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OFFON

FEDEX CORPORATION

(FDX)
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FEDEX : MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (form 10-K)

07/19/2021 | 04:29pm EDT

ORGANIZATION OF INFORMATION


This Management's Discussion and Analysis of Results of Operations and Financial
Condition ("MD&A") of FedEx Corporation ("FedEx" or the "Company") is composed
of three major sections: Results of Operations and Outlook, Financial Condition
and Critical Accounting Estimates. These sections include the following
information:

• Results of operations includes an overview of our consolidated 2021 results

     compared to 2020 results. This section also includes a discussion of key
     actions and events that impacted our results, as well as our outlook for

2022. Discussion and analysis of 2019 results and year-over-year comparisons

between 2020 results and 2019 results can be found in "Item 7. Management's

Discussion and Analysis of Results of Operations and Financial Condition" of

our Annual Report on Form 10-K ("Annual Report") for the year ended May 31,

2020.

• The overview is followed by a financial summary and analysis (including a

discussion of both historical operating results and our outlook for 2022) for

each of our transportation segments.

• Our financial condition is reviewed through an analysis of key elements of

our liquidity, capital resources and contractual cash obligations, including

a discussion of our cash flows, our financial commitments and our liquidity

outlook for 2022.

• Critical accounting estimates discusses those financial statement elements

that we believe are most important to understanding the material judgments

and assumptions incorporated in our financial results.



The discussion in MD&A should be read in conjunction with the other sections of
this Annual Report, particularly "Item 1. Business," "Item 1A. Risk Factors" and
"Item 8. Financial Statements and Supplementary Data."

                                     - 41 -

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DESCRIPTION OF BUSINESS SEGMENTS


We provide a broad portfolio of transportation, e-commerce and business services
through companies competing collectively, operating collaboratively and
innovating digitally, under the respected FedEx brand. Our primary operating
companies are Federal Express Corporation ("FedEx Express"), the world's largest
express transportation company; FedEx Ground Package System, Inc. ("FedEx
Ground"), a leading North American provider of small-package ground delivery
services; and FedEx Freight Corporation ("FedEx Freight"), a leading North
American provider of less-than-truckload ("LTL") freight transportation
services. These companies represent our major service lines and, along with
FedEx Corporate Services, Inc. ("FedEx Services"), constitute our reportable
segments. Our FedEx Services segment provides sales, marketing, information
technology, communications, customer service, technical support, billing and
collection services, and certain back-office functions that support our
operating segments. The operating costs of the FedEx Services segment are
allocated to the business units it serves. See "Reportable Segments" for further
discussion and refer to "Item 1. Business" for a more detailed description of
each of our operating companies.

The key indicators necessary to understand our operating results include:

• the overall customer demand for our various services based on macroeconomic

factors and the global economy;

• the volumes of transportation services provided through our networks,

primarily measured by our average daily volume and shipment weight and size;


  • the mix of services purchased by our customers;

• the prices we obtain for our services, primarily measured by yield (revenue

per package or pound or revenue per shipment or hundredweight for LTL freight

shipments);

• our ability to manage our cost structure (capital expenditures and operating

expenses) to match shifting volume levels; and

• the timing and amount of fluctuations in fuel prices and our ability to

recover incremental fuel costs through our fuel surcharges.



Many of our operating expenses are directly impacted by revenue and volume
levels, and we expect these operating expenses to fluctuate on a year-over-year
basis consistent with changes in revenue and volumes. Therefore, the discussion
of operating expense captions focuses on the key drivers and trends impacting
expenses other than those factors strictly related to changes in revenue and
volumes. The line item "Other operating expense" includes costs associated with
outside service contracts (such as facility services and cargo handling,
temporary labor and security), insurance, professional fees and uniforms.

Except as otherwise specified, references to years indicate our fiscal year
ended May 31, 2021 or ended May 31 of the year referenced and comparisons are to
the corresponding period of the prior year. References to our transportation
segments include, collectively, the FedEx Express segment, the FedEx Ground
segment and the FedEx Freight segment.

                                     - 42 -

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RESULTS OF OPERATIONS AND OUTLOOK

CONSOLIDATED RESULTS

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



                                    2021(1)      2020(1)       Percent Change
Consolidated revenue                $ 83,959     $ 69,217                   21
Operating income (loss):
FedEx Express segment                  2,810          996                  182
FedEx Ground segment                   3,193        2,014                   59
FedEx Freight segment                  1,005          580                   73
Corporate, other and eliminations     (1,151 )     (1,173 )                  2
Consolidated operating income          5,857        2,417                  142
Operating margin:
FedEx Express segment                    6.7 %        2.8 %                390   bp
FedEx Ground segment                    10.5 %        8.9 %                160   bp
FedEx Freight segment                   12.8 %        8.2 %                460   bp
Consolidated operating margin            7.0 %        3.5 %                350   bp
Consolidated net income             $  5,231     $  1,286                  307
Diluted earnings per share          $  19.45     $   4.90                  297



The following table shows changes in revenue and operating results by reportable segment for 2021 compared to 2020 (in millions):

                                             Year-over-Year Changes
                                      Revenue           Operating Results(1)
FedEx Express segment               $      6,565       $                1,814
FedEx Ground segment                       7,763                        1,179
FedEx Freight segment                        731                          425
FedEx Services segment                        10                            -
Corporate, other and eliminations           (327 )                         22
                                    $     14,742       $                3,440

(1) The following is a summary of the effects of the (costs) benefits of certain

    key items affecting our financial results (in millions) for the years ended
    May 31:


                                                      2021       2020
Items affecting Operating Income:
TNT Express integration expenses                     $ (210 )   $ (270 )
Business realignment costs                             (116 )        -
Goodwill and other asset impairment charges               -       (435 )
                                                     $ (326 )   $ (705 )

Items affecting Net Income:
Mark-to-market ("MTM") retirement plans accounting
  adjustments, net of tax                            $  895     $ (583 )
Loss on debt extinguishment, net of tax                (297 )        -
                                                     $  598     $ (583 )


Overview

Volume growth, reflecting increased e-commerce demand accelerated by the
coronavirus ("COVID-19") pandemic, as well as yield improvement related to
pricing initiatives, drove strong revenue and operating income growth in 2021.
Increased operating expenses to support unprecedented levels of demand for our
services in the COVID-19 pandemic environment, including higher labor costs,
costs related to operating our air network to support higher demand in key
international supply chains and higher costs associated with operating our
seven-day-per-week network at FedEx Ground, were incurred in 2021. See the
"Impact of the COVID-19 Pandemic" section below for further information
regarding the pandemic's impact on our business.

                                     - 43 -

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Our consolidated operating income improved during 2021 due to international
export and U.S. domestic package volume growth at FedEx Express, residential
volume growth at FedEx Ground and pricing initiatives across all of our
transportation segments. Higher variable incentive compensation expense
negatively impacted year-over-year operating income comparisons in 2021 by
approximately $1.3 billion, as maximum attainment levels were achieved for team
members in our primary annual incentive programs.

We incurred TNT Express integration expenses totaling $210 million ($162
million, net of tax, or $0.60 per diluted share) in 2021, a decrease of $60
million from 2020. The integration expenses are predominantly incremental costs
directly associated with the integration of TNT Express, including professional
and legal fees, salaries and wages, advertising and travel expenses. Internal
salaries and wages are included only to the extent the individuals are assigned
full-time to integration activities. These costs were recognized at FedEx
Express and FedEx Corporate. The identification of these costs as
integration-related expenditures is subject to our disclosure controls and
procedures. Integration expenses do not include costs associated with our
business realignment activities. See the "Business Realignment Costs" section of
this MD&A for further information.

Our 2021 results include business realignment costs of $116 million ($90 million, net of tax, or $0.33 per diluted share) associated with our workforce reduction plan in Europe announced in January 2021. See the "Business Realignment Costs" section of this MD&A for more information.


In the fourth quarter of 2020, we recognized $369 million ($366 million, net of
tax, or $1.40 per diluted share) of goodwill and other asset impairment charges
associated with the FedEx Office and Print Services, Inc. ("FedEx Office") and
FedEx Logistics, Inc. ("FedEx Logistics") operating segments. Our 2020 results
also include $66 million ($50 million, net of tax, or $0.19 per diluted share)
of asset impairment charges associated with the decision to permanently retire
certain aircraft and related engines at FedEx Express. See the "Goodwill and
Other Asset Impairment Charges" section of this MD&A for more information.

Consolidated net income includes a pre-tax, noncash gain of $1.2 billion in 2021
($895 million, net of tax, or $3.33 per diluted share) and a net loss of $794
million in 2020 ($583 million, net of tax, or $2.22 per diluted share)
associated with our MTM retirement plans accounting adjustments. See the
"Retirement Plans MTM Adjustments" section of this MD&A and Note 14 of the
accompanying consolidated financial statements.

Consolidated net income in 2021 also includes a loss on debt extinguishment of
$393 million ($297 million, net of tax, or $1.11 per diluted share) associated
with our capital allocation strategy, which includes reducing outstanding debt.
See the "Other Income and Expense" section of this MD&A and Note 7 of the
accompanying consolidated financial statements.

Net income for 2021 includes a tax benefit of $279 million ($1.04 per diluted
share) related to the Coronavirus Aid, Relief, and Economic Security Act ("CARES
Act"), which allows tax losses to be offset against income from prior years that
was taxed at higher rates, and a tax benefit of $66 million ($0.25 per diluted
share) from a tax rate increase in the Netherlands applied to our deferred tax
asset balances. In 2020, we recognized a tax benefit of $133 million ($0.51 per
diluted share) from the reduction of a valuation allowance on certain foreign
tax loss carryforwards and a tax benefit of $71 million ($0.27 per diluted
share) related to the CARES Act. See the "Income Taxes" section of this MD&A and
Note 13 of the accompanying consolidated financial statements.

Impact of the COVID-19 Pandemic


The COVID-19 pandemic had a profound impact on our industry throughout 2021,
resulting in unprecedented demand for our residential delivery services,
rivaling our peak holiday season traffic. In addition, demand for our commercial
service offerings increased throughout the year as COVID-19 restrictions
moderated globally.

During 2021, we were able to flex our networks and make adjustments as needed to
accommodate increased volumes under current operating conditions; however, we
incurred elevated operating expenses to support demand for our services in the
COVID-19 pandemic environment. Our business is labor and capital intensive in
nature, which required us to incur higher costs to operate our networks during
the pandemic, including increased wage rates and costs for additional personnel
in place to support our operations and meet regulatory requirements. The safety
of our team members, our customers and the communities in which we operate is
our top priority, and we took, and continue to take, measures to adhere to all
regulations and guidelines from government authorities related to the
containment of COVID-19 and to protect and promote health and safety. In
connection with this, we incurred increased operating expenses related to
personal protective equipment and medical/safety supplies, as well as additional
security and cleaning services, in order to protect our team members and
customers during the COVID-19 pandemic, of approximately $255 million in 2021
and approximately $125 million in 2020. As a response to these increased costs,
we implemented various pricing initiatives throughout 2021 to mitigate the
negative impact of the change in our operating expense profile.

                                     - 44 -

--------------------------------------------------------------------------------


We also took certain actions during 2021 to improve our liquidity and strengthen
our financial position, given the uncertainty caused by the COVID-19 pandemic.
During 2021, we issued $970 million of pass-through certificates and $3.25
billion of senior unsecured debt under our shelf registration statement. We used
the proceeds of the senior unsecured debt offerings during the fourth quarter of
2021 to redeem $5.8 billion of our existing debt, which eliminated near-term
debt obligations taken on during the early stages of the COVID-19 pandemic. See
Note 7 of the accompanying consolidated financial statements and "Financial
Condition-Liquidity" below for additional information.

At the height of the pandemic, Congress passed the CARES Act, which provided
financial relief to businesses to help them survive the economic impact while
continuing to employ workers and keep the U.S. economy moving. During 2021, we
recorded an income tax benefit of $279 million related to the CARES Act
provision allowing tax losses to be offset against income from prior years and a
pre-tax benefit of approximately $165 million from the excise tax holiday that
expired on December 31, 2020. See Note 13 of the accompanying consolidated
financial statements for more information.

We expect continued uncertainty in our business and the global economy due to
the duration and spread of the COVID-19 pandemic, the success of efforts to
contain it and treat its impact, the possibility of additional subsequent
widespread outbreaks, the resulting effects on the economic conditions in the
global markets in which we operate, the future rate of e-commerce growth and the
timeline for recovery of passenger airline cargo capacity. See "Item 1A. Risk
Factors" of this Annual Report for more information.

                                     - 45 -

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

                               [[Image Removed]]

(1) International domestic average daily package volume relates to our

international intra-country operations. International export average daily

package volume relates to our international priority and economy services.

(2) International average daily freight pounds relate to our international

       priority, economy and airfreight services.


                                     - 46 -
--------------------------------------------------------------------------------

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

                               [[Image Removed]]

(1) International export revenue per package relates to our international

priority and economy services. International domestic revenue per package

relates to our international intra-country operations.

(2) International revenue per pound relates to our international priority,

       economy and airfreight services.


                                     - 47 -
--------------------------------------------------------------------------------



Revenue

Revenue increased 21% in 2021 primarily due to volume growth in residential
delivery services at FedEx Ground and U.S. domestic package volume growth at
FedEx Express, both reflecting increased e-commerce demand accelerated by the
COVID-19 pandemic. International export package volume growth at FedEx Express,
as well as pricing initiatives across all of our transportation segments, also
contributed to the increase in revenue during 2021.

At FedEx Ground, revenue increased 34% in 2021 primarily due to residential
delivery volume growth. Revenue at FedEx Express increased 18% in 2021 due to
international export and U.S. domestic package volume growth. International
export volume increased in 2021 driven by strong demand for international
priority shipments due to air freight capacity constraints. FedEx Freight
revenue increased 10% in 2021 primarily due to higher revenue per shipment and
increased average daily shipments.

Business Realignment Costs


In January 2021, FedEx Express announced a workforce reduction plan in Europe as
it nears the completion of the network integration of TNT Express. The plan will
impact between 5,500 and 6,300 employees in Europe across operational teams and
back-office functions. The execution of the plan is subject to a works council
consultation process that will occur over an 18-month period in accordance with
local country processes and regulations.

We incurred costs during 2021 of $116 million ($90 million, net of tax, or $0.33
per diluted share) associated with our business realignment activities. These
costs are related to certain employee severance arrangements. Approximately $15
million was paid under this program in 2021. We expect the pre-tax cost of our
business realignment activities to range from $300 million to $575 million
through fiscal 2023. We expect savings from our business realignment activities
to be between $275 million and $350 million on an annualized basis beginning in
fiscal 2024. The actual amount and timing of business realignment costs and
related cost savings resulting from the workforce reduction plan are dependent
on local country consultation processes and regulations and negotiated social
plans and may differ from our current expectations and estimates.

Goodwill and Other Asset Impairment Charges


In 2020, we recorded goodwill impairment charges of $358 million predominantly
attributable to our FedEx Office reporting unit. As a result, the goodwill
attributed to this reporting unit has been fully impaired. The COVID-19 pandemic
resulted in store closures and declining print revenue at FedEx Office during
the fourth quarter of 2020, which negatively impacted its near-term operating
performance. We also recorded $11 million of other asset impairment charges at
the FedEx Logistics operating segment in 2020.

In 2020, we made the decision to permanently retire from service 10 Airbus
A310-300 aircraft and 12 related engines at FedEx Express to align with the
needs of the U.S. domestic network and modernize its aircraft fleet. As a
consequence of this decision, we recognized noncash impairment charges of $66
million ($50 million, net of tax, or $0.19 per diluted share) in the FedEx
Express segment in 2020. For additional information regarding these impairment
charges, see the "Critical Accounting Estimates" section of this MD&A and Note 5
of the accompanying consolidated financial statements.

                                     - 48 -

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Operating Expenses

The following table compares operating expenses expressed as dollar amounts (in millions) and as a percent of revenue for the years ended May 31:


                                                                   Percent  

Percent of Revenue

                                        2021(1)      2020(1)       Change        2021(1)         2020(1)
Operating expenses:
Salaries and employee benefits          $ 30,173     $ 25,031            21          35.9 %           36.2 %
Purchased transportation                  21,674       17,466            24          25.8             25.2
Rentals and landing fees                   4,155        3,712            12           5.0              5.4
Depreciation and amortization              3,793        3,615             5           4.5              5.2
Fuel                                       2,882        3,156            (9 )         3.4              4.6
Maintenance and repairs                    3,328        2,893            15           4.0              4.2
Business realignment costs(2)                116            -            NM           0.1                -
Goodwill and other asset impairment
charges(3)                                     -          435            NM             -              0.6
Other                                     11,981       10,492            14          14.3             15.1
Total operating expenses                  78,102       66,800            17          93.0             96.5
Total operating income                  $  5,857     $  2,417           142           7.0 %            3.5 %



(1) Includes TNT Express integration expenses of $210 million in 2021 and $270

million in 2020.

(2) Includes business realignment costs associated with the workforce reduction

plan in Europe.

(3) Includes goodwill and other asset impairment charges associated with the FedEx Office, FedEx Express and FedEx Logistics operating segments.


Our 2021 operating income improved due to international export and U.S. domestic
package volume growth at FedEx Express and residential volume growth at FedEx
Ground, reflecting increased demand accelerated by the COVID-19 pandemic, as
well as yield improvement related to pricing initiatives across all of our
transportation segments. We incurred increased operating expenses to support
unprecedented levels of demand for our services in the COVID-19 pandemic
environment. Our business is labor and capital intensive in nature, which has
required us to incur higher costs to operate our networks during the pandemic,
including increased wage rates and costs for additional personnel in place to
support our operations and meet regulatory requirements.

Volume growth in 2021, as discussed above, contributed to a 21% increase in
salaries and employee benefits expense, a 24% increase in purchased
transportation costs and a 14% increase in other operating expenses. Higher
variable incentive compensation expense also contributed to an increase in
salaries and employee benefits expense in 2021. Purchased transportation costs
were also higher in 2021 primarily due to increased residential service mix at
FedEx Ground. In addition, other operating expenses increased in 2021,
reflecting higher self-insurance accruals at FedEx Ground.

                                     - 49 -

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Fuel

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



                               [[Image Removed]]



Fuel expense decreased 9% during 2021 due to lower fuel prices. Fuel prices
represent only one component of the 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 2021
and 2020 in the accompanying discussions of each of our transportation segments.

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

The manner in which we purchase fuel also influences the net impact of fuel on
our results. For example, our contracts for jet fuel purchases at FedEx Express
are tied to various indices, including the U.S. Gulf Coast index. While many of
these indices are aligned, each index may fluctuate at a different pace, driving
variability in the prices paid for jet fuel. Furthermore, under these
contractual arrangements, approximately 70% of our jet fuel is purchased based
on the index price for the preceding week, with the remainder of our purchases
tied primarily to the index price for the preceding month and preceding day,
rather than based on daily spot rates. These contractual provisions mitigate the
impact of rapidly changing daily spot rates on our jet fuel purchases.

Because of the factors described above, our operating results may be affected
should the market price of fuel suddenly change by a significant amount or
change by amounts that do not result in an adjustment in our fuel surcharges,
which can significantly affect our earnings either positively or negatively in
the short-term. For more information, see "Item 1A. Risk Factors."

We routinely review our fuel surcharges and periodically update the tables used
to determine our fuel surcharges at all of our transportation segments. The net
impact of fuel on operating income described below and for each segment below
does not include the impact from these ordinary-course table changes.

The net impact of fuel had a modest benefit to operating income in 2021 as decreased fuel prices outpaced lower fuel surcharges.


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. In addition, our
purchased transportation expense may be impacted by fuel costs. 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.

                                     - 50 -

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Other Income and Expense


Interest expense increased $121 million in 2021 primarily due to our U.S. and
euro debt issuances during the year. As part of our capital allocation strategy,
we issued $3.25 billion of senior unsecured debt under our shelf registration
statement during 2021 and used the net proceeds to redeem outstanding debt. In
connection with our debt restructuring, we recognized a loss on debt
extinguishment of $393 million ($297 million, net of tax, or $1.11 per diluted
share). See Note 7 of the accompanying consolidated financial statements for
more information.

Retirement Plans MTM Adjustments


We incurred a pre-tax, noncash MTM net gain of $1.2 billion in 2021 ($936
million, net of tax, or $3.48 per diluted share) and a net loss of $794 million
in 2020 ($583 million, net of tax, or $2.22 per diluted share) from actuarial
adjustments to pension and postretirement healthcare plans related to the
year-end measurement of plan assets and liabilities. The net gain in 2021 is
attributable to higher than expected asset returns and an improved discount
rate. The net loss in 2020 is attributable to a significantly lower discount
rate, partially offset by higher than expected asset returns.

In addition, we incurred a pre-tax, noncash MTM net loss of $52 million ($41
million, net of tax, or $0.15 per diluted share) in 2021 related to amendments
to the TNT Express Netherlands Pension Plan. Benefits for approximately 2,100
employees were frozen effective December 31, 2020. On January 1, 2021, these
employees began earning pension benefits under a separate, multi-employer
pension plan. This $52 million net loss consists of a $106 million MTM loss due
to a lower discount rate and a $54 million curtailment gain.

For more information, see the "Critical Accounting Estimates" section of this MD&A and Note 1 and Note 14 of the accompanying consolidated financial statements.

Income Taxes


A reconciliation of total income tax expense and the amount computed by applying
the statutory federal income tax to income before income taxes for the years
ended May 31 is as follows (dollars in millions):



                                                              2021        

2020

Taxes computed at federal statutory rate                     $ 1,401     $  

350

(Decreases) increases in income tax from:
Benefit from U.S. tax loss carryback to prior years             (279 )      (71 )
State and local income taxes, net of federal benefit             179        

53

Foreign operations                                               138        

38

Benefits from share-based payments                               (69 )       (5 )
Uncertain tax positions                                           65        (14 )
Foreign tax rate enactments                                      (61 )      (10 )
Non-deductible expenses                                           53         70
Valuation allowance                                               14       (129 )
Goodwill impairment charges                                        -         75

U.S. deferred tax adjustment related to foreign operations -

 51
Other, net                                                         2        (25 )
Provision for income taxes                                   $ 1,443     $  383
Effective Tax Rate                                              21.6 %     23.0 %


On March 27, 2020, the CARES Act was enacted to address the economic impact of
the COVID-19 pandemic in the United States. Among other things, the CARES Act
allows a five-year carryback period for tax losses generated in 2019 through
2021. The 2021 tax provision includes a benefit of $279 million from an increase
in our 2020 tax loss that the CARES Act allows to be carried back to 2015, when
the U.S. federal income tax rate was 35%. The increase in our estimated 2020 tax
loss is attributable to our Application for Change in Accounting Method
discussed below, voluntary contributions to our tax-qualified U.S. domestic
pension plans ("U.S. Pension Plans") and other accelerated deductions claimed on
the 2020 tax return filed in 2021. The 2021 tax provision also includes a
benefit of $66 million from a tax rate increase in the Netherlands applied to
our deferred tax asset balances and was unfavorably impacted by an increase in
uncertain tax positions for matters in multiple jurisdictions.

                                     - 51 -

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We filed an application with the Internal Revenue Service ("IRS") in 2020
requesting approval to change our accounting method for depreciation to allow
retroactive application of tax regulations issued during 2020 on certain assets
placed in service during 2018 and 2019. During 2021, the IRS issued guidance
granting automatic approval to change the method of accounting for these assets
resulting in an income tax benefit of $130 million.

The 2020 tax provision includes a benefit of $133 million from the reduction of
a valuation allowance on certain foreign tax loss carryforwards and a benefit of
$71 million in connection with our estimated 2020 tax loss that the CARES Act
allows to be carried back to 2015, a tax year when the U.S. federal income tax
rate was 35%. The 2020 tax provision also includes a deferred income tax expense
of $51 million for a change in deferred tax balances related to future foreign
tax credits from our international structure as a result of changes in legal
entity forecasts during the fourth quarter. The 2020 effective tax rate was
negatively impacted by decreased earnings in certain non-U.S. jurisdictions.

We are subject to taxation in the U.S. and various U.S. state, local and foreign
jurisdictions. We are currently under examination by the IRS for the 2016
through 2019 tax years. It is reasonably possible that certain income tax return
proceedings will be completed during the next 12 months and could result in a
change in our balance of unrecognized tax benefits. However, we believe we have
recorded adequate amounts of tax, including interest and penalties, for any
adjustments expected to occur.

During 2021, we filed suit in U.S. District Court for the Western District of
Tennessee challenging the validity of a tax regulation related to the one-time
transition tax on unrepatriated foreign earnings, which was enacted as part of
the Tax Cuts and Jobs Act ("TCJA"). Our lawsuit seeks to have the court declare
this regulation invalid and order the refund of overpayments of U.S. federal
income taxes for 2018 and 2019 attributable to the denial of foreign tax credits
under the regulation. We have recorded a cumulative benefit of $233 million
through 2019 attributable to our interpretation of the TCJA and the Internal
Revenue Code. We continue to pursue this lawsuit; however, if we are ultimately
unsuccessful in defending our position, we may be required to reverse the
benefit previously recorded.

For more information on income taxes, see the "Critical Accounting Estimates" section of this MD&A and Note 13 of the accompanying consolidated financial statements.

Business Acquisitions

See Note 4 of the accompanying consolidated financial statements for a discussion of business acquisitions.

Outlook


During 2022, we expect volume and yield growth across our transportation
segments to drive improved revenue and operating income. We anticipate our
volume to continue to benefit from growing demand for our e-commerce services
and international export package services. We also expect to continue to incur
higher costs required to meet anticipated demand, including higher labor costs
as a result of challenging labor markets. However, variable incentive
compensation expenses are not expected to be an expense headwind in 2022.

The uncertainty of the COVID-19 pandemic is expected to continue to impact our
business in 2022, as the extent and timing of the post-pandemic economic
recovery remains uncertain. We expect continued demand growth for our e-commerce
services and global capacity constraints to continue driving strong demand for
international export shipments in 2022. We will continue to manage network
capacity to the demand levels, flexing our network and making adjustments as
needed to align with volumes and operating conditions.

We will continue optimizing our FedEx Ground seven-day-per-week residential
delivery network capacity to meet evolving customer needs in 2022. In addition,
we will continue to focus on last-mile delivery optimization by directing
certain U.S. day-definite FedEx Express shipments into the FedEx Ground network
to increase efficiency and lower our cost-to-serve. We also are focused on
improving revenue quality and lowering costs through investments in technology
aimed at improving productivity and safety.

We expect to complete the final phase of FedEx Express and TNT Express international air network interoperability in early calendar 2022 allowing us to leverage the capabilities that TNT Express adds to our portfolio, which is expected to improve our European revenue and profitability.


We expect to incur approximately $150 million of TNT Express integration
expenses in 2022 in the form of professional fees, outside service contracts,
salaries and wages and other operating expenses. We now expect the aggregate
integration program expenses to be approximately $1.8 billion through the
completion of the physical network integration of TNT Express into FedEx Express
in 2022, which is slightly higher than our previous estimates due to costs
associated with further optimizing our international legal entity structures and
improving back-office automation to enhance long-term cost savings.

                                     - 52 -

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During 2022, we will continue to execute initiatives in addition to the
integration to transform and optimize the FedEx Express international business,
particularly in Europe. These actions are focused on reducing the complexity and
fragmentation of our international business, improving efficiency to meet
changing customer expectations and business dynamics, lowering costs, increasing
profitability and improving service levels. We expect to incur additional costs,
over multiple years, including transformation costs and capital investments
related to these actions. As part of this strategy, in January 2021 we announced
a workforce reduction plan in Europe. We expect the pre-tax cost of the
severance benefits to be provided under the plan to range from $300 million to
$575 million in cash expenditures through fiscal 2023. We expect savings from
our business realignment activities to be between $275 million and $350 million
on an annualized basis beginning in fiscal 2024. See the "Business Realignment
Costs" section of this MD&A for additional information.

Our capital expenditures for 2022 are expected to be approximately $7.2 billion,
an increase of $1.3 billion from 2021 due to investments in capacity to support
increased volume levels, facility modernization, as well as replacement capital
spend which was postponed in 2021 to improve liquidity and strengthen our
financial position. Our 2022 expected capital expenditures include investments
in aircraft fleet modernization, strategic investments to increase capacity and
improve productivity and safety, and the FedEx Express Indianapolis and Memphis
hub modernization and expansion programs.

Our aircraft fleet modernization and hub modernization and expansion programs at
FedEx Express are multi-year programs that will entail significant investments
over the next several years. See the "Contractual Cash Obligations and
Off-Balance Sheet Arrangements" section of this MD&A for details of our capital
commitments for 2022 and beyond. We will continue to evaluate our investments in
critical long-term strategic projects to ensure our capital expenditures are
expected to generate high returns on investment and are balanced with our
outlook for global economic conditions. For additional details on key 2022
capital projects, refer to the "Financial Condition - Capital Resources" and
"Financial Condition - Liquidity Outlook" sections of this MD&A.

See "Item 1A. Risk Factors" and "Forward-Looking Statements" for a discussion of
these and other potential risks and uncertainties that could materially affect
our future performance.

Seasonality of Business

Our businesses are cyclical in nature, as seasonal fluctuations affect volumes,
revenue and earnings. Historically, the U.S. express package business
experiences an increase in volumes in late November and December. International
business, particularly in the Asia-to-U.S. market, peaks in October and November
in advance of the U.S. holiday sales season. Our first and third fiscal
quarters, because they are summer vacation and post winter-holiday seasons, have
historically experienced lower volumes relative to other periods. Normally, the
fall is the busiest shipping period for FedEx Ground, while late December, June
and July are the slowest periods. However, FedEx Ground experienced peak-level
volumes since the fourth quarter of 2020 due to the COVID-19 pandemic. For FedEx
Freight, the spring and fall are the busiest periods and the latter part of
December through February is the slowest period. Shipment levels, operating
costs and earnings for each of our companies can also be adversely affected by
inclement weather, particularly the impact of severe winter weather in our third
fiscal quarter. See "Item 1A. Risk Factors" for more information.

RECENT ACCOUNTING GUIDANCE

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

REPORTABLE SEGMENTS

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



FedEx Express Segment    FedEx Express (express transportation, small-package
                         ground delivery and freight transportation)
                         FedEx Custom Critical, Inc. ("FedEx Custom Critical")
                         (time-critical transportation)
                         FedEx Cross Border Holdings, Inc. ("FedEx Cross Border")
                         (cross-border e-commerce technology and e-commerce
                         transportation solutions)

FedEx Ground Segment     FedEx Ground (small-package ground delivery)

FedEx Freight Segment    FedEx Freight (LTL freight transportation)

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




                                     - 53 -
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FEDEX SERVICES SEGMENT

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

The operating expense line item "Intercompany charges" on the accompanying
consolidated financial statements of our transportation segments reflects the
allocations from the FedEx Services segment to the respective operating
segments. The allocations of net operating costs are based on metrics such as
relative revenue or estimated services provided. We believe these allocations
approximate the net cost of providing these functions. Our allocation
methodologies are refined periodically, as necessary, to reflect changes in our
businesses.

CORPORATE, OTHER AND ELIMINATIONS


Corporate and other includes corporate headquarters costs for executive officers
and certain legal and finance functions, as well as certain other costs and
credits not attributed to our core business, including certain costs associated
with developing our innovate digitally strategic pillar. These costs are not
allocated to the other business segments.

Also included in Corporate and other are the FedEx Office operating segment,
which provides an array of document and business services and retail access to
our customers for our package transportation businesses, and the FedEx Logistics
operating segment, which provides integrated supply chain management solutions,
specialty transportation, customs brokerage and global ocean and air freight
forwarding. Additionally, Corporate and other includes the financial results of
ShopRunner, Inc. beginning December 23, 2020.

In 2021, the decrease in revenue in "Corporate, other and eliminations" was due
to a decline in non-shipping revenue at FedEx Office resulting from the COVID-19
pandemic, partially offset by higher revenue at FedEx Logistics. The higher
revenue at FedEx Logistics in 2021 is driven by increased volumes and yields
also resulting from the COVID-19 pandemic, partially offset by the transfer of
FedEx Custom Critical and FedEx Cross Border into the FedEx Express segment.

Certain FedEx operating companies provide transportation and related services
for other FedEx companies outside their reportable segment in order to optimize
our resources. For example, during 2021 FedEx Freight provided road and
intermodal support for both FedEx Ground and FedEx Express, and FedEx Ground
provided delivery support for certain FedEx Express packages as part of our
last-mile optimization efforts. In addition, FedEx Express is working with FedEx
Logistics to secure air charters for U.S. customers. Billings for such services
are based on negotiated rates, which we believe approximate fair value, and are
reflected as revenue of the billing segment. These rates are adjusted from time
to time based on market conditions. Such intersegment revenue and expenses are
eliminated in our consolidated results and are not separately identified in the
following segment information because the amounts are not material.

                                     - 54 -

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FEDEX EXPRESS SEGMENT


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



                                         2021         2020        Percent Change
Revenue:
Package:
U.S. overnight box                     $  8,116     $  7,234                   12
U.S. overnight envelope                   1,791        1,776                    1
U.S. deferred                             4,984        4,038                   23
Total U.S. domestic package revenue      14,891       13,048                   14
International priority                   10,317        7,354                   40
International economy                     2,632        3,082                  (15 )
Total international export package
revenue                                  12,949       10,436                   24
International domestic(1)                 4,640        4,179                   11
Total package revenue                    32,480       27,663                   17
Freight:
U.S.                                      3,325        2,998                   11
International priority                    3,030        1,915                   58
International economy                     1,582        1,930                  (18 )
International airfreight                    245          270                   (9 )
Total freight revenue                     8,182        7,113                   15        Percent of Revenue
Other(2)                                  1,416          737                   92         2021          2020
Total revenue                            42,078       35,513                   18           100.0 %      100.0 %
Operating expenses:
Salaries and employee benefits           16,217       13,764                   18            38.5         38.7
Purchased transportation                  5,744        4,832                   19            13.7         13.6
Rentals and landing fees                  2,296        2,045                   12             5.5          5.8
Depreciation and amortization             1,946        1,894                    3             4.6          5.3
Fuel                                      2,461        2,664                   (8 )           5.8          7.5
Maintenance and repairs                   2,228        1,874                   19             5.3          5.3
Business realignment costs                  116            -                   NM             0.3            -
Goodwill and other asset impairment
charges                                       -           66                   NM               -          0.2
Intercompany charges                      1,996        1,956                    2             4.7          5.5
Other                                     6,264        5,422                   16            14.9         15.3
Total operating expenses                 39,268       34,517                   14            93.3 %       97.2 %
Operating income                       $  2,810     $    996                  182
Operating margin                            6.7 %        2.8 %                390   bp



(1) International domestic revenue relates to our international intra-country

operations.

(2) Includes the operations of FedEx Custom Critical beginning March 1, 2020 and

    FedEx Cross Border beginning June 1, 2020.


                                     - 55 -
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The following table compares selected statistics (in thousands, except yield amounts) for the years ended May 31:



                                        2021         2020        Percent Change
Package Statistics
Average daily package volume (ADV):
U.S. overnight box                       1,427        1,211                   18
U.S. overnight envelope                    505          521                   (3 )
U.S. deferred                            1,351        1,076                   26
Total U.S. domestic ADV                  3,283        2,808                   17
International priority                     752          559                   35
International economy                      284          282                    1
Total international export ADV           1,036          841                   23
International domestic(1)                2,362        2,337                    1
Total ADV                                6,681        5,986                   12
Revenue per package (yield):
U.S. overnight box                    $  22.31     $  23.51                   (5 )
U.S. overnight envelope                  13.90        13.43                    3
U.S. deferred                            14.46        14.78                   (2 )
U.S. domestic composite                  17.79        18.30                   (3 )
International priority                   53.84        51.75                    4
International economy                    36.32        43.03                  (16 )
International export composite           49.03        48.83                    -
International domestic(1)                 7.70         7.04                    9
Composite package yield                  19.06        18.19                    5
Freight Statistics
Average daily freight pounds:
U.S.                                     9,231        8,528                    8
International priority                   6,155        4,895                   26
International economy                   12,245       13,450                   (9 )
International airfreight                 1,469        1,535                   (4 )
Total average daily freight pounds      29,100       28,408                    2
Revenue per pound (yield):
U.S.                                  $   1.41     $   1.38                    2
International priority                    1.93         1.54                   25
International economy                     0.51         0.56                   (9 )
International airfreight                  0.65         0.69                   (6 )
Composite freight yield                   1.10         0.99                   11

(1) International domestic statistics relate to our international intra-country

operations.

FedEx Express Segment Revenue

FedEx Express segment revenue increased 18% in 2021 primarily due to international export and U.S. domestic package volume growth, as well as pricing initiatives resulting from global air freight capacity constraints.


International export average daily volumes increased 23% in 2021 led by volume
growth from Asia-Pacific and Europe. In addition, industry-wide capacity
constraints and actions to prioritize premium-yielding products drove a mix
shift from international economy to international priority services in 2021.
International export package yield increased slightly in 2021 due to favorable
exchange rates and pricing initiatives resulting from global air freight
capacity constraints, partially offset by base yield declines and lower fuel
surcharges. U.S. domestic package average daily volumes increased 17% in 2021
driven by growth in deferred service offerings, reflecting increased e-commerce
demand resulting from the COVID-19 pandemic, as well as growth in overnight box
service offerings. U.S. domestic package yield decreased 3% in 2021 due to lower
package weights and lower fuel surcharges. Average daily freight pounds
increased 2% in 2021 primarily due to volume growth in international priority
and U.S. services. Composite freight yield increased 11% in 2021 primarily due
to improved base yields. Other revenue increased 92% in 2021 due to the transfer
of FedEx Custom Critical and FedEx Cross Border into the FedEx Express segment.

                                     - 56 -

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




                                                    2021       2020
U.S. Domestic and Outbound Fuel Surcharge:
Low                                                   2.7 %      0.5 %
High                                                  8.0        8.6
Weighted-average                                      4.9        6.3
International Export and Freight Fuel Surcharge:
Low                                                   0.3          -
High                                                 22.0       19.3
Weighted-average                                     12.8       14.0
International Domestic Fuel Surcharge:
Low                                                   2.6        3.2
High                                                 20.4       24.5
Weighted-average                                      6.4        7.3

FedEx Express Segment Operating Income


FedEx Express segment operating income increased substantially in 2021 primarily
due to international export and U.S. domestic package volume growth. FedEx
Express segment operating results include a pre-tax benefit of approximately
$165 million in 2021 from a reduction in aviation excise taxes provided by the
CARES Act, which expired on December 31, 2020. These factors were partially
offset by higher variable incentive compensation expense of approximately $800
million in 2021, which includes approximately $125 million in special bonuses
paid in January 2021 to our front-line operational team members. We experienced
constrained commercial air capacity leading to high usage of our aircraft fleet
and increased costs of operating our global network in 2021 as result of the
COVID-19 pandemic. Results in 2020 were negatively impacted by $66 million of
asset impairment charges associated with the decision to permanently retire
certain aircraft and related engines.

FedEx Express segment results include approximately $176 million of TNT Express integration expenses in 2021, a decrease of $46 million from 2020.


Salaries and employee benefits expense increased 18% in 2021 primarily due to
staffing to support volume growth and higher variable incentive compensation
expense. In addition, higher labor expense and increased costs associated with
network contingencies as a result of the COVID-19 pandemic contributed to the
increase in salaries and employee benefits expense in 2021. Purchased
transportation expense increased 19% in 2021 primarily due to the transfer of
FedEx Custom Critical and FedEx Cross Border into the FedEx Express segment, as
well as higher utilization of third-party transportation providers. Other
operating expense increased 16% in 2021 primarily due to bad debt expense and
additional volume-related expenses. Maintenance and repairs expense increased
19% in 2021 primarily due to additional flight hours as constrained commercial
air capacity drove increased usage of owned assets.

Fuel expense decreased 8% in 2021 due to lower fuel prices, partially offset by
higher aircraft and vehicle fuel usage. The net impact of fuel had a slightly
negative impact to operating income in 2021 as lower fuel surcharges outpaced
decreased fuel prices. See the "Results of Operations and Outlook - Consolidated
Results - Fuel" section of this MD&A for a description and additional discussion
of the net impact of fuel on our operating results.

FedEx Express Segment Outlook


We expect increased demand for our e-commerce services, international export
volume growth and pricing initiatives to drive improved revenue and operating
income in 2022. As a result of business growth and service improvement
initiatives, we anticipate increases in staffing costs, purchased transportation
and other operating expenses in 2022. We also expect continued high usage of our
aircraft fleet resulting from limited commercial availability on transoceanic
lanes.

We expect the FedEx Express segment to incur approximately $125 million of TNT
Express integration expenses in 2022. See the "Outlook" section of this MD&A for
additional information regarding the integration of TNT Express.

Capital expenditures at FedEx Express are expected to increase in 2022 primarily
related to facility investments and vehicle purchases, partially offset by a
decrease in aircraft-related payments. We continue to make multi-year
investments in our facilities of approximately $1.5 billion to significantly
expand the Indianapolis hub and approximately $1.5 billion to modernize the
Memphis World Hub.

                                     - 57 -

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FEDEX GROUND SEGMENT


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



                                         2021         2020        Percent Change           Percent of Revenue
                                                                                            2021          2020
Revenue                                $ 30,496     $ 22,733                   34             100.0 %      100.0 %
Operating expenses:
Salaries and employee benefits            6,060        4,060                   49              19.9         17.9
Purchased transportation                 14,126       10,799                   31              46.3         47.5
Rentals                                   1,166          989                   18               3.8          4.3
Depreciation and amortization               843          789                    7               2.8          3.5
Fuel                                         21           15                   40               0.1          0.1
Maintenance and repairs                     496          392                   27               1.6          1.7
Intercompany charges                      1,862        1,581                   18               6.1          6.9
Other                                     2,729        2,094                   30               8.9          9.2
Total operating expenses                 27,303       20,719                   32              89.5 %       91.1 %
Operating income                       $  3,193     $  2,014                   59
Operating margin                           10.5 %        8.9 %                160   bp
Average daily package volume             12,272        9,997                

23

Revenue per package (yield)            $   9.70     $   8.93                

9

FedEx Ground Segment Revenue


FedEx Ground segment revenue increased 34% in 2021 due to residential delivery
volume growth reflecting increased e-commerce demand accelerated by the COVID-19
pandemic. Additionally, improved yields related to pricing initiatives
positively impacted revenue in 2021.

Average daily volume increased 23% in 2021 primarily due to continued growth in residential services driven by e-commerce, as well as growth in commercial services. FedEx Ground yields increased 9% in 2021 primarily due to pricing initiatives.


The FedEx Ground fuel surcharge is based on a rounded average of the national
U.S. on-highway average price for a gallon of diesel fuel, as published by the
Department of Energy. The fuel surcharge ranged as follows for the years ended
May 31:



                   2021      2020
Low                  5.5 %     5.8 %
High                 8.0       7.3
Weighted-average     6.4       6.7

FedEx Ground Segment Operating Income


FedEx Ground segment operating income increased 59% in 2021 primarily due to
residential delivery volume growth and yield improvement. These factors were
partially offset by higher purchased transportation service provider settlements
related to residential service mix, increased labor expenses and higher
self-insurance accruals in 2021.

Purchased transportation expense increased 31% in 2021 due to higher volumes and
increased residential service mix. Salaries and employee benefits expense
increased 49% in 2021 due to additional staffing to support volume growth,
including costs associated with operating our seven-day-per-week U.S. network,
merit increases and higher variable incentive compensation expense of
approximately $215 million. Other operating expense increased 30% in 2021
primarily due to higher self-insurance accruals and additional volume-related
expenses.

The net impact of fuel had a moderate benefit to operating income in 2021 as
decreased fuel prices outpaced lower fuel surcharges. See the "Results of
Operations and Outlook - Consolidated Results - Fuel" section of this MD&A for a
description and additional discussion of the net impact of fuel on our operating
results.

                                     - 58 -
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FedEx Ground Segment Outlook

We anticipate increased demand for residential and commercial services to continue at FedEx Ground in 2022. We will continue to focus on pricing initiatives to align with market demand, network capacity dynamics and labor market challenges in 2022.


FedEx Ground is making strategic technology investments to optimize last-mile
deliveries via route optimization, expand capabilities to better handle large
items and improve scheduling at its hubs and stations, leading to anticipated
productivity improvements. Strategic investments for safety technology will
remain a critical focus in 2022 throughout the FedEx Ground network. We believe
these initiatives will allow for the more efficient use of our existing assets,
which will drive improved performance and enhance our competitive position over
the long term.

Capital expenditures at FedEx Ground are expected to increase in 2022 primarily for new and expanded facilities, as well as trailer purchases to support increased demand for our services.

FEDEX FREIGHT SEGMENT


FedEx Freight LTL service offerings include priority services when speed is
critical and economy services when time can be traded for savings. Prior year
statistical information has been revised to conform to the current year
presentation. The following table compares revenue, operating expenses,
operating income (dollars in millions), operating margin, selected statistics
and operating expenses as a percent of revenue for the years ended May 31:



                                                                     Percent           Percent of Revenue
                                            2021         2020        Change             2021          2020
Revenue                                   $  7,833     $  7,102            10             100.0 %      100.0 %
Operating expenses:
Salaries and employee benefits               3,666        3,449             6              46.8         48.5
Purchased transportation                       827          695            19              10.6          9.8
Rentals                                        229          208            10               2.9          2.9
Depreciation and amortization                  417          381             9               5.3          5.4
Fuel                                           398          476           (16 )             5.1          6.7
Maintenance and repairs                        227          247            (8 )             2.9          3.5
Intercompany charges                           505          516            (2 )             6.5          7.3
Other                                          559          550             2               7.1          7.7
Total operating expenses                     6,828        6,522             5              87.2 %       91.8 %
Operating income                          $  1,005     $    580            73
Operating margin                              12.8 %        8.2 %         460   bp
Average daily shipments (in thousands):
Priority                                      76.2         72.5             5
Economy                                       32.2         30.5             6
Total average daily shipments                108.4        103.0             5
Weight per shipment:
Priority                                     1,104        1,146            (4 )
Economy                                        987          986             -
Composite weight per shipment                1,069        1,098            (3 )
Revenue per shipment:
Priority                                  $ 269.98     $ 260.39             4
Economy                                     313.67       301.55             4
Composite revenue per shipment            $ 282.95     $ 272.56             4
Revenue per hundredweight:
Priority                                  $  24.45     $  22.73             8
Economy                                      31.80        30.59             4
Composite revenue per hundredweight       $  26.46     $  24.82             7



FedEx Freight Segment Revenue

FedEx Freight segment revenue increased 10% in 2021 primarily due to higher revenue per shipment and increased average daily shipments.

                                     - 59 -

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Revenue per shipment increased 4% in 2021 primarily due to higher base rates
reflecting our ongoing revenue quality initiatives, partially offset by lower
weight per shipment and lower fuel surcharge rates. Average daily shipments
increased 5% in 2021 due to volumes returning to pre-COVID-19 levels and higher
demand for our service offerings.

The weekly indexed fuel surcharge is based on the average of the U.S. on-highway
prices for a gallon of diesel fuel, as published by the Department of Energy.
The indexed FedEx Freight fuel surcharge ranged as follows for the years ended
May 31:



                    2021       2020
Low                  21.0 %     21.0 %
High                 25.4       24.4
Weighted-average     22.5       23.4

FedEx Freight Segment Operating Income

FedEx Freight segment operating income increased 73% in 2021 driven by continued focus on revenue quality initiatives, managing our costs and improving operational efficiencies.

Salaries and employee benefits increased 6% in 2021 primarily due to higher variable incentive compensation expense of approximately $115 million, higher volumes and merit increases. Purchased transportation increased 19% in 2021 primarily due to higher utilization of third-party transportation and rail providers.


Fuel expense decreased 16% in 2021 primarily due to lower fuel prices. The net
impact of fuel had a slightly negative impact to operating income in 2021 as
lower fuel surcharges outpaced decreased fuel prices. See the "Results of
Operations and Outlook - Consolidated Results - Fuel" section of this MD&A for a
description and additional discussion of the net impact of fuel on our operating
results.

FedEx Freight Segment Outlook

We expect higher revenue and operating results at FedEx Freight during 2022, and
we will continue to remain focused on safety, profitable market share growth and
cost management. We will also remain committed to our revenue quality
initiatives and will utilize technology and engineering to improve operational
productivities and efficiencies throughout our network. We will continue to
invest in new service offerings and deliver improved customer experiences,
including growing our FedEx Freight Direct employee-based and company-branded
basic, standard and premium service offerings. FedEx Freight will continue its
collaboration with FedEx Ground and FedEx Express during 2022 by providing road
and intermodal support.

Capital expenditures at FedEx Freight are expected to increase in 2022 due to
fleet modernization and strategic initiatives to improve the safety and security
of our employees.

                                     - 60 -
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FINANCIAL CONDITION

LIQUIDITY

Cash and cash equivalents totaled $7.1 billion at May 31, 2021, compared to $4.9 billion at May 31, 2020. The following table provides a summary of our cash flows for the years ended May 31 (in millions):



                                                    2021         2020
Operating activities:
Net income                                        $  5,231     $  1,286

Retirement plans mark-to-market adjustments (1,176 ) 794 Loss on extinguishment of debt

                         393            -
Business realignment costs                             102            -
Goodwill and other asset impairment charges              -          435
Other noncash charges and credits                    7,457        6,674
Changes in assets and liabilities                   (1,872 )     (4,092 )
Cash provided by operating activities               10,135        5,097
Investing activities:
Capital expenditures                                (5,884 )     (5,868 )
Business acquisitions, net of cash acquired           (228 )          -
Proceeds from asset dispositions and other             102           22
Cash used in investing activities                   (6,010 )     (5,846 )
Financing activities:
Payments on debt                                    (6,318 )     (2,548 )
Proceeds from debt issuances                         4,212        6,556
Proceeds from stock issuances                          740           64
Dividends paid                                        (686 )       (679 )
Purchase of treasury stock                               -           (3 )
Other                                                  (38 )         (9 )

Cash (used in) provided by financing activities (2,090 ) 3,381 Effect of exchange rate changes on cash

                171          (70 )

Net increase in cash and cash equivalents $ 2,206 $ 2,562 Cash and cash equivalents at end of period $ 7,087 $ 4,881

Cash Provided by Operating Activities. Cash flows from operating activities increased $5.0 billion in 2021 primarily due to higher net income, the timing of variable incentive compensation payments and lower pension contributions.


Cash Used in Investing Activities. Capital expenditures increased slightly in
2021 primarily due to higher aircraft spending at FedEx Express, partially
offset by lower vehicle spending across all of our transportation segments. See
"Capital Resources" below for a more detailed discussion of capital expenditures
during 2021.

Financing Activities. We issued $3.25 billion of senior unsecured debt under our
shelf registration statement during 2021 and used the net proceeds to redeem
$5.8 billion of outstanding debt and pay associated redemption premiums of $393
million, eliminating all debt maturities through 2025 and one maturity in 2027.
See Note 7 of the accompanying consolidated financial statements for additional
information on the terms of the senior unsecured debt, including the
Sustainability Notes, as well as the debt maturities redeemed.

Additionally, during 2021 FedEx Express issued $970 million of Pass-Through
Certificates, Series 2020-1AA (the "Certificates") with a fixed interest rate of
1.875% due in February 2034 utilizing pass-through trusts. The Certificates are
secured by 19 Boeing aircraft. The payment obligations of FedEx Express in
respect of the Certificates are fully and unconditionally guaranteed by FedEx.
FedEx Express is using the proceeds from the issuance for general corporate
purposes. See Note 7 of the accompanying consolidated financial statements for
additional information regarding the terms of the Certificates.

During 2020, we issued $5.1 billion of senior unsecured debt under our shelf
registration statement and used the net proceeds to make voluntary contributions
to our U.S. Pension Plans, to redeem the $400 million aggregate principal amount
of 2.30% notes due 2020 and the €500 million aggregate principal amount of 0.50%
notes due 2020, to repay $1.5 billion of borrowings under our 364-Day Credit
Agreement that we drew in March 2020 and $136 million of commercial paper
outstanding under our commercial paper program and for general corporate
purposes.

                                     - 61 -

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



                                                      2021                                           2020
                                      Total                                          Total
                                    Number of        Average         Total         Number of        Average          Total
                                     Shares        Price Paid      

Purchase Shares Price Paid Purchase

                                    Purchased       per Share        Price         Purchased       per Share         Price
Common stock repurchases                     -     $         -     $        -          20,000     $     156.90     $        3




In January 2016, our Board of Directors authorized a stock repurchase program of
up to 25 million shares. Shares under the current repurchase program may be
repurchased from time to time in the open market or in privately negotiated
transactions. The timing and volume of repurchases are at the discretion of
management, based on the capital needs of the business, the market price of
FedEx common stock and general market conditions. No time limit was set for the
completion of the program, and the program may be suspended or discontinued at
any time. As of May 31, 2021, 5.1 million shares remained under the current
stock repurchase authorization.

Effective March 16, 2021, we further amended our amended and restated $2.0
billion five-year credit agreement (the "Five-Year Credit Agreement") and
entered into a new $1.5 billion 364-day credit agreement (the "364-Day Credit
Agreement" and together with the Five-Year Credit Agreement, the "Credit
Agreements"). The Credit Agreements no longer contain the temporary covenant
added in the fourth quarter of 2020 restricting us from repurchasing any shares
of our common stock or from increasing the amount of our quarterly dividend
payable per share of common stock from $0.65 per share. Prior to the amendment
of the Five-Year Credit Agreement and entry into the current 364-Day Credit
Agreement on March 16, 2021, our credit agreements contained a financial
covenant requiring us to maintain a ratio of debt to consolidated earnings
(excluding noncash retirement plans MTM adjustments, noncash pension service
costs and noncash asset impairment charges) before interest, taxes, depreciation
and amortization ("adjusted EBITDA") of not more than 3.75 to 1.0, calculated as
of May 31, 2021 on a rolling four-quarter basis. Effective March 16, 2021, we
are required to maintain a ratio of debt to adjusted EBITDA of not more than 3.5
to 1.0, calculated as of the end of the applicable quarter on a rolling
four-quarter basis. See Note 7 of the accompanying consolidated financial
statements for additional information regarding the Credit Agreements.

CAPITAL RESOURCES


Our operations are capital intensive, characterized by significant investments
in aircraft, package handling and sort equipment, vehicles and trailers,
technology and facilities. The amount and timing of capital investments depend
on various factors, including pre-existing contractual commitments, anticipated
volume growth, domestic and international economic conditions, new or enhanced
services, geographical expansion of services, availability of satisfactory
financing and actions of regulatory authorities.

The following table compares capital expenditures by asset category and reportable segment for the years ended May 31 (in millions):




                                                 2021        2020        Percent Change
Aircraft and related equipment                  $ 2,451     $ 1,628         

51

Package handling and ground support equipment 1,352 910

          49
Vehicles and trailers                               351       1,056                  (67 )
Information technology                              816         915                  (11 )
Facilities and other                                914       1,359                  (33 )
Total capital expenditures                      $ 5,884     $ 5,868                    -

FedEx Express segment                           $ 3,503     $ 3,560                   (2 )
FedEx Ground segment                              1,446       1,083                   34
FedEx Freight segment                               320         539                  (41 )
FedEx Services segment                              512         527                   (3 )
Other                                               103         159                  (35 )
Total capital expenditures                      $ 5,884     $ 5,868                    -




Capital expenditures increased slightly during 2021 primarily due to higher
aircraft spending at FedEx Express and increased spending on package handling
equipment at FedEx Ground, partially offset by lower vehicle spending across all
of our transportation segments, as well as lower facility expenditures at FedEx
Express.

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GUARANTOR FINANCIAL INFORMATION

We are providing the following information in compliance with Rule 13-01 of Regulation S-X, "Financial Disclosures about Guarantors and Issuers of Guaranteed Securities" with respect to our senior unsecured debt securities and the Certificates.


The $19.7 billion principal amount of the senior unsecured notes issued by FedEx
under a shelf registration statement are guaranteed by certain direct and
indirect subsidiaries of FedEx ("Guarantor Subsidiaries"). See Note 7 of the
accompanying consolidated financial statements for additional information
regarding the terms of the senior unsecured debt securities. FedEx owns,
directly or indirectly, 100% of each Guarantor Subsidiary. The guarantees (1)
are unsecured obligations of the respective Guarantor Subsidiary, (2) rank
equally with all of their other unsecured and unsubordinated indebtedness, and
(3) are full and unconditional and joint and several. If we sell, transfer or
otherwise dispose of all of the capital stock or all or substantially all of the
assets of a Guarantor Subsidiary to any person that is not an affiliate of
FedEx, the guarantee of that Guarantor Subsidiary will terminate and holders of
debt securities will no longer have a direct claim against such subsidiary under
the guarantee.

Additionally, FedEx fully and unconditionally guarantees the payment obligation
of FedEx Express in respect of the $944 million principal amount of the
Certificates. See Note 7 of the accompanying consolidated financial statements
for additional information regarding the terms of the Certificates.

The following tables present summarized financial information for FedEx (as Parent) and the Guarantor Subsidiaries on a combined basis after transactions and balances within the combined entities have been eliminated.

                       Parent and Guarantor Subsidiaries

The following table presents the summarized balance sheet information as of May
31, 2021 (in millions):



Current Assets            $ 12,795
Intercompany Receivable      3,348
Total Assets                80,470
Current Liabilities          9,135
Intercompany Payable             -
Total Liabilities           55,783

The following table presents the summarized statement of income information as of May 31, 2021 (in millions):



Revenue                      $ 61,455
Intercompany Charges, net      (3,372 )
Operating Income                4,840
Intercompany Charges, net         191
Income Before Income Taxes      5,762
Net Income                   $  4,668

The following table presents summarized financial information for FedEx (as Parent Guarantor) and FedEx Express (as Subsidiary Issuer) on a combined basis after transactions and balances within the combined entities have been eliminated.

                     Parent Guarantor and Subsidiary Issuer

The following table presents the summarized balance sheet information as of May
31, 2021 (in millions):



Current Assets            $  5,281
Intercompany Receivable          -
Total Assets                67,084
Current Liabilities          4,325
Intercompany Payable         5,929
Total Liabilities           46,386


                                     - 63 -
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The following table presents the summarized statement of income information as of May 31, 2021 (in millions):



Revenue                      $ 23,158
Intercompany Charges, net      (1,678 )
Operating Income                1,531
Intercompany Charges, net         806
Income Before Income Taxes      4,608
Net Income                   $  4,254


LIQUIDITY OUTLOOK

In response to current business and economic conditions as referenced above in
the "Outlook" section of this MD&A, we have and will continue to actively manage
our cash flow and seek to protect capital in a still challenging macroeconomic
environment from the ongoing pandemic. Following our 11% debt reduction in the
fourth quarter of 2021, our liquidity position remains strong with $7.1 billion
in cash and $3.5 billion in available liquidity under our Credit Agreements, and
we believe that our cash and cash equivalents, cash flow from operations and
available financing sources will be adequate to meet our liquidity needs,
including expected 2022 capital expenditures. As business and economic
conditions improve, we will routinely evaluate our capital allocation strategy
with a continued focus on strengthening our balance sheet.

Our cash and cash equivalents balance at May 31, 2021 includes $2.3 billion of
cash in foreign jurisdictions associated with our permanent reinvestment
strategy. We are able to access the majority of this cash without a material tax
cost and do not believe that the indefinite reinvestment of these funds impairs
our ability to meet our U.S. domestic debt or working capital obligations.

Our capital expenditures are expected to be approximately $7.2 billion in 2022,
which will include strategic investments to increase capacity to support
elevated volume levels, aircraft modernization at FedEx Express and investments
in productivity and safety. In addition, we are making investments over multiple
years of approximately $1.5 billion to significantly expand the FedEx Express
Indianapolis hub and approximately $1.5 billion to modernize the FedEx Express
Memphis World Hub. We expect approximately 50% of capital expenditures in 2022
to be designated for growth initiatives. Our expected capital expenditures for
2022 include $1.7 billion for delivery of aircraft and related equipment and
progress payments toward future aircraft deliveries at FedEx Express. While we
continue to invest in our business, the capital intensity relative to revenue
remains below historical levels.

We have several aircraft modernization programs underway that are supported by
the purchase of Boeing 777 Freighter and Boeing 767-300 Freighter ("B767F")
aircraft. These aircraft are significantly more fuel-efficient per unit than the
aircraft types previously utilized, and these expenditures are necessary to
achieve significant long-term operating savings and to replace older aircraft.
Our ability to delay the timing of these aircraft-related expenditures is
limited without incurring significant costs to modify existing purchase
agreements.

On June 22, 2021, FedEx Express exercised options to purchase an additional 20
B767F aircraft, ten of which will be delivered in 2024 and ten of which will be
delivered in 2025.

We have a shelf registration statement filed with the Securities and Exchange
Commission ("SEC") that allows us to sell, in one or more future offerings, any
combination of our unsecured debt securities and common stock and allows
pass-through trusts formed by FedEx Express to sell, in one or more future
offerings, pass-through certificates.

The Five-Year Credit Agreement expires in March 2026 and includes a $250 million
letter of credit sublimit. The 364-Day Credit Agreement expires in March 2022.
See Note 7 of the accompanying consolidated financial statements for a
description of the terms and significant covenants of the Credit Agreements.

For 2022, we anticipate making voluntary contributions of $500 million to our
U.S. Pension Plans. As noted in our discussion of critical accounting estimates,
we do not anticipate contributions to our U.S. Pension Plans will be required
for the foreseeable future based on our funded status and the fact we have a
credit balance related to our cumulative excess voluntary pension contributions
over those required that exceeds $3 billion. The credit balance is subtracted
from plan assets to determine the minimum funding requirements. Therefore, we
could eliminate all required contributions to our principal U.S. Pension Plans
for several years if we were to choose to waive part of that credit balance in
any given year. Our U.S. Pension Plans have ample funds to meet expected benefit
payments.

On June 14, 2021, our Board of Directors declared a quarterly dividend of $0.75
per share of common stock. The dividend was paid on July 12, 2021 to
stockholders of record as of the close of business on June 28, 2021. Each
quarterly dividend payment is subject to review and approval by our Board of
Directors, and we evaluate our dividend payment amount on an annual basis.

                                     - 64 -

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The Credit Agreements no longer contain the temporary covenant added in the
fourth quarter of 2020 restricting us from repurchasing any shares of our common
stock, as mentioned above. During the first quarter of 2022, we resumed our
stock repurchase program. See Note 1 of the accompanying consolidated financial
statements for more information regarding our stock repurchase program.

Standard & Poor's has assigned us a senior unsecured debt credit rating of BBB,
a Certificates rating of AA-, a commercial paper rating of A-2 and a ratings
outlook of "stable." Moody's Investors Service has assigned us an unsecured debt
credit rating of Baa2, a Certificates rating of Aa3, a commercial paper rating
of P-2 and a ratings outlook of "stable." If our credit ratings drop, our
interest expense may increase. If our commercial paper ratings drop below
current levels, we may have difficulty utilizing the commercial paper market. If
our senior unsecured debt credit ratings drop below investment grade, our access
to financing may become limited.

CONTRACTUAL CASH OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS


The following table sets forth a summary of our contractual cash obligations as
of May 31, 2021. Certain of these obligations are reflected in our balance
sheet, while others are disclosed as future obligations. We have certain
contingent liabilities that are not accrued in our balance sheet in accordance
with accounting principles generally accepted in the United States. These
contingent liabilities are not included in the table below. We have other
long-term liabilities reflected in our balance sheet, including deferred income
taxes, qualified and nonqualified pension and postretirement healthcare plan
liabilities and other self-insurance accruals. Unless statutorily required, the
payment obligations associated with these liabilities are not reflected in the
table below due to the absence of scheduled maturities. Accordingly, this table
is not meant to represent a forecast of our total cash expenditures for any of
the periods presented.



                                                     Payments Due by Fiscal Year (Undiscounted)
                                                                    (in millions)
                                 2022        2023        2024        2025        2026        Thereafter       Total
Operating activities:
Operating leases                $ 2,637     $ 2,453     $ 2,088     $ 1,808     $ 1,577     $      7,542     $ 18,105
Non-capital purchase
obligations and other             1,491       1,074         755         651         741            2,574        7,286

Interest on long-term debt 711 708 707 706

         705           11,385       14,922
Investing activities:
Aircraft and aircraft-related
capital
  commitments                     1,452       2,172         773         231          37                -        4,665
Other capital purchase
obligations                          83          32           1           1           1                3          121
Financing activities:
Debt                                 52          52          52          52       1,412           18,986       20,606
Finance leases                       19         106          24          24          23              698          894
Total                           $ 6,445     $ 6,597     $ 4,400     $ 3,473     $ 4,496     $     41,188     $ 66,599




Open purchase orders that are cancelable are not considered unconditional
purchase obligations for financial reporting purposes and are not included in
the table above. Such purchase orders often represent authorizations to purchase
rather than binding agreements. See Note 18 of the accompanying consolidated
financial statements for more information on such purchase orders. The table
above does not include estimated payments of approximately $2.5 billion
primarily related to build-to-suit arrangements that have not yet commenced, as
we cannot reasonably estimate the timing of the associated payments. See Note 8
of the accompanying consolidated financial statements for further information.

Operating Activities


The amounts reflected in the table above for operating leases represent
undiscounted future minimum lease payments under noncancelable operating leases
(principally facilities and aircraft) with an initial or remaining term in
excess of one year at May 31, 2021. Under the new lease accounting rules, the
majority of these leases are recognized at the net present value on the balance
sheet as a liability with an offsetting right-to-use asset effective in 2020.
See Note 8 of the accompanying consolidated financial statements for further
information. Credit rating agencies routinely use information concerning minimum
lease payments required for our operating leases to calculate our debt
capacity.

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


Included in the table above within the caption entitled "Non-capital purchase
obligations and other" is our estimate of the current portion of the liability
($103 million) for uncertain tax positions. We cannot reasonably estimate the
timing of the long-term payments or the amount by which the liability will
increase or decrease over time; therefore, the long-term portion of the
liability ($89 million) is excluded from the table. See Note 13 of the
accompanying consolidated financial statements for further information.

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The amounts reflected in the table above for interest on long-term debt represent future interest payments due on our long-term debt.

Investing Activities

The amounts reflected in the table above for capital purchase obligations represent noncancelable agreements to purchase capital-related equipment. Such contracts include those for certain purchases of aircraft, aircraft modifications, vehicles and trailers, facilities, computers and other equipment.

As of May 31, 2021, we had $948 million in deposits and progress payments on aircraft purchases and other planned aircraft-related transactions.

Financing Activities


We have certain financial instruments representing potential commitments, not
reflected in the table above, that were incurred in the normal course of
business to support our operations, including standby letters of credit and
surety bonds. These instruments are required under certain U.S. self-insurance
programs and are also used in the normal course of operations. The underlying
liabilities insured by these instruments are reflected in our balance sheets,
where applicable. Therefore, no additional liability is reflected for the
letters of credit and surety bonds themselves.

The amounts reflected in the table above for long-term debt represent future scheduled principal payments on our long-term debt.

The amounts reflected in the table above for finance leases represent undiscounted future minimum lease payments under noncancelable finance leases with an initial or remaining term in excess of one year at May 31, 2021.


We do not have any guarantees or other off-balance sheet financing arrangements,
including variable interest entities, which we believe could have a material
impact on our financial condition or liquidity.

OTHER BUSINESS MATTERS

On June 24, 2019, FedEx filed suit in U.S. District Court in the District of Columbia seeking to enjoin the U.S. Department of Commerce (the "DOC") from enforcing prohibitions contained in the Export Administration Regulations against FedEx. On September 11, 2020, the court granted the DOC's motion to dismiss the lawsuit. On November 5, 2020, we appealed this decision.

CRITICAL ACCOUNTING ESTIMATES


The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make significant
judgments and estimates to develop amounts reflected and disclosed in the
financial statements. In many cases, there are alternative policies or
estimation techniques that could be used. We maintain a thorough process to
review the application of our accounting policies and to evaluate the
appropriateness of the many estimates that are required to prepare the financial
statements of a complex, global corporation. However, even under optimal
circumstances, estimates routinely require adjustment based on changing
circumstances and new or better information.

The estimates discussed below include the financial statement elements that are
either the most judgmental or involve the selection or application of
alternative accounting policies and are material to our financial
statements. Management has discussed the development and selection of these
critical accounting estimates with the Audit Committee of our Board of Directors
and with our independent registered public accounting firm.

RETIREMENT PLANS


OVERVIEW. We sponsor programs that provide retirement benefits to most of our
employees. These programs include defined benefit pension plans, defined
contribution plans and postretirement healthcare plans and are described in Note
14 of the accompanying consolidated financial statements. The rules for pension
accounting are complex and can produce volatility in our earnings, financial
condition and liquidity.

We are required to record annual year-end adjustments to our financial
statements for the net funded status of our defined benefit pension and
postretirement healthcare plans. The funded status of our plans also impacts our
liquidity; however, the cash funding rules operate under a completely different
set of assumptions and standards than those used for financial reporting
purposes. As a result, our actual cash funding requirements can differ
materially from our reported funded status.

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Over the past several years, we have taken numerous actions to reduce
pension-related risk and expense, including the introduction of our portable
pension account benefit, freezing our traditional pension benefit, employing a
liability-driven investment strategy, permitting certain former employees with a
traditional pension benefit to make a one-time, irrevocable election to receive
their benefits in a lump-sum distribution and transferring approximately $6
billion of our U.S. Pension Plan obligations to Metropolitan Life Insurance
Company.

In 2020, we announced the closing of our U.S.-based defined benefit pension
plans to new non-union employees hired on or after January 1, 2020. We will
introduce an all-401(k)-plan retirement benefit structure for eligible employees
with a higher company match of up to 8% across all U.S.-based operating
companies in 2022. During calendar 2021, current eligible employees under the
Portable Pension Account (PPA) pension formula will be given a one-time option
to continue to be eligible for pension compensation credits under the existing
PPA formula and remain in the existing 401(k) plan with its company match of up
to 3.5%, or to cease receiving compensation credits under the PPA and move to
the new 401(k) plan with the higher company match of up to 8%. Changes to the
new 401(k) plan structure become effective beginning January 1, 2022. While this
new program will provide employees greater flexibility and reduce our long-term
pension costs, it will not have a material impact on current or near-term
financial results.

The "Salaries and employee benefits" caption of our accompanying consolidated
income statements includes retirement plan expense associated with service
costs. The "Other retirement plans income (expense)" caption of our accompanying
consolidated income statements includes our fourth quarter MTM adjustment,
expense associated with prior service and interest costs, the expected return on
assets ("EROA") and settlements. The retirement plans MTM adjustments for 2021
also include the MTM retirement plan accounting adjustment related to amendments
to the TNT Express Netherlands Pension Plan. A summary of our retirement plan
costs affecting our financial results over the past two years is as follows (in
millions):



                                           2021        2020

Expenses affecting Operating Income:

  Defined benefit pension plans           $   934     $   864
  Postretirement healthcare plans              44          42
  Defined contribution plans                  685         574
                                          $ 1,663     $ 1,480

Items affecting Other Income (Expense):

  Retirement plans interest/other         $   807     $   672
  Retirement plans MTM adjustments          1,176        (794 )
                                          $ 1,983     $  (122 )


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



                                                     2021         2020
Actual versus expected return on assets            $ (1,712 )   $ (2,024 )
Discount rate change                                   (397 )      2,997

Demographic experience:

  Current year actuarial loss                           302           50
  Change in future assumptions                          685         (229 )

Curtailment gain on TNT Netherlands pension plan (54 ) - Total MTM (gain) loss

                              $ (1,176 )   $    794


Service cost for our defined benefit pension and postretirement healthcare plans was $978 million in 2021 and $906 million in 2020 and is expected to be approximately $939 million in 2022.

2021


Net of all fees and expenses, the actual rate of return on our U.S. Pension Plan
assets was 12.90%, which was higher than our expected return of 6.75%. Positive
portfolio returns derived from our return-seeking assets were partially offset
by losses from our fixed-income assets due to rising long-term interest rates.
The weighted-average discount rate for all our pension and postretirement
healthcare plans increased six basis points from 3.05% at May 31, 2020 to 3.11%
at May 31, 2021. The demographic experience in 2021 reflects an update to our
mortality and retirement rate assumptions and a current-year actuarial loss due
to unfavorable experience compared to various demographic assumptions.

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2020


The weighted-average discount rate for all our pension and postretirement
healthcare plans decreased 64 basis points from 3.69% at May 31, 2019 to 3.05%
at May 31, 2020. The demographic experience in 2020 reflects an update to our
mortality assumption and a current-year actuarial loss due to unfavorable
experience compared to various demographic assumptions. The actual rate of
return, which is net of all fees and expenses, on our U.S. Pension Plan assets
of 15.00% was higher than our expected return of 6.75%, as return-seeking
assets, primarily equities, were positive despite equity market volatility.
Additionally, fixed-income assets performed as expected as interest rates
declined.

DISCOUNT RATE. The discount rate is the interest rate used to discount the
estimated future benefit payments that have been accrued to date (the projected
benefit obligation or "PBO") to their net present value and to determine the
succeeding year's ongoing pension expense (prior to any year-end MTM
adjustment). The discount rate is determined each year at the plan measurement
date. The discount rate for our U.S. Pension Plans at each measurement date was
as follows:



Measurement
   Date         Discount Rate
 5/31/2021          3.23 %
 5/31/2020          3.14
 5/31/2019          3.85


We determine the discount rate with the assistance of actuaries, who calculate
the yield on a theoretical portfolio of high-grade corporate bonds (rated Aa or
better). In developing this theoretical portfolio, we select bonds that match
cash flows to benefit payments, limit our concentration by industry and issuer,
and apply screening criteria to ensure bonds with a call feature have a low
probability of being called. To the extent scheduled bond proceeds exceed the
estimated benefit payments in a given period, the calculation assumes those
excess proceeds are reinvested at one-year forward rates.

The measurement of our PBO and the related impact on our annual MTM adjustment
is highly sensitive to the discount rate assumption. For our largest pension
plan, a 50-basis-point increase in the discount rate would have decreased our
2021 PBO by approximately $2.1 billion and a 50-basis-point decrease in the
discount rate would have increased our 2021 PBO by approximately $2.3 billion.
However, our annual net pension expense is less sensitive to changes in the
discount rate. For example, a one-basis-point increase in the discount rate for
our largest pension plan would have a $43 million effect on the fourth quarter
MTM adjustment but only a net $0.1 million impact on net pension expense.

PLAN ASSETS. The expected average rate of return on plan assets is a long-term,
forward-looking assumption. It is required to be the expected future long-term
rate of earnings on plan assets. Our U.S. Pension Plan assets are invested
primarily in publicly tradable securities, and our pension plans hold only a
minimal investment in FedEx common stock that is entirely at the discretion of
third-party pension fund investment managers. As part of our strategy to manage
pension costs and funded status volatility, we follow a liability-driven
investment strategy to better align plan assets with liabilities.

Establishing the expected future rate of investment return on our pension assets is a judgmental matter, which we review on an annual basis and revise as appropriate. Management considers the following factors in determining this assumption:

• the duration of our pension plan liabilities, which drives the investment

strategy we can employ with our pension plan assets;

• the types of investment classes in which we invest our pension plan assets

and the expected compound geometric return we can reasonably expect those

investment classes to earn over time, net of all fees and expenses; and

• the investment returns we can reasonably expect our investment management

program to achieve in excess of the returns we could expect if investments

were made strictly in indexed funds.



For consolidated pension expense, we assumed a 6.75% expected long-term rate of
return on our U.S. Pension Plan assets in 2021 and 2020. For 2022, we have
decreased our EROA assumption to 6.50% due to the significant increase in 2021
administrative expenses payable from the pension trust due to higher Pension
Benefit Guaranty Corporation ("PBGC") variable-rate premiums ("VRP") and based
on our long-term outlook for the capital markets. The higher 2021 PBGC VRP
resulted in a 25-basis point lower rate of return compared to 2020. The
historical annual return on our U.S. Pension Plan assets, calculated on a
compound geometric basis, was 7.9%, net of all fees and expenses, for the
15-year period ended May 31, 2021. For our U.S. Pension Plans, a one-basis-point
change in our EROA would impact our 2022 pension expense by $3 million.

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FUNDED STATUS. The following is information concerning the funded status of our pension plans as of May 31 on a financial reporting basis (in millions):




                                       2021         2020

Funded Status of Plans: Projected benefit obligation (PBO) $ 34,034 $ 32,441 Fair value of plan assets

              31,918       28,691
Funded status of the plans           $ (2,116 )   $ (3,750 )

Cash Amounts: Cash contributions during the year $ 461 $ 1,154 Benefit payments during the year $ 1,001 $ 981



FUNDING. The funding requirements for our U.S. Pension Plans are governed by the
Pension Protection Act of 2006, which has aggressive funding requirements in
order to avoid benefit payment restrictions that become effective if the funded
status determined under IRS rules falls below 80% at the beginning of a plan
year. All of our U.S. Pension Plans have funded status levels in excess of 80%
and our plans are fully funded under the Employee Retirement Income Security Act
("ERISA"). Additionally, current benefit payments do not materially impact our
total plan assets (benefit payments for our U.S. Pension Plans for 2021 were
approximately $929 million, or 3.1% of plan assets).

Over the past several years, we have made voluntary contributions to our U.S.
Pension Plans in excess of the minimum required contributions. For 2022, no
pension contributions are required for our U.S. Pension Plans as they are fully
funded under ERISA. However, we expect to make voluntary contributions of $500
million to these plans in 2022.

See Note 14 of the accompanying consolidated financial statements for further information about our retirement plans.

INCOME TAXES


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

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

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

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

                                     - 69 -

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Our income tax positions are based on currently enacted tax laws, including the
TCJA and the CARES Act. As further guidance is issued by the U.S. Treasury
Department, the IRS and other standard-setting bodies, any resulting changes to
our estimates will be treated in accordance with the relevant accounting
guidance.

For more information, including impacts from the TCJA and the CARES Act, see the
"Income Taxes" section of this MD&A and Note 13 of the accompanying consolidated
financial statements.

SELF-INSURANCE ACCRUALS

We are self-insured up to certain limits for costs associated with workers'
compensation claims, vehicle accidents, property and cargo loss, general
business liabilities and benefits paid under employee healthcare and disability
programs. Our reserves are established for estimates of loss on all incurred
claims, including incurred-but-not-reported claims. Self-insurance accruals
reflected in our balance sheet were $4.0 billion at May 31, 2021 and $3.3
billion at May 31, 2020. Approximately 39% of these accruals were classified as
current liabilities.

Our self-insurance accruals are primarily based on the actuarially estimated
cost of claims incurred as of the balance sheet date. These estimates include
consideration of factors such as severity of claims, frequency and volume of
claims, healthcare inflation, seasonality and plan designs. Cost trends on
material accruals are updated each quarter. We self-insure up to certain limits
that vary by type of risk. Periodically, we evaluate the level of insurance
coverage and adjust insurance levels based on risk tolerance and premium
expense.

We believe the use of actuarial methods to account for these liabilities
provides a consistent and effective way to measure these highly judgmental
accruals. However, the use of any estimation technique in this area is
inherently sensitive given the magnitude of claims involved and the length of
time until the ultimate cost is known. We believe our recorded obligations for
these expenses are consistently measured on a conservative basis. Nevertheless,
changes in healthcare costs, accident frequency and severity, insurance
retention levels and other factors can materially affect the estimates for these
liabilities.

LONG-LIVED ASSETS

USEFUL LIVES AND SALVAGE VALUES. Our business is capital intensive, with approximately 53% of our owned assets invested in our transportation and information system infrastructures.


The depreciation or amortization of our capital assets over their estimated
useful lives, and the determination of any salvage values, requires management
to make judgments about future events. Because we utilize many of our capital
assets over relatively long periods (the majority of aircraft costs are
depreciated over 15 to 30 years), we periodically evaluate whether adjustments
to our estimated service lives or salvage values are necessary to ensure these
estimates properly match the economic use of the asset. This evaluation may
result in changes in the estimated lives and residual values used to depreciate
our aircraft and other equipment. For our aircraft, we typically assign no
residual value due to the utilization of these assets in cargo configuration,
which results in little to no value at the end of their useful life. These
estimates affect the amount of depreciation expense recognized in a period and,
ultimately, the gain or loss on the disposal of the asset. Changes in the
estimated lives of assets will result in an increase or decrease in the amount
of depreciation recognized in future periods and could have a material impact on
our results of operations (as described below). Historically, gains and losses
on disposals of operating equipment have not been material. However, such
amounts may differ materially in the future due to changes in business levels,
technological obsolescence, accident frequency, regulatory changes and other
factors beyond our control.

IMPAIRMENT. As of May 31, 2021, the FedEx Express global air network included a
fleet of 684 aircraft (including approximately 300 supplemental aircraft) that
provide delivery of packages and freight to more than 220 countries and
territories through a wide range of U.S. and international shipping services.
While certain aircraft are utilized in primary geographic areas (U.S. versus
international), we operate an integrated global network, and utilize our
aircraft and other modes of transportation to achieve the lowest cost of
delivery while maintaining our service commitments to our customers. Because of
the integrated nature of our global network, our aircraft are interchangeable
across routes and geographies, giving us flexibility with our fleet planning to
meet changing global economic conditions and maintain and modify aircraft as
needed.

Because of the lengthy lead times for aircraft manufacture and modifications, we
must anticipate volume levels and plan our fleet requirements years in advance,
and make commitments for aircraft based on those projections. Furthermore, the
timing and availability of certain used aircraft types (particularly those with
better fuel efficiency) may create limited opportunities to acquire these
aircraft at favorable prices in advance of our capacity needs. These activities
create risks that asset capacity may exceed demand. At May 31, 2021, we had
three purchased aircraft that were not yet placed into service.

                                     - 70 -

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The accounting test for whether an asset held for use is impaired involves first
comparing the carrying value of the asset with its estimated future undiscounted
cash flows. If the cash flows do not exceed the carrying value, the asset must
be adjusted to its current fair value. We operate integrated transportation
networks, and accordingly, cash flows for most of our operating assets are
assessed at a network level, not at an individual asset level for our analysis
of impairment. Further, decisions about capital investments are evaluated based
on the impact to the overall network rather than the return on an individual
asset. We make decisions to remove certain long-lived assets from service based
on projections of reduced capacity needs or lower operating costs of newer
aircraft types, and those decisions may result in an impairment charge. Assets
held for disposal must be adjusted to their estimated fair values less costs to
sell when the decision is made to dispose of the asset and certain other
criteria are met. The fair value determinations for such aircraft may require
management estimates, as there may not be active markets for some of these
aircraft. Such estimates are subject to revision from period to period.

In the normal management of our aircraft fleet, we routinely idle aircraft and
engines temporarily due to maintenance cycles and adjustments of our network
capacity to match seasonality and overall customer demand levels. Temporarily
idled assets are classified as available-for-use, and we continue to record
depreciation expense associated with these assets. These temporarily idled
assets are assessed for impairment and remaining life on a quarterly basis. The
criteria for determining whether an asset has been permanently removed from
service (and, as a result, is potentially impaired) include, but are not limited
to, our global economic outlook and the impact of our outlook on our current and
projected volume levels, including capacity needs during our peak shipping
seasons; the introduction of new fleet types or decisions to permanently retire
an aircraft fleet from operations; and changes to planned service expansion
activities. At May 31, 2021, we had nine aircraft temporarily idled. These
aircraft have been idled for an average of 17 months and are expected to return
to revenue service in order to meet expected demand.

During 2020, we made the decision to permanently retire from service 10 Airbus
A310-300 aircraft and 12 related engines at FedEx Express to align with the
needs of the U.S. domestic network and modernize its aircraft fleet. As a
consequence of this decision, we recognized noncash impairment charges of $66
million ($50 million, net of tax, or $0.19 per diluted share) in the FedEx
Express segment in 2020.

LEASES. We utilize operating leases to finance certain of our aircraft,
facilities and equipment. Such arrangements typically shift the risk of loss on
the residual value of the assets at the end of the lease period to the lessor.
In accordance with the new lease accounting standard adopted June 1, 2019, we
had approximately $16 billion in operating lease liabilities and approximately
$15 billion related right-of-use assets on the balance sheet as of May 31, 2021.
The weighted-average remaining lease term of all operating leases outstanding at
May 31, 2021 was approximately 10 years.

Our leases generally contain options to extend or terminate the lease. We
reevaluate our leases on a regular basis to consider the economic and strategic
incentives of exercising the renewal options, and how they align with our
operating strategy. Therefore, substantially all the renewal option periods are
not included within the lease term and the associated payments are not included
in the measurement of the right-of-use asset and lease liability as the options
to extend are not reasonably certain at lease commencement. Short-term leases
with an initial term of 12 months or less are not recognized in the right-to-use
asset and lease liability on the consolidated balance sheets.

The lease liabilities are measured at the lease commencement date and determined
using the present value of the minimum lease payments not yet paid and our
incremental borrowing rate, which approximates the rate at which we would
borrow, on a collateralized basis, over the term of a lease in the applicable
currency environment. The interest rate implicit in the lease is generally not
determinable in transactions where we are the lessee.

The determination of whether a lease is accounted for as a finance lease or an
operating lease requires management to make estimates primarily about the fair
value of the asset and its estimated economic useful life. In addition, our
evaluation includes ensuring we properly account for build-to-suit lease
arrangements and making judgments about whether various forms of lessee
involvement during the construction period allow the lessee to control the
underlying leased asset during the construction period. We believe we have
well-defined and controlled processes for making these evaluations, including
obtaining third-party appraisals for material transactions to assist us in
making these evaluations.

GOODWILL. We had $7.0 billion of recorded goodwill at May 31, 2021 and $6.4
billion of recorded goodwill at May 31, 2020 from our business acquisitions,
representing the excess of the purchase price over the fair value of the net
assets acquired. Several factors give rise to goodwill in our acquisitions, such
as the expected benefits from synergies of the combination and the existing
workforce of the acquired business.

                                     - 71 -

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Goodwill is reviewed at least annually for impairment. In our evaluation of
goodwill impairment, we perform a qualitative assessment that requires
management judgment and the use of estimates to determine if it is more likely
than not that the fair value of a reporting unit is less than its carrying
amount. An entity has an unconditional option to bypass the qualitative
assessment for any reporting unit and proceed directly to performing the
quantitative goodwill impairment test. An entity may resume performing the
qualitative assessment in any subsequent period. We performed both qualitative
and quantitative assessments of goodwill in the fourth quarter of 2021 and 2020.
This included comparing the fair value of the reporting unit to its carrying
value (including attributable goodwill). Fair value is estimated using standard
valuation methodologies (principally the income or market approach classified as
Level 3 within the fair value hierarchy) incorporating market participant
considerations and management's assumptions on revenue growth rates, operating
margins, discount rates and expected capital expenditures. Estimates used by
management can significantly affect the outcome of the impairment test. Changes
in forecasted operating results and other assumptions could materially affect
these estimates.

Our reporting units with significant recorded goodwill include FedEx Express,
FedEx Ground and FedEx Freight. We evaluated these reporting units during the
fourth quarters of 2021 and 2020 and the estimated fair value of each of these
reporting units exceeded their carrying values as of the end of 2021 and 2020;
therefore, we do not believe that any of these reporting units were impaired as
of the balance sheet dates.

In connection with our annual impairment testing of goodwill conducted in the
fourth quarter of 2020, we recorded impairment charges of $358 million
predominantly attributable to our FedEx Office reporting unit. The COVID-19
pandemic resulted in store closures and declining print revenue at FedEx Office
during the fourth quarter of 2020, which negatively impacted its near-term
operating performance. Based on these factors, our outlook for the FedEx Office
business and retail industry changed in the fourth quarter of 2020.

LEGAL AND OTHER CONTINGENCIES


We are subject to various loss contingencies in connection with our
operations. Contingent liabilities are difficult to measure, as their
measurement is subject to multiple factors that are not easily predicted or
projected. Further, additional complexity in measuring these liabilities arises
due to the various jurisdictions in which these matters occur, which makes our
ability to predict their outcome highly uncertain. Moreover, different
accounting rules must be employed to account for these items based on the nature
of the contingency. Accordingly, significant management judgment is required to
assess these matters and to make determinations about the measurement of a
liability, if any. Certain pending loss contingencies are described in Note 19
of the accompanying consolidated financial statements. In the opinion of
management, the aggregate liability, if any, of individual matters or groups of
related matters not specifically described in Note 19 is not expected to be
material to our financial position, results of operations or cash flows. The
following describes our methods and associated processes for evaluating these
matters.

Because of the complex environment in which we operate, we are subject to
numerous legal proceedings and claims, including those relating to general
commercial matters, governmental enforcement actions, employment-related claims
and FedEx Ground's service providers. Accounting guidance for contingencies
requires an accrual of estimated loss from a contingency, such as a non-income
tax or other legal proceeding or claim, when it is probable (i.e., the future
event or events are likely to occur) that a loss has been incurred and the
amount of the loss can be reasonably estimated. This guidance also requires
disclosure of a loss contingency matter when, in management's judgment, a
material loss is reasonably possible or probable.

During the preparation of our financial statements, we evaluate our
contingencies to determine whether it is probable, reasonably possible or remote
that a liability has been incurred. A loss is recognized for all contingencies
deemed probable and estimable, regardless of amount. For unresolved
contingencies with potentially material exposure that are deemed reasonably
possible, we evaluate whether a potential loss or range of loss can be
reasonably estimated.

Our evaluation of these matters is the result of a comprehensive process
designed to ensure that accounting recognition of a loss or disclosure of these
contingencies is made in a timely manner and involves our legal and accounting
personnel, as well as external counsel where applicable. The process includes
regular communications during each quarter and scheduled meetings shortly before
the completion of our financial statements to evaluate any new legal proceedings
and the status of existing matters.

In determining whether a loss should be accrued or a loss contingency disclosed, we evaluate, among other factors:

• the current status of each matter within the scope and context of the entire

lawsuit or proceeding (e.g., the lengthy and complex nature of class-action

     matters);


  • the procedural status of each matter;

• any opportunities to dispose of a lawsuit on its merits before trial (i.e.,

     motion to dismiss or for summary judgment);


  • the amount of time remaining before a trial date;


                                     - 72 -
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  • the status of discovery;


  • the status of settlement, arbitration or mediation proceedings; and

• our judgment regarding the likelihood of success prior to or at trial.



In reaching our conclusions with respect to accrual of a loss or loss
contingency disclosure, we take a holistic view of each matter based on these
factors and the information available prior to the issuance of our financial
statements. Uncertainty with respect to an individual factor or combination of
these factors may impact our decisions related to accrual or disclosure of a
loss contingency, including a conclusion that we are unable to establish an
estimate of possible loss or a meaningful range of possible loss. We update our
disclosures to reflect our most current understanding of the contingencies at
the time we issue our financial statements. However, events may arise that were
not anticipated and the outcome of a contingency may result in a loss to us that
differs materially from our previously estimated liability or range of possible
loss.

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


INTEREST RATES. While we currently have market risk sensitive instruments
related to interest rates, we do not have significant exposure to changing
interest rates on our long-term debt. As disclosed in Note 7 to the accompanying
consolidated financial statements, we had outstanding fixed-rate long-term debt
(exclusive of finance leases) with an estimated fair value of $23.1 billion at
May 31, 2021 and outstanding fixed- and floating-rate long-term debt (exclusive
of finance leases) with an estimated fair value of $22.8 billion at May 31,
2020. Market risk for long-term debt is estimated as the potential decrease in
fair value resulting from a hypothetical 10% increase in interest rates and
amounts to approximately $507 million as of May 31, 2021 and approximately $303
million as of May 31, 2020. The underlying fair values of our long-term debt
were estimated based on quoted market prices or on the current rates offered for
debt with similar terms and maturities.

We have interest rate risk with respect to our pension and postretirement
benefit obligations. Changes in interest rates impact our liabilities associated
with these retirement plans, as well as the amount of pension and postretirement
benefit expense recognized. Declines in the value of plan assets could diminish
the funded status of our pension plans and potentially increase our requirement
to make contributions to the plans. Substantial investment losses on plan assets
would also increase net pension expense.

FOREIGN CURRENCY. While we are a global provider of transportation, e-commerce
and business services, the majority of our transactions during the periods
presented in this Annual Report are denominated in U.S. dollars. The principal
foreign currency exchange rate risks to which we are exposed are in the euro,
Chinese yuan, British pound, Canadian dollar, Australian dollar, Hong Kong
dollar, Mexican peso, Japanese yen and Brazilian real. Historically, our
exposure to foreign currency fluctuations is more significant with respect to
our revenue than our expenses, as a significant portion of our expenses are
denominated in U.S. dollars, such as aircraft and fuel expenses. Foreign
currency fluctuations had a slightly negative impact on operating income in 2021
and a slightly positive impact on operating income in 2020. However, favorable
foreign currency fluctuations also may have had an offsetting impact on the
price we obtained or the demand for our services, which is not quantifiable. At
May 31, 2021, the result of a uniform 10% strengthening in the value of the
dollar relative to the currencies in which our transactions are denominated
would result in an increase in expected operating income of $121 million for
2022. This theoretical calculation assumes that each exchange rate would change
in the same direction relative to the U.S. dollar, which is not consistent with
our actual experience in foreign currency transactions. In addition to the
direct effects of changes in exchange rates, fluctuations in exchange rates also
affect the volume of sales or the foreign currency sales price as competitors'
services become more or less attractive. The sensitivity analysis of the effects
of changes in foreign currency exchange rates does not factor in a potential
change in sales levels or local currency prices.

We maintain derivative financial instruments to manage foreign currency
fluctuations related to probable future transactions and cash flows denominated
in currencies other than the currency of the transacting entity which impacts
our exposure to foreign currency exchange risk. These derivatives are not
designated as hedges and are accounted for at fair value with any profit or loss
recorded in income, which was immaterial for 2021 and 2020.

COMMODITY. While we have market risk for changes in the price of jet and vehicle fuel, this risk is largely mitigated by our indexed fuel surcharges. For additional discussion of our indexed fuel surcharges, see the "Results of Operations and Outlook - Consolidated Results - Fuel" section of "Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition."







                                     - 73 -

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