate of return on plan assets was 8% for
2013, 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, 2013, our actual returns
were 6.9%. For 2014, we plan to lower our expected return on plan
assets assumption for long-term returns on plan assets to 7.75% as
we continue to refine our asset and liability management strategy.
In lowering this assumption we considered our historical returns, our
investment strategy for our plan assets, including the impacts of the
long duration of our plan liability and the relatively low annual draw
on plan assets on that investment strategy.

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 publicly tradeable 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 man-
agers. Our largest holding classes are U.S. Large Cap Equities, which
is indexed to the S&P 500 Index, Corporate Fixed Income Securities
and Government Fixed Income Securities. Accordingly, we do not have
any significant concentrations of risk. Active management strategies
are utilized within the plan in an effort to realize investment returns in
excess of market indices. As part of our strategy to manage pension
costs and funded status volatility, we have transitioned to a liability-
driven investment strategy to better align plan assets with liabilities.
Our investment strategy also includes the limited use of derivative
financial instruments on a discretionary basis to improve investment
returns and manage exposure to market risk. In all cases, our invest-
ment managers are prohibited from using derivatives for speculative
purposes and are not permitted to use derivatives to leverage a
portfolio.

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

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

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

> Private equity. The valuation of these Level 3 investments requires
significant judgment due to the absence of quoted market prices,
the inherent lack of liquidity and the long-term nature of such
assets. Investments are valued based upon recommendations of our
investment managers incorporating factors such as contributions
and distributions, market transactions, market comparables and
performance multiples.

> Fixed income. We determine the fair value of these Level 2 corpo-
rate bonds, U.S. and non-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
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
2013

Target
Range%
0-5 %

35-55

45-65

Target
Range %
0-3 %

45-55

Quoted Prices in
Active Markets
Level 1
$ 15

Other Observable
Inputs
Level 2
$ 441

Unobservable
Inputs
Level 3

37
1,741
1,904

(83)
$ 3,614

5,227

367

4,972
3,888
200
6
$ 15,101

$ 332

2012

Quoted Prices in
Active Markets
Level 1
$ 8

Other Observable
Inputs
Level 2
$ 610

Unobservable
Inputs
Level 3

9
1,368
1,395

(85)
$ 2,695

4,239

262

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

$ 402

Fair Value
$ 456

Actual %
2 %

5,264
1,741
2,271
332

4,972
3,888
200
(77)
$ 19,047

28
9
12
2

26
20
1
–
100 %

Fair Value
$ 618

Actual %
4 %

4,248
1,368
1,657
402

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

25
8
10
2

27
24
–
–
100 %

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

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

2013
$ 402

2012
$ 403

(29)
55
(96)
$ 332

3
38
(42)
$ 402

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, 2013 and a statement of the funded status as of May 31, 2013 and 2012 (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 (gain)
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

2013
$ 21,958

2012
$ 21,556

Postretirement
Healthcare Plans

2013

2012

$ 22,187
692
968
(652)
(589)
(6)
$ 22,600

$ 17,334
2,081
615
(589)
(8)
$ 19,433
$ (3,167)

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

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

(48)

(35)

(3,119)
$ (3,167)

(4,818)
$ (4,853)

$ 6,993
(781)
$ 6,212

378
(114)
264

$ 8,866
(897)
$ 7,969

516
(114)
402

$ 790
42
36
(17)
(54)
31
$ 828

–
–
27
(54)
27
–
$
$ (828)

$ (39)

(789)
$ (828)

(4 )
2
(2)

–
–
–

$ 648
35
36
98
(51)
24
$ 790

–
–
27
(51)
24
–
$
$ (790)

$ (33)

(757)
$ (790)

13
2
15

–
–
–

notes to consolidated financial statements

Our pension plans included the following components at May 31, 2013 and 2012 (in millions):

2013
Qualified
Nonqualified
International Plans
Total
2012
Qualified
Nonqualified
International Plans
Total

PBO

$ 21,532
322
746
$ 22,600

$ 21,192
355
640
$ 22,187

Fair Value of
Plan Assets

$ 19,047
–
386
$ 19,433

$ 17,013
–
321
$ 17,334

Funded
Status

$ (2,485)
(322)
(360)
$ (3,167)

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

The table above provides the 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, 2013 and 2012, the fair value
of plan assets for pension plans with a PBO or ABO in excess of plan assets were as follows (in millions):

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

PBO Exceeds the Fair Value
of Plan Assets

2013

2012

$ 19,433
(22,600)
$ (3,167)

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

ABO Exceeds the Fair Value
of Plan Assets

2013

2012

$ (21,930)
19,404
(22,570)
$ (3,166)

2013
$ 560
–
$ 560

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

2012
$ 496
226
$ 722

For 2014, we anticipate making required contributions to our U.S. Pension Plans totaling approximately $650 million.

notes to consolidated financial statements

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

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

2013
692
968
(1,383)
402
679

Pension Plans
2012
593
976
(1,240)
195
524

2011
521
900
(1,062)
184
543

2013
$ 42
36
–
–
$ 78

Postretirement
Healthcare Plans
2012
$ 35
36
–
(1)
$ 70

2011
$ 31
34
–
(5)
$ 60

Pension costs in 2013 were higher than 2012 due to the negative impact of a significantly lower discount rate at our May 31, 2012 measurement date.

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

2013

2012

Pension Plans
Gross
Amount

Net of Tax
Amount

Postretirement
Healthcare Plans

Gross
Amount

Net of Tax
Amount

Pension Plans
Gross
Amount

Net of Tax
Amount

Postretirement
Healthcare Plans

Gross
Amount

Net of Tax
Amount

$ (1,350)

$ (840 )

$ (17 )

$ (21 )

$ 3,777

$ 2,371

$ 97

$ 61

114
(516)
$ (1,752 )

66
(297)
$ (1,071 )

–
–
$ (17 )

–
–
$ (21 )

113
(311)
$ 3,579

71
(195)
$ 2,247

–
1
$ 98

–
–
$ 61

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

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

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

2014
2015
2016
2017
2018
2019–2023

Pension Plans
$ 821
956
896
961
1,049
6,974

Postretirement
Healthcare Plans
$ 39
42
44
45
47
274

Future medical benefit claims costs are estimated to increase at an
annual rate of 7.7% during 2014, 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 2014, 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, 2013 or 2013 benefit expense because the level of
these benefits is capped.

notes to consolidated financial statements

The operating expenses line item “Intercompany charges” on the
accompanying unaudited financial summaries of our transporta-
tion segments in MD&A reflects the allocations from the FedEx
Services segment to the respective transportation segments. The
“Intercompany charges” caption also includes charges and credits for
administrative services provided between operating companies and
certain other costs such as corporate management fees related to
services received for general corporate oversight, including executive
officers and certain legal and finance functions. We believe these
allocations approximate the net cost of providing these functions.

NOTE 14: 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

notes to consolidated financial statements

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

FedEx Express
Segment(1)

FedEx Ground
Segment(2)

FedEx Freight
Segment(3)

FedEx Services
Segment

Other and
Eliminations

Consolidated
Total

$ 1,580
1,671
1,684

$ 5,401
5,282
4,911

$ (443)
(361)
(357)

$ 1,350
1,169
1,059

$ 27,171
26,515
24,581

$ 10,578
9,573
8,485

$ 44,287
42,680
39,304

Revenues
2013
2012
2011
Depreciation and amortization
2013
2012
2011
Operating income (loss)
2013
2012
2011
Segment assets(4)
$ 33,567
2013
29,903
2012
27,385
2011
(1) FedEx Express segment 2013 operating expenses include $405 million of direct and allocated business realignment costs and an impairment charge of $100 million resulting from the decision to
retire 10 aircraft and related engines. 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 of a $66 million legal reserve which was initially recorded in 2011.

$ 555
1,260
1,228

$ 2,551
3,186
2,378

$ 2,386
2,113
1,973

$ 434
389
337

$ 1,788
1,764
1,325

$ 18,935
17,981
16,463

$ 7,353
6,154
5,048

$ (553)
(1,585)
(1,068)

$ –
–
–

$ 1
1
1

$ 208
162
(175)

$ 384
369
371

$ 217
185
205

$ 2,953
2,807
2,664

$ 4,879
4,546
4,278

$ –
–
–

(2) FedEx Ground segment 2013 operating expenses include $105 million of allocated business realignment costs.
(3) FedEx Freight segment 2013 operating expenses include $50 million in direct and allocated business realignment costs. 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.

(4) Segment assets include intercompany receivables.

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

2013
2012
2011

FedEx Express
Segment
$ 2,067
2,689
2,467

FedEx Ground
Segment
$ 555
536
426

FedEx Freight
Segment
$ 326
340
153

FedEx Services
Segment
$ 424
437
387

Other
$ 3
5
1

Consolidated
Total
$ 3,375
4,007
3,434

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

2013

2012

2011

NOTE 15: SUPPLEMENTAL CASh
FLOW INFORMATION

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
International economy
Total international export
package revenue
International domestic(1)
Total package revenue
Freight:
U.S.
International priority
International airfreight
Total freight revenue
Other(2)
Total FedEx Express segment
FedEx Ground segment:
FedEx Ground
FedEx SmartPost
Total FedEx Ground segment
FedEx Freight segment
FedEx Services segment
Other and eliminations

Geographical Information(3)
Revenues:
U.S.
International:
FedEx Express segment
FedEx Ground segment
FedEx Freight segment
FedEx Services segment
Total international revenue

Noncurrent assets:
U.S.
International

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

2013

2012

2011

$ 80
$ 687
(219)
$ 468

$ 52
$ 403
(146)
$ 257

$ 93
$ 493
(106)
$ 387

NOTE 16: GUARANTEES AND
INDEMNIFICATIONS

In conjunction with certain transactions, primarily the lease, sale or
purchase of operating assets or services in the ordinary course of
business, we may provide routine guarantees or indemnifications
(e.g., environmental, fuel, tax and software infringement), the terms
of which range in duration, and often they are not limited and have
no specified maximum obligation. As a result, the overall maximum
potential amount of the obligation under such guarantees and indem-
nifications cannot be reasonably estimated. Historically, we have not
been required to make significant payments under our guarantee or
indemnification obligations and no amounts have been recognized
in our financial statements for the underlying fair value of these
obligations.

Special facility revenue bonds have been issued by certain municipali-
ties primarily to finance the acquisition and construction of various
airport facilities and equipment. These facilities were leased to us and
are accounted for as operating leases. FedEx Express has uncondition-
ally guaranteed $551 million in principal of these bonds (with total
future principal and interest payments of approximately $708 million
as of May 31, 2013) through these leases.

$ 6,513 $ 6,546 $ 6,128
1,736
2,805
10,669
6,760
1,468

1,705
3,020
11,238
6,586
2,046

1,747
3,001
11,294
6,849
1,859

8,632
1,398
21,268

8,708
853
20,855

2,562
1,678
276
4,516
1,387
27,171

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

8,228
653
19,550

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

9,652
926
10,578
5,401
1,580
(443)

7,855
630
8,485
4,911
1,684
(357)
$ 44,287 $ 42,680 $ 39,304

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

$ 31,550 $ 29,837 $ 27,461

12,357
234
112
34
12,737

11,437
12,370
177
216
84
101
145
156
11,843
12,843
$ 44,287 $ 42,680 $ 39,304

$ 19,637 $ 18,874 $ 17,235
1,865
$ 22,293 $ 20,847 $ 19,100

1,973

2,656

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

operations, including acquisitions in India (February 2011), Mexico (July 2011), Poland (June
2012), France (July 2012) and Brazil (July 2012).

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

notes to consolidated financial statements

NOTE 17: COMMITMENTS

Annual purchase commitments under various contracts as of May 31,
2013 were as follows (in millions):

Aircraft and
Aircraft Related
$ 968
2014
1,054
2015
1,140
2016
959
2017
1,382
2018
4,492
Thereafter
$ 9,995
Total
(1) Primarily vehicles, facilities, advertising contracts and in 2014, approximately $650 million

Facilities
and Other(1)
$ 1,183
184
123
101
44
109
$ 1,744

Total
$ 2,151
1,238
1,263
1,060
1,426
4,601
$ 11,739

of quarterly contributions 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, 2013, our obligation to purchase four Boeing 767-300
Freighter (“B767F”) aircraft and nine B777F aircraft is conditioned
upon there being no event that causes FedEx Express or its employees
not to be covered by the Railway Labor Act of 1926, as amended.
Commitments to purchase aircraft in passenger configuration do not
include the attendant costs to modify these aircraft for cargo transport
unless we have entered into noncancelable commitments to modify
such aircraft. Open purchase orders that are cancelable are not
considered unconditional purchase obligations for financial reporting
purposes and are not included in the table above.

We have several aircraft modernization programs underway which are
supported by the purchase of B777F, B767F and Boeing 757 (“B757”)
aircraft. These aircraft are significantly more fuel-efficient per unit
than the aircraft types previously utilized, and these expenditures are
necessary to achieve significant long-term operating savings and to
replace older aircraft. Our ability to delay the timing of these aircraft-
related expenditures is limited without incurring significant costs to
modify existing purchase agreements. During 2013, FedEx Express
entered into an agreement to purchase 14 additional B757 aircraft,
the delivery of which began in 2013 and will continue through 2014.
The agreement provides the option to purchase up to 16 additional
B757 aircraft, subject to the satisfaction of certain conditions. In
addition, FedEx Express entered into agreements to purchase an
additional 23 B767F aircraft, the delivery of which will occur between
2014 and 2019. The delivery of two firm B777F aircraft orders were
also deferred from 2015 to 2016.

We had $414 million in deposits and progress payments as of May 31,
2013 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 commit-
ments include the B757 aircraft 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, 2013, with the year of expected delivery:

2014
2015
2016
2017
2018
Thereafter
Total

B757
13
–
–
–
–
–
13

B767F
4
12
10
10
10
4
50

B777F
2
–
2
–
2
14
20

Total
19
12
12
10
12
18
83

Effective as of June 14, 2013, we entered into a supplemental
agreement to purchase 13 of the 16 B757 option aircraft noted above.
Delivery of the aircraft will occur during 2014 and 2015. This aircraft
transaction is not included in the table above, as it occurred subse-
quent to May 31, 2013.

NOTE 18: CONTINGENCIES

WAGE-AND-HOUR. We are a defendant in a number of lawsuits
containing various class-action allegations of wage-and-hour
violations. The plaintiffs in these lawsuits allege, among other things,
that they were forced to work “off the clock,” were not paid overtime
or were not provided work breaks or other 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 31 that have been certified
as class actions), individual lawsuits and state tax and other adminis-
trative 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 addressing all outstanding motions for summary judgment on
the status of the owner-operators (i.e., independent contractor vs.
employee). In sum, the court has now ruled on our summary judgment
motions and entered judgment in favor of FedEx Ground on all claims
in 20 of the 28 multidistrict litigation cases that had been certified as
class actions, finding that the owner-operators in those cases were
contractors as a matter of the law of 20 states. 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

notes to consolidated financial statementsthe correctness of the district court’s decision and, instead, certified
two questions to the Kansas Supreme Court related to the classifica-
tion of the plaintiffs as independent contractors under the Kansas
Wage Payment Act. The other 19 cases that are before the Seventh
Circuit remain stayed pending a decision of the Kansas Supreme Court.

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. Three of those cases are now on
appeal with the Court of Appeals for the Ninth Circuit. The other five
remain pending in their respective district courts.

While the granting of summary judgment in favor of FedEx Ground by
the multidistrict litigation court in 20 of the 28 cases that had been
certified as class actions remains subject to appeal, we believe that it
significantly improves the likelihood that our independent 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 owner-operators 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 indepen-
dent 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 con-
tractors. 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 conducted only very limited discovery into damages,
which could vary considerably from plaintiff to plaintiff. Further, the
range of potential loss could be impacted considerably by future
rulings on the merits of certain claims and FedEx Ground’s various
defenses, and on evidentiary issues. In any event, we do not believe
that a material loss is probable in these matters.

In addition, we are defending contractor-model cases that are not or
are no longer part of the multidistrict litigation, three of which have
been certified as class actions. These cases are in varying stages
of litigation, and we do not expect to incur a material loss in any of
these matters.

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 United Parcel
Service, Inc. (“UPS”) alleging violations 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. In November 2012, the DOJ served a civil investigative
demand on the third-party consultant seeking all pleadings, deposi-
tions and documents produced in the lawsuit. 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 move forward, 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 investiga-
tion 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 additional requests for information pursuant to
those subpoenas, and we continue to respond and cooperate with the
investigation. We believe that our employees have acted in good faith
at all times. 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. The DOJ may pursue a criminal indict-
ment and, if we are convicted, remedies could include fines, penalties,
financial forfeiture and compliance conditions. We cannot estimate
the amount or range of loss, if any, 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
management, the aggregate liability, if any, with respect to these
other actions will not have a material adverse effect on our financial
position, results of operations or cash flows.

NOTE 19: 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.”

notes to consolidated financial statementsNOTE 20: SUMMARy OF QUARTERLy OPERATING RESULTS (UNAUDITED)

(in millions, except per share amounts)
2013(1)
Revenues
Operating income
Net income
Basic earnings per common share(2)
Diluted earnings per common share(2)

First
Quarter

$ 10,792
742
459
1.46
1.45

Second
Quarter

$ 11,107
718
438
1.39
1.39

Third
Quarter

$ 10,953
589
361
1.14
1.13

Fourth
Quarter

$ 11,435
502
303
0.96
0.95

2012(3)
$ 10,521
Revenues
737
Operating income
464
Net income
Basic earnings per common share(2)
1.46
Diluted earnings per common share(2)
1.46
(1) The fourth quarter of 2013 includes $496 million of business realignment costs and an impairment charge of $100 million resulting from the decision to retire 10 aircraft and related engines at

$ 10,587
780
497
1.57
1.57

$ 10,564
813
521
1.66
1.65

$ 11,008
856
550
1.74
1.73

FedEx Express. The third quarter of 2013 includes $47 million of business realignment costs. The second quarter of 2013 includes $13 million of business realignment costs.

(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 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

the reversal of a $66 million legal reserve.

notes to consolidated financial statementsNOTE 21: 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 $2.75 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, 2013

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

$ 3,892
–

45
–
3,937
27
21
6
–
–
18,739
2,187
$ 24,869

$ 250
82
4
355
691
2,489
1,642

–
2,649
2,649
17,398
$ 24,869

$ 405
3,989

681
518
5,593
35,915
18,469
17,446
439
1,552
3,347
822
$ 29,199

$ 1
1,402
1,392
1,366
4,161
250
–

3,798
3,133
6,931
17,857
$ 29,199

$ 717
1,084

54
15
1,870
2,167
1,135
1,032
1,203
1,203
–
191
$ 5,499

$ –
204
609
211
1,024
–
–

–
246
246
4,229
$ 5,499

$ (97)
(29)

–
–
(126)
–
–
–
(1,642)
–
(22,086)
(2,146)
$ (26,000)

$ –
–
(126)
–
(126)
–
(1,642)

(2,146)
–
(2,146)
(22,086)
$ (26,000)

$ 4,917
5,044

780
533
11,274
38,109
19,625
18,484
–
2,755
–
1,054
$ 33,567

$ 251
1,688
1,879
1,932
5,750
2,739
–

1,652
6,028
7,680
17,398
$ 33,567

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, 2012

$ 1,906
3

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

$ –
83
6
184
273
1,000
1,847

–
4,340
4,340
14,727
$ 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
183
188
3,870
$ 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 Statements of Comprehensive Income

Revenues
Operating Expenses:
Salaries and employee benefits
Purchased transportation
Rentals and landing fees
Depreciation and amortization
Fuel
Maintenance and repairs
Business realignment, 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
Comprehensive Income

Year Ended May 31, 2013

Parent
$ –

Guarantor
Subsidiaries
$ 37,073

Non-guarantor
Subsidiaries
$ 7,543

Eliminations
$ (329)

Consolidated
$ 44,287

103
–
5
1
–
1
21
(227)
96
–
–

1,561
(108)
113
(5)
1,561
–
$ 1,561
$ 2,622

14,375
4,839
2,198
2,200
4,650
1,791
639
(329)
4,565
34,928
2,145

253
42
(131)
(20)
2,289
710
$ 1,579
$ 1,618

2,092
2,574
324
185
96
117
–
556
1,193
7,137
406

–
5
18
(10 )
419
184
$ 235
$ 268

–
(141)
(6)
–
–
–
–
–
(182)
(329)
–

(1,814)
–
–
–
(1,814)
–
$ (1,814)
$ (1,814)

16,570
7,272
2,521
2,386
4,746
1,909
660
–
5,672
41,736
2,551

–
(61)
–
(35)
2,455
894
$ 1,561
$ 2,694

Condensed Consolidating Statements of Comprehensive Income (Loss)
Year Ended May 31, 2012

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

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
$ (120)

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
$ 1,796

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

–
5
22
9
707
234
$ 473
$ 380

–
(118)
(6)
–
–
–
–
–
(177)
(301)
–

(2,427)
–
–
–
(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
$ (371 )

notes to consolidated financial statements

Condensed Consolidating Statements of Comprehensive 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
$ 1,240

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
$ 1,329

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

–
(2)
31
(6)
478
136
$ 342
$ 425

–
(105)
(4)
–
–
–
–
–
(209)
(318)
–

(1,652)
–
–
–
(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
$ 1,342

Condensed Consolidating Statements of Cash Flows

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
Net transfers from (to) Parent
Payment on loan between subsidiaries
Intercompany dividends
Principal payments on debt
Proceeds from debt issuances
Proceeds from stock issuances
Excess tax benefit on the exercise of stock options
Dividends paid
Purchase of treasury stock
Other, net
Cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

Year Ended May 31, 2013

Parent
$ 247

Guarantor
Subsidiaries
$ 3,936

Non-guarantor
Subsidiaries
$ 486

Eliminations
$ 19

Consolidated
$ 4,688

(3)
–
–
(3)

141
–
–
–
1,739
280
23
(177)
(246)
(18)
1,742
–
1,986
1,906
$ 3,892

(3,029)
–
49
(2,980)

(58)
(385)
21
(417)
–
–
–
–
–
(119)
(958)
(10 )
(12 )
417
$ 405

(343)
(483 )
6
(820)

(83 )
385
(21)
–
–
–
–
–
–
119
400
15
81
636
$ 717

–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
19
(116)
$ (97)

(3,375)
(483)
55
(3,803)

–
–
–
(417)
1,739
280
23
(177)
(246)
(18)
1,184
5
2,074
2,843
$ 4,917

notes to consolidated financial statements

Condensed Consolidating Statements of Cash Flows

Cash provided by (used in) operating activities
Investing activities
Capital expenditures
Business acquisition, net of cash acquired
Proceeds from asset dispositions and other
Cash used in investing activities
Financing activities
Net transfers from (to) Parent
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

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, 2013 and 2012, and the related consolidated
statements of income, comprehensive income (loss), changes in stockholders’ investment, and cash flows for each of the three years in the period
ended May 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of FedEx
Corporation at May 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the three years in the period
ended May 31, 2013, 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, 2013, based on criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 15, 2013 expressed an unqualified opinion thereon.

Memphis, Tennessee
July 15, 2013

72
72

SELECTED FINANCIAL DATA

The following table sets forth (in millions, except per share amounts and other operating data) certain selected consolidated financial and
operating data for FedEx as of and for the five years ended May 31, 2013. This information should be read in conjunction with the Consolidated
Financial Statements, MD&A and other financial data appearing elsewhere in this Annual Report.

2013(1)

2012(2)

2011(3)

2010(4)

2009(5)

Operating Results
Revenues
Operating income
Income before income taxes
Net income

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

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

$ 44,287
2,551
2,455
1,561

$ 4.95
$ 4.91
315
317
$ 0.56

$ 18,484
33,567
2,739
17,398

$ 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

Other Operating Data
647
FedEx Express aircraft fleet
(1) Results for 2013 include $560 million ($353 million, net of tax, or $1.11 per diluted share) of business realignment costs and a $100 million ($63 million, net of tax, or $0.20 per diluted share)
impairment charge resulting from the decision to retire 10 aircraft and related engines at FedEx Express. See Note 1 to the accompanying consolidated financial statements. Additionally,
common stockholders’ investment includes an other comprehensive income increase of $861 million, net of tax, for the funded status of our retirement plans at May 31, 2013.

660

667

688

654

(2) 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. See Note 1 to the accompanying consolidated financial statements. Additionally, common stockholders’ investment
includes an other comprehensive income charge of $2.4 billion, net of tax, for the funded status of our retirement plans at May 31, 2012.

(3) 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 $66 million reserve associated with a legal matter at FedEx Express. See Note 1 to the accompanying consolidated financial
statements. Additionally, common stockholders’ investment includes an other comprehensive income charge of $350 million, net of tax, for the funded status of our retirement plans at
May 31, 2011.

(4) Common stockholders’ investment includes an other comprehensive income charge of $1.0 billion, net of tax, for the funded status of our retirement plans at May 31, 2010.
(5) 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.

73
73

fedex corporationBOARD OF DIRECTORS

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

John A. Edwardson(1*)
Former Chairman and Chief Executive Officer
CDW Corporation
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

Joshua 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)
Executive Advisor
Diageo plc
Beverage company

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
Henry J. Maier
President and Chief Executive Officer
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
Donald F. Colleran
Executive Vice President, Global Sales
FedEx Services

Rajesh Subramaniam
Executive Vice President, Global Marketing
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 23, 2013,
8:00 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 12, 2013, there were 13,151 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 2013 and 2012:

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

FY2013
High
Low
Dividend
FY2012
High
Low
Dividend

$ 93.17
83.80
0.14

$ 98.66
72.16
0.13

$ 94.26
83.92
0.14

$ 85.75
64.07
0.13

$ 107.50
87.99
0.14

$ 97.19
76.95
0.13

$ 109.66
90.61
0.14

$ 96.89
84.86
0.13

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 Investor Relations website
at investors.fedex.com. Company documents filed electronically with
the SEC can also be found at the SEC’s website 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 website 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.

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
paper containing 10% recycled PCW fiber. Printing plant utilized 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.

> 137 trees preserved for the future

> 61 million BTUs of energy conserved

> 5,830 kWh of electricity offset

> 11,762 pounds of greenhouse gas reduced

> 63,791 gallons of water waste eliminated

> 4,270 pounds of solid waste eliminated

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

.
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fedeX corporation

In 40 years of doing business, we’ve experienced dynamic economic,

social and technological changes few could have envisioned. Yet,

we’ve stayed the course, guided by a steadfast commitment to our

customers, team members and shareowners. Regardless of what’s

— The Purple Promise

happening in the world, you can count on FedEx to approach our

business as we always have: moving in many directions to connect the

world, whether it’s adjusting our networks to meet customers’ needs

or by providing more innovative and sustainable ways of working.

North. South. East. West — they point in one direction. Forward.

F
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North. South. East. West

Forward

Fedex Corporation
942 South Shady Grove road
Memphis, tennessee 38120
fedex.com

Fedex annual report 2013