UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED ~~November~~February 3028, ~~2013~~2014

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

FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 1-7806

FEDERAL EXPRESS CORPORATION

(Exact name of registrant as specified in its charter)


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

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

(901) 369-3600

(Registrant’s telephone number, including area code)

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

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

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


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

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

The number of shares of common stock outstanding as of ~~December~~March 1819, ~~2013~~2014 was 1,000. The Registrant is a wholly owned subsidiary of FedEx Corporation, and there is no market for the Registrant’s common stock.

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

FEDERAL EXPRESS CORPORATION

INDEX

	PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance SheetsNovember 30, 2013 and May 31, 2013		3
Condensed Consolidated Balance SheetsFebruary 28, 2014 and May 31, 2013		3
Condensed Consolidated Statements of IncomeThree and Six Months Ended November 30, 2013 and 2012		5
Condensed Consolidated Statements of IncomeThree and Nine Months Ended February 28, 2014 and 2013		5
Condensed Consolidated Statements of Comprehensive IncomeThree and Six Months Ended November 30, 2013 and 2012		6
Condensed Consolidated Statements of Comprehensive IncomeThree and Nine Months Ended February 28, 2014 and 2013		6
Condensed Consolidated Statements of Cash FlowsSix Months Ended November 30, 2013 and 2012		7
Condensed Consolidated Statements of Cash FlowsNine Months Ended February 28, 2014 and 2013		7
Notes to Condensed Consolidated Financial Statements		8
Report of Independent Registered Public Accounting Firm		13
ITEM 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition		14
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		23
ITEM 4. Controls and Procedures		23
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings		24
ITEM 1A. Risk Factors		24
ITEM 5. Other Information		24
ITEM 6. Exhibits		25
Signature		26
Exhibit Index		E-1
Exhibit 12.1
Exhibit 15.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 99.1
Ex-101 INSTANCE DOCUMENT
Ex - 101 Instance Document
Ex-101 SCHEMA DOCUMENT
Ex - 101 Schema Document
Ex-101 CALCULATION LINKBASE DOCUMENT
Ex - 101 Calculation Document
Ex-101 PRESENTATION LINKBASE DOCUMENT
Ex - 101 Presentation Linkbase Document
Ex-101 DEFINITION LINKBASE DOCUMENT
Ex - 101 Definition Linkbase Document

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FEDERAL EXPRESS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN MILLIONS)

	November 30,
	February 28,
	2013		May 31,
	2014		May 31,
	(Unaudited)		2013
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	~~898~~749	$	769
Receivables, less allowances of $74 and $84		1,694		1,595
Receivables, less allowances of $73 and $84		1,559		1,595
Spare parts, supplies and fuel, less allowances of $202 and $204		383		385
Spare parts, supplies and fuel, less allowances of $206 and $204		390		385
Deferred income taxes		~~458~~432		359
Due from parent company and other FedEx subsidiaries		~~504~~570		430
Prepaid expenses and other		8596		94
Total current assets		43,~~022~~796		3,632
PROPERTY AND EQUIPMENT, AT COST		25,~~133~~490		24,384
Less accumulated depreciation and amortization		1112,~~793~~100		11,538
Net property and equipment		13,~~340~~390		12,846
OTHER LONG-TERM ASSETS
Goodwill		1,~~509~~511		1,526
Other assets		~~740~~830		959
Total other long-term assets		2,~~249~~341		2,485
	$	19,~~611~~527	$	18,963

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

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FEDERAL EXPRESS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN MILLIONS, EXCEPT SHARE DATA)

	November 30,
	February 28,
	2013			May 31,
	2014			May 31,
	(Unaudited)			2013
LIABILITIES AND OWNER’S EQUITY
CURRENT LIABILITIES
Accrued salaries and employee benefits	$	~~935~~836		$	990
Accounts payable		1,~~306~~320			1,270
Accrued expenses		~~984~~977			972
Due to other FedEx subsidiaries		1,~~057~~094			1,064
Total current liabilities		4,~~282~~227			4,296
LONG-TERM DEBT, LESS CURRENT PORTION		240			240
OTHER LONG-TERM LIABILITIES
Deferred income taxes		3,~~060~~125			2,833
Pension, postretirement healthcare and other benefit obligations		1,~~156~~177			1,120
Self-insurance accruals		~~660~~670			650
Deferred lease obligations		~~782~~635			683
Deferred gains, principally related to aircraft transactions		~~211~~204			223
Other liabilities		8981			100
Total other long-term liabilities		5,~~958~~892			5,609
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,~~590~~653			8,246
Accumulated other comprehensive loss		(6793	)		(36	)
Total owner’s equity		9,~~131~~168			8,818
	$	19,~~611~~527		$	18,963

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

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FEDERAL EXPRESS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(IN MILLIONS)

	Three Months Ended						~~Six~~Nine Months Ended
	November 30,						November 30,
	February 28,						February 28,
	2013			2012			2013			2012
	2014			2013			2014			2013
REVENUES	$	6,~~546~~426		$	6,~~607~~462		$	1219,~~892~~318		$	1319,~~003~~465
OPERATING EXPENSES:
Salaries and employee benefits		2,~~387~~438			2,~~409~~459			47,~~747~~185			47,~~806~~265
Purchased transportation		~~446~~440			~~432~~413			~~876~~1,316			~~808~~1,221
Rentals and landing fees		~~413~~425			~~412~~423			~~827~~1,252			~~821~~1,244
Depreciation and amortization		~~370~~371			~~333~~332			~~736~~1,107			~~653~~985
Fuel		~~986~~1,010			1,~~074~~066			12,~~942~~952			23,~~060~~126
Maintenance and repairs		~~307~~271			~~347~~261			~~613~~884			~~718~~979
Intercompany charges, net		505			528			994			1,057
Business realignment costs		—			13			—			14
Other		810			844			1,605			1,652
Intercompany charges, net		500			539			1,494			1,596
		6,224			6,379			12,340			12,575
Other		845			831			2,450			2,482
OPERATING INCOME		322			228			552			428
		6,300			6,337			18,640			18,912
OPERATING INCOME		126			125			678			553
OTHER INCOME (EXPENSE):
Interest, net		5			816			1217			2036
Other, net		(2233	)		(2130	)		(4376	)		(3868	)
		(17	)		(13	)		(31	)		(18	)
		(28	)		(14	)		(59	)		(32	)
INCOME BEFORE INCOME TAXES		~~305~~98			~~215~~111			~~521~~619			~~410~~521
PROVISION FOR INCOME TAXES		~~107~~34			7237			~~177~~211			~~141~~178
NET INCOME	$	~~198~~64		$	~~143~~74		$	~~344~~408		$	~~269~~343

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

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FEDERAL EXPRESS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(IN MILLIONS)

	Three Months Ended						~~Six~~Nine Months Ended
	November 30,						November 30,
	February 28,						February 28,
	2013			2012			2013			2012
	2014			2013			2014			2013
NET INCOME	$	~~198~~64		$	~~143~~74		$	~~344~~408		$	~~269~~343
OTHER COMPREHENSIVE INCOME:
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustments, net of tax of $5, $2, $4 and $4		44			13			(34	)		53
Foreign currency translation adjustments, net of tax of $1, $1, $5 and $5		(26	)		(3	)		(60	)		50
Amortization of unrealized pension actuarial gains/losses and other, net of tax of $0, $1, $1 and $1		2			2			3			2
Amortization of unrealized pension actuarial gains/losses and other, net of tax of $1, $1, $2 and $2		—			1			3			3
		46			15			(31	)		55
		(26	)		(2	)		(57	)		53
COMPREHENSIVE INCOME	$	~~244~~38		$	~~158~~72		$	~~313~~351		$	~~324~~396

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

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FEDERAL EXPRESS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN MILLIONS)

	Six Months Ended
	Nine Months Ended
	November 30,
	February 28,
	2013			2012
	2014			2013
Operating Activities:
Net income	$	~~344~~408		$	~~269~~343
Noncash charges:
Depreciation and amortization		~~736~~1,107			~~653~~985
Other, net		~~108~~200			~~135~~256
Changes in assets and liabilities, net		(76276	)		~~1,156~~889
Cash provided by operating activities		1,~~112~~439			2,~~213~~473
Investing Activities:
Capital expenditures		(~~992~~1,461	)		(1,~~262~~519	)
Business acquisitions, net of cash acquired		—			(483	)
Other		14			1319
Cash used in investing activities		(~~978~~1,447	)		(1,~~732~~983	)
Financing Activities:
Principal payments on debt		(3	)		(~~416~~417	)
Cash used in financing activities		(3	)		(~~416~~417	)
Effect of exchange rate changes on cash		(29	)		12(1	)
Net increase in cash and cash equivalents		129			77
Net (decrease) increase in cash and cash equivalents		(20	)		72
Cash and cash equivalents at beginning of period		769			712
Cash and cash equivalents at end of period	$	~~898~~749		$	~~789~~784

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, 2013 (“Annual Report”). Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed in our Annual Report.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to present fairly our financial position as of ~~November~~February 3028, ~~2013~~2014, the results of our operations for the three- and ~~six~~nine-month periods ended ~~November~~February 3028, ~~2013~~2014 and ~~2012~~2013 and cash flows for the ~~six~~ nine-month periods ended ~~November~~February 3028, ~~2013~~2014 and ~~2012~~2013. Operating results for the three- and ~~six~~nine-month periods ended ~~November~~February 3028, ~~2013~~2014 are not necessarily indicative of the results that may be expected for the year ending May 31, 2014.

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, 2014 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year.

BUSINESS ACQUISITIONS. As discussed in our Annual Report, on June 20, 2013, we signed agreements to acquire the businesses operated by our current service provider Supaswift (Pty) Ltd. in five countries in Southern Africa. In addition, on September 2, 2013, we entered into an agreement to acquire Supaswift’s business in two additional countries. This acquisition will be funded with cash from operations and is expected to be completed in the ~~second~~fourth ~~half~~quarter of 2014, subject to customary closing conditions. The financial results of the acquired businesses will be included in our results from the date of acquisition and will be immaterial to our 2014 results.

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 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 $97 million for the three-month period ended ~~November~~February 3028, ~~2013~~2014 and $2431 million for the ~~six~~nine-month period ended ~~November~~February 3028, ~~2013~~2014. Our stock-based compensation expense was $87 million for the three-month period ended ~~November~~February 3028, ~~2012~~2013 and $2229 million for the ~~six~~nine-month period ended ~~November~~February 3028, ~~2012~~2013. This amount represents the amount charged to us by FedEx for awards granted to our employees.

LONG-TERM DEBT. Long-term debt, exclusive of capital leases, had carrying values of $239 million at ~~November~~February 3028, ~~2013~~2014 and May 31, 2013 compared with estimated fair values of $~~294~~320 million at ~~November~~February 3028, ~~2013~~2014 and $344 million at May 31, 2013. The estimated fair values were determined based on quoted market prices and the current rates offered for debt with similar terms and maturities. The fair value of our long-term debt is classified as Level 2 within the fair value hierarchy. This classification is defined as a fair value determined using market-based inputs other than quoted prices that are observable for the liability, either directly or indirectly.

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

On June 1, 2013, we adopted the authoritative guidance issued by the Financial Accounting Standards Board requiring additional information about reclassification adjustments out of accumulated other comprehensive income, including changes in accumulated other comprehensive income balances by component and significant items reclassified out of accumulated other comprehensive income. We have adopted this guidance by including expanded accumulated other comprehensive income disclosure requirements in Note 2 of our condensed consolidated financial statements.

While no other new accounting guidance was adopted or issued during the ~~first~~nine ~~half~~months of 2014 that is relevant to the readers of ~~our~~ our financial statements, there are numerous proposals under development (as discussed in our Annual Report) which, if and when enacted, may have a significant impact on our financial reporting~~, as described in our Annual Report~~.

(2) Accumulated Other Comprehensive Income (Loss)

The following table provides changes in accumulated other comprehensive income (“AOCI”), net of tax, reported in our condensed consolidated financial statements for the periods ended ~~November~~February 3028 (in millions; amounts in parentheses indicate debits to AOCI):

	Three Months Ended						~~Six~~Nine Months Ended
	2013			2012			2013			2012
	2014			2013			2014			2013
Foreign currency translation gain (loss):
Balance at beginning of period	$	1256		$	94107		$	90		$	54
Translation adjustments		44(26	)		13(3	)		(3460	)		5350
Balance at end of period		5630			~~107~~104			5630			~~107~~104
Retirement plans adjustments:
Balance at beginning of period		(~~125~~123	)		(~~124~~122	)		(126	)		(124	)
Reclassifications from AOCI		2—			21			3			23
Balance at end of period		(123	)		(~~122~~121	)		(123	)		(~~122~~121	)
Accumulated other comprehensive loss at end of period	$	(6793	)	$	(1517	)	$	(6793	)	$	(1517	)

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

(3) Retirement Plans

We sponsor or participate in programs that provide retirement benefits to most of our employees. These programs include defined benefit pension plans, defined contribution plans and postretirement healthcare plans. A majority of our employees are covered by the FedEx Corporation Employees’ Pension Plan (“FedEx Plan”), a defined benefit pension plan sponsored by FedEx. Defined contribution plans 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 ~~November~~February 3028, ~~2013~~2014 and in our Annual Report.

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Our retirement plans’ costs for the periods ended ~~November~~February 3028, ~~2013~~2014 were as follows (in millions):

	Three Months Ended				~~Six~~Nine Months Ended
	2013		2012		2013		2012
	2014		2013		2014		2013
Pension plans sponsored by FedEx	$	6768	$	108	$	~~134~~202	$	~~216~~324
Other U.S. domestic and international pension plans		1413		1211		2740		2334
U.S. domestic and international defined contribution plans		5760		5658		~~115~~175		~~114~~172
U.S. domestic and international postretirement healthcare plans		1615		1615		3146		3146
	$	~~154~~156	$	192	$	~~307~~463	$	~~384~~576

The components of the net periodic benefit cost of the pension and postretirement healthcare plans currently sponsored by us were individually immaterial for all periods presented. No material contributions were made during the ~~first~~nine ~~half~~months of 2014 or 2013 to pension plans sponsored by us, and we do not expect to make material contributions in 2014.

(4) Commitments

As of ~~November~~February 3028, ~~2013~~2014, our purchase commitments under various contracts for the remainder of 2014 and annually thereafter were as follows (in millions):

	Aircraft and Aircraft-Related		Other(1)		Total
2014 (remainder)	$	~~395~~217	$	4932	$	~~444~~249
2015		1,~~142~~155		4042		1,~~182~~197
2016		1,~~127~~215		3134		1,~~158~~249
2017		~~903~~955		2325		~~926~~980
2018		1,~~447~~396		2021		1,~~467~~417
Thereafter		5,~~294~~388		89		5,~~383~~477
Total	$	10,~~308~~326	$	~~252~~243	$	10,~~560~~569

⁽¹⁾	Primarily advertising and promotions contracts.

The amounts reflected in the table above for purchase commitments represent noncancelable agreements to purchase goods or services. As of ~~November~~February 3028, ~~2013~~2014, our obligation to purchase four Boeing 767-300 Freighter (“B767F”) aircraft and nine Boeing 777 Freighter (“B777F”) aircraft is conditioned upon there being no event that causes us or our employees not to be covered by the Railway Labor Act 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.

WeDuring ~~had~~the ~~$237~~third ~~million~~quarter ~~in deposits and progress payments as~~ of ~~November 30~~2014, ~~2013~~we onentered ~~aircraft~~into ~~purchases~~an ~~and~~agreement ~~other planned~~with ~~aircraft-related~~The ~~transactions.~~Boeing ~~These~~Company ~~deposits~~for ~~are classified in~~ the ~~“Other~~purchase ~~assets” caption~~ of ~~our~~two ~~condensed~~B767F aircraft, ~~consolidated~~the ~~balance~~delivery ~~sheets.~~of Inwhich ~~addition~~will tooccur ~~our~~in ~~commitment~~2016 ~~to purchase B777Fs~~ and ~~B767Fs,~~2017. ~~our~~We ~~aircraft~~also ~~purchase~~deferred ~~commitments include~~11 ~~the~~existing ~~Boeing~~options ~~757 (“B757”) in passenger configuration, which will require additional costs~~ to ~~modify~~purchase ~~for~~B777F ~~cargo transport. Aircraft and~~ aircraft~~-related~~ ~~contracts~~by ~~are~~two years.

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We had $272 million in deposits and progress payments as of February 28, 2014 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 ~~November~~February 3028, ~~2013~~2014, with the year of expected delivery:

	B757		B767F		B777F		Total
2014 (remainder)		116		1—		—		126
2015		11		12		—		23
2016		—		1011		2		1213
2017		—		1011		—		1011
2018		—		10		2		12
Thereafter		—		4		14		18
Total		2217		4748		18		8783

OnA ~~December 10,~~summary ~~2013,~~of wefuture ~~entered~~minimum ~~into~~lease anpayments ~~agreement~~under ~~with~~noncancelable ~~The~~operating ~~Boeing~~leases ~~Company~~with ~~for~~an ~~the~~initial ~~purchase~~or ofremaining ~~two~~term ~~B767F aircraft,~~in ~~the~~excess ~~delivery~~ of ~~which~~one ~~will~~year ~~occur~~at inFebruary 28, ~~2016~~2014 ~~and 2017. We are also deferring 11 existing options to purchase B777F aircraft by two years. This aircraft transaction~~ is ~~not~~as ~~included~~follows (in ~~the~~millions): ~~table above, as it occurred subsequent to the end of the second quarter of 2014.~~

A summary of future minimum lease payments under noncancelable operating leases with an initial or remaining term in excess of one year at November 30, 2013 is as follows (in millions):


	Operating Leases
	Aircraft				Total
	and Related		Facilities		Operating
	Equipment		and Other		Leases

2014 (remainder)	$	100	$	193	$	293
2015		448		773		1,221
2016		453		633		1,086
2017		391		809		1,200
2018		326		495		821
Thereafter		824		4,144		4,968

Total	$	2,542	$	7,047	$	9,589

	Operating Leases
	Aircraft				Total
	and Related		Facilities		Operating
	Equipment		and Other		Leases
2014 (remainder)	$	395	$	380	$	775
2015		448		744		1,192
2016		453		607		1,060
2017		391		789		1,180
2018		326		478		804
Thereafter		824		4,037		4,861
Total	$	2,837	$	7,035	$	9,872

Future minimum lease payments under capital leases were immaterial at February 28, 2014. While certain of our lease agreements contain covenants governing the use of the leased assets or require us to maintain certain levels of insurance, none of our lease agreements include material financial covenants or limitations.

Future minimum lease payments under capital leases were immaterial at November 30, 2013. While certain of our lease agreements contain covenants governing the use of the leased assets or require us to maintain certain levels of insurance, none of our lease agreements include material financial covenants or limitations.

(5) Contingencies

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

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~~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.

(6) Parent/Affiliate Transactions

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

We maintain an accounts receivable arrangement with FedEx TechConnect, Inc. (“FedEx TechConnect”), a wholly owned subsidiary of FedEx Corporate Services, Inc. (“FedEx Services”). FedEx Services is a wholly owned subsidiary of FedEx. Under this arrangement, we recognize revenue for the transportation services provided to our U.S. customers and factor the related receivables to FedEx TechConnect for collection. We have no continuing involvement with the receivables transferred to FedEx TechConnect. Our net receivables recorded by FedEx TechConnect totaled $1.7 billion at ~~November~~February 3028, ~~2013~~2014 and $1.6 billion at May 31, 2013.

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

(7) Supplemental Cash Flow Information

Cash paid for interest expense and income taxes for the ~~six~~nine-month periods ended ~~November~~February 3028 was as follows (in millions):

	2013			2012
	2014			2013
Cash payments for:
Income taxes	$	~~127~~177		$	~~134~~189
Income tax refunds received		(43122	)		(54167	)
Cash tax payments, net	$	8455		$	8022

-12-

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholder

Federal Express Corporation

We have reviewed the condensed consolidated balance sheet of Federal Express Corporation as of ~~November~~February 3028, ~~2013~~2014, and the related condensed consolidated statements of income and comprehensive income for the three-month and ~~six~~nine-month periods ended ~~November~~February 3028, ~~2013~~2014 and ~~2012~~2013 and the condensed consolidated statements of cash flows for the ~~six~~nine-month periods ended ~~November~~February 3028, ~~2013~~2014 and ~~2012~~2013. These financial statements are the responsibility of the Company’s management.

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

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

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Federal Express Corporation as of May 31, 2013, and the related consolidated statements of income, comprehensive income, changes in owner’s equity and cash flows for the year then ended not presented herein, and in our report dated July 15, 2013, 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, 2013, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

Memphis, Tennessee

~~December~~March 1920, ~~2013~~2014

-13-

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

GENERAL

The following Management’s Discussion and Analysis of Results of Operations and Financial Condition (“MD&A”), which describes the principal factors affecting the results of operations and financial condition of Federal Express Corporation (“FedEx Express”), is abbreviated pursuant to General Instruction H(2)(a) of Form 10-Q. This discussion should be read in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements and our Annual Report on Form 10-K for the year ended May 31, 2013 (“Annual Report”). Our Annual Report includes additional information about our significant accounting policies, practices and the transactions that underlie our financial results. For additional information, including a discussion of outlook, liquidity, capital resources, contractual cash obligations and critical accounting estimates, see the Quarterly Report on Form 10-Q of our parent, FedEx Corporation (“FedEx”), for the quarter ended ~~November~~February 3028, ~~2013~~2014.

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

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

The key indicators necessary to understand our operating results include:

•

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

•

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

•

the mix of services purchased by our customers;

•

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

•

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

•

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

-14-

Our aircraft maintenance and repairs costs are largely driven by aircraft utilization and required periodic maintenance events. When newer aircraft are introduced into our operating fleet, less maintenance costs are incurred. As a part of our fleet modernization program, we have retired older, less efficient aircraft prior to required periodic maintenance events and have introduced newly manufactured aircraft into the fleet. In addition, our global air and ground network includes a fleet of over 640 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.

The line item “Other operating expenses” predominantly includes costs associated with outside service contracts (such as security, facility services, and cargo handling), professional fees, uniforms, insurance and advertising.

-15-

RESULTS OF OPERATIONS

We offer a wide range of U.S. domestic and international shipping services for delivery of packages and freight including priority services, which provide time-definite delivery within one, two or three business days worldwide, and deferred or economy services, which provide time-definite delivery within five business days worldwide. The following tables compare revenues, operating expenses, operating expenses as a percent of revenue, operating income, net income and operating margin (dollars in millions) for the periods ended ~~November~~February 3028:

	Three Months Ended						Percent			~~Six~~Nine Months Ended						Percent
	2013			2012			Change			2013			2012			Change
	2014			2013			Change			2014			2013			Change
Revenues:
Package:
U.S. overnight box	$	1,~~625~~643		$	1,609			12		$	34,~~209~~852		$	34,~~213~~822			—1
U.S. overnight envelope		~~398~~393			~~409~~413			(35	)		~~817~~1,210			~~839~~1,252			(3	)
U.S. deferred		~~771~~869			~~732~~812			57			12,~~500~~369			12,~~434~~246			5
Total U.S. domestic package revenue		2,~~794~~905			2,~~750~~834			23			58,~~526~~431			58,~~486~~320			1
International priority		1,~~642~~542			1,~~678~~567			(2	)		34,~~218~~760			34,~~339~~906			(43	)
International economy		~~567~~540			~~514~~491			10			1,~~099~~639			1,~~001~~492			10
Total international export package revenue		2,~~209~~082			2,~~192~~058			1			46,~~317~~399			46,~~340~~398			(1—	)
International domestic(1)		~~385~~347			~~384~~342			—1			~~730~~1,077			~~693~~1,035			54
Total package revenue		5,~~388~~334			5,~~326~~234			12			1015,~~573~~907			1015,~~519~~753			1
Freight:
U.S.		~~585~~577			~~645~~668			(914	)		1,~~209~~786			1,~~255~~923			(47	)
International priority		~~417~~379			~~446~~384			(71	)		~~805~~1,184			~~885~~1,269			(97	)
International airfreight		5548			7764			(2925	)		~~109~~157			~~151~~215			(2827	)
Total freight revenue		1,~~057~~004			1,~~168~~116			(10	)		23,~~123~~127			23,~~291~~407			(78	)
Other		~~101~~88			~~113~~112			(1121	)		~~196~~284			~~193~~305			2(7	)
Total revenues		6,~~546~~426			6,~~607~~462			(1	)		1219,~~892~~318			1319,~~003~~465			(1	)
Operating expenses:
Salaries and employee benefits		2,~~387~~438			2,~~409~~459			(1	)		47,~~747~~185			47,~~806~~265			(1	)
Purchased transportation		~~446~~440			~~432~~413			37			~~876~~1,316			~~808~~1,221			8
Rentals and landing fees		~~413~~425			~~412~~423			—			~~827~~1,252			~~821~~1,244			1
Depreciation and amortization		~~370~~371			~~333~~332			1112			~~736~~1,107			~~653~~985			1312
Fuel		~~986~~1,010			1,~~074~~066			(85	)		12,~~942~~952			23,~~060~~126			(6	)
Maintenance and repairs		~~307~~271			~~347~~261			~~(12~~4	)		~~613~~884			~~718~~979			(1510	)
Intercompany charges		505			528			(4	)		994			1,057			(6	)
Business realignment costs(2)		—			13			NM			—			14			NM
Other(2)		810			844			(4	)		1,605			1,652			(3	)
Intercompany charges(3)		500			539			(7	)		1,494			1,596			(6	)
Total operating expenses		6,224			6,379			(2	)		12,340			12,575			(2	)
Other(4)		845			831			2			2,450			2,482			(1	)
Operating income	$	322		$	228			41		$	552		$	428			29
Total operating expenses		6,300			6,337			(1	)		18,640			18,912			(1	)
Operating margin		4.9	%		3.5	%		140	bp		4.3	%		3.3	%		100	bp
Operating income	$	126		$	125			1		$	678		$	553			23
Operating margin		2.0	%		1.9	%		10	bp		3.5	%		2.8	%		70	bp
Other income (expense):
Interest, net		5			816			(3869	)		1217			2036			(4053	)
Other, net		(2233	)		(2130	)		510			(4376	)		(3868	)		1312
		(17	)		(13	)		31			(31	)		(18	)		72
		(28	)		(14	)		100			(59	)		(32	)		84
Income before income taxes		~~305~~98			~~215~~111			42(12	)		~~521~~619			~~410~~521			2719
Provision for income taxes		~~107~~34			7237			49(8	)		~~177~~211			~~141~~178			2619
Net income	$	~~198~~64		$	~~143~~74			38(14	)	$	~~344~~408		$	~~269~~343			2819

(1) International domestic revenues represent our international intra-country express operations, including acquisitions in Poland (June 2012), France (July 2012) and Brazil (July 2012).

(2) Includes predominantly costs associated with outside service contracts (such as security, facility services and cargo handling), professional fees, uniforms, insurance and advertising.

-16-

	Percent of Revenue						~~Percent of Revenue~~
	ThreeMonthsEnded			~~ThreeMonthsEnded~~			~~SixMonthsEnded~~NineMonthsEnded			~~SixMonthsEnded~~
	2013			2012			2013			2012
	2014			2013			2014			2013
Operating expenses:
Salaries and employee benefits		3637.59	%		3638.51	%		3637.82	%		37.03	%
Purchased transportation		6.8			6.54			6.8			6.23
Rentals and landing fees		6.36			6.26			6.45			6.34
Depreciation and amortization		5.68			5.01			5.7			5.01
Fuel		15.17			16.35			15.13			1516.91
Maintenance and repairs		4.72			54.20			4.86			5.50
Intercompany charges		7.7			8.0			7.7			8.1
Business realignment costs(2)		—			0.2			—			0.1
Other		12.4			12.8			12.4			12.7
Intercompany charges(3)		7.8			8.3			7.7			8.2
Total operating expenses		95.1			96.5			95.7			96.7
Other(4)		13.2			12.9			12.7			12.7
Operating margin		4.9	%		3.5	%		4.3	%		3.3	%
Total operating expenses		98.0			98.1			96.5			97.2
Operating margin		2.0	%		1.9	%		3.5	%		2.8	%

⁽¹⁾	International domestic revenues represent our international intra-country express operations, including acquisitions in Poland (June 2012), France (July 2012) and Brazil (July 2012).

⁽²⁾	Includes predominantly severance costs associated with our voluntary employee buyout program.

⁽³⁾	Includes allocations of $21 million in the third quarter and $31 million in the nine months of 2013 for business realignment costs.

⁽⁴⁾	Includes predominantly costs associated with outside service contracts (such as security, facility services and cargo handling), professional fees, uniforms, insurance and advertising.

-17-

The following table compares selected statistics (in thousands, except yield amounts) for the periods ended ~~November~~February 3028:

	Three Months Ended				Percent			~~Six~~Nine Months Ended				Percent
	2013		2012		Change			2013		2012		Change
	2014		2013		Change			2014		2013		Change
Package Statistics
Average daily package volume (ADV):
U.S. overnight box		1,~~146~~202		1,~~141~~176		—2			1,~~129~~153		1,~~116~~135		12
U.S. overnight envelope		~~535~~515		~~564~~569		(59	)		~~549~~538		570		(46	)
U.S. deferred		~~841~~984		~~828~~944		24			~~815~~871		~~794~~843		3
Total U.S. domestic ADV		2,~~522~~701		2,~~533~~689		—			2,~~493~~562		2,~~480~~548		1
International priority		~~421~~399		~~445~~420		(5	)		~~414~~409		~~426~~424		(34	)
International economy		~~172~~168		~~157~~155		108			168		~~150~~152		1211
Total international export ADV		~~593~~567		~~602~~575		(1	)		~~582~~577		576		1—
International domestic(1)		~~896~~780		~~884~~781		1—			~~842~~822		781		85
Total ADV		4,~~011~~048		4,~~019~~045		—			3,~~917~~961		3,~~837~~905		21
Revenue per package (yield):
U.S. overnight box	$	2221.5070	$	22.3908		—(2	)	$	22.3915	$	22.4935		—(1	)
U.S. overnight envelope		1112.8409		11.5169		3			11.7284		11.5157		2
U.S. deferred		14.5501		1413.0487		41			14.4931		14.1002		32
U.S. domestic composite		17.5907		17.2400		2—			17.4532		17.2818		1
International priority		61.8738		5960.9125		32			61.2730		6160.2693		—1
International economy		5251.2701		51.9703		1—			51.3524		5251.0772		(1	)
International export composite		5958.0830		57.8476		21			58.4037		58.8650		(1—	)
International domestic(1)		67.8205		67.8806		(1—	)		6.8390		6.9398		(1	)
Composite package yield		2120.3291		2120.0487		1—			21.2514		21.4223		(1—	)
Freight Statistics
Average daily freight pounds:
U.S.		78,~~872~~263		78,~~719~~324		2(1	)		7,~~646~~850		7,~~393~~697		32
International priority		32,~~068~~823		32,~~212~~894		(42	)		2,~~964~~917		3,~~197~~098		(76	)
International airfreight		~~907~~757		1,~~166~~035		(2227	)		~~878~~839		1,~~135~~102		(2324	)
Total average daily freight pounds		11,~~847~~843		12,~~097~~253		(23	)		11,~~488~~606		11,~~725~~897		(2	)
Revenue per pound (yield):
U.S.	$	1.1811	$	1.3230		(1115	)	$	1.2520	$	1.3331		(68	)
International priority		2.1613		2.2114		(2—	)		2.14		2.1615		(1—	)
International airfreight		01.9700		10.0599		(81	)		0.98		1.0403		(65	)
Composite freight yield		1.4235		1.5347		(78	)		1.4642		1.5351		(56	)

⁽¹⁾	International domestic statistics represent our international intra-country express operations, including acquisitions in Poland (June 2012), France (July 2012) and Brazil (July 2012).

Revenues

Our revenues decreased 1%slightly in ~~both~~ the ~~second~~third quarter ~~and~~of ~~first~~2014 ~~half~~due to the negative impact of ~~2014~~lower asfreight revenue, ~~growth~~lower ~~from~~fuel ~~our~~surcharges and unusually severe winter weather, offset by stronger base U.S. and international export package business ~~was~~and ~~more~~one ~~than~~additional ~~offset~~operating byday. ~~lower~~Revenue ~~freight revenue,~~in the nine months of 2014 decreased slightly due to the negative impact of lower fuel surcharges, lower freight revenue and ~~continued~~unusually ~~shifts~~severe inwinter weather, offset by stronger base U.S. and international export package business. The demand shift from our priority international services to our economy international services. Incontinued ~~addition,~~to ~~revenue in the first half of 2014 was~~ negatively ~~impacted~~impact byour ~~one fewer operating day~~results.

Freight ~~average~~yields ~~daily pounds~~ decreased ~~by 2~~8% in the ~~second~~third quarter and 6% in the ~~first~~nine ~~half~~months of 2014 due to ~~weakness~~lower infuel ~~global economic~~surcharges ~~conditions~~ and ~~capacity~~lower ~~reductions~~rates. Freight ~~yields~~average daily pounds decreased 7by 3% in the ~~second~~third quarter and 52% in the ~~first~~nine ~~half~~months of 2014 due to ~~lower~~weakness ~~fuel~~in ~~surcharges~~global economic conditions and ~~lower~~capacity ~~rates~~reductions. U.S. domestic yields ~~increased~~remained 2%flat for the ~~second~~third quarter and increased 1% for the ~~first~~ ~~half~~nine ofmonths of 2014 primarily due to higher rates and weight per package, partially offset by lower fuel surcharges. International export package revenues increased 1% in the ~~second~~third quarter ofand ~~2014~~remained ~~but~~flat ~~decreased 1%~~ in the ~~first~~nine ~~half~~months of 2014 as base business growth was offset by lower fuel surcharges, unfavorable exchange rate impact, and the demand shift to our lower-yielding economy services. ~~International priority yields increased 3% in the second quarter of 2014~~

-18-

International priority yields increased 2% in the third quarter of 2014, while international priority volumes declined 5%. Within this category, volumes for lower-yielding distribution services declined, while international priority volumes, excluding these distribution services, ~~increased~~were 1%flat. International domestic ~~revenues~~average daily volumes remained flat in the ~~second~~third quarter ofand ~~2014 but~~ increased 5% in the ~~first~~nine ~~half~~months of 2014 due to international business acquisitions during the first quarter 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 ~~November~~February 3028:

	Three Months Ended						~~Six~~Nine Months Ended
	2013			2012			2013			2012
	2014			2013			2014			2013
U.S. Domestic and Outbound Fuel Surcharge:
Low		9.5000	%		1110.5000	%		8.00	%		10.00	%
High		10.5000			1413.0050			10.50			14.50
Weighted-average		109.0249			1311.0429			9.2634			12.5814
International Fuel Surcharges:
Low		13.5000			1314.5000			12.00			12.00
High		1918.0050			2019.00			19.00			20.50
Weighted-average		16.7931			1716.2296			16.0916			16.6978

OnIn ~~September 18,~~January ~~2013~~2014, we ~~announced~~implemented a 3.9% average list price increase ~~effective January 6, 2014,~~ for ~~our~~FedEx Express U.S. domestic, U.S. export and U.S. import services. In ~~September~~January ~~2012~~2013, we ~~announced~~implemented a 5.9% average list price increase ~~effective January 7, 2013~~ for ~~our~~FedEx Express 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 increased in the ~~second~~third quarter ~~and the first half~~ of 2014 ~~driven~~due byto stronger ~~base~~ U.S. and international export package business and lower ~~aircraft maintenance and~~ pension expense, partially offset by lower freight revenues, an estimated $70 million year over year negative impact of severe winter weather and higher depreciation expense. In addition, operating income in the ~~second~~third quarter of 2014 ~~compared~~benefited tofrom ~~2013~~one ~~benefited~~additional operating day and from the ~~negative~~inclusion ~~impact~~ of ~~Superstorm~~costs ~~Sandy~~associated with our business realignment program in the prior year results. InOperating income in the ~~first~~third ~~half~~quarter of 2014, ~~operating income~~also reflects a significant negative net impact of ~~the~~fuel. ~~timing~~Operating ~~lag~~income ~~which~~in ~~exists~~the ~~between~~nine ~~when~~months ~~fuel~~of ~~prices~~2014 ~~change~~improved ~~and~~due ~~when~~to ~~indexed~~stronger ~~fuel~~base ~~surcharges~~U.S. ~~automatically adjust~~ and ~~one~~international ~~fewer~~export ~~operating~~package business, ~~day.~~lower ~~The~~pension ~~demand~~expense ~~shift~~and ~~from~~lower ~~our~~maintenance ~~priority~~expense, ~~international~~offset ~~services to~~by ~~our~~higher ~~economy~~depreciation ~~international~~expense, ~~services~~the ~~continued~~significant tonegative net impact ~~our~~of ~~overall~~fuel ~~business~~and severe winter weather.

In the ~~second~~third quarter and ~~the~~nine ~~first~~months ~~half~~ of 2014, salaries and employee benefits included lower pension expense, ~~and~~ the delayed timing or absence of annual merit increases for many of our employees and benefits from our voluntary employee severance program. Intercompany charges decreased 47% in the ~~second~~third quarter and 6% in the ~~first~~nine ~~half~~months of 2014 due to lower allocated sales and information technology costs, as well as the inclusion in the prior year results of costs associated with the business realignment program at FedEx Services. Depreciation and amortization expense increased 1112% during the ~~second~~third quarter and ~~13%~~nine ~~during~~months ~~the first half~~ of 2014 as a result of accelerated depreciation due to the shortened life of ~~certain~~ certain aircraft scheduled for retirement, and aircraft recently placed into service. Purchased transportation costs increased 37% in the ~~second~~third quarter ~~and 8% in the first half~~ of 2014 due to ~~costs associated with~~ higher utilization of third-party transportation providers~~. Purchased~~ ~~transportation~~and ~~costs~~increased 8% in the nine ~~first~~months ~~half~~ of 2014 ~~were~~due ~~also~~to ~~negatively~~higher ~~impacted~~utilization byof third-party transportation providers and prior year international acquisitions.

Our aircraft maintenance and repairs costs ~~decreased~~are 12largely driven by aircraft utilization and required periodic maintenance events. When newer aircraft are introduced into our operating fleet, less maintenance costs are incurred. As a part of our fleet modernization program, we have retired older, less efficient aircraft prior to required periodic maintenance events and have introduced newly manufactured aircraft into the fleet. Our aircraft maintenance and repairs costs increased 4% in the ~~second~~third quarter but ~~and~~decreased 1510% in the ~~first~~nine ~~half~~months of 2014, ~~due~~as to the benefits from the fourth quarter of 2013 retirement of 10 aircraft and related engines asdue weto ~~eliminated~~elimination of maintenance events for certain of these engines, ~~along~~were ~~with~~offset by the ~~timing~~impact of ~~other major~~ certain maintenance events during the third quarter.

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Fuel costs decreased 85% in the ~~second~~third quarter and 6% in the ~~first~~nine ~~half~~months of 2014 due to lower average price per gallon of jet fuel 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 ~~did not impact operating income in the second quarter but~~ had a significant negative impact on operating income in the ~~first~~third ~~half~~quarter and nine months of 2014. This analysis considers the estimated impact of the reduction in fuel surcharges included in the base rates charged for our services.

Income Taxes

Our effective tax rate was 35.0% for the ~~second~~third quarter and 3334.91% for the ~~first~~nine ~~half~~months of 2014, compared with 33.48% for the ~~second~~third quarter and 34.32% for the ~~first~~nine ~~half~~months of 2013. For 2014, 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.

We are subject to taxation in the United States and various U.S. state, local and foreign jurisdictions. Substantially all U.S. federal income tax matters through fiscal year 2009 are concluded, and we are currently under examination by the Internal Revenue Service 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. As of ~~November~~February 3028, ~~2013~~2014, there were no material changes to our liabilities for unrecognized tax benefits from May 31, 2013.

Business Acquisitions

As discussed in our Annual Report, on June 20, 2013, we signed agreements to acquire the businesses operated by our current service provider Supaswift (Pty) Ltd. in five countries in Southern Africa. In addition, on September 2, 2013, we entered into an agreement to acquire Supaswift’s business in two additional countries. This acquisition will be funded with cash from operations and is expected to be completed in the ~~second~~fourth ~~half~~quarter of 2014, subject to customary closing conditions. The financial results of the acquired businesses will be included in our results from the date of acquisition and will be immaterial to our 2014 results.

RECENT ACCOUNTING GUIDANCE

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

While no other new accounting guidance was adopted or issued during the ~~first~~nine ~~half~~months of 2014 that is relevant to the readers of our financial statements, there are numerous proposals under development which, if and when enacted, may have a significant impact on our financial reporting, as described in our Annual Report.

FORWARD-LOOKING STATEMENTS

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

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•

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;

•

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

•

our ability to execute on our business realignment program;

•

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

•

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

•

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

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

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

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•

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

•

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

•

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

•

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

•

market acceptance of our new service and growth initiatives;

•

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

•

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

•

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

•

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

•

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

•

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

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

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Item 3.

Quantitative and Qualitative Disclosures About Market Risk

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

Item 4.

Controls and Procedures

Our management, with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of ~~November~~February 3028, ~~2013~~2014 (the end of the period covered by this Quarterly Report on Form 10-Q).

During our fiscal quarter ended ~~November~~February 3028, ~~2013~~2014, no change occurred in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

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

Item 1A.

Risk Factors

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

Item 5. Other Information

Exhibit 99.1 to this report reflects the retrospective adoption of new accounting guidance with respect to certain financial information contained in our Annual Report. We are filing this exhibit for the purpose of incorporating its contents in the registration statement on Form S-8 that we intend to file on or about December 19, 2013.

As previously discussed in this report, on June 1, 2013, we adopted the authoritative guidance issued by the Financial Accounting Standards Board requiring additional information about reclassification adjustments out of accumulated other comprehensive income, including changes in accumulated other comprehensive income balances by component and significant items reclassified out of accumulated other comprehensive income.

Exhibit 99.1 presents the retrospective application of this new accounting guidance for our fiscal years ended May 31, 2013, 2012 and 2011, and should be read in conjunction with the information included in our Annual Report.

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Item 6.

Exhibits

Exhibit Number		Description of Exhibit
10.1		Amendment dated ~~October~~December 1016, 2013 (but effective as of ~~September~~November 304, 2013), amending the Transportation Agreement dated April 23, 2013 between the United States Postal Service and Federal Express Corporation. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.1 to FedEx Corporation’s FY14 ~~Second~~Third Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.2		Amendment dated ~~October~~December 1516, 2013 (but effective as of ~~October~~December 102, 2013), amending the Transportation Agreement dated April 23, 2013 between the United States Postal Service and Federal Express Corporation. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.2 to FedEx Corporation’s FY14 ~~Second~~Third Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.3		~~Amendment~~Supplemental ~~dated~~Agreement ~~November~~No. 7,4 ~~2013~~ (~~but~~and ~~effective~~related asside ofletter) ~~October~~dated 1as December 10, 2013), amending the ~~Transportation~~Boeing 767-3S2 Freighter Purchase Agreement dated ~~April~~as 23of December 14, ~~2013~~2011 between ~~the~~The ~~United~~Boeing ~~States~~Company ~~Postal Service~~ and Federal Express Corporation. Confidential treatment has been requested for confidential ~~commercial~~ and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.3 to FedEx Corporation’s FY14 ~~Second~~Third Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.4		~~Amendment~~Supplemental ~~dated~~Agreement ~~November~~No. 7,23 ~~2013~~ (~~but~~and ~~effective~~related asside ofletters) dated as December 1510, 2013), amending the ~~Transportation~~Boeing 777 Freighter Purchase Agreement dated ~~April~~as 23of November 7, ~~2013~~2006 between ~~the~~The ~~United~~Boeing ~~States~~Company ~~Postal Service~~ and Federal Express Corporation. Confidential treatment has been requested for confidential ~~commercial~~ and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.4 to FedEx Corporation’s FY14 ~~Second~~Third Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.5		Sixth Amendment dated September 19, 2013 (but effective as of July 1, 2014) 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 FY14 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
12.1		Computation of Ratio of Earnings to Fixed Charges.
15.1		Letter re: Unaudited Interim Financial Statements.
31.1		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1		Retrospective Adoption of New Accounting Guidance Regarding Reclassification Adjustments Out of Accumulated Other Comprehensive Income.
101.1		Interactive Data Files.

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SIGNATURE

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

	FEDERAL EXPRESS CORPORATION
Date: December 19, 2013		/s/ CATHY D. ROSS
Date: March 20, 2014		/s/ CATHY D. ROSS
		CATHY D. ROSS
		EXECUTIVE VICE PRESIDENT AND
		CHIEF FINANCIAL OFFICER

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EXHIBIT INDEX

Exhibit Number		Description of Exhibit
10.1		Amendment dated ~~October~~December 1016, 2013 (but effective as of ~~September~~November 304, 2013), amending the Transportation Agreement dated April 23, 2013 between the United States Postal Service and Federal Express Corporation. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.1 to FedEx Corporation’s FY14 ~~Second~~Third Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.2		Amendment dated ~~October~~December 1516, 2013 (but effective as of ~~October~~December 102, 2013), amending the Transportation Agreement dated April 23, 2013 between the United States Postal Service and Federal Express Corporation. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.2 to FedEx Corporation’s FY14 ~~Second~~Third Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.3		~~Amendment~~Supplemental ~~dated~~Agreement ~~November~~No. 7,4 ~~2013~~ (~~but~~and ~~effective~~related asside ofletter) ~~October~~dated 1as December 10, 2013), amending the ~~Transportation~~Boeing 767-3S2 Freighter Purchase Agreement dated ~~April~~as 23of December 14, ~~2013~~2011 between ~~the~~The ~~United~~Boeing ~~States~~Company ~~Postal Service~~ and Federal Express Corporation. Confidential treatment has been requested for confidential ~~commercial~~ and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.3 to FedEx Corporation’s FY14 ~~Second~~Third Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.4		~~Amendment~~Supplemental ~~dated~~Agreement ~~November~~No. 7,23 ~~2013~~ (~~but~~and ~~effective~~related asside ofletters) dated as December 1510, 2013), amending the ~~Transportation~~Boeing 777 Freighter Purchase Agreement dated ~~April~~as 23of November 7, ~~2013~~2006 between ~~the~~The ~~United~~Boeing ~~States~~Company ~~Postal Service~~ and Federal Express Corporation. Confidential treatment has been requested for confidential ~~commercial~~ and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.4 to FedEx Corporation’s FY14 ~~Second~~Third Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.5		Sixth Amendment dated September 19, 2013 (but effective as of July 1, 2014) 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 FY14 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
12.1		Computation of Ratio of Earnings to Fixed Charges.
15.1		Letter re: Unaudited Interim Financial Statements.
31.1		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1		Retrospective Adoption of New Accounting Guidance Regarding Reclassification Adjustments Out Of Accumulated Other Comprehensive Income.
101.1		Interactive Data Files.

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