FEDERAL EXPRESS CORP - FORM 10-Q

FEDERAL EXPRESS CORP - FORM 10-Q - March 21, 2013

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EXCEL - IDEA: XBRL DOCUMENT - FEDERAL EXPRESS CORP	Financial_Report.xls
EX-12.1 - EX-12.1 - FEDERAL EXPRESS CORP	d505223dex121.htm
EX-32.1 - EX-32.1 - FEDERAL EXPRESS CORP	d505223dex321.htm
EX-31.2 - EX-31.2 - FEDERAL EXPRESS CORP	d505223dex312.htm
EX-31.1 - EX-31.1 - FEDERAL EXPRESS CORP	d505223dex311.htm
EX-32.2 - EX-32.2 - FEDERAL EXPRESS CORP	d505223dex322.htm
EX-15.1 - EX-15.1 - FEDERAL EXPRESS CORP	d505223dex151.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED February 28, 2013 OR

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

FOR THE TRANSITION PERIOD FROM __________ TO __________

Commission File Number: 1-7806

FEDERAL EXPRESS CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		71-0427007
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3610 Hacks Cross Road Memphis, Tennessee		38125
(Address of principal executive offices)		(ZIP Code)

(901) 369-3600

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares of common stock outstanding as of March 19, 2013 was 1,000. The Registrant is a wholly owned subsidiary of FedEx Corporation, and there is no market for the Registrant’s common stock.

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

FEDERAL EXPRESS CORPORATION

INDEX


	PAGE
PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Condensed Consolidated Balance Sheets February 28, 2013 and May 31, 2012		3

Condensed Consolidated Statements of Income Three and Nine Months Ended February 28, 2013 and February 29, 2012		5

Condensed Consolidated Statements of Comprehensive Income Three and Nine Months Ended February 28, 2013 and February 29, 2012		6

Condensed Consolidated Statements of Cash Flows Nine Months Ended February 28, 2013 and February 29, 2012		7

Notes to Condensed Consolidated Financial Statements		8

Report of Independent Registered Public Accounting Firm		14

ITEM 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition		15

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		26

ITEM 4. Controls and Procedures		26

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings		27

ITEM 1A. Risk Factors		27

ITEM 6. Exhibits		27

Signature		29

Exhibit Index		E-1

Exhibit 12.1
Exhibit 15.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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FEDERAL EXPRESS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN MILLIONS)


	February 28, 2013 (Unaudited)		May 31, 2012
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	784	$	712
Receivables, less allowances of $88 and $87		1,599		1,660
Spare parts, supplies and fuel, less allowances of $197 and $183		388		370
Deferred income taxes		315		329
Due from parent company and other FedEx subsidiaries		398		428
Prepaid expenses and other		97		94


Total current assets		3,581		3,593

PROPERTY AND EQUIPMENT, AT COST		24,725		23,378
Less accumulated depreciation and amortization		11,899		11,509


Net property and equipment		12,826		11,869

OTHER LONG-TERM ASSETS
Goodwill		1,537		1,155
Other assets		902		1,110


Total other long-term assets		2,439		2,265

	$	18,846	$	17,727

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

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FEDERAL EXPRESS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN MILLIONS, EXCEPT SHARE DATA)


	February 28, 2013 (Unaudited)			May 31, 2012
LIABILITIES AND OWNER’S EQUITY

CURRENT LIABILITIES
Current portion of long-term debt	$	1		$	416
Accrued salaries and employee benefits		909			991
Accounts payable		1,198			1,131
Accrued expenses		985			954
Due to other FedEx subsidiaries		1,074			153


Total current liabilities		4,167			3,645

LONG-TERM DEBT, LESS CURRENT PORTION		240			239

OTHER LONG-TERM LIABILITIES
Deferred income taxes		2,825			2,637
Pension, postretirement healthcare and other benefit obligations		1,083			1,052
Self-insurance accruals		659			643
Deferred lease obligations		674			695
Deferred gains, principally related to aircraft transactions		230			249
Other liabilities		118			113


Total other long-term liabilities		5,589			5,389

COMMITMENTS AND CONTINGENCIES

OWNER’S EQUITY
Common stock, $0.10 par value; 1,000 shares authorized, issued and outstanding		—			—
Additional paid-in capital		608			608
Retained earnings		8,259			7,916
Accumulated other comprehensive loss		(17	)		(70	)


Total owner’s equity		8,850			8,454

	$	18,846		$	17,727

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

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FEDERAL EXPRESS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(IN MILLIONS)


	Three Months Ended						Nine Months Ended
	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012

REVENUES	$	6,462		$	6,363		$	19,465		$	19,178

OPERATING EXPENSES:
Salaries and employee benefits		2,459			2,337			7,265			6,985
Purchased transportation		413			337			1,221			1,012
Rentals and landing fees		423			418			1,244			1,251
Depreciation and amortization		332			296			985			860
Fuel		1,066			1,078			3,126			3,193
Maintenance and repairs		261			301			979			1,032
Business realignment costs		13			—			14			—
Intercompany charges, net		539			540			1,596			1,622
Other		831			705			2,482			2,251

		6,337			6,012			18,912			18,206


OPERATING INCOME		125			351			553			972

OTHER INCOME (EXPENSE):
Interest, net		16			8			36			28
Other, net		(30	)		(18	)		(68	)		(38	)

		(14	)		(10	)		(32	)		(10	)


INCOME BEFORE INCOME TAXES		111			341			521			962

PROVISION FOR INCOME TAXES		37			110			178			325


NET INCOME	$	74		$	231		$	343		$	637

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

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FEDERAL EXPRESS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(IN MILLIONS)


	Three Months Ended					Nine Months Ended
	February 28, 2013			February 29, 2012		February 28, 2013		February 29, 2012

NET INCOME	$	74		$	231	$	343	$	637

OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustments, net of tax of $1, $15, $5 and $5		(3	)		63		50		(24	)
Amortization of unrealized pension actuarial gains/losses and other, net of tax of $1, $2, $2 and $3		1			3		3		4


COMPREHENSIVE INCOME	$	72		$	297	$	396	$	617

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

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FEDERAL EXPRESS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN MILLIONS)


	Nine Months Ended
	February 28, 2013			February 29, 2012
Operating Activities:
Net income	$	343		$	637
Noncash charges:
Depreciation and amortization		985			860
Other, net		256			500
Changes in assets and liabilities, net		889			277


Cash provided by operating activities		2,473			2,274

Investing Activities:
Capital expenditures		(1,519	)		(2,015	)
Business acquisitions, net of cash acquired		(483	)		(114	)
Other		19			6


Cash used in investing activities		(1,983	)		(2,123	)

Financing Activities:
Principal payments on debt		(417	)		(27	)


Cash used in financing activities		(417	)		(27	)


Effect of exchange rate changes on cash		(1	)		(3	)

Net increase in cash and cash equivalents		72			121
Cash and cash equivalents at beginning of period		712			626


Cash and cash equivalents at end of period	$	784		$	747

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

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FEDERAL EXPRESS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) General

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. These interim financial statements of Federal Express Corporation (“FedEx Express”) have been prepared in accordance with accounting principles generally accepted in the United States and Securities and Exchange Commission instructions for interim financial information, and should be read in conjunction with our Annual Report on Form 10-K for the year ended May 31, 2012 (“Annual Report”). Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed in our Annual Report.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to present fairly our financial position as of February 28, 2013, the results of our operations for the three- and nine-month periods ended February 28, 2013 and February 29, 2012 and cash flows for the nine-month periods ended February 28, 2013 and February 29, 2012. Operating results for the three- and nine-month periods ended February 28, 2013 are not necessarily indicative of the results that may be expected for the year ending May 31, 2013.

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

Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2013 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year.

RECLASSIFICATIONS. Certain prior period amounts have been reclassified to conform to the current period presentation.

BUSINESS ACQUISITIONS. In the first quarter of 2013, we expanded our international service offerings by completing the following business acquisitions:

•

Rapidão Cometa Logística e Transporte S.A., a Brazilian transportation and logistics company, for $398 million in cash from operations on July 4, 2012

•

TATEX, a French express transportation company, for $55 million in cash from operations on July 3, 2012

•

Opek Sp. z o.o., a Polish domestic express package delivery company, for $54 million in cash from operations on June 13, 2012

These acquisitions give us more robust transportation networks within these countries and added capabilities in these important international markets.

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The estimated fair values of the assets and liabilities related to these acquisitions have been included in the accompanying unaudited balance sheet based on a preliminary allocation of the purchase price (summarized in the table below in millions). These allocations will be finalized as soon as the information becomes available and working capital adjustments are completed, which will not exceed one year from the acquisition date.


Current assets	$	145
Property and equipment		87
Goodwill		349
Intangible assets		60
Other non-current assets		67
Current liabilities		(169	)
Long-term liabilities		(32	)

Total purchase price	$	507

The goodwill of $349 million is primarily attributable to expected benefits from synergies of the combinations with existing businesses and other acquired entities. The portion of the purchase price allocated to goodwill is not deductible for U.S. income tax purposes. The intangible assets acquired consist primarily of customer-related intangible assets, which will be amortized on an accelerated basis over their average estimated useful lives of nine years, with the majority of the amortization recognized during the first five years.

EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS. Our pilots, which represent a small number of our total employees, are employed under a collective bargaining agreement. The contract became amendable in March 2013, and the parties are currently in negotiations. In addition to our pilots, certain of our non-U.S. employees are unionized.

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

Our stock-based compensation expense was $7 million for the three-month period ended February 28, 2013 and $29 million for the nine-month period ended February 28, 2013. Our stock-based compensation expense was $7 million for the three-month period ended February 29, 2012 and $26 million for the nine-month period ended February 29, 2012. This amount represents the amount charged to us by FedEx for awards granted to our employees.

LONG-TERM DEBT. During the second quarter of 2013, we made principal payments of $116 million related to capital lease obligations. During the first quarter of 2013, we repaid our $300 million 9.65% unsecured notes that matured on June 15, 2012 using cash from operations.

Long-term debt, exclusive of capital leases, had a carrying value of $239 million compared with an estimated fair value of $346 million at February 28, 2013 and $539 million compared with an estimated fair value of $708 million at May 31, 2012. The estimated fair values were determined based on quoted market prices and the current rates offered for debt with similar terms and maturities. The fair value of our long-term debt is classified as Level 2 within the fair value hierarchy. This classification is defined as a fair value determined using market-based inputs other than quoted prices that are observable for the liability, either directly or indirectly.

BUSINESS REALIGNMENT COSTS. During the second quarter of 2013, FedEx announced profit improvement programs including reducing our selling, general and administrative cost functions through a voluntary employee separation program.

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reimbursement accounts, with the voluntary severance calculated based on four weeks of gross base salary for every year of FedEx service up to a maximum payment of two years of pay. Eligible employees will be scheduled to vacate positions in four phases to ensure a smooth transition in the impacted functions so that we maintain service levels to our customers. Employees in the first phase will vacate their positions on May 31, 2013, and we expect all employees who accept the buyout to vacate their positions by the end of fiscal year 2014. Costs of the benefits provided under the voluntary program will be recognized as special termination benefits in the period that eligible employees accept their offers, predominantly in the fourth quarter of 2013.

We incurred costs of $34 million during the third quarter and $45 million during the nine months of 2013, associated with the FedEx business realignment activities, both directly and through intercompany allocations primarily from FedEx Corporate Services, Inc. (“FedEx Services”). These costs related predominantly to voluntary severance for officers and managing directors who accepted voluntary buyouts in the third quarter of 2013 to adjust our leadership team to our new organizational structure. Payments will be made at the time of departure, and no material payments of these costs were made in the third quarter of 2013. The direct costs of the buyout program are included in the caption “Business realignment costs” while the allocated costs are included in the caption “Intercompany charges, net” in our unaudited condensed consolidated statements of income. Also included in those captions are other external costs directly attributable to our business realignment activities, such as professional fees.

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

On June 1, 2012, we adopted the authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) on the presentation of comprehensive income. The new guidance requires companies to report components of comprehensive income by including comprehensive income on the face of the income statement or in a separate statement of comprehensive income. We have adopted this guidance by including a separate statement of comprehensive income for the three-month and nine-month periods ended February 28, 2013 and February 29, 2012. In addition, on June 1, 2012, we adopted the FASB’s amendments to the fair value measurements and disclosure requirements, which expanded existing disclosure requirements regarding the fair value of our long-term debt.

In February 2013, the FASB issued new guidance requiring additional information about reclassification adjustments out of comprehensive income, including changes in comprehensive income balances by component and significant items reclassified out of comprehensive income. This new standard is effective for our fiscal year ending May 31, 2014 and will have no impact on our financial condition or results of operations.

We believe that no other new accounting guidance was adopted or issued during the nine months of 2013 that is relevant to the readers of our financial statements. However, there are numerous new proposals under development which, if and when enacted, may have a significant impact on our financial reporting.

(2) Retirement Plans

We sponsor or participate in programs that provide retirement benefits to most of our employees. These programs include defined benefit pension plans, defined contribution plans and postretirement healthcare plans. A majority of our employees are covered by the FedEx Corporation Employees’ Pension Plan (“FedEx Plan”), a defined benefit pension plan sponsored by FedEx. The FedEx Plan covers certain U.S. employees age 21 and over with at least one year of service and provides benefits primarily based on earnings, age and years of service. Defined contribution plans covering a majority of U.S. employees and certain international employees are in place. We also sponsor or participate in nonqualified benefit plans covering certain of our U.S. employee groups and other pension plans covering certain of our international employees. For more information, refer to the financial statements of FedEx included in its Form 10-Q for the quarter ended February 28, 2013.

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Our retirement plans costs for the periods ended February 28, 2013 and February 29, 2012 were as follows (in millions):


	Three Months Ended				Nine Months Ended
	2013		2012		2013		2012
Pension plans sponsored by FedEx	$	108	$	81	$	324	$	241
Other U.S. domestic and international pension plans		11		13		34		34
U.S. domestic and international defined contribution plans		58		54		172		162
Postretirement healthcare plans		15		14		46		42

	$	192	$	162	$	576	$	479

The components of the net periodic benefit cost of the pension and postretirement healthcare plans currently sponsored by us were individually immaterial for all periods presented. No material contributions were made during the nine months of 2013 or 2012 to pension plans sponsored by us, and we do not expect to make material contributions in 2013.

(3) Commitments

As of February 28, 2013, our purchase commitments under various contracts for the remainder of 2013 and annually thereafter were as follows (in millions):


	Aircraft and Aircraft-Related		Other⁽¹⁾		Total
2013 (remainder)	$	250	$	16	$	266
2014		716		30		746
2015		1,051		19		1,070
2016		1,140		16		1,156
2017		955		10		965
Thereafter		5,813		94		5,907

⁽¹⁾	Primarily advertising and promotions contracts.

The amounts reflected in the table above for purchase commitments represent noncancelable agreements to purchase goods or services. Our obligation to purchase four Boeing 767-300 Freighter (“B767F”) aircraft and nine Boeing 777 Freighter (“B777F”) aircraft is conditioned upon there being no event that causes FedEx Express or its employees not to be covered by the Railway Labor Act of 1926, as amended. Commitments to purchase aircraft in passenger configuration do not include the attendant costs to modify these aircraft for cargo transport unless we have entered into noncancelable commitments to modify such aircraft. Open purchase orders that are cancelable are not considered unconditional purchase obligations for financial reporting purposes and are not included in the table above.

On December 11, 2012, we entered into an agreement with The Boeing Company for the purchase of four incremental B767F aircraft, the delivery of which will occur in 2015. We also deferred the delivery of two firm B777F aircraft orders from 2015 to 2016.

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We had $380 million in deposits and progress payments as of February 28, 2013 on aircraft purchases and other planned aircraft-related transactions. These deposits are classified in the “Other assets” caption of our condensed consolidated balance sheets. In addition to our commitment to purchase B777Fs and B767Fs, our aircraft purchase commitments include the Boeing 757 (“B757”) in passenger configuration, which will require additional costs to modify for cargo transport. Aircraft and aircraft-related contracts are subject to price escalations. The following table is a summary of the key aircraft we are committed to purchase as of February 28, 2013, with the year of expected delivery:


	B757		B767F		B777F		Total
2013 (remainder)		4		—		—		4
2014		—		4		2		6
2015		—		12		—		12
2016		—		10		2		12
2017		—		10		—		10
Thereafter		—		14		16		30

Total		4		50		20		74

On March 8, 2013, we entered into an agreement with United Airlines to purchase 14 B757 aircraft, the delivery of which will occur in 2013 through 2015. After delivery, these passenger aircraft will be modified for cargo transport. The agreement also provides for us to purchase up to 16 additional B757 aircraft, subject to the satisfaction of certain conditions. This aircraft transaction is not included in the table above, as it occurred subsequent to the end of the third quarter of 2013.

A summary of future minimum lease payments under noncancelable operating leases with an initial or remaining term in excess of one year at February 28, 2013 is as follows (in millions):


	Operating Leases
	Aircraft and Related Equipment		Facilities and Other		Total Operating Leases
2013 (remainder)	$	105	$	188	$	293
2014		462		712		1,174
2015		448		676		1,124
2016		453		546		999
2017		391		738		1,129
Thereafter		1,150		4,283		5,433

Total	$	3,009	$	7,143	$	10,152

Future minimum lease payments under capital leases were immaterial at February 28, 2013, and therefore are excluded from the table above. While certain of our lease agreements contain covenants governing the use of the leased assets or require us to maintain certain levels of insurance, none of our lease agreements include material financial covenants or limitations.

(4) Contingencies

In August 2010, a third-party consultant who works with shipping customers to negotiate lower rates filed a lawsuit in federal district court in California against FedEx and United Parcel Service, Inc. (“UPS”) alleging violations of U.S. antitrust law. This matter was dismissed in May 2011, but the court granted the plaintiff permission to file an amended complaint, which FedEx received in June 2011. In November 2011, the court granted our motion to dismiss this complaint, but again allowed the plaintiff to file an amended complaint. The plaintiff filed a new complaint in December 2011, and the matter remains pending before the court. In February

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2011, shortly after the initial lawsuit was filed, we received a demand for the production of information and documents in connection with a civil investigation by the U.S. Department of Justice (“DOJ”) into the policies and practices of FedEx and UPS for dealing with third-party consultants who work with shipping customers to negotiate lower rates. In November 2012, the DOJ served a civil investigative demand on the third-party consultant seeking all pleadings, depositions and documents produced in the lawsuit. We are cooperating with the investigation, do not believe that we have engaged in any anti-competitive activities and will vigorously defend ourselves in any action that may result from the investigation. While the litigation proceedings and the DOJ investigation move forward, and the amount of loss, if any, is dependent on a number of factors that are not yet fully developed or resolved, we do not believe that a material loss is reasonably possible.

We have received requests for information from the DOJ in the Northern District of California in connection with a criminal investigation relating to the transportation of packages for online pharmacies that may have shipped pharmaceuticals in violation of federal law. We responded to grand jury subpoenas issued in June 2008 and August 2009 and to additional requests for information pursuant to those subpoenas, and we continue to respond and cooperate with the investigation. We believe that our employees have acted in good faith at all times. We do not believe that we have engaged in any illegal activities and will vigorously defend ourselves in any action that may result from the investigation. The DOJ may pursue a criminal indictment and, if we are convicted, remedies could include fines, penalties, financial forfeiture and compliance conditions. We cannot estimate the amount or range of loss, if any, as such analysis would depend on facts and law that are not yet fully developed or resolved.

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

(5) Parent/Affiliate Transactions

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

We maintain an accounts receivable arrangement with FedEx TechConnect, Inc. (“FedEx TechConnect”), a wholly owned subsidiary of FedEx Services. FedEx Services is a wholly owned subsidiary of FedEx. Under this arrangement, we recognize revenue for the transportation services provided to our U.S. customers and factor the related receivables to FedEx TechConnect for collection. We have no continuing involvement with the receivables transferred to FedEx TechConnect. Our net receivables recorded by FedEx TechConnect totaled $1.6 billion at February 28, 2013 and $1.4 billion at May 31, 2012.

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

(6) Supplemental Cash Flow Information

Cash paid for income taxes for the nine-month periods ended February 28, 2013 and February 29, 2012 was as follows (in millions):


	2013			2012
Cash payments for:

Income taxes	$	189		$	212
Income tax refunds received		(167	)		(270	)

Cash tax payments, net	$	22		$	(58	)

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REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholder

Federal Express Corporation

We have reviewed the condensed consolidated balance sheet of Federal Express Corporation as of February 28, 2013, and the related condensed consolidated statements of income and comprehensive income for the three-month and nine-month periods ended February 28, 2013 and February 29, 2012 and the condensed consolidated statements of cash flows for the nine-month periods ended February 28, 2013 and February 29, 2012. These financial statements are the responsibility of the Company’s management.

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

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

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Federal Express Corporation as of May 31, 2012, and the related consolidated statements of income, changes in owner’s equity and comprehensive income, and cash flows for the year then ended not presented herein, and in our report dated July 16, 2012, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of May 31, 2012, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.



		/s/ Ernst & Young LLP

Memphis, Tennessee

March 21, 2013

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Item 2.

Management’s Discussion and Analysis of Results of Operations and Financial Condition

GENERAL

The following Management’s Discussion and Analysis of Results of Operations and Financial Condition, which describes the principal factors affecting the results of operations and financial condition of Federal Express Corporation (“FedEx Express”), is abbreviated pursuant to General Instruction H(2)(a) of Form 10-Q. This discussion should be read in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements and our Annual Report on Form 10-K for the year ended May 31, 2012 (“Annual Report”). Our Annual Report includes additional information about our significant accounting policies, practices and the transactions that underlie our financial results. For additional information, including a discussion of outlook, liquidity, capital resources, contractual cash obligations and critical accounting estimates, see the Quarterly Report on Form 10-Q of our parent, FedEx Corporation (“FedEx”), for the quarter ended February 28, 2013.

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

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

The key indicators necessary to understand our operating results include:

•

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

•

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

•

the mix of services purchased by our customers;

•

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

•

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

•

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

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

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RESULTS OF OPERATIONS

The following tables compare revenues, operating expenses, operating expenses as a percent of revenue, operating income, net income and operating margin (dollars in millions) for the periods ended February 28, 2013 and February 29, 2012:


	Three Months Ended						Percent			Nine Months Ended						Percent
	2013			2012			Change			2013			2012			Change
Revenues:
Package:
U.S. overnight box	$	1,609		$	1,619			(1	)	$	4,822		$	4,882			(1	)
U.S. overnight envelope		413			426			(3	)		1,252			1,298			(4	)
U.S. deferred		812			792			3			2,246			2,254			—

Total U.S. domestic package revenue		2,834			2,837			—			8,320			8,434			(1	)

International priority⁽¹⁾		1,567			1,625			(4	)		4,906			5,093			(4	)
International economy⁽²⁾		491			454			8			1,492			1,355			10

Total international export package revenue		2,058			2,079			(1	)		6,398			6,448			(1	)

International domestic⁽³⁾		342			210			63			1,035			634			63

Total package revenue		5,234			5,126			2			15,753			15,516			2
Freight:
U.S.		668			647			3			1,923			1,866			3
International priority⁽⁴⁾		384			443			(13	)		1,269			1,362			(7	)
International airfreight		64			77			(17	)		215			228			(6	)

Total freight revenue		1,116			1,167			(4	)		3,407			3,456			(1	)
Other		112			70			60			305			206			48

Total revenues		6,462			6,363			2			19,465			19,178			1
Operating expenses:
Salaries and employee benefits		2,459			2,337			5			7,265			6,985			4
Purchased transportation		413			337			23			1,221			1,012			21
Rentals and landing fees		423			418			1			1,244			1,251			(1	)
Depreciation and amortization		332			296			12			985			860			15
Fuel		1,066			1,078			(1	)		3,126			3,193			(2	)
Maintenance and repairs		261			301			(13	)		979			1,032			(5	)
Business realignment costs⁽⁵⁾		13			—			NM			14			—			NM
Intercompany charges⁽⁶⁾		539			540			—			1,596			1,622			(2	)
Other⁽⁷⁾		831			705			18			2,482			2,251			10

Total operating expenses		6,337			6,012			5			18,912			18,206			4

Operating income	$	125		$	351			(64	)	$	553		$	972			(43	)

Operating margin		1.9	%		5.5	%		(360	)bp		2.8	%		5.1	%		(230	)bp

Other income (expense):
Interest, net		16			8			100			36			28			29
Other, net		(30	)		(18	)		67			(68	)		(38	)		79

		(14	)		(10	)		NM			(32	)		(10	)		NM

Income before income taxes		111			341			(67	)		521			962			(46	)

Provision for income taxes		37			110			(66	)		178			325			(45	)

Net income	$	74		$	231			(68	)	$	343		$	637			(46	)

⁽¹⁾	International priority package services provide time-definite delivery within one, two or three business days worldwide.

⁽²⁾	International economy package services provide time-definite delivery within five business days worldwide.

⁽³⁾	International domestic revenues include our international intra-country express operations including recent acquisitions in Mexico (July 2011), Poland (June 2012), France (July 2012) and Brazil (July 2012).

⁽⁴⁾	Freight international priority includes our FedEx International Priority and FedEx International Economy freight services.

⁽⁵⁾	Includes predominantly severance costs associated with our voluntary buyout program.

⁽⁶⁾	Includes allocations of $21 million in the third quarter and $31 million in the nine months of 2013 for business realignment costs.

⁽⁷⁾	The third quarter of 2012 includes the reversal of a $66 million legal reserve.

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	Percent of Revenue						Percent of Revenue
	Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended
	2013			2012			2013			2012
Operating expenses:
Salaries and employee benefits		38.1	%		36.7	%		37.3	%		36.4	%
Purchased transportation		6.4			5.3			6.3			5.3
Rentals and landing fees		6.6			6.6			6.4			6.5
Depreciation and amortization		5.1			4.7			5.1			4.5
Fuel		16.5			16.9			16.1			16.6
Maintenance and repairs		4.0			4.7			5.0			5.4
Business realignment costs⁽¹⁾		0.2			—			0.1			—
Intercompany charges⁽²⁾		8.3			8.5			8.2			8.5
Other⁽³⁾		12.9			11.1			12.7			11.7

Total operating expenses		98.1			94.5			97.2			94.9

Operating margin		1.9	%		5.5	%		2.8	%		5.1	%

⁽¹⁾	Includes predominantly severance costs associated with our voluntary buyout program.

⁽²⁾	Includes allocations of $21 million in the third quarter and $31 million in the nine months of 2013 for business realignment costs.

⁽³⁾	The third quarter of 2012 includes the reversal of a $66 million legal reserve.

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The following table compares selected statistics (in thousands, except yield amounts) for the periods ended February 28, 2013 and February 29, 2012:


	Three Months Ended				Percent			Nine Months Ended				Percent
	2013		2012		Change			2013		2012		Change
Package Statistics
Average daily package volume (ADV):
U.S. overnight box		1,176		1,171		—			1,135		1,158		(2	)
U.S. overnight envelope		569		581		(2	)		570		586		(3	)
U.S. deferred		944		923		2			843		863		(2	)

Total U.S. domestic ADV		2,689		2,675		1			2,548		2,607		(2	)

International priority⁽¹⁾		420		413		2			424		421		1
International economy⁽²⁾		155		139		12			152		134		13

Total international export ADV		575		552		4			576		555		4

International domestic⁽³⁾		781		508		54			781		493		58

Total ADV		4,045		3,735		8			3,905		3,655		7

Revenue per package (yield):
U.S. overnight box	$	22.08	$	21.93		1		$	22.35	$	22.08		1
U.S. overnight envelope		11.69		11.65		—			11.57		11.59		—
U.S. deferred		13.87		13.62		2			14.02		13.67		3
U.S. domestic composite		17.00		16.83		1			17.18		16.94		1
International priority⁽¹⁾		60.25		62.49		(4	)		60.93		63.44		(4	)
International economy⁽²⁾		51.03		51.74		(1	)		51.72		52.86		(2	)
International export composite		57.76		59.78		(3	)		58.50		60.88		(4	)
International domestic⁽³⁾		7.06		6.57		7			6.98		6.73		4
Composite package yield		20.87		21.79		(4	)		21.23		22.23		(4	)
Freight Statistics
Average daily freight pounds:
U.S.		8,324		8,104		3			7,697		7,561		2
International priority⁽⁴⁾		2,894		3,257		(11	)		3,098		3,279		(6	)
International airfreight		1,035		1,169		(11	)		1,102		1,182		(7	)

Total average daily freight pounds		12,253		12,530		(2	)		11,897		12,022		(1	)

Revenue per pound (yield):
U.S.	$	1.30	$	1.27		2		$	1.31	$	1.29		2
International priority⁽⁴⁾		2.14		2.16		(1	)		2.15		2.18		(1	)
International airfreight		0.99		1.04		(5	)		1.03		1.01		2
Composite freight yield		1.47		1.48		(1	)		1.51		1.51		—

⁽¹⁾	International priority package services provide time-definite delivery within one, two or three business days worldwide.

⁽²⁾	International economy package services provide time-definite delivery within five business days worldwide.

⁽³⁾	International domestic statistics include our international intra-country operations including recent acquisitions in Mexico (July 2011), Poland (June 2012), France (July 2012) and Brazil (July 2012).

⁽⁴⁾	Freight international priority includes our FedEx International Priority and FedEx International Economy freight services.

Revenues

Our revenues increased 2% in the third quarter and 1% in the nine months of 2013 primarily due to the impact of new business acquisitions. However, core revenue growth was constrained by global economic conditions as revenue growth from higher international export volume was offset by decreased yields due to shifts in demand from our priority international services to our economy international services and lower rates. Additionally, we experienced the negative impact of one fewer operating day in the third quarter and nine months of 2013.

International domestic revenues increased 63% in both the third quarter and nine months of 2013 due to recent acquisitions in Brazil, France and Poland, while total international export volumes increased 4% in both the third quarter and nine months of 2013 driven by

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increases in FedEx International Economy services from Asia and Europe. International export package yields decreased 3% in the third quarter and 4% in the nine months of 2013 primarily due to the demand shift toward lower-yielding services, lower rates and lower fuel surcharges. Although U.S. domestic package volume increased slightly in the third quarter of 2013, ongoing weakness in economic conditions resulted in a 2% decrease in U.S. domestic package volume for the nine months of 2013.

Our fuel surcharges are indexed to the spot price for jet fuel. Using this index, the U.S. domestic and outbound fuel surcharge and the international fuel surcharges ranged as follows for the periods ended February 28, 2013 and February 29, 2012:


	Three Months Ended						Nine Months Ended
	2013			2012			2013			2012
U.S. Domestic and Outbound Fuel Surcharge:
Low		10.00	%		11.50	%		10.00	%		11.50	%
High		13.50			14.00			14.50			16.50
Weighted-average		11.29			12.91			12.14			14.36

International Fuel Surcharges:
Low		14.00			13.50			12.00			13.50
High		19.00			19.00			20.50			23.00
Weighted-average		16.96			16.45			16.78			17.23

In both January 2013 and 2012, we implemented a 5.9% average list price increase for our U.S. domestic, U.S. export and U.S. import services, while we lowered our fuel surcharge index by two percentage points.

Operating Income

Our operating income and operating margin decreased significantly in the third quarter and nine months of 2013 due to the demand shift toward lower-yielding international services, higher pension costs and increased depreciation expense. Operating result comparisons were also negatively impacted by the legal reserve accrual reversal in the third quarter of 2012. Additionally, results were negatively impacted by $34 million in the third quarter and $45 million in the nine months of 2013 of costs associated with our business realignment program, both directly and through intercompany allocations.

Salaries and employee benefits increased 5% in the third quarter and 4% in the nine months of 2013 due to recent acquisitions and higher pension costs, partially offset by lower incentive compensation accruals. Other operating expenses increased 18% in the third quarter and 10% in the nine months of 2013 primarily due to the negative impact on the year-over-year comparison of the legal reserve accrual reversal in 2012 and current year costs associated with recent business acquisitions. Purchased transportation costs increased 23% in the third quarter and 21% in the nine months of 2013 due to recent business acquisitions. Depreciation and amortization expense increased 12% in the third quarter and 15% in the nine months of 2013 as a result of aircraft recently placed into service and accelerated depreciation due to the shortened life of certain aircraft.

Fuel costs decreased 1% in the third quarter of 2013 due to lower aircraft fuel usage and decreased 2% in the nine months of 2013 due to lower jet fuel costs and lower aircraft fuel usage. Based on a static analysis of the net impact of year-over-year changes in fuel prices compared to year-over-year changes in fuel surcharges, fuel had a minimal impact on operating income in the third quarter, but a negative impact for the nine months of 2013. This analysis considers the estimated impact of the reduction in fuel surcharges included in the base rates charged for our services.

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U.S. Postal Service Agreement

Under an agreement with the U.S. Postal Service (“USPS”) that runs through September 2013, we provide domestic air transportation services to the USPS, including for its First-Class, Priority and Express Mail. The USPS has solicited proposals for the provision of these services upon the expiration of the current agreement, and we have responded to its bid request. We expect a decision shortly from the USPS. For additional information, see the “Risk Factors” section of our Annual Report.

Business Realignment Costs

During the second quarter of 2013, FedEx announced profit improvement programs primarily through initiatives at FedEx Express and FedEx Services that include the following:

•

Cost reductions in selling, general and administrative functions, including information technology, through headcount reductions, streamlining of processes and elimination of less essential work, as well as deriving greater value from strategic sourcing

•

Modernization of our aircraft fleet, transformation of our U.S. domestic operations and international profit improvements

•

Improved efficiencies and lower costs of information technology at FedEx Services

During the third quarter of 2013, FedEx commenced a program to offer voluntary cash buyouts to eligible U.S.-based employees in certain staff functions. The voluntary buyout program includes voluntary severance payments and funding to healthcare reimbursement accounts, with the voluntary severance calculated based on four weeks of gross base salary for every year of FedEx service up to a maximum payment of two years of pay. Eligible employees will be scheduled to vacate positions in four phases to ensure a smooth transition in the impacted functions so that we maintain service levels to our customers. Employees in the first phase will vacate their positions on May 31, 2013, and we expect all employees who accept the buyout to vacate their positions by the end of fiscal year 2014. Costs of the benefits provided under the voluntary program will be recognized as special termination benefits in the period that eligible employees accept their offers, predominantly in the fourth quarter of 2013.

We incurred costs of $34 million during the third quarter and $45 million during the nine months of 2013, associated with the FedEx business realignment activities, both directly and through intercompany allocations primarily from FedEx Services. These costs related predominantly to voluntary severance for officers and managing directors who accepted voluntary buyouts in the third quarter of 2013 to adjust our leadership team to our new organizational structure. Payments will be made at the time of departure, and no material payments of these costs were made in the third quarter of 2013. The direct costs of the buyout program are included in the caption “Business realignment costs” while the allocated costs are included in the caption “Intercompany charges, net” in our unaudited condensed consolidated statements of income. Also included in those captions are other external costs directly attributable to our business realignment activities, such as professional fees.

For additional information, see the business realignment costs discussion in the Quarterly Report on Form 10-Q of FedEx for the quarter ended February 28, 2013.

Other Income and Income Taxes

Net interest income increased during the third quarter and nine months of 2013 primarily due to a favorable tax audit settlement and debt maturities, partially offset by a reduction in capitalized interest. Other non-operating expense increased in the third quarter and nine months of 2013 primarily due to higher foreign exchange losses and higher management fees.

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Our effective tax rate was 33.8% for the third quarter and 34.2% for the nine months of 2013, compared with 32.4% for the third quarter and 33.8% for the nine months of 2012. Our tax rates for both periods in 2012 were favorably impacted by the conclusion of the Internal Revenue Service (“IRS”) audit of our 2007-2009 consolidated income tax returns. For 2013, we expect our effective tax rate to be approximately 35.0%. The actual rate, however, will depend on a number of factors, including the amount and source of operating income.

As of February 28, 2013, there were no material changes to our liabilities for unrecognized tax benefits from May 31, 2012.

We are subject to taxation in the U.S. and various U.S. state, local and foreign jurisdictions. Substantially all U.S. federal income tax matters through fiscal year 2009 are concluded, and we are currently under examination by the IRS for the 2010 and 2011 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. The expected impact of any changes would not be material to our consolidated financial statements.

Business Acquisitions

In the first quarter of 2013, we expanded our international service offerings by completing the following business acquisitions:

•

Rapidão Cometa Logística e Transporte S.A., a Brazilian transportation and logistics company, for $398 million in cash from operations on July 4, 2012

•

TATEX, a French express transportation company, for $55 million in cash from operations on July 3, 2012

•

Opek Sp. z o.o., a Polish domestic express package delivery company, for $54 million in cash from operations on June 13, 2012

These acquisitions give us more robust transportation networks within these countries and added capabilities in these important international markets.

The financial results of these acquired businesses are included in our results from the date of acquisition and were not material, individually or in the aggregate, to our results of operations. The estimated fair values of the assets and liabilities related to these acquisitions have been included in the accompanying unaudited balance sheet based on a preliminary allocation of the purchase price. See Note 1 of the accompanying unaudited financial statements for further discussion of these acquisitions.

NEW ACCOUNTING GUIDANCE

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

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FORWARD-LOOKING STATEMENTS

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

•

economic conditions in the global markets in which we operate;

•

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

•

damage to our reputation or loss of brand equity;

•

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

•

the price and availability of jet and vehicle fuel;

•

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

•

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

•

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

•

the number of employees that participate in the voluntary buyout programs and the timing and execution of those programs;

•

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

•

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

•

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

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•

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

•

any impact on our business from disruptions or modifications in service by the USPS, which is a significant customer of ours, as a consequence of the USPS’s current financial difficulties, any resulting structural changes to its operations, network, service offerings or pricing or its decision to solicit proposals for the provision of air transportation services currently provided;

•

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

•

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

•

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

•

any impacts on our businesses resulting from new domestic or international government laws and regulation;

•

changes in foreign currency exchange rates, especially in the British pound, Canadian dollar, Chinese yuan, euro, Hong Kong dollar and Japanese yen, which can affect our sales levels and foreign currency sales prices;

•

market acceptance of our new service and growth initiatives;

•

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

•

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

•

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

•

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

•

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

•

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

As a result of these and other factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances

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may not occur. You should not place undue reliance on forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

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Item 3.

Quantitative and Qualitative Disclosures About Market Risk

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

Item 4.

Controls and Procedures

Our management, with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of February 28, 2013 (the end of the period covered by this Quarterly Report on Form 10-Q).

During our fiscal quarter ended February 28, 2013, no change occurred in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

For a description of all material pending legal proceedings, see Note 4 of the accompanying unaudited condensed consolidated financial statements.

Item 1A.

Risk Factors

In December 2012, the Federal Aviation Administration determined that no revision to its December 2011 regulations related to pilot fatigue is necessary, continuing to exclude us from the new rule. In “Forward-Looking Statements,” we include a risk factor relating to the number of participating employees in the voluntary buyout programs and the timing and execution of those programs. With the exception of these two items, there have been no material changes from the risk factors disclosed in our Annual Report (under the heading “Risk Factors” in “Management’s Discussion and Analysis of Results of Operations and Financial Condition”) in response to Part I, Item 1A of Form 10-K.

Item 6.

Exhibits


Exhibit Number		Description of Exhibit

10.1		Supplemental Agreement No. 3 (and related side letters) dated as of December 11, 2012, amending the Boeing 767-3S2 Freighter Purchase Agreement dated as of December 14, 2011 between The Boeing Company and Federal Express Corporation. Confidential treatment has been requested for confidential and financial information, pursuant to Rule 24b-2 under the Securities and Exchange Act of 1934, as amended. (Filed as Exhibit 10.1 to FedEx Corporation’s FY13 Third Quarter Report on Form 10-Q, and incorporated herein by reference.)

10.2		Supplemental Agreement No. 22 (and related side letters) dated as of December 11, 2012, amending the Boeing 777 Freighter Purchase Agreement dated as of November 7, 2006 between The Boeing Company and Federal Express Corporation. Confidential treatment has been requested for confidential and financial information, pursuant to Rule 24b-2 under the Securities and Exchange Act of 1934, as amended. (Filed as Exhibit 10.2 to FedEx Corporation’s FY13 Third Quarter Report on Form 10-Q, and incorporated herein by reference.)

10.3		Amendment dated December 3, 2012 to the Transportation Agreement dated July 31, 2006 between the United States Postal Service and Federal Express Corporation. Confidential treatment has been requested for confidential and financial information, pursuant to Rule 24b-2 under the Securities and Exchange Act of 1934, as amended. (Filed as Exhibit 10.3 to FedEx Corporation’s FY13 Third Quarter Report on Form 10-Q, and incorporated herein by reference.)

10.4		Letter Agreement dated January 25, 2013, amending the Transportation Agreement dated July 31, 2006 between the United States Postal Service and Federal Express Corporation. Confidential treatment has been requested for confidential and financial information, pursuant to Rule 24b-2 under the Securities and Exchange Act of 1934, as amended. (Filed as Exhibit 10.4 to FedEx Corporation’s FY13 Third Quarter Report on Form 10-Q, and incorporated herein by reference.)

10.5		Fifth Amendment dated December 19, 2012 (but effective as of January 1, 2013) to the Composite Lease Agreement dated May 21, 2007 (but effective as of January 1, 2007) between the Memphis-Shelby County Airport Authority and Federal Express Corporation. (Filed as Exhibit 10.5 to FedEx Corporation’s FY13 Third Quarter Report on Form 10-Q, and incorporated herein by reference.)

10.6		First Amendment dated March 1, 2013 amending the Five-Year Credit Agreement dated April 26, 2011, among FedEx Corporation, JP Morgan Chase Bank, N.A., individually and as administrative agent, and certain lenders. (Filed as Exhibit 10.6 to FedEx Corporation’s FY13 Third Quarter Report on Form 10-Q, and incorporated herein by reference.)

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12.1		Computation of Ratio of Earnings to Fixed Charges.

15.1		Letter re: Unaudited Interim Financial Statements.

31.1		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

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

101.1		Interactive Data Files.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						FEDERAL EXPRESS CORPORATION

Date: March 21, 2013						/s/ J. RICK BATEMAN
						J. RICK BATEMAN
						VICE PRESIDENT AND
						WORLDWIDE CONTROLLER
						(PRINCIPAL ACCOUNTING OFFICER)

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EXHIBIT INDEX


Exhibit Number		Description of Exhibit

10.1		Supplemental Agreement No. 3 (and related side letters) dated as of December 11, 2012, amending the Boeing 767-3S2 Freighter Purchase Agreement dated as of December 14, 2011 between The Boeing Company and Federal Express Corporation. Confidential treatment has been requested for confidential and financial information, pursuant to Rule 24b-2 under the Securities and Exchange Act of 1934, as amended. (Filed as Exhibit 10.1 to FedEx Corporation’s FY13 Third Quarter Report on Form 10-Q, and incorporated herein by reference.)

10.2		Supplemental Agreement No. 22 (and related side letters) dated as of December 11, 2012, amending the Boeing 777 Freighter Purchase Agreement dated as of November 7, 2006 between The Boeing Company and Federal Express Corporation. Confidential treatment has been requested for confidential and financial information, pursuant to Rule 24b-2 under the Securities and Exchange Act of 1934, as amended. (Filed as Exhibit 10.2 to FedEx Corporation’s FY13 Third Quarter Report on Form 10-Q, and incorporated herein by reference.)

10.3		Amendment dated December 3, 2012 to the Transportation Agreement dated July 31, 2006 between the United States Postal Service and Federal Express Corporation. Confidential treatment has been requested for confidential and financial information, pursuant to Rule 24b-2 under the Securities and Exchange Act of 1934, as amended. (Filed as Exhibit 10.3 to FedEx Corporation’s FY13 Third Quarter Report on Form 10-Q, and incorporated herein by reference.)

10.4		Letter Agreement dated January 25, 2013, amending the Transportation Agreement dated July 31, 2006 between the United States Postal Service and Federal Express Corporation. Confidential treatment has been requested for confidential and financial information, pursuant to Rule 24b-2 under the Securities and Exchange Act of 1934, as amended. (Filed as Exhibit 10.4 to FedEx Corporation’s FY13 Third Quarter Report on Form 10-Q, and incorporated herein by reference.)

10.5		Fifth Amendment dated December 19, 2012 (but effective as of January 1, 2013) to the Composite Lease Agreement dated May 21, 2007 (but effective as of January 1, 2007) between the Memphis-Shelby County Airport Authority and Federal Express Corporation. (Filed as Exhibit 10.5 to FedEx Corporation’s FY13 Third Quarter Report on Form 10-Q, and incorporated herein by reference.)

10.6		First Amendment dated March 1, 2013 amending the Five-Year Credit Agreement dated April 26, 2011, among FedEx Corporation, JP Morgan Chase Bank, N.A., individually and as administrative agent, and certain lenders. (Filed as Exhibit 10.6 to FedEx Corporation’s FY13 Third Quarter Report on Form 10-Q, and incorporated herein by reference.)

12.1		Computation of Ratio of Earnings to Fixed Charges.

15.1		Letter re: Unaudited Interim Financial Statements.

31.1		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

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

101.1		Interactive Data Files.

E-1

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company