FedEx Annual Report 2018

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FY2018 Annual Report · FedEx

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SUPERIOR NETWORKS
Power Performance

FEDEX ANNUAL REPORT 2018

Our team members and networks propel FedEx forward
$65.5B

$4.6B

$4.2B

30%

in revenue — 9% growth
from FY17

record net income

committed to team
members and hub
modernization following
the U.S. Tax Cuts and
Jobs Act

increase in quarterly
dividend for FY19

ON THE COVER: The FedEx World Hub in Memphis,
Tennessee, is the core of our global network and home

to FedEx Express, the world’s largest all-cargo airline.

We’re planning a multiyear program to modernize

the facility to increase efficiency.

LETTER FROM THE CHAIRMAN

Frederick W. Smith
Chairman and CEO

TO OUR SHAREOWNERS,

We are very proud of the solid financial and operational results FedEx delivered in fiscal 2018,
and I extend a well-deserved “Bravo Zulu” — the naval signal for a job well done — to our
more than 425,000 team members worldwide for their dedication to the Purple Promise
which simply states “I will make every FedEx experience outstanding.”

It was a year of opportunities and challenges — anticipated and unexpected — and FedEx
emerged more competitive than ever.

Our consolidated financial results attest to our successful corporate strategy of managing
FedEx as a portfolio of business solutions, allowing us to respond to marketplace changes
quickly and efficiently as we continue to provide outstanding service to our customers.

> FedEx Express posted solid revenue growth and is on track to reach our target to

improve operating income by $1.2 billion to $1.5 billion in fiscal 2020 versus fiscal 2017
assuming moderate economic growth, stability in global trade, and current accounting
rules and tax laws.

> Strategic investments in FedEx Ground automation and capacity to handle both

business-to-business and e-commerce growth are paying off. FedEx Ground revenue
share continues to grow and margins are rebounding.

> FedEx Freight margins are steadily increasing due to an improved industrial business

environment and a better balance of volume, pricing, and capacity.

> Our leading-edge technologies now allow customers to conveniently pick up, drop off,

or ship at more than 50,000 locations nationwide.

FedEx delivered another holiday shipping season of record volumes and high service levels
due to our flexible networks and disciplined year-round planning. Our successful ability to
handle average daily volumes that can double during peak is a feat no other company can
accomplish on a global scale as well as FedEx can.

I want to recognize our team members for delivering critical relief in the wake of devastating
hurricanes, floods, earthquakes, and wildfires in FY18. Our logistics expertise helped connect
organizations, communities, and individuals, and we quickly transported aid in response to
the unprecedented scope of these disasters.

Also remarkable was the job the FedEx Express team did to manage through the crippling
cyberattack which affected our newly acquired TNT Express subsidiary.

WHAT CONNECTS US MAKES US STRONGER

We successfully delivered humanitarian supplies, served customers, overcame challenges, and
executed our business strategy because of two unique competitive advantages:

> It is next to impossible to duplicate our global network which includes the world’s largest

all-cargo airline and connects 92 percent of the world’s GDP in 1–2 business days. More than
425,000 team members, 670 aircraft, 5,000 hubs and facilities, and 180,000 motorized
vehicles pick up and deliver more than 14 million shipments per day. (See fedex.com/dream.)

> FedEx team members are committed to the Purple Promise. It sets the bar for excellence,
helping earn the trust and loyalty of our customers and making FedEx one of the most
admired companies in the world and a great place to work. The Purple Promise tells you
everything you need to know about what we expect out of our people every day.

FEDEX GROUND AUTOMATION AND EXPANSION: Focused on e-commerce growth

Hub expansion and technology investments make FedEx Ground the most highly automated
ground network in North America, if not the world, and position us for greater long-term
success. Automation and added capacity keep us ahead of the competition in terms of handling
e-commerce growth and managing costs while increasing safety and productivity. We continue
to gain revenue market share, and our focus is on maximum utilization of our investments and
managing our existing capacity to moderate capital spending.

Now with over 130 automated facilities, our unmatched FedEx Ground network is better able to
flex up to accommodate holiday volumes, and we can reroute and sort packages at any hub to
better serve customers in weather contingencies and other unexpected situations.

To boost productivity, we are further implementing robotics technology so team members can
focus on jobs requiring higher skills. Self-driving tugs are moving large or overweight packages
through hubs, and we’re testing automated devices that can unload shipments from our trucks.

and accumulate
hours as a part-time
flight instructor.
Purple Runway will
help get the word
out — flying is a
great career, and we
need more pilots.”

Pilots
of the
future

Kelly Williams Black
knew as soon as
she took her first
flight as a teenager:
she wanted to be
a commercial pilot
and see the world.
Today she’s a FedEx
first officer after
earning her aviation
degree and ratings
at Delta State Uni-
versity in Cleveland,
Mississippi. FedEx
and other airlines
are looking for more
aviators like Black
because rising costs
of education, grow-
ing retirements, and
industry expansion
are combining to
create a serious pilot
shortage.

To address the
challenge, FedEx
Express launched
Purple Runway, an
innovative program
designed to create a
new career path for
pilots. We’re helping
two operators
of feeder aircraft
recruit and retain
pilots with the goal
of them eventually
qualifying for
opportunities
at FedEx.

Feeder aircraft are
part of the FedEx
global linehaul net-
work in 45 countries
not served by direct
FedEx Express® air
service. Flying feeder
planes, such as the
ATR 72-600F and
Cessna SkyCourier
C-408 aircraft we’ve
agreed to purchase,
will help pilots gain

the flight hours
required to advance
their careers.

We plan to roll
out a collaborative
program with select
colleges and uni-
versities, like Delta
State, to promote
aviation careers.
Purple Runway will
also feature student
scholarships funded
by FedEx. Tackling
the pilot shortage
will not only benefit
FedEx but also the
entire airline indus-
try and traveling
public.

“I wouldn’t be
flying for FedEx
without the training
I received at Delta
State,” Black says. “I
was able to earn my
commercial aviation
degree, my ratings,

LETTER FROM THE CHAIRMAN 00
AIRCRAFT FLEET MODERNIZATION: Innovation and efficiency

We are continuing our very successful aircraft fleet modernization strategy. By replacing
older aircraft with newer models, such as the Boeing 777F which burns 18 percent less
fuel per pound of payload and produces 18 percent fewer emissions compared with the
MD-11 it replaces, we save fuel and reduce emissions while enhancing operational flexibility
and improving operating margins. Last year, for example, the aircraft fleet modernization
program saved 89.3 million gallons of jet fuel, avoiding more than 860,000 metric tons of
CO2e (carbon dioxide equivalent) emissions.

This year, a Boeing 777F built for FedEx Express was our first plane to fly 100 percent on
biofuel. Through modernization, FedEx remains the world’s largest, fastest, and most innovative
all-cargo aircraft fleet.

During FY18, we launched an industry-leading pilot-development plan, Purple Runway, designed
to address the anticipated shortage of aviators in coming years.

To serve smaller markets more effectively, we’ve agreed to purchase 30 ATR 72-600F turboprop
freighters with large cargo doors customized for FedEx. We worked closely with ATR which
developed this new aircraft with special features to help us grow our business, especially in the
air freight market where shipments are larger and heavier.

In the same vein, for smaller markets, we have ordered 50 newly designed Cessna SkyCourier
C-408 twin turboprops. These aircraft have nearly double the volume capacity of our current
single-engine Cessnas. The C-408 will have larger cargo doors to support seamless freight
movement throughout our air network connecting with our larger jet transports.

635K

NEW COMMERCIAL
PILOTS

needed industrywide
by 2037*

1,500

FLIGHT HOURS

required to be a
commercial pilot
(increased from
250 in 2009)

* Source: 2018 Boeing

Pilot & Technician Outlook

After delivering more than $11 million in

relief aid to victims of Hurricane Irma, we

used a returning FedEx aircraft to transport

more than 150 dogs and cats to no-kill

shelters in California and Washington.

Help
and hope
delivered

Three hurricanes,
three earthquakes,
wildfires, and floods
laid waste to com-
munities in North
America during
FY18. The FedEx
network of planes,
vehicles, and hubs
repeatedly mobilized
to deliver urgently
needed medicines,
medical supplies,
hygiene kits, gen-
erators, and other
relief in addition to
the more than
14 million packages
it handles daily.

FedEx even
responded to
pet emergencies
when shelters
became quickly
overcrowded due
to displaced dogs
and cats.

In spite of the num-
ber of disasters
coming on the
heels of each
other, FedEx was
well-prepared. We
use our logistics
and planning
capabilities, as well
as our shipping
expertise and
long-standing
relationships with
relief organizations,
to work together
seamlessly when

disaster strikes.
For example,
humanitarian
aid organization
International
Medical Corps
keeps its
emergency
field hospital
components in a
warehouse near
the Memphis
World Hub. The
FedEx network
can deploy the
hospital anywhere
in the world within
48 hours. “Speed
saves lives,” says
Ian Rodgers,
director of
emergency
response for
the nonprofit
philanthropy.

“FedEx helps us
get there as fast
as possible and
respond in the
way that we need
to respond.”

In addition to
shipping and
logistics, FedEx
volunteers
deliver the Purple
Promise to our
communities by
providing hands-on
help with rescues,
cleanup, and
rebuilding. At
FedEx, we do
what we do best
for people, and
sometimes pets,
who need it
the most.

FedEx response to the
2017 North America disasters

>$3M

FedEx cash and
in-kind shipping
donations

70K

Meals delivered
to Florida and
Houston

>6.5K

TONS

Relief supplies
delivered to
Puerto Rico,
Mexico, and
Florida

>150

Shelter animals
transported from
Florida to the
Pacific Northwest

LETTER FROM THE CHAIRMAN 00
LETTER FROM THE CHAIRMAN

SPECIALTY SERVICES: Streamlined for seamless customer solutions

Customers increasingly seek specialized logistics and e-commerce solutions to compete in today’s
marketplace: Think temperature-controlled shipping for healthcare businesses, customs clearance,
or e-commerce fulfillment. We’ve combined our specialty operating companies within FedEx Trade
Networks to make it easier and more efficient for customers to achieve their business objectives.

The specialized FedEx companies under the new organization offer a wide range of air cargo and
ocean freight services; inventory warehousing and distribution; e-commerce fulfillment; customs
brokerage and trade facilitation; secure payment technology; and forward logistics and 3D printing.

To support rapid e-commerce growth worldwide, we recently acquired global e-commerce
transportation solutions provider P2P which offers unique low-cost delivery options leveraging its
relationships with private, postal, retail, and clearance providers in over 200 countries and territories.

TECHNOLOGY: More efficient, convenient, and secure

Technology and information have always been the backbone of FedEx customer solutions. It is
essential we operate on the edge of new technology, and in this spirit, FedEx joined the Blockchain
in Transportation Alliance (BiTA) to explore this new technology within the logistics sector. We’re
confident that blockchain has the potential to significantly improve worldwide supply chains.

It is significant that a FedEx proposal was among 10 accepted by the U.S. Transportation Department
to assess how to regulate drones and integrate them safely into U.S. air space. We plan to employ
drones to deliver aircraft parts and inspect aircraft and runways at the Memphis World Hub.

FedEx stands at the nexus of virtual and physical networks, a crucial intersection for the success
of e-commerce deliveries. As the industry grows and customer expectations for convenience and
security increase, we continue to expand our technology capabilities and retail footprint which
work hand in hand.

FedEx Delivery Manager® makes it simple to track, schedule delivery, reroute packages, and more,
supporting businesses and consumers alike. It is now available in 42 countries covering 74 percent
of the world’s GDP. To make returns easier for e-tailers, our new FedEx Returns Technology
allows customers to initiate returns online, view return status, and receive early credits for returns
at FedEx Office locations.

We continue to grow our retail network to make it more convenient for consumers to ship and
have shipments held for pickup. Now U.S. consumers can pick up their packages at any of 11,000
convenient, secure locations, including more than 8,000 at well-known retailers such as Walgreens.
Moreover, we’re placing 500 new FedEx Office locations within Walmart stores nationwide. As a
result, 80 percent of the U.S. population is within five miles of a FedEx hold location.

FEDEX FREIGHT SAFETY ADVANCES

As our mission statement notes, safety is our highest priority. Nearly all of our FedEx Freight
linehaul tractors are equipped with advanced safety features, including telematics, collision
mitigation, lane-departure warning, and roll-over stability. We also ordered 20 fully electric Tesla
Semi trucks. These innovative trucks will be equipped with safety technologies such as surround
cameras, automatic emergency braking, and lane-departure warning.

These initiatives support our commitment to improving road safety while also reducing our
environmental impact and fuel costs.

Best wishes to FedEx Freight President and CEO Mike Ducker as he retires. For more than
43 years, Mike answered the call when FedEx asked him to lead in each new opportunity and role.
Whether in Europe, Asia, or the Americas, Mike has been a model of our People-Service-Profit
philosophy. Succeeding Mike is John A. Smith, former senior vice president of operations at
FedEx Freight, who brings more than 32 years of experience in the transportation industry.

LETTER FROM THE CHAIRMAN

TURNING ADVERSITY INTO ADVANTAGE: Accelerated integration

FY18 began with outstanding progress in our base business and in the integration of TNT Express,
our biggest acquisition to date. In late June 2017, however, TNT information-technology systems
were decimated by an unprecedented, nation-state-sponsored cyberattack against Ukraine causing
business and financial damage that lingered for months.

The size and scope of the attack were historic. Most important, however, was the Herculean effort
by determined FedEx team members to mitigate the attack and turn adversity into an advantage.
We did so by accelerating integration, fast-tracking information-technology modernization, and
launching a number of customer-relationship initiatives. The recovery effort was one of the most
remarkable accomplishments I have seen in the history of FedEx. I am pleased to report we are
seeing strong TNT service levels, and the integration is rapidly progressing.

Our everlasting thanks go out to the teams that worked tirelessly around the clock and around
the world to restore the systems and make them more secure, and to our customers for their
trust. I’m confident we will emerge from this monumental challenge stronger than before.

May 2018 marked the second anniversary of the TNT acquisition — two years of extraordinary
collaboration between FedEx Express and TNT team members uniquely strengthened by the
massive cyberattack.

TAX REFORM: Investing in team members and customers

Another historic but much more positive episode for U.S. business and FedEx was the approval
of the U.S. Tax Cuts and Jobs Act which is increasing business investment and expanding GDP.
We are exceptionally proud of the significant role FedEx Tax, Legal, and Government Affairs
team members played in advancing this much-needed tax code modernization which was
essential to improving the competitive landscape for U.S. businesses.

In response to the Act, we announced a $4.2 billion commitment to: 1. Accelerate wage
increases for certain hourly employees, 2. Restore incentive compensation diminished because
of the cyberattack, 3. Strengthen our pension plan, 4. Increase capital investments, including
modernizing and expanding the FedEx Express Memphis and Indianapolis hubs.

These actions reflect our People-Service-Profit philosophy and our commitment to take
advantage of the lower corporate tax rate and the capital expensing provision.

OUR FUTURE IS FOCUSED AND SHAPED BY THE PURPLE PROMISE

It is clear that trust and reliability remain paramount to our customers and are among our most
critical competitive advantages. FedEx team members worldwide earn that trust every day by
delivering the Purple Promise to customers and to communities we serve. This dedication was
again recognized by FORTUNE which included FedEx among its Top Ten World’s Most Admired
Companies and 100 Best Companies to Work For.

In April 2018, FedEx marked its 45th year in operation and climbed to No. 50 on the Fortune 500
list of U.S. companies ranked by total revenues as of Dec. 31, 2017. Total revenue for FY18 was
$65.5 billion. We are justifiably proud, but looking forward, we know FedEx must remain strategic,
nimble, and flexible as global markets evolve.

FedEx is committed to increasing our earnings, margins, cash flows, and returns while investing
for long-term success. We believe our shareowners, team members, and customers will reap
the benefits of this approach by creating sustainable, differentiated capabilities.

In all my years at FedEx, I have never been so optimistic, so sure of our strategy and our ability
to deliver an exciting future. It’s going to be a great time for everyone who wants to be involved
in this fantastic enterprise called FedEx.

Frederick W. Smith, Chairman and CEO

Investing in our people and our network

FedEx exists because of our extraordinary team members and the unequaled global network
they’ve built. That’s why we committed more than $4.2 billion following the passage of the
Tax Cuts and Jobs Act to ensure we can deliver the service and solutions our customers
expect from FedEx far into the future.

COMPENSATION

PENSIONS

NETWORK

>$200M

We increased
compensation by
advancing 2018 pay
increases to certain
hourly team members
6 months early, and
we increased
performance-based
bonuses for salaried
personnel.

$1.5B

We made a voluntary
contribution to our
U.S. pension plans —
among the best funded
in the U.S. Our primary
pension plans are
fully funded under the
Employee Retirement
Income Security Act of
1974 (ERISA).

$2.5B

We’re modernizing
and expanding
FedEx Express hubs
in Memphis and
Indianapolis. At the
Memphis World Hub
— ranked second in
the world for total
air cargo traffic —
we’ll be investing
in new sort systems
and automation, and

improving the quality
of work life for our
team members.
We’ll also significantly
expand the Indianapolis
hub and install new
equipment.

LETTER FROM THE CHAIRMAN 00

At the FedEx Ground hub in
Greensboro, North Carolina,
self-driving tuggers move large
or overweight packages, and
automated devices that can
unload trucks are being tested.

Automation
helps
shoulder
the load

As e-commerce grows,
so do the sizes of the
products people buy.
Oversize items such as
trampolines, furniture,
and canoes are the
fastest-growing portion
of FedEx Ground
package volume. And
they are tough to fit
on a conveyor belt.

Meet Jefe, one of
several self-driving
tuggers programmed
to transport the bulky

stuff safely and
efficiently around the
FedEx Ground hub
in Greensboro, North
Carolina. Packed with
laser-based sensors,
cameras, and navigation
tools, the tuggers can
“see” their working
environment. They can
spot obstacles, navigate
around them, and even
find another route if
needed. Automating
simple, repetitive
tasks such as package
handling means team
members can focus
on high-value skilled
work that can further
their careers.

Tuggers are part of a
long-term strategy to

continue improving
efficiency and reliability.
The Greensboro hub,
like many FedEx Ground
facilities, is highly
automated already,
allowing it to process
large volumes of
packages quickly and
efficiently. This is a
competitive advantage,
especially during the
holiday season.

Other leading-edge
technologies being
tested and piloted
across FedEx are:

• Automation that can
unload shipments
from our trucks
and onto sortation
conveyor belts.

• Mobile robots in

FedEx Trade Networks
facilities that transport
items efficiently
and safely.

• Sensors on our airport
tugs to help drivers
avoid collisions during
heavy operations.

• On-highway truck

platooning of wirelessly
connected tractors
pulling double
28-foot trailers while
maintaining safety
and improving
fuel efficiency.

8
8

FINANCIAL HIGHLIGHTS

(in millions, except earnings per share)
Operating Results
Revenues
Operating income
Operating margin
Net income
Diluted earnings per common share
Average common and common equivalent shares outstanding
Cash provided by operating activities
Capital expenditures

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

Comparison of Five-Year Cumulative Total Return*

$300

$250

$200

$150

$100

5/13

5/14

5/15

5/16

5/17

5/18

FedEx Corporation

S&P 500

Dow Jones Transportation Average

* $100 invested on 5/31/13 in stock or index, assuming reinvestment of dividends. Fiscal year
ended May 31.

2018(1)(2)

2017(2)(3)

Percent
Change

$ 65,450
4,870

$ 60,319
5,037

7.4%

8.4%

4,572
16.79
272
4,674
5,663

$ 3,265
52,330
16,585
19,416

2,997
11.07
270
4,930
5,116

3,969
48,552
14,931
16,073

9
(3 )
(100)bp
53
52
1
(5 )
11

(18)
8
11
21

(1) Results for 2018 include TNT Express integration expenses and restructuring
charges of $477 million ($372 million, net of tax, or $1.36 per diluted share);
and tax benefits of $2.1 billion ($7.71 per diluted share), which includes
benefits of $1.6 billion related to the Tax Cuts and Jobs Act as follows:
a provisional benefit of $1.15 billion ($4.22 per diluted share) for the
remeasurement of our net U.S. deferred tax liability for lower tax rates;
a benefit of $204 million ($0.75 per diluted share) from an incremental
pension contribution made in the third quarter and deductible against
prior year taxes at 35%; and a benefit of approximately $265 million
($0.97 per diluted share) for the phase-in of the reduced tax rate applied
to 2018 earnings. The remaining 2018 tax benefits include a net benefit of
$255 million ($0.94 per diluted share) from corporate structuring transactions
as part of the ongoing integration of FedEx Express and TNT Express and
a benefit of $225 million ($0.83 per diluted share) from foreign tax credits
associated with distributions to the U.S. from foreign operations. In addition,
2018 results include $380 million ($379 million, net of tax, or $1.39 per
diluted share) of goodwill and other asset impairment charges related to
FedEx Supply Chain and $8 million ($6 million, net of tax, or $0.02 per diluted
share) of legal charges related to certain pending U.S. Customs and Border
Protection (“CBP”) matters involving FedEx Trade Networks.

(2) Results include mark-to-market retirement plan adjustment gains of

$10 million ($9 million, net of tax, or $0.03 per diluted share) in 2018 and
$24 million ($6 million, net of tax, or $0.02 per diluted share) in 2017.

(3) Results for 2017 include TNT Express integration expenses and restructuring
charges of $327 million ($245 million, net of tax, or $0.91 per diluted share);
charges for legal reserves related to certain pending CBP matters involving
FedEx Trade Networks for $39 million ($24 million, net of tax, or $0.09 per
diluted share); and the settlement of and certain expected losses relating to
independent contractor litigation matters at FedEx Ground in the amount of
$22 million ($13 million, net of tax, or $0.05 per diluted share).

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

OVERVIEW OF FINANCIAL
SECTION

The financial section of the FedEx Corporation (“FedEx” or the
“Company”) 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 and 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, particularly our detailed discussion of
risk factors included in this MD&A.

The following MD&A was included in FedEx’s fiscal 2018
Annual Report on Form 10-K that was filed with the Securities
and Exchange Commission on July 16, 2018. For any material
updates to the information included in this MD&A, please refer
to the Company’s press releases and filings with the Securities
and Exchange Commission.

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

> Results of operations includes an overview of our consolidated 2018
results compared to 2017 results, and 2017 results compared to 2016
results. This section also includes a discussion of key actions and
events that impacted our results, as well as our outlook for 2019.
> The overview is followed by a financial summary and analysis
(including a discussion of both historical operating results and our
outlook for 2019) for each of our 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 most important to understanding 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”), including TNT Express B.V. (“TNT
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 Corporation (“FedEx Freight”), a leading U.S. provider
of less-than-truckload (“LTL”) freight transportation. These companies
represent our major service lines and, along with FedEx Corporate
Services, Inc. (“FedEx Services”), constitute our reportable segments.

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

In 2018, we reported FedEx Express and TNT Express as one segment.
This new segment is the result of combining the financial information of
the FedEx Express and TNT Express segments (previously referred to as
the FedEx Express group) as part of the operational integration of these
two businesses. As integration activities have progressed, the FedEx
Express and TNT Express businesses have lost their historical discrete
financial profiles, as the businesses are being combined. Therefore,
discrete financial information for FedEx Express and TNT Express does
not exist in a manner to evaluate performance and make resource
allocation decisions. In addition, this new reporting structure aligns with
our management reporting structure and our internal financial reporting
and compensation plans.

Effective March 1, 2018, we realigned our specialty logistics and
e-commerce solutions in a new organizational structure under FedEx
Trade Networks, Inc. (“FedEx Trade Networks”). The realignment allows
us to improve our ability to deliver the capabilities of our specialty
services companies to customers. The new organization includes FedEx
Trade Networks Transport & Brokerage, Inc. (“FedEx Trade Networks
Transport & Brokerage”), FedEx Cross Border Technologies, Inc. (“FedEx
Cross Border”), FedEx Supply Chain Distribution System, Inc. (“FedEx
Supply Chain”), FedEx Custom Critical, Inc. (“FedEx Custom Critical”)
and FedEx Forward Depots, Inc. (“FedEx Forward Depots”). FedEx Trade
Networks operating segment results are included in “Corporate, other
and eliminations” in our segment reporting.

Prior period segment results for all of our transportation segments have
been recast to conform to the current year presentation for these
organizational structure changes.

The key indicators necessary to understand our operating results
include:

> the overall customer demand for our various services based on
macroeconomic factors and the global economy;
> the volumes of transportation services provided through our networks,
primarily measured by our average daily volume and shipment weight
and size;
> 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 shipment or
hundredweight for LTL freight shipments);
> our ability to manage our cost structure (capital expenditures and
operating expenses) to match shifting volume levels; and
> the timing and amount of fluctuations in fuel prices and our ability to
recover incremental fuel costs through our fuel surcharges.

Many 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 volumes. The line item “Other operating
expenses” predominantly includes costs associated with outside service

contracts (such as security, facility services and cargo handling),
insurance, professional fees, taxes and licenses, and uniforms.

Except as otherwise specified, references to years indicate our fiscal
year ended May 31, 2018 or ended May 31 of the year referenced and
comparisons are to the prior year. References to our transportation
segments include, collectively, the FedEx Express segment, the FedEx
Ground segment and the FedEx Freight segment.

RESULTS OF OPERATIONS AND OUTLOOK

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

Consolidated revenues
Operating income:
FedEx Express segment
FedEx Ground segment
FedEx Freight segment
Corporate, other and eliminations
Consolidated operating income(4)
Operating margin:
FedEx Express segment
FedEx Ground segment
FedEx Freight segment
Consolidated operating margin(4)
Consolidated net income(5)
Diluted earnings per share

2018(1)

$ 65,450

2017(2)
$ 60,319

2016(3)
$ 50,365

2018/2017
9

2017/2016
20

Percent Change

2,578
2,605
517
(830)
4,870

7.1%
14.2%
7.6%
7.4%

2,769
2,279
390
(401)
5,037

8.2%
13.8%
6.4%
8.4%

2,485
2,240
421
(2,069)
3,077

9.7%
14.9%
7.2%
6.1%

$ 4,572
$ 16.79

$ 2,997
$ 11.07

$ 1,820
$ 6.51

(7)
14
33
(107)
(3)

(110)bp
40 bp
120 bp
(100)bp
53
52

11
2
(7)
81
64

(150)bp
(110)bp
(80)bp
230 bp
65
70

The following table shows changes in revenues and operating income by reportable segment for 2018 compared to 2017 and 2017 compared to
2016 (in millions):

FedEx Express segment
FedEx Ground segment
FedEx Freight segment
FedEx Services segment
Corporate, other and eliminations

Year-over-Year Changes

Revenues

Operating Income

2018/2017
$ 2,348
1,892
742
29
120
$ 5,131

2017/2016
$ 8,271
1,452
245
28
(42)
$ 9,954

2018/2017(1)(2)
$ (191)
326
127
–
(429)
$ (167)

2017/2016(2)(3)
$ 284
39
(31)
–
1,668
$ 1,960

(1) Operating income in 2018 includes TNT Express integration expenses of $477 million and goodwill and other asset impairment charges associated with FedEx Supply Chain of $380 million.
(2) Operating income in 2017 includes TNT Express integration expenses of $327 million. Operating income for 2017 also includes $39 million of charges for legal reserves related to certain pending
U.S. Customs and Border Protection matters involving FedEx Trade Networks and $22 million of charges in connection with the settlement of and certain expected losses relating to independent
contractor litigation matters at FedEx Ground.

(3) Operating income in 2016 includes provisions related to independent contractor litigation matters at FedEx Ground for $256 million and expenses related to the settlement of a U.S. Customs and

Border Protection notice of action involving FedEx Trade Networks in the amount of $69 million, in each case net of recognized immaterial insurance recovery. In addition, operating income includes
transaction, financing and integration-planning expenses related to our TNT Express acquisition, as well as the immaterial financial results of TNT Express from the date of acquisition, aggregating
$132 million during 2016. These expenses are predominantly included in “Corporate, other and eliminations.”

(4) Operating income includes a gain of $10 million in 2018, a gain of $24 million in 2017 and a loss of $1.5 billion in 2016 associated with our retirement plans mark-to-market accounting further

discussed in Note 13 of the accompanying consolidated financial statements.

(5) Consolidated net income in 2018 includes the following benefits attributable to the enactment of the Tax Cuts and Jobs Act: a provisional benefit of $1.15 billion related to the remeasurement
of our net U.S. deferred tax liability; a one-time benefit of $204 million from a $1.5 billion contribution to our U.S. Pension Plans; and a benefit of approximately $265 million related to a lower
statutory income tax rate on 2018 earnings. In addition, we recognized a net benefit of $255 million from corporate structuring transactions as part of the ongoing integration of FedEx Express
and TNT Express and a $225 million benefit from foreign tax credits associated with distributions to the U.S. from our foreign operations.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Overview
Our operating results declined in 2018 as a result of the NotPetya
cyberattack at TNT Express, a fourth quarter goodwill impairment
charge at FedEx Supply Chain and increased TNT Express integration
expenses. These negative factors were partially offset by increased
yields, volume growth at FedEx Ground and FedEx Freight and a
favorable net impact of fuel at all of our transportation segments.

Net income for 2018 includes a provisional benefit of $1.15 billion
($4.22 per diluted share) specifically related to the remeasurement
of our net U.S. deferred tax liability as a result of the enactment of
the Tax Cuts and Jobs Act (“TCJA”). We also recognized a one-time
benefit of $204 million ($0.75 per diluted share) from a $1.5 billion
contribution to our tax-qualified U.S. domestic pension plans (“U.S.
Pension Plans”) in 2018 and a benefit of approximately $265 million
($0.97 per diluted share) related to a lower statutory income tax
rate on 2018 earnings. In addition, we recognized a net benefit of
$255 million ($0.94 per diluted share) from corporate structuring
transactions as part of the ongoing integration of FedEx Express and
TNT Express. We also recognized a $225 million benefit ($0.83 per
diluted share) from foreign tax credits generated by distributions to
the U.S. from our foreign operations.

During 2018, we announced three major programs valued at more
than $4.2 billion following the passage of the TCJA. We increased
compensation by over $200 million by advancing 2018 annual pay
increases for certain hourly team members and funding increases in
performance-based incentive plans for salaried personnel. In addition,
we made a voluntary contribution of $1.5 billion to our U.S. Pension
Plans in February 2018. Lastly, we announced a more than $2.5 billion
multi-year program to significantly expand the FedEx Express
Indianapolis hub and modernize the FedEx Express Memphis World
Hub. See the “Outlook” section below for further information
regarding our expected capital expenditures for 2019.

On June 27, 2017, the worldwide operations of TNT Express were
significantly affected by the cyberattack known as NotPetya.
Immediately following the attack, contingency plans were
implemented to recover TNT Express operations and communications
systems, and substantially all TNT Express services were fully
restored during the first quarter of 2018. As of the second quarter
of 2018, all of TNT Express’s critical operational systems were fully
restored, critical business data was recovered and shipping services
and solutions were back in place. Our results for 2018 were
negatively impacted by the NotPetya cyberattack by an estimated
$400 million ($1.19 per diluted share) during the first half of the
year, primarily from loss of revenue due to decreased shipments in
the TNT Express network, as well as incremental costs to restore
information-technology systems.

Operating income in 2018 includes a net $10 million gain ($9 million,
net of tax, or $0.03 per diluted share) associated with our fourth
quarter mark-to-market (“MTM”) retirement plans adjustment,
which includes a $210 million charge related to an agreement with
Metropolitan Life Insurance Company to purchase a group annuity
contract. Our 2018 results also include $380 million ($379 million,
net of tax, or $1.39 per diluted share) of goodwill and other asset
impairment charges related to FedEx Supply Chain.

Additionally, we incurred TNT Express integration expenses totaling
$477 million ($372 million, net of tax, or $1.36 per diluted share) in
2018, a $150 million increase from 2017. The integration expenses
are predominantly incremental costs directly associated with the
integration of TNT Express, including professional and legal fees,
salaries and wages, advertising expenses and travel, and include any
restructuring charges at TNT Express. Internal salaries and wages are
included only to the extent the individuals are assigned full-time to
integration activities. These costs were incurred at FedEx Express
and FedEx Corporation. The identification of these costs as
integration-related expenditures is subject to our disclosure controls
and procedures.

Our segment results improved in 2017 as a result of yield and volume
growth and continued cost management at our FedEx Express
segment, as well as the inclusion of TNT Express. In addition, tax
benefits from the implementation of new foreign currency tax
regulations and the adoption of a new accounting standard for
share-based payments benefited results. These factors were partially
offset by TNT Express integration expenses, network expansion costs
at FedEx Ground, one fewer operating day at FedEx Express and FedEx
Ground and higher operating expenses at FedEx Freight.

We incurred an aggregate of $327 million ($245 million, net of tax, or
$0.91 per diluted share) of TNT Express integration expenses in 2017.
In addition, operating income in 2017 includes a $24 million gain
($6 million, net of tax, or $0.02 per diluted share) associated with our
fourth quarter MTM retirement plans adjustment. Our 2017 results
also include $39 million ($24 million, net of tax, or $0.09 per diluted
share) of charges for legal reserves related to certain pending U.S.
Customs and Border Protection (“CBP”) matters involving FedEx Trade
Networks and $22 million ($13 million, net of tax, or $0.05 per diluted
share) of charges related to the settlement of and certain expected
losses relating to independent contractor litigation matters involving
FedEx Ground. These items are included in “Corporate, other and
eliminations.”

Our results for 2016 include a $1.5 billion loss ($946 million, net of
tax, or $3.39 per diluted share) associated with our MTM retirement
plans adjustment.

MANAGEMENT’S DISCUSSION AND ANALYSIS9,500

9,000

9,500
8,500

9,000
8,000

8,500
7,500

8,000
7,000

7,500
6,500

7,000
6,000

6,500

6,000

16,000

15,000
16,000
14,000
15,000
13,000
14,000
12,000
13,000
11,000
12,000
10,000
11,000

10,000

$19.00

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

FedEx Express International(1)
Average Daily Package Volume

FedEx Express U.S. Domestic
Average Daily Package Volume
FedEx Express U.S. Domestic
3,000
Average Daily Package Volume

FedEx Express U.S. Domestic
3,000
Average Daily Package Volume
FedEx Express U.S. Domestic
2,800
Average Daily Package Volume

3,000
2,800
2,683

2,800
2,600
2,683

2,713

2,683

2,713

2,726

2,729

2,600

2,729

2,713

2,683

2,713

2,726

2,729

2,400

2,729

3,000

3,000
2,800

2,800
2,600

2,683

2,713

2,726

2,600

2,729

2,600
2,400

2,400
2,200

2,200

2,400
2,200
2015

2,200
2015

2,200

2015

2016

2017

2015

2016

2017

2018

2015

2016

2017

2018

FedEx Express International(1)
2,600
Average Daily Package Volume
2,100
FedEx Express International(1)
2,394
Average Daily Package Volume

FedEx Express International(1)
Average Daily Package Volume
FedEx Express International(1)
2,600
2,394
Average Daily Package Volume
2,100
2,600

2,429

1,600

2,429

2,394

2,429

888

853

853
586

888

575

2015

2016

888

575

781

795

2016

2017
781

2018
795

586
International export

575
International export

575

International domestic

2015

2016

2017

2018

International export

International domestic

2,100
2,600

1,600
2,100

1,100
1,600

600
1,100

100
600

100

2018

1,600
2,100

1,100
853
1,600

600
1,100
853
586
100
600
2015

586
100
2015

2,394

2,429

1,100

853

586

2015

600

100

795

2018
795

888

575

2016

781

2017

795

2018

International export

International domestic

FedEx Ground
Average Daily Package Volume

FedEx Ground
FedEx Ground
Average Daily Package Volume
Average Daily Package Volume
FedEx Ground
FedEx Ground
9,500
Average Daily Package Volume
Average Daily Package Volume
9,000

9,500

8,500

9,000

8,000

8,336

7,896

7,526

7,896

7,526

8,336

6,911

7,896

7,526

7,500

7,000

6,500

6,000

6,911

8,336

2015

2016

2017

2015

2016

2017

2018

2015

2016

2017

2018

9,500
8,500

9,000
8,000

8,500
7,500
6,911
8,000
7,000

7,500
6,500
6,911
7,000
6,000
2015
6,500

6,000
2015

80.0

8,336

70.0
80.0
60.0
70.0
50.0
60.0
40.0
50.0
30.0
40.0
20.0
30.0

20.0

2018

70.6

67.7

70.6

67.7

FedEx Freight
Average Daily Shipments
FedEx Freight
74.5
Average Daily Shipments
66.9

FedEx Freight
Average Daily Shipments
FedEx Freight
80.0
Average Daily Shipments
66.9
70.0
80.0
60.0
66.9
70.0
50.0
60.0
40.0
50.0
28.6
30.0
40.0
20.0
28.6
2015
30.0

31.1
2016

31.0
2017

31.1
2016

28.6
2015

31.0

70.6

28.6

31.1

67.7

31.1

66.9

67.7

FedEx Freight
Average Daily Shipments

66.9

67.7

70.6

74.5

80.0

70.0

60.0

74.5

50.0

74.5

70.6

40.0

30.0

20.0

31.9

2018

31.9

31.0

31.0
2017

31.9

2018

28.6

31.1

31.0

31.9

2015

2016

2017

2018

Priority

Economy

Priority

Economy

2015

2016

2017

2018

20.0
2015

Priority

Economy

FedEx Express and FedEx Ground
Total Average Daily Package Volume

FedEx Express and FedEx Ground
16,000
Total Average Daily Package Volume
15,000
FedEx Express and FedEx Ground
14,000
Total Average Daily Package Volume

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

16,000

14,289

13,797

13,000

14,289

12,000

11,702

14,289

11,702

15,000
16,000
14,000
15,000
13,000
14,000
12,000
13,000
11,033
11,000
12,000
10,000
11,033
2015
11,000
(1) International domestic average daily package volume relates to our international intra-country operations.
10,000
2015

11,033
2015

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

10,000

11,702

11,033

11,000

11,033

13,797

2018

2017

2016

2015

2018

2017

2016

2018

2017

2016

2018

2017

2016

2015

2017

2018

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

FedEx Express U.S. Domestic
$19.00
Revenue per Package – Yield
FedEx Express U.S. Domestic
$18.00
Revenue per Package – Yield

$18.40

$19.00

$18.40

$17.60

$18.40

FedEx Express International(1)
Revenue per Package – Yield
FedEx Express International(1)
Revenue per Package – Yield

FedEx Express International(1)
$70.00
Revenue per Package – Yield
$60.00
FedEx Express International(1)
$50.00
Revenue per Package – Yield

$57.50

$70.00

$57.50
$60.00

$54.16

$19.00
$18.00

$17.60

$18.40

$17.60

$17.13

$18.40

$17.00

$17.13

$17.00

$17.60

$17.13

$17.00

$16.00

2015

2016

2017

$17.13
$18.00
$17.00

$17.13

$17.00
$16.00
2015

FedEx Express International(1)
Revenue per Package – Yield

$57.50

$54.16

$49.30

$52.31

$57.50

$54.16

$49.30

$54.16

$49.30

$52.31

$49.30

$40.00

$52.31

$30.00

$52.31

$20.00

$49.30

$6.49

$5.65

$6.92

$5.65

$6.92

$7.41

$10.00

$–

$52.31

$6.49

$7.41

2015

$5.65

2016

$6.92

$7.41

2017

2018

International export composite

International domestic

$70.00

$60.00

$70.00
$50.00

$60.00
$40.00

$50.00
$30.00

$40.00
$20.00

$30.00
$10.00

$20.00
$–

$70.00
$50.00
$57.50
$60.00
$40.00

$50.00
$30.00

$40.00
$20.00

2018

$30.00
$6.49
$10.00

$20.00
$–
2015
$6.49
$10.00

$–
2015

2015

2016

2017

2018

2016

2017

2016

$16.00
2015
2015
2017
FedEx Ground
FedEx Ground
Revenue per Package – Yield
Revenue per Package – Yield
FedEx Ground
FedEx Ground
Revenue per Package – Yield
Revenue per Package – Yield

$10.00

2018

$10.00

$9.00

2018

FedEx Ground
Revenue per Package – Yield
$–

$10.00

2015
$6.49

2016
$5.65

2017
$6.92

$7.41
2018

International export composite

International domestic

2015

2016

2017

2018

International export composite

International domestic

$8.63

$8.18

$10.00

$9.00

$10.00

$9.00

$8.63

$8.00

$8.63

$7.80

$8.18

$7.16

$7.80

$8.63

$7.00

$8.63

$8.18

$7.80

$6.00

$7.16

2015

2016

2017

2018

2015

2016

2017

2018

2015

2016

2017

2018

Revenue per Shipment

FedEx Freight

Revenue per Shipment

$320.00

FedEx Freight

Revenue per Shipment

$320.00

$300.00

$280.00

$260.00

$286.85

$264.34

$261.27

$286.85

$4.00

$265.77

$3.00

$4.00

Average Fuel Cost per Gallon

$3.13

Average Fuel Cost per Gallon

$3.13

$2.24

$2.41

Average Fuel Cost per Gallon

$4.00

$3.00

$2.79

$2.00

$2.79

$2.47

$2.79

$1.00

$2.79

$1.93

$2.41

$1.93

$1.61

$1.93

$1.61

$–

2015

$1.93

$2.79

$1.93

2018

$1.52

$1.61

2016

Vehicle

2017

Jet

$218.50

$221.67

$2.00

$3.00

$236.78

$3.13

$2.24

$2.41

$2.24

$3.13

$2.47

$2.24

$2.47

$1.52

$2.24

$2.41

$1.52

$1.61

2015

2016

2017

2018

$4.00

$3.13

$4.00

$3.00

$2.47

$3.00

$2.00

$2.47

$2.00

$1.00

$–

2015

$–

2015

$1.00

$2.00

Economy

$1.00

$–

$1.52

2015

2016

$1.52

$1.61

2016

2017

2018

Vehicle

Jet

2015

2016

2017

2018

Vehicle

Jet

$264.34

$261.27

$265.77

$261.27

$265.77

$286.85

$240.00

$286.85

$229.57

$264.34

$229.57

$261.27

$218.50

$229.57

2015

$218.50

2016

$265.77

$261.27

$221.67

$218.50

$265.77

$236.78

$220.00

$236.78

$221.67

$200.00

$236.78

$221.67

$218.50

2016

2017

$221.67

2017

2018

Priority

Economy

2015

2016

2017

2018

Priority

Economy

$9.00

$8.00

$7.16

$8.00

$7.00

$7.16

$7.00

$6.00

2015

$6.00

2015

$300.00

$320.00

$280.00

$264.34

$300.00

$260.00

$280.00

$264.34

$240.00

$229.57

$260.00

$220.00

$240.00

$229.57

$200.00

2015

$220.00

$200.00

2015

$18.00
$17.00

$17.00
$16.00

$16.00

$10.00

$9.00

$8.00

$7.00

$6.00

$300.00

$320.00

$280.00

$300.00

$260.00

$280.00

$240.00

$260.00

$220.00

$240.00

$200.00

$220.00

$200.00

MANAGEMENT’S DISCUSSION AND ANALYSISFedEx Express U.S. Domestic

FedEx Express U.S. Domestic

Average Daily Package Volume

FedEx Express U.S. Domestic

Average Daily Package Volume

2,713

2,683

2,713

2,726

2,729

2,713

2,726

2,729

2015

2016

2017

2018

2015

2016

2017

2018

FedEx Ground

Average Daily Package Volume

FedEx Ground

Average Daily Package Volume

8,336

7,896

7,526

6,911

2015

2016

2017

2018

2015

2016

2017

8,336

2018

FedEx Express and FedEx Ground

Total Average Daily Package Volume

FedEx Express and FedEx Ground

16,000

Total Average Daily Package Volume

FedEx Express U.S. Domestic

Average Daily Package Volume

2,683

2,713

2,726

2,729

2,600

2,100

1,600

1,100

853

1,100

600

586

600

100

2015

6,911

100

80.0

66.9

80.0

70.0

60.0

50.0

40.0

28.6

40.0

30.0

20.0

2015

20.0

2015

2016

2017

2018

FedEx Express International(1)

Average Daily Package Volume

FedEx Express International(1)

Average Daily Package Volume

2,429

2,394

FedEx Ground

Average Daily Package Volume

2,100

2,394

2,429

888

853

586

575

7,526

2015

586

2016

888

575

7,896

781

2016

575

2017

8,336

781

795

781

2017

2018

795

2018

International export

2016

2015

International domestic

2018

2017

International export

International domestic

FedEx Freight

Average Daily Shipments

FedEx Freight

Average Daily Shipments

74.5

66.9

67.7

70.6

67.7

70.6

FedEx Express and FedEx Ground

70.0

66.9

67.7

Total Average Daily Package Volume

31.1

31.0

31.1

13,797

28.6

31.0

31.9

14,289

31.0

2015

2016

2017

2018

Priority

2015

11,702

Priority

2016

Economy

2017

Economy

2018

11,033

Priority

Economy

2015

2016

2017

2018

74.5

31.9

FedEx Express U.S. Domestic

Revenue per Package – Yield

$18.40

$17.60

$17.13

$17.00

3,000

2,800

2,600

2,400

2,200

2,600

2,100

1,600

9,500

1,100

9,000

8,500

600

8,000

100

7,500

7,000

6,500

6,000

80.0

70.0

60.0

50.0

16,000

40.0

15,000

30.0

14,000

20.0

13,000

12,000

11,000

10,000

$19.00

$18.00

$17.00

14,289

13,797

14,289

13,797

11,702

11,033

11,702

2015

2016

2017

2018

2015

2016

2017

2018

2015

2016

2017

2018

2,600

2,100

1,600

1,100

600

100

80.0

70.0

60.0

50.0

40.0

30.0

20.0

$70.00

$60.00

$50.00

$40.00

$30.00

$20.00

$10.00

$–

FedEx Express International(1)

Average Daily Package Volume

2,394

2,429

853

586

2015

888

575

2016

781

2017

795

2018

International export

International domestic

FedEx Freight

Average Daily Shipments

66.9

67.7

70.6

74.5

28.6

31.1

31.0

31.9

Priority

Economy

FedEx Express International(1)

Revenue per Package – Yield

$57.50

$54.16

$49.30

$52.31

$6.49

2015

$5.65

2016

$6.92

$7.41

2017

2018

International export composite

International domestic

3,000

2,800

2,683

2,800

2,600

2,400

2,200

2015

2,200

9,500

9,000

9,500

8,500

9,000

8,000

8,500

7,500

8,000

6,911

7,000

7,500

6,500

7,000

6,000

6,500

2015

6,000

16,000

15,000

15,000
14,000

14,000
13,000

13,000
12,000
11,033
12,000
11,000

3,000

2,800

2,600

2,400

2,200

9,500

9,000

8,500

8,000

7,500

7,000

6,500

6,000

15,000

14,000

13,000

12,000

11,000

10,000

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

2015

2016

2017

2018

11,000
10,000
2015
10,000

$16.00

2015

2018

2017

2016

$19.00

$18.00

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

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

$18.40

$18.00
$17.13

$17.00

$16.00
2015
$16.00

$17.60

$17.13

$17.00

$17.13

$17.00

$17.60

2015

2016

2017

2018

2015

2016

2017

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

$10.00

$9.00

$8.00

$7.16
$8.00

$7.00

$6.00
2015
$6.00

$8.63

$8.18

$7.80

$7.16

2015

2016

2017

2018

2015

2016

2017

2018

$8.63

2018

$17.00

$16.00

$10.00

$9.00

$8.00

$7.00

$6.00

$320.00

$70.00

$10.00
$60.00

$50.00
$9.00
$40.00

$30.00
$8.00

$20.00

$7.00
$10.00

$–

$6.00

$320.00

$300.00

$280.00

$260.00

$240.00

$220.00

$200.00

FedEx Express International(1)
FedEx Ground
Revenue per Package – Yield
Revenue per Package – Yield

FedEx Express International(1)
Revenue per Package – Yield
FedEx Express International(1)
Revenue per Package – Yield

$70.00

$57.50
$60.00
$70.00

$50.00
$60.00

$40.00
$50.00

$30.00
$40.00

$20.00
$30.00
$7.16
$6.49
$10.00
$20.00

$57.50

$54.16

$57.50

$7.80

$54.16

$49.30

$54.16

$8.18

$6.49

$5.65

$6.92

$5.65

$52.31

$49.30

$8.63

$49.30

$52.31

$6.92

$7.41

$6.92
2017

2018

$7.41

2018

$6.49
2015

$–
$10.00
2015
$–
2015
International export composite
International export composite
2015

$5.65
2016

2016

2017

2016

2017
2018
International domestic

International domestic
2017
2018

International export composite

International domestic

FedEx Freight
Revenue per Shipment

$264.34

$261.27

$265.77

$229.57

$218.50

$221.67

$286.85

$236.78

2015

2016

2017

2018

Priority

Economy

Average Fuel Cost per Gallon

$3.13

$2.47

$4.00

$3.00

$2.00

$1.00

$–

$2.24

$2.41

$1.52

$1.61

$2.79

$1.93

2015

2016

2018

2017

Jet

Vehicle

(1) International domestic revenue per package relates to our international intra-country operations.

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

$320.00

$261.27

$264.34

$229.57

$264.34

$286.85

$265.77

$286.85

$265.77

$260.00
$240.00
$229.57

$320.00
$300.00
$300.00
Revenue
$300.00
$280.00
$280.00
Revenues increased 9% in 2018 due to improved performance at all
$265.77
$264.34
$280.00
$260.00
$260.00
of our transportation segments. Revenues at FedEx Express increased
7% in 2018 due to improved base yields and favorable exchange rates,
$240.00
$221.67
despite impacts from the NotPetya cyberattack discussed above. At
$220.00
FedEx Ground, revenues increased 11% in 2018 due to volume growth
$200.00
and increased yields. FedEx Freight revenues increased 12% in 2018
2017
due to higher revenue per shipment and average daily shipments.
Higher fuel surcharges had a positive impact on revenues at all of
our transportation segments in 2018.

$220.00
$200.00
2015
$200.00

$240.00
$220.00

Economy

$236.78

$221.67

$236.78

$221.67

$229.57

$218.50

Priority

2018

2017

2016

2015

2018

2016

2017

2018

2016

2015

Revenues increased 20% in 2017 due to the inclusion of TNT Express
and improvements at our other transportation segments. At FedEx
Ground, revenues increased 10% in 2017 due to improved yield and
volume growth. Revenues at FedEx Express increased 32% in 2017
primarily due to the inclusion of TNT Express. Revenues in 2017 were
negatively impacted by one fewer operating day at FedEx Express and
FedEx Ground. FedEx Freight revenues increased 4% due to higher
average daily shipments and higher revenue per shipment. Higher fuel
surcharges benefited revenues at all of our transportation segments in
2017, but had a minimal net impact on operating income.

Retirement Plans MTM Adjustments
We incurred a pre-tax MTM net gain of $10 million in 2018 ($9 million, net
of tax, or $0.03 per diluted share), a gain of $24 million in 2017 ($6 million,
net of tax, or $0.02 per diluted share) and a loss of $1.5 billion in 2016

$4.00

$3.13
$4.00

Average Fuel Cost per Gallon

$3.13

$1.93

$2.79

$3.00

$3.13

$2.47

$1.93

$2.79

$3.00

$1.00

$2.00

$2.41

$2.24

$1.00

$2.00

$1.00

$1.61

$1.52

$2.41

$1.61

$1.52

$2.41

$2.24

$2.47

$3.00
$2.47
$2.00

($946 million, net of tax, or $3.39 per diluted share) from actuarial
$2.79
$2.24
adjustments to pension and postretirement healthcare plans related
to the measurement of plan assets and liabilities. The gain in 2018
is attributable to an increased discount rate, which more than offset
losses from demographic experience. The net gain for 2018 includes
a $210 million loss from the purchase of a group annuity contract from
Metropolitan Life Insurance Company that transferred approximately
2018
2016
20% of our U.S. Pension Plan liabilities. The gain in 2017 reflects
Vehicle
2018
higher-than-expected pension asset returns, particularly in the equity
markets. The loss in 2016 is attributable to declining discount rates and
demographic assumption experience changes. For more information,
see the “Critical Accounting Estimates” section of this MD&A and Note 1
and Note 13 of the accompanying consolidated financial statements.

$–
2015
$–

Vehicle
Jet

Vehicle

Jet
2017

$1.52

$1.61

$1.93

2016

2018

2015

2017

2015

Jet

$–

Goodwill and Other Asset Impairment Charges
In 2018, we incurred goodwill and other asset impairment charges of
$380 million related to FedEx Supply Chain, eliminating substantially
all of the goodwill attributable to this reporting unit. The key factors
contributing to the goodwill impairment were underperformance of
the FedEx Supply Chain business during 2018, including base business
erosion, and the failure to attain the level of operating synergies and
revenue and profit growth anticipated at the time of acquisition. For
additional information concerning these impairment charges, see the
“Critical Accounting Estimates” section of this MD&A and Note 4 of
the accompanying consolidated financial statements.

MANAGEMENT’S DISCUSSION AND ANALYSISOperating 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:

Our 2018 operating income and margin declined primarily due to
the NotPetya cyberattack at TNT Express, fourth quarter goodwill
and other asset impairment charges and increased TNT Express
integration expenses.

2018(1)

2017(2)

2016(3)

$ 23,207
15,101
3,361
3,095
3,374
2,622

$ 21,542
13,630
3,240
2,995
2,773
2,374

$ 18,581
9,966
2,854
2,631
2,399
2,108

380

–

(10)
9,450
$ 60,580
$ 4,870

(24)
8,752
$ 55,282
$ 5,037

1,498
7,251
$ 47,288
$ 3,077

Percent of Revenue
2017(2)

2018(1)

2016(3)

36.9%
19.8
5.7
5.2
4.7
4.2

35.7%
22.6
5.3
5.0
4.6
3.9

35.5%
23.1
5.1
4.7
5.2
4.0

Operating expenses:
Salaries and employee benefits
Purchased transportation
Rentals and landing fees
Depreciation and amortization
Fuel
Maintenance and repairs
Goodwill and other asset
impairment charges(4)
Retirement plans mark-to-market
adjustment
Other(5)
Total operating expenses
Operating margin
(1) Includes TNT Express integration expenses of $477 million.
(2) Includes TNT Express integration expenses of $327 million.
(3) Includes transaction and integration-planning expenses related to our TNT Express acquisition

–
14.4
92.6
7.4%

–
14.5
91.6
8.4%

3.0
14.4
93.9
6.1%

0.6

–

Salaries and employee benefits expense increased 8% in 2018 due
to merit increases at all of our transportation segments, unfavorable
exchange rates at FedEx Express and higher staffing at FedEx Ground
and FedEx Freight. Purchased transportation costs increased 11% in
2018 due to higher volumes at all of our transportation segments,
increased transportation rates and higher fuel expenses at FedEx
Ground and unfavorable exchange rates at FedEx Express. Other
operating expenses increased 8% in 2018 primarily due to increased
outside service contracts and unfavorable exchange rates at FedEx
Express and higher TNT Express integration expenses.

In 2017, our operating income and margin benefited from the slight
positive impact of our MTM retirement plans adjustment, compared
to a large MTM loss in the prior year, the year-over-year decreases
in 2017 associated with the independent contractor litigation matters
and CBP matters, and the continued growth and cost management
initiatives at the FedEx Express segment. However, operating margin
was negatively impacted in 2017 by the inclusion of TNT Express,
TNT Express integration expenses and network expansion costs at
FedEx Ground.

In 2017, purchased transportation costs increased 37% due to
the inclusion of TNT Express and higher volume and increased
transportation rates at FedEx Ground. Salaries and employee
benefits expense increased 16% in 2017 due to the inclusion
of TNT Express, volume growth and staffing to support network
expansion at FedEx Ground, merit increases at FedEx Express,
and higher staffing levels to support volume growth and merit
increases at FedEx Freight. Other expenses increased 21% in
2017 primarily due to outside service contracts at TNT Express
and the reserves for the legal matters involving FedEx Trade
Networks and FedEx Ground, which were offset by the inclusion
of independent contractor litigation expenses and the CBP matter
in the prior year.

of $113 million.

(4) Includes goodwill and other asset impairment charges of $380 million in 2018 associated with our

FedEx Supply Chain business.

(5) Other expenses include $8 million in 2018 and $39 million in 2017 of charges related to certain
pending CBP matters involving FedEx Trade Networks. Also included in 2017 is $22 million
of charges in connection with the settlement of and expected losses relating to independent
contractor litigation matters involving FedEx Ground. Included in 2016 are provisions for the
settlement of and expected losses related to independent contractor litigation matters involving
FedEx Ground for $256 million and $69 million in expenses related to the settlement of a CBP
notice of action involving FedEx Trade Networks, in each case net of recognized immaterial
insurance recovery.

MANAGEMENT’S DISCUSSION AND ANALYSIS

FedEx Express U.S. Domestic

Average Daily Package Volume

2,683

2,713

2,726

2,729

2015

2016

2017

2018

FedEx Ground

Average Daily Package Volume

8,336

7,896

7,526

6,911

FedEx Express and FedEx Ground

Total Average Daily Package Volume

14,289

13,797

11,702

11,033

2015

2016

2017

2018

FedEx Express U.S. Domestic

Revenue per Package – Yield

$18.40

$17.60

$17.13

$17.00

2015

2016

2017

2018

FedEx Ground

Revenue per Package – Yield

$8.63

$8.18

$7.80

$7.16

2015

2016

2017

2018

FedEx Freight

Revenue per Shipment

$264.34

$261.27

$265.77

$229.57

$218.50

$221.67

$286.85

$236.78

3,000

2,800

2,600

2,400

2,200

9,500

9,000

8,500

8,000

7,500

7,000

6,500

6,000

16,000

15,000

14,000

13,000

12,000

11,000

10,000

$19.00

$18.00

$17.00

$16.00

$10.00

$9.00

$8.00

$7.00

$6.00

$320.00

$300.00

$280.00

$260.00

$240.00

$220.00

$200.00

2015

2016

2017

2018

2015

2016

2017

2018

2,600

2,100

1,600

1,100

600

100

80.0

70.0

60.0

50.0

40.0

30.0

20.0

$70.00

$60.00

$50.00

$40.00

$30.00

$20.00

$10.00

$–

FedEx Express International(1)

Average Daily Package Volume

2,394

2,429

853

586

2015

888

575

2016

781

2017

795

2018

International export

International domestic

FedEx Freight

Average Daily Shipments

66.9

67.7

70.6

74.5

28.6

31.1

31.0

31.9

Priority

Economy

FedEx Express International(1)

Revenue per Package – Yield

$57.50

$54.16

$49.30

$52.31

$6.49

2015

$5.65

2016

$6.92

$7.41

2017

2018

International export composite

International domestic

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

Average Fuel Cost per Gallon

$3.13

$2.47

$4.00

$3.00

$2.00

$1.00

$–

$2.24

$2.41

$1.52

$1.61

2015

2016

2017

2018

Priority

Economy

2015

2016

Vehicle

2017

Jet

$2.79

$1.93

2018

Fuel expense increased 22% during 2018 due to higher fuel prices.
However, fuel prices represent only one component 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 2018, 2017 and 2016 in the
accompanying discussions of each of our transportation segments.

Our fuel surcharges are adjusted on a weekly basis. The fuel
surcharge is based on a weekly fuel price from two weeks prior to
the week in which it is assessed. Some FedEx Express international
fuel surcharges incorporate a timing lag of approximately six to
eight weeks.

Prior to February 6, 2017, our fuel surcharges for the FedEx
Express and FedEx Ground businesses incorporated a timing lag
of approximately six to eight weeks before they were adjusted
for changes in fuel prices. For example, the fuel surcharge index
in effect at FedEx Express in January 2017 was set based on
November 2016 fuel prices.

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 70% 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
provisions 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
significant 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. For more
information, see “Risk Factors” below.

The net impact of fuel had a significant benefit to operating income in
2018 as higher fuel surcharges more than offset increased fuel prices.

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 increased 16% during 2017 due to the inclusion of TNT
Express and higher fuel prices. The net impact of fuel had a minimal
impact on operating income in 2017 as higher fuel surcharges were
more than offset by increased fuel prices.

Other Income and Expense
Interest expense increased $46 million in 2018 primarily due to U.S.
debt and commercial paper issuances during the year. Interest
expense increased $176 million in 2017 primarily due to our U.S. and
euro debt issuances in 2016, which was partially offset by a gain of
$35 million from the sale of an investment during 2017.

Income Taxes
Our effective tax rate was (5.0%) in 2018, 34.6% in 2017 and 33.6%
in 2016. Our 2018 tax rate was favorably impacted by the enactment
of the TCJA during the third quarter. As of May 31, 2018, we are still
completing our accounting for the income tax effects of the TCJA. In
accordance with Staff Accounting Bulletin 118, issued by the staff of
the Securities and Exchange Commission (“SEC”), we have recorded
a provisional benefit of $1.15 billion related to the remeasurement
of our net U.S. deferred tax liability and an immaterial provisional
benefit from the one-time transition tax on previously deferred foreign
earnings. In addition, we recognized a benefit of approximately
$265 million related to a lower statutory income tax rate on 2018
earnings and a one-time benefit of $204 million from a $1.5 billion
contribution to our U.S. Pension Plans in February 2018.

Our 2018 tax rate also included a net benefit of $255 million from
corporate structuring transactions as part of the ongoing integration
of FedEx Express and TNT Express and a benefit of $225 million from
foreign tax credits generated by distributions to the U.S. from our
foreign operations. The 2018 tax rate was negatively impacted by an
increase in uncertain tax positions for income tax audits.

Our 2017 tax rate was favorably impacted by $62 million as a result
of the implementation of new U.S. foreign currency tax regulations.
Our 2016 tax rate was favorably impacted by $76 million from an
internal corporate legal entity restructuring done in anticipation of
the integration of the foreign operations of FedEx Express and TNT
Express. A lower state tax rate primarily due to the resolution of a
state tax matter also provided a benefit to our 2016 tax rate.

MANAGEMENT’S DISCUSSION AND ANALYSISThe following table provides a reconciliation of the 2017 effective tax
rate to the 2018 effective tax rate, including the impact of the TCJA,
for the year ended May 31:

34.6%
(26.4)
(6.1)
(4.3)

2017 Effective Tax Rate
Remeasurement of net U.S. deferred tax liability
Lower statutory tax rate
Corporate structuring transactions
Foreign tax credits generated by distributions
(5.2)
from foreign operations
Effect of February 2018 pension contribution(1)
(4.7)
2.5
Goodwill impairment charge
2.0
Increase in uncertain tax positions
Other(2)
2.6
(5.0)%
2018 Effective Tax Rate
(1) The benefit relates to the pension contribution deduction on our 2017 tax return at a rate

of 35%.

(2) Includes a non-recurring benefit of $62 million in 2017 from the implementation of new

U.S. foreign currency tax regulations; 2018 includes increases in non-deductible losses in
our foreign operations, including the impact of the NotPetya cyberattack, and deferred tax
adjustments.

For more information on income taxes, including our effective tax rate
reconciliation, impact of the TCJA enactment, and liabilities for
uncertain tax positions, see the Critical Accounting Estimates section
of this MD&A and Note 12 of the accompanying consolidated financial
statements.

Business Acquisitions
On March 23, 2018, we acquired P2P Mailing Limited, a leading
provider of worldwide, low-cost e-commerce transportation
solutions, for £92 million ($135 million) in cash from operations.
The majority of the purchase price was allocated to goodwill. The
financial results of this acquired business are included in the FedEx
Trade Networks operating segment from the date of acquisition and
were not material to our results of operations.

On October 13, 2017, we acquired Northwest Research Inc.,
a leader in inventory research and management, for $50 million
in cash from operations. The majority of the purchase price was
allocated to property and equipment. The financial results of this
acquired business are included in the FedEx Services segment
from the date of acquisition and were not material to our results
of operations.

On May 25, 2016, we acquired TNT Express for €4.4 billion
($4.9 billion). Cash acquired in the acquisition was approximately
€250 million ($280 million). All shares associated with the
transaction were tendered or transferred as of the third quarter
of 2017. We funded the acquisition with proceeds from an April
2016 debt issuance and existing cash balances. The financial
results of this business for 2018 and 2017 are included in the
FedEx Express segment. Financial results for 2016 were immaterial
from the time of acquisition and are included in “Corporate, other
and eliminations” in our segment reporting.

TNT Express collects, transports and delivers documents, parcels
and freight to over 200 countries and territories. This strategic
acquisition broadens our portfolio of international transportation
solutions with the combined strength of TNT Express’s strong
European road platform and FedEx Express’s strength in other
regions globally.

For more information, see Note 3 of the accompanying consolidated
financial statements.

Outlook
During 2019, we expect yield and volume growth at all of our
transportation segments to support revenue and earnings growth,
prior to any MTM retirement plans adjustment. We will continue
to execute operational improvement programs at FedEx Ground and
FedEx Freight that are designed to increase operational efficiency
and safety, enhance service offerings to our customers and reduce
our cost structure. Our expectations for earnings growth in 2019 are
dependent on key external factors, including fuel prices, moderate
economic growth and stability in global trade.

During 2019, we also will continue to execute our TNT Express
integration plans. The integration process is complex as it spans over
200 countries and territories and involves combining our pickup-and-
delivery operations at a local level, our global and regional air and
ground networks, and our extensive operations, customs clearance,
sales and back-office information-technology systems. In addition,
a portion of our integration expenses relate to the ongoing
establishment of our new international corporate structure, which
will leverage synergies to maximize our international profitability.

During 2019, we will be focused on integrating the largest and most
complex countries, which include the largest workforces and facilities.
In connection with this, we expect to incur approximately $450 million
of integration expenses in 2019 in the form of professional fees,
outside service contracts, salaries and wages and other operating
expenses. We expect the aggregate integration program expense,
including restructuring charges at TNT Express, over the four years
through 2020 to be approximately $1.5 billion. The timing and amount
of integration expenses and capital investments in any future period
may change as we implement our plans.

The integration is expected to be substantially completed by the end
of 2020. We are targeting operating income improvement at the
FedEx Express segment of $1.2 to $1.5 billion in 2020 from 2017
assuming moderate economic growth, stability in global trade and
current accounting rules and tax laws. The target includes TNT
Express synergies as well as base business and other operational
improvements across the global FedEx Express network. Although
we are targeting to complete our integration program by the end of
2020, we are investing in opportunities to improve the capabilities
of the integrated business for future profitability, including periods
beyond 2020.

MANAGEMENT’S DISCUSSION AND ANALYSISOther Outlook Matters
FedEx Ground previously announced plans to implement the
Independent Service Provider (“ISP”) model throughout its entire
U.S. pickup-and-delivery network. The transition to the ISP model
is being accomplished on a district-by-district basis and we are
now targeting the transition to be completed during the second
quarter of 2020. As of May 31, 2018, over 60% of FedEx Ground
volume was being delivered by small businesses operating under
the ISP model. The costs associated with these transitions will be
recognized in the periods incurred and are not expected to be
material to any future quarter.

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

Seasonality of Business
Our businesses are cyclical in nature, as seasonal fluctuations
affect volumes, revenues and earnings. Historically, the U.S.
express package business experiences an increase in volumes in
late November and December. International business, particularly in
the Asia-to-U.S. market, peaks in October and November in advance
of the U.S. holiday sales season. Our first and third fiscal quarters,
because they are summer vacation and post winter-holiday seasons,
have historically experienced lower volumes relative to other
periods. Normally, the fall is the busiest shipping period for FedEx
Ground, while late December, June and July are the slowest
periods. For FedEx Freight, the spring and fall are the busiest periods
and the latter part of December through February is the slowest
period. 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. See “Risk Factors” below for more information.

Recent Accounting Guidance
See Note 2 of the accompanying consolidated financial statements for
a discussion of recent accounting guidance.

Our capital expenditures for 2019 are expected to be approximately
$5.6 billion and include FedEx Express investments in aircraft fleet
modernization and the Memphis and Indianapolis hub modernization
and expansion programs. Capital expenditures at FedEx Ground are
expected to decline in 2019, due to the completion of two major hub
projects that boost our capacity in the Northeast. In addition, our
capital expenditure forecast includes $180 million related to the
TNT Express integration.

Our aircraft fleet modernization and hub modernization and
expansion programs at FedEx Express are multi-year programs
that will entail significant investments over the next several years.
See the “Contractual Cash Obligations and Off-Balance Sheet
Arrangements” section of this MD&A for details of our capital
commitments for 2019 and beyond. We will continue to evaluate
our investments in critical long-term strategic projects to ensure
our capital expenditures generate high returns on investment and
are balanced with our outlook for global economic conditions.
For additional details on key 2019 capital projects, refer to the
“Financial Condition – Capital Resources” and “Financial
Condition – Liquidity Outlook” sections of this MD&A.

We expect our effective tax rate for 2019 to be approximately 25%,
prior to any MTM retirement plans adjustment. However, substantial
activities and corporate structuring transactions are ongoing with
respect to the integration of FedEx Express and TNT Express. As
we continue to integrate these businesses over the next few years,
there could be material favorable and unfavorable impacts to our
effective tax rate during this period. In addition, the final impact
of the TCJA on our reported results may differ from the estimates
recorded, possibly materially, due to changes in interpretations and
assumptions we have made and future guidance that may be issued.
See “Risk Factors” below for more information.

New pension accounting rules will go into effect for us in 2019,
which will negatively impact our operating income and margin,
but will have no impact on our net income or earnings per share.
Under these new rules, only pension service cost will be included
in operating expenses. All of the other elements of pension
expense, including our annual MTM adjustment, will be classified
as non-operating expenses. Prior year financial results will be
recast to conform to these new rules upon adoption. See Note 2
of the accompanying consolidated financial statements for
further discussion.

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.

MANAGEMENT’S DISCUSSION AND ANALYSIS
Reportable Segments
FedEx Express, FedEx Ground and FedEx Freight represent our major
service lines and, along with FedEx Services, constitute 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)
> TNT Express
(international express transportation,
small-package ground delivery and
freight transportation)
> FedEx Ground
(small-package ground delivery)
> FedEx Freight
(LTL freight transportation)
> FedEx Services
(sales, marketing, information
technology, communications,
customer service, technical support,
billing and collection services and
back-office functions)
> FedEx Office
(document and business services
and package acceptance)

In the fourth quarter of 2018, we realigned our specialty logistics and
e-commerce solutions in a new organizational structure under FedEx
Trade Networks. The new organization includes FedEx Trade Networks
Transport & Brokerage, FedEx Cross Border, FedEx Supply Chain, FedEx
Custom Critical and FedEx Forward Depots. FedEx Trade Networks
operating segment results are included in “Corporate, other and
eliminations” in our segment reporting.

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
operating 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 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 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.

Corporate, Other and Eliminations
Corporate and other includes corporate headquarters costs for
executive officers and certain legal and finance functions, as well
as certain other costs and credits not attributed to our core business.
These costs are not allocated to the other business segments.

Also included in corporate and other is the FedEx Trade Networks
operating segment, which provides customs brokerage and global
ocean and air freight forwarding through FedEx Trade Networks
Transport & Brokerage; cross-border enablement and technology
solutions and e-commerce transportation solutions through FedEx
Cross Border; integrated supply chain management solutions through
FedEx Supply Chain; time-critical shipment services through FedEx
Custom Critical; and, effective September 1, 2018, critical inventory
and service parts logistics, 3-D printing and technology repair through
FedEx Forward Depots.

In 2018, the operating income decrease in “Corporate, other and
eliminations” was driven by fourth quarter goodwill and other asset
impairment charges at FedEx Supply Chain of $380 million. In 2017,
the operating income increase was driven by the change in the
MTM retirement plans adjustment and the year-over-year decrease in
charges for legal reserves, which were partially offset by the increase
in TNT Express integration expenses discussed above.

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

MANAGEMENT’S DISCUSSION AND ANALYSISFedEx Express Segment
FedEx Express offers a wide range of U.S. domestic and international shipping services for delivery of packages and freight including priority,
deferred or economy services, which provide delivery on a time-definite or day-definite basis. The following tables compare revenues, operating
expenses, operating income (dollars in millions), operating margin and operating expenses as a percent of revenue for the years ended May 31:

Percent of Revenue
2017

2018

2016

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

36.2%
14.1
5.5
4.6
8.0
4.9
5.7
13.9
92.9
7.1%

36.3%
14.0
5.8
4.9
7.0
4.6
5.5
13.7
91.8
8.2%

38.8%
6.6
6.5
5.4
7.9
5.1
7.2
12.8
90.3
9.7%

Percent
Change

2018
2017

/
/ 2017
2016

2018

2017

2016

5
2
6

8
9
7

5
6
13

1,788
3,738

9,816
4,227
26,274

12,799
7,356
3,255

12,231
6,940
2,876

11,804
5,697
2,282

7,979
1,285
21,068

$ 7,273 $ 6,955 $ 6,763
1,662
1,750
3,379
3,526

Revenues:
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
10,611
revenue
International domestic(1)
4,587
Total package revenue 27,997
Freight:
U.S.
International priority
International economy
International airfreight
Total freight revenue
Other
Total revenues
Operating expenses:
Salaries and employee
benefits
Purchased transportation
Rentals and landing fees
Depreciation and
amortization
Fuel
Maintenance and repairs
Intercompany charges
Other
Total operating
expenses
Operating income
7.1%
Operating margin
(1) International domestic revenues relate to our international intra-country operations.

33,594
23,068
31,055
$ 2,578 $ 2,769 $ 2,485

2,481
999
385
126
3,991
494
25,553

2,527
1,910
1,740
355
6,532
1,018
33,824

2,797
2,179
1,916
368
7,260
915
36,172

11
14
10
4
11
(10)
7

1,377
2,023
1,290
1,832
3,273

1,679
2,889
1,753
2,045
5,036

1,662
2,378
1,553
1,886
4,630

12,278
4,721
1,947

13,096
5,109
1,987

9,921
1,688
1,664

1
21
13
8
9

8
(7)

8.2%

7
8
2

3
5
4

4
22
26

23
NM
25

2
NM
NM
NM
NM
106
32

24
NM
17

21
18
20
3
41

35
11

9.7% (110)bp (150)bp

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

Percent
Change

2018
2017

/
/ 2017
2016

2018

2017

2016

1,252
549
928
2,729
527
268

795
2,429
5,953

1,265
561
900
2,726
527
254

781
2,394
5,901

1,271
541
901
2,713
394
181

575
888
4,176

$ 22.80 $ 21.57 $ 20.79
11.99
14.66
17.00
56.47
49.15

12.77
15.79
18.40
54.69
47.63

12.24
15.36
17.60
51.66
44.41

52.31
7.41
18.44

49.30
6.92
17.46

54.16
5.65
19.71

Package Statistics
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(1)
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(1)
Composite package yield
Freight Statistics
Average daily freight pounds:
U.S.
International priority
International economy
International airfreight

8,185
8,362
5,213
5,386
12,603 12,274
1,902
1,939

8,178
1,702
808
623

2
–
3 NM
3 NM
2 NM

28,290 27,574 11,311

Total average daily
freight pounds
Revenue per pound (yield):
8
U.S.
10
International priority
7
International economy
3
International airfreight
9
Composite freight yield
(1) International domestic statistics relate to our international intra-country operations.

$ 1.31 $
1.59
0.60
0.75
1.01

1.21 $
1.44
0.56
0.73
0.93

1.19
2.29
1.86
0.79
1.38

3 NM

2
(37)
(70)
(8)
(33)

FedEx Express Segment Revenues
FedEx Express segment revenues increased 7% in 2018 primarily
due to improved base rates, higher fuel surcharges and favorable
exchange rates, despite impacts from the NotPetya cyberattack
discussed above in “Results of Operations and Outlook – Consolidated
Results – Overview.”

International export package yields increased 6% in 2018 due to higher
fuel surcharges, favorable exchange rates and favorable service mix.
International export average daily volumes increased 2% primarily due
to increased international economy shipments, despite the decrease
in volume due to the NotPetya cyberattack. Freight yields increased
9% in 2018 primarily due to higher base rates, higher fuel surcharges
and favorable exchange rates. Average daily freight pounds increased
3% in 2018 driven by international and U.S. freight services. U.S.
domestic package yields increased 5% in 2018 primarily due to higher
base rates and fuel surcharges.

(1)
(2)
3
–
–
6

–
4
–
–
34
40

36
2
1 NM
41
1

FedEx Express segment revenues increased 32% in 2017 primarily
due to the inclusion of TNT Express, which drove significant volume
increases while having a negative product mix impact on our composite
yields.

6
4
3
5
6
7

6
7
6

4
2
5
4
(9)
(10)

(9)
22
(11)

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

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

2018

2017

2016

2.2% 1.0%
7.1
4.8

3.4
2.5

–%

4.0
1.8

3.4
16.7
11.1

1.2
11.3
8.0

–
12.0
6.1

Effective January 1, 2018, FedEx Express implemented a 4.9% average
list price increase for U.S. domestic, U.S. export and U.S. import
services. Effective February 6, 2017, FedEx Express fuel surcharges
are adjusted on a weekly basis compared to the previous monthly
adjustment. On January 2, 2017, FedEx Express implemented a
3.9% average list price increase for U.S. domestic, U.S. export and
U.S. import services and a change to the U.S. domestic dimensional
weight divisor. On January 4, 2016, FedEx Express implemented a
4.9% average list price increase for FedEx Express U.S. domestic, U.S.
export and U.S. import services.

MANAGEMENT’S DISCUSSION AND ANALYSIS

FedEx Express Segment Operating Income
FedEx Express segment operating income and margin decreased in 2018
primarily due to the impacts from the NotPetya cyberattack and higher
TNT Express integration expenses, partially offset by yield growth and
the positive net impact of fuel.

The NotPetya cyberattack had an estimated $400 million negative
impact for the first half of 2018. Results also include $380 million of
TNT Express integration expenses in 2018, a $174 million increase
from 2017.

Salaries and employee benefits increased 7% in 2018 primarily due
to merit increases and unfavorable exchange rates. Other operating
expenses increased 9% in 2018 primarily due to increased outside
service contracts, unfavorable exchange rates and TNT Express
integration expenses. Purchased transportation increased 8% in 2018
due to unfavorable exchange rates and increased international volume.
Maintenance and repairs increased 13% in 2018 due to the timing of
aircraft engine maintenance events, coupled with higher non-aircraft
maintenance and repairs associated with vehicles, equipment and
facilities.

Fuel expense increased 21% in 2018 due to increased fuel prices.
However, the net impact of fuel had a significant benefit to operating
income in 2018, as higher fuel surcharges more than offset increased
fuel prices. See the “Results of Operations and Outlook – Consolidated
Results – Fuel” section of this MD&A for a description and additional
discussion of the net impact of fuel on our operating results.

The inclusion of TNT Express in the FedEx Express segment results
impacted the year-over-year comparability in 2017. FedEx Express
segment operating income increased 11% in 2017, driven by improved
results at FedEx Express and the addition of TNT Express. Operating
margin decreased in 2017 due to the inclusion of TNT Express. FedEx
Express results were negatively impacted in 2017 by $206 million of
TNT Express integration expenses.

FedEx Express Segment Outlook
Revenues and earnings are expected to increase at FedEx Express
in 2019. We expect revenues to increase primarily due to higher
international volumes and U.S. domestic yields, as we continue to focus
on revenue quality. During 2019, we will continue to implement actions
to enhance safety, improve efficiencies and adjust our air and ground
networks to match anticipated demand and serve our integrated
operations. Additionally, we expect revenues to increase in part due
to the recovery from the NotPetya cyberattack.

During 2019, we will continue to execute our TNT Express integration
plans and will be focused on integrating the largest and most complex
countries, which include the largest workforces and facilities. In
connection with this, we expect the FedEx Express segment to incur
approximately $390 million of integration expenses in 2019. The
integration process is complex as it spans over 200 countries and
territories and involves combining our pickup-and-delivery operations
at a local level, our global and regional air and ground networks, and
our extensive operations, custom clearance, sales and back-office
information-technology systems. The integration is expected to be
substantially completed by the end of 2020.

We are targeting operating income improvement at the FedEx Express
segment of $1.2 billion to $1.5 billion in 2020 from 2017 assuming
moderate economic growth, stability in global trade and current
accounting rules and tax laws. This target includes TNT Express
synergies as well as base business and other operational improvements
across the global FedEx Express network. Although we are targeting to
complete our integration program by the end of 2020, we are investing
in opportunities to improve the capabilities of the integrated business
for future profitability, including periods beyond 2020.

Capital expenditures at FedEx Express are expected to increase
slightly in 2019, as we remain focused on modernizing our aircraft
fleet by adding newer aircraft that are more reliable, fuel efficient
and technologically advanced, and retiring older, less-efficient aircraft.
In addition, we are making significant investments over multiple years
in our facilities, specifically over $1.5 billion to significantly expand
the Indianapolis hub and over $1 billion to modernize the Memphis
World Hub.

MANAGEMENT’S DISCUSSION AND ANALYSISFedEx Ground Segment
FedEx Ground service offerings include day-certain delivery to
businesses in the U.S. and Canada and to 100% of U.S. residences.
The following tables compare revenues, operating expenses,
operating income (dollars in millions), operating margin, selected
package statistics (in thousands, except yield amounts) and operating
expenses as a percent of revenue for the years ended May 31:

Percent
Change

2018
2017
11

/
/ 2017
2016
10

13
11
8

9
20
5
10
14

11
14

15
8
20

13
–
14
7
15

11
2

2018

2016
$ 18,395 $16,503 $ 15,051

2017

2,610
7,177
696

627
10
293
1,316
1,495

2,261
6,619
579

556
10
258
1,230
1,298

Revenues
Operating expenses:
Salaries and employee
benefits
2,955
Purchased transportation 7,936
754
Rentals
Depreciation and
amortization
Fuel
Maintenance and repairs
Intercompany charges
Other
Total operating
expenses
Operating income
Operating margin
Average daily package
volume
Revenue per package
(yield)

681
12
309
1,443
1,700

8,336

15,790

12,811
14,224
$ 2,605 $ 2,279 $ 2,240

14.2% 13.8% 14.9% 40bp (110)bp

7,896

7,526

8.63 $ 8.18 $

7.80

Percent of Revenue
2017

2018

2016

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

16.1%
43.1
4.1
3.7
0.1
1.7
7.8
9.2
85.8
14.2%

15.8%
43.5
4.2
3.8
0.1
1.8
8.0
9.0
86.2
13.8%

15.0%
44.0
3.8
3.7
0.1
1.7
8.2
8.6
85.1
14.9%

FedEx Ground Segment Revenues
FedEx Ground segment revenues increased 11% in 2018 due to
volume growth and increased yields. Average daily volume increased
6% in 2018 primarily due to continued growth in our residential
services. Yield increased 6% in 2018 driven by higher base rates and
higher fuel surcharges.

FedEx Ground segment revenues increased 10% in 2017 due to yield
and volume growth, partially offset by one fewer operating day. Yield
increased 5% in 2017 due to higher base yields for our commercial
business and residential services. Average daily volume increased
5% in 2017 primarily due to continued growth in our commercial
business and residential services.

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. The fuel surcharge ranged
as follows for the years ended May 31:

Low
High
Weighted-average

2018

2017

2016

4.0% 3.3% 2.8%
4.5
6.3
4.0
5.2

4.5
3.8

Effective January 1, 2018, FedEx Ground implemented a 4.9% average
list price increase. In addition, as announced on September 18, 2017,
dimensional weight pricing applies to the majority of FedEx SmartPost
shipments effective January 22, 2018. Effective February 6, 2017,
FedEx Ground fuel surcharges are adjusted on a weekly basis
compared to the previously monthly adjustment. On January 2, 2017,
FedEx Ground implemented a 4.9% average list price increase and
a change to the U.S. domestic dimensional weight divisor. On
January 4, 2016, FedEx Ground implemented a 4.9% increase in
average list price.

FedEx Ground Segment Operating Income
FedEx Ground segment operating income increased 14% due to volume
growth, increased yields and benefits associated with ongoing cost
management. Higher purchased transportation, staffing and network
expansion costs partially offset these benefits.

Purchased transportation increased 11% in 2018 due to higher volumes,
increased rates and higher fuel expenses. Salaries and employee
benefits expense increased 13% in 2018 due to additional staffing to
support volume growth and network expansion and merit increases.
Other expenses increased 14% in 2018 primarily due to higher property
taxes, retail sales commissions and security and facility services.
Intercompany charges increased 10% in 2018 due to higher allocated
information-technology and marketing costs. Rentals and depreciation
and amortization expense increased 8% in 2018 due to network
expansion.

MANAGEMENT’S DISCUSSION AND ANALYSIS

FedEx Ground segment operating income increased 2% in 2017 due
to yield and volume growth, partially offset by network expansion and
staffing costs. Operating margin declined in 2017 primarily due to
network expansion.

Purchased transportation increased 8% in 2017 due to higher volumes
and increased service provider and U.S. Postal Service (“USPS”) rates.
Salaries and employee benefits expense increased 15% in 2017
primarily due to volume growth and additional staffing to support
network expansion. Rent and depreciation and amortization expense
increased in 2017 due to network expansion. Other operating expenses
increased 15% in 2017 due to increased property taxes as a result of
network expansion and higher self-insurance costs.

FedEx Ground Segment Outlook
We expect FedEx Ground segment revenues and operating income
to increase in 2019, driven by continued volume and yield growth in
our commercial business and residential services. We are focused
on balancing capacity and volume growth with yield discipline
and ongoing cost management. We anticipate results in 2019 will
continue to be impacted by higher operating costs required to
service increased residential volumes driven by expected growth in
e-commerce. In addition, we are exploring strategies to optimize the
FedEx Ground network and drive operating income growth and margin
improvement, while continuing to provide industry-leading service.

Capital expenditures at FedEx Ground are expected to decrease in
2019 due to the completion of two major hub projects that boost
our capacity in the Northeast.

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

2018

2016
$ 6,812 $ 6,070 $ 5,825

2017

Percent
Change

2018
2017
12

/
/ 2017
2016
4

3,292
847
153

296
471
227
502
507

3,006
717
134

265
384
214
481
479

2,874
690
140

244
363
206
437
450

10
18
14

12
23
6
4
6

5
4
(4)

9
6
4
10
6

6,295

5,680

517 $
7.6%

390 $
6.4%

11
33

5,404
421
7.2% 120bp (80)bp

5
(7)

74.5
31.9

70.6
31.0

106.4

101.6

67.7
31.1

98.8

1,213
1,134

1,176
1,129

1,191
1,145

1,190

1,161

1,177

$ 236.78 $ 221.67 $ 218.50
261.27
265.77

286.85

$ 251.93 $ 235.20 $ 232.11

$ 19.52 $ 18.85 $ 18.35
22.81
23.55

25.29

$ 21.18 $ 20.25 $ 19.73

6
3

3
–

7
8

4
7

4
–

(1)
(1)

(1)

1
2

3
3

Revenues
Operating expenses:
Salaries and employee
benefits
Purchased transportation
Rentals
Depreciation and
amortization
Fuel
Maintenance and repairs
Intercompany charges
Other
Total operating
expenses
Operating income
Operating margin
Average daily shipments
(in thousands):
Priority
Economy
Total average daily
shipments
Weight per shipment:
Priority
Economy
Composite weight per
shipment
Revenue per shipment:
Priority
Economy
Composite revenue per
shipment
Revenue per
hundredweight:
Priority
Economy
Composite revenue per
hundredweight

MANAGEMENT’S DISCUSSION AND ANALYSIS

Percent of Revenue
2017

2018

2016

48.3%
12.4
2.2
4.4
6.9
3.3
7.4
7.5
92.4
7.6%

49.5%
11.8
2.2
4.4
6.3
3.6
7.9
7.9
93.6
6.4%

49.3%
11.9
2.4
4.2
6.2
3.6
7.5
7.7
92.8
7.2%

FedEx Freight Segment Revenues
FedEx Freight segment revenues increased 12% in 2018 primarily due
to higher revenue per shipment and average daily shipments. Revenue
per shipment increased 7% in 2018 primarily due to higher base rates,
driven by our ongoing yield management initiatives, higher fuel
surcharges and higher weight per shipment. Average daily shipments
increased 5% in 2018 due to higher demand for our service offerings.

FedEx Freight segment revenues increased 4% in 2017 primarily due
to higher average daily shipments and higher revenue per shipment.
Average daily shipments increased 3% in 2017 due to higher demand
for our service offerings. Revenue per shipment increased 1% in 2017
due to higher base rates and fuel surcharges, partially offset by lower
weight per shipment. Base rate increases were the result of our ongoing
yield management initiatives.

The weekly indexed 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 FedEx Freight fuel surcharge ranged
as follows for the years ended May 31:

Low

High

Weighted-average

2018

2017

2016

20.9%

20.2% 18.5%

25.0

22.9

21.6

21.0

23.1

20.6

Effective January 1, 2018, FedEx Freight implemented a 4.9% average
increase in certain U.S. and other shipping rates. On January 2, 2017,
FedEx Freight implemented a 4.9% average increase in certain U.S.
and other shipping rates. On January 4, 2016, FedEx Freight
implemented zone-based pricing on U.S. and other shipping rates.
Also, on January 4, 2016, FedEx Freight implemented a 4.9% average
increase in certain U.S. and other shipping rates.

FedEx Freight Segment Operating Income
FedEx Freight segment operating income increased 33% in 2018
primarily due to higher revenue per shipment. Salaries and employee
benefits increased 10% in 2018, driven by higher staffing levels
to support volume growth, merit increases and higher incentive
compensation accruals. Purchased transportation increased 18% in
2018 due to higher volumes and increased rates, including higher fuel
surcharges.

Fuel expense increased 23% in 2018 due to higher fuel prices. The net
impact of fuel had a moderate benefit to operating income in 2018 as
higher fuel surcharges more than offset increased fuel prices. See the
“Results of Operations and Outlook – Consolidated Results – Fuel”
section of this MD&A for a description and additional discussion of
the net impact of fuel on our operating results.

FedEx Freight segment operating income and operating margin
decreased in 2017 primarily due to higher operating expenses that
more than offset base rate increases and volume growth. Salaries
and employee benefits increased 5% in 2017 due to higher staffing
levels to support volume growth and merit increases. Intercompany
charges increased 10% in 2017 due to higher allocated information-
technology costs. Other expenses increased 6% in 2017 due to higher
self-insurance costs and increased real estate taxes. Purchased
transportation increased 4% in 2017 due to higher volumes.
Depreciation and amortization increased 9% in 2017 due to increased
vehicle purchases. Rentals decreased 4% in 2017 primarily due to a
charge related to a facility closure in 2016 and a credit related to the
favorable sublease of the facility the following year.

Fuel expense increased 6% in 2017 due to higher fuel prices and volume
growth. See the “Results of Operations and Outlook – Consolidated
Results – Fuel” section of this MD&A for a description and additional
discussion of the net impact of fuel on our operating results.

FedEx Freight Segment Outlook
We expect revenue, operating income and operating margin
improvement in 2019 driven by effective yield management, as
well as volume growth primarily from small and mid-sized customers.
FedEx Freight earnings are also expected to be positively impacted
as we continue to leverage new technology to modernize our
operations and improve productivities to further enhance the
customer experience. These operational improvement programs
will also increase operational efficiency and safety and reduce our
cost structure.

Capital expenditures at FedEx Freight are expected to increase slightly
in 2019 primarily due to continued investments in vehicles, equipment
and technology, which are expected to contribute to efficiency
improvements.

MANAGEMENT’S DISCUSSION AND ANALYSIS
CASH PROVIDED BY OPERATING ACTIVITIES. Cash flows from
operating activities decreased $256 million in 2018 primarily due
to $500 million of additional voluntary pension contributions and
$500 million of payments related to previously accrued legal
settlements, partially offset by lower net tax payments.

Cash flows from operating activities decreased $778 million in 2017
primarily due to higher pension contributions, partially offset by lower
income tax payments. We made contributions of $2.5 billion in 2018,
$2.0 billion in 2017 and $660 million in 2016 to our U.S. Pension Plans.

CASH USED IN INVESTING ACTIVITIES. Capital expenditures were
11% higher in 2018 largely due to increased spending at FedEx Express
for aircraft and related equipment as part of our fleet modernization
program and were 6% higher in 2017 due to the inclusion of TNT
Express and increased spending at FedEx Express for aircraft and
related equipment. See “Capital Resources” below for a more detailed
discussion of capital expenditures during 2018 and 2017.

FINANCING ACTIVITIES. We had various senior unsecured debt
issuances in 2018 and 2017. See Note 6 of the accompanying
consolidated financial statements for more information on these
issuances. Interest on our U.S. dollar fixed-rate notes is paid
semi-annually. Interest on our euro fixed-rate notes is paid annually.
Our floating-rate euro senior notes bear interest at three-month
EURIBOR plus a spread of 55 basis points and resets quarterly. We
used the net proceeds of our 2018 debt issuance for a voluntary
incremental contribution in February 2018 to our U.S. Pension Plans.
We utilized the net proceeds of our 2017 debt issuance for a voluntary
incremental contribution in January 2017 to our U.S. Pension Plans
and for working capital and general corporate purposes.

FINANCIAL CONDITION

Liquidity
Cash and cash equivalents totaled $3.3 billion at May 31, 2018,
compared to $4.0 billion at May 31, 2017. The following table
provides a summary of our cash flows for the years ended May 31
(in millions):

Operating activities:
Net income
Retirement plans mark-to-market
adjustment
Gain from sale of business
Gain from sale of investment
Goodwill and other asset impairment
charges
Other noncash charges and credits
Changes in assets and liabilities
Cash provided by operating activities
Investing activities:
Capital expenditures
Business acquisitions, net of
cash acquired
Proceeds from sale of business
Proceeds from asset dispositions
and other
Cash used in investing activities
Financing activities:
Purchase of treasury stock
Principal payments on debt
Proceeds from debt issuances
Dividends paid
Other
Cash provided by financing activities
Effect of exchange rate changes on cash
Net (decrease) increase in cash and
cash equivalents
Cash and cash equivalents at end
of period

2018

2017

2016

$ 4,572 $ 2,997 $ 1,820

(10)
(85)
–

(24)
–
(35)

380
3,277
(3,460)
4,674

–
4,194
(2,202)
4,930

1,498
–
–

–
2,927
(537)
5,708

(5,663)

(5,116)

(4,818)

(179)
123

–
–

(4,618)
–

42
(5,677)

135
(4,981)

(10)
(9,446)

(1,017)
(38)
1,480
(535)
337
227
72

(509)
(82)
1,190
(426)
355
528
(42)

(2,722)
(41)
6,519
(277)
132
3,611
(102)

(704) $

435 $

(229)

$ 3,265 $ 3,969 $ 3,534

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

Total Number
of Shares
Purchased
4,282,800

2018

Average
Price Paid
per Share
$ 237.45

Total
Purchase
Price
$ 1,017

Total Number
of Shares
Purchased
2,955,000

2017

Average
Price Paid
per Share

$ 172.13

Total
Purchase
Price
$ 509

Common stock repurchases

On January 26, 2016, our Board of Directors approved a share
repurchase program of up to 25 million shares. Shares under this
repurchase program may be repurchased from time to time in the open
market or in privately negotiated transactions. The timing and volume
of repurchases are at the discretion of management, based on the
capital needs of the business, the market price of FedEx common
stock and general market conditions. No time limit was set for the
completion of the program, and the program may be suspended or
discontinued at any time. See additional information on the share
repurchase program in Note 1 of the accompanying consolidated
financial statements. As of May 31, 2018, 12 million shares remained
under the current share repurchase authorization.

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):

Capital expenditures during 2018 were higher than the prior year
primarily due to increased spending at FedEx Express for aircraft and
related equipment. Aircraft and related equipment purchases at FedEx
Express during 2018 included the delivery of 14 Boeing 767-300
Freighter (“B767F”) aircraft and four Boeing 777 Freighter (“B777F”)
aircraft, offset by lower spending related to package handling and
ground support equipment at FedEx Ground. Capital expenditures during
2017 were higher than the prior year primarily due to the inclusion of
TNT Express and increased spending at FedEx Express for aircraft and
related equipment, partially offset by the deferral of certain FedEx
Ground network expansion projects to 2018. Aircraft and related
equipment purchases at FedEx Express during 2017 included the
delivery of 14 B767F aircraft, as well as increased spending on existing
orders for B777F aircraft, offset by decreased spending related to the
modification of certain aircraft before being placed into service.

Liquidity Outlook
We believe that our cash and cash equivalents, which totaled
$3.3 billion at May 31, 2018, 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, pension contributions and TNT Express integration
expenses. Our cash and cash equivalents balance at May 31, 2018
includes $1.3 billion of cash in foreign jurisdictions associated with our
permanent reinvestment strategy. We are able to access the majority
of this cash without a material tax cost, as the enactment of the TCJA
significantly reduced the cost of repatriating foreign earnings from a
U.S. tax perspective. We do not believe that the indefinite reinvestment
of these funds impairs our ability to meet our U.S. domestic debt or
working capital obligations.

Percent
Change

2018
2017
37

/
/ 2017
2016
7

2016
Aircraft and related equipment $ 2,483 $ 1,808 $ 1,697
Package handling and ground
support equipment

2018

2017

Vehicles

Information technology

Facilities and other

Total capital expenditures

FedEx Express segment

FedEx Ground segment

FedEx Freight segment

FedEx Services segment

Other

Total capital expenditures

814
954
600
812

1,093
895
594
726

1,196
723
471
731
$ 5,663 $ 5,116 $ 4,818
$ 3,461 $ 2,725 $ 2,350
1,556
1,490
428
431
432
416
52
54
$ 5,663 $ 5,116 $ 4,818

1,178
490
477
57

(26)
7
1
12
11
27
(21)
14
15
6
11

(9)
24
26
(1)
6
16
(4)
1
(4)
4
6

Our capital expenditures are expected to be approximately $5.6 billion
in 2019. We anticipate that our cash flow from operations will be
sufficient to fund our capital expenditures in 2019, which will include
spending for aircraft modernization at FedEx Express, spending on
facilities and sort equipment at FedEx Ground and spending for TNT
Express integration-related investments. We expect approximately
30% of capital expenditures in 2019 to be designated for growth
initiatives. Our expected capital expenditures for 2019 include
$1.9 billion for delivery of aircraft and progress payments toward future
aircraft deliveries at FedEx Express. In addition, over multiple years,
we will be investing over $1.5 billion to significantly expand the FedEx
Express Indianapolis hub and over $1 billion to modernize the FedEx
Express Memphis World Hub. Capital expenditures at FedEx Ground
are expected to decline in 2019 due to the completion of two major hub
projects that boost our capacity in the Northeast.

MANAGEMENT’S DISCUSSION AND ANALYSIS

We have several aircraft modernization programs underway that are
supported by the purchase of B777F and B767F 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 2018, FedEx Express entered into an agreement to purchase
50 Cessna SkyCourier 408 aircraft with options to purchase up to
50 additional Cessna SkyCourier 408 aircraft. The 50 firm-order Cessna
SkyCourier 408 aircraft are expected to be delivered from 2021 through
2024. FedEx Express also entered into an agreement to purchase 30 ATR
72-600F aircraft with options to purchase up to 20 additional ATR
72-600F aircraft. The 30 firm-order ATR 72-600F aircraft are expected
to be delivered from 2021 through 2026. Additionally, FedEx Express
entered into an agreement to accelerate the delivery of two B777F
aircraft from 2021 to 2020, one B777F aircraft from 2021 to 2019, and
one B777F aircraft from 2022 to 2020.

On June 18, 2018, FedEx Express entered into agreements to purchase
12 incremental B777F aircraft and 12 incremental B767F aircraft. Six of
the B777F and one of the B767F aircraft purchases are conditioned upon
there being no event that causes FedEx Express or its employees not to
be covered by the Railway Labor Act of 1926, as amended (“RLA”). The
B777F aircraft are expected to be delivered between 2021 and 2025.
The B767F aircraft are expected to be delivered between 2020 and
2022. As part of these agreements, one B777F and one B767F aircraft
delivery were accelerated from 2020 to 2019.

FedEx Express now has a total of 24 firm orders for B777F aircraft
scheduled for delivery during 2019 through 2025 (one of which was
delivered in June 2018) and a total of 69 firm orders for B767F aircraft
for delivery during 2019 through 2023 (two of which were delivered in
June 2018). Six of the B777F orders and five of the B767F orders are
conditioned upon there being no event that causes FedEx Express or
its employees not to be covered by the RLA (the RLA condition was
removed from three previously ordered B777F aircraft).

FedEx Express also acquired options to purchase an additional 14 B777F
aircraft, and the delivery dates of 11 existing B777F option aircraft were
rescheduled. As a result, FedEx Express now has options to purchase a
total of 25 B777F aircraft for delivery through 2028. FedEx Express also
acquired options to purchase an additional six B767F aircraft. As a
result, FedEx Express now has options to purchase a total of 50 B767F
aircraft for delivery through 2026.

In 2017, FedEx Express entered into agreements to accelerate the
delivery of two B767F aircraft to 2017 from 2018 and two B777F aircraft
to 2018 from 2023.

We have a shelf registration statement filed with the SEC that allows
us to sell, in one or more future offerings, any combination of our
unsecured debt securities and common stock.

During 2018, we amended our five-year revolving credit facility to
increase the aggregate amount available under the facility from
$1.75 billion to $2.0 billion. The facility, which expires in November
2020 and includes a $500 million letter of credit sublimit, is available
to finance our operations and other cash flow needs. The agreement
contains a financial covenant, which requires us to maintain a ratio of
debt to consolidated earnings (excluding non-cash retirement plans
MTM adjustments and non-cash asset impairment charges) before
interest, taxes, depreciation and amortization (“adjusted EBITDA”)
of not more than 3.5 to 1.0, calculated as of the end of the applicable
quarter on a rolling four-quarters basis. The ratio of our debt to adjusted
EBITDA was 2.0 to 1.0 at May 31, 2018. We believe this 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 financial covenant and
all other covenants of our revolving credit agreement and do not expect
the covenants to affect our operations, including our liquidity or
expected funding needs. If we failed to comply with the financial
covenant or any other covenants of our revolving credit agreement, our
access to financing could become limited. We do not expect to be at risk
of noncompliance with the financial covenant or any other covenants
of our revolving credit agreement. As of May 31, 2018, no commercial
paper was outstanding. However, we had a total of $54 million in letters
of credit outstanding at May 31, 2018, with $446 million of the letter of
credit sublimit unused under our revolving credit facility.

For 2019, we anticipate making voluntary contributions to our U.S.
Pension Plans, although at a much lower level than in 2018 or 2017.
As noted in our discussion of critical accounting estimates, we do not
anticipate contributions to our U.S. Pension Plans will be required for
the foreseeable future based on our funded status and the fact we have
a credit balance related to our cumulative excess voluntary pension
contributions over those required that exceeds $3 billion. The credit
balance is subtracted from plan assets to determine the minimum
funding requirements. Therefore, we could eliminate all required
contributions to our principal U.S. Pension Plans for several years if we
were to choose to waive part of that credit balance in any given year.
Our U.S. Pension Plans have ample funds to meet expected benefit
payments.

On June 11, 2018, our Board of Directors declared a quarterly dividend
of $0.65 per share of common stock, an increase of $0.15 per share from
the prior quarter’s dividend. The dividend was paid on July 9, 2018 to
stockholders of record as of the close of business on June 25, 2018.
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, a commercial paper rating of A-2 and a ratings outlook of
“stable.” Moody’s Investors Service has assigned us an unsecured debt
credit rating of Baa2, a commercial paper rating of P-2 and a ratings
outlook of “stable.” If our credit ratings drop, our interest expense may
increase. If our commercial paper ratings drop below current levels, we
may have difficulty utilizing the commercial paper market. If our senior
unsecured debt credit ratings drop below investment grade, our access
to financing may become limited.

MANAGEMENT’S DISCUSSION AND ANALYSIS
Contractual Cash Obligations and Off-Balance Sheet Arrangements
The following table sets forth a summary of our contractual cash obligations as of May 31, 2018. 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, 2018. 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
Investing activities:
Aircraft and aircraft-related capital commitments
Other capital purchase obligations
Financing activities:
Debt
Total

2019

$ 2,471
1,044
605

Payments Due by Fiscal Year (Undiscounted)
2022

2021

2023

Thereafter

2020

Total

$ 2,177
743
541

$ 1,951
509
529

$ 1,762
333
529

$ 1,548
230
522

$ 8,193
2,829
9,348

$ 18,102
5,688
12,074

1,444
50

1,868
3

1,160
2

1,310
1

582
1

309
6

6,673
63

1,335
$ 6,949

984
$ 6,316

–
$ 4,151

–
$ 3,935

1,624
$ 4,507

12,748
$ 33,433

16,691
$ 59,291

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

Operating Activities
In accordance with accounting principles generally accepted in the
United States, future contractual payments under our operating leases
(totaling $18.1 billion on an undiscounted basis) are not recorded in
our balance sheet. Credit rating agencies routinely use information
concerning minimum lease payments required for our operating leases
to calculate our debt capacity. The amounts reflected in the table
above for operating leases represent undiscounted future minimum
lease payments under noncancelable operating leases (principally
facilities and aircraft) with an initial or remaining term in excess of
one year at May 31, 2018. Under the new lease accounting rules, the
majority of these leases will be required to be recognized at the net
present value on the balance sheet as a liability with an offsetting
right-to-use asset effective in 2020.

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

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 ($110 million) for uncertain tax positions. We cannot

reasonably 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 ($51 million) is excluded
from the table. See Note 12 of the accompanying consolidated financial
statements for further information.

As of May 31, 2018, we had $1.2 billion in deposits and progress
payments on aircraft purchases and other planned aircraft-related
transactions.

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.

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.

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 volatility in our earnings, financial
condition and liquidity.

We are required to record annual year-end adjustments to our
financial statements 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.

Over the past several years, we have taken numerous actions to reduce
pension-related risk and expense, including the introduction of our
portable pension account benefit, freezing our traditional pension
benefit, employing a liability-driven investment strategy and permitting
former employees with a traditional pension benefit to make a one-time,
irrevocable election to receive their benefits in a lump-sum distribution.
As a continuation of this strategy, we entered into an agreement with
Metropolitan Life Insurance Company in May 2018 to purchase a group
annuity contract and transfer approximately $6 billion of our U.S.
Pension Plan obligations. The transaction transferred responsibility
for pension benefits to Metropolitan Life Insurance Company for
approximately 41,000 of our retirees and beneficiaries who satisfy
certain conditions and currently receive a monthly benefit from
participating U.S. Pension Plans. There was no change to the pension

benefits for any plan participants as a result of this transaction. The
purchase of the group annuity contract was funded directly by assets
of the U.S. Pension Plans. The group annuity contract reduced the size
of our U.S. Pension Plans, significantly reduced our exposure to market
risk and associated balance sheet volatility and eliminated the
investment, administrative and Pension Benefit Guaranty Corporation
(“PBGC”) premium expenses for approximately 41,000 retirees. We
recognized a $210 million one-time settlement loss in connection with
this transaction, which is included in our 2018 year-end MTM
retirement plans adjustment.

The “Salaries and employee benefits” caption of our consolidated
income statements includes expense associated with service, prior
service and interest costs, the expected return on assets (“EROA”) and
settlements. 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):

Total defined benefit pension plans
Defined contribution plans
Postretirement healthcare plans
Retirement plans mark-to-market
(gain) loss

2018
$ 150
527
74

(10)
$ 741

2017
$ 234
480
76

2016
$ 214
416
82

(24)
$ 766

1,498
$ 2,210

The pre-tax components of the MTM adjustments are as follows (in
millions):

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

2018
$ (613)
382
210

11
$ (10)

2017
$ 266
450
_

2016
$ 1,129
(916)
–

(740)
$ (24)

1,285
$ 1,498

2018
The weighted average discount rate for all of our pension and
postretirement healthcare plans increased from 3.98% at May 31,
2017 to 4.11% at May 31, 2018. The demographic assumption
experience in 2018 reflects a liability loss due to unfavorable results
related to various demographic assumptions. The annuity contract
purchase loss relates to the contract with Metropolitan Life Insurance
Company discussed above. The actual rate of return, which is net of
all fees and expenses, on our U.S. Pension Plan assets of 6.30% was
slightly lower than our expected return of 6.50% primarily due to
generally flat returns in the long-duration fixed income portfolio
partially offset by strong returns from global equities.

MANAGEMENT’S DISCUSSION AND ANALYSIS2017
The actual rate of return on our U.S. Pension Plan assets of 9.2%,
net of all fees and expenses, was higher than our expected return
of 6.50% primarily due to a rise in the value of global equity markets
and favorable credit market conditions. The weighted average
discount rate for all of our pension and postretirement healthcare
plans decreased from 4.04% at May 31, 2016 to 3.98% at May 31,
2017. The demographic assumption experience in 2017 reflects an
update in mortality tables for U.S. pension and other postemployment
benefit plans.

2016
The actual rate of return on our U.S. Pension Plan assets of 0.9%,
net of all fees and expenses, was lower than our expected return of
6.50% primarily due to a challenging environment for global equities
and other risk-seeking asset classes. The weighted average discount
rate for all of our pension and postretirement healthcare plans
declined from 4.38% at May 31, 2015 to 4.04% at May 31, 2016.
The demographic assumption experience in 2016 reflects a change in
disability rates and an increase in the average retirement age for U.S.
pension and other postemployment benefit plans.

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 for our U.S. Pension Plans at each measurement date was
as follows:

Measurement Date

Discount Rate

5/31/2018
5/31/2017
5/31/2016
5/31/2015

4.27%
4.08
4.13
4.42

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 measurement of our PBO and the related impact on our annual
MTM adjustment is highly sensitive to the discount rate assumption.
For our largest pension plan, a 50-basis-point increase in the discount
rate would have decreased our 2018 PBO by approximately $1.5 billion
and a 50-basis-point decrease in the discount rate would have
increased our 2018 PBO by approximately $1.6 billion. However, our
annual segment-level pension expense is less sensitive to changes
in the discount rate. For example, a one-basis-point increase in the
discount rate for our largest pension plan would have a $31 million
effect on the fourth quarter MTM 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 that affects our
segment-level pension expense. 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 tradable 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 follow 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, net
of all fees and expenses; 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 6.50% expected
long-term rate of return on our U.S. Pension Plan assets in 2018, 2017
and 2016. For 2019 we have increased our EROA assumption to 6.75%.
The decrease in the number of retirees in payment status due to the
purchase of a group annuity contract in May 2018 (discussed above)
will reduce our short-term cash outlays and allow the remaining assets
to be placed in longer duration investments, which will increase the rate
of return on assets. Also, the reduction of PBGC fixed and variable-rate
premiums will increase the net return on assets. The actuarial historical
annual return on our U.S. Pension Plan assets, calculated on a
compound geometric basis, was 8.2%, net of all fees and expenses,
for the 15-year period ended May 31, 2018. For our U.S. Pension Plans,
a one basis-point change in our EROA would impact our 2019 pension
expense by $2.2 million.

MANAGEMENT’S DISCUSSION AND ANALYSISFUNDED STATUS. The following is information concerning the funded
status of our pension plans as of May 31 on a financial reporting basis
(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

2018

2017

$ 24,820
23,566
$ (1,254)

$ 29,913
26,312
$ (3,601)

$ 2,631
$ 1,103

$ 2,115
$ 2,310

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 Internal
Revenue Service rules falls below 80% at the beginning of a plan
year. All of our U.S. Pension Plans have funded status levels in excess
of 80% and our plans are fully funded under the Employee Retirement
Income Security Act. Additionally, current benefit payments do not
materially impact our total plan assets (benefit payments for our
U.S. Pension Plans for 2018 were approximately $1.0 billion, or
3.6% of plan assets, as measured before the annuity purchase).
Benefit payments were higher in 2017 because our U.S. Pension Plans
were amended to permit former employees with a vested traditional
pension benefit to make a one-time, irrevocable election to receive
their benefits in a lump-sum distribution. Approximately 18,300 former
employees elected to receive this lump-sum distribution, and a total
of approximately $1.3 billion was paid in May 2017.

Over the past several years, we have made voluntary contributions
to our U.S. Pension Plans in excess of the minimum required
contributions. For 2019, no pension contributions will be required
for our U.S. Pension Plans as they are fully funded. However, we
expect to make tax-deductible discretionary contributions to those
plans at levels significantly less than in 2018, in addition to required
contributions to certain international pension plans. We expect total
pension plan contributions to be substantially less than those made
in 2018.

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

Income Taxes
Given the growth in our international business and the complexities
and changes resulting from the enactment of the TCJA, we have
added income taxes as a critical accounting estimate for 2018.

We are subject to income taxes in the U.S. and numerous foreign
jurisdictions. Our income taxes are a function of our income, statutory
tax rates and tax planning opportunities available to us in the various
jurisdictions in which we operate. Further, the acquisition of TNT
Express, the largest acquisition in our history, has expanded our foreign
operations significantly and increased the complexity of our global
operations from an income tax perspective. The tax laws in the various
jurisdictions are complex and subject to different interpretations by us
and the respective governmental taxing authorities. As a result,
significant judgment is required in determining our tax expense and in
evaluating our tax positions, including evaluating uncertainties. Also,
our effective tax rate is significantly affected by the earnings generated
in each jurisdiction, so unexpected fluctuations in the geographic mix
of earnings could significantly impact our tax rate. Our intercompany
transactions are based on globally accepted transfer pricing principles,
which align profits with the business operations and functions of the
various legal entities in our international business.

We evaluate our tax positions quarterly and adjust the balances as new
information becomes available. These evaluations are based on factors
including, but not limited to, changes in facts or circumstances, changes
in tax law or their interpretations, audit activity and changes in our
business. In addition, management considers the advice of third parties
in making conclusions regarding tax consequences.

Tax contingencies arise from uncertainty in the application of tax rules
throughout the many jurisdictions in which we operate. Despite our
belief that our tax return positions are consistent with applicable tax
laws, taxing authorities could challenge certain positions. We record
tax benefits for uncertain tax positions based upon management’s
evaluation of the information available at the reporting date. To be
recognized in the financial statements, a tax benefit must be at least
more likely than not of being sustained based on technical merits.
The benefit for positions meeting the recognition threshold is
measured as the largest benefit more likely than not of being realized
upon ultimate settlement with a taxing authority that has full
knowledge of all relevant information. Significant judgment is required
in making these determinations and adjustments to unrecognized tax
benefits may be necessary to reflect actual taxes payable upon
settlement.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Deferred income tax assets represent amounts available to reduce
income taxes payable on taxable income in future years. Such assets
arise because of temporary differences between the financial reporting
and tax bases of assets and liabilities, as well as from net operating
loss and tax credit carryforwards. We evaluate the recoverability of
these future tax deductions and credits by assessing the adequacy of
future expected taxable income from all sources, including reversal of
taxable temporary differences, forecasted operating earnings and
available tax planning strategies. These sources of income rely heavily
on estimates to make this determination so there is a risk that these
estimates will have to be revised as new information is received. To the
extent we do not consider it more likely than not that a deferred tax
asset will be recovered, a valuation allowance is established. We
believe we will generate sufficient future taxable income to realize
the tax benefits related to the remaining net deferred tax assets in
our consolidated balance sheet that are not subject to valuation
allowances.

Our income tax positions are based on currently enacted tax laws.
On December 22, 2017, the United States government enacted
comprehensive tax legislation through the TCJA, which significantly
changes the U.S. corporate income tax system and includes, among
other things, a permanent reduction in the corporate income tax rate
from 35% to 21%, a one-time transition tax on unrepatriated foreign
earnings, and new taxes on certain foreign source earnings and
certain related party payments, which are referred to as the global
intangible low-taxed income tax and the base erosion and anti-abuse
tax. The TCJA requires complex computations to be performed that
were not previously required in U.S. tax law, significant judgments,
estimates and calculations to be made in interpreting its provisions,
and the preparation and analysis of information not previously
relevant or regularly produced. The U.S. Treasury Department, the
Internal Revenue Service, and other standard-setting bodies could
interpret or issue guidance on how provisions of the TCJA will be
applied or otherwise administered that is different from our
interpretation. In addition, further legislative action could be taken
to address questions or issues caused by the TCJA. As we continue
our ongoing analysis of the TCJA and its related interpretations,
collect and prepare necessary data, and interpret any additional
guidance, we may make adjustments to amounts that we have
recorded that may materially impact our results of operations and
financial condition. Additionally, state and foreign governments may
enact tax laws in response to the TCJA or other global initiatives
that could result in further changes to our taxation and adversely
impact our results of operations and financial condition.

For more information, including impacts from the TCJA, see the “Income
Taxes” section of this MD&A and Note 12 of the accompanying
consolidated financial statements.

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 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 $2.7 billion at May 31,
2018 and $2.3 billion at May 31, 2017. Approximately 34% 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 type of risk.
Periodically, we evaluate the level of insurance coverage and adjust
insurance levels based on risk tolerance and premium expense. Where
estimable, losses covered by insurance are recognized on a gross
basis with a corresponding insurance receivable.

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 54% 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

MANAGEMENT’S DISCUSSION AND ANALYSISdepreciation 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.

IMPAIRMENT. As of May 31, 2018, the FedEx Express global air and
ground network included a fleet of 670 aircraft (including approximately
300 supplemental 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 maintaining
our service commitments to our customers. Because of the integrated
nature of our global network, our aircraft are 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. At May 31, 2018, we had one
purchased aircraft that was not yet placed into service.

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 determining whether an asset has
been permanently removed from service (and, as a result, is potentially
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, 2018, we had five aircraft temporarily idled. These
aircraft have been idled for an average of 20 months and are expected
to return to revenue service in order to meet expected demand.

SALE. On April 30, 2018, we sold a non-core business of TNT Express
and recorded a gain of $85 million in the FedEx Express segment.

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 “Financial Condition – Contractual Cash
Obligations and Off-Balance Sheet Arrangements” and Note 7 of the
accompanying consolidated financial statements, at May 31, 2018, we
had approximately $18.1 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, 2018 was approximately six years. The future commitments for
operating leases are not yet reflected as a liability in our balance sheet
until the new rules on lease accounting issued in 2016 become effective
in 2020 as described below.

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.

On February 25, 2016, the Financial Accounting Standards Board
(“FASB”) issued a new lease accounting standard. Based on the new
lease accounting standard and our lease portfolio, we currently
anticipate recognizing a lease liability and related right-of-use asset on
the balance sheet in excess of $13 billion, with an immaterial impact on
our income statement compared to the current lease accounting model.
However, the ultimate impact of the standard will depend on the
company’s lease portfolio as of the adoption date. The new standard
will be effective for us on June 1, 2019 (fiscal 2020). See Note 2 of the
accompanying consolidated financial statements for more information
on this recent accounting guidance.

MANAGEMENT’S DISCUSSION AND ANALYSISGOODWILL. As of May 31, 2018, we had $7.0 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 2017, we recorded $407 million in additional
goodwill associated with the completion of the purchase price
allocation related to the TNT Express acquisition. During 2016, we
recorded $3.0 billion in goodwill associated with our TNT Express
acquisition. 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 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.

In connection with our annual impairment testing of goodwill
conducted in the fourth quarter of 2018, we recorded an impairment
charge of $374 million for substantially all of the goodwill attributable
to our FedEx Supply Chain reporting unit. The key factors contributing
to the goodwill impairment were underperformance of the FedEx
Supply Chain business during 2018, including base business erosion,
and the failure to attain the level of operating synergies and revenue
and profit growth anticipated at the time of acquisition. Based on
these factors, our outlook for the business and industry changed in
the fourth quarter of 2018.

Our other reporting units with significant recorded goodwill include
FedEx Express, FedEx Ground, FedEx Freight and FedEx Office (reported
in the FedEx Services segment). We evaluated these reporting units
during the fourth quarters of 2018 and 2017. The estimated fair value
of each of these reporting units exceeded their carrying values in 2018
and 2017; therefore, we do not believe that any of these reporting
units were impaired as of the balance sheet dates.

In January 2017, the FASB issued an Accounting Standards Update
that simplifies the subsequent measurement of goodwill, eliminating
Step 2 from the goodwill impairment test. We adopted the guidance
during the fourth quarter of 2018. See Note 2 of the accompanying
consolidated financial statements for more information on this recent
accounting guidance.

Legal and Other Contingencies
We are subject to various loss contingencies 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 determinations 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 related 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.

Because of the complex environment in which we operate, we are
subject to other legal proceedings and claims, including those relating
to general commercial matters, governmental enforcement actions,
employment-related claims and FedEx Ground’s owner-operators.
Accounting guidance for contingencies requires an accrual of
estimated loss from a contingency, such as a non-income 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 communications during
each quarter and scheduled meetings shortly before the completion of
our financial statements to evaluate any new legal proceedings and the
status of existing matters.

MANAGEMENT’S DISCUSSION AND ANALYSISIn 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 (e.g., 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 disclosures to reflect our most current understanding of the
contingencies at the time we issue our financial statements.
However, events may arise that were not anticipated and the
outcome of a contingency may result in a loss to us that differs
materially from our previously estimated liability or range of
possible loss.

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

QUANTITATIVE AND
QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

INTEREST RATES. While we currently have market risk sensitive
instruments related to interest rates, we have no significant exposure
to changing interest rates on our fixed-rate long-term debt or our
floating-rate debt. As disclosed in Note 6 to the accompanying
consolidated financial statements, we had outstanding fixed- and
floating-rate long-term debt (exclusive of capital leases) with an
estimated fair value of $16.6 billion at May 31, 2018 and $15.5 billion
at May 31, 2017. Market risk for fixed- and floating-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
$431 million as of May 31, 2018 and $370 million as of May 31, 2017.
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
postretirement benefit obligations. Changes in interest rates impact
our liabilities associated with these retirement 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 net pension expense.

FOREIGN CURRENCY. While we are a global provider of transportation,
e-commerce and business services, the majority of our transactions
during the periods presented in this Annual Report are denominated in
U.S. dollars. The principal foreign currency exchange rate risks to which
we are exposed are in the euro, Chinese yuan, British pound, Canadian
dollar, Brazilian real and Mexican peso. 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. Foreign
currency fluctuations had a slightly negative impact on operating income
in 2018 and moderately negative impact on operating income in 2017.
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, 2018, the result of a
uniform 10% strengthening in the value of the dollar relative to the
currencies in which our transactions are denominated would result in a
decrease in operating income of $154 million for 2019. 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.

We maintain derivative financial instruments to manage foreign
currency fluctuations related to probable future transactions and cash
flows denominated in currencies other than the currency of the
transacting entity which impacts our exposure to foreign currency
exchange risk. These derivatives are not designated as hedges and are
accounted for at fair value with any profit or loss recorded in income,
which was immaterial for 2018 and 2017.

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 “Results of Operations and Outlook — Consolidated Results
— Fuel” section of “Management’s Discussion and Analysis of
Results of Operations and Financial Condition.”

MANAGEMENT’S DISCUSSION AND ANALYSISRISK 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 and
anti-trade measures. While macroeconomic 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 macroeconomic measurements. 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, world
trade policies, international taxes, government-to-government
relations and the typically more volatile economies of emerging
markets. For instance, anti-trade and protectionist measures
adopted by the U.S. or other countries in which we do business,
such as trade controls, tariffs, quotas, embargoes, sanctions, or
retaliation by another country against such measures, could result in
economic uncertainty and instability, resulting in fewer goods being
transported globally.

A significant data breach or other disruption to our technology
infrastructure could disrupt our operations and result in the loss
of critical confidential information, adversely impacting our
reputation, business or results of operations. Our ability to attract
and retain customers, to efficiently operate our businesses, 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, to protect our
confidential business information and the information provided by our
customers, and to maintain customer confidence in our ability to protect
our systems and to provide services consistent with their expectations.
For example, we rely on information technology to receive package level
information in advance of physical receipt of packages, to track items
that move through our delivery systems, to efficiently plan deliveries,
to execute billing processes, and to track and report financial and
operational data. We are subject to risks imposed by data breaches and
operational disruptions, including through cyberattack or cyber-intrusion,
including by computer hackers, foreign governments, cyber terrorists,
cyber criminals and malicious employees or other insiders. Data
breaches of companies and governments have increased in recent years
as the number, intensity and sophistication of attempted attacks and
intrusions from around the world have increased. 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 and could result in unauthorized or
block legitimate access to sensitive or confidential data regarding our
operations, customers, employees, and suppliers, including personal
information.

We also depend on and interact with the technology and systems of
third parties, including our customers and third-party service providers
such as cloud service providers and delivery services, for a variety of
reasons. Such third parties may have access to information we maintain
about our company, customers, employees and vendors or operate
systems that are critical to our business operations and services. Like
us, these third parties are subject to risks imposed by data breaches,
cyberattacks and other events or actions that could damage, disrupt
or close down their networks or systems. We have security processes,
protocols and standards in place, including contractual provisions
requiring such security measures, that are applicable to such third
parties and are designed to protect information that is held by them,
or to which they have access, as a result of their engagements with
us. Nevertheless, a cyberattack could defeat one or more of such third
parties’ security measures, allowing an attacker to obtain information
about our company, customers, employees and vendors or disrupt our
operations. These third parties may also experience operational
disruptions or human error that could result in unauthorized access
to sensitive or confidential data regarding our operations, customers,
employees and suppliers, including personal information.

Any disruption to our complex, global technology infrastructure,
including those impacting our computer systems and websites, could
result in the loss of confidential business or customer information,
adversely impact our operations, customer service, volumes and
revenues, could lead to litigation or investigations or require substantial
repairs or replacements, resulting in significant costs. Additionally,
a security breach could require us to devote significant management
resources to address the problems created. These types of adverse
impacts could also occur in the event the confidentiality, integrity or
availability of company and customer information was compromised
due to a data loss by FedEx or a trusted third party. We or the third
parties with which we share information may not discover any security
breach and loss of information for a significant period of time after the
security breach occurs.

Recently, there has also been heightened regulatory and enforcement
focus on data protection in the U.S. (at both the state and federal
level) and abroad, and an actual or alleged failure to comply with
applicable U.S. or foreign data protection regulations or other data
protection standards may expose us to litigation, fines, sanctions or
other penalties, which could harm our reputation and adversely impact
our business, results of operations and financial condition. This
regulatory environment is increasingly challenging and may present
material obligations and risks to our business, including significantly
expanded compliance burdens, costs and enforcement risks. For
example, the European Union’s (“EU’s”) General Data Protection
Regulation (“GDPR”), which became effective in May 2018, greatly
increases the jurisdictional reach of EU law and adds a broad array
of requirements related to personal data, including individual notice
and opt-out preferences and the public disclosure of significant data
breaches. Additionally, violations of the GDPR can result in fines of as
much as 4% of a company’s annual revenue. Other governments have
enacted or are enacting similar data protection laws, and are
considering data localization laws that require data to stay within
their borders. All of these evolving compliance and operational
requirements impose significant costs and regulatory risks that are
likely to increase over time.

MANAGEMENT’S DISCUSSION AND ANALYSISWe have invested and continue to invest in technology security
initiatives, information-technology risk management and disaster
recovery plans, including investments to retire and replace end-of-life
systems. The development and maintenance of these measures is costly
and requires ongoing monitoring and updating as technologies change
and efforts to overcome security measures become increasingly more
intense and sophisticated. Despite our efforts, we are not fully insulated
from data breaches, technology disruptions or data loss, which could
adversely impact our competitiveness and results of operations. For
instance, in June 2017 TNT Express worldwide operations were
significantly affected due to the infiltration of an information-technology
virus known as NotPetya. In May 2017 FedEx was one of many
companies attacked by the rapidly spreading ransomware described as
WannaCry that exploited vulnerability in a third-party software program
and infected computers using that program, encrypting files and holding
them for ransom. Additionally, during the third quarter of 2018 we
discovered an unsecured server hosted by one of our third-party cloud
service providers, which exposed some archived account information
related to a service discontinued after our 2015 acquisition of Bongo
International, LLC. The server has been secured, and we have found no
indication that any information has been misappropriated in connection
with the incident. Neither the WannaCry ransomware attack or
unsecured server caused a material disruption to our systems or
resulted in any material costs to FedEx.

While we have significant security processes and initiatives in place,
we may be unable to detect or prevent a material breach or disruption
in the future. We do not currently have cyber insurance coverage in
place, but we are evaluating the market for such coverage.

Changes in international trade policies could significantly reduce
the volume of goods transported globally and adversely affect our
business. The U.S. government has made significant changes in U.S.
trade policy and has taken certain actions that may impact U.S. trade,
including imposing tariffs on certain goods imported into the United
States. To date, several governments, including the EU, China, and
India, have imposed tariffs on certain goods imported from the United
States. Any further changes in U.S. or international trade policy could
trigger additional retaliatory actions by affected countries, resulting
in “trade wars” and increased costs for goods transported globally,
which may reduce customer demand for these products if the parties
having to pay those tariffs increase their prices, or in trading partners
limiting their trade with countries that impose anti-trade measures.
If these consequences are realized, the volume of global economic
activity may be significantly reduced. Such a reduction could have a
material adverse effect on our business, results of operations and
financial condition.

The failure to integrate successfully the businesses and
operations of FedEx Express and TNT Express in the expected
time frame and at the expected cost may adversely affect our
future results. Prior to FedEx’s acquisition of TNT Express in 2016,
FedEx Express and TNT Express operated as independent companies.
There can be no assurances that these businesses can be integrated
successfully. It is possible that the integration process could result
in higher than expected integration costs, the loss of customers, the
disruption of ongoing businesses, unexpected integration issues, or
the loss of key historical FedEx Express or TNT Express employees.
It is also possible that the overall integration process will take longer
than currently anticipated.

Specifically, the following issues, among others, must be addressed
as we integrate the operations of FedEx Express and TNT Express in
order to realize the anticipated benefits of the transaction:

> combining the companies’ operations and corporate functions;

> combining the businesses of FedEx Express and TNT Express and
meeting the capital requirements of the combination in a manner
that permits us to achieve the operating and financial results we
anticipated from the acquisition, the failure of which could result
in the material anticipated benefits of the transaction not being
realized in the time frame currently anticipated, or at all;

> integrating and consolidating the companies’ administrative and
information-technology infrastructure and computer systems;

> integrating and restructuring the corporate entities;

> integrating workforces while continuing to provide consistent,

high-quality service to customers;

> integrating and unifying the offerings and services available to

historical FedEx Express and TNT Express customers;

> harmonizing the companies’ operating practices, employee
development and compensation programs, integrity and
compliance programs, internal controls and other policies,
procedures and processes;

> integrating the companies’ financial reporting and internal control

systems;

> maintaining existing agreements with customers and service

providers and avoiding delays in entering into new agreements with
prospective customers and service providers;

> addressing possible differences in business backgrounds, corporate

cultures and management philosophies;

> addressing employee social issues so as to maintain efficient and

effective labor and employee relations;

> coordinating rebranding and marketing efforts;

> managing the movement of certain positions to different locations;

> managing potential unknown and unidentified liabilities, including
liabilities that are significantly larger than currently anticipated,
and unforeseen increased expenses or delays associated with the
integration process; and

> managing the expanded operations of a significantly larger, more

complex company.

All of these factors could dilute FedEx’s earnings per share, decrease
or delay the expected accretive effect of the acquisition and negatively
impact the price of FedEx’s common stock. In addition, at times the
attention of certain members of our management may be focused on
the integration of the businesses of FedEx Express and TNT Express and
diverted from day-to-day business operations, which may disrupt our
business.

MANAGEMENT’S DISCUSSION AND ANALYSISOur 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, agents or others with whom we do business,
such as customer service mishaps, noncompliance with laws or the
shipment of certain items pursuant to our obligation as a common
carrier operating under federal law, could tarnish our reputation and
reduce the value of our brand. With the increase in the use of social
media outlets such as Facebook, YouTube, Instagram and Twitter,
adverse publicity can be disseminated quickly and broadly, making
it increasingly difficult for us to effectively respond. 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.

Our transportation businesses are impacted by the price and
availability of fuel. We must purchase large quantities of fuel to
operate our aircraft and vehicles, and the price and availability of fuel
is beyond our control and can be highly volatile. 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. As of May 31, 2018, we had
no derivative financial instruments to reduce our exposure to fuel price
fluctuations, and we currently have no plans to use derivative financial
instruments for this purpose in the future. 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. Weather-related events, natural
disasters, political disruptions or wars involving oil-producing
countries, changes in governmental policy concerning aircraft fuel
production, transportation, taxes or marketing, changes in refining
capacity, environmental concerns and other unpredictable events may
impact fuel supply and could result in shortages in the future.

Our businesses are capital intensive, and we must make capital
decisions based upon projected volume levels. We make
significant investments in aircraft, package handling facilities,
vehicles, technology, 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, as well as negatively impact operating margins, 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 macroeconomic growth.
Some of our competitors have more financial resources and other
competitive advantages than we do, or they are owned, 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
and startup companies that combine technology with crowdsourcing to
focus on local market needs. In addition, some high volume package
shippers, such as Amazon.com, are developing and implementing
in-house delivery capabilities and utilizing independent contractors for
deliveries, which could 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 and
planned service offerings, if our current competitors or potential future
competitors offer a broader range of services, more effectively bundle
their services, or offer services at lower prices, it could impede our
ability to maintain or grow our market share. Moreover, if our current
customers, such as Amazon.com, become competitors and bundle
transportation with other services, it will reduce our revenue and could
negatively impact our financial condition and results of operations.
Additionally, advancements in technology, such as advanced safety
systems, automated package sorting, handling and delivery, vehicle
platooning, alternative fuel vehicles and digitization of freight services,
may necessitate that we increase investments in order to remain
competitive, and our customers may not be willing to accept higher
rates to cover the cost of these investments.

Government regulation is evolving and unfavorable changes
could harm our business. We are subject to regulation under a wide
variety of U.S. federal and state and non-U.S. regulations, laws, and
policies. There can be no assurance that such regulations, laws and
policies will not be changed in ways that will decrease the demand for
our services, subject us to escalating costs or require us to modify our
business models and objectives, harming our financial results. In
particular, legislative, regulatory or other actions that U.S. and non-U.S.
governments have undertaken or are considering in areas such as data
privacy and sovereignty, taxes, foreign exchange intervention in
response to currency volatility, currency controls that could restrict
the movement of liquidity from particular jurisdictions, trade controls,
tariffs, quotas, embargoes or sanctions in the U.S. or other countries,
complex economic sanctions, additional security requirements,
additional requirements on employees and benefits, environmental
standards and tax reform may have an effect on our operations,
liquidity, capital requirements, effective tax rate and performance.

MANAGEMENT’S DISCUSSION AND ANALYSISFor example, anti-trade or protectionist measures passed in the U.S.
or other countries in which we do business could depress global trade,
decrease the demand for our services and negatively impact our
financial results.

We could be subject to adverse changes in regulations and
interpretations or challenges to our tax positions relating to the
Tax Cuts and Jobs Act. We are subject to taxation in the U.S. and
numerous foreign jurisdictions. Additionally, significant judgment is
required in determining our worldwide provision for income taxes,
and in the course of our business there are many transactions and
calculations where the ultimate tax determination is uncertain. From
time to time, changes in tax laws or regulations may be proposed or
enacted that could significantly affect our overall tax liability. For
example, in December 2017, the United States government enacted
comprehensive tax legislation through the TCJA, which significantly
changes the U.S. corporate income tax system. The TCJA requires
complex computations to be performed that were not previously
required in U.S. tax law, significant judgments, estimates and
calculations to be made in interpreting its provisions, and the
preparation and analysis of information not previously relevant or
regularly produced. The U.S. Treasury Department, the Internal
Revenue Service, and other standard-setting bodies could interpret
or issue guidance on how provisions of the TCJA will be applied or
otherwise administered that is different from our interpretation. In
addition, further legislative action could be taken to address questions
or issues caused by the TCJA. As we continue our ongoing analysis
of the TCJA and its related interpretations, collect and prepare
necessary data, and interpret any additional guidance, we may make
adjustments to amounts that we have recorded that may adversely
impact our results of operations and financial condition. Additionally,
state and foreign governments may enact tax laws in response to the
TCJA or other global initiatives that could result in further changes to
our taxation and adversely impact our results of operations and
financial condition.

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, in addition to TNT Express, we have acquired businesses in
Europe, Latin America, Africa and the U.S. over the past several years.
While we expect our past and future acquisitions to enhance our
value proposition to customers and improve our long-term profitability,
there can be no assurance that we will realize our expectations within
the time frame we have established, if at all, or that we can continue
to support the value we allocate to these acquired businesses, including
their goodwill or other intangible assets. For example, in 2018 we
incurred a goodwill impairment charge of $374 million related to FedEx
Supply Chain, eliminating substantially all of the goodwill attributable
to this reporting unit. The key factors contributing to the goodwill
impairment were underperformance of the FedEx Supply Chain
business during 2018, including base business erosion, and the failure
to attain the level of operating synergies and revenue and profit
growth anticipated at the time of the acquisition.

We may not be able to achieve our profit improvement goal by
the end of 2020. In March 2017, we announced that the FedEx
Express group is targeting operating income improvement of
$1.2 billion to $1.5 billion in 2020 from 2017. Our ability to achieve
this objective is dependent on a number of factors, including the
TNT integration progressing as planned, the health of the global
economy, stability in global trade, future customer demand and
current accounting rules and tax laws. In light of these factors, we
may not be able to achieve our goal.

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 at FedEx Express and drivers at one
FedEx Freight facility, our U.S. employees have thus far chosen not to
unionize (we acquired FedEx Supply Chain (formerly GENCO
Distribution System, Inc.) in 2015, which already had a small number
of employees that are members of unions). Additionally, certain of
FedEx Express’s non-U.S. employees are unionized.

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
jurisdiction of the RLA. Such legislation could expose our customers
to the type of service disruptions that the RLA was designed to
prevent — local work stoppages in key areas that interrupt the timely
flow of shipments of time-sensitive, high-value goods throughout
our global network. Such disruptions could threaten our ability to
provide competitively priced shipping options and ready access to
global markets.

There is also the possibility that Congress could pass other labor
legislation that could adversely affect our companies, such as FedEx
Ground and FedEx Freight, whose employees are governed by the
National Labor Relations Act of 1935, as amended (“NLRA”). In
addition, federal and state governmental agencies, such as the
National Mediation Board and the National Labor Relations Board,
have and may continue to take actions that could make it easier for
our employees to organize under the RLA or NLRA. Finally, changes to
federal or state laws governing employee classification could
impact the status of FedEx Ground’s owner-operators as independent
employers of drivers. If FedEx Ground is deemed to be an employer or
joint employer of the drivers of these independent contractors, 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 ANALYSISFedEx Ground relies on owner-operators to conduct its linehaul
and pickup-and-delivery operations, and the status of these
owner-operators as independent contractors and direct
employers of drivers providing these services 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 lawsuits and administrative proceedings that claim the
company’s owner-operators engaged under operating agreements no
longer in place should have been treated as our employees rather than
independent contractors. In addition, we are defending joint-employer
cases where it is alleged that FedEx Ground should be treated as an
employer of the drivers employed by owner-operators engaged by
FedEx Ground. We incur certain costs, including legal fees, in
defending the status of FedEx Ground’s owner-operators as
independent contractors.

We continue to believe that owner-operators engaged by FedEx
Ground are properly classified as independent contractors and that
FedEx Ground is not an employer or joint employer of the drivers of
these 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, including the
potential for prior period compensation, and result in employment and
withholding tax and benefit liability for FedEx Ground, and could result
in changes to the independent contractor status of FedEx Ground’s
owner-operators. Changes to state laws governing the definition of
independent contractors, or employees of independent contractors,
could also impact the status of FedEx Ground’s owner-operators.

Disruptions or modifications in service by the USPS or changes
in its business or financial soundness could have an adverse
effect on our operations and financial results. The USPS is a
significant customer and vendor of FedEx. In particular, the USPS is the
largest customer of FedEx Express, which provides domestic air
transportation services for the USPS’s First Class Mail, Priority Mail
Express and Priority Mail and transportation and delivery for the USPS’s
international delivery service. Disruptions or modifications in service by
the USPS as a result of financial difficulties or changes in its business,
including any structural changes to its operations, network, service
offerings or pricing, could adversely affect our operations, negatively
impacting our revenue, results of operations and financial condition.

The UK vote to leave the EU could adversely impact our business,
results of operations and financial condition. There is substantial
uncertainty surrounding the UK’s 2016 vote to leave the EU (“Brexit”).
Any impact of the Brexit vote depends on the terms of the UK’s
withdrawal from the EU, which was formally initiated in 2017 and
could take several years to accomplish. The UK’s withdrawal from the
EU could result in a global economic downturn, which could depress
the demand for our services. The UK also could lose access to the
single EU market and to the global trade deals negotiated by the EU on
behalf of its members, depressing trade between the UK and other
countries, which would negatively impact our international operations.
Additionally, we may face new regulations regarding trade, aviation,
security and employees, among others, in the UK. Compliance with
such regulations could be costly, negatively impacting our business,
results of operations and financial condition.

The transportation infrastructure continues to be a target of
terrorist activities. Because transportation assets continue to be a
target of terrorist activities, governments around the world are adopting
or are considering adopting stricter security requirements that will
increase operating costs and potentially slow service for businesses,
including those in the transportation industry. For example, the U.S.
Transportation Security Administration (“TSA”) requires FedEx Express
to comply with a Full All-Cargo Aircraft Operator Standard Security Plan,
which contains evolving and strict security requirements. Additionally,
the International Civil Aviation Organization (“ICAO”) currently allows a
member state to permit carriers and other entities to determine, without
government oversight, which shippers and shipments are secure for
purposes of putting those shipments on all-cargo aircraft. This
allowance will be removed by calendar 2021 and may require us
to undergo additional screening and oversight by the TSA and similar
government agencies internationally. Security requirements such as
these are not static, but change periodically as the result of regulatory
and legislative requirements, imposing additional security costs and
creating a level of uncertainty for our operations. Thus, it is reasonably
possible that these rules or other future security requirements could
impose material costs on us or slow our service to our customers. The
impact on our operations of avoiding areas of the world, including
airspace, in which there are geopolitical conflicts and the targeting of
aircraft by parties to those conflicts can also be significant. Moreover,
a terrorist attack directed at FedEx or other aspects of the transportation
infrastructure could disrupt our operations and adversely impact
demand for our services.

The regulatory environment for global aviation or other
transportation rights may impact our operations and increase
our operating costs. 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 U.S. and foreign governments. In addition, we
must obtain the permission of foreign governments to provide specific
flights and services. Our operations outside of the U.S., 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 or executive actions
affecting global aviation or transportation rights or a failure to obtain
or maintain aviation or other transportation rights in important
international markets could impair our ability to operate our networks.

We are subject to other extensive regulatory and legal compliance
requirements that may result in significant costs. For instance, the
Federal Aviation Administration from time to time issues directives and
other regulations relating to the maintenance and operation of aircraft
that require significant expenditures in order to comply.

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. Increasingly, state and local governments are
also considering GHG regulatory requirements.

MANAGEMENT’S DISCUSSION AND ANALYSISCompliance with such regulation and the associated potential cost is
complicated by the fact that various countries and regions are following
different approaches to the regulation of climate change. For example,
in 2009, the European Commission approved the extension of the EU
Emissions Trading Scheme (“ETS”) for GHG emissions to the airline
industry. Under this decision, all FedEx Express flights that are wholly
within the EU are now covered by the ETS requirements, and each year
we are required to purchase emission allowances in an amount equal to
the carbon dioxide emissions from such flights. Also, in 2016, the ICAO
passed a resolution adopting the Carbon Offsetting and Reduction
Scheme for International Aviation (“CORSIA”), which is a global,
market-based emissions offset program to encourage carbon-neutral
growth beyond 2020. A pilot phase is scheduled to begin in 2021 in
which countries may voluntarily participate, and full mandatory
participation is scheduled to begin in 2027. ICAO continues to develop
details regarding implementation, but compliance with CORSIA will
increase FedEx operating costs.

Additionally, in 2016, the U.S. Environmental Protection Agency (“EPA”)
issued a finding that aircraft engine GHG emissions cause or contribute
to air pollution that may reasonably be anticipated to endanger public
health or welfare. This finding is a regulatory prerequisite to the EPA’s
adoption of a new certification standard for new aircraft emissions,
expected in 2019 or 2020. In the past, the U.S. Congress has also
considered bills that would regulate GHG emissions, and some form of
federal climate change legislation is possible in the future. However, in
2017 the U.S. withdrew from the Paris climate accord, an agreement
among 196 countries to reduce GHG emissions, and that withdrawal’s
effect on future U.S. policy regarding GHG emissions, on CORSIA and on
other GHG regulation is uncertain. Nevertheless, the extent to which
other countries implement that agreement could have an adverse direct
or indirect effect on our business.

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 possible regulation becomes known,
we cannot predict its effect on our cost structure or our operating
results. It is reasonably possible, however, that it could materially
increase our operating expenses, if instituted.

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 macroeconomic 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.

Adverse weather or 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 earthquakes, volcanoes, wildfires,
hurricanes, conflicts or unrest, or terrorist attacks. The loss of a key
location such as our Memphis World Hub or one of our information-
technology centers could cause a significant disruption to our operations
and cause us to incur significant costs to reestablish or relocate these
functions. Moreover, resulting economic dislocations, including supply
chain and fuel disruptions, could adversely impact demand for our
services.

We are also subject to other risks and uncertainties, including:

> increasing costs, the volatility of costs and funding requirements

and other legal mandates for employee benefits, especially pension
and healthcare benefits;

> changes in our ability to attract and retain pilots, drivers and package

handlers;

> 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;

> changes in foreign currency exchange rates, especially in the euro,
Chinese yuan, British pound, Brazilian real, Canadian dollar and
Mexican peso, 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, joint employment,
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 agreement is scheduled to become
amendable in November 2021) and with the union elected in 2015 to
represent drivers at a FedEx Freight facility;

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

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

> widespread outbreak of an illness or any other communicable disease,

or any other public health crisis; and

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

MANAGEMENT’S DISCUSSION AND ANALYSISFORWARD-LOOKING
STATEMENTS

Certain statements in this Annual Report, including (but not limited to)
those contained in the “Letter from the Chairman,” “Income Taxes,”
“Outlook” (including segment outlooks), “Recent Accounting
Guidance,” “Liquidity,” “Capital Resources,” “Liquidity Outlook,”
“Contractual Cash Obligations and Off-Balance Sheet Arrangements,”
“Critical Accounting Estimates” and “Risk Factors” sections of
“Management’s Discussion and Analysis of Results of Operations and
Financial Condition,” and the “Recent Accounting Guidance,” “Income
Taxes,” “Retirement Plans,” “Commitments” 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 “will,” “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.

EFFECTIVE TAX RATE PRIOR
TO MTM RETIREMENT PLAN
ACCOUNTING ADJUSTMENT

We are unable to predict the amount of the fiscal 2019 year-end MTM
retirement plan accounting adjustment, as it is significantly impacted
by changes in interest rates and the financial markets. For this reason,
a full reconciliation of our fiscal 2019 effective tax rate forecast to the
most directly comparable accounting principle generally accepted in
the United States (“GAAP”) measure is impracticable.

We have provided a fiscal 2019 effective tax rate forecast prior to
year-end MTM retirement plan accounting adjustments to facilitate
analysis and comparisons of our ongoing business operations by
excluding an item that is unrelated to our core operating performance,
and to assist investors with comparisons to prior periods and
assessing trends in our underlying businesses. This adjustment is
consistent with how management views our businesses. Management
uses this non-GAAP financial measure in making financial, operating
and planning decisions and evaluating the company’s ongoing
performance.

This non-GAAP measure is intended to supplement and should be read
together with, and is not an alternative or substitute for, and should
not be considered superior to, our reported financial measures.
Accordingly, users of our financial statements should not place undue
reliance on this non-GAAP financial measure. Because non-GAAP
financial measures are not standardized, it may not be possible to
compare this non-GAAP measure with other companies’ non-GAAP
financial measures having the same or similar names. While we are
unable to predict the amount of the fiscal 2019 year-end MTM
retirement plan accounting adjustment, it is reasonably possible that
such adjustment could have a material impact on our fiscal 2019
effective tax rate.

MANAGEMENT’S DISCUSSION AND ANALYSISMANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING

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

Management, with the participation of our principal executive and financial officers, assessed our internal control over financial reporting
as of May 31, 2018, 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, 2018.

The effectiveness of our internal control over financial reporting as of May 31, 2018, has been audited by Ernst & Young LLP, the independent
registered public accounting firm who also audited the Company’s consolidated financial statements included in this Annual Report.
Ernst & Young LLP’s report on the Company’s internal control over financial reporting is included in this Annual Report.

FEDEX CORPORATIONREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
FedEx Corporation

Opinion on Internal Control over Financial Reporting
We have audited FedEx Corporation’s internal control over financial reporting as of May 31, 2018, 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). In our opinion, FedEx Corporation (the Company) maintained, in all material respects, effective internal control over financial
reporting as of May 31, 2018, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheets of the Company as of May 31, 2018 and 2017, 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, 2018, and the related notes
and our report dated July 16, 2018 expressed an unqualified opinion thereon.

Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a
public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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.

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

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

Memphis, Tennessee
July 16, 2018

CONSOLIDATED BALANCE SHEETS

(in millions, except share data)
Assets
Current Assets
Cash and cash equivalents
Receivables, less allowances of $401 and $252
Spare parts, supplies and fuel, less allowances of $268 and $237
Prepaid expenses and other
Total current assets
Property and Equipment, at Cost
Aircraft and related equipment
Package handling and ground support equipment
Information technology
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, 2018 and 2017
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost
Total common stockholders’ investment

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

May 31,

2018

2017

$ 3,265
8,481
525
1,070
13,341

20,749
9,727
5,794
7,708
11,143
55,121
26,967
28,154

6,973
3,862
10,835
$ 52,330

$ 1,342
2,177
2,977
3,131
9,627
15,243

2,867
2,187
1,784
551
121
534
8,044

32
3,117
24,823
(578)
(7,978)
19,416
$ 52,330

$ 3,969
7,599
514
546
12,628

18,833
8,989
5,396
6,961
10,447
50,626
24,645
25,981

7,154
2,789
9,943
$ 48,552

22
1,914
2,752
3,230
7,918
14,909

2,485
4,487
1,494
531
137
518
9,652

32
3,005
20,833
(415)
(7,382)
16,073
$ 48,552

FEDEX CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share amounts)
Revenues
Operating Expenses:
Salaries and employee benefits
Purchased transportation
Rentals and landing fees
Depreciation and amortization
Fuel
Maintenance and repairs
Goodwill and other asset impairment 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 (Benefit)
Net Income
Basic Earnings Per Common Share
Diluted Earnings Per Common Share

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

2018
$ 65,450

Years ended May 31,
2017
$ 60,319

2016
$ 50,365

23,207
15,101
3,361
3,095
3,374
2,622
380
(10)
9,450
60,580
4,870

(558)
48
(7)
(517)
4,353
(219)
$ 4,572
$ 17.08
$ 16.79

21,542
13,630
3,240
2,995
2,773
2,374
–
(24)
8,752
55,282
5,037

(512)
33
21
(458)
4,579
1,582
$ 2,997
$ 11.24
$ 11.07

18,581
9,966
2,854
2,631
2,399
2,108
–
1,498
7,251
47,288
3,077

(336)
21
(22)
(337)
2,740
920
$ 1,820
6.59
$
6.51
$

FEDEX CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)
Net Income
Other Comprehensive Loss:
Foreign currency translation adjustments, net of tax expense of $16 in 2018,
tax expense of $52 in 2017 and tax benefit of $22 in 2016
Amortization of prior service credit and other, net of tax benefit of $37 in 2018,
tax benefit of $43 in 2017 and tax benefit of $45 in 2016

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

2018
$ 4,572

Years ended May 31,
2017
$ 2,997

2016
$ 1,820

(74
)

(171)

(261)

(89)
(163)
$ 4,409

(75)
(246)
$ 2,751

(80)
(341)
$ 1,479

FEDEX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)
Operating Activities
Net Income
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization
Provision for uncollectible accounts
Deferred income taxes and other noncash items
Stock-based compensation
Retirement plans mark-to-market adjustment
Gain from sale of business
Gain from sale of investment
Goodwill and other asset impairment charges
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 sale of business
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
Dividends paid
Purchase of treasury stock
Other, net
Cash provided by financing activities
Effect of exchange rate changes on cash
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
The accompanying notes are an integral part of these consolidated financial statements.

Years ended May 31,
2017

2018

2016

$ 4,572

$ 2,997

$ 1,820

3,095
246
(231)
167
(10)
(85)
–
380

(1,049)
(135)
(2,345)
141
(72)
4,674

(5,663)
(179)
123
42
(5,677)

(38)
1,480
327
(535)
(1,017)
10
227
72
(704)
3,969
$ 3,265

2,995
136
909
154
(24)
–
(35)
–

(556)
78
(1,688)
103
(139)
4,930

(5,116)
–
–
135
(4,981)

(82)
1,190
337
(426)
(509)
18
528
(42)
435
3,534
$ 3,969

2,631
121
31
144
1,498
–
–
–

(199)
(234)
(346)
467
(225)
5,708

(4,818)
(4,618)
–
(10)
(9,446)

(41)
6,519
183
(277)
(2,722)
(51)
3,611
(102)
(229)
3,763
$ 3,534

FEDEX CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
INVESTMENT

Common
Stock
$ 32
–
–
–
–

(in millions, except share data)
Balance at May 31, 2015
Net income
Other comprehensive loss, net of tax of $67
Purchase of treasury stock (18.2 million shares)
Cash dividends declared ($1.00 per share)
Employee incentive plans and other
(2.0 million shares issued)
Balance at May 31, 2016
Net income
Other comprehensive loss, net of tax of $9
Purchase of treasury stock (3.0 million shares)
Cash dividends declared ($1.60 per share)
Employee incentive plans and other
(3.5 million shares issued)
Balance at May 31, 2017
Net income
Other comprehensive loss, net of tax of $21
Purchase of treasury stock (4.3 million shares)
Cash dividends declared ($2.00 per share)
Employee incentive plans and other
(3.1 million shares issued)
Balance at May 31, 2018
The accompanying notes are an integral part of these consolidated financial statements.

–
32
–
–
–
–

–
$ 32

Additional
Paid-in
Capital
$ 2,786
–
–
–
–

106
2,892
–
–
–
–

113
3,005
–
–
–
–

Accumulated
Other
Comprehensive
Income
$ 172
–
(341)
–
–

–
(169)
–
(246)
–
–

–
(415)
–
(163)
–
–

Retained
Earnings
$ 16,900
1,820
–
–
(277)

(72)
18,371
2,997
–
–
(426)

(109)
20,833
4,572
–
–
(535)

Treasury
Stock
$ (4,897)
–
–
(2,722)
–

277
(7,342)
–
–
(509)
–

469
(7,382)
–
–
(1,017)
–

Total
$ 14,993
1,820
(341)
(2,722)
(277)

311
13,784
2,997
(246)
(509)
(426)

473
16,073
4,572
(163)
(1,017)
(535)

112
$ 3,117

(47)
$ 24,823

–
$ (578)

421
$ (7,978)

486
$ 19,416

50
50

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
Corporation (“FedEx Freight”), a leading U.S. provider of less-than-
truckload (“LTL”) freight transportation. These companies represent
our major service lines and, along with FedEx Corporate Services, Inc.
(“FedEx Services”), constitute our reportable segments. Our FedEx
Services segment provides sales, marketing, information technology,
communications, customer service, technical support, billing and
collection services, and certain back-office functions that support our
transportation segments (FedEx Express, FedEx Ground and FedEx
Freight). 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”).

FISCAL YEARS. Except as otherwise specified, references to years
indicate our fiscal year ended May 31, 2018 or ended May 31 of the
year referenced.

RECLASSIFICATIONS. Certain reclassifications have been made to the
prior years’ segment financial information to conform to the current
year’s presentation. See Note 14 below for additional information
regarding business segments.

PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
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 agents such as 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 agents are recognized as incurred and included in the
caption “Purchased transportation” in the accompanying consolidated
statements of income. For shipments in transit, revenue is recorded
based on the percentage of service completed at the balance sheet
date. Estimates for future billing adjustments to revenue and accounts
receivable are recognized at the time of shipment for money-back
service guarantees and billing corrections. Delivery costs are accrued
as incurred.

Our contract logistics, global trade services and certain transportation
businesses 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 transaction
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 receivable.
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 $442 million in 2018, $458 million in
2017 and $417 million in 2016.

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 fuel are reported at weighted-
average cost.

PROPERTY AND EQUIPMENT. Expenditures for major additions,
improvements and flight equipment modifications are capitalized when
such costs are determined to extend the useful life of the asset or are
part of the cost of acquiring the asset. Expenditures for equipment
overhaul costs of engines or airframes prior to their operational use are
capitalized as part of the cost of such assets as they are costs required
to ready the asset for its intended use. Maintenance and repairs costs
are charged to expense as incurred, except for certain aircraft engine
maintenance costs incurred under third-party service agreements.
These agreements result in costs being expensed based on cycles or
hours flown and are subject to annual escalation. These service
contracts transfer risk to third-party service providers and generally fix
the amount we pay for maintenance to the service provider as a rate
per cycle or flight hour, in exchange for maintenance and repairs under
a predefined maintenance program. We capitalize certain direct internal
and external costs associated with the development of internal-use
software. Gains and losses on sales of property used in operations are
classified within operating expenses and historically have been nominal.

51
51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor financial reporting purposes, we record depreciation and
amortization of property and equipment on a straight-line basis over
the asset’s service life or related lease term, if shorter. For income
tax purposes, depreciation is computed using accelerated methods
when applicable.

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

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
Information technology
Vehicles
Facilities and other

3 to 30 years
2 to 10 years
3 to 15 years
2 to 40 years

Net Book Value at
May 31,
2018

2017

$ 10,463

$ 9,103

2,908

3,099

4,028
1,277
3,747
5,731

3,862
1,114
3,400
5,403

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.

Depreciation and amortization expense, excluding gains and losses on
sales of property and equipment used in operations, was $3.1 billion
in 2018, $2.9 billion in 2017 and $2.6 billion in 2016. 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
construction. Capitalized interest was $61 million in 2018, $41 million
in 2017 and $42 million in 2016.

IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets are
reviewed for impairment when circumstances indicate the carrying
value of an asset may not be recoverable. For assets that are to be
held and used, an impairment is recognized when the estimated
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
values are determined based on quoted market values, discounted
cash flows or internal and external appraisals, as applicable. Assets
to be disposed of are carried at the lower of carrying value or
estimated net realizable value.

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

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
determining whether an asset has been permanently removed from
service (and, as a result, is potentially 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, 2018,
we had five aircraft temporarily idled. These aircraft have been idled
for an average of 20 months and are expected to return to revenue
service.

SALE OF BUSINESS. On April 30, 2018, we sold a non-core business
of TNT Express B.V. (“TNT Express”) and recorded a gain of
$85 million in the FedEx Express segment.

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 benefits from synergies
of the combination and the existing workforce of the acquired
business. Goodwill is reviewed at least annually for impairment.
In our evaluation 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 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 circumstances otherwise dictate, we perform
our annual impairment testing in the fourth quarter.

INTANGIBLE ASSETS. Intangible assets primarily include customer
relationships, technology assets and trademarks acquired in business
combinations. Intangible assets are amortized over periods ranging from
3 to 15 years, either on a straight-line basis or on a basis consistent
with the pattern in which the economic benefits are realized.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSPENSION AND POSTRETIREMENT HEALTHCARE PLANS. Our defined
benefit pension and other postretirement 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
(“PBO”) 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. We use the fair value of plan assets to calculate the
expected return on assets (“EROA”) for interim and segment reporting
purposes. Our EROA is a judgmental matter which is reviewed on an
annual basis and revised as appropriate.

The accounting guidance related to employers’ accounting for defined
benefit pension and other postretirement plans requires recognition in
the balance sheet of the funded status of these plans. We use
“mark-to-market” or MTM accounting and 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. The
annual MTM adjustment is recognized at the corporate level and does
not impact segment results. The remaining components of pension
and postretirement healthcare expense, primarily service and interest
costs and the EROA, are recorded on a quarterly basis.

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.

Deferred income tax assets represent amounts available to reduce
income taxes payable on taxable income in future years. Such assets
arise because of temporary differences between the financial reporting
and tax bases of assets and liabilities, as well as from net operating
loss and tax credit carryforwards. We evaluate the recoverability of
these future tax deductions and credits by assessing the adequacy of
future expected taxable income from all sources, including reversal of
taxable temporary differences, forecasted operating earnings and
available tax planning strategies. These sources of income rely heavily
on estimates to make this determination and, thus, there is a risk that
these estimates will have to be revised as new information is received.
To the extent we do not consider it more likely than not that a deferred
tax asset will be recovered, a valuation allowance is established. We
believe we will generate sufficient future taxable income to realize the
tax benefits related to the remaining net deferred tax assets in our
consolidated balance sheet that are not subject to valuation
allowances.

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

We classify interest related to income tax liabilities as interest expense,
and if applicable, penalties are recognized as a component of income
tax expense. The income tax liabilities and accrued interest and
penalties that are due within one year of the balance sheet date are
presented as current liabilities. The 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
associated with workers’ compensation claims, vehicle accidents
and general business liabilities, and benefits paid under employee
healthcare and 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
payments 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 useful life or the lease term.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDEFERRED 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.

DERIVATIVE FINANCIAL INSTRUMENTS. Our risk management
strategy includes the select use of derivative instruments to reduce
the effects of volatility in foreign currency exchange exposure on
operating results and cash flows. In accordance with our risk
management policies, we do not hold or issue derivative instruments
for trading or speculative purposes. All derivative instruments are
recognized in the financial statements at fair value, regardless of the
purpose or intent for holding them.

When we become a party to a derivative instrument and intend to
apply hedge accounting, we formally document the hedge relationship
and the risk management objective for undertaking the hedge, which
includes designating the instrument for financial reporting purposes
as a fair value hedge, a cash flow hedge, or a net investment hedge.

If a derivative is designated as a cash flow or net investment hedge,
changes in its fair value are considered to be effective and are recorded
in accumulated other comprehensive income (“AOCI”) until the hedged
item is recorded in income. Any portion of a change in the fair value of
a derivative that is considered to be ineffective, along with the change
in fair value of any derivatives not designated in a hedging relationship,
is immediately recognized in the income statement. We do not have
any derivatives designated as a cash flow or net investment hedge as of
May 31, 2018, 2017 and 2016. Accordingly, additional disclosures about
these types of financial instruments are excluded from this report.

For derivative instruments designated as hedges, we assess, both
at hedge inception and on an ongoing basis, whether the derivatives
that are used in hedging transactions are highly effective in offsetting
changes in fair values or cash flows of the hedged items. In addition,
when we determine that a derivative is not highly effective as a
hedge, hedge accounting is discontinued. When a hedging instrument
expires or is sold, or when the hedge no longer meets the criteria for
hedge accounting, any cumulative gains or losses existing in AOCI
at that time remain there until the forecasted transaction is ultimately
recognized in the income statement. When a forecasted transaction
is no longer expected to occur, the cumulative gains or losses that
were reported in AOCI are immediately recognized in the income
statement. The financial statement impact of derivative transactions
was immaterial for the years ended May 31, 2018, 2017 and 2016.
Accordingly, additional disclosures have been excluded from this
report.

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 AOCI within common stockholders’
investment. Transaction gains and losses that arise from exchange
rate fluctuations on transactions denominated in a currency other
than the local currency are included in the caption “Other, net” in
the accompanying consolidated statements of income and were
immaterial for each period presented.

EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS. The
pilots of FedEx Express, who are a small number of its total employees,
are employed under a collective bargaining agreement that took effect
on November 2, 2015. The collective bargaining agreement is scheduled
to become amendable in November 2021. Other than the pilots at FedEx
Express and drivers at one FedEx Freight facility, our U.S. employees
have thus far chosen not to unionize (we acquired FedEx Supply Chain
Distribution System, Inc. (“FedEx Supply Chain,” formerly GENCO
Distribution System, Inc.) in 2015, which already had a small number of
employees that are members of unions). Additionally, certain of FedEx
Express’s non-U.S. employees are unionized.

STOCK-BASED COMPENSATION. We recognize compensation
expense for stock-based awards under the provisions of the 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 treasury shares from stock
repurchases to cover employee stock option exercises and restricted
stock grants.

TREASURY SHARES. In January 2016, our Board of Directors authorized
a share repurchase program of up to 25 million shares. During 2018, we
repurchased 4.3 million shares of FedEx common stock at an average
price of $237.45 per share for a total of $1.0 billion. As of May 31, 2018,
12 million shares remained under the share repurchase authorization.
Shares under the current repurchase program may be repurchased from
time to time in the open market or in privately negotiated transactions.
The timing and volume of repurchases are at the discretion of
management, based on the capital needs of the business, the market
price of FedEx common stock and general market conditions. No time
limit was set for the completion of the program, and the program may
be suspended or discontinued at any time.

In 2017, we repurchased 3.0 million shares of FedEx common stock at
an average price of $172.13 per share for a total of $509 million. In
2016, we repurchased 18.2 million shares of FedEx common stock at
an average price of $149.35 per share for a total of $2.7 billion.

DIVIDENDS DECLARED PER COMMON SHARE. On June 11, 2018, our
Board of Directors declared a quarterly dividend of $0.65 per share of
common stock. The dividend was paid on July 9, 2018 to stockholders
of record as of the close of business on June 25, 2018. 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.

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
available 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
contingencies; litigation claims; impairment assessments on long-lived
assets (including goodwill); and purchase price allocations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 2: RECENT ACCOUNTING
GUIDANCE

New accounting rules and disclosure requirements can significantly
impact our reported results and the comparability of our financial
statements. We believe the following new accounting guidance is
relevant to the readers of our financial statements.

In December 2017, the Securities and Exchange Commission (“SEC”)
staff issued Staff Accounting Bulletin (“SAB”) 118 to provide guidance
to registrants in accounting for income taxes under the Tax Cuts and
Jobs Act (“TCJA”). See Note 12 for further discussion related to
applying this guidance.

During the first quarter of 2018, we early adopted the Accounting
Standards Update issued by the Financial Accounting Standards
Board (“FASB”) related to intra-entity transfers of assets other than
inventory. This update requires companies to recognize the income
tax consequences of intra-entity transfers of assets other than
inventory when the transfer occurs, as opposed to when the assets
are ultimately sold to an outside party. As a result of this new
guidance, during 2018 we recorded a $50 million income tax benefit
and a $14 million adjustment to retained earnings for the cumulative
effect at adoption.

In January 2017, the FASB issued an Accounting Standards Update
that simplifies the subsequent measurement of goodwill, eliminating
Step 2 from the goodwill impairment test. Under this new guidance,
an entity should perform its annual or interim goodwill impairment
test by comparing the fair value of a reporting unit with its carrying
amount. An entity should recognize an impairment charge for the
amount by which the carrying amount exceeds the reporting unit’s fair
value, up to the total amount of goodwill allocated to that reporting
unit. We adopted the guidance during the fourth quarter of 2018.

In 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. The fundamental principles
of the new guidance are that companies should recognize revenue in
a manner that reflects the timing of the transfer of services to
customers and the amount of revenue recognized reflects the
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. We finalized our assessment of the
impact of this new standard on our consolidated financial statements
and related disclosures, including detailed contract reviews, and
adopted this standard as of June 1, 2018 (fiscal 2019). We have
analyzed our internal control over financial reporting framework and

determined that there will be new controls around contract inception
and contract modification, as well as periodic review of material
contracts. We determined that the new guidance will not have a
material impact on our revenue recognition policies, practices or
systems.

In March 2017, the FASB issued an Accounting Standards Update that
changes how employers that sponsor defined benefit pension or other
postretirement benefit plans present the net periodic benefit cost in
the income statement. This new guidance requires entities to report
the service cost component in the same line item or items as other
compensation costs. The other components of net benefit cost are
required to be presented in the income statement separately from
the service cost component outside of income from operations. This
standard will impact our operating income but will have no impact on
our net income or earnings per share. For example, adoption of this
guidance would have reduced operating income by $598 million in
2018 and by $471 million in 2017, but would not have impacted our
net income in these periods. This new guidance is effective June 1,
2018 and will be applied retrospectively.

In 2016, the FASB issued a new lease accounting standard which
requires lessees to put most leases on their balance sheets but
recognize the expenses in their income statements in a manner similar
to current practice. The new standard states that a lessee will
recognize a lease liability for the obligation to make lease payments
and a right-of-use asset for the right to use the underlying asset for
the lease term. Expenses related to leases determined to be operating
leases will be recognized on a straight-line basis, while those
determined to be financing leases will be recognized following a
front-loaded expense profile in which interest and amortization are
presented separately in the income statement. Based on our lease
portfolio, we currently anticipate recognizing a lease liability and related
right-of-use asset on our balance sheet in excess of $13 billion, with an
immaterial impact on our income statement compared to the current
lease accounting model. However, the ultimate impact of the standard
will depend on the company’s lease portfolio as of the adoption date.
We are currently accumulating all of the necessary information
required to properly account for the leases under the new standard.
Additionally, we are implementing an enterprise-wide lease
management system to assist in the accounting and are evaluating
additional changes to our processes and internal controls to ensure
we meet the standard’s reporting and disclosure requirements.
These changes will be effective June 1, 2019 (fiscal 2020).

In February 2018, the FASB issued an Accounting Standards Update
that will permit companies to reclassify the income tax effect of the
TCJA on items within AOCI to retained earnings. These changes will
be effective June 1, 2019 (fiscal 2020).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 3: BUSINESS
COMBINATIONS

On March 23, 2018, we acquired P2P Mailing Limited, a leading
provider of worldwide, low-cost e-commerce transportation
solutions, for £92 million ($135 million) in cash from operations.
The majority of the purchase price was allocated to goodwill.
The financial results of this acquired business are included in the
FedEx Trade Networks, Inc. (“FedEx Trade Networks”) operating
segment from the date of acquisition and were not material to our
results of operations. Therefore, pro forma financial information
has not been provided.

On October 13, 2017, we acquired Northwest Research, Inc., a leader
in inventory research and management, for $50 million in cash from
operations. The majority of the purchase price was allocated to
property and equipment. The financial results of this acquired
business are included in the FedEx Services segment from the date
of acquisition and were not material to our results of operations.
Therefore, pro forma financial information has not been provided.

On May 25, 2016, we acquired TNT Express for €4.4 billion
($4.9 billion). Cash acquired in the acquisition was approximately
€250 million ($280 million). All shares associated with the
transaction were tendered or transferred as of the third quarter of
2017. We funded the acquisition with proceeds from an April 2016
debt issuance and existing cash balances. The financial results of
this business for 2018 and 2017 are included in the FedEx Express
segment. Financial results for 2016 were immaterial from the
time of acquisition and are included in “Corporate, other and
eliminations” in our segment reporting.

Our purchase price allocation for TNT Express was finalized in the
fourth quarter of 2017. As a result of this acquisition, we recognized
$3.5 billion of goodwill, which is primarily attributable to the expected
benefits from synergies of the combination with existing businesses
and growth opportunities and the TNT Express workforce. The
majority of the purchase price allocated to goodwill is not deductible
for income tax purposes. The following table summarizes the final
amounts of the fair values recognized for the assets acquired and
liabilities assumed for this acquisition, as well as adjustments made
during the measurement period (in millions):

Preliminary
May 31, 2016
$ 1,905

Measurement
Period
Adjustments
$ (53)

1,104
2,964

Current assets(1)
Property and
equipment
Goodwill
Identifiable
intangible assets
Other non-current
assets
Current liabilities(2)
Long-term liabilities
Total purchase price
(1) Primarily accounts receivable and cash.
(2) Primarily accounts payable and accrued expenses.

289
(1,644)
(644)
$ 4,894

920

Final
May 31, 2017
$ 1,852

980
3,452

530

472
(1,688)
(704)
$ 4,894

(124)
488

(390)

183
(44)
(60)
–

Adjustments to the preliminary purchase price allocation as of
May 31, 2016 resulted in a net increase to goodwill of $488 million.
These updates were primarily recorded during the second quarter of
2017 and reflect the valuation work completed by third-party experts
and the receipt of additional information during the measurement period
about facts and circumstances that existed at the acquisition date.

The purchase price was allocated to the identifiable intangible assets
acquired as follows (in millions):

Intangible assets with finite lives
Customer relationships (12-year life)
Technology (3-year life)
Trademarks (4-year life)
Total intangible assets

$ 430
20
80
$ 530

See Note 4 for further discussion of our intangible assets.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following unaudited pro forma consolidated financial information
presents the combined operations of FedEx and TNT Express as if the
acquisition had occurred at the beginning of 2015 (dollars in millions,
except per share amounts):

Consolidated revenues

Consolidated net income

Diluted earnings per share

(Unaudited)

2016
$ 57,899
1,600
5.73

2015
$ 55,862
638
2.22

The accounting literature establishes guidelines regarding the
presentation of this unaudited pro forma information. Therefore, this
unaudited pro forma information is not intended to represent, nor do
we believe it is indicative of, the consolidated results of operations
of FedEx that would have been reported had the acquisition been
completed as of the beginning of 2015. Furthermore, this unaudited
pro forma information does not give effect to the anticipated business
and tax synergies of the acquisition and is not representative or
indicative of the anticipated future consolidated results of operations
of FedEx.

The unaudited pro forma consolidated financial information reflects
our historical financial information and the historical results of TNT
Express, after conversion of TNT Express’s accounting methods from
International Financial Reporting Standards to U.S. generally accepted
accounting principles, adjusted to reflect the acquisition had it been
completed as of the beginning of 2015. The most significant pro forma
adjustments to the historical results of operations relate to the
application of purchase accounting and the financing for the acquisition.
The unaudited pro forma financial information includes various
assumptions, including those related to the finalization of the purchase
price allocation. The tax impact of these adjustments was calculated
based on TNT Express’s statutory rate.

Included in the unaudited pro forma net income (net of tax) are
nonrecurring acquisition-related costs incurred by TNT Express
associated with the sale of TNT Express’s airline operations, a
condition precedent to the acquisition, and transaction and
integration-planning expenses of $115 million in 2016. In addition,
the TNT Express results include expenses for restructuring,
impairments, litigation matters and pension adjustments of
approximately $40 million in 2016.

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):

FedEx Express
Segment
$ 4,546
–
4,546
407
4,953
76
71
–
$ 5,100

Goodwill at May 31, 2016
Accumulated impairment charges
Balance as of May 31, 2016
Purchase adjustments and other(1)
Balance as of May 31, 2017
Goodwill acquired(2)
Purchase adjustments and other(1)
Impairment charges(3)
Balance as of May 31, 2018
Accumulated goodwill impairment
charges as of May 31, 2018
(1) Primarily purchase-related adjustments, currency translation adjustments, and acquired goodwill related to immaterial acquisitions.
(2) Goodwill acquired relates to the acquisitions of Northwest Research, Inc. and P2P Mailing Limited. See Note 3 for more information.
(3) Impairment charges related to the goodwill impairment of FedEx Supply Chain described below.

$ –

$ (133)

$ –

FedEx Ground
Segment
$ 827
–
827
–
827
14
(1)
–
$ 840

FedEx Freight
Segment
$ 764
(133)
631
–
631
3
–
–
$ 634

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

$ (1,177)

Corporate,
Other and
Eliminations
$ 395
–
395
–
395
32
(2)
(374)
$ 51

Total
$ 8,057
(1,310)
6,747
407
7,154
125
68
(374)
$ 6,973

$ (374)

$ (1,684)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSOur reporting units with significant recorded goodwill include FedEx
Express, FedEx Ground, FedEx Freight, FedEx Office (reported in the
FedEx Services segment) and FedEx Supply Chain (reported in the FedEx
Trade Networks operating segment, which is included in “Corporate,
other and eliminations”) in our segment reporting. In 2018, we incurred
a goodwill impairment charge of $374 million related to FedEx Supply
Chain, eliminating substantially all of the goodwill attributable to this
reporting unit. In our evaluation of the goodwill of this reporting unit,
we compared the fair value of the reporting unit to its carrying value
(including attributable goodwill). Fair value was estimated using
standard valuation methodologies (principally the income and market
approach) incorporating market participant considerations and

management’s assumptions on revenue growth rates, operating
margins, discount rates and expected capital expenditures. The key
factors contributing to the goodwill impairment were underperformance
of the FedEx Supply Chain business during 2018, including base
business erosion, and the failure to attain the level of operating
synergies and revenue and profit growth anticipated at the time of the
acquisition. Based on these factors, our outlook for the business and
industry changed in the fourth quarter of 2018. No other impairments
of goodwill were recognized during 2018, 2017 or 2016.

OTHER INTANGIBLE ASSETS. The summary of our intangible assets
and related accumulated amortization at May 31, 2018 and 2017 is
as follows (in millions):

Gross Carrying
Amount
$ 676
68
141
$ 885

2018

Accumulated
Amortization
$ (250)
(39)
(116)
$ (405)

Net Book
Value
$ 426
29
25
$ 480

Gross Carrying
Amount
$ 656
54
136
$ 846

2017

Accumulated
Amortization
$ (203)
(26)
(88)
$ (317)

Net Book
Value
$ 453
28
48
$ 529

Customer relationships
Technology
Trademarks and other
Total

Amortization expense for intangible assets was $87 million in 2018,
$91 million in 2017 and $14 million in 2016.

Expected amortization expense for the next five years is as follows
(in millions):

2019
2020
2021
2022
2023

$ 81
63
50
44
42

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

2018

2017

498

431

933
746
$ 2,177

957
334
1,840
$ 3,131

781
702
$ 1,914

976
283
1,971
$ 3,230

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6: LONG-TERM DEBT
AND OTHER FINANCING
ARRANGEMENTS

The components of long-term debt (net of discounts and debt issuance
costs), along with maturity dates for the years subsequent to May 31,
2018, are as follows (in millions):

Maturity
2019
2020
2023
2024
2025
2026
2027
2028
2034
2035
2043
2044
2045
2046
2047
2048
2065
2098

Maturity
2019
2020
2023
2027

Senior unsecured debt:
Interest Rate %
8.00
2.30
2.625-2.70
4.00
3.20
3.25
3.30
3.40
4.90
3.90
3.875-4.10
5.10
4.10
4.55-4.75
4.40
4.05
4.50
7.60
Euro senior unsecured debt:
Interest Rate %
floating rate
0.50
1.00
1.625
Total senior unsecured debt
Other debt
Capital lease obligations

Less current portion

May 31,

2018

2017

750
399
746
746
695
744
445
495
495
493
983
742
640
2,459
735
986
246
237

749
398
745
745
695
743
445
–
495
493
983
742
640
2,458
734
–
246
237

582
581
869
1,442
16,510
4
71
16,585
1,342
$ 15,243

558
557
833
1,382
14,878
9
44
14,931
22
$ 14,909

Interest on our U.S. dollar fixed-rate notes is paid semi-annually.
Interest on our euro fixed-rate notes is paid annually. Our floating-rate
euro senior notes bear interest at three-month EURIBOR plus
a spread of 55 basis points and resets quarterly. The weighted
average interest rate on long-term debt was 3.6% in 2018. Long-term
debt, exclusive of capital leases, had estimated fair values of
$16.6 billion at May 31, 2018 and $15.5 billion at May 31, 2017.
The estimated fair values were determined based on quoted market
prices and the current rates offered for debt with similar terms
and maturities. The fair value of our long-term debt is classified as
Level 2 within the fair value hierarchy. This classification is defined
as a fair value determined using market-based inputs other than
quoted prices that are observable for the liability, either directly
or indirectly.

We have a shelf registration statement filed with the SEC that allows
us to sell, in one or more future offerings, any combination of our
unsecured debt securities and common stock.

On January 30, 2018, we issued $1.5 billion of senior unsecured
debt under our current shelf registration statement, comprised of
$500 million of 3.40% fixed-rate notes due in February 2028 and
$1 billion of 4.05% fixed-rate notes due in February 2048. Interest
on these notes is paid semiannually. We used the net proceeds
for a voluntary incremental contribution in February 2018 to our
tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”).

During 2018, we amended our five-year revolving credit facility to
increase the aggregate amount available under the facility from
$1.75 billion to $2.0 billion. The facility, which expires in November
2020 and includes a $500 million letter of credit sublimit, is available
to finance our operations and other cash flow needs. The agreement
contains a financial covenant, which requires us to maintain a ratio
of debt to consolidated earnings (excluding non-cash retirement
plans MTM adjustments and non-cash asset impairment charges)
before interest, taxes, depreciation and amortization (“adjusted
EBITDA”) of not more than 3.5 to 1.0, calculated as of the end of
the applicable quarter on a rolling four-quarters basis. The ratio of
our debt to adjusted EBITDA was 2.0 to 1.0 at May 31, 2018. We
believe this 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 financial covenant and all other covenants of our
revolving credit agreement and do not expect the covenants to affect
our operations, including our liquidity or expected funding needs.
As of May 31, 2018, no commercial paper was outstanding. However,
we had a total of $54 million in letters of credit outstanding at
May 31, 2018, with $446 million of the letter of credit sublimit unused
under our revolving credit facility.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 7: LEASES

We utilize certain aircraft, land, facilities, retail locations and
equipment under capital and operating leases that expire at various
dates through 2049. We leased 7% of our total aircraft fleet under
operating leases as of May 31, 2018 and 9% as of May 31, 2017.
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)

2018
$ 2,913
194
$ 3,107
(1) Contingent rentals are based on equipment usage.

2017
$ 2,814
178
$ 2,992

2016
$ 2,394
214
$ 2,608

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, 2018 is as follows (in millions):

Aircraft and
Related
Equipment
$ 343
261
203
185
127
48
$ 1,167

Operating Leases

Facilities and
Other
$ 2,128
1,916
1,748
1,577
1,421
8,145
$ 16,935

Total Operating
Leases
$ 2,471
2,177
1,951
1,762
1,548
8,193
$ 18,102

2019
2020
2021
2022
2023
Thereafter
Total

Property and equipment recorded under capital leases and future
minimum lease payments under capital leases are immaterial.
The weighted-average remaining lease term of all operating leases
outstanding at May 31, 2018 was approximately six years. While
certain of our lease agreements contain covenants governing the
use of the leased assets or require us to maintain certain levels of
insurance, none of our lease agreements include material financial
covenants or limitations.

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

We are the lessee under certain operating leases covering a portion
of our leased aircraft in which the lessors are trusts established
specifically to purchase, finance and lease these aircraft to us. These
leasing entities are variable interest entities. We are not the primary
beneficiary of the leasing entities, as the lease terms are at market
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. Therefore, we are not required
to consolidate any of these entities 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, 2018, none of these
shares had been issued.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9: ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table provides changes in AOCI, net of tax, reported in the consolidated 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 (loss) income at end of period

2018

2017

2016

$ (685)
(74)
(759)

270
(4)
(85)
181
$ (578)

$ (514)
(171)
(685)

345
1
(76)
270
$ (415)

$ (253)
(261)
(514)

425
(4)
(76)
345
$ (169 )

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

Amount Reclassified from AOCI
2017

2018

2016

Affected Line Item in the
Income Statement

Amortization of retirement plans prior
service credits, before tax
Income tax benefit
AOCI reclassifications, net of tax

$ 121
(36)
85

$ 120
(44)
76

$ 121
(45)
76

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

2018
$ 167

2017
$ 154

2016
$ 144

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

STOCK OPTIONS. Under the provisions of our incentive stock plan,
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 determined
at the discretion of the Compensation Committee of our Board of
Directors. Option-vesting periods range from one to four years, with
82% 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 plan,
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. The 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
methodology for developing each of the assumptions used in the
valuation model:

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

2018

2017

2016

$ 55.72
$ 359

$ 43.99
$ 274

$ 52.40
$ 115

6.5 years

6.4 years

23 %
2.07%
0.796 %

25 %
1.64%
0.719 %

28 %
1.94%
0.519 %

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, 2018:

Stock Options

Outstanding at June 1, 2017
Granted
Exercised
Forfeited
Outstanding at May 31, 2018
Exercisable
Expected to vest
Available for future grants
(1) Only presented for options with market value at May 31, 2018 in excess of the exercise price of the option.

Shares
13,598,699
2,778,238
(2,975,835)
(416,185)
12,984,917
7,303,111
5,382,943
15,788,701

Weighted-Average
Exercise Price
$ 125.66
221.15
109.95
178.75
$ 147.98
$ 113.12
$ 192.79

Weighted-Average
Remaining
Contractual Term

Aggregate
Intrinsic Value

(in millions)(1)

6.3 years
4.7 years
8.3 years

$ 1,326
$ 993
$ 315

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The options granted during 2018 are primarily related to our principal
annual stock option grant in June 2017.

The following table summarizes information about vested and
unvested restricted stock for the year ended May 31, 2018:

Restricted Stock

Shares
362,304
155,624
(177,264)
(3,074)
337,590

Weighted-Average
Grant Date Fair Value
$ 155.53
212.60
148.94
148.95
$ 185.16

Unvested at June 1, 2017
Granted
Vested
Forfeited
Unvested at May 31, 2018

During the year ended May 31, 2017, there were 153,984 shares
of restricted stock granted with a weighted-average fair value of
$166.12 per share. During the year ended May 31, 2016, there were
139,838 shares of restricted stock granted with a weighted-average
fair value of $168.83 per share.

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

2018
2017
2016

Stock Options

Vested during
the year
2,465,493
2,427,837
2,572,129

Fair value
(in millions)
$ 112
104
98

As of May 31, 2018, there was $211 million of total unrecognized
compensation cost, net of estimated forfeitures, related to unvested
share-based compensation arrangements. This compensation
expense is expected to be recognized on a straight-line basis over
the remaining weighted-average vesting period of approximately
two years.

Total shares outstanding or available for grant related to equity
compensation at May 31, 2018 represented 10% 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):

2018

2017

2016

Basic earnings per common share:
Net earnings allocable to common shares(1) $ 4,566 $ 2,993
Weighted-average common shares
266
$ 17.08 $ 11.24
Basic earnings per common share

267

$ 1,818
276
$ 6.59

Diluted earnings per common share:
Net earnings allocable to common shares(1) $ 4,566 $ 2,993
266
Weighted-average common shares
4
Dilutive effect of share-based awards
Weighted-average diluted shares
270
Diluted earnings per common share
$ 16.79 $ 11.07
Anti-dilutive options excluded from
diluted earnings per common share
(1) Net earnings available to participating securities were immaterial in all periods presented.

$ 1,818
276
3
279
$ 6.51

267
5
272

4.5

3.9

2.5

NOTE 12: INCOME TAXES

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

2018

2017

2016

Current provision
Domestic:
Federal
State and local
Foreign

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

$ (540)
43
461
(36)

271
125
(579)
(183)
$ (219)

$ 269
88
285
642

989
59
(108)
940
$ 1,582

$ 513
72
200
785

155
(18)
(2)
135
$ 920

Pre-tax earnings of foreign operations for 2018, 2017 and 2016 were
$958 million, $919 million and $905 million, respectively. These
amounts represent only a portion of total results associated with
international shipments and do not represent our international results
of operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of total income tax expense and the amount
computed by applying the statutory federal income tax rate
(29.2% in 2018 and 35% in 2017 and 2016) 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:
Goodwill impairment charge
State and local income taxes,
net of federal benefit
Foreign operations
Corporate structuring transactions(1)
Tax Cuts and Jobs Act(2)
Foreign tax credits from

distributions

Uncertain tax positions
TNT Express integration and
acquisition costs
Other, net(3)

2018

2017

2016

$ 1,271

$ 1,603

$ 959

109

119
43
(255)
(1,357)

(225)
86

–

99
(19)
(68)
–

–
–

–

33
(50)
(76)
–

–
–

20
(30)
$ (219)

25
(58)
$ 1,582

40
14
$ 920

Effective Tax Rate
(1) The 2018 and 2017 net benefits consist of foreign deferred tax benefits of $434 million
and $94 million, respectively, which were partially offset by U.S. deferred tax expenses
of $179 million and $26 million, respectively.

(5.0)%

34.6%

33.6%

(2) Primary components are a $1.15 billion benefit from the remeasurement of our net U.S.
deferred tax liability and a $204 million one-time benefit from a contribution to our U.S.
Pensions Plans in February 2018.

(3) Includes benefits from share-based payments of $60 million and $55 million in 2018 and

2017, respectively.

Our 2018 tax rate was favorably impacted by the enactment of the
TCJA during the third quarter. In accordance with SAB 118, we
have recorded a provisional benefit of $1.15 billion related to
the remeasurement of our net U.S. deferred tax liability and an
immaterial provisional benefit from the one-time transition tax on
previously deferred foreign earnings. In addition, we recognized a
benefit of $265 million related to a lower statutory income tax rate
on 2018 earnings and a one-time benefit of $204 million from a
$1.5 billion contribution to our U.S. Pension Plans in February 2018.
Our 2018 tax rate also included a net benefit of $255 million from a
tax basis step-up attributable to corporate structuring transactions
as part of the ongoing integration of FedEx Express and TNT
Express. We also recorded a benefit of $225 million from foreign
tax credits generated by distributions to the U.S. from our foreign
operations. Our 2017 tax rate was favorably impacted by $62 million
as a result of the implementation of new U.S. foreign currency
tax regulations.

The TCJA makes broad and complex changes to the U.S. tax code that
affected 2018 in multiple ways, including but not limited to: (1) reducing
our U.S. federal income tax rate from 35% to 29.2% (as discussed
below); (2) providing for additional first-year depreciation by allowing
full expensing of qualified property placed into service after September
27, 2017; and (3) requiring us to calculate a one-time U.S. tax liability on
those earnings which have not previously been repatriated to the U.S.
(the transition tax).

SAB 118 was issued to address the application of U.S. generally
accepted accounting principles in situations when a registrant does
not have the necessary information available, prepared, or analyzed
in reasonable detail to finalize the calculations for certain income
tax effects of the TCJA. In accordance with SAB 118, we have made
reasonable estimates and recorded provisional amounts as
described below. Under the transitional provisions of SAB 118,
we have a one-year measurement period to complete the accounting
for the initial tax effects of the TCJA. We are still in the process of
completing that accounting.

The TCJA reduced the corporate tax rate from 35% to 21%,
effective January 1, 2018. U.S. tax law stipulates that our 2018
earnings are subject to a blended tax rate of 29.2%, which is based
on the prorated number of days in the fiscal year before and after
the effective date. As a result, we have remeasured certain deferred
tax assets and deferred tax liabilities accordingly and recorded a
provisional net tax benefit of $1.15 billion.

The transition tax is based on our total accumulated post-1986 foreign
earnings and profits, the majority of which was previously considered
to be indefinitely reinvested and, accordingly, no U.S. federal and
state income taxes were provided. We recorded a provisional
immaterial U.S. tax benefit from foreign tax credits exceeding the
one-time transition tax liability and an immaterial provisional amount
for state income taxes. Because of the complexities of the TCJA, we
are still finalizing our analysis of the transition tax liability calculation.
No additional income taxes have been provided for any additional
outside basis differences inherent in these entities beyond those basis
differences triggered by the transition tax, as these amounts continue
to be indefinitely reinvested in foreign operations. Determining the
amount of the unrecognized deferred tax liability related to any
additional outside basis differences in these entities (e.g., stock
basis differences attributable to acquisitions or other permanent
differences) is not practicable. We will complete our analysis of the
impact of the TCJA on our outside basis differences in subsidiaries
and respective indefinite reinvestment assertions during the
measurement period and make additional disclosures, if necessary.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

With respect to the new TCJA provision on global intangible low-tax
income, which will apply to us starting in 2019, we have not made
an accounting policy election on the deferred tax treatment.
Consequently, we have not made an accrual for the deferred tax
aspects of this provision.

Our accounting for the income tax effects of the TCJA will be
completed during the measurement period allowed under SAB 118,
and we will record any necessary adjustments in the period such
adjustments are identified. While we were able to make a reasonable
estimate of the impact of the income tax effects of the new law,
it may be affected by, among other items, further analysis of
certain aspects of the TCJA, subsequent guidance issued by the
U.S. government, and changes to estimates made to calculate our
existing temporary differences.

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

2018

2017

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

$ 752
595
494
416

1,146
(711)
$ 2,692

$ 3,663
31
–
602

–
–
$ 4,296

$ 124
1,951
745
692

1,069
(738)
$ 3,843

$ 4,993
–
–
660

–
–
$ 5,653

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

Noncurrent deferred tax assets(1)
Noncurrent deferred tax liabilities

2018
$ 1,263
(2,867)
$ (1,604)

2017
675
(2,485)
$ (1,810)

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

consolidated balance sheets.

We have approximately $3.6 billion of net operating loss carryovers
in various foreign jurisdictions and $770 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 2019. Therefore, we establish
valuation allowances if it is more likely than not that deferred income
tax assets will not be realized. 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
sheet. See Note 1 above for more information on our policy for
assessing the recoverability of deferred tax assets and valuation
allowances.

We are subject to taxation in the U.S. and various U.S. state, local
and foreign jurisdictions. The Internal Revenue Service is currently
auditing our 2014 and 2015 tax returns. It is reasonably possible that
certain income tax return proceedings will be completed during the
next 12 months and could result in a change in our balance of
unrecognized tax benefits. The expected impact of any changes
would not be material to our consolidated financial statements.

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

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

2018
$ 67

2017
$ 49

2016
$ 36

103
–

(10)
(2)

–
–
$ 161

–

8
17

(1)
(4)

(2)
–
$ 67

3
25

(5)
(4)

(7)
(2)
$ 49

Our liabilities recorded for uncertain tax positions include $142 million
at May 31, 2018 and $63 million at May 31, 2017 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 $35 million on May 31, 2018 and $11 million
on May 31, 2017. 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 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 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 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. We use MTM 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 funded status is measured as the difference between
the fair value of the plan’s assets and the PBO of the plan.

A summary of our retirement plans costs over the past three years is
as follows (in millions):

Defined benefit pension plans
Defined contribution plans
Postretirement healthcare plans
Retirement plans mark-to-market
(gain) loss

2018
$ 150
527
74

(10)
$ 741

2017
$ 234
480
76

(24)
$ 766

2016
$ 214
416
82

1,498
$ 2,210

The components of the MTM adjustments are as follows (in millions):

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

2018
$ (613)
382
210

11
$ (10)

2017
$ 266
450
–

2016
$ 1,129
(916)
–

(740)
$ (24)

1,285
$ 1,498

2018
The weighted average discount rate for all of our pension and
postretirement healthcare plans increased from 3.98% at May 31,
2017 to 4.11% at May 31, 2018. The demographic assumption
experience in 2018 reflects a liability loss due to unfavorable results
related to various demographic assumptions. The annuity contract
purchase loss relates to the contract with Metropolitan Life Insurance
Company as discussed below. The actual rate of return, which is net
of all fees and expenses, on our U.S. Pension Plan assets of 6.30%
was slightly lower than our expected return of 6.50% primarily due
to generally flat returns in the long-duration fixed income portfolio
partially offset by strong returns from global equities.

2017
The actual rate of return on our U.S. Pension Plan assets, which is net
of all fees and expenses, of 9.2% was higher than our expected return
of 6.50% primarily due to a rise in the value of global equity markets in
addition to favorable credit market conditions. The weighted average
discount rate for all of our pension and postretirement healthcare plans
decreased from 4.04% at May 31, 2016 to 3.98% at May 31, 2017.
The demographic assumption experience in 2017 reflects an update
in mortality tables for U.S. pension and other postemployment
benefit plans.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSPENSION 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. The majority of our international obligations are for defined
benefit pension plans in the Netherlands and the United Kingdom.

During 2017, our U.S. Pension Plans were amended to permit former
employees with a vested traditional pension benefit to make a
one-time, irrevocable election to receive their benefits in a lump-sum
distribution. Approximately 18,300 former employees elected to
receive this lump-sum distribution and a total of approximately
$1.3 billion was paid by the plans in May 2017.

In May 2018, we entered into an agreement with Metropolitan
Life Insurance Company to purchase a group annuity contract and
transfer approximately $6 billion of our U.S. Pension Plan obligations.
The transaction transferred responsibility for pension benefits to
Metropolitan Life Insurance Company for approximately 41,000 of

our retirees and beneficiaries who satisfy certain conditions and
currently receive a monthly benefit from participating U.S. Pension
Plans. There was no change to the pension benefits for any plan
participants as a result of this transaction. The purchase of the group
annuity contract was funded directly by assets of the U.S. Pension
Plans. We recognized a $210 million one-time settlement loss in
connection with this transaction, which is included in our 2018
year-end MTM retirement plans adjustment.

POSTRETIREMENT HEALTHCARE PLANS. Certain of our subsidiaries
offer medical, dental and vision coverage to eligible U.S. retirees
and their eligible dependents and a small number of international
employees. U.S. employees covered by the principal plan become
eligible for these benefits at age 55 and older, if they have permanent,
continuous service of at least 10 years after attainment of age 45 if
hired prior to January 1, 1988, or at least 20 years after attainment of
age 35 if hired on or after January 1, 1988. Postretirement healthcare
benefits are capped at 150% of the 1993 per capita projected
employer cost, which has been reached under most plans, so these
benefits are not subject to future inflation.

Effective January 1, 2018, certain of our U.S. postretirement
healthcare benefits were converted to a lump-sum benefit in a
notional retiree health reimbursement account (HRA) for eligible
participants. The HRA is available to reimburse a participant for
qualifying healthcare premium costs and limits the company liability
to the HRA account balance. The amount of the credit is based on
age at January 1, 2018 or upon age at retirement thereafter. In
connection with this change, retiree health coverage was closed
to most new employees hired on or after January 1, 2018.

PENSION PLAN ASSUMPTIONS. 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.

Weighted-average actuarial assumptions used to determine the benefit obligations and net periodic benefit cost of our plans 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

U.S.
Pension Plans
2018
2017
4.27% 4.08% 4.13%
4.13
4.08

2016

4.42

International
Pension Plans
2017

Postretirement
Healthcare Plans
2017
2018

2016

2018
2.37% 2.43% 2.46% 4.33% 4.32% 4.43%
2.43

2016

4.62

4.43

2.46

2.95

4.32

4.43

4.47

4.46

2.26

2.42

2.82

4.47
6.50

4.46
6.50

4.62
6.50

2.42
3.09

2.82
3.18

3.19
3.68

–

–
–

–

–
–

–

–
–

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSOur U.S. Pension Plan assets are invested primarily in publicly
tradable 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
follow 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, net
of all fees and expenses; 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 6.50% expected
long-term rate of return on our U.S. Pension Plan assets in 2018,
2017 and 2016. For 2019, we have increased our EROA assumption
to 6.75%. The decrease in the number of retirees in payment status
due to the purchase of the group annuity contract in May 2018 will
reduce our short-term future cash outlays for the U.S. Pension Plans
and allow the remaining assets to be placed in longer duration
investments, which is expected to increase the rate of return on
assets. Also, the elimination of Pension Benefit Guaranty
Corporation fixed and variable-rate premiums due to the reduction
in the number of participants in our U.S. Pension Plans will increase
the net return on assets. For the 15-year period ended May 31, 2018,
our actual return was 8.2%, net of all fees and expenses.

The investment strategy for our U.S. Pension Plan assets is to utilize
a diversified mix of public equities, fixed income and alternative
investments to earn a long-term investment return that meets our
pension plan obligations. Our largest asset classes are Corporate
Fixed Income Securities and Government Fixed Income Securities
(which are largely benchmarked against the Barclays Long
Government, Barclays Long Corporate or the Citigroup 20+ STRIPS
indices), and U.S. and non-U.S. Equities (which are mainly
benchmarked to the S&P 500 Index and MSCI 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. Our
investment strategy also includes the limited use of derivative
financial instruments on a discretionary basis to improve investment
returns and manage exposure to market risk.

The 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. These Level 2 investments include short-term
investment funds which are collective funds priced at a constant
value by the administrator of the funds.

> 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.
These Level 2 investments include mutual funds.

> 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.

> Alternative Investments. 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 in private equity,
debt, real estate, hedge funds and other private investments are
valued at estimated fair value based on quarterly financial
information received from the investment advisor and/or general
partner. These estimates incorporate factors such as contributions
and distributions, market transactions, market comparables and
performance multiples.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe fair values of investments by level and asset category and the weighted-average asset allocations for our U.S. Pension Plans and most
significant international pension plans at the measurement date are presented in the following table (in millions):

Plan Assets at Measurement Date
2018
Quoted Prices in
Active Markets
Level 1
$ 19

Target
Range%(1)
0-5%

Other Observable
Inputs
Level 2
$ 695

Unobservable
Inputs
Level 3

Fair Value
$ 714

Actual %
3%

2,449
3,506
1,772
780

5,834
4,872
626
1,573
(69)
$ 22,057

30-50

50-70

0-10

11
16
8
4

26
22
3
7
–
100%

840
2,681

780

172

5,834
3,345
125

(62)
$ 4,258

(7)
$ 10,164

$ 209

Asset Class (U.S. Plans)
Cash and cash equivalents
Equities
U.S. large cap equity(2)
International equities(2)
Global equities(2)
U.S. SMID cap equity
Fixed income securities
Corporate
Government(2)
Mortgage-backed and other(2)
Alternative investments(2)
Other
Total U.S. plan assets

11
17

$ 2

$ 22

$ 24

146
228

Asset Class (International Plans)
Cash and cash equivalents
Equities
International equities(2)
Global equities(2)
Fixed income securities
Corporate(2)
306
Government(2)
452
Mortgage-backed and other(2)
168
19
Alternative investments
(23)
Other
$ 1,320
Total international plan assets
(1) Target ranges have not been provided for international plan assets as they are managed at an individual country level.
(2) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy but are included

23
34
13
2
(2)
100%

19
(17)
$ 418

(6)
$ 104

68
256

108

in the total.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Plan Assets at Measurement Date
2017
Quoted Prices in
Active Markets
Level 1
$ 26

Target
Range%(1)
0-5%

Other Observable
Inputs
Level 2
$ 1,050

Unobservable
Inputs
Level 3

Fair Value
$ 1,076

Actual %
4%

2,415
3,521
3,276
987

8,163
4,674
603
377
(159)
$ 24,933

30-50

50-70

0-5

10
14
13
4

33
19
2
2
(1)
100%

830
2,747

987

(161)
$ 4,429

157

8,163
3,454
129

2
$ 12,955

$ 129

11
17

$ 2

$ 48

137
202

$ 46

Asset Class (International Plans)
Cash and cash equivalents
Equities
International equities(2)
Global equities(2)
Fixed income securities
Corporate(2)
270
Government(2)
405
Mortgage-backed and other(2)
145
17
Alternative investments
(18)
Other
$ 1,206
Total international plan assets
(1) Target ranges have not been provided for international plan assets as they are managed at an individual country level.
(2) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy but are included

22
34
12
1
(1)
100%

17
(16)
$ 398

(2)
$ 95

49
230

in the total.

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

U.S. Pension Plans
2018
$ 129

2017
$ 48

8
4
68
$ 209

5
1
75
$ 129

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, 2018 and a statement of the funded status as of May 31, 2018 and 2017 (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
Settlements
Purchase accounting adjustment
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
Settlements
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

U.S.
Pension Plans
2018

2017

International
Pension Plans
2018

2017

Postretirement
Healthcare Plans
2017
2018

$ 22,029

$ 27,244

$ 1,956

$ 1,842

$ 27,870
679
1,115
21
(854)
(6,178)
–
–
$ 22,653

$ 24,933
1,609
2,547
(854)
(6,178)
–
$ 22,057
(596)
$

$ 27,804
638
1,128
571
(2,271)
–
–
–
$ 27,870

$ 23,017
2,167
2,020
(2,271)
–
–
$ 24,933
$ (2,937)

$ 2,043
97
49
(34)
(46)
(5)
–
63
$ 2,167

$ 1,379
49
84
(46)
(5)
48
$ 1,509
$ (658)

$ 1,798
83
43
161
(38)
(7)
26
(23)
$ 2,043

$ 1,254
112
95
(38)
(7)
(37)
$ 1,379
$ (664)

$ 927
36
39
(9)
(80)
–
–
42
$ 955

–
–
42
(80)
–
38
$
–
$ (955)

$ 905
36
39
(14)
(72)
–
–
33
$ 927

–
–
36
(72)
–
36
$
–
$ (927)

–

(22)

(574)
(596)

(33)

(16)

(17)

(62)

(39)

(2,904)
$ (2,937)

(715)
$ (658)

(687)
$ (664)

(893)
$ (955)

(888)
$ (927)

(292)

(410)

(10)

(13)

(4)

(118)

(2)

–

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2018
Qualified
Nonqualified
International Plans
Total
2017
Qualified
Nonqualified
International Plans
Total

PBO

$ 22,413
240
2,167
$ 24,820

$ 27,600
270
2,043
$ 29,913

Fair Value of
Plan Assets

$ 22,057
–
1,509
$ 23,566

$ 24,933
–
1,379
$ 26,312

Funded
Status

$ (356)
(240)
(658)
$ (1,254)

$ (2,667)
(270)
(664)
$ (3,601)

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. 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):

U.S. Pension Benefits
Fair value of plan assets
PBO
Net funded status
International Pension Benefits
Fair value of plan assets
PBO
Net funded status

U.S. Pension Benefits
ABO(1)
Fair value of plan assets
PBO
Net funded status
International 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

2018

2017

$ 22,057
(22,653)
$ (596)

$ 1,060
(1,791)
$ (731)

$ 24,933
(27,870)
$ (2,937)

$ 952
(1,656)
$ (704)

ABO Exceeds the Fair Value
of Plan Assets

2018

2017

$ (1,134)
859
(1,214)
$ (355)

$ (1,581)
1,060
(1,791)
$ (731)

2018
$ 22
2,478
$ 2,500

$ (27,244)
24,933
(27,870)
$ (2,937)

$ (1,433)
928
(1,626)
$ (698)

2017
$ 459
1,541
$ 2,000

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For 2019, no pension contributions will be required for our U.S. Pension Plans as they are fully funded under the Employee Retirement Income
Security Act. However, we expect to make tax-deductible discretionary contributions to those plans at levels significantly less than those
made in 2018, in addition to required contributions to certain international pension plans. We expect total pension plan contributions to be
substantially less than those made in 2018.

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

U.S.
Pension Plans

International
Pension Plans

Postretirement
Healthcare Plans

2018
$ 679
1,115
(1,624)
(118)
37
$ 89

2017
$ 638
1,128
(1,501)
(118)
(95)
$ 52

2016
$ 622
1,155
(1,490)
(118)
1,563
$ 1,732

2018
$ 97
49
(46)
(2)
(38)
$ 60

2017
$ 83
43
(38)
(2)
87
$ 173

2016
$ 40
25
(18)
(3)
(1)
$ 43

2018
$ 36
39
–
(1)
(9)
$ 65

2017
$ 36
39
–
–
(14)
$ 61

2016
$ 40
42
–
–
(64)
$ 18

Amounts recognized in other comprehensive income (“OCI”) for all plans for the years ended May 31 were as follows (in millions):

U.S.
Pension Plans

2018
International
Pension Plans

Postretirement
Healthcare Plans

U.S.
Pension Plans

2017
International
Pension Plans

Postretirement
Healthcare Plans

Gross
Amount

Net of Tax
Amount

Gross
Amount

Net of Tax
Amount

Gross
Amount

Net of Tax
Amount

Gross
Amount

Net of Tax
Amount

Gross
Amount

Net of Tax
Amount

Gross
Amount

Net of Tax
Amount

Prior service
cost (credit)
arising
during period
Amortizations:
Prior services
credit
Total recognized
in OCI

$ –

$ 5

$ 4

$ –

$ 1

$ (3)

$ (2)

118

$ 118

$ 83

$ 2

$ 1

$ 6

118

$ 5

$ 118

$ 74

$ 3

–

$ (3)

$ (2)

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

2019
2020
2021
2022
2023
2024-2028

U.S. Pension Plans
$ 680
781
846
951
1,071
7,325

International Pension Plans
$ 48
48
54
71
79
428

Postretirement Healthcare Plans
$ 62
65
69
73
76
369

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

Future medical benefit claims costs are estimated to increase at an annual rate of 6.30% during 2019, decreasing to an annual growth rate of
4.50% in 2037 and thereafter. A 1% change in these annual trend rates would not have a significant impact on the APBO at May 31, 2018 or
2018 benefit expense because the level of these benefits is capped.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 and reported by each respective company
in their natural expense line items. The FedEx Services segment
includes: FedEx Services, which provides sales, marketing, information
technology, communications, customer service, technical support, billing
and collection services for U.S. customers of our major business units
and certain back-office support to our other companies; 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.
Our allocation methodologies are refined periodically, as necessary, to
reflect changes in our businesses.

NOTE 14: BUSINESS SEGMENT
INFORMATION

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

FedEx Express Segment

FedEx Ground Segment

FedEx Freight Segment

FedEx Services Segment

In 2018, FedEx Express and TNT Express are reported as one segment.
This new segment is the result of combining the financial information of
the FedEx Express and TNT Express segments (previously referred to as
the FedEx Express group) as part of the operational integration of these
two businesses. As integration activities have progressed, the FedEx
Express and TNT Express businesses have lost their historical discrete
financial profiles, as the businesses are being combined. Therefore,
discrete financial information for FedEx Express and TNT Express does
not exist in a manner to evaluate performance and make resource
allocation decisions. In addition, this new reporting structure aligns with
our management reporting structure and our internal financial reporting
and compensation plans.

In the fourth quarter of 2018, we realigned our specialty logistics
and e-commerce solutions in a new organizational structure under
FedEx Trade Networks. The realignment allows us to improve our
ability to deliver the capabilities of our specialty services companies
to customers. The new organization includes FedEx Trade Networks
Transport & Brokerage, Inc., FedEx Cross Border Technologies, Inc.,
FedEx Supply Chain, FedEx Custom Critical, Inc., and FedEx Forward
Depots, Inc. FedEx Trade Networks operating segment results are
included in “Corporate, other and eliminations” in our segment
reporting. Prior period segment results for all of our transportation
segments have been recast to conform to the current year
presentation for these organizational structure changes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSOther Intersegment Transactions
Corporate and other includes corporate headquarters costs for
executive officers and certain legal and finance functions, as well as
certain other costs and credits not attributed to our core business.
These costs are not allocated to the other business segments.

Also included in corporate and other is the FedEx Trade Networks
operating segment, which provides customs brokerage and global
ocean and air freight forwarding through FedEx Trade Networks
Transport & Brokerage; cross-border enablement and technology
solutions and e-commerce transportation solutions through FedEx
Cross Border; integrated supply chain management solutions
through FedEx Supply Chain; time-critical shipment services through

FedEx Custom Critical; and, effective September 1, 2018, critical
inventory and service parts logistics, 3-D printing and technology
repair through FedEx Forward Depots.

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

FedEx
Express
Segment

FedEx
Ground
Segment

FedEx
Freight
Segment

FedEx
Services
Segment

Corporate,
other and
eliminations(1)

Consolidated
Total

$ 1,650
1,621
1,593

$ 6,812
6,070
5,825

$ 2,421
2,301
2,343

$ 18,395
16,503
15,051

$ 36,172
33,824
25,553

$ 1,679
1,662
1,377

Revenues
2018
2017
2016
Depreciation and amortization
2018
2017
2016
Operating income (loss)
2018(2)
2017(3)
2016(4)
Segment assets(5)
2018
2017
2016
(1) Includes TNT Express’s assets and immaterial financial results for 2016 from the time of acquisition (May 25, 2016).
(2) Includes TNT Express integration expenses and restructuring charges of $477 million and a gain of $10 million associated with our annual MTM retirement plans accounting adjustment.

$ 2,578
2,769
2,485

$ 31,753
31,307
20,798

$ (8,647)
(7,933)
2,260

$ 2,605
2,279
2,240

$ 15,458
12,969
11,407

$ 517
390
421

$ 296
265
244

$ 382
371
384

$ 7,389
6,527
6,104

$ 6,377
5,682
5,390

(830)
(401)
(2,069)

681
627
556

57
70
70

–
–
–

$ 65,450
60,319
50,365

$ 3,095
2,995
2,631

$ 4,870
5,037
3,077

$ 52,330
48,552
45,959

These expenses are included in “Corporate, other and eliminations” and the FedEx Express segment. Also includes goodwill and other asset impairment charges of $380 million.

(3) Includes TNT Express integration expenses and restructuring charges of $327 million and a gain of $24 million associated with our MTM retirement plans accounting. These expenses are
included in “Corporate, other and eliminations” and the FedEx Express segment. Also includes $39 million of charges for legal reserves related to certain pending U.S. Customs and Border
Protection (“CBP”) matters involving FedEx Trade Networks and $22 million of charges in connection with the settlement of and certain expected losses relating to independent contractor
litigation matters at FedEx Ground. See Note 18 below for additional information.

(4) Includes a $1.5 billion loss associated with our MTM retirement plans accounting. Also includes provisions for the settlement of and expected losses related to independent contractor litigation
matters at FedEx Ground for $256 million and expenses related to the settlement of a CBP notice of action involving FedEx Trade Networks in the amount of $69 million, in each case net of
recognized immaterial insurance recovery, and transaction and integration-planning expenses related to our TNT Express acquisition of $113 million.

(5) Segment assets include intercompany receivables.

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

2018
2017
2016

FedEx
Express
Segment
$ 3,461
2,725
2,350

FedEx
Ground
Segment
$ 1,178
1,490
1,556

FedEx
Freight
Segment
$ 490
431
428

FedEx
Services
Segment
$ 477
416
432

Other
$ 57
54
52

Consolidated
Total
$ 5,663
5,116
4,818

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15: SUPPLEMENTAL CASH
FLOW INFORMATION

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

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

2018

2017

2016

$ 524
$ 760
(571)
$ 189

$ 484
$ 397
(20)
$ 377

$ 321
$ 996
(5)
$ 991

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 and in connection with business acquisitions, 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 of the TNT Express acquisition, we have assumed a
guarantee related to the demerger of TNT Express and PostNL Holding
B.V., which occurred in 2011, for pension benefits earned prior to the
date of the demerger. The risk of making payments associated with
this guarantee is remote. 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 material amounts have been recognized in our financial
statements for the underlying fair value of these obligations.

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

2018

2017

2016

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 economy
International airfreight
Total freight revenue
Other
Total FedEx Express segment
FedEx Ground segment
FedEx Freight segment
FedEx Services segment
Other and eliminations(2)

Geographical Information(3)
Revenues:
U.S.
International:
FedEx Express segment
FedEx Ground segment
FedEx Freight segment
FedEx Services segment
Other(2)
Total international revenue

Noncurrent assets:
U.S.
International

$ 7,273 $ 6,955 $ 6,763
1,662
3,379
11,804
5,697
2,282

1,788
3,738
12,799
7,356
3,255

1,750
3,526
12,231
6,940
2,876

10,611
4,587
27,997

9,816
4,227
26,274

7,979
1,285
21,068

2,797
2,179
1,916
368
7,260
915
36,172
18,395
6,812
1,650
2,421

2,481
999
385
126
3,991
494
25,553
15,051
5,825
1,593
2,343
$ 65,450 $ 60,319 $ 50,365

2,527
1,910
1,740
355
6,532
1,018
33,824
16,503
6,070
1,621
2,301

$ 43,581 $ 40,269 $ 38,070

20,417
407
181
3
861
21,869

11,083
18,817
275
331
137
149
10
10
790
743
12,295
20,050
$ 65,450 $ 60,319 $ 50,365

$ 30,362 $ 28,141 $ 25,942
8,028
$ 38,989 $ 35,924 $ 33,970

8,627

7,783

(1) International domestic revenues relate to our intra-country operations.
(2) Includes the FedEx Trade Networks operating segment and TNT Express’s revenue for 2016

from the time of acquisition (May 25, 2016).

(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,
2018 were as follows (in millions):

Aircraft and
Aircraft Related
$ 1,534
2019
1,922
2020
1,255
2021
1,359
2022
628
2023
2,653
Thereafter
$ 9,351
Total
(1) Primarily equipment and advertising contracts.

Other(1)
$ 894
692
416
285
185
491
$ 2,963

Total
$ 2,428
2,614
1,671
1,644
813
3,144
$ 12,314

The amounts reflected in the table above for purchase commitments
represent noncancelable agreements to purchase goods or services.
As of May 31, 2018, our obligation to purchase four Boeing 767-300
Freighter (“B767F”) aircraft and three 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 (“RLA”). 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 2018, FedEx Express entered into an agreement to purchase
30 ATR 72-600F aircraft with options to purchase up to 20 additional
ATR 72-600F aircraft. The 30 firm-order ATR 72-600F aircraft are
expected to be delivered from 2021 through 2026.

During 2018, FedEx Express entered into an agreement to accelerate
the delivery of two B777F aircraft from 2021 to 2020, one B777F
aircraft from 2021 to 2019, and one B777F aircraft from 2022 to 2020.

On June 18, 2018, FedEx Express entered into agreements to
purchase 12 incremental B777F aircraft and 12 incremental B767F
aircraft. Six of the B777F and one of the B767F aircraft purchases are
conditioned upon there being no event that causes FedEx Express or
its employees not to be covered by the RLA. The B777F aircraft are
expected to be delivered between 2021 and 2025. The B767F aircraft
are expected to be delivered between 2020 and 2022. As part of
these agreements, one B777F and one B767F aircraft delivery were
accelerated from 2020 to 2019.

FedEx Express also acquired options to purchase an additional
14 B777F aircraft, and the delivery dates of 11 existing B777F option
aircraft were rescheduled. As a result, FedEx Express now has options
to purchase a total of 25 B777F aircraft for delivery through 2028.
FedEx Express also acquired options to purchase an additional six
B767F aircraft. As a result, FedEx Express now has options to
purchase a total of 50 B767F aircraft for delivery through 2026.

As of May 31, 2018, we had $1.2 billion in deposits and progress
payments on aircraft purchases and other planned aircraft-related
transactions. These deposits are classified in the “Other assets”
caption 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, 2018, with the year of expected delivery:

Cessna
SkyCourier
408
–
–
12
12
12
14
50

ATR
72-600F
–
–
5
6
6
13
30

2019
2020
2021
2022
2023
Thereafter
Total

B767F
15
16
10
10
6
–
57

B777F
3
6
–
3
–
–
12

Total
18
22
27
31
24
27
149

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18: CONTINGENCIES

INDEPENDENT CONTRACTOR — LAWSUITS AND ADMINISTRATIVE
PROCEEDINGS. FedEx Ground is involved in lawsuits and administrative
proceedings claiming that owner-operators engaged under operating
agreements no longer in place should have been treated as employees
of FedEx Ground, rather than independent contractors. In addition, we
are defending joint-employer cases where it is alleged that FedEx
Ground should be treated as an employer of the drivers employed by
owner-operators engaged by FedEx Ground. These cases are in varying
stages of litigation, and we are not currently able to estimate an
amount or range of potential loss in all of these matters. However, we
do not expect to incur, individually or in the aggregate, a material loss in
these matters. Nevertheless, adverse determinations in matters related
to owner-operators engaged by FedEx Ground could, among other
things, entitle certain owner-operators to the reimbursement of certain
expenses, and their drivers to the benefit of wage-and-hour laws, and
result in employment and withholding tax and benefit liability for FedEx
Ground. We continue to believe that owner-operators engaged by FedEx
Ground are properly classified as independent contractors and that
FedEx Ground is not an employer or joint employer of the drivers of
these independent contractors.

CITY AND STATE OF NEW YORK CIGARETTE SUIT. The City of New
York and the State of New York filed two related lawsuits against
FedEx Ground in December 2013 and November 2014 arising from
FedEx Ground’s alleged shipments of cigarettes to New York
residents in contravention of several statutes, including the
Racketeer Influenced and Corrupt Organizations Act (“RICO”) and
New York’s Public Health Law, as well as common law nuisance
claims. In April 2016, the two lawsuits were consolidated and will
now proceed as one lawsuit. The first-filed lawsuit alleges that
FedEx Ground provided delivery services on behalf of four shippers,
and the second-filed lawsuit alleges that FedEx Ground provided
delivery services on behalf of six additional shippers; none of these
shippers continue to ship in our network. Following motions to
dismiss filed in both lawsuits, some of the claims were dismissed
entirely or limited. In the first-filed lawsuit, the New York Public
Health Law and common law nuisance claims were dismissed
and the plaintiffs voluntarily dismissed another claim. In the
second-filed lawsuit, the common law nuisance claim was
dismissed entirely and the New York Public Health Law claim
has been limited to claims arising after September 27, 2013, when
an amendment to that law provided enforcement authority to the
City of New York and State of New York. Other claims, including
the RICO claims, remain in both lawsuits. The likelihood of loss is
reasonably possible, but the amount or range of loss, if any, cannot
be estimated at this stage of the litigation. We expect the amount
of any loss to be immaterial.

On July 10, 2017, the City of New York and the State of New York
filed a third lawsuit against FedEx Ground and included FedEx Freight
as a co-defendant. This additional case identifies no shippers or
shipments, but generally alleges violations of the same laws that are
the subject of the other two lawsuits. The amount or range of loss,
if any, cannot be estimated at this stage of the lawsuit.

OTHER MATTERS. During the third quarter of 2017, FedEx Trade
Networks informed U.S. Customs and Border Protection (“CBP”)
that in connection with certain customs entries it may have made
improper claims for (i) reduced-duty treatment and (ii) duty-free
treatment. In the fourth quarter of 2017 we established accruals
totaling $39.3 million for the then-current estimated probable loss
for these matters. In the first quarter of 2018, FedEx Trade Networks
tendered payments to CBP in these matters totaling $46.5 million,
and an additional expense of $7.2 million was recognized. CBP
acknowledged receipt of the amounts tendered in these matters.

In May 2018, FedEx Trade Networks was informed that CBP is
demanding additional payment for duty loss plus interest in
connection with the claims for reduced-duty treatment. In June
2018, we submitted a response to CBP challenging the additional
demand, and we are waiting for a reply. We have established an
accrual for an immaterial amount in connection with this additional
demand. We continue to await a response from CBP indicating
whether the claims for duty-free treatment are fully resolved.

FedEx and its subsidiaries are subject to other legal proceedings
that arise in the ordinary course of business, including certain
lawsuits containing various class-action allegations of wage-and-
hour violations in which plaintiffs claim, 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. 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 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.”

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 20: SUMMARY OF QUARTERLY OPERATING RESULTS
(UNAUDITED)

(in millions, except per share amounts)
2018(1)
Revenues
Operating income
Net income(2)
Basic earnings per common share(3)
Diluted earnings per common share(3)

First
Quarter

$ 15,297
1,117
596
2.22
2.19

Second
Quarter

$ 16,313
1,262
775
2.89
2.84

Third
Quarter

$ 16,526
1,001
2,074
7.74
7.59

Fourth
Quarter

$ 17,314
1,490
1,127
4.23
4.15

2017(4)
Revenues
Operating income (loss)
Net income (loss)
Basic earnings (loss) per common share(3)
Diluted earnings (loss) per common share(3)
(1) The fourth quarter, third quarter, second quarter and first quarter of 2018 include $136 million, $106 million, $122 million and $112 million, respectively, of TNT Express integration expenses

$ 14,931
1,167
700
2.63
2.59

$ 14,997
1,025
562
2.11
2.07

$ 14,663
1,264
715
2.69
2.65

$ 15,728
1,581
1,020
3.81
3.75

(including any restructuring charges). The fourth quarter of 2018 includes goodwill and other asset impairment charges related to FedEx Supply Chain of $380 million and a gain of $10 million
related to the annual retirement plans MTM adjustment.

(2) The fourth quarter of 2018 includes a $255 million net tax benefit from corporate structuring transactions as part of the ongoing integration of FedEx Express and TNT Express. The fourth

quarter, third quarter, and second quarter of 2018 include $133 million, $12 million, and $80 million, respectively, of tax benefits from foreign tax credits associated with distributions to the
U.S. from foreign operations. The fourth quarter and third quarter of 2018 include $100 million and $165 million, respectively, of tax benefits related to a lower statutory income tax rate on
fiscal 2018 earnings. In addition, the third quarter of 2018 includes the following TCJA-related items: a provisional benefit of $1.15 billion related to the remeasurement of our net U.S. deferred
tax liability and a one-time benefit of $204 million from a $1.5 billion contribution to our U.S. Pension Plans.

(3) 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.
(4) The fourth quarter, third quarter, second quarter, and first quarter of 2017 include $124 million, $78 million, $58 million and $68 million, respectively, of TNT Express integration expenses

and restructuring charges. The fourth quarter of 2017 includes $39 million of charges for legal reserves related to certain pending CBP matters involving FedEx Trade Networks, $22 million of
charges in connection with the settlement of and certain expected losses relating to independent contractor litigation matters at FedEx Ground and $24 million related to the retirement plans
MTM gain.

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.

The guarantor subsidiaries, which are 100% owned by FedEx, guarantee $16.4 billion of our public 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, 2018

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

and other, less allowances

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

$ 1,485
3

425
1,913
21
17
4
1,487
–
33,370
75
$ 36,849

$ 1,332
65
16
460
1,873
14,942
–

–
619
619
19,415
$ 36,849

$ 257
4,970

878
6,105
51,232
25,111
26,121
924
1,709
4,082
1,854
$ 40,795

$ 1
1,506
1,332
1,778
4,617
288
–

2,626
3,432
6,058
29,832
$ 40,795

$ 1,538
3,586

292
5,416
3,868
1,839
2,029
–
5,264
–
1,829
$ 14,538

$ 9
606
1,719
896
3,230
13
2,411

137
1,126
1,263
7,621
$ 14,538

$ (15)
(78)

–
(93)
–
–
–
(2,411)
–
(37,452)
104
$ (39,852)

$ –
–
(90)
(3)
(93)
–
(2,411)

104
–
104
(37,452)
$ (39,852)

$ 3,265
8,481

1,595
13,341
55,121
26,967
28,154
–
6,973
–
3,862
$ 52,330

$ 1,342
2,177
2,977
3,131
9,627
15,243
–

2,867
5,177
8,044
19,416
$ 52,330

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

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

Parent

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations

Consolidated

May 31, 2017

$ 1,884
3

25
1,912
22
18
4
1,521
–
27,712
3,494
$ 34,643

$ –
72
10
991
1,073
14,641
–

–
2,856
2,856
16,073
$ 34,643

$ 325
4,729

787
5,841
47,201
23,211
23,990
2,607
1,571
2,636
1,271
$ 37,916

$ 9
1,335
1,411
1,522
4,277
244
–

5,472
3,448
8,920
24,475
$ 37,916

$ 1,807
2,928

248
4,983
3,403
1,416
1,987
–
5,583
–
1,249
$ 13,802

$ 13
507
1,439
717
2,676
24
4,128

238
863
1,101
5,873
$ 13,802

$ (47)
(61)

–
(108)
–
–
–
(4,128)
–
(30,348)
(3,225)
$ (37,809)

$ –
–
(108)
–
(108)
–
(4,128)

(3,225)
–
(3,225)
(30,348)
$ (37,809)

$ 3,969
7,599

1,060
12,628
50,626
24,645
25,981
–
7,154
–
2,789
$ 48,552

$ 22
1,914
2,752
3,230
7,918
14,909
–

2,485
7,167
9,652
16,073
$ 48,552

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
Goodwill and other asset impairment 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 (benefit)
Net Income
Comprehensive Income

Year Ended May 31, 2018

Parent
$ –

Guarantor
Subsidiaries
$ 48,601

Non-guarantor
Subsidiaries
$ 17,256

Eliminations
$ (407)

Consolidated
$ 65,450

149
–
5
1
–
1
–
–
(437)
281
–
–

4,572
(541)
544
(3)
4,572
–
$ 4,572
$ 4,489

17,814
9,134
2,587
2,644
3,077
2,294
–
19
(120)
6,227
43,676
4,925

62
46
(291)
(120)
4,622
309
$ 4,313
$ 4,263

5,244
6,191
776
450
297
327
380
(29)
557
3,118
17,311
(55)

–
(15)
(253)
116
(207)
(528)
$ 321
$ 291

–
(224)
(7)
–
–
–
–
–
–
(176)
(407)
–

(4,634)
–
–
–
(4,634)
–
$ (4,634)
$ (4,634)

23,207
15,101
3,361
3,095
3,374
2,622
380
(10)
–
9,450
60,580
4,870

–
(510)
–
(7)
4,353
(219)
$ 4,572
$ 4,409

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, 2017

Parent
$ –

Guarantor
Subsidiaries
$ 44,823

Non-guarantor
Subsidiaries
$ 15,798

Eliminations
$ (302)

Consolidated
$ 60,319

123
–
5
1
–
1
–
(434)
304
–
–

2,997
(507)
508
(1)
2,997
–
$ 2,997
$ 2,922

16,696
8,260
2,517
2,538
2,476
2,086
(75)
182
5,734
40,414
4,409

68
27
(296)
(134)
4,074
1,439
$ 2,635
$ 2,580

4,723
5,495
724
456
297
287
51
252
2,885
15,170
628

–
1
(212)
156
573
143
$ 430
$ 314

–
(125)
(6)
–
–
–
–
–
(171)
(302)
–

(3,065)
–
–
–
(3,065)
–
$ (3,065)
$ (3,065)

21,542
13,630
3,240
2,995
2,773
2,374
(24)
–
8,752
55,282
5,037

–
(479)
–
21
4,579
1,582
$ 2,997
$ 2,751

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Statements of Comprehensive Income

Year Ended May 31, 2016

Parent
$ –

Guarantor
Subsidiaries
$ 42,143

Non-guarantor
Subsidiaries
$ 8,547

Eliminations
$ (325)

Consolidated
$ 50,365

119
–
5
1
–
1
–
(645)
519
–
–

1,820
(355)
369
(14)
1,820
–
$ 1,820
$ 1,746

15,880
7,380
2,484
2,399
2,324
1,954
1,414
425
5,274
39,534
2,609

279
27
(354)
(14)
2,547
818
$ 1,729
$ 1,704

2,582
2,720
371
231
75
153
84
220
1,643
8,079
468

–
13
(15)
6
472
102
$ 370
$ 128

–
(134)
(6)
–
–
–
–
–
(185)
(325)
–

(2,099)
–
–
–
(2,099)
–
$ (2,099)
$ (2,099)

18,581
9,966
2,854
2,631
2,399
2,108
1,498
–
7,251
47,288
3,077

–
(315)
–
(22)
2,740
920
$ 1,820
$ 1,479

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCondensed Consolidating Statements of Cash Flows

Cash provided by (used in) operating activities
Investing activities
Capital expenditures
Business acquisitions, net of cash acquired
Proceeds from sale of business
Proceeds from asset dispositions and other
Cash (used in) provided by 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
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, 2018

Parent
$ (2,837)

Guarantor
Subsidiaries
$ 6,767

Non-guarantor
Subsidiaries
$ 712

Eliminations
$ 32

Consolidated
$ 4,674

(1)
–
–
(6)
(7)

1,529
663
–
–
1,480
327
(535)
(1,017)
3
2,450
(5)
(399)
1,884
$ 1,485

(5,299)
(44)
–
33
(5,310)

(1,612)
–
98
(22)
–
–
–
–
7
(1,529)
4
(68)
325
$ 257

(363)
(135)
123
15
(360)

83
(663)
(98)
(16)
–
–
–
–
–
(694)
73
(269)
1,807
$ 1,538

–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
32
(47)
$ (15)

(5,663)
(179)
123
42
(5,677)

–
–
–
(38)
1,480
327
(535)
(1,017)
10
227
72
(704)
3,969
$ 3,265

Condensed Consolidating Statements of Cash Flows

Cash provided by (used in) operating activities
Investing activities
Capital expenditures
Proceeds from asset dispositions and other
Cash used in investing activities
Financing activities
Net transfers from (to) Parent
Payment on loan between subsidiaries
Intercompany dividends
Principal payments on debt
Proceeds from debt issuances
Proceeds from stock issuances
Dividends paid
Purchase of treasury stock
Other, net
Cash provided by (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, 2017

Parent
$ (1,155)

Guarantor
Subsidiaries
$ 5,254

Non-guarantor
Subsidiaries
$ 835

Eliminations
$ (4)

Consolidated
$ 4,930

—
34
34

421
41
—
—
1,190
337
(426)
(509)
(12)
1,042
(11)
(90)
1,974
$ 1,884

(4,694)
25
(4,669)

(518)
(15)
1
(55)
–
–
–
–
(13)
(600)
14
(1)
326
$ 325

(422)
76
(346)

97
(26)
(1)
(27)
–
–
–
–
43
86
(45)
530
1,277
$ 1,807

–
–
–

–
–
–
–
–
–
–
–
–
–
–
(4)
(43)
$ (47)

(5,116)
135
(4,981)

–
–
–
(82)
1,190
337
(426)
(509)
18
528
(42)
435
3,534
$ 3,969

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 issuance
Proceeds from stock issuances
Dividends paid
Purchase of treasury stock
Other, net
Cash provided by (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, 2016

Parent
$ (831)

Guarantor
Subsidiaries
$ 5,932

Non-guarantor
Subsidiaries
$ 572

Eliminations
$ 35

Consolidated
$ 5,708

–
–
(55)
(55)

1,629
(4,805)
–
–
6,519
183
(277)
(2,722)
(51)
476
1
(409)
2,383
$ 1,974

(4,617)
–
33
(4,584)

(1,549)
109
20
(19)
–
–
–
–
(48)
(1,487)
(22)
(161)
487
$ 326

(201)
(4,618)
12
(4,807)

(80)
4,696
(20)
(22)
–
–
–
–
48
4,622
(81)
306
971
$ 1,277

–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
35
(78)
$ (43)

(4,818)
(4,618)
(10)
(9,446)

–
–
–
(41)
6,519
183
(277)
(2,722)
(51)
3,611
(102)
(229)
3,763
$ 3,534

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
FedEx Corporation

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of FedEx Corporation (the Company) as of May 31, 2018 and 2017, 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, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company at May 31, 2018 and 2017, and the
results of its operations and its cash flows for each of the three years in the period ended May 31, 2018, in conformity with U.S. generally accepted
accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company’s internal control over financial reporting as of May 31, 2018, 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 16, 2018 expressed
an unqualified opinion thereon.

Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2002.

Memphis, Tennessee
July 16, 2018

86
86

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, 2018. This information should be read in conjunction with the Consolidated
Financial Statements, MD&A and other financial data appearing elsewhere in this Annual Report.

2018(1)(2)(3)

2017(2)(3)(4)

2016(3)(5)

2015(3)(6)

2014(3)

Operating Results
Revenues
Operating income
Income before income taxes
Net income

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

Financial Position
Property and equipment, net
Total assets(7)
Long-term debt, less current portion(7)
Common stockholders’ investment

$ 65,450
4,870
4,353
4,572

$ 17.08
$ 16.79
267
272
$ 2.00

$ 28,154
52,330
15,243
19,416

$ 60,319
5,037
4,579
2,997

$ 11.24
$ 11.07
266
270
$ 1.60

$ 25,981
48,552
14,909
16,073

$ 50,365
3,077
2,740
1,820

$ 6.59
$ 6.51
276
279
$ 1.00

$ 24,284
45,959
13,733
13,784

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

$ 3.70
$ 3.65
283
287
$ 0.80

$ 20,875
36,469
7,187
14,993

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

$ 7.56
$ 7.48
307
310
$ 0.60

$ 19,550
33,032
4,698
15,277

Other Operating Data
670
FedEx Express aircraft fleet
(1) Results for 2018 include tax benefits of $2.1 billion ($7.71 per diluted share), which includes benefits of $1.6 billion related to the TCJA as follows: a provisional benefit of $1.15 billion
($4.22 per diluted share) for the remeasurement of our net U.S. deferred tax liability for lower tax rates; a benefit of $204 million ($0.75 per diluted share) from an incremental pension
contribution made in the third quarter and deductible against prior year taxes at 35%; and a benefit of approximately $265 million ($0.97 per diluted share) for the phase-in of the reduced tax
rate applied to 2018 earnings. The remaining 2018 tax benefits include a net benefit of $255 million ($0.94 per diluted share) from corporate structuring transactions as part of the ongoing
integration of FedEx Express and TNT Express and a benefit of $225 million ($0.83 per diluted share) from foreign tax credits associated with distributions to the U.S. from foreign operations.
In addition, 2018 results include $380 million ($379 million, net of tax, or $1.39 per diluted share) of goodwill and other asset impairment charges related to FedEx Supply Chain and $8 million
($6 million, net of tax, or $0.02 per diluted share) of legal charges related to certain pending CBP matters involving FedEx Trade Networks.

643

647

657

650

(2) Results include TNT Express integration expenses and restructuring charges of $477 million ($372 million, net of tax, or $1.36 per diluted share) in 2018 and $327 million ($245 million, net of

tax, or $0.91 per diluted share) in 2017. These expenses are included in “Corporate, other and eliminations” and the FedEx Express segment.

(3) Results include the following: MTM retirement plan adjustments: gains of $10 million ($9 million, net of tax, or $0.03 per diluted share) in 2018 and $24 million ($6 million, net of tax, or

$0.02 per diluted share) in 2017; and losses of $1.5 billion ($946 million, net of tax, or $3.39 per diluted share) in 2016, $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. See Note 1 and Note 13 to the accompanying consolidated financial statements for additional information.

(4) Results for 2017 include charges for legal reserves related to certain pending CBP matters involving FedEx Trade Networks for $39 million ($24 million, net of tax, or $0.09 per diluted share)

and the settlement of and certain expected losses relating to independent contractor litigation matters at FedEx Ground in the amount of $22 million ($13 million, net of tax, or $0.05 per diluted
share).

(5) Results for 2016 include provisions related to independent contractor litigation matters at FedEx Ground for $256 million, net of recognized immaterial insurance recovery ($158 million, net

of tax, or $0.57 per diluted share), and expenses related to the settlement of a CBP notice of action involving FedEx Trade Networks in the amount of $69 million, net of recognized immaterial
insurance recovery ($43 million, net of tax, or $0.15 per diluted share). Total transaction, financing and integration-planning expenses related to our TNT Express acquisition, as well as
TNT Express’s immaterial financial results from the time of acquisition, were $132 million ($125 million, net of tax, or $0.45 per diluted share) during 2016. In addition, 2016 results include
a $76 million ($0.27 per diluted share) favorable tax impact from an internal corporate legal entity restructuring to facilitate the integration of FedEx Express and TNT Express.

(6) 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. 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.

(7) Includes adjustments in 2014 through 2016 related to our adoption of an accounting standard that requires us to classify debt issuance costs related to a recognized debt liability as a direct

deduction from the carrying amount of that debt liability, rather than as an asset.

87
87

FEDEX CORPORATION

R. Brad Martin(1)(4)
Chairman
RBM Venture Company
Private investment company

Joshua Cooper Ramo(1)(3)
Vice Chairman, Co-Chief Executive Officer
Kissinger Associates, Inc.
Strategic advisory firm

Susan C. Schwab(2)(3)
Professor
University of Maryland
School of Public Policy

Frederick W. Smith
Chairman and Chief Executive Officer
FedEx Corporation

David P. Steiner(4*)(5)
Former 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)(3)(4)
President and Chief Executive Officer
Lowe’s Companies, Inc.
Home improvement retailer

Susan Patricia Griffith(3)(4)
President and Chief Executive Officer
The Progressive Corporation
Property and casualty insurance company

John C. (“Chris”) Inglis(2)(3)(4)
Professor
U.S. Naval Academy

Kimberly A. Jabal(1)(3)
Chief Financial Officer
Weebly
Small business software company

Shirley Ann Jackson(1)(2)(4)
President
Rensselaer Polytechnic Institute
Technological research university

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

FEDEX CORPORATIONEXECUTIVE OFFICERS AND SENIOR MANAGEMENT

FedEx Corporation
Frederick W. Smith
Chairman and Chief Executive Officer

David J. Bronczek
President and Chief Operating Officer

Mark R. Allen
Executive Vice President, General Counsel and Secretary

Donald F. Colleran
Executive Vice President, Chief Sales Officer

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

Rajesh Subramaniam
Executive Vice President, Chief Marketing and Communications Officer

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

John L. Merino
Corporate Vice President and Principal Accounting Officer

FedEx Express
David L. Cunningham, Jr.
President and Chief Executive Officer

FedEx Ground
Henry J. Maier
President and Chief Executive Officer

Elise L. Jordan
Executive Vice President and Chief Financial Officer

Ward B. Strang
Executive Vice President and Chief Operating Officer

Gregory F. Hall
Executive Vice President, Air Operations

Robert D. Henning
Executive Vice President and Chief Financial Officer

Michael K. Pigors
Regional President and Executive Vice President,
U.S. Domestic and U.S. International

Herbert C. Nappier
Regional President, Europe and
Chief Executive Officer, TNT Express

FedEx Trade Networks
Richard W. Smith
President and Chief Executive Officer

FedEx Freight
John A. Smith
President and Chief Executive Officer (effective August 16, 2018)

Matthew Thornton III
Executive Vice President and Chief Operating Officer

FedEx Office
Brian D. Philips
President and Chief Executive Officer

FEDEX CORPORATIONCORPORATE INFORMATION

FEDEX CORPORATION: 942 South Shady Grove Road, Memphis,
Tennessee 38120, (901) 818-7500, fedex.com

ANNUAL MEETING OF SHAREOWNERS: Monday, September 24, 2018,
8:00 a.m. local time, FedEx Express World Headquarters, 3670 Hacks
Cross Road, Building G, Memphis, Tennessee 38125.

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

SHAREOWNERS: As of July 12, 2018, there were 12,052 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 2018 and 2017:

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

FY2018
High
Low
Dividend
FY2017
High
Low
Dividend

$ 219.99
193.94
0.50

$ 169.57
145.00
0.40

$ 233.89
209.67
0.50

$ 192.58
158.20
0.40

$ 274.66
226.17
0.50

$ 201.57
183.87
0.40

$ 258.00
228.90
0.50

$ 199.17
182.89
0.40

FINANCIAL INFORMATION: Copies of FedEx Corporation’s
Annual Report on Form 10-K, other documents filed with or
furnished to the Securities and Exchange Commission (SEC)
and other financial and statistical information are available
through the Investor Relations page of our website at
http://investors.fedex.com. The information we post on our
Investor Relations website could be deemed to be material
information. We encourage investors, the media and others
interested in FedEx to visit this website from time to time, as
information is updated and new information is posted. Company
documents filed with or furnished to the SEC can also be found
on 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,
PO BOX 505000, Louisville, Kentucky 40233-5000, (800) 446-2617,
www.computershare.com

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

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

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

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

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

In line with FedEx’s commitment to sustainability, our Annual Report was produced using
environmentally and socially responsible procurement and manufacturing practices to ensure
a minimized environmental impact. This report was printed at EarthColor on FSC® certified
paper containing 10% recycled PCW fiber.

> 32 trees preserved for the future

> 14 million BTUs of energy conserved

> 2,776 pounds of greenhouse gas reduced

> 15,056 gallons of water waste eliminated

> 1,008 pounds of solid waste eliminated

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

.
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S

FEDEX CORPORATION

She was undeterred
when they all told
her they couldn’t
clean the shirts in
time. Flores and Sito,
her manager, hand-
washed each shirt,
then dried, repacked,
and shipped them in
time for the event.

They are only two of
many Purple Promise
Award recipients.
Each year, FedEx
recognizes team
members who serve
customers and each
other in extraordinary
ways. A few examples
include:

• Personally delivering
an urgent medical
shipment that didn’t
clear customs in
time for regular
delivery.

• Making sure a

laboratory received
critical shipments
in the midst of a
natural disaster.

• Developing a pickup
and delivery plan
for customers in a
23-block area of a
city closed due to
an emergency.

And each and every
winner delivers the
Purple Promise:
“I will make every
FedEx experience
outstanding.”
We could not be
prouder of our team
members and their
can-do spirit that
defines the FedEx
brand. They are
simply the best in
the business.

Above and
beyond

Leslie Flores and Matt
Sito won a Purple
Promise Award for
making a customer’s
problems go down
the drain. Some of the
world’s top anglers
had volunteered to
mentor military
veterans who were
amputees. Days
before the big event,
however, a package
with 30 custom-made
shirts was damaged.
The event sponsor,
a fishing lure
company, couldn’t
replace them in time.

That’s when Flores
took action. The FedEx
Ground administrative
assistant called several
local dry cleaners to
launder the shirts.

“The Purple Promise tells you
everything you need to know
about what we expect out of
our people every day.”

—Frederick W. Smith, Chairman and CEO

STRENGTH IN NUMBERS

Whether customers need a part delivered overseas the

first thing in the morning or a package delivered across

town on Saturday, we’ve got it covered. FedEx is a massive

system of physical and technology networks, including the

world’s largest all-cargo air fleet.

“Our dense, ubiquitous networks create fundamental

scale and scope advantages that aren’t easily

replicated. Nearly every business and person on

the planet can order an item online and have it

affordably transported and delivered door to door

by FedEx across borders within one or two business

days, customs cleared. For e-commerce to continue

to grow rapidly, our efficient and reliable global

transportation solutions are vital.”

—Frederick W. Smith, Chairman and CEO

More than

425K

TEAM
MEMBERS

connect

92%

OF WORLD’S GDP IN
1–2 BUSINESS DAYS

and handle

>14M

SHIPMENTS
PER DAY

using

670

AIRCRAFT

>5,000

HUBS + FACILITIES

>180K

MOTORIZED
VEHICLES

FEDEX CORPORATION
942 South Shady Grove Road
Memphis, TN 38120
fedex.com