NOTE 14: BUSINESS SEGMENT INFORMATION

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

FedEx Express Segment	FedEx Express (express transportation)
	FedEx Trade Networks (air and ocean freight forwarding, customs brokerage and cross-border enablement technology and solutions)
	FedEx SupplyChain Systems (logistics services)

TNT Express Segment	TNT Express (international express transportation, small-package ground delivery and freight transportation)

FedEx Ground Segment	FedEx Ground (small-package ground delivery) FedEx Supply Chain (third-party logistics) (formerly GENCO)

FedEx Freight Segment	FedEx Freight (LTL freight transportation)
	FedEx Custom Critical (time-critical transportation)

FedEx Services Segment	FedEx Services (sales, marketing, information technology, communications, customer service, technical support, billing and collection services and back-office functions)
	FedEx Office (document and business services and package acceptance)

During 2017, we announced that products and solutions offered by FedEx SupplyChain Systems would be combined with similar offerings within FedEx Custom Critical, FedEx Express and FedEx Supply Chain (formerly GENCO) effective June 1, 2017. In addition, during 2017, we rebranded GENCO to FedEx Supply Chain.

FedEx Services Segment

The FedEx Services segment operates combined sales, marketing, administrative and information technology functions in shared services operations that support our transportation businesses and allow us to obtain synergies from the combination of these functions. For the international regions of FedEx Express and TNT Express, some of these functions are performed on a regional basis and reported by each respective company in their natural expense line items. The FedEx Services segment includes: FedEx Services, which provides sales, marketing, information technology, communications, customer service, technical support, billing and collection services for U.S. customers of our major business units and certain back-office support to our other companies; and FedEx Office, which provides an array of document and business services and retail access to our customers for our package transportation businesses.

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

Operating expenses for each of our transportation segments include the allocations from the FedEx Services segment to the respective transportation segments. These allocations also include charges and credits for administrative services provided between operating companies. The allocations of net operating costs are based on metrics such as relative revenues or estimated services provided. We believe these allocations approximate the net cost of providing these functions. Our allocation methodologies are refined periodically, as necessary, to reflect changes in our businesses.

Other Intersegment Transactions

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

Corporate and other includes corporate headquarters costs for executive officers and certain legal and financial functions, as well as certain other costs and credits not attributed to our core business. These costs are not allocated to the business segments. In 2017, the year-over-year decrease in these costs was driven by the change in the MTM retirement plans adjustment and the year-over-year decrease in charges for legal reserves, which were partially offset by higher TNT Express integration expenses incurred at the corporate level.

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

	FedEx Express Segment		TNT Express Segment		FedEx Ground Segment		FedEx Freight Segment		FedEx Services Segment		Eliminations, corporate and other⁽⁵⁾			Consolidated Total
Revenues
2017	$	27,358	$	7,401	$	18,075	$	6,443	$	1,621	$	(579	)	$	60,319
2016		26,451	N/A			16,574		6,200		1,593		(453	)		50,365
2015		27,239	N/A			12,984		6,191		1,545		(506	)		47,453
Depreciation and amortization
2017	$	1,431	$	239	$	684	$	269	$	371	$	1		$	2,995
2016		1,385	N/A			608		248		384		6			2,631
2015		1,460	N/A			530		230		390		1			2,611
Operating income
2017⁽¹⁾	$	2,678	$	84	$	2,292	$	397	$	—	$	(414	)	$	5,037
2016⁽²⁾		2,519	N/A			2,276		426		—		(2,144	)		3,077
2015⁽³⁾		1,584	N/A			2,172		484		—		(2,373	)		1,867
Segment assets⁽⁴⁾
2017	$	24,882	$	6,939	$	14,628	$	3,925	$	5,682	$	(7,504	)	$	48,552
2016		21,205	N/A			13,098		3,749		5,390		2,517			45,959
2015		20,382	N/A			11,691		3,471		5,356		(4,431	)		36,469

⁽¹⁾

Includes TNT Express integration expenses and restructuring charges of $327 million, increased intangible asset amortization of $74 million as a result of the TNT Express acquisition, and a gain of $24 million associated with our mark-to-market pension accounting. These expenses are included in “Eliminations, corporate and other,” the FedEx Express segment and the TNT Express segment. Also includes $39 million of charges for legal reserves related to certain pending U.S. Customs and Border Protection (“CBP”) matters involving FedEx Trade Networks and $22 million of charges in connection with the settlement of and certain expected losses relating to independent contractor litigation matters at FedEx Ground. See Note 18 below for additional information.

⁽²⁾

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

⁽³⁾

Includes a $2.2 billion loss associated with our mark-to-market pension accounting, $276 million of impairment and related charges resulting from the decision to permanently retire and adjust the retirement schedule of certain aircraft and related engines, and a $197 million charge to increase the legal reserve associated with the settlement of a legal matter at FedEx Ground to the amount of the settlement.

⁽⁴⁾	Segment assets include intercompany receivables.

⁽⁵⁾	Includes TNT Express’s assets and immaterial financial results for 2016 from the time of acquisition (May 25, 2016).

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

	FedEx Express Segment		TNT Express Segment		FedEx Ground Segment		FedEx Freight Segment		FedEx Services Segment		Other		Consolidated Total
2017	$	2,525	$	205	$	1,539	$	431	$	416	$	—	$	5,116
2016		2,356	N/A			1,597		433		432		—		4,818
2015		2,380	N/A			1,248		337		381		1		4,347

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

	2017			2016			2015
REVENUE BY SERVICE TYPE
FedEx Express segment:
Package:
U.S. overnight box	$	6,958		$	6,763		$	6,704
U.S. overnight envelope		1,750			1,662			1,629
U.S. deferred		3,528			3,379			3,342
Total U.S. domestic package revenue		12,236			11,804			11,675
International priority		5,827			5,697			6,251
International economy		2,412			2,282			2,301
Total international export package revenue		8,239			7,979			8,552
International domestic⁽¹⁾		1,299			1,285			1,406
Total package revenue		21,774			21,068			21,633
Freight:
U.S.		2,528			2,481			2,300
International priority		1,502			1,384			1,588
International airfreight		118			126			180
Total freight revenue		4,148			3,991			4,068
Other⁽²⁾		1,436			1,392			1,538
Total FedEx Express segment		27,358			26,451			27,239
TNT Express segment		7,401		N/A			N/A
FedEx Ground segment:
FedEx Ground		16,497			15,050			12,568
FedEx Supply Chain		1,578			1,524			416
Total FedEx Ground segment		18,075			16,574			12,984
FedEx Freight segment		6,443			6,200			6,191
FedEx Services segment		1,621			1,593			1,545
Other and eliminations⁽³⁾		(579	)		(453	)		(506	)
	$	60,319		$	50,365		$	47,453
GEOGRAPHICAL INFORMATION⁽⁴⁾
Revenues:
U.S.	$	40,269		$	38,070		$	34,216
International:
FedEx Express segment		12,094			11,672			12,772
TNT Express segment		7,346		N/A			N/A
FedEx Ground segment		451			383			311
FedEx Freight segment		149			137			142
FedEx Services segment		10			10			12
Other⁽³⁾		—			93			—
Total international revenue		20,050			12,295			13,237
	$	60,319		$	50,365		$	47,453
Noncurrent assets:
U.S.	$	28,141		$	25,942		$	23,520
International		7,783			8,028			2,614
	$	35,924		$	33,970		$	26,134

⁽¹⁾	International domestic revenues represent our intra-country operations.

⁽²⁾	Includes FedEx Trade Networks and FedEx SupplyChain Systems.

⁽³⁾	Includes TNT Express’s revenue for 2016 from the time of acquisition (May 25, 2016).

⁽⁴⁾

International revenue includes shipments that either originate in or are destined to locations outside the United States, which could include U.S. payors. Noncurrent assets include property and equipment, goodwill and other long-term assets. Our flight equipment is registered in the U.S. and is included as U.S. assets; however, many of our aircraft operate internationally.