FedEx Annual Report 2015

FY2015 Annual Report · FedEx

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A Transformative Year

FEDEX ANNUAL REPORT 2015

Decisive actions on many fronts
during FY15 are transforming
FedEx, positioning the company
to deliver long-term shareowner
value in FY16 and beyond.

RECORD EARNINGS
AS ADJUSTED1

PAY FOR
PERFORMANCE

Driven by higher
volumes and improved
base yields from each
transportation segment

Higher variable
compensation for
team members

ACQUISITIONS

Three acquisitions announced
in FY15 — GENCO, Bongo
and TNT Express — will fill
critical gaps in our portfolio
of customer solutions

PROFIT
IMPROVEMENT

PRICING
LEADERSHIP

MODERN
AIRCRAFT FLEET

FedEx Express is on target to
achieve the profit improvement
goal we outlined in FY13

Significant actions to better
compensate FedEx for the
outstanding services it
provides customers

17 Boeing 767-300
Freighters added
as part of the fleet
modernization program

1For a reconciliation of presented non–GAAP measures to the most directly comparable GAAP measures, see http://investors.fedex.com.

Frederick W. Smith
Chairman, President and CEO

To Our Shareowners,

FY15 was a transformative year for FedEx with
outstanding financial results, more powerful customer
solutions, and actions to generate increased long-term
value for shareowners. Record adjusted earnings1 were
driven by higher volumes and improved base yields
from each transportation segment. Here are a few of the
FedEx team’s major accomplishments this past fiscal year:

We believe the TNT Express, GENCO and Bongo
acquisitions we announced may prove as important to
FedEx as the additions of Flying Tigers in 1989 and Caliber
System in 1998, which respectively gave our customers
access to global markets and the economical option of
convenient ground delivery service. All three companies
provide best-in-class capabilities that will fill critical gaps in
our portfolio of customer solutions and boost our long-term
competitive advantage. The TNT Express transaction is
expected to be completed in the first half of calendar 2016.

We’re on target to achieve the goal of the FedEx Express
profit improvement plan we outlined in FY13 — to exit
2016 with a run rate of $1.6 billion in additional operating
profit from the then FY13 base results.

In FY15, in light of increasing e-commerce low-density
shipments, we took action to ensure we’re more
adequately compensated for the high-quality services we
provide customers. At FedEx Ground, dimensional weight
pricing was extended to all shipments. Fuel surcharge
rates were adjusted at all transportation companies to
reduce volatility and — for the first time — our 2015 rate
increase announcement combined express, ground and
freight details, giving our customers a more holistic view
of our transportation solutions and additional time to plan
their annual budgets.

Our team members around the world executed our
strategies very effectively. They again came through for
our customers, especially during another record-breaking
peak season.

1 For a reconciliation of presented non–GAAP measures to the most
directly comparable GAAP measures, see http://investors.fedex.com.

MORE > fedex.com/AnnualReport2015 1

LETTER FROM THE CHAIRMAN
Operating Performance

Adaptive strategies allow us to play offense when we
see opportunities and play defense when we need to
quickly respond to weakening economic conditions.
In a word, flexibility differentiates FedEx from our
competition.

Close collaboration with customers is key to FedEx
peak-season success. Our sales force works closely
with customers to anticipate their needs for volume
and timing months in advance. Managing capacity to
their projections requires a high level of discipline and
cooperation, allowing us to meet our commitments
efficiently and profitably.

Flexibility is inherent to our independently operated
FedEx Express®, FedEx Ground® and FedEx Freight®
networks. Each can be fine-tuned to deliver, without
compromise, the best service and value for the market
segment served. Our strategy of “compete collectively,
operate independently, and manage collaboratively”
helped us successfully navigate the holiday season,
overcoming challenges of an evolving e-commerce
landscape and tough winter conditions. FedEx delivered
outstanding service and strong financial performance,
but at the same time, adjusted capacity to support
customers adversely affected by the labor disruptions
at U.S. West Coast ports.

Our use of industry-leading automation also
differentiates FedEx Ground, which continues to
expand using state-of-the-art package sorting to quickly
and efficiently process increasing package volumes.
During peak season, we experienced record shipping
volumes, but not always from the locations or on the
days expected. Thanks to seamless execution by team
members and our automated hubs, FedEx Ground was
able to quickly accommodate customers’ needs.

Broad Solutions

At the heart of our business is the FedEx portfolio of
solutions that serves a wide range of logistics needs.
Customers using all three FedEx transportation
companies account for about 77 percent of our
U.S. revenue. About 96 percent of U.S. revenue is
generated by customers using two or more of our
transportation companies.

FedEx Services provides common sales, marketing,
revenue management, customer service, and
information technology support. FedEx Services team
members are modernizing our IT platforms to lower
costs and make us more agile in meeting shifting
market demands and changing customer needs.
In FY15, FedEx Services, including FedEx Office,
was integral to many of our most important
accomplishments, including industry-leading pricing
management and more convenient solutions for
customers to pick up and drop off packages.

Purple Promise Chairman’s Award winners exemplify our unique culture.

LINDA DILEO

Specialty Customer
Representative,
FedEx TechConnect
Fort Lauderdale, Florida,
USA

When she received the
call, Linda DiLeo knew
a life was at stake. A
German medical device
manufacturer had just
shipped a custom-made

skull implant to Detroit,
Michigan, for a life-saving
operation. Just one
problem: The company
shipped the package on
Friday — a day when
FedEx didn’t operate
flights from Germany
— and the surgery was
scheduled for Monday.
Linda took it upon herself
to coordinate a FedEx
team, place the package

on a flight, and arrange
pre-clearance through
customs and pickup
from the Detroit ramp.
The patient’s surgery
proceeded on schedule
and a life was saved.

“If you put your heart into

everything you do, you can

always make a difference in

people’s lives,” says DiLeo.

Purple Promise Chairman’s Award Winner

LETTER FROM THE CHAIRMAN

FedEx® Pack Plus services

make shipping even more

convenient at FedEx Office.

Our retail network
connects customers
to convenience.

CUSTOMERS TELL US they want convenience and flexibility,
and that’s our goal. We continually enhance our retail con-
venience network to make it easier to pack, ship and pick up
packages, especially e-commerce shipments that are helping
power our growth.

FedEx Delivery Manager® is the key to the FedEx retail
network. Customers can easily manage deliveries by
re-routing packages to convenient and secure locations.

More than 8,800 staffed locations and about 41,000
self-serve locations reach businesses and households
around the world. Because online shopping is booming,

we’re expanding the number of locations where customers
can have their packages held for pickup, which also cuts down
on last-mile deliveries by FedEx Express and FedEx Ground.

The FedEx® Pack Plus expanded line of custom packaging
solutions and packing services at FedEx Office allows us to
pack almost any item a customer may bring in.

FedEx SameDay® City offers a FedEx branded experience
for local pickup and delivery in 23 markets.

In FY15, we tested innovative FedEx Ship&Get® self-serve
lockers that enable customers to ship and pick up packages 24/7.

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LETTER FROM THE CHAIRMANLETT ER FROM THE C HA IRMAN

FedEx Express is successfully lowering costs and
increasing base yields through the profit improvement
program. FedEx Express has made structural changes
to reduce costs and is retiring older aircraft while adding
new Boeing 767Fs to rationalize capacity and modernize
our aircraft fleet. We are serving customers with more
efficiency for their less-time-sensitive shipments.

FedEx Ground continues to pull ahead of competitors.
Margins at FedEx Ground remain strong, and we
continue to improve service. FedEx Ground is faster to
more U.S. locations than the competition. As
e-commerce continued to reshape the transportation
business, FedEx Ground invested $1.2 billion in FY15
in facilities and automation to support future growth.

FedEx Freight is focused on improving quality and
increasing profitability through more efficient routing
of shipments and a better balance of volume and yield
growth. We’ll continue to enhance our position as the
market leader in the less-than-truckload segment and
reinforce our reputation as a great place to work.
We are pleased to report that FedEx Freight drivers
have rejected union representation in most cases,
demonstrating their strong preference for a direct
relationship with our company.

Unique Culture

Our most important competitive advantage remains
our team members, who deserve the credit for our
outstanding performance this year. At FedEx, we
believe there should be a strong relationship between
pay and performance, and in FY15 the rewards to team
members from our variable compensation programs
were significantly higher than in FY14 because our
adjusted earnings1 were higher.

Rewarding team members is an essential part of our
culture and our People-Service-Profit (PSP) philosophy.
PSP, on which FedEx was founded, is more relevant
than ever. Focusing on our People produces outstanding
Service for customers, which in turn produces the
Profit required to invest in our future. It’s a strategic
approach that differentiates FedEx, because every
single day team members dig deeply to deliver the
Purple Promise, which is simply stated, “I will make
every FedEx experience outstanding.”

Our commitment to corporate social responsibility is
more important than ever to customers. We estimate
that $6.8 billion in revenue in recent years came from
customers who requested information on our corporate
citizenship. Our commitment starts by integrating our
citizenship objectives into our business.

1 For a reconciliation of presented non–GAAP measures to the most
directly comparable GAAP measures, see http://investors.fedex.com.

FRA NC ISC O
SAN D OVAL

Sort Manager,
FedEx Ground
Saginaw, Michigan,
USA

It was the day before
Mother’s Day when
the Saginaw, Michigan,
FedEx Ground station
received 38 packages of
flowers and a problem.

The flowers were not
scheduled to be delivered
until the day after
Mother’s Day. The station’s
sort manager, Francisco
Sandoval, was determined
to get the flowers there
on time. Even though
the recipients lived
outside the service area,
and despite the heavy
volumes, Sandoval found
a FedEx Ground driver

to deliver the flowers
Saturday, even though
the area wasn’t on his
schedule. The result:
Mother’s Day arrived a
day early.

“Whether it’s Mother’s

Day or a typical Saturday,

I do everything I can to

make our customers

happy,” Sandoval says.

Purple Promise Chairman’s Award Winner

Boeing 767-300 Freighters

are more fuel efficient

with lower emissions and

lower unit operating costs.

New aircraft
boost efficiency
and flexibility.

MODERNIZING THE FEDEX EXPRESS AIR FLEET
is improving margins and adding flexibility to our domestic
and international operations. We added 17 new Boeing
767-300 Freighters in FY15 and plan to add 11 more in FY16.
The B767F carries roughly the same amount of cargo as the
MD10 it replaces and is about 30 percent more fuel efficient,
resulting in lower emissions. Unit operating costs are at
least 20 percent lower. The aircraft also shares parts, tooling
and flight simulators with Boeing 757 aircraft already part
of the fleet.

In the last few years, FedEx Express has retired from service
and adjusted the retirement schedules of numerous aircraft.
This aligns with our plans to adjust our capacity and
modernize our aircraft fleet to more effectively meet our
customers’ needs.

We’re also modernizing the maintenance processes that
keep our air operations safe and reliable. Combining our
team members’ knowledge with automated processes for
aircraft maintenance, engineering and material management
will help us do an even better job serving customers while

improving our productivity.

QI NG -HUA WEN

Senior Service
Representative,
FedEx Express
Shenzhen, China

Carpentry isn’t a job
requirement for FedEx
Express senior service
representative Qing-
Hua Wen, but it sure
came in handy. While
completing his daily

route in Shenzhen, China,
Qing-Hua received an
urgent pickup request.
A valuable shipment
had been refused by
other courier companies
because it was too fragile.
He quickly determined
that a wooden box
would provide the best
protection, but one wasn’t
available. So Qing-Hua
took his customer and the

shipment to a carpenter’s
shop, negotiated with the
shop owner and built the
box himself. The result:
The crystal sculpture was
safely delivered and FedEx
had a loyal new customer.

“My job is to deliver the

Purple Promise by thinking

for my customers and

solving their problems,”

says Qing-Hua.

Purple Promise Chairman’s Award Winner

MORE > fedex.com/AnnualReport2015 5

By consuming resources efficiently, we’ve reduced
our environmental footprint and also lowered costs.
For example, initiatives to reduce aircraft fuel-use
saved more than $300 million and avoided 976,263
metric tons of greenhouse gas emissions in FY14.
To support the communities where we live and work,
FedEx and FedEx team members donated $48 million
in FY15. We distributed $227 million in dividends to
shareowners and incurred more than $17 billion in
salaries and employee benefits expense in FY15.

We’re proud that FedEx was once again named by
FORTUNE magazine as one of the world’s most
admired companies and No. 1 in the delivery industry.
We also were named one of the world’s most reputable
companies according to the annual Global RepTrak®
100 list released by the Reputation Institute.

Accelerate our use of leading-edge technology to
deliver even better customer service and work more
efficiently and profitably. For example, the development
of FedEx Delivery Manager® allows customers to
personalize deliveries and earned FedEx the 2014 CIO
Award from CIO magazine, honoring the highest level
of excellence in information technology.

Remain true to our PSP philosophy by providing team
members the best training and tools; a safe, healthy,
and inclusive work environment; fair compensation and
benefits; opportunities for promotion; and recognition
for jobs well done.

We believe FedEx is on a dynamic trajectory that will
make FY16 very successful. Our company has never
been better positioned to build shareowner value.

Continued Focus

FY15 was a historic year for FedEx, and we are
committed to capitalizing on our momentum. To
make this happen, we will focus on three areas:

Frederick W. Smith
Chairman, President and CEO

Remain “heroes” to our customers by solving their
business problems and helping them succeed.

CHRI S COX

City Driver, FedEx Freight
Sheboygan, Wisconsin,
USA

Chris Cox had a challenge
that required some
innovative thinking. He
was assigned to pick
up a large shipment
of printed graphics
destined for delivery
to home improvement

stores nationwide.
With more than 1,600
pallets of priority freight
to be picked up, Cox
proposed a loading
method to improve
efficiency and reduce
handling throughout
the many FedEx Freight
hubs through which the
shipment would transit.
By taking ownership of
the rollout, Cox met his

customer’s requirements
and saved FedEx money.
The result: early delivery,
no damage returns and a
better way to do business.

“I wanted to do this to

the best of my ability and

make it an outstanding

experience for the

dock workers and our

customer,” Cox says.

Purple Promise Chairman’s Award Winner

LETTER FROM THE CHAIRMAN

As one of its product

lifecycle logistics solutions,

GENCO manages more

than 38 million square

feet of warehouse

space for customers.

Acquisitions change
what’s possible for
our customers.

FEDEX GENCO product life cycle and supply chain services
offer more solutions for our customers in rapidly growing markets
such as e-commerce, healthcare and technology. As one of the
largest third-party logistics providers (3PL) in North America,
FedEx GENCO specializes in:

Transportation Logistics: $545 million in managed transportation
and brokerage

Marketplace: America’s largest wholesaler of retail returns,
liquidating $2.5 billion in merchandise annually

Product Lifecycle Logistics®: Leader in delivering tailored
supply chain solutions

Warehousing and Distribution: Inbound logistics, distribution,
packaging

Reverse Logistics: More than 400 million returned items annually

BONGO INTERNATIONAL is a leader in cross border e-commerce
technology and solutions and expands the FedEx global e-
commerce portfolio. As part of FedEx Trade Networks, Bongo
helps more than 2,000 retailers and e-tailers reach international
consumers in over 200 countries. By calculating duties and taxes,
providing international payment options and more, Bongo takes
the guesswork out of cross-border online shopping for consumers.

Acquisitions change what’s
possible for customers.

As one of the largest third-party logistics providers (3PL) in
North America, GENCO provides tailored product lifecycle
solutions across a wide range of industries to help customers
build stronger supply chains. The GENCO Product Lifecycle
Logistics® approach treats the movement of products as one
continuous inventory stream, increasing agility, reducing
touch points and speeding up the movement of products
throughout the supply chain.

Warehousing and Distribution: Inbound logistics,
fulfillment, distribution, packaging

Reverse Logistics: More than 400 million returns processed
annually, including test, repair, refurbish and liquidation

Transportation Logistics: $545 million in managed
transportation and brokerage

ReCommerce: Maximizing the value of $2.5 billion in
returned and excess products through resale and recycling

BONGO is a leader in cross-border e-commerce technology
and solutions. The acquisition complements our portfolio
because we anticipate global e-commerce to continue on
a double-digit growth trajectory as more people buy online
from a country other than their own.

Through a comprehensive end-to-end suite of solutions,
Bongo connects merchants to consumers around the globe,
positioning FedEx for success in the growing cross-border
e-commerce marketplace. Bongo offers retailers the ability to
display total landed cost, including shipping costs and duties
and taxes in local currency, which leads to price transparency
and better experience at checkout.

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LETTER FROM THE CHAIRMAN
Team members
are our strongest
competitive advantage.

Ed Merced

FedEx Express Courier

Seattle, Washington,

USA

LETTER FROM THE CHAIRMAN
FINANCIAL HIGHLIGHTS

(in millions, except earnings per share)
Operating Results
Revenues
Operating income, adjusted(1)
Operating income(2) (3)
Operating margin, adjusted(1)
Operating margin(2) (3)
Net income, adjusted(1)
Net income(2) (3)
Diluted earnings per common share,
adjusted(1)
Diluted earnings per common share(2) (3)
Average common and common

equivalent shares

Cash provided by operating activities
Capital expenditures

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

2015

2014

Percent
Change

Revenue (in billions)

$ 47,453 $ 45,567
3,593
3,815

4,264
1,867

9.0%
3.9%

7.9%
8.4%

2,572
1,050

8.95
3.65

287
5,366
4,347

2,190
2,324

7.05
7.48

310
4,264
3,533

$ 3,763 $ 2,908
33,070

37,069

7,268
14,993

4,737
15,277

4
19
(51)
110 bp
(450)bp
17
(55)

27
(51)

(7)
26
23

29
12

53
(2)

2013

2014

2015

2013

2014

2015

2013

2014

2015

2013

2014

2015

Operating Margin, Adjusted(1)

Diluted Earnings Per Share,
Adjusted(1)

Stock Price (May 31 close)

$44.3

$45.6

$47.5

7.8%

7.9%

9.0%

$6.75

$7.05

$8.95

$96.34

$144.16

$173.22

Comparison of Five-Year Cumulative Total Return*

$225

$200

$175

$150

$125

$100

5/10

5/11

5/12

5/13

5/14

5/15

FedEx Corporation

S&P 500

Dow Jones Transportation Average

* $100 invested on 5/31/10 in stock or index, including reinvestment of dividends. Fiscal year
ending May 31.

(1) For a reconciliation of presented non–GAAP measures to the most directly comparable GAAP

measures, see http://investors.fedex.com.

(2) Results for 2015 include a loss of $2.2 billion ($1.4 billion, net of tax, or $4.81 per diluted share)
associated with our mark-to-market pension accounting, impairment and related charges of
$276 million ($175 million, net of tax, or $0.61 per diluted share) resulting from the decision to
permanently retire and adjust the retirement schedule of certain aircraft and related engines
and a charge of $197 million ($133 million, net of tax, or $0.46 per diluted share) to increase the
legal reserve associated with the settlement of a legal matter at FedEx Ground to the amount of
the settlement.

(3) Results for 2014 include a loss of $15 million ($9 million, net of tax, or $0.03 per diluted share)

associated with our mark-to-market pension accounting.

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

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 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 2015
results compared to 2014 results, and 2014 results compared to
2013 results. This section also includes a discussion of key actions
and events that impacted our results, as well as our outlook for 2016.

> The overview is followed by a financial summary and analysis
(including a discussion of both historical operating results and our
outlook for 2016) 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 condition 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
changes 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, professional fees, uniforms and advertising.

Except as otherwise specified, references to years indicate our fiscal
year ended May 31, 2015 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.

RESULTS OF OPERATIONS

Consolidated Results

Retirement Plans Mark-to-Market Adjustment
On June 12, 2015, we announced a change in our accounting method
for recognizing actuarial gains and losses for defined benefit pension
and postretirement healthcare benefits. This method of accounting
is referred to as “mark-to-market” or MTM accounting. Historically,
we have recognized actuarial gains and losses, subject to a corridor,
by amortizing them into operating results over the average future
service period of active employees in these plans. We have elected to
immediately recognize actuarial gains and losses in our consolidated
operating results in the year in which the gains and losses occur. This
change will provide greater transparency into operating results by
more quickly recognizing the effects of economic and interest rate
conditions on plan obligations, investments and assumptions. The
actuarial gains and losses are measured annually as of May 31 and,
accordingly, are recorded during the fourth quarter. In addition, for
purposes of calculating the expected return on plan assets, we will
no longer use an averaging technique permitted under accounting
principles generally accepted in the United States for the market-
related value of plan assets but instead will use actual fair value of
plan assets. We have applied these changes retrospectively.

Our operating segment results follow internal management reporting,
which is used for making operating decisions and assessing perfor-
mance. Historically, total net periodic benefit cost was allocated to
each segment. We will continue to record service cost, interest cost
and expected return on plan assets at the business segments. Annual
recognition of actuarial gains and losses (the “MTM adjustment”) will
be reflected in our segment results only at the corporate level.

Additionally, although the actual asset returns of our funded plans
are recognized in each fiscal year through the MTM adjustment, we
continue to recognize an expected return on assets (“EROA”) in the
determination of net pension cost. At the segment level, we have set
our EROA at 6.5% for all periods presented, with an offsetting credit
at the corporate level to reflect the consolidated EROA in each period.
We have set our consolidated EROA assumption at 6.5% for 2016.

The following tables compare summary operating results and changes
in revenues and operating income (dollars in millions, except per share
amounts) for the years ended May 31. All amounts have been recast
to conform to the current year presentation reflecting the pension
accounting changes and allocation of corporate headquarters costs
further discussed in this MD&A and Note 1, Note 13 and Note 14 of
the accompanying consolidated financial statements:

Consolidated revenues
FedEx Express Segment operating income(1)
FedEx Ground Segment operating income(2)
FedEx Freight Segment operating income(3)
Corporate, eliminations and other(4)
Consolidated operating income
FedEx Express Segment operating margin(1)
FedEx Ground Segment operating margin(2)
FedEx Freight Segment operating margin(3)
Consolidated operating margin(4)
Consolidated net income
Diluted earnings per share

FedEx Express segment(1)
FedEx Ground segment(2)
FedEx Freight segment(3)
FedEx Services segment
Corporate, eliminations and other(4)

2015
$ 47,453
1,584
2,172
484
(2,373)
1,867

5.8%
16.7%
7.8%
3.9%

2014
$ 45,567
1,428
2,021
351
15
3,815

5.3%
17.4%
6.1%
8.4%

2013
$ 44,287
929
1,859
246
1,400
4,434

3.4%
17.6%
4.6%
10.0%

$ 1,050
$ 3.65

$ 2,324
$ 7.48

$ 2,716
$ 8.55

Percent Change

2015/2014
4
11
7
38
NM
(51)
50 bp
(70)bp
170 bp
(450)bp
(55 )
(51 )

2014/2013
3
54
9
43
NM
(14 )
190 bp
(20 )bp
150 bp
(160 )bp
(14)
(13 )

Year-over-Year Changes

Revenues

Operating Income

2015/2014
$ 118
1,367
434
9
(42)
$ 1,886

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

2015/2014
$ 156
151
133
–
(2,388 )
$ (1,948 )

2014/2013
$ 499
162
105
–
(1,385 )
$ (619 )

(1) FedEx Express segment 2015 expenses include impairment and related charges of $276 million resulting from the decision to permanently retire and adjust the retirement schedule of certain
aircraft and related engines. Operating expenses for 2013 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.

(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.
(4) Operating income includes a loss of $2.2 billion in 2015, a loss of $15 million in 2014 and a gain of $1.4 billion in 2013 associated with our mark-to-market pension accounting further discussed

in Note 1 of the accompanying consolidated financial statements. Operating income in 2015 also includes a $197 million charge in the fourth quarter to increase the legal reserve associated with
the settlement of a legal matter at FedEx Ground to the amount of the settlement, which is further discussed in Note 18 of the accompanying consolidated financial statements.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Overview
Our results for 2015 include a $2.2 billion loss ($1.4 billion, net of
tax, or $4.81 per diluted share) associated with our fourth quarter
mark-to-market beneﬁ t plans adjustment. In addition, we recorded
impairment and related charges of $276 million ($175 million, net of
tax, or $0.61 per diluted share) associated with aircraft and engine
retirements at FedEx Express, and a $197 million ($133 million, net of
tax, or $0.46 per diluted share) charge in the fourth quarter to increase
the legal reserve associated with the settlement of a legal matter at
FedEx Ground to the amount of the settlement. These items are
further described below in this MD&A. While these charges signiﬁ -
cantly impacted our results, each of our transportation segments had
strong performance during 2015. All of our transportation segments
experienced higher volumes, coupled with improved yields at FedEx
Ground and FedEx Freight. In addition, our results beneﬁ ted from our
proﬁ t improvement program commenced in 2013, the positive net
impact of fuel, and a lower year-over-year impact from severe winter
weather. Our 2015 results include higher maintenance expense,
primarily due to the timing of aircraft maintenance events at FedEx
Express, and higher incentive compensation accruals, which were
not affected by the mark-to-market accounting adoption, the aircraft
impairment or the legal reserve adjustment described above.

In 2015, we repurchased an aggregate of $1.3 billion of our common
stock through open market purchases. Share repurchases in 2015 had
a $0.14 year-over-year positive impact on earnings per diluted share
(net of interest expense on debt used to fund a portion of the
program). See additional information on the share repurchase program
in Note 1 of the accompanying consolidated ﬁ nancial statements.

Our revenues for 2014 increased due to improved performance of all our
transportation segments. In addition, our 2014 results beneﬁ ted from
our voluntary employee severance program and reduced variable
incentive compensation, partially offset by the signiﬁ cant 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 beneﬁ ted from the inclusion in 2013 results of
business realignment costs and an aircraft impairment charge.

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

In 2013, we incurred a noncash pre-tax mark-to-market gain of $1.4
billion from actuarial adjustments to pension and postretirement
healthcare plans related to the measurement of plan assets and
liabilities, which resulted in a positive impact to our earnings of $2.63
per diluted share. In addition, we recorded business realignment costs
of $560 million, primarily related to our voluntary cash buyout program,
and 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.

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

FedEx Express U.S. Domestic
Average Daily Package Volume

2,700

2,600

2,577

2,683

2,543

2,571

2,500

2,400

1,000

800

600

400

200

5,000

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

100.0

90.0

80.0

12,000

11,500

11,000

10,500

10,000

9,500

9,000

8,500

2012

2013

2014

2015

FedEx Express International(1)
Average Daily Package Volume

785

576

819

580

853

586

559

495

2012

2013

2014

2015

International export

International domestic

FedEx Ground
Average Daily Package Volume

4,588

4,850

3,907

4,222

2,058

2,186

2,061

1,692

2012

2013

2014

2015

FedEx Ground

FedEx SmartPost

FedEx Freight
Average Daily LTL Shipments

95.5

90.6

84.9

85.7

2012

2013

2014

2015

FedEx Express and FedEx Ground
Total Average Daily Package Volume

10,744

11,033

10,184

9,230

2012

2013

2014

2015

(1) International domestic average daily package volume represents our

international intra-country express operations.

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

$17.12

$17.33

$17.42

$17.13

2012

2013

2014

2015

$19.00

$18.00

$17.00

$16.00

FedEx Ground
Revenue per Package – Yield

$10.00

$8.77

$8.94

$9.10

$9.37

$8.00

$6.00

$4.00

$2.00

$–

$70.00

$60.00

$50.00

$40.00

$30.00

$20.00

$10.00

$–

$250.00

$240.00

FedEx Express International
Revenue per Package – Yield

$60.83

$58.72

$58.92

$57.50

$6.74

2012

$6.99

$6.95

2013

2014

$6.49

2015

International export composite

International domestic

FedEx Freight
LTL Revenue per Shipment

$240.09

$234.23

$231.52

$1.81

$1.77

$1.78

$1.93

$230.00

$226.24

2012

2013

2014

2015

FedEx Ground

FedEx SmartPost

$220.00

2012

2013

2014

2015

Revenue
Revenues increased 4% in 2015 due to improved performance at all
our transportation segments. At FedEx Ground, revenues increased
12% in 2015 due to higher volume from continued growth in both our
FedEx Home Delivery service and commercial business, the inclu-
sion of GENCO Distribution System, Inc. (“GENCO”) results from the
date of acquisition and increased yields. At FedEx Freight, revenues
increased 8% in 2015 primarily due to higher average daily shipments
and revenue per shipment. Revenues at FedEx Express were ﬂ at
during 2015 due to U.S. domestic and international package volume
growth, which were offset by lower fuel surcharges and the negative
impact of exchange rates.

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 ﬂ at 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 demand shift from our priority inter-
national services to our economy international services dampened
revenue growth at FedEx Express.

Retirement Plans MTM Adjustment
We incurred noncash pre-tax mark-to-market losses of $2.2 billion
in 2015 ($1.4 billion, net of tax, or $4.81 per diluted share) and $15
million in 2014 ($9 million, net of tax, or $0.03 per diluted share)
and a $1.4 billion gain in 2013 ($835 million, net of tax, or $2.63 per
diluted share) from actuarial adjustments to pension and postretire-
ment healthcare plans related to the measurement of plan assets and
liabilities. For more information see further discussion in the “Critical
Accounting Estimates” section of this MD&A and Note 1 and Note 13
of the accompanying consolidated ﬁ nancial statements.

Business Realignment, Impairment and
Other Charges
In May 2015, we made the decision to retire from service seven Boeing
MD11 aircraft and 12 related engines, four Airbus A310-300 aircraft and
three related engines, three Airbus A300-600 aircraft and three related
engines and one Boeing MD10-10 aircraft and three related engines and
related parts, and adjusted the retirement schedule of an additional 23
aircraft and 57 engines. As a consequence of this decision, impairment
and related charges of $276 million ($175 million, net of tax, or $0.61
per diluted share), of which $246 million was noncash, were recorded
in the fourth quarter. The decision to permanently retire these aircraft
and engines aligns with FedEx Express’s plans to rationalize capacity
and modernize its aircraft ﬂ eet to more effectively serve its customers.
These combined changes will not have a material impact on our near-
term depreciation expense.

In 2013, we recorded 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.

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

Legal Reserve Increase
On June 12, 2015, we announced an agreement in principle with the
plaintiffs in the FedEx Ground independent contractor litigation that is
pending in the United States District Court for the Northern District of
California to settle the matter for $228 million. The settlement agree-
ment has been filed with the court for approval. The settlement resolves
claims dating back to 2000 that concern a model that FedEx Ground
no longer operates. As a consequence, a charge of $197 million ($133
million, net of tax, or $0.46 per diluted share) was recorded in the fourth
quarter of 2015 to increase the reserve for this matter to the amount
of the settlement. The charge is included in the caption “Other” in our
consolidated statements of income. For further information see Note
18 of the accompanying consolidated financial statements.

Operating Expenses
The following tables compare operating expenses expressed as dollar
amounts (in millions) and as a percent of revenue for the years ended
May 31, and prior year amounts have been revised to conform to the
current year presentation regarding pension accounting changes:

2015

2014

2013

$ 17,110
8,483
2,682
2,611
3,720
2,099

$ 16,171 $ 16,055
7,272
2,521
2,386
4,746
1,909

8,011
2,622
2,587
4,557
1,862

276 (1)

–

660 (2)

2,190
6,415 (3)
$ 45,586

15
5,927

(1,368)
5,672
$ 41,752 $ 39,853

Percent of Revenue
2014

2015

2013

36.3 %
16.4
5.7
5.4
10.7
4.3

36.1 %
17.9
5.7
5.5
7.8
4.4

35.5 %
17.6
5.7
5.7
10.0
4.1

–
13.0
91.6
8.4 %

4.6
13.5 (3)
96.1
3.9 %

0.6 (1)

(3.1)
12.8
90.0
10.0%

1.5 (2)

–

schedule of certain aircraft and related engines at FedEx Express.

(2) Includes predominantly severance costs associated with our voluntary buyout program and

charges resulting from the decision to retire 10 aircraft and related engines at FedEx Express.
(3) Includes a $197 million charge in the fourth quarter to increase the legal reserve associated
with the settlement of a legal matter at FedEx Ground to the amount of the settlement.

Our operating expenses for 2015 include a $2.2 billion loss ($1.4
billion, net of tax) associated with our mark-to-market pension
accounting as described above. In addition, we recorded charges of
$276 million ($175 million, net of tax) associated with the decision to
permanently retire and adjust the retirement schedule of certain air-
craft and related engines at FedEx Express, and a $197 million ($133
million, net of tax) charge in the fourth quarter to increase the reserve
associated with the settlement of an independent contractor proceed-
ing at FedEx Ground to the amount of the settlement. The settlement
is further discussed in this MD&A and Note 18 of the accompanying
consolidated financial statements. Our 2015 operating expenses also
increased primarily due to volume-related growth in salaries and
employee benefits and purchased transportation expenses, higher
maintenance and repairs expense and higher incentive compensation
accruals. However, operating margin benefited from revenue growth,
our profit improvement program, which we commenced in 2013, the
net impact of fuel (as further described below) and a lower year-over-
year impact from severe winter weather.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Operating expenses included an increase in salaries and employee
beneﬁ ts expense of 6% in 2015 due to the timing of merit increases for
many of our employees at FedEx Express, additional stafﬁ ng to support
volume growth and higher incentive compensation accruals. These
factors were partially offset by the positive impact of our voluntary
buyout program. Other expenses were driven 8% higher in 2015 due to
the legal reserve increase discussed above and the inclusion of GENCO
results. Purchased transportation costs increased 6% in 2015 due to
volume growth and higher service provider rates at FedEx Ground and
volume growth, higher utilization and higher service provider rates
at FedEx Freight. The timing of aircraft maintenance events at FedEx
Express primarily drove an increase in maintenance and repairs expense
of 13% in 2015.

Our 2014 operating expenses grew due to the volume-related growth
and higher utilization of third-party providers in purchased transporta-
tion expense, higher depreciation and amortization expense due to the
accelerated depreciation on certain aircraft at FedEx Express (as further
described below) and the year-over-year impact of unusually severe
weather. These factors were partially offset by the inclusion in 2013
of costs associated with our business realignment program, an aircraft
impairment charge, as well as lower fuel expense, one fewer operating
day and lower maintenance and repairs expense.

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 certain aircraft scheduled for retirement, and aircraft placed in
service at FedEx Express ($74 million). Salaries and employee beneﬁ ts
expense in 2014 increased 1% due to the beneﬁ ts 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 ﬂ eet, which impacted the
timing of certain maintenance events.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

Average Fuel Cost per Gallon

$5.00

$4.00

$3.80

$3.81

$3.76

$3.00

$3.31

$3.22

$3.13

$2.00

$1.00

2012

2013

Vehicle

2014

Jet

$3.13

$2.47

2015

Fuel expense decreased 18% during 2015 primarily due to lower
aircraft fuel prices. However, fuel prices represent only one compo-
nent of the two factors we consider meaningful in understanding
the impact of fuel on our business. Consideration must also be
given to the fuel surcharge revenue we collect. Accordingly, we
believe discussion of the net impact of fuel on our results, which is
a comparison of the year-over-year change in these two factors, is
important to understand the impact of fuel on our business. In order
to provide information about the impact of fuel surcharges on the
trend in revenue and yield growth, we have included the comparative
weighted-average fuel surcharge percentages in effect for 2015, 2014
and 2013 in the accompanying discussions of each of our transporta-
tion segments.

The index used to determine the fuel surcharge percentage for our
FedEx Freight business adjusts weekly, while our fuel surcharges for
the FedEx Express and FedEx Ground businesses incorporate a timing
lag of approximately six to eight weeks before they are adjusted for
changes in fuel prices. For example, the fuel surcharge index in effect
at FedEx Express in May 2015 was set based on March 2015 fuel
prices. In addition, the structure of the table that is used to deter-
mine our fuel surcharge at FedEx Express and FedEx Ground does not
adjust immediately for changes in fuel price, but allows for the fuel
surcharge revenue charged to our customers to remain unchanged as
long as fuel prices remain within certain ranges.

Beyond these factors, the manner in which we purchase fuel also
influences the net impact of fuel on our results. For example, our
contracts for jet fuel purchases at FedEx Express are tied to various
indices, including the U.S. Gulf Coast index. While many of these
indices are aligned, each index may fluctuate at a different pace,
driving variability in the prices paid for jet fuel. Furthermore, under
these contractual arrangements, approximately 75% of our jet fuel is
purchased based on the index price for the preceding week, with the
remainder of our purchases tied to the index price for the preceding
month, rather than based on daily spot rates. These contractual provi-
sions mitigate the impact of rapidly changing daily spot rates on our
jet fuel purchases.

Because of the factors described above, our operating results may be
affected should the market price of fuel suddenly change by a signifi-
cant amount or change by amounts that do not result in an adjustment
in our fuel surcharges, which can significantly affect our earnings
either positively or negatively in the short-term.

We routinely review our fuel surcharges and our fuel surcharge
methodology. On February 2, 2015, we updated the tables used to
determine our fuel surcharges at FedEx Express, FedEx Ground and
FedEx Freight.

The net impact of fuel had a significant benefit to operating income in
2015. This was driven by decreased fuel prices during 2015 versus the
prior year, which was partially offset by the year-over-year decrease in
fuel surcharge revenue during these periods.

The net impact of fuel on our operating results does not consider the
effects that fuel surcharge levels may have on our business, including
changes in demand and shifts in the mix of services purchased by our
customers. While fluctuations in fuel surcharge percentages 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.

Fuel expense decreased 4% during 2014 primarily due to lower aver-
age price per gallon of jet fuel and lower aircraft fuel usage. The net
impact of fuel had a significant negative impact on operating income
in 2014. This was driven by decreased fuel surcharge revenue during
2014 versus prior year, which was slightly offset by the year-over-year
decrease in fuel prices.

Interest Expense
Interest expense increased $75 million in 2015 primarily due to
increased interest expense from our January 2015 debt offering and
2014 debt issuances. 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.

Income Taxes
Our effective tax rate was 35.5% in 2015, 36.5% in 2014 and 37.4%
in 2013. Due to its effect on income before income taxes, the adoption
of MTM accounting reduced our 2015 effective tax rate by 80 basis
points and increased our effective tax rates by 20 basis points in 2014
and 100 basis points in 2013. Our permanent reinvestment strategy
with respect to unremitted earnings of our foreign subsidiaries
provided a benefit of approximately $48 million to our 2015 provision
for income taxes. Our cumulative permanently reinvested foreign
earnings were $1.9 billion at the end of 2015 and $1.6 billion at the
end of 2014.

For 2016, we expect our effective tax rate to be between 36.0% and
37.0% prior to any year-end MTM adjustment. The actual rate, however,
will depend on a number of factors, including the amount and source of
operating income and the impact of the MTM adjustment.

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 April 6, 2015, we entered into a conditional agreement to acquire
TNT Express N.V. (“TNT Express”) for €4.4 billion (currently, approxi-
mately $4.9 billion). This combination is expected to expand our global
portfolio, particularly in Europe, lower our costs to serve our European
markets by increasing density in our pickup-and-delivery operations
and accelerate our global growth. This acquisition is expected to be
completed in the first half of calendar year 2016. The closing of the
acquisition is subject to customary conditions, including obtaining all
necessary approvals and competition clearances. We expect to secure
all relevant competition approvals.

During 2015, we acquired two businesses, expanding our portfolio
in e-commerce and supply chain solutions. On January 30, 2015,
we acquired GENCO, a leading North American third-party logistics
provider, for $1.4 billion, which was funded using a portion of the
proceeds from our January 2015 debt issuance. The financial results
of this business are included in the FedEx Ground segment from the
date of acquisition.

In addition, on December 16, 2014, we acquired Bongo International,
LLC (“Bongo”), a leader in cross-border enablement technologies and
solutions, for $42 million in cash from operations. The financial results
of this business are included in the FedEx Express segment from the
date of acquisition.

In 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. The finan-
cial results of this business are included in the FedEx Express segment
from the date of acquisition.

MANAGEMENT’S DISCUSSION AND ANALYSIS
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 pack-
age delivery company, for $54 million. The financial results of these
businesses are included in the FedEx Express segment from their
respective date of acquisition.

The financial results of these acquired businesses 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.
Our plans position FedEx Express to exit 2016 with a run rate of $1.6
billion in additional operating profit from the then 2013 base business.
Our ability to achieve the profit improvement 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.

In 2015 we made substantial progress in achieving our profit
improvement goals. FedEx Express has improved operating income by
approximately 70% from 2013 with essentially flat revenue during the
three-year period. FedEx Services has reduced its total expenses while
investing in major information technology transformation projects. In
addition, our incentive compensation programs have been gradually
reinstated so that 2016 business plan objectives represent more fully
funded compensation targets.

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. We
recognized costs of $560 million ($353 million, net of tax, or $1.11 per
diluted share) during 2013, which were related primarily to severance
when eligible employees accepted their offers. Payments under this
program were made at the time of departure and totaled approxi-
mately $300 million in 2014 and $180 million in 2013.

The 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 2015 and 2013.

Outlook
We anticipate revenue and earnings growth in 2016, prior to any
year-end MTM adjustment, driven by continued improvements in the
performance of all of our transportation segments, including the con-
tinued execution of the profit improvement programs noted above. We
expect continued moderate global economic growth to drive volume
and yield improvements. Our expectations for earnings growth in 2016
are dependent on key external factors, including fuel prices and global
economic conditions. Our outlook for 2016 does not contemplate any
impact from our announced intent to acquire TNT Express, such as
integration planning or transaction costs or the operating activities of
TNT Express if the transaction is consummated.

Our capital expenditures for 2016 are expected to approximate $4.6
billion for continued expansion of the FedEx Ground network and
additional aircraft deliveries in 2016 to support our fleet modernization
program at FedEx Express. We will continue to evaluate our invest-
ments 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 2016 capital projects, refer to the “Capital Resources” and
“Liquidity Outlook” sections of this MD&A.

Our outlook is dependent upon a stable pricing environment for fuel,
as volatility in fuel prices impacts our fuel surcharge levels, fuel
expense and demand for our services. Volatility in fuel costs may
impact earnings because adjustments to our fuel surcharges lag
changes in actual fuel prices paid. Therefore, the trailing impact of
adjustments to our fuel surcharges can significantly affect our earn-
ings either positively or negatively in the short-term.

As described in Note 18 of the accompanying consolidated finan-
cial statements, 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. As
previously announced, FedEx Ground reached an agreement, which
is subject to court approval, to settle an independent contractor case
in California, and we accrued a related charge in the fourth quarter
of 2015. Additionally, during the first quarter of 2015, we established
an accrual for the estimated probable loss in the Oregon cases that
was required to be recognized pursuant to applicable accounting
standards. With respect to the matters that are pending outside of
California and Oregon, 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
Note 18 of the accompanying consolidated financial statements for
additional information.

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

MANAGEMENT’S DISCUSSION AND ANALYSISSeasonality 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 virtually
all existing revenue recognition guidance under accounting principles
generally accepted in the United States (and International Financial
Reporting Standards), which has been subsequently updated to defer
the effective date of the new revenue recognition standard by one
year. This standard will be effective for us beginning in fiscal 2019.
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 recog-
nized reflects the consideration 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 2015 that is relevant to the readers of our financial
statements. However, there are numerous new proposals under devel-
opment which, if and when enacted, may have a significant impact on
our financial reporting.

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

FedEx Express Segment

FedEx Ground Segment

FedEx Freight Segment

FedEx Services Segment

> FedEx Express
(express transportation)
> FedEx Trade Networks
(air and ocean freight forwarding
and customs brokerage)
> FedEx SupplyChain Systems
(logistics services)
> Bongo
(cross-border enablement technology
and solutions)
> FedEx Ground
(small-package ground delivery)
> FedEx SmartPost
(small-parcel consolidator)
> GENCO
(third-party logistics)
> FedEx Freight
(LTL freight transportation)
> FedEx Custom Critical
(time-critical transportation)
> FedEx Services
(sales, marketing, information
technology, communications and
back-office functions)
> FedEx TechConnect
(customer service, technical support,
billings and collections)
> FedEx Office
(document and business services
and package acceptance)

MANAGEMENT’S DISCUSSION AND ANALYSIS

FedEx Services Segment
The operating expenses line item “Intercompany charges” on the
accompanying consolidated financial statements of our transportation
segments reflects the allocations from the FedEx Services segment to
the respective transportation segments. The allocations of net operat-
ing costs are based on metrics such as relative revenues or estimated
services provided.

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. We believe these allocations approximate the net cost
of providing these functions. Our allocation methodologies are refined
periodically, as necessary, to reflect changes in our businesses.

During the fourth quarter of 2015, we changed our method of account-
ing for our defined benefit pension and postretirement healthcare
plans to immediately recognize actuarial gains and losses resulting
from the remeasurement of these plans in earnings in the fourth
quarter of each fiscal year. This method of accounting is referred to as
MTM accounting as described in this MD&A and Note 1 and Note 13
of the accompanying consolidated financial statements. FedEx’s seg-
ment operating results follow internal management reporting, which
is used for making operating decisions and assessing performance.
Historically, total net periodic benefit cost was allocated to each seg-
ment. We continue to record service cost, interest cost and EROA at
the business segments as well as an allocation from FedEx Services
of their comparable costs. Annual recognition of actuarial gains and
losses will be reflected in our segment results only at the corporate
level. Additionally, although the actual asset returns are recognized in
each fiscal year through a MTM adjustment, we continue to recognize
EROA in the determination of net pension cost. At the segment level,
we have set our EROA at 6.5% for all periods presented, which will

equal our consolidated EROA assumption for 2016. In fiscal years
where the consolidated EROA is greater than 6.5%, that difference is
reflected as a credit in “Corporate, eliminations and other.” We have
adjusted prior-period segment information to conform to the current
period’s presentation to ensure comparability of the segment results
across all periods, including comparisons going forward in 2016.

In addition, in 2015, we ceased allocating to our transportation seg-
ments the costs associated with our corporate headquarters division.
These costs included services related to general oversight functions,
including executive officers and certain legal and finance functions
as well as our annual MTM adjustment and certain other charges or
credits. This change allows for additional transparency and improved
management of our corporate oversight costs. These costs were
previously included in the operating expenses line item “Intercompany
charges” on the accompanying unaudited financial summaries of our
transportation segments. These costs are now included in “Corporate,
eliminations and other” in our segment reporting and reconciliations.
Prior year amounts have been revised to conform to the current year
segment presentation. See Note 14 of the accompanying consolidated
financial statements for more information. The increase in these
unallocated costs in 2015 from the prior year was driven by a loss
associated with our MTM adjustment as further discussed in this
MD&A and Note 1 and Note 13 of the accompanying consolidated
financial statements and an increase in legal contingency reserves
recorded in the first and fourth quarters of 2015 associated with a
legal matter at FedEx Ground described in Note 18 of the accompanying
consolidated financial statements.

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.

MANAGEMENT’S DISCUSSION AND ANALYSISFedEx Express Segment
FedEx Express offers a wide range of U.S. domestic and international shipping services for delivery of packages and freight including prior-
ity 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. 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, and amounts have
been recast to conform to the current year presentation reflecting the pension accounting changes and allocation of corporate headquarters
costs further discussed in this MD&A and Note 1, Note 13 and Note 14 of the accompanying consolidated financial statements:

Percent of Revenue
2014

2015

2013

36.2 %
8.6
6.2
5.0
15.2
4.6

37.1 %
9.3
6.2
5.4
11.7
5.0

36.1 %
9.3
6.3
5.5
14.5
4.4

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
Total operating expenses
Operating margin
(1) International domestic revenues represent our international intra-country express operations.
(2) Includes FedEx Trade Networks, FedEx SupplyChain Systems and Bongo.
(3) 2015 includes $276 million of impairment and related charges resulting from the decision
to permanently retire and adjust the retirement schedule of certain aircraft and related
engines. 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.

–
6.9
11.7
94.7
5.3 %

1.0
6.8
11.7
94.2
5.8 %

0.9
8.1
11.8
96.6
3.4 %

(4) Includes allocations of $262 million in 2013 for business realignment costs.

Percent
Change

2015
2014

/
/ 2014
2013

2015

2014

2013

$ 6,704 $ 6,555 $ 6,513
1,705
1,636
3,020
3,188

2
–
5

3
(3)
3

(1)
(3)
1

(2)
–
(12)
(2)
5
–

3
1
(1)

(2)
(19)
15

1
(4)
6

1
(2)
9

1
3
1

(8)
(5)
(26)
(8)
5
–

–
8
1

10
(5)
(5)

11,379
6,451
2,229

11,238
6,586
2,046

8,680
1,446
21,505

8,632
1,398
21,268

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

9,797
2,511
1,705

1,488
3,943
1,182

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

9,835
2,331
1,684

1,350
4,130
1,244

–
1,888
3,179

243 NM NM
(15)
(2)
(1)
–

2,215
3,210

25,693

25,655
$ 1,584 $ 1,428 $

5.8%

5.3%

–
11

26,242
929
3.4% 50bp 190bp

(2)
54

11,675
6,251
2,301

Revenues:
Package:
U.S. overnight box
U.S. overnight envelope 1,629
3,342
U.S. deferred
Total U.S. domestic
package revenue
International priority
International economy
Total international
export package
8,552
revenue
International domestic(1)
1,406
Total package revenue 21,633
Freight:
U.S.
International priority
International airfreight
Total freight revenue
Other(2)
Total revenues
Operating expenses:
Salaries and employee
10,104
benefits
Purchased transportation 2,544
Rentals and landing fees 1,693
Depreciation and
amortization
Fuel
Maintenance and repairs
Business realignment,
impairment and other
charges(3)
Intercompany charges(4)
Other
Total operating
expenses
Operating income
Operating margin

2,300
1,588
180
4,068
1,538
27,239

276
1,842
3,180

1,460
3,199
1,357

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

Percent
Change

2015
2014

/
/ 2014
2013

2015

2014

2013

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

527
916

1,240 1,164
538
869
2,683 2,571
410
170

410
176

586
853

580
819
4,122 3,970

1,134
574
835
2,543
421
155

576
785
3,904

$ 21.29 $ 22.18 $ 22.52
11.66
14.18
17.33
61.28
51.77

12.15 11.97
14.44
14.36
17.42
17.13
61.88
60.05
51.54
51.75

57.50
6.49
20.66

58.92
6.95
21.32

58.72
6.99
21.36

7
(2)
5
4
–
4

1
4
4

(4)
2
(1)
(2)
(3)
–

(2)
(7)
(3)

3
(6)
4
1
(3)
10

1
4
2

(2)
3
2
1
1
–

–
(1)
–

7,833
2,887
684

7,854
2,922
798

7,612
3,048
1,066

–
(1)
(14)

3
(4)
(25)

(1)

11,404 11,574 11,726

Total average daily
freight pounds
Revenue per pound (yield):
U.S.
$ 1.16 $ 1.18 $ 1.32
International priority
2.16
International airfreight
1.01
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 operations.

2.17
1.04
1.40

2.15
1.01
1.41

(2)
1
3
(1)

(11)
–
–
(7)

FedEx Express Segment Revenues
FedEx Express total revenues were flat in 2015 as U.S. and interna-
tional package volume and base yield growth were offset by lower
fuel surcharges and unfavorable exchange rates.

U.S. domestic volumes increased 4% in 2015 driven by both our
overnight box and deferred service offerings. U.S. domestic yields
decreased 2% in 2015 due to the negative impact of lower fuel
surcharges, which were partially offset by higher rates. International
export volumes grew 1%, driven by a 4% growth in our international
economy service offering. The 2% decrease in international export
yields in 2015 was due to the negative impact of lower fuel sur-
charges and unfavorable exchange rates, which were partially offset
by higher rates and weight per package. International domestic rev-
enues declined 3% in 2015 due to the negative impact of unfavorable
exchange rates, which were partially offset by a 4% volume increase.

FedEx Express segment revenues were also flat in 2014. Lower fuel
surcharges, lower freight revenue, unfavorable 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
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 reduc-
tions. 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 interna-
tional priority volumes declined 3%. Within this category, volumes
for lower-yielding distribution services declined, while international
priority volumes, excluding these distribution services, increased 1%.
International domestic average daily volumes increased 4% in 2014
primarily due to prior year international business acquisitions.

Our U.S. domestic and outbound fuel surcharge and the international
fuel surcharges ranged as follows for the years ended May 31:

2015

2014

2013

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

1.50 % 8.00 % 10.00 %
9.50
6.34

14.50
11.84

10.50
9.47

0.50
18.00
12.80

12.00
19.00
16.26

12.00
20.50
17.02

MANAGEMENT’S DISCUSSION AND ANALYSIS

On February 2, 2015, FedEx Express updated the tables used to
determine fuel surcharges. On September 16, 2014, FedEx Express
announced a 4.9% average list price increase for FedEx Express U.S.
domestic, U.S. export and U.S. import services effective January 5,
2015. 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.

FedEx Express Segment Operating Income
Despite flat revenues, FedEx Express operating income and operating
margin increased in 2015, driven by U.S. domestic and international
package base yield and volume growth, benefits associated with our
profit improvement program, the positive net impact of fuel, reduced
pension expense, lower international expenses due to currency
exchange rates, lower depreciation expense and a lower year-over-
year impact from severe winter weather. These factors were partially
offset by higher maintenance expense and higher incentive compensa-
tion accruals. Additionally, results for 2015 were negatively impacted
by $276 million ($175 million, net of tax) of impairment and related
charges, of which $246 million was noncash, resulting from the decision
to permanently retire and adjust the retirement schedule of certain
aircraft and related engines.

Within operating expenses, salaries and employee benefits increased
3% in 2015 due to the timing of annual merit increases for many
of our employees and higher incentive compensation accruals.
These factors were partially offset by the benefits from our vol-
untary employee severance program and lower pension expense.
Maintenance and repairs expense increased 15% in 2015 primarily
due to the timing of aircraft maintenance events. Costs associated
with the growth of our freight-forwarding business at FedEx Trade
Networks drove an increase in purchased transportation costs of
1% in 2015. Depreciation and amortization expense decreased
2% in 2015 driven by the expiration of accelerated depreciation
for certain aircraft that were retired from service during the year.

Fuel expense decreased 19% in 2015 due to lower aircraft fuel prices.
The net impact of fuel had a significant benefit in 2015 to operating
income. See the “Fuel” section of this MD&A for a description and
additional discussion of the net impact of fuel on our operating results.

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 above. 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 nega-
tive net impact of fuel and higher depreciation expense. In addition,
operating income in 2014 reflects one fewer operating day and the
year-over-year negative impact of severe weather.

In 2014, salaries and employee benefits were flat due to lower pen-
sion 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 compensation.
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. 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. 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 busi-
ness 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 cer-
tain aircraft scheduled for retirement, and aircraft placed into service.

Fuel costs decreased 5% in 2014 due to lower aircraft fuel prices and
usage. The net impact of fuel had a significant negative impact on
operating income in 2014. See the “Fuel” section of this MD&A for a
description and additional discussion of the net impact of fuel on our
operating results.

FedEx Express Segment Outlook
We expect revenues and earnings to increase at FedEx Express during
2016 primarily due to improved U.S. domestic and international export
volume and package yields, as we continue to focus on revenue quality
while managing costs. In addition, we expect operating income to
improve through the continued execution of our profit improvement
programs, including managing network capacity to match customer
demand, reducing structural costs, modernizing our fleet and driving
productivity increases throughout our U.S. and international operations.

Capital expenditures at FedEx Express are expected to increase in 2016
driven by our aircraft fleet modernization programs, as we add new air-
craft that are more reliable, fuel-efficient and technologically advanced
and retire older, less-efficient aircraft.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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. On January 30,
2015, we acquired GENCO, a leading North American third-party
logistics provider. GENCO’s financial results are included in the following
table from the date of acquisition, which has impacted the year-over-
year comparability of revenue and operating expenses. 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, and amounts have been recast
to conform to the current year presentation reflecting the pension
accounting changes and allocation of corporate headquarters costs
further discussed in this MD&A and Note 1, Note 13 and Note 14 of
the accompanying consolidated financial statements:

Percent
Change

2015
2014

/
/ 2014
2013

2015

2014

2013

$ 11,563 $10,634 $ 9,652
926

10
9
6
2
– NM NM
10
12

10,578

983
–
11,617

2,146
5,021
485

1,005
416
12,984

Revenues:
FedEx Ground
FedEx SmartPost
GENCO
Total revenues
Operating expenses:
Salaries and employee
benefits
Purchased transportation
Rentals
Depreciation and
530
amortization
12
Fuel
244
Maintenance and repairs
Intercompany charges(1)
1,123
Other
1,251
Total operating expenses 10,812
Operating income
Operating margin
Average daily package
volume:
FedEx Ground
FedEx SmartPost
Revenue per package (yield):
FedEx Ground
FedEx SmartPost

4,850
2,061

1,749
4,635
402

1,577
4,191
331

434
468
17
17
222
190
1,086
1,095
893
1,008
8,719
9,596
$ 2,172 $ 2,021 $ 1,859

4,588
2,186

4,222
2,058

$ 9.37 $ 9.10 $ 8.94
$ 1.93 $ 1.78 $ 1.77

23
8
21

13
(29)
10
3
24
13
7

11
11
21

8
–
17
1
13
10
9

6
(6)

3
8

9
6

2
1

16.7 % 17.4% 17.6 % (70 )bp (20 )bp

Percent of Revenue
2014

2015

2013

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

16.5 %
38.7
3.7
4.1
0.1
1.9
8.7
9.6
83.3
16.7 %

15.0 %
39.9
3.5
4.0
0.2
1.9
9.4
8.7
82.6
17.4 %

14.9 %
39.6
3.1
4.1
0.2
1.8
10.3
8.4
82.4
17.6 %

FedEx Ground Segment Revenues

FedEx Ground segment revenues increased 12% in 2015 due to
volume and yield growth at FedEx Ground, the inclusion of GENCO
results and yield growth at FedEx SmartPost, partially offset by lower
volumes at FedEx SmartPost.

Average daily volume at FedEx Ground increased 6% in 2015 due to
continued growth in our FedEx Home Delivery service and commercial
business. Yield increased 3% in 2015 primarily due to higher
dimensional weight charges and rate increases.

FedEx SmartPost average daily volume decreased 6% in 2015 due to
the reduction in volume from a major customer. FedEx SmartPost yield
increased 8% in 2015 due to rate increases and improved customer
mix, partially offset by higher postage costs. FedEx SmartPost yield
represents the amount charged to customers net of postage paid to
the USPS.

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.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

2013

2014
2015
4.50 % 6.50 % 6.50 %
7.00
7.00
6.66
5.90

8.50
7.60

On February 2, 2015, FedEx Ground updated the tables used to
determine fuel surcharges. On September 16, 2014, FedEx Ground and
FedEx Home Delivery announced a 4.9% increase in average list price
effective January 5, 2015. In addition, as announced in May 2014, FedEx
Ground began applying dimensional weight pricing to all shipments
effective January 5, 2015. In January 2014, FedEx Ground and FedEx
Home Delivery implemented a 4.9% increase in average list price. FedEx
SmartPost rates also increased.

FedEx Ground Segment Operating Income
FedEx Ground segment operating income increased 7% in 2015 driven
by higher revenue per package and volumes, the positive net impact of
fuel, and a lower year-over-year impact from severe winter weather. The
increase to operating income was partially offset by higher network
expansion costs, as we continue to invest heavily in our FedEx Ground
and FedEx SmartPost businesses. The decline in operating margin for
2015 is primarily attributable to network expansion costs and the
inclusion of GENCO results.

The inclusion of GENCO results in the FedEx Ground segment results
has impacted the year-over-year comparability of all operating
expenses. Including the incremental costs from GENCO, salaries and
employee benefits increased 23% driven by additional staffing to
support volume growth. Volume growth and higher service provider
rates drove purchased transportation expense to increase 8% in 2015.
Other expense increased 24% in 2015 primarily due to the addition of
GENCO results and higher self-insurance costs. Network expansion
caused rentals expense to increase 21% in 2015. Depreciation and
amortization expense increased 13% in 2015 due to network
expansion and trailer purchases.

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. 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 Outlook
FedEx Ground segment revenues and operating income are expected
to continue to grow in 2016, led by volume growth across all our major
services due to market share gains. We also anticipate yield growth to
continue in 2016 through yield management programs, including our
dimensional weight rating changes. However, the full-year impact of
the GENCO acquisition will have a negative impact on FedEx Ground
operating margin in 2016 due to integration costs and the impact of
intangible asset amortization arising from purchase accounting.

Capital expenditures at FedEx Ground are expected to increase in
2016 as we continue to make investments to grow our highly
profitable FedEx Ground network through facility expansions and
equipment purchases. The impact of these investments on our cost
structure will partially offset earnings growth in 2016.

On March 16, 2015, we announced that our FedEx SmartPost business
will be merged into FedEx Ground effective September 1, 2015. The
FedEx SmartPost service remains an important component of our
service offerings and this internal structural change will enhance our
ability to leverage the strengths of both the FedEx Ground and FedEx
SmartPost networks to maximize operational efficiencies and will
provide greater flexibility to meeting the needs of our e-commerce
customers. No personnel reductions associated with this merger are
expected, and the estimated cost of the merger activities is immate-
rial to our results.

Effective June 1, 2015, we will begin recording revenues associated
with FedEx SmartPost on a gross basis including postal fees in
revenues and expenses, versus our previous net treatment, due to
operational changes occurring in 2016 which result in us being the
principal in all cases for the FedEx SmartPost service. This change will
be prospective as the operational changes did not occur until the
beginning of 2016. While we expect this to have a negative impact of
approximately 120 basis points on the FedEx Ground operating margin
in 2016, it will not impact the total operating income of FedEx Ground.

We will continue to vigorously defend various attacks against our
independent contractor model and incur ongoing legal costs as a part
of this process. While we believe that FedEx Ground’s owner-opera-
tors are properly classified as independent contractors, it is
reasonably possible that we could incur additional material losses 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
FedEx Freight Segment
FedEx Freight service offerings include priority LTL services when speed is critical and economy services when time can be traded for savings.
The following table compares revenues, operating expenses, operating expenses as a percent of revenue, operating income, operating margin
(dollars in millions) and selected statistics for the years ended May 31, and amounts have been recast to conform to the current year presenta-
tion reflecting the pension accounting changes and allocation of corporate headquarters costs further discussed in this MD&A and Note 1, Note
13 and Note 14 of the accompanying consolidated financial statements:

2015

2013
$ 6,191 $ 5,757 $ 5,401

2014

Percent
Change

2015
2014
8

/
/ 2014
2013
7

2,698
1,045
129

230
508
201

–
444
452
5,707
484 $
7.8 %

2,442
981
131

231
595
179

–
431
416
5,406

351 $
6.1%

2,336
865
118

217
598
191

10
7
(2)

–
(15)
12

5
13
11

6
(1)
(6)

3 NM NM
(5)
3
452
11
9
375
5
6
5,155
43
38
246
4.6% 170bp 150bp

66.9

28.6

62.9

27.7

59.3

26.4

95.5

90.6

85.7

1,272
1,003

1,262
1,000

1,237
990

1,191

1,182

1,161

$ 229.57 $ 223.61 $ 220.32
256.38

264.34

258.05

$ 240.09 $

234.23 $

231.52

$ 18.05 $ 17.73 $ 17.80
25.90

26.34

25.80

$ 20.15 $ 19.82 $ 19.94

1
–

3
2

2
2

2
1

1
1

–
–

(1)

Revenues
Operating expenses:
Salaries and employee
benefits
Purchased transportation
Rentals
Depreciation and
amortization
Fuel
Maintenance and repairs
Business realignment,
impairment and other
charges(1)
Intercompany charges(2)
Other
Total operating expenses
Operating income
Operating margin
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

Percent of Revenue
2014

2015

2013

42.4 %
17.1
2.3
4.0
10.3
3.1

43.6 %
16.9
2.1
3.7
8.2
3.2

Operating expenses:
Salaries and employee benefits
Purchased transportation
Rentals
Depreciation and amortization
Fuel
Maintenance and repairs
Business realignment, impairment
and other charges(1)
Intercompany charges(2)
Other
Total operating expenses
Operating margin
(1) 2013 includes severance costs associated with our voluntary buyout program.
(2) Includes allocations of $47 million in 2013 for business realignment costs.

–
7.2
7.3
92.2
7.8%

–
7.5
7.2
93.9
6.1%

43.3 %
16.0
2.2
4.0
11.1
3.5

–
8.4
6.9
95.4
4.6%

MANAGEMENT’S DISCUSSION AND ANALYSIS

FedEx Freight Segment Revenues
FedEx Freight segment revenues increased 8% in 2015 due to higher
average daily shipments and revenue per shipment. Average daily LTL
shipments increased 5% in 2015 due to higher demand for our FedEx
Freight Priority and FedEx Freight Economy service offerings. LTL
revenue per shipment increased 3% in 2015 due to higher rates and
higher weight per LTL shipment.

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 both of our service offerings. LTL revenue per shipment
increased 1% in 2014 due to changes in shipment characteristics,
primarily higher weight per LTL shipment.

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

Low

High

Weighted-average

2015

2014

2013

20.90 % 22.70 % 21.80 %

26.20

24.30

23.70

23.20

24.40

23.38

On February 2, 2015, FedEx Freight updated the tables used to deter-
mine fuel surcharges. On September 16, 2014, FedEx Freight announced
a 4.9% average increase in certain U.S. and other shipping rates
effective January 5, 2015. In June 2014, FedEx Freight increased its
published fuel surcharge indices by three percentage points. In March
2014, FedEx Freight increased certain U.S. and other shipping rates by
an average of 3.9%.

FedEx Freight Segment Operating Income
FedEx Freight segment operating income and operating margin
increased in 2015 due to higher LTL revenue per shipment and higher
average daily LTL shipments. These factors were partially offset by
a 10% increase in salaries and employee benefits expense driven by
staffing to support volume growth and higher incentive compensation
accruals. Volume growth, higher utilization and higher service provider
rates drove an increase to purchased transportation expense of 7% in
2015. Other expense increased 9% in 2015 driven partially by higher
cargo claims.

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 negatively
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 5% 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.

FedEx Freight Segment Outlook
We expect continued revenue and operating income growth, as well
as improvement in our operating margin during 2016 driven by moder-
ate volume growth from our differentiated LTL services. We also
anticipate effective yield management practices to result in increased
revenues. FedEx Freight earnings growth will also be positively
impacted by continued improvement in productivity along with further
investment in technology.

Capital expenditures at FedEx Freight are expected to increase in
2016 primarily driven by investments in vehicles, as well as additional
investments in facilities.

MANAGEMENT’S DISCUSSION AND ANALYSIS

FINANCIAL CONDITION

Liquidity
Cash and cash equivalents totaled $3.8 billion at May 31, 2015,
compared to $2.9 billion at May 31, 2014. The following table
provides a summary of our cash flows for the periods ended May 31
(in millions). All amounts have been recast to conform to the current
year presentation reflecting the MTM accounting changes further
discussed in this MD&A and Note 1, Note 13 and Note 14 of the
accompanying consolidated financial statements:

Operating activities:
Net income
Business realignment, impairment
and other charges
Retirement plans mark-to-market
adjustment
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 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 end
of period

2015

2014

2013

$ 1,050 $ 2,324 $ 2,716

246

–

479

2,190
2,317
(437)
5,366

15
3,173
(1,248)
4,264

(1,368)
3,396
(535)
4,688

(4,347)

(3,533)

(3,375)

(1,429)

(36)

(483)

24
(5,752)

18
(3,551)

55
(3,803)

(1,254)
(5)
2,491
(227)
344

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

1,349
(108)

(2,719)
(3)

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

1,184
5

855 $ (2,009) $ 2,074

$ 3,763 $ 2,908 $ 4,917

CASH PROVIDED BY OPERATING ACTIVITIES. Cash flows from
operating activities increased $1.1 billion in 2015 primarily due to
higher segment operating income, the inclusion in the prior year of
payments associated with our voluntary employee buyout program
and lower incentive compensation payments. 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 segment operating
income. We made contributions of $660 million to our tax-qualified
U.S. domestic pension plans (“U.S. Pension Plans”) in 2015 and 2014
and $560 million in 2013.

CASH USED IN INVESTING ACTIVITIES. Capital expenditures were
23% higher in 2015 largely due to increased spending for aircraft at
FedEx Express and sort facility expansion at FedEx Ground, and were
5% higher in 2014 than in 2013, largely due to increased spending at
FedEx Ground and FedEx Express. See “Capital Resources” for a more
detailed discussion of capital expenditures during 2015 and 2014.

FINANCING ACTIVITIES. We had various senior unsecured debt
issuances in 2015, 2014 and 2013. See Note 6 of the accompany-
ing consolidated financial statements for more information on these
issuances. Interest on these notes is paid semiannually. We utilized
$1.4 billion of the net proceeds of the 2015 debt issuance to fund our
acquisition of GENCO and the remaining proceeds for working capital
and general corporate purposes. 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. See Note 3 of the
accompanying consolidated financial statements for further discussion
of business acquisitions.

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.

The effect of exchange rate changes on cash during 2015 was driven
by the overall strengthening of the U.S. dollar primarily against the
Brazilian real, the British pound, the Japanese yen, the Canadian
dollar and the Mexican peso.

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
8,142,410

2015

Average
Price Paid
per Share
$ 154.03

Total
Purchase
Price
$ 1,254

Total Number
of Shares
Purchased
36,845,590

2014

Average
Price Paid
per Share
$ 131.83

Total
Purchase
Price
$ 4,857

Common stock purchases

As of May 31, 2015, 12.2 million shares remained under our share repurchase authorizations. Our share repurchase activity in 2014 includes
ASR agreements entered into with two banks to repurchase $2.0 billion of our common stock.

MANAGEMENT’S DISCUSSION AND ANALYSIS

In 2015, our Board of Directors authorized the repurchase of up to 15
million shares of common stock. It is expected that the share authori-
zation will primarily be utilized to offset equity compensation dilution
over the next several years. Shares may be repurchased under this
program from time to time in the open market or in privately negoti-
ated transactions. This is the only repurchase program that currently
exists, and it does not have an expiration date.

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

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

Percent
Change

2015
2014
41
49
(23 )

/
/ 2014
2013
12
13
7

2015

2013
Aircraft and related equipment $ 1,866 $ 1,327 $ 1,190
727
Facilities and sort equipment
734

1,224
601

819
784

2014

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

348
308

403
200

452
272
$ 4,347 $ 3,533 $ 3,375
$ 2,380 $ 1,994 $ 2,067
555
326
424

1,248
337
381
1

850
325
363
1

(11)
(14)
(26)
54
5
23
(4)
19
53
47
–
4
(14)
5
3 NM NM
5
23

$ 4,347 $ 3,533 $ 3,375

Capital expenditures during 2015 were higher than the prior year
primarily due to increased spending for aircraft at FedEx Express
and increased spending for sort facility expansion at FedEx Ground.
Aircraft and related equipment purchases at FedEx Express during
2015 included the delivery of 14 Boeing 767-300 Freighter (“B767F”)
and 13 Boeing 757 (“B757”) aircraft, as well as the modification of
certain aircraft before being placed into service. 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 B757 aircraft, four B767F aircraft and two
Boeing 777 Freighter (“B777F”) aircraft, as well as the modification
of certain aircraft before being placed into service.

Liquidity Outlook
We believe that our cash and cash equivalents, which totaled $3.8
billion at May 31, 2015, cash flow from operations and available
financing sources will be adequate to meet our liquidity needs,
including working capital, capital expenditure requirements, debt
payment obligations and our announced intent to acquire TNT
Express. Our cash and cash equivalents balance at May 31, 2015
includes $478 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.

Our capital expenditures are expected to be approximately $4.6 billion
in 2016. We anticipate that our cash flow from operations will be
sufficient to fund our increased capital expenditures in 2016, which
will include spending for network expansion at FedEx Ground and
aircraft modernization and re-fleeting at FedEx Express. We expect
approximately 45% of capital expenditures in 2016 to be designated
for growth initiatives, predominantly at FedEx Ground, and 55%
dedicated to maintaining our existing operations. Our expected capital
expenditures for 2016 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
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 September 2014, FedEx Express
entered into an agreement to purchase four additional B767F aircraft,
the delivery of which will begin in 2017 and continue through 2019.

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.

We plan to finance the aggregate consideration of the announced
intent to acquire TNT Express by utilizing available cash on our
balance sheet and through available financing sources.

A $1 billion revolving credit facility is available to finance our
operations and other cash flow needs and to provide support for the
issuance of commercial paper. 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 61% at
May 31, 2015. 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

MANAGEMENT’S DISCUSSION AND ANALYSIS

and do not expect the covenants to affect our operations, including
our liquidity or expected funding needs. As of May 31, 2015, no
commercial paper was outstanding, and the entire $1 billion under
the revolving credit facility was available for future borrowings.

For 2016, we anticipate making contributions totaling $660 million
(approximately $500 million of which are required) to our U.S.
Pension Plans. Our U.S. Pension Plans have ample funds to meet
expected benefit payments.

On June 8, 2015, our Board of Directors declared a quarterly dividend
of $0.25 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
2, 2015 to stockholders of record as of the close of business on June
18, 2015. 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.

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
ratings outlook of “negative.” 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 invest-
ment 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, 2015. Certain of these contractual
obligations are reflected in our balance sheet, while others are
disclosed as future obligations under accounting principles generally
accepted in the United States. Except for the current portion of
interest on long-term debt, this table does not include amounts
already recorded in our balance sheet as current liabilities at May 31,
2015. 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. Unless statutorily
required, 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

2016

$ 2,128
432
325
500

Payments Due by Fiscal Year (Undiscounted)
2019

2018

2020

Thereafter

2017

Total

$ 2,241
230
320
–

$ 1,751
127
320
–

$ 1,511
69
320
–

$ 1,265
22
260
–

$ 7,489
89
5,331
–

$ 16,385
969
6,876
500

1,255
129

1,024
5

1,399
1

1,017
–

662
–

3,786
–

9,143
135

–
$ 4,769

–
$ 3,820

–
$ 3,598

750
$ 3,667

400
$ 2,609

6,090
$ 22,785

7,240
$ 41,248

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 rep-
resent authorizations to purchase rather than binding agreements.
See Note 17 of the accompanying consolidated financial statements
for more information on such purchase orders.

table. See Note 12 of the accompanying consolidated financial state-
ments for further information.

We had $472 million in deposits and progress payments as of May
31, 2015 on aircraft purchases and other planned aircraft-related
transactions.

Operating Activities
In accordance with accounting principles generally accepted in the
United States, future contractual payments under our operating leases
(totaling $16 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, 2015.
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.

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 ($35 million) is excluded from the

Investing Activities
The amounts reflected in the table above for capital purchase
obligations represent noncancelable agreements to purchase
capital-related equipment. Such contracts include those for certain
purchases of aircraft, aircraft 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
commitments, not reflected in the table above, that were incurred
in the normal course of business to support our operations, including
standby letters of credit and surety bonds. These instruments are
required under certain U.S. self-insurance programs and are also
used in the normal course of international operations. The underlying
liabilities insured by these instruments are reflected in our balance
sheets, where applicable. Therefore, no additional liability is reflected
for the letters of credit and surety bonds themselves.

The amounts reflected in the table above for long-term debt represent
future scheduled payments on our long-term debt. In 2016, we have
no scheduled debt payments.

MANAGEMENT’S DISCUSSION AND ANALYSIS
CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with
accounting 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 appropriateness 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
elements that are either the most judgmental or involve the
selection or application of alternative accounting policies and are
material to our financial statements. Management has discussed
the development and selection of these critical accounting
estimates with the Audit Committee of our Board of Directors
and with our independent registered public accounting firm.

Retirement Plans
OVERVIEW. We sponsor programs that provide retirement benefits to
most of our employees. These programs include defined benefit
pension plans, defined contribution plans and postretirement
healthcare plans and are described in Note 13 of the accompanying
consolidated financial statements. The rules for pension accounting
are complex and can produce tremendous volatility in our results,
financial condition and liquidity.

As described in the consolidated results section of this MD&A, in
2015 we adopted MTM accounting for recognition of actuarial gains
and losses on our defined benefit pension and postretirement
healthcare plans. Previously, we amortized actuarial gains or losses in
excess of a corridor amount over the average remaining service lives
of our covered employees. Further, we used a calculated value method
to determine the value of plan assets amortizing changes in the fair
value of plan assets over a period no longer than four years. Under our
new MTM accounting methodology (as described in Note 1 of the
accompanying consolidated financial statements), we will immedi-
ately recognize changes in the fair value of plan assets and actuarial
gains or losses in our operating results annually in the fourth quarter
each year. The remaining components of pension and postretirement
healthcare expense, primarily service and interest costs and the
expected return on plan assets, will continue to be recorded on a
quarterly basis.

We elected to adopt MTM accounting for a number of reasons.
Immediate recognition of gains and losses in the income statement
is the preferred method of accounting for these plans as it aligns the
income statement treatment with the treatment required to measure
the related assets and liabilities in the balance sheet. Furthermore,
the accumulated actuarial losses relate primarily to the remeasure-
ment of our legacy pension formula which has been frozen for the vast
majority of employees since 2008. Due to persistently low interest
rates and demographic assumption changes, those accumulated

losses have become increasingly material and amortizing them into
future periods would punitively burden future operations for legacy
benefit costs.

We are required to record year-end adjustments to our financial
statements on an annual basis for the net funded status of our
pension and postretirement healthcare plans. The funded status of our
plans also impacts our liquidity; however, 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.

The “Salaries and employee benefits” caption of our consolidated
income statements includes expense associated with service and
interest costs and the expected return on plan assets. Our fourth
quarter MTM adjustment is included in the “Retirement plans
mark-to-market adjustment” caption in our consolidated income
statements. A summary of our retirement plans costs over the past
three years is as follows (in millions):

2015

2014

2013

Defined benefit pension plans:
Segment level
Coporate, eliminations and other
Total defined benefit pension plans
Defined contribution plans
Postretirement healthcare plans
Retirement plans mark-to-market
adjustment

$ 191
(232)
$ (41 )
385
81

(186)

$ 285 $ 355
(192)
$ 99 $ 163
354
78

363
78

2,190
$ 2,615

15
$ 555

(1,368 )
$ (773 )

The components of the pre-tax mark-to-market losses (gains) are as
follows, in millions:

Discount rate changes
Actual versus expected return
on assets
Demographic assumption changes
Total mark-to-market loss (gain)

2015
$ 791

2014

2013
$ 705 $ (1,076)

(35)
1,434
$ 2,190

(1,013)
323

(696)
404
$ 15 $ (1,368)

2015
The implementation of new U.S. mortality tables in 2015 resulted in
an increased participant life expectancy assumption, which increased
the overall projected benefit obligation by $1.2 billion. The weighted
average discount rate for all of our pension and postretirement
healthcare plans declined from 4.57% at May 31, 2014 to 4.38%
at May 31, 2015.

2014
The actual rate of return on our U.S. Pension Plan assets of 13.3%
exceeded our expected return of 7.75% primarily due to a favorable
investment environment for global equity markets. The weighted
average discount rate for all of our pension and postretirement
healthcare plans decreased from 4.76% at May 31, 2013 to 4.57%
at May 31, 2014.

MANAGEMENT’S DISCUSSION AND ANALYSIS

2013
The weighted average discount rate for all of our pension and
postretirement healthcare plans increased from 4.44% at May 31,
2012 to 4.76% at May 31, 2013. The actual rate of return on our U.S.
Pension Plan assets of 12.1% exceeded our expected return of 8.0%
primarily due to a favorable investment environment for global equity
and credit markets.

Following is a discussion of the key estimates we consider in
determining our U.S. Pension Plans cost:

DISCOUNT RATE. This is the interest rate used to discount the
estimated future benefit payments that have been accrued to date
(the projected benefit obligation, or “PBO”) to their net present value
and to determine the succeeding year’s ongoing pension expense
(prior to any year-end MTM adjustment). The discount rate is
determined each year at the plan measurement date. The discount
rate at each measurement date is as follows:

Measurement Date

Discount Rate

5/31/2015
5/31/2014
5/31/2013
5/31/2012

4.42 %
4.60
4.79
4.44

We determine the discount rate with the assistance of actuaries, who
calculate the yield on a theoretical portfolio of high-grade corporate
bonds (rated Aa or better). In developing this theoretical portfolio, we
select bonds that match cash flows to benefit payments, limit our
concentration by industry and issuer, and apply screening criteria to
ensure bonds with a call feature have a low probability of being
called. To the extent scheduled bond proceeds exceed the estimated
benefit payments in a given period, the calculation assumes those
excess proceeds are reinvested at one-year forward rates.

The discount rate assumption is highly sensitive. For our largest pension
plan, at our May 31, 2015 measurement date, a 50-basis-point increase
in the discount rate would have decreased our 2015 PBO by approxi-
mately $1.7 billion and a 50-basis-point decrease in the discount rate
would have increased our 2015 PBO by approximately $1.9 billion. With
the adoption of MTM accounting, the impact of changes in the discount
rate on pension expense are predominately isolated to our fourth
quarter mark-to-market adjustment. A one-basis-point change in the
discount rate for our largest pension plan would have a $37 million
effect on the fourth quarter mark-to-market adjustment but only a net
$100,000 impact on segment level pension expense.

PLAN ASSETS. The expected average rate of return on plan assets
is a long-term, forward-looking assumption. 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 volatility, 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

investment 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
reasonably 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.

For consolidated pension expense, we assumed a 7.75% expected
long-term rate of return on our U.S. Pension Plan assets in 2015 and
2014 and 8% in 2013. The actual returns during each of the last three
fiscal years have exceeded those long-term assumptions. However, for
2016, we have lowered our expected return on plan assets assumption
for long-term returns on plan assets to 6.5% as we continue to
implement our asset and liability management strategy. In lowering this
assumption we considered our historical returns, our current capital
markets outlook and our investment strategy for our plan assets,
including the impact of the duration of our plan liability. Our actual
return on plan assets has contracted from 2014 as we have increased
our asset allocation to lower yielding fixed income investments. At the
segment level, we have set our EROA at 6.5% for all periods presented.

A one-basis-point change in our expected return on plan assets impacts
our 2016 segment pension expense by $2.3 million. The actual historical
annual return on our U.S. Pension Plan assets, calculated on a com-
pound geometric basis, was 6.7%, net of investment manager fees and
administrative expenses, for the 15-year period ended May 31, 2015
and 7%, net of investment manager fees and administrative expenses,
for the 15-year period ended May 31, 2014. Any difference between
actual plan asset performance and the expected return is reflected in
our year-end MTM adjustment each fiscal year.

MANAGEMENT’S DISCUSSION AND ANALYSIS
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

2015

2014

$ 27,512
23,505
$ (4,007 )

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

$
$

746
815

$
$

727
801

FUNDING. The funding requirements for our U.S. Pension Plans are
governed by the Pension Protection Act of 2006, which has aggressive
funding requirements in order to avoid benefit payment restrictions
that become effective if the funded status determined under IRS rules
falls below 80% at the beginning of a plan year. All of our U.S.
Pension Plans have funded status levels in excess of 80% and our
plans remain adequately funded to provide benefits to our employees
as they come due. Additionally, current benefit payments are nominal
compared to our total plan assets (benefit payments for our U.S.
Pension Plans for 2015 were approximately $744 million or 3.2% of
plan assets).

During 2015, we made $388 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 $2.8 billion at May 31, 2015. For 2016,
we anticipate making contributions to our U.S. Pension Plans totaling
$660 million (approximately $500 million of which are required).

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 $2.0 billion
at May 31, 2015 and $1.8 billion at May 31, 2014. 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 coverage and adjust insurance levels based on risk
tolerance and premium expense. Historically, it has been infrequent
that incurred claims exceeded our self-insured limits.

We believe the use of actuarial methods to account for these
liabilities provides a consistent and effective way to measure these
highly judgmental accruals. However, the use of any estimation
technique in this area is inherently sensitive given the magnitude of
claims involved and the length of time until the ultimate cost is
known. We believe our recorded obligations for these expenses are
consistently measured on a conservative basis. Nevertheless, changes
in healthcare costs, accident frequency and severity, insurance
retention levels and other factors can materially affect the estimates
for these liabilities.

Long-Lived Assets
USEFUL LIVES AND SALVAGE VALUES. Our business is capital
intensive, with approximately 56% 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 estimates
properly match the economic use of the asset. This evaluation may
result in changes in the estimated lives and residual values used to
depreciate our aircraft and other equipment. For our aircraft, we
typically assign no residual value due to the utilization of these assets
in cargo configuration, which results in little to no value at the end of
their useful life. These estimates affect the amount of depreciation
expense recognized in a period and, ultimately, the gain or loss on the
disposal of the asset. Changes in the estimated lives of assets will
result in an increase or decrease in the amount of depreciation
recognized in future periods and could have a material impact on our
results of operations (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 647 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 maintain-
ing our service commitments to our customers. Because of the
integrated nature of our global network, our aircraft are

MANAGEMENT’S DISCUSSION AND ANALYSIS

interchangeable 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
create risks that asset capacity may exceed demand. Aircraft
purchases (primarily aircraft in passenger configuration) that have
not been placed in service totaled $102 million at May 31, 2015 and
$82 million at May 31, 2014. 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
estimated 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 determin-
ing 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; and changes to
planned service expansion activities. At May 31, 2015, we had one
aircraft temporarily idled. This aircraft has been idled for approximately
two months and is expected to return to revenue service.

In the fourth quarter of 2015, we retired from service seven Boeing
MD11 aircraft and 12 related engines, four Airbus A310-300 aircraft
and three related engines, three Airbus A300-600 aircraft and three
related engines and one Boeing MD10-10 aircraft and three related

engines, and related parts. We also adjusted the retirement schedule
of an additional 23 aircraft and 57 engines. As a consequence,
impairment and related charges of $276 million ($175 million, net of
tax, or $0.61 per diluted share), of which $246 million was noncash,
were recorded in the fourth quarter. The decision to permanently retire
these aircraft and engines aligns with FedEx Express’s plans to
rationalize capacity and modernize its aircraft fleet to more effectively
serve its customers. These combined retirement changes will not have
a material impact on our near-term depreciation expense.

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,
2015 we had approximately $16 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, 2015 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS
GOODWILL. As of May 31, 2015, we had $3.8 billion of recorded
goodwill from our business acquisitions, representing the excess of
the purchase price over the fair value of the net assets we have
acquired. During 2015 we recorded $1.1 billion in additional goodwill
associated with our GENCO and Bongo acquisitions. 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 goodwill).
Fair value is estimated using standard valuation methodologies
(principally the income or market approach) incorporating market
participant considerations and management’s assumptions on revenue
growth rates, operating margins, discount rates and expected capital
expenditures. Estimates used by management can significantly affect
the outcome of the impairment test. Changes in forecasted operating
results and other assumptions could materially affect these estimates.
We perform our annual impairment tests in the fourth quarter unless
circumstances indicate the need to accelerate the timing of the tests.

Our reporting units with significant recorded goodwill include FedEx
Express, FedEx Ground, FedEx Freight, FedEx Office (reported in the
FedEx Services segment) and GENCO (reported in the FedEx Ground
segment). We evaluated these reporting units during the fourth
quarters of 2015 and 2014. The estimated fair value of each of these
reporting units exceeded their carrying values in 2015 and 2014, and
we do not believe that any of these reporting units were at risk as of
May 31, 2015.

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,
management considers the advice of third parties in making conclu-
sions regarding tax consequences.

We recognize liabilities for uncertain income tax positions based on a
two-step process. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence
indicates that it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step requires us to estimate and
measure the tax benefit as the largest amount that is more than 50%
likely to be realized upon ultimate settlement. It is inherently difficult
and subjective to estimate such amounts, as we must determine the
probability of various possible outcomes. We reevaluate these
uncertain tax positions on a quarterly basis or when new information
becomes available to management. These reevaluations are based on
factors including, but not limited to, changes in facts or circum-
stances, 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.

MANAGEMENT’S DISCUSSION AND ANALYSISWe 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 contingen-
cies 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.

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

Our evaluation of these matters is the result of a comprehensive
process designed to ensure that accounting recognition of a loss or
disclosure of these contingencies is made in a timely manner and
involves our legal and accounting personnel, as well as external
counsel where applicable. The process includes regular communica-
tions during each quarter and scheduled meetings shortly before the
completion of our financial statements to evaluate any new legal
proceedings and the status of 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 a 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 $7.4 billion at May 31, 2015 and $5.0
billion at May 31, 2014. 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 $208
million as of May 31, 2015 and $165 million as of May 31, 2014. The
underlying fair values of our long-term debt were estimated based on
quoted market prices or on the current rates offered for debt with
similar terms and maturities.

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

FOREIGN CURRENCY. While we are a global provider of transportation,
e-commerce and business services, the substantial majority of our
transactions are denominated in U.S. dollars. The principal foreign
currency exchange rate risks to which we are exposed are in the
Chinese yuan, euro, British pound, Brazilian real, Mexican peso 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 2015, foreign
currency fluctuations had a moderately positive impact on operating

MANAGEMENT’S DISCUSSION AND ANALYSIS
income. The impact of foreign currency fluctuations was slightly
negative in 2014. 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,
2015, 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 an increase in operating income of
$36 million for 2016. This theoretical 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.

COMMODITY. While we have market risk for changes in the price of
jet and vehicle fuel, this risk is largely mitigated by our indexed fuel
surcharges. For additional discussion of our indexed fuel surcharges
see the “Fuel” section of “Management’s Discussion and Analysis of
Results of Operations and Financial Condition.”

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, the rate of growth of
global trade and the typically more volatile economies of emerging
markets. In 2015, we saw a continued customer preference for slower,
less costly shipping services.

Our businesses depend on our strong reputation and the value of
the FedEx brand. The FedEx brand name symbolizes high-quality
service, reliability and speed. FedEx is one of the most widely
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
outlets such as YouTube and Twitter, adverse publicity can be
disseminated quickly and broadly, making it increasingly difficult for
us to defend against. Damage to our reputation and loss of brand
equity could reduce demand for our services and thus have an adverse
effect on our financial condition, liquidity and results of operations, as
well as require additional resources to rebuild our reputation and
restore the value of our brand.

We rely heavily on information and technology to operate our
transportation and business networks, and any cybersecurity
incident or other disruption to our technology infrastructure
could result in the loss of critical confidential information or
adversely impact our reputation, business or results of opera-
tions. Our ability to attract and retain customers and to compete
effectively depends in part upon the sophistication and reliability of
our technology network, including our ability to provide features of
service that are important to our customers and to protect our
confidential business information and the information provided by our
customers. We are subject to risks imposed by cybersecurity
incidents, which can range from uncoordinated individual attempts to
gain unauthorized access to our information technology systems, to
sophisticated and targeted measures directed at us and our systems,
customers or service providers. Additionally, risks such as code
anomalies, “Acts of God,” 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 our complex, global technology infrastructure,
including those impacting our computer systems and fedex.com, could
result in the loss of confidential business or customer information,
adversely impact our customer service, volumes and revenues or could
lead to litigation or investigations, resulting in significant costs. These
types of adverse impacts could also occur in the event the confidenti-
ality, 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
cybersecurity incidents, technology disruptions or data loss, which
could adversely impact our competitiveness and results of operations.
Additionally, the cost and operational consequences of implementing
further data or system protection measures could be significant.

MANAGEMENT’S DISCUSSION AND ANALYSISOur 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. Additionally, if fuel prices rise
sharply, even if we increase our fuel surcharge, we could experience a
lag time in implementing the surcharge, which could adversely affect
our short-term 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
supply of fuel could have a negative impact on our ability to operate
our transportation networks.

Our businesses are capital intensive, and we must make capital
decisions based upon projected volume levels. We make
significant investments in aircraft, vehicles, technology, package
handling facilities, sort equipment, copy equipment and other assets
to support our transportation and business networks. We also make
significant investments to rebrand, integrate and grow the companies
that we acquire. The amount and timing of capital investments
depend on various factors, including our anticipated volume growth.
We must make commitments to purchase or modify aircraft years
before the aircraft are actually needed. We must predict volume levels
and fleet requirements and make commitments for aircraft based on
those projections. Missing our projections could result in too much or
too little capacity relative to our shipping volumes. Overcapacity could
lead to asset dispositions or write-downs and undercapacity could
negatively impact service levels.

We face intense competition. The transportation and business
services markets are both highly competitive and sensitive to price
and service, especially in periods of little or no macro-economic
growth. Some of our competitors have more financial resources than
we do, or they are controlled or subsidized by foreign governments,
which enables them to raise capital more easily. We also compete
with regional transportation providers that operate smaller and less
capital-intensive transportation networks. In addition, some high
volume package shippers are developing in-house ground delivery
capabilities, 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 maintain 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 services or our current customers become
competitors, it could impede our ability to maintain or grow our
market share.

If we do not successfully execute or effectively operate,
integrate, leverage and grow acquired businesses, our financial
results and reputation may suffer. Our strategy for long-term growth,
productivity and profitability depends in part on our ability to make
prudent strategic acquisitions and to realize the benefits we expect
when we make those acquisitions. In furtherance of this strategy, over
the past several years, we have acquired businesses in Europe, Latin
America, Africa and the United States. Additionally, in April 2015, we
entered into a conditional agreement to acquire TNT Express.

While we expect to successfully execute the TNT Express acquisition,
we may not be able to complete the transaction on favorable terms,
on a timely basis or at all. Additionally, while we anticipate that our
past and future acquisitions will 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 employees
from time to time, and potential changes in labor laws could
make it easier for them to do so. If we are unable to continue to
maintain good relationships with our employees and prevent labor
organizations from organizing groups of our employees, our operating
costs could significantly increase and our operational flexibility could
be significantly reduced. Despite continual organizing attempts by labor
unions, other than the pilots of FedEx Express and drivers at four FedEx
Freight facilities, our U.S. employees have thus far chosen not to
unionize (we acquired GENCO in January 2015, which already had a
small number of employees that are members of unions).

The U.S. Congress has, in the past, considered adopting changes in
labor laws, however, that would make it easier for unions to organize
units of our employees. For example, there is always a possibility that
Congress could remove most FedEx Express employees from the
purview of the Railway Labor Act of 1926, as amended (“RLA”). Such
legislation could expose our customers to the type of service disrup-
tions 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 (“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-opera-
tors as independent contractors. If FedEx Ground is compelled to
convert its independent contractors to employees, labor organizations
could more easily organize these individuals, our operating costs could
increase materially and we could incur significant capital outlays.

MANAGEMENT’S DISCUSSION AND ANALYSIS
FedEx Ground relies on owner-operators to conduct its linehaul
and pickup-and-delivery operations, and the status of these
owner-operators as independent contractors, rather than
employees, is being challenged. FedEx Ground’s use of independent
contractors is well suited to the needs of the ground delivery business
and its customers, as evidenced by the strong growth of this business
segment. We are involved in numerous lawsuits and state tax and
other administrative proceedings that claim that the company’s
owner-operators or their drivers should be treated as our employees,
rather than independent contractors. We incur certain costs, including
legal fees, in defending the status of FedEx Ground’s owner-operators
as independent contractors.

We believe that FedEx Ground’s owner-operators are properly
classified as independent contractors and that FedEx Ground is not an
employer of the drivers of the company’s independent contractors.
However, adverse determinations in these matters could, among other
things, entitle certain of our owner-operators and their drivers to the
reimbursement of certain expenses and to the benefit of wage-and-
hour laws and result in employment and withholding tax and benefit
liability for FedEx Ground, and could result in changes to the indepen-
dent contractor status of FedEx Ground’s owner-operators. Changes to
state laws governing the definition of independent contractors could
also impact the status of FedEx Ground’s owner-operators.

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, transfor-
mation 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, since
2013, we have retired from service 25 aircraft and 42 related engines,
and we have adjusted the retirement schedule of numerous aircraft
and engines, in an effort to rationalize capacity and modernize our
aircraft fleet. Additionally, during 2014, we completed a voluntary
buyout program offering cash buyouts to eligible U.S.-based employ-
ees. We will continue to work towards our goal of annual profitability
improvement 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,
including 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 busi-
nesses, including those in the transportation industry. For example, the
U.S. Transportation Security Administration requires FedEx Express to
comply with a Full All-Cargo Aircraft Operator Standard Security Plan,
which contains evolving and strict security requirements. These
requirements are not static, but change periodically as the result of
regulatory and legislative requirements, imposing additional security
costs and creating a level of uncertainty for our operations. Thus, it is
reasonably possible that these rules or other future security require-
ments could impose material costs on us or slow our service to our
customers. Moreover, a terrorist attack directed at FedEx or other

aspects of the transportation infrastructure could disrupt our opera-
tions 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 operations
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
licensing 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
transportation and logistics market. Regulatory actions affecting
global aviation or transportation rights or a failure to obtain or
maintain aviation or other transportation rights in important interna-
tional markets could impair our ability to operate our networks.

We may be affected by global climate change or by legal,
regulatory or market responses to such change. Concern over
climate change, including the impact of global warming, has led to
significant U.S. and international legislative and regulatory efforts to
limit greenhouse gas (“GHG”) emissions, including our aircraft and
diesel engine emissions. For example, in 2015, the U.S. Environmental
Protection Agency (the “EPA”) issued a proposed finding on GHG
emissions from aircraft and its relationships to air pollution. The final
finding is a regulatory prerequisite to the EPA’s adoption of a new
certification standard for aircraft emissions. Additionally, in 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 substantial costs on us, especially at FedEx Express.
These costs include an increase in the cost of the fuel and other energy
we purchase and capital costs associated with updating or replacing our
aircraft or vehicles prematurely. Until the timing, scope and extent of
such regulation becomes known, we cannot predict its effect on our
cost structure or our operating results. It is reasonably possible,
however, that it could impose material costs on us.

Moreover, even without such regulation, increased awareness and
any adverse publicity in the global marketplace about the GHGs
emitted by companies in the airline and transportation industries
could harm our reputation and reduce customer demand for our
services, especially our air express services. Finally, given the broad
and global scope of our operations and our susceptibility to global
macro-economic trends, we are particularly vulnerable to the physical
risks of climate change that could affect all of humankind, such as
shifts in weather patterns and world ecosystems.

MANAGEMENT’S DISCUSSION AND ANALYSIS> 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.

FORWARD-LOOKING STATEMENTS

Certain statements in this report, including (but not limited to) those
contained in “Outlook” (including segment outlooks), “Liquidity,”
“Capital Resources,” “Liquidity Outlook,” “Contractual Cash
Obligations” and “Critical Accounting Estimates,” and the “Retirement
Plans” and “Contingencies” notes to the consolidated financial
statements, are “forward-looking” statements within the meaning of
the Private Securities Litigation Reform Act of 1995 with respect to
our financial condition, results of operations, cash flows, plans,
objectives, future performance and business. Forward-looking
statements include those preceded by, followed by or that include the
words “may,” “could,” “would,” “should,” “believes,” “expects,”
“anticipates,” “plans,” “estimates,” “targets,” “projects,” “intends” or
similar expressions. These forward-looking statements involve risks
and uncertainties. Actual results may differ materially from those
contemplated (expressed or implied) by such forward-looking
statements, because of, among other things, the risk factors identified
above and the other risks and uncertainties you can find in our press
releases and other SEC filings.

As a result of these and other factors, no assurance can be given as to
our future results and achievements. Accordingly, a forward-looking
statement is neither a prediction nor a guarantee of future events or
circumstances and those future events or circumstances may not
occur. You should not place undue reliance on the forward-looking
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.

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 adverse weather
conditions or localized risks from natural or manmade disasters such
as tornados, floods, earthquakes or terrorist attacks. The loss of a key
location such as our Memphis super hub or one of our information
technology centers could cause a significant disruption to our
operations and cause us to incur significant costs to reestablish or
relocate these functions. Moreover, resulting economic dislocations,
including supply chain and fuel disruptions, could adversely impact
demand for our services.

Our business may be adversely impacted by disruptions or
modifications 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 or any resulting structural changes to its
operations, network, service offerings or pricing could have an
adverse effect on our operations 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, British pound, Brazilian real, Mexican peso
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

bargaining agreements — including with the union that represents
the pilots of FedEx Express (the current pilot contract became
amendable in March 2013, and the parties are currently in negotia-
tions) and with the union that was elected in 2015 to represent
drivers at four FedEx Freight facilities;

40
40

MANAGEMENT’S DISCUSSION AND ANALYSIS

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING

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

Management, with the participation of our principal executive and financial officers, assessed our internal control over financial reporting as of
May 31, 2015, 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 (2013 framework) (the COSO criteria).

Based on this assessment, management has concluded that our internal control over financial reporting was effective as of May 31, 2015.

The effectiveness of our internal control over financial reporting as of May 31, 2015, 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.

41 41

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, 2015, based on criteria established in Internal
Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 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 manage-
ment 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, 2015,
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, 2015 and 2014, and the related consolidated statements of income, comprehensive income,
changes in stockholders’ investment, and cash flows for each of the three years in the period ended May 31, 2015 of FedEx Corporation and our
report dated July 14, 2015 expressed an unqualified opinion thereon.

Memphis, Tennessee
July 14, 2015

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
Retirement plans mark-to-market adjustment
Other

Operating Income
Other Income (Expense):
Interest expense
Interest income
Other, net

Income Before Income Taxes
Provision For Income Taxes
Net Income
Basic Earnings Per Common Share
Diluted Earnings Per Common Share

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

Years ended May 31,
2014

2015

2013

As Adjusted

$ 47,453

$ 45,567

$ 44,287

17,110
8,483
2,682
2,611
3,720
2,099
276
2,190
6,415
45,586
1,867

(235)
14
(19)
(240)
1,627
577
$ 1,050
3.70
$
3.65
$

16,171
8,011
2,622
2,587
4,557
1,862
–
15
5,927
41,752
3,815

(160)
18
(15)
(157)
3,658
1,334
$ 2,324
7.56
$
7.48
$

16,055
7,272
2,521
2,386
4,746
1,909
660
(1,368)
5,672
39,853
4,434

(82)
21
(35)
(96)
4,338
1,622
$ 2,716
8.61
$
8.55
$

FEDEX CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

Net Income
Other Comprehensive (Loss) Income:
Foreign currency translation adjustments, net of tax benefit of $45, $1 and $12
Amortization of prior service credit and other, net of tax expense of $1 in 2015 and tax
benefit of $38 and $51 in 2014 and 2013

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

Years ended May 31,
2014

2015

2013

As Adjusted

$ 1,050

$ 2,324

$ 2,716

(334

)

–
(334 )
716

(25)

(76)
(101)
$ 2,223

(63 )
(22)
$ 2,694

FEDEX CORPORATION

CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

Assets
Current Assets
Cash and cash equivalents
Receivables, less allowances of $185 and $164
Spare parts, supplies and fuel, less allowances of $207 and $212
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, 2015 and 2014
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock, at cost
Total common stockholders’ investment

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

May 31,

2015

2014
As Adjusted

$ 3,763
5,719
498
606
355
10,941

16,186
6,725
5,208
5,816
8,929
42,864
21,989
20,875

3,810
1,443
5,253
$ 37,069

19
1,436
2,066
2,436
5,957
7,249

1,747
4,893
1,120
711
181
218
8,870

32
2,786
16,900
172
(4,897)
14,993
$ 37,069

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

15,632
6,082
5,097
5,514
8,366
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
16,229
506
(4,133)
15,277
$ 33,070

FEDEX CORPORATIONCONSOLIDATED 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
Retirement plans mark-to-market adjustment
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 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
The accompanying notes are an integral part of these consolidated financial statements.

Years ended May 31,
2014

2015

2013

As Adjusted

$ 1,050

$ 2,324

$ 2,716

2,611
145
(572)
246
133
2,190

(392)
25
(692)
659
(37)
5,366

(4,347)
(1,429)
24
(5,752)

(5)
2,491
320
51
(227)
(1,254)
(27)
1,349
(108 )
855
2,908
$ 3,763

2,587
130
339
–
117
15

(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
734
479
109
(1,368)

(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

FEDEX CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ INVESTMENT

Common
Stock
$ 32
–
–
–
–

(in millions, except share data)
Balance at May 31, 2012 — as adjusted
Net income
Other comprehensive loss, net of tax of $63
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 — as adjusted
Net income
Other comprehensive loss, net of tax of $39
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 — as adjusted
Net income
Other comprehensive loss, net of tax of $44
Purchase of treasury stock (8.1 million shares)
Cash dividends declared ($0.80 per share)
Employee incentive plans and other
(3.7 million shares issued)
Balance at May 31, 2015
The accompanying notes are an integral part of these consolidated financial statements.

–
32
–
–
–
–

–
$ 32

Additional
Paid-in
Capital
$ 2,595
–
–
–
–

73
2,668
–
–
–
–

(25 )
2,643
–
–
–
–

Retained
Earnings
$ 11,552
2,716
–
–
(176 )

–
14,092
2,324
–
–
(187 )

–
16,229
1,050
–
–
(227 )

Accumulated
Other
Comprehensive
Income
$ 629
–
(22 )
–
–

–
607
–
(101 )
–
–

–
506
–
(334)
–
–

Treasury
Stock
$ (81)
–
–
(246 )
–

326
(1)
–
–
(4,857 )
–

725
(4,133)
–
–
(1,254 )
–

Total
$ 14,727
2,716
(22)
(246)
(176)

399
17,398
2,324
(101)
(4,857)
(187)

700
15,277
1,050
(334)
(1,254)
(227)

143
$ 2,786

(152)
$ 16,900

–
$ 172

490
$ (4,897)

481
$ 14,993

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, 2015 or ended May 31 of the
year referenced.

RECLASSIFICATIONS. Certain reclassifications have been made to the
prior years’ consolidated financial statements to conform to the cur-
rent year’s presentation.

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 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 $403 million in 2015, $407 million in
2014 and $424 million in 2013.

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

SPARE PARTS, SUPPLIES AND FUEL. Spare parts (principally aircraft-
related) are reported at weighted-average cost. Allowances
for obsolescence are provided for spare parts currently identified
as excess or obsolete as well as 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.
The majority of our supplies and our fuel are reported at weighted-
average cost.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, resulted 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 exter-
nal costs associated with the development of internal-use software.
Gains and losses on sales of property used in operations are classified
within operating expenses.

For financial reporting purposes, we record depreciation and 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 consolidated balance sheet for 2014 reflects the reclassification
of $1.1 billion of vehicles that were previously presented in package
handling and ground support equipment and $72 million of facilities
and other that were previously presented in computer and electronic
equipment. The reclassification has no impact on the net book value
of property and equipment, total assets, or depreciation expense.

The depreciable lives and net book value of our property and equip-
ment are as follows (dollars in millions):

Net Book Value at
May 31,
2015

2014

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

$ 7,548

$ 7,223

2,943

2,639

2,410
2,717

866
4,391

2,024
2,615

923
4,126

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. In May 2015, we adjusted the depreciable lives of 23 air-
craft and 57 engines. These changes will not have a material impact
on near-term depreciation expense. 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 net-
work. In 2012, we shortened the depreciable lives for 54 aircraft and
related engines to accelerate the retirement of these aircraft, result-
ing 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.

Depreciation expense, excluding gains and losses on sales of property
and equipment used in operations, was $2.6 billion in 2015 and 2014
and $2.3 billion in 2013. Depreciation and amortization expense
includes amortization of assets under capital lease.

CAPITALIZED INTEREST. Interest on funds used to finance the
acquisition and modification of aircraft, including purchase deposits,
construction of certain facilities, and development of certain software
up to the date the asset is ready for its intended use is capitalized and
included in the cost of the asset if the asset is actively under construc-
tion. Capitalized interest was $37 million in 2015, $29 million in 2014
and $45 million in 2013.

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 to be held and used are
assessed at a network level, not at an individual asset level, for our
analysis of impairment.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSassociated 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, potentially impaired) include, but are not limited to,
our global economic outlook and the impact of our outlook on our cur-
rent 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; and changes
to planned service expansion activities. At May 31, 2015, we had one
aircraft temporarily idled. This aircraft has been idled for approximately
two months and is expected to return to revenue service.

In May 2015, we retired from service seven Boeing MD11 aircraft and
12 related engines, four Airbus A310-300 aircraft and three related
engines, three Airbus A300-600 aircraft and three related engines and
one Boeing MD10-10 aircraft and three related engines, and related
parts. As a consequence of this decision, impairment and related
charges of $276 million ($175 million, net of tax, or $0.61 per diluted
share) were recorded in the fourth quarter. Of this amount, $246 million
was non-cash. The decision to permanently retire these aircraft and
engines aligns with FedEx Express’s plans to rationalize capacity and
modernize its aircraft fleet to more effectively serve its customers.

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.

GOODWILL. Goodwill is recognized for the excess of the purchase
price over the fair value of tangible and identifiable intangible net
assets of businesses acquired. Several factors give rise to goodwill
in our acquisitions, such as the expected benefit from synergies of
the combination and the existing workforce of the acquired 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, investment returns
on plan assets, salary increases, expected retirement, mortality,
employee turnover and future increases in healthcare costs. We
determine the discount rate (which is required to be the rate at which
the projected benefit obligation could be effectively settled as of the
measurement date) with the assistance of actuaries, who calculate
the yield on a theoretical portfolio of high-grade corporate bonds
(rated Aa or better) with cash flows that are designed to match our
expected benefit payments in future years. Our expected rate of return
is a judgmental matter which is reviewed on an annual basis and
revised as appropriate.

During the fourth quarter of 2015 we changed our method of account-
ing for our defined benefit pension and postretirement healthcare
plans. Under our new method of accounting, we will immediately
recognize changes in the fair value of plan assets and actuarial gains
or losses in our operating results annually in the fourth quarter each
year. Further, we voluntarily changed our method for determining
the expected return on plan assets (“EROA”), which is used in the
calculation of pension and other postretirement expense for funded
postretirement benefit plans for interim periods. We now use the
fair value of plan assets to calculate the EROA. The new methods of
accounting are collectively referred to as “mark-to-market” or MTM
accounting. Historically, we recognized actuarial gains and losses,
subject to a corridor, as a component of other comprehensive income
and amortized these gains and losses as a component of pension and
postretirement healthcare expenses over the average future service
period of the covered employees (13 years). Previously, we used a
calculated value method to determine the value of plan assets and
amortized changes in the fair value of plan assets over a period no
longer than four years.

We believe the immediate recognition of actuarial gains and losses
under MTM accounting is a preferable method of accounting as it
aligns the recognition of changes in the fair value of plan assets and
liabilities in the income statement with the fair value accounting
principles that are used to measure the net funded status of the plans
in our balance sheet. MTM accounting also eliminates the impact on
future periods of the amortization of the increasingly material amount
of accumulated actuarial losses resulting from persistently low inter-
est rates and changes in demographic assumptions.

The adoption of MTM accounting is a voluntary change in accounting
principle that is required to be adopted retrospectively. Therefore all
periods presented have been recast to conform to the current year
presentation reflecting the retirement plan accounting changes as
discussed further in Note 13 and Note 14.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The cumulative effect of the change on retained earnings as of June
1, 2012, was a pre-tax reduction of $8.9 billion, with an offset to
accumulated other comprehensive income (OCI) and therefore no net

impact to shareholders’ equity. The impact of all adjustments made to
the financial statements presented is summarized below (amounts in
millions, except per share data):

Consolidated Statements of Income
Operating Expenses:
Salaries and employee benefits
Retirement plans MTM adjustment
Operating Income
Income Before Income Taxes
Provision for Income Taxes
Net Income
Basic Earnings per Common Share
Diluted Earnings per Common Share

Consolidated Statements of Comprehensive
Income
Net Income
Amortization of prior service credit and other, net of tax

Consolidated Balance Sheets
Retained Earnings
Accumulated other comprehensive income (loss)

Consolidated Statements of Cash Flows
Operating Activities
Net Income
Deferred income taxes and other noncash items
Retirement plans MTM adjustment

2014

2013

Previously
Reported

Adjusted

Effect of
Change

Previously
Reported

Adjusted

Effect of
Change

$ 16,555
–
3,446
3,289
1,192
2,097
6.82
6.75

$ 16,171
15
3,815
3,658
1,334
2,324
7.56
7.48

$ (384)
15
369
369
142
227
0.74
0.73

$ 16,570
–
2,551
2,455
894
1,561
4.95
4.91

$ 16,055
(1,368)
4,434
4,338
1,622
2,716
8.61
8.55

$ (515)
(1,368)
1,883
1,883
728
1,155
3.66
3.64

2,097
151

2,324
(76)

227
(227)

1,561
1,092

2,716
(63)

1,155
(1,155)

20,429
(3,694)

16,229
506

(4,200)
4,200

18,519
(3,820)

14,092
607

(4,427)
4,427

2,097
581
–

2,324
339
15

227
(242)
15

1,561
521
–

2,716
734
(1,368)

1,155
213
(1,368)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

We recognize liabilities for uncertain income tax positions based on a
two-step process. The first step is to evaluate the tax position for 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 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.

LEASES. We lease certain aircraft, facilities, equipment and vehicles
under capital and operating leases. The commencement date of all
leases is the earlier of the date we become legally obligated to make
rent payments or the date we may exercise control over the use of
the property. In addition to minimum rental payments, certain leases
provide for contingent rentals based on equipment usage, principally
related to aircraft leases at FedEx Express and copier usage at FedEx
Office. Rent expense associated with contingent rentals is recorded as
incurred. Certain of our leases contain fluctuating or escalating pay-
ments and rent holiday periods. The related rent expense is recorded
on a straight-line basis over the lease term. The cumulative excess
of rent payments over rent expense is accounted for as a deferred
lease asset and recorded in “Other assets” in the accompanying

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

DEFERRED GAINS. Gains on the sale and leaseback of aircraft and
other property and equipment are deferred and amortized ratably over
the life of the lease as a reduction of rent expense. Substantially all of
these deferred gains are related to aircraft transactions.

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 October 2014, FedEx Express
formally requested assistance from the National Mediation Board
(“NMB”) to mediate the negotiations, and the NMB has been actively
mediating the talks since that time. The NMB is the U.S. governmen-
tal agency that oversees labor agreements for entities covered by the
Railway Labor Act of 1926, as amended. The conduct of mediated
negotiations has no impact on our operations. In addition to our pilots
at FedEx Express, GENCO Distribution System, Inc. (“GENCO”) has a
small number of employees who are members of unions, and certain
non-U.S. employees are unionized.

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

TREASURY SHARES. In September 2014, our Board of Directors
authorized the repurchase of up to 15 million shares of common stock.
It is expected that the share authorization will primarily be utilized to
offset equity compensation dilution over the next several years. During
2015, we repurchased 8.1 million shares of FedEx common stock at an
average price of $154.03 per share for a total of $1.3 billion. As of May
31, 2015, 12.2 million shares remained under the share repurchase
authorization. Under this program, 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: RECENT ACCOUNTING
GUIDANCE

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

On May 28, 2014, the FASB and International Accounting Standards
Board issued a new accounting standard that will supersede virtually
all existing revenue recognition guidance under generally accepted
accounting principles in the United States (and International Financial
Reporting Standards) which has been subsequently updated to defer
the effective date of the new revenue recognition standard by one
year. This standard will be effective for us beginning in fiscal 2019.
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 recog-
nized reflects the consideration 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.

In 2014, 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.

DIVIDENDS DECLARED PER COMMON SHARE. On June 8, 2015, our
Board of Directors declared a quarterly dividend of $0.25 per share of
common stock. The dividend was paid on July 2, 2015 to stockholders
of record as of the close of business on June 18, 2015. 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 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.

The 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 popula-
tion 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).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 3: BUSINESS COMBINATIONS

On April 6, 2015, FedEx entered into a conditional agreement to
acquire TNT Express N.V. for €4.4 billion (currently, approximately $4.9
billion). This combination is expected to expand our global portfolio,
particularly in Europe, lower our cost to serve European markets by
increasing density in our pickup-and-delivery operations and acceler-
ate our global growth. This acquisition is expected to be completed
in the first half of calendar year 2016. The closing of the acquisition
is subject to customary conditions, including obtaining all necessary
approvals and competition clearances.

In addition, on December 16, 2014, FedEx acquired Bongo
International, LLC (“Bongo”), a leader in cross-border enablement
technologies and solutions, for $42 million in cash from operations.
The financial results of this business are included in the FedEx Express
segment from the date of acquisition.

These acquisitions will allow us to enter new markets, as well as
strengthen our current service offerings to existing customers. We
expect that the goodwill of $40 million associated with our Bongo
acquisition will be entirely attributable to our FedEx Express reporting
unit. We expect that the goodwill of approximately $1.1 billion associ-
ated with our GENCO acquisition will be primarily attributable to our
FedEx Ground and GENCO reporting units.

The estimated fair values of the assets and liabilities related to these
acquisitions have been recorded in the FedEx Ground and FedEx Express
segments and are included in the accompanying balance sheets based
on a preliminary allocation of the purchase price (summarized in the
table below in millions). These allocations are expected to be completed
during the first quarter of our fiscal year 2016.

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

349
113
1,133
172
26
(245)
(92)
$ 1,456

The goodwill recorded of approximately $1.1 billion is primarily attrib-
utable to expected benefits from synergies of the combinations with
existing businesses and other acquired entities and the work force
in place at GENCO. The majority of the purchase price allocated to
goodwill is not deductible for U.S. income tax purposes. The intan-
gible assets acquired consist primarily of customer-related intangible
assets, which will be amortized on an accelerated basis over an
estimated life of 15 years.

In 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 coun-
tries in Southern Africa, for $36 million in cash from operations. The
financial results of these businesses are included in the FedEx Express
segment from their respective date of acquisition.

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 deliv-
ery company, for $54 million. The financial results of these businesses
are included in the FedEx Express segment from their respective date
of acquisition.

The financial results of these acquired businesses 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, 2013
Accumulated impairment charges
Balance as of May 31, 2013
Goodwill acquired(1)
Purchase adjustments and other(2)
Balance as of May 31, 2014
Goodwill acquired(1)
Purchase adjustments and other(2)
Balance as of May 31, 2015
Accumulated goodwill impairment charges as of
May 31, 2015
(1) Goodwill acquired relates to the acquisitions of transportation companies in Poland, France and Brazil in 2013, the acquisition of transportation companies in Southern Africa in 2014, and the

$ (1,177)

$ –

$ (133)

FedEx Ground
Segment
$ 90
–
90
–
–
90
1,055
–
$ 1,145

FedEx Freight
Segment
$ 735
(133)
602
–
–
602
38
–
$ 640

FedEx Services
Segment
$ 1,525
(1,177)
348
–
–
348
–
–
$ 348

FedEx Express
Segment
$ 1,715
–
1,715
24
11
1,750
40
(113 )
$ 1,677

Total
$ 4,065
(1,310)
2,755
24
11
2,790
1,133
(113 )
$ 3,810

$ (1,310)

acquisition of e-commerce and supply chain solutions companies in 2015. 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 Ground, FedEx Freight, FedEx Office (reported in the
FedEx Services segment) and GENCO (reported in the FedEx Ground
segment). We evaluated reporting units for impairment during the
fourth quarter of 2015. The estimated fair value of each of these report-
ing units exceeded their carrying values in 2015 and 2014,
and we do not believe that any of these reporting units were at risk
as of May 31, 2015.

OTHER INTANGIBLE ASSETS. The net book value of our other intan-
gible assets was $207 million at May 31, 2015 of which $164 million
was related to GENCO, and $57 million at May 31, 2014. Amortization
expense for intangible assets was $21 million in 2015, $23 million
in 2014 and $27 million in 2013. Estimated amortization expense is
expected to be $30 million in 2016 and immaterial 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

2015

2014

345

267

507
584
$ 1,436

$ 865
328
1,243
$ 2,436

434
576
$ 1,277

$ 811
339
913
$ 2,063

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, 2015, are as
follows (in millions):

Senior unsecured debt:
Interest Rate %
8.00
2.30
2.625–2.70
4.00
3.20
4.90
3.90
3.875 –4.10
5.10
4.10
4.50
7.60
Total senior unsecured debt
Capital lease obligations

Maturity
2019
2020
2023
2024
2025
2034
2035
2043
2044
2045
2065
2098

Less current portion

May 31,

2015

2014

750
399
749
749
699
499
498
992
749
646
248
239
7,217
51
7,268
19
$ 7,249

750
–
748
749
–
499
–
992
749
–
–
239
4,726
11
4,737
1
$ 4,736

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 $7.4 billion at
May 31, 2015 and $5.0 billion at May 31, 2014. The estimated fair val-
ues 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 hier-
archy. 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
offerings, any combination of our unsecured debt securities and com-
mon stock.

In January 2015, we issued $2.5 billion of senior unsecured debt
under our current shelf registration statement, comprised of $400
million of 2.30% fixed-rate notes due in February 2020, $700 million
of 3.20% fixed-rate notes due in February 2025, $500 million of 3.90%
fixed-rate notes due in February 2035, $650 million of 4.10% fixed-
rate notes due in February 2045, and $250 million of 4.50% fixed-rate
notes due in February 2065. We utilized $1.4 billion of the net pro-
ceeds to fund our acquisition of GENCO and the remaining proceeds
for working capital and general corporate purposes.

A $1 billion revolving credit facility is available to finance our
operations and other cash flow needs and to provide support for the
issuance of commercial paper. 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 61%
at May 31, 2015. 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, includ-
ing our liquidity or expected funding needs. As of May 31, 2015, 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 $481 million in letters of credit out-
standing at May 31, 2015, with $182 million unused under our primary
$500 million letter of credit facility, and $867 million in outstanding
surety bonds placed by third-party insurance providers. These instru-
ments are required under certain U.S. self-insurance programs and
are also used in the normal course of international operations. The
underlying liabilities insured by these instruments are reflected in our
balance sheets, where applicable. Therefore, no additional liability is
reflected for the letters of credit and surety bonds themselves.

NOTE 7: LEASES

We utilize certain aircraft, land, facilities, retail locations and equip-
ment under capital and operating leases that expire at various dates
through 2046. We leased 10% of our total aircraft fleet under operat-
ing leases as of May 31, 2015 and May 31, 2014. 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)

2015
$ 2,249
194
$ 2,443
(1) Contingent rentals are based on equipment usage.

2014
$ 2,154
197
$ 2,351

2013
$ 2,061
192
$ 2,253

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, 2015 is as follows (in millions):

Aircraft and
Related
Equipment
$ 461
400
329
273
190
360
$ 2,013

Operating Leases

Facilities and
Other
$ 1,667
1,841
1,422
1,238
1,075
7,129
$ 14,372

Total Operating
Leases
$ 2,128
2,241
1,751
1,511
1,265
7,489
$ 16,385

2016
2017
2018
2019
2020
Thereafter
Total

Property and equipment recorded under capital leases and future mini-
mum lease payments under capital leases were immaterial at May
31, 2015 and 2014. The weighted-average remaining lease term of all
operating leases outstanding at May 31, 2015 was approximately six
years. While certain of our lease agreements contain covenants gov-
erning the use of the leased assets or require us to maintain certain
levels of insurance, none of our lease agreements include material
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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

with market terms at the inception of the lease and do not include
a residual value guarantee, fixed-price purchase option or similar
feature that obligates us to absorb decreases in value or entitles us
to participate in increases in the value of the aircraft. As such, we are
not required to consolidate the entity as the primary beneficiary. Our
maximum exposure under these leases is included in the summary of
future minimum lease payments.

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, 2015, none of these
shares had been issued.

NOTE 9: ACCUMULATED OTHER COMPREHENSIVE INCOME
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
Prior service credit and other arising during period
Reclassifications from AOCI
Balance at end of period
Accumulated other comprehensive income at end of period

2015

2014

2013

81
(334)
(253)

425
72
(72)
425
172

106
(25)
81

501
1
(77)
425
506

65
41
106

564
–
(63)
501
607

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):

Retirement plans:
Amortization of prior service credits
Total before tax
Income tax expense
AOCI reclassifications, net of tax

Amount Reclassified from AOCI
2014

2015

2013

Affected Line Item in the
Income Statement

$ 115
115
(43)
72

$ 115
115
(38)
77

$ 114
114
(51)
63

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

2015
$ 133

2014
$ 117

2013
$ 109

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

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

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

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

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

2015

2014

2013

$ 53.33
$ 253

$ 35.79
$ 347

$ 29.20
$ 107

6.3 years

6.2 years

6.1 years

34 %
2.02%
0.448 %

35 %
1.47%
0.561 %

35 %
0.94 %
0.609 %

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, 2015:

Stock Options

Outstanding at June 1, 2014
Granted
Exercised
Forfeited
Outstanding at May 31, 2015
Exercisable
Expected to vest
Available for future grants
(1) Only presented for options with market value at May 31, 2015 in excess of the exercise price of the option.

Shares
15,634,856
2,445,146
(3,516,512)
(341,666)
14,221,824
7,994,368
5,853,809
13,157,142

Weighted-Average
Exercise Price
$ 91.71
150.32
91.18
107.62
$ 101.54
$ 89.19
$ 117.39

Weighted-Average
Remaining
Contractual Term

Aggregate
Intrinsic Value

(in millions)(1)

6.1 years
4.5 years
8.2 years

$ 1,031
$ 678
$ 331

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The options granted during the year ended May 31, 2015 are primarily
related to our principal annual stock option grant in June 2014.

The following table summarizes information about vested and
unvested restricted stock for the year ended May 31, 2015:

Restricted Stock

Shares
480,157
154,115
(192,920)
(2,310)
439,042

Weighted-Average
Grant Date Fair Value
$ 91.46
148.89
88.33
116.12
$ 112.87

Unvested at June 1, 2014
Granted
Vested
Forfeited
Unvested at May 31, 2015

During the year ended May 31, 2014, there were 191,964 shares
of restricted stock granted with a weighted-average fair value of
$100.80. 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.

The following table summarizes information about stock option vest-
ing during the years ended May 31:

2015
2014
2013

Stock Options

Vested during
the year
2,611,524
2,408,179
2,824,757

Fair value
(in millions)
$ 83
65
81

As of May 31, 2015, there was $183 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, 2015 represented 9% of the total outstanding
common and equity compensation shares and equity compensation
shares available for grant.

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):

2015

2014

2013

Basic earnings per common share:
Net earnings allocable to common shares(1) $ 1,048 $ 2,320
Weighted-average common shares
307
$ 3.70 $ 7.56
Basic earnings per common share

283

$ 2,711
315
$ 8.61

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

$ 1,048 $ 2,320
307
3
310
$ 3.65 $ 7.48

$ 2,711
315
2
317
$ 8.55

283
4
287

11.1

3.3

2.1

NOTE 12: INCOME TAXES

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

2015

2014

2013

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

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

$ 795
102
214
1,111

(474)
(47)
(13)
(534)
$ 577

$ 624
56
194
874

360
82
18
460
$ 1,334

$ 512
86
170
768

802
93
(41)
854
$ 1,622

Pre-tax earnings (loss) of foreign operations for 2015, 2014 and 2013
were $773 million, $412 million and $(55) 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of total income tax expense (benefit) and the amount
computed by applying the statutory federal income tax rate (35%)
to income before taxes for the years ended May 31 is as follows (in
millions):

Taxes computed at federal
statutory rate
Increases (decreases) in income
tax from:
State and local income taxes,
net of federal benefit
Foreign operations
Other, net

Effective Tax Rate

2015

2014

2013

$ 569

$ 1,280

$ 1,518

36
(43)
15
$ 577
35.5 %

90
(38)
2
$ 1,334

117
(21)
8
$ 1,622

36.5 %

37.4 %

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

2015

2014

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

$ 93
2,029
607
477

326
(224)
$ 3,308

$ 3,872
13
–
414

$ 120
1,464
555
368

–
–
$ 4,299

333
(245)
$ 2,595

$ 3,730
11
–
366

–
–
$ 4,107

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

2015
$ 606
150
(1,747)
$ (991)

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

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

Consolidated Balance Sheet.

We have $968 million of net operating loss carryovers in various
foreign jurisdictions and $589 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 2016. 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 determination, 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 appropri-
ate 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 taxable
income to realize the tax benefits related to the remaining net deferred
tax assets in our consolidated balance sheets.

Permanently reinvested earnings of our foreign subsidiaries amounted
to $1.9 billion at the end of 2015 and $1.6 billion at the end of 2014.
We have not recognized deferred taxes for U.S. federal income tax
purposes on those earnings. In 2015, our permanent reinvestment
strategy with respect to unremitted earnings of our foreign subsidiaries
provided an approximate $48 million benefit to our provision for income
taxes. 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 liabil-
ity. 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 reinvest-
ment strategy totaled $478 million at the end of 2015 and $471 million
at the end of 2014.

In 2015, approximately 75% of our total enterprise-wide income was
earned in U.S. companies of FedEx that are taxable in the United
States, a reduction from 2014 due to our adoption of MTM account-
ing. 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 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.

NOTES TO 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

2015
$ 38

2014
$ 47

2013
$ 51

(2)
(2)
–

–
(5)
$ 36

(3)
(6)
–

(3)
(1)
$ 38

(3)
(9)
4

(2)
2
$ 47

Our liabilities recorded for uncertain tax positions include $31 million
at May 31, 2015 and $33 million at May 31, 2014 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, 2015 and May 31, 2014.
Total interest and penalties included in our consolidated statements of
income are immaterial.

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

During the fourth quarter of 2015, we adopted mark-to-market
accounting for the recognition of our actuarial gains and losses
related to our defined benefit pension and postretirement healthcare
plans as described in Note 1.

The accounting guidance related to postretirement benefits requires
recognition in the balance sheet of the funded status of defined
benefit pension and other postretirement benefit plans, and the
recognition in either expense or 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.

A summary of our retirement plans costs over the past three years is
as follows, as well as the amounts associated with each component
of the pre-tax mark-to-market loss (gain) (in millions):

Defined benefit pension plans
Defined contribution plans
Postretirement healthcare plans
Retirement plans mark-to-market
adjustment

2015
$ (41)
385
81

2014
$ 99
363
78

2013
$ 163
354
78

2,190
$ 2,615

15
$ 555

(1,368)
$ (773)

The components of the pre-tax mark-to-market losses (gains) are as
follows, in millions:

Discount rate changes
Actual versus expected return on
assets
Demographic assumption changes
Total mark-to-market loss (gain)

$ 791

$ 705

$ (1,076)

(35)
1,434
$ 2,190

(1,013)
323
$ 15

(696)
404
$ (1,368)

2015
The implementation of new U.S. mortality tables in 2015 resulted in
an increased participant life expectancy assumption, which increased
the overall projected benefit obligation by $1.2 billion. The weighted
average discount rate for all of our pension and postretirement health-
care plans declined from 4.57% at May 31, 2014 to 4.38%
at May 31, 2015.

2013
The weighted average discount rate for all of our pension and
postretirement healthcare plans increased from 4.44% at May 31,
2012 to 4.76% at May 31, 2013. The actual rate of return on our
U.S. Pension Plan assets of 12.1% exceeded our expected return of
8.0% primarily due to a favorable investment environment for global
equity and credit markets.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENSION PLANS. Our largest pension plan covers certain U.S.
employees age 21 and over, with at least one year of service. Pension
benefits for most employees are accrued under a cash balance
formula we call the Portable Pension Account. Under the Portable
Pension Account, the retirement benefit is expressed as a dollar
amount in a notional account that grows with annual credits based
on pay, age and years of credited service, and interest on the notional
account balance. The Portable Pension Account benefit is payable as a
lump sum or an annuity at retirement at the election of the employee.
The plan interest credit rate varies from year to year based on a U.S.
Treasury index. 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 service and are funded in compliance
with local laws and practices.

POSTRETIREMENT HEALTHCARE PLANS. Certain of our subsidiaries
offer medical, dental and vision coverage to eligible U.S. retirees and

their eligible dependents. U.S. employees covered by the 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.

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 immediately recog-
nized and expensed in a fourth quarter mark-to-market adjustment.

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 — Consolidated
Expected long-term rate of return on assets — Segment Reporting

Pension Plans
2014
4.60 %

2015
4.42 %

2013
4.79 %

Postretirement Healthcare Plans
2013
2014
2015
4.91%
4.70%
4.60%

4.60

4.79

4.44

4.70

4.91

4.55

4.62

4.56
7.75
6.50

4.56

4.54
7.75
6.50

4.54

4.62
8.00
6.50

–

–
–
–

–

–
–
–

–

–
–
–

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The expected 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
reasonably 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 consolidated expected long-term rate of return on plan assets
was 7.75% in 2015 and 2014 and 8% in 2013. Our actual return in
each of the past three years exceeded those amounts for our principal
U.S. domestic pension plan. However, for 2016, we have lowered our
EROA assumption for long-term returns on plan assets to 6.50% as we
continue to implement our asset and liability management strategy.
In lowering this assumption we considered our historical returns, our
current capital markets outlook and our investment strategy for our
plan assets, including the impact of the duration of our plan liability.

Our actual return on plan assets has contracted from 2014 as we have
increased our asset allocation to lower yielding fixed income invest-
ments. For the 15-year period ended May 31, 2015, our actual annual
returns were 6.70%.

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. and International Large Cap Equities (which
are mainly indexed to the S&P 500 Index and other global indices).
Accordingly, we do not have any significant concentrations of risk.
Active management strategies are utilized within the plan in an effort
to realize investment returns in excess of market indices. As part
of our strategy to manage pension costs and funded status volatil-
ity, we have transitioned to a liability-driven investment strategy to
better align plan assets with liabilities. Our investment strategy also
includes the limited use of derivative financial instruments on a dis-
cretionary basis to improve investment returns and manage exposure
to market risk. In all cases, our investment managers are prohibited
from using derivatives for speculative purposes and are not permitted
to use derivatives to leverage a portfolio.

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

> Cash and cash equivalents. These Level 1 investments include

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

> Domestic, 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

corporate 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

Plan Assets at Measurement Date
2015

Target
Range%
0-5 %

35-55

45-65

Target
Range %
0-5 %

35-55

45-65

Quoted Prices in
Active Markets
Level 1
$ 36

Other Observable
Inputs
Level 2
$ 702

Unobservable
Inputs
Level 3

302
2,429

979

(181)
$ 3,565

3,989
635
2,579

6,455
4,645
213
(3)
$ 19,215

$ 226

2014

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

Fair Value
$ 738

Actual %
3 %

4,291
3,064
2,579
979
226

6,455
4,645
213
(184)
$ 23,006

19
14
11
4
1

28
20
1
(1)
100 %

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 %

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

2015
$ 276

2014
$ 332

(15)
43
(78)
$ 226

(17)
53
(92)
$ 276

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, 2015 and a statement of the funded status as of May 31, 2015 and 2014 (in millions):

Accumulated Benefit Obligation ("ABO")
Changes in Projected Benefit Obligation (“PBO”) and
Accumulated Postretirement Benefit Obligation (“APBO”)
PBO/APBO at the beginning of year
Service cost
Interest cost
Actuarial loss
Benefits paid
Other
PBO/APBO at the end of year
Change in Plan Assets
Fair value of plan assets at the beginning of year
Actual return on plan assets
Company contributions
Benefits paid
Other
Fair value of plan assets at the end of year
Funded Status of the Plans
Amount Recognized in the Balance Sheet at May 31:
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:
Prior service (credit) cost and other
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:
Prior service credit and other

Pension Plans

2015
$ 26,793

2014
$ 23,805

Postretirement
Healthcare Plans

2015

2014

$ 24,578
653
1,096
2,231
(815)
(231)
$ 27,512

$ 21,907
1,718
746
(815)
(51)
$ 23,505
$ (4,007)

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

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

(34)

(41)

(3,999)
$ (4,007)

(2,635)
$ (2,671)

$ 883
40
41
6
(73)
32
$ 929

–
–
37
(73)
36
–
$
$ (929)

–

(42)

(887)
$ (929)

$ 828
38
40
5
(62)
34
$ 883

–
–
28
(62)
34
–
$
$ (883)

–

(41)

(842)
$ (883)

$ (668)

$ (670)

–

(121)

(115)

–

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2015
Qualified
Nonqualified
International Plans
Total
2014
Qualified
Nonqualified
International Plans
Total

PBO

$ 26,365
271
876
$ 27,512

$ 23,439
280
859
$ 24,578

Fair Value of
Plan Assets

$ 23,006
–
499
$ 23,505

$ 21,444
–
463
$ 21,907

Funded
Status

$ (3,359)
(271)
(377)
$ (4,007)

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

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

2015

2014

$ 23,099
(27,132)
$ (4,033)

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

ABO Exceeds the Fair Value
of Plan Assets

2015

2014

$ (26,413)
23,099
(27,132)
$ (4,033)

2015
$ 388
272
$ 660

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

2014
$ 645
15
$ 660

For 2016, we anticipate making contributions to our U.S. Pension Plans totaling $660 million (approximately $500 million of which are required).

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
Amortization of prior service credit
Actuarial losses (gains) and other
Net periodic benefit cost

2015
653
1,096
(1,678)
(115)
2,190
$ 2,146

Pension Plans
2014
657
1,055
(1,495)
(115)
7
109

2013
692
968
(1,383)
(114)
(1,350)
$ (1,187)

2015
$ 40
41
–
–
6
$ 87

Postretirement
Healthcare Plans
2014
$ 38
40
–
–
5
$ 83

2013
$ 42
36
–
–
(17)
$ 61

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

2015

2014

Pension Plans
Gross
Amount
$ (113)

Net of Tax
Amount
$ (72 )

Postretirement
Healthcare Plans

Gross
Amount
$ (1 )

Net of Tax
Amount
$ –

Pension Plans
Gross
Amount
$ (1 )

Net of Tax
Amount
$ (1 )

Postretirement
Healthcare Plans

Gross
Amount
$ –

Net of Tax
Amount
$ –

115
$ 2

72
$ –

–
$ (1 )

–
$ –

115
$ 114

77
$ 76

–
$ –

Prior service cost arising during period
Amortizations:
Prior services credit
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.

2016
2017
2018
2019
2020
2021–2025

Pension Plans
$ 913
998
1,047
1,147
1,258
8,107

Postretirement
Healthcare Plans
$ 42
42
45
46
48
275

Future medical benefit claims costs are estimated to increase at an
annual rate of 7.3% during 2016, 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, 2015 or 2015 benefit expense because the level of these benefits
is capped.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

FedEx Services Segment
The FedEx Services segment operates combined sales, marketing,
administrative and information technology functions in shared
services operations that support our transportation businesses and
allow us to obtain synergies from the combination of these functions.
For the international regions of FedEx Express, some of these
functions are performed on a regional basis by FedEx Express and
reported in the FedEx Express segment in 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.

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
companies. 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 periodically, as necessary,
to reflect changes in our businesses.

During the fourth quarter of 2015, we changed our method of account-
ing for our defined benefit pension and postretirement healthcare plans
to immediately recognize actuarial gains and losses resulting from the
remeasurement of these plans in earnings in the fourth quarter of each
fiscal year. In addition, for purposes of calculating the EROA, we will no
longer use an averaging technique for the market-related value of plan
assets but instead will use actual fair value of plan assets. This method
of accounting is referred to as MTM accounting as described in Note 1.
Our segment operating results follow internal management reporting,
which is used for making operating decisions and assessing perfor-
mance. Historically, net total benefit cost was allocated to each
segment. We continue to record service cost, interest cost and EROA at
the business segments. Annual recognition of actuarial gains and losses
will be reflected in our segment results only at the corporate level.
Additionally, although the actual asset returns are recognized in each
fiscal year through a MTM adjustment, we continue to recognize an
EROA in the determination of net pension cost. At the segment level,
we have set our EROA at 6.5% for all periods presented, which will
equal our consolidated EROA assumption for 2016. In fiscal years where
the consolidated EROA is greater than 6.5%, that difference is reflected
as a credit in “Corporate, eliminations and other.” We have adjusted
prior-period segment information to conform to the current period’s
presentation to ensure comparability of the segment results across all
periods, including comparisons going forward in 2016.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In addition, in 2015, we ceased allocating to our transportation
segments the costs associated with our corporate headquarters
division. These costs included services related to general oversight
functions, including executive officers and certain legal and finance
functions. This change allows for additional transparency and improved
management of our corporate oversight costs. These costs are included
in “Corporate, eliminations and other” in our segment reporting and
reconciliations. Prior year amounts have been revised to conform to the
current year segment presentation. This change did not impact our
condensed consolidated financial statements included in Note 21.

Other Intersegment Transactions
Certain FedEx operating companies provide transportation and related
services for other FedEx companies outside their reportable segment.
Billings for such services are based on negotiated rates, which we
believe approximate fair value, and are reflected as revenues of the
billing segment. These rates are adjusted from time to time based on
market conditions. Such intersegment revenues and expenses are
eliminated in our consolidated results and are not separately
identified in the following segment information, because the amounts
are not material.

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

FedEx Express
Segment(1)

FedEx Ground
Segment(2)

FedEx Freight
Segment(3)

FedEx Services
Segment

Corporate,
eliminations
and other(5)

Consolidated
Total

$ 47,453
45,567
44,287

$ 1,545
1,536
1,580

$ 6,191
5,757
5,401

$ (506)
(464)
(443)

$ 1,460
1,488
1,350

$ 27,239
27,121
27,171

$ 12,984
11,617
10,578

Revenues
2015
2014
2013
Depreciation and amortization
2015
2014
2013
Operating income
2015
2014
2013
Segment assets(4)
2015
2014
2013
(1) FedEx Express segment 2015 operating income includes $276 million of impairment and related charges resulting from the decision to permanently retire and adjust the retirement schedule
of certain aircraft and related engines. FedEx Express segment 2013 operating income includes $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.

$ 11,764
8,466
7,353

$ 2,172
2,021
1,859

$ 20,759
19,901
18,935

$ 1,584
1,428
929

$ 530
468
434

$ (4,341)
(3,699)
(553)

$ (2,373)
15
1,400

$ 1
1
1

$ 5,357
5,186
4,879

$ 3,530
3,216
2,953

$ 390
399
384

$ 230
231
217

$ –
–
–

$ 484
351
246

$ 2,611
2,587
2,386

$ 1,867
3,815
4,434

$ 37,069
33,070
33,567

(2) FedEx Ground segment 2013 operating income includes $105 million of allocated business realignment costs.
(3) FedEx Freight segment 2013 operating income includes $50 million in direct and allocated business realignment costs.
(4) Segment assets include intercompany receivables.
(5) Operating income includes a loss of $2.2 billion in 2015, a loss of $15 million in 2014 and a gain of $1.4 billion in 2013 associated with our mark-to-market pension accounting. Operating income
in 2015 also includes a $197 million charge in the fourth quarter to increase the legal reserve associated with the settlement of a legal matter at FedEx Ground to the amount of the settlement.

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

2015
2014
2013

FedEx Express
Segment
$ 2,380
1,994
2,067

FedEx Ground
Segment
$ 1,248
850
555

FedEx Freight
Segment
$ 337
325
326

FedEx Services
Segment
$ 381
363
424

Other
$ 1
1
3

Consolidated
Total
$ 4,347
3,533
3,375

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):

2015

2014

2013

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
GENCO
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

2015

2014

2013

$ 201
$ 1,122
(9)
$ 1,113

$ 131
$ 820
(54)
$ 766

$ 80
$ 687
(219)
$ 468

$ 6,704 $ 6,555 $ 6,513
1,705
3,020
11,238
6,586
2,046

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

1,629
3,342
11,675
6,251
2,301

8,552
1,406
21,633

8,680
1,446
21,505

8,632
1,398
21,268

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 indemnifications cannot be
reasonably estimated. Historically, we have not been required to make
significant payments under our guarantee or indemnification obligations
and no amounts have been recognized in our financial statements for
the underlying fair value of these obligations.

Special facility revenue bonds have been issued by certain municipali-
ties primarily to finance the acquisition and construction of various
airport facilities and equipment. These facilities were leased to us
and are accounted for as operating leases. FedEx Express has
unconditionally guaranteed $483 million in principal of these bonds
(with total future principal and interest payments of approximately
$578 million as of May 31, 2015) through these leases.

2,300
1,588
180
4,068
1,538
27,239

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

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

11,563
1,005
416
12,984
6,191
1,545
(506)

9,652
926
–
10,578
5,401
1,580
(443)
$ 47,453 $ 45,567 $ 44,287

10,634
983
–
11,617
5,757
1,536
(464)

$ 34,216 $ 32,259 $ 30,948

12,772
311
142
12
13,237

12,959
12,916
234
248
112
130
34
14
13,339
13,308
$ 47,453 $ 45,567 $ 44,287

$ 23,514 $ 20,658 $ 19,637
2,656
$ 26,128 $ 23,387 $ 22,293

2,614

2,729

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

operations.

(2) Includes FedEx Trade Networks, FedEx SupplyChain Systems and Bongo.
(3) International revenue includes shipments that either originate in or are destined to locations

outside the United States which could include U.S. payors. 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

Annual purchase commitments under various contracts as of May 31,
2015 were as follows (in millions):

Aircraft and
Aircraft Related
$ 1,255
2016
1,024
2017
1,399
2018
1,017
2019
662
2020
3,786
Thereafter
$ 9,143
Total
(1) Primarily equipment, advertising contracts and in 2016, approximately $500 million of

Other(1)
$ 1,060
235
128
69
22
89
$ 1,603

Total
$ 2,315
1,259
1,527
1,086
684
3,875
$ 10,746

estimated required 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, 2015, our obligation to purchase three Boeing 767-300
Freighter (“B767F”) aircraft and nine Boeing 777 Freighter (“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 air-
craft 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.

During September 2014, FedEx Express entered into an agreement
to purchase four additional B767F aircraft, the delivery of which will
begin in 2017 and continue through 2019.

We had $472 million in deposits and progress payments as of May
31, 2015 on aircraft purchases and other planned aircraft-related
transactions. These deposits are classified in the “Other assets” cap-
tion of our consolidated balance sheets. Aircraft and aircraft-related
contracts are subject to price escalations. The following table is a
summary of the key aircraft we are committed to purchase as of May
31, 2015, with the year of expected delivery:

2016
2017
2018
2019
2020
Thereafter
Total

B767F
11
12
11
6
–
–
40

B777F
2
–
2
2
3
9
18

Total
13
12
13
8
3
9
58

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 25 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Most of the class-action lawsuits were consolidated for administra-
tion of the pre-trial proceedings by a single federal court, the U.S.
District Court for the Northern District of Indiana. The multidistrict
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 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 contrac-
tors 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 opin-
ion 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 plain-
tiffs as independent contractors under the Kansas Wage Payment Act.
The other 19 cases that are before the Seventh Circuit were stayed
pending a decision of the Kansas Supreme Court.

On October 3, 2014, the Kansas Supreme Court determined that a 20
factor right to control test applies to claims under the Kansas Wage
Payment Act and concluded that under that test, the class members
were employees, not independent contractors. The case was subse-
quently transferred back to the Seventh Circuit, where both parties
made filings requesting the action necessary to complete the resolu-
tion of the appeals. The parties also made recommendations to the
court regarding next steps for the other 19 cases that are before the
Seventh Circuit. FedEx Ground has requested that each of those cases
be separately briefed given the potential differences in the applicable
state law from that in Kansas. During the second quarter of 2015, we
established an accrual for the estimated probable loss in the Kansas
case that was required to be recognized pursuant to applicable
accounting standards. This amount was immaterial.

On July 8, 2015, the Seventh Circuit issued an order and opinion
confirming the decision of the Kansas Supreme Court, concluding
that the class members are employees, not independent contractors.
Additionally, the Seventh Circuit referred the other 19 cases to a rep-
resentative of the court for purposes of setting a case management
conference to address briefing and argument for those cases.

The multidistrict litigation court remanded the other eight certified
class actions back to the district courts where they were originally
filed because its summary judgment ruling did not completely dispose
of all of the claims in those lawsuits. Three of these matters settled
for immaterial amounts and have received court approval. One of
the cases is currently pending in the Eastern District of Arkansas.
Another case was appealed to the Eleventh Circuit Court of Appeals
where the court reversed the class-wide summary judgment deci-
sion on May 28, 2015 and remanded the case for trial, holding that

there are disputed issues of fact as to whether the class members
are employees or independent contractors. Two cases in Oregon and
one in California were appealed to the Ninth Circuit Court of Appeals,
where the court reversed the district court decisions and held that the
plaintiffs in California and Oregon were employees as a matter of law
and remanded the cases to their respective district courts for further
proceedings. In the first quarter of 2015, we recognized an accrual for
the then-estimated probable loss in those cases that was required
to be recognized pursuant to applicable accounting standards. This
amount was immaterial.

In June 2015, the parties in the California case engaged in mediation
and reached an agreement to settle the matter for $228 million, and
we have increased the accrual to that amount. The settlement agree-
ment has been filed with the court for approval.

In the Oregon cases, material exposure above the accrued amount is
reasonably possible. We continue to evaluate what facts may arise
in the course of discovery and what legal rulings the courts may
render and how these facts and rulings might impact FedEx Ground’s
loss. For a number of reasons, we are not currently able to estimate
a range of reasonably possible loss in excess of the amount accrued.
The number and identities of plaintiffs in these lawsuits are uncer-
tain, as they are dependent on how the class of full-time drivers is
defined and how many individuals will qualify based on whatever cri-
teria may be established. In addition, the parties have conducted only
very limited discovery into damages, which could vary considerably
from plaintiff to plaintiff and be dependent on evidence pertaining
to individual plaintiffs, which has yet to be produced in the cases.
Further, the range of potential loss could be impacted substantially by
future rulings by the court, including on the merits of the claims, on
FedEx Ground’s defenses, and on evidentiary issues.

With respect to the matters that are pending outside of Oregon, it
is reasonably possible that potential loss in some of these lawsuits
or changes to the independent contractor status of FedEx Ground’s
owner-operators could be material. Similar to our analysis of loss con-
tingency in the Oregon cases, we continue to evaluate what facts may
arise in the course of discovery and what legal rulings the courts may
render and how these facts and rulings might impact FedEx Ground’s
loss. As a consequence of many of the same factors described above,
as well as others that are specific to these cases, we are not currently
able to estimate a range of reasonably possible loss. 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. These cases are in
varying stages of litigation, and we do not expect to incur a material
loss in any of these matters.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Adverse determinations in matters related to FedEx Ground’s
independent contractors, 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 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.

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 ship-
pers, 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 (“RICO”) violations. In May 2014, we filed
a motion to dismiss almost all of the claims. On November 12, 2014
the City and State of New York filed a separate but almost identical
lawsuit that includes two additional shippers. This complaint was
amended in May 2015 to include additional shippers. On March 9,
the court ruled on our motion to dismiss in the first case, granting
our motions to limit the applicable statute of limitations to four years
and to dismiss a portion of the claims. The court, however, denied our
motion to dismiss some of the claims, including the RICO claims. Loss
in these lawsuits 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 envi-
ronmental authorities) and the California Attorney General’s Office
(representing the California Division of Toxic Substances Control
(“DTSC”)) that they were seeking civil penalties for alleged violations
of the state’s hazardous waste regulations. Specifically, the California
environmental 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.
The county and state authorities filed a motion to dismiss FedEx
Ground’s declaratory judgment action, and their motion was granted
on January 22, 2015. FedEx Ground filed a notice of appeal with the
Ninth Circuit Court of Appeals on February 23, 2015. Loss is probable
as to the enforcement action commenced by the county authorities,
and we have established an accrual for the estimated probable loss.
This amount was immaterial. Loss is reasonably possible as to the
action commenced by the DTSC; 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.

DEPARTMENT OF JUSTICE INDICTMENT — INTERNET PHARMACY
SHIPMENTS. In the past, we received requests for information from
the DOJ in the Northern District of California in connection with a
criminal investigation relating to the transportation of packages for
online pharmacies that may have shipped pharmaceuticals in violation
of federal law. In July 2014, the DOJ filed a criminal indictment in
the United States District Court for the Northern District of California
in connection with the matter. A superseding indictment was filed in
August 2014. The indictment alleges that FedEx Corporation, FedEx
Express and FedEx Services, together with certain pharmacies,
conspired to unlawfully distribute controlled substances, unlawfully
distributed controlled substances and conspired to unlawfully distrib-
ute misbranded drugs. The superseding indictment adds conspiracy to
launder money counts related to services provided to and payments
from online pharmacies. We continue to believe that our employees
have acted in good faith at all times and that we have not engaged in
any illegal activities.

Accordingly, we will vigorously defend ourselves in this matter. If we
are convicted, remedies could include fines, penalties, forfeiture and
compliance conditions. Given the early stage of this proceeding, we
cannot estimate the amount or range of loss, if any; however, it is
reasonably possible that it could be material if we are convicted.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSOTHER 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 dis-
miss this complaint, but again allowed the plaintiff to file an amended
complaint. The plaintiff filed a new complaint in December 2011. On
April 30, 2015, the court dismissed the case, finding that the plaintiff
failed to provide certain evidence necessary to allow the case to
proceed. The plaintiff filed a notice of appeal on May 26, 2015.

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 consul-
tants who work with shipping customers to negotiate lower rates.
In November 2012, the DOJ served a civil investigative demand on
the third-party consultant seeking all pleadings, 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 investigation move forward, and the amount
of loss, if any, is dependent on a number of factors that are not yet
fully developed or resolved, 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. In September 2014, FedEx Express France
submitted its observations in response to the Statement of Objections
to the FCA. In April 2015, the FCA issued a report responding to the
observations submitted by all companies involved in the investigation.
We submitted an answer to the FCA’s report in early July. Loss in this
matter is probable, and we established an accrual for the estimated
probable loss. This amount was immaterial.

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)
2015(1)
Revenues
Operating income (loss)
Net income (loss)
Basic earnings (loss) per common share(2)
Diluted earnings (loss) per common share(2)

First
Quarter

$ 11,684
1,062
653
2.29
2.26

Second
Quarter

$ 11,939
1,088
663
2.34
2.31

Third
Quarter

$ 11,716
1,038
628
2.21
2.18

Fourth
Quarter

$ 12,114
(1,321)
(895)
(3.16)
(3.16)

2014(1)
Revenues
Operating income
Net income
Basic earnings per common share(2)
Diluted earnings per common share(2)
(1) The fourth quarter of 2015 includes a $2.2 billion retirement plans mark-to-market loss, $276 million of impairment and related charges resulting from the decision to permanently retire and

$ 11,024
891
548
1.73
1.72

$ 11,403
923
559
1.77
1.75

$ 11,301
737
437
1.44
1.42

$ 11,839
1,264
780
2.66
2.62

adjust the retirement schedule of certain aircraft and related engines at FedEx Express and a $197 million reserve increase due to the settlement of a legal matter at FedEx Ground. In addition,
the first, second and third quarters of 2015 and all quarters of 2014 have been recast to conform to the current year presentation reflecting the retirement plans accounting changes discussed
further in Note 1 and Note 13 and that were included in our June 12, 2015, Form 8-K filing with the Securities and Exchange Commission.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21: CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

We are required to present condensed consolidating financial information in order for the subsidiary guarantors of our public debt to continue to
be exempt from reporting under the Securities Exchange Act of 1934, as amended. FedEx Express, however, currently files reports under such act.

The guarantor subsidiaries, which are wholly owned by FedEx, guarantee $7.0 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, 2015

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

$ 2,383
3

41
–
2,427
29
23
6
–
–
23,173
2,752
$ 28,358

$ –
34
5
604
643
6,978
2,249

–
3,495
3,495
14,993
$ 28,358

$ 487
4,383

689
571
6,130
40,364
20,685
19,679
686
1,552
3,800
898
$ 32,745

$ 7
1,208
1,433
1,557
4,205
248
–

4,206
3,367
7,573
20,719
$ 32,745

$ 971
1,385

123
35
2,514
2,471
1,281
1,190
1,563
2,258
–
477
$ 8,002

$ 12
194
758
275
1,239
23
–

225
261
486
6,254
$ 8,002

$ (78)
(52)

–
–
(130)
–
–
–
(2,249 )
–
(26,973)
(2,684)
$ (32,036)

$ –
–
(130)
–
(130)
–
(2,249 )

(2,684)
–
(2,684)
(26,973)
$ (32,036)

$ 3,763
5,719

853
606
10,941
42,864
21,989
20,875
–
3,810
–
1,443
$ 37,069

$ 19
1,436
2,066
2,436
5,957
7,249
–

1,747
7,123
8,870
14,993
$ 37,069

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Balance Sheets

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

and other, less allowances

May 31, 2014 (As Adjusted)

Parent

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations

Consolidated

$ 1,756
2

59
–
1,817
28
22
6
–
–
22,148
2,088
$ 26,059

$ –
55
2
405
462
4,487
3,686

–
2,147
2,147
15,277
$ 26,059

$ 441
4,338

674
501
5,954
38,303
19,899
18,404
2,366
1,552
3,745
747
$ 32,768

$ 1
1,042
1,530
1,444
4,017
249
–

4,059
3,230
7,289
21,213
$ 32,768

$ 861
1,151

60
21
2,093
2,360
1,220
1,140
1,320
1,238
–
250
$ 6,041

$ –
180
620
214
1,014
–
–

93
254
347
4,680
$ 6,041

$ (150)
(31)

–
–
(181)
–
–
–
(3,686)
–
(25,893)
(2,038)
$ (31,798)

$ –
–
(181)
–
(181)
–
(3,686)

(2,038)
–
(2,038)
(25,893)
$ (31,798)

$ 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 STATEMENTS
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
Impairment and other charges
Retirement plans mark-to-market adjustment
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, 2015

Parent
$ –

Guarantor
Subsidiaries
$ 39,420

Non-guarantor
Subsidiaries
$ 8,414

Eliminations
$ (381)

Consolidated
$ 47,453

106
–
5
1
–
1
–
–
(450)
337
–
–

1,050
(247)
253
(6)
1,050
–
$ 1,050
$ 1,053

14,626
5,802
2,322
2,370
3,632
1,949
276
2,075
117
4,946
38,115
1,305

337
23
(265)
(32)
1,368
390
$ 978
$ 929

2,378
2,878
360
240
88
149
–
115
333
1,311
7,852
562

–
3
12
19
596
187
$ 409
$ 121

–
(197)
(5)
–
–
–
–
–
–
(179)
(381)
–

(1,387)
–
–
–
(1,387)
–
$ (1,387)
$ (1,387)

17,110
8,483
2,682
2,611
3,720
2,099
276
2,190
–
6,415
45,586
1,867

–
(221)
–
(19)
1,627
577
$ 1,050
$ 716

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
Retirement plans mark-to-market adjustment
Intercompany charges, net
Other

Year Ended May 31, 2014 (As Adjusted)

Parent
$ –

Guarantor
Subsidiaries
$ 38,088

Non-guarantor
Subsidiaries
$ 7,820

Eliminations
$ (341)

Consolidated
$ 45,567

99
–
5
1
–
1
–
(209 )
103
–
–

2,324
(167)
172
(5)
2,324
–
$ 2,324
$ 2,248

13,936
5,374
2,282
2,379
4,460
1,734
13
(125)
4,823
34,876
3,212

412
16
(194)
(14)
3,432
1,141
$ 2,291
$ 2,294

2,136
2,796
340
207
97
127
2
334
1,178
7,217
603

–
9
22
4
638
193
$ 445
$ 417

–
(159)
(5)
–
–
–
–
–
(177)
(341)
–

(2,736)
–
–
–
(2,736)
–
$ (2,736)
$ (2,736)

16,171
8,011
2,622
2,587
4,557
1,862
15
–
5,927
41,752
3,815

–
(142)
–
(15)
3,658
1,334
$ 2,324
$ 2,223

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statements of Comprehensive Income

Year Ended May 31, 2013 (As Adjusted)

Parent
$ –

Guarantor
Subsidiaries
$ 37,073

Non-guarantor
Subsidiaries
$ 7,543

Eliminations
$ (329)

Consolidated
$ 44,287

103
–
5
1
–
1
21
–
(227)
96
–
–

2,716
(108)
113
(5)
2,716
–
$ 2,716
$ 2,644

13,877
4,839
2,198
2,200
4,650
1,791
639
(1,335)
(329)
4,565
33,095
3,978

245
42
(131)
(20)
4,114
1,416
$ 2,698
$ 2,697

2,075
2,574
324
185
96
117
–
(33)
556
1,193
7,087
456

–
5
18
(10 )
469
206
$ 263
$ 314

–
(141)
(6)
–
–
–
–
–
–
(182)
(329)
–

(2,961)
–
–
–
(2,961)
–
$ (2,961)
$ (2,961)

16,055
7,272
2,521
2,386
4,746
1,909
660
(1,368)
–
5,672
39,853
4,434

–
(61)
–
(35)
4,338
1,622
$ 2,716
$ 2,694

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 provided by (used in) financing activities
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

Parent
$ (727 )

(1)
(1,429 )
–
(1,430)

1,431
–
–
–
2,491
320
51
(227)
(1,254)
(27)
2,785
(1 )
627
1,756
$ 2,383

Year Ended May 31, 2015

Guarantor
Subsidiaries
$ 5,446

Non-guarantor
Subsidiaries
$ 575

Eliminations
$ 72

Consolidated
$ 5,366

(4,139)
–
42
(4,097)

(1,502)
267
68
(1)
–
–
–
–
–
(105)
(1,273)
(30)
46
441
$ 487

(207)
–
(18 )
(225)

71
(267)
(68)
(4)
–
–
–
–
–
105
(163)
(77 )
110
861
$ 971

–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
72
(150)
$ (78)

(4,347)
(1,429)
24
(5,752)

–
–
–
(5)
2,491
320
51
(227)
(1,254)
(27)
1,349
(108)
855
2,908
$ 3,763

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 issuances
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

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 issuance
Proceeds from stock issuances
Excess tax benefit on the exercise of stock options
Dividends paid
Purchase of treasury stock
Other, net
Cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

Year Ended May 31, 2013

Parent
$ 247

Guarantor
Subsidiaries
$ 3,936

Non-guarantor
Subsidiaries
$ 486

Eliminations
$ 19

Consolidated
$ 4,688

(3)
–
–
(3)

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

(3,029)
–
49
(2,980)

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

(343)
(483 )
6
(820)

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

–
–
–
–

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2015 and 2014, and the related consolidated
statements of income, comprehensive income, changes in stockholders’ investment and cash flows for each of the three years in the period ended
May 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of FedEx
Corporation at May 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period
ended May 31, 2015, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, the Company has elected to change its method of accounting for actuarial gains
and losses and the calculation of expected return on plan assets related to its pension and other postretirement benefit plans in 2015.

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, 2015, based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated July 14, 2015 expressed an
unqualified opinion thereon.

Memphis, Tennessee
July 14, 2015

80
80

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, 2015. This information should be read in conjunction with the Consolidated
Financial Statements, MD&A and other financial data appearing elsewhere in this Annual Report.

2015(1) (5)

2014(5)

2013(2) (5)
As Adjusted

2012(3) (5)

2011(4) (5)

Operating Results
Revenues
Operating income (loss)
Income (loss) before income taxes
Net income (loss)

Per Share Data
Earnings (loss) 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

$ 47,453
1,867
1,627
1,050

$ 3.70
$ 3.65
283
287
$ 0.80

$ 20,875
37,069
7,249
14,993

$ 45,567
3,815
3,658
2,324

$ 7.56
$ 7.48
307
310
$ 0.60

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

$ 44,287
4,434
4,338
2,716

$ 8.61
$ 8.55
315
317
$ 0.56

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

$ 42,680
(399)
(444)
(220)

$ (0.70)
$ (0.70)
315
317
$ 0.52

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

$ 39,304
2,115
2,002
1,289

$ 4.09
$ 4.06
315
317
$ 0.48

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

Other Operating Data
FedEx Express aircraft fleet
(1) Results for 2015 include impairment and related charges of $276 million ($175 million, net of tax, or $0.61 per diluted share) resulting from the decision to permanently retire and adjust the
retirement schedule of certain aircraft and related engines. See Note 1 to the accompanying consolidated financial statements. Additionally, results for 2015 include a charge of $197 million
($133 million, net of tax, or $0.46 per diluted share) in the fourth quarter to increase the legal reserve associated with the settlement of a legal matter at FedEx Ground to the amount of the
settlement. See Note 18 to the accompanying consolidated financial statements.

647

660

647

650

688

(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.

(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.

(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.

(5) Results include mark-to-market losses of $2.2 billion ($1.4 billion, net of tax, or $4.81 per diluted share) in 2015 and $15 million ($9 million, net of tax, or $0.03 per diluted share) in 2014, a gain
of $1.4 billion ($835 million, net of tax, or $2.63 per diluted share) in 2013 and losses of $3.9 billion ($2.5 billion, net of tax, or $7.76 per diluted share) in 2012 and $555 million ($344 million, net
of tax, or $1.09 per diluted share) in 2011 from actuarial adjustments to pension and postretirement healthcare plans related to the measurement of plan assets and liabilities. See Note 1 and
Note 13 of the accompanying consolidated financial statements.

81 81

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

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*)
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) (4)
President and Chief Executive Officer
J. C. Penney Company, Inc.
Apparel and home furnishings retailer

Kimberly A. Jabal(1) (3)
Chief Financial Officer
Path, Inc.
Social networking company

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

Gary W. Loveman(1) (4)
Chairman
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 CORPORATION
EXECUTIVE 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

David L. Cunningham, Jr.
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
Michael L. Ducker
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

Todd R. Peters
President and Chief Executive Officer
GENCO

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
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 28, 2015,
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 10, 2015, there were 12,601 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 2015 and 2014:

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

FY2015
High
Low
Dividend
FY2014
High
Low
Dividend

$ 155.31
138.30
0.20

$ 113.34
94.60
0.15

$ 179.79
148.37
0.20

$ 140.55
106.38
0.15

$ 183.51
163.57
0.20

$ 144.39
128.17
0.15

$ 178.79
163.60
0.20

$ 144.85
130.64
0.15

FINANCIAL INFORMATION: Copies of FedEx Corporation’s Annual
Report on Form 10-K, other documents ﬁ led with the Securities and
Exchange Commission (SEC) and other ﬁ nancial and statistical
information are available through the Investor Relations page of our
website at http://investors.fedex.com. The information FedEx posts
on its Investor Relations website could be deemed to be material
information. FedEx encourages investors, the media and others
interested in the company to visit this website from time to time,
as information is updated and new information is posted. Company
documents ﬁ led electronically with the SEC can also be found at the
SEC’s website at www.sec.gov. You will be mailed a copy of the
Form 10-K upon request to: FedEx Corporation Investor Relations,
942 South Shady Grove Road, Memphis, Tennessee 38120,
(901) 818-7200, e-mail: ir@fedex.com.

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

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

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

SHAREOWNER ACCOUNT SERVICES: Computershare Investor Services,
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 website at
www.computershare.com. This plan provides an alternative to
traditional retail brokerage methods of purchasing, holding and
selling FedEx common stock. This plan also permits shareowners to
automatically reinvest their dividends to purchase additional shares
of FedEx common stock.

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

EQUAL EMPLOYMENT OPPORTUNITY: Our greatest asset is our
people. We are committed to providing a workplace where our
employees and contractors feel respected, satisﬁ ed and appreciated.
Our policies are designed to promote fairness and respect for
everyone. We hire, evaluate and promote employees, and engage
contractors, based on their skills and performance. With this in mind,
we will not tolerate certain behaviors. These include harassment,
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® certiﬁ ed
paper containing 10% recycled PCW ﬁ ber. 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.

> 141 trees preserved for the future

> 63 million BTUs of energy conserved

> 6,481 kWh of electricity offset

> 12,068 pounds of greenhouse gas reduced

> 65,454 gallons of water waste eliminated

> 4,382 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 proﬁ ler.

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S

Supplies
bring
urgent
relief to
Nepal.

The Nepal earthquake in April claimed
more than 8,000 lives, injured thousands
more, devastated a half million homes and
obliterated many irreplaceable historic
buildings. It also ripped apart the fabric of
everyday life, destroying roads, schools,
stores and hospitals.

It took only seconds for disaster to strike.
Within hours, FedEx team members began
working with relief agencies Direct Relief,
Heart to Heart International and Water
Missions International to provide badly
needed supplies. “We combined the reach
of our networks and the collective expertise
of many groups to aid the people of Nepal,”
says Paul Tronsor, managing director for
FedEx Express global operations control.

With the help of more than 200 FedEx team
members, FedEx chartered flights delivered
178,000 pounds of supplies, including:

Water treatment systems, water
chlorinators and storage tanks designed
to serve 430,000 people a day.

Three daily meals for almost 1,700 people
for a month.

Maternity and infant supplies for 5,000
expectant mothers.

Learn more about our global citizenship
programs 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 84 for more details.