UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended May 31, 2009.

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

FEDEX CORPORATION

Delaware		62-1721435
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)
942 South Shady Grove Road, Memphis, Tennessee		38120
(Address of Principal Executive Offices)		(ZIP Code)

Registrant’s telephone number, including area code: (901) 818-7500

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Stock, par value $0.10 per share		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes þ     No o

Indicate by check mark if the Registrant is not required to file reports pursuant to Rule 13 or Section 15(d) of the Exchange Act.

Yes o     No þ

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ     No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

Yes o     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o     No þ

The aggregate market value of the common stock held by non-affiliates of the Registrant, computed by reference to the closing price as of the last business day of the Registrant’s most recently completed second fiscal quarter, November 28, 2008, was approximately $20.5 billion. The Registrant has no non-voting stock.

As of July 13, 2009, 312,334,216 shares of the Registrant’s common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive proxy statement to be delivered to stockholders in connection with the 2009 annual meeting of stockholders to be held on September 28, 2009 are incorporated by reference in response to Part III of this Report.

 

 

TABLE OF CONTENTS

		Page
PART I
ITEM 1. Business			3
ITEM 1A. Risk Factors			22
ITEM 1B. Unresolved Staff Comments			22
ITEM 2. Properties			23
ITEM 3. Legal Proceedings			27
ITEM 4. Submission of Matters to a Vote of Security Holders			28
Executive Officers of the Registrant			28
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			31
ITEM 6. Selected Financial Data			31
ITEM 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition			31
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk			31
ITEM 8. Financial Statements and Supplementary Data			31
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			32
ITEM 9A. Controls and Procedures			32
ITEM 9B. Other Information			32
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance			32
ITEM 11. Executive Compensation			33
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			33
ITEM 13. Certain Relationships and Related Transactions, and Director Independence			33
ITEM 14. Principal Accountant Fees and Services			33
PART IV
ITEM 15. Exhibits, Financial Statement Schedules			33
FINANCIAL SECTION
Table of Contents			36
Management’s Discussion and Analysis			38
Consolidated Financial Statements			87
Other Financial Information			136
EXHIBITS
Exhibit Index			E-1
Exhibit 10.17
Exhibit 10.24
Exhibit 10.42
Exhibit 10.43
Exhibit 21
Exhibit 23
Exhibit 24
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I

ITEM 1. BUSINESS

Overview

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. These companies are included in four reportable business segments:

•		FedEx Express: Federal Express Corporation (“FedEx Express”) is the world’s largest express transportation company, offering time-certain delivery within one to three business days and serving markets that comprise more than 90% of the world’s gross domestic product. The FedEx Express segment also includes FedEx Trade Networks, Inc., which provides international trade services, specializing in customs brokerage and global ocean and air cargo distribution.
•		FedEx Ground: FedEx Ground Package System, Inc. (“FedEx Ground”) is a leading provider of small-package ground delivery service. FedEx Ground provides low-cost, day-certain service to every business address in the United States and Canada, as well as residential delivery to nearly 100% of U.S. residences through FedEx Home Delivery. The FedEx Ground segment also includes FedEx SmartPost, Inc., which specializes in the consolidation and delivery of high volumes of low-weight, less time-sensitive business-to-consumer packages using the U.S. Postal Service or Canada Post Corporation for final delivery to any residential address or PO Box in the United States and Canada.
•		FedEx Freight: FedEx Freight Corporation is a leading U.S. provider of less-than-truckload (“LTL”) freight services through its FedEx Freight business (regional LTL freight services) and its FedEx National LTL business (long-haul LTL freight services). The FedEx Freight segment also includes FedEx Custom Critical, Inc., North America’s largest time-specific, critical shipment carrier.
•		FedEx Services: FedEx Corporate Services, Inc. (“FedEx Services”) provides our other companies with sales, marketing and information technology support, as well as customer service support through FedEx Customer Information Services, Inc. The FedEx Services segment also includes FedEx Office and Print Services, Inc. (“FedEx Office”), a leading provider of document solutions and business services, and FedEx Global Supply Chain Services, Inc., which offers a range of supply chain solutions.

For financial information concerning our reportable business segments, refer to the accompanying financial section, which includes management’s discussion and analysis of results of operations and financial condition and our consolidated financial statements.

Our Web site is located at fedex.com. Detailed information about our services and our e-commerce tools and solutions can be found on our Web site. In addition, we make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to such reports available, free of charge, through our Web site, as soon as reasonably practicable after they are filed with or furnished to the SEC. These and other SEC filings are available through the Investor Relations page of our Web site, the address of which is http://www.fedex.com/us/investorrelations. The information on our Web site, however, is not incorporated by reference in, and does not form part of, this Annual Report on Form 10-K.

Except as otherwise specified, any reference to a year indicates our fiscal year ended May 31 of the year referenced.

Strategy

FedEx was incorporated in Delaware on October 2, 1997 to serve as the parent holding company of our operating companies. Through our holding company, we provide strategic direction to, and coordination of, the FedEx portfolio of companies. We intend to continue leveraging and extending the FedEx brand and providing our customers with convenient, seamless access to our entire portfolio of integrated services.

We believe that sales and marketing activities, as well as the information systems that support the extensive automation of our package delivery services, are functions that are best coordinated across operating companies. Through the use of advanced information systems that connect the FedEx companies, we make it convenient for customers to use the full range of FedEx services. We believe that seamless information integration is critical to obtain business synergies from multiple operating units. For example, our Web site, fedex.com, provides a single point of contact for our customers to access FedEx Express, FedEx Ground and FedEx Freight shipment tracking, customer service and invoicing information, as well as FedEx Office services. Similarly, by making one call to FedEx Expedited Freight Services, our customers can quickly and easily evaluate surface and air freight shipping options available from FedEx Express, FedEx Freight and FedEx Custom Critical in order to select the service best meeting their needs. Through this one point of contact, customers can select from a broad range of freight services, based on their pickup and delivery requirements, time sensitivity and the characteristics of the products being shipped.

We manage our business as a portfolio — in the long-term best interest of FedEx as a whole, not a particular operating company. As a result, we base decisions on capital investment, expansion of delivery, information technology and retail networks, and service additions or enhancements on achieving the highest overall long-term return on capital for our business as a whole. For each FedEx company, we focus on making appropriate investments in the technology and assets necessary to optimize our long-term earnings performance and cash flow. As an example of our commitment to managing collaboratively, our management incentive compensation programs are tied to the performance of FedEx as a whole.

While we have increased our emphasis on competing collectively and managing collaboratively, we continue to believe that operating independent networks, each focused on its own respective markets, results in optimal service quality, reliability and profitability from each business unit. Each FedEx company focuses exclusively on the market sectors in which it has the most expertise. Each company’s operations, cost structure and culture are designed to serve the unique customer needs of a particular market segment.

Our “compete collectively, operate independently, manage collaboratively” strategy also provides flexibility in sizing our various operating companies to align with varying macro-economic conditions and customer demand for the market segments in which they operate. For example, although the current global recession has negatively impacted all of our companies, our FedEx Express, FedEx Freight and FedEx Services segments have been disproportionately affected. Meanwhile, our FedEx Ground segment continues to grow. Accordingly, although we have implemented cost-reduction initiatives across the enterprise during 2009, these initiatives have been focused particularly on our FedEx Express, FedEx Freight and FedEx Services segments. For instance, we have reduced hours, personnel and network capacity at those segments, but we continue to increase network capacity at the FedEx Ground segment, albeit at a slower rate.

The following four trends have driven world commerce and shaped the global marketplace in the recent past, and despite the current global recession, we believe they will continue to do so over the long term:

•		Increase in High-Tech and High-Value-Added Businesses: High-tech and high-value-added goods have increased as a percentage of total economic output, and our various operating companies offer a unique menu of services to fit virtually all shipping needs of high-tech and high-value-added industries.
•		Globalization: As the world’s economy has become more fully integrated, companies are sourcing and selling globally. With customers in more than 220 countries and territories, we facilitate this supply chain through our global reach, delivery services and information capabilities.
•		Supply Chain Acceleration: As the economy has become increasingly global, it has also become more fast-paced, and companies of all sizes now depend on the delivery of just-in-time inventory to help them compete. We have taken advantage of the move toward faster, more efficient supply chains by helping customers obtain near real-time information to manage inventory in motion, thereby reducing overhead and obsolescence and speeding time-to-market.
•		Growth of E-Commerce: E-commerce acts as a catalyst for the other three trends and is a vital growth engine for businesses. Through our global transportation and technology networks, we contribute to and benefit from the growth of e-commerce.

These trends have produced an unprecedented expansion of customer access — to goods, services and information. Through our global transportation, information technology and retail networks, we help to make this access possible. We continue to position our companies to facilitate and capitalize on this access and move toward stronger long-term growth, productivity and profitability. To this end, we are pursuing a number of initiatives to continue to enhance the FedEx customer experience. For instance, notwithstanding the current global recession, we continue to invest in long-term strategic projects focused on expanding our global networks to accommodate future volume growth and increase customer convenience. In addition, we are broadening and more effectively bundling our portfolio of services in response to the needs and desires of our customers. For example, in 2009, we:

•		Launched FedEx Express Nacional, a domestic next-business-day service in Mexico, in light of projections of significant growth in Mexico’s express shipping market in the next ten years. The new service provides highly reliable and convenient express shipping solutions across Mexico with the support of two new centers of operations that we opened in Toluca and San Luis Potosi.
•		Upgraded FedEx Express international next-business-day delivery service, FedEx International Priority, from Europe to major U.S. East Coast cities. The service enhancements provide our European customers with overnight access to more ZIP codes in key markets along the U.S. East Coast, as well as later pick-up times.
•		Introduced LTL freight delivery by 10:30 a.m. backed by a money-back guarantee. The new service, FedEx Freight A.M., provides our customers with greater flexibility and control over their LTL freight shipments.

In June 2009, we announced a multi-year agreement with OfficeMax to offer U.S. domestic FedEx Express and FedEx Ground shipping services at all U.S. OfficeMax retail locations (over 900 locations), beginning later in calendar 2009. These additional staffed drop-off locations are expected to complement our existing retail network, including our FedEx Office and Print Centers, and further expand customer access to our services.

In sum, our overall long-term goal is to:

•

deliver superior financial returns for our stockholders;

•

expand our portfolio of services to meet our customers’ needs; and

•

execute our “compete collectively, operate independently, manage collaboratively” strategy with both discipline and imagination.

Reputation and Responsibility

By competing collectively under the FedEx brand, our operating companies benefit from one of the world’s most recognized brands. FedEx is one of the most trusted and respected companies in the world, and the FedEx brand name is a powerful sales and marketing tool. Among the many reputation awards we received during 2009, FedEx ranked seventh in FORTUNE magazine’s “World’s Most Admired Companies” list — the eighth consecutive year we have been ranked in the top ten on the list. In addition, FedEx continued to rank highest in customer satisfaction in the University of Michigan Business School National Quality Research Center’s American Customer Satisfaction Index in the express delivery category.

FedEx is well recognized as a leader, not only in the transportation industry and technological innovation, but also in global citizenship. FedEx understands that a sustainable global business is tied to our global citizenship. We are committed to sustainably connecting the world and enhancing the long-term value of the company for our shareowners and for the communities and businesses that rely on our services. In 2009, we published our first global citizenship report (available at http://about.fedex.designcdt.com/ citizenship_report), which frames how we think about our responsibilities in the area of global citizenship and includes important goals and metrics that demonstrate our commitment to fulfilling these responsibilities.

Our People

Along with a strong reputation among customers and the general public, FedEx is widely acknowledged as a great place to work. In 2009, we were listed among FORTUNE’s “100 Best Companies to Work for in America” — a list that we have made in 11 of the past 12 years. In June 2009, we were listed among Black Enterprise magazine’s “40 Best Companies for Diversity” — a list that we have made for five straight years, since its inception. It is our people — our greatest asset — that give us our strong reputation. In addition to superior physical and information networks, FedEx has an exemplary human network, with more than 280,000 team members who are “absolutely, positively” focused on safety, the highest ethical and professional standards, and the needs of their customers and communities. Through our internal Purple Promise and Humanitarian Award programs, we recognize and reward employees who enhance customer service and promote human welfare.

Our Community

FedEx is committed to causes that help improve the communities where we live and work worldwide. We leverage our infrastructure, our people and our philanthropic resources to help these communities achieve their goals. In addition to corporate philanthropy and employee volunteerism, we maintain relationships with charitable organizations that enable us to have a strategic impact in key areas, including disaster relief, pedestrian safety, education and diversity.

Disaster Relief. We provide relief and lifesaving aid to victims of disaster. We work with the following global organizations to assist in relief, recovery and disaster-preparedness planning efforts:

•

American Red Cross: We have provided in-kind shipping, financial support and volunteers to the American Red Cross for more than a decade. We are the organization’s largest transportation donor and are recognized as the backbone of its U.S. disaster logistics system.

•

Salvation Army: We provide support for Salvation Army Disaster Response Services. We have provided the Salvation Army with the funding to purchase 13 Emergency Services Response Units — canteen trucks that are deployed during emergencies and disasters and are capable of feeding thousands of people per day.

•

Heart to Heart International: Through our relationship with Heart to Heart International, we have moved disaster relief supplies to many countries throughout the world.

Safety and Health. We use our global reach and expertise to further the capabilities of the following safety and health organizations, helping to prevent illness and injury:

•

Safe Kids Worldwide: Through programs such as Safe Kids “Walk This Way,” FedEx and Safe Kids Worldwide have teamed up with local governments to create and improve critical infrastructure and boost support for child-pedestrian safety.

•

ORBIS International: Our pilots volunteer their time to fly ORBIS International’s “Flying Eye Hospital” — a converted DC-10 aircraft equipped with surgical and training facilities — to remote locations around the world.

Education. We support the following organizations that provide students with high-quality educational experiences, allowing them to succeed in the global economy, and we provide minority students access to scholarship funds they need to obtain a higher education.

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Teach for America: We support Teach for America’s efforts to provide students in urban and rural public schools with a high-quality education and to increase the number and diversity of the organization’s teachers.

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Junior Achievement: Our support of Junior Achievement has helped millions of children a year learn the value of free enterprise and gain skills for success in the global market economy.

Diversity. We support a number of organizations and programs that promote human rights, equality and the value of cultural differences, including:

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Minority Scholarship Support: We support minority access to higher education by funding scholarships, such as the Hispanic Scholarship Fund, the United Negro College Fund and the Asian and Pacific Islander American Scholarship Fund.

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National Civil Rights Museum: FedEx is a major sponsor of the National Civil Rights Museum, which educates the public on lessons of the Civil Rights Movement in the United States and its impact and influence on the human rights movement worldwide.

United Way of America. We believe the United Way is one of the most effective and efficient ways of meeting community needs and have supported the annual United Way fundraising campaign since 1975.

The Environment

We are committed to protecting the environment. FedEx evaluates the environmental impacts of our packaging and copy and print services, and minimizes waste generation through efforts that include recycling and pollution prevention and the use of copy paper with a high recycled content.

FedEx is actively involved in efforts to promote cleaner air by reducing emissions through efficient route planning and the use of clean, alternative and renewable energy sources. First in our industry to introduce hybrid vans in our fleet, we now operate more than 170 hybrid vehicles around the globe, with more than three million miles in revenue service. Our hybrid electric vehicles decrease greenhouse gas emissions by approximately 25 percent and increase fuel economy by over 40 percent compared with conventional vehicles.

Our solar power generation systems represent another step we are taking toward progressive environmental stewardship and resource sustainability. In calendar 2005, we installed a solar-electric system atop the FedEx Express regional hub in Oakland. To date, this solar-electric system has provided more than 3 million kilowatt-hours (KWh) of clean energy. Since then, we have installed solar-electric systems at two of FedEx Freight’s facilities in California, and we are constructing a state-of-the-art, solar-electric sorting-and-handling facility in Cologne, Germany, which is scheduled to be completed in 2010.

We are also modernizing our aircraft fleet. For example, we are retiring and replacing older Boeing 727s with more fuel-efficient and quieter Boeing 757s. The use of newer and more fuel efficient aircraft will reduce our greenhouse gas emissions and airport noise and increase our jet fuel efficiency. Also, as noted below, we have selected the fuel-efficient Boeing 777 Freighter (“B777F”) aircraft to meet future international operational needs.

Governance

FedEx has an independent Board of Directors committed to the highest quality corporate governance. Reflecting this commitment, we have embraced the spirit of corporate governance reform rather than merely meeting the minimum compliance standards set forth in the Sarbanes-Oxley Act of 2002 and the New York Stock Exchange’s corporate governance listing standards. We have implemented many governance enhancements that go well beyond those legal requirements. For example, within the past few years, we have:

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Added a number of highly qualified, independent directors to the Board, including: Steven R. Loranger, the CEO of ITT Corporation; Gary W. Loveman, the CEO of Harrah’s Entertainment; and Ambassador Susan C. Schwab, former U.S. Trade Representative.

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Adopted a majority-voting standard in uncontested director elections and a resignation requirement for directors who fail to receive the required majority vote. The Board is prohibited from changing back to a plurality-voting standard without the approval of our stockholders.

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Amended our bylaws to require stockholder approval for any future “poison pill” prior to or within 12 months after adoption of the poison pill.

Our Board of Directors reviews all aspects of our governance policies and practices, including our Corporate Governance Guidelines and our Code of Business Conduct and Ethics, at least annually in light of best practices and makes whatever changes are necessary to further our longstanding commitment to the highest standards of corporate governance. The Guidelines and the Code, which applies to all of our directors, officers and employees, including our principal executive officer and senior financial officers, are available in the corporate governance section of the Investor Relations page of our Web site at http://www.fedex.com/us/investorrelations. We will post in the corporate governance section of the Investor Relations page of our Web site information regarding any amendment to, or waiver from, the provisions of the Code to the extent such disclosure is required. The information on our Web site, however, does not form part of this Report.

Business Segments

The following describes in more detail the operations of each of our reportable segments:

FedEx Express Segment

FedEx Express

Overview

FedEx Express invented express distribution in 1973 and remains the industry leader, providing rapid, reliable, time-definite delivery of packages and freight to more than 220 countries and territories through one integrated global network. FedEx Express offers time-certain delivery within one to three business days, serving markets that generate more than 90% of the world’s gross domestic product through door-to-door, customs-cleared service, with a money-back guarantee. FedEx Express’s unmatched air route authorities and extensive transportation infrastructure, combined with leading-edge information technologies, make it the world’s largest express transportation company. FedEx Express employs approximately 140,000 employees and has approximately 57,000 drop-off locations (including FedEx Office and Print Centers), 654 aircraft and approximately 51,000 vehicles and trailers in its integrated global network.

Services

FedEx Express offers a wide range of shipping services for delivery of packages and freight. Overnight package services are backed by money-back guarantees and extend to virtually the entire United States population. FedEx Express offers three U.S. overnight delivery services: FedEx First Overnight, FedEx Priority Overnight and FedEx Standard Overnight. FedEx Same Day service is available for urgent shipments up to 70 pounds to virtually any U.S. destination. FedEx Express also offers express freight services backed by money-back guarantees to handle the needs of the time-definite global freight market.

International express delivery with a money-back guarantee is available to more than 220 countries and territories, with a variety of time-definite services to meet distinct customer needs. FedEx Express also offers a comprehensive international freight service, backed by a money-back guarantee, real-time tracking and advanced customs clearance.

For information regarding FedEx Express e-shipping tools and solutions, see “FedEx Services — Technology.”

International Expansion

Notwithstanding the current global recession, we remain focused on the long-term expansion of our international presence, especially in key markets such as China, India and Europe.

We began serving China in 1984, and since that time, we have expanded our service to cover more than 200 cities and counties across the country. We have recently taken several important actions that increase our presence in China and bolster our leadership in the global air cargo industry:

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In 2009, we began operations at our new Asia-Pacific hub at the Guangzhou Baiyun International Airport in Southern China. The new hub assumed and expanded the activities of our previous hub in Subic Bay, Philippines. We believe the new hub will better serve our global customers doing business in and with the China and Asia-Pacific markets.

•

In 2007, we initiated time-certain domestic delivery service in China. Our China domestic service is supported by a money-back guarantee and real-time package status tracking. Our China domestic network relies on a hub-and-spoke system centered at the Hangzhou Xiaoshan International Airport, located in East China’s Zhejiang Province.

•

In 2007, we acquired Tianjin Datian W. Group Co., Ltd.’s (“DTW Group”) fifty percent share of the FedEx-DTW International Priority joint venture and assets relating to DTW Group’s domestic network in China. The acquisition converted our joint venture with DTW Group, formed in 1999, into a wholly owned subsidiary. The acquisition increased our presence in China in the international market and established our presence in the domestic market.

In support of our international operations, we are expanding our European hub at Roissy-Charles de Gaulle Airport in Paris, France. The expansion project, which is scheduled to be completed in 2010, will substantially increase capacity at the hub. Also, we have agreed, subject to certain conditions, to purchase 30 B777F aircraft, a new high-capacity, long-range airplane, with deliveries beginning in 2010. We also hold an option to purchase an additional 15 B777F aircraft. To facilitate the use of our growing international network, we offer a full range of international trade consulting services and a variety of online tools that enable customers to more easily determine and comply with international shipping requirements.

U.S. Postal Service Agreement

Under an agreement with the U.S. Postal Service that runs through September 2013, FedEx Express provides domestic air transportation services to the U.S. Postal Service, including for its First-Class, Priority and Express Mail. FedEx Express also has approximately 5,000 drop boxes at U.S. Post Offices in approximately 340 metropolitan areas and provides transportation and delivery for the U.S. Postal Service’s international delivery service called Global Express Guaranteed (GXG).

Pricing

FedEx Express periodically publishes list prices in its Service Guides for the majority of its services. In general, U.S. shipping rates are based on the service selected, destination zone, weight, size, any ancillary service charge and whether the shipment was picked up by a FedEx Express courier or dropped off by the customer at a FedEx Express, FedEx Office and Print Center or FedEx Authorized ShipCenter location. International rates are based on the type of service provided and vary with size, weight, destination and, whenever applicable, whether the shipment was picked up by a FedEx Express courier or dropped off by the customer at a FedEx Express, FedEx Office and Print Center or FedEx Authorized ShipCenter location. FedEx Express offers its customers discounts generally based on actual or potential average daily revenue produced.

FedEx Express has an indexed fuel surcharge for U.S. domestic and U.S. outbound shipments and for shipments originating internationally, where legally and contractually possible. The surcharge percentage is subject to monthly adjustment based on the average spot price for jet fuel. For example, the fuel surcharge for June 2009 was based on the average spot price for jet fuel published for April 2009. Changes to the FedEx Express fuel surcharge, when calculated according to the average spot price for jet fuel and FedEx Express trigger points, are applied effective from the first Monday of the month. These trigger points may change from time to time, but information on the fuel surcharge for each month is available at fedex.com approximately two weeks before the surcharge is applicable. The weighted average U.S. domestic and U.S. outbound fuel surcharge as a percentage of the base rates for the past three years was: 2009 — 17%; 2008 — 17%; and 2007 — 13%. These percentages reflect certain fuel surcharge reductions that are associated with our annual base rate increases.

Operations

FedEx Express’s primary sorting facility, located in Memphis, serves as the center of the company’s multiple hub-and-spoke system. A second national hub facility, which we have significantly expanded recently, is located in Indianapolis. In addition to these national hubs, FedEx Express operates regional hubs in Newark, Oakland, and Fort Worth and major metropolitan sorting facilities in Los Angeles and Chicago. In June 2009, FedEx Express began operations at a new regional hub in Greensboro, North Carolina.

Facilities in Anchorage, Paris and Guangzhou serve as sorting facilities for express package and freight traffic moving to and from Asia, Europe and North America. Additional major sorting and freight handling facilities are located at Narita Airport in Tokyo, Stansted Airport outside London and Pearson Airport in Toronto. The facilities in Guangzhou and Paris are also designed to serve as regional hubs for their respective market areas. A facility in Miami — the Miami Gateway Hub — serves our South Florida, Latin American and Caribbean markets.

Throughout its worldwide network, FedEx Express operates city stations and employs a staff of customer service agents, cargo handlers and couriers who pick up and deliver shipments in the station’s service area. In some international areas, independent agents (Global Service Participants) have been selected to complete deliveries and to pick up packages. For more information about our sorting and handling facilities, see Part I, Item 2 of this Annual Report on Form 10-K under the caption “FedEx Express Segment.”

FedEx Office offers retail access to FedEx Express shipping services at all of its U.S. locations. FedEx Express also has alliances with certain other retailers to provide in-store drop-off sites. Our unmanned FedEx Drop Boxes provide customers the opportunity to drop off packages in office buildings, shopping centers, corporate or industrial parks and outside some U.S. Post Offices.

Fuel Supplies and Costs

During 2009, FedEx Express purchased jet fuel from various suppliers under contracts that vary in length and which provide for specific amounts of fuel to be delivered. The fuel represented by these contracts is purchased at market prices that may fluctuate daily. Because of our indexed fuel surcharge, we do not have any jet fuel hedging contracts. See “FedEx Express — Pricing.”

The following table sets forth FedEx Express’s costs for jet fuel and its percentage of consolidated revenues for the last five fiscal years:

		Total Cost				Percentage of Consolidated
Fiscal Year		(in millions)				Revenues
2009		$	2,932				8.3	%
2008			3,396				8.9
2007			2,639				7.5
2006			2,497				7.7
2005			1,780				6.1

Approximately 11% of FedEx Express’s requirement for vehicle fuel is purchased in bulk. The remainder of FedEx Express’s requirement is satisfied by retail purchases with various discounts.

Competition

As described in Item 1A of this Annual Report on Form 10-K (“Risk Factors”), the express package and freight markets are both highly competitive and sensitive to price and service, especially in periods of little or no macro-economic growth. The ability to compete effectively depends upon price, frequency and capacity of scheduled service, ability to track packages, extent of geographic coverage, reliability and innovative service offerings.

Competitors within the United States include other package delivery concerns, principally United Parcel Service, Inc. (“UPS”), passenger airlines offering express package services, regional express delivery concerns, airfreight forwarders and the U.S. Postal Service. DHL exited the U.S. domestic package market during 2009. FedEx Express’s principal international competitors are DHL, UPS, TNT, other foreign postal authorities, freight forwarders, passenger airlines and all-cargo airlines. Many of FedEx Express’s international competitors are government-owned, -controlled or -subsidized carriers, which may have greater resources, lower costs, less profit sensitivity and more favorable operating conditions than FedEx Express.

Employees

David J. Bronczek is the President and Chief Executive Officer of FedEx Express, which is headquartered in Memphis, Tennessee. As of May 31, 2009, FedEx Express employed approximately 93,000 permanent full-time and 47,000 permanent part-time employees, of which approximately 16% are employed in the Memphis area. FedEx Express’s international employees in the aggregate represent approximately 26% of all employees. FedEx Express believes its relationship with its employees is excellent.

The pilots of FedEx Express, who constitute a small percentage of our total employees, are represented by the Air Line Pilots Association, International (“ALPA”), and are employed under a four-year collective bargaining agreement that took effect in October 2006. Attempts by other labor organizations to organize certain other groups of employees occur from time to time. Although these organizing attempts have not resulted in any certification of a U.S. domestic collective bargaining representative (other than ALPA), we cannot predict the outcome of these labor activities or their effect, if any, on FedEx Express or its employees.

Integration of CTS

Effective June 1, 2009, Caribbean Transportation Services, Inc. (“CTS”), a provider of airfreight forwarding services between the United States and Puerto Rico, the Dominican Republic, Costa Rica and the Caribbean Islands, was merged with and into FedEx Express. The purpose of the merger was to leverage synergies between CTS, previously a subsidiary of FedEx Freight Corporation, and FedEx Express and to gain cost efficiencies by maximizing the use of FedEx Express assets for this service offering.

FedEx Trade Networks

FedEx Trade Networks provides international trade services, specializing in customs brokerage and global ocean and air cargo distribution. FedEx Trade Networks provides customs clearance services for FedEx Express at its major hub facilities. Value-added services include Global Trade Data, an information tool that allows customers to track and manage imports. FedEx Trade Networks provides international trade advisory services, including assistance with the Customs-Trade Partnership Against Terrorism (C-TPAT) program, and through its WorldTariff subsidiary, FedEx Trade Networks publishes customs duty and tax information for over 100 customs areas worldwide. FedEx Trade Networks has approximately 3,000 employees and 90 offices in 75 service locations throughout North America and in Asia. Offices are maintained in major European markets and additional Asian locations through dedicated agents.

FedEx Ground Segment

FedEx Ground

Overview

By leveraging the FedEx brand, maintaining a low cost structure and efficiently using information technology and advanced automation systems, FedEx Ground continues to enhance its competitive position as a leading provider of business and residential money-back-guaranteed ground package delivery services. FedEx Ground serves customers in the North American small-package market, focusing on business and residential delivery of packages weighing up to 150 pounds. Ground service is provided to 100% of the continental United States population and overnight service of up to 400 miles to nearly 100% of the continental United States population. Service is also provided to nearly 100% of the Canadian population. In addition, FedEx Ground offers service to Alaska and Hawaii through a ground and air network operation coordinated with other transportation providers.

FedEx Ground continues to improve the speed, reach and service capabilities of its network, by reducing transit time for many of its lanes and introducing or expanding overnight ground service in many metropolitan areas. In addition, FedEx Ground is in the midst of a major network capacity expansion program, which is expected to increase its daily pick-up capacity to approximately five million packages by calendar 2012. The multi-phase plan includes the addition of hubs, the expansion of existing hubs and the expansion or relocation of other existing facilities. Each of the new hubs will feature the latest automated sorting technology.

In addition to FedEx Ground’s business-to-business service, the company offers FedEx Home Delivery, which reaches nearly 100% of U.S. residences. FedEx Home Delivery is dedicated exclusively to meeting the delivery needs of residential customers and provides routine Saturday and evening delivery and premium options such as day-specific, appointment and signature delivery. FedEx Home Delivery brings unmatched services to residential shippers and their customers and is the first residential ground package delivery service to have offered a money-back guarantee.

Pricing

FedEx Ground periodically publishes list prices for the majority of its services in its Service Guide. In general, U.S. shipping rates are based on the service selected, destination zone, weight, size, any ancillary service charge and whether the shipment was picked up by a FedEx Ground contractor or dropped off by the customer at a FedEx Office and Print Center or FedEx Authorized ShipCenter.

FedEx Ground has an indexed fuel surcharge, which is subject to a monthly adjustment. The surcharge percentage is based on a rounded average of the national U.S. on-highway average price for a gallon of diesel fuel as published monthly by the U.S. Department of Energy. For example, the fuel surcharge for June 2009 was based on the average diesel fuel price published for April 2009. Changes to the FedEx Ground fuel surcharge, when calculated according to the rounded index average and FedEx Ground trigger points, are applied effective from the first Monday of the month. These trigger points may change from time to time, but information on the fuel surcharge for each month is available at fedex.com approximately two weeks before the surcharge is applicable.

Operations

FedEx Ground operates a multiple hub-and-spoke sorting and distribution system consisting of 520 facilities, including 32 hubs, in the U.S. and Canada. FedEx Ground conducts its operations primarily with approximately 22,500 owner-operated vehicles and 31,500 company-owned trailers. To provide FedEx Home Delivery service, FedEx Ground leverages its existing pickup operation and hub and linehaul network. FedEx Home Delivery’s operations are often co-located with existing FedEx Ground facilities to achieve further cost efficiencies.

Advanced automated sorting technology is used to streamline the handling of over 3.4 million packages daily. Using overhead laser and six-sided camera-based bar code scan technology, hub conveyors electronically guide packages to their appropriate destination chute, where they are loaded for transport to their respective destination terminals for local delivery. Software systems and Internet-based applications are also deployed to offer customers new ways to connect internal package data with external delivery information. FedEx Ground provides shipment tracing and proof-of-delivery signature functionality through the FedEx Web site, fedex.com. For additional information regarding FedEx Ground e-shipping tools and solutions, see “FedEx Services — Technology.”

FedEx Office offers retail access to FedEx Ground shipping services at all of its U.S. locations. FedEx Ground is also available as a service option at many FedEx Authorized ShipCenters in the U.S.

As of May 31, 2009, FedEx Ground had approximately 45,000 employees and 12,800 independent contractors. David F. Rebholz is the President and Chief Executive Officer of FedEx Ground. FedEx Ground is headquartered in Pittsburgh, Pennsylvania, and its primary competitors are UPS and the U.S. Postal Service. DHL exited the U.S. domestic package market during 2009.

Evolution of Independent Contractor Model

FedEx Ground relies on owner-operators to conduct its line-haul and pickup-and-delivery operations, as the use of independent contractors is well suited to the needs of the ground delivery business and its customers. Although FedEx Ground believes its relationship with its employees and independent contractors is excellent, the company is involved in numerous purported or certified class-action lawsuits and other proceedings that claim or are examining whether the company’s owner-operators should be treated as employees, rather than independent contractors. For a description of these proceedings, see Item 1A of this Annual Report on Form 10-K (“Risk Factors”) and Note 17 of the accompanying consolidated financial statements. As a result of this increased regulatory and legal uncertainty, FedEx Ground has made changes to its relationships with contractors that, among other things, provide incentives for improved service and enhanced regulatory and other compliance by our contractors. As an example, FedEx Ground has an ongoing nationwide program to provide greater incentives to contractors who choose to grow their businesses by adding routes. In addition, because of state-specific legal and regulatory issues:

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In 2008, FedEx Ground offered special incentives to encourage California-based single-route contractors to transform their operations into multiple-route businesses or sell their routes to others; and

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During 2009, FedEx Ground offered special incentives to encourage each New Hampshire-based and Maryland-based single-route pickup-and-delivery contractor to assume responsibility for the pickup-and-delivery operations of an entire geographic service area that includes multiple routes.

As of May 31, 2009, approximately 60% of all FedEx Ground service areas nationwide are supported by multiple-route contractors, which comprise approximately 35% of all FedEx Ground contractors.

FedEx SmartPost

FedEx SmartPost (a subsidiary of FedEx Ground) is a leading national small-parcel consolidator, which specializes in the consolidation and delivery of high volumes of low-weight, less time-sensitive business-to-consumer packages, using the U.S. Postal Service for final delivery to residences. The company picks up shipments from customers (including e-tailers and catalog companies), provides sorting and linehaul services and then delivers the packages to a U.S. Postal Service facility for final delivery by a postal carrier. Through its network of 22 distribution hubs and approximately 3,200 employees, FedEx SmartPost provides delivery Monday through Saturday to all residential addresses in the U.S., including PO Boxes and military destinations. In 2009, FedEx SmartPost expanded its service into Canada for U.S. shippers by using the residential delivery capabilities of the Canada Post Corporation. The new service, FedEx SmartPost International, is available to all residential addresses, including PO Boxes, in Canada and includes around-the-clock shipment tracking status updates via fedex.com.

FedEx Freight Segment

FedEx Freight Corporation

FedEx Freight Corporation provides a full range of LTL freight services through its FedEx Freight (regional LTL freight services), FedEx National LTL (long-haul LTL freight services) and FedEx Freight Canada businesses, and is known for its exceptional service, reliability and on-time performance.

Through a comprehensive network of service centers and advanced information systems, FedEx Freight provides service to virtually all U.S. ZIP Codes (including Alaska and Hawaii) with industry-leading transit times. In 2009, FedEx Freight reduced its transit times by at least one day in approximately 2,600 service lanes throughout the United States. FedEx Freight’s services are supported by a no-fee money-back guarantee on eligible shipments. Internationally, FedEx Freight Canada offers freight delivery service throughout Canada, and FedEx Freight serves Mexico, Puerto Rico, Central and South America, the Caribbean, Europe and Asia via alliances and purchased transportation.

FedEx Freight specializes in fast-cycle distribution and provides tailored shipping solutions to help shippers meet tight deadlines. Through its many service offerings, FedEx Freight can match customers’ time-critical needs with reduced transit times, after-hours pickup or delivery, or same-day delivery. FedEx Freight’s fully integrated Web site and other e-tools, including a bill of lading generator and e-mail delivery notification, make freight shipping easier and bring customers closer to their own account information. The FedEx Freight Advance Notice service feature uses the company’s innovative technology systems to proactively notify FedEx Freight customers via the Internet, e-mail or fax when a shipment may be delayed beyond its estimated delivery date, providing customers with greater visibility and control of their LTL freight shipments. As noted above, in 2009, we introduced FedEx Freight A.M. service — freight delivery by 10:30 a.m. backed by a money-back guarantee.

Since the acquisition of FedEx National LTL in 2007, we have significantly improved the company’s on-time service reliability by integrating and reengineering its network. FedEx National LTL is now a leader when it comes to reliability in the long-haul LTL freight market segment (three-day and more service lanes). FedEx Freight and FedEx National LTL have an indexed fuel surcharge, which is subject to weekly adjustment based on a rounded average of the national U.S. on-highway average price for a gallon of diesel fuel.

As of May 31, 2009, FedEx Freight Corporation was operating approximately 59,000 vehicles and trailers from a network of 480 service centers, and the FedEx Freight segment had approximately 33,000 employees. Douglas G. Duncan is the President and Chief Executive Officer of FedEx Freight Corporation, which is based in Memphis, Tennessee. FedEx Freight’s primary multiregional LTL freight competitors are Con-Way Freight, a subsidiary of Con-way Inc., YRC Regional Transportation, a division of YRC Worldwide Inc., and UPS Freight. FedEx National LTL’s primary long-haul LTL freight competitors are YRC National Transportation, a division of YRC Worldwide Inc., and ABF Freight System, Inc.

FedEx Custom Critical

FedEx Custom Critical provides a range of expedited, time-specific freight-shipping services throughout the United States, Canada and Mexico. Among its divisions are Surface Expedite, for exclusive-use and network-based transport of critical shipments and expedited LTL shipments; Air Expedite, which offers an array of air solutions to meet customers’ critical delivery times; and White Glove Services, for shipments that require extra care in handling, temperature control or specialized security. Service is available 24 hours a day, 365 days a year, including weekends and holidays at no extra cost. FedEx Custom Critical continuously monitors shipments through an integrated proprietary shipment-control system, including two-way satellite communications on exclusive-use shipments. Through the company’s Shipping Toolkit, customers can quote, ship, track and map shipments; view and print out copies of a shipment’s bill of lading, proof of delivery and invoice; and manage their online accounts. FedEx Custom Critical utilizes approximately 1,300 vehicles, operated by owner-operators and their drivers, which are dispatched out of approximately 140 geographically-based staging areas.

FedEx Services Segment

FedEx Services

FedEx Services provides our other companies with sales, marketing, information technology and customer service support. Through FedEx Services and its subsidiary FedEx Customer Information Services, Inc., we provide a convenient single point of access for many customer support functions, enabling us to more effectively sell the entire portfolio of express and ground services and to help ensure a consistent and outstanding experience for our customers.

T. Michael Glenn is the President and Chief Executive Officer of FedEx Services, which is based in Memphis, Tennessee. As of May 31, 2009, the FedEx Services segment had approximately 35,500 employees (including 20,400 at FedEx Office).

Technology

FedEx is a world leader in technology, and FedEx founder Frederick W. Smith’s vision that “the information about a package is as important as the delivery of the package itself” remains at the core of our comprehensive technology strategy.

Our technology strategy is driven by our desire for customer satisfaction. We strive to build technology solutions that will solve our customers’ business problems with simplicity, convenience, speed and reliability. The focal point of our strategy is our award-winning Web site, together with our customer integrated solutions.

The fedex.com Web site was launched fifteen years ago, and during that time, customers have shipped and tracked billions of packages at fedex.com. The fedex.com Web site is widely recognized for its speed, ease of use and customer-focused features. At fedex.com, our customers ship packages, determine international documentation requirements, track package status, pay invoices and access FedEx Office services. The advanced tracking capability within My FedEx provides customers with a consolidated view of inbound, outbound and third-party shipments. FedEx Desktop provides customers the benefit of working offline and having real-time shipment updates sent directly to their computer desktop.

FedEx Mobile is a suite of services available on most Web-enabled mobile devices, such as the BlackBerry, and includes enhanced support for the iPhone, iPhone 3G and iPod Touch. FedEx Mobile allows customers to track the status of packages, create shipping labels, get account-specific rate quotes and access drop-off location data for FedEx shipments. FedEx also uses wireless data collection devices to scan bar codes on shipments, thereby enhancing and accelerating the package information available to our customers.

We design our e-commerce tools and solutions to be easily integrated into our customers’ applications, as well as into third-party software being developed by leading e-procurement, systems integration and enterprise resource planning companies. Our FedEx Ship Manager suite of solutions offers a wide range of options to help our customers manage their shipping and associated processes.

In 2009, we launched new, state-of-the-art tracking technologies to provide customers with real-time visibility to shipment status via Web, desktop or mobile devices. Available globally in over 25 languages, the new tracking experience includes a shipment progression graphic enabling users to get tracking information. Users now have the ability to view tracking results based on different time zones, order or shipment events and weight conventions. Tracking numbers can also be saved, eliminating the need to reenter data for subsequent tracks.

Marketing

The FedEx brand name is a symbol for high-quality service, reliability and speed. FedEx is one of the most widely recognized brands in the world. Special emphasis is placed on promoting and protecting the FedEx brand, one of our most important assets. In addition to traditional print and broadcast advertising, we promote the FedEx brand through corporate sponsorships and special events. For example, FedEx sponsors:

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The National Football League (NFL), as its “Official Delivery Service Sponsor”

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FedExField, home of the NFL’s Washington Redskins

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FedEx Orange Bowl, host of one of college football’s Bowl Championship Series games

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The #11 Joe Gibbs Racing Toyota Camry driven by Denny Hamlin in the NASCAR Sprint Cup Series

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PGA TOUR and the Champions Tour golf organizations, as the “Official Shipping Company”

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FedExCup, a season-long points competition for PGA TOUR players

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Pebble Beach Golf Resorts, as the official shipping company

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National Basketball Association (NBA), as its official delivery service sponsor

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FedExForum, home of the NBA’s Memphis Grizzlies

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Vodafone McLaren Mercedes Formula One team

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French Open tennis tournament

Information Security

FedEx Services has a team of highly qualified professionals dedicated to securing information about our customers’ shipments and protecting our customers’ privacy, and we strive to provide a safe, secure online environment for our customers. We are in full compliance with the Payment Card Industry Data Security Standard, a set of comprehensive requirements for enhancing payment account data security developed by the Payment Card Industry Security Standards Council.

ISO 9001 Certification

FedEx Services provides our customers with a high level of service quality, as evidenced by our ISO 9001 certification for our global express and ground operations. ISO 9001 registration is required by thousands of customers around the world. FedEx’s global certification, encompassing the processes of FedEx Express, FedEx Ground and FedEx Services, enhances our single-point-of-access strategy and solidifies our reputation as the quality leader in the transportation industry. ISO 9001 is currently the most rigorous international standard for Quality Management and Assurance. ISO standards were developed by the International Organization for Standardization in Geneva, Switzerland to promote and facilitate international trade. More than 150 countries, including European Union members, the United States and Japan, recognize ISO standards.

FedEx Global Supply Chain Services

FedEx Services offers a range of supply chain solutions, including critical inventory logistics, transportation management, fulfillment and fleet services, through its FedEx Global Supply Chain Services subsidiary. FedEx Global Supply Chain Services focuses on information technology-sensitive business to meet the needs of its customers and to drive transportation business to other FedEx operating companies. FedEx Global Supply Chain Services’ service offerings use advanced electronic data interchanges to speed communications between customers and their suppliers, resulting in more cost-effective solutions and enhanced levels of customer service.

FedEx Office

FedEx Office is a leading provider of document and business services. FedEx Office’s global network of digitally-connected locations offers access to copying and digital printing, professional finishing, document creation, signs and graphics, direct mail, Web-based printing, Internet access, computer rentals, videoconferencing and the full range of FedEx day-definite ground shipping and time-definite global express shipping services.

FedEx Office offers the full range of FedEx Express and FedEx Ground services at virtually all U.S. locations. In addition, FedEx Office offers packing services at virtually all U.S. Office and Print Centers, and packing supplies and boxes are included in FedEx Office’s retail product assortment. By allowing customers to have unpackaged items professionally packed by specially trained FedEx Office team members and then shipped using any of the full range of FedEx day-definite ground shipping and time-definite global express shipping services, FedEx Office provides a complete “pack-and-ship” solution.

In response to challenging business conditions, during 2009, FedEx Office initiated an internal reorganization designed to improve its revenue-generating capabilities and reduce costs. Several actions were taken during 2009 to reduce the company’s cost structure and position the company for long-term profitability in connection with broader economic recovery. We expect that future strategies to increase revenue at FedEx Office will focus on the company’s core competencies relating to copying, digital printing and shipping services.

As of May 31, 2009, FedEx Office’s operations included approximately 1,800 FedEx Office and Print Centers in the United States and 135 additional locations in seven other countries, as well as 29 commercial production centers. FedEx Office is headquartered in Dallas, Texas.

Trademarks

The “FedEx” trademark, service mark and trade name is essential to our worldwide business. FedEx, FedEx Express, FedEx Ground, FedEx Freight, FedEx Office, FedEx Services, FedEx Global Supply Chain Services, FedEx Customer Information Services, FedEx National LTL, FedEx Trade Networks, FedEx SmartPost and FedEx Custom Critical, among others, are trademarks, service marks and trade names of Federal Express Corporation for which registrations, or applications for registration, are on file. We have authorized, through licensing arrangements, the use of certain of our trademarks, service marks and trade names by our contractors and Global Service Participants to support our business. In addition, we license the use of certain of our trademarks, service marks and trade names on promotional items for the primary purpose of enhancing brand awareness.

Regulation

Air. Under the Federal Aviation Act of 1958, as amended, both the U.S. Department of Transportation (“DOT”) and the Federal Aviation Administration (“FAA”) exercise regulatory authority over FedEx Express.

The FAA’s regulatory authority relates primarily to operational aspects of air transportation, including aircraft standards and maintenance, as well as personnel and ground facilities, which may from time to time affect the ability of FedEx Express to operate its aircraft in the most efficient manner. FedEx Express holds an air carrier certificate granted by the FAA pursuant to Part 119 of the federal aviation regulations. This certificate is of unlimited duration and remains in effect so long as FedEx Express maintains its standards of safety and meets the operational requirements of the regulations.

The DOT’s authority relates primarily to economic aspects of air transportation. The DOT’s jurisdiction extends to aviation route authority and to other regulatory matters, including the transfer of route authority between carriers. FedEx Express holds various certificates issued by the DOT, authorizing FedEx Express to engage in U.S. and international air transportation of property and mail on a worldwide basis.

Under the Aviation and Transportation Security Act of 2001, as amended, the Transportation Security Administration (“TSA”), an agency within the Department of Homeland Security, has responsibility for aviation security. In July 2007, the TSA issued to us a Full All-Cargo Aircraft Operator Standard Security Plan, which contained many new and enhanced security requirements. These requirements are not static, but will change periodically as the result of regulatory and legislative requirements, and to respond to evolving threats. Until these requirements are adopted, we cannot determine the effect that these new rules will have on our cost structure or our operating results. It is reasonably possible, however, that these rules or other future security requirements could impose material costs on us.

FedEx Express participates in the Civil Reserve Air Fleet (“CRAF”) program. Under this program, the U.S. Department of Defense may requisition for military use certain of FedEx Express’s wide-bodied aircraft in the event of a declared need, including a national emergency. FedEx Express is compensated for the operation of any aircraft requisitioned under the CRAF program at standard contract rates established each year in the normal course of awarding contracts. Through its participation in the CRAF program, FedEx Express is entitled to bid on peacetime military cargo charter business. FedEx Express, together with a consortium of other carriers, currently contracts with the U.S. Government for charter flights.

Ground. The ground transportation performed by FedEx Express is integral to its air transportation services. The enactment of the Federal Aviation Administration Authorization Act of 1994 abrogated the authority of states to regulate the rates, routes or services of intermodal all-cargo air carriers and most motor carriers. States may now only exercise jurisdiction over safety and insurance. FedEx Express is registered in those states that require registration.

The operations of FedEx Ground, FedEx Freight, FedEx National LTL and FedEx Custom Critical in interstate commerce are currently regulated by the DOT and the Federal Motor Carrier Safety Administration, which retain limited oversight authority over motor carriers. Federal legislation preempts regulation by the states of rates and service in intrastate freight transportation.

Like other interstate motor carriers, our operations are subject to certain DOT safety requirements governing interstate operations. In addition, vehicle weight and dimensions remain subject to both federal and state regulations.

International. FedEx Express’s international authority permits it to carry cargo and mail from points in its U.S. route system to numerous points throughout the world. The DOT regulates international routes and practices and is authorized to investigate and take action against discriminatory treatment of United States air carriers abroad. The right of a United States carrier to serve foreign points is subject to the DOT’s approval and generally requires a bilateral agreement between the United States and the foreign government. The carrier must then be granted the permission of such foreign government to provide specific flights and services. The regulatory environment for global aviation rights may from time to time impair the ability of FedEx Express to operate its air network in the most efficient manner. Additionally, global air cargo carriers, such as FedEx Express, are subject to current and potential additional aviation security regulation by foreign governments.

Our operations within foreign countries, such as FedEx Express’s growing international domestic operations, are also subject to current and potential regulations that restrict, and sometimes prohibit, our ability to compete in parts of the transportation and logistics market. As an example, in 2009, the Chinese government adopted postal regulation that excludes foreign-invested companies such as FedEx from competing in the China domestic document delivery market.

Communication. Because of the extensive use of radio and other communication facilities in its aircraft and ground transportation operations, FedEx Express is subject to the Federal Communications Commission Act of 1934, as amended. Additionally, the Federal Communications Commission regulates and licenses FedEx Express’s activities pertaining to satellite communications.

Environmental. Pursuant to the Federal Aviation Act, the FAA, with the assistance of the U.S. Environmental Protection Agency, is authorized to establish standards governing aircraft noise. FedEx Express’s aircraft fleet is in compliance with current noise standards of the federal aviation regulations. In addition to federal regulation of aircraft noise, certain airport operators have local noise regulations, which limit aircraft operations by type of aircraft and time of day. These regulations have had a restrictive effect on FedEx Express’s aircraft operations in some of the localities where they apply but do not have a material effect on any of FedEx Express’s significant markets. Congress’s passage of the Airport Noise and Capacity Act of 1990 established a National Noise Policy, which enabled FedEx Express to plan for noise reduction and better respond to local noise constraints. FedEx Express’s international operations are also subject to noise regulations in certain of the countries in which it operates.

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 emissions, including our aircraft and diesel engine emissions. For a description of such efforts and their potential effect on our cost structure and operating results, see Item 1A of this Annual Report on Form 10-K (“Risk Factors”).

We are subject to federal, state and local environmental laws and regulations relating to, among other things, contingency planning for spills of petroleum products, the disposal of waste oil and the disposal of toners and other products used in FedEx Office’s copy machines. Additionally, we are subject to numerous regulations dealing with underground fuel storage tanks, hazardous waste handling, vehicle and equipment emissions and noise and the discharge of effluents from our properties and equipment. We have environmental management programs to ensure compliance with these regulations.

Customs. Our activities, including customs brokerage and freight forwarding, are subject to regulation by the Bureau of Customs and Border Protection and the TSA within the Department of Homeland Security (customs brokerage and security issues), the U.S. Federal Maritime Commission (ocean freight forwarding) and the DOT (airfreight forwarding). Our offshore operations are subject to similar regulation by the regulatory authorities of foreign jurisdictions.

Labor. While labor relations within the United States at most of our companies are governed by the National Labor Relations Act of 1935, as amended (the “NLRA”), all U.S. employees at FedEx Express are covered by the Railway Labor Act of 1926, as amended (the “RLA”). Under the RLA, groups that wish to unionize must do so across nationwide classes of employees. The RLA also requires mandatory government-led mediation of contract disputes supervised by the National Mediation Board before a union can strike or an employer can replace employees or impose contract terms. This part of the RLA helps minimize the risk of strikes that would shut down large portions of the economy. Under the NLRA, employees can unionize in small localized groups, and government-led mediation is not a required step in the negotiation process.

The RLA was originally passed to govern railroad and express carrier labor negotiations. As transportation systems evolved, the law expanded to cover airlines, which are the dominant national transportation systems of today. As an air express carrier with an integrated air/ground network, FedEx Express and its employees have been covered by the RLA since the founding of the company in 1971. The purpose of the RLA is to offer employees a process by which to unionize (if they choose) and engage in collective bargaining while also protecting national (now global) commerce from damaging work stoppages and delays. Specifically, the RLA ensures that an entire transportation system, such as at FedEx Express, cannot be shut down by the actions of a local segment of the network.

The U.S. Congress is considering adopting changes in labor laws that would make it easier for unions to organize small units of our employees. For example, there is a possibility that Congress could remove most FedEx Express employees from the jurisdiction of the RLA, thereby exposing the FedEx Express network to sporadic labor disputes and the risk that small groups of employees could disrupt the entire air/ground network. For a description of these potential labor law changes, see Item 1A of this Annual Report on Form 10-K (“Risk Factors”).

ITEM 1A. RISK FACTORS

We present information about our risk factors on pages 82 through 86 of this Annual Report on Form 10-K.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

FedEx Express Segment

FedEx Express’s principal owned and leased properties include its aircraft, vehicles, national, regional and metropolitan sorting facilities, administration buildings, FedEx Drop Boxes and data processing and telecommunications equipment.

Aircraft and Vehicles

As of May 31, 2009, FedEx Express’s aircraft fleet consisted of the following:

														Maximum Operational
														Revenue Payload
Description		Owned				Leased				Total				(Pounds per Aircraft)(1)
Boeing MD11			31				26				57				164,200
Boeing MD10-30 (2)			10				2				12				114,200
Boeing DC10-30			1				5				6	(3)			114,200
Boeing MD10-10 (2)			57				—				57				108,700
Boeing DC10-10			1				—				1	(4)			108,700
Airbus A300-600			35				36				71	(5)			85,600
Airbus A310-200/300			40				16				56				61,900
Boeing B757-200			24				—				24	(6)			45,800
Boeing B727-200			77				2				79				38,200
ATR 72-202/212			13				—				13				14,660
ATR 42-300/320			26				—				26				10,880
Cessna 208B			242				—				242				2,500
Cessna 208A			10				—				10				1,900
Total			567				87				654

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The MD11s are three-engine, wide-bodied aircraft that have a longer range and larger capacity than DC10s.

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The DC10s are three-engine, wide-bodied aircraft that have been specially modified to meet FedEx Express’s cargo requirements. We operate two models, the DC10-10 and the DC10-30. The DC10-30 has a longer range and higher weight capacity than the DC10-10.

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The MD10s are three-engine, wide-bodied DC10 aircraft that have received an Advanced Common Flightdeck (ACF) modification, which includes a conversion to a two-pilot cockpit, as well as upgrades of electrical and other systems.

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The A300s and A310s are two-engine, wide-bodied aircraft that have a longer range and more capacity than B757s and B727s.

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The B757s are two-engine aircraft configured for cargo service.

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The B727s are three-engine aircraft configured for cargo service.

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The ATR and Cessna 208 turbo-prop aircraft are leased to independent operators to support FedEx Express operations in areas where demand does not justify use of a larger aircraft.

An inventory of spare engines and parts is maintained for each aircraft type.

In addition, FedEx Express “wet leases” approximately 40 smaller piston-engine and turbo-prop aircraft, which feed packages to and from airports primarily outside the U.S. served by FedEx Express’s larger jet aircraft. The wet lease agreements call for the owner-lessor to provide the aircraft, flight crews, insurance and maintenance, as well as fuel and other supplies required to operate the aircraft. FedEx Express’s wet lease agreements are for terms not exceeding one year and are generally cancelable upon 30 days’ notice.

At May 31, 2009, FedEx Express operated approximately 51,000 ground transport vehicles, including pickup and delivery vans, larger trucks called container transport vehicles and over-the-road tractors and trailers.

Aircraft Purchase Commitments

The following table is a summary of the number and type of aircraft we were committed to purchase as of May 31, 2009, with the year of expected delivery:

		B757				B777F*				MD11				Total
2010			12				4				2				18
2011			16				4				—				20
2012			8				3				—				11
2013			—				3				—				3
2014			—				3				—				3
Thereafter			—				13				—				13
Total			36				30				2				68

Deposits and progress payments of $544 million have been made toward aircraft purchases, options to purchase additional aircraft and other planned aircraft-related transactions. Also see Note 16 of the accompanying consolidated financial statements for more information about our purchase commitments.

Sorting and Handling Facilities

At May 31, 2009, FedEx Express operated the following sorting and handling facilities:

										Sorting						Lease
						Square				Capacity						Expiration
Location		Acres				Feet				(per hour) (1)				Lessor		Year
National
Memphis, Tennessee			518				3,450,000				465,000			Memphis-Shelby County Airport Authority			2036
Indianapolis, Indiana			335				2,509,000				210,000			Indianapolis Airport Authority			2028
Regional
Fort Worth, Texas			168				948,000				76,000			Fort Worth Alliance Airport Authority			2021
Newark, New Jersey			70				595,000				154,000			Port Authority of New York and New Jersey			2010
Oakland, California			75				320,000				65,000			City of Oakland			2031
Metropolitan
Chicago, Illinois			51				419,000				52,000			City of Chicago			2018
Los Angeles, California			34				305,000				57,000			City of Los Angeles			2010/2025	(5)
International
Anchorage, Alaska (2)			64				332,000				24,000			Alaska Department of Transportation and Public Facilities			2023
Paris, France (3)			87				861,000				54,000			Aeroports de Paris			2029
Guangzhou, China (4)			155				882,000				24,000			Guangdong Airport Management Corp.			2029

FedEx Express’s primary sorting facility, which serves as the center of its multiple hub-and-spoke system, is located at the Memphis International Airport. FedEx Express’s facilities at the Memphis International Airport also include aircraft hangars, aircraft ramp areas, vehicle parking areas, flight training and fuel facilities, administrative offices and warehouse space. FedEx Express leases these facilities from the Memphis-Shelby County Airport Authority (the “Authority”). The lease obligates FedEx Express to maintain and insure the leased property and to pay all related taxes, assessments and other charges. The lease is subordinate to, and FedEx Express’s rights thereunder could be affected by, any future lease or agreement between the Authority and the U.S. Government. As noted above, in June 2009, FedEx Express began operations at a new regional hub in Greensboro, North Carolina.

FedEx Express has additional international sorting-and-handling facilities located at Narita Airport in Tokyo, Japan, Stansted Airport outside London, England and Pearson Airport in Toronto, Canada. FedEx Express also has a substantial presence at airports in Hong Kong; Taiwan; Dubai, United Arab Emirates; Frankfurt, Germany; and Miami. FedEx Express is constructing a state-of-the-art, solar-electric sorting-and-handling facility in Germany at the Cologne/Bonn airport and intends to relocate the Frankfurt operations there, beginning in 2010.

Administrative and Other Properties and Facilities

The World Headquarters of FedEx Express is located in southeastern Shelby County, Tennessee. The headquarters campus comprises nine separate buildings with approximately 1.3 million square feet of space. FedEx Express also leases 35 facilities in the Memphis area for administrative offices and warehouses.

FedEx Express owns or leases approximately 700 facilities for city station operations in the United States. In addition, approximately 400 city stations are owned or leased throughout FedEx Express’s international network. The majority of these leases are for terms of five to ten years. City stations serve as a sorting and distribution center for a particular city or region. We believe that suitable alternative facilities are available in each locale on satisfactory terms, if necessary.

As of May 31, 2009, FedEx Express had approximately 46,500 Drop Boxes, including 5,000 Drop Boxes outside U.S. Post Offices. As of May 31, 2009, FedEx Express also had approximately 11,000 FedEx Authorized ShipCenters and other types of staffed drop-off locations, such as FedEx Office and Print Centers. Internationally, FedEx Express had approximately 2,700 drop-off locations.

FedEx Ground Segment

FedEx Ground’s corporate offices and information and data centers are located in the Pittsburgh, Pennsylvania, area in an approximately 500,000 square-foot building owned by FedEx Ground. As of May 31, 2009, FedEx Ground had approximately 31,500 company-owned trailers and owned or leased 520 facilities, including 32 hubs. In addition, approximately 22,500 owner-operated vehicles support FedEx Ground’s business. Of the approximately 315 facilities that support FedEx Home Delivery, more than 200 are co-located with existing FedEx Ground facilities. Leased facilities generally have terms of five years or less. The 32 hub facilities are strategically located to cover the geographic area served by FedEx Ground. The hub facilities average approximately 265,000 square feet and range in size from 54,000 to 460,000 square feet.

FedEx Freight Segment

FedEx Freight Corporation’s corporate headquarters are located in Memphis, Tennessee. Administrative offices for the FedEx Freight business are in Harrison, Arkansas, and for the FedEx National LTL business are in Lakeland, Florida. As of May 31, 2009, FedEx Freight Corporation operated approximately 59,000 vehicles and trailers and 480 service centers, which are strategically located to provide service to virtually all U.S. ZIP Codes. These facilities range in size from 850 to 221,300 square feet of office and dock space. FedEx Custom Critical’s headquarters are located in Green, Ohio.

FedEx Services Segment

FedEx Services’ corporate headquarters are located in Memphis, Tennessee. FedEx Services and FedEx Express lease state-of-the-art technology centers in Collierville, Tennessee, Irving, Texas, Colorado Springs, Colorado, and Orlando, Florida. These facilities house personnel responsible for strategic software development and other functions that support FedEx’s technology and e-commerce solutions. FedEx Office’s corporate headquarters are located in Dallas, Texas in leased facilities. As of May 31, 2009, FedEx Office operated approximately 1,950 locations, including 135 locations in seven foreign countries, as well as 29 commercial production centers. Substantially all FedEx Office and Print Centers are leased, generally for terms of five to ten years with varying renewal options. FedEx Office and Print Centers are generally located in strip malls, office buildings or stand-alone structures and average approximately 4,000 square feet in size. As noted above, in June 2009, we announced a multi-year agreement with OfficeMax to offer U.S. domestic FedEx Express and FedEx Ground shipping services at all U.S. OfficeMax retail locations (over 900 locations), beginning later in calendar 2009.

ITEM 3. LEGAL PROCEEDINGS

FedEx and its subsidiaries are subject to legal proceedings and claims that arise in the ordinary course of their business. For a description of material pending legal proceedings, see Note 17 of the accompanying consolidated financial statements.

As described below, we have received requests for information from various governmental agencies over the past three years related to possible anti-competitive behavior in several freight transportation segments. We do not believe that we have engaged in any anti-competitive activities, and we are cooperating with these investigations.

In June 2006, we received a grand jury subpoena for the production of documents in connection with a criminal investigation by the Antitrust Division of the U.S. Department of Justice (“DOJ”) into possible anti-competitive behavior in the air freight transportation industry. In July 2007, we received a notice from the Australian Competition and Consumer Commission (“ACCC”) requesting certain information and documents in connection with the ACCC’s investigation into possible anti-competitive behavior relating to air cargo transportation services in Australia. In December 2007, we received a grand jury subpoena for the production of documents in connection with a criminal investigation by the DOJ into possible anti-competitive behavior in the international freight forwarding industry. In March 2008, we received an additional subpoena from the DOJ relating to its investigation of the international freight forwarding industry. In July 2008, we received a notice from the Korea Fair Trade Commission (“KFTC”) requesting certain information and documents in connection with the KFTC’s investigation into possible anti-competitive behavior relating to air cargo transportation services in South Korea. In July 2008, we received a formal request for certain information in connection with an ongoing investigation by the Japan Fair Trade Commission (“JFTC”) into possible anti-competitive behavior in the international freight forwarding industry. In March 2009, the JFTC concluded its investigation and charged several companies with anti-competitive behavior. We were not among the companies charged. The DOJ, ACCC and KFTC investigations are ongoing.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the fourth quarter of 2009.

EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding executive officers of FedEx is as follows (included herein pursuant to Instruction 3 to Item 401(b) of Regulation S-K and General Instruction G(3) of Form 10-K):

Name and Office		Age				Positions and Offices Held and Business Experience
Frederick W. Smith Chairman, President and Chief Executive Officer			64			Chairman, President and Chief Executive Officer of FedEx since January 1998; Chairman of FedEx Express since 1975; Chairman, President and Chief Executive Officer of FedEx Express from April 1983 to January 1998; Chief Executive Officer of FedEx Express from 1977 to January 1998; and President of FedEx Express from June 1971 to February 1975.
David J. Bronczek President and Chief Executive Officer, FedEx Express			55			President and Chief Executive Officer of FedEx Express since January 2000; Executive Vice President and Chief Operating Officer of FedEx Express from January 1998 to January 2000; Senior Vice President — Europe, Middle East and Africa of FedEx Express from June 1995 to January 1998; Senior Vice President — Europe, Africa and Mediterranean of FedEx Express from June 1993 to June 1995; Vice President — Canadian Operations of FedEx Express from February 1987 to March 1993; and several sales and operations managerial positions at FedEx Express from 1976 to 1987. Mr. Bronczek serves as a director of International Paper Company, an uncoated paper and packaging company.
Robert B. Carter Executive Vice President — FedEx Information Services and Chief Information Officer			50			Executive Vice President — FedEx Information Services and Chief Information Officer of FedEx since January 2007; Executive Vice President and Chief Information Officer of FedEx from June 2000 to January 2007; Corporate Vice President and Chief Technology Officer of FedEx from February 1998 to June 2000; Vice President — Corporate Systems Development of FedEx Express from September 1993 to February 1998; Managing Director — Systems Development of FedEx Express from April 1993 to September 1993. Mr. Carter serves as a director of Saks Incorporated, a retailer operating luxury, specialty and traditional department stores, and as a director of First Horizon National Corporation, a financial services holding company.

Name and Office		Age				Positions and Offices Held and Business Experience
Douglas G. Duncan President and Chief Executive Officer, FedEx Freight Corporation			58			President and Chief Executive Officer of FedEx Freight Corporation since February 2001; President and Chief Executive Officer of Viking Freight, Inc. (“Viking Freight”) from November 1998 to February 2001; Senior Vice President — Sales and Marketing of Viking Freight from 1996 to November 1998; Vice President — Sales and Marketing of Caliber System, Inc. (“Caliber”) from 1995 to 1996; various positions with Roadway Express, Inc., including Vice President — Sales, from 1976 to 1995. Mr. Duncan serves as a director of Benchmark Electronics, Inc., an electronics manufacturer.
T. Michael Glenn Executive Vice President — Market Development and Corporate Communications			53			Executive Vice President — Market Development and Corporate Communications of FedEx since January 1998; Senior Vice President — Marketing, Customer Service and Corporate Communications of FedEx Express from June 1994 to January 1998; Senior Vice President — Marketing and Corporate Communications of FedEx Express from December 1993 to June 1994; Senior Vice President — Worldwide Marketing Catalog Services and Corporate Communications of FedEx Express from June 1993 to December 1993; Senior Vice President — Catalog and Remail Services of FedEx Express from September 1992 to June 1993; Vice President — Marketing of FedEx Express from August 1985 to September 1992; and various management positions in sales and marketing and senior sales specialist of FedEx Express from 1981 to 1985. Mr. Glenn serves as a director of Pentair, Inc., a diversified industrial manufacturing company operating in water and technical products business segments, and as a director of Renasant Corporation, a financial services holding company.
Alan B. Graf, Jr. Executive Vice President and Chief Financial Officer			55			Executive Vice President and Chief Financial Officer of FedEx since January 1998; Executive Vice President and Chief Financial Officer of FedEx Express from February 1996 to January 1998; Senior Vice President and Chief Financial Officer of FedEx Express from December 1991 to February 1996; Vice President and Treasurer of FedEx Express from August 1987 to December 1991; and various management positions in finance and a senior financial analyst of FedEx Express from 1980 to 1987. Mr. Graf serves as a director of Mid-America Apartment Communities Inc., a real estate investment trust that focuses on acquiring, constructing, developing, owning and operating apartment communities, and as a director of NIKE, Inc., a designer and marketer of athletic footwear, apparel, equipment and accessories for sports and fitness activities.

Name and Office		Age				Positions and Offices Held and Business Experience
David F. Rebholz President and Chief Executive Officer, FedEx Ground			56			President and Chief Executive Officer of FedEx Ground since January 2007; President of FedEx Ground from September 2006 to January 2007; Executive Vice President — Operations & Systems Support of FedEx Express from December 1999 to September 2006; Senior Vice President — U.S. of FedEx Express from January 1997 to November 1999; Senior Vice President —Sales & Customer Service of FedEx Express from June 1993 to December 1996; Vice President — Regional Operations of FedEx Express from October 1991 to June 1993; Vice President — Customer Services of FedEx Express from December 1988 to October 1991; and various other positions with FedEx Express from 1976 to 1988.
Christine P. Richards Executive Vice President, General Counsel and Secretary			54			Executive Vice President, General Counsel and Secretary of FedEx since June 2005; Corporate Vice President — Customer and Business Transactions of FedEx from March 2001 to June 2005; Senior Vice President and General Counsel of FedEx Services from March 2000 to June 2005; Staff Vice President — Customer and Business Transactions of FedEx from November 1999 to March 2001; Vice President — Customer and Business Transactions of FedEx Express from 1998 to November 1999; and various legal positions with FedEx Express from 1984 to 1998.

Executive officers are elected by, and serve at the discretion of, the Board of Directors. There is no arrangement or understanding between any executive officer and any person, other than a director or executive officer of FedEx or of any of its subsidiaries acting in his or her official capacity, pursuant to which any executive officer was selected. There are no family relationships between any executive officer and any other executive officer or director of FedEx or of any of its subsidiaries.

PART II

ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

FedEx’s common stock is listed on the New York Stock Exchange under the symbol “FDX.” As of July 13, 2009, there were 18,062 holders of record of our common stock. The following table sets forth, for the periods indicated, the high and low sale prices, as reported on the NYSE, and the cash dividends paid per share of common stock.

		Sale Prices
		High				Low				Dividend
Fiscal Year Ended May 31, 2009
First Quarter		$	93.69			$	71.33			$	0.11
Second Quarter			96.65				53.90				0.11
Third Quarter			76.94				42.37				0.11
Fourth Quarter			62.16				34.02				0.11
Fiscal Year Ended May 31, 2008
First Quarter		$	119.10			$	99.30			$	0.10
Second Quarter			111.29				91.10				0.10
Third Quarter			101.53				80.00				0.10
Fourth Quarter			99.46				82.50				0.10

FedEx also paid a cash dividend on July 1, 2009 ($0.11 per share). We expect to continue to pay regular quarterly cash dividends, though each subsequent quarterly dividend is subject to review and approval by our Board of Directors. We intend to evaluate the dividend payment amount on an annual basis at the end of each fiscal year. There are no material restrictions on our ability to declare dividends, nor are there any material restrictions on the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans or advances. FedEx did not repurchase any of its common stock during the fourth quarter of 2009.

ITEM 6. SELECTED FINANCIAL DATA

Selected financial data as of and for the five years ended May 31, 2009 is presented on page 137 of this Annual Report on
Form 10-K.

ITEM 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Management’s discussion and analysis of results of operations and financial condition is presented on pages 38 through 86 of this Annual Report on Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and qualitative information about market risk is presented on page 136 of this Annual Report on Form 10-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FedEx’s consolidated financial statements, together with the notes thereto and the report of Ernst & Young LLP dated July 10, 2009 thereon, are presented on pages 89 through 135 of this Annual Report on Form 10-K.

ITEM 9.		CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Management’s Evaluation of Disclosure Controls and Procedures

The management of FedEx, with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to FedEx management as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of May 31, 2009 (the end of the period covered by this Annual Report on Form 10-K).

Assessment of Internal Control Over Financial Reporting

Management’s report on our internal control over financial reporting is presented on page 87 of this Annual Report on Form 10-K. The report of Ernst & Young LLP with respect to our internal control over financial reporting is presented on page 88 of this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

During our fiscal quarter ended May 31, 2009, no change occurred in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information regarding members of the Board of Directors, compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, FedEx’s Code of Business Conduct and Ethics and certain other aspects of FedEx’s corporate governance (such as the procedures by which FedEx’s stockholders may recommend nominees to the Board of Directors and information about the Audit Committee, including its members and our “audit committee financial expert”) will be presented in FedEx’s definitive proxy statement for its 2009 annual meeting of stockholders, which will be held on September 28, 2009, and is incorporated herein by reference. Information regarding executive officers of FedEx is included above in Part I of this Annual Report on Form 10-K under the caption “Executive Officers of the Registrant” pursuant to Instruction 3 to Item 401(b) of Regulation S-K and General Instruction G(3) of Form 10-K. Information regarding FedEx’s Code of Business Conduct and Ethics is included above in Part I, Item 1 of this Annual Report on Form 10-K under the caption “Reputation and Responsibility — Governance.”

ITEM 11. EXECUTIVE COMPENSATION

Information regarding director and executive compensation will be presented in FedEx’s definitive proxy statement for its 2009 annual meeting of stockholders, which will be held on September 28, 2009, and is incorporated herein by reference.

ITEM 12.		SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information regarding security ownership of certain beneficial owners and management and related stockholder matters, as well as equity compensation plan information, will be presented in FedEx’s definitive proxy statement for its 2009 annual meeting of stockholders, which will be held on September 28, 2009, and is incorporated herein by reference.

ITEM 13.		CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information regarding certain relationships and transactions with related persons (including FedEx’s policies and procedures for the review and preapproval of related person transactions) and director independence will be presented in FedEx’s definitive proxy statement for its 2009 annual meeting of stockholders, which will be held on September 28, 2009, and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information regarding the fees for services provided by Ernst & Young LLP during 2009 and 2008 and the Audit Committee’s administration of the engagement of Ernst & Young LLP, including the Committee’s preapproval policies and procedures (such as FedEx’s Policy on Engagement of Independent Auditor), will be presented in FedEx’s definitive proxy statement for its 2009 annual meeting of stockholders, which will be held on September 28, 2009, and is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1) and (2) Financial Statements; Financial Statement Schedules

FedEx’s consolidated financial statements, together with the notes thereto and the report of Ernst & Young LLP dated July 10, 2009 thereon, are listed on page 36 and presented on pages 89 through 135 of this Annual Report on Form 10-K. FedEx’s “Schedule II — Valuation and Qualifying Accounts,” together with the report of Ernst & Young LLP dated July 10, 2009 thereon, is presented on pages 138 through 139 of this Annual Report on Form 10-K. All other financial statement schedules have been omitted because they are not applicable or the required information is included in FedEx’s consolidated financial statements or the notes thereto.

(a)(3) Exhibits

See the Exhibit Index on pages E-1 through E-6 for a list of the exhibits being filed or furnished with or incorporated by reference into this Annual Report on Form 10-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Signature		Capacity		Date
/s/ FREDERICK W. SMITH   Frederick W. Smith		Chairman, President and Chief Executive Officer and Director (Principal Executive Officer)		July 15, 2009
/s/ ALAN B. GRAF, JR.   Alan B. Graf, Jr.		Executive Vice President and Chief Financial Officer (Principal Financial Officer)		July 15, 2009
/s/ JOHN L. MERINO   John L. Merino		Corporate Vice President and Principal Accounting Officer (Principal Accounting Officer)		July 15, 2009
/s/ JAMES L. BARKSDALE *   James L. Barksdale		Director		July 15, 2009
/s/ JOHN A. EDWARDSON *   John A. Edwardson		Director		July 15, 2009
/s/ JUDITH L. ESTRIN *   Judith L. Estrin		Director		July 15, 2009
/s/ J. R. HYDE, III *   J. R. Hyde, III		Director		July 15, 2009
/s/ SHIRLEY ANN JACKSON *   Shirley Ann Jackson		Director		July 15, 2009

Signature		Capacity		Date
/s/ STEVEN R. LORANGER *   Steven R. Loranger		Director		July 15, 2009
/s/ GARY W. LOVEMAN *   Gary W. Loveman		Director		July 15, 2009
/s/ SUSAN C. SCHWAB *   Susan C. Schwab		Director		July 15, 2009
/s/ JOSHUA I. SMITH *   Joshua I. Smith		Director		July 15, 2009
/s/ PAUL S. WALSH *   Paul S. Walsh		Director		July 15, 2009
/s/ PETER S. WILLMOTT *   Peter S. Willmott		Director		July 15, 2009

*By:		/s/ JOHN L. MERINO   John L. Merino				July 15, 2009
		Attorney-in-Fact

FINANCIAL SECTION TABLE OF CONTENTS

		PAGE
Management’s Discussion and Analysis
Overview of Financial Section			38
Results of Operations			40
New Accounting Pronouncements			49
Reportable Segments			50
FedEx Services Segment			51
FedEx Express Segment			52
FedEx Ground Segment			57
FedEx Freight Segment			61
Liquidity			64
Capital Resources			65
Contractual Cash Obligations			68
Critical Accounting Estimates			70
Retirement Plans			70
Self-Insurance Accruals			75
Long-Lived Assets			76
Contingencies			80
Risk Factors			82
Forward-Looking Statements			86

Consolidated Financial Statements

Management’s Report on Internal Control over Financial Reporting			87
Reports of Independent Registered Public Accounting Firm			88
Consolidated Balance Sheets May 31, 2009 and 2008			90
Consolidated Statements of Income Years Ended May 31, 2009, 2008 and 2007			92
Consolidated Statements of Cash Flows Years Ended May 31, 2009, 2008 and 2007			93
Consolidated Statements of Changes in Stockholders’ Investment and Comprehensive Income Years Ended May 31, 2009, 2008 and 2007			94
Notes to Consolidated Financial Statements			95

		PAGE
Other Financial Information
Quantitative and Qualitative Disclosures about Market Risk			136
Selected Financial Data			137
Report of Independent Registered Public Accounting Firm			138
Schedule II — Valuation and Qualifying Accounts			139
Computation of Ratio of Earnings to Fixed Charges			140

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

OVERVIEW OF FINANCIAL SECTION

The financial section of the FedEx Corporation (“FedEx”) Annual Report on Form 10-K (“Annual Report”) consists of the following Management’s Discussion and Analysis of Results of Operations and Financial Condition (“MD&A”), the Consolidated Financial Statements and the notes to the Consolidated Financial Statements, and Other Financial Information, all of which include information about our significant accounting policies, practices and the transactions that underlie our financial results. The following MD&A describes the principal factors affecting the results of operations, liquidity, capital resources, contractual cash obligations and the critical accounting estimates of FedEx. The discussion in the financial section should be read in conjunction with the other sections of this Annual Report, particularly “Item 1: Business” and our detailed discussion of risk factors included in this MD&A.

ORGANIZATION OF INFORMATION

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

•

Results of Operations includes an overview of our consolidated 2009 results compared to 2008, and 2008 results compared to 2007. This section also includes a discussion of key actions and events that impacted our results, as well as a discussion of our outlook for 2010.

•

The overview is followed by a financial summary and analysis (including a discussion of both historical operating results and our outlook for 2010) for each of our reportable transportation segments.

•

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

•

We conclude with a discussion of the critical accounting estimates that we believe are important to understanding certain of the material judgments and assumptions incorporated in our reported financial 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 include Federal Express Corporation (“FedEx Express”), the world’s largest express transportation company; FedEx Ground Package System, Inc. (“FedEx Ground”), a leading provider of small-package ground delivery services; and FedEx Freight Corporation, a leading U.S. provider of less-than-truckload (“LTL”) freight services. Our FedEx Services segment provides customer-facing sales, marketing, information technology and customer service support to our transportation segments. In addition, the FedEx Services segment provides customers with retail access to FedEx Express and FedEx Ground shipping services through FedEx Office and Print Services, Inc. (“FedEx Office”). These companies represent our major service lines and form the core of our reportable segments. See “Reportable Segments” for further discussion and refer to “Item 1: Business” for a more detailed description of each of our operating companies.

The key indicators necessary to understand our operating results include:

•

the overall customer demand for our various services;

•

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

•

the mix of services purchased by our customers;

•

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

•

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

•

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

The majority of our operating expenses are directly impacted by revenue and volume levels. Accordingly, we expect these operating expenses to fluctuate on a year-over-year basis consistent with the change in revenues and volume. The following discussion of operating expenses describes the key drivers impacting expense trends beyond changes in revenues and volume.

Except as otherwise specified, references to years indicate our fiscal year ended May 31, 2009 or ended May 31 of the year referenced and comparisons are to the prior year. References to our transportation segments include, collectively, our FedEx Express, FedEx Ground and FedEx Freight segments.

RESULTS OF OPERATIONS

CONSOLIDATED RESULTS

The following table compares revenues, operating income, operating margin, net income and diluted earnings per share (dollars in millions, except per share amounts) for the years ended May 31:

														Percent Change
		2009 (1)				2008 (2)				2007 (3)				2009/2008				2008/2007
Revenues		$	35,497			$	37,953			$	35,214				(6	)			8
Operating income			747				2,075				3,276				(64	)			(37	)
Operating margin			2.1	%			5.5	%			9.3	%		(340		) bp		(380		) bp
Net income		$	98			$	1,125			$	2,016				(91	)			(44	)
Diluted earnings per share		$	0.31			$	3.60			$	6.48				(91	)			(44	)

The following table shows changes in revenues and operating income by reportable segment for 2009 compared to 2008, and 2008 compared to 2007 (in millions):

		Revenues																Operating Income (Loss)
		Dollar								Percent								Dollar								Percent
		Change								Change								Change								Change
		2009/				2008/				2009/				2008/				2009/				2008/				2009/				2008/
		2008				2007				2008				2007				2008				2007				2008				2007
FedEx Express segment (1)		$	(2,057	)		$	1,740				(8	)			8			$	(1,107	)		$	(90	)			(58	)			(5	)
FedEx Ground segment			296				708				4				12				71				(86	)			10				(10	)
FedEx Freight segment (2)			(519	)			348				(11	)			8				(373	)			(134	)			(113	)			(29	)
FedEx Services segment (3)			(161	)			2				(8	)			—				81				(891	)			9			NM
Other and Eliminations			(15	)			(59	)		NM				NM					—				—				—				—
		$	(2,456	)		$	2,739				(6	)			8			$	(1,328	)		$	(1,201	)			(64	)			(37	)

The following graphs for FedEx Express, FedEx Ground and the FedEx Freight LTL Group, which comprises the FedEx Freight and FedEx National LTL businesses of FedEx Freight Corporation, show selected volume statistics (in thousands) for the years ended May 31:

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

Overview

Global economic conditions deteriorated significantly during 2009, resulting in lower revenue and earnings. Our results for 2009 reflect reduced demand for most of our services, particularly at our FedEx Express and FedEx Freight segments. Business and consumer spending, a key driver of volumes shipped across our networks, contracted significantly in 2009. Declines in U.S. domestic volumes at FedEx Express were partially mitigated by the exit of a key competitor (DHL) from the market, as we gained approximately half of this competitor’s total U.S. domestic shipments. While we acquired significant volumes from this competitor, these shipments generally were at lower weights and yields than our other volumes. We experienced the weakest LTL freight environment in decades, resulting in an extraordinary decline in demand for our LTL freight services, although we were able to maintain our market share. FedEx Express package yields and FedEx Freight LTL Group yields were negatively impacted by a more competitive pricing environment, as competitors are seeking to protect market share and sustain operations during the current recession.

In response to weak business conditions, we implemented several actions in 2009 to lower our cost structure, including base salary reductions for U.S. salaried personnel effective January 1, 2009, a suspension of 401(k) company-matching contributions effective February 1, 2009, elimination of variable compensation payouts, implementation of a hiring freeze and significant volume-related reductions in labor hours and line-haul expenses. In addition, we have exercised stringent control over discretionary spending, such as travel, entertainment and professional fees. Further, we optimized our networks by adjusting routes and equipment types, temporarily idling equipment, consolidating facilities and deferring facility expansions and aircraft purchases to better match current demand levels. These cost-reduction activities partially mitigated the impact of the weak global economy on our results for 2009. Rapidly declining fuel costs during 2009 and the timing lag between such declines and adjustments to our fuel surcharges provided a significant benefit to our results, predominantly at FedEx Express and FedEx Ground.

Our operating results for 2009 were negatively impacted by fourth quarter charges of $1.2 billion ($1.1 billion, net of tax, or $3.45 per diluted share), related primarily to the impairment of goodwill related to the Kinko’s and Watkins Motor Lines acquisitions and certain aircraft-related assets at FedEx Express (described below).

In addition, at May 31, 2009, in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” we recorded a decrease to equity through other comprehensive income (“OCI”) of $1.2 billion (net of tax) based primarily on mark-to-market adjustments related to unrealized losses in our pension plan assets during 2009.

In 2008, the combination of record high fuel prices and the weak U.S. economy significantly impacted our profitability. Persistently higher fuel prices and the related impact on our fuel surcharges reduced demand for our services, particularly U.S. domestic express package and LTL freight services, and pressured overall yield growth across our transportation segments. In addition, our operating results for 2008 included a charge of $891 million, predominantly related to impairment charges associated with intangible assets from the Kinko’s acquisition. Lower variable incentive compensation, reduced retirement plans costs and cost-containment activities partially mitigated the impact of higher net fuel costs and the weak U.S. economy on our 2008 overall results.

Revenue

Revenues decreased during 2009 due to significantly lower volumes at FedEx Express and the FedEx Freight LTL Group as a result of reduced demand and lower yields resulting from an aggressive pricing environment. At FedEx Express, FedEx International Priority^® package (“IP”) volume declined in every major region of the world, although the rate of decline began to slow late in 2009. Reductions in U.S. domestic package and freight volumes at FedEx Express also contributed to the revenue decrease during 2009. However, declines in U.S. domestic package volumes were partially offset by volumes gained from DHL’s exit from the U.S. market. These volume decreases were partially offset by yield increases in FedEx Express freight services driven by higher base rates and higher fuel surcharges in the first half of 2009. FedEx Freight LTL Group volumes decreased as a result of the recession despite maintaining market share. Within our FedEx Ground segment, volumes increased during 2009 due to market share gains, including volumes gained from DHL, and FedEx Express customers who chose to use our more economical ground delivery services in light of the recession.

Revenue growth for 2008 was primarily attributable to continued growth in international services at FedEx Express, increases in FedEx Express U.S. domestic package yields and volume growth at FedEx Ground. Higher fuel surcharges were the key driver of increased yields in our transportation segments in 2008. Additionally, FedEx Express international yields benefited from favorable currency exchange rates. Revenue growth for 2008 also improved due to a full year of operations for businesses acquired in 2007 at FedEx Express and FedEx Freight. Revenue growth during 2008 was partially offset by reduced U.S. domestic express volumes as a result of the ongoing weak U.S. economy. The impact of the weak U.S. economy became progressively worse during the year and drove U.S. domestic express shipping volumes to pre-2000 levels during the fourth quarter of 2008.

Impairment and Other Charges

During the fourth quarter of 2009, we took actions in addition to those described above to align the size of our networks to current demand levels by removing equipment and facilities from service and reducing personnel. These actions, combined with the impairment of goodwill related to the Kinko’s and Watkins Motor Lines acquisitions, resulted in a charge of $1.2 billion ($1.1 billion, net of tax, or $3.45 per diluted share), which is included in our operating results for the fourth quarter of 2009.

The components of the fourth quarter charge include the following (in millions):

Goodwill impairment		$	900
Asset impairment			202
Other charges			102
		$	1,204

The goodwill impairment charge includes an $810 million charge related to reduction of the value of the goodwill recorded as a result of the February 2004 acquisition of Kinko’s, Inc. (now known as FedEx Office) and a $90 million charge related to reduction of the value of the goodwill recorded as a result of the September 2006 acquisition of the U.S. and Canadian less-than-truckload freight operations of Watkins Motor Lines and certain affiliates (now known as FedEx National LTL). The key factor contributing to the goodwill impairment was a decline in FedEx Office’s and FedEx National LTL’s recent and forecasted financial performance as a result of weak economic conditions.

The Watkins Motor Lines goodwill impairment charge is included in the results of the FedEx Freight segment. The Kinko’s goodwill impairment charge is included in the results of the FedEx Services segment and was not allocated to our transportation segments, as the charge was unrelated to the core performance of those businesses. For additional information concerning these impairment charges, see Note 4 to the accompanying consolidated financial statements and the Critical Accounting Estimates section of this MD&A.

We had several property and equipment impairment charges during 2009 resulting from decisions to remove assets from service due to the impact of the recession on our business, principally during the fourth quarter. The majority of our asset impairment charges during the fourth quarter of 2009 resulted from our fourth quarter decision to permanently remove from service 10 Airbus A310-200 aircraft and four Boeing MD10-10 aircraft that we own, along with certain excess aircraft engines, at FedEx Express. This decision was a result of our ongoing efforts to optimize our express network in light of continued excess aircraft capacity due to weak economic conditions and the delivery of newer, more fuel-efficient aircraft. Other charges during the fourth quarter of 2009 were primarily associated with aircraft-related lease and contract termination costs at FedEx Express and employee severance.

Our operating results for 2008 include a charge of $891 million ($696 million, net of tax, or $2.23 per diluted share) recorded during the fourth quarter, predominantly related to impairment charges associated with the decision to minimize the use of the Kinko’s trade name and goodwill resulting from the Kinko’s acquisition.

The impairment of the Kinko’s trade name was due to the decision to minimize the use of the Kinko’s trade name and rebrand the company as FedEx Office over the next several years. We believe the FedEx Office name better describes the wide range of services available at the company’s retail centers and takes full advantage of the FedEx brand. The goodwill impairment charge resulted from a decline in the fair value of the FedEx Office reporting unit in light of economic conditions, the unit’s recent and forecasted financial performance and the decision to reduce the rate of network expansion. These 2008 impairment charges are included in operating expenses in the accompanying consolidated statements of income. The charges were included in the results of the FedEx Services segment and were not allocated to our transportation segments, as the charges were unrelated to the core performance of those businesses.

Operating Income

The following table compares operating expenses as a percent of revenue for the years ended May 31:

		Percent of Revenue
		2009				2008				2007
Operating expenses:
Salaries and employee benefits			38.8	%			37.4	%			39.0	%
Purchased transportation			12.8				12.2				11.3
Rentals and landing fees			6.8				6.4				6.7
Depreciation and amortization			5.6				5.1				5.0
Fuel			10.7				11.6				9.7
Maintenance and repairs			5.3				5.5				5.5
Impairment and other charges			3.4				2.3				—
Other			14.5				14.0				13.5
Total operating expenses			97.9				94.5				90.7
Operating margin			2.1	%			5.5	%			9.3	%

Operating income and operating margin declined significantly in 2009, as weak economic conditions drove decreases in volumes at FedEx Express and the FedEx Freight LTL Group and contributed to a more competitive pricing environment that pressured yields. The impairment and other charges described above also negatively impacted operating income and margin in 2009. Operating income and margin in 2009 were also negatively impacted by reduced base copy revenues and expenses associated with organizational changes at FedEx Office. The cost-reduction initiatives (described above) partially mitigated the negative impact of these factors.

The following graphs for our transportation segments show our average cost of jet and vehicle fuel per gallon and the year-over-year percentage change in total fuel expense for the years ended May 31:

Fuel expenses decreased 14% during 2009, primarily due to decreases in fuel consumption and the average price per gallon of fuel. Jet fuel usage decreased 9% during 2009, as we reduced flight hours in light of lower business levels.

Fuel prices decreased rapidly and significantly during 2009 after peaking during the first quarter, while changes in fuel surcharges for FedEx Express and FedEx Ground lagged these decreases by approximately six to eight weeks. We experienced the opposite effect during 2008, as fuel prices significantly increased. This volatility in fuel prices and fuel surcharges resulted in a net benefit to income in 2009, based on a static analysis of the impact to operating income of year-over-year changes in fuel prices compared to changes in fuel surcharges. This analysis considers the estimated benefits of the reduction in fuel surcharges included in the base rates charged for FedEx Express services. However, this analysis does not consider the negative effects that the significantly higher fuel surcharge levels have on our business, including reduced demand and shifts by our customers to lower-yielding services. While fluctuations in fuel surcharge rates can be significant from period to period, fuel surcharges represent one of the many individual components of our pricing structure that impact our overall revenue and yield. Additional components include the mix of services purchased, the base price and extra service charges we obtain for these services and the level of pricing discounts offered. In order to provide information about the impact of fuel surcharges on the trend in revenue and yield growth, we have included the comparative fuel surcharge rates in effect for 2009, 2008 and 2007 in the accompanying discussions of each of our transportation segments.

Operating income and operating margin declined during 2008, as the weak U.S. economy and substantially higher fuel costs pressured volume growth at FedEx Express and the FedEx Freight LTL Group. The impairment charges at FedEx Office also negatively affected operating income and margin in 2008. As described above, fuel volatility negatively affected earnings in 2008.

Operating income and margin in 2008 were also negatively impacted by increased net operating costs at FedEx Office and costs of expansion of our domestic express services in China. Higher purchased transportation expenses at FedEx Ground, primarily due to costs associated with independent contractor incentive programs and higher rates paid to our contractors (including higher fuel supplement costs), also had a negative impact on 2008 results. Other operating expenses increased during 2008 primarily due to the full-year inclusion of our 2007 business acquisitions, including the consolidation of the results of our China joint venture at FedEx Express, and higher legal, consulting and insurance costs at FedEx Ground. Lower variable incentive compensation and reduced retirement plans costs, combined with cost-containment activities, partially mitigated the impact of higher net fuel costs and the weak U.S. economy on our overall results for 2008.

Other Income and Expense

Interest expense decreased $13 million during 2009 due to increased capitalized interest primarily related to progress payments on aircraft purchases, which was partially offset by interest costs on higher debt balances. Interest income decreased $18 million during 2009, primarily due to lower interest rates. Net interest expense decreased $1 million during 2008 primarily due to decreased interest expense related to lower debt balances and increased capitalized interest. The 2008 decrease in interest expense was partially offset by decreased interest income due to lower cash balances.

Income Taxes

Our effective tax rates of 85.6% for 2009 and 44.2% for 2008 were significantly impacted by the goodwill impairment charges related to the Kinko’s acquisition, which are not deductible for income tax purposes. Our effective tax rate was 37.3% in 2007, which was favorably impacted by the conclusion of various state and federal audits and appeals. The 2007 rate reduction was partially offset by tax charges incurred as a result of a reorganization in Asia associated with our acquisition in China. For 2010, we expect our effective tax rate to be between 38% and 39%. The actual rate, however, will depend on a number of factors, including the amount and source of operating income. Additional information on income taxes, including our effective tax rate reconciliation and liabilities recorded under FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes,” can be found in Note 11 of the accompanying consolidated financial statements.

Business Acquisitions

During 2007, we made the following acquisitions:

								Purchase Price
Segment		Business Acquired		Rebranded		Date Acquired		(in millions)
FedEx Freight		Watkins Motor Lines		FedEx National LTL		September 3, 2006		$	787
FedEx Express		ANC Holdings Ltd.		FedEx U.K.		December 16, 2006			241
FedEx Express		Tianjin Datian W. Group Co., Ltd. (“DTW Group”)		N/A		March 1, 2007			427

These acquisitions expanded our portfolio of services to include long-haul LTL freight services and domestic express services in the United Kingdom and China. See Note 3 of the accompanying consolidated financial statements for further information about these acquisitions. We paid the purchase price for these acquisitions from available cash balances, which included the net proceeds from our $1 billion senior unsecured debt offering completed during 2007. During 2009, 2008 and 2007, we also made other immaterial acquisitions that are not presented in the table above.

Employees Under Collective Bargaining Arrangements

The pilots of FedEx Express, who represent a small percentage of our total employees, are employed under a collective bargaining agreement. During the second quarter of 2007, the pilots ratified a new four-year labor contract that included signing bonuses and other upfront compensation of $143 million, as well as pay increases and other benefit enhancements. These costs were partially mitigated by reductions in the variable incentive compensation of our other employees. The effect of this new agreement on second quarter 2007 net income was $78 million net of tax, or $0.25 per diluted share.

Outlook

We expect continued softness in demand for our services in 2010, as shipping volumes are expected to remain relatively flat as the global recession persists, particularly in the first half of 2010. Our results for the first half of 2009 included the benefit of significantly stronger economic activity and rapidly declining fuel costs, creating difficult year-over-year comparisons. The timing and pace of any economic recovery is difficult to predict, and our outlook for 2010 reflects our expectations for continued challenges in growing volume and yield in this environment. Revenues in 2010 are expected to be negatively impacted by lower yields resulting from lower fuel surcharges due to more stable fuel prices and an aggressive pricing environment for our services. We anticipate volume growth at the FedEx Ground segment due to continued market share gains and flat volumes at the FedEx Express segment for 2010. Further, we expect LTL shipments to decrease for 2010 due to the continued excess capacity in this market. However, if excess capacity exits the LTL industry in 2010, we have the network, resources and capabilities to manage any resulting incremental volumes. Despite the benefit of numerous cost-reduction activities in 2009 (described above), earnings in 2010 will be negatively impacted by lower revenues as a result of the yield and volume pressures described above. If economic conditions deteriorate further, additional actions will be necessary to reduce the size of our networks. However, we will not compromise our outstanding service levels or take actions that negatively impact the customer experience in exchange for short-term cost reductions.

Our capital expenditures for 2010 are expected to be approximately $2.6 billion, as we will continue to balance the need to control spending with the opportunity to make investments with high returns, such as in substantially more fuel-efficient Boeing 757 (“B757”) and Boeing 777 Freighter (“B777F”) aircraft. Moreover, we will continue to invest in critical long-term strategic projects focused on enhancing and broadening our service offerings to position us for stronger growth under improved economic conditions. However, we could reduce 2010 capital expenditures should conditions worsen. For additional details on key 2010 capital projects, refer to the Liquidity Outlook section of this MD&A.

All of our businesses operate in a competitive pricing environment, exacerbated by continuing volatile fuel prices, which impact our fuel surcharge levels. Historically, our fuel surcharges have largely offset incremental fuel costs; however, volatility in fuel costs may impact earnings because adjustments to our fuel surcharges lag changes in actual fuel prices paid. Therefore, the trailing impact of adjustments to our fuel surcharges can significantly affect our earnings either positively or negatively in the short-term.

As described in Note 17 of the accompanying consolidated financial statements and the “Independent Contractor Matters” section of our FedEx Ground segment MD&A, we are involved in a number of litigation matters and other proceedings that challenge the status of FedEx Ground’s owner-operators as independent contractors. FedEx Ground anticipates continuing changes to its relationships with its contractors. The nature, timing and amount of any changes are dependent on the outcome of numerous future events. We cannot reasonably estimate the potential impact of any such changes or a meaningful range of potential outcomes, although they could be material. However, we do not believe that any such changes will impair our ability to operate and profitably grow our FedEx Ground business.

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

Seasonality of Business

Our businesses are seasonal in nature. 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 the FedEx Freight LTL Group, the spring and fall are the busiest periods and the latter part of December, January and February are the slowest periods. For FedEx Office, the summer months are normally the slowest periods. Shipment levels, operating costs and earnings for each of our companies can also be adversely affected by inclement weather, particularly in our third fiscal quarter.

NEW ACCOUNTING PRONOUNCEMENTS

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 pronouncements are relevant to the readers of our financial statements.

On May 31, 2007, we adopted SFAS 158. SFAS 158 requires recognition in the balance sheet of the funded status of defined benefit pension and other postretirement benefit plans, and the recognition in OCI of unrecognized gains or losses and prior service costs or credits. The adoption of SFAS 158 resulted in a $982 million charge to shareholders’ equity at May 31, 2007 through accumulated other comprehensive income (“AOCI”).

Additionally, SFAS 158 requires the measurement date for plan assets and liabilities to coincide with the plan sponsor’s year end. On June 1, 2008, we made our transition election for the measurement date provision of SFAS 158 using the two-measurement approach. Under this approach, we completed two actuarial measurements, one at February 29, 2008 and the other at June 1, 2008. This approach required us to record the net periodic benefit cost for the transition period from March 1, 2008 through May 31, 2008 as an adjustment to beginning retained earnings ($44 million, net of tax) and actuarial gains and losses for the period (a gain of $372 million, net of tax) as an adjustment to the opening balance of AOCI. These adjustments increased the amount recorded for our pension assets by $528 million. Our actuarial gains resulted primarily from a 19-basis-point increase in the discount rate for our primary pension plan and an increase in plan assets at June 1, 2008. For additional information on the adoption of SFAS 158, see Note 12 to the accompanying consolidated financial statements.

On June 1, 2008, we adopted SFAS 157, “Fair Value Measurements,” which provides a common definition of fair value, establishes a uniform framework for measuring fair value and requires expanded disclosures about fair value measurements. There is a one-year deferral of the adoption of the standard as it relates to nonfinancial assets and liabilities. Therefore, the adoption of SFAS 157 had no impact on our financial statements at June 1, 2008.

In December 2007, the FASB issued SFAS 141R, “Business Combinations,” and SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin (“ARB”) No. 51.” These new standards significantly change the accounting for and reporting of business combination transactions, including noncontrolling interests (previously referred to as minority interests). For example, these standards require the acquiring entity to recognize the full fair value of assets acquired and liabilities assumed in the transaction and require the expensing of most transaction and restructuring costs. Both standards are effective for us beginning June 1, 2009 (fiscal 2010) and are applicable only to transactions occurring after the effective date.

In December 2008, the FASB issued FASB Staff Position (“FSP”) 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets.” This FSP provides guidance on the objectives an employer should consider when providing detailed disclosures about assets of a defined benefit pension plan or other postretirement plan. These disclosure objectives include investment policies and strategies, categories of plan assets, significant concentrations of risk and the inputs and valuation techniques used to measure the fair value of plan assets. This FSP will be effective for our fiscal year ending May 31, 2010.

In April 2009, the FASB issued FSP No. 107-1 and Accounting Principles Board Opinion (“APB”) No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP and APB amends SFAS 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about the fair value of financial instruments for interim reporting periods in addition to annual reporting periods. This FSP and APB will be effective for our first quarter of fiscal year 2010.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events,” which establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This standard will require us to disclose the date through which we have evaluated subsequent events and the basis for that date. This standard will be effective for our first quarter of fiscal year 2010.

REPORTABLE SEGMENTS

FedEx Express, FedEx Ground and the FedEx Freight LTL Group represent our major service lines and, along with FedEx Services, form the core of our reportable segments. Our reportable segments as of May 31, 2009 included the following businesses:

FedEx Express Segment		FedEx Express (express transportation)
		FedEx Trade Networks (global trade services)
FedEx Ground Segment		FedEx Ground (small-package ground delivery)
		FedEx SmartPost (small-parcel consolidator)
FedEx Freight Segment		FedEx Freight LTL Group:
		FedEx Freight (regional LTL freight transportation)
		FedEx National LTL (long-haul LTL freight transportation)
		FedEx Custom Critical (time-critical transportation)
		Caribbean Transportation Services (airfreight forwarding)
FedEx Services Segment		FedEx Services (sales, marketing and information technology functions) FedEx Office (document and business services and package acceptance) FedEx Customer Information Services (“FCIS”) (customer service, billings and collections) FedEx Global Supply Chain Services (logistics services)

Effective June 1, 2009, Caribbean Transportation Services, Inc. (“CTS”), a business in the FedEx Freight segment, was integrated into FedEx Express to leverage synergies between CTS and FedEx Express and to gain cost efficiencies by maximizing the use of FedEx Express assets for this service offering.

FEDEX SERVICES SEGMENT

The FedEx Services segment includes: FedEx Services, which provides sales, marketing and information technology support to our other companies; FCIS, which is responsible for customer service, billings and collections for FedEx Express and FedEx Ground U.S. customers; FedEx Global Supply Chain Services, which provides a range of logistics services to our customers; and FedEx Office, which provides retail access to our customers for our package transportation businesses and an array of document and business services.

The costs of the sales, marketing and information technology support provided by FedEx Services and the customer service functions of FCIS, together with the normal, ongoing net operating costs of FedEx Global Supply Chain Services and FedEx Office, are allocated primarily to the FedEx Express and FedEx Ground segments based on metrics such as relative revenues or estimated services provided. We believe these allocations approximate the net cost of providing these functions. The $810 million fourth quarter 2009 impairment charge for the Kinko’s goodwill and the $891 million 2008 charge predominantly associated with impairment charges for the Kinko’s trade name and goodwill were not allocated to the FedEx Express or FedEx Ground segments, as the charges were unrelated to the core performance of those businesses.

FedEx Services segment revenues, which reflect the operations of FedEx Office and FedEx Global Supply Chain Services, decreased 8% during 2009. Revenue generated from new FedEx Office locations added in 2008 and 2009 did not offset declines in base copy revenues, incremental operating costs associated with the new locations and expenses associated with organizational changes. Therefore, the allocated net operating costs of FedEx Office increased during 2009 despite ongoing cost management efforts. In September 2008, FedEx Office began implementation of organizational changes intended to improve profitability and enhance the customer experience.

The operating expenses line item “Intercompany charges” on the accompanying unaudited financial summaries of our transportation segments includes the allocations from the FedEx Services segment to the respective transportation segments. The “Intercompany charges” caption also includes allocations for administrative services provided between operating companies and certain other costs such as corporate management fees related to services received for general corporate oversight, including executive officers and certain legal and finance functions. Management evaluates transportation segment financial performance based on operating income.

OTHER INTERSEGMENT TRANSACTIONS

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

FEDEX EXPRESS SEGMENT

The following table compares revenues, operating expenses, operating income and operating margin (dollars in millions) for the years ended May 31:

														Percent Change
		2009				2008				2007				2009/2008				2008/2007
Revenues:
Package:
U.S. overnight box		$	6,074			$	6,578			$	6,485				(8	)			1
U.S. overnight envelope			1,855				2,012				1,990				(8	)			1
U.S. deferred			2,789				2,995				2,883				(7	)			4
Total U.S. domestic package revenue			10,718				11,585				11,358				(7	)			2
International Priority (IP)			6,978				7,666				6,722				(9	)			14
International domestic (1)			565				663				370				(15	)			79
Total package revenue			18,261				19,914				18,450				(8	)			8
Freight:
U.S.			2,165				2,398				2,412				(10	)			(1	)
International Priority freight			1,104				1,243				1,045				(11	)			19
International airfreight			369				406				394				(9	)			3
Total freight revenue			3,638				4,047				3,851				(10	)			5
Other (2)			465				460				380				1				21
Total revenues			22,364				24,421				22,681				(8	)			8
Operating expenses:
Salaries and employee benefits			8,217				8,451				8,234	(4)			(3	)			3
Purchased transportation			1,112				1,208				1,098				(8	)			10
Rentals and landing fees			1,613				1,673				1,610				(4	)			4
Depreciation and amortization			961				944				856				2				10
Fuel			3,281				3,785				2,946				(13	)			28
Maintenance and repairs			1,351				1,512				1,444				(11	)			5
Impairment and other charges			260	(3)			—				—			NM					—
Intercompany charges			2,103				2,134				2,046				(1	)			4
Other			2,672				2,813				2,456				(5	)			15
Total operating expenses			21,570				22,520				20,690				(4	)			9
Operating income		$	794			$	1,901			$	1,991				(58	)			(5	)
Operating margin			3.6	%			7.8	%			8.8	%			(420	)bp			(100	)bp

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

														Percent Change
		2009				2008				2007				2009/2008				2008/2007
Package Statistics (1)
Average daily package volume (ADV):
U.S. overnight box			1,127				1,151				1,174				(2	)			(2	)
U.S. overnight envelope			627				677				706				(7	)			(4	)
U.S. deferred			849				895				898				(5	)			—
Total U.S. domestic ADV			2,603				2,723				2,778				(4	)			(2	)
IP			475				517				487				(8	)			6
International domestic (2)			298				296				134				1				121
Total ADV			3,376				3,536				3,399				(5	)			4
Revenue per package (yield):
U.S. overnight box		$	21.21			$	22.40			$	21.66				(5	)			3
U.S. overnight envelope			11.65				11.66				11.06				—				5
U.S. deferred			12.94				13.12				12.59				(1	)			4
U.S. domestic composite			16.21				16.68				16.04				(3	)			4
IP			57.81				58.11				54.13				(1	)			7
International domestic (2)			7.50				8.80				10.77				(15	)			(18	)
Composite package yield			21.30				22.08				21.28				(4	)			4
Freight Statistics (1)
Average daily freight pounds:
U.S.			7,287				8,648				9,569				(16	)			(10	)
International Priority freight			1,959				2,220				1,878				(12	)			18
International airfreight			1,475				1,817				1,831				(19	)			(1	)
Total average daily freight pounds			10,721				12,685				13,278				(15	)			(4	)
Revenue per pound (yield):
U.S.		$	1.17			$	1.09			$	0.99				7				10
International Priority freight			2.22				2.20				2.18				1				1
International airfreight			0.99				0.88				0.84				13				5
Composite freight yield			1.34				1.25				1.14				7				10