FedEx Annual Report 2011

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Fedex AnnuAl RepoRt 201


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poweRFul, lonG-teRM

tRendS in GlobAl tRAde

Revolve ARound Fedex.


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The global shipping arrow poinTs up

Weve reached a tipping point in how the world works. The largest economy in the

world is no longer the economy o any one country its the economy o global trade o

goods and services. Value: $18.3 trillion in 2010. At FedEx, our job is to acilitate these

transactions, the heart o commerce, by providing access moving goods across the

global supply chain.

Macroeconomic trends that drive global trade continue to intensiy:

> Production o high-tech and high-value-added goods continues to rise.

> Global sourcing and selling are increasing.

> Supply chains are accelerating.

> E-commerce is expanding.

Manuacturing and emerging markets, including China, India and Brazil, are leading the

charge. Thanks to the disciplined execution o our long-term strategies, FedEx is at thecenter o these powerul global trends:

The amount by which

we expect global trade to

outpace projected annual

global GDP growth o

3.3% rom 2010 to 2015.

The percentage emerging

markets are expected to

contribute to global

GDP by 2013.1

The percentage o

global GDP represented

by total trade in goods

and services in 2010,

which continues to grow.2

The amount the

international express

market is expected

to grow as part o the

total air cargo market

rom 3.7% in 1991 to

17.7% in 2015.3

2-2.5x

4x

30%

50%

1. International Monetary Fund

2. Economic Intelligence Unit

3. 2008-2009 Boeing World Air Cargo Forecast and FedEx Analysis

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2

To our shareowners,

This is a dening moment or FedEx.

During 2011, an improved economy, robust

customer demand and decisive actions to

grow our business increased volumes and

yields across all FedEx transportation seg-

ments. Revenues reached nearly $40 billion,

a 13 percent year-over-year increase, and

earnings per share grew more than 20 percent

year over year. With our positive momentum,

moderate economic growth and diminishing

cost head winds, we are well-positioned to

achieve stronger earnings in 2012.

Were reaping the benets o the strategies

we executed during tougher times. We said

we would position ourselves or success, and

we have.

D tdToday, we all benet rom a world thats

more connected than ever. In act, the largest

economy in the world no longer belongs to

a single country but to the realm o global

trade. Its driven by emerging markets, such

as China and India, and worldwide gains inmanuacturing. Whats more, with a growing

middle class, these countries are transitioning

rom producing nations to consumer nations,

and their domestic markets represent rich

opportunities.

Global trade will continue to be our prime

source o growth, especially in Asia, where

we have the strongest transportation network

in the industry. According to the International

Air Transportation Association, Asia Pacic,

the largest single region or air reight,

enjoyed a growth rate o 24 percent in 2010.

Because o these trends, FedEx is reaching

a tipping point. We expect higher-margin

revenue rom international operations will

approach U.S. domestic revenues at FedEx

Express or the rst time in our history.

Our commitment to provide companies o

all sizes with access to new markets in

every corner o the world has never beenstronger. Our strategy, network, people and

commitment will get the job done. FedEx

not only sits at the nexus o global trade

we are indispensibleto global trade.

Cttd t tThe delivery o superior solutionsor custom-

ers is our No. 1 ocus. With our unmatched

portolio o solutions that includes FedEx

Express, FedEx Ground, FedEx Freight, and

other FedEx services such as FedEx Trade

Networks and FedEx Custom Critical, we

oer customers plug-and-play fexibility indeciding when, where and how they do busi-

ness a big advantage in todays economy.

During the past scal year, we continued

to enhance our solutions and extend our

leadership in all aspects o our business.

FedEx Express strengthened our competitive

advantage by adding larger, more uel-

ecient 777Fs on international routes

connecting key global markets. Unlike our

competition, the 777Fs fy nonstop rom Asia

to the contiguous United States with a ull

cargo payload. As a result o our later cutotimes, many o our customers in China have

more time in their business day. Also, we

completed acquisitions in India and Mexico

to provide customers in those countries

with better service and more access to

global markets.

FedEx Ground increased market share by

oering customers superior solutions, such

as aster service to more locations than any

other ground carrier. The new FedEx Ground

hub in Portland, Ore., is an example o how

were using highly automated processes to

sort 3.5 million ground packages a day across

our network. For online retailers and direct

marketers who need a cost-eective option

to ship low-weight packages to residential

customers, FedEx SmartPost is increasingly

the solution o choice.

We returned FedEx Freight to protability in

the ourth quarter by aggressively improving

our pricing and successully integrating and

simpliying our networks and services. We

are reshaping the LTL (less-than-truckload)

industry. FedEx Freight now oers our

customers two levels o service in one

nationwide pickup and delivery network,

a game-changing rst or the industry.

Our commitment to customer solutions

includes a planned $4.2 billion in FY12 capital

expenditures. Nearly 60 percent o that will

support growth initiatives. Two billion dollars

is designated or more uel-ecient aircrat,

such as 777Fs and 757s. These aircrat expen-ditures are necessary to achieve signicant

operating savings over the long run and to

support the long-term international growth

were projecting. Capital expenditures are

also planned or network expansion at FedEx

Ground and or vehicles at FedEx Freight. The

company will benet rom the tax-expensing

and accelerated depreciation provisions

included in the Tax Relie Act o 2010.

ed tcTechnology has also helped accelerate our

momentum by making our customers lives

easier. FedEx Oce rolled out ree Wi-Fi

internet access at our U.S. locations and

FedEx Oce Print & Go or mobile devices,

which helps customers access and print

documents directly rom their smartphone or

USB fash drive. Specic to the sophisticated

needs o the growing healthcare industry, we

launched a suite o technology solutions and

organized them on a new, more customer-

riendly website.

leTTer rom The Chairman
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The new FedEx Data Center in Colorado

Springs represents a major milestone in our

commitment to use advanced technologies

to benet our customers. It not only supports

our plans or growth but also provides anadditional level o data protection. Its

LEED-certied and is one o the most

energy-ecient data centers in the country.

Ddctd t fcc

At FedEx, our goal is to connect the world in

responsible and resourceul ways. It starts

with reducing our own uel consumption and

advocating that our nation lessen its depen-

dence on oreign oil. Were embracing new

energy alternatives and have a head start on

transitioning to alternative power sources.

By 2030, we want to obtain 30 percent o

our jet uel rom alternative uel sources. We

are working with the FAA, the Department

o Energy and the Commercial Aviation

Alternative Fuel Initiative to develop

certication standards or biouels. Were

also collaborating with the U.S. Department

o Agriculture and other agencies.

On the ground, our vision is to help develop

a new short-haul transportation system

powered by electricity. The Electrication

Coalition, o which Im a member, hasrecommended the creation o electrication

deployment communities areas where

incentives would support electrication on a

broad scale. Today were testing all-electric

vehicles in the U.S. and Europe. As the cost o

these electric vehicles comes down, well

add more to our feet.

cd t t

As we continue to gain ground in the world

marketplace, we will stay ocused on three

pillars supporting our reputation.

First, we are committed to growing our

earnings. We exist to serve our customers and

to earn a prot or our shareowners. As weve

shown with our most recent earnings results,

were on track to achieve the long-term

nancial goals to which weve adhered or

many years: growing our revenue, achieving

10 percent-plus operating margins, improving

earnings per share 10 percent to 15 percent,

increasing cash fows, and increasing returns

on invested capital.

Second, we intend to improve on our

established reputation as an ethical

company. Were dedicated to conducting our

business around the world in an honest and

orthright way. It starts with our transparencyin nancial reporting, or which weve been

recognized consistently.

We will continue do the right things or

our shareowners, our customers, our team

members and the communities we serve. We

leveraged our long-standing relationships with

humanitarian organizations to deliver critical

medical and emergency supplies to Japan

ollowing the recent earthquake and tsunami.

To support these relie eorts, we committed

$1 million in cash and in-kind transportation.

Overall in FY11, FedEx donated nearly$5 million in in-kind disaster relie shipping.

Finally, well reinorce our reputation as a

great place to work. Nothing inspires more

pride than our team members delivering

the Purple Promise I will make every

FedEx experience outstanding. Because

o their relentless dedication, were ranked

among the Top Ten on FORTUNEs Worlds

Most Admired Companies list and on the

Reputation Institutes list o most admirable

U.S. companies.

Thats why were committed to giving ourteam members the career opportunities, the

rewards and the recognition they deserve or

doing a great job. Thanks, FedEx team, or

being a powerhouse in the marketplace

and or bringing tremendous momentum

to our business.

Weve set the stage or success, but at the

same time, we serve a higher purpose

to provide unique access or individuals,

businesses and markets around the world.

The more individual economies are connected,

the more the world will prosper. Thats whyFedEx is more than a transportation

business. We are in the transormation

business, making a positive dierence in

peoples lives every single day.

Frederick W. Smith

Chairman, President and Chie Executive Ocer

were reapingThe beneiTs o

The sTraTegies we

exeCuTeD During

Tougher Times

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4

globalizeD soluTions or a global markeTplaCe

When customers choose FedEx Express, FedEx Ground, FedEx Freight, and other

services such as FedEx Trade Networks, FedEx Custom Critical and FedEx Oce,

theyre choosing FedEx one brand, many solutions. Whether customers are shipping

between Paris and Hong Kong or between Dubai and Detroit, our network solutions allow

them to choose where, when and how they do business. Coming or going. Near or ar.

During FY11, we strengthened our position in each transportation service segment

express, ground and reight. Our momentum is helping customers o every size more

easily access world markets, ultimately creating prosperity and improving the quality

o lie or people, businesses and nations.

>With aster transit timesin more U.S. trac lanes

than our competition,

FedEx Ground is also

aster to more residential

locations via FedEx

Home Delivery service.

More transit-time

improvements are on

the way.

>FedEx Home Deliveryprovides convenient

delivery options that

are designed to t

the liestyle o busy

customers. Many o

these services arent

oered by anyone else

in todays market.

>The growinge-commerce economy

is driving increased

residential deliveries

via FedEx Home Delivery

and FedEx SmartPost,

which had 31 percent

revenue growth in FY11.

FedEx SmartPost is an

economical way or e-

tailers to ship low-weight

packages to customers.

By using the United

States Postal Service

or nal delivery, we can

reach every U.S. address,

a competitive advantage

or FedEx.

>Several new nonstop777F routes between

key global markets depart

later in the day than

the competition, giving

customers more time.

U.S. customers can

receive FedEx shipments

by 10:30 a.m. the next

business day rom more

international cities than

any other transportation

company.

>We completed strategicacquisitions in India and

Mexico that augment our

global network. AFL, Pvt.

Ltd. o India serves 144

cities, which in turn unnel

shipments into our global

network. Our acquisition

o Multipack enhances our

domestic and international

solutions in Mexico.

>Weve opened 38 FedExTrade Networks reight

orwarding oces

worldwide since 2008.

Thats in addition to

more than 70 locations

in the U.S. and Canada,

providing customers

with international ocean,

air and reight solutions.

>Cologne is home tothe new FedEx Express

Central and Eastern

European hub. It eatures

one o the largest

FedEx solar-electric

installations worldwide.

>Simple describes thenew FedEx Freight

one company, two

choices (priority or

economy). Not only

does FedEx Freight give

customers the options

theyve been seeking,

weve streamlined

our network and are

reshaping the LTL (less-

than-truckload) industry.

No other LTL competitor

provides the same level

o convenience backed by

a money-back guarantee.

This strategy, along

with improved revenue

per shipment, helped

return FedEx Freight to

protability by the end

o FY11.

>CIOmagazine namedFedEx Freight as a

recipient o the 2011

CIO 100 award or

integrating its

businesses and

improving the customer

experience. The award

recognizes FedEx Freight

or operational andstrategic excellence in

inormation technology

and or creating genuine

business value or

customers.

de e:g g

de gd:g sd

de t:rt lTl


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IMagInE

a feld eieer

receives emerecy

cll to replce vitl

prt o ccer-treti

medicl device i

smll Cdi tow.

Isted o stocki

prts t its cetrl

wrehouse, the compyrelies o FedEx Criticl

Ivetory Loistics

orwrd stocki

ceters worldwide. a

FedEx ceter i Toroto

delivers the prt the

sme dy. The medicl

device is bck o lie

d svi lives.

IMagInE

as ptiet wits

or spil implt,

Kss City suricl

tem d spil

implt compy

collbortively moitor

the implt shipmets

temperture, liht

exposure d loctioll the wy to the

operti room. a

SeseawreSM device

plced i the implt

shipmet is frst-o-

its-kid sesor

iormtio shri

service.

IMagInE

With o time to spre,

phrmceuticl

compy must sed

shipmet o sesitive

therpeutics rom

Pris to Ho Ko or

cliicl trils. FedEx

Deep Froze Shippi

Solutio is secureed-to-ed service tht

relies o ohzrdous

techoloy to miti

extremely low

tempertures or dys.

our no. 1 oCus

is Deliveringsuperior soluTions

or CusTomers.

de htC st a o C

>Revenues rom packagestendered at FedEx Oce

locations hit record levels

during December 2010.

The new FedEx Oce

Print & Go eature enables

anyone to conveniently

print rom a smartphone

or USB fash drive.

>Newly combinedpackage and reight sales

teams ocus on selling

an unmatched portolio

o express, ground and

LTL solutions.

>Technology solutionsrecently designed or

the healthcare industry

include SenseAwareSM.

Placed into a shipment,

the small monitoring

device gauges and

transmits temperature,

light exposure, location

and other inormationor quality assurance.

> FedEx Deep FrozenShipping Solution uses

nonhazardous technology

to maintain a temperature

as low as -150 degrees C.

or up to 10 days. Its

designed or temperature-

sensitive healthcare

products.

de sc:ec st d r

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6

were making exCellenT

progress TowarD greaTer

uel eiCienCy anD

implemenTing alTernaTive

sourCes o energy.


9/80

MORE >d.c/t20117

Our hybrid-electric and

all-electric vehicles in

service worldwide. By

the end o FY11, we

increased the feet by

nearly 20 percent.

The feet has logged

9.5 million miles o

service thats almost

20 trips to the moon and

back. Well add close to

4,000 new, uel-ecient

Sprinters this year.Each vehicle is at least

100 percent more uel

ecient than the most

common vehicle

it replaces.

were CreaTing a more seCure energy uTure

The business o global trade can be complex, but weve kept our goal simple: to connect

the world in responsible and resourceul ways. We believe that our success and the utureo our environment are deeply intertwined.

Following are highlights o how were systematically increasing the eciency o our

aircrat, vehicles and acilities. For a more comprehensive analysis, go to

and view our latest Global Citizenship Update. The report includes more inormation about

the our areas o our corporate citizenship: people and workplace, economics and access,

environment and eciency, and community and disaster relie.

67%

75%

408

47%

5

Our progress toward

the goal we set in 2005

to reduce aircrat CO2

emissions intensity

20 percent by 2020.

Adding more 777Fs to

our feet dramatically

enhances our ability

to move more reight

worldwide while

reducing aircrat

emissions per shipment.

The reduction in uel

consumption per pound

o payload by replacing

727 aircrat with 757s.

The 777F, which can

fy directly rom Asia

to our Memphis hub

without reueling,

allows later cuto

times or customers

and represents an 18

percent increase in uel

eciency compared

with the MD11.

Our progress toward

the goal we set in 2005

to increase vehicle uel

eciency 20 percent by

2020. Weve made

excellent progress each

year and are closing

in on our goal. Early

results or our all-electric

vehicles indicate that

operational and

maintenance costs couldbe 70 to 80 percent

lower than those costs

or internal combustion

engines.

The number o acilities

that generate solar

energy onsite worldwide.

These acilities increase

our energy eciency and

reduce CO2 emissions

by an estimated 3,918

metric tons per year.

Weve also installed a

Bloom Energy ServerSM

in our Oakland Facility,

complementing our

existing solar array

there. The solid oxide

uel cell technology

provides a cleaner, more

reliable and aordable

alternative to the

electric grid.

The number o FedEx

acilities that are ISO

14001-certied. This

international standard

species a process

or controlling and

improving an organiza-

tions environmental

perormance. This year

we received Leadership

in Energy and Environ-

mental Design (LEED)

certication or our

rst environmentally

sustainable data center

in Colorado Springs

and our FedEx World

Headquarters in Memphis.

51

airCrafTemissions

airCrafTfueleffiCienCy

vehiCle

fleeT

vehiClefueleffiCienCy

alTernaTiveonsiTeenergy

faCiliTyCerTifiCaTion
http://fedex.com/annualreport2011http://csr.fedex.com/http://fedex.com/annualreport2011


10/80

REVENUE (in billions)

2007

2008

2009

2010

2011

$35.2

$38.0

$35.5

$34.7

$39.3

8

C -y Ct Tt rt*

FINANCIAL HIGHLIGHTS

*$100 invested on 5/31/06 in stock or index, including reinvestment o dividends. Fiscal year ending May 31.

de Ct s&p 500 D J u.s. Ttt a

5/06 5/07 5/08 5/09 5/10 5/11

$140

$130

$120

$110

$100

$90

$80

$70

$60

$50

$40

OPERATING MARGIN

2007

2008(3)

2009(2)

2010

2011(1)

9.3

%

5.5

%

2.1

%

5.8

%

6.1

%

DILUTED EARNINGS

PER SHARE

2007

2008(3)

2009(2)

2010

2011

$6.4

8

$3.6

0

$0.3

1

$3.7

6

$4.5

7

RETURN ON AVERAGE

EQUITY

2007

2008(3)

2009(2)

2010

2011(1)

16.7

%

8.3

%

0.7

%

8.6

%

10.0

%

DEBT TO TOTAL

CAPITALIZATION

2007

2008

2009

2010

2011

17.3

%

12.1

%

15.9

%

12.3

%

10.0

%

STOCK PRICE

(May 31 close)

2007

2008

2009

2010

2011

$111.6

2

$91.7

1

$55.4

3

$83.4

9

$93.6

4

(in millions, except earnings per share) 2011 (1) 2010 pct C

Operating ResultsRevenues $ 39,304 $ 34,734 13

Operating income 2,378 1,998 19

Operating margin 6.1% 5.8% 30

Net income 1,452 1,184 23

Diluted earnings per share 4.57 3.76 22

Average common and commonequivalent shares 317 314 1

Capital expenditures 3,434 2,816 22

Financial Position

Cash and cash equivalents $ 2,328 $ 1,952 19Total assets 27,385 24,902 10

Long-term debt, including current portion 1,685 1,930 (13)

Common stockholders investment 15,220 13,811 10

(1) Results or 2011 include charges o approximately $199 million ($104 million, net o tax and applicable variableincentive compensation impacts, or $0.33 per diluted share) or the combination o our FedEx Freight andFedEx National LTL operations and a reserve associated with a legal matter at FedEx Express.

(2) Results or 2009 include a charge o $1.2 billion ($1.1 billion, net o tax, or $3.45 per diluted share) primarily orimpairment charges associated with goodwill and aircrat.

(3) Results or 2008 include a charge o $891 million ($696 million, net o tax, or $2.23 per diluted share) recordedduring the ourth quarter, predominantly or impairment charges associated with intangible assets rom theFedEx Ofce acquisition.


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ManageMents discussion and analysis o

results o operations and inancial condition

OVERVIEW OF FINANCIAL SECTION

The nancial section o the FedEx Corporation (FedEx) Annual Report(Annual Report) consists o the ollowing Managements Discussionand Analysis o Results o Operations and Financial Condition

(MD&A), the Consolidated Financial Statements and the notes to theConsolidated Financial Statements, and Other Financial Inormation,all o which include inormation about our signicant accountingpolicies, practices and the transactions that underlie our nancialresults. The ollowing MD&A describes the principal actors aectingthe results o operations, liquidity, capital resources, contractualcash obligations and the critical accounting estimates o FedEx. Thediscussion in the nancial section should be read in conjunction withthe other sections o this Annual Report and our detailed discussion orisk actors included in this MD&A.

organiZation o inorMation

Our MD&A is composed o three major sections: Results o

Operations, Financial Condition and Critical Accounting Estimates.These sections include the ollowing inormation:

> Results o Operations includes an overview o our consolidated 2011results compared to 2010, and 2010 results compared to 2009. Thissection also includes a discussion o key actions and events thatimpacted our results, as well as our outlook or 2012.

> The overview is ollowed by a nancial summary and analysis(including a discussion o both historical operating results and ouroutlook or 2012) or each o our reportable transportation segments.

> Our nancial condition is reviewed through an analysis o keyelements o our liquidity, capital resources and contractual cashobligations, including a discussion o our cash fows and our nancialcommitments.

> We conclude with a discussion o the critical accounting estimatesthat we believe are important to understanding certain o thematerial judgments and assumptions incorporated in our reportednancial results.

description o Business

We provide a broad portolio o transportation, ecommerce andbusiness services through companies competing collectively, operat-ing independently and managed collaboratively, under the respectedFedEx brand. Our primary operating companies are Federal ExpressCorporation (FedEx Express), the worlds largest express transporta-

tion company; FedEx Ground Package System, Inc. (FedEx Ground),a leading provider o smallpackage ground delivery services; andFedEx Freight, Inc. (FedEx Freight), a leading U.S. provider o lessthantruckload (LTL) reight services. These companies representour major service lines and, along with FedEx Corporate Services, Inc.(FedEx Services), orm the core o our reportable segments. OurFedEx Services segment provides sales, marketing and inormationtechnology support to our transportation segments. In addition, theFedEx Services segment provides customers with retail access to

FedEx Express and FedEx Ground shipping services through FedExOce and Print Services, Inc. (FedEx Oce) and provides customerservice, technical support and billing and collection services throughFedEx TechConnect, Inc. (FedEx TechConnect). See ReportableSegments or urther discussion.

The key indicators necessary to understand our operating resultsinclude:

> the overall customer demand or our various services;

> the volumes o transportation services provided through ournetworks, primarily measured by our average daily volume andshipment weight;

> the mix o services purchased by our customers;

> the prices we obtain or our services, primarily measured by yield(revenue per package or pound or revenue per hundredweight orLTL reight shipments);

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

> the timing and amount o fuctuations in uel prices and our ability torecover incremental uel costs through our uel surcharges.

The majority o our operating expenses are directly impacted byrevenue and volume levels. Accordingly, we expect these operatingexpenses to fuctuate on a yearoveryear basis consistent with thechange in revenues and volumes. Thereore, the discussion o operat-ing expense captions ocuses on the key drivers and trends impactingexpenses other than changes in revenues and volume.

Except as otherwise specied, reerences to years indicate our scalyear ended May 31, 2011 or ended May 31 o the year reerenced and

comparisons are to the prior year. Reerences to our transportationsegments include, collectively, our FedEx Express, FedEx Ground andFedEx Freight segments.


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10

ManageMents discussion and analysis

RESULTS OF OPERATIONS

consolidated results

The ollowing table compares summary operating results (dollars in millions, except per share amounts) or the years ended May 31:

The ollowing table shows changes in revenues and operating income by reportable segment or 2011 compared to 2010, and 2010 compared to2009 (dollars in millions):

rv o im

d ch p ch d ch p ch

2011/2010 2010/2009 2011/2010 2010/2009 2011/2010 2010/2009 2011/2010 2010/2009

FedEx Express segment(1) $ 3,026 $ (809) 14 (4) $ 101 $ 333 9 42

FedEx Ground segment 1,046 392 14 6 301 217 29 27

FedEx Freight segment(2) 590 (94) 14 (2) (22) (109) (14) (248)

FedEx Services segment(3) (86) (207) (5) (10) 810 100

Other and eliminations (6) (45) NM nM

$ 4,570 $ (763) 13 (2) $ 380 $ 1,251 19 167

(1) FedEx Express segment 2011 operating expenses include a $66 million legal reserve associated with the ATA Airlines lawsuit, and 2009 operating expenses include a charge o $260 million,primarily or aircratrelated asset impairments.

(2) FedEx Freight segment 2011 operating expenses include $133 million in costs associated with the combination o our FedEx Freight and FedEx National LTL operations, eective January 30,

2011, and 2009 operating expenses include a charge o $100 million, primarily or impairment charges associated with goodwill related to the FedEx National LTL acquisition.(3) FedEx Services segment 2009 operating expenses include a charge o $810 million or impairment charges associated with goodwill related to the FedEx Oce acquisition.

p ch2011(1) 2010 2009(2) 2011/2010 2010/2009

Revenues $ 39,304 $ 34,734 $ 35,497 13 (2)

Operating income 2,378 1,998 747 19 167

Operating margin 6.1% 5.8% 2.1% 30bp 370b

Net income $ 1,452 $ 1,184 $ 98 23 nM

Diluted earnings per share $ 4.57 $ 3.76 $ 0.31 22 nM

(1) Operating expenses include $133 million in costs associated with the combination o our FedEx Freight and FedEx National LTL operations, eective January 30, 2011, and a $66 million legalreserve associated with the ATA Airlines lawsuit against FedEx Express.

(2) Operating expenses include charges o $1.2 billion ($1.1 billion, net o tax, or $3.45 per diluted share), primarily or impairment charges associated with goodwill and aircrat (described below).


13/80

1


ovvwOur results or 2011 refect the momentum o improved global eco-nomic conditions and strong demand or our services, which droveyield growth and volume increases across all our transportationsegments during 2011, particularly in FedEx International Priority (IP)

package shipments at FedEx Express. Our FedEx Ground segmentcontinued its exceptional perormance, increasing volume, yield andoperating margins. The FedEx Freight segment returned to prot-ability in the ourth quarter o 2011 primarily due to higher LTL yield.All o our transportation segments beneted rom our yield manage-ment initiatives in 2011. Despite the strength in our businesses andsignicantly improved results, we incurred increased retirement plansand medical costs, higher aircrat maintenance expenses, higher costsassociated with the restoration o compensation programs curtailedduring the recession and onetime costs associated with the combina-tion o our LTL operations (described below) during 2011.

The combination o our FedEx Freight and FedEx National LTL opera-tions was completed on January 30, 2011. Our combined LTL network

will increase eciencies, reduce operational costs and providecustomers both Priority and Economy LTL reight services acrossall lengths o haul rom one integrated company. The combinationresulted in the ollowing incremental costs and charges which wereincurred primarily in the second and third quarters o 2011 (in millions):

Other program costs include $15 million in 2011 o accelerateddepreciation expense due to a change in the estimated useul lie ocertain assets impacted by the combination o these operations andother incremental costs directly associated with the program. The netcash eect o the program was immaterial, as cash proceeds rom

asset sales o $88 million oset severance and other cash outlays orthe program.

In 2010, our results refected the impact o the global recession, whichnegatively impacted volumes and yields, principally in the rst hal othe scal year. As the global and U.S. economies began to emergerom recession in the second hal o 2010, we experienced signicantvolume growth across all o our transportation segments. Our FedExGround segment continued to grow throughout the recession, ascustomers opted or lowerpriced ground transportation services andwe continued to gain market share. Despite higher shipment volumesin 2010, our FedEx Freight segment had a dicult year, resulting in anoperating loss caused by the highly competitive pricing environment inthe LTL market due to excess industry capacity.

2011

Severance $ 40

Lease terminations 20

Asset impairments 29

Impairment and other charges 89

Other program costs 44

Total program costs $ 133


14/80

12


3,300

3,400

3,500

3,600

3,700

2011201020092008

3,607

3,479

3,376

3,536

FedEx ExpressAverage Daily Package Volume

3,200

3,300

3,400

3,500

3,600

3,700

3,800

3,900

2011201020092008

3,746

3,523

3,4043,365

FedEx Ground(1)

Average Daily Package Volume

6,600

6,800

7,000

7,200

7,400

7,600

2011201020092008

7,353

7,002

6,780

6,901

FedEx Express and FedEx Ground(1)Total Average Daily Package Volume

70.0

75.0

80.0

85.0

90.0

2011201020092008

86.0

82.3

74.4

79.7

FedEx FreightAverage Daily LTL Shipments

$19.00

$20.00

$21.00

$22.00

$23.00

2011201020092008

$21.25

$19.72

$21.30

$22.08

FedEx ExpressRevenue per Package Yield

$8.17

$7.73$7.70

$7.48

2011201020092008$7.25

$7.50

$7.75

$8.00

$8.25

$8.50

FedEx Ground (1)Revenue per Package Yield

$16.00

$17.00

$18.00

$19.00

$20.00

$21.00

2011201020092008

$18.24

$17.07

$19.07

$19.65

FedEx FreightLTL Revenue per Hundredweight Yield

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

(1) Package statistics do not include the operations o FedEx SmartPost.

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


15/80

13


rvRevenues increased 13% during 2011 due to yield increases and vol-ume growth across all our transportation segments. Yields improveddue to higher uel surcharges and increased base rates under our yieldimprovement programs, including our dimensional pricing changes

or package shipments eective January 1, 2011. At FedEx Express,revenues increased 14% in 2011 led by IP volume growth in Asia, aswell as domestic and IP package yield increases. At the FedEx Groundsegment, revenues increased 14% in 2011 due to continued volumegrowth driven by market share gains and yield growth at both FedExGround and FedEx SmartPost. At FedEx Freight, yield increases due toour yield management programs and higher LTL uel surcharges, andhigher average daily LTL volumes led to a 14% increase in revenuesin 2011.

Revenues decreased 2% during 2010 primarily due to yield decreasesat FedEx Express and FedEx Freight as a result o lower uel sur-charges and a continued competitive pricing environment or ourservices. Increased volumes at all o our transportation segments due

to improved economic conditions in the second hal o the scal yearpartially oset the yield decreases in 2010. At FedEx Express, IP pack-age volume increased 10%, led by volume growth in Asia. IP reightand U.S. domestic package volume growth also contributed to therevenue increase in 2010. At the FedEx Ground segment, market sharegains resulted in a 3% increase in volumes at FedEx Ground and a 48%increase in volumes at FedEx SmartPost during 2010. At FedEx Freight,discounted pricing drove an increase in average daily LTL reight ship-ments, but also resulted in signicant yield declines during 2010.

imm oh chIn 2011, we incurred impairment and other charges o $89 millionrelated to the combination o our LTL operations at FedEx Freight (see

Overview above or additional inormation). In 2010, we recordeda charge o $18 million or the impairment o goodwill related to theFedEx National LTL acquisition, eliminating the remaining goodwillattributable to this reporting unit. Our operating results or 2009included charges o $1.2 billion ($1.1 billion, net o tax, or $3.45 perdiluted share) recorded during the ourth quarter, primarily or theimpairment o goodwill related to the FedEx Oce and FedEx NationalLTL acquisitions and certain aircratrelated assets at FedEx Express.The key actor contributing to the goodwill impairment was a declinein FedEx Oces and FedEx National LTLs actual and orecastednancial perormance as a result o weak economic conditions. TheFedEx National LTL 2010 and 2009 goodwill impairment charges wereincluded in the results o the FedEx Freight segment. The FedEx Oce

2009 goodwill impairment charge was included in the results o theFedEx Services segment and was not allocated to our transportationsegments, as the charge was unrelated to the core perormance othose businesses.

The majority o our property and equipment impairment charges during2009 resulted rom our decision to permanently remove rom servicecertain aircrat, along with certain excess aircrat engines, at FedExExpress. This decision was the result o eorts to optimize our expressnetwork in light o excess aircrat capacity due to weak economicconditions and the delivery o newer, more uelecient aircrat.

o imThe ollowing tables compare operating expenses expressed as dollaramounts (in millions) and as a percent o revenue or the years endedMay 31:

In 2011, operating income increased 19% primarily due to yield andvolume increases across all our transportation segments. Highercompensation and benets, including retirement plans and medi-cal costs, and increased maintenance and repairs expenses had anegative impact on our perormance or 2011. Costs related to thecombination o our FedEx Freight and FedEx National LTL operationsalso negatively impacted our 2011 results by $133 million. Unusuallysevere weather in the second hal o 2011 caused widespread disrup-tions to our networks, which led to lost revenues and drove higherpurchased transportation, salaries and wages and other operationalcosts. Additionally, a $66 million reserve associated with an adversejury decision in the ATA Airlines lawsuit against FedEx Express wasrecognized in 2011.

2011 2010 200

Operating expenses:

Salaries and employee benets $ 15,276 $ 14,027 $ 13,767

Purchased transportation 5,674 4,728 4,534

Rentals and landing ees 2,462 2,359 2,429

Depreciation and amortization 1,973 1,958 1,975

Fuel 4,151 3,106 3,81

Maintenance and repairs 1,979 1,715 1,898

Impairment and other charges 89(1) 18 1,204

Other 5,322(3) 4,825 5,132

Total operating expenses $ 36,926 $ 32,736 $ 34,750

(1) Represents charges associated with the combination o our FedEx Freight and FedEx

National LTL operations, eective January 30, 2011.(2) Includes charges o $1.2 billion ($1.1 billion, net o tax, or $3.45 per diluted share), primarily

or impairment charges associated with goodwill and aircrat (described above).(3) Includes a $66 million legal reserve associated with the ATA Airlines lawsuit against FedEx

Express.

2011 2010 200

Operating expenses:

Salaries and employee benets 38.9% 40.4% 38.8

Purchased transportation 14.4 13.6 12.8

Rentals and landing ees 6.3 6.8 6.8

Depreciation and amortization 5.0 5.6 5.6

Fuel 10.6 8.9 10.7Maintenance and repairs 5.0 4.9 5.3

Impairment and other charges 0.2 0.1 3.4

Other 13.5 13.9 14.5

Total operating expenses 93.9 94.2 97.9

Operating margin 6.1% 5.8% 2.

p rv


16/80

14


Salaries and employee benets increased 9% in 2011 due to the rein-statement o merit salary increases, increases in pension and medicalcosts and the reinstatement o ull 401(k) companymatching contribu-tions eective January 1, 2011. Purchased transportation increased20% in 2011 due to volume growth, higher uel surcharges and higher

rates paid to our independent contractors at FedEx Ground, as well ascosts associated with the expansion o our reight orwarding businessat FedEx Trade Networks. Maintenance and repairs expense increased15% in 2011 primarily due to an increase in maintenance events, as aresult o timing, and higher utilization o our feet driven by increasedvolumes. Other operating expense increased 10% primarily due tovolume and weatherrelated expenses.

The ollowing graph or our transportation segments shows our aver-age cost o jet and vehicle uel per gallon or the years ended May 31:

Fuel expense increased 34% during 2011 primarily due to increasesin the average price per gallon o uel and uel consumption drivenby volume increases. Based on a static analysis o the net impact o

yearoveryear changes in uel prices compared to yearoveryearchanges in uel surcharges, uel had a positive impact on operatingincome in 2011, predominantly at FedEx Express.

Our analysis considers the estimated impact o the reduction in uelsurcharges included in the base rates charged or FedEx Express andFedEx Ground services. However, this analysis does not consider thenegative eects that uel surcharge levels may have on our business,including reduced demand and shits by our customers to loweryielding services. While fuctuations in uel surcharge rates can besignicant rom period to period, uel surcharges represent one o themany individual components o our pricing structure that impact ouroverall revenue and yield. Additional components include the mix oservices sold, the base price and extra service charges we obtain orthese services and the level o pricing discounts oered. In order toprovide inormation about the impact o uel surcharges on the trendsin revenue and yield growth, we have included the comparative uelsurcharge rates in eect or 2011, 2010 and 2009 in the accompanyingdiscussions o each o our transportation segments.

Operating income and operating margin increased in 2010 primar-ily as a result o the inclusion in 2009 o the impairment and othercharges described above. Volume increases at our package businesses,particularly in highermargin IP package and reight services at FedEx

Express, also beneted our 2010 results. Additionally, we benetedin 2010 rom several actions implemented in 2009 to lower our coststructure, including reducing base salaries, optimizing our networks byadjusting routes and equipment types, permanently and temporarilyidling certain equipment and consolidating acilities; however, these

benets were partially oset by increased costs in 2010 associatedwith our variable incentive compensation programs. An operating lossat the FedEx Freight segment due to continued weakness in the LTLreight market constrained the earnings increase.

Maintenance and repairs expense decreased 10% in 2010 primarilydue to the timing o maintenance events. Other operating expensedecreased 6% in 2010 due to actions to control spending and the inclu-sion in the prior year o higher selinsurance reserve requirements atFedEx Ground. Purchased transportation costs increased 4% in 2010due to increased utilization o thirdparty transportation providersassociated primarily with our LTL reight service as a result o highershipment volumes.

Fuel expense decreased 18% during 2010 primarily due to decreasesin the average price per gallon o uel and uel consumption, as welowered fight hours and improved route eciencies. Based on a staticanalysis o the net impact o yearoveryear changes in uel pricescompared to yearoveryear changes in uel surcharges, uel had asignicant negative impact to operating income in 2010.

oh im exInterest expense increased $7 million during 2011 primarily due toa decrease in capitalized interest related to the timing o construc-tion projects and progress payments on aircrat purchases. Interestexpense decreased $6 million during 2010 due to increased capitalizedinterest primarily related to progress payments on aircrat purchases.

Interest income decreased $18 million during 2010 primarily due tolower interest rates and invested balances. Other expense increased$22 million during 2010 primarily due to higher amortization o nanc-ing ees and oreign currency losses.

im txOur eective tax rate was 35.9% in 2011, 37.5% in 2010 and 85.6%in 2009. Our 2011 rate was lower than our 2010 rate primarily due toincreased permanently reinvested oreign earnings and a lower statetax rate driven principally by avorable audit and legislative develop-ments. In 2011, our permanent reinvestment strategy with respect tounremitted earnings o our oreign subsidiaries provided a 1.3% benetto our eective tax rate. Our total permanently reinvested oreign

earnings were $640 million at the end o 2011 and $325 million at theend o 2010. Our 2009 rate was signicantly impacted by goodwillimpairment charges that were not deductible or income tax purposes.

Our current ederal income tax expenses in 2011, 2010, and 2009were signicantly reduced by accelerated depreciation deductionswe claimed under provisions o the Tax Relie and the Small BusinessJobs Acts o 2010, the American Recovery and Reinvestment Tax Acto 2009, and the Economic Stimulus Act o 2008. Those acts, designedto stimulate new business investment in the U.S., accelerated ourdepreciation deductions or new qualiying investments, such as our

Vh J

$1.75

$2.25

$2.75

$3.25

$3.75

2011201020092008

$3.25

$2.69

$3.04

$3.31

$2.66

$2.15

$2.62$2.77

Average Fuel Cost per Gallon


17/80

1


new Boeing 777 Freighter (B777F) aircrat. These are timing benetsonly, in that the depreciation would have otherwise been recognized inlater years.

The components o the provision or ederal income taxes or the yearsended May 31 were as ollows (in millions):

For 2012, we expect our eective tax rate to be in the range o 36.0%to 38.0%. The actual rate, however, will depend on a number o ac-tors, including the amount and source o operating income.

Additional inormation on income taxes, including our eective tax ratereconciliation and liabilities or uncertain tax positions, can be ound inNote 11 o the accompanying consolidated nancial statements.

B aqOn February 22, 2011, FedEx Express completed the acquisition o theIndian logistics, distribution and express businesses o AFL Pvt. Ltd.and its aliate Unireight India Pvt. Ltd. or $96 million in cash. Thenancial results o the acquired businesses are included in the FedExExpress segment rom the date o acquisition and were not material toour results o operations or nancial condition. Substantially all o thepurchase price was allocated to goodwill.

On December 15, 2010, FedEx entered into an agreement to acquireServicios Nacionales Mupa, S.A. de C.V. (MultiPack), a Mexicandomestic express package delivery company. This acquisition will beunded with cash rom operations and is expected to be completedduring the rst quarter o 2012, subject to customary closing condi-tions. The nancial results o the acquired company will be includedin the FedEx Express segment rom the date o acquisition and will beimmaterial to our 2012 results.

These acquisitions will give us more robust domestic transportationnetworks and added capabilities in these important global markets.

okWe expect moderate growth in the global economy, combined withongoing yield improvement actions, to drive a signicant improvementin earnings in 2012. Results at FedEx Express, driven by internationalservices, are expected to be the primary driver o earnings growth

during 2012. In addition, we expect our FedEx Freight segment to beprotable throughout 2012 and anticipate our FedEx Ground segmentto continue to grow signicantly. However, our outlook is dependenton continued strengthening in global economic conditions, particularly

in industrial production, the pace o which is uncertain due to severalactors, including the impact o higher uel prices on demand. Weexpect growth in international trade to substantially outpace growthin the U.S. domestic economy, and our unmatched global network isuniquely positioned to service customer needs in this sector. While

cost headwinds in pension plans and maintenance and repairs areexpected to abate, we expect higher incentive compensation expenseas a result o higher earnings and higher expenses related to theull restoration o the companymatching contributions on our401(k) programs.

Our capital expenditures or 2012 are expected to be approximately$4.2 billion, an increase over 2011, driven primarily by replacementvehicles and equipment to support international growth at FedExExpress. Our strategic investments in our more uel ecient B777Fand Boeing 757 (B757) aircrat will continue in 2012. We are com-mitted to investing in critical longterm strategic projects ocusedon enhancing and broadening our service oerings to position us orstronger growth as global economic conditions continue to improve.

For additional details on key 2012 capital projects, reer to theLiquidity Outlook section o this MD&A.

Our outlook is dependent upon a stable pricing environment or uel, asvolatility in uel prices impacts our uel surcharge levels, uel expenseand demand or our services. Historically, our uel surcharges havelargely oset incremental uel costs; however, volatility in uel costsmay impact earnings because adjustments to our uel surcharges lagchanges in actual uel prices paid. Thereore, the trailing impact oadjustments to our uel surcharges can signicantly aect our earningseither positively or negatively in the shortterm.

As described in Note 17 o the accompanying consolidated nancialstatements and the Independent Contractor Matters section o

our FedEx Ground segment MD&A, we are involved in a number olawsuits and other proceedings that challenge the status o FedExGrounds owneroperators as independent contractors. FedEx Groundanticipates continuing changes to its relationships with its contractors.The nature, timing and amount o any changes are dependent on theoutcome o numerous uture events. We cannot reasonably estimatethe potential impact o any such changes or a meaningul range opotential outcomes, although they could be material. However, we donot believe that any such changes will impair our ability to operate andprotably grow our FedEx Ground business.

See Risk Factors or a discussion o these and other potential risks

and uncertainties that could materially aect our uture perormance.

2011 2010 2009

Current $ 79 $ 36 $ (35)

Deerred 485 408 327

Total Federal Provision $ 564 $ 444 $ 292


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s BOur businesses are cyclical in nature, as seasonal fuctuations aectvolumes, revenues and earnings. Historically, the U.S. express pack-age business experiences an increase in volumes in late Novemberand December. International business, particularly in the AsiatoU.S.

market, peaks in October and November in advance o the U.S. holidaysales season. Our rst and third scal quarters, because they aresummer vacation and post winterholiday seasons, have historicallyexperienced lower volumes relative to other periods. Normally, the allis the busiest shipping period or FedEx Ground, while late December,June and July are the slowest periods. For FedEx Freight, the springand all are the busiest periods and the latter part o December,January and February are the slowest periods. For FedEx Oce, thesummer months are normally the slowest periods. Shipment levels,operating costs and earnings or each o our companies can also beadversely aected by inclement weather, particularly the impact osevere winter weather in our third scal quarter.

neW accounting guidanceNew accounting rules and disclosure requirements can signicantlyimpact our reported results and the comparability o our nancialstatements. New accounting guidance that has impacted our nancialstatements can be ound in Note 2 o the accompanying consolidatednancial statements.

In June 2011, the Financial Accounting Standards Board issued newguidance to make the presentation o items within other comprehen-sive income (OCI) more prominent. The new standard will requirecompanies to present items o net income, items o OCI and totalcomprehensive income in one continuous statement or two separateconsecutive statements, and companies will no longer be allowedto present items o OCI in the statement o stockholders equity.Reclassication adjustments between OCI and net income will bepresented separately on the ace o the nancial statements. Thisnew standard is eective or our scal year ending May 31, 2013.

We believe there is no additional new accounting guidance adoptedbut not yet eective that is relevant to the readers o our nancialstatements. However, there are numerous new proposals under devel-opment which, i and when enacted, may have a signicant impact onour nancial reporting.

reportaBle segMents

FedEx Express, FedEx Ground and FedEx Freight represent our majorservice lines and, along with FedEx Services, orm the core o ourreportable segments. Our reportable segments include the ollowingbusinesses:

Eective January 30, 2011, our FedEx Freight and FedEx National LTLbusinesses were merged into a single operation. FedEx Freight nowoers two standard services: FedEx Freight Priority, a aster transitservice with a price premium; and FedEx Freight Economy, an economi-cal service.

edeX serVices segMent

The FedEx Services segment operates combined sales, marketing,administrative and inormation technology unctions in shared servicesoperations that support our transportation businesses and allow us toobtain synergies rom the combination o these unctions. The FedExServices segment includes: FedEx Services, which provides sales,marketing and inormation technology support to our other compa-

nies; FedEx TechConnect, which is responsible or customer service,technical support, billings and collections or U.S. customers o ourmajor business units; and FedEx Oce, which provides an array odocument and business services and retail access to our customers orour package transportation businesses. Eective September 1, 2009,

ex ex sm > FedEx Express(express transportation)

> FedEx Trade Networks(global trade services)

> FedEx SupplyChain Systems(logistics services)

ex g sm > FedEx Ground(smallpackage ground delivery)

> FedEx SmartPost(smallparcel consolidator)

ex h sm > FedEx Freight(LTL reight transportation)

> FedEx Custom Critical(timecritical transportation)

ex sv sm > FedEx Services

(sales, marketing and inormation

technology unctions)> FedEx TechConnect

(customer service, technical support,

billings and collections)> FedEx Oce

(document and business services and

package acceptance)


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FedEx SupplyChain Systems, ormerly included in the FedEx Servicesreporting segment, was realigned to become part o the FedEx Expressreporting segment. Prior year amounts have not been reclassiedto conorm to the current year segment presentation because thesereclassications are immaterial.

The FedEx Services segment provides direct and indirect support toour transportation businesses, and we allocate all o the net operat-ing costs o the FedEx Services segment (including the net operatingresults o FedEx Oce) to refect the ull cost o operating ourtransportation businesses in the results o those segments. Withinthe FedEx Services segment allocation, the net operating results oFedEx Oce are allocated to FedEx Express and FedEx Ground. Theallocations o net operating costs are based on metrics such as relativerevenues or estimated services provided. We believe these allocationsapproximate the net cost o providing these unctions. We review andevaluate the perormance o our transportation segments based onoperating income (inclusive o FedEx Services segment allocations).For the FedEx Services segment, perormance is evaluated based on

the impact o its total allocated net operating costs on our transporta-tion segments.

The operating expenses line item Intercompany charges on theaccompanying unaudited nancial summaries o our transportationsegments refects the allocations rom the FedEx Services segment tothe respective transportation segments. The Intercompany chargescaption also includes charges and credits or administrative servicesprovided between operating companies and certain other costs suchas corporate management ees related to services received or generalcorporate oversight, including executive ocers and certain legal andnance unctions. We believe these allocations approximate the netcost o providing these unctions.

Eective August 1, 2009, approximately 3,600 employees (predomi-nantly rom the FedEx Freight segment) were transerred to entitieswithin the FedEx Services segment. This internal reorganization urthercentralized most customer support unctions, such as sales, customerservice and inormation technology, into our shared services organiza-tions. While the reorganization had no impact on the net operatingresults o any o our transportation segments, the net intercompanycharges to our FedEx Freight segment increased signicantly with cor-responding decreases to other expense captions, such as salaries andemployee benets. The impact o this internal reorganization to theexpense captions in our other segments was immaterial.

otHer intersegMent transactions

Certain FedEx operating companies provide transportation and relatedservices or other FedEx companies outside their reportable segment.Billings or such services are based on negotiated rates, which webelieve approximate air value, and are refected as revenues o thebilling segment. These rates are adjusted rom time to time basedon market conditions. Such intersegment revenues and expenses areeliminated in our consolidated results and are not separately identiedin the ollowing segment inormation, because the amounts arenot material.

edeX eXpress segMent

The ollowing tables compare revenues, operating expenses, operat-ing expenses as a percent o revenue, operating income and operatingmargin (dollars in millions) or the years ended May 31:

p ch

2011 2010 200920112010

/ 201200

Revenues:

Package:

U.S. overnight box $ 6,128 $ 5,602 $ 6,074 9 (

U.S. overnight envelope 1,736 1,640 1,855 6 (1

U.S. deerred 2,805 2,589 2,789 8 (7

Total U.S. domesticpackage revenue 10,669 9,831 10,718 9 (

International priority 8,228 7,087 6,978 16

International domestic(1) 653 578 565 13

Total package revenue 19,550 17,496 18,261 12 (4Freight:

U.S. 2,188 1,980 2,165 11 (

International priority 1,722 1,303 1,104 32 1

International airreight 283 251 369 13 (3

Total reight revenue 4,193 3,534 3,638 19 (3

Other(2) 838 525 465 60 13

Total revenues 24,581 21,555 22,364 14 (4

Operating expenses:

Salaries and employeebenets 9,183 8,402 8,217 9

Purchased transportaion 1,573 1,177 1,112 34Rentals and landing ees 1,672 1,577 1,613 6 (

Depreciation andamortization 1,059 1,016 961 4

Fuel 3,553 2,651 3,281 34 (1

Maintenance and repairs 1,353 1,131 1,351 20 (1

Impairment and othercharges 260(3) nM

Intercompany charges 2,043 1,940 2,103 5 (

Other 2,917(4) 2,534 2,672 15 (

Total operatingexpenses 23,353 20,428 21,570 14 (

Operating income $ 1,228 $ 1,127 $ 794 9 4

Operating margin 5.0% 5.2% 3.6% (20)bp 160

(1) International domestic revenues include our international intracountry domestic express

operations.(2) Other revenues include FedEx Trade Networks and, beginning in the second quarter o 2010,

FedEx SupplyChain Systems.

(3) Represents charges associated with aircratrelated asset impairments and other chargesprimarily associated with aircratrelated lease and contract termination costs and employe

severance.(4) Includes a $66 million legal reserve associated with the ATA Airlines lawsuit.


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The ollowing table compares selected statistics (in thousands, exceptyield amounts) or the years ended May 31:

p rv

2011 2010 2009

Operating expenses:

Salaries and employee benets 37.4% 39.0% 36.7%

Purchased transportation 6.4 5.5 5.0Rentals and landing ees 6.8 7.3 7.2

Depreciation and amortization 4.3 4.7 4.3

Fuel 14.4 12.3 14.7

Maintenance and repairs 5.5 5.2 6.0

Impairment and other charges 1.2(1)

Intercompany charges 8.3 9.0 9.4

Other 11.9(2) 11.8 11.9


Operating margin 5.0% 5.2% 3.6%

(1) Includes a charge o $260 million related to aircratrelated asset impairments and other

charges primarily associated with aircratrelated lease and contract termination costsand employee severance.

(2) Includes a $66 million legal reserve associated with the ATA Airlines lawsuit.

p ch

2011 2010 200920112010

/ 20102009

/

Package Statistics(1) Average daily packagevolume (ADV):

U.S. overnight box 1,184 1,157 1,127 2 3

U.S. overnight envelope 627 614 627 2 (2)

U.S. deerred 873 867 849 1 2

Total U.S. domestic ADV 2,684 2,638 2,603 2 1

International priority 575 523 475 10 10

International domestic(2) 348 318 298 9 7

Total ADV 3,607 3,479 3,376 4 3

Revenue per package (yield):

U.S. overnight box $ 20.29 $ 19.00 $ 21.21 7 (10)U.S. overnight envelope 10.86 10.47 11.65 4 (10)

U.S. deerred 12.60 11.70 12.94 8 (10)

U.S. domestic composite 15.59 14.61 16.21 7 (10)

International priority 56.08 53.10 57.81 6 (8)

International domestic(2) 7.38 7.14 7.50 3 (5)

Composite package yield 21.25 19.72 21.30 8 (7)

Freight Statistics(1)

Average daily reight pounds:

U.S. 7,340 7,141 7,287 3 (2)

International priority 3,184 2,544 1,959 25 30

International airreight 1,235 1,222 1,475 1 (17)

Total average dailyreight pounds 11,759 10,907 10,721 8 2

Revenue per pound (yield):

U.S. $ 1.17 $ 1.09 $ 1.17 7 (7)

International priority 2.12 2.01 2.22 5 (9)

International airreight 0.90 0.81 0.99 11 (18)

Composite reight yield 1.40 1.27 1.34 10 (5)

(1) Package and reight statistics include only the operations o FedEx Express.

(2) International domestic statistics include our international intracountry domesticexpress operations.


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ex ex sm rvFedEx Express segment revenues increased 14% in 2011 driven byhigher yield and volumes. In 2011, IP package volume increased10% led by volume growth rom Asia, Europe and the U.S. FedExExpress U.S. domestic package yields increased 7% due to higher uel

surcharges, rate increases and increased package weights. IP packageyields increased 6% due to higher uel surcharges, increased packageweights and avorable exchange rates. IP reight pounds increased25% led by volume growth in Europe.

FedEx Express segment revenues decreased 4% in 2010 due tolower yields primarily driven by a decrease in uel surcharges. Yielddecreases during 2010 were partially oset by increased IP packagevolume, particularly rom Asia, IP reight volume and U.S. domesticpackage volume due to improved global economic conditions. Loweruel surcharges were the primary driver o decreased compositepackage and reight yield in 2010. U.S. domestic package yield alsodecreased during 2010 due to lower rates and lower package weights.In addition to lower uel surcharges, IP package yield decreased during

2010 due to lower rates, partially oset by higher package weightsand avorable exchange rates.

Our uel surcharges are indexed to the spot price or jet uel. Usingthis index, the U.S. domestic and outbound uel surcharge and theinternational uel surcharges ranged as ollows or the years endedMay 31:

In January 2011, we implemented a 5.9% average list price increaseon FedEx Express U.S. domestic and U.S. outbound express packageand reight shipments and made various changes to other surcharges,while we lowered our uel surcharge index by two percentage points.In January 2010, we implemented a 5.9% average list price increaseon FedEx Express U.S. domestic and U.S. outbound express packageand reight shipments and made various changes to other surcharges,

while we lowered our uel surcharge index by two percentage points.

ex ex sm o imFedEx Express segment operating income increased in 2011 due toyield and volume growth, particularly in our highermargin IP pack-age services, although operating margin was down slightly. Higherrevenues in 2011 were partially oset by higher retirement plans and

medical expenses, increased aircrat maintenance costs, the reinstate-ment o certain employee compensation programs, and the negativeimpact o severe weather during the second hal o the year. Resultsin 2011 were also negatively impacted by a $66 million legal reserveassociated with the ATA Airlines lawsuit (see Note 17 o the accompa-nying consolidated nancial statements).

Salaries and benets increased 9% in 2011 due to volumerelatedincreases in labor hours, the reinstatement o several employee com-pensation programs including merit salary increases, higher pensionand medical costs, and ull 401(k) companymatching contributions.Purchased transportation costs increased 34% in 2011 due to costsassociated with the expansion o our reight orwarding business atFedEx Trade Networks and IP package and reight volume growth.

Other operating expenses increased 15% due to volumerelatedexpenses and the ATA Airlines legal reserve. Maintenance and repairsexpense increased 20% in 2011 primarily due to an increase in aircratmaintenance expenses as a result o timing o maintenance events andhigher utilization o our feet driven by increased volumes.

Fuel costs increased 34% in 2011 due to increases in the average priceper gallon o uel and uel consumption driven by volume increases.Based on a static analysis o the net impact o yearoveryearchanges in uel prices compared to yearoveryear changes in uelsurcharges, uel had a positive impact in 2011. This analysis considersthe estimated impact o the reduction in uel surcharges included inthe base rates charged or FedEx Express services.

FedEx Express segment operating income and operating marginincreased during 2010 due to volume growth, particularly in highermargin IP package and reight services. Reductions in networkoperating costs driven by lower fight hours and improved routeeciencies, as well as other actions to control spending, positivelyimpacted our results or 2010. Our 2010 yearoveryear results werealso positively impacted by a $260 million charge in 2009 or aircratrelated asset impairments and other charges primarily associated withaircratrelated lease and contract termination costs and employeeseverance.

Maintenance and repairs expense decreased 16% in 2010 primarilydue to the timing o maintenance events, as lower aircrat utilization

as a result o weak economic conditions, particularly in the rst hal o2010, lengthened maintenance cycles. Purchased transportation costsincreased 6% in 2010 primarily due to higher air transportation volumeand costs in our reight orwarding business at FedEx Trade Networks.Depreciation expense increased 6% in 2010 primarily due to the addi-tion o 21 aircrat placed into service during the year. Intercompanycharges decreased 8% in 2010 primarily due to lower allocated inor-mation technology costs and lower net operating costs at FedEx Oce

2011 2010 2009

U.S. Domestic and Outbound Fuel Surcharge:

Low 7.00% 1.00% %

High 15.50 8.50 34.50

Weightedaverage 9.77 6.20 17.45

International Fuel Surcharges:

Low 7.00 1.00

High 21.00 13.50 34.50

Weightedaverage 12.36 9.47 16.75


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Fuel costs decreased 19% in 2010 due to decreases in the averageprice per gallon o uel and uel consumption. Based on a staticanalysis o the net impact o yearoveryear changes in uel pricescompared to yearoveryear changes in uel surcharges, uel had asignicant negative impact to operating income in 2010. This analysis

considers the estimated impact o the reduction in uel surchargesincluded in the base rates charged or FedEx Express services.

ex ex sm okIn 2012, we expect revenue growth at FedEx Express to be driven bycontinued growth in our international services as international eco-nomic conditions are expected to improve at a aster rate than in theU.S. We also anticipate improvement in both domestic and interna-tional yields through ongoing yield management initiatives.

FedEx Express segment operating income and operating margin areexpected to increase in 2012, driven by continued growth in interna-tional package and reight services, and productivity enhancementssuch as improving onroad productivity, sort eciency and eciencies

in our aircrat maintenance processes. We anticipate that increases inmerit pay, higher incentive compensation and increased depreciationwill dampen our earnings growth in 2012.

Capital expenditures at FedEx Express are expected to increase in 2012driven by replacement vehicle and equipment purchases. In 2012,capital expenditures will also include continued investments or thenew B777F and B757 aircrat. These aircrat capital expenditures arenecessary to achieve signicant longterm operating savings and tosupport projected longterm international volume growth.

edeX ground segMent

The ollowing tables compare revenues, operating expenses, operat-ing expenses as a percent o revenue, operating income and operatingmargin (dollars in millions) and selected package statistics (in thou-sands, except yield amounts) or the years ended May 31:

p ch

2011 2010 200920112010

/ 20102009

/

Revenues:

FedEx Ground $7,855 $ 6,958 $ 6,670 13 4

FedEx SmartPost 630 481 377 31 28

Total revenues 8,485 7,439 7,047 14 6

Operating expenses:

Salaries and employeebenets 1,282 1,158 1,102 11 5

Purchased transportation 3,431 2,966 2,918 16 2

Rentals 263 244 222 8 10Depreciation and

amortization 337 334 337 1 (1)

Fuel 12 8 9 50 (11)

Maintenance and repairs 169 166 147 2 13

Intercompany charges 897 795 710 13 12

Other 769 744 795 3 (6)

Total operating expenses 7,160 6,415 6,240 12 3

Operating income $1,325 $ 1,024 $ 807 29 27

Operating margin 15.6% 13.8% 11.5% 180bp 230b

Average daily packagevolume:

FedEx Ground 3,746 3,523 3,404 6 3

FedEx SmartPost 1,432 1,222 827 17 48

Revenue per package (yield):

FedEx Ground $ 8.17 $ 7.73 $ 7.70 6

FedEx SmartPost $ 1.72 $ 1.56 $ 1.81 10 (14)

p rv

2011 2010 2009

Operating expenses:

Salaries and employeebenets 15.1% 15.5% 15.6%

Purchased transportation 40.4 39.9 41.4

Rentals 3.1 3.3 3.1

Depreciation andamortization 4.0 4.5 4.8

Fuel 0.1 0.1 0.1

Maintenance and repairs 2.0 2.2 2.1

Intercompany charges 10.6 10.7 10.1

Other 9.1 10.0 11.3


Operating margin 15.6% 13.8% 11.5%


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ex g sm rvFedEx Ground segment revenues increased 14% during 2011 dueto volume and yield increases at both FedEx Ground and FedExSmartPost.

FedEx Ground average daily package volume increased 6% during 2011

due to continued growth in our commercial business and our FedExHome Delivery service. The 6% yield improvement at FedEx Groundduring 2011 was primarily due to rate increases, higher uel surchargesand higher extra service revenue, particularly in residential surcharges.

FedEx SmartPost average daily volume grew 17% during 2011 primar-ily as a result o growth in ecommerce business, gains in marketshare and the introduction o new service oerings. Yields increased10% during 2011 primarily due to growth in higher yielding services,improved uel surcharges and lower postage costs as a result oincreased deliveries to United States Postal Service (USPS) naldestination acilities.

FedEx Ground segment revenues increased 6% during 2010 due to

volume growth at both FedEx Ground and FedEx SmartPost, partiallyoset by declines in yield at FedEx SmartPost. FedEx Ground averagedaily package volume increased 3% during 2010 due to growth in ourcommercial business and our FedEx Home Delivery service. The slightyield improvement at FedEx Ground during 2010 was primarily due tohigher base rates and increased extra service revenue, but was mostlyoset by higher customer discounts and lower uel surcharges. FedExSmartPost volumes grew 48% during 2010 primarily as a result omarket share gains, while yields decreased 14% during 2010 due tochanges in customer and service mix.

The FedEx Ground uel surcharge is based on a rounded average o thenational U.S. onhighway average price or a gallon o diesel uel, as

published by the Department o Energy. Our uel surcharge ranged asollows or the years ended May 31:

In January 2011, we implemented a 4.9% list price increase or FedExGround and FedEx Home Delivery services. The ull average rateincrease o 5.9% was partially oset by adjusting the uel price thresh-old at which the uel surcharge begins, reducing the uel surcharge byone percentage point. Additional changes were made to other FedEx

Ground surcharges and FedEx SmartPost rates. In January 2010, weimplemented a 4.9% average list price increase and made variouschanges to other surcharges, including modiying the uel surchargetable, on FedEx Ground shipments.

ex g sm o imDuring 2011, FedEx Ground segment operating income increased 29%and operating margin increased 180 basis points due to improvedyield and higher volume resulting rom market share growth. We haverealized a higher retention o our annual rate increase this year as

more customers recognize the competitive advantage that we maintainacross many shipping lanes in the U.S. We have also improved ourcustomers experience by dramatically reducing our package lossand damage claims while maintaining exceptional service levels.Purchased transportation costs increased 16% in 2011 primarily due tovolume growth, higher uel costs and higher rates paid to our indepen-dent contractors. Salaries and employee benets expense increased11% in 2011 due primarily to increased stang at FedEx Ground andFedEx SmartPost to support volume growth and higher pension andmedical costs. Intercompany charges increased in 2011 primarily dueto higher allocated inormation technology costs.

FedEx Ground segment operating income and operating marginincreased during 2010 due to higher package volume, lower selinsur-

ance expenses and improved productivity

Documents

FedEx Annual Report 2011