FedEx Annual Report 2014

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FY2014 Annual Report · FedEx

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The strength of our people
powers the strength of our results.

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Solutions
for a more sustainable world.

Our commitment to connect the world in responsible and resourceful ways is getting results.

In 2013, we efficiently reduced CO2 emissions intensity while increasing business revenue.

GOAL

30%

Reduction in aircraft
emissions intensity
by 2020 from a
2005 baseline.

30%

Increase in FedEx
Express vehicle fuel
efficiency by 2020
from a 2005 baseline.

GOAL
Expand on-site
generation
and continuing
procurement of
renewable energy
for our facilities.

GOAL
Seek Leadership
in Energy &
Environmental Design
(LEED) certification
on all new U.S. FedEx
Express buildings.

PROGRESS

22.3%

since 2005

PROGRESS

27.0%

since 2005

PROGRESS

27gigawatt hours

since 2005

PROGRESS

10 LEED

certified buildings

To learn more, read the 2013 FedEx Global Citizenship Report at csr.fedex.com.

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

In line with our commitment to sustainability, the FedEx Annual Report was produced using environmentally and socially responsible
procurement and manufacturing practices to ensure a minimized environmental impact. See page 80 for more details.

Fedex AnnuAl RepoR t 2014

The strength of our purpose.

Good things happen when FedEx connects people and possibilities. Our customers find opportunity
in new markets and, in turn, give back to their communities. In the West African nation of Togo,
more children are graduating because they can get to school, thanks to 5,700 bikes donated by
Alaffia, an Olympia, Wash.–based company that depends on FedEx for global supply chain solutions.

More than a decade ago, Alaffia started a business with Togolese women to traditionally harvest
and process shea tree nuts. It’s the key ingredient used in the fair trade body care products Alaffia
sells through major retailers. Since 2003, the company has created hundreds of new jobs — and
a growing community of kids on wheels. fedex.com/access

Strength
in numbers.

More than 300,000 FedEx team

members worldwide work tirelessly

to serve our customers and create

value for shareowners. Thanks to their

extraordinary efforts, FY14 returns to

investors outperformed the S&P 500 and

the Dow Jones Transportation Average.

31%

19%

— The Purple Promise

50%

FY2014

S&P 500

Dow Jones
Transportation
Average

FedEx
Corporation

Letter from the Chairman

Decisive actions. Superior returns.

To our
shareowners,
In FY14 we acted
decisively to boost
shareowner value,
and we are proud of
our accomplishments
during the year.

demonstrated our ongoing commitment
to deliver value to our shareowners.

• We are aggressively managing costs, and
our balance sheet remains strong, giving
us the flexibility to carry out the stock
repurchase program while continuing
to execute our strategic initiatives.

• Returns to investors outperformed
the S&P 500 and the Dow Jones
Transportation Average, and our market
capitalization increased significantly.

• The historic stock buyback we

announced in October reaffirmed our
confidence in the company’s strategy
and long-term growth potential. It also

These initiatives are designed to ensure
the near- and long-term success of FedEx,
including superior financial returns for
shareowners. As a result, we believe
FedEx is well positioned for stronger
growth in earnings and cash flow
despite a sluggish global economy and
dramatic changes in supply chains.

The strength of our people powers the
strength of our results. That is embodied
in our People-Service-Profit culture and our
Purple Promise: “I will make every FedEx
experience outstanding.” For proof, look no
further than our team members’ extraordinary
efforts this past winter and holiday season.
Despite the toughest winter FedEx
has ever experienced, team members
delivered record volumes, and service
metrics were among our best ever for a
peak season. In fact, many team members
volunteered to work on Christmas Day. It’s
no coincidence that FedEx was once again
recognized by Fortune magazine as one of
the world’s 10 most admired companies
and No. 1 in the delivery industry.

more > fedex.com/annualr eport2014 1

Letter from the Chairman

CusTomers define us
As persistently high fuel prices continue
to add costs to long-range supply chains,
customers are seeking innovative and
flexible solutions to stay competitive. We’ve
seen this coming for a long time, which is
why we enhanced and diversified our suite
of services over the last several years.

fedex Ground played a leading role in
our success during FY14. We again led the
industry in revenue-share growth, which has
now increased for more than 14 consecutive
years. The company’s strategic investments
in both the network and technology began
16 years ago and continue today. They’ve led
us to gain a significant share of the market
growth that’s fueled in part by e-commerce.
In FY14, FedEx invested nearly $1 billion in
FedEx Ground — 90 percent to support growth
initiatives by expanding the network’s capacity.

fedex express continues to align
international operations to ensure we
exactly match customer needs in terms of
service and price. Our global door-to-door
priority express network is without peer
and was further enhanced in FY14 with hub
openings in Osaka and Mexico City. At the
same time, expanded FedEx Trade Networks
global ocean and air freight forwarding
systems are providing customers with more
flexibility for their shipping needs. The
Express European growth strategy reached a

milestone when we opened our 100th new
station in fewer than three years. FedEx
One RateSM — in less than a year after it was
launched — is performing impressively, giving
U.S. customers simple, predictable flat rate
shipping options for their Express packages.

fedex freight, the industry leader in
market share and volume, is growing by
making less-than-truckload (LTL) shipping
easier than ever. In an industry where many
LTL transactions are manual and pricing is
complicated, our newly improved FedEx online
shipping tools help customers process more
shipments in less time. We’re also the only
LTL carrier to offer two options — Priority
and Economy — and about 87 percent of
customers use both. Our increasing use of rail
for many FedEx Freight® Economy shipments
also lowers our costs while maintaining
our service reliability to customers.

fedex services excels at building robust
technology and solutions that can uniquely
meet customers’ global transportation and
supply chain challenges. The FedEx® portfolio
creates significant value, generating about
96 percent of U.S. revenue from customers
who use two or more FedEx operating
companies. For shippers needing an extra hand
packing, we’re rolling out Pack Plus services
at FedEx Office locations across the United
States. Features include a larger selection
of boxes, as well as custom packaging.

innovaTion drives us
As baseball Hall of Famer Yogi Berra put it:
“The future ain’t what it used to be.” Just
look at how online shopping has exploded
around the world. Forrester Research
predicts that worldwide B2C online sales will
reach $1.33 trillion in 2017, up from $656
billion in 2012. U.S. e-commerce sales in
the 2013 five-day period from Thanksgiving
through Cyber Monday jumped 26 percent
year over year — truly astounding.

Without question, such volume numbers
point to strong opportunities. But as the past
peak shipping season showed, residential
delivery also poses many challenges.
Carriers and retailers alike must agree on
new ways of thinking or risk disappointing
customers. Residential package recipients
have high expectations for service,
but FedEx must also carefully manage
delivery costs to ensure profitability.

We created our E-commerce Center of
Excellence with that in mind. The center
orchestrates efforts across FedEx to grow our
e-commerce business by giving customers
more tools and delivery options. FedEx Delivery
ManagerSM is an example of innovation that
allows customers to personalize their delivery
experience. FedEx Ship&Get® is a new
shipping and delivery option we’re piloting
at select retail locations. Customers can use
these stand-alone kiosks and lockers to ship
or pick up packages at their convenience.

Today, e-commerce is a bright spot and an
important driver of the global economy.
For e-commerce to realize its full potential,
however, international trade rules must
be modernized. For this internet-based
economy to grow on a global basis,
customs procedures and clearance must
be simplified and red tape eliminated.

flexibiliTy differenTiaTes us
Despite many political challenges, the world
is becoming more connected. Markets,
technologies and social trends often shift
with little warning. Businesses must navigate
rapid change or risk becoming obsolete. At
FedEx, flexibility is a core strategic advantage,
and we move quickly in response to new

our independent networks and
multiple hubs give fedex the flexibility
we need to serve customers under
changing conditions.

customer needs in a dynamic marketplace. We
constantly strive to help our customers become
more efficient with new FedEx solutions.

The FedEx strategy of Compete Collectively,
Operate Independently and Manage
Collaboratively is based on maintaining
separate FedEx Express, FedEx Ground
and FedEx Freight networks. Our Express
system, which has multiple hubs, proved to
be an especially important advantage for our
customers during the severe weather that
hit during the peak shipping season. This
flexible network allowed us to quickly shift
volume to adjust to changing circumstances.

Our strategy above is at the heart of the
speed advantage FedEx Ground has over
other ground carriers on thousands of U.S.
routes. We are continually fine-tuning the
Ground network to deliver faster transit
times. In the same vein, FedEx Freight®
Priority service boasts the fastest published
times of any nationwide LTL carrier.
Our ability to quickly adjust international
capacity to demand has been key to the FedEx
Express profit improvement program. We’re
successfully transitioning lower-yielding
FedEx International Economy® shipments
to low-cost passenger aircraft underbellies.
We’re also building out our freight forwarding
capabilities for bulk shipments through FedEx
Trade Networks® air and ocean services.

our purpose inspires us
At FedEx, we believe that when we connect
people and possibilities, innovation soars,
businesses create jobs that improve lives,
and people thrive in communities rich with
opportunity and hope for a better future.

We aspire to connect the world in more
environmentally friendly and resourceful ways.
This in turn has made us a stronger and more
efficient company. We also recognize that
being a more responsible corporate citizen is
increasingly important to many customers
who decide to do business with FedEx based
on our sustainability goals and progress. Our
efforts are well ahead of plan. For example,
we recently revised both our FedEx Express
vehicle fuel efficiency and aircraft carbon
emissions improvement goals from 20 percent
to 30 percent by 2020 from 2005 baselines.
Modernizing our aircraft fleet has significantly
improved efficiency and reduced emissions
while saving millions of dollars annually in
fuel and maintenance costs.

FedEx has many competitive advantages, but
none more important than the quality and
integrity of our team members. I can think of
no better examples than two FedEx Express
executives who will be retiring in FY15 —
40-year veteran Mike Ducker, Chief Operating
Officer and President of FedEx International,

and Cathy Ross, Executive Vice President and
Chief Financial Officer, who has been with
the company 30 years. We thank them for
their leadership and countless contributions
to FedEx and wish them well in the future.

We also welcome two new Board members —
Marvin Ellison, who has extensive operations
and logistics experience, and Kimberly Jabal,
with a background in information technology,
social media, finance and operations.

Each FedEx team member is committed to
building value for shareowners, connecting
customers to global opportunities, and
championing policies that create prosperity.

Based on our progress last year, FY15
should be exciting on all these fronts.

Frederick W. Smith
Chairman, President and CEO

more > fedex.com/annualr eport2014 3

the strength of
our global networks.

With 95 percent of the world’s consumers living outside the United States, FedEx
has been investing in countries where business is growing. FY14 was no exception.
Strategic acquisitions, new hubs and enhanced services strengthen the link between
emerging economies and the global marketplace. As a result, customers have better
access to opportunities than ever, and local economies are enjoying strong growth.

FedEx customers in Mexico can
now access local markets and
global opportunities faster and
easier than ever.

momentum in mexico
In April, FedEx opened the most advanced
FedEx Express distribution center in Latin
America, just outside Mexico City. As the
centerpiece of our domestic operations in
Mexico, the hub is already infusing vitality into
the country’s economy by driving trade and
creating jobs. A greatly expanded range of
solutions and more than 800 shipping locations
across Mexico give customers more direct
access to markets within their country and
faster access to opportunities worldwide.

FedEx now enjoys a strong position in Mexico,
thanks to our recent integration of MultiPack.
The 2011 acquisition signaled our commitment
to the fast-growing region where daily two-
way trade between Mexico and the U.S.
alone totals $1.35 billion.1 As a U.S. trading
partner, Mexico ranks as the third largest,
accounting for 13.5 percent of total trade.2

“We are witnessing a key moment in the
growth of FedEx in Latin America,” said
Juan N. Cento, Regional President of FedEx
Express, Latin America and the Caribbean.
The new Mexico hub will accelerate
Latin American domestic revenues, which
are already growing substantially.

open borders boost trade
Removing barriers to trade has propelled

intraregional trade flows since the North
American Free Trade Agreement (NAFTA)
was signed two decades ago. In October 2013,
U.S. trade with NAFTA partners Canada and
Mexico was $103.1 billion, up 4.5 percent
from the previous year and exceeding $100
billion per month for the first time, according
to Bureau of Transportation Statistics. For
perspective, the U.S. trades more in goods
and services with Mexico and Canada than
it does with Japan, South Korea, Brazil,
Russia, India and China combined.

As the near-shoring trend continues, many
Latin American countries, including Mexico,
stand to benefit from a growing manufacturing
industry. Companies also have the opportunity
to market their products to the growing
consuming class within Mexico by moving
their manufacturing closer to U.S. markets.

focused on growing markets
FedEx strategy to provide domestic service
in Mexico is the same driving force behind
acquisitions of domestic transportation
companies in other key markets around
the world, including the United Kingdom,
Hungary, India, China, Poland, France, Brazil
and Southern Africa. The growth plan is
working — international domestic revenue
has more than doubled from $653 million
in FY11 to about $1.4 billion in FY14.

fedex is expanding services in key high-growth countries. The chart below
reflects projected population growth from 2010 to 2030.

14%

19%

24%

China
+50 million people3

brazil
+25 million people3

mexico
+22 million people3

india
+300 million people3

Grow Globally,
operaTe loCally.

A few years ago, FedEx participated
in a $30 billion global export express
market. We’ve worked hard to expand
our portfolio to include domestic services
in international markets, value-added
logistics and freight forwarding. New
investments, including those in Mexico,
now position us to pursue a much
larger logistics and transportation
marketplace worth $300 billion.

• asia. The same week the Mexico
City hub opened, we celebrated
the opening of our Northern Pacific
hub in Osaka, Japan. The facility is
a consolidation and transshipment
point for shipments between Asia and
the U.S., giving customers greater
access to and from markets in Asia-
Pacific, the Americas and Europe.

• europe. FedEx continues to make
progress in our plans to expand our
footprint in Europe. FedEx Express
has opened 100 stations across 11
European countries since 2011.

• southern africa. FedEx recently
finalized the acquisition of its global
service provider in seven Southern
African countries, directly connecting
it with the FedEx international
network serving more than 220
countries and territories worldwide.

• Global freight forwarding.

International customers can find the
right balance between speed and
service by using FedEx Express and
FedEx Trade Networks, our ocean and
air freight forwarding arm. Expanding
our presence to 27 countries with more
than 70 offices outside the U.S. has
resulted in strong growth in the $163
billion global freight forwarding market.4

1. U.S. Chamber of Commerce, 2014
2. U.S. Census Bureau, Top Trading Partners, March 2014
3. United Nations Population Fund
4. Global Industry Analysts Research Reports

more > fedex.com/annualr eport2014 5

the strength
of our portfolio.

When it comes to shoes, FedEx helps Allen Edmonds put its best foot
forward with a sophisticated global sourcing and distribution network
powered by the FedEx portfolio of solutions.

“The breadth and depth of
the fedex portfolio makes my
job easier,” said Terry Howell,
allen edmonds’ supply chain
manager. “it’s hard to think of
a supply chain challenge that
fedex can’t help me solve.”

Enter FedEx District Sales Manager
John Whittington and an entire team of
FedEx logistics and automation experts.
“If Allen Edmonds could source a raw
material anywhere in the world, we knew
we could get it to Port Washington in
two to three days,” Whittington said.

In 2012, the Port Washington, Wisconsin–
based manufacturer asked FedEx what it
could do to streamline the shoemaker’s
supply chain. The company had to get
its products to market faster. Through an
expanded retail network and aggressive
export strategy, demand was surging —
especially in China, Europe and South Africa,
where Made in America goods are hot.

“With our more aggressive growth strategy,
we needed a more aggressive shipping
strategy,” Howell said. “With our prior
carrier, there was a set shipping schedule,
and we had to organize our production
facility around it,” said Dave Barber, vice
president of Systems and Technology at
Allen Edmonds. “FedEx created a shipping
program to meet our schedule.”

The Allen Edmonds Port Washington
factory now echoes with nearly relentless
noise and activity. Jobs there are growing
at a 50 percent annual clip — since
2010 the company added more than 300
cobblers. Craftspeople carefully inspect
leather, fasten shoe uppers to lasts,
and attach Allen Edmonds’ famous cork
footbed to each Goodyear-welted shoe,
all before final packaging and shipping.

The result of this productivity? Twenty percent
year-over-year revenue growth. As men
around the world continue to dress better,
Allen Edmonds is well positioned for
the future.

FedEx
Ground

FedEx
Express

75%

FedEx
Freight

a bundle of value

Customers using all three FedEx
transportation companies account
for 75 percent of U.S. revenues.
About 96 percent of U.S. revenues is
generated by customers who use two
or more transportation companies.

Like Allen Edmonds, more customers than
ever rely on FedEx for multiple solutions
ranging from air to ground to ocean. As
a result, our portfolio is a competitive
advantage for a customer and adds
tremendous value for FedEx.

• By operating independently, our focused
networks can fine-tune their operations
to deliver the best service and reliability
for customers.

• By managing our solutions as a portfolio,
we make it easy for customers to meet
any global business challenge that
comes their way.

Online shoppers can have
their Allen Edmonds shoes
delivered by FedEx Home
Delivery® or FedEx Express.

fedex soluTions aT every sTep of THe supply CHain

raw materials
The world’s finest leathers
and other components arrive
from multiple ports around
the world, such as Germany,
Italy and India, via fedex
Trade networks and
fedex freight.

manufacturing
Allen Edmonds crafts
more than 90 percent
of its shoes in Wisconsin
in a 212-step process.

distribution
Allen Edmonds relies
on fedex Ground
for weekly merchandise
deliveries to its 50 U.S.
retail locations.

e-commerce
For its exploding
e-commerce business,
growing 60 percent
year over year, Allen
Edmonds uses fedex
Home delivery®
and fedex express
— the latter popular with
Allen Edmonds’ more
demanding customers,
who frequently want
their footwear delivered
by the next morning.

more > fedex.com/annualr eport2014 7

2014

2013(1)

Percent
Change

Revenue (in billions)

2010

2011

2012

2013

2014

2010

2011(3)

2012(2)

2013(1)

2014

2010

2011(3)

2012(2)

2013(1)

2014

2010

2011(3)

2012(2)

2013(1)

2014

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

Operating Margin

Diluted Earnings Per Share

Return on Average Equity

Debt to Total Capitalization

Stock Price (May 31 close)

$34.7

$39.3

$42.7

$44.3

$45.6

5.8%

6.1%

7.5%

5.8%

7.6%

$3.76

$4.57

$6.41

$4.91

$6.75

8.6%

10.0%

13.6%

9.7%

12.8%

12.3%

10.0%

10.2%

14.7%

31.0%

$83.49

$93.64

$89.14

$96.34

$144.16

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

$ 45,567
3,446

$ 44,287
2,551

7.6%

5.8%

2,097
6.75

310
3,533

1,561
4.91

317
3,375

$ 2,908
33,070

$ 4,917
33,567

4,737
15,277

2,990
17,398

3
35
180bp
34
37

(2)
17

(41)
(1)

58
(12)

Comparison of Five-Year Cumulative Total Return*

5/09

5/10

5/11

5/12

5/13

5/14

FedEx Corporation

S&P 500

Dow Jones Transportation Average

* $100 invested on 5/31/09 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.

(2) Results for 2012 include a $134 million ($84 million, net of tax or $0.26 per share) impairment
charge resulting from the decision to retire 24 aircraft and related engines at FedEx Express
and the reversal of a $66 million legal reserve associated with the ATA Airlines lawsuit which
was initially recorded in the second quarter of 2011.

(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 reserve associated
with a legal matter at FedEx Express.

$300

$250

$200

$150

$100

OVERVIEW OF FINANCIAL SECTION

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

Organization of Information
Our MD&A is composed of three major sections: Results of
Operations, Financial Condition and Critical Accounting Estimates.
These sections include the following information:

> Results of operations includes an overview of our consolidated 2014
results compared to 2013, and 2013 results compared to 2012. This
section also includes a discussion of key actions and events that
impacted our results, as well as our outlook for 2015.

> The overview is followed by a financial summary and analysis
(including a discussion of both historical operating results and our
outlook for 2015) for each of our reportable transportation segments.

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

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

> We conclude with a discussion of risks and uncertainties that may
impact our financial and operating results.

Description of Business
We provide a broad portfolio of transportation, e-commerce and
business services through companies competing collectively,
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
U.S. provider of less-than-truckload (“LTL”) freight services. These
companies represent our major service lines and, along with FedEx
Corporate Services, Inc. (“FedEx Services”), form the core of our
reportable segments.

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

The key indicators necessary to understand our operating results
include:

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

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

> the mix of services purchased by our customers;

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

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

> the timing and amount of fluctuations in fuel prices and our ability
to recover incremental fuel costs through our fuel surcharges.

The majority of our operating expenses are directly impacted by
revenue and volume levels. Accordingly, we expect these operating
expenses to fluctuate on a year-over-year basis consistent with the
change in revenues and volumes. Therefore, the discussion of
operating expense captions focuses on the key drivers and trends
impacting expenses other than changes in revenues and volume. The
line item “Other operating expenses” includes costs predominantly
associated with outside service contracts (such as security and facility
services), insurance, uniforms, professional fees and advertising.

Except as otherwise specified, references to years indicate our fiscal
year ended May 31, 2014 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

2013/2012
4
Revenues
(20 )
Operating income
(170 )bp
Operating margin
(23 )
Net income
(23 )
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 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

2014/2013
3
35
180 bp
34
37

2012(2)
$ 42,680
3,186

2013(1)
$ 44,287
2,551

2014
$ 45,567
3,446

$ 2,032
$ 6.41

$ 1,561
$ 4.91

$ 2,097
$ 6.75

7.5%

5.8%

7.6%

that was initially recorded in 2011 at FedEx Express.

The following table shows changes in revenues and operating income by reportable segment for 2014 compared to 2013, and 2013 compared to
2012 (dollars in millions):

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

Revenues

Operating Income

Dollar Change

Percent Change

Dollar Change

2014/2013
$ (50)
1,039
356
(44)
(21)
$ 1,280

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

2014/2013
–
10
7
(3)
NM
3

2013/2012
2
10
2
(5)
NM
4

2014/2013
$ 617
167
111
–
–
$ 895

2013/2012
$ (705 )
24
46
–
–
$ (635 )

Percent Change
2014/2013
111
9
53
–
–
35

2013/2012
(56 )
1
28
–
–
(20 )

(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.

(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.

ManageMent’s discussion and analysis

2,700

2,600
2,700

2,500
2,600

2,400
2,500

2,400

5,000

4,500

4,000
5,000
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

12,000

11,500

11,000
12,000
10,500
11,500
10,000
11,000
9,500
10,500
9,000
10,000
8,500
9,500

9,000

8,500

$19.00

$18.00

$19.00

$17.00

$18.00

$16.00

$17.00

$15.00

$16.00

$14.00

$15.00

$14.00

$10.00

$8.00

$10.00

$6.00

$8.00

$4.00

$6.00

$2.00

$4.00

$2.00

$250.00

$240.00

$250.00

$230.00

$240.00

$220.00

$230.00

$210.00

$220.00

$200.00

$210.00

$200.00

Overview
Our revenues and earnings for 2014 increased due to improved
performance of all our transportation segments. In addition, our 2014
results benefited from lower pension expense, our voluntary employee
severance program and reduced variable incentive compensation,
partially offset by the significant negative net impact of fuel, an
estimated $70 million year-over-year negative impact of severe
weather and one fewer operating day. Our year-over-year earnings
comparisons benefited from the inclusion in the prior year results of
business realignment costs and an aircraft impairment charge
(described below).

In 2014, we repurchased an aggregate of $4.9 billion of our common
stock through open market purchases and through accelerated share
repurchase (“ASR”) agreements with two banks. Share repurchases
in 2014 had a modest positive impact on earnings per diluted share.

FedEx Express U.S. Domestic
Average Daily Package Volume

2,700

See additional information on the share repurchase program in Note 1
of the accompanying consolidated financial statements.

Our 2013 results include business realignment costs of $560 million,
primarily related to our voluntary cash buyout program. Furthermore,
in 2013, we retired from service 10 aircraft and related engines, which
resulted in a noncash asset impairment charge of $100 million. These
items 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
FedEx Express International(1)
offset by network cost and capacity reductions in 2013.
Average Daily Package Volume

1,000

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

FedEx Express International(1)
Average Daily Package Volume

785

800

819

2,684
FedEx Express U.S. Domestic
Average Daily Package Volume

1,000

800
1,000

600
800

400
600

200
400

200

90.0

80.0

70.0

FedEx Express International(1)
Average Daily Package Volume

575
FedEx Express International(1)
819
Average Daily Package Volume

576

600

559

580
819

785

576

785

495

559

2012
495

International export

576

559

580
819

576
785
2013

580
819

2014

580

576

International domestic

580

2013

495
2012

2014

2013

2014

348

575

2011

348
575

2011
348

International export

International domestic

200
2012

International export

90.0

2013

FedEx Freight
2011
2014
Average Daily LTL Shipments
International domestic

International export

2012

2013

2014

International domestic

FedEx Freight
FedEx Freight
86.0
Average Daily LTL Shipments
Average Daily LTL Shipments

85.7

84.9

FedEx Freight
FedEx Freight
90.6
86.0
86.0
Average Daily LTL Shipments
Average Daily LTL Shipments

85.7

90.0
80.0

84.9

1,000

800
1,000
400

559

600
800
200

495

400
600

559

200
400

495
2012

575

348
575

2011
348

2011

86.0

2011

90.0

80.0
70.0

84.9

80.0

70.0

2012

86.0

85.7

2011

84.9
2012

90.6

85.7

2013

90.6

2014

2011

2013

2012

2014

2013

2014

70.0

2012

2011

2013

2012

2014

2013

2014

(1) International domestic average daily package volume represents our
international intra-country express operations, including countries such as
India, Mexico and Brazil.

2,684

2011

3,746

1,432

2011

2,684
FedEx Express U.S. Domestic
Average Daily Package Volume

2,543

2,577

2,571

2,684

2011

2,543

2,577

2,571

2012
2,577

2,571

2,543

2013

2,543

2,571

2014
2,571

2011

2013

2012

2014

2013

2014

FedEx Ground
2011
2014
Average Daily Package Volume

2013

2012

2013

2014

4,588

FedEx Ground
FedEx Ground
3,746
Average Daily Package Volume
Average Daily Package Volume

4,000

3,907

4,222

FedEx Ground
FedEx Ground
Average Daily Package Volume
Average Daily Package Volume
3,746
3,746

3,000
4,500

4,222

3,907

4,222

3,907

2,186

4,588

2,058

1,692

4,588

3,907

2,186

2012
1,692

4,222

2,058

1,432
3,746

2011

1,432

FedEx Ground

4,222

2,058
2013

4,588

2,186
2014

FedEx SmartPost

2,058
2013

2011

2,186

2014

2,058
2013

2012
1,692

2,186

2014

1,432

FedEx Ground

FedEx SmartPost

2013

2012

2011
2014
FedEx Express and FedEx Ground
FedEx SmartPost
Total Average Daily Package Volume

FedEx SmartPost

FedEx Ground

2013

2014

1,432

FedEx Ground
1,500

2011

1,000

2012

FedEx Ground

12,000

11,500

FedEx Express and FedEx Ground
Total Average Daily Package Volume

FedEx Express and FedEx Ground
10,744
Total Average Daily Package Volume

11,000

FedEx Express and FedEx Ground
Total Average Daily Package Volume

11,500
10,000

10,184

10,744

9,230

2012
9,230

10,744

10,184

2013

10,184

8,785

10,184

2011

10,184

8,785

2,600
2,700

2,500
2,600
2,700

2,577

2,400
2,500
2,600

2,577

2,400
2,500

2012

2,400

2012

5,000

4,500

3,500
5,000

2,500
4,000
5,000
2,000
3,500
4,500
1,500
3,000
4,000
1,000
2,500
3,500
2,000
3,000
1,500
2,500
1,000
2,000

3,907

1,692

2012
1,692

12,000
10,500

11,000
9,500
12,000
10,500
9,000
11,500
10,000
8,500
11,000
9,500
10,500
9,000
10,000
8,500
9,500

2013

9,230

2012
9,230

2011
2014
FedEx Express U.S. Domestic
8,785
Revenue per Package – Yield

9,000

8,500

$19.00

2012

$19.00

$17.00

$18.00

$16.00

$14.00

$17.00

$15.00

$16.00

$14.00

2012

$15.00

$10.00

$14.00

$8.00

$10.00

$6.00

$8.77

$10.00

$8.77

$6.00

$2.00

$8.00

$4.00

$6.00

$1.81

$2.00

$4.00

2012

$1.81

10,744
2014

2014

$17.42

FedEx Express International
Revenue per Package – Yield

FedEx Express International

$56.08

$60.00

Revenue per Package – Yield

$50.00

$60.83

$58.72

$58.92

FedEx Express International

$58.72

$58.92

$58.72

$58.92

$56.08

Revenue per Package – Yield

$60.83

$7.38

$56.08

$58.72

$60.83

$6.74

$58.92

$6.99

$58.72

$58.92

$6.95

2011

2012

2013

2014

International export composite

International domestic

$7.38

$6.99

$6.74

$6.95

$6.99

$6.95

$70.00

$40.00

$60.83

$60.00

$30.00

$50.00

$20.00

$70.00

$40.00

$10.00

$60.00

$30.00

$50.00

$20.00

$40.00

$6.74

$10.00

$30.00

$20.00

2012

$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

$56.08

$7.38

2011

2013

2012

2014

2013

2014

$7.38

International export composite

$6.74

$10.00

$7.38

International export composite

International domestic

$6.74

$6.95

$6.99

International domestic

$6.95

2011

2013

2012

2014

2013

2014

International export composite

International domestic

2011

2013

2012

2014

2013

FedEx Express U.S. Domestic

Revenue per Package – Yield

$17.33

$18.00

$17.12

FedEx Express U.S. Domestic

Revenue per Package – Yield

$18.00

$16.00

$17.42

$17.33

$17.12

$19.00

$17.00

$15.00

$15.59

$17.33

$17.42

$17.12

2011

$17.12

2012

$17.33

2013

$17.42

2014

$15.59

2011

$15.59

FedEx Ground

2011

2013

2012

2014

$15.59

Revenue per Package – Yield

2013

2014

2011

FedEx Ground

2012

2011

FedEx Ground

2012

2013

2014

$8.17

$8.77

$8.94

2013

Revenue per Package – Yield

FedEx Ground

$8.17

FedEx Ground

$8.17

$8.94

$8.77

$9.10

$8.94

Revenue per Package – Yield

$8.00

$4.00

$9.10

2014

$9.10

$8.94

$1.81

$8.77

$9.10

$1.77

$8.94

$9.10

$1.78

$1.72

$8.17

2011

$1.72

2012

2014

$1.77

FedEx Ground

$1.81

$1.78

FedEx SmartPost

$1.78

2013

$1.77

FedEx Freight

2012

2013

2011

$1.77

$1.81

2014

$1.78

2013

$1.77

LTL Revenue per Shipment

$1.72

FedEx Ground

FedEx SmartPost

2014

$1.78

$2.00

FedEx Ground

$250.00

2012

2011

FedEx Freight

$240.00

LTL Revenue per Shipment

FedEx SmartPost

FedEx Ground

FedEx SmartPost

$231.52

2011

2013

FedEx Freight

2012

2014

2013

2014

$234.23

$250.00

$230.00

$226.24

FedEx Freight

LTL Revenue per Shipment

$240.00

$220.00

$234.23

$231.52

$208.63

2011

$231.52

$234.23

$231.52

2013

$234.23

2014

$226.24

2012

$226.24

2012

2011

2013

2012

2014

2013

2014

$250.00

$230.00

$210.00

$226.24

$240.00

$220.00

$200.00

$230.00

$226.24

$210.00

$220.00

$200.00

$210.00

$200.00

$208.63

Average Fuel Cost per Gallon

$4.00

$3.76

$3.80

$3.81

Average Fuel Cost per Gallon

$3.81

$3.80

$3.81

$3.76

$3.31

$3.22

$5.00

$3.00

$4.00

$5.00

$2.00

$3.00

$3.31

$3.80

$4.00

$1.00

$2.00

$3.00

$3.31

$1.00

2012

$2.00

$1.00

2012

$3.25

$2.66

$3.25

2011

$2.66

$3.25

$2.66

2011

$3.22

$3.81

$3.31

$3.80

2012

$3.13

$3.76

$3.22

Vehicle

$3.31

$3.13

$3.22

$3.81

2013

Jet

$3.22

2013

2012

2014

2013

Vehicle

Jet

Vehicle

Jet

Vehicle

Jet

Vehicle

Jet

$3.13

$3.76

$3.13

$3.76

2014

$3.13

2014

$5.00

$4.00

$5.00

$3.00

$4.00

$2.00

$3.00

$1.00

$2.00

$1.00

$3.25

$2.66

$3.25

$2.66

2011

2012

2011

2013

2012

2014

2013

2014

2011

2013

2012

2014

2013

2014

8,785

2011

8,785

2011

$8.17

$1.72

2011

$1.72

$208.63

2011

$208.63

2011

ManageMent’s discussion and analysis2011

2012

2013

2014

2011

2012

2013

2014

International export

International domestic

FedEx Express U.S. Domestic

Average Daily Package Volume

2,684

2,577

2,571

2,543

559

575

3,907

495

348

2012

2011

1,692

FedEx Express International(1)

Average Daily Package Volume

FedEx Express International(1)

Average Daily Package Volume

FedEx Ground

Average Daily Package Volume

819

785

4,588

580

576

819

580

785

576

4,222

559

495

2013

2,058

2012

2,186

2014

2013

2014

International export

International domestic

International export

International domestic

2012

2013

2014

FedEx Ground

FedEx SmartPost

FedEx Freight

Average Daily LTL Shipments

86.0

85.7

FedEx Express and FedEx Ground

84.9

86.0

84.9

Total Average Daily Package Volume

84.9

90.6

85.7

90.6

1,000

800

600

400

200

90.0

80.0

2011

70.0

2012

2011

9,230

10,184

2013

2012

10,744

2014

2013

2014

2012

2013

2014

FedEx Express U.S. Domestic

Revenue per Package – Yield

$17.33

$17.42

$17.12

575

3,746

348

2011

1,432

2011

8,785

2011

$15.59

2011

2012

2013

2014

2,700

2,600

2,500

2,400

1,000

800

5,000

600

4,500

4,000

400

3,500

3,000

200

2,500

2,000

1,500

1,000

90.0

12,000

80.0

11,500

11,000

10,500

70.0

10,000

9,500

9,000

8,500

$19.00

$18.00

$17.00

$16.00

$15.00

$14.00

FedEx Express U.S. Domestic

Average Daily Package Volume

FedEx Express U.S. Domestic

Average Daily Package Volume

2,684

2,700

2,684

2,577

2,543

2,571

2,543

2,571

2011

2,400

2012

2011

2013

2012

2014

2013

2014

FedEx Ground

Average Daily Package Volume

FedEx Ground

Average Daily Package Volume

4,588

4,222

2,186

2,058

4,588

2,186

4,222

3,907

2,058

1,692

3,746

3,907

3,746

1,432

2011

1,692

1,432

2012

2011

FedEx Ground

FedEx SmartPost

FedEx Ground

2013

2012

2014

2013

2014

FedEx SmartPost

2,600

2,500

5,000

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

FedEx Express and FedEx Ground

Total Average Daily Package Volume

FedEx Express and FedEx Ground

Total Average Daily Package Volume

12,000

11,500

11,000

10,500

10,500
10,000
10,000
9,500
9,500
9,000
9,000
8,500
8,500

8,785

2011

9,230

8,785
8,785

2012

2011
2011

10,744

10,184
10,184

10,184

9,230
9,230

2013

2012
2012

2014

2013
2013

2014
2014

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

FedEx Express International(1)

Average Daily Package Volume

785

576

819

580

575

400

348

559

495

FedEx Freight

Average Daily LTL Shipments

86.0

84.9

85.7

90.6

2011

2012

2013

2014

FedEx Express International

Revenue per Package – Yield

$60.83

$58.72

$58.92

$56.08

$7.38

2011

$6.74

2012

$6.99

$6.95

2013

2014

International export composite

International domestic

1,000

800

600

200

90.0

80.0

70.0

$70.00

$60.00

$50.00

$40.00

$30.00

$20.00

$10.00

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

$8.17
$56.08

$7.38
$1.72

2011
2011

$60.83
$8.77

$56.08
$56.08

$8.94
$58.72

$60.83
$60.83

$9.10
$58.92

$58.72
$58.72

$58.92
$58.92

$1.81
$6.74

$7.38
$7.38

$1.77
$6.99

$6.74
$6.74

$1.78
$6.95

$6.99
$6.99

$6.95
$6.95

International export composite

FedEx Ground

2012
2012

2013
2013

2011
2011
International export composite
International export composite

2012
2012

International domestic
FedEx SmartPost

2013
2014
2013
2014
International domestic
International domestic

2014
2014

$19.00
$19.00

$18.00
$18.00

$17.00
$17.00

$16.00
$16.00

$15.00
$15.00

$14.00
$14.00

$15.59

2011

$10.00
$10.00

$8.17

$8.00
$8.00

$6.00
$6.00

$4.00
$4.00

$2.00
$2.00

$0
$0

$1.72

2011

$17.12

$17.33

$17.12
$17.12

$17.42

$17.33
$17.33

$17.42
$17.42

$15.59
$15.59

2012

2011
2011

2013

2012
2012

2014

2013
2013

2014
2014

FedEx Ground
Revenue per Package – Yield

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

$8.77

$8.17
$8.17

$8.94

$8.77
$8.77

$9.10

$8.94
$8.94

$9.10
$9.10

$1.81

$1.72
$1.72

$1.77

$1.81
$1.81

$1.78

$1.77
$1.77

$1.78
$1.78

FedEx Ground

FedEx SmartPost

2012

2011
2011

2013

2012
2012

FedEx Ground
FedEx Ground

2014

2013
2013

2014
2014
FedEx SmartPost
FedEx 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

$250.00

$240.00

$230.00

$220.00

$210.00

$200.00

FedEx Freight
LTL Revenue per Shipment

Average Fuel Cost per Gallon

$231.52

$234.23

$226.24

$208.63

2011

2012

2013

2014

$5.00

$4.00

$3.00

$2.00

$1.00

$3.25

$2.66

$3.80

$3.81

$3.76

$3.31

$3.22

$3.13

2011

2012

2014

2013

Jet

Vehicle

$231.52

$234.23

$226.24

$234.23
$234.23

$226.24
$226.24

$231.52
$231.52

$240.00
$240.00

$250.00
$250.00

$230.00
$230.00

$220.00
$220.00

FedEx Freight
FedEx Freight
FedEx Freight
LTL Revenue per Shipment
LTL Revenue per Shipment
LTL Revenue per Shipment

Revenue
Revenues increased 3% in 2014, primarily due to higher volumes
at FedEx Ground and FedEx Freight and yield increases at FedEx
Ground. Revenues at all of our transportation segments in 2014 were
negatively impacted by one fewer operating day and unusually severe
weather. At our FedEx Ground segment, revenues increased 10% in
2014 due to higher volume from market share gains and increased
yields as a result of rate increases. Revenues at FedEx Freight
increased 7% during 2014 primarily due to higher average daily LTL
shipments and revenue per LTL shipment. At FedEx Express, revenues
were flat as lower fuel surcharges and lower freight revenue were
offset by revenue growth in our base U.S. and international export
package business and growth in our freight-forwarding business
at FedEx Trade Networks. The continuing demand shift from our
priority international services to our economy international services
dampened revenue growth at FedEx Express.

$208.63
$208.63
2011
2011

$200.00
$200.00

$210.00
$210.00

2014
2014

2013
2013

2012
2012

$208.63

2012

2011

2014

2013

$3.25

$3.80

$3.81

$3.76

$4.00

$3.00

$5.00

$3.80
$3.80

$3.81
$3.81

$4.00
$4.00

$5.00
$5.00

Average Fuel Cost per Gallon
Average Fuel Cost per Gallon

Average Fuel Cost per Gallon
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
$3.25
$3.25
domestic revenues from recent acquisitions and growth in our freight-
$3.13
forwarding business at FedEx Trade Networks. Base revenue growth
$3.13
$2.66
at FedEx Express in 2013 was constrained by global economic condi-
$2.66
tions as shifts in demand from our priority international services to our
economy international services and lower rates resulted in declines
2011
in international export package yields. At FedEx Freight, revenues
2011
Vehicle
increased 2% in 2013 as a result of higher yield and average daily
LTL shipments.

2013
2013
Jet
Jet

Vehicle
Vehicle

$1.00
$1.00

$2.00
$2.00

$3.00
$3.00

$3.22
$3.22

$3.31
$3.31

$3.76
$3.76

2012
2012

2014
2014

$3.13

$2.00

$1.00

$3.22

$3.31

$2.66

2014

2013

2012

2011

Jet

2,700

2,600

2,500

2,400

5,000

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

12,000

11,500

11,000

10,500

10,000

9,500

9,000

8,500

$19.00

$18.00

$17.00

$16.00

$15.00

$14.00

$10.00

$8.00

$6.00

$4.00

$2.00

$250.00

$240.00

$230.00

$220.00

$210.00

$200.00

ManageMent’s discussion and analysis2011

2012

2013

2014

2011

2012

2013

2014

International export

International domestic

2,700

2,600

2,500

2,400

5,000

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

12,000

11,500

11,000

10,500

10,000

9,500

9,000

8,500

$19.00

$18.00

$17.00

$16.00

$15.00

$14.00

$10.00

$8.00

$6.00

$4.00

$2.00

$250.00

$240.00

$230.00

$220.00

$210.00

$200.00

FedEx Express U.S. Domestic

Average Daily Package Volume

2,684

2,577

2,571

2,543

FedEx Ground

Average Daily Package Volume

3,746

3,907

4,588

4,222

2,058

2,186

1,692

1,432

2011

2012

2013

2014

FedEx Ground

FedEx SmartPost

FedEx Express and FedEx Ground

Total Average Daily Package Volume

10,744

10,184

9,230

8,785

2011

2012

2013

2014

FedEx Express U.S. Domestic

Revenue per Package – Yield

$17.33

$17.42

$17.12

$15.59

2011

2012

2013

2014

FedEx Ground
Revenue per Package – Yield

$8.77

$8.94

$8.17

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

$9.10

2014
$1.78

2013

2012

FedEx SmartPost

2013

2011

$1.72

$1.77

FedEx Freight
LTL Revenue per Shipment

$1.81
Operating expenses:
Salaries and employee benefits
2012
Purchased transportation
FedEx Ground
Rentals and landing fees
Depreciation and amortization
Fuel
Maintenance and repairs
Business realignment, impairment
and other charges
$226.24
Other
Total operating expenses

$231.52

$ 16,555
2014
8,011
2,622
2,587
4,557
1,862

$234.23

–
5,927
$ 42,121

$ 16,570 $ 16,099
6,335
2,487
2,113
4,956
1,980

7,272
2,521
2,386
4,746
1,909

660 (1)
5,672

134 (2)
5,390
$ 41,736 $ 39,494

$208.63

Percent of Revenue
2014
2014

2013

2012

2013

2011

36.3 %
17.6
5.7
5.7
10.0
4.1

2012
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
Total operating expenses
Operating margin
(1) Includes predominantly severance costs associated with our voluntary buyout program

37.4 %
16.4
5.7
5.4
10.7
4.3

1.5 (1)
12.8
94.2
5.8 %

–
13.0
92.4
7.6 %

37.7 %
14.9
5.8
5.0
11.6
4.6

0.3 (2)
12.6
92.5
7.5 %

and charges resulting from the decision to retire 10 aircraft and related engines at FedEx
Express.

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

FedEx Express.

Operating income increased in 2014 primarily as a result of increased
yields and higher volumes at FedEx Ground and FedEx Express and
improved volumes, revenue per shipment and operational efficiencies
at FedEx Freight. Our results for all our transportation segments were
positively impacted by the inclusion in 2013 of costs associated with
our business realignment program and an aircraft impairment charge
as described below. Operating income in 2014 included a significant
negative net impact of fuel, one fewer operating day and year-over-year
impact of unusually severe weather.

Purchased transportation costs increased 10% in 2014 due to volume
growth at FedEx Ground, higher utilization of third-party transportation
providers at FedEx Express, including recent business acquisitions at
FedEx Express, higher utilization of third-party transportation providers
at FedEx Freight and the expansion of our freight-forwarding business
at FedEx Trade Networks. Depreciation and amortization expense
increased 8% in 2014 primarily due to accelerated depreciation on

FedEx Express International(1)

Average Daily Package Volume

785

576

819

580

575

400

348

559

495

FedEx Freight

Average Daily LTL Shipments

86.0

84.9

85.7

90.6

2011

2012

2013

2014

1,000

800

600

200

90.0

80.0

70.0

$70.00

$60.00

$50.00

$40.00

$30.00

$20.00

$10.00

FedEx Express International

Revenue per Package – Yield

$60.83

$58.72

$58.92

$56.08

$7.38

2011

$6.74

2012

$6.99

$6.95

2013

2014

International export composite

International domestic

certain aircraft scheduled for retirement, and aircraft recently placed
in service at FedEx Express. Salaries and employee benefits expense
in 2014 was flat due to the benefits from our voluntary employee buyout
program, lower pension expense, the delayed timing or absence of merit
increases for many of our employees and reduced variable incentive
compensation. Maintenance and repairs decreased 2% in 2014 due to
network adjustments at FedEx Express and the continued modernization
of our aircraft fleet, which impacted the timing of certain maintenance
events.

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

Average Fuel Cost per Gallon

$3.80

$3.81

$3.76

$3.31

$3.22

$3.13

$5.00

$4.00

$3.00

$2.00

$1.00

$3.25

$2.66

2011

2012

Vehicle

2013

Jet

2014

Fuel expense decreased 4% during 2014 primarily due to lower average
price per gallon of jet fuel 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. Our results
are affected by the net impact of fuel, which is the fuel surcharge
timing lag that exists between when fuel prices change and when
indexed fuel surcharges automatically adjust. 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 significant negative impact on operating income in 2014.

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 2014, 2013 and 2012 in the accompanying
discussions of each of our transportation segments.

In 2013, our operating income and operating margin decreased
primarily due to the impact of business realignment costs, aircraft
impairment charges and accelerated aircraft depreciation. Beyond
these factors, operating income was positively impacted in 2013 by
higher volumes and increased yields at our FedEx Ground segment and

ManageMent’s discussion and analysis

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, international business acquisitions during
the year and the expansion of our freight forwarding business at
FedEx Trade Networks. Salaries and benefits increased 3% in 2013
primarily due to 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 interna-
tional acquisitions and the reversal in 2012 of a legal reserve.

Fuel expense decreased 4% during 2013 primarily due to lower jet
fuel prices and lower aircraft fuel usage. 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.

Interest Expense
Interest expense increased $78 million in 2014 primarily due to
increased interest expense from our January 2014 debt offering,
2013 debt issuances and a reduction in capitalized interest. Interest
expense increased $30 million in 2013 primarily due to a reduction
in capitalized interest and increased interest expense from 2013
debt issuances.

Income Taxes
Our effective tax rate was 36.3% in 2014, 36.4% in 2013 and 35.3% in
2012. Our 2012 rate was favorably impacted by the conclusion of the
Internal Revenue Service (“IRS”) audit of our 2007-2009 consolidated
income tax returns. Our permanent reinvestment strategy with respect
to unremitted earnings of our foreign subsidiaries provided a 1.2%
benefit to our 2014 effective tax rate. Our cumulative permanently
reinvested foreign earnings were $1.6 billion at the end of 2014 and
$1.3 billion at the end of 2013.

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

2014
$ 624
238
$ 862

2013
$ 512
175
$ 687

2012
$ (120 )
947
$ 827

Our current federal income tax expenses in 2012, and to a lesser
extent 2013 and 2014, 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 benefits
accelerated into an earlier year are foregone in later years.

For 2015, we expect our effective tax rate to be between 36.0% 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 to increase in 2015 due to
expected higher earnings, along with other items such as lower accel-
erated depreciation benefits.

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.

Business Acquisitions
On May 1, 2014, we expanded the international service offerings
of FedEx Express by completing our acquisition of the businesses
operated by our previous service provider Supaswift (Pty) Ltd. in seven
countries in Southern Africa, for $36 million in cash from operations.
A significant amount of the purchase price was allocated to goodwill,
which was entirely attributed to our FedEx Express reporting unit.
This acquisition gives us an established regional ground network
and extensive knowledge of the Southern African region.

In 2013, we completed our acquisitions of Rapidão Cometa Logística
e Transporte S.A., a Brazilian transportation and logistics company,
for $398 million; TATEX, a French express transportation company, for
$55 million; and Opek Sp. z o.o., a Polish domestic express package
delivery company, for $54 million.

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.

These acquisitions were completed using cash from operations. 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.

Profit Improvement Programs
During 2013, we announced profit improvement programs primarily
through initiatives at FedEx Express and FedEx Services targeting
annual profitability improvement of $1.6 billion at FedEx Express.
We expect the majority of the benefits from our profit improvement
programs to occur in 2015 and 2016 as our various cost reduction and
efficiency initiatives gain traction. Our plans position FedEx Express to
exit 2016 with a run rate of $1.6 billion in additional operating profit
from the 2013 base business. Our ability to achieve the profit improve-
ment target and other benefits from these programs is dependent
upon a number of factors, including the health of the global economy
and future customer demand.

During 2014, we completed a program to offer voluntary cash buyouts
to eligible U.S.-based employees in certain staff functions. As a result
of this program, approximately 3,600 employees left the company.
Costs of the benefits provided under the voluntary employee sever-
ance program were recognized in 2013 when eligible employees
accepted their offers. Payments under this program were made at the
time of departure and totaled approximately $300 million in 2014 and
$180 million in 2013.

ManageMent’s discussion and analysisThe cost of the program is included in the caption “Business realign-
ment, 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. See Note 1 of the accompanying consolidated
financial statements for further discussion of the voluntary employee
severance program.

In addition, see the “Long-lived Assets” section of our “Critical
Accounting Estimates” for a discussion of fleet modernization actions
taken in 2013 and 2012.

Outlook
We anticipate revenue and earnings growth in 2015 driven by ongoing
improvements in the results of all of our transportation segments as
our expectations for moderate global economic growth drive vol-
ume and yield improvements. Our results in 2015 will benefit from
continued execution of the profit improvement programs noted above,
including our voluntary employee severance program. This program
provided a modest benefit in 2014 due to the staggered nature of the
employee departure dates. However, the full benefit of the voluntary
severance program will be realized in 2015. Our earnings per share
results for 2015 will also benefit from our share repurchase program
announced in 2014 (a benefit of approximately $0.45 per diluted
share) and lower pension expense due to strong asset returns in 2014.
Our expectations for earnings growth in 2015 are dependent on key
external factors including fuel prices and the pace of improvement in
the global economy.

Our capital expenditures for 2015 are expected to increase to approxi-
mately $4.2 billion for additional aircraft deliveries in 2015 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
2015 capital projects, refer to the “Capital Resources” and “Liquidity
Outlook” sections of this MD&A.

Our outlook assumes no year-over-year net fuel impact and 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. For example, we purchase jet fuel on a global basis with pricing
terms correlated to four primary jet fuel indices. 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 finan-
cial 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 mate-
rial. 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, 2013, we adopted the authoritative guidance issued by the
Financial Accounting Standards Board (“FASB”) requiring additional
information about reclassification adjustments out of accumulated
other comprehensive income, including changes in accumulated
other comprehensive income balances by component and significant
items reclassified out of accumulated other comprehensive income.
We have adopted this guidance by including expanded accumulated
other comprehensive income disclosure requirements in Note 9 of our
consolidated financial statements.

On May 28, 2014, the FASB and International Accounting Standards
Board issued a new accounting standard that will supersede virtu-
ally all existing revenue recognition guidance under US GAAP (and
International Financial Reporting Standards). This standard will be
effective for us beginning in fiscal 2018. The fundamental principles
of the new guidance are that companies should recognize revenue
in a manner that reflects the timing of the transfer of services to
customers and the amount of revenue recognized reflects the consid-
eration that a company expects to receive for the goods and services
provided. The new guidance establishes a five-step approach for the
recognition of revenue. Based on our preliminary assessment, we do
not anticipate that the new guidance will fundamentally change our
revenue recognition policies, practices or systems.

We believe that no other new accounting guidance was adopted or
issued during 2014 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 certain
back-office support to our other companies; FedEx TechConnect, which
is responsible for customer service, technical support, billings and
collections for U.S. customers of our major business units; and FedEx
Office, which provides an array of document and business services
and retail access to our customers for our package transportation
businesses.

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

The operating expenses line item “Intercompany charges” on the
accompanying unaudited financial summaries of our transportation
segments reflects the allocations from the FedEx Services segment to
the respective transportation segments. The “Intercompany charges”
caption also includes charges and credits for administrative services
provided between operating companies and certain other costs
such as corporate management fees related to services received for
general corporate oversight, including executive officers and certain
legal and finance functions. The allocations of net operating costs
are based on metrics such as relative revenues or estimated services
provided. We believe these allocations approximate the net cost of
providing these functions and our allocation methodologies are refined
as necessary to reflect changes in our businesses.

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
2013

2014

2012

36.4 %
6.9
6.3
4.4
16.2
5.0

36.5 %
9.3
6.3
5.5
14.5
4.4

37.0 %
8.6
6.2
5.0
15.2
4.6

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 represent our international intra-country express operations

0.9
8.7
11.8
98.0
2.0 %

–
7.5
11.7
95.7
4.3 %

0.5
8.3
11.2
95.2
4.8 %

including countries such as Mexico and Brazil.

(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 predominantly costs associated with outside service contracts (such as security,

facility services and cargo handling), professional fees, uniforms, insurance and advertising.
2012 includes 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

2014
2013

/
/ 2013
2012

2014

2013

2012

11,379
6,451
2,229

Revenues:
Package:
U.S. overnight box
U.S. overnight envelope 1,636
3,188
U.S. deferred
Total U.S. domestic
package revenue
International priority
International economy
Total international
export package
8,680
revenue
International domestic(1)
1,446
Total package revenue 21,505
Freight:
U.S.
International priority
International airfreight
Total freight revenue
Other(2)
Total revenues
Operating expenses:
Salaries and employee
9,914
benefits
Purchased transportation 2,511
Rentals and landing fees 1,705
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)

2,355
1,594
205
4,154
1,462
27,121

–
2,027
3,179

1,488
3,943
1,182

$ 6,555 $ 6,513 $ 6,546
1,747
1,705
3,001
3,020

1
(4)
6

1
(2)
9

1
3
1

(8)
(5)
(26)
(8)
5
–

(1)
8
1

10
(5)
(5)

(1)
(2)
1

–
(4)
10

(1)
64
2

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

4
28
–

15
(4)
(7)

11,238
6,586
2,046

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

10,045
2,331
1,684

1,350
4,130
1,244

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

9,657
1,828
1,680

1,169
4,304
1,332

243
2,379
3,210

134 NM NM
8
(15)
9
(1)

2,193
2,958

25,949
$ 1,172 $
4.3%

26,616

25,255
555 $ 1,260
2.0%

(3)
111

5
(56)

4.8% 230bp (280)bp

ManageMent’s discussion and analysis

FedEx Express Segment Revenues
FedEx Express segment revenues were flat in 2014. Lower fuel
surcharges, lower freight revenue, lower exchange rates and one
fewer operating day were offset by revenue growth in our U.S. and
international export package base business and the growth of our
freight-forwarding business at FedEx Trade Networks. In addition, the
continuing demand shift from our priority international services to our
economy international services dampened revenue growth.

Freight yields decreased 7% in 2014 due to lower fuel surcharges and
lower rates. Freight average daily pounds decreased by 1% in 2014 due
to weakness in global economic conditions and capacity reductions.
U.S. domestic yields increased 1% in 2014 primarily due to higher
rates and weight per package, partially offset by lower fuel surcharges.
International export package revenues increased 1% in 2014 as base
business growth was offset by lower fuel surcharges and the demand
shift to our lower-yielding economy services. International priority yields
increased 1% in 2014, while international priority volumes declined 3%.
Within this category, volumes for lower-yielding distribution services
declined, while international priority volumes, excluding these distribu-
tion services, increased 1%. International domestic average daily
volumes increased 4% in 2014 primarily due to prior year international
business acquisitions.

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

Percent
Change

2014
2013

/
/ 2013
2012

2014

2013

2012

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

538
869

1,164 1,134
574
835
2,571 2,543
421
155

410
170

580
819

576
785
3,970 3,904

1,146
586
845
2,577
421
138

559
495
3,631

$ 22.18 $ 22.52 $ 22.31
11.65
11.66
13.87
14.18
17.12
17.33
63.47
61.28
52.77
51.77

11.97
14.44
17.42
61.88
51.75

58.92
6.95
21.32

58.72
6.99
21.36

60.83
6.74
22.44

3
(6)
4
1
(3)
10

1
4
2

(2)
3
2
1
1
–

–
(1)
–

7,854
2,922
798

7,612
3,048
1,066

7,487
3,303
1,171

3
(4)
(25)

(1)

11,574 11,726 11,961

Total average daily
freight pounds
Revenue per pound (yield):
U.S.
$ 1.18 $ 1.32 $ 1.30
International priority
2.16
2.16
International airfreight
1.02
1.01
1.51
Composite freight yield
1.51
(1) Package and freight statistics include only the operations of FedEx Express.
(2) International domestic statistics represent our international intra-country express

2.15
1.01
1.41

(11)
–
–
(7)

(1)
(2)
(1)
(1)
–
12

3
59
8

1
–
2
1
(3 )
(2)

(3)
4
(5 )

2
(8 )
(9)

(2 )

2
–
(1 )
–

operations, including countries such as Mexico and Brazil.

ManageMent’s discussion and analysis

FedEx Express segment revenues increased 2% in 2013 primarily due
to the impact of international acquisitions during the year and growth
in our freight-forwarding business at FedEx Trade Networks. 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 acquisitions
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.

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

2014

2013

2012

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

8.00 % 10.00 % 11.50 %
10.50
9.47

14.50
11.84

16.50
14.23

12.00
19.00
16.26

12.00
20.50
17.02

13.50
23.00
17.45

In January 2014, we implemented a 3.9% average list price increase
for FedEx Express U.S. domestic, U.S. export and U.S. import services.
In January 2013, 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.

FedEx Express Segment Operating Income
FedEx Express operating income and operating margin in 2014 were
positively impacted by the inclusion in 2013 of costs associated with
our business realignment program and an aircraft impairment charge as
discussed below. In addition, FedEx Express results in 2014 benefited
from the revenue growth in our U.S. and international export package
business, lower pension expense, our voluntary employee severance
program and lower maintenance expense. These factors were partially
offset by lower freight revenues, a significant negative net impact of
fuel and higher depreciation expense. In addition, operating income
in 2014 reflects one fewer operating day and year-over-year negative
impact of severe weather.

In 2014, salaries and employee benefits decreased 1% due to lower
pension expense, the delayed timing or absence of annual merit
increases for many of our employees, benefits from our voluntary
employee severance program and lower variable incentive compensa-
tion. Intercompany charges decreased 15% in 2014 due to the inclusion
in the prior year results of costs associated with the business realign-
ment program at FedEx Services, as well as lower allocated sales and
information technology costs. Purchased transportation costs increased
8% in 2014 due to higher utilization of third-party transportation
providers, including recent business acquisitions, and costs associated
with the expansion of our freight-forwarding business at FedEx Trade
Networks. Depreciation and amortization expense increased 10% during
2014 as a result of $74 million of year-over-year incremental accelerated
depreciation due to the shortened life of certain aircraft scheduled for
retirement, and aircraft recently placed into service.

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 newer aircraft into the fleet.
FedEx Express maintenance and repairs costs decreased 5% in 2014
due to network reductions and the benefits from the retirement of
aircraft and related engines as well as the timing of major maintenance
events. Maintenance and repairs costs decreased 7% in 2013 due to the
benefits from the retirement of aircraft and related engines, as well as
the timing of major maintenance events.

ManageMent’s discussion and analysis

FedEx Express Segment Outlook
We expect revenues and earnings to increase at FedEx Express during
2015 primarily due to improved U.S. domestic and international export
package yields, as we continue to focus on revenue quality while
managing costs. In addition, we expect operating income to improve
through ongoing execution of our profit improvement programs, includ-
ing managing network capacity to match customer demand, reducing
structural costs, modernizing our fleet and driving productivity increases
throughout our U.S. and international operations. These benefits will
be partially offset by higher maintenance expense due to the timing of
engine maintenance events, higher salaries and wages as we reinstate
merit increases for many employees, and higher depreciation expense
driven by ongoing accelerated depreciation due to fleet modernization.

Capital expenditures at FedEx Express are expected to increase in 2015
driven by our aircraft fleet modernization programs. In connection with
our profit improvement program, we will continue to modernize our
aircraft fleet at FedEx Express during 2015 by adding newer aircraft that
are more reliable, fuel-efficient and technologically advanced, and
retiring older, less-efficient aircraft.

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
United States Postal Service (“USPS”) for final delivery.

Fuel costs decreased 5% in 2014 due to lower aircraft fuel prices and
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 sur-
charges, fuel had a significant negative impact on operating income in
2014. 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 results in 2013 were negatively
impacted by $405 million of costs associated with our business
realignment program, both directly and through intercompany alloca-
tions. 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 accelerated depreciation
costs in 2013 due to the decision in 2012 to shorten the lives of
certain aircraft scheduled for retirement. 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 reversal of a legal reserve that was initially recorded in 2011.

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

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.

ManageMent’s discussion and analysisFedEx Ground Segment Revenues
FedEx Ground segment revenues increased 10% in 2014 due to both
volume and yield growth at FedEx Ground and volume growth at FedEx
SmartPost. In addition, 2014 revenues were negatively impacted by
one fewer operating day, unusually severe weather and lower fuel
surcharges.

Average daily volume at FedEx Ground increased 9% during 2014
due to market share gains resulting from continued growth in our
FedEx Home Delivery service and commercial business. FedEx Ground
yield increased 2% during 2014 primarily due to rate increases and
higher residential surcharges, partially offset by lower fuel surcharge
revenue.

FedEx SmartPost volumes grew 6% during 2014 primarily due to
growth in e-commerce. Yields at FedEx SmartPost increased 1%
during 2014 primarily due to rate increases and change in service mix,
partially offset by higher postage costs and lower fuel surcharges.
FedEx SmartPost yield represents the amount charged to customers
net of postage paid to the USPS.

During 2013, FedEx Ground segment revenues increased 10% 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.

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

Low
High
Weighted-average

2012

2013
2014
6.50 % 6.50 % 7.50 %
8.50
7.00
7.60
6.66

9.50
8.46

The 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

2014
2013

/
/ 2013
2012

2014

2013

2012

$ 10,634 $ 9,652 $ 8,791
782
9,573

983
11,617

926
10,578

1,586
4,191
331

1,451
3,762
284

389
434
14
17
176
190
978
1,148
755
893
7,809
8,790
$ 1,955 $ 1,788 $ 1,764

1,756
4,635
402

Revenues:
FedEx Ground
FedEx SmartPost
Total revenues
Operating expenses:
Salaries and employee
benefits
Purchased transportation
Rentals
Depreciation and
468
amortization
17
Fuel
222
Maintenance and repairs
Intercompany charges(1)
1,154
Other(2)
1,008
Total operating expenses 9,662
Operating income
Operating margin(1)
Average daily package
volume:
FedEx Ground
FedEx SmartPost
Revenue per package (yield):
FedEx Ground
FedEx SmartPost

4,588
2,186

$ 9.10 $ 8.94 $ 8.77
$ 1.78 $ 1.77 $ 1.81

4,222
2,058

3,907
1,692

10
6
10

11
11
21

8
–
17
1
13
10
9

10
18
10

9
11
17

12
21
8
17
18
13
1

9
6

2
1

8
22

2
(2)

16.8 % 16.9% 18.4 % (10 )bp (150)bp

Percent of Revenue
2013

2014

2012

Operating expenses:
Salaries and employee benefits
Purchased transportation
Rentals
Depreciation and amortization
Fuel
Maintenance and repairs
Intercompany charges(1)
Other(2)
Total operating expenses
Operating margin(1)
(1) Includes allocations of $105 million in 2013 for business realignment costs, which reduced

15.1 %
39.9
3.5
4.0
0.2
1.9
9.9
8.7
83.2
16.8 %

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 %

operating margin by 100 basis points.

(2) Includes predominantly costs associated with outside service contracts (such as security and

facility services), insurance and professional fees.

ManageMent’s discussion and analysis

In January 2014, FedEx Ground and FedEx Home Delivery implemented
a 4.9% increase in average list price. FedEx SmartPost rates also
increased. In January 2013, FedEx Ground and FedEx Home Delivery
implemented a 4.9% increase in average list price. The full average rate
increase of 5.9% was partially offset by adjusting the fuel price thresh-
old at which the fuel surcharge begins, reducing the fuel surcharge by
one percentage point. FedEx SmartPost rates also increased.

FedEx Ground Segment Operating Income
FedEx Ground segment operating income increased 9% in 2014 driven
by higher volumes and yields. Operating income comparisons were also
positively impacted by the inclusion in 2013 of costs associated with
our business realignment program as discussed below. The increase
to operating income in 2014 was partially offset by higher network
expansion costs, as we continue to invest heavily in the growing FedEx
Ground and FedEx SmartPost businesses, and the net negative impact
of fuel. In addition, operating income in 2014 was negatively affected
by year-over-year impact of unusually severe weather and one fewer
operating day. The decline in operating margin for 2014 is primarily
attributable to the negative net impact of fuel and network expansion
costs. Operating margin in 2014 benefited from the inclusion in 2013 of
costs associated with our business realignment program.

Salaries and employee benefits expense increased 11% during 2014
primarily due to additional staffing to support volume growth and higher
healthcare costs. Other expense increased 13% primarily due to higher
self-insurance costs and credit card fees. Rentals expense increased
21% in 2014 due to network expansion. Depreciation and amortization
expense increased 8% in 2014 due to network expansion and trailer
purchases.

FedEx Ground segment operating income increased 1% during 2013
primarily due to volume growth and higher yields. However, operating
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 adjustment in 2012. Purchased transportation costs 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 adjustment
in 2012 and higher legal expenses. Salaries and employee benefits
expense increased 9% in 2013 primarily due to increased staffing to
support volume growth.

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 2015, led by volume growth across all our major
services due to market share gains. We also anticipate yield growth
in 2015 through yield management programs including our recently
announced dimensional weight rating changes. We will continue to
make investments to grow our highly profitable FedEx Ground network
through facility expansions and equipment purchases, and the impact
of these investments on our cost structure will partially offset earnings
growth in 2015.

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.

ManageMent’s discussion and analysis Percent of Revenue
2013

2014

2012

43.4 %
16.0
2.2
4.0
11.1
3.5

42.5 %
17.1
2.3
4.0
10.3
3.1

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(3)
Total operating expenses
Operating margin(4)
(1) 2013 includes severance costs associated with our voluntary buyout program.
(2) Includes allocations of $47 million in 2013 for business realignment costs.
(3) Includes predominantly costs associated with insurance, professional fees and outside

–
8.0
7.2
94.5
5.5%

–
9.0
6.9
96.1
3.9%

43.9 %
16.1
2.2
3.5
12.0
3.6

–
8.2
7.4
96.9
3.1%

service contracts (such as security and facility services).

(4) The direct and indirect charges disclosed in notes (1) and (2) above reduced 2013 operating

margin by 90 basis points.

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 table compares revenues, operating expenses, operat-
ing expenses as a percent of revenue, operating income (dollars in
millions), operating margin and selected statistics for the years ended
May 31:

Percent
Change

2014
2013
7

/
/ 2013
2012
2

4
13
11

6
(1)
(6)

1
2
4

17
(6 )
(1 )

– NM NM
12
(5)
433
(5 )
11
393
1
5
5,120
28
53
162
3.1% 160bp 80bp

2014

2012
$ 5,757 $ 5,401 $ 5,282

2013

2,444
981
131

231
595
179

_
461
416
5,438
319 $
5.5 %

2,342
865
118

2,316
851
114

185
636
192

217
598
191

3
484
375
5,193

208 $
3.9%

62.9

27.7

59.3

26.4

60.4

24.5

90.6

85.7

84.9

1,262
1,000

1,237
990

1,202
1,045

1,182

1,161

1,156

$ 223.61 $ 220.32 $ 216.47
250.30
256.38

258.05

$ 234.23 $

231.52 $ 226.24

$ 17.73 $ 17.80 $ 18.02
23.96

25.80

25.90

$ 19.82 $ 19.94 $ 19.57

(1)

2
1

1
1

–
–

(2)

3
(5)

–

2
2

(1)
8

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(3)
Total operating expenses
Operating income
Operating margin(4)
Average daily LTL shipments
(in thousands)
Priority

Economy
Total average daily LTL
shipments
Weight per LTL shipment
Priority
Economy
Composite weight per
LTL shipment
LTL revenue per shipment
Priority
Economy
Composite LTL revenue
per shipment
LTL revenue per
hundredweight
Priority
Economy
Composite LTL revenue
per hundredweight

ManageMent’s discussion and analysis

FedEx Freight Segment Revenues
FedEx Freight segment revenues increased 7% during 2014 due to
higher average daily LTL shipments and revenue per LTL shipment.
Revenues in 2014 were negatively impacted by one fewer operating
day. Average daily LTL shipments increased 6% in 2014 due to higher
demand for our FedEx Freight Priority and FedEx Freight Economy
service offerings. LTL revenue per shipment increased 1% in 2014 due
to changes in shipment characteristics, primarily higher weight per
LTL shipment. LTL revenue per hundredweight decreased 1% during
2014 due to changes in shipment characteristics, primarily higher
weight per LTL shipment. Changes in weight per shipment generally
have an inverse effect on revenue per hundredweight, as an increase
in weight per shipment will typically cause a decrease in revenue per
hundredweight.

During 2013, FedEx Freight segment revenues increased 2% due to
higher LTL revenue per hundredweight and average daily LTL ship-
ments. LTL revenue per hundredweight increased 2% in 2013 due to
improvements in FedEx Freight Economy service offerings resulting
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.

The weekly indexed LTL fuel surcharge is based on the average of the
U.S. on-highway average prices for a gallon of diesel fuel, as pub-
lished by the Department of Energy. The indexed LTL fuel surcharge
ranged as follows for the years ended May 31:

Low

High

Weighted-average

2014

2013

2012

22.70 % 21.80 % 19.80 %

23.70

23.20

24.40

24.30

23.38

22.90

In March 2014, FedEx Freight increased certain U.S. and other
shipping rates by an average of 3.9%. In July 2013, FedEx Freight
increased certain U.S. and other shipping rates by an average of 4.5%.
In July 2012, FedEx Freight increased certain U.S. and other shipping
rates by an average of 6.9%.

FedEx Freight Segment Operating Income
FedEx Freight segment operating income and operating margin
increased in 2014 due to the positive impacts of higher average daily
LTL shipments, higher LTL revenue per shipment and greater network
efficiency. Operating income comparisons also benefited from the
inclusion in 2013 of costs associated with our business realignment
program as discussed below. Operating income in 2014 was nega-
tively impacted by higher depreciation and amortization expense,
the negative year-over-year impact of severe weather and one fewer
operating day.

Purchased transportation expense increased 13% in 2014 due to
increased use of rail and road third-party transportation providers and
higher rates. Salaries and employee benefits increased 4% in 2014
primarily due to a volume-related increase in labor hours and higher
healthcare costs. Other operating expenses increased 11% in 2014
due to higher self-insurance costs, bad debt expense and real estate
taxes. Intercompany charges decreased 5% in 2014 primarily due to
the inclusion in the prior year results of costs associated with the
business realignment program at FedEx Services, partially offset by
higher allocated sales costs.

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 2014.

During 2013, the FedEx Freight segment operating results improved
as a result of LTL revenue per hundredweight growth and increased
average daily LTL shipments, along with ongoing improvement in
operational efficiencies in our integrated network. However, operat-
ing results for 2013 were negatively impacted by $50 million of costs
associated with our business realignment program both directly and
through intercompany allocations.

Depreciation and amortization expense increased 17% due to contin-
ued 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 incen-
tive 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.

ManageMent’s discussion and analysisCASH PROVIDED BY OPERATING ACTIVITIES. Cash flows from
operating activities decreased $424 million in 2014 primarily due to
voluntary employee severance program payouts, an income tax refund
received in the prior year, higher income tax payments and higher
pension contributions, partially offset by higher net income. Cash
flows from operating activities decreased $147 million in 2013
primarily due to decreased earnings and higher tax, variable compen-
sation and voluntary buyout payments, partially offset by a decrease
in pension contributions. We made contributions of $660 million to
our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”)
during 2014 and contributions of $560 million in 2013 and $722 million
in 2012.

CASH USED IN INVESTING ACTIVITIES. Capital expenditures were
5% higher in 2014 largely due to increased spending at FedEx Ground
and FedEx Express and 16% lower in 2013 largely due to decreased
spending at FedEx Express. See “Capital Resources” for a discussion
of capital expenditures during 2014 and 2013.

FedEx Freight Segment Outlook
We expect continued revenue and operating income growth at the
FedEx Freight segment in 2015 driven by volume and revenue per
shipment increases from our differentiated LTL services, as well as
continued improvement in network and operational optimization. The
recently announced increase to our fuel surcharge rates for certain LTL
shipments will benefit yields in 2015. Capital expenditures in 2015 are
expected to increase, with the majority of our spending for replace-
ment of vehicles.

FINANCIAL CONDITION

Liquidity
Cash and cash equivalents totaled $2.9 billion at May 31, 2014, com-
pared to $4.9 billion at May 31, 2013. 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, including
ASRs
Principal payments on debt
Proceeds from debt issuances
Dividends paid
Other
Cash (used in) provided by
financing activities
Effect of exchange rate changes on cash
Net (decrease) increase in cash and
cash equivalents

2014

2013

2012

$ 2,097 $ 1,561 $ 2,032

–
3,415
(1,248)
4,264

479
3,183
(535)
4,688

134
3,504
(835)
4,835

(3,533)

(3,375)

(4,007)

(36)

(483)

(116)

18
(3,551)

55
(3,803)

74
(4,049)

(4,857)
(254)
1,997
(187)
582

(2,719)
(3)

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

1,184
5

(197)
(29)
–
(164)
146

(244)
(27)

$ (2,009) $ 2,074 $

515

ManageMent’s discussion and analysisFINANCING ACTIVITIES. The following table provides a summary of
our senior unsecured debt issuances for the periods ended May 31
(in millions):

Senior unsecured debt issued:
Interest Rate % Issuance Date
January 2014
January 2014
January 2014
April 2013
April 2013
July 2012
July 2012

4.00
4.90
5.10
2.70
4.10
2.625
3.875

Total senior unsecured debt issued

Maturity
2024
2034
2044
2023
2043
2023
2043

2014

2013

750
500
750
–
–
–
–
$ 2,000

–
–
–
250
500
500
500
$ 1,750

The senior unsecured debt was issued under shelf registration state-
ments current at the time of issuance. Interest on these notes is paid
semiannually. We utilized the net proceeds of the 2014 debt issuance
to finance the ASR agreements as discussed below. We utilized the
net proceeds of the 2013 debt issuances for working capital and
general corporate purposes.

During 2014, we repaid our $250 million 7.38% senior unsecured
notes that matured on January 15, 2014. During 2013, we made prin-
cipal 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.

In October 2013, our Board of Directors authorized a new share repur-
chase program of up to 32 million shares of common stock. These
shares augmented the 10.2 million shares remaining on our previous
share repurchase authorizations at May 31, 2013. Shares may be
purchased from time to time in the open market or in privately negoti-
ated transactions. Repurchases are made at the company’s discretion,
based on ongoing assessments of the capital needs of the business,
the market price of its common stock and general market conditions.
No time limit was set for the completion of the repurchase program,
and the program may be suspended or discontinued at any time.

In January 2014, we entered into ASR agreements with two banks to
repurchase an aggregate of $2.0 billion of our common stock. During
the third quarter of 2014, 11.4 million shares were initially delivered
to us based on then-current market prices. During the fourth quarter
of 2014, the ASR transactions were completed and we received
3.4 million additional shares. The final number of shares delivered
upon settlement of each ASR agreement was determined based on
a discount to the volume-weighted average price of our stock during
the term of the respective transaction. In total, 14.8 million shares
were delivered under the ASR agreements. See Note 1 of the accom-
panying consolidated financial statements for additional information
regarding the ASR agreements. In addition, in 2014 and 2013, we
repurchased shares of our common stock in the open market.

The following table provides a summary of our common stock share repurchases for the periods ended May 31 (dollars in millions, except
per share amounts):

Total Number
of Shares
Purchased
36,845,590

2014

Average
Price Paid
per Share
$ 131.83

Total
Purchase
Price
$ 4,857

Total Number
of Shares
Purchased
2,700,000

2013

Average
Price Paid
per Share
$ 90.96

Total
Purchase
Price
$ 246

Common stock purchases

As of May 31, 2014, 5.3 million shares remained under our share repurchase authorizations.

ManageMent’s discussion and analysis

MANAGEMENT’S DISCUSSION AND ANALySIS

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 expan-
sion of services, availability of satisfactory financing and actions of
regulatory authorities.

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

Liquidity Outlook
We believe that our cash and cash equivalents, which totaled
$2.9 billion at May 31, 2014, cash flow from operations and available
financing 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, 2014 includes $471 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 U.S. domestic debt or working
capital obligations.

Percent
Change

2014
2013
12
13
7

/
/ 2013
2012
(37)
14
2

2014

2012
Aircraft and related equipment $ 1,327 $ 1,190 $ 1,875
638
Facilities and sort equipment
723

819
784

727
734

2013

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

403
200

452
272

541
230
$ 3,533 $ 3,375 $ 4,007
$ 1,994 $ 2,067 $ 2,689
536
340
437

850
325
363
1

555
326
424
3

(16)
(11)
18
(26)
(16)
5
(23)
(4)
4
53
(4)
–
(3)
(14)
5 NM NM
(16)
5

$ 3,533 $ 3,375 $ 4,007

Capital expenditures during 2014 were higher than the prior year
primarily due to increased spending for sort facility expansion and
equipment at FedEx Ground and aircraft and related equipment at
FedEx Express. Aircraft and related equipment expenditures at FedEx
Express during 2014 included the delivery of 17 Boeing 757 (“B757”)
aircraft, four Boeing 767-300 Freighter (“B767F”) aircraft and two
Boeing 777 Freighter (“B777F”) aircraft, as well as the modification of
certain aircraft before being placed into service. Capital expenditures
during 2013 were lower than the prior year primarily due to decreased
spending for aircraft and related equipment at FedEx Express. Aircraft
and aircraft-related equipment purchases at FedEx Express during
2013 included the delivery of 16 B757s to be modified for cargo
transport and four B777Fs.

Our capital expenditures are expected to be $4.2 billion in 2015. We
anticipate that our cash flow from operations will be sufficient to
fund our increased capital expenditures in 2015, which will include
spending for aircraft modernization and re-fleeting at FedEx Express and
network expansion at FedEx Ground. We expect approximately 40% of
capital expenditures in 2015 to be designated for growth initiatives,
predominantly at FedEx Ground, and 60% dedicated to maintaining our
existing operations. Our expected capital expenditures for 2015 include
$1.6 billion in investments for delivery of aircraft and progress payments
toward future aircraft deliveries at FedEx Express.

We have several aircraft modernization programs underway that are
supported by the purchase of B777F, B767F and B757 aircraft. These air-
craft 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 2014, FedEx Express entered into an agreement to
purchase two B767F aircraft, the delivery of which will occur in 2016
and 2017. FedEx Express also deferred 11 existing options to purchase
B777F aircraft by two years. Additionally in 2014, we entered into
supplemental agreements to purchase 16 B757 option aircraft pursuant
to an agreement originally entered into in March 2013, the delivery of
which began in 2014 and will continue through 2015.

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 opera-
tions and other cash flow needs and to provide support for the issuance
of commercial paper. The revolving credit agreement expires in March
2018. The agreement contains a financial covenant, which requires us to
maintain a leverage ratio of adjusted debt (long-term debt, including the
current portion of such debt, plus six times our last four fiscal quarters’
rentals and landing fees) to capital (adjusted debt plus total common
stockholders’ investment) that does not exceed 70%. Our leverage ratio
of adjusted debt to capital was 57% at May 31, 2014. We believe the
leverage ratio covenant is the 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 opera-
tions, including our liquidity or expected funding needs. As of May 31,
2014, no commercial paper was outstanding, and the entire $1 billion
under the revolving credit facility was available for future borrowings.

For 2015, we anticipate making required contributions totaling approxi-
mately $580 million to our U.S. Pension Plans. Our U.S. Pension Plans
have ample funds to meet expected benefit payments.

Standard & Poor’s has assigned us a senior unsecured debt credit rating
of BBB and commercial paper rating of A-2 and a ratings outlook of
“stable.” Moody’s Investors Service has assigned us a senior unsecured
debt credit rating of Baa1 and commercial paper rating of P-2 and a rat-
ings 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.

Contractual Cash Obligations and
Off-Balance Sheet Arrangements
The following table sets forth a summary of our contractual cash
obligations as of May 31, 2014. Certain of these contractual obliga-
tions 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 interest on
long-term debt, this table does not include amounts already recorded
in our balance sheet as current liabilities at May 31, 2014. 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

2015

$ 2,062
433
232
580

Payments Due by Fiscal Year (Undiscounted)
2018

2017

2019

Thereafter

2016

Total

$ 1,903
274
231
–

$ 1,932
123
231
–

$ 1,455
58
231
–

$ 1,228
19
231
–

$ 6,814
101
3,925
–

$ 15,394
1,008
5,081
580

1,147
185

1,248
–

956
–

1,368
–

859
–

4,498
–

10,076
185

–
$ 4,639

–
$ 3,656

–
$ 3,242

–
$ 3,112

750
$ 3,087

3,990
$ 19,328

4,740
$ 37,064

ManageMent’s discussion and analysisOpen 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.

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.

We had $396 million in deposits and progress payments as of
May 31, 2014 on aircraft purchases and other planned aircraft-related
transactions.

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.

Financing Activities
We have certain financial instruments representing potential com-
mitments, not reflected in the table above, that were incurred in
the normal course of business to support our operations, including
standby letters of credit and surety bonds. These instruments are
required under certain U.S. self-insurance programs and are also used
in the normal course of international operations. The underlying 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 2015, we have
no scheduled debt payments.

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, 2014.
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 ($37 million) is excluded from the
table. See Note 12 of the accompanying consolidated financial state-
ments for further information.

ManageMent’s discussion and analysis
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 pen-
sion plans, defined contribution plans and postretirement healthcare
plans and are described in Note 13 of the accompanying consolidated
financial statements.

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. These factors are significantly influenced by the financial
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, and the cash funding rules operate
under a completely different set of assumptions and standards than
those used for financial reporting purposes. As a result, our actual
cash funding requirements can differ materially from our reported
funded status.

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

U.S. domestic and international
pension plans
U.S. domestic and international defined
contribution plans
U.S. domestic and international
postretirement healthcare plans

2014

2013

2012

$ 484 $ 679

$ 524

363

354

338

78
$ 925 $ 1,111

70
$ 932

Total retirement plans cost decreased $186 million in 2014 due to
the favorable impact of higher discount rates at our May 31, 2013
measurement date and higher returns on plan assets. 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.

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 $6.6 billion through May 31, 2014,
compared to $7.0 billion through May 31, 2013. These unrecognized
losses reflect changes in the discount rates and other assumptions
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 U.S. Pension Plans expense includes amortization of these
actuarial losses of $363 million in 2014, $496 million in 2013 and
$291 million in 2012.

PENSION COST. The accounting for pension and postretirement
healthcare plans includes numerous assumptions, including the dis-
count rate and expected long-term investment returns on plan assets.
These assumptions most significantly impact our U.S. Pension Plans.

Following is a discussion of the key estimates we consider in deter-
mining our U.S. Pension Plans 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
5/31/2014
5/31/2013
5/31/2012
5/31/2011

Amounts Determined by
Measurement Date and
Discount
Discount Rate
Rate
4.60 % 2014 PBO and 2015 expense
2013 PBO and 2014 expense
4.79
2012 PBO and 2013 expense
4.44
2011 PBO and 2012 expense
5.76

ManageMent’s discussion and analysisWe 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. A one-basis-point
change in the discount rate for our largest pension plan would have a
$2.1 million effect on 2015 and 2014 pension expense.

At our May 31, 2014 measurement date, a 50-basis-point increase
in the discount rate would have decreased our 2014 PBO by approxi-
mately $1.5 billion and a 50-basis-point decrease in the discount rate
would have increased our 2014 PBO by approximately $1.7 billion.
From 2010 to 2014, the discount rate used to value our liabilities has
declined by over 170 basis points, which increased the valuation of
our liabilities by over $4.6 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 assumed a 7.75% expected long-term rate of return on our U.S.
Pension Plan assets in 2014 and 8% in 2013 and 2012. The actual
returns during each of the last three fiscal years have exceeded those
long-term assumptions. For 2014, we lowered our expected return on
plan assets assumption for long-term returns on plan assets to 7.75%
as we refined 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 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 $2.1 million.
The actual historical annual return on our U.S. Pension Plan assets,
calculated on a compound geometric basis, was 7.0%, net of invest-
ment manager fees and administrative expenses, for the 15-year
period ended May 31, 2014, and 6.9%, net of investment manager
fees and administrative expenses, for the 15-year period ended
May 31, 2013.

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 2015
pension expense, the calculated value method resulted in the same
value as the market value.

Our retirement plans costs are expected to decrease approximately
$215 million in 2015 as strong returns on our pension plan assets
more than offset the negative impact of a decrease in our discount
rate at our May 31, 2014 measurement date.

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

2014

2013

$ 24,578
21,907
$ (2,671)

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

$
$

727
801

$
$

615
589

ManageMent’s discussion and analysisFUNDING. 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 2014
were approximately $749 million or 3.5% of plan assets).

During 2014, we made $645 million in required contributions to our U.S.
Pension Plans. Over the past several years, we have made voluntary
contributions to our U.S. Pension Plans in excess of the minimum
required contributions. Amounts contributed in excess of the minimum
required 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 $2.5 billion at May 31, 2014. For 2015,
we anticipate making required contributions to our U.S. Pension Plans
totaling approximately $580 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 $1.8 billion at
May 31, 2014 and $1.7 billion at May 31, 2013. Approximately 41% of
these accruals were classified as current liabilities.

Our self-insurance accruals are primarily based on the actuarially
estimated, cost of claims incurred as of the balance sheet date. These
estimates include consideration of factors such as severity of claims,
frequency and volume of claims, healthcare inflation, seasonality and
plan designs. 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 cover-
age 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
USEFUL LIVES AND SALVAGE VALUES. Our business is capital
intensive, with approximately 59% of our total assets invested in
our transportation and information systems infrastructures.

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 recog-
nized in future periods and could have a material impact on our results
of operations (as described below). 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 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 2012, we shortened the depreciable
lives for 54 aircraft and related engines to accelerate the retirement
of these aircraft, resulting in a depreciation expense increase of
$69 million in 2013. As a result of these accelerated retirements,
we incurred an additional $74 million in year-over-year accelerated
depreciation expense in 2014.

IMPAIRMENT. The FedEx Express global air and ground network
includes a fleet of 650 aircraft (including approximately 300 supple-
mental aircraft) that provide delivery of packages and freight to more
than 220 countries and territories through a wide range of U.S. and
international shipping services. While certain aircraft are utilized in
primary geographic areas (U.S. versus international), we operate an
integrated global network, and utilize our aircraft and other modes of
transportation to achieve the lowest cost of delivery while main-
taining our service commitments to our customers. Because of the
integrated nature of our global network, our aircraft are interchange-
able across routes and geographies, giving us flexibility with our fleet
planning to meet changing global economic conditions and maintain
and modify aircraft as needed.

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

ManageMent’s discussion and analysiscreate risks that asset capacity may exceed demand and that an
impairment of our assets may occur. Aircraft purchases (primarily
aircraft in passenger configuration) that have not been placed in
service totaled $82 million at May 31, 2014 and $129 million at
May 31, 2013. We plan to modify these assets in the future and
place them into operations.

The accounting test for whether an asset held for use is impaired
involves first comparing the carrying value of the asset with its esti-
mated future undiscounted cash flows. If the cash flows do not exceed
the carrying value, the asset must be adjusted to its current fair value.
We operate integrated transportation networks and, accordingly, cash
flows for most of our operating assets are assessed at a network level,
not at an individual asset level for our analysis of impairment. Further,
decisions about capital investments are evaluated based on the impact
to the overall network rather than the return on an individual asset. We
make decisions to remove certain long-lived assets from service based
on projections of reduced capacity needs or lower operating costs of
newer aircraft types, and those decisions may result in an impairment
charge. Assets held for disposal must be adjusted to their estimated fair
values less costs to sell when the decision is made to dispose of the
asset and certain other criteria are met. The fair value 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. The criteria for deter-
mining whether an asset has been permanently removed from service
(and, as a result, impaired) include, but are not limited to, our global
economic outlook and the impact of our outlook on our current and
projected volume levels, including 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. At May 31, 2014, we had 10
aircraft temporarily idled, one of which was fully depreciated. These
aircraft have been idled for an average of three months and are
expected to return to revenue service.

In 2013, we retired 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 2013. All 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, 2014 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, 2014 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, most recently in May 2013. While we are not
required to quantify the effects of the proposed rule changes until
they are finalized, we believe that a majority of our 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, 2014, we had $2.8 billion of recorded good-
will from our business 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 business.

In our evaluation of goodwill impairment, we perform a qualitative
assessment that 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
the reporting unit to its carrying value (including attributable good-
will). 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 FedEx
Express, FedEx Freight and FedEx Office (reported in the FedEx
Services segment). We evaluated these reporting units during the
fourth quarters of 2014 and 2013. The estimated fair value of each of
these reporting units exceeded their carrying values in 2014 and 2013,
and we do not believe that any of these reporting units were at risk
as of May 31, 2014.

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 following
describes our methods and associated processes for evaluating
these matters.

TAX CONTINGENCIES. We are subject to income and operating tax
rules of the U.S., its states and municipalities, and of the foreign
jurisdictions in which we operate. Significant judgment is required in
determining income tax provisions, as well as deferred tax asset and
liability balances and related deferred tax valuation allowances, if
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, governmental
enforcement actions, employment-related claims and FedEx Ground’s
owner-operators. Accounting guidance for contingencies requires an
accrual of estimated loss from a contingency, such as a tax or other
legal proceeding or claim, when it is probable (i.e., the future event or
events are likely to occur) that a loss 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 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 or proceeding (i.e., the lengthy and complex nature of
class-action matters);

> the procedural status of each matter;

> 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 a 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 $5.0 billion at May 31, 2014 and
$3.2 billion at May 31, 2013. 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
$165 million as of May 31, 2014 and $77 million as of May 31, 2013.
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 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, British pound and the Canadian
dollar. 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 2014, foreign currency
fluctuations had a slightly negative impact on operating income. The
impact of foreign currency fluctuations was slightly positive in 2013.
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, 2014, 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 $23 million for 2015. 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 analysisoutlets such as YouTube and Twitter, adverse publicity can be dis-
seminated 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 fedex.com, could adversely
impact our customer service, volumes and revenues and result in
increased costs. These types of adverse impacts could also occur in
the event the confidentiality, integrity or availability of company and
customer information was compromised due to a data loss by FedEx
or a trusted third party. While we have invested and continue to
invest in technology security initiatives, information technology risk
management and disaster recovery plans, these measures cannot fully
insulate us from technology disruptions or data loss and the resulting
adverse effect on our operations and financial results. Additionally,
the cost and operational consequences of implementing further data
or system protection measures could be significant.

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.

COMMODITY. While we have market risk for changes in the price of
jet and vehicle fuel, this risk is largely mitigated by our variable 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 for FedEx Express and FedEx Ground
have a timing lag of approximately six to eight weeks 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. Therefore, our operating income may be
affected should the spot price of fuel suddenly change by a significant
amount or change by amounts that do not result in an adjustment in
our fuel surcharges.

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

RISK FACTORS

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

We are directly affected by the state of the economy. While
macro-economic risks apply to most companies, we are particularly
vulnerable. The transportation industry is highly cyclical and especially
susceptible to trends in economic activity. 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
consumer 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 economies of emerging markets. In 2014, we saw a continued
customer preference for slower, less costly shipping services —
particularly for international shipments — which had a negative
impact on profitability at FedEx Express.

Our businesses depend on our strong reputation and the value
of the FedEx brand. The FedEx brand name symbolizes high-quality
service, reliability and speed. FedEx is one of the most widely
recognized, trusted and respected brands in the world, and the FedEx
brand is one of our most important and valuable assets. In addition,
we have a strong reputation among customers and the general public
for high standards of social and environmental responsibility and
corporate governance and ethics. The FedEx brand name and our
corporate reputation are powerful sales and marketing tools, and
we devote significant resources to promoting and protecting them.
Adverse publicity (whether or not justified) relating to activities by our
employees, contractors or agents, such as customer service mishaps
or noncompliance with laws, could tarnish our reputation and reduce
the value of our brand. With the increase in the use of social media

ManageMent’s discussion and analysisOur businesses are capital intensive, and we must make capital
decisions based upon projected volume levels. We make signifi-
cant investments in aircraft, vehicles, technology, package handling
facilities, sort equipment, copy equipment and other assets to support
our transportation and business networks. We also make significant
investments to rebrand, integrate and grow the companies that we
acquire. The amount and timing of capital investments depend on vari-
ous factors, including our anticipated volume growth. We must make
commitments to purchase or modify aircraft years before the aircraft
are actually needed. We must predict volume levels and fleet require-
ments and make commitments for aircraft based on those projections.
Missing our projections could result in too much or too little capacity
relative to our shipping volumes. Overcapacity could lead to asset dis-
positions or write-downs and undercapacity could negatively impact
service levels. For example, in 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
services markets are both highly competitive and sensitive to price
and service, especially in periods of little or no macro-economic
growth. Some of our competitors have more financial resources than
we do, or they are controlled or subsidized by foreign governments,
which enables them to raise capital more easily. We also compete
with regional transportation providers that operate smaller and less
capital-intensive transportation networks. In addition, high volume
package shippers are developing in-house ground delivery capabili-
ties, which would in turn reduce our revenues and market share. 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 main-
tain or increase our prices (including our fuel surcharges in response
to rising fuel costs), but also to maintain or grow our market share.
While we believe we compete effectively through our current service
offerings, if our current competitors or potential future competitors
offer a broader range of services or more effectively bundle their ser-
vices 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, over the past three years, we
have acquired businesses in Europe, Latin America and Africa. 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. If FedEx
Ground is compelled to convert its independent contractors to employ-
ees, labor organizations could more easily organize these individuals,
our operating costs could increase materially and we could incur
significant capital outlays.

FedEx Ground relies on owner-operators to conduct its linehaul
and pickup-and-delivery operations, and the status of these
owner-operators as independent contractors, rather than
employees, is being challenged. FedEx Ground’s use of independent
contractors is well suited to the needs of the ground delivery business
and its customers, as evidenced by the strong growth of this busi-
ness segment. We are involved in numerous lawsuits and state tax
and other administrative proceedings that claim that the company’s
owner-operators or their drivers should be treated as our employees,
rather than independent contractors. We incur certain costs, including
legal fees, in defending the status of FedEx Ground’s owner-operators
as independent contractors. We believe that FedEx Ground’s owner-
operators are properly classified as independent contractors and
that FedEx Ground is not an employer of the drivers of the company’s
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 defini-
tion of independent contractors could also impact the status of FedEx
Ground’s owner-operators.

ManageMent’s discussion and analysisWe may be affected by global climate change or by legal, regula-
tory or market responses to such change. Concern over climate
change, including the impact of global warming, has led to significant
U.S. and international legislative and regulatory efforts to limit green-
house 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 that are wholly within the European
Union are now covered by the ETS requirements, and each year we
are required to submit emission allowances in an amount equal to
the carbon dioxide emissions from such flights. In addition, the U.S.
Congress has, in the past, considered bills that would regulate GHG
emissions, and some form of federal climate change legislation is
possible in the future. Increased regulation regarding GHG emissions,
especially aircraft or diesel engine emissions, could impose substan-
tial costs on us, especially at FedEx Express. These costs include
an increase in the cost of the fuel and other energy we purchase
and capital costs associated with updating or replacing our aircraft
or vehicles prematurely. Until the timing, scope and extent of such
regulation becomes known, we cannot predict its effect on our cost
structure or our operating results. It is reasonably possible, however,
that it could impose material costs on us. Moreover, even without
such regulation, increased awareness and any adverse publicity in
the global marketplace about the GHGs emitted by companies in the
airline and transportation industries could harm our reputation and
reduce customer demand for our services, especially our air express
services. Finally, given the broad and global scope of our operations
and our susceptibility to global macro-economic trends, we are par-
ticularly 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.

We may not be able to achieve our profit improvement goal by
the end of 2016. In 2013, we announced profit improvement programs
primarily through initiatives at FedEx Express and FedEx Services that
include cost reductions, modernization of our aircraft fleet, trans-
formation 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, we
retired from service 10 aircraft and related engines, and we shortened
the depreciable lives of an additional 76 aircraft and related engines,
in an effort to modernize our aircraft fleet and improve our global
network. Additionally, during 2014, we completed a voluntary buyout
program offering cash buyouts to eligible U.S.-based employees. We
will continue to work towards our goal of annual profitability improve-
ment at FedEx Express of $1.6 billion by the end of 2016. Our ability to
achieve this objective is dependent on a number of factors, includ-
ing the health of the global economy and future customer demand,
particularly for our priority services. In light of these factors, we may
not be able to achieve our goal.

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.

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, state and foreign
governmental agency mandates (including the Foreign Corrupt
Practices Act and the U.K. Bribery Act) 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
international government laws and regulation;

> changes in foreign currency exchange rates, especially in the
Chinese yuan, euro, Brazilian real, British pound and the Canadian
dollar, 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 amend-
able 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;

> governmental underinvestment in transportation infrastructure,
which could increase our costs and adversely impact our service
levels due to traffic congestion or sub-optimal routing of our vehicles
and aircraft;

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

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

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, 2014, 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 (1992 framework) (the COSO criteria).

Based on this assessment, management has concluded that our internal control over financial reporting was effective as of May 31, 2014.

The effectiveness of our internal control over financial reporting as of May 31, 2014, 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.

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, 2014, based on criteria established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO
criteria). FedEx Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assess-
ment 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, 2014,
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, 2014 and 2013, 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, 2014 of FedEx Corporation
and our report dated July 14, 2014 expressed an unqualified opinion thereon.

Memphis, Tennessee
July 14, 2014

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.

2014
$ 45,567

Years ended May 31,
2013
$ 44,287

2012
$ 42,680

16,555
8,011
2,622
2,587
4,557
1,862
–
5,927
42,121
3,446

(160)
18
(15)
(157)
3,289
1,192
$ 2,097
6.82
$
6.75
$

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
$

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 $1, $12 and $26
Amortization of unrealized pension actuarial gains (losses) and other, net of tax expense
of $104 and $677 in 2014 and 2013 and tax benefit of $1,369 in 2012

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

2014
$ 2,097

Years ended May 31,
2013
$ 1,561

(25

)

151
126
$ 2,223

1,092
1,133
$ 2,694

2012
$ 2,032

(95)

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

fedex corporation
CONSOLIDATED BALANCE ShEETS

(in millions, except share data)
Assets
Current Assets
Cash and cash equivalents
Receivables, less allowances of $164 and $176
Spare parts, supplies and fuel, less allowances of $212 and $205
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, 2014 and 2013
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,

2014

2013

$ 2,908
5,460
463
522
330
9,683

15,632
7,196
5,169
4,400
8,294
40,691
21,141
19,550

2,790
1,047
3,837
$ 33,070

1
1,277
1,971
2,063
5,312
4,736

2,114
3,484
1,038
758
206
145
7,745

32
2,643
20,429
(3,694)
(4,133)
15,277
$ 33,070

$ 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

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 and postretirement healthcare 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, including accelerated share repurchase agreements
Other, net
Cash (used in) provided by financing activities
Effect of exchange rate changes on cash
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
The accompanying notes are an integral part of these consolidated financial statements.

Years ended May 31,
2013

2014

2012

$ 2,097

$ 1,561

$ 2,032

2,587
130
581
–
117

(516)
(22)
(453)
(235)
(22)
4,264

(3,533)
(36)
18
(3,551)

(254)
1,997
557
44
(187)
(4,857)
(19)
(2,719)
(3 )
(2,009)
4,917
$ 2,908

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

fedex corporation

CONSOLIDATED STATEMENTS OF ChANGES IN
STOCKhOLDERS’ INVESTMENT

Common
Stock
$ 32
–
–
–
–

(in millions, except share data)
Balance at May 31, 2011
Net income
Other comprehensive loss, net of tax of $1,395
Purchase of treasury stock (2.8 million shares)
Cash dividends declared ($0.52 per share)
Employee incentive plans and other
(2.4 million shares issued)
Balance at May 31, 2012
Net income
Other comprehensive gain, net of tax of $665
Purchase of treasury stock (2.7 million shares)
Cash dividends declared ($0.56 per share)
Employee incentive plans and other
(4.2 million shares issued)
Balance at May 31, 2013
Net income
Other comprehensive gain, net of tax of $103
Purchase of treasury stock (36.8 million shares)
Cash dividends declared ($0.60 per share)
Employee incentive plans and other
(6.7 million shares issued)
Balance at May 31, 2014
The accompanying notes are an integral part of these consolidated financial statements.

–
32
–
–
–
–

–
$ 32

Additional
Paid-in
Capital
$ 2,484
–
–
–
–

111
2,595
–
–
–
–

73
2,668
–
–
–
–

Accumulated
Other
Comprehensive
Income (Loss)
$ (2,550)
–
(2,403 )
–
–

–
(4,953 )
–
1,133
–
–

–
(3,820)
–
126
–
–

Retained
Earnings
$ 15,266
2,032
–
–
(164 )

–
17,134
1,561
–
–
(176 )

–
18,519
2,097
–
–
(187 )

Treasury
Stock
$ (12)
–
–
(197 )
–

128
(81)
–
–
(246 )
–

326
(1)
–
–
(4,857 )
–

Total
$ 15,220
2,032
(2,403 )
(197)
(164 )

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

399
17,398
2,097
126
(4,857)
(187)

(25 )
$ 2,643

–
$ 20,429

–
$ (3,694)

725
$ (4,133)

700
$ 15,277

46
46

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 U.S. provider of less-
than-truckload (“LTL”) freight services. These companies represent
our major service lines and, along with FedEx Corporate Services,
Inc. (“FedEx Services”), form the core of our reportable segments.
Our FedEx Services segment provides sales, marketing, information
technology, communications and certain 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, 2014 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 $407 million in 2014, $424 million in
2013 and $421 million in 2012.

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, although historically changes in these estimates have been
minimal. 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 costs are charged to expense as incurred, except for certain
aircraft engine maintenance costs incurred under third-party service
agreements. These agreements, which became effective June 1,
2014, will result in costs being expensed based on cycles or hours
flown and are subject to annual escalation. These service contracts
transfer risk to third party service providers and generally fix the
amount we pay for maintenance to the service provider as a rate per
cycle or flight hour, in exchange for maintenance and repairs under a
predefined maintenance program. 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.

47
47

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,
2014

2013

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

$ 7,223

$ 7,191

2,639

2,284

2,676
1,963

940
4,109

2,311
1,748

993
3,957

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 incurred 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 $2.6 billion in 2014,
$2.3 billion in 2013 and $2.1 billion in 2012. Depreciation and amortiza-
tion 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 $29 million in 2014, $45 million in 2013
and $85 million in 2012.

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 2013, we retired 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 2013. All of these aircraft were temporarily idled and not
in revenue service.

In 2012, we retired 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 impair-
ment charge of $134 million ($84 million, net of tax, or $0.26 per
diluted share) was recorded in 2012.

notes to consolidated financial statementsGOODWILL. 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 business.
Goodwill is reviewed at least annually for impairment. In our evalua-
tion of goodwill impairment, we perform a qualitative assessment to
determine if it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. If the qualitative assessment is
not conclusive, we proceed to a two-step process to test goodwill for
impairment including comparing the fair value of the reporting unit to
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 circum-
stances 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.

We recorded a decrease to equity through OCI of $11 million (net of
tax) at our May 31, 2014 measurement date. We recorded an increase
to equity through OCI of $861 million (net of tax) at our May 31, 2013
measurement date.

INCOME TAXES. Deferred income taxes are provided for the tax
effect of temporary differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements. The
liability method is used to account for income taxes, which requires
deferred taxes to be recorded at the statutory rate expected to be in
effect when the taxes are paid.

We 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 noncurrent portion of our
income tax liabilities and accrued interest and penalties are recorded
in the caption “Other liabilities” in the accompanying consolidated
balance sheets.

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 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.

notes to consolidated financial statementsLEASES. 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.

FOREIGN CURRENCY TRANSLATION. Translation gains and losses
of foreign operations that use local currencies as the functional
currency are accumulated and reported, net of applicable deferred
income taxes, as a component of accumulated other comprehensive
income within common stockholders’ investment. Transaction gains
and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the local currency are included
in the caption “Other, net” in the accompanying consolidated 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 non-U.S. employees are unionized.

STOCK-BASED COMPENSATION. We recognize compensation
expense for stock-based awards under the provisions of the account-
ing guidance related to share-based payments. This guidance requires
recognition of compensation expense for stock-based awards using a
fair value method. We issue new shares or repurchase shares on the
open market to cover employee share option exercises and restricted
stock grants.

TREASURY SHARES. In October 2013, our Board of Directors autho-
rized a new share repurchase program of up to 32 million shares
of common stock. These shares augmented the 10.2 million shares
remaining on our previous share repurchase authorizations at May 31,
2013. Shares may be purchased from time to time in the open market
or in privately negotiated transactions. Repurchases are made at the
company’s discretion, based on ongoing assessments of the capital
needs of the business, the market price of its common stock and
general market conditions. No time limit was set for the completion
of the repurchase program, and the program may be suspended or
discontinued at any time.

In January 2014, we entered into accelerated share repurchase
(“ASR”) agreements with two banks to repurchase an aggregate of
$2.0 billion of our common stock. During the third quarter of 2014,
11.4 million shares were initially delivered to us based on then-
current market prices. During the fourth quarter of 2014, the ASR
transactions were completed and we received 3.4 million additional
shares. The final number of shares delivered upon settlement of each
ASR agreement was determined based on a discount to the volume-
weighted average price of our stock during the term of the respective
transaction. In total, 14.8 million shares were delivered under the
ASR agreements. The repurchased shares were accounted for as a
reduction to common stockholders’ investment in the accompany-
ing consolidated balance sheet and resulted in a reduction of the
outstanding shares used to calculate the weighted-average common
shares outstanding for basic and diluted earnings per share.

During 2014, including the ASR transactions, we repurchased
36.8 million shares of FedEx common stock at an average price of
$131.83 per share for a total of $4.9 billion. As of May 31, 2014,
5.3 million shares remained under our share repurchase authorizations.

DIVIDENDS DECLARED PER COMMON SHARE. On June 9, 2014, our
Board of Directors declared a quarterly dividend of $0.20 per share of
common stock, an increase of $0.05 per common share from the prior
quarter’s dividend. The dividend was paid on July 3, 2014 to stock-
holders of record as of the close of business on June 19, 2014. 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 primarily through initiatives at FedEx Express
and FedEx Services and completed a program to offer voluntary cash
buyouts to eligible U.S.-based employees in certain staff functions. As
a result of this program, approximately 3,600 employees had left the
company by the end of 2014. Costs of the benefits provided under the
voluntary employee severance program were recognized as special
termination benefits in the period that eligible employees accepted
their offers. Payments under this program were made at the time
of departure and totaled approximately $300 million in 2014 and
$180 million in 2013.

notes to consolidated financial statementsThe voluntary buyout program included 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.
Of the total population leaving the company, approximately 40% of the
employees vacated positions on May 31, 2013. An additional 35%
departed throughout 2014 and approximately 25% of this population
remained until May 31, 2014.

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. 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.

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; loss contin-
gencies; litigation 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.

NOTE 3: BUSINESS COMBINATIONS

On May 1, 2014, we expanded the international service offerings of
FedEx Express by completing our acquisition of the businesses operated
by our previous service provider Supaswift (Pty) Ltd. in seven countries
in Southern Africa, for $36 million in cash from operations. A significant
amount of the purchase price was allocated to goodwill, which was
entirely attributed to our FedEx Express reporting unit. This acquisition
gives us an established regional ground network and extensive knowl-
edge of the Southern African region.

During 2013, we completed our acquisitions of Rapidão Cometa
Logística e Transporte S.A., a Brazilian transportation and logistics com-
pany, for $398 million; TATEX, a French express transportation company,
for $55 million; and Opek Sp. z o.o., a Polish domestic express package
delivery company, for $54 million.

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.

These acquisitions were completed using cash from operations. 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 there-
fore, pro forma financial information has not been presented.

notes to consolidated financial statements
NOTE 4: GOODWILL AND OThER INTANGIBLE ASSETS

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

Goodwill at May 31, 2012
Accumulated impairment charges
Balance as of May 31, 2012
Goodwill acquired(1)
Purchase adjustments and other(2)
Balance as of May 31, 2013
Goodwill acquired(1)
Purchase adjustments and other(2)
Balance as of May 31, 2014
Accumulated goodwill impairment
charges as of May 31, 2014
(1) Goodwill acquired relates to the acquisitions of transportation companies in Poland, France and Brazil in 2013 and the acquisition of transportation companies in Southern Africa in 2014.

$ (1,177)

$ –

$ (133)

$ –

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

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

FedEx Services
Segment
$ 1,528
(1,177)
351
–
(3 )
348
–
–
$ 348

FedEx Express
Segment
$ 1,344
–
1,344
351
20
1,715
24
11
$ 1,750

Total
$ 3,697
(1,310)
2,387
351
17
2,755
24
11
$ 2,790

$ (1,310)

See Note 3 for related disclosures.

(2) Primarily currency translation adjustments and acquired goodwill related to immaterial acquisitions.

Our reporting units with significant recorded goodwill include FedEx
Express, FedEx Freight and FedEx Office (reported in the FedEx
Services segment). We evaluated reporting units for impairment
during the fourth quarter of 2014. The estimated fair value of each
of these reporting units exceeded their carrying values in 2014 and
2013, and we do not believe that any of these reporting units were
at risk as of May 31, 2014.

OTHER INTANGIBLE ASSETS. The net book value of our other
intangible assets was $57 million at May 31, 2014 and $72 million
at May 31, 2013. Amortization expense for intangible assets was
$23 million in 2014, $27 million in 2013 and $18 million in 2012.
Estimated amortization expense is expected to be immaterial in
2015 and beyond.

NOTE 5: SELECTED CURRENT
LIABILITIES

The components of selected current liability captions at May 31 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

2014

2013

267

489

434
576
$ 1,277

$ 811
339
913
$ 2,063

615
584
$ 1,688

$ 796
368
768
$ 1,932

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, 2014, are as
follows (in millions):

Senior unsecured debt:
Interest Rate %
7.38
8.00
2.625
2.70
4.00
4.90
3.875
4.10
5.10
7.60
Total senior unsecured debt
Capital lease obligations

Maturity
2014
2019
2023
2023
2024
2034
2043
2043
2044
2098

Less current portion

May 31,

2014

2013

–
750
499
249
749
499
493
499
749
239
4,726
11
4,737
1
$ 4,736

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

notes to consolidated financial statements

Interest on our fixed-rate notes is paid semi-annually. Long-term debt,
exclusive of capital leases, had estimated fair values of $5.0 billion at
May 31, 2014 and $3.2 billion at May 31, 2013. 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 value hierarchy. This
classification is defined as a fair value determined 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 offer-
ings, any combination of our unsecured debt securities and common stock.

In January 2014, we issued $2 billion of senior unsecured debt under our
current shelf registration statement, comprised of $750 million of 4.00%
fixed-rate notes due in January 2024, $500 million of 4.90% fixed-rate
notes due in January 2034 and $750 million of 5.10% fixed-rate notes due
in January 2044. Interest on these notes is paid semiannually. We utilized
the net proceeds to make payments under the ASR agreements discussed
in Note 1. During 2014, we repaid our $250 million 7.38% senior unse-
cured notes that matured on January 15, 2014.

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 com-
mercial paper. The revolving credit agreement expires in March 2018. The
agreement contains a financial covenant, which requires us to maintain
a leverage ratio of adjusted debt (long-term debt, including the current
portion of such debt, plus six times our last four fiscal quarters’ rentals
and landing fees) to capital (adjusted debt plus total common stockhold-
ers’ investment) that does not exceed 70%. Our leverage ratio of adjusted
debt to capital was 57% at May 31, 2014. 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, 2014, no commercial paper was
outstanding, and the entire $1 billion under the revolving credit facility
was available for future borrowings.

We issue other financial instruments in the normal course of business
to support our operations, including standby letters of credit and surety
bonds. We had a total of $538 million in letters of credit outstanding at
May 31, 2014, with $149 million unused under our primary $500 million
letter of credit facility, and $531 million in outstanding surety bonds
placed by third-party insurance providers. These instruments are required
under certain U.S. self-insurance programs and are also used in the
normal course of international operations. The underlying liabilities
insured by these instruments are reflected in our balance sheets, where
applicable. Therefore, no additional liability is reflected for the letters of
credit and surety bonds themselves.

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, 2014 and May 31, 2013. 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)

2014
$ 2,154
197
$ 2,351
(1) Contingent rentals are based on equipment usage.

2013
$ 2,061
192
$ 2,253

2012
$ 2,018
210
$ 2,228

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, 2014 is as follows (in millions):

Aircraft and
Related
Equipment
$ 448
453
392
326
273
550
$ 2,442

Operating Leases

Facilities and
Other
$ 1,614
1,450
1,540
1,129
955
6,264
$ 12,952

Total Operating
Leases
$ 2,062
1,903
1,932
1,455
1,228
6,814
$ 15,394

2015
2016
2017
2018
2019
Thereafter
Total

Property and equipment recorded under capital leases and future
minimum lease payments under capital leases were immaterial at
May 31, 2014 and 2013. The weighted-average remaining lease term
of all operating leases outstanding at May 31, 2014 was approxi-
mately 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
a residual value guarantee, fixed-price purchase option or similar

notes to consolidated financial statements

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, 2014, 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) (“AOCI”), net of tax, reported in our financial statements
for the years ended May 31 (in millions; amounts in parentheses indicate debits to AOCI):

Foreign currency translation gain (loss):
Balance at beginning of period
Translation adjustments
Balance at end of period
Retirement plans adjustments:
Balance at beginning of period
Net (loss) gain and other arising during period
Reclassifications from AOCI
Balance at end of period
Accumulated other comprehensive loss at end of period

2014

102
(25)
77

(3,922)
(11)
162
(3,771)
$ (3,694)

2013

61
41
102

(5,014)
861
231
(3,922)
$ (3,820)

2012

156
(95)
61

(2,706)
(2,432)
124
(5,014)
$ (4,953)

The following table presents details of the reclassifications from AOCI for the years ended May 31 (in millions; amounts in parentheses indicate
debits to earnings):

Amount Reclassified from AOCI
2013

2014

2012

Affected Line Item in the
Income Statement

Retirement plans:
Amortization of actuarial losses and other
Amortization of prior service credits
Total before tax
Income tax benefit
AOCI reclassifications, net of tax

$ (382 )
115
(267 )
105
$ (162)

$ (516 )
114
(402 )
171
$ (231)

$ (310 )
113
(197 )
73
$ (124)

Salaries and employee benefits
Salaries and employee benefits

Provision for income taxes
Net income

notes to consolidated financial statements

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

2014
$ 117

2013
$ 109

2012
$ 105

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 pur-
chase shares of our common stock at a price not less than its fair market
value on the date of grant. Vesting requirements are determined at the
discretion of the Compensation Committee of our Board of Directors.
Option-vesting periods range from one to four years, with 83% of our
options vesting ratably over four years. Compensation expense associ-
ated with these awards is recognized on a straight-line basis over the
requisite service period of the award.

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

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

The key assumptions for the Black-Scholes valuation method include the
expected life of the option, stock price volatility, a risk-free interest rate
and dividend yield. Following is a table of the weighted-average Black-
Scholes value of our stock option grants, the intrinsic value of options
exercised (in millions), and the key weighted-average 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

2014

2013

2012

$ 35.79
$ 347

$ 29.20
$ 107

$ 29.92
$ 67

6.2 years

6.1 years

6.0 years

35 %
1.47%
0.561 %

35 %
0.94 %
0.609 %

34 %
1.79 %
0.563 %

The 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, 2014:

Stock Options

Outstanding at June 1, 2013
Granted
Exercised
Forfeited
Outstanding at May 31, 2014
Exercisable
Expected to vest
Available for future grants
(1) Only presented for options with market value at May 31, 2014 in excess of the exercise price of the option.

Shares
19,135,434
3,482,179
(6,468,517)
(514,240)
15,634,856
8,913,173
6,318,382
13,108,873

Weighted-Average
Exercise Price
$ 87.62
103.83
86.15
91.61
$ 91.71
$ 88.81
$ 95.56

Weighted-Average
Remaining
Contractual Term

Aggregate
Intrinsic Value

(in millions)(1)

6.0 years
4.3 years
8.3 years

$ 820
$ 493
$ 307

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):

2014

2013

2012

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

$ 2,093 $ 1,558 $ 2,029
315
$ 6.82 $ 4.95 $ 6.44

315

307

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

$ 2,093 $ 1,558 $ 2,029
315
2
317
$ 6.75 $ 4.91 $ 6.41

315
2
317

307
3
310

11.1

12.6

3.3

The options granted during the year ended May 31, 2014 are primarily
related to our principal annual stock option grant in June 2013.

The following table summarizes information about vested and
unvested restricted stock for the year ended May 31, 2014:

Restricted Stock

Shares
529,334
191,964
(239,716)
(1,425)
480,157

Weighted-Average
Grant Date Fair Value
$ 80.86
100.80
75.48
100.46
$ 91.46

Unvested at June 1, 2013
Granted
Vested
Forfeited
Unvested at May 31, 2014

During the year ended May 31, 2013, there were 220,391 shares of
restricted stock granted with a weighted-average fair value of $85.45.
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.

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

2014
2013
2012

Stock Options

Vested during
the year
2,408,179
2,824,757
2,807,809

Fair value
(in millions)
$ 65
81
70

As of May 31, 2014, there was $159 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 remain-
ing weighted-average vesting period of approximately two years.

Total shares outstanding or available for grant related to equity com-
pensation at May 31, 2014 represented 8% of the total outstanding
common and equity compensation shares and equity compensation
shares available for grant.

notes to consolidated financial statementsNOTE 12: INCOME TAXES

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

2014

2013

2012

Our 2012 rate was favorably impacted by the conclusion of the
Internal Revenue Service (“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):

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

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

$ 624
56
194
874

238
62
18
318
$ 1,192

$ 512
86
170
768

175
(7)
(42)
126
$ 894

$ (120)
80
181
141

947
21
–
968
$ 1,109

Our current federal income tax expenses in 2012, and to a lesser
extent, 2013 and 2014, 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 investments, such as our Boeing 777 Freighter
(“B777F”) aircraft. These were timing benefits only, in that deprecia-
tion accelerated into an earlier year is foregone in later years.

Pre-tax earnings (loss) of foreign operations for 2014, 2013 and 2012
were $412 million, $(55) million and $358 million, respectively. These
amounts represent only a portion of total results associated with
international shipments and accordingly, do not represent our interna-
tional results of operations.

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

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

2014
35.0 %

2013
35.0 %

2012
35.0 %

2.3
(1.0)
36.3 %

2.1
(0.7)
36.4 %

2.1
(1.8)
35.3 %

2014

2013

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

$ 120
1,464
555
292

333
(245)
$ 2,519

$ 3,730
11
–
290

$ 157
1,771
533
251

–
–
$ 4,031

298
(204)
$ 2,806

$ 3,676
11
–
238

–
–
$ 3,925

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

Current deferred tax assets
Noncurrent deferred tax assets(1)
Noncurrent deferred tax liabilities

2014
$ 522
80
(2,114)
$ (1,512)

2013
$ 533
–
(1,652)
$ (1,119)

(1) Noncurrent deferred tax assets are included in the line item Other Assets in our

Consolidated Balance Sheet.

We have $1.0 billion of net operating loss carryovers in various for-
eign jurisdictions and $515 million of state operating loss carryovers.
The valuation allowances primarily represent amounts reserved for
operating loss and tax credit carryforwards, which expire over varying
periods starting in 2015. As a result of this and other factors, we
believe that a substantial portion of these deferred tax assets may not
be realized. We establish valuation allowances if it is not likely we
will realize our deferred income tax assets. In making this deter-
mination, we consider all available positive and negative evidence
and make certain assumptions. We consider, among other things,
our future projections of sustained profitability, deferred income tax
liabilities, the overall business environment, our historical financial
results and potential current and future tax planning strategies. If we
were to identify and implement tax planning strategies to recover
these deferred tax assets or generate sufficient income of the appro-
priate character in these jurisdictions in the future, it could lead to
the reversal of these valuation allowances and a reduction of income
tax expense. We believe that we will generate sufficient future tax-
able income to realize the tax benefits related to the remaining net
deferred tax assets in our consolidated balance sheets.

notes to consolidated financial statements

Permanently reinvested earnings of our foreign subsidiaries amounted
to $1.6 billion at the end of 2014 and $1.3 billion at the end of 2013.
We have not recognized deferred taxes for U.S. federal income tax
purposes on those earnings. In 2014, our permanent reinvestment
strategy with respect to unremitted earnings of our foreign subsid-
iaries 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 jurisdictions associated with our permanent reinvestment
strategy totaled $471 million at the end of 2014 and $420 million at
the end of 2013.

In 2014, approximately 90% 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. 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.

We are subject to taxation in the U.S. and various U.S. state, local and
foreign jurisdictions. The IRS has completed its examination of our
2010 and 2011 federal income tax returns with insignificant adjust-
ments taken to appeals. The IRS is currently examining our 2012 and
2013 tax returns. 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 unrecognized 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

2014
$ 47

2013
$ 51

2012
$ 69

(3)
(6)
_

(3)
(1)
$ 38

(3)
(9)
4

(2)
2
$ 47

(35)
(3)
15

–
(1)
$ 51

Our liabilities recorded for uncertain tax positions include $33 million
at May 31, 2014 and $42 million at May 31, 2013 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 $19 million on May 31, 2014 and $29 million on
May 31, 2013. Total interest and penalties included in our consoli-
dated statements of income are immaterial.

It is difficult to predict the ultimate outcome or the timing of resolution
for tax positions. Changes may result from the conclusion of ongoing
audits, appeals or litigation in state, local, federal and foreign tax
jurisdictions, or from the resolution of various proceedings between
the U.S. and foreign tax authorities. Our liability for uncertain tax
positions includes no matters that are individually or collectively
material to us. It is reasonably possible that the amount of the benefit
with respect to certain of our unrecognized tax positions will increase
or decrease within the next 12 months, but an estimate of the range
of the reasonably possible changes cannot be made. However, we do
not expect that the resolution of any of our uncertain tax positions will
have a material effect on us.

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.

notes to consolidated financial statementsThe 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
a decrease to equity of $11 million (net of tax) at May 31, 2014, and
an increase to equity of $861 million (net of tax) at May 31, 2013,
attributable to changes in the funded status of our plans.

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 earnings and years of ser-
vice and are funded in compliance with local laws and practices.

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

2014

2013

2012

$ 484 $ 679

$ 524

363

354

338

78
$ 925 $ 1,111

70
$ 932

Total retirement plans costs in 2014 were lower than 2013 due to
the favorable impact of a higher discount rate at our May 31, 2013
measurement date and higher returns on plan assets.

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 princi-
pal 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.

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.

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.

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
2013

4.79 %

2014

4.60 %

2012

4.44 %

Postretirement Healthcare Plans
2012
2013
2014

4.70%

4.91%

4.55 %

4.79

4.44

5.76

4.91

4.55

5.67

4.56

4.54

7.75

4.54

4.62

8.00

4.62

4.58

8.00

–

notes to consolidated financial statements

The estimated average rate of return on plan assets is the expected
future long-term rate of earnings on plan assets and is a forward-look-
ing assumption that materially affects our pension cost. Establishing
the expected future rate of investment return on our pension assets is
a judgmental matter. We review the expected long-term rate of return
on an annual basis and revise it as appropriate. Management consid-
ers 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 7.75% in
2014 and 8% in 2013 and 2012. Our actual return in each of the past
three years exceeded those amounts for our principal U.S. domestic
pension plan. For 2014, we lowered our expected return on plan
assets assumption for long-term returns on plan assets to 7.75% as
we refined 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 duration of
our plan liability and the relatively low annual draw on plan assets on
that investment strategy. For the 15-year period ended May 31, 2014,
our actual annual returns were 7%.

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
managers. Our largest holding classes are Corporate Fixed Income
Securities and Government Fixed Income Securities (which are largely
benchmarked against the Barclays Long Government/Long Corporate
Index), and U.S. Large Cap Equities (which are mainly indexed to the
S&P 500 Index). Accordingly, we do not have any significant concen-
trations 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 instru-
ments on a discretionary basis to improve investment returns and
manage exposure to market risk. In all cases, our investment manag-
ers 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, international and global 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
International equities
Global equities
U.S. SMID cap equity
Private equities
Fixed income securities
Corporate
Government
Mortgage backed and other
Other

Asset Class
Cash and cash equivalents
Equities
U.S. large cap equity
International equities
U.S. SMID cap equity
Private equities
Fixed income securities
Corporate
Government
Mortgage backed and other
Other

Plan Assets at Measurement Date
2014

Target
Range%
0-5 %

35-55

45-65

Target
Range %
0-5 %

35-55

45-65

Quoted Prices in
Active Markets
Level 1
$ 55

Other Observable
Inputs
Level 2
$ 258

Unobservable
Inputs
Level 3

55
2,206

886

5,141
446
1,367

5,758
4,782
275

$ 276

(61)
$ 3,141

$ 18,027

$ 276

2013

Quoted Prices in
Active Markets
Level 1
$ 15

Other Observable
Inputs
Level 2
$ 441

Unobservable
Inputs
Level 3

37
1,904
1,741

(83)
$ 3,614

5,227
367

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

$ 332

Fair Value
$ 313

Actual %
2 %

5,196
2,652
1,367
886
276

5,758
4,782
275
(61)
$ 21,444

24
12
7
4
1

27
22
1
–
100 %

Fair Value
$ 456

Actual %
2 %

5,264
2,271
1,741
332

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

28
12
9
2

26
20
1
–
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

2014
$ 332

2013
$ 402

(17)
53
(92)
$ 276

(29)
55
(96)
$ 332

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, 2014 and a statement of the funded status as of May 31, 2014 and 2013 (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:
Noncurrent asset
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
Prior service credit and other
Total

Pension Plans

2014
$ 23,805

2013
$ 21,958

Postretirement
Healthcare Plans

2014

2013

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

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

$ 22,600
657
1,055
1,021
(801)
46
$ 24,578

$ 19,433
2,509
727
(801)
39
$ 21,907
$ (2,671)

(41)

(48)

(2,635)
$ (2,671)

(3,119)
$ (3,167)

$ 6,633
(670)
$ 5,963

300
(115)
185

$ 6,993
(781)
$ 6,212

378
(114)
264

$ 828
38
40
5
(62)
34
$ 883

–
–
28
(62)
34
–
$
$ (883)

$ (41)

(842)
$ (883)

2
1
3

–
–
–

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

–
–
27
(54)
27
–
$
$ (828)

$ (39)

(789)
$ (828)

(4 )
2
(2)

–
–
–

notes to consolidated financial statements

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

2014
Qualified
Nonqualified
International Plans
Total
2013
Qualified
Nonqualified
International Plans
Total

PBO

$ 23,439
280
859
$ 24,578

$ 21,532
322
746
$ 22,600

Fair Value of
Plan Assets

$ 21,444
–
463
$ 21,907

$ 19,047
–
386
$ 19,433

Funded
Status

$ (1,995)
(280)
(396)
$ (2,671)

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

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. The fair value of plan assets for pension
plans with a PBO or ABO in excess of plan assets at May 31 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

2014

2013

$ 21,543
(24,219)
$ (2,676)

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

ABO Exceeds the Fair Value
of Plan Assets

2014

2013

$ (23,447)
21,542
(24,218)
$ (2,676)

2014
$ 645
15
$ 660

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

2013
$ 560
–
$ 560

For 2015, we anticipate making required contributions to our U.S. Pension Plans totaling approximately $580 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

2014
657
1,055
(1,495)
267
484

Pension Plans
2013
692
968
(1,383)
402
679

2012
593
976
(1,240)
195
524

2014
$ 38
40
–
–
$ 78

Postretirement
Healthcare Plans
2013
$ 42
36
–
–
$ 78

2012
$ 35
36
–
(1)
$ 70

Amounts recognized in OCI for all plans for the years ended May 31 were as follows (in millions):

2014

2013

Pension Plans
Gross
Amount

Net of Tax
Amount

$ 7

$ 8

115
(382)
$ (260 )

69
(231)
$ (154 )

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

$ 5

–
–
$ 5

$ 3

$ (1,350)

$ (840 )

$ (17 )

$ (21 )

–
–
$ 3

114
(516)
$ (1,752 )

66
(297)
$ (1,071 )

–
–
$ (17 )

–
–
$ (21 )

Net (gain) loss and other arising
during period
Amortizations:
Prior services credit
Actuarial losses 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.

2015
2016
2017
2018
2019
2020–2024

Pension Plans
$ 912
870
954
1,015
1,120
7,398

Postretirement
Healthcare Plans
$ 41
42
44
45
46
267

Future medical benefit claims costs are estimated to increase at an
annual rate of 7.5% during 2015, 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,
2014 or 2014 benefit expense because the level of these benefits is
capped.

notes to consolidated financial statements

The FedEx Services segment provides direct and indirect support to
our transportation businesses, and we allocate all of the net 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. 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.

Operating expenses for each of our transportation segments include
the allocations from the FedEx Services segment to the respective
transportation segments. These allocations also include charges and
credits for administrative services provided between operating com-
panies and certain other costs such as corporate management fees
related to services received for general corporate oversight, including
executive officers and certain legal and finance functions. The alloca-
tions of net operating costs are based on metrics such as relative
revenues or estimated services provided. We believe these allocations
approximate the net cost of providing these functions and our alloca-
tion methodologies are refined as necessary to reflect changes in our
businesses.

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 and segment
assets to consolidated financial statement totals for the years ended or as of May 31 (in millions):

FedEx Express
Segment(1)

FedEx Ground
Segment(2)

FedEx Freight
Segment(3)

FedEx Services
Segment

Other and
Eliminations

Consolidated
Total

$ 5,757
5,401
5,282

$ 1,536
1,580
1,671

$ (464)
(443)
(361)

$ 1,488
1,350
1,169

$ 27,121
27,171
26,515

$ 11,617
10,578
9,573

$ 45,567
44,287
42,680

Revenues
2014
2013
2012
Depreciation and amortization
2014
2013
2012
Operating income
2014
2013
2012
Segment assets(4)
$ 33,070
2014
33,567
2013
29,903
2012
(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 that was initially recorded in 2011.

$ 19,901
18,935
17,981

$ 3,446
2,551
3,186

$ 2,587
2,386
2,113

$ 8,466
7,353
6,154

$ 1,955
1,788
1,764

$ 1,172
555
1,260

$ 468
434
389

$ (3,699)
(553)
(1,585)

$ –
–
–

$ 1
1
1

$ 3,216
2,953
2,807

$ 5,186
4,879
4,546

$ 319
208
162

$ 399
384
369

$ 231
217
185

$ –
–
–

(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.
(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):

2014
2013
2012

FedEx Express
Segment
$ 1,994
2,067
2,689

FedEx Ground
Segment
$ 850
555
536

FedEx Freight
Segment
$ 325
326
340

FedEx Services
Segment
$ 363
424
437

Other
$ 1
3
5

Consolidated
Total
$ 3,533
3,375
4,007

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):

2014

2013

2012

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

2014

2013

2012

$ 131
$ 820
(54)
$ 766

$ 80
$ 687
(219)
$ 468

$ 52
$ 403
(146)
$ 257

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 $528 million in principal of these bonds (with total
future principal and interest payments of approximately $649 million
as of May 31, 2014) through these leases.

$ 6,555 $ 6,513 $ 6,546
1,747
3,001
11,294
6,849
1,859

1,636
3,188
11,379
6,451
2,229

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

8,680
1,446
21,505

8,632
1,398
21,268

8,708
853
20,855

2,355
1,594
205
4,154
1,462
27,121

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

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

10,634
983
11,617
5,757
1,536
(464)

8,791
782
9,573
5,282
1,671
(361)
$ 45,567 $ 44,287 $ 42,680

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

$ 32,901 $ 31,550 $ 29,837

12,274
248
130
14
12,666

12,370
12,357
216
234
101
112
156
34
12,843
12,737
$ 45,567 $ 44,287 $ 42,680

$ 20,658 $ 19,637 $ 18,874
1,973
$ 23,387 $ 22,293 $ 20,847

2,729

2,656

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

operations, including countries such as Mexico and Brazil.
(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 is registered in the U.S. and is included as U.S.
assets; however, many of our aircraft operate internationally.

notes to consolidated financial statements

NOTE 17: COMMITMENTS

The following table is a summary of the key aircraft we are committed
to purchase as of May 31, 2014, with the year of expected delivery:

Annual purchase commitments under various contracts as of May 31,
2014 were as follows (in millions):

Aircraft and
Aircraft Related
$ 1,147
2015
1,248
2016
956
2017
1,368
2018
859
2019
4,498
Thereafter
$ 10,076
Total
(1) Primarily equipment, advertising contracts and in 2015, approximately $580 million of

Other(1)
$ 1,197
274
123
58
19
101
$ 1,772

Total
$ 2,344
1,522
1,079
1,426
878
4,599
$ 11,848

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, 2014, 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 2014, FedEx Express
entered into an agreement with The Boeing Company for the purchase
of two B767F aircraft, the delivery of which will occur in 2016 and
2017. FedEx Express also deferred 11 existing options to purchase
B777F aircraft by two years. Additionally in 2014, we entered into
supplemental agreements to purchase 16 B757 option aircraft
pursuant to an agreement originally entered into in March 2013, the
delivery of which began in 2014 and will continue through 2015.

We had $396 million in deposits and progress payments as of May 31,
2014 on aircraft purchases and other planned aircraft-related transac-
tions. These deposits are classified in the “Other assets” caption of
our consolidated balance sheets. In addition to our commitment to
purchase B777Fs and B767Fs, our aircraft purchase commitments
include the 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.

2015
2016
2017
2018
2019
Thereafter
Total

B757
13
–
–
–
–
–
13

B767F
12
11
11
10
4
–
48

B777F
–
2
–
2
2
12
18

Total
25
13
11
12
6
12
79

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 26 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 the correctness of the district
court’s decision and, instead, certified two questions to the Kansas
Supreme Court related to the classification of the plaintiffs as indepen-
dent contractors under the Kansas Wage Payment Act. The Kansas
Supreme Court heard oral argument on November 5, 2013. The other 19
cases that are before the Seventh Circuit remain stayed pending a
decision of the Kansas Supreme Court.

notes to consolidated financial statementsThe 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, and one is on
appeal with the Court of Appeals for the Eleventh Circuit. The other
four remain pending in their respective district courts, but three of
these four matters have been settled for immaterial amounts. The
courts have granted final approval of two of the three settlements,
while the other settlement remains subject to court approval.

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
contractors. While it is reasonably possible that potential loss in some
of these lawsuits or such changes to the independent contractor
status of FedEx Ground’s owner-operators could be material, we
cannot yet determine the amount or reasonable range of potential
loss. A number of factors contribute to this. The number of plaintiffs in
these lawsuits continues to change, with some being dismissed and
others being added and, as to new plaintiffs, discovery is still ongoing.
In addition, the parties have 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, two of which have
been certified as class actions. These certified class actions were
settled for immaterial amounts in the first quarter of 2014 and have
received final court approval. The other cases are in varying stages of
litigation, and we do not expect to incur a material loss in any of these
matters.

CITY AND STATE OF NEW YORK CIGARETTE SUIT. On December 30,
2013, the City of New York filed suit against FedEx Express and FedEx
Ground arising from our alleged shipments of cigarettes to New York
City residents. The claims against FedEx Express were subsequently
dismissed. On March 30, 2014, the complaint was amended adding
the State of New York as a plaintiff. Beyond the addition of the State
as a plaintiff, the amended complaint contains several amplifications
of the previous claims. First, the claims now relate to four shippers,
none of which continues to ship in our network. Second, the amended
complaint contains a count for violation of the Assurance of
Compliance (“AOC”) we had previously entered into with the State of

New York, claiming that since 2006, FedEx has made shipments of
cigarettes to residences in New York in violation of the AOC. Lastly,
the amendment contains new theories of Racketeer Influenced and
Corrupt Organizations Act violations. In May 2014, we filed a motion
to dismiss almost all of the claims. Loss in this matter is reasonably
possible, but the amount of any loss is expected to be immaterial.

ENVIRONMENTAL MATTERS. SEC regulations require disclosure of
certain environmental matters when a governmental authority is a
party to the proceedings and the proceedings involve potential
monetary sanctions that management reasonably believes could
exceed $100,000.

In February 2014, FedEx Ground received oral communications from
District Attorneys’ Offices (representing California’s county environ-
mental authorities) and the California Attorney General’s Office
(representing the California Division of Toxic Substances Control) that
they were seeking civil penalties for alleged violations of the state’s
hazardous waste regulations. Specifically, the California environmen-
tal authorities alleged that FedEx Ground improperly generates and/or
handles, stores and transports hazardous waste from its stations to its
hubs in California. In April 2014, FedEx Ground filed a declaratory
judgment action in the United States District Court for the Eastern
District of California against the Director of the California Division of
Toxic Substances Control and the county District Attorneys with whom
we have been negotiating. In June 2014, the California Attorney
General filed a complaint against FedEx Ground in Sacramento County
Superior Court alleging violations of FedEx Ground as described
above. The County District Attorneys filed a similar complaint in
Sacramento County Superior Court in July 2014. Loss in this matter is
reasonably possible, however, the amount of any loss is expected to
be immaterial.

On January 14, 2014, the U.S. Department of Justice (“DOJ”) issued a
Grand Jury Subpoena to FedEx Express relating to an asbestos matter
previously investigated by the U.S. Environmental Protection Agency.
On May 1, 2014, the DOJ informed us that it had determined to
continue to pursue the matter as a criminal case, citing seven
asbestos-related regulatory violations associated with removal of roof
materials from a hangar in Puerto Rico during cleaning and repair
activity, as well as violation of waste disposal requirements. Loss is
reasonably possible, however, the amount of any loss is expected to
be immaterial.

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 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

notes to consolidated financial statementsserved a civil investigative demand on the third-party consultant
seeking all pleadings, depositions 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 investiga-
tion move forward, and the amount of loss, if any, is dependent on a
number of factors that are not yet fully developed or resolved, the
amount of any loss is expected to be immaterial.

On June 30, 2014, we received a Statement of Objections from the
French Competition Authority (“FCA”) addressed to FedEx Express
France, formerly known as TATEX, regarding an investigation by the
FCA into anticompetitive behavior that is alleged to have occurred
primarily in the framework of trade association meetings that included
the former general managers of TATEX prior to our acquisition of that
company in July 2012. Given the early stage of this matter, we cannot
yet determine the amount or range of potential loss; however, it is
reasonably possible that it could be material.

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 periodic subsequent requests for additional information
related 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 investigation
may lead to a criminal indictment 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 and is a member of its board of directors. FedEx has a multi-year
naming rights agreement with Washington Football, Inc. granting
us certain marketing rights, including the right to name the stadium
where the team plays and other events are held “FedExField.”

NOTE 20: SUMMARy OF QUARTERLy OPERATING RESULTS (UNAUDITED)

(in millions, except per share amounts)
2014
Revenues
Operating income
Net income
Basic earnings per common share(1)
Diluted earnings per common share(1)

First
Quarter

$ 11,024
795
489
1.54
1.53

Second
Quarter

$ 11,403
827
500
1.58
1.57

Third
Quarter

$ 11,301
641
378
1.24
1.23

Fourth
Quarter

$ 11,839
1,183
730
2.49
2.46

2013(2)
Revenues
Operating income
Net income
Basic earnings per common share(1)
Diluted earnings per common share(1)
(1) The sum of the quarterly earnings per share may not equal annual amounts due to differences in the weighted-average number of shares outstanding during the respective periods.
(2) 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

$ 10,792
742
459
1.46
1.45

$ 10,953
589
361
1.14
1.13

$ 11,107
718
438
1.39
1.39

$ 11,435
502
303
0.96
0.95

at 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.

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 $4.5 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, 2014

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

$ 1,756
2

59
–
1,817
28
22
6
–
–
20,785
2,088
$ 24,696

$ –
55
2
405
462
4,487
2,323

–
2,147
2,147
15,277
$ 24,696

$ 441
4,338

674
501
5,954
38,303
19,899
18,404
1,058
1,552
3,754
747
$ 31,469

$ 1
1,042
1,530
1,444
4,017
249
–

4,059
3,230
7,289
19,914
$ 31,469

$ 861
1,151

$ (150)
(31)

60
21
2,093
2,360
1,220
1,140
1,265
1,238
–
250
$ 5,986

$ –
180
620
214
1,014
–
–

93
254
347
4,625
$ 5,986

–
–
(181)
–
–
–
(2.323)
–
(24,539)
(2,038)
$ (29,081)

$ –
–
(181)
–
(181)
–
(2,323)

(2,038)
–
(2,038)
(24,539)
$ (29,081)

$ 2,908
5,460

793
522
9,683
40,691
21,141
19,550
–
2,790
–
1,047
$ 33,070

$ 1
1,277
1,971
2,063
5,312
4,736
–

2,114
5,631
7,745
15,277
$ 33,070

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, 2013

$ 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 Statements of Comprehensive Income

Revenues
Operating Expenses:
Salaries and employee benefits
Purchased transportation
Rentals and landing fees
Depreciation and amortization
Fuel
Maintenance and repairs
Intercompany charges, net
Other

Operating Income
Other Income (Expense):
Equity in earnings of subsidiaries
Interest, net
Intercompany charges, net
Other, net
Income Before Income Taxes
Provision for income taxes
Net Income
Comprehensive Income

Year Ended May 31, 2014

Parent
$ –

Guarantor
Subsidiaries
$ 38,088

Non-guarantor
Subsidiaries
$ 7,820

Eliminations
$ (341)

Consolidated
$ 45,567

99
–
5
1
–
1
(209)
103
–
–

2,097
(167)
172
(5)
2,097
–
$ 2,097
$ 2,251

14,303
5,374
2,282
2,379
4,460
1,734
(125)
4,823
35,230
2,858

411
16
(194)
(14)
3,077
1,004
$ 2,073
$ 2,072

2,153
2,796
340
207
97
127
334
1,178
7,232
588

–
9
22
4
623
188
$ 435
$ 408

–
(159)
(5)
–
–
–
–
(177)
(341)
–

(2,508)
–
–
–
(2,508)
–
$ (2,508)
$ (2,508)

16,555
8,011
2,622
2,587
4,557
1,862
–
5,927
42,121
3,446

–
(142)
–
(15)
3,289
1,192
$ 2,097
$ 2,223

Condensed 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

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

notes to consolidated financial statements

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

Parent
$ –

Guarantor
Subsidiaries
$ 36,412

Non-guarantor
Subsidiaries
$ 6,569

Eliminations
$ (301)

Consolidated
$ 42,680

114
–
5
1
–
1
–
(218)
97
–
–

2,032
(75)
80
(5)
2,032
–
$ 2,032
$ (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 )

Condensed Consolidating Statements of Cash Flows

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

Year Ended May 31, 2014

Parent
$ (8 )

Guarantor
Subsidiaries
$ 3,790

Non-guarantor
Subsidiaries
$ 535

Eliminations
$ (53)

Consolidated
$ 4,264

(1)
–
–
(1)

588
–
–
(250)
1,997
557
44
(187)
(4,857)
(19)
(2,127 )
–
(2,136 )
3,892
$ 1,756

(3,230)
(36)
37
(3,229)

(546)
(4)
54
(4)
–
–
–
–
–
(16)
(516)
(9)
36
405
$ 441

(302)
–
(19 )
(321)

(42 )
4
(54)
–
–
–
–
–
–
16
(76)
6
144
717
$ 861

–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
(53)
(97)
$ (150)

(3,533)
(36)
18
(3,551)

–
–
–
(254)
1,997
557
44
(187)
(4,857)
(19)
(2,719)
(3)
(2,009 )
4,917
$ 2,908

notes to consolidated financial statements

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

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

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, 2014 and 2013, 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, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of FedEx
Corporation at May 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period
ended May 31, 2014, 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, 2014, based on criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated July 14, 2014 expressed an unqualified
opinion thereon.

Memphis, Tennessee
July 14, 2014

76
76

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, 2014. This information should be read in conjunction with the Consolidated
Financial Statements, MD&A and other financial data appearing elsewhere in this Annual Report.

2014(1)

2013(2)

2012(3)

2011(4)

2010(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

$ 45,567
3,446
3,289
2,097

$ 6.82
$ 6.75
307
310
$ 0.60

$ 19,550
33,070
4,736
15,277

$ 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

Other Operating Data
FedEx Express aircraft fleet
(1) Common stockholders’ investment includes an other comprehensive income decrease of $11 million, net of tax, for the funded status of our retirement plans at May 31, 2014.
(2) 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.

647

650

660

688

667

(3) 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.

(4) 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. 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.

(5) 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.

77
77

fedex corporationR. Brad Martin(1) (3)
Chairman
RBM Venture Company
Private investment company

Joshua Cooper Ramo(1) (3)
Vice Chairman
Kissinger Associates, Inc.
Strategic advisory firm

Susan C. Schwab(2) (3)
Professor
University of Maryland
School of Public Policy
Former U.S. Trade Representative

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

David P. Steiner(4*) (5)
Chief Executive Officer
Waste Management, Inc.
Integrated waste management services company

Paul S. Walsh(2) (4)
Chairman
Compass Group PLC
Food service and support services company

BOARD 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

Marvin R. Ellison(2)
Executive Vice President — U.S. Stores
The Home Depot, Inc.
Home improvement specialty retailer

Kimberly A. Jabal(3)
Chief Financial Officer
Path, Inc.
Social networking company

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

Steven R. Loranger(2*)
Former Chairman, President and Chief Executive Officer
ITT Corporation
Water technology company

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

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

fedeX corporationEXECUTIVE OFFICERS AND SENIOR MANAGEMENT

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

Alan B. Graf, Jr.
Executive Vice President and Chief Financial Officer

Robert B. Carter
Executive Vice President,
FedEx Information Services and Chief Information Officer

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 Express Segment
David J. Bronczek
President and Chief Executive Officer
FedEx Express

FedEx Ground Segment
Henry J. Maier
President and Chief Executive Officer
FedEx Ground

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

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

James R. Parker
Executive Vice President, Air Operations
FedEx Express

James R. Muhs, Sr.
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

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 29, 2014,
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 11, 2014, there were 12,877 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 2014 and 2013:

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

FY2014
High
Low
Dividend
FY2013
High
Low
Dividend

$ 113.34
94.60
0.15

$ 93.17
83.80
0.14

$ 140.55
106.38
0.15

$ 94.26
83.92
0.14

$ 144.39
128.17
0.15

$ 107.50
87.99
0.14

$ 144.85
130.64
0.15

$ 109.66
90.61
0.14

FINANCIAL INFORMATION: Copies of FedEx Corporation’s Annual
Report on Form 10-K, other documents filed with the Securities and
Exchange Commission (SEC) and other financial and statistical
information are available through our Web site at fedex.com. Company
documents filed electronically with the SEC can also be found at the
SEC’s Web site at www.sec.gov. You will be mailed a copy of the
Form 10-K upon request to: FedEx Corporation Investor Relations,
942 South Shady Grove Road, Memphis, Tennessee 38120,
(901) 818-7200, e-mail: ir@fedex.com.

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

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

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

SHAREOWNER ACCOUNT SERVICES: Computershare Investor Services,
211 Quality Circle, Suite 210, College Station, Texas 77845,
(800) 446-2617, www.computershare.com

DIRECT STOCK PURCHASE AND DIVIDEND REINVESTMENT: For
information on the direct stock purchase and dividend reinvestment
plan for FedEx Corporation common stock, call Computershare at
(800) 446-2617 or visit their direct stock purchase plan Web site at
www.computershare.com. This plan provides an alternative to
traditional retail brokerage methods of purchasing, holding and
selling FedEx common stock. This plan also permits shareowners to
automatically reinvest their dividends to purchase additional shares
of FedEx common stock.

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

EQUAL EMPLOYMENT OPPORTUNITY: Our greatest asset is our
people. We are committed to providing a workplace where our
employees and contractors feel respected, satisfied and appreciated.
Our policies are designed to promote fairness and respect for
everyone. We hire, evaluate and promote employees, and engage
contractors, based on their skills and performance. With this in mind,
we will not tolerate certain behaviors. These include harassment,
retaliation, violence, intimidation and discrimination of any kind
involving race, color, religion, national origin, gender, sexual
orientation, gender identity, gender expression, age, disability,
veteran status or any other characteristic protected by federal,
state or local law.

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

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

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.

> 114 trees preserved for the future

> 50 million BTUs of energy conserved

> 4,734 kWh of electricity offset

> 9,771 pounds of greenhouse gas reduced

> 52,994 gallons of water waste eliminated

> 3,548 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

The strength of our purpose.

Strength
in numbers.

More than 300,000 FedEx team

members worldwide work tirelessly

to serve our customers and create

value for shareowners. Thanks to their

extraordinary efforts, FY14 returns to

investors outperformed the S&P 500 and

the Dow Jones Transportation Average.

31%

19%

— The Purple Promise

50%

FY2014

S&P 500

Dow Jones
Transportation
Average

FedEx
Corporation

The strength of our people
powers the strength of our results.

F
E
d
E
x
C
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P
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t
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n

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2
0
1
4

Solutions
for a more sustainable world.

Our commitment to connect the world in responsible and resourceful ways is getting results.

In 2013, we efficiently reduced CO2 emissions intensity while increasing business revenue.

GOAL

30%

Reduction in aircraft
emissions intensity
by 2020 from a
2005 baseline.

30%

Increase in FedEx
Express vehicle fuel
efficiency by 2020
from a 2005 baseline.

GOAL
Expand on-site
generation
and continuing
procurement of
renewable energy
for our facilities.

GOAL
Seek Leadership
in Energy &
Environmental Design
(LEED) certification
on all new U.S. FedEx
Express buildings.

PROGRESS

22.3%

since 2005

PROGRESS

27.0%

since 2005

PROGRESS

27gigawatt hours

since 2005

PROGRESS

10 LEED

certified buildings

To learn more, read the 2013 FedEx Global Citizenship Report at csr.fedex.com.

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

Fedex AnnuAl RepoR t 2014