10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED November 30, 2014

OR

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

FOR THE TRANSITION PERIOD FROM                      TO                     

Commission File Number: 1-7806

FEDERAL EXPRESS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	71-0427007
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3610 Hacks Cross Road Memphis, Tennessee	38125
(Address of principal executive offices)	(ZIP Code)

(901) 369-3600

(Registrant’s telephone number, including area code)

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data 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 x No ¨

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.

Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨
		(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 ¨ No x

The number of shares of common stock outstanding as of December 17, 2014 was 1,000. The Registrant is a wholly owned subsidiary of FedEx Corporation, and there is no market for the Registrant’s common stock.

The Registrant meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format permitted by General Instruction H(2).

FEDERAL EXPRESS CORPORATION

INDEX

PART I. FINANCIAL INFORMATION

	PAGE
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets November 30, 2014 and May 31, 2014		3
Condensed Consolidated Statements of Income Three and Six Months Ended November 30, 2014 and 2013		5
Condensed Consolidated Statements of Comprehensive Income Three and Six Months Ended November  30, 2014 and 2013		6
Condensed Consolidated Statements of Cash Flows Six Months Ended November 30, 2014 and 2013		7
Notes to Condensed Consolidated Financial Statements		8
Report of Independent Registered Public Accounting Firm		14
ITEM 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition		15
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		23
ITEM 4. Controls and Procedures		23
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings		23
ITEM 1A. Risk Factors		23
ITEM 6. Exhibits		23
Signature		25
Exhibit Index		E-1
Exhibit 12.1
Exhibit 15.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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FEDERAL EXPRESS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN MILLIONS)

	November 30,
	2014		May 31,
	(Unaudited)		2014
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	848	$	858
Receivables, less allowances of $87 and $80		1,763		1,705
Spare parts, supplies and fuel, less allowances of $214 and $211		403		395
Deferred income taxes		380		401
Due from parent company and other FedEx subsidiaries		523		502
Prepaid expenses and other		93		103
Total current assets		4,010		3,964
PROPERTY AND EQUIPMENT, AT COST		26,182		25,752
Less accumulated depreciation and amortization		12,593		12,272
Net property and equipment		13,589		13,480
OTHER LONG-TERM ASSETS
Goodwill		1,506		1,561
Other assets		1,029		959
Total other long-term assets		2,535		2,520
	$	20,134	$	19,964

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

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FEDERAL EXPRESS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN MILLIONS, EXCEPT SHARE DATA)

	November 30,
	2014			May 31,
	(Unaudited)			2014
LIABILITIES AND OWNER’S EQUITY
CURRENT LIABILITIES
Accrued salaries and employee benefits	$	924		$	902
Accounts payable		1,315			1,394
Accrued expenses		1,018			1,019
Due to other FedEx subsidiaries		740			910
Total current liabilities		3,997			4,225
LONG-TERM DEBT, LESS CURRENT PORTION		239			239
OTHER LONG-TERM LIABILITIES
Deferred income taxes		3,192			3,196
Pension, postretirement healthcare and other benefit obligations		1,205			1,208
Self-insurance accruals		683			667
Deferred lease obligations		713			643
Deferred gains, principally related to aircraft transactions		190			203
Other liabilities		105			96
Total other long-term liabilities		6,088			6,013
COMMITMENTS AND CONTINGENCIES
OWNER’S EQUITY
Common stock, $0.10 par value; 1,000 shares authorized, issued and outstanding		—			—
Additional paid-in capital		608			608
Retained earnings		9,413			8,944
Accumulated other comprehensive loss		(211	)		(65	)
Total owner’s equity		9,810			9,487
	$	20,134		$	19,964

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

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FEDERAL EXPRESS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(IN MILLIONS)

	Three Months Ended						Six Months Ended
	November 30,						November 30,
	2014			2013			2014			2013
REVENUES	$	6,715		$	6,546		$	13,299		$	12,892
OPERATING EXPENSES:
Salaries and employee benefits		2,446			2,387			4,847			4,747
Purchased transportation		465			446			922			876
Rentals and landing fees		416			413			835			827
Depreciation and amortization		365			370			736			736
Fuel		906			986			1,876			1,942
Maintenance and repairs		356			307			733			613
Intercompany charges, net		476			505			952			994
Other		843			810			1,629			1,605
		6,273			6,224			12,530			12,340
OPERATING INCOME		442			322			769			552
OTHER INCOME (EXPENSE):
Interest, net		5			5			8			12
Other, net		(25	)		(22	)		(57	)		(43	)
		(20	)		(17	)		(49	)		(31	)
INCOME BEFORE INCOME TAXES		422			305			720			521
PROVISION FOR INCOME TAXES		148			107			251			177
NET INCOME	$	274		$	198		$	469		$	344

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

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FEDERAL EXPRESS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(IN MILLIONS)

	Three Months Ended					Six Months Ended
	November 30,					November 30,
	2014			2013		2014			2013
NET INCOME	$	274		$	198	$	469		$	344
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustments, net of tax of $11, $5, $19 and $4		(119	)		44		(148	)		(34	)
Amortization of unrealized pension actuarial gains/losses and other, net of tax of $0, $0, $1 and $1		1			2		2			3
		(118	)		46		(146	)		(31	)
COMPREHENSIVE INCOME	$	156		$	244	$	323		$	313

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

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FEDERAL EXPRESS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN MILLIONS)

	Six Months Ended
	November 30,
	2014			2013
Operating Activities:
Net income	$	469		$	344
Noncash charges:
Depreciation and amortization		736			736
Other, net		63			108
Changes in assets and liabilities, net		(149	)		(76	)
Cash provided by operating activities		1,119			1,112
Investing Activities:
Capital expenditures		(1,079	)		(992	)
Other		4			14
Cash used in investing activities		(1,075	)		(978	)
Financing Activities:
Principal payments on debt		—			(3	)
Cash used in financing activities		—			(3	)
Effect of exchange rate changes on cash		(54	)		(2	)
Net (decrease) increase in cash and cash equivalents		(10	)		129
Cash and cash equivalents at beginning of period		858			769
Cash and cash equivalents at end of period	$	848		$	898

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

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FEDERAL EXPRESS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) General

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. These interim financial statements of Federal Express Corporation (“FedEx Express”) have been prepared in accordance with accounting principles generally accepted in the United States and Securities and Exchange Commission instructions for interim financial information, and should be read in conjunction with our Annual Report on Form 10-K for the year ended May 31, 2014 (“Annual Report”). Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed in our Annual Report.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to present fairly our financial position as of November 30, 2014, the results of our operations for the three- and six-month periods ended November 30, 2014 and 2013 and cash flows for the six-month periods ended November 30, 2014 and 2013. Operating results for the three- and six-month periods ended November 30, 2014 are not necessarily indicative of the results that may be expected for the year ending May 31, 2015.

We are a wholly owned subsidiary of FedEx Corporation (“FedEx”) engaged in a single line of business and operate in one business segment – the worldwide express transportation and distribution of goods and documents.

Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2015 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year.

EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS. Our pilots, which represent a small number of our total employees, are employed under a collective bargaining agreement. The contract became amendable in March 2013, and the parties are currently in negotiations. In October 2014, we formally requested assistance from the National Mediation Board (“NMB”) to mediate the negotiations. The NMB is the U.S. governmental agency that oversees labor agreements for entities covered by the Railway Labor Act of 1926, as amended (“Railway Labor Act”). The progression of negotiations into the mediation stage has no impact on our operations or our ability to provide highly reliable service to customers. In addition to our pilots, certain non-U.S. employees are unionized.

STOCK-BASED COMPENSATION. FedEx has two types of equity-based compensation: stock options and restricted stock. The key terms of the stock option and restricted stock awards granted under FedEx’s incentive stock plans are set forth in FedEx’s Annual Report.

Our stock-based compensation expense was $10 million for the three-month period ended November 30, 2014 and $26 million for the six-month period ended November 30, 2014. Our stock-based compensation expense was $9 million for the three-month period ended November 30, 2013 and $24 million for the six-month period ended November 30, 2013. This amount represents the amount charged to us by FedEx for awards granted to our employees.

LONG-TERM DEBT. Long-term debt, exclusive of capital leases, had a carrying value of $239 million at November 30, 2014 and May 31, 2014 compared with an estimated fair value of $335 million at November 30, 2014 and $326 million at May 31, 2014. The estimated fair values were determined based on quoted market prices and the current rates offered for debt with similar terms and maturities. The fair value of our long-term debt is classified as Level 2 within the fair value hierarchy. This classification is defined as a fair value determined using market-based inputs other than quoted prices that are observable for the liability, either directly or indirectly.

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

We believe that no other new accounting guidance was adopted or issued during the first six months of 2015 that is relevant to the readers of our financial statements. However, there are numerous new proposals under development which, if and when enacted, may have a significant impact on our financial reporting, as described in our Annual Report.

(2) Accumulated Other Comprehensive Income

The following table provides changes in accumulated other comprehensive income (“AOCI”), net of tax, reported in our condensed consolidated financial statements for the three-month and six-month periods ended November 30 (in millions; amounts in parentheses indicate debits to AOCI):

	Three Months Ended						Six Months Ended
	2014			2013			2014			2013
Foreign currency translation gain (loss):
Balance at beginning of period	$	38		$	12		$	67		$	90
Translation adjustments		(119	)		44			(148	)		(34	)
Balance at end of period		(81	)		56			(81	)		56
Retirement plans adjustments:
Balance at beginning of period		(131	)		(125	)		(132	)		(126	)
Reclassifications from AOCI		1			2			2			3
Balance at end of period		(130	)		(123	)		(130	)		(123	)
Accumulated other comprehensive loss at end of period	$	(211	)	$	(67	)	$	(211	)	$	(67	)

Due to its immateriality, the table presenting details of reclassifications from AOCI has been excluded from this quarterly report.

(3) Retirement Plans

We sponsor or participate in programs that provide retirement benefits to most of our employees. These programs include defined benefit pension plans, defined contribution plans and postretirement healthcare plans. A majority of our employees are covered by the FedEx Corporation Employees’ Pension Plan (“FedEx Plan”), a defined benefit pension plan sponsored by FedEx. Defined contribution plans are in place covering a majority of U.S. employees and certain international employees. We also sponsor or participate in nonqualified benefit plans covering certain of our U.S. employee groups and other pension plans covering certain of our international employees. For more information, refer to the financial statements of FedEx included in its Form 10-Q for the quarter ended November 30, 2014 and in our Annual Report.

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Our retirement plans costs for the periods ended November 30 were as follows (in millions):

	Three Months Ended				Six Months Ended
	2014		2013		2014		2013
Pension plans sponsored by FedEx	$	24	$	67	$	48	$	134
Other U.S. domestic and international pension plans		14		14		28		27
U.S. domestic and international defined contribution plans		60		57		121		115
U.S. domestic and international postretirement healthcare plans		15		16		31		31
	$	113	$	154	$	228	$	307

The components of the net periodic benefit cost of the pension and postretirement healthcare plans currently sponsored by us were individually immaterial for all periods presented. No material contributions were made during the first half of 2015 or 2014 to pension plans sponsored by us, and we do not expect to make material contributions in 2015.

(4) Commitments

As of November 30, 2014, our purchase commitments under various contracts for the remainder of 2015 and annually thereafter were as follows (in millions):

	Aircraft and   Aircraft-Related		Other(1)		Total
2015 (remainder)	$	709	$	48	$	757
2016		1,230		41		1,271
2017		1,033		32		1,065
2018		1,402		26		1,428
2019		1,022		10		1,032
Thereafter		4,472		80		4,552
Total	$	9,868	$	237	$	10,105

⁽¹⁾ Primarily advertising and promotions contracts.

The amounts reflected in the table above for purchase commitments represent noncancelable agreements to purchase goods or services. As of November 30, 2014, our obligation to purchase four Boeing 767-300 Freighter (“B767F”) aircraft and nine Boeing 777 Freighter (“B777F”) aircraft is conditioned upon there being no event that causes us or our employees not to be covered by the Railway Labor Act. Commitments to purchase aircraft in passenger configuration do not include the attendant costs to modify these aircraft for cargo transport unless we have entered into noncancelable commitments to modify such aircraft. Open purchase orders that are cancelable are not considered unconditional purchase obligations for financial reporting purposes and are not included in the table above.

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

We had $500 million in deposits and progress payments as of November 30, 2014 on aircraft purchases and other planned aircraft-related transactions. These deposits are classified in the “Other assets” caption of our consolidated balance sheets. In addition to our commitment to purchase B777Fs and B767Fs, our aircraft purchase commitments include the Boeing 757 (“B757”) aircraft in passenger configuration, which will require additional costs to modify for cargo transport. Aircraft and aircraft-related contracts are

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subject to price escalations. The following table is a summary of the key aircraft we are committed to purchase as of November 30, 2014 with the year of expected delivery:

	B757		B767F		B777F		Total
2015 (remainder)		1		8		—		9
2016		—		11		2		13
2017		—		12		—		12
2018		—		11		2		13
2019		—		6		2		8
Thereafter		—		—		12		12
Total		1		48		18		67

A summary of future minimum lease payments under noncancelable operating leases with an initial or remaining term in excess of one year at November 30, 2014 is as follows (in millions):

	Operating Leases
	Aircraft   and Related   Equipment		Facilities   and Other		Total   Operating   Leases
2015 (remainder)	$	391	$	362	$	753
2016		461		654		1,115
2017		399		827		1,226
2018		329		513		842
2019		273		442		715
Thereafter		551		3,640		4,191
Total	$	2,404	$	6,438	$	8,842

Future minimum lease payments under capital leases were immaterial at November 30, 2014. While certain of our lease agreements contain covenants governing the use of the leased assets or require us to maintain certain levels of insurance, none of our lease agreements include material financial covenants or limitations.

(5) Contingencies

Environmental Matters. SEC regulations require disclosure of certain environmental matters when a governmental authority is a party to the proceedings and the proceedings involve potential monetary sanctions that management reasonably believes could exceed $100,000.

On January 14, 2014, the U.S. Department of Justice (“DOJ”) issued a Grand Jury Subpoena to FedEx Express relating to an asbestos matter previously investigated by the U.S. Environmental Protection Agency. On May 1, 2014, the DOJ informed us that it had determined to continue to pursue the matter as a criminal case, citing seven asbestos-related regulatory violations associated with removal of roof materials from a hangar in Puerto Rico during cleaning and repair activity, as well as violation of waste disposal requirements. Loss is reasonably possible; however, the amount of any loss is expected to be immaterial.

Department of Justice Indictment – Internet Pharmacy Shipments. In the past, we received requests for information from the DOJ in the Northern District of California in connection with a criminal investigation relating to the transportation of packages for online pharmacies that may have shipped pharmaceuticals in violation of federal law. In July 2014, the DOJ filed a criminal indictment in the United States District Court for the Northern District of California in connection with the matter. A superseding indictment was filed in August 2014. The indictment alleges that FedEx Corporation, FedEx Express and FedEx Services, together with certain

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pharmacies, conspired to unlawfully distribute controlled substances, unlawfully distributed controlled substances and conspired to unlawfully distribute misbranded drugs. The superseding indictment adds conspiracy to launder money counts related to services provided to and payments from online pharmacies. We continue to believe that our employees have acted in good faith at all times and that we have not engaged in any illegal activities.

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

Other Matters. In August 2010, a third-party consultant who works with shipping customers to negotiate lower rates filed a lawsuit in federal district court in California against FedEx and United Parcel Service, Inc. (“UPS”) alleging violations of U.S. antitrust law. This matter was dismissed in May 2011, but the court granted the plaintiff permission to file an amended complaint, which FedEx received in June 2011. In November 2011, the court granted our motion to dismiss this complaint, but again allowed the plaintiff to file an amended complaint. The plaintiff filed a new complaint in December 2011, and the matter remains pending before the court. In February 2011, shortly after the initial lawsuit was filed, we received a demand for the production of information and documents in connection with a civil investigation by the DOJ into the policies and practices of FedEx and UPS for dealing with third-party consultants who work with shipping customers to negotiate lower rates. In November 2012, the DOJ served a civil investigative demand on the third-party consultant seeking all pleadings, depositions and documents produced in the lawsuit. We are cooperating with the investigation, do not believe that we have engaged in any anti-competitive activities and will vigorously defend ourselves in any action that may result from the investigation. While the litigation proceedings and the DOJ investigation move forward, and the amount of loss, if any, is dependent on a number of factors that are not yet fully developed or resolved, the amount of any loss is expected to be immaterial.

On June 30, 2014, we received a Statement of Objections from the French Competition Authority (“FCA”) addressed to FedEx Express France, formerly known as TATEX, regarding an investigation by the FCA into anticompetitive behavior that is alleged to have occurred primarily in the framework of trade association meetings that included the former general managers of TATEX prior to our acquisition of that company in July 2012. In September 2014, FedEx Express France submitted its observations in response to the Statement of Objections to the FCA. Given the early stage of this matter, we cannot yet determine the amount or range of potential loss; however, it is reasonably possible that it could be material.

FedEx Express and its subsidiaries are subject to other legal proceedings that arise in the ordinary course of their business. In the opinion of management, the aggregate liability, if any, with respect to these other actions will not have a material adverse effect on our financial position, results of operations or cash flows.

(6) Parent/Affiliate Transactions

Affiliate company balances that are currently receivable or payable relate to charges for services provided to or by other FedEx affiliates, which are settled on a monthly basis, or the net activity from participation in FedEx’s consolidated cash management program. In addition, we are allocated net interest on these amounts at market rates.

We maintain an accounts receivable arrangement with FedEx TechConnect, Inc. (“FedEx TechConnect”), a wholly owned subsidiary of FedEx Corporate Services, Inc. (“FedEx Services”). FedEx Services is a wholly owned subsidiary of FedEx. Under this arrangement, we recognize revenue for the transportation services provided to our U.S. customers and factor the related receivables to FedEx TechConnect for collection. We have no continuing involvement with the receivables transferred to FedEx TechConnect. Our net receivables recorded by FedEx TechConnect totaled $1.7 billion at November 30, 2014 and May 31, 2014.

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The costs of FedEx Services, FedEx TechConnect and FedEx Office and Print Services, Inc., as well as charges for management fees from our parent, are allocated to us and are included in the expense line item “Intercompany charges, net” based on metrics such as relative revenues or estimated services provided. We believe these allocations approximate the net cost of providing the functions. FedEx allocation methodologies are refined as necessary to reflect changes in our business.

(7) Supplemental Cash Flow Information

Cash paid for interest expense and income taxes for the six-month periods ended November 30 was as follows (in millions):

	2014			2013
Cash payments for:
Income taxes	$	295		$	127
Income tax refunds received		(3	)		(43	)
Cash tax payments, net	$	292		$	84

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REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholder

Federal Express Corporation

We have reviewed the condensed consolidated balance sheet of Federal Express Corporation as of November 30, 2014, and the related condensed consolidated statements of income and comprehensive income for the three-month and six-month periods ended November 30, 2014 and 2013 and the condensed consolidated statements of cash flows for the six-month periods ended November 30, 2014 and 2013. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Federal Express Corporation as of May 31, 2014, and the related consolidated statements of income, comprehensive income, changes in owner’s equity and cash flows for the year then ended not presented herein, and in our report dated July 14, 2014, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of May 31, 2014, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

Memphis, Tennessee

December 18, 2014

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Item 2.  Management’s Discussion and Analysis of Results of Operations and Financial Condition

GENERAL

The following Management’s Discussion and Analysis of Results of Operations and Financial Condition (“MD&A”), which describes the principal factors affecting the results of operations and financial condition of Federal Express Corporation (“FedEx Express”), is abbreviated pursuant to General Instruction H(2)(a) of Form 10-Q. This discussion should be read in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements and our Annual Report on Form 10-K for the year ended May 31, 2014 (“Annual Report”). Our Annual Report includes additional information about our significant accounting policies, practices and the transactions that underlie our financial results. For additional information, including a discussion of outlook, liquidity, capital resources, contractual cash obligations and critical accounting estimates, see the Quarterly Report on Form 10-Q of our parent, FedEx Corporation (“FedEx”), for the quarter ended November 30, 2014.

We are the world’s largest express transportation company. Our sister company FedEx Corporate Services, Inc. (“FedEx Services”) provides us and our other sister companies, including FedEx Ground Package System, Inc. (“FedEx Ground”), with sales, marketing, information technology, communications and certain back-office support, as well as retail access for our customers through FedEx Office and Print Services, Inc. (“FedEx Office”) and customer service, technical support and billing and collection services through FedEx TechConnect, Inc.

The operating expenses line item “Intercompany charges” on the financial summary represents an allocation that primarily includes salaries and benefits, depreciation and other costs for the sales, marketing, information technology and customer service support provided to us by FedEx Services and FedEx Office’s net operating costs. These costs are allocated based on metrics such as relative revenues or estimated services provided. For the international regions of FedEx Express, similar functions are performed on a regional basis by FedEx Express and reported in expense line items outside of intercompany charges. “Intercompany charges” also includes allocated charges from our parent for management fees related to services received for general corporate oversight, including executive officers and certain legal and finance functions. We believe the total amounts allocated approximate the net cost of providing these functions. FedEx allocation methodologies are refined as necessary to reflect changes in our business.

The key indicators necessary to understand our operating results include:

• the overall customer demand for our various services based on macro-economic factors and the global economy;

• the volume of shipments transported through our network, as measured by our average daily volume and shipment weight;

• the mix of services purchased by our customers;

• the prices we obtain for our services, as measured by yield (revenue per package or pound);

• 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 offset these fluctuations 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 volumes. Therefore, the discussion of operating expense captions focuses on the key drivers and trends impacting expenses other than changes in revenues and volume. The line item “Other operating expenses” predominantly includes costs associated with outside service contracts (such as security, facility services and cargo handling), professional fees, uniforms, utilities and insurance.

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Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2015 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year.

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RESULTS OF OPERATIONS

We offer a wide range of U.S. domestic and international shipping services for delivery of packages and freight including priority services, which provide time-definite delivery within one, two or three business days worldwide, and deferred or economy services, which provide time-definite delivery within five business days worldwide. The following tables compare revenues, operating expenses, operating expenses as a percent of revenue, operating income, net income and operating margin (dollars in millions) for the periods ended November 30:

	Three Months Ended						Percent			Six Months Ended						Percent
	2014			2013			Change			2014			2013			Change
Revenues:
Package:
U.S. overnight box	$	1,705		$	1,625			5		$	3,387		$	3,209			6
U.S. overnight envelope		400			398			1			815			817			—
U.S. deferred		834			771			8			1,629			1,500			9
Total U.S. domestic package revenue		2,939			2,794			5			5,831			5,526			6
International priority		1,649			1,642			—			3,279			3,218			2
International economy		598			567			5			1,169			1,099			6
Total international export package revenue		2,247			2,209			2			4,448			4,317			3
International domestic(1)		383			385			(1	)		754			730			3
Total package revenue		5,569			5,388			3			11,033			10,573			4
Freight:
U.S.		586			585			—			1,165			1,209			(4	)
International priority		412			417			(1	)		807			805			—
International airfreight		42			55			(24	)		88			109			(19	)
Total freight revenue		1,040			1,057			(2	)		2,060			2,123			(3	)
Other		106			101			5			206			196			5
Total revenues		6,715			6,546			3			13,299			12,892			3
Operating expenses:
Salaries and employee benefits		2,446			2,387			2			4,847			4,747			2
Purchased transportation		465			446			4			922			876			5
Rentals and landing fees		416			413			1			835			827			1
Depreciation and amortization		365			370			(1	)		736			736			—
Fuel		906			986			(8	)		1,876			1,942			(3	)
Maintenance and repairs		356			307			16			733			613			20
Intercompany charges		476			505			(6	)		952			994			(4	)
Other		843			810			4			1,629			1,605			1
Total operating expenses		6,273			6,224			1			12,530			12,340			2
Operating income	$	442		$	322			37		$	769		$	552			39
Operating margin		6.6	%		4.9	%		170	bp		5.8	%		4.3	%		150	bp
Other income (expense):
Interest, net		5			5			—			8			12			(33	)
Other, net		(25	)		(22	)		14			(57	)		(43	)		33
		(20	)		(17	)		18			(49	)		(31	)		58
Income before income taxes		422			305			38			720			521			38
Provision for income taxes		148			107			38			251			177			42
Net income	$	274		$	198			38		$	469		$	344			36

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

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	Percent of Revenue
	Three Months Ended						Six Months Ended
	2014			2013			2014			2013
Operating expenses:
Salaries and employee benefits		36.4	%		36.5	%		36.4	%		36.8	%
Purchased transportation		6.9			6.8			6.9			6.8
Rentals and landing fees		6.2			6.3			6.3			6.4
Depreciation and amortization		5.4			5.6			5.5			5.7
Fuel		13.5			15.1			14.1			15.1
Maintenance and repairs		5.3			4.7			5.5			4.8
Intercompany charges		7.1			7.7			7.2			7.7
Other		12.6			12.4			12.3			12.4
Total operating expenses		93.4			95.1			94.2			95.7
Operating margin		6.6	%		4.9	%		5.8	%		4.3	%

The following table compares selected statistics (in thousands, except yield amounts) for the periods ended November 30:

	Three Months Ended				Percent			Six Months Ended				Percent
	2014		2013		Change			2014		2013		Change
Package Statistics
Average daily package volume (ADV):
U.S. overnight box		1,259		1,146		10			1,235		1,129		9
U.S. overnight envelope		521		535		(3	)		524		549		(5	)
U.S. deferred		915		841		9			880		815		8
Total U.S. domestic ADV		2,695		2,522		7			2,639		2,493		6
International priority		424		421		1			417		414		1
International economy		180		172		5			175		168		4
Total international export ADV		604		593		2			592		582		2
International domestic(1)		917		896		2			866		842		3
Total ADV		4,216		4,011		5			4,097		3,917		5
Revenue per package (yield):
U.S. overnight box	$	21.50	$	22.50		(4	)	$	21.59	$	22.39		(4	)
U.S. overnight envelope		12.15		11.84		3			12.24		11.72		4
U.S. deferred		14.48		14.55		—			14.58		14.49		1
U.S. domestic composite		17.31		17.59		(2	)		17.40		17.45		—
International priority		61.64		61.87		—			61.92		61.27		1
International economy		52.88		52.27		1			52.75		51.35		3
International export composite		59.04		59.08		—			59.21		58.40		1
International domestic(1)		6.63		6.82		(3	)		6.85		6.83		—
Composite package yield		20.97		21.32		(2	)		21.21		21.25		—
Freight Statistics
Average daily freight pounds:
U.S.		8,039		7,872		2			7,676		7,646		—
International priority		2,983		3,068		(3	)		2,887		2,964		(3	)
International airfreight		630		907		(31	)		650		878		(26	)
Total average daily freight pounds		11,652		11,847		(2	)		11,213		11,488		(2	)
Revenue per pound (yield):
U.S.	$	1.16	$	1.18		(2	)	$	1.20	$	1.25		(4	)
International priority		2.19		2.16		1			2.20		2.14		3
International airfreight		1.07		0.97		10			1.07		0.98		9
Composite freight yield		1.42		1.42		—			1.45		1.46		(1	)

⁽¹⁾  International domestic statistics represent our international intra-country express operations.

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Revenues

Our revenues increased 3% in the second quarter and first half of 2015 primarily due to higher U.S. domestic package volumes and international export package base revenues. These factors were partially offset by lower fuel surcharges and unfavorable exchange rates.

U.S. domestic volumes increased 7% in the second quarter and 6% in the first half of 2015 driven by both our overnight and deferred service offerings. International export yields increased in the first half of 2015, due to higher rates and weight per package, partially offset by unfavorable exchange rates. U.S. domestic and international export revenues were partially offset by lower fuel surcharges. International export volumes increased 2% in the second quarter and first half of 2015 driven by our international economy service offering.

Operating Income

Our operating income and operating margin increased in the second quarter and first half of 2015, driven by the revenue growth in our U.S. and international export package business, cost management related to profit improvement programs, lower pension expense and the positive net impact of fuel. These factors were partially offset by higher maintenance expense.

Maintenance and repairs expense increased 16% in the second quarter and 20% in first half of 2015 due to the timing of aircraft maintenance events. Salaries and employee benefits increased 2% in the second quarter and first half of 2015 due to additional staffing to support volume growth, partially offset by the benefits from our voluntary employee severance program and lower pension expense. Purchased transportation costs increased 4% in the second quarter and 5% in the first half of 2015 due to higher utilization of third-party transportation providers and costs associated with the growth of our freight-forwarding business at FedEx Trade Networks.

Fuel

Fuel expense decreased 8% in the second quarter and 3% in the first half of 2015 due to lower aircraft fuel prices. However, fuel prices represent only one component of the two factors we consider meaningful in understanding the impact of fuel on our business. Consideration must also be given to the fuel surcharge revenue we collect. Accordingly, we believe discussion of the net impact of fuel on our results, which is a comparison of the year-over-year change in these two factors, is important to understand the impact of fuel on our business. In order to provide information about the impact of fuel surcharges on the trend in revenue and yield growth, we have included the comparative weighted-average fuel surcharge percentages in effect for the second quarter and first half of 2015 and 2014 below.

The index used to determine our fuel surcharges incorporates a timing lag of approximately six to eight weeks before they are adjusted for changes in fuel prices. For example, the fuel surcharge index in effect in November 2014 was set based on September 2014 fuel prices. In addition, the structure of the table that is used to determine our fuel surcharge does not adjust immediately for changes in fuel price, but allows for the fuel surcharge revenue charged to our customers to remain unchanged as long as fuel prices remain within certain ranges.

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

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

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We routinely review our fuel surcharges and our fuel surcharge methodology. Effective February 2, 2015, we will update the tables used to determine our fuel surcharges.

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

The net impact of fuel on our operating results does not consider the effects that fuel surcharge levels may have on our business, including changes in demand and shifts in the mix of services purchased by our customers. While fluctuations in fuel surcharge percentages can be significant from period to period, fuel surcharges represent one of the many individual components of our pricing structure that impact our overall revenue and yield. Additional components include the mix of services sold, the base price and extra service charges we obtain for these services and the level of pricing discounts offered. Our U.S. domestic and outbound fuel surcharge and the international fuel surcharges ranged as follows for the periods ended November 30:

	Three Months Ended						Six Months Ended
	2014			2013			2014			2013
U.S. Domestic and Outbound Fuel Surcharge:
Low		8.00	%		9.50	%		8.00	%		8.00	%
High		9.00			10.50			9.50			10.50
Weighted-average		8.69			10.02			9.09			9.26
International Fuel Surcharges:
Low		12.00			13.50			12.00			12.00
High		17.50			19.00			18.00			19.00
Weighted-average		15.59			16.79			15.92			16.09

On September 16, 2014, we announced a 4.9% average list price increase for our U.S. domestic, U.S. export and U.S. import services effective January 5, 2015. In January 2014, we implemented a 3.9% average list price increase for our U.S. domestic, U.S. export and U.S. import services.

Income Taxes

Our effective tax rate was 35.3% for the second quarter of 2015 and 34.9% for the first half of 2015, compared with 35.0% in the second quarter and 33.9% in the first half of 2014. Our effective tax rates in 2014 were positively impacted by a discrete tax benefit related to the expiration of applicable statute of limitations. For 2015, we expect an effective tax rate between 34.0% and 35.0%. The actual rate, however, will depend on a number of factors, including the amount and source of operating income.

We are subject to taxation in the United States and various U.S. state, local and foreign jurisdictions. Substantially all U.S. federal income tax matters through fiscal year 2011 are concluded, and we are currently under examination by the Internal Revenue Service for the 2012 and 2013 tax years. It is reasonably possible that certain income tax return proceedings will be completed during the next twelve months and could result in a change in our balance of unrecognized tax benefits. The expected impact of any changes would not be material to our consolidated financial statements. As of November 30, 2014, there were no material changes to our liabilities for unrecognized tax benefits from May 31, 2014.

RECENT ACCOUNTING GUIDANCE

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

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We believe that no other new accounting guidance was adopted or issued during the first six months of 2015 that is relevant to the readers of our financial statements. However, there are numerous new proposals under development which, if and when enacted, may have a significant impact on our financial reporting, as described in our Annual Report.

FORWARD-LOOKING STATEMENTS

Certain statements in this report are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations, cash flows, plans, objectives, future performance and business. Forward-looking statements include those preceded by, followed by or that include the words “may,” “could,” “would,” “should,” “believes,” “expects,” “anticipates,” “plans,” “estimates,” “targets,” “projects,” “intends” or similar expressions. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated (expressed or implied) by such forward-looking statements, because of, among other things, potential risks and uncertainties, such as:

• economic conditions in the global markets in which we operate;

• significant changes in the volumes of shipments transported through our networks, customer demand for our various services or the prices we obtain for our services;

• damage to our reputation or loss of brand equity;

• disruptions to the Internet or our technology infrastructure, including those impacting our computer systems and Web site, which can adversely affect our operations and reputation among customers;

• the price and availability of jet and vehicle fuel;

• our ability to manage our cost structure for capital expenditures and operating expenses, and match it to shifting and future customer volume levels;

• the impact of intense competition on our ability to maintain or increase our prices (including our fuel surcharges in response to fluctuating fuel price) or to maintain or grow our market share;

• our ability to effectively operate, integrate, leverage and grow acquired businesses, and to continue to support the value we allocate to these acquired businesses, including their goodwill;

• our ability to maintain good relationships with our employees and prevent attempts by labor organizations to organize groups of our employees, which could significantly increase our operating costs and reduce our operational flexibility;

• our ability to execute on our profit improvement programs;

• the impact of any international conflicts or terrorist activities on the United States and global economies in general, the transportation industry or us in particular, and what effects these events will have on our costs or the demand for our services;

• any impacts on our businesses resulting from new domestic or international government laws and regulation, including regulatory actions affecting global aviation or other transportation rights, increased air cargo and other security or safety requirements, and tax, accounting, trade (such as protectionist measures enacted in response to weak economic conditions), labor (such as card-check legislation or changes to the Railway Labor Act affecting our employees), environmental (such as global climate change legislation) or postal rules;

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• adverse weather conditions or localized natural disasters in key geographic areas, such as earthquakes, volcanoes, and hurricanes, which can disrupt our electrical service, damage our property, disrupt our operations, increase our fuel costs and adversely affect our shipment levels;

• any impact on our business from disruptions or modifications in service by the United States Postal Service (“USPS”), which is a significant customer of ours, as a consequence of the USPS’s current financial difficulties or any resulting structural changes to its operations, network, service offerings or pricing;

• increasing costs, the volatility of costs and funding requirements and other legal mandates for employee benefits, especially pension and healthcare benefits;

• the increasing costs of compliance with federal and state governmental agency mandates, including those related to healthcare benefits, and defending against inappropriate or unjustified enforcement of other actions by such agencies;

• changes in foreign currency exchange rates, especially in the Chinese yuan, euro, Brazilian real, Canadian dollar and the British pound, which can affect our sales levels and foreign currency sales prices;

• market acceptance of our new service and growth initiatives;

• any liability resulting from and the costs of defending against class-action litigation, such as wage-and-hour and discrimination and retaliation claims, and any other legal or governmental proceedings;

• the outcome of future negotiations to reach new collective bargaining agreements — including with the union that represents our pilots (the current pilot contract became amendable in March 2013, and the parties are currently in negotiations);

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

• widespread outbreak of an illness or any other communicable disease, or any other public health crisis;

• availability of financing on terms acceptable to FedEx and FedEx’s ability to maintain its current credit ratings, especially given the capital intensity of our operations; and

• other risks and uncertainties you can find in FedEx’s press releases and SEC filings, including the risk factors identified under the heading “Risk Factors” in “Management’s Discussion and Analysis of Results of Operations and Financial Condition” in our Annual Report, as updated by our quarterly reports on Form 10-Q.

As a result of these and other factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Omitted under the reduced disclosure format permitted by General Instruction H(2)(c) of Form 10-Q.

Item 4. Controls and Procedures

Our management, 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 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 November 30, 2014 (the end of the period covered by this Quarterly Report on Form 10-Q).

During our fiscal quarter ended November 30, 2014, 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.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For a description of all material pending legal proceedings, see Note 5 of the accompanying unaudited condensed consolidated financial statements.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in our Annual Report (under the heading “Risk Factors” in “Management’s Discussion and Analysis of Results of Operations and Financial Condition”) in response to Part I, Item 1A of Form 10-K.

Item 6. Exhibits

Exhibit     Number	Description of Exhibit
10.1	Supplemental Agreement No. 5 (and related side letters) dated as September 29, 2014, amending the Boeing 767-3S2 Freighter Purchase Agreement dated as of December 14, 2011 between The Boeing Company and Federal Express Corporation. Confidential treatment has been requested for confidential and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.2 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.2	Amendment dated September 9, 2014 (but effective as of June 27, 2014), amending the Transportation Agreement dated April 23, 2013 between the United States Postal Service and Federal Express Corporation (the “Transportation Agreement”). Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.3 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.3	Amendment dated September 9, 2014 (but effective as of September 30, 2013), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.4 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.4	Amendment dated September 9, 2014 (but effective as of June 27, 2014), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.5 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.5	Amendment dated September 24, 2014 (but effective as of June 30, 2014), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.6 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.6	Amendment dated September 30, 2014 (but effective as of July 28, 2014), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.7 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)

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10.7	Amendment dated October 1, 2014 (but effective as of September 1, 2014), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.8 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.8	Amendment dated September 30, 2014 (but effective as of September 29, 2014), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.9 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.9	Amendment dated November 4, 2014 (but effective as of September 29, 2014), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.10 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.10	Amendment dated November 4, 2014 (but effective as of December 1, 2013), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.11 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
12.1	Computation of Ratio of Earnings to Fixed Charges.
15.1	Letter re: Unaudited Interim Financial Statements.
31.1	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.1	Interactive Data Files.

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SIGNATURE

Pursuant to the requirements 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.

	FEDERAL EXPRESS CORPORATION
Date: December 18, 2014		/s/ ELISE L. JORDAN
		ELISE L. JORDAN
		SENIOR VICE PRESIDENT AND
		CHIEF FINANCIAL OFFICER

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EXHIBIT INDEX

Exhibit   Number	Description of Exhibit
10.1	Supplemental Agreement No. 5 (and related side letters) dated as September 29, 2014, amending the Boeing 767-3S2 Freighter Purchase Agreement dated as of December 14, 2011 between The Boeing Company and Federal Express Corporation. Confidential treatment has been requested for confidential and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.2 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.2	Amendment dated September 9, 2014 (but effective as of June 27, 2014), amending the Transportation Agreement dated April 23, 2013 between the United States Postal Service and Federal Express Corporation (the “Transportation Agreement”). Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.3 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.3	Amendment dated September 9, 2014 (but effective as of September 30, 2013), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.4 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.4	Amendment dated September 9, 2014 (but effective as of June 27, 2014), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.5 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.5	Amendment dated September 24, 2014 (but effective as of June 30, 2014), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.6 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.6	Amendment dated September 30, 2014 (but effective as of July 28, 2014), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.7 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.7	Amendment dated October 1, 2014 (but effective as of September 1, 2014), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.8 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.8	Amendment dated September 30, 2014 (but effective as of September 29, 2014), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.9 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.9	Amendment dated November 4, 2014 (but effective as of September 29, 2014), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.10 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.10	Amendment dated November 4, 2014 (but effective as of December 1, 2013), amending the Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.11 to FedEx Corporation’s FY15 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
12.1	Computation of Ratio of Earnings to Fixed Charges.
15.1	Letter re: Unaudited Interim Financial Statements.
31.1	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

E-1

32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.1	Interactive Data Files.

E-2

EX-12.1

EXHIBIT 12.1

FEDERAL EXPRESS CORPORATION

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(UNAUDITED)

(IN MILLIONS, EXCEPT RATIOS)

	Six Months Ended November 30,				Year Ended May 31,
	2014		2013		2014		2013		2012		2011		2010
Earnings:
Income before income taxes	$	720	$	521	$	1,059	$	508	$	1,237	$	1,140	$	1,059
Add back:
Portion of rent expense representative of interest factor		285		296		577		598		566		611		572
Earnings as adjusted	$	1,005	$	817	$	1,636	$	1,106	$	1,803	$	1,751	$	1,631
Fixed Charges:
Capitalized interest	$	13	$	15	$	25	$	43	$	80	$	61	$	65
Portion of rent expense representative of interest factor		285		296		577		598		566		611		572
	$	298	$	311	$	602	$	641	$	646	$	672	$	637
Ratio of Earnings to Fixed Charges		3.4		2.6		2.7		1.7		2.8		2.6		2.6

EX-15.1

EXHIBIT 15.1

The Board of Directors and Stockholder

Federal Express Corporation

We are aware of the incorporation by reference in the Registration Statement (Form S-3 No. 333-183989-10) of Federal Express Corporation and in the related Prospectus, of our report dated December 18, 2014, relating to the unaudited condensed consolidated interim financial statements of Federal Express Corporation that are included in its Form 10-Q for the quarter ended November 30, 2014.

/s/ Ernst & Young LLP

Memphis, Tennessee

December 18, 2014

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David J. Bronczek, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Federal Express Corporation (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 18, 2014

/s/ David J. Bronczek

David J. Bronczek

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Elise L. Jordan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Federal Express Corporation (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 18, 2014

/s/ Elise L. Jordan

Elise L. Jordan

Senior Vice President and

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Federal Express Corporation (“FedEx Express”) on Form 10-Q for the period ended November 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David J. Bronczek, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of FedEx Express.

Date: December 18, 2014

/s/ David J. Bronczek

David J. Bronczek

President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Federal Express Corporation (“FedEx Express”) on Form 10-Q for the period ended November 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Elise L. Jordan, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of FedEx Express.

Date: December 18, 2014

/s/ Elise L. Jordan

Elise L. Jordan

Senior Vice President and

Chief Financial Officer

XML

Commitments (Details 4) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Nov. 30, 2014
Other Commitment Disclosures [Abstract]
Deposit and Progress Payments	$ 500
Other Aircraft Commitments Disclosure [Line Items]
Boeing 777F Conditional Aircraft Commitments	9
Boeing 767F Conditional Aircraft Commitments	4
Aircraft Purchase Commitment Boeing 767 Delivery 2017 And 2019	4

XML

Retirement Plans

6 Months Ended

Nov. 30, 2014

Retirement Plans [Abstract]

Retirement Plans

(3) Retirement Plans

We sponsor or participate in programs that provide retirement benefits to most of our employees. These programs include defined benefit pension plans, defined contribution plans and postretirement healthcare plans. A majority of our employees are covered by the FedEx Corporation Employees' Pension Plan (“FedEx Plan”), a defined benefit pension plan sponsored by FedEx. Defined contribution plans are in place covering a majority of U.S. employees and certain international employees. We also sponsor or participate in nonqualified benefit plans covering certain of our U.S. employee groups and other pension plans covering certain of our international employees. For more information, refer to the financial statements of FedEx included in its Form 10-Q for the quarter ended November 30, 2014 and in our Annual Report.

Our retirement plans costs for the periods ended November 30 were as follows (in millions):
	Three Months Ended				Six Months Ended
	2014		2013		2014		2013
Pension plans sponsored by FedEx	$	24	$	67	$	48	$	134
Other U.S. domestic and international pension plans		14		14		28		27
U.S. domestic and international defined contribution plans		60		57		121		115
U.S. domestic and international postretirement healthcare plans		15		16		31		31
	$	113	$	154	$	228	$	307

The components of the net periodic benefit cost of the pension and postretirement healthcare plans currently sponsored by us were individually immaterial for all periods presented. No material contributions were made during the first half of 2015 or 2014 to pension plans sponsored by us, and we do not expect to make material contributions in2015.

XML

Document and Entity Information	6 Months Ended
	Nov. 30, 2014	Dec. 17, 2014
Document and Entity Information [Abstract]
Document Type	10-Q
Document Period End Date	Nov. 30, 2014
Amendment Flag	false
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2
Entity Registrant Name	Federal Express Corporation
Entity Central Index Key	0000230211
Current Fiscal Year End Date	--05-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		1,000

XML

Accumulated Other Comprehensive Income (Loss)

6 Months Ended

Nov. 30, 2014

Accumulated Other Comprehensive Income Loss Net Of Tax Abstract

Accumulated Other Comprehensive Income (Loss)

(2) Accumulated Other Comprehensive Income

The following table provides changes in accumulated other comprehensive income (“AOCI”), net of tax, reported in our condensed consolidated financial statements for the three-month and six-month periods ended November 30(in millions; amounts in parentheses indicate debits to AOCI):

		Three Months Ended				Six Months Ended
		2014		2013		2014		2013
Foreign currency translation gain (loss):
	Balance at beginning of period	$	38	$	12	$	67	$	90
	Translation adjustments		(119)		44		(148)		(34)
	Balance at end of period		(81)		56		(81)		56
Retirement plans adjustments:
	Balance at beginning of period		(131)		(125)		(132)		(126)
	Reclassifications from AOCI		1		2		2		3
	Balance at end of period		(130)		(123)		(130)		(123)
Accumulated other comprehensive loss at
	end of period	$	(211)	$	(67)	$	(211)	$	(67)

Due to its immateriality, the table presenting details of reclassifications from AOCI has been excluded from this quarterly report.

XML

Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Millions, except Share data, unless otherwise specified	Nov. 30, 2014	May 31, 2014
CURRENT ASSETS
Allowances for receivables	$ 87	$ 80
Allowances for spare parts, supplies and fuel	$ 214	$ 211
COMMON STOCKHOLDERS' INVESTMENT
Common stock, par value	$ 0.10	$ 0.10
Common stock, shares authorized	1,000	1,000
Common stock, shares issued	1,000	1,000
Common Stock, Shares, Outstanding	1,000	1,000

XML

Condensed Consolidated Statements of Cash Flows (USD $) In Millions, unless otherwise specified	6 Months Ended
	Nov. 30, 2014	Nov. 30, 2013
Operating Activities:
Net income	$ 469	$ 344
Noncash charges:
Depreciation and amortization	736	736
Other, net	63	108
Changes in assets and liabilities. net	(149)	(76)
Cash provided by operating activities	1,119	1,112
Investing Activities:
Capital expenditures	(1,079)	(992)
Other	4	14
Cash used in investing activities	(1,075)	(978)
Financing Activities:
Principal payments on debt		(3)
Cash used in financing activities		(3)
Effect of exchange rate changes on cash	(54)	(2)
Net increase in cash and cash equivalents	(10)	129
Cash and cash equivalents at beginning of period	858	769
Cash and cash equivalents at end of period	$ 848	$ 898

XML

Commitments (Details 1) (USD $) In Millions, unless otherwise specified	Nov. 30, 2014
Schedule of Purchase Commitments [Line Items]
2015 (remainder)	$ 757
2016	1,271
2017	1,065
2018	1,428
2019	1,032
Thereafter	4,552
Total	10,105
Aircraft And Related Equipment Commitments [Member]
Schedule of Purchase Commitments [Line Items]
2015 (remainder)	709
2016	1,230
2017	1,033
2018	1,402
2019	1,022
Thereafter	4,472
Total	9,868
Other Commitments [Member]
Schedule of Purchase Commitments [Line Items]
2015 (remainder)	48	[1]
2016	41	[1]
2017	32	[1]
2018	26	[1]
2019	10	[1]
Thereafter	80	[1]
Total	$ 237	[1]

[1] Primarily advertising and promotions contracts.

XML

Commitments (Details 3) (USD $) In Millions, unless otherwise specified	Nov. 30, 2014
Schedule of Future Minimum Operating Lease Payments [Line Items]
2015 (remainder)	$ 753
2016	1,115
2017	1,226
2018	842
2019	715
Thereafter	4,191
Total	8,842
Aircraft and Related Equipment [Member]
Schedule of Future Minimum Operating Lease Payments [Line Items]
2015 (remainder)	391
2016	461
2017	399
2018	329
2019	273
Thereafter	551
Total	2,404
Facilities and Other [Member]
Schedule of Future Minimum Operating Lease Payments [Line Items]
2015 (remainder)	362
2016	654
2017	827
2018	513
2019	442
Thereafter	3,640
Total	$ 6,438

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General

6 Months Ended

Nov. 30, 2014

General [Abstract]

General

(1) General

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. These interim financial statements of Federal Express Corporation (“FedEx Express”) have been prepared in accordance with accounting principles generally accepted in the United States and Securities and Exchange Commission instructions for interim financial information, and should be read in conjunction with our Annual Report on Form 10-K for the year ended May 31,2014 (“Annual Report”). Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed in our Annual Report.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to present fairly our financial position as of November 30, 2014,the results of our operations for the three- and six-month periods ended November 30, 2014 and2013 and cash flows for the six-month periods ended November 30, 2014 and2013. Operating results for the three- and six-month periods ended November 30, 2014are not necessarily indicative of the results that may be expected for the year ending May 31, 2015.

We are a wholly owned subsidiary of FedEx Corporation (“FedEx”) engaged in a single line of business and operate in one business segment – the worldwide express transportation and distribution of goods and documents.

Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2015 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year.

EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS.  Our pilots, which represent a small number of our total employees, are employed under a collective bargaining agreement. The contract became amendable in March 2013, and the parties are currently in negotiations. In October 2014, we formally requested assistance from the National Mediation Board (“NMB”) to mediate the negotiations. The NMB is the U.S. governmental agency that oversees labor agreements for entities covered by the Railway Labor Act of 1926, as amended (“Railway Labor Act”).The progression of negotiations into the mediation stage has no impact on our operations or our ability to provide highly reliable service to customers.  In addition to our pilots, certain non-U.S. employees are unionized.

STOCK-BASED COMPENSATION. FedEx has two types of equity-based compensation: stock options and restricted stock. The key terms of the stock option and restricted stock awards granted under FedEx's incentive stock plans are set forth in FedEx's Annual Report.

Our stock-based compensation expense was $10 million for the three-month period ended November 30, 2014 and $26 million for the six-month period ended November 30, 2014. Our stock-based compensation expense was $9 million for the three-month period ended November 30, 2013 and $24 million for the six-month period ended November 30, 2013. This amount represents the amount charged to us by FedEx for awards granted to our employees.

LONG-TERM DEBT.Long-term debt, exclusive of capital leases, had a carrying value of $239 million at November 30, 2014 and May 31, 2014 compared with an estimated fair value of $335 million at November 30, 2014and $326 million at May 31, 2014. The estimated fair values were determined based on quoted market prices and the current rates offered for debt with similar terms and maturities. The fair value of our long-term debt is classified as Level 2 within the fair value hierarchy. This classification is defined as a fair value determined using market-based inputs other than quoted prices that are observable for the liability, either directly or indirectly.

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

We believe that no other new accounting guidance was adopted or issued during the first six months of 2015 that is relevant to the readers of our financial statements. However, there are numerous new proposals under development which, if and when enacted, may have a significant impact on our financial reporting, as described in our Annual Report.

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Condensed Consolidated Statements of Income (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Nov. 30, 2014	Nov. 30, 2013	Nov. 30, 2014	Nov. 30, 2013
Condensed Consolidated Statements of Income
REVENUES	$ 6,715	$ 6,546	$ 13,299	$ 12,892
OPERATING EXPENSES:
Salaries and employee benefits	2,446	2,387	4,847	4,747
Purchased transportation	465	446	922	876
Rentals and landing fees	416	413	835	827
Depreciation and amortization	365	370	736	736
Fuel	906	986	1,876	1,942
Maintenance and repairs	356	307	733	613
Intercompany charges, net	476	505	952	994
Other	843	810	1,629	1,605
OPERATING EXPENSES	6,273	6,224	12,530	12,340
OPERATING INCOME	442	322	769	552
OTHER INCOME (EXPENSE):
Interest, net	5	5	8	12
Other, net	(25)	(22)	(57)	(43)
OTHER INCOME (EXPENSE)	(20)	(17)	(49)	(31)
INCOME BEFORE INCOME TAXES	422	305	720	521
PROVISION FOR INCOME TAXES	148	107	251	177
NET INCOME	$ 274	$ 198	$ 469	$ 344

XML

Commitments (Tables)

6 Months Ended

Nov. 30, 2014

Commitments (Tables) [Abstract]

Schedule of Purchase Commitments

		Aircraft and
		Aircraft-Related		Other(1)		Total
2015 (remainder)		$	709	$	48	$	757
2016			1,230		41		1,271
2017			1,033		32		1,065
2018			1,402		26		1,428
2019			1,022		10		1,032
Thereafter			4,472		80		4,552
Total		$	9,868	$	237	$	10,105
(1)	Primarily advertising and promotions contracts.

Schedule of Aircraft Purchase Commitments

	B757	B767F	B777F	Total
2015 (remainder)	1	8	-	9
2016	-	11	2	13
2017	-	12	-	12
2018	-	11	2	13
2019	-	6	2	8
Thereafter	-	-	12	12
Total	1	48	18	67

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

	Operating Leases
	Aircraft				Total
	and Related		Facilities		Operating
	Equipment		and Other		Leases
2015 (remainder)	$	391	$	362	$	753
2016		461		654		1,115
2017		399		827		1,226
2018		329		513		842
2019		273		442		715
Thereafter		551		3,640		4,191
Total	$	2,404	$	6,438	$	8,842

XML

Condensed Consolidated Balance Sheets (USD $) In Millions, unless otherwise specified	Nov. 30, 2014	May 31, 2014
CURRENT ASSETS
Cash and cash equivalents	$ 848	$ 858
Receivables, less allowances of $87 and $80	1,763	1,705
Spare parts, supplies and fuel, less allowances of $214 and $211	403	395
Deferred income taxes	380	401
Due from parent company and other FedEx subsidiaries	523	502
Prepaid expenses and other	93	103
Total current assets	4,010	3,964
PROPERTY AND EQUIPMENT, AT COST	26,182	25,752
Less accumulated depreciation and amortization	12,593	12,272
Net property and equipment	13,589	13,480
OTHER LONG-TERM ASSETS
Goodwill	1,506	1,561
Other assets	1,029	959
Total other long-term assets	2,535	2,520
ASSETS	20,134	19,964
CURRENT LIABILITIES
Accrued salaries and employee benefits	924	902
Accounts payable	1,315	1,394
Accrued expenses	1,018	1,019
Due to other FedEx subsidiaries	740	910
Total current liabilities	3,997	4,225
LONG-TERM DEBT, LESS CURRENT PORTION	239	239
OTHER LONG-TERM LIABILITIES
Deferred income taxes	3,192	3,196
Pension, postretirement healthcare and other benefit obligations	1,205	1,208
Self insurance accruals	683	667
Deferred lease obligations	713	643
Deferred gains, principally related to aircraft transactions	190	203
Other liabilities	105	96
Total other long-term liabilities	6,088	6,013
COMMITMENTS AND CONTINGENCIES
OWNER'S EQUTIY
Common stock, $0.10 par value; 1,000 shares authorized, issued and outstanding	0	0
Additional paid-in capital	608	608
Retained earnings	9,413	8,944
Accumulated other comprehensive loss	(211)	(65)
Total owner's equity	9,810	9,487
LIABILITIES AND OWNER'S EQUITY	$ 20,134	$ 19,964

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Supplemental Cash Flow Information (Tables)

6 Months Ended

Nov. 30, 2014

Supplemental Cash Flow (Tables) [Abstract]

Supplemental Cash Flow Table

		2014		2013
Cash payments for:
	Income taxes	$	295	$	127
	Income tax refunds received		(3)		(43)
	Cash tax payments, net	$	292	$	84

XML

Condensed Consolidated Statements of Comprehensive Income (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Nov. 30, 2014	Nov. 30, 2013	Nov. 30, 2014	Nov. 30, 2013
Condensed Consolidated Statement of Comprehensive Income
NET INCOME	$ 274	$ 198	$ 469	$ 344
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax of $11, $5, $19 and $4	(119)	44	(148)	(34)
Amortization of unrealized pension actuarial gains/losses and other, net of tax of $0, $0, $1 and $1	1	2	2	3
Other comprehensive income (loss)	(118)	46	(146)	(31)
COMPREHENSIVE INCOME	$ 156	$ 244	$ 323	$ 313

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Parent/Affiliate Transactions

6 Months Ended

Nov. 30, 2014

Parent/Affiliate Transactions [Abstract]

Parent/Affiliate Transactions Disclosure

(6) Parent/Affiliate Transactions

Affiliate company balances that are currently receivable or payable relate to charges for services provided to or by other FedEx affiliates, which are settled on a monthly basis, or the net activity from participation in FedEx's consolidated cash management program. In addition, we are allocated net interest on these amounts at market rates.

We maintain an accounts receivable arrangement with FedEx TechConnect, Inc. (“FedEx TechConnect”), a wholly owned subsidiary ofFedEx Corporate Services, Inc. (“FedEx Services”). FedEx Services is awholly owned subsidiary of FedEx. Under this arrangement, we recognize revenue for the transportation services provided to our U.S. customers and factor the related receivables to FedEx TechConnect for collection. We have no continuing involvement with the receivables transferred to FedEx TechConnect. Our net receivables recorded by FedEx TechConnect totaled $1.7 billion at November 30, 2014 andMay 31, 2014.

The costs of FedEx Services, FedEx TechConnect and FedEx Office and Print Services, Inc., as well as charges for management fees from our parent, are allocated to us and are included in the expense line item “Intercompany charges, net” based on metrics such as relative revenues or estimated services provided. We believe these allocations approximate the net cost of providing the functions. FedEx allocation methodologies are refined as necessary to reflect changes in our business.

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Contingencies

6 Months Ended

Nov. 30, 2014

Loss Contingency [Abstract]

Contingencies

(5) Contingencies

Environmental Matters. SEC regulations require disclosure of certain environmental matters when a governmental authority is a party to the proceedings and the proceedings involve potential monetary sanctions that management reasonably believes could exceed $100,000.

On January 14, 2014, the U.S. Department of Justice (“DOJ”) issued a Grand Jury Subpoena to FedEx Express relating to an asbestos matter previously investigated by the U.S. Environmental Protection Agency. On May 1, 2014, the DOJ informed us that it had determined to continue to pursue the matter as a criminal case, citing seven asbestos-related regulatory violations associated with removal of roof materials from a hangar in Puerto Rico during cleaning and repair activity, as well as violation of waste disposal requirements. Loss is reasonably possible; however, the amount of any loss is expected to be immaterial.

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

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

Other Matters.In August 2010, a third-party consultant who works with shipping customers to negotiate lower rates filed a lawsuit in federal district court in California against FedEx and United Parcel Service, Inc. (“UPS”) alleging violations of U.S. antitrust law. This matter was dismissed in May 2011, but the court granted the plaintiff permission to file an amended complaint, which FedEx received in June 2011. In November 2011, the court granted our motion to dismiss this complaint, but again allowed the plaintiff to file an amended complaint. The plaintiff filed a new complaint in December 2011, and the matter remains pending before the court. In February 2011, shortly after the initial lawsuit was filed, we received a demand for the production of information and documents in connection with a civil investigation by the DOJ into the policies and practices of FedEx and UPS for dealing with third-party consultants who work with shipping customers to negotiate lower rates. In November 2012, the DOJ served a civil investigative demand on the third-party consultant seeking all pleadings, depositions and documents produced in the lawsuit. We are cooperating with the investigation, do not believe that we have engaged in any anti-competitive activities and will vigorously defend ourselves in any action that may result from the investigation. While the litigation proceedings and the DOJ investigation move forward, and the amount of loss, if any, is dependent on a number of factors that are not yet fully developed or resolved, the amount of any loss is expected to be immaterial.

On June 30, 2014, we received a Statement of Objections from the French Competition Authority (“FCA”) addressed to FedEx Express France, formerly known as TATEX, regarding an investigation by the FCA into anticompetitive behavior that is alleged to have occurred primarily in the framework of trade association meetings that included the former general managers of TATEX prior to our acquisition of that company in July 2012. In September 2014, FedEx Express France submitted its observations in response to the Statement of Objections to the FCA. Given the early stage of this matter, we cannot yet determine the amount or range of potential loss; however, it is reasonably possible that it could be material.

FedEx Express and its subsidiaries are subject to other legal proceedings that arise in the ordinary course of their business. In the opinion of management, the aggregate liability, if any, with respect to these other actions will not have a material adverse effect on our financial position, results of operations or cash flows.

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Commitments (Details 2)	Nov. 30, 2014
Schedule of Aircraft Commitments [Line Items]
2015 (remainder)	9
2016	13
2017	12
2018	13
2019	8
Thereafter	12
Total	67
Boeing 777 Freighter [Member]
Schedule of Aircraft Commitments [Line Items]
2016	2
2018	2
2019	2
Thereafter	12
Total	18
Boeing 757 [Member]
Schedule of Aircraft Commitments [Line Items]
2015 (remainder)	1
Total	1
Boeing 767 Freighter [Member]
Schedule of Aircraft Commitments [Line Items]
2015 (remainder)	8
2016	11
2017	12
2018	11
2019	6
Total	48

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General (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Nov. 30, 2014	Nov. 30, 2013	Nov. 30, 2014	Nov. 30, 2013	May 31, 2014
Long Term Debt [Abstract]
Long Term Debt Exclusive of Capital Leases Carrying Value	$ 239		$ 239		$ 239
Long Term Debt Exclusive Of Capital Leases Fair Value	335		335		326
Stock Based Compensation Details [Abstract]
Stock-based compensation	$ 10	$ 9	$ 26	$ 24

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Accumulated Other Comprehensive Income (Loss) (Tables)

6 Months Ended

Nov. 30, 2014

Accumulated Other Comprehensive Income (Loss) (Tables) [Abstract]

Schedule Of Accumulated Other Comprehensive Income (Loss)

		Three Months Ended				Six Months Ended
		2014		2013		2014		2013
Foreign currency translation gain (loss):
	Balance at beginning of period	$	38	$	12	$	67	$	90
	Translation adjustments		(119)		44		(148)		(34)
	Balance at end of period		(81)		56		(81)		56
Retirement plans adjustments:
	Balance at beginning of period		(131)		(125)		(132)		(126)
	Reclassifications from AOCI		1		2		2		3
	Balance at end of period		(130)		(123)		(130)		(123)
Accumulated other comprehensive loss at
	end of period	$	(211)	$	(67)	$	(211)	$	(67)

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Supplemental Cash Flow Information

6 Months Ended

Nov. 30, 2014

Supplemental Cash Flow Information [Abstract]

Supplemental Cash Flow Information

(7) Supplemental Cash Flow Information

Cash paid for interest expense and income taxes for thesix-month periods ended November 30was as follows (in millions):

		2014		2013
Cash payments for:
	Income taxes	$	295	$	127
	Income tax refunds received		(3)		(43)
	Cash tax payments, net	$	292	$	84

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General (Policies)

6 Months Ended

Nov. 30, 2014

General (Policies) [Abstract]

Summary of Significant Accounting Policies

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. These interim financial statements of Federal Express Corporation (“FedEx Express”) have been prepared in accordance with accounting principles generally accepted in the United States and Securities and Exchange Commission instructions for interim financial information, and should be read in conjunction with our Annual Report on Form 10-K for the year ended May 31,2014 (“Annual Report”). Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed in our Annual Report.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to present fairly our financial position as of November 30, 2014,the results of our operations for the three- and six-month periods ended November 30, 2014 and2013 and cash flows for the six-month periods ended November 30, 2014 and2013. Operating results for the three- and six-month periods ended November 30, 2014are not necessarily indicative of the results that may be expected for the year ending May 31, 2015.

We are a wholly owned subsidiary of FedEx Corporation (“FedEx”) engaged in a single line of business and operate in one business segment – the worldwide express transportation and distribution of goods and documents.

Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2015 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year.

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Retirement Plans (Tables)

6 Months Ended

Nov. 30, 2014

Retirement Plan (Tables) [Abstract]

Schedule of Retirement Plan Costs

Our retirement plans costs for the periods ended November 30 were as follows (in millions):
	Three Months Ended				Six Months Ended
	2014		2013		2014		2013
Pension plans sponsored by FedEx	$	24	$	67	$	48	$	134
Other U.S. domestic and international pension plans		14		14		28		27
U.S. domestic and international defined contribution plans		60		57		121		115
U.S. domestic and international postretirement healthcare plans		15		16		31		31
	$	113	$	154	$	228	$	307

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Retirement Plans (Details 1) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Nov. 30, 2014	Nov. 30, 2013	Nov. 30, 2014	Nov. 30, 2013
Pension and Other Postretirement Benefit Expense [Abstract]
Pension plans sponsored by FedEx	$ 24	$ 67	$ 48	$ 134
Other U.S. domestic and international pension plans	14	14	28	27
U.S. domestic and international defined contribution plans	60	57	121	115
U.S. domestic and international postretirement healthcare plans	15	16	31	31
Retirement plans costs	$ 113	$ 154	$ 228	$ 307

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Parent/Affiliate Transactions (Details) (USD $) In Billions, unless otherwise specified	Nov. 30, 2014	May 31, 2014
Parent/Affiliate Transactions [Abstract]
Net Receivables Recorded by FedEx TechConnect	$ 1.7	$ 1.7

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Condensed Consolidated Statements of Comprehensive Income (Parenthetical) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Nov. 30, 2014	Nov. 30, 2013	Nov. 30, 2014	Nov. 30, 2013
Other Comprehensive Income, Tax Amounts
Foreign currency translation adjustments, tax	$ 11	$ 5	$ 19	$ 4
Amortization of unrealized pension actuarial gains/losses and other, tax	$ 0	$ 0	$ 1	$ 1

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Commitments

6 Months Ended

Nov. 30, 2014

Commitments [Abstract]

Commitments

(4) Commitments

As of November 30, 2014, our purchase commitments under various contracts for the remainder of 2015 and annually thereafter were as follows (in millions):

		Aircraft and
		Aircraft-Related		Other(1)		Total
2015 (remainder)		$	709	$	48	$	757
2016			1,230		41		1,271
2017			1,033		32		1,065
2018			1,402		26		1,428
2019			1,022		10		1,032
Thereafter			4,472		80		4,552
Total		$	9,868	$	237	$	10,105
(1)	Primarily advertising and promotions contracts.

The amounts reflected in the table above for purchase commitments represent noncancelable agreements to purchase goods or services. As of November 30, 2014, our obligation to purchase four Boeing 767-300 Freighter (“B767F”) aircraft and nine Boeing 777 Freighter (“B777F”) aircraft is conditioned upon there being no event that causes us or our employees not to be covered by the Railway Labor Act. Commitments to purchase aircraft in passenger configuration do not include the attendant costs to modify these aircraft for cargo transport unless we have entered into noncancelable commitments to modify such aircraft.  Open purchase orders that are cancelable are not considered unconditional purchase obligations for financial reporting purposes and are not included in the table above.

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

We had $500 million in deposits and progress payments as of November 30, 2014 on aircraft purchases and other planned aircraft-related transactions. These deposits are classified in the “Other assets” caption of our consolidated balance sheets. In addition to our commitment to purchase B777Fs and B767Fs, our aircraft purchase commitments include the Boeing 757 (“B757”) aircraft in passenger configuration, which will require additional costs to modify for cargo transport. Aircraft and aircraft-related contracts are subject to price escalations. The following table is a summary of the key aircraft we are committed to purchase as of November 30, 2014 with the year of expected delivery:

	B757	B767F	B777F	Total
2015 (remainder)	1	8	-	9
2016	-	11	2	13
2017	-	12	-	12
2018	-	11	2	13
2019	-	6	2	8
Thereafter	-	-	12	12
Total	1	48	18	67

A summary of future minimum lease payments under noncancelable operating leases with an initial or remaining term in excess of one year at November 30, 2014 is as follows (in millions):

	Operating Leases
	Aircraft				Total
	and Related		Facilities		Operating
	Equipment		and Other		Leases
2015 (remainder)	$	391	$	362	$	753
2016		461		654		1,115
2017		399		827		1,226
2018		329		513		842
2019		273		442		715
Thereafter		551		3,640		4,191
Total	$	2,404	$	6,438	$	8,842

Future minimum lease payments under capital leases were immaterial at November 30, 2014. While certain of our lease agreements contain covenants governing the use of the leased assets or require us to maintain certain levels of insurance, none of our lease agreements include material financial covenants or limitations.

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Supplemental Cash Flow Information (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Nov. 30, 2014	Nov. 30, 2013
Supplemental Cash Flow Information [Abstract]
Income taxes	$ 295	$ 127
Income tax refunds received	(3)	(43)
Cash tax payments, net	$ 292	$ 84

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Accumulated Other Comprehensive Income (Loss) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Nov. 30, 2014	Nov. 30, 2013	Nov. 30, 2014	Nov. 30, 2013
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning balance			$ (65)
Translation adjustment	(119)	44	(148)	(34)
Amortization of unrealized pension actuarial gains/losses and other, net of tax of $0, $0, $1 and $1	1	2	2	3
Ending balance	(211)	(67)	(211)	(67)
Foreign currency translation gain (loss) [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning balance	38	12	67	90
Translation adjustment	(119)	44	(148)	(34)
Ending balance	(81)	56	(81)	56
Retirement plans adjustments [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning balance	(131)	(125)	(132)	(126)
Reclassification from AOCI	1	2	2	3
Ending balance	$ (130)	$ (123)	$ (130)	$ (123)