4-6 page CASE STUDY —–> READ ATTACHMENTS<------ GOOD WRITERS ONLY<-------4 ATTACHMENTS PLEASE READ<-------

—–> READ ALL ATTACHMENTS<------ FOLLOW THE INSTRUCTIONS BELOW<------- MUST BE A GOOD WRITER<--------

 

Address the following: P
repare a 4-6 page paper, following APA guidelines. I strongly urge you to 

make use of the electronic library and other electronic resources to strengthen 

your paper. Upon completion of your essay, list in question/answer format, your 

responses to the 11 questions listed following the essay criteria. 

 

a. A brief overview of the UPS company (3 paragraphs max!) 

b. Describe and discuss at least 3 technologies in-use at UPS (cite sources) c. Financially speaking (looking at each companies 10-K reports), discuss 

how the two companies compare to each other in terms of income and 

expense. 

i. What are the three reportable segments of UPS? 

 

d. Discuss UPS’s business of outsourcing supply chain management. 

e. Discuss how technology plays a role in UPS’s International Package 

reporting segment. 

f. Describe both UPS and FedEx competitive strengths. Which one is poised 

to have the most growth over the next 5 years? 

g. Discuss the FedEx Mobile suite of services. Does UPS have anything that 

compares? 

h. Imagine landing a new job–you are in charge of technology at the 

WorldPort Warehouse. Name at least 4 items (technology-wise) that you 

would want to know about right away. 

 

3. Questions: 

1. What automotive company uses UPS as their parts supplier? Briefly describe 

how they take advantage of UPS services. 

 

2. What company setup shop right next to FedEx so they can quickly deliver their 

perishable goods? What do they sell? 

 

3. How many times is the average FedEx package scanned 

 

4. Over the past 18 months, UPS has opened 12 new dedicated facilities on 4 

continents. What are they dedicated to? 

 

5. What does telematics do for UPS? 

 

6. What does UPS Quantum View do for customers? 

 

7. Which is bigger? The FedEx Memphis hub or the UPS WorldPort Hub? Provide 

statistics in at least a one paragraph answer. 

 

8. According to company financials, what was the total income and profit for each 

company? Who did better in terms of profit as a percent of revenue? 

 

9. How did Siemens help to expand the Worldport Hub?  

10. What fine foods company has a warehouse next to the UPS WorldPort facility? 

What do they keep there? How do they do it? 

 

11. What is the name of the hand-held device that UPS drivers use? How does it 

integrate with the UPS ERP system? 

5014 Final Case Study

The role of Enterprise Resource Planning (ERP) systems in managing business
processes has expanded significantly over the past decade from a focus on specific
business areas such as manufacturing, procurement, or human resources, to broader
use throughout the company. Although IT has traditionally been responsible for
specifying and implementing technology within an organization, successful ERP
implementations require involvement from stakeholders at all levels, from executives to
end users. For many companies, the transition from existing traditional systems to a
new ERP can consume significant corporate resources, including time, expense, and
risk to business operations. (TEC, 2013)

United Parcel Service (UPS) the world‘s largest air and ground package–distribution
company, started operating in 1907, out of a closet-sized basement office. Today, with
the backing of technology and especially ERP systems, UPS is now the world’s largest
ground and air package-distribution System Company. Arguably, because of the fierce
competition with FedEx, UPS has had to heavily invest in technology to become the
global leader that they are.

Assignment:

1. Review these videos:

UPS overview

FedEx and UPS Documentary

The UPS WorldPort facility

The FedEx Memphis Hub

How UPS operates

FedEx package tracking

2. Prepare a 4-6 page paper, following APA guidelines. I strongly urge you to
make use of the electronic library and other electronic resources to strengthen
your paper. Upon completion of your essay, list in question/answer format, your
responses to the 11 questions listed following the essay criteria.

Address the following:

a. A brief overview of the UPS company (3 paragraphs max!)
b. Describe and discuss at least 3 technologies in-use at UPS (cite sources)

http://www.youtube.com/watch?v=8i0YpHrBwDg

http://www.youtube.com/watch?v=iYzQ7JSBIGU

http://video.cnbc.com/gallery/?play=1&video=3000068387

c. Financially speaking (looking at each companies 10-K reports), discuss
how the two companies compare to each other in terms of income and
expense.

i. What are the three reportable segments of UPS?

d. Discuss UPS’s business of outsourcing supply chain management.
e. Discuss how technology plays a role in UPS’s International Package

reporting segment.
f. Describe both UPS and FedEx competitive strengths. Which one is poised

to have the most growth over the next 5 years?
g. Discuss the FedEx Mobile suite of services. Does UPS have anything that

compares?
h. Imagine landing a new job–you are in charge of technology at the

WorldPort Warehouse. Name at least 4 items (technology-wise) that you
would want to know about right away.

3. Questions:
1. What automotive company uses UPS as their parts supplier? Briefly describe

how they take advantage of UPS services.

2. What company setup shop right next to FedEx so they can quickly deliver their
perishable goods? What do they sell?

3. How many times is the average FedEx package scanned

4. Over the past 18 months, UPS has opened 12 new dedicated facilities on 4
continents. What are they dedicated to?

5. What does telematics do for UPS?

6. What does UPS Quantum View do for customers?

7. Which is bigger? The FedEx Memphis hub or the UPS WorldPort Hub? Provide
statistics in at least a one paragraph answer.

8. According to company financials, what was the total income and profit for each
company? Who did better in terms of profit as a percent of revenue?

9. How did Siemens help to expand the Worldport Hub?

10. What fine foods company has a warehouse next to the UPS WorldPort facility?

What do they keep there? How do they do it?

11. What is the name of the hand-held device that UPS drivers use? How does it
integrate with the UPS ERP system?

UPS-12.31.2012-10K
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10-K 1 ups-12312012x10k.htm FORM 10-K
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________
Form 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
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 001-15451
____________________________________

____________________________________
United Parcel Service, Inc.
(Exact Name of Registrant as Specified in Its Charter)
____________________________________
Delaware 58-2480149
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
55 Glenlake Parkway, N.E. Atlanta, Georgia 30328
(Address of Principal Executive Offices) (Zip Code)
(404) 828 -6000
(Registrant’s telephone number, including area code)
____________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Class B common stock, par value $.01 per share New York Stock Exchange
____________________________________
Securities registered pursuant to Section 12(g) of the Act:
Class A common stock, par value $.01 per share
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No x
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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S -K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
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 definition of “accelerated filer”, “large accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Check one:
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ 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 aggregate market value of the class B common stock held by non-affiliates of the registrant was $57,146,565,574 as of June 30, 2012. The registrant’s class A common stock is not listed on a national
securities exchange or traded in an organized over-the-counter market, but each share of the registrant’s class A common stock is convertible into one share of the registrant’s class B common stock.
As of January 31, 2013, there were 223,092,434 outstanding shares of class A common stock and 730,357,508 outstanding shares of class B common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its annual meeting of shareowners scheduled for May 2, 2013 are incorporated by reference into Part III of this report.

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Table of Contents
UNITED PARCEL SERVICE, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1. Business 1
Overview 1
Business Strategy 2
Technology 3
Reporting Segments and Products & Services 4
Sustainability 7
Community 7
Reputation 8
Employees 8
Safety 8
Competition 9
Competitive Strengths 9
Government Regulation 10
Where You Can Find More Information 11
Item 1A. Risk Factors 12
Item 1B. Unresolved Staff Comments 16
Item 2. Properties 16
Operating Facilities 16
Fleet 17
Item 3. Legal Proceedings 18
Item 4. Mine Safety Disclosures 18
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 19
Shareowner Return Performance Graph 20
Item 6. Selected Financial Data 21
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
Overview 22
Items Affecting Comparability 22
U.S. Domestic Package Operations 24
International Package Operations 28
Supply Chain & Freight Operations 31
Operating Expenses 34
Investment Income and Interest Expense 37
Income Tax Expense 38
Liquidity and Capital Resources 39
New Accounting Pronouncements 48
Critical Accounting Policies and Estimates 49
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 53
Item 8. Financial Statements and Supplementary Data 55
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 105
Item 9A. Controls and Procedures 105
Item 9B. Other Information 107
PART III
Item 10. Directors, Executive Officers and Corporate Governance 107

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Item 11. Executive Compensation 108
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 108
Item 13. Certain Relationships and Related Transactions, and Director Independence 108
Item 14. Principal Accounting Fees and Services 108
PART IV
Item 15. Exhibits and Financial Statement Schedules 109
Table of Contents
PART I
Cautionary Statement About Forward-Looking Statements
This report includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
Statements in the future tense, and all statements accompanied by terms such as “believe,” “project,” “expect,” “estimate,” “assume,” “intend,”
“anticipate,” “target,” “plan,” and variations thereof and similar terms are intended to be forward-looking statements. We intend that all forward-
looking statements we make will be subject to safe harbor protection of the federal securities laws pursuant to Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934.
Our disclosure and analysis in this report, in our Annual Report to Shareholders and in our other filings with the Securities and Exchange
Commission (“SEC”) contain forward-looking statements regarding our intent, belief and current expectations about our strategic direction,
prospects and future results. From time to time, we also provide forward-looking statements in other materials we release as well as oral forward-
looking statements. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current
facts. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to
place undue reliance on any such forward-looking statements because such statements speak only as of the date when made.
Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our
historical experience and our present expectations or anticipated results. These risks and uncertainties are described in Part I, “Item 1A. Risk
Factors” and may also be described from time to time in our future reports filed with the SEC. You should consider the limitations on, and risks
associated with, forward-looking statements and not unduly rely on the accuracy of predictions contained in such forward-looking statements. We
do not undertake any obligation to update forward-looking statements to reflect events, circumstances, changes in expectations, or the occurrence
of unanticipated events after the date of those statements.

Item 1. Business
Overview
United Parcel Service, Inc. (“UPS”) was founded in 1907 as a private messenger and delivery service in Seattle, Washington. Today, UPS is
the world’s largest package delivery company, a leader in the U.S. less-than-truckload industry and the premier provider of global supply chain
management solutions. We deliver packages each business day for 1.1 million shipping customers to 7.7 million consignees in over 220 countries
and territories. In 2012, we delivered an average of 16.3 million pieces per day worldwide, or a total of 4.1 billion packages. Total revenue in 2012
was $54.1 billion.
We are a global leader in logistics, and we create value for our customers through solutions that lower costs, improve service and provide
highly customizable supply chain control and visibility. Customers are attracted to our broad set of services that are delivered as promised through
our integrated ground, air and ocean global network.
Our services and integrated network allow shippers to simplify their supply chains by using fewer carriers, and to adapt their transportation
requirements and expenditures as their businesses evolve. Across our service portfolio, we also provide control and visibility of customers’
inventories and supply chains via our UPS technology platform. The information flow from UPS technology drives improvements for our
customers, as well as for UPS, in reliability, flexibility, productivity and efficiency.
Particularly over the last decade, UPS has significantly expanded the scope of our capabilities to include more than package delivery. Our
logistics and distribution capabilities give companies the power to easily expand their businesses to new markets around the world. By leveraging
our international infrastructure, UPS enables our customers to bridge time zones, cultures, distances and languages to keep the entire supply chain
moving smoothly.
We serve the global market for logistics services, which include transportation, distribution, forwarding, ground, ocean and air freight,
brokerage and financing. Our technology seamlessly binds our service portfolio. We have three reportable segments: U.S. Domestic Package,
International Package and Supply Chain & Freight, all of which are described below. For financial information concerning our reportable segments
and geographic regions, refer to note 11 of our consolidated financial statements.

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Business Strategy
Customers leverage our broad array of services; balanced global presence in North America, Europe, Asia and Latin America; reliability;
industry-leading technology; and solutions expertise for competitive advantage in markets where they choose to compete. We prudently invest to
expand our integrated global network and our service portfolio. Technology investments create user-friendly shipping, e-commerce, logistics
management and visibility tools for our customers, while supporting UPS’s ongoing efforts to increase operational efficiencies.
Our service portfolio and investments are rewarded with among the best returns on invested capital and operating margins in the industry.
We have a long history of sound financial management. Our balance sheet reflects financial strength that few companies can match. As of
December 31, 2012, we had a balance of cash and marketable securities of approximately $7.924 billion and shareowners’ equity of $4.733 billion.
Our Moody’s and Standard & Poor’s short-term credit ratings are P-1 and A-1, respectively, and our Moody’s and Standard & Poor’s long-term
credit ratings are Aa3 and A+, respectively. We have a negative outlook from Standard & Poor’s and a stable outlook from Moody’s. Cash
generation is a significant strength of UPS. This gives us strong capacity to service our obligations and allows for distributions to shareowners,
reinvestment in our businesses and the pursuit of growth opportunities.
We enable and are the beneficiaries of the following trends:
Expansion of Global Trade
Transcontinental and trade across borders is predicted to grow at rates that are in excess of the growth rates of U.S. and global domestic
production for the foreseeable future. As a result, U.S. and international economies are becoming more inter-connected and dependent on foreign
trade.
UPS plays an important role in global trade and is uniquely positioned to take advantage of trade growth, wherever it occurs. Our balanced
global presence and productivity enhancing technologies allow customers to easily expand to new markets. We advocate the expansion of free
trade, including the passage of regional trade pacts and the removal of trade barriers. Free trade is a catalyst for job creation, economic growth and
improved living standards; additionally, it propels our growth.
Emerging Market Growth
As our current and prospective customers look to emerging markets for expansion, we make long-term, measured investments in markets
where our customers choose to grow. Our investments are scaled to the local opportunity. We typically follow a pattern of entering a market
through the introduction of import and export services, expanding domestically with a partner or alliance, and then ultimately acquiring domestic
operations where we see value and return. China is a prime example of this strategy as we continue to clear hurdles that will enable us to realize
this vision. Our two key air hubs in Shanghai and Shenzhen support market expansion through increased cargo capacity and faster intra-Asia
transit times, while enabling our customers to ship later in the day. Linkage between Asia and Europe is provided via flights between Hong Kong
and our recently expanded air hub in Cologne, Germany.
Taken together, these two trends (expanding global trade and emerging market growth) underscore why our international business is a
catalyst for UPS’s growth.
Increasing need for segment expertise in the integrated carrier space
We provide repeatable, scalable sector solutions for our customers. We invest in global capabilities and create value propositions for certain
industries where there is a fit between our customers’ needs and our offerings. Segments where we bring unique value propositions include health
care, high-tech, automotive & industrial manufacturing, retail, government and professional, and consumer services.
The health care industry faces complex challenges, including the continuing expiration of drug patents and the shifting landscape of
regulatory requirements and drug pricing controls that differ by country. To counter these threats, many pharmaceutical companies have embarked
on global expansion strategies that require infrastructure. UPS has aligned our resources to serve these needs through a well-developed supply
chain management capability that is designed to satisfy regulatory and compliance requirements. Over the past 18 months, we opened 12 new
dedicated health care facilities on four continents. We also expanded our health care network in China, India, Australia and Brazil and are in the
process of expanding five existing North American facilities. In total, we currently operate nearly 6 million square feet of dedicated health care
distribution space across an integrated network of 37 facilities. These facilities allow us to provide reliable, secure, cost-effective warehousing and
distribution for pharmaceutical firms’ supply chains, which, in turn, allow them to easily navigate across and within borders.
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We also continue to invest in health care focused transportation solutions, such as UPS Temperature True. UPS Temperature True is an air
freight solution specifically designed to safeguard temperature-sensitive shipments using a portfolio of specialized containers with passive, semi-

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active, or active refrigeration. This service provides door-to-door transportation of sensitive products in accordance with precise, measurable
operating procedures. In 2012, UPS added 400 new UPS Temperature True international trade lanes. We also launched UPS Temperature True
Small Package to provide optimized packaging solutions to ensure product integrity for customers with smaller format shipments of
environmentally-sensitive products.
We will continue to expand our sector offerings, growing not only our physical and market footprint, but also our expertise and technology
to support industry-specific needs. Our growth strategy is to increase the number of customers benefiting from these sector solutions and gain their
associated small package and freight transportation.
Outsourcing
Outsourcing supply chain management is becoming more prevalent, as customers increasingly view professional management and operation
of their supply chains as a strategic advantage. This trend enables companies to focus on what they do best. We can meet our customers’ needs for
outsourced logistics with our global capabilities in customized forwarding, transportation, warehousing, distribution, delivery and post-sales
services. As we move deeper into customers’ supply chains, we do so with a shared vision on how to best serve those who rely on our customers.
We integrate our technology for efficiencies, visibility and control to ensure that we execute as promised.
Retail e-Commerce Growth
Throughout much of the world, e-commerce growth continues to outpace traditional lines of business. We continue to create new services,
supported by UPS technology, that complement the traditional UPS premium home delivery service to address the needs of e-commerce shippers
and receivers (“consignees”). Our offerings span a broad spectrum from cost-sensitive solutions such as SurePost, for shipments where economy
takes precedence over speed, up to feature-rich solutions, such as our UPS My Choice service that provides consignees with revolutionary
visibility and control of their inbound shipments.
With UPS My Choice, consignees direct the timing and location of their deliveries before a delivery attempt is made. Premium features
include online delivery planners, detailed driver instructions, alternate delivery locations and a two-hour delivery window. Delivery alerts come via
the channel chosen by the consignee—email, SMS text, etc. We strive to give our customers that ship using UPS My Choice the best delivery
experience in the industry—delivery on the first attempt, where and when their customers want it.
Technology
Technology powers logistics. We bring industry-leading UPS technology to our customers who, in turn, realize increased productivity,
greater control of their supply chains and improved customer experience when they integrate with our technology. Customers benefit through
offerings such as:
• UPS Quantum View, which can speed up the revenue cycle (i.e. faster transit times, coupled with confirmation of delivery, allow shippers
to collect accounts receivable more quickly), allow for inbound volume planning, manage third-party shipping costs, automatically notify
customers of incoming shipments, and of course, track shipments and let the customer react if a specific shipment status changes.
• Flex Global View, which provides customs alerts, supplier key performance indicators and inventory monitoring.
• UPS Paperless Invoice, which enables customers to submit a commercial invoice electronically when shipping internationally. This
eliminates redundant data entry and errors, while reducing customs holds and paper waste.
• UPS Import Control, which gives our customers the ability to initiate their import shipments, define billing terms and assign accounts to
charge, and remove commercial invoices prior to delivery to a third-party.
• UPS Mobile apps, which allow our customers to track, ship and find UPS locations from mobile devices, are among the top downloaded
applications for businesses.
• UPS My Choice, which focuses on the consignee and transforms the residential delivery experience. Receivers direct the timing and
circumstances of their deliveries. This innovative service, which is unmatched in our industry, is powered by the complex integration of
real-time route optimization and other technologies with our delivery network. We believe that UPS My Choice gives us a substantial
lead over the competition.
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Technology, coupled with high-quality UPS employees, forms the foundation of our reliability and allows us to take customer experience to
a higher level. Technology delivers value to our customers and returns to our shareholders. Recent advancements that evidence further gains in
UPS’s operational efficiency, flexibility, reliability and customer experience include:
• Continuing to rollout telematics to our delivery and tractor-trailer fleet. Telematics helps UPS determine a truck’s performance and
condition by capturing data on more than 200 elements, including speed, RPM, oil pressure, seat belt use, number of times the truck is
placed in reverse and idling time. Together, improved data and driver coaching help reduce fuel consumption, emissions and maintenance
costs, while improving driver safety. Moreover, customers experience more consistent pickup times and more reliable deliveries, thereby
enhancing their profitability and competitiveness.
• Implementing our On Road Integrated Optimization and Navigation (“ORION”) system, which employs advanced algorithms to

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determine the optimal route for each delivery while meeting service commitments.
• Converting our package cars to keyless entry, where drivers will be able to remotely turn the engine off with a button that will unlock the
bulkhead door at the same time.
• Ramping up installations of our Next Generation Small Sort (“NGSS”) technology, which reduces the amount of memorization required
to sort a package, thereby improving productivity and quality. Employees sort packages to bins tagged with flashing lights, rather than
memorizing addresses, allowing us to dramatically reduce training time.
Reporting Segments and Products & Services
As a global leader in logistics, UPS offers a broad range of domestic and export delivery services; the facilitation of international trade; and
the deployment of advanced technology to more efficiently manage the world of business. We seek to streamline our customers’ shipment
processing and integrate critical transportation information into their own business processes, helping them to create supply chain efficiencies,
better serve their customers and improve their cash flows.
Global Small Package
UPS’s global small package operations provide time-definite delivery services for express letters, documents, small packages and palletized
freight via air and ground services. We provide domestic delivery services within 56 countries and export services to more than 220 countries and
territories around the world. We handle packages that weigh up to 150 pounds and are up to 165 inches in combined length and girth as well as
palletized shipments weighing greater than 150 pounds. All of our package services are supported by numerous shipping, visibility and billing
technologies.
UPS handles all levels of service (air, ground, domestic, international, commercial, residential) through one global integrated pickup and
delivery network. All packages are commingled throughout their journey in our network, except when necessary to meet their specific service
commitments. This enables one UPS driver to pick up our customers’ shipments, for any of our services, at the same scheduled time, day after day.
Compared to companies with single service network designs, our integrated network uniquely provides operational and capital efficiencies while
being easier on the environment.
Upon request, we offer same-day pickup of air and ground packages. Based on their needs, customers can schedule pickups for one to five
days a week. Additionally, we provide our customers with easy access to UPS, with over 154,000 domestic and international entry points
including: 39,100 drop boxes; 2,100 customer centers; 4,700 independently owned and operated locations of The UPS Store worldwide; 6,700
Kiala locations; 12,400 authorized shipping outlets and commercial counters; 5,900 alliance locations; and 83,900 UPS drivers who can accept
packages provided to them.
With the growth of online shopping, our customers’ needs for efficient and reliable returns have increased. To this end, we have developed a
robust selection of returns services that are available in over 100 countries. Options vary based on customer needs and country, and range from
cost-effective solutions such as UPS Returns, which simply enables shippers to provide their customers with a return shipping label, to services as
specialized as UPS Returns Exchange. With this new service, the UPS driver simplifies product exchanges by delivering a replacement item and
picking up a return item in the same stop, and assisting with the re-packaging process.
We operate one of the largest airlines in the world, with global operations centered at our Worldport hub in Louisville, Kentucky. Worldport
sort capacity, currently at 416,000 packages per hour, has expanded over the years due to volume growth and a centralization effort. Our European
air hub is located in Cologne, Germany, and we maintain Asia-Pacific air hubs in Shanghai, China; Shenzhen, China; Taipei, Taiwan; Incheon,
South Korea; Hong Kong; and Singapore. Our regional air hub in Canada is located in Hamilton, Ontario, and our regional air hub for Latin
America and the Caribbean is in Miami, Florida.
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In the U.S., Worldport is supported by our regional air hubs in Hartford, Connecticut; Ontario, California; Philadelphia, Pennsylvania; and
Rockford, Illinois. This network design allows for cost-effective package processing in our most technology-enabled facilities while enabling us to
use fewer, larger and more fuel-efficient aircraft. Our U.S. ground fleet serves all business and residential zip codes in the contiguous U.S.
U.S. Domestic Package Reporting Segment
UPS is a leader in time-definite, money-back guaranteed, small package delivery services. We offer a full spectrum of U.S. domestic
guaranteed ground and air package transportation services. Depending on the delivery speed needed, customers can select from a range of
guaranteed time and day-definite delivery options.
• Customers can select from same day, next day, two day and three day delivery alternatives. Many of these services offer options that
enable customers to specify a time of day cut-off for their delivery (e.g. by 8:30, 10:30, noon, end of day, etc.).
• Customers can also leverage our extensive ground network to ship using our day-definite guaranteed ground service that serves every
U.S. business and residential address. UPS delivers more ground packages than any other carrier, with over 11 million ground packages
delivered on time every day in the U.S., most within one to three business days.

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• UPS also offers UPS SurePost, an economy residential ground service for customers with non-urgent, light weight residential shipments.
UPS SurePost is a contractual residential ground service that combines the consistency and reliability of the UPS Ground network with
final delivery provided by the U.S. Postal Service.
International Package Reporting Segment
Our International Package reporting segment includes the small package operations in Europe, Asia, Canada and Latin America. UPS offers
a wide selection of guaranteed, day and time-definite international shipping services.
• We offer three guaranteed time-definite express options (Express Plus, Express and Express Saver) to more locations than any other
carrier.
• In 2013, we introduced UPS Worldwide Express Freight for palletized shipments over 150 pounds from 37 points of origin to 41 points of
destination. This service meets the needs of international customers who have palletized freight shipments that require the same speed and
reliability as our international express package service. UPS Worldwide Express Freight leverages our unique combination of package and
freight networks to provide industry leading transit times with a money-back guarantee.
• For international shipments that do not require express services, UPS Worldwide Expedited offers a reliable, deferred, guaranteed day-
definite service option.
• For cross-border ground package delivery, we offer UPS Transborder Standard delivery services within Europe, between the U.S. and
Canada and between the U.S. and Mexico.
Europe, our largest region outside of the U.S., accounts for roughly half of international revenue and is one of our growth engines. Factors
contributing to this are the highly fragmented nature of the market and the fact that exports make up a significant part of Europe’s GDP. Given our
well-known, trusted brand and distinctive integrated network, we believe there is continued strong potential for growth in small package exports in
Germany, the U.K., France, Italy, Spain and the Netherlands. Due to our strong growth, we are expanding our main European air hub in Cologne
by 70% to a capacity of 190,000 packages per hour. Expansion will come in stages; the first stage was completed in the fourth quarter of 2011,
with the final stage targeted for 2013.
Asia is another growth engine due to attractive growth rates in intra-Asia trade and the dynamic Chinese economy. We are bringing faster
time-in-transit to customers focused on intra-Asia trade, reducing transit days from Asia to Europe, and continuing to build our China presence.
Our recent China investments include:
• Material outlays to add capabilities, facilities and quality employees. We are building awareness and relevance while demonstrating
superior UPS performance.
• Opened an air hub in Shenzhen in mid-2010.
• Added intra-Asia and around-the-world flight frequencies allowing customers to reach more of Europe the next day, guaranteed, than any
other express carrier.
We serve more than 40 Asia-Pacific countries and territories through more than two dozen alliances with local delivery companies that
supplement company-owned operations. In Vietnam, our volume has doubled since entering into an alliance with a local partner in 2010.
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Additional International highlights include the following:
• Since our 2009 acquisition of Unsped Paket Servisi San ve Ticaret A.S. in Turkey, we have seen strong export and domestic growth in
that country.
• In South and Central America, we benefit from the strong regional economy. Our offerings include express package delivery in major
cities as well as distribution and forwarding.
• We continue to grow our business organically in Mexico. We are well positioned with freight, domestic, international and distribution
services.
• In February 2012, we broadened our European business-to-consumer service portfolio by acquiring Kiala S.A., a Belgium-based
developer of a platform that enables e-commerce retailers to offer consumers the option of having goods delivered to a convenient retail
location.
Supply Chain & Freight Reporting Segment
The Supply Chain & Freight segment consists of our forwarding and logistics services, our UPS Freight business, and our financial offerings
through UPS Capital. We manage supply chains in over 195 countries and territories, with approximately 35 million square feet of distribution
space worldwide. Supply chain complexity creates demand for a global service offering that incorporates transportation, distribution and
international trade and brokerage services, with financial and information services. We meet this demand by offering a broad array of services,
which are described below.
The 2011 acquisition of Italy-based Pieffe Group (“Pieffe”) supports our global health care strategy, which has seen us make investments to

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better serve our growing customer base in the pharmaceutical, biotech and medical device industries. Previously family-owned, Pieffe is a
pharmaceutical logistics business with more than 35 years of experience offering high-quality storage, distribution and cold chain solutions to
some of the world’s leading pharmaceutical brands.
Freight Forwarding
UPS is one of the largest U.S. domestic air freight carriers and among the top international air freight forwarders globally. UPS offers a
portfolio of guaranteed and non-guaranteed global air freight services. Additionally, as one of the world’s leading non-vessel operating common
carriers, UPS also provides ocean freight full-container load and less-than container load shipments between most major ports around the world.
Customs Brokerage
UPS is among the world’s largest customs brokers by both the number of shipments processed annually and by the number of dedicated
brokerage employees worldwide. With decades of customs brokerage experience, we provide our customers with customs clearance, trade
management and international trade consulting services.
Logistics and Distribution
UPS Logistics offers the following:
• Distribution Services: UPS’s comprehensive distribution services are provided through a global network of distribution centers that
manage the flow of goods from receiving to storage and order processing to shipment, allowing companies to save time and money by
minimizing their capital investment and positioning products closer to their customers.
• Post Sales: Post Sales services support goods after they have been delivered or installed in the field. The four core service offerings
within Post Sales include: (1) Critical Parts Fulfillment; (2) Reverse Logistics; (3) Test, Repair, and Refurbish; and (4) Network and Parts
Planning. We leverage our global distribution network of 600+ field stocking locations to ensure that the right type and quantity of our
customers’ stock is in the right locations to meet the needs of their end-customers. With this service, our customers are able to minimize
spend and maximize service.
• UPS Mail Innovations: UPS Mail Innovations offers an efficient, cost-effective method for sending lightweight parcels and flat mail to
global addresses from the U.S. We pick up customers’ domestic and international mail, sort, post, manifest and then expedite the secured
mail containers to the destination postal service for last-mile delivery.
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UPS Freight
UPS Freight offers regional, inter-regional and long-haul less-than-truckload (“LTL”) services, as well as full truckload services, in all 50
states, Canada, Puerto Rico, Guam, the U.S. Virgin Islands and Mexico. UPS Freight provides reliable LTL service backed by a day-definite, on-
time guarantee at no additional cost. Additionally, many user-friendly small package technology offerings are available for freight. Applications
such as UPS WorldShip, Billing Center, and Quantum View allow customers to process and track LTL shipments, create electronic bills of lading
and reconcile billing.
UPS Capital
UPS Capital offers a range of services, including export and import financing to help improve cash flow, risk mitigation offerings to protect
goods, as well as payment solutions that help speed the conversion cycle of payments.
Sustainability
UPS’s business and corporate responsibility strategies pursue a common interest to increase the vitality and environmental sustainability of
the global economy by aggregating the shipping activity of millions of businesses and individuals worldwide into a single, highly efficient logistics
network. This provides benefits to:
• UPS, by ensuring strong demand for our services.
• The economy, by making global supply chains more efficient and less expensive.
• The environment, by enabling our global customers to leverage UPS’s carbon efficiency and thereby reduce the carbon intensity of their
supply chains.
We pursue sustainable business practices worldwide through operational efficiency, fleet advances, facility engineering projects, and
conservation-enabling technology and service offerings. We help our customers to do the same.
We worked with the non-profit organization Business for Social Responsibility (“BSR”) to evaluate significant sustainability issues
(Economic, Environmental and Social), and ranked each issue by importance based on multiple stakeholder feedback. We then worked with BSR
to develop a materiality matrix by mapping the issues on a grid with two axes: “Importance to Stakeholder” and “Influence on Business Success”.
The materiality matrix is now being used to aid in prioritizing our sustainability strategy. More information is available in the UPS Corporate

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Sustainability Report.
Sustainability highlights in 2012 include:
• Rated 1st in Fortune Magazine’s 2012 “World’s Most Admired” for the Delivery Industry.
• One of Corporate Responsibility’s “100 Best Corporate Citizens” and one of “The Best Corporate Citizens in Government Contracting”.
• Recognized by Ethisphere Institute as one of the “World’s Most Ethical Companies”.
• Named to Interbrands “Best Global Brands” for the 8th consecutive year. We ranked in the Top 100 in brand value around the world
(#27) and were the only company in the transportation sector to make the list in 2012.
• Recognized as a constituent of the Dow Jones Sustainability Index for the 11th consecutive year.
• One of America’s Top Organizations for Multicultural Business Opportunities by DiversityBusiness.com.
• Achieved a score of 99% in response to the Carbon Disclosure Project. Our Carbon Disclosure Leadership Index score tied one other
company for the highest in the U.S.
• Recognized by ClimateCounts.org as best company in the consumer shipping sector for the 4th consecutive year and was the second
highest score overall globally.
More information is available on the UPS Sustainability website.
Community
We believe that strong communities are vital to the success of our company. By combining our philanthropy with the volunteer time and
talents of our employees, UPS helps drive positive change for organizations and communities in need across the globe. The highlights of our
corporate citizenship efforts in 2012 include:
• Local non-profits around the world received more than 1.8 million hours of volunteer service from UPS employees participating in our
Neighbor-to-Neighbor program.
• The UPS Foundation, our charitable organization, oversaw $98 million in donations of cash and in-kind services to global causes
primarily in four focus areas—community safety, environmental sustainability, diversity and volunteerism.
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• UPS employees, both active and retired, contributed $48 million to United Way last year which was matched by a corporate contribution
of $7 million. During the 2012 campaign, employees (both active and retired) pledged an additional $51 million to United Way.
• UPS continued to help save lives through our UPS Humanitarian Relief program by providing our logistics expertise and resources to aid
the drought-stricken Sahel region of Africa and areas impacted by Hurricanes Isaac and Sandy.
• Thousands of teenagers and novice drivers in the U.S., Canada, the U.K., and Germany participated in UPS Road Code. This safety
program for new drivers features UPS employees as instructors – a role where they get to share driving knowledge and safety tips
amassed over our 105-year history of safe driving.
Reputation
Great brands require connecting with customers. In working to develop these connections, we have once again received high accolades from
independent brand evaluations. In 2012, we were pleased that UPS earned the top rating in our industry on Interbrand’s Best Global Brands and
Millward Brown’s BrandZ Most Valuable Global Brands. UPS also was named to industry-leading positions in Fortune Magazine’s Most Admired
and Harris Interactive’s Reputation Quotient surveys.
Employees
The strength of our company is our people, working together with a common purpose. We had approximately 399,000 employees (excluding
temporary seasonal employees) as of December 31, 2012, of which 323,000 are in the U.S. and 76,000 are located internationally. Our global
workforce includes approximately 71,000 management employees (36% of whom are part-time) and 328,000 hourly employees (46% of whom are
part-time).
As of December 31, 2012, we had approximately 249,000 employees employed under a national master agreement and various supplemental
agreements with local unions affiliated with the International Brotherhood of Teamsters (“Teamsters”). These agreements run through July 31,
2013.
We have approximately 2,600 pilots who are employed under a collective bargaining agreement with the Independent Pilots Association
(“IPA”), which became amendable at the end of 2011.
Our airline mechanics are covered by a collective bargaining agreement with Teamsters Local 2727, which runs through November 1, 2013.
In addition, approximately 3,100 of our ground mechanics who are not employed under agreements with the Teamsters are employed under

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collective bargaining agreements with the International Association of Machinists and Aerospace Workers (“IAM”). Our agreement with the IAM
runs through July 31, 2014.
The experience of our management team continues to be an organizational strength. Nearly 40% of our full-time managers have more than
20 years of service with UPS.
We believe that our relations with our employees are good. We periodically survey all our employees to determine their level of job
satisfaction. Areas of concern receive management attention as we strive to keep UPS the employer-of-choice among our employees. We
consistently receive numerous awards and wide recognition as an employer-of-choice, resulting in part from our emphasis on diversity and
corporate citizenship.
Safety
Health and Safety is a value at UPS and an enduring belief that the wellbeing of our people, business partners, and the public is of utmost
importance. We train our people to avoid injury to themselves and others in all aspects of their work. We do not tolerate unsafe work practices.
We use an all-encompassing Comprehensive Health and Safety Process (“CHSP”) to prevent occupational illnesses, injuries, and auto
crashes, as well as promote wellness through the development of workplace programs. The foundation of this process is our co-chaired employee
and management health and safety committees. Together they conduct facility and equipment audits, perform work practice and behavior analysis,
conduct training, and recommend work process and equipment changes.
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The components of CHSP are:
• Personal Value – Which is the foundation and forms the base of our safety and wellness culture.
• Management Commitment and Employee Involvement – Where employees take an active role in their own safety as well as their fellow
workers and are supported by management.
• Work Site Analysis – Which includes injury and auto crash data analysis, behavior observations, and facility and equipment audits to
identify gaps and develop solutions. Our operations managers are responsible for their employees’ safety results. We investigate every
injury and auto crash and develop prevention activities.
• Hazard Prevention and Control – Where solutions are developed and documented to ensure identified risks have been mitigated.
• Safety Education and Training – Employees who are healthy and well-trained in proper methods are more safe and efficient in performing
their jobs. Our approach starts with training the trainer. All trainers are certified to ensure that they have the skills and motivation to
effectively train new employees. All new employees receive safety training during orientation and in the work area. In addition, each new
driver receives extensive classroom and online training as well as on-road training, followed by three safety training rides integrated into
his or her training cycle.
Other components to ensure the safety of our fleet include:
• Recognition – We have a well-defined safe driving honor plan to recognize our drivers when they achieve accident-free milestones. We
have more than 6,400 drivers enshrined in our coveted Circle of Honor for drivers who have driven 25 years or more without an
avoidable auto crash.
• Preventive Maintenance – We have a comprehensive Preventive Maintenance Program to ensure the safety of our fleet. Our fleet is
managed and monitored electronically to ensure that each vehicle is serviced at a specific time to prevent malfunction or breakdown.
Competition
We are the largest package delivery company in the world, in terms of both revenue and volume. We offer a broad array of services in the
package and freight delivery industry and, therefore, compete with many different local, regional, national and international companies. Our
competitors include worldwide postal services, various motor carriers, express companies, freight forwarders, air couriers and others. Through our
supply chain service offerings, we compete with a number of participants in the supply chain, financial services and information technology
industries.
Competitive Strengths
Our competitive strengths include:
Integrated Global Network. We believe that our integrated global ground and air network is the most extensive in the industry. We handle
all levels of service (air, ground, domestic, international, commercial, residential) through a single pickup and delivery service network.
Our sophisticated engineering systems allow us to optimize our network efficiency and asset utilization on a daily basis. This unique,
integrated global business model creates consistent and superior returns.

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We believe we have the most comprehensive integrated delivery and information services portfolio of any carrier in Europe. In other regions
of the world, we rely on both our own and local service providers’ capabilities to meet our service commitments.
Global Presence. UPS serves more than 220 countries and territories around the world. We have a presence in all of the world’s major
economies.
Leading-edge Technology. We are a global leader in developing technology that helps our customers optimize their shipping and logistics
business processes to lower costs, improve service and increase efficiency.
Technology powers virtually every service we offer and every operation we perform. Our technology offerings are initiated by our
customers’ needs. We offer a variety of online service options that enable our customers to integrate UPS functionality into their own businesses
not only to conveniently send, manage and track their shipments, but also to provide their customers with better information services. We provide
the infrastructure for an Internet presence that extends to tens of thousands of customers who have integrated UPS tools directly into their own web
sites.
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Broad Portfolio of Services. Our portfolio of services enables customers to choose the delivery option that is most appropriate for their
requirements. Increasingly, our customers benefit from business solutions that integrate many UPS services in addition to package delivery. For
example, our supply chain services—such as freight forwarding, customs brokerage, order fulfillment, and returns management—help improve the
efficiency of the supply chain management process.
Customer Relationships. We focus on building and maintaining long-term customer relationships. We serve 1.1 million pick-up customers
and 7.7 million delivery customers daily. Cross-selling small package, supply chain and freight services across our customer base is an important
growth mechanism for UPS.
Brand Equity. We have built a leading and trusted brand that stands for quality service, reliability and product innovation. The distinctive
appearance of our vehicles and the professional courtesy of our drivers are major contributors to our brand equity.
Distinctive Culture. We believe that the dedication of our employees results in large part from our distinctive “employee-owner” concept.
Our employee stock ownership tradition dates from 1927, when our founders, who believed that employee stock ownership was a vital foundation
for successful business, first offered stock to employees. To facilitate employee stock ownership, we maintain several stock-based compensation
programs.
Our long-standing policy of “promotion from within” complements our tradition of employee ownership, and this policy reduces the need
for us to hire managers and executive officers from outside UPS. The majority of our management team began their careers as full-time or part-
time hourly UPS employees, and have spent their entire careers with us. Many of our executive officers have more than 30 years of service with
UPS and have accumulated a meaningful ownership stake in our company. Therefore, our executive officers have a strong incentive to effectively
manage UPS, which benefits all our shareowners.
Financial Strength. Our balance sheet reflects financial strength that few companies can match. Our financial strength gives us the
resources to achieve global scale; to invest in employee development, technology, transportation equipment and facilities; to pursue strategic
opportunities that facilitate our growth; to service our obligations; and to return value to our shareowners in the form of dividends and share
repurchases.
Government Regulation
Air Operations
The U.S. Department of Transportation (“DOT”), the Federal Aviation Administration (“FAA”), and the U.S. Department of Homeland
Security, through the Transportation Security Administration (“TSA”), have regulatory authority over United Parcel Service Co.’s (“UPS
Airlines’”) air transportation services. The Federal Aviation Act of 1958, as amended, is the statutory basis for DOT and FAA authority and the
Aviation and Transportation Security Act of 2001, as amended, is the basis for TSA aviation security authority.
The DOT’s authority primarily relates to economic aspects of air transportation, such as discriminatory pricing, non-competitive practices,
interlocking relations and cooperative agreements. The DOT also regulates, subject to the authority of the President of the United States,
international routes, fares, rates and practices, and is authorized to investigate and take action against discriminatory treatment of U.S. air carriers
abroad. International operating rights for U.S. airlines are usually subject to bilateral agreement between the U.S. and foreign governments. UPS
Airlines has international route operating rights granted by the DOT and we may apply for additional authorities when those operating rights are
available and are required for the efficient operation of our international network. The efficiency and flexibility of our international air
transportation network is dependent on DOT and foreign government regulations and operating restrictions.
The FAA’s authority primarily relates to safety aspects of air transportation, including aircraft operating procedures, transportation of
hazardous materials, record keeping standards and maintenance activities, and personnel. In 1988, the FAA granted us an operating certificate,
which remains in effect so long as we meet the safety and operational requirements of the applicable FAA regulations. In addition, we are subject

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to non-U.S. government regulation of aviation rights involving non-U.S. jurisdictions, and non-U.S. customs regulation.
FAA regulations mandate an aircraft corrosion control program, along with aircraft inspection and repair at periodic intervals specified by
approved programs and procedures, for all aircraft. Our total expenditures under these programs for 2012 were not material. The future cost of
repairs pursuant to these programs may fluctuate according to aircraft condition, age and the enactment of additional FAA regulatory requirements.
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The TSA regulates various security aspects of air cargo transportation in a manner consistent with the TSA mission statement to “protect the
Nation’s transportation systems to ensure freedom of movement for people and commerce.” UPS Airlines, and specified airport and off-airport
locations, are regulated under TSA regulations applicable to the transportation of cargo in an air network. In addition, personnel, facilities and
procedures involved in air cargo transportation must comply with TSA regulations.
UPS Airlines, along with a number of other domestic airlines, participates in the Civil Reserve Air Fleet (“CRAF”) program. Our
participation in the CRAF program allows the U.S. Department of Defense (“DOD”) to requisition specified UPS Airlines wide-body aircraft for
military use during a national defense emergency. The DOD compensates us for the use of aircraft under the CRAF program. In addition,
participation in CRAF entitles UPS Airlines to bid for military cargo charter operations.
Ground Operations
Our ground transportation of packages in the U.S. is subject to the DOT’s jurisdiction with respect to the regulation of routes and to both the
DOT’s and the states’ jurisdiction with respect to the regulation of safety, insurance and hazardous materials. We are subject to similar regulation
in many non-U.S. jurisdictions.
The Postal Reorganization Act of 1970 created the U.S. Postal Service as an independent establishment of the executive branch of the federal
government, and created the Postal Rate Commission, an independent agency, to recommend postal rates. The Postal Accountability and
Enhancement Act of 2006 amended the 1970 Act to give the re-named Postal Regulatory Commission revised oversight authority over many
aspects of the Postal Service, including postal rates, product offerings and service standards. We sometimes participate in the proceedings before
the Postal Regulatory Commission in an attempt to secure fair postal rates for competitive services.
Customs
We are subject to the customs laws in the countries in which we operate, regarding the import and export of shipments, including those
related to the filing of documents on behalf of client importers and exporters.
Environmental
We are subject to federal, state and local environmental laws and regulations across all of our business units. These laws and regulations
cover a variety of processes, including, but not limited to: proper storage, handling, and disposal of hazardous and other waste; managing
wastewater and stormwater; monitoring and maintaining the integrity of underground storage tanks; complying with laws regarding clean air,
including those governing emissions; protecting against and appropriately responding to spills and releases; and communicating the presence of
reportable quantities of hazardous materials to local responders. UPS has established site- and activity-specific environmental compliance and
pollution prevention programs to address our environmental responsibilities and remain compliant. In addition, UPS has created numerous
programs which seek to minimize waste and prevent pollution within our operations.
Other Regulations
We are subject to numerous other U.S. federal and state laws and regulations, in addition to applicable foreign laws, in connection with our
package and non-package businesses in the countries in which we operate. These laws and regulations include those enforced by U.S. Customs and
Border Protection and other agencies of the U.S. Department of Homeland Security, the U.S. Department of Treasury, the Federal Maritime
Commission, the U.S. Drug Enforcement Administration, the U.S. Food and Drug Administration and the U.S. Department of Agriculture.
Where You Can Find More Information
UPS maintains a website at www.ups.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and any amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 are made available
through our website www.investors.ups.com as soon as reasonably practical after we electronically file or furnish the reports to the SEC. Also
available on the Corporation’s website are the Company’s Corporate Governance Guidelines and Committee Charters. However, information on
these websites is not incorporated by reference into this report or any other report filed with or furnished to the SEC.
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We have adopted a written Code of Business Conduct that applies to all of our directors, officers and employees, including our principal
executive officer and senior financial officers. It is available in the governance section of the investor relations website, located at
www.investors.ups.com. In the event that we make changes in, or provide waivers from, the provisions of the Code of Business Conduct that the
SEC requires us to disclose, we intend to disclose these events in the governance section of our investor relations website.
Our Corporate Governance Guidelines and the charters for our Audit Committee, Compensation Committee and Nominating and Corporate
Governance Committee are also available in the governance section of the investor relations website.
Our sustainability report, which describes our activities that support our commitment to acting responsibly and contributing to society, is
available at www.sustainability.ups.com. We provide the addresses to our internet sites solely for the information of investors. We do not intend
any addresses to be active links or to otherwise incorporate the contents of any website into this report.
Item 1A. Risk Factors
You should carefully consider the following factors, which could materially affect our business, financial condition or results of operations.
You should read these Risk Factors in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in Item 7 and our Consolidated Financial Statements and related notes in Item 8.
General economic conditions, both in the U.S. and internationally, may adversely affect our results of operations.
We conduct operations in over 220 countries and territories. Our U.S. and international operations are subject to normal cycles affecting the
economy in general, as well as the local economic environments in which we operate. The factors that create cyclical changes to the economy and
to our business are beyond our control, and it may be difficult for us to adjust our business model to mitigate the impact of these factors. In
particular, our business is affected by levels of industrial production, consumer spending and retail activity, and our business, financial position and
results of operations could be materially affected by adverse developments in these aspects of the economy.
We face significant competition which could adversely affect our business, financial position and results of operations.
We face significant competition on a local, regional, national and international basis. Our competitors include the postal services of the U.S.
and other nations, various motor carriers, express companies, freight forwarders, air couriers and others. Competition may also come from other
sources in the future. Some of our competitors have cost and organizational structures that differ from ours and may offer services and pricing
terms that we may not be willing or able to offer. If we are unable to timely and appropriately respond to competitive pressures, our business,
financial position and results of operations could be adversely affected.
The transportation industry continues to consolidate and competition remains strong. As a result of consolidation, our competitors may
increase their market share and improve their financial capacity, and may strengthen their competitive positions. Business combinations could also
result in competitors providing a wider variety of services and products at competitive prices, which could adversely affect our financial
performance.
Changes in our relationships with our significant customers, including the loss or reduction in business from one or more of them, could have
an adverse impact on us.
Our top 20 customers account for less than 10% of our consolidated revenue. We do not believe the loss of any single customer would
materially impair our overall financial condition or results of operations; however, collectively, some of these large customers might account for a
relatively significant portion of the growth in revenue in a particular quarter or year. These customers can drive the growth in revenue for particular
services based on factors such as: new customer product launches; the seasonality associated with the fourth quarter Holiday season; business
mergers and acquisitions; and the overall fast growth of a customer’s underlying business. These customers could choose to divert all or a portion
of their business with us to one of our competitors, demand pricing concessions for our services, require us to provide enhanced services that
increase our costs, or develop their own shipping and distribution capabilities. If these factors drove some of our large customers to cancel all or a
portion of their business relationships with us, it could materially impact the growth in our business and the ability to meet our current and long-
term financial forecasts.
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Our business is subject to complex and stringent regulation in the U.S. and internationally.
We are subject to complex and stringent aviation, transportation, environmental, security, labor, employment and other governmental laws
and regulations, both in the U.S. and in the other countries in which we operate. In addition, our business is impacted by laws and regulations that
affect global trade, including tariff and trade policies, export requirements, taxes and other restrictions and charges. Changes in laws, regulations
and the related interpretations may alter the landscape in which we do business and may affect our costs of doing business. The impact of new laws
and regulations cannot be predicted. Compliance with new laws and regulations may increase our operating costs or require significant capital
expenditures. Any failure to comply with applicable laws or regulations in the U.S. or in any of the countries in which we operate could result in

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substantial fines or possible revocation of our authority to conduct our operations, which could adversely affect our financial performance.
Increased security requirements could impose substantial costs on us and we could be the target of an attack or have a security breach.
As a result of concerns about global terrorism and homeland security, governments around the world have adopted or may adopt stricter
security requirements that will result in increased operating costs for businesses in the transportation industry. These requirements may change
periodically as a result of regulatory and legislative requirements and in response to evolving threats. We cannot determine the effect that these new
requirements will have on our cost structure or our operating results, and these rules or other future security requirements may increase our costs of
operations and reduce operating efficiencies. Regardless of our compliance with security requirements or the steps we take to secure our facilities
or fleet, we could be the target of an attack or security breaches could occur, which could adversely affect our operations or our reputation.
We may be affected by global climate change or by legal, regulatory or market responses to such potential change.
Concern over climate change, including the impact of global warming, has led to significant federal, state and international legislative and
regulatory efforts to limit greenhouse gas (“GHG”) emissions. For example, in the past several years, the U.S. Congress has considered various
bills that would regulate GHG emissions. While these bills have not yet received sufficient Congressional support for enactment, some form of
federal climate change legislation is possible in the future. Even in the absence of such legislation, the Environmental Protection Agency, spurred
by judicial interpretation of the Clean Air Act, may regulate GHG emissions, especially aircraft or diesel engine emissions, and this could impose
substantial costs on us. These costs include an increase in the cost of the fuel and other energy we purchase and capital costs associated with
updating or replacing our aircraft or vehicles prematurely. Until the timing, scope and extent of any future regulation becomes known, we cannot
predict its effect on our cost structure or our operating results. It is reasonably possible that such legislation or regulation could impose material
costs on us. Moreover, even without such legislation or regulation, increased awareness and any adverse publicity in the global marketplace about
the GHGs emitted by companies in the airline and transportation industries could harm our reputation and reduce customer demand for our
services, especially our air services.
Strikes, work stoppages and slowdowns by our employees could adversely affect our business, financial position and results of operations.
A significant number of our employees are employed under a national master agreement and various supplemental agreements with local
unions affiliated with the Teamsters and our airline pilots, airline mechanics, ground mechanics and certain other employees are employed under
other collective bargaining agreements. Strikes, work stoppages and slowdowns by our employees could adversely affect our ability to meet our
customers’ needs, and customers may do more business with competitors if they believe that such actions or threatened actions may adversely
affect our ability to provide services. We may face permanent loss of customers if we are unable to provide uninterrupted service, and this could
adversely affect our business, financial position and results of operations. The terms of future collective bargaining agreements also may affect our
competitive position and results of operations.
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We are exposed to the effects of changing prices of energy, including gasoline, diesel and jet fuel, and interruptions in supplies of these
commodities.
Changing fuel and energy costs may have a significant impact on our operations. We require significant quantities of fuel for our aircraft and
delivery vehicles and are exposed to the risk associated with variations in the market price for petroleum products, including gasoline, diesel and
jet fuel. We mitigate our exposure to changing fuel prices through our indexed fuel surcharges and we may also enter into hedging transactions
from time to time. If we are unable to maintain or increase our fuel surcharges, higher fuel costs could adversely impact our operating results.
Even if we are able to offset the cost of fuel with our surcharges, high fuel surcharges may result in a mix shift from our higher yielding air
products to lower yielding ground products or an overall reduction in volume. If fuel prices rise sharply, even if we are successful in increasing our
fuel surcharge, we could experience a lag time in implementing the surcharge, which could adversely affect our short-term operating results. There
can be no assurance that our hedging transactions will be effective to protect us from changes in fuel prices. Moreover, we could experience a
disruption in energy supplies, including our supply of gasoline, diesel and jet fuel, as a result of war, actions by producers, or other factors which
are beyond our control, which could have an adverse effect on our business.
Changes in exchange rates or interest rates may have an adverse effect on our results.
We conduct business across the globe with a significant portion of our revenue derived from operations outside the United States. Our
operations in international markets are affected by changes in the exchange rates for local currencies, and in particular the Euro, British
Pound Sterling, Canadian Dollar, Chinese Renminbi and Hong Kong Dollar.
We are exposed to changes in interest rates, primarily on our short-term debt and that portion of our long-term debt that carries floating
interest rates. The impact of a 100-basis-point change in interest rates affecting our debt is discussed in the “Quantitative and Qualitative
Disclosures about Market Risk” section of this report.
We monitor and manage our exposures to changes in currency exchange rates and interest rates, and make limited use of derivative
instruments to mitigate the impact of changes in these rates on our financial position and results of operations; however, changes in exchange rates
and interest rates cannot always be predicted or hedged.

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If we are unable to maintain our brand image and corporate reputation, our business may suffer.
Our success depends in part on our ability to maintain the image of the UPS brand and our reputation for providing excellent service to our
customers. Service quality issues, actual or perceived, even when false or unfounded, could tarnish the image of our brand and may cause
customers to use other companies. Also, adverse publicity surrounding labor relations, environmental concerns, security matters, political activities
and the like, or attempts to connect our company to these sorts of issues, either in the United States or other countries in which we operate, could
negatively affect our overall reputation and acceptance of our services by customers. Damage to our reputation and loss of brand equity could
reduce demand for our services and thus have an adverse effect on our business, financial position and results of operations, and could require
additional resources to rebuild our reputation and restore the value of our brand.
A significant privacy breach or IT system disruption could adversely affect our business and we may be required to increase our spending on
data and system security.
We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to
manage or support a variety of business processes and activities. In addition, the provision of service to our customers and the operation of our
network involve the storage and transmission of proprietary information and sensitive or confidential data, including personal information of
customers, employees and others. Our information technology systems, some of which are managed by third-parties, may be susceptible to
damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, power
outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors or catastrophic events. Groups
of hackers may also act in a coordinated manner to launch distributed denial of service attacks or other coordinated attacks that may cause service
outages or other interruptions. In addition, breaches in security could expose us, our customers or the individuals affected to a risk of loss or misuse
of proprietary information and sensitive or confidential data. Any of these occurrences could result in disruptions in our operations, the loss of
existing or potential customers, damage to our brand and reputation, and litigation and potential liability for the company. In addition, the cost and
operational consequences of implementing further data or system protection measures could be significant.
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Severe weather or other natural or manmade disasters could adversely affect our business.
Severe weather conditions and other natural or manmade disasters, including storms, floods, fires and earthquakes, may result in decreased
revenues, as our customers reduce their shipments, or increased costs to operate our business, which could have an adverse effect on our results of
operations for a quarter or year. Any such event affecting one of our major facilities could result in a significant interruption in or disruption of our
business.
We make significant capital investments in our business of which a significant portion is tied to projected volume levels.
We require significant capital investments in our business consisting of aircraft, vehicles, technology, facilities and sorting and other types of
equipment to support both our existing business and anticipated growth. Forecasting projected volume involves many factors which are subject to
uncertainty, such as general economic trends, changes in governmental regulation and competition. If we do not accurately forecast our future
capital investment needs, we could have excess capacity or insufficient capacity, either of which would negatively affect our revenues and
profitability. In addition to forecasting our capital investment requirements, we adjust other elements of our operations and cost structure in
response to adverse economic conditions; however, these adjustments may not be sufficient to allow us to maintain our operating margins in a
weak economy.
We derive a significant portion of our revenues from our international operations and are subject to the risks of doing business in emerging
markets.
We have significant international operations and while the geographical diversity of our international operations helps ensure that we are not
overly reliant on a single region or country, we are continually exposed to changing economic, political and social developments beyond our
control. Emerging markets are typically more volatile than those in the developed world, and any broad-based downturn in these markets could
reduce our revenues and adversely affect our business, financial position and results of operations.
We are subject to changes in markets and our business plans that have resulted, and may in the future result, in substantial write-downs of the
carrying value of our assets, thereby reducing our net income.
Our regular review of the carrying value of our assets has resulted, from time to time, in significant impairments, and we may in the future
be required to recognize additional impairment charges. Changes in business strategy, government regulations, or economic or market conditions
have resulted and may result in further substantial impairments of our intangible, fixed or other assets at any time in the future. In addition, we
have been and may be required in the future to recognize increased depreciation and amortization charges if we determine that the useful lives of
our fixed assets are shorter than we originally estimated. Such changes could reduce our net income.
Employee health and retiree health and pension benefit costs represent a significant expense to us.

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With approximately 399,000 employees, including approximately 323,000 in the U.S., our expenses relating to employee health and retiree
health and pension benefits are significant. In recent years, we have experienced significant increases in certain of these costs, largely as a result of
economic factors beyond our control, including, in particular, ongoing increases in health care costs well in excess of the rate of inflation and the
decreasing trend of discount rates in which we use to value our pension liabilities. Continued increasing health care costs, volatility in investment
returns and discount rates, as well as changes in laws, regulations and assumptions used to calculate retiree health and pension benefit expenses,
may adversely affect our business, financial position, results of operations or require significant contributions to our pension plans.
We participate in a number of trustee-managed multiemployer pension and health and welfare plans for employees covered under collective
bargaining agreements. Several factors could cause us to make significantly higher future contributions to these plans, including unfavorable
investment performance, increases in health care costs, changes in demographics and increased benefits to participants. At this time, we are unable
to determine the amount of additional future contributions, if any, or whether any material adverse effect on our financial condition, results of
operations or liquidity could result from our participation in these plans.
We may be subject to various claims and lawsuits that could result in significant expenditures.
The nature of our business exposes us to the potential for various claims and litigation related to labor and employment, personal injury,
property damage, business practices, environmental liability and other matters. Any material litigation or a catastrophic accident or series of
accidents could have a material adverse effect on our business, financial position and results of operations.
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We may not realize the anticipated benefits of acquisitions, joint ventures or strategic alliances.
As part of our business strategy, we may acquire businesses and form joint ventures or strategic alliances. Whether we realize the anticipated
benefits from these transactions depends, in part, upon the successful integration between the businesses involved, the performance of the
underlying operation, capabilities or technologies and the management of the transacted operations. Accordingly, our financial results could be
adversely affected by our failure to effectively integrate the acquired operations, unanticipated performance issues, transaction-related charges or
charges for impairment of long-term assets that we acquire.
Insurance and claims expenses could have a material adverse effect on our business, financial condition and results of operations.
We have a combination of both self-insurance and high-deductible insurance programs for the risks arising out of the services we provide
and the nature of our global operations, including claims exposure resulting from cargo loss, personal injury, property damage, aircraft and related
liabilities, business interruption and workers’ compensation. Workers’ compensation, automobile and general liabilities are determined using
actuarial estimates of the aggregate liability for claims incurred and an estimate of incurred but not reported claims, on an undiscounted basis. Our
accruals for insurance reserves reflect certain actuarial assumptions and management judgments, which are subject to a high degree of variability.
If the number or severity of claims for which we are retaining risk increases, our financial condition and results of operations could be adversely
affected. If we lose our ability to self-insure these risks, our insurance costs could materially increase and we may find it difficult to obtain
adequate levels of insurance coverage.

Item 1B. Unresolved Staff Comments
Not applicable.

Item 2. Properties
Operating Facilities
We own our headquarters, which are located in Atlanta, Georgia and consist of about 745,000 square feet of office space on an office
campus, and our UPS Supply Chain Solutions group’s headquarters, which are located in Alpharetta, Georgia, and consist of about 310,000 square
feet of office space.
We also own our 29 principal U.S. package operating facilities, which have floor spaces that range from approximately 310,000 to 693,000
square feet. In addition, we have a 1.9 million square foot operating facility near Chicago, Illinois, which is designed to streamline shipments
between East Coast and West Coast destinations, and we own or lease over 1,000 additional smaller package operating facilities in the U.S. The
smaller of these facilities have vehicles and drivers stationed for the pickup of packages and facilities for the sorting, transfer and delivery of
packages. The larger of these facilities also service our vehicles and equipment and employ specialized mechanical installations for the sorting and
handling of packages.
We own or lease more than 800 facilities that support our international package operations and an additional 574 facilities that support our
freight forwarding and logistics operations. Our freight forwarding and logistics operations maintain facilities with approximately 28.6 million
square feet of floor space. We own and operate a logistics campus consisting of approximately 3.7 million square feet in Louisville, Kentucky.

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UPS Freight operates 210 service centers with a total of 6 million square feet of floor space. UPS Freight owns 149 of these service centers,
while the remainder are occupied under operating lease agreements. The main offices of UPS Freight are located in Richmond, Virginia and consist
of about 217,000 square feet of office space.
Our aircraft are operated in a hub and spokes pattern in the U.S. Our principal air hub in the U.S., known as Worldport, is located in
Louisville, Kentucky. The Worldport facility consists of over 5.2 million square feet and the site includes approximately 596 acres. Between 2009
and 2010, we completed an expansion of our Worldport facility, which increased the sorting capacity to approximately 416,000 packages per hour.
The expansion, which cost over $1 billion, involved the addition of two aircraft load / unload wings to the hub building, followed by the
installation of high-speed conveyor and computer control systems.
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We also have regional air hubs in Hartford, Connecticut; Ontario, California; Philadelphia, Pennsylvania; and Rockford, Illinois. These hubs
house facilities for the sorting, transfer and delivery of packages. Our European air hub is located in Cologne, Germany, and we maintain Asia-
Pacific air hubs in Shanghai, China; Shenzhen, China; Taipei, Taiwan; Incheon, South Korea; Hong Kong; and Singapore. Our regional air hub in
Canada is located in Hamilton, Ontario, and our regional air hub for Latin America and the Caribbean is in Miami, Florida.
In 2011, we announced plans to significantly expand our European air hub in Cologne, Germany. The expansion project, due to be
completed by the end of 2013, will equip the existing facility with additional state-of-the-art technology and will include a major extension to the
existing building. This extension would be partially dedicated to processing larger freight shipments. Together these initiatives will significantly
increase the hub’s package sorting capacity from today’s 112,000 to 190,000 packages per hour. The total cost of the expansion is estimated to be
approximately $200 million.
Over the past several years, UPS has made a successful transition to become the first wholly-owned foreign express carrier in China. In
2008, we opened the UPS International Air Hub at Pudong International Airport, which was built on a parcel totaling 2.4 million square feet with a
planned sorting capacity of 17,000 packages per hour. The hub links all of China via Shanghai to UPS’s international network with direct service
to the Americas, Europe and Asia. It also connects points served in China by UPS through a dedicated service provided by Yangtze River Express,
a Chinese all-cargo airline.
In February 2010, we opened a new intra-Asia air hub at Shenzhen Bao’an International Airport in China. The Shenzhen facility replaced our
intra-Asia air hub at Clark Air Force Base in the Philippines, and serves as our primary transit hub in Asia. The facility was built on a parcel of
almost 1 million square feet, and has a sorting capacity of 18,000 packages per hour.
Our primary information technology operations are consolidated in a 443,600 square foot owned facility, the Ramapo Ridge facility, which
is located on a 39-acre site in Mahwah, New Jersey. We also own a 175,000 square foot facility located on a 25-acre site in Alpharetta, Georgia,
which serves as a backup to the main information technology operations facility in New Jersey. This facility provides production functions and
backup capacity in the event that a power outage or other disaster incapacitates the main data center. It also helps to meet our internal
communication needs.
We believe that our facilities are adequate to support our current operations.
Fleet
Aircraft
The following table shows information about our aircraft fleet as of December 31, 2012:
Description
Owned and
Capital
Leases
Short-term
Leased or
Chartered
From
Others
On
Order
Under
Option
Boeing 747-400F 11 — — —
Boeing 747-400BCF 2 — — —
Boeing 757-200F 75 — — —
Boeing 767-300ERF 51 — 8 —
Boeing MD-11F 38 — — —
Airbus A300-600F 53 — — —
Other — 332 — —
Total 230 332 8 —

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We maintain an inventory of spare engines and parts for each aircraft.
All of the aircraft we own meet Stage IV federal noise regulations and can operate at airports that have aircraft noise restrictions.
During 2012, we took delivery of seven Boeing 767-300ERF aircraft. We have firm commitments to purchase eight Boeing 767-300ERF
freighters to be delivered in 2013.
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Vehicles
We operate a global ground fleet of approximately 101,000 package cars, vans, tractors and motorcycles. Our ground support fleet consists
of 32,000 pieces of equipment designed specifically to support our aircraft fleet, ranging from non-powered container dollies and racks to powered
aircraft main deck loaders and cargo tractors. We also have 31,000 containers used to transport cargo in our aircraft.

Item 3. Legal Proceedings
For a discussion of legal proceedings affecting us and our subsidiaries, please see the information under the sub-caption “Contingencies” of
the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this report.

Item 4. Mine Safety Disclosures
Not applicable.

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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our class A common stock is not listed on a national securities exchange or traded in an organized over-the-counter market, but each share
of our class A common stock is convertible into one share of our class B common stock.
The following is a summary of our class B common stock price activity and dividend information for 2012 and 2011. Our class B common
stock is listed on the New York Stock Exchange under the symbol “UPS”.
High Low Close
Dividends
Declared
2012:
First Quarter $ 81.79 $ 72.15 $ 80.72 $ 0.57
Second Quarter $ 80.97 $ 72.19 $ 78.76 $ 0.57
Third Quarter $ 80.52 $ 71.18 $ 71.57 $ 0.57
Fourth Quarter $ 76.20 $ 69.56 $ 73.73 $ 0.57
2011:
First Quarter $ 76.99 $ 70.22 $ 74.32 $ 0.52
Second Quarter $ 75.58 $ 68.14 $ 72.93 $ 0.52
Third Quarter $ 75.79 $ 60.75 $ 63.15 $ 0.52
Fourth Quarter $ 73.80 $ 61.27 $ 73.19 $ 0.52
As of February 6, 2013, there were 156,741 and 18,108 record holders of class A and class B common stock, respectively.
The policy of our Board of Directors is to declare dividends out of current earnings. The declaration of dividends is subject to the discretion
of the Board of Directors and will depend on various factors, including our net income, financial condition, cash requirements, future prospects,
and other relevant factors.

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On February 14, 2013, our Board declared a dividend of $0.62 per share, which is payable on March 12, 2013 to shareowners of record on
February 25, 2013. This represents an 8.8% increase from the previous $0.57 quarterly dividend in 2012.
On May 3, 2012, the Board of Directors approved a share repurchase authorization of $5.0 billion, which replaced an authorization
previously announced in 2008. A summary of repurchases of our class A and class B common stock during the fourth quarter of 2012 is as follows
(in millions, except per share amounts):
Total Number
of Shares
Purchased(1)
Average
Price Paid
Per Share(1)
Total Number
of Shares Purchased
as Part of Publicly
Announced Program
Approximate Dollar
Value of Shares that
May Yet be Purchased
Under the Program
(as of month-end)
October 1—October 31 0.6 $ 73.64 0.6 $ 4,169
November 1—November 30 1.2 73.26 1.2 4,087
December 1—December 31 1.7 73.40 1.6 3,970
Total October 1—December 31 3.5 $ 73.40 3.4
(1) Includes shares repurchased through our publicly announced share repurchase program and shares tendered to pay the exercise price and
tax withholding on employee stock options.
On February 14, 2013, the Board of Directors approved a new share repurchase authorization of $10.0 billion, which replaced the 2012
authorization. The new share repurchase authorization has no expiration date. We anticipate repurchasing approximately $4.0 billion of shares in
2013.
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Shareowner Return Performance Graph
The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall
such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as
amended, except to the extent that the Company specifically incorporates such information by reference into such filing.
The following graph shows a five year comparison of cumulative total shareowners’ returns for our class B common stock, the Standard &
Poor’s 500 Index, and the Dow Jones Transportation Average. The comparison of the total cumulative return on investment, which is the change in
the quarterly stock price plus reinvested dividends for each of the quarterly periods, assumes that $100 was invested on December 31, 2007 in the
Standard & Poor’s 500 Index, the Dow Jones Transportation Average, and our class B common stock.

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12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012
United Parcel Service, Inc. $ 100.00 $ 80.20 $ 86.42 $ 112.60 $ 116.97 $ 121.46
Standard & Poor’s 500 Index $ 100.00 $ 63.00 $ 79.67 $ 91.68 $ 93.61 $ 108.59
Dow Jones Transportation Average $ 100.00 $ 78.58 $ 93.19 $ 118.14 $ 118.15 $ 127.07
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Item 6. Selected Financial Data
The following table sets forth selected financial data for each of the five years in the period ended December 31, 2012 (in millions, except
per share amounts). This financial data should be read together with our consolidated financial statements and related notes, Management’s
Discussion and Analysis of Financial Condition and Results of Operations, and other financial data appearing elsewhere in this report.
Years Ended December 31,
2012 2011 2010 2009 2008
Selected Income Statement Data
Revenue:
U.S. Domestic Package $ 32,856 $ 31,717 $ 29,742 $ 28,158 $ 31,278
International Package 12,124 12,249 11,133 9,699 11,293
Supply Chain & Freight 9,147 9,139 8,670 7,440 8,915
Total revenue 54,127 53,105 49,545 45,297 51,486
Operating expenses:
Compensation and benefits 33,102 27,575 26,557 25,933 29,826
Other 19,682 19,450 17,347 15,856 20,041
Total operating expenses 52,784 47,025 43,904 41,789 49,867

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Operating profit (loss):
U.S. Domestic Package 459 3,764 3,238 1,919 823
International Package 869 1,709 1,831 1,279 1,246
Supply Chain and Freight 15 607 572 310 (450)
Total operating profit 1,343 6,080 5,641 3,508 1,619
Other income (expense):
Investment income 24 44 3 10 75
Interest expense (393) (348) (354) (445) (442)
Income before income taxes 974 5,776 5,290 3,073 1,252
Income tax expense 167 1,972 1,952 1,105 597
Net income $ 807 $ 3,804 $ 3,338 $ 1,968 $ 655
Per share amounts:
Basic earnings per share $ 0.84 $ 3.88 $ 3.36 $ 1.97 $ 0.64
Diluted earnings per share $ 0.83 $ 3.84 $ 3.33 $ 1.96 $ 0.64
Dividends declared per share $ 2.28 $ 2.08 $ 1.88 $ 1.80 $ 1.80
Weighted average shares outstanding:
Basic 960 981 994 998 1,016
Diluted 969 991 1,003 1,004 1,022
As of December 31,
2012 2011 2010 2009 2008
Selected Balance Sheet Data
Cash and marketable securities $ 7,924 $ 4,275 $ 4,081 $ 2,100 $ 1,049
Total assets 38,863 34,701 33,597 31,883 31,879
Long-term debt 11,089 11,095 10,491 8,668 7,797
Shareowners’ equity 4,733 7,108 8,047 7,696 6,780
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
Overview
The U.S. economic expansion has continued at a slow-to-moderate pace through the end of 2012. Continued growth in retail sales,
particularly among e-commerce retailers, has provided for expansion in the overall U.S. small package delivery market; however, recent weakness
in manufacturing activity, combined with the uneven nature of the overall economic recovery, has negatively impacted the small package delivery
market. Given these trends, our products most aligned with business-to-consumer shipments have experienced the strongest growth, while our
business-to-business volume continues to lag overall GDP growth.
Outside of the U.S., economic growth has slowed considerably due to volatility in world markets and fiscal austerity measures, particularly
in Europe. This slower global economic growth has created an environment in which customers are more likely to trade-down from premium
express products to standard delivery products. Additionally, the uneven nature of economic growth worldwide has led to shifting trade patterns
whereby transcontinental trade is being pressured, but intra-regional trade is continuing to grow. These circumstances have led us to adjust our air
capacity and cost structure in our transportation network to the prevailing volume mix levels. Our broad portfolio of product offerings and the
flexibilities inherent in our transportation network have helped us adapt to these changing trends.
While the worldwide economic environment has been challenging in 2012, we have continued to undertake initiatives to improve yield
management, increase operational efficiency and contain costs across all segments. Continued deployment of technology improvements should lead
to further gains in our operational efficiency, flexibility and reliability, thus restraining cost increases and improving margins. In our International
Package segment, we have adjusted our air network and utilized newly constructed or expanded operating facilities to improve time-in-transit for
shipments in each region. We have also continued to optimize our aircraft network to leverage the new route authority we have gained over the last
several years and to take full advantage of faster growing trade lanes. Additionally, in the first quarter of 2012, we acquired Kiala S.A., which will
expand our service offerings for business-to-consumer deliveries in Europe.

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Our consolidated results are presented in the table below:
Year Ended December 31, % Change
2012 2011 2010 2012 / 2011 2011 / 2010
Revenue (in millions) $ 54,127 $ 53,105 $ 49,545 1.9 % 7.2%
Operating Expenses (in millions) 52,784 47,025 43,904 12.2 % 7.1%
Operating Profit (in millions) $ 1,343 $ 6,080 $ 5,641 (77.9)% 7.8%
Operating Margin 2.5% 11.4% 11.4%
Average Daily Package Volume (in thousands) 16,295 15,797 15,574 3.2 % 1.4%
Average Revenue Per Piece $ 10.82 $ 10.82 $ 10.24 — % 5.7%
Net Income (in millions) $ 807 $ 3,804 $ 3,338 (78.8)% 14.0%
Basic Earnings Per Share $ 0.84 $ 3.88 $ 3.36 (78.4)% 15.5%
Diluted Earnings Per Share $ 0.83 $ 3.84 $ 3.33 (78.4)% 15.3%
Items Affecting Comparability
The year-over-year comparisons of our financial results are affected by the following items (in millions):

Year Ended December 31,
2012 2011 2010
Operating Expenses:
Defined Benefit Plans Mark-to-Market Charge $ 4,831 $ 827 $ 112
Multiemployer Pension Plan Withdrawal Charge 896 — —
Restructuring Charge — — 98
Gains on Sales of Businesses — — (20)
Gains on Real Estate Transactions — (33) (109)
Income Tax Expense (Benefit) from the Items Above (2,145) (287) —
Charge for Change in Tax Filing Status for German Subsidiary — — 76
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These items have been excluded from comparisons of “adjusted” operating expenses, operating profit and operating margin in the discussion
that follows.
Defined Benefit Plans Mark-to-Market Charge
In 2012, 2011 and 2010, we incurred pre-tax mark-to-market losses of $4.831 billion, $827 million and $112 million, respectively, on a
consolidated basis ($3.023 billion, $527 million and $75 million after-tax, respectively) on our pension and postretirement defined benefit plans
related to the remeasurement of plan assets and liabilities recognized outside of a 10% corridor. These mark-to-market losses for 2012, 2011 and
2010 primarily resulted from decreases in the discount rates used to value our projected benefit obligations in each year, which more than offset
the impact of the actual rate of return on plan assets exceeding the expected rate of return. These losses, which were recorded in compensation and
benefits expense in our statements of consolidated income, impacted each of our three reporting segments for 2012, 2011 and 2010.
Multiemployer Pension Plan Withdrawal Charge
In 2012, we recognized an $896 million pre-tax charge ($559 million after-tax) for the establishment of a withdrawal liability related to our
withdrawal from the New England Teamsters and Trucking Industry Pension Fund (“New England Pension Fund”), a multiemployer pension plan.
This charge was recorded in compensation and benefits expense in our statements of consolidated income, and impacted our U.S. Domestic
Package segment.
Restructuring Charge

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In 2010, we streamlined the management structure in our U.S. Domestic Package segment, and incurred a restructuring charge associated
with this reorganization. This pre-tax charge totaled $98 million ($64 million after-tax), and was recorded in compensation and benefits expense in
our statements of consolidated income. The charge reflects the value of voluntary retirement benefits and severance benefits, as well as the
accelerated recognition of unvested stock compensation.
Gain on Sales of Businesses
In 2010, we sold our UPS Logistics Technologies business unit within our Supply Chain & Freight segment, and recognized a pre-tax gain
of $71 million ($44 million after-tax). Also in 2010, we sold a specialized transportation business in Germany within our Supply Chain & Freight
segment, and incurred a pre-tax loss on the sale of $51 million ($47 million after-tax), which includes a fair value adjustment loss due to a
financial guarantee associated with this business sale. The gains and losses associated with these transactions are recorded in other operating
expenses in our statements of consolidated income.
Gains on Real Estate Transactions
In 2011, we recognized a net $33 million pre-tax gain ($20 million after-tax) on a consolidated basis on certain real estate transactions
(consisting of a $48 million pre-tax gain in our Supply Chain & Freight segment, and a $15 million pre-tax loss in our U.S. Domestic Package
segment). In 2010, we recognized a pre-tax gain of $109 million ($61 million after-tax) on the sale of real estate within our U.S. Domestic Package
segment. The gains and losses associated with these transactions are recorded in other operating expenses in our statements of consolidated
income.
Charge for Change in Tax Filing Status for German Subsidiary
In 2010, we changed the tax status of a German subsidiary that was taxable in the U.S. and its local jurisdiction to one that is solely taxed in
its local jurisdiction. As a result of this change in tax status, we recorded a non-cash charge of $76 million to income tax expense, which resulted
primarily from the write-off of related deferred tax assets which will not be realizable following the change in tax status.
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Results of Operations—Segment Review
The results and discussions that follow are reflective of how our executive management monitors the performance of our reporting segments.
We supplement the reporting of our financial information determined under generally accepted accounting principles (“GAAP”) with certain non-
GAAP financial measures, including operating profit, operating margin, pre-tax income, net income and earnings per share adjusted for the non-
comparable items discussed previously. We believe that these adjusted measures provide meaningful information to assist investors and analysts in
understanding our financial results and assessing our prospects for future performance. We believe these adjusted financial measures are important
indicators of our recurring results of operations because they exclude items that may not be indicative of, or are unrelated to, our core operating
results, and provide a better baseline for analyzing trends in our underlying businesses.
U.S. Domestic Package Operations

Year Ended December 31, % Change
2012 2011 2010 2012 / 2011 2011 / 2010
Average Daily Package Volume (in thousands):
Next Day Air 1,277 1,206 1,205 5.9 % 0.1%
Deferred 1,031 975 941 5.7 % 3.6%
Ground 11,588 11,230 11,140 3.2 % 0.8%
Total Avg. Daily Package Volume 13,896 13,411 13,286 3.6 % 0.9%
Average Revenue Per Piece:
Next Day Air $ 19.93 $ 20.33 $ 19.14 (2.0)% 6.2%
Deferred 13.06 13.32 12.50 (2.0)% 6.6%
Ground 7.89 7.78 7.43 1.4 % 4.7%
Total Avg. Revenue Per Piece $ 9.38 $ 9.31 $ 8.85 0.8 % 5.2%
Operating Days in Period 252 254 253

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Revenue (in millions):
Next Day Air $ 6,412 $ 6,229 $ 5,835 2.9 % 6.8%
Deferred 3,392 3,299 2,975 2.8 % 10.9%
Ground 23,052 22,189 20,932 3.9 % 6.0%
Total Revenue $ 32,856 $ 31,717 $ 29,742 3.6 % 6.6%
Operating Expenses (in millions):
Operating Expenses $ 32,397 $ 27,953 $ 26,504 15.9 % 5.5%
Defined Benefit Plans Mark-to-Market Charge (3,177) (479) (31)
Restructuring Charge — — (98)
Gains (Losses) on Real Estate Transactions — (15) 109
Multiemployer Pension Plan Withdrawal Charge (896) — —
Adjusted Operating Expenses $ 28,324 $ 27,459 $ 26,484 3.2 % 3.7%
Operating Profit (in millions) and Operating Margin:
Operating Profit $ 459 $ 3,764 $ 3,238 (87.8)% 16.2%
Adjusted Operating Profit $ 4,532 $ 4,258 $ 3,258 6.4 % 30.7%
Operating Margin 1.4% 11.9% 10.9%
Adjusted Operating Margin 13.8% 13.4% 11.0%
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Revenue
The change in overall revenue was impacted by the following factors for the years ended December 31, 2012 and 2011, compared with the
corresponding prior year periods:
Volume
Rates /
Product Mix
Fuel
Surcharge
Total
Revenue
Change
Revenue Change Drivers:
2012 / 2011 2.8% 0.6% 0.2% 3.6%
2011 / 2010 1.3% 2.3% 3.0% 6.6%
Volume
2012 compared to 2011
Our overall volume increased in 2012 compared with 2011, largely due to continued solid growth in retail e-commerce and strong customer
demand for our lightweight products. Business-to-consumer shipments, which represent slightly over 40% of total U.S. Domestic Package
volume, grew rapidly and drove growth in both air and ground shipments; however, business-to-business volume remained relatively flat in 2012
compared with 2011. This can be attributed to multiple trends that have prevailed over the past few years, including the migration of traditional
retail to online retail, the lack of growth in small and medium-size enterprises and reduced business investments attributed to policy uncertainty.
Among our air products, Next Day Air letter and package volume both experienced solid increases in 2012, with particular growth in our
Next Day Air Saver products. The higher volume for our deferred air products, which increased 5.7% for the year, was primarily due to healthy
demand for our residential package services. The overall growth in our air products was driven primarily by business-to-consumer shipments from
e-commerce retailers, while our business-to-business air volume declined slightly.
The increase in ground volume in 2012 was driven by our lightweight service offerings, including SurePost, which target low-cost, non-
urgent residential deliveries. Volume for these lightweight products grew significantly, and accounted for approximately 40% of the total increase
in ground shipments. Outside of these lightweight service offerings, volume for our traditional ground residential services also experienced an
increase in 2012. Overall ground volume growth continues to be driven by business-to-consumer shipping activity from e-commerce retailers,
while our business-to-business ground volume was flat in 2012 compared with 2011.
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Our overall volume increased slightly in 2011 compared with 2010, and was largely impacted by the slowing U.S. economy during the first
three quarters of the year. Business-to-consumer shipments, which represented approximately 40% of total U.S. Domestic Package volume,
experienced stronger growth than business-to-business volume. Volume growth accelerated in the fourth quarter, with average daily volume
increasing 3.8% over the fourth quarter of 2010.
Among our air products, we experienced a 4.8% increase in Next Day and Second Day air package volume, as a result of retail sales growth,
with particular growth in our Next Day Air Saver product. Air letter volume declined, largely due to weakness in the financial and other service
industries. Within ground, our lightweight products experienced robust growth during 2011. During the fourth quarter of 2011, volume growth
accelerated to 12.3% and 3.5% in our deferred and ground products, respectively, compared with the fourth quarter of 2010. These increases were
primarily driven by higher business-to-consumer shipment activity during the holiday season.
Rates and Product Mix
2012 compared to 2011
Overall revenue per piece increased 0.8% in 2012 compared with 2011, and was impacted by changes in base rates, product mix and fuel
surcharge rates, as discussed below.
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Revenue per piece for our Next Day Air and deferred products decreased in 2012 compared with 2011, as declines in fuel surcharge rates
and product mix changes more than offset the impact of a base rate increase that took effect in early 2012. Changes in product mix negatively
impacted revenue per piece for our air products, as our lightweight service offerings accounted for a larger portion of our overall air volume in
2012 compared with 2011, and our Next Day Air Saver volume continued to grow at a faster rate than our premium Next Day Air services.
Ground revenue per piece increased in 2012 compared with 2011, primarily due to a base rate increase that took effect in early 2012;
however, this was partially offset by product mix changes, as strong volume growth in our lightweight service offerings resulted in these relatively
lower-yielding products accounting for a greater portion of our overall volume in 2012, compared with 2011.
Revenue per piece for our ground and air products was positively impacted by an increase in base rates that took effect on January 2, 2012.
We increased the base rates 6.9% on UPS Next Day Air, UPS 2nd Day Air and UPS 3 Day Select, and 5.9% on UPS Ground, while reducing our
fuel surcharge indices (discussed further below). Other pricing changes included an increase in the residential surcharge, and an increase in the
delivery area surcharge on certain residential and commercial services. These rate changes are customary and occur on an annual basis.
2011 compared to 2010
Overall revenue per piece increased for our ground and air products during 2011 due to a combination of base price increases and fuel
surcharge rate changes, which are discussed further below. The overall revenue per piece increase was also positively affected by our focus on
revenue management initiatives. In addition, the revenue per piece increase for our air products was positively impacted by the overall mix shift
from letters to packages. Comparing the fourth quarter of 2011 with 2010, the average revenue per piece increase slowed to 3.4% due to the higher
volume of lighter-weight business-to-consumer packages.
Revenue per piece for our ground and air products was also impacted by an increase in base rates that took effect on January 3, 2011. We
increased the base rates 6.9% on UPS Next Day Air, UPS 2nd Day Air, and UPS 3 Day Select, and 5.9% on UPS Ground, while reducing our fuel
surcharge indices (discussed further below). Other pricing changes included an increase in the residential surcharge, and an increase in the delivery
area surcharge on both residential and commercial services to certain ZIP codes.
Fuel Surcharges
UPS applies a fuel surcharge on our domestic air and ground services. The air fuel surcharge is based on the U.S. Department of Energy’s
(“DOE”) Gulf Coast spot price for a gallon of kerosene-type jet fuel, while the ground fuel surcharge is based on the DOE’s On-Highway Diesel
Fuel Price. Based on published rates, the average fuel surcharge rates for domestic air and ground products were as follows:

Year Ended December 31, % Point Change
2012 2011 2010 2012 / 2011 2011 / 2010
Next Day Air / Deferred 13.0% 13.3% 8.0% (0.3)% 5.3%
Ground 8.0% 8.0% 5.6% — % 2.4%
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by reducing the index used to determine the fuel surcharge by 2% and 1%, respectively, each year. In 2012, these index reductions offset the
increase in jet and diesel fuel prices, resulting in a small decrease in the average air fuel surcharge rate and no change in the average ground
surcharge rate. The 2011 increases in the air and ground fuel surcharge rates were due to the significant increases in jet and diesel fuel prices, but
partially offset by the reductions in the index on both the air and ground surcharges. Total domestic fuel surcharge revenue increased $54 and $884
million in 2012 and 2011, respectively, primarily due to volume growth in 2012 and the higher fuel surcharge rates in 2011.
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Operating Expenses
2012 compared to 2011
Overall adjusted operating expenses for the segment increased $865 million in 2012 compared with 2011. This increase was primarily due to
pick-up and delivery costs, which grew $682 million, as well as the cost of operating our domestic integrated air and ground network, which
increased $238 million for the year. The growth in pick-up and delivery and network costs was largely due to increased volume and higher
employee compensation costs, which were impacted by a union contractual wage increase (package driver wage rates rose 2.0%), an increase in
driver hours (up 1.1%) and increased employee health care costs. These increases were partially offset by reductions in indirect operating costs of
$79 million in 2012, largely due to a decrease in the expense for management incentive awards.
Cost increases have been moderated as we adjust our air and ground networks to better match higher volume levels, and utilize technology to
increase package sorting efficiency. Improved delivery densities, particularly for our residential products, have also contained increases in cost.
These network improvements allowed us to process the 3.6% volume growth more efficiently. Some of the primary drivers of expense increased at
a slower rate than the growth in volume, including average daily direct labor hours (up 1.1%), aircraft block hours (up 0.5%) and miles driven (up
1.3%), resulting in the total cost per piece increasing only 0.3%.
2011 compared to 2010
Overall adjusted operating expenses for the segment increased $975 million in 2011 compared with 2010, while the total adjusted cost per
piece increased 2.3% for the year. A large component of this increase related to the cost of operating our domestic integrated air and ground
network, which increased $579 million in 2011 largely due to higher fuel costs, as well as an increase in aircraft repair and maintenance expenses
and higher rates passed to us from outside transportation carriers, primarily railroads. Pickup and delivery costs increased $354 million in 2011
compared to 2010, primarily as a result of higher fuel prices and a 3.1% union contractual driver wage increase.
Cost increases were mitigated due to network efficiencies that we achieved, as we adjusted our air and ground networks to better match
volume levels, and continued to utilize our expanded Worldport facility to operate larger aircraft and to increase package sorting efficiency. These
network efficiency improvements resulted in a 0.8% reduction in total labor hours and a 0.8% reduction in miles driven in 2011 compared with
2010. Increased delivery densities as a result of improved planning and technology, and growth in our SurePost product, also contained increases in
cost.
Operating Profit and Margin
2012 compared to 2011
The increase in adjusted operating profit in 2012 compared with 2011 was largely due to the revenue growth and the achievement of
significant operating leverage, but partially offset by the impact of having two less operating days during 2012. Overall volume growth allowed us
to better leverage our transportation network, resulting in productivity improvements and better pick-up and delivery density, which favorably
impacted our operating margins; however, these trends were somewhat offset by changes in customer and product mix, which combined to
adversely affect our revenue per piece. Additionally, Hurricane Sandy negatively impacted operating profit by approximately $75 million in 2012.
These factors drove a 40 basis point increase in our adjusted operating margin in 2012, compared with 2011, resulting in the 6.4% increase
in adjusted operating profit.
2011 compared to 2010
Higher adjusted operating profit during 2011 compared with 2010 was driven by the increased network efficiencies, combined with large
improvements in revenue per piece and a small increase in volume. Fourth quarter 2011 adjusted operating profit was particularly strong, with
adjusted operating margins of 15.2% in comparison to 12.6% in the fourth quarter of 2010. Significant volume growth in the business-to-consumer
sector, along with cost control efforts and network efficiencies, were the primary factors for the fourth quarter 2011 performance.
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International Package Operations
Year Ended December 31, % Change
2012 2011 2010 2012 / 2011 2011 / 2010
Average Daily Package Volume (in thousands):
Domestic 1,427 1,444 1,403 (1.2)% 2.9 %
Export 972 942 885 3.2 % 6.4 %
Total Avg. Daily Package Volume 2,399 2,386 2,288 0.5 % 4.3 %
Average Revenue Per Piece:
Domestic $ 7.04 $ 7.17 $ 6.66 (1.8)% 7.7 %
Export 36.88 37.85 36.77 (2.6)% 2.9 %
Total Avg. Revenue Per Piece $ 19.13 $ 19.28 $ 18.31 (0.8)% 5.3 %
Operating Days in Period 252 254 253
Revenue (in millions):
Domestic $ 2,531 $ 2,628 $ 2,365 (3.7)% 11.1 %
Export 9,033 9,056 8,234 (0.3)% 10.0 %
Cargo 560 565 534 (0.9)% 5.8 %
Total Revenue $ 12,124 $ 12,249 $ 11,133 (1.0)% 10.0 %
Operating Expenses (in millions):
Operating Expenses $ 11,255 $ 10,540 $ 9,302 6.8 % 13.3 %
Defined Benefit Plan Mark-to-Market Charge (941) (171) (42)
Adjusted Operating Expenses $ 10,314 $ 10,369 $ 9,260 (0.5)% 12.0 %
Operating Profit (in millions) and Operating Margin:
Operating Profit $ 869 $ 1,709 $ 1,831 (49.2)% (6.7)%
Adjusted Operating Profit $ 1,810 $ 1,880 $ 1,873 (3.7)% 0.4 %
Operating Margin 7.2% 14.0% 16.4%
Adjusted Operating Margin 14.9% 15.3% 16.8%
Currency Translation Benefit / (Cost)—(in millions)*:
Revenue $ (231) $ 75
Operating Expenses 265 (198)
Operating Profit $ 34 $ (123)
* Net of currency hedging; amount represents the change compared to the prior year.
Revenue
The change in overall revenue was impacted by the following factors for the years ended December 31, 2012 and 2011, compared with the
corresponding prior year periods:
Volume
Rates /
Product Mix
Fuel
Surcharge Currency
Total
Revenue
Change
Revenue Change Drivers:
2012 / 2011 (0.2)% 1.0% 0.1% (1.9)% (1.0)%
2011 / 2010 4.7 % 0.6% 4.0% 0.7 % 10.0 %
Volume
2012 compared to 2011
Our overall average daily volume increased slightly in 2012 compared with 2011, as the worldwide economic slowdown and the associated

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impact on global trade restrained the growth of the international small package market.
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Export volume increased in 2012 compared with 2011, as growth was achieved in several key trade lanes. Asia to U.S. export volume
increased, and was favorably impacted by new technology sector product launches from several customers. Intra-regional export volume increased
in Europe and Asia, as more regional sourcing by customers led to growth in our Transborder products. U.S. export volume declined, particularly
exports from the U.S. to Europe, as economic weakness within the European Union negatively impacted volume. Additionally, overall export
volume continued to shift towards our less premium products, such as Transborder Standard and Worldwide Expedited, as compared with our
premium express products, such as Worldwide Express, primarily due to the impact of the weaker economic conditions on our customers
internationally.
Domestic volume decreased during 2012 compared with 2011, and was negatively impacted by economic weakness across Europe; however,
this was partially offset by domestic volume growth in the U.K. and Canada.
2011 compared to 2010
Export volume increased in 2011 compared to 2010, primarily due to growth in key markets in Europe and the Americas. Our Transborder
products experienced significant volume growth, particularly in key countries within Europe. Volume for our premium Worldwide Express and
Worldwide Expedited products increased as well, particularly in the Asia-to-Europe, Europe-to-Americas and Europe-to-Asia export trade lanes.
Additionally, intra-Asia export volume experienced solid growth during 2011 compared with 2010, and was impacted by the continued economic
growth in Asia overall. Our export volume growth slowed in the latter half of 2011, largely due to decelerating growth in exports out of China and
the rest of Asia, as well as difficult comparisons with a relatively strong latter half of 2010.
Domestic volume increases were driven by continued growth in key markets, including Germany, France and Poland.
Rates and Product Mix
2012 compared to 2011
Total average revenue per piece increased 1.5% in 2012 on a currency-adjusted basis, and was impacted by base rate increases, as well as
changes in product mix and fuel surcharge rates, which are discussed below.
Currency-adjusted export revenue per piece decreased 1.3% for the year, as the shift in product mix from our premium express products to
our standard products more than offset the increase in base rates. Additionally, currency-adjusted export revenue per piece was adversely impacted
by a shortening of average trade lanes, as we experienced greater volume growth among our lower-yielding Transborder and Trade Direct products
relative to our higher-yielding transcontinental volume.
Currency-adjusted domestic revenue per piece increased 3.8% for the year, largely due to base rate increases.
On January 2, 2012, we increased the base rates 6.9% for international shipments originating in the United States (Worldwide Express,
Worldwide Express Plus, UPS Worldwide Expedited and UPS International Standard service), while reducing the fuel surcharge indices. Rate
changes for shipments originating outside the U.S. are made throughout the year and vary by geographic market.
2011 compared to 2010
Total average revenue per piece increased 4.6% for 2011 on a currency-adjusted basis, and was impacted by base rate increases, as well as
changes in product mix and fuel surcharge rates, which are discussed below.
Export revenue per piece increased, largely due to a combination of higher fuel surcharge rates and base rate increases, which are discussed
further below. Currency-adjusted export revenue per piece increased 3.0% for 2011 compared with 2010. Product mix adversely impacted export
revenue per piece, due to robust growth among our Transborder products. Revenue per piece was also negatively impacted as average trade lanes
shortened, due to volume declines in the higher-yielding Asia-to-U.S. export lane, and higher volume growth among the relatively lower-yielding
intra-Europe and intra-Asia export lanes.
Domestic revenue per piece increased 3.9% on a currency-adjusted basis for 2011, largely due to comparatively faster growth in our
premium express products.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
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RESULTS OF OPERATIONS
On January 3, 2011, we increased the base rates 6.9% for international shipments originating in the United States (Worldwide Express,
Worldwide Express Plus, UPS Worldwide Expedited and UPS International Standard service), while reducing the fuel surcharge indices. Rate
changes for shipments originating outside the U.S. are made throughout the year and vary by geographic market.
Fuel Surcharges
In connection with our base rate increases on January 2, 2012 and January 3, 2011, we modified the fuel surcharges on certain U.S.-related
international air services by reducing the index used to determine the fuel surcharge by 2% in each of the two years. The fuel surcharges for air
products originating outside the United States are indexed to the DOE’s Gulf Coast spot price for a gallon of kerosene-type jet fuel, while the fuel
surcharges for ground products originating outside the United States are indexed to fuel prices in the international region or country where the
shipment takes place. Total international fuel surcharge revenue increased by $11 and $449 million in 2012 and 2011, respectively, due to higher
fuel surcharge rates caused by increased fuel prices as well as an increase in international air volume.
Operating Expenses
2012 compared to 2011
Overall adjusted operating expenses for the segment decreased $55 million in 2012 compared with 2011. The largest component of this
decrease related to the cost of operating our international integrated air and ground network, which decreased $117 million. This decrease primarily
resulted from cost control initiatives, including a 1.8% reduction in average daily aircraft block hours resulting from ongoing modifications to our
air network. The cost of pick-up and delivery decreased $53 million, largely due to the impact of currency exchange rate movements and in-
country cost control initiatives.
Partially offsetting these cost reductions was an increase in indirect operating costs, which increased $143 million in 2012 compared with
2011. This increase was impacted by our investment in enhanced security screening for our international locations and expenses associated with
business acquisition activities, including our proposed acquisition of TNT Express N.V. (see note 16 to the consolidated financial statements) as
well as the February 2012 acquisition of Kiala S.A.
Excluding the impact of currency exchange rate changes, the total cost per piece for the segment increased 2.3% in 2012 compared with
2011.
2011 compared to 2010
Overall adjusted operating expenses for the segment increased $1.109 billion in 2011 compared with 2010. The impact of foreign currency
exchange rate changes resulted in an adverse impact on operating expense comparisons between 2011 and 2010 of $198 million. Excluding the
impact of currency exchange rate changes, the total adjusted cost per piece for the segment increased 4.7% for the year.
The increase in adjusted operating expenses, excluding the impact of currency, was largely due to the increased cost of operating our
international integrated air and ground network, and also higher pick-up and delivery costs. Network costs increased $745 million for the year,
largely due to higher fuel costs and increased block hours, as well as an increase in aircraft repair and maintenance expenses. Pick-up and delivery
costs increased $123 million for the year, primarily as a result of higher fuel prices and increased package volume.
Operating Profit and Margin
2012 compared to 2011
Adjusted operating margin declined 40 basis points in 2012 compared with 2011, as the product mix shift from our premium express
products to our standard products in 2012 reduced margins in this segment. Additionally, the volume declines in certain key transcontinental trade
lanes during portions of 2012 also adversely impacted margins, since these routes have a larger cost infrastructure (relative to the remainder of the
International Package segment) to support the air express volume in each region. These factors were mitigated, however, from benefits derived
from air network adjustments, cost containment programs and the positive impact from foreign currency exchange rate fluctuations. As a result, we
experienced a 3.7% decline in adjusted operating profit in 2012 compared with 2011.
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2011 compared to 2010
Adjusted operating profit increased slightly in 2011 compared with 2010, while the segment operating margin declined for the year due to

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several factors. The overall increase in adjusted operating profit was largely due to the volume and revenue per piece increases previously
discussed; however, the impact of these items was largely offset by excess capacity and the adverse impact of fuel prices and currency exchange
rate movements. Volume softness in the Asia-to-U.S. trade lane in the latter half of 2011 resulted in excess transportation capacity, which
negatively affected margins while our transportation network was being adjusted for the slowing demand. Fluctuations in foreign currency
exchange rates (net of our hedging programs) resulted in an adverse impact on operating profit comparisons between 2011 and 2010 of $123
million. Additionally, fuel prices negatively affected the operating profit comparison between 2011 and 2010, as fuel expense increased at a faster
pace than fuel surcharge revenue. These factors resulted in a decrease in the operating margin in 2011 compared with 2010.
Supply Chain & Freight Operations
Year Ended December 31, % Change
2012 2011 2010 2012 / 2011 2011 / 2010
Freight LTL Statistics:
Revenue (in millions) $ 2,377 $ 2,299 $ 2,002 3.4 % 14.8%
Revenue Per Hundredweight $ 21.73 $ 21.17 $ 19.18 2.6 % 10.4%
Shipments (in thousands) 10,136 10,247 9,952 (1.1)% 3.0%
Shipments Per Day (in thousands) 40.1 40.5 39.5 (1.1)% 2.5%
Gross Weight Hauled (in millions of lbs) 10,939 10,858 10,440 0.7 % 4.0%
Weight Per Shipment (in lbs) 1,079 1,060 1,049 1.8 % 1.0%
Operating Days in Period 253 253 252
Revenue (in millions):
Forwarding and Logistics $ 5,977 $ 6,103 $ 6,022 (2.1)% 1.3%
Freight 2,640 2,563 2,208 3.0 % 16.1%
Other 530 473 440 12.1 % 7.5%
Total Revenue $ 9,147 $ 9,139 $ 8,670 0.1 % 5.4%
Operating Expenses (in millions):
Operating Expenses $ 9,132 $ 8,532 $ 8,098 7.0 % 5.4%
Defined Benefit Plans Mark-to-Market Charge (713) (177) (39)
Gains on Real Estate Transactions — 48 —
Gains on Sales of Businesses — — 20
Adjusted Operating Expenses $ 8,419 $ 8,403 $ 8,079 0.2 % 4.0%
Operating Profit (in millions) and Operating Margins:
Operating Profit $ 15 $ 607 $ 572 (97.5)% 6.1%
Adjusted Operating Profit $ 728 $ 736 $ 591 (1.1)% 24.5%
Operating Margin 0.2% 6.6% 6.6%
Adjusted Operating Margin 8.0% 8.1% 6.8%
Currency Translation Benefit / (Cost)—(in millions)*:
Revenue $ (100) $ 139
Operating Expenses 97 (132)
Operating Profit $ (3) $ 7
* Amount represents the change compared to the prior year.
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Revenue
2012 compared to 2011

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Forwarding and logistics revenue decreased $126 million in 2012 compared with 2011. Forwarding revenue decreased in 2012, primarily
due to lower rates in our air forwarding business and the adverse impact of foreign currency exchange rates; however, this was partially offset by
improved tonnage in both our air and ocean forwarding businesses. The reduction in rates in the air forwarding business was largely due to
industry overcapacity in key trade lanes, particularly the Asia-outbound market. In our logistics products, revenue increased in 2012 as we
experienced robust growth in our mail services and health care solutions. The improved revenue in our health care solutions business was driven
by organic growth as well as the December 2011 acquisition of Pieffe Group.
Freight revenue increased $77 million for the year, driven by an increase in LTL revenue per hundredweight and in gross weight hauled;
however, these factors were somewhat offset by a decline in average daily LTL shipments. The increase in LTL revenue per hundredweight was
largely due to our focus on yield management and profitable revenue growth, as well as a general rate increase averaging 5.9% that took effect on
July 16, 2012, covering non-contractual shipments in the United States, Canada and Mexico. The decline in average daily LTL shipments in 2012
was impacted by increased competitiveness in the LTL market and the slowdown in the U.S. economy. Fuel surcharge revenue increased by $16
million for 2012 compared with the prior year, due to changes in diesel fuel prices and overall LTL shipment volume.
The other businesses within Supply Chain & Freight increased revenue by $57 million in 2012 compared with 2011, primarily due to growth
at The UPS Store, UPS Customer Solutions and our contract to provide domestic air transportation services for the U.S. Postal Service.
2011 compared to 2010
Forwarding and logistics revenue increased $81 million in 2011 compared with 2010, primarily due to growth in our logistics services,
where we experienced solid growth in our mail services, retail and health care solutions. Forwarding revenue decreased primarily due to volume
and tonnage declines in our air and ocean forwarding businesses, as well as lower third-party transportation carrier rates. The tonnage decrease was
mainly the result of revenue management initiatives that improve the matching of customer pricing with market conditions, as well as the impact of
the global economic slowdown.
Freight revenue increased $355 million in 2011 compared with 2010, primarily due to growth in LTL shipments, an increase in base rates,
and increased fuel surcharge rates. LTL shipments per day increased in 2011, largely due to improving LTL market conditions in the first half of
the year and an increase in market share. However, volume declined in the latter half of the year, and was impacted by our focus on yield
management and also due to the overall LTL market being adversely impacted by the slowing economy. LTL revenue per hundredweight
increased, primarily as a result of a base rate increase that took effect during the year, negotiated increases on existing contract rates and higher fuel
surcharge rates, as total fuel surcharge revenue increased $159 million for the year driven by higher diesel fuel prices. An increase in base prices
took effect on August 1, 2011, as our freight unit increased minimum charge, LTL and TL rates an average of 6.9%, covering non-contractual
shipments in the United States, Canada and Mexico.
The other businesses within Supply Chain & Freight experienced a $33 million increase in revenue, primarily due to growth at UPS Capital,
the UPS Store, UPS Customer Solutions and our contract to provide domestic air transportation services for the U.S. Postal Service.
Operating Expenses
2012 compared to 2011
Forwarding and logistics adjusted operating expenses decreased $97 million in 2012 compared with 2011, due to several factors. Purchased
transportation expense fell by $65 million in 2012, primarily due to lower rates charged to us by third-party transportation carriers (though this
briefly reversed in the fourth quarter). Compensation and benefits expense declined by $28 million in 2012, largely due to reduced payroll and
lower management incentive compensation costs. These factors were partially offset by a $10 million increase in depreciation and amortization,
due to the amortization of intangible assets associated with our acquisition of Pieffe Group and the continued investment in technology and
facilities in our health care logistics business.
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Freight adjusted operating expenses increased $57 million in 2012, while the total cost per LTL shipment increased 3.8% for the year. The
largest component of this increase related to the cost of operating our linehaul network, which grew by $40 million for the year, primarily as a
result of an increase in tonnage, coupled with wage and purchased transportation increases. Pick-up and delivery costs increased $12 million for
the year, largely due to the increase in tonnage as well as contractual driver wage increases of 3.5%. Rising diesel fuel prices increased the fuel
expense for our fleet, as well as increased the fuel surcharge rates passed to us from third-party transportation carriers. These factors were,
however, partially offset by productivity improvements.
Adjusted operating expenses for the other businesses within Supply Chain & Freight increased $56 million in 2012 compared with 2011.
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Forwarding and logistics adjusted operating expenses were flat in 2011 compared with 2010. Purchased transportation expense declined by
$87 million in 2011, due to lower air freight volume as well as lower rates passed to us from third-party transportation carriers. The reduction in
third-party carrier rates was largely due to over-capacity in the Asia-to-U.S. trade lane that began in the latter half of 2010 and continued into the
first half of 2011. This reduction in purchased transportation costs was offset by increases in several other expense categories, including other
occupancy costs, depreciation and amortization, repairs and maintenance, and other expenses.
Freight operating expenses increased $317 million for 2011 on an adjusted basis, with the total cost per LTL shipment increasing 10.0% for
the year. The two largest components of this increase relate to the cost of operating our linehaul network, which increased $134 million in 2011,
and pick-up, delivery and dock costs, which increased $112 million for the year. We incurred higher fuel costs operating our vehicle fleet, as well
as higher fuel surcharge rates passed to us from outside transportation carriers, as a result of higher diesel fuel prices and increased volume.
Additionally, compensation and benefit costs increased primarily as a result of higher pension and health care costs, and effective wage increases of
4.1% for drivers in our linehaul network and 3.5% for drivers and dock workers in our pick-up and delivery network. These expense increases
were somewhat offset by improved productivity measures, including pick-up and delivery stops per hour, dock bills per hour and improved
linehaul network utilization.
Expenses for the other businesses within Supply Chain & Freight increased $6 million in 2011 compared to 2010, and the increases were
spread among several operating expense categories and business units.
Operating Profit and Margin
2012 compared to 2011
Adjusted operating profit for the forwarding and logistics unit decreased by $29 million in 2012 compared with 2011. This decrease was
primarily due to reduced profitability in our international air forwarding business, as European economic uncertainty, slower growth in China and a
sluggish U.S. economy all contributed to a reduction in overall air freight market demand. This lower demand pressured the rates we charge to our
customers, which more than offset the reduced rates we incur from third-party transportation carriers, and thereby led to a decline in our operating
margin. Operating profit for our logistics business declined in 2012 compared with 2011, largely due to increased depreciation expense resulting
from the continued investment in technology and facilities for our global health care business.
Adjusted operating profit for our freight unit increased $20 million in 2012 compared with 2011, as gains in productivity (including pick-up
and delivery stops per hour, dock bills per hour and linehaul network utilization) as well as improved yields, more than offset the overall decline in
volume.
The combined adjusted operating profit for all of our other businesses in this segment increased $1 million in 2012 compared with 2011,
largely due to growth from our contract to provide domestic air transportation services for the U.S. Postal Service.
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2011 compared to 2010
The forwarding and logistics unit experienced an $80 million increase in adjusted operating profit in 2011 compared with 2010, largely due
to revenue management initiatives and cost containment in our forwarding unit, which improved operating leverage. Additionally, excess market
capacity, especially in the Asia-to-U.S. trade lane, reduced our purchased transportation costs and improved the operating profitability in this
business. Our logistics business had a small decrease in operating profit in 2011, primarily due to our continued investment in expanding our
global health care capabilities.
Our freight unit had an increase of $38 million in adjusted operating profit in 2011 compared with 2010, primarily due to increased yields,
volume growth and improved productivity in our operations.
The combined operating income for all of our other businesses in this segment increased $27 million in 2011, primarily due to improved
results at our UPS Capital unit.
Operating Expenses

Year Ended December 31, % Change
2012 2011 2010 2012 / 2011 2011 / 2010
Operating Expenses (in millions):
Compensation and Benefits $ 33,102 $ 27,575 $ 26,557 20.0 % 3.8 %

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Defined Benefit Plans Mark-to-Market Charge (4,831) (827) (112)
Multiemployer Pension Plan Withdrawal Charge (896) — —
Restructuring Charge — — (98)
Adjusted Compensation and Benefits 27,375 26,748 26,347 2.3 % 1.5 %
Repairs and Maintenance 1,228 1,286 1,131 (4.5)% 13.7 %
Depreciation and Amortization 1,858 1,782 1,792 4.3 % (0.6)%
Purchased Transportation 7,354 7,232 6,640 1.7 % 8.9 %
Fuel 4,090 4,046 2,972 1.1 % 36.1 %
Other Occupancy 902 943 939 (4.3)% 0.4 %
Other Expenses 4,250 4,161 3,873 2.1 % 7.4 %
Gains on Real Estate Transactions — 33 109
Gains on Sales of Businesses — — 20
Adjusted Other Expenses 4,250 4,194 4,002 1.3 % 4.8 %
Total Operating Expenses $ 52,784 $ 47,025 $ 43,904 12.2 % 7.1 %
Adjusted Total Operating Expenses $ 47,057 $ 46,231 $ 43,823 1.8 % 5.5 %
Currency Translation Cost / (Benefit)* $ (362) $ 330
* Amount represents the change compared to the prior year.
Compensation and Benefits
2012 compared to 2011
Employee payroll costs increased $183 million in 2012 compared with 2011, largely due to contractual union wage rate increases that took
effect under our collective bargaining agreement with the Teamsters, as well as an increase in total union labor hours; however, this was partially
offset by a decline in management payroll costs due to a reduction in incentive compensation expense.
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Adjusted benefits expense increased $444 million in 2012 compared with 2011, primarily due to higher pension expense, increased health
and welfare costs and changes in the expense associated with our self-insurance for workers’ compensation claims, as follows:
• Adjusted pension expense increased $200 million in 2012 compared with 2011, due to higher union contribution rates for multiemployer
pension plans combined with increased service and interest costs for company-sponsored plans. The increase in service and interest costs
for company-sponsored plans was largely due to continued service accruals and lower discount rates.
• Health and welfare costs increased $157 million in 2012 compared with 2011, largely due to higher medical claims and the impact of
several provisions of the Patient Protection and Affordable Care Act of 2010.
• The expense associated with our self-insurance programs for workers’ compensation claims increased $60 million in 2012 compared with
2011. Insurance reserves are established for estimates of the loss that we will ultimately incur on reported workers’ compensation claims,
as well as estimates of claims that have been incurred but not reported. Insurance reserves also take into account a number of factors
including our history of claim losses, payroll growth and the impact of safety improvement initiatives. The increase in expense in 2012
was largely impacted by increased payroll estimates, changes in state workers’ compensation laws, and medical inflation.
2011 compared to 2010
Employee payroll costs increased $237 million in 2011 compared with 2010, largely due to contractual union wage rate increases that took
effect under our collective bargaining agreement with the Teamsters, but partially offset by a decline in union labor hours. Management payroll
costs declined slightly, primarily due to a lower management incentive award.
Adjusted benefits expense increased $164 million in 2011 compared with 2010, primarily due to higher employee health and welfare costs
and expense associated with our self-insurance for workers’ compensation claims, but partially offset by a decline in pension expense. These
factors are discussed further as follows:

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• Employee health and welfare program costs increased $132 million in 2011, and were impacted by higher required union plan
contribution rates and general health care inflation.
• The expense associated with our self-insurance programs for workers’ compensation claims increased by $48 million in 2011. In 2010,
we experienced more favorable actuarial expense adjustments compared with 2011, thus leading to the increase in expense in 2011.
• Adjusted pension expense decreased $50 million in 2011 due to several factors. Most significantly, contributions to the company-
sponsored pension plans in 2011 increased the expected return on assets used for expense calculation purposes. The increase in the
expected return on assets more than offset increased service and interest costs (due to a decline in discount rates), resulting in a net
reduction in pension expense. This was partially offset by higher contribution rates for multiemployer pension plans, as well as the
reinstatement of matching contributions to our primary employee defined contribution savings plan.
Repairs and Maintenance
2012 compared to 2011
The decrease in repairs and maintenance expense was largely due to lower aircraft maintenance costs, which decreased $77 million in 2012
compared with 2011. This decrease resulted primarily from a 0.8% reduction in average daily aircraft block hours, and the conversion of an engine
maintenance agreement with an outside vendor from a cost reimbursement approach to a fixed rate per flight hour. Additionally, aircraft
maintenance expense declined due to a reduction in the number of scheduled maintenance checks for our Airbus A300-600F, Boeing 757-200F
and Boeing MD-11F aircraft.
2011 compared to 2010
The increase in repairs and maintenance expense was largely due to aircraft maintenance costs, which increased $121 million in 2011
compared with 2010. This increase resulted from an increase in flight hours due to higher air volume, additional scheduled maintenance checks
and higher contractual maintenance rates. The remaining increase in repairs and maintenance expense primarily relates to higher maintenance costs
on our office buildings and operating facilities.
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Depreciation and Amortization
2012 compared to 2011
The increase in depreciation and amortization expense was primarily due to higher depreciation expense on vehicles of $57 million in 2012
compared with 2011, resulting from the replacement of older, fully-depreciated vehicles, technology upgrades on new vehicles and an overall
increase in the size of our vehicle fleet in our U.S. Domestic package operations.
2011 compared to 2010
The decrease in depreciation and amortization expense in 2011 was primarily the result of a reduction in depreciation expense on technology
equipment and software. This decline was primarily related to certain technology hardware and capitalized software becoming fully depreciated.
Purchased Transportation
2012 compared to 2011
The increase in purchased transportation expense charged to us by third-party air, ocean and truck carriers in 2012 compared with 2011 was
impacted by several factors. We incurred a $187 million increase in purchased transportation expense for 2012 in our U.S. Domestic Package
segment, primarily due to higher fees paid to the U.S. Postal Service associated with the strong volume growth in our SurePost product, and higher
rates passed to us from rail carriers. This was partially offset by a $65 million decrease in expense in our freight forwarding business, largely as a
result of lower rates charged to us by third-party air carriers.
2011 compared to 2010
The increase in purchased transportation in 2011 was caused by a combination of higher volume, as well as increased fuel surcharges and
base rates charged to us by third-party air, ocean and truck carriers across all segments. The combination of these factors increased expense by
$387 million in 2011. Additionally, we incurred a $97 million increase in expense in 2011 for the use of rail carriers, which was due primarily to
higher rates and fuel surcharges, as well as increased volumes. The remaining increase in expense for 2011 was primarily due to foreign currency
exchange rate changes.
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2012 compared to 2011
The fuel expense increase in 2012 compared with 2011 was largely due to higher fuel prices, which increased expense by $116 million;
however, this was partially offset by lower usage of fuel products, which decreased expense by $72 million. The lower fuel usage was largely due
to the decrease in total aircraft block hours and vehicle miles driven.
2011 compared to 2010
The increase in fuel expense in 2011 compared with 2010 was primarily caused by higher prices for jet-A fuel, diesel and unleaded gasoline,
which increased expense by $982 million. Higher usage of these products in our operations accounted for the remaining increase in expense of $92
million in 2011.
Other Occupancy
2012 compared to 2011
Other occupancy expense decreased in 2012 compared with 2011, primarily due to reductions in personal property and real estate taxes
combined with a decrease in utilities expense. The relatively warm winter in the United States, combined with lower natural gas prices, helped to
reduce heating and snow removal costs in our facilities during the early months of 2012.
2011 compared to 2010
Other occupancy expense increased in 2011 compared with 2010, primarily due to an increase in utilities expense resulting from increased
electricity costs in our facilities. The remainder of the increase is primarily due to higher rent expense resulting from increased rates on
warehouses.
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Other Expenses
2012 compared to 2011
Adjusted other expenses increased in 2012 compared with 2011, primarily due to an increase in transportation equipment rentals, bad debt
expense and auto liability insurance, as well as expenses incurred in 2012 related to the proposed TNT Express N.V. acquisition. These increases
were partially offset by a reduction in employee relocation expenses and a decline in package claims expense. Additionally, 2012 adjusted other
expenses were reduced by a $9 million gain on the sale of a distribution facility in our Supply Chain & Freight segment.
2011 compared to 2010
The increase in adjusted other expenses in 2011 compared with 2010 was caused by several factors, including foreign currency
remeasurement losses, advertising costs, employee expense reimbursements, equipment rentals, air cargo handling costs and data processing fees.
These increases were partially offset by a reduction in bad debt and employee relocation expenses.
Investment Income and Interest Expense
The following table sets forth investment income and interest expense for the years ended December 31, 2012, 2011 and 2010 (in millions):

Year Ended December 31, % Change
2012 2011 2010 2012 / 2011 2011 / 2010
Investment Income $ 24 $ 44 $ 3 (45.5)% N/A
Interest Expense $ (393) $ (348) $ (354) 12.9 % (1.7)%
Investment Income
2012 compared to 2011
The decrease in investment income in 2012 compared with 2011 was primarily caused by an $8 million decline in fair value adjustments and
an $25 million decline in realized gains on sales of investments. These declines were partially offset by an increase in interest income, largely due
to having a higher average balance of interest-earning cash and investments in our portfolio in 2012 compared with 2011.
2011 compared to 2010

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The increase in investment income in 2011 compared with 2010 was caused by a combination of factors. During 2011, we realized $20
million in net gains on the sales of auction rate securities, preferred equity securities and an S&P 500 index fund, as well as a mark-to-market gain
on investments. In 2010, we recorded a $21 million impairment on certain asset-backed auction rate securities, which resulted from provisions that
allowed the issuers of the securities to subordinate our holdings to newly-issued debt or to tender for the securities at less than their par value.
Additionally in 2010, we recorded an $8 million loss on the sale of auction rate securities. The remaining change in investment income was caused
by a lower yield earned on our invested assets; however, this was largely offset by a higher average balance of interest-earning investments in our
portfolio.
Interest Expense
2012 compared to 2011
Interest expense increased in 2012 compared with 2011, largely due to a higher average balance of debt outstanding, as well as a higher
effective interest rate incurred on our debt. The higher effective interest rate largely resulted from two factors: (1) having a greater proportion of
fixed-rate debt outstanding relative to lower-yielding variable rate debt and (2) an increase in the interest rate indices underlying our variable-rate
debt and swaps in 2012. Additionally, interest expense increased in 2012 compared with 2011 due to unfavorable fair value adjustments on interest
rate swaps that have not been designated as hedges, as well as the imputation of interest expense on the multiemployer pension withdrawal liability
related to the New England Pension Fund.
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2011 compared to 2010
Interest expense declined slightly in 2011 due to a lower average interest rate incurred on variable rate debt and interest rate swaps, which
reduced expense by $60 million for 2011 compared with 2010. However, this was largely offset as a result of a higher average balance of
outstanding debt in 2011 compared with 2010.
Income Tax Expense
The following table sets forth income tax expense and our effective tax rate for the years ended December 31, 2012, 2011 and 2010 (in
millions):
Year Ended December 31, % Change
2012 2011 2010 2012 / 2011 2011 / 2010
Income Tax Expense $ 167 $ 1,972 $ 1,952 (91.5)% 1.0%
Income Tax Impact of:
Defined Benefit Plans Mark-to-Market Charge 1,808 300 37
Multiemployer Pension Plan Withdrawal Charge 337 — —
Restructuring Charge — — 34
Gain on Sales of Businesses — — (23)
Gain on Real Estate Transactions — (13) (48)
Change in Tax Filing Status for German Subsidiary — — (76)
Adjusted Income Tax Expense $ 2,312 $ 2,259 $ 1,876 2.3 % 20.4%
Effective Tax Rate 17.1% 34.1% 36.9%
Adjusted Effective Tax Rate 34.5% 34.4% 34.9%
2012 compared to 2011
Our adjusted effective tax rate increased in 2012 compared with 2011 primarily due to the expiration of certain U.S. tax credit provisions at
the end of 2011, and a decrease in the relative benefit of other deductions and tax credits that do not increase in proportion to increases in pre-tax
income. Adjusted income tax expense increased in 2012 compared with 2011 primarily due to higher pre-tax income and the factors described
above.
2011 compared to 2010
Adjusted income tax expense increased primarily due to higher pre-tax income. Our adjusted effective tax rate declined in 2011 compared

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with 2010 as a result of several factors, including changes in deferred tax asset valuation allowances, the relative proportion of taxable income in
certain non-U.S. jurisdictions, and favorable developments with U.S. state tax audit and litigation matters.
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Liquidity and Capital Resources
Operating Activities
The following is a summary of the significant sources (uses) of cash from operating activities (amounts in millions):
2012 2011 2010
Net income $ 807 $ 3,804 $ 3,338
Non-cash operating activities(a) 7,301 4,505 4,398
Pension and postretirement plan contributions (UPS-sponsored plans) (917) (1,436) (3,240)
Income tax receivables and payables 280 236 (319)
Changes in working capital and other noncurrent assets and liabilities (148) (12) (340)
Other operating activities (107) (24) (2)
Net cash from operating activities $ 7,216 $ 7,073 $ 3,835
(a) Represents depreciation and amortization, gains and losses on derivative and foreign exchange transactions, deferred income taxes,
provisions for uncollectible accounts, pension and postretirement benefit expense, stock compensation expense, impairment charges and
other non-cash items.
Cash from operating activities remained strong throughout the 2010 to 2012 time period. Operating cash flow was favorably impacted in
2012, compared with 2011, by lower contributions into our defined benefit pension and postretirement benefit plans; however, this was partially
offset by changes in our working capital position, which was impacted by overall growth in the business. The change in the cash flows for income
tax receivables and payables in 2011 and 2010 was primarily related to the timing of discretionary pension contributions during 2010, as discussed
further in the following paragraph.
Except for discretionary or accelerated fundings of our plans, contributions to our company-sponsored pension plans have largely varied
based on whether any minimum funding requirements are present for individual pension plans.
• In 2012, we made a $355 million required contribution to the UPS IBT Pension Plan.
• In 2011, we made a $1.2 billion contribution to the UPS IBT Pension Plan, which satisfied our 2011 contribution requirements and also
approximately $440 million in contributions that would not have been required until after 2011.
• In 2010, we made $2.0 billion in discretionary contributions to our UPS Retirement and UPS Pension Plans, and $980 million in required
contributions to our UPS IBT Pension Plan.
• The remaining contributions in the 2010 through 2012 period were largely due to contributions to our international pension plans and
U.S. postretirement medical benefit plans.
As discussed further in the “Contractual Commitments” section, we have minimum funding requirements in the next several years, primarily
related to the UPS IBT Pension, UPS Retirement and UPS Pension plans.
As of December 31, 2012, the total of our worldwide holdings of cash and cash equivalents was $7.327 billion. Approximately $4.211 billion
of this amount was held in European subsidiaries with the intended purpose of completing the acquisition of TNT Express N.V. (see note 16 to the
consolidated financial statements). Excluding this portion of cash held outside the U.S. for acquisition-related purposes, approximately 50%-60%
of the remaining cash and cash equivalents are held by foreign subsidiaries throughout the year. The amount of cash held by our U.S. and foreign
subsidiaries fluctuates throughout the year due to a variety of factors, including the timing of cash receipts and disbursements in the normal course
of business. Cash provided by operating activities in the United States continues to be our primary source of funds to finance domestic operating
needs, capital expenditures, share repurchases and dividend payments to shareowners. To the extent that such amounts represent previously
untaxed earnings, the cash held by foreign subsidiaries would be subject to tax if such amounts were repatriated in the form of dividends; however,
not all international cash balances would have to be repatriated in the form of a dividend if returned to the U.S. When amounts earned by foreign
subsidiaries are expected to be indefinitely reinvested, no accrual for taxes is provided.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
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RESULTS OF OPERATIONS
Investing Activities
Our primary sources (uses) of cash for investing activities were as follows (amounts in millions):
2012 2011 2010
Net cash used in investing activities $ (1,335) $ (2,537) $ (654)
Capital Expenditures:
Buildings and facilities $ (506) $ (373) $ (352)
Aircraft and parts (568) (598) (416)
Vehicles (672) (659) (339)
Information technology (407) (375) (282)
$ (2,153) $ (2,005) $ (1,389)
Capital Expenditures as a % of Revenue 4.0% 3.8% 2.8%
Other Investing Activities:
Proceeds from disposals of property, plant and equipment $ 95 $ 27 $ 304
Net decrease in finance receivables $ 101 $ 184 $ 108
Net (purchases) sales of marketable securities $ 628 $ (413) $ 30
Cash received (paid) for business acquisitions and dispositions $ (100) $ (73) $ 63
Other investing activities $ 94 $ (257) $ 230
We have commitments for the purchase of aircraft, vehicles, equipment and real estate to provide for the replacement of existing capacity
and anticipated future growth. We generally fund our capital expenditures with our cash from operations. Future capital spending for anticipated
growth and replacement assets will depend on a variety of factors, including economic and industry conditions. We anticipate that our capital
expenditures for 2013 will be approximately $2.4 billion, or approximately 4% of revenue.
Capital spending on aircraft over the 2010 to 2012 period was largely due to scheduled deliveries of previous orders for the Boeing 767-
300ERF and 747-400F aircraft. Capital spending on vehicles increased during the 2010 to 2012 period in our U.S. and international package
businesses and our freight unit, due to vehicle replacements, technology enhancements and new vehicle orders to support volume growth. Capital
expenditures on buildings and facilities increased in 2012, due to expansion and new construction projects at facilities in Europe and Asia,
including a $200 million expansion at our European air hub in Cologne, Germany that began in 2011 and will be completed in 2013.
The proceeds from the disposal of property, plant and equipment were largely due to real estate and aircraft sales during the 2010 through
2012 period, as well as the proceeds from insurance recoveries in 2010. The net decline in finance receivables in the 2010 through 2012 period is
primarily due to customer paydowns and loan sales activity, primarily in our commercial lending, asset-based lending and leasing portfolios. The
purchases and sales of marketable securities are largely determined by liquidity needs and the periodic rebalancing of investment types, and will
therefore fluctuate from period to period.
The cash paid for business acquisitions in 2012 and 2011 was largely due to the acquisitions of Kiala S.A. in Belgium and Pieffe Group in
Italy, respectively. The cash received from business dispositions in 2010 was largely due to the sale of UPS Logistics Technologies, Inc.
Other investing activities are impacted by the cash settlement of derivative contracts used in our currency hedging programs, and the timing
of aircraft purchase contract deposits on our Boeing 767-300ERF and 747-400F aircraft orders. We received (paid) cash related to purchases and
settlements of energy and currency derivative contracts used in our hedging programs of $41, $(78) and $111 million during 2012, 2011 and 2010,
respectively.
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Financing Activities

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Our primary sources (uses) of cash for financing activities are as follows (amounts in millions, except per share data):
2012 2011 2010
Net cash used in financing activities $ (1,817) $ (4,862) $ (1,346)
Share Repurchases:
Cash expended for shares repurchased $ (1,621) $ (2,665) $ (817)
Number of shares repurchased (21.8) (38.7) (12.4)
Shares outstanding at year-end 953 963 991
Percent reduction in shares outstanding (1.0)% (2.8)% (0.3)%
Dividends:
Dividends declared per share $ 2.28 $ 2.08 $ 1.88
Cash expended for dividend payments $ (2,130) $ (1,997) $ (1,818)
Borrowings:
Net borrowings (repayments) of debt principal $ 1,729 $ (95) $ 1,246
Other Financing Activities:
Cash received for common stock issuances $ 301 $ 290 $ 218
Other financing activities $ (96) $ (395) $ (175)
Capitalization:
Total debt outstanding at year-end $ 12,870 $ 11,128 $ 10,846
Total shareowners’ equity at year-end 4,733 7,108 8,047
Total capitalization $ 17,603 $ 18,236 $ 18,893
Debt to Total Capitalization % 73.1 % 61.0 % 57.4 %
On May 3, 2012, the Board of Directors approved a share repurchase authorization of $5.0 billion, which replaced an authorization
previously announced in 2008. As of December 31, 2012, we had $3.970 billion of this share repurchase authorization remaining. On February 14,
2013, the Board of Directors approved a new share repurchase authorization of $10.0 billion, which replaced the 2012 authorization. This new
share repurchase authorization has no expiration date. We anticipate repurchasing approximately $4.0 billion of shares in 2013.
The declaration of dividends is subject to the discretion of the Board of Directors and will depend on various factors, including our net
income, financial condition, cash requirements, future prospects, and other relevant factors. We expect to continue the practice of paying regular
cash dividends. In February 2013, we increased our quarterly dividend payment from $0.57 to $0.62 per share, an 8.8% increase.
Issuances of debt in 2012 consisted primarily of senior fixed rate note offerings totaling $1.75 billion, the proceeds of which were used to
repay the principal balance of our $1.75 billion notes that matured on January 15, 2013. In 2011, issuances of debt consisted primarily of
commercial paper and five new aircraft leases. In 2010, issuances of debt consisted of senior fixed rate note offerings totaling $2.0 billion, the
proceeds of which were used to make discretionary contributions to UPS-sponsored pension plans and other general corporate purposes.
Repayments of debt in 2012, 2011 and 2010 consisted primarily of paydowns of commercial paper, early redemptions of our UPS Notes
program and certain facilities bonds, and scheduled principal payments on our capitalized lease obligations. We consider the overall fixed and
floating interest rate mix of our portfolio and the related overall cost of borrowing when planning for future issuances and non-scheduled
repayments of debt.
We had no commercial paper outstanding at December 31, 2012 and 2011. The amount of commercial paper outstanding fluctuates
throughout each year based on daily liquidity needs. The average commercial paper balance was $962 million and the average interest rate paid
was 0.07% in 2012 ($849 million and 0.08% in 2011, respectively).
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Cash received from common stock issuances to employees increased primarily due to additional stock option exercises in 2012 and 2011.
The cash outflows in other financing activities are largely due to repurchases of shares from employees to satisfy tax withholding obligations, as
well as certain hedging activities on forecasted debt issuances and premiums paid on capped call options for the purchase of UPS class B shares. In
conjunction with the senior fixed rate debt offerings in 2012 and 2010, we settled several interest rate derivatives that were designated as hedges of

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these debt offerings, which resulted in cash inflows (outflows) of $(70) and $7 million, respectively. During 2012, the expiration and settlement of
several capped call options for the purchase of UPS class B shares resulted in a cash inflow of $206 million in premiums, while the initial premium
payments for these options in 2011 resulted in a cash outflow of $200 million during that year.
Sources of Credit
We are authorized to borrow up to $10.0 billion under our U.S. commercial paper program. We also maintain a European commercial paper
program under which we are authorized to borrow up to €1.0 billion in a variety of currencies. 0 amounts were outstanding under these programs
as of December 31, 2012. The amount of commercial paper outstanding under these programs in 2013 is expected to fluctuate.
We maintain two credit agreements with a consortium of banks. One of these agreements provides revolving credit facilities of $1.5 billion,
and expires on April 11, 2013. Generally, amounts outstanding under this facility bear interest at a periodic fixed rate equal to LIBOR for the
applicable interest period and currency denomination, plus an applicable margin. Alternatively, a fluctuating rate of interest equal to Citibank’s
publicly announced base rate, plus an applicable margin, may be used at our discretion. In each case, the applicable margin for advances bearing
interest based on LIBOR is a percentage determined by quotations from Markit Group Ltd. for our 1-year credit default swap spread, subject to a
minimum rate of 0.10% and a maximum rate of 0.75%. The applicable margin for advances bearing interest based on the base rate is 1.00% below
the applicable margin for LIBOR advances (but not lower than 0.00%). We are also able to request advances under this facility based on
competitive bids for the applicable interest rate. There were no amounts outstanding under this facility as of December 31, 2012.
The second agreement provides revolving credit facilities of $1.0 billion, and expires on April 12, 2017. Generally, amounts outstanding
under this facility bear interest at a periodic fixed rate equal to LIBOR for the applicable interest period and currency denomination, plus an
applicable margin. Alternatively, a fluctuating rate of interest equal to Citibank’s publicly announced base rate, plus an applicable margin, may be
used at our discretion. In each case, the applicable margin for advances bearing interest based on LIBOR is a percentage determined by quotations
from Markit Group Ltd. for our credit default swap spread, interpolated for a period from the date of determination of such credit default swap
spread in connection with a new interest period until the latest maturity date of this facility then in effect (but not less than a period of one year).
The applicable margin is subject to certain minimum rates and maximum rates based on our public debt ratings from Standard & Poor’s Rating
Service and Moody’s Investors Service. The minimum applicable margin rates range from 0.100% to 0.375%, and the maximum applicable margin
rates range from 0.750% to 1.250%. The applicable margin for advances bearing interest based on the base rate is 1.00% below the applicable
margin for LIBOR advances (but not less than 0.00%). We are also able to request advances under this facility based on competitive bids. There
were no amounts outstanding under this facility as of December 31, 2012.
Our existing debt instruments and credit facilities subject us to certain financial covenants. As of December 31, 2012 and for all prior periods
presented, we have satisfied these financial covenants. These covenants limit the amount of secured indebtedness that we may incur, and limit the
amount of attributable debt in sale-leaseback transactions, to 10% of net tangible assets. As of December 31, 2012, 10% of net tangible assets is
equivalent to $2.770 billion; however, we have no covered sale-leaseback transactions or secured indebtedness outstanding. Additionally, we are
required to maintain a minimum net worth, as defined, of $5.0 billion on a quarterly basis. As of December 31, 2012, our net worth, as defined,
was equivalent to $8.007 billion. We do not expect these covenants to have a material impact on our financial condition or liquidity.
Guarantees and Other Off-Balance Sheet Arrangements
We do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, which we believe could
have a material impact on financial condition or liquidity.
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Contractual Commitments
We have contractual obligations and commitments in the form of capital leases, operating leases, debt obligations, purchase commitments,
and certain other liabilities. We intend to satisfy these obligations through the use of cash flow from operations. The following table summarizes
the expected cash outflow to satisfy our contractual obligations and commitments as of December 31, 2012 (in millions):
Commitment Type 2013 2014 2015 2016 2017 After 2017 Total
Capital Leases $ 55 $ 52 $ 50 $ 49 $ 48 $ 426 $ 680
Operating Leases 342 271 203 145 118 358 1,437
Debt Principal 1,750 1,000 101 1 375 8,765 11,992
Debt Interest 322 294 287 285 285 4,759 6,232
Purchase Commitments 629 103 22 14 7 — 775
Pension Fundings — — 563 1,020 1,058 986 3,627

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Other Liabilities 64 58 43 23 10 5 203
Total $ 3,162 $ 1,778 $ 1,269 $ 1,537 $ 1,901 $ 15,299 $ 24,946
Our capital lease obligations relate primarily to leases on aircraft. Capital leases, operating leases, and purchase commitments, as well as our
debt principal obligations, are discussed further in note 7 to our consolidated financial statements. The amount of interest on our debt was
calculated as the contractual interest payments due on our fixed-rate debt, in addition to interest on variable rate debt that was calculated based on
interest rates as of December 31, 2012. The calculations of debt interest take into account the effect of interest rate swap agreements. For debt
denominated in a foreign currency, the U.S. Dollar equivalent principal amount of the debt at the end of the year was used as the basis to calculate
future interest payments.
Purchase commitments represent contractual agreements to purchase goods or services that are legally binding, the largest of which are
orders for aircraft, engines, and parts. As of December 31, 2012, we have firm commitments to purchase eight Boeing 767-300ERF aircraft to be
delivered in 2013.
Pension fundings represent the anticipated required cash contributions that will be made to our qualified U.S. pension plans (these plans are
discussed further in note 4 to the consolidated financial statements). The pension funding requirements were estimated under the provisions of the
Pension Protection Act of 2006 and the Employee Retirement Income Security Act of 1974, using discount rates, asset returns and other
assumptions appropriate for these plans. In July 2012, federal legislation was signed into law that allows pension plan sponsors to use higher
interest rate assumptions (based on a 25-year rate history) in valuing plan liabilities and determining funding obligations. As a result of this
legislation, we are not subject to required contributions in 2013 and 2014 for our domestic pension plans. The amount of any minimum funding
requirement, as applicable, for these plans could change significantly in future periods, depending on many factors, including future plan asset
returns and discount rates. A sustained significant decline in the world equity markets, and the resulting impact on our pension assets and
investment returns, could result in our domestic pension plans being subject to significantly higher minimum funding requirements. To the extent
that the funded status of these plans in future years differs from our current projections, the actual contributions made in future years could
materially differ from the amounts shown in the table above.
As discussed in note 5 to our consolidated financial statements, we are not currently subject to any minimum contributions or surcharges
with respect to the multiemployer pension and health and welfare plans in which we participate. Contribution rates to these multiemployer pension
and health and welfare plans are established through the collective bargaining process. As we are not subject to any minimum contribution levels,
we have not included any amounts in the contractual commitments table with respect to these multiemployer plans.
The contractual payments due for “other liabilities” primarily include commitment payments related to our investment in certain
partnerships. The table above does not include approximately $232 million of liabilities for uncertain tax positions because we are uncertain if or
when such amounts will ultimately be settled in cash. In addition, we also have recognized assets associated with uncertain tax positions in excess
of the related liabilities such that we do not believe a net contractual obligation exists to the taxing authorities. Uncertain tax positions are further
discussed in note 12 to the consolidated financial statements.
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As of December 31, 2012, we had outstanding letters of credit totaling approximately $1.369 billion issued in connection with our self-
insurance reserves and other routine business requirements. We also issue surety bonds as an alternative to letters of credit in certain instances, and
as of December 31, 2012, we had $584 million of surety bonds written. As of December 31, 2012, we had unfunded loan commitments totaling
$157 million associated with our financial business.
We believe that funds from operations and borrowing programs will provide adequate sources of liquidity and capital resources to meet our
expected long-term needs for the operation of our business, including anticipated capital expenditures, for the foreseeable future.
Contingencies
We are involved in a number of judicial proceedings and other matters arising from the conduct of our business activities.
Although there can be no assurance as to the ultimate outcome, we have generally denied, or believe we have a meritorious defense and will
deny, liability in all litigation pending against us, including (except as otherwise noted herein) the matters described below, and we intend to
defend vigorously each case. We have accrued for legal claims when, and to the extent that, amounts associated with the claims become probable
and can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts accrued for
those claims.
For those matters as to which we are not able to estimate a possible loss or range of loss, we are not able to determine whether the loss will
have a material adverse effect on our business, financial condition or results of operations or liquidity. For matters in this category, we have

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indicated in the descriptions that follow the reasons that we are unable to estimate the possible loss or range of loss.
Judicial Proceedings
We are a defendant in a number of lawsuits filed in state and federal courts containing various class action allegations under state wage-and-
hour laws. At this time, we do not believe that any loss associated with these matters, would have a material adverse effect on our financial
condition, results of operations or liquidity.
UPS and our subsidiary Mail Boxes Etc., Inc. are defendants in a lawsuit in California Superior Court about the rebranding of The UPS Store
franchises. In the Morgate case, the plaintiffs are 125 individual franchisees who did not rebrand to The UPS Store and a certified class of all
franchisees who did rebrand. The trial court entered judgment against a bellwether individual plaintiff, which was affirmed in January 2012. The
trial court granted our motion for summary judgment against the certified class, which was reversed in January 2012.
There are multiple factors that prevent us from being able to estimate the amount of loss, if any, that may result from whatever remaining
aspects of this case proceeds, including: (1) we are vigorously defending ourselves and believe we have a number of meritorious legal defenses;
and (2) it remains uncertain what evidence of damages, if any, plaintiffs will be able to present. Accordingly, at this time, we are not able to
estimate a possible loss or range of loss that may result from this matter or to determine whether such loss, if any, would have a material adverse
effect on our financial condition, results of operations or liquidity.
In AFMS LLC v. UPS and FedEx Corporation, a lawsuit filed in federal court in the Central District of California in August 2010, the
plaintiff asserts that UPS and FedEx violated U.S. antitrust law by conspiring to refuse to negotiate with third-party negotiators retained by shippers
and by individually imposing policies that prevent shippers from using such negotiators. The case is scheduled to go to trial in August 2013. The
Antitrust Division of the U.S. Department of Justice (“DOJ”) has an ongoing civil investigation of our policies and practices for dealing with
third-party negotiators. We are cooperating with this investigation. We deny any liability with respect to these matters and intend to vigorously
defend ourselves. There are multiple factors that prevent us from being able to estimate the amount of loss, if any, that may result from these
matters including: (1) we believe that we have a number of meritorious defenses; (2) discovery is ongoing; and (3) the DOJ investigation is
ongoing. Accordingly, at this time, we are not able to estimate a possible loss or range of loss that may result from these matters or to determine
whether such loss, if any, would have a material adverse effect on our financial condition, results of operations or liquidity.
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In Canada, four purported class-action cases were filed against us in British Columbia (2006); Ontario (2007) and Québec (2006 and 2013).
The cases each allege inadequate disclosure concerning the existence and cost of brokerage services provided by us under applicable provincial
consumer protection legislation and infringement of interest restriction provisions under the Criminal Code of Canada. The British Columbia class
action was declared inappropriate for certification and dismissed by the trial judge. That decision was upheld by the British Columbia Court of
Appeal in March 2010, which ended the case in our favor. The Ontario class action was certified in September 2011. Partial summary judgment
was granted to us and the plaintiffs by the Ontario motions court. The complaint under the Criminal Code was dismissed. No appeal is being taken
from that decision. The allegations of inadequate disclosure were granted and we are appealing that decision. The motion to authorize the 2006
Québec litigation as a class action was dismissed by the motions judge in October 2012; there was no appeal, which ended that case in our favor.
The 2013 Québec litigation is in the earliest stages. We deny all liability and are vigorously defending the two outstanding cases. There are
multiple factors that prevent us from being able to estimate the amount of loss, if any, that may result from these matters, including: (1) we are
vigorously defending ourselves and believe that we have a number of meritorious legal defenses; and (2) there are unresolved questions of law and
fact that could be important to the ultimate resolution of these matters. Accordingly, at this time, we are not able to estimate a possible loss or
range of loss that may result from these matters or to determine whether such loss, if any, would have a material adverse effect on our financial
condition, results of operation or liquidity.
Other Matters
In May and December 2007 and August 2008 we received and responded to grand jury subpoenas from the DOJ in the Northern District of
California in connection with an investigation by the Drug Enforcement Administration. We also have responded to informal requests for
information in connection with this investigation, which relates to transportation of packages on behalf of online pharmacies that may have
operated illegally. We have been cooperating with this investigation and are exploring the possibility of resolving this matter, which could include
our undertaking further enhancements to our compliance program and a payment. Such a payment may exceed the amounts previously accrued
with respect to this matter, but we do not expect that the amount of such additional loss would have a material adverse effect on our financial
condition, results of operations or liquidity.
We received a grand jury subpoena from the Antitrust Division of the DOJ regarding the DOJ’s investigation into certain pricing practices in
the freight forwarding industry in December 2007. In January 2013, we received a letter from the DOJ confirming that it is not pursuing a case
against UPS with respect to the investigation.
In August 2010, competition authorities in Brazil opened an administrative proceeding to investigate alleged anticompetitive behavior in the

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freight forwarding industry. Approximately 45 freight forwarding companies and individuals are named in the proceeding, including UPS, UPS
SCS Transportes (Brasil) S.A., and a former employee in Brazil. UPS will have an opportunity to respond to these allegations. In November 2012,
we also received a request for information related to similar matters from authorities in Singapore.
We are cooperating with each of these investigations, and intend to continue to vigorously defend ourselves. There are multiple factors that
prevent us from being able to estimate the amount of loss, if any, that may result from these matters including: (1) we are vigorously defending
each matter and believe that we have a number of meritorious legal defenses; (2) there are unresolved questions of law that could be of importance
to the ultimate resolutions of these matters, including the calculation of any potential fine; and (3) there is uncertainty about the time period that is
the subject of the investigations. Accordingly, at this time, we are not able to estimate a possible loss or range of loss that may result from these
matters or to determine whether such loss, if any, would have a material adverse effect on our financial condition, results of operations or liquidity.
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In January 2008, a class action complaint was filed in the United States District Court for the Eastern District of New York alleging price-
fixing activities relating to the provision of freight forwarding services. UPS was not named in this case. In July 2009, the plaintiffs filed a first
amended complaint naming numerous global freight forwarders as defendants. UPS and UPS Supply Chain Solutions are among the 60 defendants
named in the amended complaint. The plaintiffs filed a Second Amended Complaint in October 2010, which we moved to dismiss. In August
2012, the Court granted our motion to dismiss all claims relevant to UPS in the Second Amended Complaint, with leave to amend. The plaintiffs
filed a Third Amended Complaint in November 2012. We intend to file another motion to dismiss, and to otherwise vigorously defend ourselves in
this case. There are multiple factors that prevent us from being able to estimate the amount of loss, if any, that may result from these matters
including: (1) the court has dismissed the complaint once but has not considered the adequacy of the amended complaint; (2) the scope and size of
the proposed class is ill-defined; (3) there are significant legal questions about the adequacy and standing of the putative class representatives; and
(4) we believe that we have a number of meritorious legal defenses. Accordingly, at this time, we are not able to estimate a possible loss or range
of loss that may result from these matters or to determine whether such loss, if any, would have a material adverse effect on our financial condition,
results of operations or liquidity.
We are a defendant in various other lawsuits that arose in the normal course of business. We do not believe that the eventual resolution of
these other lawsuits (either individually or in the aggregate), including any reasonably possible losses in excess of current accruals, will have a
material adverse effect on our financial condition, results of operations or liquidity.
Tax Matters
In June 2011, we received an IRS Revenue Agent Report (RAR) covering excise taxes for tax years 2003 through 2007, in addition to the
income tax matters described in note 12 to the consolidated financial statements. The excise tax RAR proposed two alternate theories for asserting
additional excise tax on transportation of property by air. We disagreed with these proposed excise tax theories and related adjustments. We filed
protests and, in the third quarter of 2011, the IRS responded to our protests and forwarded the case to IRS Appeals.
In the third quarter of 2012, following the Appeals Opening Conference in July 2012, we had settlement discussions which we expect will
lead to a complete resolution of all excise tax matters and correlative income tax refund claims for the 2003 through 2007 tax years within the next
twelve months. We do not believe the ultimate resolution of these matters will have a material effect on our financial condition, results of
operations or liquidity.
Collective Bargaining Agreements
As of December 31, 2012, we had approximately 249,000 employees employed under a national master agreement and various supplemental
agreements with local unions affiliated with the International Brotherhood of Teamsters (“Teamsters”). These agreements run through July 31,
2013. We have approximately 2,600 pilots who are employed under a collective bargaining agreement with the Independent Pilots Association
(“IPA”), which became amendable at the end of 2011. Our airline mechanics are covered by a collective bargaining agreement with Teamsters
Local 2727, which runs through November 1, 2013. In addition, approximately 3,100 of our ground mechanics who are not employed under
agreements with the Teamsters are employed under collective bargaining agreements with the International Association of Machinists and
Aerospace Workers (“IAM”). Our agreement with the IAM runs through July 31, 2014.
Multiemployer Benefit Plans
We contribute to a number of multiemployer defined benefit and health and welfare plans under terms of collective bargaining agreements
that cover our union represented employees. Our current collective bargaining agreements set forth the annual contribution increases allotted to the
plans that we participate in, and we are in compliance with these contribution rates. These limitations will remain in effect throughout the terms of
the existing collective bargaining agreements.
In the third quarter of 2012, we reached an agreement with the New England Pension Fund, a multiemployer pension plan in which UPS is a

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participant, to restructure the pension liabilities for approximately 10,200 UPS employees represented by the Teamsters. The agreement reflects a
decision by the New England Pension Fund’s trustees to restructure the fund through plan amendments to utilize a “two pool approach”, which
effectively subdivides the plan assets and liabilities between two groups of beneficiaries. As part of this agreement, UPS agreed to withdraw from
the original pool of the New England Pension Fund of which it had historically been a participant, and reenter the New England Pension Fund’s
newly-established pool as a new employer.
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Upon ratification of the agreement by the Teamsters in September 2012, we withdrew from the original pool of the New England Pension
Fund and incurred an undiscounted withdrawal liability of $2.162 billion to be paid in equal monthly installments over 50 years. The undiscounted
withdrawal liability was calculated by independent actuaries employed by the New England Pension Fund, in accordance with the governing plan
documents and the applicable requirements of the Employee Retirement Income Security Act of 1974. In the third quarter of 2012, we recorded a
charge to expense to establish an $896 million withdrawal liability on our balance sheet, which represents the present value of the $2.162 billion
future payment obligation discounted at a 4.25% interest rate. This discount rate represents the estimated credit-adjusted market rate of interest at
which we could obtain financing of a similar maturity and seniority.
As part of this agreement, we believe that UPS, the New England Pension Fund and our affected employees have obtained several benefits,
including:
• The old pool of the New England Pension Fund has historically had, and would likely continue to have, funding challenges; this
represented a risk to UPS of having to face higher future contribution requirements, as well as a risk to the security of the pension
benefits of those UPS employees who participate in the New England Pension Fund. The 50 year fixed payment obligation should
improve the funded status of the New England Pension Fund over time, while reducing the risk to UPS of significantly higher future
contribution requirements.
• The newly-established pool provides better protections for new participating employers. This pool uses a direct-attribution
methodology for calculating any potential future withdrawal liabilities, which reduces our exposure to the liabilities of other
participating employers. Additionally, this pool contains provisions designed to maintain a fully-funded status, including automatic
benefit reductions and/or increased employee contributions in the event of an underfunded situation occurring.
• As part of the agreement, we were able to freeze our hourly pension contribution rate to the newly-established pool of the New
England Pension Fund for a period of 10 years, which provides cash flow visibility for both UPS and the New England Pension
Fund.
The $896 million charge to expense recorded in the third quarter of 2012 is included in “compensation and benefits expense” in the
consolidated statement of income, while the corresponding withdrawal liability is included in “other non-current liabilities” on the consolidated
balance sheet. We will impute interest on the withdrawal liability using the 4.25% discount rate, while the monthly payments made to the New
England Pension Fund will reduce the remaining balance of the withdrawal liability.
Our status in the newly-established pool of the New England Pension Fund is accounted for as the participation in a new multiemployer
pension plan, and therefore we will recognize expense based on the contractually-required contribution for each period, and we will recognize a
liability for any contributions due and unpaid at the end of a reporting period.
Rate Adjustments
In June 2012, our UPS Freight unit announced a general rate increase averaging 5.9%, covering non-contractual shipments in the United
States, Canada and Mexico. The rate adjustment took effect on July 16, 2012, and applies to minimum charge, LTL rates and accessorial charges.
In November 2012, we announced an increase in base rates and changes in our fuel surcharge for package shipments that took effect
December 31, 2012, including the following:
• UPS Ground service rates increased an average net 4.9% through a combination of a 5.9% increase in rates and a 1% reduction in the
index used to determine the ground fuel surcharge.
• UPS Next Day Air, UPS 2nd Day Air, UPS 3 Day Select, and international air shipments originating in the United States (including
Worldwide Express, Worldwide Express Plus, UPS Worldwide Expedited and UPS International Standard Service) increased an
average net 4.5%, through a combination of a 6.5% increase in base rates and a 2% reduction in the index used to determine the air fuel
surcharge.
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• UPS Next Day Air Freight, UPS 2nd Day Air Freight, and UPS 3 Day Freight rates for shipments within and between the U.S., Canada,
and Puerto Rico increased 4.9%. UPS Express Freight rates for shipments originating in the U.S. also increased 4.9%.
These rate changes are customary and occur on an annual basis. Rate changes for shipments originating outside the U.S. are made throughout the
year and vary by geographic market.
New Accounting Pronouncements
Recently Adopted Accounting Standards
In May 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update to disclosure requirements for
fair value measurement. These amendments, which became effective for us in the first quarter of 2012, result in a common definition of fair value
and common measurement and disclosure requirements between U.S. GAAP and IFRS. Consequently, the amendments change some fair value
measurement principles and disclosure requirements. The implementation of this amended accounting guidance had an immaterial impact on our
consolidated financial position and results of operations.
In June 2011, the FASB issued an Accounting Standards Update that increases the prominence of items reported in other comprehensive
income in the financial statements. This update requires companies to present comprehensive income in a single statement below net income or in
a separate statement of comprehensive income immediately following the income statement. This requirement became effective for us beginning
with the first quarter of 2012, and we have included the required presentation in all applicable filings since that date.
In July 2012, the FASB issued an Accounting Standards Update that added an optional qualitative assessment for determining whether an
indefinite-lived intangible asset is impaired. The objective of this update is to reduce the cost and complexity of performing an impairment test for
indefinite-lived intangible assets by allowing an entity the option to make a qualitative evaluation about the likelihood of an intangible impairment
to determine whether it should calculate the fair value of the asset. This accounting standards update also amends existing guidance by expanding
upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more
likely than not that the fair value of the intangible asset is less than its carrying amount. We adopted this accounting standard update and applied
its provisions to certain of our intangible assets for our annual impairment testing as of October 1, 2012.
Other accounting pronouncements adopted during the periods covered by the consolidated financial statements had an immaterial impact on
our consolidated financial position and results of operations.
Accounting Standards Issued But Not Yet Effective
In February 2013, the FASB issued an accounting standards update that adds new disclosure requirements for items reclassified out of
accumulated other comprehensive income. This update requires that companies present either in a single note or parenthetically on the face of the
financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its
source (e.g., the release due to cash flow hedges from interest rate contracts) and the income statement line items affected by the reclassification
(e.g., interest income or interest expense). If a component is not required to be reclassified to net income in its entirety (e.g., the net periodic
pension cost), companies would instead cross reference to the related footnote for additional information (e.g., the pension footnote). This update is
effective for us beginning in the first quarter of 2013.
Other accounting pronouncements issued, but not effective until after December 31, 2012, are not expected to have a significant impact on
our consolidated financial position or results of operations.
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RESULTS OF OPERATIONS
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which are
prepared in accordance with accounting principles generally accepted in the United States of America. As indicated in note 1 to our consolidated
financial statements, the amounts of assets, liabilities, revenue, and expenses reported in our financial statements are affected by estimates and
judgments that are necessary to comply with generally accepted accounting principles. We base our estimates on prior experience and other

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assumptions that we consider reasonable to our circumstances. Actual results could differ from our estimates, which would affect the related
amounts reported in our consolidated financial statements. While estimates and judgments are applied in arriving at many reported amounts, we
believe that the following matters may involve a higher degree of judgment and complexity.
Contingencies
As discussed in note 8 to our consolidated financial statements, we are involved in various legal proceedings and contingencies. We record a
liability based on our estimate of the probable cost of the resolution of a contingency. The actual resolution of these contingencies may differ from
our estimates. If a contingency is settled for an amount greater than our estimate, a future charge to income would result. Likewise, if a
contingency is settled for an amount that is less than our estimate, a future credit to income would result.
The events that may impact our contingent liabilities are often unique and generally are not predictable. At the time a contingency is
identified, we consider all relevant facts as part of our evaluation. We record a liability for a loss when the loss is probable of occurring and
reasonably estimable. Events may arise that were not anticipated and the outcome of a contingency may result in a loss to us that differs from our
previously estimated liability. These factors could result in a material difference between estimated and actual operating results. Contingent losses
that are probable and estimable, excluding those related to income taxes and self-insurance which are discussed further below, were not material to
our financial position or results of operations as of, and for the year ended, December 31, 2012. In addition, we have certain contingent liabilities
that have not been recognized as of December 31, 2012, because a loss is not reasonably estimable.
Goodwill and Intangible Impairment
We perform impairment testing of goodwill for each of our reporting units on an annual basis. Our reporting units are comprised of the
Europe, Asia, and Americas reporting units in the International Package reporting segment, and the Forwarding, Logistics, UPS Freight, MBE /
The UPS Store and UPS Capital reporting units in the Supply Chain & Freight reporting segment. Our annual goodwill impairment testing date is
October 1st for each reporting unit. In assessing goodwill for impairment, we initially evaluate qualitative factors to determine if it is more likely
than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive and it is necessary to
calculate the fair value of a reporting unit, then we utilize a two-step process to test goodwill for impairment. First, a comparison of the fair value
of the applicable reporting unit with the aggregate carrying value, including goodwill, is performed. If the carrying amount of a reporting unit
exceeds the reporting unit’s fair value, we perform the second step of the goodwill impairment test to determine the amount of impairment loss.
The second step includes comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill.
We primarily determine the fair value of our reporting units using a discounted cash flow model (“DCF model”), and supplement this with
observable valuation multiples for comparable companies, as applicable. The completion of the DCF model requires that we make a number of
significant assumptions to produce an estimate of future cash flows. These assumptions include projections of future revenue, costs and working
capital changes. In addition, we make assumptions about the estimated cost of capital and other relevant variables, as required, in estimating the
fair value of our reporting units. The projections that we use in our DCF model are updated annually and will change over time based on the
historical performance and changing business conditions for each of our reporting units. The determination of whether goodwill is impaired
involves a significant level of judgment in these assumptions, and changes in our business strategy, government regulations or economic or market
conditions could significantly impact these judgments. We will continue to monitor market conditions and other factors to determine if interim
impairment tests are necessary in future periods. If impairment indicators are present in future periods, the resulting impairment charges could have
a material impact on our results of operations.
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RESULTS OF OPERATIONS
None of the reporting units incurred any goodwill impairment charges in 2012, 2011 or 2010. Changes in our forecasts could cause carrying
values of our reporting units to exceed their fair values in future periods, potentially resulting in a goodwill impairment charge. A 10% decrease in
the estimated fair value of our reporting units as of our most recent goodwill testing date (October 1, 2012) would not result in a goodwill
impairment charge.
Licenses with a carrying value of $5 million as of December 31, 2012 are deemed to be indefinite-lived intangibles, and therefore are not
amortized. Impairment tests for indefinite-lived intangibles are performed on an annual basis. All of our remaining recorded intangible assets are
deemed to be finite-lived intangibles, and are thus amortized over their estimated useful lives. Impairment tests for these intangible assets are only
performed when a triggering event occurs that indicates that the carrying value of the intangible may not be recoverable based on the undiscounted
future cash flows of the intangible. If the carrying amount of the intangible is determined not to be recoverable, a write-down to fair value is
recorded. Fair values are determined based on a DCF model. No impairments of indefinite-lived or finite-lived intangible assets were recognized in
2012, 2011 or 2010.
Self-Insurance Accruals
We self-insure costs associated with workers’ compensation claims, automotive liability, health and welfare and general business liabilities,

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up to certain limits. Insurance reserves are established for estimates of the loss that we will ultimately incur on reported claims, as well as estimates
of claims that have been incurred but not yet reported. Recorded balances are based on reserve levels, which incorporate historical loss experience
and judgments about the present and expected levels of cost per claim. Trends in actual experience are a significant factor in the determination of
such reserves. We believe our estimated reserves for such claims are adequate, but actual experience in claim frequency and/or severity could
materially differ from our estimates and affect our results of operations.
Workers’ compensation, automobile liability and general liability insurance claims may take several years to completely settle.
Consequently, actuarial estimates are required to project the ultimate cost that will be incurred to fully resolve the claims. A number of factors can
affect the actual cost of a claim, including the length of time the claim remains open, trends in health care costs and the results of related litigation.
Furthermore, claims may emerge in future years for events that occurred in a prior year at a rate that differs from previous actuarial projections.
Changes in state legislation with respect to workers’ compensation can affect the adequacy of our self-insurance accruals. All of these factors can
result in revisions to prior actuarial projections and produce a material difference between estimated and actual operating results.
We sponsor a number of health and welfare insurance plans for our employees. These liabilities and related expenses are based on estimates
of the number of employees and eligible dependents covered under the plans, anticipated medical usage by participants and overall trends in
medical costs and inflation. Actual results may differ from these estimates and, therefore, produce a material difference between estimated and
actual operating results.
Fair Value Measurements
In the normal course of business, we hold and issue financial instruments that contain elements of market risk, including derivatives,
marketable securities, finance receivables, other investments and debt. Certain of these financial instruments are required to be recorded at fair
value, principally derivatives, marketable securities, pension assets and certain other investments. Fair values are based on listed market prices,
when such prices are available. To the extent that listed market prices are not available, fair value is determined based on other relevant factors,
including dealer price quotations. Certain financial instruments, including over-the-counter derivative instruments, are valued using pricing models
that consider, among other factors, contractual and market prices, correlations, time value, credit spreads and yield curve volatility factors. Changes
in the fixed income, equity, foreign exchange and commodity markets will impact our estimates of fair value in the future, potentially affecting our
results of operations. A quantitative sensitivity analysis of our exposure to changes in commodity prices, foreign currency exchange rates, interest
rates and equity prices is presented in the “Market Risk” section of this report.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Pension and Postretirement Medical Benefits
Our pension and other postretirement benefit costs are calculated using various actuarial assumptions and methodologies. These assumptions
include discount rates, health care cost trend rates, inflation, compensation increase rates, expected returns on plan assets, mortality rates and other
factors. The assumptions utilized in recording the obligations under our plans represent our best estimates, and we believe that they are reasonable,
based on information as to historical experience and performance as well as other factors that might cause future expectations to differ from past
trends.
Differences in actual experience or changes in assumptions may affect our pension and other postretirement obligations and future expense.
The primary factors contributing to actuarial gains and losses each year are (1) changes in the discount rate used to value pension and
postretirement benefit obligations as of the measurement date and (2) differences between the expected and the actual return on plan assets.
We recognize changes in the fair value of plan assets and net actuarial gains or losses in excess of a corridor (defined as 10% of the greater
of the fair value of plan assets or the plans’ projected benefit obligations) in pension expense annually at December 31st each year. The remaining
components of pension expense, primarily service and interest costs and the expected return on plan assets, are recorded on a quarterly basis.
The following sensitivity analysis shows the impact of a 25 basis point change in the assumed discount rate, expected return on assets, and
health care cost trend rate for our pension and postretirement benefit plans, and the resulting increase (decrease) on our obligations and expense
(excluding the impact of actuarial gains and losses recognized outside of the corridor) as of, and for the year ended, December 31, 2012 (in
millions).

25 Basis Point
Increase
25 Basis Point
Decrease
Pension Plans
Discount Rate:
Effect on ongoing net periodic benefit cost $ (50) $ 50

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Effect on projected benefit obligation (1,427) 1,496
Return on Assets:
Effect on ongoing net periodic benefit cost (58) 58
Postretirement Medical Plans
Discount Rate:
Effect on ongoing net periodic benefit cost — —
Effect on accumulated postretirement benefit obligation (119) 124
Health Care Cost Trend Rate:
Effect on ongoing net periodic benefit cost 1 (1)
Effect on accumulated postretirement benefit obligation 14 (17)
Expense is expected to increase in 2013 compared with 2012, due primarily to the decline in the discount rate used to determine expense
from 5.58% for 2012 to 4.38% for 2013. This is partially offset by the contributions to the plans in 2012, that increased the expected return on
assets used for expense calculation purposes.
Depreciation, Residual Value and Impairment of Fixed Assets
As of December 31, 2012, we had $17.894 billion of net fixed assets, the most significant category of which is aircraft. In accounting for
fixed assets, we make estimates about the expected useful lives and the expected residual values of the assets, and the potential for impairment
based on the fair values of the assets and the cash flows generated by these assets.
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RESULTS OF OPERATIONS
In estimating the lives and expected residual values of aircraft, we have relied upon actual experience with the same or similar aircraft types.
Subsequent revisions to these estimates could be caused by changes to our maintenance program, changes in the utilization of the aircraft,
governmental regulations on aging aircraft and changing market prices of new and used aircraft of the same or similar types. We periodically
evaluate these estimates and assumptions, and adjust the estimates and assumptions as necessary. Adjustments to the expected lives and residual
values are accounted for on a prospective basis through depreciation expense.
We review long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable based on
the undiscounted future cash flows of the asset. If the carrying amount of the asset is determined not to be recoverable, a write-down to fair value
is recorded. Fair values are determined based on quoted market values, discounted cash flows or external appraisals, as applicable. We review
long-lived assets for impairment at the individual asset or the asset group level for which the lowest level of independent cash flows can be
identified. The circumstances that would indicate potential impairment may include, but are not limited to, a significant change in the extent to
which an asset is utilized, a significant decrease in the market value of an asset and operating or cash flow losses associated with the use of the
asset. In estimating cash flows, we project future volume levels for our different air express products in all geographic regions in which we do
business. Adverse changes in these volume forecasts, or a shortfall of our actual volume compared with our projections, could result in our current
aircraft capacity exceeding current or projected demand. This situation would lead to an excess of a particular aircraft type, resulting in an aircraft
impairment charge or a reduction of the expected life of an aircraft type (thus resulting in increased depreciation expense).
In 2012, 2011 and 2010, there were no indicators of impairment in our property, plant and equipment, and no impairment charges were
recorded in any period.
Income Taxes
We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and
judgments occur in the calculation of income by legal entity and jurisdiction, tax credits, benefits, and deductions, and in the calculation of certain
tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes,
as well as the interest and penalties related to these uncertain tax positions. Significant changes to these estimates may result in an increase or
decrease to our tax provision in a subsequent period.
We assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for
taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. We believe that we will
ultimately recover a substantial majority of the deferred tax assets recorded on our consolidated balance sheets. However, should there be a change
in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determined that the recovery was not
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The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize
liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the
weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related
appeals or litigation processes, if any. Once it is determined that the position meets the recognition threshold, the second step requires us to
estimate and measure the tax benefit as the largest amount that is more likely than not to be realized upon ultimate settlement. It is inherently
difficult and subjective to estimate such amounts, as we have to determine the probability of various possible outcomes. We reevaluate these
uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances,
changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement could result in the
recognition of a tax benefit or an additional charge to the tax provision.
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RESULTS OF OPERATIONS
Allowance for Doubtful Accounts
Losses on accounts receivable are recognized when they are incurred, which requires us to make our best estimate of the probable losses
inherent in our customer receivables at each balance sheet date. These estimates require consideration of historical loss experience adjusted for
current conditions, trends in customer payment frequency, and judgments about the probable effects of relevant observable data, including present
economic conditions and the financial health of specific customers and market sectors. Our risk management process includes standards and
policies for reviewing major account exposures and concentrations of risk. Deterioration in macroeconomic variables could result in our ultimate
loss exposures on our accounts receivable being significantly higher than what we have currently estimated and reserved for in our allowance for
doubtful accounts. Our total allowance for doubtful accounts as of December 31, 2012 and 2011 was $127 and $117 million, respectively. Our
total provision for doubtful accounts charged to expense during the years ended December 31, 2012, 2011 and 2010 was $155, $147 and $199
million, respectively.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in certain commodity prices, foreign currency exchange rates, interest rates and equity prices.
All of these market risks arise in the normal course of business, as we do not engage in speculative trading activities. In order to manage the risk
arising from these exposures, we utilize a variety of commodity, foreign exchange and interest rate forward contracts, options and swaps. A
discussion of our accounting policies for derivative instruments and further disclosures are provided in note 14 to the consolidated financial
statements.
Commodity Price Risk
We are exposed to changes in the prices of refined fuels, principally jet-A, diesel and unleaded gasoline, as well as changes in the price of
natural gas. Currently, the fuel surcharges that we apply to our domestic and international package and LTL services are the primary means of
reducing the risk of adverse fuel price changes. Additionally, we periodically use a combination of option contracts to provide partial protection
from changing fuel and energy prices. As of December 31, 2012 and 2011, however, we had no commodity option contracts outstanding.
Foreign Currency Exchange Risk
We have foreign currency risks related to our revenue, operating expenses and financing transactions in currencies other than the local
currencies in which we operate. We are exposed to currency risk from the potential changes in functional currency values of our foreign currency-
denominated assets, liabilities and cash flows. Our most significant foreign currency exposures relate to the Euro, the British Pound Sterling,
Canadian Dollar, Chinese Renminbi and Hong Kong Dollar. We use a combination of purchased and written options and forward contracts to
hedge forecasted cash flow currency exposures. These derivative instruments generally cover forecasted foreign currency exposures for periods of
12 to 24 months. Additionally, we utilize cross-currency interest rate swaps to hedge the currency risk inherent in the interest and principal
payments associated with foreign currency denominated debt obligations. The terms of these swap agreements are commensurate with the
underlying debt obligations.
Interest Rate Risk
We have issued debt instruments, including debt associated with capital leases, that accrue expense at fixed and floating rates of interest. We
use a combination of interest rate swaps as part of our program to manage the fixed and floating interest rate mix of our total debt portfolio and
related overall cost of borrowing. The notional amount, interest payment and maturity dates of the swaps match the terms of the associated debt.
We also utilize forward starting swaps and similar instruments to lock in all or a portion of the borrowing cost of anticipated debt issuances. Our
floating rate debt and interest rate swaps subject us to risk resulting from changes in short-term (primarily LIBOR) interest rates.
We also are subject to interest rate risk with respect to our pension and postretirement benefit obligations, as changes in interest rates will

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effectively increase or decrease our liabilities associated with these benefit plans, which also results in changes to the amount of pension and
postretirement benefit expense recognized in future periods.
We have investments in debt securities, as well as cash-equivalent instruments, some of which accrue income at variable rates of interest.
Additionally, we hold a portfolio of finance receivables that accrue income at fixed and floating rates of interest.
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RESULTS OF OPERATIONS
Equity Price Risk
We hold investments in various common equity securities that are subject to price risk. These securities are primarily in the form of equity
index funds.
Sensitivity Analysis
The following analysis provides quantitative information regarding our exposure to commodity price risk, foreign currency exchange risk,
interest rate risk and equity price risk embedded in our existing financial instruments. We utilize valuation models to evaluate the sensitivity of the
fair value of financial instruments with exposure to market risk that assume instantaneous, parallel shifts in exchange rates, interest rate yield
curves and commodity and equity prices. For options and instruments with non-linear returns, models appropriate to the instrument are utilized to
determine the impact of market shifts.
There are certain limitations inherent in the sensitivity analyses presented, primarily due to the assumption that exchange rates change in a
parallel fashion and that interest rates change instantaneously. In addition, the analyses are unable to reflect the complex market reactions that
normally would arise from the market shifts modeled. While this is our best estimate of the impact of the specified interest rate scenarios, these
estimates should not be viewed as forecasts. We adjust the fixed and floating interest rate mix of our interest rate sensitive assets and liabilities in
response to changes in market conditions. Additionally, changes in the fair value of foreign currency derivatives and commodity derivatives are
offset by changes in the cash flows of the underlying hedged foreign currency and commodity transactions.

Shock-Test Result
As of December 31,
(in millions) 2012 2011
Change in Fair Value:
Currency Derivatives(1) $ (1) $ (64)
Change in Annual Expense:
Variable Rate Debt(2) $ 7 $ 7
Interest Rate Derivatives(2) $ 106 $ 71
(1) The potential change in fair value from a hypothetical 10% weakening of the U.S. Dollar against local currency exchange rates across all
maturities.
(2) The potential change in annual interest expense resulting from a hypothetical 100 basis point increase in short-term interest rates, applied
to our variable rate debt and swap instruments (excluding hedges of anticipated debt issuances).
The sensitivity of our pension and postretirement benefit obligations to changes in interest rates is quantified in “Critical Accounting Policies
and Estimates”. The sensitivity in the fair value and interest income of our marketable securities due to changes in equity prices and interest rates,
respectively, was not material as of December 31, 2012 and 2011. The sensitivity in the fair value and interest income of our finance receivables
due to changes in interest rates was also not material as of December 31, 2012 and 2011.
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Item 8. Financial Statements and Supplementary Data
Table of Contents

Report of Independent Registered Public Accounting Firm 56

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Consolidated Balance Sheets 57
Statements of Consolidated Income 58
Statements of Consolidated Comprehensive Income 58
Statements of Consolidated Cash Flows 59
Notes to Consolidated Financial Statements 60
Note 1—Summary of Accounting Policies 60
Note 2—Cash and Investments 64
Note 3—Property, Plant and Equipment 67
Note 4—Company-Sponsored Employee Benefit Plans 68
Note 5—Multiemployer Employee Benefit Plans 76
Note 6—Business Acquisitions, Goodwill and Intangible Assets 79
Note 7—Debt and Financing Arrangements 81
Note 8—Legal Proceedings and Contingencies 85
Note 9—Shareowners’ Equity 87
Note 10—Stock-Based Compensation 90
Note 11—Segment and Geographic Information 92
Note 12—Income Taxes 94
Note 13—Earnings Per Share 97
Note 14—Derivative Instruments and Risk Management 98
Note 15—Restructuring Costs and Business Dispositions 103
Note 16—Subsequent Events 103
Note 17—Quarterly Information 104
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Report of Independent Registered Public Accounting Firm
Board of Directors and Shareowners
United Parcel Service, Inc.
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of United Parcel Service, Inc. and subsidiaries (the “Company”) as of
December 31, 2012 and 2011, and the related statements of consolidated income, consolidated comprehensive income, and consolidated cash flows
for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of United Parcel Service,
Inc. and subsidiaries at December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the
period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s
internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2013 expressed an
unqualified opinion on the Company’s internal control over financial reporting.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
February 28, 2013

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions)

December 31,
2012 2011
ASSETS
Current Assets:
Cash and cash equivalents $ 7,327 $ 3,034
Marketable securities 597 1,241
Accounts receivable, net 6,111 6,246
Deferred income tax assets 583 611
Other current assets 973 1,152
Total Current Assets 15,591 12,284
Property, Plant and Equipment, Net 17,894 17,621
Goodwill 2,173 2,101
Intangible Assets, Net 603 585
Investments and Restricted Cash 307 303
Derivative Assets 535 483
Deferred Income Tax Assets 684 118
Other Non-Current Assets 1,076 1,206
Total Assets $ 38,863 $ 34,701
LIABILITIES AND SHAREOWNERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt and commercial paper $ 1,781 $ 33
Accounts payable 2,278 2,300
Accrued wages and withholdings 1,927 1,843
Self-insurance reserves 763 781
Other current liabilities 1,641 1,557
Total Current Liabilities 8,390 6,514
Long-Term Debt 11,089 11,095
Pension and Postretirement Benefit Obligations 11,068 5,505
Deferred Income Tax Liabilities 48 1,900
Self-Insurance Reserves 1,980 1,806
Other Non-Current Liabilities 1,555 773
Shareowners’ Equity:
Class A common stock (225 and 240 shares issued in 2012 and 2011) 3 3
Class B common stock (729 and 725 shares issued in 2012 and 2011) 7 7
Additional paid-in capital — —
Retained earnings 7,997 10,128
Accumulated other comprehensive loss (3,354) (3,103)
Deferred compensation obligations 78 88
Less: Treasury stock (1 and 2 shares in 2012 and 2011) (78) (88)
Total Equity for Controlling Interests 4,653 7,035
Noncontrolling Interests 80 73

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Total Shareowners’ Equity 4,733 7,108
Total Liabilities and Shareowners’ Equity $ 38,863 $ 34,701
See notes to consolidated financial statements.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(In millions, except per share amounts)

Years Ended December 31,
2012 2011 2010
Revenue $ 54,127 $ 53,105 $ 49,545
Operating Expenses:
Compensation and benefits 33,102 27,575 26,557
Repairs and maintenance 1,228 1,286 1,131
Depreciation and amortization 1,858 1,782 1,792
Purchased transportation 7,354 7,232 6,640
Fuel 4,090 4,046 2,972
Other occupancy 902 943 939
Other expenses 4,250 4,161 3,873
Total Operating Expenses 52,784 47,025 43,904
Operating Profit 1,343 6,080 5,641
Other Income and (Expense):
Investment income 24 44 3
Interest expense (393) (348) (354)
Total Other Income and (Expense) (369) (304) (351)
Income Before Income Taxes 974 5,776 5,290
Income Tax Expense 167 1,972 1,952
Net Income $ 807 $ 3,804 $ 3,338
Basic Earnings Per Share $ 0.84 $ 3.88 $ 3.36
Diluted Earnings Per Share $ 0.83 $ 3.84 $ 3.33
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(In millions)

Years Ended December 31,
2012 2011 2010
Net income $ 807 $ 3,804 $ 3,338
Change in foreign currency translation adjustment, net of tax 294 (92) (105)
Change in unrealized gain (loss) on marketable securities, net of tax — (6) 39
Change in unrealized gain (loss) on cash flow hedges, net of tax (82) 35 (39)
Change in unrecognized pension and postretirement benefit costs, net of tax (463) (405) (813)
Comprehensive income $ 556 $ 3,336 $ 2,420
See notes to consolidated financial statements.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In millions)

Years Ended December 31,
2012 2011 2010
Cash Flows From Operating Activities:
Net income $ 807 $ 3,804 $ 3,338
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 1,858 1,782 1,792
Pension and postretirement benefit expense 5,753 1,660 1,136
Pension and postretirement benefit contributions (917) (1,436) (3,240)
Self-insurance reserves 156 53 45
Deferred taxes, credits and other (1,199) 241 919
Stock compensation expense 547 524 519
Other (gains) losses 186 245 (13)
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable (124) (657) (532)
Other current assets 10 107 (206)
Accounts payable (58) 249 265
Accrued wages and withholdings 98 339 98
Other current liabilities 206 186 (284)
Other operating activities (107) (24) (2)
Net cash from operating activities 7,216 7,073 3,835
Cash Flows From Investing Activities:
Capital expenditures (2,153) (2,005) (1,389)
Proceeds from disposals of property, plant and equipment 95 27 304
Purchases of marketable securities (2,357) (4,903) (2,490)
Sales and maturities of marketable securities 2,985 4,490 2,520
Net decrease in finance receivables 101 184 108
Cash received (paid) for business acquisitions and dispositions (100) (73) 63
Other investing activities 94 (257) 230
Net cash used in investing activities (1,335) (2,537) (654)
Cash Flows From Financing Activities:
Net change in short-term debt — (183) (481)
Proceeds from long-term borrowings 1,745 279 2,195
Repayments of long-term borrowings (16) (191) (468)
Purchases of common stock (1,621) (2,665) (817)
Issuances of common stock 301 290 218
Dividends (2,130) (1,997) (1,818)
Other financing activities (96) (395) (175)
Net cash used in financing activities (1,817) (4,862) (1,346)
Effect Of Exchange Rate Changes On Cash And Cash Equivalents 229 (10) (7)
Net Increase (Decrease) In Cash And Cash Equivalents 4,293 (336) 1,828
Cash And Cash Equivalents:

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Beginning of period 3,034 3,370 1,542
End of period $ 7,327 $ 3,034 $ 3,370
Cash Paid During The Period For:
Interest (net of amount capitalized) $ 381 $ 248 $ 340
Income taxes $ 1,988 $ 1,527 $ 1,312
See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
Basis of Financial Statements and Business Activities
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States (“GAAP”), and include the accounts of United Parcel Service, Inc., and all of its consolidated subsidiaries (collectively “UPS” or the
“Company”). All intercompany balances and transactions have been eliminated.
UPS concentrates its operations in the field of transportation services, primarily domestic and international letter and package delivery.
Through our Supply Chain & Freight subsidiaries, we are also a global provider of specialized transportation, logistics, and financial services.
Use of Estimates
The preparation of our consolidated financial statements requires the use of estimates and assumptions that affect the reported amounts of
assets and liabilities, the reported amounts of revenues and expenses and the disclosure of contingencies. Estimates have been prepared on the basis
of the most current and best information, and actual results could differ materially from those estimates.
Revenue Recognition
U.S. Domestic and International Package Operations—Revenue is recognized upon delivery of a letter or package.
Forwarding and Logistics—Freight forwarding revenue and the expense related to the transportation of freight are recognized at the time the
services are performed. Material management and distribution revenue is recognized upon performance of the service provided. Customs brokerage
revenue is recognized upon completing documents necessary for customs entry purposes.
Freight—Revenue is recognized upon delivery of a less-than-truckload (“LTL”) or truckload (“TL”) shipment.
We utilize independent contractors and third-party carriers in the performance of some transportation services. In situations where we act as
principal party to the transaction, we recognize revenue on a gross basis; in circumstances where we act as an agent, we recognize revenue net of
the cost of the purchased transportation.
Financial Services—Income on loans and direct finance leases is recognized on the effective interest method. Accrual of interest income is
suspended at the earlier of the time at which collection of an account becomes doubtful or the account becomes 90 days delinquent. Income on
operating leases is recognized on the straight-line method over the terms of the underlying leases.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments that are readily convertible into cash. We consider securities with maturities
of three months or less, when purchased, to be cash equivalents. The carrying amount of these securities approximates fair value because of the
short-term maturity of these instruments.
Investments
Marketable securities are classified as available-for-sale and are carried at fair value, with related unrealized gains and losses reported, net
of tax, as accumulated other comprehensive income (“AOCI”), a separate component of shareowners’ equity. The amortized cost of debt securities
is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion is included in investment income,
along with interest and dividends. The cost of securities sold is based on the specific identification method; realized gains and losses resulting from
such sales are included in investment income.
We periodically review our investments for indications of other than temporary impairment considering many factors, including the extent
and duration to which a security’s fair value has been less than its cost, overall economic and market conditions and the financial condition and
specific prospects for the issuer. Impairment of investment securities results in a charge to income when a market decline below cost is other than

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temporary.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounts Receivable
Losses on accounts receivable are recognized when they are incurred, which requires us to make our best estimate of the probable losses
inherent in our customer receivables at each balance sheet date. These estimates require consideration of historical loss experience, adjusted for
current conditions, trends in customer payment frequency, and judgments about the probable effects of relevant observable data, including present
economic conditions and the financial health of specific customers and market sectors. Our risk management process includes standards and
policies for reviewing major account exposures and concentrations of risk.
Our total allowance for doubtful accounts as of December 31, 2012 and 2011 was $127 and $117 million, respectively. Our total provision
for doubtful accounts charged to expense during the years ended December 31, 2012, 2011 and 2010 was $155, $147 and $199 million,
respectively.
Inventories
Jet fuel, diesel, and unleaded gasoline inventories are valued at the lower of average cost or market. Fuel and other materials and supplies
inventories are recognized as inventory when purchased, and then charged to expense when used in our operations. Total inventories were $393
and $345 million as of December 31, 2012 and 2011, respectively, and are included in “other current assets” on the consolidated balance sheet.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation and amortization are provided by the straight-line method over the estimated
useful lives of the assets, which are as follows: Vehicles—6 to 15 years; Aircraft—12 to 30 years; Buildings—20 to 40 years; Leasehold
Improvements—terms of leases; Plant Equipment—6 to 8.25 years; Technology Equipment—3 to 5 years. The costs of major airframe and engine
overhauls, as well as routine maintenance and repairs, are charged to expense as incurred.
Interest incurred during the construction period of certain property, plant and equipment is capitalized until the underlying assets are placed
in service, at which time amortization of the capitalized interest begins, straight-line, over the estimated useful lives of the related assets.
Capitalized interest was $18, $17 and $18 million for 2012, 2011, and 2010, respectively.
We review long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable based on
the undiscounted future cash flows of the asset. If the carrying amount of the asset is determined not to be recoverable, a write-down to fair value
is recorded. Fair values are determined based on quoted market values, discounted cash flows, or external appraisals, as applicable. We review
long-lived assets for impairment at the individual asset or the asset group level for which the lowest level of independent cash flows can be
identified.
Goodwill and Intangible Assets
Costs of purchased businesses in excess of net identifiable assets acquired (goodwill), and indefinite-lived intangible assets are tested for
impairment at least annually, unless changes in circumstances indicate an impairment may have occurred sooner. We are required to test goodwill
on a “reporting unit” basis. A reporting unit is the operating segment unless, for businesses within that operating segment, discrete financial
information is prepared and regularly reviewed by management, in which case such a component business is the reporting unit.
In assessing goodwill for impairment, we initially evaluate qualitative factors to determine if it is more likely than not that the fair value of a
reporting unit is less than its carrying amount. We consider several factors, including macroeconomic conditions, industry and market conditions,
overall financial performance of the reporting unit, changes in management, strategy or customers, and relevant reporting unit specific events such
as a change in the carrying amount of net assets, a more-likely-than-not expectation of selling or disposing all, or a portion, of a reporting unit, and
the testing for recoverability of a significant asset group within a reporting unit. If this qualitative assessment results in a conclusion that it is more
likely than not that the fair value of a reporting unit exceeds the carrying value, then no further testing is performed for that reporting unit.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
If the qualitative assessment is not conclusive and it is necessary to calculate the fair value of a reporting unit, then we utilize a two-step
process to test goodwill for impairment. First, a comparison of the fair value of the applicable reporting unit with the aggregate carrying value,

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including goodwill, is performed. If the carrying amount of a reporting unit exceeds its calculated fair value, then the second step is performed, and
an impairment charge is recognized for the amount, if any, by which the carrying amount of goodwill exceeds its implied fair value. We primarily
determine the fair value of our reporting units using a discounted cash flow model, and supplement this with observable valuation multiples for
comparable companies, as applicable.
Finite-lived intangible assets, including trademarks, licenses, patents, customer lists, non-compete agreements and franchise rights are
amortized on a straight-line basis over the estimated useful lives of the assets, which range from 2 to 20 years. Capitalized software is amortized
over periods ranging from 3 to 5 years.
Self-Insurance Accruals
We self-insure costs associated with workers’ compensation claims, automotive liability, health and welfare, and general business liabilities,
up to certain limits. Insurance reserves are established for estimates of the loss that we will ultimately incur on reported claims, as well as estimates
of claims that have been incurred but not yet reported. Recorded balances are based on reserve levels, which incorporate historical loss experience
and judgments about the present and expected levels of cost per claim.
Pension and Postretirement Benefits
We incur certain employment-related expenses associated with pension and postretirement medical benefits. These pension and
postretirement medical benefit costs for company-sponsored benefit plans are calculated using various actuarial assumptions and methodologies,
including discount rates, expected returns on plan assets, health care cost trend rates, inflation, compensation increase rates, mortality rates, and
other factors. Actuarial assumptions are reviewed on an annual basis, unless circumstances require an interim remeasurement date for any of our
plans.
We recognize changes in the fair value of plan assets and net actuarial gains or losses in excess of a corridor (defined as 10% of the greater
of the fair value of plan assets or the plans’ projected benefit obligations) in pension expense annually at December 31st each year. The remaining
components of pension expense, primarily service and interest costs and the expected return on plan assets, are recorded on a quarterly basis.
We participate in a number of trustee-managed multiemployer pension and health and welfare plans for employees covered under collective
bargaining agreements. Our contributions to these plans are determined in accordance with the respective collective bargaining agreements. We
recognize expense for the contractually required contribution for each period, and we recognize a liability for any contributions due and unpaid
(included in “other current liabilities”).
Income Taxes
Income taxes are accounted for on an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. In estimating future
tax consequences, we generally consider all expected future events other than proposed changes in the tax law or rates. Valuation allowances are
provided if it is more likely than not that a deferred tax asset will not be realized.
We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition
by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any. Once it is determined that the position meets the recognition threshold, the second step
requires us to estimate and measure the tax benefit as the largest amount that is more likely than not to be realized upon ultimate settlement. It is
inherently difficult and subjective to estimate such amounts, as we have to determine the probability of various possible outcomes. We reevaluate
these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or
circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement
could result in the recognition of a tax benefit or an additional charge to the tax provision.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign Currency Translation
We translate the results of operations of our foreign subsidiaries using average exchange rates during each period, whereas balance sheet
accounts are translated using exchange rates at the end of each period. Balance sheet currency translation adjustments are recorded in AOCI.
Currency transaction gains and losses, net of hedging, included in other operating expenses were pre-tax gains (losses) of $10, $(1) and $7 million
in 2012, 2011 and 2010, respectively.
Stock-Based Compensation
All share-based awards to employees are measured based on their fair values and expensed over the period during which an employee is
required to provide service in exchange for the award (the vesting period). We issue employee share-based awards under the UPS Incentive

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Compensation Plan that are subject to specific vesting conditions; generally, the awards cliff vest or vest ratably over a three or five year period,
“the nominal vesting period,” or at the date the employee retires (as defined by the plan), if earlier. Compensation cost is recognized immediately
for awards granted to retirement-eligible employees, or over the period from the grant date to the date retirement eligibility is achieved, if that is
expected to occur during the nominal vesting period.
Fair Value Measurements
Our financial assets and liabilities measured at fair value on a recurring basis have been categorized based upon a fair value hierarchy. Level
1 inputs utilize quoted prices in active markets for identical assets or liabilities. Level 2 inputs are based on other observable market data, such as
quoted prices for similar assets and liabilities, and inputs other than quoted prices that are observable, such as interest rates and yield curves. Level
3 inputs are developed from unobservable data reflecting our own assumptions, and include situations where there is little or no market activity for
the asset or liability.
Certain non-financial assets and liabilities are measured at fair value on a nonrecurring basis, including property, plant, and equipment,
goodwill and intangible assets. These assets are not measured at fair value on a recurring basis; however, they are subject to fair value adjustments
in certain circumstances, such as when there is evidence of an impairment. A general description of the valuation methodologies used for assets
and liabilities measured at fair value, including the general classification of such assets and liabilities pursuant to the valuation hierarchy, is
included in each footnote with fair value measurements present.
Derivative Instruments
All financial derivative instruments are recorded on our consolidated balance sheets at fair value. Derivatives not designated as hedges must
be adjusted to fair value through income. If a derivative is designated as a hedge, depending on the nature of the hedge, changes in its fair value
that are considered to be effective, as defined, either offset the change in fair value of the hedged assets, liabilities or firm commitments through
income, or are recorded in AOCI until the hedged item is recorded in income. Any portion of a change in a hedge’s fair value that is considered to
be ineffective, or is excluded from the measurement of effectiveness, is recorded immediately in income.
Recently Adopted Accounting Standards
In May 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update to disclosure requirements for
fair value measurement. These amendments, which became effective for us in the first quarter of 2012, result in a common definition of fair value
and common measurement and disclosure requirements between U.S. GAAP and IFRS. Consequently, the amendments change some fair value
measurement principles and disclosure requirements. The implementation of this amended accounting guidance had an immaterial impact on our
consolidated financial position and results of operations.
In June 2011, the FASB issued an Accounting Standards Update that increases the prominence of items reported in other comprehensive
income in the financial statements. This update requires companies to present comprehensive income in a single statement below net income or in
a separate statement of comprehensive income immediately following the income statement. This requirement became effective for us beginning
with the first quarter of 2012, and we have included the required presentation in all applicable filings since that date.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In July 2012, the FASB issued an Accounting Standards Update that added an optional qualitative assessment for determining whether an
indefinite-lived intangible asset is impaired. The objective of this update is to reduce the cost and complexity of performing an impairment test for
indefinite-lived intangible assets by allowing an entity the option to make a qualitative evaluation about the likelihood of an intangible impairment
to determine whether it should calculate the fair value of the asset. This accounting standards update also amends existing guidance by expanding
upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more
likely than not that the fair value of the intangible asset is less than its carrying amount. We adopted this accounting standard update and applied
its provisions to certain of our intangible assets for our annual impairment testing as of October 1, 2012.
Other accounting pronouncements adopted during the periods covered by the consolidated financial statements had an immaterial impact on
our consolidated financial position and results of operations.
Accounting Standards Issued But Not Yet Effective
In February 2013, the FASB issued an accounting standards update that adds new disclosure requirements for items reclassified out of
accumulated other comprehensive income. This update requires that companies present either in a single note or parenthetically on the face of the
financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its
source (e.g., the release due to cash flow hedges from interest rate contracts) and the income statement line items affected by the reclassification
(e.g., interest income or interest expense). If a component is not required to be reclassified to net income in its entirety (e.g., the net periodic
pension cost), companies would instead cross reference to the related footnote for additional information (e.g., the pension footnote). This update is
effective for us beginning in the first quarter of 2013.

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Other accounting pronouncements issued, but not effective until after December 31, 2012, are not expected to have a significant impact on
our consolidated financial position or results of operations.
Changes in Presentation
Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no impact on our
financial position or results of operations.

NOTE 2. CASH AND INVESTMENTS
The following is a summary of marketable securities classified as available-for-sale at December 31, 2012 and 2011 (in millions):
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
2012
Current marketable securities:
U.S. government and agency debt securities $ 236 $ 2 $ — $ 238
Mortgage and asset-backed debt securities 171 3 — 174
Corporate debt securities 158 5 — 163
U.S. state and local municipal debt securities 15 — — 15
Other debt and equity securities 7 — — 7
Total marketable securities $ 587 $ 10 $ — $ 597
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
2011
Current marketable securities:
U.S. government and agency debt securities $ 184 $ 3 $ — $ 187
Mortgage and asset-backed debt securities 188 4 (1) 191
Corporate debt securities 835 4 (2) 837
U.S. state and local municipal debt securities 15 — — 15
Other debt and equity securities 10 1 — 11
Total marketable securities $ 1,232 $ 12 $ (3) $ 1,241
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The gross realized gains on sales of marketable securities totaled $15, $49 and $24 million in 2012, 2011, and 2010, respectively. The gross
realized losses totaled $6, $20 and $18 million in 2012, 2011, and 2010, respectively. There were no impairment losses recognized on marketable
securities during 2012 or 2011, while impairment losses totaled $21 million during 2010 (discussed further below).
Investment Other-Than-Temporary Impairments
We have concluded that no other-than-temporary impairment losses existed as of December 31, 2012. In making this determination, we
considered the financial condition and prospects of the issuer, the magnitude of the losses compared with the investments’ cost, the probability that
we will be unable to collect all amounts due according to the contractual terms of the security, the credit rating of the security and our ability and
intent to hold these investments until the anticipated recovery in market value occurs.
During the second quarter of 2010, we recorded impairment losses on certain asset-backed auction rate securities. The impairment charge
resulted from provisions that allow the issuers of the securities to subordinate our holdings to newly issued debt or to tender for the securities at
less than their par value. These securities, which had a cost basis of $128 million, were written down to their fair value of $107 million as of
June 30, 2010, as an other-than-temporary impairment. The $21 million total impairment charge during the second quarter was recorded as a loss
in investment income on the statement of consolidated income.
Maturity Information

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The amortized cost and estimated fair value of marketable securities at December 31, 2012, by contractual maturity, are shown below (in
millions). Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations
without prepayment penalties.

Cost
Estimated
Fair Value
Due in one year or less $ 37 $ 37
Due after one year through three years 251 252
Due after three years through five years 49 49
Due after five years 248 257
585 595
Equity securities 2 2
$ 587 $ 597
Non-Current Investments and Restricted Cash
Restricted cash and cash equivalents relate to our self-insurance requirements. We entered into an escrow agreement with an insurance
carrier to guarantee our self-insurance obligations. This agreement requires us to provide cash collateral to the insurance carrier, which is reported
in “Investments and Restricted Cash” on our consolidated balance sheets. Additional cash collateral provided is reflected in other investing
activities in the statements of consolidated cash flows. This restricted cash is invested in money market funds and similar cash equivalent type
assets. As of December 31, 2012 and 2011, we had $288 and $286 million in restricted cash, respectively.
We held a $19 and $17 million investment in a variable life insurance policy to fund benefits for the UPS Excess Coordinating Benefit Plan
at December 31, 2012 and 2011, respectively. This investment is classified as “Investments and Restricted Cash” in the consolidated balance sheets
with the quarterly change in investment value recognized in investment income on the statements of consolidated income.
Fair Value Measurements
Marketable securities utilizing Level 1 inputs include active exchange-traded equity securities and equity index funds, and most U.S.
Government debt securities, as these securities all have quoted prices in active markets. Marketable securities utilizing Level 2 inputs include non-
auction rate asset-backed securities, corporate bonds and municipal bonds. These securities are valued using market corroborated pricing, matrix
pricing or other models that utilize observable inputs such as yield curves.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We maintain holdings in certain investment partnerships that are measured at fair value utilizing Level 3 inputs (classified as “other
investments” in the tables below, and as “Other Non-Current Assets” in the consolidated balance sheets). These partnership holdings do not have
quoted prices, nor can they be valued using inputs based on observable market data. These investments are valued internally using a discounted
cash flow model with two significant inputs: (1) the after-tax cash flow projections for each partnership, and (2) a risk-adjusted discount rate
consistent with the duration of the expected cash flows for each partnership. The weighted-average discount rates used to value these investments
were 7.75% and 7.91% as of December 31, 2012 and 2011, respectively. These inputs and the resulting fair values are updated on a quarterly basis.
The following table presents information about our investments measured at fair value on a recurring basis as of December 31, 2012 and
2011, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value (in millions).
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3) Total
2012
Marketable securities:
U.S. government and agency debt securities $ 237 $ 1 $ — $ 238
Mortgage and asset-backed debt securities — 174 — 174

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Corporate debt securities — 163 — 163
U.S. state and local municipal debt securities — 15 — 15
Other debt and equity securities — 7 — 7
Total marketable securities 237 360 — 597
Other investments 19 — 163 182
Total $ 256 $ 360 $ 163 $ 779

Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3) Total
2011
Marketable securities:
U.S. government and agency debt securities $ 187 $ — $ — $ 187
Mortgage and asset-backed debt securities — 191 — 191
Corporate debt securities — 837 — 837
U.S. state and local municipal debt securities — 15 — 15
Other debt and equity securities — 11 — 11
Total marketable securities 187 1,054 — 1,241
Other investments 17 — 217 234
Total $ 204 $ 1,054 $ 217 $ 1,475
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the changes in the above Level 3 instruments measured on a recurring basis for the years ended December 31,
2012 and 2011 (in millions).

Marketable
Securities
Other
Investments Total
Balance on January 1, 2011 $ 138 $ 267 $ 405
Transfers into (out of) Level 3 — — —
Net realized and unrealized gains (losses):
Included in earnings (in investment income) — (50) (50)
Included in accumulated other comprehensive income (pre-tax) — — —
Purchases — — —
Settlements (138) — (138)
Balance on December 31, 2011 $ — $ 217 $ 217
Transfers into (out of) Level 3 — — —
Net realized and unrealized gains (losses):
Included in earnings (in investment income) — (54) (54)
Included in accumulated other comprehensive income (pre-tax) — — —
Purchases — — —
Settlements — — —
Balance on December 31, 2012 $ — $ 163 $ 163

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NOTE 3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including both owned assets as well as assets subject to capital leases, consists of the following as of
December 31 (in millions):
2012 2011
Vehicles $ 6,344 $ 5,981
Aircraft 15,164 14,616
Land 1,122 1,114
Buildings 3,138 3,095
Building and leasehold improvements 3,049 2,943
Plant equipment 7,010 6,803
Technology equipment 1,675 1,593
Equipment under operating leases 69 93
Construction-in-progress 470 303
38,041 36,541
Less: Accumulated depreciation and amortization (20,147) (18,920)
$ 17,894 $ 17,621
We continually monitor our aircraft fleet utilization in light of current and projected volume levels, aircraft fuel prices and other factors.
Additionally, we monitor our other property, plant and equipment categories for any indicators that the carrying value of the assets exceed the fair
value. In 2012, 2011 and 2010, there were no indicators of impairment in our property, plant and equipment, and no impairment charges were
recorded in any period.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS
We sponsor various retirement and pension plans, including defined benefit and defined contribution plans which cover our employees
worldwide.
U.S. Pension Benefits
In the U.S. we maintain the following single-employer defined benefit pension plans: UPS Retirement Plan, UPS Pension Plan, UPS IBT
Pension Plan and the UPS Excess Coordinating Benefit Plan, a non-qualified plan.
The UPS Retirement Plan is noncontributory and includes substantially all eligible employees of participating domestic subsidiaries who are
not members of a collective bargaining unit, as well as certain employees covered by a collective bargaining agreement. This plan generally
provides for retirement benefits based on average compensation levels earned by employees prior to retirement. Benefits payable under this plan
are subject to maximum compensation limits and the annual benefit limits for a tax qualified defined benefit plan as prescribed by the Internal
Revenue Service (“IRS”).
The UPS Excess Coordinating Benefit Plan is a non-qualified plan that provides benefits to certain participants in the UPS Retirement Plan
for amounts that exceed the benefit limits described above.
The UPS Pension Plan is noncontributory and includes certain eligible employees of participating domestic subsidiaries and members of
collective bargaining units that elect to participate in the plan. This plan generally provides for retirement benefits based on service credits earned
by employees prior to retirement.
The UPS IBT Pension Plan is noncontributory and includes employees that were previously members of the Central States, Southeast and
Southwest Areas Pension Fund (“Central States Pension Fund”), a multiemployer pension plan, in addition to other eligible employees who are
covered under certain collective bargaining agreements.
U.S. Postretirement Medical Benefits
We also sponsor postretirement medical plans in the U.S. that provide health care benefits to our retirees who meet certain eligibility

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requirements and who are not otherwise covered by multiemployer plans. Generally, this includes employees with at least 10 years of service who
have reached age 55 and employees who are eligible for postretirement medical benefits from a Company-sponsored plan pursuant to collective
bargaining agreements. We have the right to modify or terminate certain of these plans. These benefits have been provided to certain retirees on a
noncontributory basis; however, in many cases, retirees are required to contribute all or a portion of the total cost of the coverage.
International Pension Benefits
We also sponsor various defined benefit plans covering certain of our international employees. The majority of our international obligations
are for defined benefit plans in Canada and the United Kingdom. In addition, many of our international employees are covered by government-
sponsored retirement and pension plans. We are not directly responsible for providing benefits to participants of government-sponsored plans.
Defined Contribution Plans
We also sponsor several defined contribution plans for all employees not covered under collective bargaining agreements, and for certain
employees covered under collective bargaining agreements. The Company matches, in shares of UPS common stock or cash, a portion of the
participating employees’ contributions. In early 2009, we suspended the company matching contributions to the primary employee defined
contribution plan. A revised program of company matching contributions was reinstated effective January 1, 2011. Matching contributions charged
to expense were $83, $80 and $4 million for 2012, 2011 and 2010, respectively.
Contributions are also made to defined contribution money purchase plans under certain collective bargaining agreements. Amounts charged
to expense were $80, $76 and $78 million for 2012, 2011 and 2010, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net Periodic Benefit Cost
Information about net periodic benefit cost for the company-sponsored pension and postretirement benefit plans is as follows (in millions):
U.S. Pension Benefits
U.S. Postretirement
Medical Benefits
International
Pension Benefits
2012 2011 2010 2012 2011 2010 2012 2011 2010
Net Periodic Cost:
Service cost $ 998 $ 870 $ 723 $ 89 $ 89 $ 86 $ 41 $ 34 $ 24
Interest cost 1,410 1,309 1,199 208 207 214 41 39 34
Expected return on assets (1,970) (1,835) (1,381) (18) (16) (22) (47) (43) (36)
Amortization of:
Transition obligation — — — — — — — — —
Prior service cost 173 171 172 5 7 4 2 1 1
Actuarial (gain) loss 4,388 736 70 374 — — 69 91 42
Other — — — — — — (10) — 6
Net periodic benefit cost $ 4,999 $ 1,251 $ 783 $ 658 $ 287 $ 282 $ 96 $ 122 $ 71
Actuarial Assumptions
The table below provides the weighted-average actuarial assumptions used to determine the net periodic benefit cost.
U.S. Pension Benefits
U.S. Postretirement
Medical Benefits
International
Pension Benefits
2012 2011 2010 2012 2011 2010 2012 2011 2010
Discount rate 5.64% 5.98% 6.58% 5.47% 5.77% 6.43% 4.63% 5.36% 5.84%
Rate of compensation
increase 4.50% 4.50% 4.50% N/A N/A N/A 3.58% 3.57% 3.62%
Expected return on assets 8.75% 8.75% 8.75% 8.75% 8.75% 8.75% 7.20% 7.31% 7.25%
The table below provides the weighted-average actuarial assumptions used to determine the benefit obligations of our plans.
U.S. Postretirement International

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U.S. Pension Benefits Medical Benefits Pension Benefits
2012 2011 2012 2011 2012 2011
Discount rate 4.42% 5.64% 4.21% 5.47% 4.00% 4.63%
Rate of compensation increase 4.16% 4.50% N/A N/A 3.03% 3.58%
A discount rate is used to determine the present value of our future benefit obligations. To determine our discount rate for our U.S. pension
and other postretirement benefit plans, we use a bond matching approach to select specific bonds that would satisfy our projected benefit
payments. We believe the bond matching approach reflects the process we would employ to settle our pension and postretirement benefit
obligations. For our international plans, the discount rate is determined by matching the expected cash flows of a sample plan of similar duration to
a yield curve based on long-term, high quality fixed income debt instruments available as of the measurement date. For 2012, each basis point
increase in the discount rate decreases the projected benefit obligation by approximately $57 million and $5 million for pension and postretirement
medical benefits, respectively. These assumptions are updated each measurement date, which is typically annually.
An assumption for expected return on plan assets is used to determine a component of net periodic benefit cost for the fiscal year. This
assumption for our U.S. plans was developed using a long-term projection of returns for each asset class, and taking into consideration our target
asset allocation. The expected return for each asset class is a function of passive, long-term capital market assumptions and excess returns
generated from active management. The capital market assumptions used are provided by independent investment advisors, while excess return
assumptions are supported by historical performance, fund mandates and investment expectations. In addition, we compare the expected return on
asset assumption with the average historical rate of return these plans have been able to generate.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For plans outside the U.S., consideration is given to local market expectations of long-term returns. Strategic asset allocations are
determined by country, based on the nature of liabilities and considering the demographic composition of the plan participants.
Health care cost trends are used to project future postretirement benefits payable from our plans. For year-end 2012 U.S. plan obligations,
future postretirement medical benefit costs were forecasted assuming an initial annual increase of 7.5%, decreasing to 5.0% by the year 2018 and
with consistent annual increases at those ultimate levels thereafter.
Assumed health care cost trends can have a significant effect on the amounts reported for the U.S. postretirement medical plans. A one-
percent change in assumed health care cost trend rates would have had the following effects on 2012 results (in millions):
1% Increase 1% Decrease
Effect on total of service cost and interest cost $ 4 $ (4)
Effect on postretirement benefit obligation $ 58 $ (69)
Benefit Obligations and Fair Value of Plan Assets
The following table provides a reconciliation of the changes in the plans’ benefit obligations and fair value of plan assets as of the respective
measurement dates in each year (in millions).

U.S. Pension Benefits
U.S. Postretirement
Medical Benefits
International
Pension
Benefits
2012 2011 2012 2011 2012 2011
Benefit Obligations:
Projected benefit obligation at beginning of year $ 24,386 $ 21,342 $ 3,836 $ 3,597 $ 841 $ 680
Service cost 998 870 89 89 41 34
Interest cost 1,410 1,309 208 207 41 39
Gross benefits paid (774) (657) (233) (219) (20) (15)
Plan participants’ contributions — — 16 16 4 1
Plan amendments (2) 3 1 (24) — 7
Actuarial (gain)/loss 5,850 1,519 495 170 112 99
Foreign currency exchange rate changes — — — — 24 (4)
Curtailments and settlements — — — — (5) —

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Other — — — — 51 —
Projected benefit obligation at end of year $ 31,868 $ 24,386 $ 4,412 $ 3,836 $ 1,089 $ 841
U.S. Pension Benefits
U.S. Postretirement
Medical Benefits
International
Pension
Benefits
2012 2011 2012 2011 2012 2011
Fair Value of Plan Assets:
Fair value of plan assets at beginning of year $ 22,663 $ 20,092 $ 174 $ 233 $ 613 $ 561
Actual return on plan assets 2,684 1,956 19 9 56 10
Employer contributions 368 1,272 475 108 74 56
Plan participants’ contributions — — 16 16 1 1
Gross benefits paid (774) (657) (233) (219) (20) (15)
Foreign currency exchange rate changes — — — — 20 —
Curtailments and settlements — — — — (4) —
Other — — 9 27 61 —
Fair value of plan assets at end of year $ 24,941 $ 22,663 $ 460 $ 174 $ 801 $ 613
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Funded Status
The following table discloses the funded status of our plans and the amounts recognized in our balance sheet as of December 31 (in
millions):
U.S. Pension Benefits
U.S. Postretirement
Medical Benefits
International
Pension
Benefits
2012 2011 2012 2011 2012 2011
Funded Status:
Fair value of plan assets $ 24,941 $ 22,663 $ 460 $ 174 $ 801 $ 613
Benefit obligation (31,868) (24,386) (4,412) (3,836) (1,089) (841)
Funded status recognized at December 31 $ (6,927) $ (1,723) $ (3,952) $ (3,662) $ (288) $ (228)
Funded Status Amounts Recognized in our Balance Sheet:
Other non-current assets $ — $ — $ — $ — $ 26 $ 1
Other current liabilities (14) (13) (108) (93) (3) (3)
Pension and postretirement benefit obligations (6,913) (1,710) (3,844) (3,569) (311) (226)
Net liability at December 31 $ (6,927) $ (1,723) $ (3,952) $ (3,662) $ (288) $ (228)
Amounts Recognized in AOCI:
Unrecognized net prior service cost $ (1,318) $ (1,492) $ (79) $ (82) $ (13) $ (14)
Unrecognized net actuarial loss (3,187) (2,439) (441) (307) (86) (52)
Gross unrecognized cost at December 31 (4,505) (3,931) (520) (389) (99) (66)
Deferred tax asset at December 31 1,694 1,479 196 146 26 16
Net unrecognized cost at December 31 $ (2,811) $ (2,452) $ (324) $ (243) $ (73) $ (50)
The accumulated benefit obligation for our pension plans as of the measurement dates in 2012 and 2011 was $30.350 and $23.307 billion,
respectively.
Benefit payments under the pension plans include $16 and $14 million paid from employer assets in both 2012 and 2011. Benefit payments

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(net of participant contributions) under the postretirement medical benefit plans include $110 and $108 million paid from employer assets in 2012
and 2011, respectively. Such benefit payments from employer assets are also categorized as employer contributions.
At December 31, 2012 and 2011, the projected benefit obligation, the accumulated benefit obligation, and the fair value of plan assets for
pension plans with benefit obligations in excess of plan assets were as follows (in millions):

Projected Benefit Obligation
Exceeds the Fair Value of Plan
Assets
Accumulated Benefit Obligation
Exceeds the Fair Value of Plan
Assets
2012 2011 2012 2011
U.S. Pension Benefits
Projected benefit obligation $ 31,868 $ 24,386 $ 31,868 $ 7,499
Accumulated benefit obligation 29,382 22,574 29,382 7,395
Fair value of plan assets 24,941 22,663 24,941 6,646
International Pension Benefits
Projected benefit obligation $ 1,028 $ 814 $ 678 $ 499
Accumulated benefit obligation 917 714 606 448
Fair value of plan assets 723 594 388 296
The accumulated postretirement benefit obligation exceeds plan assets for all of our U.S. postretirement medical benefit plans.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pension and Postretirement Plan Assets
The applicable benefit plan committees establish investment guidelines and strategies, and regularly monitor the performance of the funds
and portfolio managers. Our investment guidelines address the following items: governance, general investment beliefs and principles, investment
objectives, specific investment goals, process for determining/maintaining the asset allocation policy, long-term asset allocation, rebalancing,
investment restrictions/prohibited transactions, portfolio manager structure and diversification (which addresses limits on the amount of
investments held by any one manager to minimize risk), portfolio manager selection criteria, plan evaluation, portfolio manager performance
review and evaluation and risk management (including various measures used to evaluate risk tolerance).
Our investment strategy with respect to pension assets is to invest the assets in accordance with applicable laws and regulations. The long-
term primary objectives for our pension assets are to: (1) provide for a reasonable amount of long-term growth of capital, with prudent exposure to
risk; and protect the assets from erosion of purchasing power; (2) provide investment results that meet or exceed the plans’ expected long-term
rate of return; and (3) match the duration of the liabilities and assets of the plans to reduce the potential risk of large employer contributions being
necessary in the future. The plans strive to meet these objectives by employing portfolio managers to actively manage assets within the guidelines
and strategies set forth by the benefit plan committees. These managers are evaluated by comparing their performance to applicable benchmarks.
The fair values of U.S. pension and postretirement benefit plan assets by asset category as of December 31, 2012 are presented below (in
millions), as well as the percentage that each category comprises of our total plan assets and the respective target allocations.

Level 1 Level 2 Level 3
Total
Assets
Percentage of
Plan Assets –
2012
Target
Allocation
2012
Asset Category:
Cash and cash equivalents $ 103 $ 139 $ — $ 242 0.9% 0-5
Equity Securities:
U.S. Large Cap 2,548 2,162 — 4,710
U.S. Small Cap 450 31 — 481
Emerging Markets 1,160 123 — 1,283
Global Equity 2,242 — — 2,242
International Equity 442 694 — 1,136
Total Equity Securities 6,842 3,010 — 9,852 38.8 35-55

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Fixed Income Securities:
U.S. Government Securities 4,008 443 — 4,451
Corporate Bonds 9 3,113 138 3,260
Global Bonds — 457 — 457
Municipal Bonds — 83 — 83
Total Fixed Income Securities 4,017 4,096 138 8,251 32.5 25-35
Other Investments:
Hedge Funds — — 2,829 2,829 11.1 5-15
Private Equity — — 1,416 1,416 5.6 1-10
Real Estate 177 23 1,039 1,239 4.9 1-10
Structured Products(1) — 210 — 210 0.8 0-5
Other(2) — — 1,362 1,362 5.4 1-10
Total U.S. Plan Assets $ 11,139 $ 7,478 $ 6,784 $ 25,401 100.0%
(1) Represents mortgage and asset-backed securities.
(2) Represents global balanced-risk commingled funds, consisting primarily of equity, bonds, and some currencies and commodities.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair values of U.S. pension and postretirement benefit plan assets by asset category as of December 31, 2011 are presented below (in
millions), as well as the percentage that each category comprises of our total plan assets and the respective target allocations.

Level 1 Level 2 Level 3
Total
Assets
Percentage of
Plan Assets –
2011
Target
Allocation
2011
Asset Category:
Cash and cash equivalents $ 74 $ 1 $ — $ 75 0.3% 0-5
Equity Securities:
U.S. Large Cap 2,264 2,460 — 4,724
U.S. Small Cap 706 27 — 733
Emerging Markets 533 264 — 797
Global Equity 1,115 12 — 1,127
International Equity 810 1,091 — 1,901
Total Equity Securities 5,428 3,854 — 9,282 40.7 35-55
Fixed Income Securities:
U.S. Government Securities 3,374 1,131 — 4,505
Corporate Bonds 9 3,462 80 3,551
Global Bonds 38 69 — 107
Municipal Bonds — 121 — 121
Total Fixed Income Securities 3,421 4,783 80 8,284 36.3 20-40
Other Investments:
Hedge Funds — — 2,132 2,132 9.3 5-15
Private Equity — — 1,354 1,354 5.9 1-10
Real Estate 151 — 948 1,099 4.8 1-10
Other(1) — — 611 611 2.7 1-10
Total U.S. Plan Assets $ 9,074 $ 8,638 $ 5,125 $ 22,837 100.0%

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(1) Represents global balanced-risk commingled funds, consisting primarily of equity, bonds, and some currencies and commodities.
There were no UPS class A or B shares of common stock directly held in plan assets as of December 31, 2012 or December 31, 2011.
Pension assets utilizing Level 1 inputs include fair values of equity investments, corporate debt instruments, and U.S. government securities
that were determined by closing prices for those securities traded on national stock exchanges, while securities traded in the over-the-counter
market and listed securities for which no sale was reported on the valuation date are valued at the mean between the last reported bid and asked
prices.
Level 2 assets include certain bonds that are valued based on yields currently available on comparable securities of other issues with similar
credit ratings, mortgage-backed securities that are valued based on cash flow and yield models using acceptable modeling and pricing conventions,
and certain investments that are pooled with other investments held by the trustee in a commingled employee benefit trust fund. The investments
in the commingled funds are valued by taking the percentage owned by the respective plan in the underlying net asset value of the trust fund, which
was determined in accordance with the paragraph above.
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Certain investments’ estimated fair value is based on unobservable inputs that are not corroborated by observable market data and are thus
classified as Level 3. These investments include commingled funds comprised of corporate and government bonds, hedge funds, real estate
investments and private equity funds. The commingled funds are valued using net asset values, adjusted, as appropriate, for investment fund
specific inputs determined to be significant to the valuation. Investments in hedge funds are valued using reported net asset values as of December
31. These assets are primarily invested in a portfolio of diversified, direct investments and funds of hedge funds. Real estate investments and
private equity funds are valued using fair values per the most recent partnership audited financial reports, adjusted as appropriate for any lag
between the date of the financial reports and December 31. The real estate investments consist of U.S. and non-U.S. real estate investments and are
broadly diversified. The fair values may, due to the inherent uncertainty of valuation for those alternative investments, differ significantly from the
values that would have been used had a ready market for the alternative investments existed, and the differences could be material.
As of December 31, 2012 and 2011, $2.960 and $3.895 billion of plan assets are held in commingled stock funds that hold U.S. and
international public market securities. The plans held the right to liquidate positions in these commingled stock funds at any time, subject only to a
brief notification period. No unfunded commitments existed with respect to these commingled stock funds at December 31, 2012.
As of December 31, 2012 and 2011, the plans hold $2.455 and $2.302 billion of investments in limited partnership interests in various
private equity and real estate funds. Limited provision exists for the redemption of these interests by the general partners that invest in these funds
until the end of the term of the partnerships, typically ranging between 12 and 18 years from the date of inception. An active secondary market
exists for similar partnership interests, although no particular value (discount or premium) can be guaranteed. At December 31, 2012, unfunded
commitments to such limited partnerships totaling approximately $626 million are expected to be contributed over the remaining investment
period, typically ranging between three and six years.
As of December 31, 2012 and 2011, $4.191 and $2.743 billion of plan investments are held in hedge funds that pursue multiple strategies to
diversify risk and reduce volatility. Most of these funds allow redemptions either quarterly or semi-annually after a two to three month notice
period, while other funds allow for redemption after only a brief notification period with no restriction on redemption frequency. No unfunded
commitments existed with respect to these hedge funds as of December 31, 2012.
The following tables presents the changes in the Level 3 instruments measured on a recurring basis for the years ended December 31, 2012
and 2011 (in millions):

Corporate
Bonds
Hedge
Funds
Real
Estate
Private
Equity Other Total
Balance on January 1, 2011 $ 193 $ 1,765 $ 789 $ 1,309 $ 258 $ 4,314
Actual Return on Assets:
Assets Held at End of Year (14) 69 144 145 53 397
Assets Sold During the Year 3 22 5 — — 30
Purchases 57 457 150 164 300 1,128
Sales (159) (181) (140) (264) — (744)
Settlements — — — — — —
Transfers Into (Out of) Level 3 — — — — — —
Balance on December 31, 2011 $ 80 $ 2,132 $ 948 $ 1,354 $ 611 $ 5,125

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Actual Return on Assets:
Assets Held at End of Year 1 59 85 163 151 459
Assets Sold During the Year (3) 5 4 — — 6
Purchases 71 1,300 144 184 600 2,299
Sales (11) (667) (142) (285) — (1,105)
Settlements — — — — — —
Transfers Into (Out of) Level 3 — — — — — —
Balance on December 31, 2012 $ 138 $ 2,829 $ 1,039 $ 1,416 $ 1,362 $ 6,784
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value disclosures above have not been provided for our international pension benefit plans since asset allocations are determined
and managed at the individual country level. In general, the asset allocations for these plans were approximately 56% in equity securities, 34% in
debt securities and 10% in other securities in 2012 (approximately 55%, 35%, and 10% in 2011, respectively). The amount of assets having
significant unobservable inputs (Level 3), if any, in these plans would be immaterial to our financial statements.
Accumulated Other Comprehensive Income
The estimated amounts of prior service cost in AOCI expected to be amortized and recognized as a component of net periodic benefit cost in
2013 are as follows (in millions):

U.S. Pension Benefits
U.S. Postretirement
Medical Benefits
International Pension
Benefits
Prior service cost / (benefit) $ 172 $ 4 $ 2
Expected Cash Flows
Information about expected cash flows for the pension and postretirement benefit plans is as follows (in millions):
U.S.
Pension Benefits
U.S. Postretirement
Medical Benefits
International Pension
Benefits
Employer Contributions:
2013 (expected) to plan trusts $ — $ — $ 76
2013 (expected) to plan participants 14 111 3
Expected Benefit Payments:
2013 $ 798 $ 255 $ 20
2014 887 237 22
2015 978 254 25
2016 1,076 271 27
2017 1,182 288 30
2018 – 2022 7,815 1,575 199
Our funding policy for U.S. plans is to contribute amounts annually that are at least equal to the amounts required by applicable laws and
regulations, or to directly fund payments to plan participants, as applicable. International plans will be funded in accordance with local regulations.
Additional discretionary contributions may be made when deemed appropriate to meet the long-term obligations of the plans. Expected benefit
payments for pensions will be primarily paid from plan trusts. Expected benefit payments for postretirement medical benefits will be paid from
plan trusts and corporate assets.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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NOTE 5. MULTIEMPLOYER EMPLOYEE BENEFIT PLANS
We contribute to a number of multiemployer defined benefit plans under the terms of collective bargaining agreements that cover our union-
represented employees. These plans generally provide for retirement, death and/or termination benefits for eligible employees within the applicable
collective bargaining units, based on specific eligibility/participation requirements, vesting periods and benefit formulas. The risks of participating
in these multiemployer plans are different from single-employer plans in the following aspects:
• Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating
employers.
• If a participating employer stops contributing to the multiemployer plan, the unfunded obligations of the plan may be borne by the
remaining participating employers.
• If we choose to stop participating in some of our multiemployer plans, we may be required to pay those plans an amount based on the
underfunded status of the plan, referred to as a withdrawal liability. However, cessation of participation in a multiemployer plan and
subsequent payment of any withdrawal liability is subject to the collective bargaining process.
The discussion that follows sets forth the financial impact on our results of operations and cash flows for the years ended December 31,
2012, 2011 and 2010 from our participation in multiemployer benefit plans. Several factors could cause us to make significantly higher future
contributions to these plans, including unfavorable investment performance, changes in demographics and increased benefits to participants.
However, all surcharges are subject to the collective bargaining process. At this time, we are unable to determine the amount of additional future
contributions, if any, or whether any material adverse effect on our financial condition, results of operations or liquidity would result from our
participation in these plans.
The number of employees covered by our multiemployer plans has remained consistent over the past three years, and there have been no
significant changes that affect the comparability of 2012, 2011 and 2010 contributions. We recognize expense for the contractually-required
contribution for each period, and we recognize a liability for any contributions due and unpaid at the end of a reporting period.
Multiemployer Pension Plans
The following table outlines our participation in multiemployer pension plans for the periods ended December 31, 2012, 2011 and 2010, and
sets forth our calendar year contributions into each plan. The “EIN/Pension Plan Number” column provides the Employer Identification Number
(“EIN”) and the three-digit plan number. The most recent Pension Protection Act zone status available in 2012 and 2011 relates to the plans’ two
most recent fiscal year-ends. The zone status is based on information that we received from the plans’ administrators and is certified by each plan’s
actuary. Among other factors, plans certified in the red zone are generally less than 65% funded, plans certified in the orange zone are both less
than 80% funded and have an accumulated funding deficiency or are expected to have a deficiency in any of the next six plan years, plans certified
in the yellow zone are less than 80% funded, and plans certified in the green zone are at least 80% funded. The “FIP/RP Status
Pending/Implemented” column indicates whether a financial improvement plan (“FIP”) for yellow/orange zone plans, or a rehabilitation plan
(“RP”) for red zone plans, is either pending or has been implemented. As of December 31, 2012, all plans that have either a FIP or RP requirement
have had the respective FIP or RP implemented.
Our collectively-bargained contributions satisfy the requirements of all implemented FIPs and RPs and do not currently require the payment
of any surcharges. In addition, minimum contributions outside of the agreed upon contractual rate are not required. For the plans detailed in the
following table, the expiration date of the associated collective bargaining agreements is July 31, 2013, with the exception of the Automotive
Industries Pension Plan and the IAM National Pension Fund / National Pension Plan which both have a July 31, 2014 expiration date. For all plans
detailed in the following table, we provided more than 5% of the total plan contributions from all employers for 2012, 2011 and 2010 (as disclosed
in the Form 5500 for each respective plan).
Certain plans have been aggregated in the “All Other Multiemployer Pension Plans” line in the following table, as the contributions to each
of these individual plans are not material.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

EIN / Pension
Plan
Pension
Protection Act
Zone Status
FIP/RP Status
Pending/
(in millions)
UPS Contributions Surcharge
Pension Fund Number 2012 2011 Implemented 2012 2011 2010 Imposed
Alaska Teamster-Employer Pension Plan 92-6003463-024 Red Red Yes/Implemented $ 4 $ 4 $ 3 No

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Automotive Industries Pension Plan 94-1133245-001 Red Red Yes/Implemented 4 4 4 No
Central Pennsylvania Teamsters Defined Benefit Plan 23-6262789-001 Yellow Green Yes/Implemented 29 27 26 No
Employer-Teamsters Local Nos. 175 & 505 Pension
Trust Fund 55-6021850-001 Green Green No 9 8 8 No
Hagerstown Motor Carriers and Teamsters Pension
Fund 52-6045424-001 Red Red Yes/Implemented 5 5 4 No
I.A.M. National Pension Fund / National Pension Plan 51-6031295-002 Green Green No 24 25 24 No
International Brotherhood of Teamsters Union Local
No. 710 Pension Fund 36-2377656-001 Green Yellow No 75 74 70 No
Local 705, International Brotherhood of Teamsters
Pension Plan 36-6492502-001 Red Yellow Yes/Implemented 46 58 56 No
Local 804 I.B.T. & Local 447 I.A.M.—UPS
Multiemployer Retirement Plan 51-6117726-001 Red Red Yes/Implemented 87 84 84 No
Milwaukee Drivers Pension Trust Fund 39-6045229-001 Green Green No 26 26 24 No
New England Teamsters & Trucking Industry Pension
Fund 04-6372430-001 Red Red Yes/Implemented 124 124 112 No
New York State Teamsters Conference Pension and
Retirement Fund 16-6063585-074 Red Red Yes/Implemented 65 57 52 No
Teamster Pension Fund of Philadelphia and Vicinity 23-1511735-001 Yellow Yellow Yes/Implemented 44 41 39 No
Teamsters Joint Council No. 83 of Virginia Pension
Fund 54-6097996-001 Yellow Yellow Yes/Implemented 44 41 38 No
Teamsters Local 639—Employers Pension Trust 53-0237142-001 Green Green Yes/Implemented 36 33 31 No
Teamsters Negotiated Pension Plan 43-6196083-001 Red Red Yes/Implemented 24 22 20 No
Truck Drivers and Helpers Local Union No. 355
Retirement Pension Plan 52-6043608-001 Yellow Yellow Yes/Implemented 14 12 12 No
United Parcel Service, Inc.—Local 177, I.B.T.
Multiemployer Retirement Plan 13-1426500-419 Red Red Yes/Implemented 62 57 59 No
Western Conference of Teamsters Pension Plan 91-6145047-001 Green Green No 520 476 449 No
Western Pennsylvania Teamsters and Employers
Pension Fund 25-6029946-001 Red Red Yes/Implemented 24 21 20 No
All Other Multiemployer Pension Plans 59 44 51
Total Contributions $1,325 $1,243 $1,186
In the third quarter of 2012, we reached an agreement with the New England Teamsters and Trucking Industry Pension Fund (“New England
Pension Fund”), a multiemployer pension plan in which UPS is a participant, to restructure the pension liabilities for approximately 10,200 UPS
employees represented by the Teamsters. The agreement reflects a decision by the New England Pension Fund’s trustees to restructure the fund
through plan amendments to utilize a “two pool approach”, which effectively subdivides the plan assets and liabilities between two groups of
beneficiaries. As part of this agreement, UPS agreed to withdraw from the original pool of the New England Pension Fund of which it had
historically been a participant, and reenter the New England Pension Fund’s newly-established pool as a new employer.
Upon ratification of the agreement by the Teamsters in September 2012, we withdrew from the original pool of the New England Pension
Fund and incurred an undiscounted withdrawal liability of $2.162 billion to be paid in equal monthly installments over 50 years. The undiscounted
withdrawal liability was calculated by independent actuaries employed by the New England Pension Fund, in accordance with the governing plan
documents and the applicable requirements of the Employee Retirement Income Security Act of 1974. During 2012, we recorded a charge to
expense to establish an $896 million withdrawal liability on our consolidated balance sheet, which represents the present value of the $2.162 billion
future payment obligation discounted at a 4.25% interest rate. This discount rate represents the estimated credit-adjusted market rate of interest at
which we could obtain financing of a similar maturity and seniority. As this agreement is not a contribution to the plan, the amounts reflected in
the previous table do not include this $896 million non-cash transaction.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Multiemployer Health and Welfare Plans

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We also contribute to several multiemployer health and welfare plans that cover both active and retired employees. Health care benefits are
provided to participants who meet certain eligibility requirements as covered under the applicable collective bargaining unit. The following table
sets forth our calendar year plan contributions. Certain plans have been aggregated in the “All Other Multiemployer Health and Welfare Plans” line
in the table, as the contributions to each of these individual plans are not material.

(in millions)
UPS Contributions
Health and Welfare Fund 2012 2011 2010
Bay Area Delivery Drivers $ 28 $ 27 $ 26
Central Pennsylvania Teamsters Health & Pension Fund 19 18 17
Central States, South East & South West Areas Health and Welfare Fund 471 452 441
Delta Health Systems—East Bay Drayage Drivers 24 17 15
Employer—Teamster Local Nos. 175 & 505 8 8 7
Joint Council #83 Health & Welfare Fund 25 25 25
Local 191 Teamsters Health Fund 9 9 9
Local 401 Teamsters Health & Welfare Fund 6 6 5
Local 804 Welfare Trust Fund 62 58 54
Milwaukee Drivers Pension Trust Fund—Milwaukee Drivers Health and Welfare Trust Fund 29 28 27
Montana Teamster Employers Trust 6 6 6
New York State Teamsters Health & Hospital Fund 44 41 40
North Coast Benefit Trust 7 7 7
Northern California General Teamsters (DELTA) 75 73 70
Northern New England Benefit Trust 33 32 31
Oregon / Teamster Employers Trust 27 27 25
Teamsters 170 Health & Welfare Fund 12 12 12
Teamsters Benefit Trust 32 29 27
Teamsters Local 251 Health & Insurance Plan 10 10 10
Teamsters Local 404 Health & Insurance Plan 6 6 6
Teamsters Local 638 Health Fund 29 28 27
Teamsters Local 639—Employers Health & Pension Trust Funds 22 22 21
Teamsters Local 671 Health Services & Insurance Plan 12 13 12
Teamsters Union 25 Health Services & Insurance Plan 36 34 33
Teamsters Union Local 677 Health Services & Insurance Plan 8 8 7
Truck Drivers and Helpers Local 355 Baltimore Area Health & Welfare Fund 13 12 12
Utah-Idaho Teamsters Security Fund 16 15 15
Washington Teamsters Welfare Trust 32 30 27
All Other Multiemployer Health and Welfare Plans 55 50 52
Total Contributions $ 1,156 $ 1,103 $ 1,066
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NOTE 6. BUSINESS ACQUISITIONS, GOODWILL AND INTANGIBLE ASSETS
The following table indicates the allocation of goodwill by reportable segment (in millions):
U.S. Domestic
Package
International
Package
Supply Chain &
Freight Consolidated
Balance on January 1, 2011 $ — $ 377 $ 1,704 $ 2,081
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Currency / Other — (16) (10) (26)
Balance on December 31, 2011 $ — $ 361 $ 1,740 $ 2,101
Acquired — 67 — 67
Currency / Other — 2 3 5
Balance on December 31, 2012 $ — $ 430 $ 1,743 $ 2,173
Business Acquisitions
The increase in goodwill within the International Package segment in 2012 was due to the February acquisition of Kiala S.A. (“Kiala”), a
Belgium-based developer of a platform that enables e-commerce retailers to offer their shoppers the option of having goods delivered to a
convenient retail location. Kiala currently operates in Belgium, France, Luxembourg, the Netherlands and Spain. The acquisition broadens our
service portfolio for business-to-consumer deliveries.
The increase in goodwill within the Supply Chain & Freight segment in 2011 was due to the December acquisition of the Pieffe Group
(“Pieffe”), an Italian pharmaceutical logistics company. Pieffe offers storage, distribution and other logistics services to some of the world’s
leading pharmaceutical companies.
Pro forma results of operations have not been presented for these acquisitions, because the effects of these transactions were not material.
The results of operations of these acquired companies have been included in our statements of consolidated income from the date of acquisition.
The remaining change in goodwill for both the International Package and Supply Chain & Freight segments was due to the impact of
changes in the value of the U.S. Dollar on the translation of non-U.S. Dollar goodwill balances.
Goodwill Impairment
We test our goodwill for impairment annually, as of October 1st, on a reporting unit basis. Our reporting units are comprised of the Europe,
Asia, and Americas reporting units in the International Package reporting segment, and the Forwarding, Logistics, UPS Freight, MBE / The UPS
Store, and UPS Capital reporting units in the Supply Chain & Freight reporting segment.
In assessing our goodwill for impairment, we initially evaluate qualitative factors to determine if it is more likely than not that the fair value
of a reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive and it is necessary to calculate the fair value of a
reporting unit, then we utilize a two-step process to test goodwill for impairment. First, a comparison of the fair value of the applicable reporting
unit with the aggregate carrying value, including goodwill, is performed. We primarily determine the fair value of our reporting units using a
discounted cash flow model, and supplement this with observable valuation multiples for comparable companies, as applicable. If the carrying
amount of a reporting unit exceeds the reporting unit’s fair value, we perform the second step of the goodwill impairment test to determine the
amount of impairment loss. The second step includes comparing the implied fair value of the affected reporting unit’s goodwill with the carrying
value of that goodwill.
We did not have any goodwill impairment charges in 2012, 2011 or 2010. Cumulatively, our Supply Chain & Freight reporting segment has
recorded goodwill impairment charges of $622 million, while our International and U.S. Domestic Package segments have not recorded any
impairment charges.
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Intangible Assets
The following is a summary of intangible assets at December 31, 2012 and 2011 (in millions):
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
Weighted-
Average
Amortization
Period
(in years)
December 31, 2012
Trademarks, licenses, patents, and other $ 163 $ (80) $ 83 5.5
Customer lists 131 (79) 52 11.5
Franchise rights 117 (64) 53 20.0
Capitalized software 2,197 (1,782) 415 3.1
Total Intangible Assets, Net $ 2,608 $ (2,005) $ 603 4.4
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Trademarks, licenses, patents, and other $ 146 $ (54) $ 92
Customer lists 120 (66) 54
Franchise rights 109 (58) 51
Capitalized software 2,014 (1,626) 388
Total Intangible Assets, Net $ 2,389 $ (1,804) $ 585
Licenses with a carrying value of $5 million as of December 31, 2012 are deemed to be indefinite-lived intangibles, and therefore are not
amortized. Impairment tests for indefinite-lived intangibles are performed on an annual basis. All of our other recorded intangible assets are
deemed to be finite-lived intangibles, and are thus amortized over their estimated useful lives. Impairment tests for these intangible assets are only
performed when a triggering event occurs that indicates that the carrying value of the intangible may not be recoverable. There were no
impairments of any finite-lived or indefinite-lived intangible assets in 2012, 2011 or 2010.
Amortization of intangible assets was $244, $228 and $224 million during 2012, 2011 or 2010, respectively. Expected amortization of finite-
lived intangible assets recorded as of December 31, 2012 for the next five years is as follows (in millions): 2013—$252; 2014—$168; 2015—$94;
2016—$14; 2017—$13. Amortization expense in future periods will be affected by business acquisitions, software development, licensing
agreements, sponsorships and other factors.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. DEBT AND FINANCING ARRANGEMENTS
The following table sets forth the principal amount, maturity or range of maturities, as well as the carrying value of our debt obligations, as
of December 31, 2012 and 2011 (in millions). The carrying value of these debt obligations can differ from the principal amount due to the impact
of unamortized discounts or premiums and valuation adjustments resulting from interest rate swap hedging relationships.

Principal Carrying Value
Amount Maturity 2012 2011
Commercial paper $ — $ — $ —
Fixed-rate senior notes:
4.50% senior notes 1,750 2013 1,751 1,778
3.875% senior notes 1,000 2014 1,033 1,050
1.125% senior notes 375 2017 373 —
5.50% senior notes 750 2018 851 841
5.125% senior notes 1,000 2019 1,140 1,119
3.125% senior notes 1,500 2021 1,655 1,641
2.45% senior notes 1,000 2022 996 —
6.20% senior notes 1,500 2038 1,480 1,480
4.875% senior notes 500 2040 489 489
3.625% senior notes 375 2042 367 —
8.375% Debentures:
8.375% debentures 424 2020 512 504
8.375% debentures 276 2030 284 284
Pound Sterling Notes:
5.50% notes 107 2031 103 99
5.13% notes 734 2050 699 678
Floating rate senior notes 378 2049 – 2053 374 376
Capital lease obligations 440 2013 – 3004 440 469
Facility notes and bonds 320 2015 – 2036 320 320
Other debt 3 2013 – 2022 3 —

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Total debt $ 12,432 12,870 11,128
Less: current maturities (1,781) (33)
Long-term debt $ 11,089 $ 11,095
Commercial Paper
We are authorized to borrow up to $10.0 billion under our U.S. commercial paper program. We also maintain a European commercial paper
program under which we are authorized to borrow up to €1.0 billion in a variety of currencies. No amounts were outstanding under these programs
as of December 31, 2012. The amount of commercial paper outstanding under these programs in 2013 is expected to fluctuate.
Fixed Rate Senior Notes
We have completed several offerings of fixed rate senior notes. All of the notes pay interest semiannually, and allow for redemption of the
notes by UPS at any time by paying the greater of the principal amount or a “make-whole” amount, plus accrued interest. We subsequently entered
into interest rate swaps on several of these notes, which effectively converted the fixed interest rates on the notes to variable LIBOR-based interest
rates. The average interest rate payable on these notes, including the impact of the interest rate swaps, for 2012 and 2011, respectively, were as
follows:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principal
Average Effective
Interest Rate
Value Maturity 2012 2011
4.50% senior notes 1,750 2013 2.51% 2.39%
3.875% senior notes 1,000 2014 1.14% 0.99%
1.125% senior notes 375 2017 0.57% —%
5.50% senior notes 750 2018 2.71% 2.53%
5.125% senior notes 1,000 2019 2.20% 2.04%
3.125% senior notes 1,500 2021 1.28% 0.52%
2.45% senior notes 1,000 2022 0.86% —%
8.375% Debentures
The 8.375% debentures consist of two separate tranches, as follows:
• $276 million of the debentures have a maturity of April 1, 2030. These debentures have an 8.375% interest rate until April 1, 2020, and,
thereafter, the interest rate will be 7.62% for the final 10 years. These debentures are redeemable in whole or in part at our option at any
time. The redemption price is equal to the greater of 100% of the principal amount and accrued interest or the sum of the present values of
the remaining scheduled payout of principal and interest thereon discounted to the date of redemption at a benchmark treasury yield plus
five basis points plus accrued interest.
• $424 million of the debentures have a maturity of April 1, 2020. These debentures are not subject to redemption prior to maturity.
Interest is payable semiannually on the first of April and October for both debentures and neither debenture is subject to sinking fund requirements.
We subsequently entered into interest rate swaps on the 2020 notes, which effectively converted the fixed interest rates on the notes to variable
LIBOR-based interest rates. The average interest rate payable on the 2020 notes, including the impact of the interest rate swaps, for 2012 and 2011
was 5.73% and 5.97%, respectively.
Floating Rate Senior Notes
The floating rate senior notes bear interest at one-month LIBOR less 45 basis points. The average interest rate for 2012 and 2011 was 0.00%
for both years. These notes are callable at various times after 30 years at a stated percentage of par value, and putable by the note holders at
various times after 10 years at a stated percentage of par value. The notes have maturities ranging from 2049 through 2053. In 2012 and 2011, we
redeemed notes with a principal value of $2 and $10 million, respectively, after put options were exercised by the note holders.
Capital Lease Obligations
We have certain property, plant and equipment subject to capital leases. Some of the obligations associated with these capital leases have

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been legally defeased. The recorded value of our property, plant and equipment subject to capital leases is as follows as of December 31 (in
millions):

2012 2011
Vehicles $ 63 $ 35
Aircraft 2,282 2,282
Buildings 65 24
Plant Equipment 2 2
Technology Equipment 3 1
Accumulated amortization (611) (457)
$ 1,804 $ 1,887
These capital lease obligations have principal payments due at various dates from 2013 through 3004.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Facility Notes and Bonds
We have entered into agreements with certain municipalities to finance the construction of, or improvements to, facilities that support our
U.S. Domestic Package and Supply Chain & Freight operations in the United States. These facilities are located around airport properties in
Louisville, Kentucky; Dallas, Texas; and Philadelphia, Pennsylvania. Under these arrangements, we enter into a lease or loan agreement that covers
the debt service obligations on the bonds issued by the municipalities, as follows:
• Bonds with a principal balance of $149 million issued by the Louisville Regional Airport Authority associated with our Worldport facility
in Louisville, Kentucky. The bonds, which are due in January 2029, bear interest at a variable rate, and the average interest rates for 2012
and 2011 were 0.15% and 0.11%, respectively.
• Bonds with a principal balance of $42 million and due in November 2036 issued by the Louisville Regional Airport Authority associated
with our air freight facility in Louisville, Kentucky. The bonds bear interest at a variable rate, and the average interest rates for 2012 and
2011 were 0.15% and 0.11%, respectively.
• Bonds with a principal balance of $29 million issued by the Dallas / Fort Worth International Airport Facility Improvement Corporation
associated with our Dallas, Texas airport facilities. The bonds are due in May 2032 and bear interest at a variable rate, however the
variable cash flows on the obligation have been swapped to a fixed 5.11%.
• Bonds with a principal balance of $100 million issued by the Delaware County, Pennsylvania Industrial Development Authority
associated with our Philadelphia, Pennsylvania airport facilities. The bonds, which are due in December 2015, bear interest at a variable
rate, and the average interest rates for 2012 and 2011 were 0.13% and 0.11%, respectively.
Pound Sterling Notes
The Pound Sterling notes consist of two separate tranches, as follows:
• Notes with a principal amount of £66 million accrue interest at a 5.50% fixed rate, and are due in February 2031. These notes are not
callable.
• Notes with a principal amount of £455 million accrue interest at a 5.13% fixed rate, and are due in February 2050. These notes are
callable at our option at a redemption price equal to the greater of 100% of the principal amount and accrued interest, or the sum of the
present values of the remaining scheduled payout of principal and interest thereon discounted to the date of redemption at a benchmark
U.K. government bond yield plus 15 basis points and accrued interest.
We maintain cross-currency interest rate swaps to hedge the foreign currency risk associated with the bond cash flows for both tranches of these
bonds. The average fixed interest rate payable on the swaps is 5.72%.
Contractual Commitments
We lease certain aircraft, facilities, land, equipment and vehicles under operating leases, which expire at various dates through 2038. Certain
of the leases contain escalation clauses and renewal or purchase options. Rent expense related to our operating leases was $619, $629 and $615
million for 2012, 2011 and 2010, respectively.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the aggregate minimum lease payments under capital and operating leases, the aggregate annual principal
payments due under our long-term debt, and the aggregate amounts expected to be spent for purchase commitments (in millions).
Year
Capital
Leases
Operating
Leases
Debt
Principal
Purchase
Commitments
2013 $ 55 $ 342 $ 1,750 $ 629
2014 52 271 1,000 103
2015 50 203 101 22
2016 49 145 1 14
2017 48 118 375 7
After 2017 426 358 8,765 —
Total 680 $ 1,437 $ 11,992 $ 775
Less: imputed interest (240)
Present value of minimum capitalized lease payments 440
Less: current portion (31)
Long-term capitalized lease obligations $ 409
As of December 31, 2012, we had outstanding letters of credit totaling approximately $1.369 billion issued in connection with our self-
insurance reserves and other routine business requirements. We also issue surety bonds as an alternative to letters of credit in certain instances, and
as of December 31, 2012, we had $584 million of surety bonds written.
Available Credit
We maintain two credit agreements with a consortium of banks. One of these agreements provides revolving credit facilities of $1.5 billion,
and expires on April 11, 2013. Generally, amounts outstanding under this facility bear interest at a periodic fixed rate equal to LIBOR for the
applicable interest period and currency denomination, plus an applicable margin. Alternatively, a fluctuating rate of interest equal to Citibank’s
publicly announced base rate, plus an applicable margin, may be used at our discretion. In each case, the applicable margin for advances bearing
interest based on LIBOR is a percentage determined by quotations from Markit Group Ltd. for our 1-year credit default swap spread, subject to a
minimum rate of 0.10% and a maximum rate of 0.75%. The applicable margin for advances bearing interest based on the base rate is 1.00% below
the applicable margin for LIBOR advances (but not lower than 0.00%). We are also able to request advances under this facility based on
competitive bids for the applicable interest rate. There were no amounts outstanding under this facility as of December 31, 2012.
The second agreement provides revolving credit facilities of $1.0 billion, and expires on April 12, 2017. Generally, amounts outstanding
under this facility bear interest at a periodic fixed rate equal to LIBOR for the applicable interest period and currency denomination, plus an
applicable margin. Alternatively, a fluctuating rate of interest equal to Citibank’s publicly announced base rate, plus an applicable margin, may be
used at our discretion. In each case, the applicable margin for advances bearing interest based on LIBOR is a percentage determined by quotations
from Markit Group Ltd. for our credit default swap spread, interpolated for a period from the date of determination of such credit default swap
spread in connection with a new interest period until the latest maturity date of this facility then in effect (but not less than a period of one year).
The applicable margin is subject to certain minimum rates and maximum rates based on our public debt ratings from Standard & Poor’s Rating
Service and Moody’s Investors Service. The minimum applicable margin rates range from 0.100% to 0.375%, and the maximum applicable margin
rates range from 0.750% to 1.250%. The applicable margin for advances bearing interest based on the base rate is 1.00% below the applicable
margin for LIBOR advances (but not less than 0.00%). We are also able to request advances under this facility based on competitive bids. There
were no amounts outstanding under this facility as of December 31, 2012.
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Debt Covenants
Our existing debt instruments and credit facilities subject us to certain financial covenants. As of December 31, 2012 and for all prior periods
presented, we have satisfied these financial covenants. These covenants limit the amount of secured indebtedness that we may incur, and limit the
amount of attributable debt in sale-leaseback transactions, to 10% of net tangible assets. As of December 31, 2012, 10% of net tangible assets is

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equivalent to $2.770 billion; however, we have no covered sale-leaseback transactions or secured indebtedness outstanding. Additionally, we are
required to maintain a minimum net worth, as defined, of $5.0 billion on a quarterly basis. As of December 31, 2012, our net worth, as defined,
was equivalent to $8.007 billion. We do not expect these covenants to have a material impact on our financial condition or liquidity.
Fair Value of Debt
Based on the borrowing rates currently available to the Company for long-term debt with similar terms and maturities, the fair value of long-
term debt, including current maturities, is approximately $14.658 and $12.035 billion as of December 31, 2012 and 2011, respectively. We utilized
Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of all of our debt instruments.
NOTE 8. LEGAL PROCEEDINGS AND CONTINGENCIES
We are involved in a number of judicial proceedings and other matters arising from the conduct of our business activities.
Although there can be no assurance as to the ultimate outcome, we have generally denied, or believe we have a meritorious defense and will
deny, liability in all litigation pending against us, including (except as otherwise noted herein) the matters described below, and we intend to
defend vigorously each case. We have accrued for legal claims when, and to the extent that, amounts associated with the claims become probable
and can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts accrued for
those claims.
For those matters as to which we are not able to estimate a possible loss or range of loss, we are not able to determine whether the loss will
have a material adverse effect on our business, financial condition or results of operations or liquidity. For matters in this category, we have
indicated in the descriptions that follow the reasons that we are unable to estimate the possible loss or range of loss.
Judicial Proceedings
We are a defendant in a number of lawsuits filed in state and federal courts containing various class action allegations under state wage-and-
hour laws. At this time, we do not believe that any loss associated with these matters, would have a material adverse effect on our financial
condition, results of operations or liquidity.
UPS and our subsidiary Mail Boxes Etc., Inc. are defendants in a lawsuit in California Superior Court about the rebranding of The UPS Store
franchises. In the Morgate case, the plaintiffs are 125 individual franchisees who did not rebrand to The UPS Store and a certified class of all
franchisees who did rebrand. The trial court entered judgment against a bellwether individual plaintiff, which was affirmed in January 2012. The
trial court granted our motion for summary judgment against the certified class, which was reversed in January 2012.
There are multiple factors that prevent us from being able to estimate the amount of loss, if any, that may result from whatever remaining
aspects of this case proceeds, including: (1) we are vigorously defending ourselves and believe we have a number of meritorious legal defenses;
and (2) it remains uncertain what evidence of damages, if any, plaintiffs will be able to present. Accordingly, at this time, we are not able to
estimate a possible loss or range of loss that may result from this matter or to determine whether such loss, if any, would have a material adverse
effect on our financial condition, results of operations or liquidity.
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In AFMS LLC v. UPS and FedEx Corporation, a lawsuit filed in federal court in the Central District of California in August 2010, the
plaintiff asserts that UPS and FedEx violated U.S. antitrust law by conspiring to refuse to negotiate with third-party negotiators retained by shippers
and by individually imposing policies that prevent shippers from using such negotiators. The case is scheduled to go to trial in August 2013. The
Antitrust Division of the U.S. Department of Justice (“DOJ”) has an ongoing civil investigation of our policies and practices for dealing with
third-party negotiators. We are cooperating with this investigation. We deny any liability with respect to these matters and intend to vigorously
defend ourselves. There are multiple factors that prevent us from being able to estimate the amount of loss, if any, that may result from these
matters including: (1) we believe that we have a number of meritorious defenses; (2) discovery is ongoing; and (3) the DOJ investigation is
ongoing. Accordingly, at this time, we are not able to estimate a possible loss or range of loss that may result from these matters or to determine
whether such loss, if any, would have a material adverse effect on our financial condition, results of operations or liquidity.
In Canada, four purported class-action cases were filed against us in British Columbia (2006); Ontario (2007) and Québec (2006 and 2013).
The cases each allege inadequate disclosure concerning the existence and cost of brokerage services provided by us under applicable provincial
consumer protection legislation and infringement of interest restriction provisions under the Criminal Code of Canada. The British Columbia class
action was declared inappropriate for certification and dismissed by the trial judge. That decision was upheld by the British Columbia Court of
Appeal in March 2010, which ended the case in our favor. The Ontario class action was certified in September 2011. Partial summary judgment
was granted to us and the plaintiffs by the Ontario motions court. The complaint under the Criminal Code was dismissed. No appeal is being taken
from that decision. The allegations of inadequate disclosure were granted and we are appealing that decision. The motion to authorize the 2006
Québec litigation as a class action was dismissed by the motions judge in October 2012; there was no appeal, which ended that case in our favor.
The 2013 Québec litigation is in the earliest stages. We deny all liability and are vigorously defending the two outstanding cases. There are
multiple factors that prevent us from being able to estimate the amount of loss, if any, that may result from these matters, including: (1) we are

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vigorously defending ourselves and believe that we have a number of meritorious legal defenses; and (2) there are unresolved questions of law and
fact that could be important to the ultimate resolution of these matters. Accordingly, at this time, we are not able to estimate a possible loss or
range of loss that may result from these matters or to determine whether such loss, if any, would have a material adverse effect on our financial
condition, results of operation or liquidity.
Other Matters
In May and December 2007 and August 2008 we received and responded to grand jury subpoenas from the DOJ in the Northern District of
California in connection with an investigation by the Drug Enforcement Administration. We also have responded to informal requests for
information in connection with this investigation, which relates to transportation of packages on behalf of online pharmacies that may have
operated illegally. We have been cooperating with this investigation and are exploring the possibility of resolving this matter, which could include
our undertaking further enhancements to our compliance program and a payment. Such a payment may exceed the amounts previously accrued
with respect to this matter, but we do not expect that the amount of such additional loss would have a material adverse effect on our financial
condition, results of operations or liquidity.
We received a grand jury subpoena from the Antitrust Division of the DOJ regarding the DOJ’s investigation into certain pricing practices in
the freight forwarding industry in December 2007. In January 2013, we received a letter from the DOJ confirming that it is not pursuing a case
against UPS with respect to the investigation.
In August 2010, competition authorities in Brazil opened an administrative proceeding to investigate alleged anticompetitive behavior in the
freight forwarding industry. Approximately 45 freight forwarding companies and individuals are named in the proceeding, including UPS, UPS
SCS Transportes (Brasil) S.A., and a former employee in Brazil. UPS will have an opportunity to respond to these allegations. In November 2012,
we also received a request for information related to similar matters from authorities in Singapore.
We are cooperating with each of these investigations, and intend to continue to vigorously defend ourselves. There are multiple factors that
prevent us from being able to estimate the amount of loss, if any, that may result from these matters including: (1) we are vigorously defending
each matter and believe that we have a number of meritorious legal defenses; (2) there are unresolved questions of law that could be of importance
to the ultimate resolutions of these matters, including the calculation of any potential fine; and (3) there is uncertainty about the time period that is
the subject of the investigations. Accordingly, at this time, we are not able to estimate a possible loss or range of loss that may result from these
matters or to determine whether such loss, if any, would have a material adverse effect on our financial condition, results of operations or liquidity.
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In January 2008, a class action complaint was filed in the United States District Court for the Eastern District of New York alleging price-
fixing activities relating to the provision of freight forwarding services. UPS was not named in this case. In July 2009, the plaintiffs filed a first
amended complaint naming numerous global freight forwarders as defendants. UPS and UPS Supply Chain Solutions are among the 60 defendants
named in the amended complaint. The plaintiffs filed a Second Amended Complaint in October 2010, which we moved to dismiss. In August
2012, the Court granted our motion to dismiss all claims relevant to UPS in the Second Amended Complaint, with leave to amend. The plaintiffs
filed a Third Amended Complaint in November 2012. We intend to file another motion to dismiss, and to otherwise vigorously defend ourselves in
this case. There are multiple factors that prevent us from being able to estimate the amount of loss, if any, that may result from these matters
including: (1) the court has dismissed the complaint once but has not considered the adequacy of the amended complaint; (2) the scope and size of
the proposed class is ill-defined; (3) there are significant legal questions about the adequacy and standing of the putative class representatives; and
(4) we believe that we have a number of meritorious legal defenses. Accordingly, at this time, we are not able to estimate a possible loss or range
of loss that may result from these matters or to determine whether such loss, if any, would have a material adverse effect on our financial condition,
results of operations or liquidity.
We are a defendant in various other lawsuits that arose in the normal course of business. We do not believe that the eventual resolution of
these other lawsuits (either individually or in the aggregate), including any reasonably possible losses in excess of current accruals, will have a
material adverse effect on our financial condition, results of operations or liquidity.
Tax Matters
In June 2011, we received an IRS Revenue Agent Report (RAR) covering excise taxes for tax years 2003 through 2007, in addition to the
income tax matters described in note 12. The excise tax RAR proposed two alternate theories for asserting additional excise tax on transportation
of property by air. We disagreed with these proposed excise tax theories and related adjustments. We filed protests and, in the third quarter of
2011, the IRS responded to our protests and forwarded the case to IRS Appeals.
In the third quarter of 2012, following the Appeals Opening Conference in July 2012, we had settlement discussions which we expect will
lead to a complete resolution of all excise tax matters and correlative income tax refund claims for the 2003 through 2007 tax years within the next
twelve months. We do not believe the ultimate resolution of these matters will have a material effect on our financial condition, results of
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NOTE 9. SHAREOWNERS’ EQUITY
Capital Stock, Additional Paid-In Capital, and Retained Earnings
We maintain two classes of common stock, which are distinguished from each other by their respective voting rights. Class A shares of UPS
are entitled to 10 votes per share, whereas class B shares are entitled to one vote per share. Class A shares are primarily held by UPS employees
and retirees, as well as trusts and descendants of the Company’s founders, and these shares are fully convertible into class B shares at any time.
Class B shares are publicly traded on the New York Stock Exchange (“NYSE”) under the symbol “UPS.” Class A and B shares both have a $0.01
par value, and as of December 31, 2012, there were 4.6 billion class A shares and 5.6 billion class B shares authorized to be issued. Additionally,
there are 200 million preferred shares authorized to be issued, with a par value of $0.01 per share; as of December 31, 2012, no preferred shares
had been issued.
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The following is a rollforward of our common stock, additional paid-in capital, and retained earnings accounts (in millions, except per share
amounts):
2012 2011 2010
Shares Dollars Shares Dollars Shares Dollars
Class A Common Stock
Balance at beginning of year 240 $ 3 258 $ 3 285 $ 3
Common stock purchases (9) — (7) — (6) —
Stock award plans 8 — 7 — 6 —
Common stock issuances 3 — 3 — 3 —
Conversions of class A to class B common stock (17) — (21) — (30) —
Class A shares issued at end of year 225 $ 3 240 $ 3 258 $ 3
Class B Common Stock
Balance at beginning of year 725 $ 7 735 $ 7 711 $ 7
Common stock purchases (13) — (31) — (6) —
Conversions of class A to class B common stock 17 — 21 — 30 —
Class B shares issued at end of year 729 $ 7 725 $ 7 735 $ 7
Additional Paid-In Capital
Balance at beginning of year $ — $ — $ 2
Stock award plans 444 388 398
Common stock purchases (943) (475) (649)
Common stock issuances 293 287 249
Option Premiums Received (Paid) 206 (200) —
Balance at end of year $ — $ — $ —
Retained Earnings
Balance at beginning of year $ 10,128 $ 10,604 $ 9,335
Net income attributable to controlling interests 807 3,804 3,338
Dividends ($2.28, $2.08 and $1.88 per share) (2,243) (2,086) (1,909)
Common stock purchases (695) (2,194) (160)
Balance at end of year $ 7,997 $ 10,128 $ 10,604
For the years ended December 31, 2012, 2011 and 2010, we repurchased a total of 21.8, 38.7 and 12.4 million shares of class A and class B
common stock for $1.638 billion, $2.669 billion and $809 million, respectively. On May 3, 2012, the Board of Directors approved a share
repurchase authorization of $5.0 billion, which replaced an authorization previously announced in 2008. As of December 31, 2012, we had $3.970
billion of this share repurchase authorization remaining. On February 14, 2013, the Board of Directors approved a new share repurchase

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authorization of $10.0 billion, which replaced the 2012 authorization. This new share repurchase authorization has no expiration date.
In order to lower the average cost of acquiring shares in our ongoing share repurchase program, we periodically enter into structured
repurchase agreements involving the use of capped call options for the purchase of UPS class B shares. We pay a fixed sum of cash upon execution
of each agreement in exchange for the right to receive either a pre-determined amount of cash or stock. Upon expiration of each agreement, if the
closing market price of our common stock is above the pre-determined price, we will have our initial investment returned with a premium in either
cash or shares (at our election). If the closing market price of our common stock is at or below the pre-determined price, we will receive the
number of shares specified in the agreement. During 2012, we did not pay premiums on options for the purchase of shares; however, we received
$206 million in premiums for options that were entered into during 2011 that expired during 2012. During 2011, we settled options that resulted in
the repurchase of 0.8 million shares at $65.11 per share, as well as the receipt of $6 million in premiums (in excess of our initial investment).
Accumulated Other Comprehensive Income (Loss)
We incur activity in AOCI for unrealized holding gains and losses on available-for-sale securities, foreign currency translation adjustments,
unrealized gains and losses from derivatives that qualify as hedges of cash flows and unrecognized pension and postretirement benefit costs. The
activity in AOCI is as follows (in millions):
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2012 2011 2010
Foreign currency translation gain (loss):
Balance at beginning of year $ (160) $ (68) $ 37
Aggregate adjustment for the year (net of tax effect of $(9), $11 and $(34)) 294 (92) (105)
Balance at end of year 134 (160) (68)
Unrealized gain (loss) on marketable securities, net of tax:
Balance at beginning of year 6 12 (27)
Current period changes in fair value (net of tax effect of $4, $11 and $17) 6 18 30
Reclassification to earnings (net of tax effect of $(3), $(14) and $6) (6) (24) 9
Balance at end of year 6 6 12
Unrealized gain (loss) on cash flow hedges, net of tax:
Balance at beginning of year (204) (239) (200)
Current period changes in fair value (net of tax effect of $(25), $(16) and $(4)) (43) (26) (7)
Reclassification to earnings (net of tax effect of $(24), $37 and $(19)) (39) 61 (32)
Balance at end of year (286) (204) (239)
Unrecognized pension and postretirement benefit costs, net of tax:
Balance at beginning of year (2,745) (2,340) (1,527)
Reclassification to earnings (net of tax effect of $1,876, $378 and $150) 3,135 628 245
Net actuarial gain (loss) and prior service cost resulting from remeasurements of plan assets and
liabilities (net of tax effect of $(2,151), $(622) and $(633)) (3,598) (1,033) (1,058)
Balance at end of year (3,208) (2,745) (2,340)
Accumulated other comprehensive income (loss) at end of year $ (3,354) $ (3,103) $ (2,635)
Deferred Compensation Obligations and Treasury Stock
We maintain a deferred compensation plan whereby certain employees were previously able to elect to defer the gains on stock option
exercises by deferring the shares received upon exercise into a rabbi trust. The shares held in this trust are classified as treasury stock, and the
liability to participating employees is classified as “deferred compensation obligations” in the shareowners’ equity section of the consolidated
balance sheets. The number of shares needed to settle the liability for deferred compensation obligations is included in the denominator in both the
basic and diluted earnings per share calculations. Employees are generally no longer able to defer the gains from stock options exercised
subsequent to December 31, 2004. Activity in the deferred compensation program for the years ended December 31, 2012, 2011 and 2010 is as
follows (in millions):

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2012 2011 2010
Shares Dollars Shares Dollars Shares Dollars
Deferred Compensation Obligations
Balance at beginning of year $ 88 $ 103 $ 108
Reinvested dividends 3 4 4
Options exercise deferrals — — 1
Benefit payments (13) (19) (10)
Balance at end of year $ 78 $ 88 $ 103
Treasury Stock
Balance at beginning of year (2) $ (88) (2) $ (103) (2) $ (108)
Reinvested dividends — (3) — (4) — (4)
Options exercise deferrals — — — — — (1)
Benefit payments 1 13 — 19 — 10
Balance at end of year (1) $ (78) (2) $ (88) (2) $ (103)
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Noncontrolling Interests
We have noncontrolling interests in certain consolidated subsidiaries in our International Package and Supply Chain & Freight segments, the
largest of which relates to a joint venture that operates in the Middle East, Turkey, and portions of the Central Asia region. The activity related to
our noncontrolling interests is presented below (in millions):
2012 2011 2010
Noncontrolling Interests
Balance at beginning of period $ 73 $ 68 $ 66
Acquired noncontrolling interests 7 5 2
Dividends attributable to noncontrolling interests — — —
Net income attributable to noncontrolling interests — — —
Balance at end of period $ 80 $ 73 $ 68
NOTE 10. STOCK-BASED COMPENSATION
Incentive Compensation Plan
The UPS Incentive Compensation Plan permits the grant of nonqualified and incentive stock options, stock appreciation rights, restricted
stock and stock units, and restricted performance shares and units, to eligible employees. The number of shares reserved for issuance under the
Incentive Compensation Plan is 27 million. Each share issued pursuant to an option and each share issued subject to the exercised portion of a
stock appreciation right will reduce the share reserve by one share. Each share issued pursuant to restricted stock and stock units, and restricted
performance shares and units, will reduce the share reserve by one share. As of December 31, 2012, stock options, restricted performance units and
restricted stock units had been granted under the Incentive Compensation Plan. We had 27 million shares available to be issued under the Incentive
Compensation Plan as of December 31, 2012.
Management Incentive Award
Non-executive management earning the right to receive Management Incentive Awards are determined annually by the Salary Committee,
which is comprised of executive officers of the Company. Awards granted to executive officers are determined annually by the Compensation
Committee of the UPS Board of Directors. Our Management Incentive Awards program provides, with certain exceptions, that one-half to two-
thirds of the annual Management Incentive Award will be made in Restricted Units (depending upon the level of management involved), which
generally vest over a five-year period. The other one-third to one-half of the award is in the form of cash or unrestricted shares of class A common
stock, and is fully vested at the time of grant.
Upon vesting, Restricted Units result in the issuance of the equivalent number of UPS class A common shares after required tax
withholdings. Except in the case of death, disability, or retirement, Restricted Units granted for our Management Incentive Awards and previous

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Long-Term Incentive Program generally vest over a five year period with approximately 20% of the award vesting at each anniversary date of the
grant. The entire grant is expensed on a straight-line basis over the requisite service period. All Restricted Units granted are subject to earlier
cancellation or vesting under certain conditions. Dividends earned on Restricted Units are reinvested in additional Restricted Units at each dividend
payable date.
Long-Term Incentive Performance Award
We also award Restricted Units in conjunction with our Long-Term Incentive Performance Awards program to certain eligible employees.
The Restricted Units ultimately granted under the Long-Term Incentive Performance Awards program will be based upon the achievement of
certain performance measures, including growth in consolidated revenue and operating return on invested capital, each year during the performance
award cycle, and other measures, including growth in consolidated earnings per share, over the entire three year performance award cycle. The
Restricted Units granted under this program vest at the end of the three year performance award cycle.
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As of December 31, 2012, we had the following Restricted Units outstanding, including reinvested dividends:
Shares
(in thousands)
Weighted
Average
Grant Date
Fair Value
Weighted Average Remaining
Contractual Term
(in years)
Aggregate Intrinsic
Value (in millions)
Nonvested at January 1, 2012 15,839 $ 62.98
Vested (8,914) 63.99
Granted 7,423 77.21
Reinvested Dividends 568 N/A
Forfeited / Expired (272) 67.51
Nonvested at December 31, 2012 14,644 $ 68.71 1.57 $ 1,080
Restricted Units Expected to Vest 14,172 $ 68.61 1.55 $ 1,045
The fair value of each Restricted Unit is the NYSE closing price of class B common stock on the date of grant. The weighted-average grant
date fair value of Restricted Units granted during 2012, 2011 and 2010 was $77.21, $69.53 and $66.36, respectively. The total fair value of
Restricted Units vested was $627, $557 and $523 million in 2012, 2011 and 2010, respectively. As of December 31, 2012, there was $571 million
of total unrecognized compensation cost related to nonvested Restricted Units. That cost is expected to be recognized over a weighted average
period of 3 years and 1 month.
Nonqualified Stock Options
We maintain fixed stock option plans, under which options are granted to purchase shares of UPS class A common stock. Stock options
granted in connection with the Incentive Compensation Plan must have an exercise price at least equal to the NYSE closing price of UPS class B
common stock on the date the option is granted.
Executive officers and certain senior managers annually receive non-qualified stock options of which the value is determined as a percentage
of salary. Options granted generally vest over a five year period with approximately 20% of the award vesting at each anniversary date of the grant.
All options granted are subject to earlier cancellation or vesting under certain conditions. Option holders may exercise their options via the tender
of cash or class A common stock, and new class A shares are issued upon exercise. Options granted to eligible employees will be granted annually
during the first quarter of each year.
The following is an analysis of options to purchase shares of class A common stock issued and outstanding:

Shares
(in thousands)
Weighted
Average
Exercise
Price
Weighted Average Remaining
Contractual Term
(in years)
Aggregate Intrinsic
Value (in millions)
Outstanding at January 1, 2012 13,199 $ 70.18
Exercised (2,778) 63.50
Granted 187 76.94
Forfeited / Expired (13) 82.74

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Outstanding at December 31, 2012 10,595 $ 72.04 3.03 $ 34
Options Vested and Expected to Vest 10,595 $ 72.04 3.03 $ 34
Exercisable at December 31, 2012 10,115 $ 72.09 2.79 $ 32
The fair value of each option grant is estimated using the Black-Scholes option pricing model. The weighted average assumptions used, by
year, and the calculated weighted average fair values of options, are as follows:
2012 2011 2010
Expected dividend yield 2.77% 2.77% 2.70%
Risk-free interest rate 1.63% 2.90% 3.30%
Expected life in years 7.5 7.5 7.5
Expected volatility 25.06% 24.26% 23.59%
Weighted average fair value of options granted $ 14.88 $ 15.92 $ 14.83
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Expected volatilities are based on the historical returns on our stock and the implied volatility of our publicly-traded options. The expected
dividend yield is based on the recent historical dividend yields for our stock, taking into account changes in dividend policy. The risk-free interest
rate is based on the term structure of interest rates at the time of the option grant. The expected life represents an estimate of the period of time
options are expected to remain outstanding, and we have relied upon a combination of the observed exercise behavior of our prior grants with
similar characteristics, the vesting schedule of the grants, and an index of peer companies with similar grant characteristics in estimating this
variable.
We received cash of $122, $92 and $60 million during 2012, 2011 and 2010, respectively, from option holders resulting from the exercise of
stock options. We received a tax benefit of $3, $6 and $4 million during 2012, 2011 and 2010, respectively, from the exercise of stock options,
which is reported as cash from financing activities in the cash flow statement.
The total intrinsic value of options exercised during 2012, 2011 and 2010 was $39, $31 and $18 million, respectively. As of December 31,
2012, there was $2 million of total unrecognized compensation cost related to nonvested options. That cost is expected to be recognized over a
weighted average period of 3 years and 4 months.
The following table summarizes information about stock options outstanding and exercisable at December 31, 2012:
Options Outstanding Options Exercisable
Exercise Price Range
Shares
(in thousands)
Average Life
(in years)
Average
Exercise
Price
Shares
(in thousands)
Average
Exercise
Price
$50.01 – $60.00 211 6.35 $ 55.83 133 $ 55.83
$60.01 – $70.00 1,337 1.20 62.98 1,257 62.72
$70.01 – $80.00 6,858 3.19 71.47 6,536 71.27
$80.01 – $90.00 2,189 3.33 80.92 2,189 80.92
10,595 3.03 $ 72.04 10,115 $ 72.09
Discounted Employee Stock Purchase Plan
We maintain an employee stock purchase plan for all eligible employees. Under this plan, shares of UPS class A common stock may be
purchased at quarterly intervals at 95% of the NYSE closing price of UPS class B common stock on the last day of each quarterly period.
Employees purchased 1.2, 1.3 and 1.5 million shares at average prices of $72.17, $66.86 and $57.98 per share during 2012, 2011, and 2010,
respectively. This plan is not considered to be compensatory, and therefore no compensation cost is measured for the employees’ purchase rights.
NOTE 11. SEGMENT AND GEOGRAPHIC INFORMATION
We report our operations in three segments: U.S. Domestic Package operations, International Package operations and Supply Chain &
Freight operations. Package operations represent our most significant business and are broken down into regional operations around the world.
Regional operations managers are responsible for both domestic and export operations within their geographic area.

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U.S. Domestic Package
Domestic Package operations include the time-definite delivery of letters, documents and packages throughout the United States.
International Package
International Package operations include delivery to more than 220 countries and territories worldwide, including shipments wholly outside
the United States, as well as shipments with either origin or destination outside the United States. Our International Package reporting segment
includes the operations of our Europe, Asia and Americas operating segments.
Supply Chain & Freight
Supply Chain & Freight includes our forwarding and logistics operations, UPS Freight and other aggregated business units. Our forwarding
and logistics business provides services in more than 195 countries and territories worldwide, and includes supply chain design and management,
freight distribution, customs brokerage, mail and consulting services. UPS Freight offers a variety of LTL and TL services to customers in North
America. Other aggregated business units within this segment include Mail Boxes Etc. (the franchisor of Mail Boxes Etc. and The UPS Store) and
UPS Capital.
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In evaluating financial performance, we focus on operating profit as a segment’s measure of profit or loss. Operating profit is before
investment income, interest expense and income taxes. The accounting policies of the reportable segments are the same as those described in the
summary of accounting policies (see note 1), with certain expenses allocated between the segments using activity-based costing methods.
Unallocated assets are comprised primarily of cash, marketable securities, and certain investment partnerships.
Segment information as of, and for the years ended, December 31 is as follows (in millions):
2012 2011 2010
Revenue:
U.S. Domestic Package $ 32,856 $ 31,717 $ 29,742
International Package 12,124 12,249 11,133
Supply Chain & Freight 9,147 9,139 8,670
Consolidated $ 54,127 $ 53,105 $ 49,545
Operating Profit:
U.S. Domestic Package $ 459 $ 3,764 $ 3,238
International Package 869 1,709 1,831
Supply Chain & Freight 15 607 572
Consolidated $ 1,343 $ 6,080 $ 5,641
Assets:
U.S. Domestic Package $ 19,934 $ 19,300 $ 18,425
International Package 11,248 6,729 6,228
Supply Chain & Freight 6,610 6,588 6,283
Unallocated 1,071 2,084 2,661
Consolidated $ 38,863 $ 34,701 $ 33,597
Depreciation and Amortization Expense:
U.S. Domestic Package $ 1,220 $ 1,154 $ 1,174
International Package 475 474 443
Supply Chain & Freight 163 154 175
Consolidated $ 1,858 $ 1,782 $ 1,792
Revenue by product type for the years ended December 31 is as follows (in millions):
2012 2011 2010

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U.S. Domestic Package:
Next Day Air $ 6,412 $ 6,229 $ 5,835
Deferred 3,392 3,299 2,975
Ground 23,052 22,189 20,932
Total U.S. Domestic Package 32,856 31,717 29,742
International Package:
Domestic 2,531 2,628 2,365
Export 9,033 9,056 8,234
Cargo 560 565 534
Total International Package 12,124 12,249 11,133
Supply Chain & Freight:
Forwarding and Logistics 5,977 6,103 6,022
Freight 2,640 2,563 2,208
Other 530 473 440
Total Supply Chain & Freight 9,147 9,139 8,670
Consolidated $ 54,127 $ 53,105 $ 49,545
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Geographic information as of, and for the years ended, December 31 is as follows (in millions):
2012 2011 2010
United States:
Revenue $ 40,428 $ 39,347 $ 36,795
Long-lived assets $ 16,262 $ 16,085 $ 16,693
International:
Revenue $ 13,699 $ 13,758 $ 12,750
Long-lived assets $ 5,312 $ 5,220 $ 5,047
Consolidated:
Revenue $ 54,127 $ 53,105 $ 49,545
Long-lived assets $ 21,574 $ 21,305 $ 21,740
Long-lived assets include property, plant and equipment, pension and postretirement benefit assets, long-term investments, goodwill, and
intangible assets.
No countries outside of the United States, nor any individual customers, provided 10% or more of consolidated revenue for the years ended
December 31, 2012, 2011 or 2010.
NOTE 12. INCOME TAXES
The income tax expense (benefit) for the years ended December 31 consists of the following (in millions):
2012 2011 2010
Current:
U.S. Federal $ 1,901 $ 1,371 $ 776
U.S. State and Local 182 121 119
Non-U.S. 167 166 161
Total Current 2,250 1,658 1,056
Deferred:

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U.S. Federal (1,871) 262 828
U.S. State and Local (201) 44 98
Non-U.S. (11) 8 (30)
Total Deferred (2,083) 314 896
Total $ 167 $ 1,972 $ 1,952
Income before income taxes includes the following components (in millions):
2012 2011 2010
United States $ 384 $ 5,309 $ 4,586
Non-U.S. 590 467 704
$ 974 $ 5,776 $ 5,290
A reconciliation of the statutory federal income tax rate to the effective income tax rate for the years ended December 31 consists of the
following:
2012 2011 2010
Statutory U.S. federal income tax rate 35.0 % 35.0 % 35.0 %
U.S. state and local income taxes (net of federal benefit) — 2.0 2.4
Non-U.S. tax rate differential (6.1) (0.4) (0.7)
Nondeductible/nontaxable items (0.4) (0.1) 0.3
U.S. federal tax credits (7.4) (1.7) (1.9)
Other (4.0) (0.7) 1.8
Effective income tax rate 17.1 % 34.1 % 36.9 %
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Our effective tax rate declined to 17.1% in 2012 compared with 34.1% in 2011 largely due to the significance of U.S. Federal tax credits and
the proportion of taxable income in certain non-U.S. jurisdictions relative to total pre-tax income.
In the third quarter of 2010, we recognized a $40 million tax benefit associated with the release of a valuation allowance against deferred tax
assets in our international package operations, partially offset by tax provided for interest earned on refunds.
In the first quarter of 2010, we changed the tax status of a German subsidiary that was taxable in the U.S. and its local jurisdiction to one that
is taxed solely in its local jurisdiction. This change was made primarily to allow for more flexibility in funding this subsidiary’s operations with
local liquidity sources, improve the cash flow position in the U.S., and help mitigate future currency remeasurement risk. As a result of this change
in tax status, we recorded a non-cash charge of $76 million, which resulted primarily from the write-off of related deferred tax assets which will
not be realizable following the change in tax status.
Beginning in 2012, we were granted a tax incentive for certain of our non-U.S. operations, which is effective through December 31, 2017
and may be extended through December 31, 2022 if additional requirements are satisfied. The tax incentive is conditional upon our meeting
specific employment and investment thresholds. The impact of this tax incentive decreased non-U.S. tax expense by $22 million, or $0.02 per
share, for 2012.
Deferred tax liabilities and assets are comprised of the following at December 31 (in millions):
2012 2011
Property, plant and equipment $ (3,624) $ (3,607)
Goodwill and intangible assets (1,035) (951)
Other (617) (554)
Deferred tax liabilities (5,276) (5,112)
Pension and postretirement benefits 4,608 2,106
Loss and credit carryforwards (non-U.S. and state) 258 259

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Insurance reserves 737 696
Vacation pay accrual 209 208
Stock compensation 159 211
Other 708 635
Deferred tax assets 6,679 4,115
Deferred tax assets valuation allowance (220) (205)
Deferred tax asset (net of valuation allowance) 6,459 3,910
Net deferred tax asset (liability) $ 1,183 $ (1,202)
Amounts recognized in the consolidated balance sheets:
Current deferred tax assets $ 583 $ 611
Current deferred tax liabilities (included in other current liabilities) (36) (31)
Non-current deferred tax assets 684 118
Non-current deferred tax liabilities (48) (1,900)
Net deferred tax asset (liability) $ 1,183 $ (1,202)
The valuation allowance increased by $15, $2 and $30 million during the years ended December 31, 2012, 2011 and 2010, respectively.
We have U.S. state and local operating loss and credit carryforwards as follows (in millions):
2012 2011
U.S. state and local operating loss carryforwards $ 608 $ 859
U.S. state and local credit carryforwards $ 61 $ 77
The operating loss carryforwards expire at varying dates through 2032. The state credits can be carried forward for periods ranging from
three years to indefinitely.
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We also have non-U.S. loss carryforwards of approximately $842 million as of December 31, 2012, the majority of which may be carried
forward indefinitely. As indicated in the table above, we have established a valuation allowance for certain non-U.S. and state carryforwards, due
to the uncertainty resulting from a lack of previous taxable income within the applicable tax jurisdictions.
Undistributed earnings of foreign subsidiaries amounted to approximately $3.575 billion at December 31, 2012. Those earnings are
considered to be indefinitely reinvested and, accordingly, no deferred income taxes have been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, we would be subject to income taxes and withholding taxes payable in various jurisdictions, which
could potentially be offset by foreign tax credits. Determination of the amount of unrecognized deferred income tax liability is not practicable
because of the complexities associated with its hypothetical calculation.
The following table summarizes the activity related to our unrecognized tax benefits (in millions):
Tax Interest Penalties
Balance at January 1, 2010 $ 266 $ 86 $ 8
Additions for tax positions of the current year 16 — —
Additions for tax positions of prior years 45 25 2
Reductions for tax positions of prior years for:
Changes based on facts and circumstances (27) (10) (3)
Settlements during the period (6) (3) —
Lapses of applicable statute of limitations (10) (3) —
Balance at December 31, 2010 284 95 7
Additions for tax positions of the current year 13 — —

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Additions for tax positions of prior years 17 6 —
Reductions for tax positions of prior years for:
Changes based on facts and circumstances (50) (9) (2)
Settlements during the period (11) (19) (1)
Lapses of applicable statute of limitations (1) — (1)
Balance at December 31, 2011 252 73 3
Additions for tax positions of the current year 13 — —
Additions for tax positions of prior years 7 9 1
Reductions for tax positions of prior years for:
Changes based on facts and circumstances (22) (18) —
Settlements during the period (3) (7) —
Lapses of applicable statute of limitations (15) (4) —
Balance at December 31, 2012 $ 232 $ 53 $ 4
The total amount of gross unrecognized tax benefits as of December 31, 2012, 2011 and 2010 that, if recognized, would affect the effective
tax rate was $224, $247 and $283 million, respectively. We also had gross recognized tax benefits of $280, $291 and $326 million recorded as of
December 31, 2012, 2011 and 2010, respectively, associated with outstanding refund claims for prior tax years. Therefore, we had a net receivable
recorded with respect to prior years’ income tax matters in the accompanying consolidated balance sheets. Additionally, we have recognized a
receivable for interest of $23, $27 and $32 million for the recognized tax benefits associated with outstanding refund claims as of December 31,
2012, 2011 and 2010, respectively. Our continuing practice is to recognize interest and penalties associated with income tax matters as a
component of income tax expense.
We file income tax returns in the U.S. federal jurisdiction, most U.S. state and local jurisdictions, and many non-U.S. jurisdictions. We have
substantially resolved all U.S. federal income tax matters for tax years prior to 2005. During the fourth quarter of 2010, we received a refund of
$139 million as a result of the resolution of tax years 2003 through 2004 with the IRS Appeals Office. We have filed all required U.S. state and
local returns reporting the result of the resolution of the U.S. federal income tax audit of the tax years 2003 and 2004. A limited number of U.S.
state and local matters are the subject of ongoing audits, administrative appeals or litigation.
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In June 2011, we received an IRS Revenue Agent Report (RAR) covering income taxes for tax years 2005 through 2007, in addition to the
excise tax matters described in note 8. The income tax RAR proposed adjustments related to the value of acquired software and intangibles,
research credit expenditures, and the amount of deductible costs associated with our British Pound Sterling Notes exchange offer completed in
May 2007. Receipt of the RAR represents only the conclusion of the examination process. We disagree with some of the proposed adjustments
related to these matters. Therefore, we filed protests and, in the third quarter of 2011, the IRS responded to our protests and forwarded the case to
IRS Appeals.
We expect to begin discussions of these income tax matters with IRS Appeals within the next twelve months. It should be noted, however,
that the ultimate resolution of these matters will result in a refund to UPS – even according to the adjustments proposed by the IRS.
At this time, we do not believe the ultimate resolution of these income tax matters will have a material effect on our financial condition,
results of operations, or liquidity.
A number of years may elapse before an uncertain tax position is audited and ultimately settled. It is difficult to predict the ultimate outcome
or the timing of resolution for uncertain tax positions. It is reasonably possible that the amount of unrecognized tax benefits could significantly
increase or decrease within the next twelve months. Items that may cause changes to unrecognized tax benefits include the timing of interest
deductions and the allocation of income and expense between tax jurisdictions. These changes could result from the settlement of ongoing
litigation, the completion of ongoing examinations, the expiration of the statute of limitations or other unforeseen circumstances. At this time, an
estimate of the range of the reasonably possible change cannot be made.
NOTE 13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (in millions, except per share amounts):

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2012 2011 2010
Numerator:
Net income attributable to common shareowners $ 807 $ 3,804 $ 3,338
Denominator:
Weighted average shares 957 977 991
Deferred compensation obligations 1 2 2
Vested portion of restricted shares 2 2 1
Denominator for basic earnings per share 960 981 994
Effect of dilutive securities:
Restricted performance units 3 3 3
Restricted stock units 5 6 6
Stock options 1 1 —
Denominator for diluted earnings per share 969 991 1,003
Basic earnings per share $ 0.84 $ 3.88 $ 3.36
Diluted earnings per share $ 0.83 $ 3.84 $ 3.33
Diluted earnings per share for the years ended December 31, 2012, 2011, and 2010 exclude the effect of 2.6, 7.4 and 11.1 million shares,
respectively, of common stock that may be issued upon the exercise of employee stock options because such effect would be antidilutive.
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NOTE 14. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT
Risk Management Policies
We are exposed to market risk, primarily related to foreign exchange rates, commodity prices and interest rates. These exposures are actively
monitored by management. To manage the volatility relating to certain of these exposures, we enter into a variety of derivative financial
instruments. Our objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in
foreign currency rates, commodity prices and interest rates. It is our policy and practice to use derivative financial instruments only to the extent
necessary to manage exposures. As we use price sensitive instruments to hedge a certain portion of our existing and anticipated transactions, we
expect that any loss in value for those instruments generally would be offset by increases in the value of those hedged transactions. We do not hold
or issue derivative financial instruments for trading or speculative purposes.
Credit Risk Management
The forward contracts, swaps and options discussed below contain an element of risk that the counterparties may be unable to meet the terms
of the agreements. However, we minimize such risk exposures for these instruments by limiting the counterparties to banks and financial
institutions that meet established credit guidelines, and monitoring counterparty credit risk to prevent concentrations of credit risk with any single
counterparty.
We have agreements with substantially all of our active counterparties containing early termination rights and/or bilateral collateral
provisions whereby cash is required whenever the net fair value of derivatives associated with those counterparties exceed specific thresholds.
Events, such as a credit rating downgrade (depending on the ultimate rating level) would typically require an increase in the amount of collateral
required of the counterparty and/or allow us to take additional protective measures such as early termination of trades. At December 31, 2012, we
held cash collateral of $59 million under these agreements.
In connection with the agreements described above, we could also be required to provide additional collateral or terminate transactions with
certain counterparties in the event of a downgrade of our debt rating. The amount of additional collateral is a fixed incremental amount. At
December 31, 2012 the aggregate fair value of the instruments covered by these contractual features that were in a net liability position was $129
million; however, we were not required to post any collateral with our counterparties as of that date.
We have not historically incurred, and do not expect to incur in the future, any losses as a result of counterparty default.
Accounting Policy for Derivative Instruments
We recognize all derivative instruments as assets or liabilities in the consolidated balance sheets at fair value. The accounting for changes in

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the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on
the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate
the derivative, based upon the exposure being hedged, as a cash flow hedge, a fair value hedge or a hedge of a net investment in a foreign
operation.
A cash flow hedge refers to hedging the exposure to variability in expected future cash flows that is attributable to a particular risk. For
derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is
reported as a component of AOCI, and reclassified into earnings in the same period during which the hedged transaction affects earnings. The
remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item,
or hedge components excluded from the assessment of effectiveness, are recognized in the statements of consolidated income during the current
period.
A fair value hedge refers to hedging the exposure to changes in the fair value of an existing asset or liability on the consolidated balance
sheets that is attributable to a particular risk. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the
derivative instrument is recognized in the statements of consolidated income during the current period, as well as the offsetting gain or loss on the
hedged item.
A net investment hedge refers to the use of cross currency swaps, forward contracts or foreign currency denominated debt to hedge portions
of our net investments in foreign operations. For hedges that meet the effectiveness requirements, the net gains or losses attributable to changes in
spot exchange rates are recorded in the cumulative translation adjustment within AOCI. The remainder of the change in value of such instruments
is recorded in earnings.
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Types of Hedges
Commodity Risk Management
Currently, the fuel surcharges that we apply to our domestic and international package and LTL services are the primary means of reducing
the risk of adverse fuel price changes on our business. We periodically enter into option contracts on energy commodity products to manage the
price risk associated with forecasted transactions involving refined fuels, principally jet-A, diesel and unleaded gasoline. The objective of the
hedges is to reduce the variability of cash flows, due to changing fuel prices, associated with the forecasted transactions involving those products.
We designate and account for these contracts as cash flow hedges of the underlying forecasted transactions involving these fuel products and,
therefore, the resulting gains and losses from these hedges are recognized as a component of fuel expense or revenue when the underlying
transactions occur.
Foreign Currency Risk Management
To protect against the reduction in value of forecasted foreign currency cash flows from our international package business, we maintain a
foreign currency cash flow hedging program. Our most significant foreign currency exposures relate to the Euro, the British Pound Sterling,
Canadian Dollar, Chinese Renminbi and Hong Kong Dollar. We hedge portions of our forecasted revenue denominated in foreign currencies with
option contracts. We have designated and account for these contracts as cash flow hedges of anticipated foreign currency denominated revenue
and, therefore, the resulting gains and losses from these hedges are recognized as a component of international package revenue when the
underlying sales transactions occur.
We also hedge portions of our anticipated cash settlements of intercompany transactions subject to foreign currency remeasurement using
foreign currency forward contracts. We have designated and account for these contracts as cash flow hedges of forecasted foreign currency
denominated transactions, and therefore the resulting gains and losses from these hedges are recognized as a component of other operating expense
when the underlying transactions are subject to currency remeasurement.
We have foreign currency denominated debt obligations and capital lease obligations associated with our aircraft. For some of these debt
obligations and leases, we hedge the foreign currency denominated contractual payments using cross-currency interest rate swaps, which
effectively convert the foreign currency denominated contractual payments into U.S. Dollar denominated payments. We have designated and
account for these swaps as cash flow hedges of the forecasted contractual payments and, therefore, the resulting gains and losses from these hedges
are recognized in the statements of consolidated income when the currency remeasurement gains and losses on the underlying debt obligations and
leases are incurred.
Interest Rate Risk Management
Our indebtedness under our various financing arrangements creates interest rate risk. We use a combination of derivative instruments,
including interest rate swaps and cross-currency interest rate swaps, as part of our program to manage the fixed and floating interest rate mix of
our total debt portfolio and related overall cost of borrowing. The notional amount, interest payment and maturity dates of the swaps match the

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terms of the associated debt being hedged. Interest rate swaps allow us to maintain a target range of floating rate debt within our capital structure.
We have designated and account for interest rate swaps that convert fixed rate interest payments into floating rate interest payments as
hedges of the fair value of the associated debt instruments. Therefore, the gains and losses resulting from fair value adjustments to the interest rate
swaps and fair value adjustments to the associated debt instruments are recorded to interest expense in the period in which the gains and losses
occur. We have designated and account for interest rate swaps that convert floating rate interest payments into fixed rate interest payments as cash
flow hedges of the forecasted payment obligations. The gains and losses resulting from fair value adjustments to the interest rate swap are recorded
to AOCI.
We periodically hedge the forecasted fixed-coupon interest payments associated with anticipated debt offerings, using forward starting
interest rate swaps, interest rate locks or similar derivatives. These agreements effectively lock a portion of our interest rate exposure between the
time the agreement is entered into and the date when the debt offering is completed, thereby mitigating the impact of interest rate changes on future
interest expense. These derivatives are settled commensurate with the issuance of the debt, and any gain or loss upon settlement is amortized as an
adjustment to the effective interest yield on the debt.
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Outstanding Positions
The notional amounts of our outstanding derivative positions were as follows as of December 31, 2012 and 2011 (in millions):
2012 2011
Currency Hedges:
Euro EUR 1,783 1,685
British Pound Sterling GBP 797 870
Canadian Dollar CAD 341 318
United Arab Emirates Dirham AED 551 —
Malaysian Ringgit MYR 500 —
Interest Rate Hedges:
Fixed to Floating Interest Rate Swaps USD 7,274 6,424
Floating to Fixed Interest Rate Swaps USD 781 791
Interest Rate Basis Swaps USD 2,500 —
As of December 31, 2012, we had no outstanding commodity hedge positions. The maximum term over which we are hedging exposures to
the variability of cash flow is 37 years.
Balance Sheet Recognition
The following table indicates the location on the balance sheet in which our derivative assets and liabilities have been recognized, and the
related fair values of those derivatives as of December 31, 2012 and 2011 (in millions). The table is segregated between those derivative
instruments that qualify and are designated as hedging instruments and those that are not, as well as by type of contract and whether the derivative is
in an asset or liability position.

Asset Derivatives Balance Sheet Location
Fair Value
Hierarchy
Level 2012 2011
Derivatives designated as hedges:
Foreign exchange contracts Other current assets Level 2 $ 27 $ 164
Interest rate contracts Other current assets Level 2 1 —
Foreign exchange contracts Other non-current assets Level 2 14 —
Interest rate contracts Other non-current assets Level 2 420 401
Derivatives not designated as hedges:
Foreign exchange contracts Other current assets Level 2 3 2
Interest rate contracts Other non-current assets Level 2 101 82

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Total Asset Derivatives $ 566 $ 649
Liability Derivatives Balance Sheet Location
Fair Value
Hierarchy
Level 2012 2011
Derivatives designated as hedges:
Foreign exchange contracts Other non-current liabilities Level 2 103 185
Interest rate contracts Other non-current liabilities Level 2 14 13
Derivatives not designated as hedges:
Foreign exchange contracts Other current liabilities Level 2 1 —
Interest rate contracts Other non-current liabilities Level 2 41 10
Total Liability Derivatives $ 159 $ 208
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Income Statement Recognition
The following table indicates the amount and location in the statements of consolidated income in which derivative gains and losses, as well
as the related amounts reclassified from AOCI, have been recognized for those derivatives designated as cash flow hedges for the years ended
December 31, 2012 and 2011 (in millions):
Derivative Instruments in Cash
Flow Hedging Relationships
Amount of Gain (Loss) Recognized in
OCI on Derivative (Effective Portion)
Location of Gain
(Loss) Reclassified
from Accumulated
OCI into Income
(Effective Portion)
Amount of Gain (Loss) Reclassified from
Accumulated OCI into Income (Effective
Portion)
2012 2011 2012 2011
Interest rate contracts $ (71) $ (6) Interest Expense $ (22) $ (19)
Foreign exchange contracts 84 (85) Interest Expense 24 13
Foreign exchange contracts (5) 5 Other Operating Expense — —
Foreign exchange contracts (76) 35 Revenue 61 (101)
Commodity contracts — 9 Fuel Expense — 9
Total $ (68) $ (42) $ 63 $ (98)
As of December 31, 2012, $58 million of pre-tax losses related to cash flow hedges that are currently deferred in AOCI are expected to be
reclassified to income over the 12 month period ended December 31, 2013. The actual amounts that will be reclassified to income over the next
12 months will vary from this amount as a result of changes in market conditions.
The amount of ineffectiveness recognized in income on derivative instruments designated in cash flow hedging relationships was immaterial
for the years ended December 31, 2012, 2011 and 2010.
The following table indicates the amount and location in the statements of consolidated income in which derivative gains and losses, as well
as the associated gains and losses on the underlying exposure, have been recognized for those derivatives designated as fair value hedges for the
years ended December 31, 2012 and 2011 (in millions):
Derivative Instruments
in
Fair Value Hedging
Relationships
Location of
Gain (Loss)
Recognized in
Income
Amount of Gain (Loss)
Recognized
in Income Hedged Items in
Fair Value Hedging
Relationships
Location of Gain
(Loss)
Recognized in
Income
Amount of Gain (Loss)
Recognized
in Income
2012 2011 2012 2011
Interest rate
contracts
Interest Expense $ 20 $ 320 Fixed-Rate Debt
and Capital Leases
Interest Expense $ (20) $ (320)
Additionally, we maintain some foreign exchange forward and interest rate swap contracts that are not designated as hedges. These foreign
exchange forward contracts are intended to provide an economic offset to foreign currency remeasurement risks for certain assets and liabilities in
our consolidated balance sheets. These interest rate swap contracts are intended to provide an economic hedge of a portfolio of interest bearing
receivables. The income statement impact of these hedges was not material for any period presented.
We also periodically terminate interest rate swaps and foreign currency options by entering into offsetting swap and foreign currency

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positions with different counterparties. As part of this process, we de-designate our original swap and foreign currency contracts. These
transactions provide an economic offset that effectively eliminates the effects of changes in market valuation.
We have entered into several interest rate basis swaps, which effectively convert cash flows based on variable LIBOR-based interest rates to
cash flows based on the prevailing federal funds interest rate. These swaps are not designated as hedges, and all amounts related to fair value
changes and settlements are recorded to interest expense in the statements of consolidated income.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the amounts recorded in the statements of consolidated income related to fair value changes and settlements
of these foreign currency forward and interest rate swap contracts not designated as hedges for the years ended December 31, 2012 and 2011 (in
millions):
Derivative Instruments Not Designated in
Hedging Relationships
Location of Gain
(Loss) Recognized
in Income
Amount of Gain (Loss) Recognized in
Income
2012 2011
Foreign exchange contracts Revenue $ 2 $ —
Foreign exchange contracts Other Operating Expenses 19 2
Foreign exchange contracts Investment Income (22) —
Interest rate contracts Interest Expense (12) (8)
Total $ (13) $ (6)
Fair Value Measurements
Our foreign currency, interest rate and energy derivatives are largely comprised of over-the-counter derivatives, which are primarily valued
using pricing models that rely on market observable inputs such as yield curves, currency exchange rates and commodity forward prices, and
therefore are classified as Level 2. The fair values of our derivative assets and liabilities as of December 31, 2012 and 2011 by hedge type are as
follows (in millions):

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3) Total
2012
Assets
Foreign Exchange Contracts $ — $ 44 $ — $ 44
Interest Rate Contracts — 522 — 522
Total $ — $ 566 $ — $ 566
Liabilities
Foreign Exchange Contracts $ — $ 104 $ — $ 104
Interest Rate Contracts — 55 — 55
Total $ — $ 159 $ — $ 159

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3) Total
2011
Assets
Foreign Exchange Contracts $ — $ 166 $ — $ 166
Interest Rate Contracts — 483 — 483

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Total $ — $ 649 $ — $ 649
Liabilities
Foreign Exchange Contracts $ — $ 185 $ — $ 185
Interest Rate Contracts — 23 — 23
Total $ — $ 208 $ — $ 208
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. RESTRUCTURING COSTS AND BUSINESS DISPOSITIONS
We have incurred restructuring costs associated with the termination of employees, facility consolidations and other costs directly related to
restructuring initiatives. These initiatives have resulted from the integration of acquired companies, as well as restructuring activities associated
with cost containment and operational efficiency programs. Additionally, we have sold or shut-down certain non-core business units in 2010, and
recorded gains or losses upon the sale, as well as costs associated with each transaction.
Supply Chain & Freight—Germany
In February 2010, we completed the sale of a specialized transportation and express freight business in Germany within our Supply Chain &
Freight segment. As part of the sale transaction, we incurred certain costs associated with employee severance payments, other employee benefits,
transition services, and leases on operating facilities and equipment. Additionally, we provided a guarantee for a period of two years from the date
of sale for certain employee benefit payments being assumed by the buyer. We recorded a pre-tax loss of $51 million ($47 million after-tax) for
this transaction in 2010, which included the costs associated with the sale transaction and the fair value of the guarantee. This loss is recorded in
the caption “other expenses” in the statements of consolidated income.
Supply Chain & Freight—United States
In December 2010, we completed the sale of our UPS Logistics Technologies, Inc. business unit, which produced transportation routing and
fleet management systems. We recognized a $71 million pre-tax gain on the sale ($44 million after tax), which is included in the caption “other
expenses” in the consolidated income statement, and is included in the results of our Supply Chain & Freight segment. The operating results of the
UPS Logistics Technologies, Inc business unit were not material to our consolidated or segment operating results in any of the periods presented.
U.S. Domestic Package Restructuring
In an effort to improve performance in the U.S. Domestic Package segment, we announced a program to streamline our domestic
management structure in January 2010. As part of this restructuring, we reduced the number of domestic districts and regions in our U.S. small
package operation in order to better align our operations geographically and allow more local decision-making and resources to be deployed for
our customers. Effective in April 2010, we reduced our U.S. regions from five to three and our U.S. districts from 46 to 20. The restructuring
eliminated approximately 1,800 management and administrative positions in the U.S. Approximately 1,100 employees were offered voluntary
severance packages, while other impacted employees received severance benefits based on length of service, and access to support programs. We
recorded a pre-tax charge of $98 million ($64 million after-tax) in the first quarter of 2010 related to the costs of this program, which reflects the
value of voluntary retirement benefits, severance benefits and unvested stock compensation. During the remainder of 2010, we incurred additional
costs related to the relocation of employees and other restructuring activities, however those costs were offset by savings from the staffing
reductions.
NOTE 16. SUBSEQUENT EVENTS
On January 30, 2013, the European Commission issued a formal decision prohibiting our proposed acquisition of TNT Express N.V. (“TNT
Express”). As a result of the prohibition by the European Commission, the condition of our offer requiring European Union competition clearance
was not fulfilled, and our proposed acquisition of TNT Express could not be completed. Given this outcome, UPS and TNT Express entered a
separate agreement to terminate the merger protocol, and we withdrew our formal offer for TNT Express. Under this termination agreement, we
have paid a break-up fee to TNT Express of €200 million (approximately $268 million) in the first quarter of 2013.
In January 2013, we purchased the noncontrolling interest in our joint venture that operates in the Middle East, Turkey, and portions of the
Central Asia region (see note 9), for $70 million. After this transaction, we own 100% of this entity.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. QUARTERLY INFORMATION (unaudited)
Our revenue, segment operating profit, net income, basic and diluted earnings per share on a quarterly basis are presented below (in millions,
except per share amounts):
First Quarter Second Quarter Third Quarter Fourth Quarter
2012 2011 2012 2011 2012 2011 2012 2011
Revenue:
U.S. Domestic Package $ 8,004 $ 7,543 $ 8,058 $ 7,737 $ 7,861 $ 7,767 $ 8,933 $ 8,670
International Package 2,966 2,900 3,014 3,139 2,943 3,057 3,201 3,153
Supply Chain & Freight 2,166 2,139 2,277 2,315 2,267 2,342 2,437 2,343
Total revenue 13,136 12,582 13,349 13,191 13,071 13,166 14,571 14,166
Operating profit (loss):
U.S. Domestic Package 995 880 1,134 997 129 1,046 (1,799) 841
International Package 408 453 454 505 449 417 (442) 334
Supply Chain & Freight 166 139 202 243 188 203 (541) 22
Total operating profit (loss) 1,569 1,472 1,790 1,745 766 1,666 (2,782) 1,197
Net income (loss) $ 970 $ 915 $ 1,116 $ 1,092 $ 469 $ 1,072 $ (1,748) $ 725
Net income (loss) per share:
Basic $ 1.01 $ 0.92 $ 1.16 $ 1.11 $ 0.49 $ 1.10 $ (1.83) $ 0.75
Diluted $ 1.00 $ 0.91 $ 1.15 $ 1.09 $ 0.48 $ 1.09 $ (1.83) $ 0.74
Operating profit for the quarter ended September 30, 2012 was impacted by a charge for the establishment of a withdrawal liability related to
our withdrawal from the New England Teamsters and Trucking Industry Pension Fund, a multiemployer pension plan. This charge reduced the
operating profit for the U.S. Domestic Package segment by $896 million, net income by $559 million and basic and diluted earnings per share by
$0.58.
Operating profit for the quarter ended December 31, 2012 was impacted by a mark-to-market loss on our pension and postretirement benefit
plans related to the remeasurement of plan assets and liabilities recognized outside of a 10% corridor of $4.831 billion (allocated as follows—U.S.
Domestic Package $3.177 billion, International Package $941 million, Supply Chain & Freight $713 million). This loss reduced net income by
$3.023 billion, and basic and diluted earnings per share by $3.16.
Operating profit for the quarter ended June 30, 2011 was impacted by gains and losses on certain real estate transactions, including a $15
million loss in the U.S. Domestic Package segment and a $48 million gain in the Supply Chain & Freight segment. The combined impact of these
transactions increased net income by $20 million, and basic and diluted earnings per share by $0.02.
Operating profit for the quarter ended December 31, 2011 was impacted by a mark-to-market loss on our pension and postretirement benefit
plans related to the remeasurement of plan assets and liabilities recognized outside of a 10% corridor of $827 million (allocated as follows—U.S.
Domestic Package $479 million, International Package $171 million, Supply Chain & Freight $177 million). This loss reduced net income by
$527 million, and basic and diluted earnings per share by $0.54.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures:
As of the end of the period covered by this report, management, including our chief executive officer and chief financial officer, evaluated the
effectiveness of the design and operation of our disclosure controls and procedures and internal controls over financial reporting. Based upon, and
as of the date of, the evaluation, our chief executive officer and chief financial officer concluded that the disclosure controls and procedures and

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internal controls over financial reporting were effective to ensure that information required to be disclosed in the reports we file and submit under
the Exchange Act is recorded, processed, summarized and reported as and when required and is accumulated and communicated to our
management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
Changes in Internal Control over Financial Reporting:
There were no changes in the Company’s internal controls over financial reporting during the quarter ended December 31, 2012 that have
materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting:
UPS management is responsible for establishing and maintaining adequate internal controls over financial reporting for United Parcel
Service, Inc. and its subsidiaries (the “Company”). Based on the criteria for effective internal control over financial reporting established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, management has
assessed the Company’s internal control over financial reporting as effective as of December 31, 2012. The independent registered public
accounting firm of Deloitte & Touche LLP, as auditors of the consolidated balance sheets of United Parcel Service, Inc. and its subsidiaries as of
December 31, 2012 and the related consolidated statements of income, comprehensive income and cash flows for the year ended December 31,
2012, has issued an attestation report on the Company’s internal control over financial reporting, which is included herein.
/s/ United Parcel Service, Inc.
February 28, 2013

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Report of Independent Registered Public Accounting Firm
Board of Directors and Shareowners
United Parcel Service, Inc.
Atlanta, Georgia
We have audited the internal control over financial reporting of United Parcel Service, Inc. and subsidiaries (the “Company”) as of
December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal
executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management,
and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012,

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based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended December 31, 2012 of the Company and our report dated February 28, 2013
expressed an unqualified opinion on those financial statements.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
February 28, 2013
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Item 9B. Other Information
None.
PART III

Item 10. Directors, Executive Officers and Corporate Governance
Executive Officers of the Registrant

Name and Office Age
Principal Occupation
and Employment For
the Last Five Years
David P. Abney
Senior Vice President and Chief Operating Officer
57 Senior Vice President and Chief Operating Officer (2007 –
present), President, UPS Airlines (2007 – 2008), Senior Vice
President and President, UPS International (2003 – 2007).
David A. Barnes
Senior Vice President and Chief Information Officer
57 Senior Vice President and Chief Information Officer (2005 –
present).
Daniel J. Brutto
Senior Vice President and President, UPS International
56 Senior Vice President and President, UPS International (2008
– present), President, Global Freight Forwarding (2006 –
2007), Corporate Controller (2004 – 2006).
D. Scott Davis
Chairman and Chief Executive Officer
61 Chairman and Chief Executive Officer (2008 – present), Vice
Chairman (2006 – 2007), Senior Vice President, Chief
Financial Officer and Treasurer (2001 – 2007), Director
(2006 – present).
Alan Gershenhorn
Senior Vice President
54 Senior Vice President, Worldwide Sales, Marketing and
Strategy (2011 – present), Senior Vice President, Worldwide
Sales and Marketing (2008 – 2010), Senior Vice President
and President, UPS International (2007), President, UPS
Supply Chain Solutions – Asia and Europe (2006).
Myron Gray
Senior Vice President
55 Senior Vice President, U.S. Operations (2009 – present),
Vice President, Americas Region (2008 – 2009), Vice
President, North Central Region (2004 – 2008).
Kurt P. Kuehn
Senior Vice President and Chief Financial Officer
58 Senior Vice President and Chief Financial Officer (2008 –
present), Treasurer (2008 – 2010), Senior Vice President,
Worldwide Sales and Marketing (2004 – 2007).
Teri P. McClure
Senior Vice President, General Counsel and
Corporate Secretary
49 Senior Vice President of Legal, Compliance and Public
Affairs, General Counsel and Corporate Secretary (2006 –
present), Corporate Legal Department Manager (2005 –
2006).
John J. McDevitt
Senior Vice President
54 Senior Vice President, Human Resources and Labor
Relations (2012 – Present), Senior Vice President, Global
Transportation Services and Labor Relations (2005 – 2011).

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Christine M. Owens
Senior Vice President
57 Senior Vice President, Communications and Brand
Management (2005 – present).
Information about our directors is presented under the caption “Election of Directors” in our definitive Proxy Statement for the Annual
Meeting of Shareowners to be held on May 2, 2013 and is incorporated herein by reference.
Information about our Audit Committee is presented under the caption “Election of Directors—Committees of the Board of Directors—Audit
Committee” in our definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 2, 2013 and is incorporated herein by
reference.
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Information about our Code of Business Conduct is presented under the caption “Where You Can Find More Information” in Part I, Item 1 of
this report.
Information about our compliance with Section 16 of the Exchange Act of 1934, as amended, is presented under the caption “Section 16(a)
Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 2, 2013
and is incorporated herein by reference.

Item 11. Executive Compensation
Information about executive compensation is presented under the captions “Compensation Discussion and Analysis,” “Compensation of
Executive Officers,” “Compensation of Directors,” “Report of the Compensation Committee” and “Compensation Committee Interlocks and
Insider Participation” in our definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 2, 2013 and is incorporated
herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information about security ownership is presented under the caption “Beneficial Ownership of Common Stock” in our definitive Proxy
Statement for the Annual Meeting of Shareowners to be held on May 2, 2013 and is incorporated herein by reference.
Information about our equity compensation plans is presented under the caption “Equity Compensation Plans” in our definitive Proxy
Statement for the Annual Meeting of Shareowners to be held on May 2, 2013 and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence
Information about transactions with related persons is presented under the caption “Related Person Transactions” in our definitive Proxy
Statement for the Annual Meeting of Shareowners to be held on May 2, 2013 and is incorporated herein by reference.
Information about director independence is presented under the caption “Election of Directors—Director Independence” in our definitive
Proxy Statement for the Annual Meeting of Shareowners to be held on May 2, 2013 and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services
Information about aggregate fees billed to us by our principal accountant is presented under the caption “Principal Accounting Firm Fees” in
our definitive Proxy Statement for the Annual Meetings of Shareowners to be held on May 2, 2013 and is incorporated herein by reference.

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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Financial Statements.

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See Item 8 for the financial statements filed with this report.
2. Financial Statement Schedules.
None.
3. List of Exhibits.
See the Exhibit Index for a list of the exhibits incorporated by reference into or filed with this report.
(b) Exhibits required by Item 601 of Regulation S-K.
See the Exhibit Index for a list of the exhibits incorporated by reference into or filed with this report.
(c) Financial Statement Schedules.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, United Parcel Service, Inc. has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
UNITED PARCEL SERVICE, INC.
(REGISTRANT)
By: /S/ D. SCOTT DAVIS
D. Scott Davis

Chairman and
Chief Executive Officer
Date: February 28, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/ F. DUANE ACKERMAN Director February 28, 2013
F. Duane Ackerman
/S/ MICHAEL J. BURNS Director February 28, 2013
Michael J. Burns
/S/ D. SCOTT DAVIS Chairman, Chief Executive Officer and Director (Principal Executive Officer) February 28, 2013
D. Scott Davis
/S/ STUART E. EIZENSTAT Director February 28, 2013
Stuart E. Eizenstat
/S/ MICHAEL L. ESKEW Director February 28, 2013
Michael L. Eskew
/S/ WILLIAM R. J OHNSON Director February 28, 2013
William R. Johnson
/S/ CANDACE B. KENDLE Director February 28, 2013
Candace B. Kendle
/S/ KURT P. KUEHN Chief Financial Officer (Principal Financial and Accounting Officer) February 28, 2013
Kurt P. Kuehn

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/S/ ANN M. LIVERMORE Director February 28, 2013
Ann M. Livermore
/S/ RUDY MARKHAM Director February 28, 2013
Rudy Markham
/S/ CLARK T. RANDT, J R. Director February 28, 2013
Clark T. Randt, Jr.
/S/ J OHN W. THOMPSON Director February 28, 2013
John W. Thompson
/S/ CAROL B. TOMÉ Director February 28, 2013
Carol B. Tomé
/S/ KEVIN M. WARSH Director February 28, 2013
Kevin M. Warsh
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EXHIBIT INDEX

Exhibit
No. Description
2.1 — Agreement and Plan of Merger, dated as of September 22, 1999, among United Parcel Service of America, Inc., United Parcel
Service, Inc. and UPS Merger Subsidiary, Inc. (incorporated by reference to Form S-4 (No. 333-83349), filed on July 21, 1999, as
amended).
2.2 — Merger Protocol, dated as of March 19, 2012, between United Parcel Service, Inc. and TNT Express N.V. (incorporated by
reference to Form 8-K, filed on March 19, 2012).
†2.3 — Termination Agreement, dated as of January 22, 2013, between United Parcel Service, Inc. and TNT Express N.V.
3.1 — Form of Restated Certificate of Incorporation of United Parcel Service, Inc. (incorporated by reference to Exhibit 3.2 to Form 8-K
filed on May 12, 2010).
3.2 — Amended and Restated Bylaws of United Parcel Service, Inc. as of May 6, 2010 (incorporated by reference to Exhibit 3.1 to Form
8-K, filed on May 12, 2010).
4.1 — Indenture relating to 8 3/8% Debentures due April 1, 2020 (incorporated by reference to Exhibit 4(c) to Registration Statement No.
33-32481, filed December 7, 1989).
4.2 — Indenture relating to Exchange Offer Notes Due 2030 (incorporated by reference to Exhibit T-3C to Form T-3 filed December 18,
1997).
4.3 — Indenture relating to $2,000,000,000 of debt securities (incorporated by reference to Exhibit 4.1 to Pre-Effective Amendment No. 1
to Form S-3 (No. 333-08369), filed on January 26, 1999).
4.4 — Form of Supplemental Indenture relating to $2,000,000,000 of debt securities (incorporated by reference to Exhibit 4.2 to Post-
Effective Amendment No. 1 to Form S-3 (No. 333-08369-01), filed on March 15, 2000).
4.5 — Form of Second Supplemental Indenture relating to $2,000,000,000 of debt securities (incorporated by reference to Exhibit 4 to
Form 10-Q for the Quarter Ended September 30, 2001).
4.6 — Form of Indenture relating to $2,000,000,000 of debt securities (incorporated by reference to Exhibit 4.1 to Form S-3 (No. 333-
108272), filed on August 27, 2003).
4.7 — Form of Note for 4.50% Senior Notes due January 15, 2013 (incorporated by reference to Exhibit 4.1 to Form 8-K filed on January

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15, 2008).
4.8 — Form of Note for 5.50% Senior Notes due January 15, 2018 (incorporated by reference to Exhibit 4.2 to Form 8-K filed on January
15, 2008).
4.9 — Form of Note for 6.20% Senior Notes due January 15, 2038 (incorporated by reference to Exhibit 4.3 to Form 8-K filed on
January 15, 2008).
4.10 — Form of Note for 3.875% Senior Notes due April 1, 2014 (incorporated by reference to Exhibit 4.1 to Form 8-K filed on March 24,
2009).
4.11 — Form of Note for 5.125% Senior Notes due April 1, 2019 (incorporated by reference to Exhibit 4.2 to Form 8-K filed on March 24,
2009).
4.12 — Form of Note for 3.125% Senior Notes due January 15, 2021 (incorporated by reference to Exhibit 4.1 to Form 8-K filed on
November 12, 2010).
4.13 — Form of Note for 4.875% Senior Notes due November 15, 2040 (incorporated by reference to Exhibit 4.2 to Form 8-K filed on
November 12, 2010).
4.14 — Form of Note for 1.125% Senior Notes due October 1, 2017 (incorporated by reference to Exhibit 4.1 to Form 8-K filed on
September 27, 2012).
4.15 — Form of Note for 2.450% Senior Notes due October 1, 2022 (incorporated by reference to Exhibit 4.2 to Form 8-K filed on
September 27, 2012).
4.16 — Form of Note for 3.625% Senior Notes due October 1, 2042 (incorporated by reference to Exhibit 4.3 to Form 8-K filed on
September 27, 2012).
10.1 — UPS Retirement Plan, as Amended and Restated, effective January 1, 2010 (incorporated by reference to Exhibit 10.2 to the 2009
Annual Report on Form 10-K).
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(1) Amendment No. 1 to the UPS Retirement Plan (incorporated by reference to Exhibit 10.2(1) to the 2010 Annual Report on
Form 10-K).
(2) Amendment No. 2 to the UPS Retirement Plan (incorporated by reference to Exhibit 10.1(2) to the 2011 Annual Report on
Form 10-K).
(3) Amendment No. 3 to the UPS Retirement Plan (incorporated by reference to Exhibit 10.1(3) to the 2011 Annual Report on
Form 10-K).
†(4) Amendment No. 4 to the UPS Retirement Plan.
†(5) Amendment No. 5 to the UPS Retirement Plan.
10.2 — UPS Savings Plan, as Amended and Restated (incorporated by reference to Exhibit 10.3 to 2008 Annual Report on Form 10-K).
(1) Amendment No. 1 to the UPS Savings Plan (incorporated by reference to Exhibit 10.3(1) to the 2009 Annual Report on Form
10-K).
(2) Amendment No. 2 to the UPS Savings Plan (incorporated by reference to Exhibit 10.3(2) to the 2009 Annual Report on Form
10-K).
(3) Amendment No. 3 to the UPS Savings Plan (incorporated by reference to Exhibit 10.3(3) to the 2010 Annual Report on Form
10-K).
(4) Amendment No. 4 to the UPS Savings Plan (incorporated by reference to Exhibit 10.2(4) to the 2011 Annual Report on Form
10-K).

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(5) Amendment No. 5 to the UPS Savings Plan (incorporated by reference to Exhibit 10.2(5) to the 2011 Annual Report on Form
10-K).
†(6) Amendment No. 6 to the UPS Savings Plan.
10.3 — Credit Agreement (364-Day Facility) dated April 12, 2012 among United Parcel Service, Inc., the initial lenders named therein,
Citigroup Global Markets Inc. and J.P. Morgan Securities LLC as joint lead arrangers and joint bookrunners, Barclays Capital and
BNP Paribas Securities Corp. as co-lead arrangers, Barclays Bank PLC and BNP Paribas as co-documentation agents, Citibank,
N.A. as administrative agent, and JPMorgan Chase Bank, N.A. as syndication agent (incorporated by reference to Exhibit 10.1 to
Form 10-Q for the Quarter Ended March 31, 2012).
10.4 — Credit Agreement (5-Year Facility) dated April 12, 2012 among United Parcel Service, Inc., the initial lenders named therein,
Citigroup Global Markets Inc. and J.P. Morgan Securities LLC as joint lead arrangers and joint bookrunners, Barclays Capital and
BNP Paribas Securities Corp. as co-lead arrangers, Barclays Bank PLC and BNP Paribas as co-documentation agents, Citibank,
N.A. as administrative agent, and JPMorgan Chase Bank, N.A. as syndication agent (incorporated by reference to Exhibit 10.2 to
Form 10-Q for the Quarter Ended March 31, 2012).
†10.5 — UPS Excess Coordinating Benefit Plan, as amended and restated.
10.6 — United Parcel Service, Inc. 2009 Omnibus Incentive Compensation Plan (incorporated by reference to Annex II to the Definitive
Proxy Statement, filed on March 13, 2009).
(1) Form of Long-Term Incentive Performance Award Agreement (incorporated by reference to Exhibit 10.3 to the Quarterly
Report on Form 10-Q for the quarter ended March 31, 2011).
(2) Form of Non-Management Director Restricted Stock Unit Award (incorporated by reference to Exhibit 10.2 to the Quarterly
Report on Form 10-Q for the quarter ended March 31, 2010).
(3) UPS Management Incentive Program Terms and Conditions effective as of January 1, 2011 (incorporated by reference to
Exhibit 10.10(3) to the 2010 Annual Report on Form 10-K).
(4) UPS Stock Option Program Terms and Conditions effective as of January 1, 2012 (incorporated by reference to Exhibit 10.7(4)
to the 2011 Annual Report on Form 10-K).
(5) UPS Long-Term Incentive Performance Program Terms and Conditions effective as of January 1, 2012 (incorporated by
reference to Exhibit 10.7(5) to the 2011 Annual Report on Form 10-K).
10.7 — Form of UPS Deferred Compensation Plan (incorporated by reference to Exhibit 10.11 to the 2010 Annual Report on Form 10-K).
†(1) Amendment No. 1 to the UPS Deferred Compensation Plan.
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10.8 — United Parcel Service, Inc. Nonqualified Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to the
registration statement on Form S-8 (No. 333-34054), filed on April 5, 2000).
10.9 — Discounted Employee Stock Purchase Plan, as amended and restated, effective October 1, 2002.
(1) Amendment No. 1 to the Discounted Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.12(1) to the
2005 Annual Report on Form 10-K).
(2) Amendment No. 2 to the Discounted Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.13(2) to the
2009 Annual Report on Form 10-K).
†(3) Amendment No. 3 to the Discounted Employee Stock Purchase Plan.
10.10 — 2012 Omnibus Incentive Compensation Plan (incorporated by reference to Annex A to the proxy statement filed on March 12,
2012).
11 — Statement regarding Computation of per Share Earnings (incorporated by reference to note 13 to Part I, Item 8 “Financial
Statements and Supplementary Data” of this Annual Report on Form 10-K).

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†12 — Ratio of Earnings to Fixed Charges.
†18 — Letter on Change in Accounting Principles.
†21 — Subsidiaries of the Registrant.
†23 — Consent of Deloitte & Touche LLP.
†31.1 — Certificate of Chief Executive Officer Pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
†31.2 — Certificate of Chief Financial Officer Pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
†32.1 — Certification of the Chief 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 the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
††101 — The following financial information from the Annual Report on Form 10-K for the year ended December 31, 2011, formatted in
XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of
Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, and (v) the
Notes to the Consolidated Financial Statements.
__________________________
† Filed herewith.
†† Furnished electronically herewith.
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10-K 1 d375407d10k.htm FORM 10-K
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended May 31, 2012.
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 1-15829
FEDEX CORPORATION
(Exact Name of Registrant as Specified in its Charter)

Delaware 62-1721435
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)

942 South Shady Grove Road, Memphis, Tennessee 38120
(Address of Principal Executive Offices) (ZIP Code)
Registrant’s telephone number, including area code: (901) 818-7500
Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
Common Stock, par value $0.10 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ No ¨
Indicate by check mark if the Registrant is not required to file reports pursuant to Rule 13 or Section 15(d) of the Exchange Act. Yes ¨ No
þ
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 þ No ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Date 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 þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained

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herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. þ
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 þ Accelerated filer ¨ Non-accelerated filer ¨ 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 þ
The aggregate market value of the common stock held by non-affiliates of the Registrant, computed by reference to the closing price as of the
last business day of the Registrant’s most recently completed second fiscal quarter, November 30, 2011, was approximately $24.4 billion. The
Registrant has no non-voting stock.
As of July 13, 2012, 316,599,754 shares of the Registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement to be delivered to stockholders in connection with the 2012 annual meeting of
stockholders to be held on September 24, 2012 are incorporated by reference in response to Part III of this Report.

Table of Contents
TABLE OF CONTENTS

Page
PART I
ITEM 1. Business 3
ITEM 1A. Risk Factors 21
ITEM 1B. Unresolved Staff Comments 21
ITEM 2. Properties 21
ITEM 3. Legal Proceedings 26
ITEM 4. Mine Safety Disclosures 26
Executive Officers of the Registrant 26
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 29
ITEM 6. Selected Financial Data 29
ITEM 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition 29
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 29
ITEM 8. Financial Statements and Supplementary Data 29
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 30
ITEM 9A. Controls and Procedures 30
ITEM 9B. Other Information 30
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance 30
ITEM 11. Executive Compensation 31
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 31

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ITEM 13. Certain Relationships and Related Transactions, and Director Independence 31
ITEM 14. Principal Accountant Fees and Services 31
PART IV
ITEM 15. Exhibits, Financial Statement Schedules 31
FINANCIAL SECTION
Table of Contents 34
Management’s Discussion and Analysis 36
Consolidated Financial Statements 77
Other Financial Information 123
EXHIBITS
Exhibit Index E-1

Exhibit 10.63
Exhibit 12
Exhibit 21
Exhibit 23
Exhibit 24
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 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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PART I
ITEM 1. BUSINESS
Overview
FedEx Corporation (“FedEx”) provides a broad portfolio of transportation, e-commerce and business services through companies competing
collectively, operating independently and managed collaboratively, under the respected FedEx brand. These companies are included in four
business segments:

• FedEx Express: Federal Express Corporation (“FedEx Express”) is the world’s largest express transportation company, offering time-certain
delivery within one to three business days and serving markets that comprise more than 90% of the world’s gross domestic product. The
FedEx Express segment also includes FedEx Trade Networks, Inc., which provides international trade services, specializing in customs
brokerage and global ocean and air freight forwarding, and FedEx SupplyChain Systems, Inc., which offers a range of supply chain solutions.

• FedEx Ground: FedEx Ground Package System, Inc. (“FedEx Ground”) is a leading North American provider of small-package ground
delivery services. FedEx Ground provides low-cost, day-certain service to every business address in the United States and Canada, as well as
residential delivery to nearly 100% of U.S. residences through its FedEx Home Delivery service. The FedEx Ground segment also includes
FedEx SmartPost, Inc., which specializes in the consolidation and delivery of high volumes of low-weight, less time-sensitive business-to-
consumer packages using the U.S. Postal Service (“USPS”) for final delivery to any residential address or PO Box in the United States.

• FedEx Freight: FedEx Freight, Inc. (“FedEx Freight”) is a leading North American provider of less-than-truckload (“LTL”) freight services,
offering: FedEx Freight Priority, when speed is critical to meet supply chain needs; and FedEx Freight Economy, when time can be traded

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for cost savings. The FedEx Freight segment also offers freight delivery service throughout Canada and Mexico and includes FedEx Custom
Critical, Inc., a leading North American provider of time-specific, critical shipment services.

• FedEx Services: FedEx Corporate Services, Inc. (“FedEx Services”) provides our other companies with sales, marketing, information
technology, communications and back-office support. The FedEx Services segment also includes FedEx TechConnect, Inc., which is
responsible for customer service, billings and collections for our U.S. customers and offers technical support services, and FedEx Office and
Print Services, Inc. (“FedEx Office”), which provides an array of document and business services and retail access to FedEx Express and
FedEx Ground shipping services.
For financial information concerning our reportable business segments, refer to the accompanying financial section, which includes management’s
discussion and analysis of results of operations and financial condition and our consolidated financial statements.
Our Web site is located at fedex.com. Detailed information about our services, e-commerce tools and solutions, and citizenship efforts can be
found on our Web site. In addition, we make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K
and all amendments to such reports available, free of charge, through our Web site, as soon as reasonably practicable after they are filed with or
furnished to the SEC. These and other SEC filings are available through the Investor Relations page of our Web site, http://investors.fedex.com.
The information on our Web site, however, is not incorporated by reference in, and does not form part of, this Annual Report on Form 10-K.

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Except as otherwise specified, any reference to a year indicates our fiscal year ended May 31 of the year referenced.
Strategy
FedEx was incorporated in Delaware on October 2, 1997 to serve as the parent holding company and provide strategic direction to the FedEx
portfolio of companies. We intend to continue leveraging and extending the FedEx brand and providing our customers with convenient, seamless
access to our entire portfolio of integrated services.
We believe that sales and marketing activities, as well as the information systems that support the extensive automation of our delivery services,
are functions that are best coordinated across operating companies. Through the use of advanced information systems that connect the FedEx
companies, we make it convenient for customers to use the full range of FedEx services. We believe that seamless information integration is
critical to obtain business synergies from multiple operating units. For example, our Web site, fedex.com, provides a single point of contact for our
customers to access FedEx Express, FedEx Ground and FedEx Freight shipping, pick-up, shipment tracking, customer service and invoicing
information, as well as FedEx Office services. Similarly, by making one call to FedEx Expedited Freight Services, our customers can quickly and
easily evaluate surface and air freight shipping options available from FedEx Express, FedEx Freight and FedEx Custom Critical in order to select
the service best meeting their needs. Through this one point of contact, customers can select from a broad range of freight services, based on their
pickup and delivery requirements, time sensitivity and the characteristics of the products being shipped. Also, we recently integrated our LTL and
parcel sales teams to enhance the effectiveness of our sales efforts and provide additional simplicity for our customers.
We manage our business as a portfolio — in the long-term best interest of the enterprise, not a particular operating company. As a result, we base
decisions on capital investment, expansion of delivery, information technology and retail networks, and service additions or enhancements on
achieving the highest overall long-term return on capital for our business as a whole. For each FedEx company, we focus on making appropriate
investments in the technology and assets necessary to optimize our long-term earnings performance and cash flow. As an example of our
commitment to managing collaboratively, all our management incentive compensation programs across the enterprise are tied to the performance
of FedEx as a whole.
While we have increased our emphasis on competing collectively and managing collaboratively, we continue to believe that operating independent
networks, each focused on its own respective markets, results in optimal service quality, reliability and profitability from each business unit. Each
FedEx company focuses exclusively on the market sectors in which it has the most expertise and can be independently enhanced and managed to
provide outstanding service to our customers. Each company’s operations, cost structure and culture are designed to serve the unique customer
demands of a particular market segment and as a result, we are able to adapt our networks in response to changing needs.
Our “compete collectively, operate independently, manage collaboratively” strategy also provides flexibility in sizing our various operating
companies to align with varying macro-economic conditions and customer demand for the market segments in which they operate, allowing us to
leverage and manage change. Volatility and uncertainty have become the norms in the global transportation market, and we are able to use our
flexibility to accommodate changing conditions in the global economy. For example, in May 2012,

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we made a decision to retire from service 24 aircraft and related engines. The decision to retire these aircraft will better align the U.S. domestic air
network capacity of FedEx Express to match current and anticipated shipment volumes. FedEx Express is also shortening the depreciable lives of
an additional 54 aircraft and related engines. This will accelerate the retirement of these aircraft to align with the delivery schedule for replacement
Boeing 767-300 Freighter (“B767F”) and Boeing 757-200 aircraft.
In order to continue the modernization of our aircraft fleet, we have agreed to purchase a total of 46 new B767F aircraft, with the first three
arriving in fiscal 2014 and continued deliveries through 2019. The B767Fs were selected as the best choice to begin replacing our MD10s, some of
which are more than 40 years old, and our Airbus A310-300s with aircraft of similar capacity and without the relatively high fuel and maintenance
costs, as we continue to improve the efficiency and technology of our aircraft fleet. During 2012, we delayed the delivery of 11 Boeing 777
Freighter (“B777F”) aircraft to better align air network capacity to demand. We have also converted four B777F aircraft deliveries – two scheduled
for delivery in fiscal 2016 and two scheduled for delivery in fiscal 2017 – to equivalent purchase value for the B767Fs referenced above.
At the same time, we continue to expand network capacity at our growing and highly successful FedEx Ground segment. Strategic management of
the FedEx Ground business resulted in higher yields and volumes boosted by e-commerce, FedEx SmartPost and residential delivery solutions in
2012.
The following four trends have driven world commerce and shaped the global marketplace, and we believe they will continue to do so over the
long term:

• Globalization: As the world’s economy has become more fully integrated, companies are sourcing and selling globally. With customers in
more than 220 countries and territories, we facilitate this supply chain through our global reach, delivery services and information
capabilities.

• Supply Chain Acceleration: As global trade has grown, it has also become more fast-paced, and companies of all sizes now depend on the
delivery of just-in-time inventory to help them compete. We have taken advantage of the move toward faster, more efficient supply chains
by helping customers obtain more visibility into their supply chains and near real-time information to manage inventory in motion, thereby
reducing overhead and obsolescence and speeding time-to-market.

• Increase in High-Tech and High-Value-Added Businesses: High-tech and high-value-added goods have increased as a percentage of total
economic output, and our various operating companies offer a unique menu of services to fit virtually all shipping needs of high-tech and
high-value-added industries.

• Growth of E-Commerce: E-commerce acts as a catalyst for the other three trends and is a vital growth engine for businesses, as the Internet
is increasingly being used to purchase goods and services. Through our global transportation and technology networks, we contribute to and
benefit from the growth of e-commerce.
These trends have produced an unprecedented expansion of customer access — to goods, services and information. Through our global
transportation, information technology and retail networks, we help to make this access possible. We continue to position our companies to
facilitate and capitalize on this access and move toward stronger long-term growth, productivity and profitability. To this end, we are investing in
long-term strategic projects focused on expanding our global networks to accommodate future volume growth and increase customer convenience,
such as investments in B777F and B767F aircraft. We also continue to broaden and more effectively bundle our portfolio of services in response to
the needs and desires of our customers. For example, since the beginning of 2012, we:

• Continued to reduce transit times and provide a better pickup experience within FedEx Ground’s growing and highly profitable network.

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• Made strategic acquisitions in Mexico, Poland, France and Brazil, which will give us more robust domestic transportation and added
capabilities in these important global markets.

• Continued to execute our aggressive plan to expand the global freight forwarding presence of FedEx Trade Networks — by opening
additional facilities (over 130 freight forwarding offices are now open), including in Johannesburg, South Africa, Bologna, Italy, and
Istanbul, Ankara and Izmir, Turkey, and establishing new alliances throughout the world.

• Introduced an innovative end-to-end service for the shipping of temperature-sensitive healthcare products, such as pharmaceuticals, around

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the world, including implementing procedures to maintain temperatures on board the B777F aircraft within a desired range during flights.

• Expanded the availability of our sensor-based SenseAware service, which provides customers with near real-time tracking and increased
visibility and monitoring of their shipments.

• Continued to utilize FedEx Freight’s expertise in technology and operational excellence under the unified LTL network to provide a powerful
value proposition to customers. Moreover, the recent integration of our LTL and parcel sales teams has enhanced the effectiveness of our
sales efforts.
Reputation and Responsibility
By competing collectively under the FedEx brand, our operating companies benefit from one of the world’s most recognized brands. FedEx is one
of the most trusted and respected companies in the world, and the FedEx brand name is a powerful sales and marketing tool. Among the many
reputation awards we received during 2012, FedEx ranked 6 in FORTUNE magazine’s “World’s Most Admired Companies” list — the 11
consecutive year we have been ranked in the top 20 on the list. Additionally, in a recent survey of U.S. consumers conducted by the Reputation
Institute and the Boston College Center for Corporate Citizenship, FedEx placed 7 on the Corporate Social Responsibility Index (CSRI) 50 — a
list of the most socially responsible companies in the U.S.
FedEx is well recognized as a leader, not only in the transportation industry and technological innovation, but also in global citizenship. We
understand that a sustainable global business is tied to our global citizenship, and we are committed to connecting the world responsibly and
resourcefully. Our latest published update to our global citizenship report is available at http://csr.fedex.com. These reports describe how we think
about our responsibilities in the area of global citizenship and include important goals and metrics that demonstrate our commitment to fulfilling
these responsibilities.
Our People
Along with a strong reputation among customers and the general public, FedEx is widely acknowledged as a great place to work. In 2012, FedEx
Express was named as one of the top five global companies to work for by The Great Place to Work Institute in its inaugural ranking of the
World’s Best Multinational Workplaces. In order to even be considered for this honor, a company must appear on at least five national Great Place
to Work lists and have at least 5,000 employees worldwide. It is our people — our

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greatest asset — that give us our strong reputation. In addition to superior physical and information networks, FedEx has an exemplary human
network, with more than 300,000 team members who are “absolutely, positively” focused on safety, the highest ethical and professional standards,
and the needs of their customers and communities. Through our internal Purple Promise and Humanitarian Award programs, we recognize and
reward employees who enhance customer service and promote human welfare. For additional information on our people-first philosophy and
workplace initiatives, see http://csr.fedex.com.
Our Community
FedEx is committed to actively supporting the communities we serve worldwide through the strategic investment of our people, resources and
network. We provide financial contributions, in-kind charitable shipping services and volunteer efforts by our team members to help a variety of
non-profit organizations achieve their goals and make a measurable impact on the world. We have three core focus areas: disaster preparedness,
relief and recovery (American Red Cross, Salvation Army and Direct Relief Worldwide); child pedestrian safety (Safe Kids Worldwide); and
environmental sustainability (EMBARQ and National Fish & Wildlife Foundation). We support minority access to higher education by funding
scholarships, are a major sponsor of the National Civil Rights Museum and also support Teach for America, Junior Achievement and St. Jude
Children’s Research Hospital. Additionally, we believe that the United Way of America offers one of the most effective and efficient ways of
meeting community needs and have supported the annual United Way fundraising campaign since 1975. For additional information on our
community involvement and disaster relief efforts, see http://csr.fedex.com.
The Environment
In furtherance of our commitment to protecting the environment, we recently updated one of our long-term goals to reduce aircraft emissions to
reflect the significant progress we have made over the last several years. Our goal is to now reduce aircraft emissions by 30 percent by 2020 on an
emissions per available-ton-mile basis. We continue with our goal to increase FedEx Express vehicle fuel efficiency by 20 percent by 2020. We
will also continue to expand on-site renewable energy generation and continue the procurement of renewable energy for our facilities. To meet our
future operational needs, as discussed above, we are adding more fuel-efficient aircraft to our fleet. The use of newer and more fuel-efficient
aircraft is reducing our greenhouse gas emissions and airport noise and increasing our jet fuel efficiency. Our hybrid electric delivery fleet has
th th
th
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logged more than 12 million miles of revenue service. Our solar power generation systems represent another step we are taking toward progressive
environmental stewardship and resource sustainability. Several FedEx facilities, including our FedEx Express facility in Las Vegas, Nevada, our
FedEx Express World Headquarters in Memphis and our enterprise data center in Colorado Springs, Colorado, have received certification by
Leadership in Energy and Environmental Design (LEED ), the U.S. Green Building Council’s system for rating the environmental performance of
buildings. FedEx Express has made LEED certification the standard for newly built U.S. facilities.
We also continue to evaluate the environmental impacts of our packaging and copy and print services, and minimize waste generation through
efforts that include recycling, pollution prevention and the use of copy paper with recycled content, among other environmentally-responsible
available choices. For additional information on the ways we are minimizing our impact on the environment, see http://csr.fedex.com. In April
2012, we launched our FedEx Carbon-Neutral Envelope shipping program to all FedEx envelope shipping options, making FedEx Express the first
global express transportation company to offer carbon-neutral envelope shipping at no extra charge to the customer. Through this program, FedEx
Express will make an investment in global projects that displace or sequester greenhouse gas emissions from the atmosphere, neutralizing the
impacts of the carbon emissions emitted during the shipment of all FedEx envelopes around the world.

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Governance
FedEx has an independent Board of Directors committed to the highest quality corporate governance. During the past few years, we added a
number of highly qualified, independent directors to the Board, including R. Brad Martin, the former CEO of Saks Incorporated, and Joshua
Cooper Ramo, Vice Chairman of Kissinger Associates, Inc. The Board has taken significant steps to enhance its accountability to stockholders in
recent years. For example, in 2012, stockholders approved our proposal to amend FedEx’s certificate of incorporation in order to allow holders of
20 percent or more of FedEx’s common stock the right to call special meetings of stockholders. Additionally, the Board recently adopted a lead
independent director corporate governance structure.
Our Board of Directors periodically reviews all aspects of our governance policies and practices, including our Corporate Governance Guidelines
and our Code of Business Conduct and Ethics, in light of best practices and makes whatever changes are necessary to further our longstanding
commitment to the highest standards of corporate governance. The Guidelines and the Code, which applies to all of our directors, officers and
employees, including our principal executive officer and senior financial officers, are available in the Corporate Governance section of the Investor
Relations page of our Web site at http://investors.fedex.com. We will post in the corporate governance section of the Investor Relations page of our
Web site information regarding any amendment to, or waiver from, the provisions of the Code to the extent such disclosure is required.
Business Segments
The following describes in more detail the operations of each of our reportable segments:
FedEx Express Segment
FedEx Express
Overview
FedEx Express invented express distribution in 1973 and remains the industry leader, providing rapid, reliable, time-definite delivery of packages
and freight to more than 220 countries and territories through one integrated global network. FedEx Express offers time-definite delivery within
one to three business days, serving markets that generate more than 90% of the world’s gross domestic product through door-to-door, customs-
cleared service, with a money-back guarantee. FedEx Express’s unmatched air route authorities and extensive transportation infrastructure,
combined with leading-edge information technologies, make it the world’s largest express transportation company. FedEx Express employs
approximately 149,000 employees and has approximately 58,400 drop-off locations (including FedEx Office centers), 660 aircraft and
approximately 52,400 vehicles and trailers in its integrated global network.
Services
FedEx Express offers a wide range of shipping services for delivery of packages and freight. Overnight and deferred package services are backed
by money-back guarantees and extend to nearly the entire United States population. FedEx Express offers three U.S. overnight package delivery
services: FedEx First Overnight, FedEx Priority Overnight and FedEx Standard Overnight. FedEx SameDay service is available for urgent
shipments up to 70 pounds to virtually any U.S. destination. FedEx Express also offers U.S. express overnight and deferred freight services backed
by money-back guarantees to handle the needs of the time-definite freight market.

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International express and deferred package delivery with a money-back guarantee is available to more than 220 countries and territories, with a
variety of time-definite services to meet distinct customer needs. FedEx Express also offers domestic pickup-and-delivery services within certain
non-U.S. countries, including the United Kingdom, Canada, China, India and Mexico. In addition, FedEx Express offers comprehensive
international express and deferred freight services, backed by a money-back guarantee, real-time tracking and advanced customs clearance.
For information regarding FedEx Express e-shipping tools and solutions, see “FedEx Services — Technology.”
International Expansion
We are focused on the long-term expansion of our international presence, especially in key markets such as China, India, Europe and Latin
America. We recently made strategic moves in Europe and Latin America. Since the beginning of 2012, we acquired:

• the Mexican domestic express package delivery company Servicios Nacionales Mupa, S.A. de C.V. (Multipack);

• the Polish domestic express package delivery company Opek Sp. z o.o.;

• the French express transportation company TATEX; and

• the Brazilian transportation and logistics company Rapidão Cometa Logística e Transportes S.A.
These acquisitions will give us more robust domestic transportation networks and added capabilities in these important global markets, continue
our strategic European and Latin American growth plans and are expected to provide important contributions to our long-term growth,
productivity and profitability. Additionally, in 2012, we opened 38 new stations across Europe pursuant to our organic growth strategy.
We began serving mainland China in 1984, have expanded our service to cover more than 400 cities across the country and, in 2009, we began
operations at our new Asia-Pacific hub at the Guangzhou Baiyun International Airport in southern China. Additionally, in May 2012, we
announced our decision to establish a new North Pacific regional hub at the Kansai International Airport in Osaka, Japan, which will serve as a
consolidation point for shipments from northern Asia to the United States, and will continue to operate as an international gateway for customers
in western Japan. These hubs will allow us to continue to better serve our global customers doing business in the Asia-Pacific markets.
To facilitate the use of our growing international network, we offer a full range of international trade consulting services and a variety of online
tools that enable customers to more easily determine and comply with international shipping requirements.

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U.S. Postal Service Agreement
Under an agreement with the USPS that runs through September 2013, FedEx Express provides domestic air transportation services to the USPS,
including for its First-Class, Priority and Express Mail. The USPS has informed us that it intends to solicit proposals for the provision of these
services upon the expiration of the current agreement. FedEx Express also has approximately 5,000 drop boxes at USPS locations in approximately
340 metropolitan areas, under an agreement that expired in June 2012. We are preparing for removal of those drop boxes in accordance with the
terms of the agreement. FedEx Express also provides transportation and delivery for the USPS’s international delivery service called Global
Express Guaranteed (GXG) under a separate agreement. For more information about our relationship with the USPS, see Item 1A of this Annual
Report on Form 10-K (“Risk Factors”).
Pricing
FedEx Express periodically publishes list prices in its Service Guides for the majority of its services. In general, U.S. shipping rates are based on
the service selected, destination zone, weight, size, any ancillary service charge and whether the customer charged the shipment to a FedEx
account. International rates are based on the type of service provided and vary with size, weight, destination and, whenever applicable, whether the
customer charged the shipment to a FedEx account. FedEx Express offers its customers discounts generally based on actual or potential average
daily revenue produced.
FedEx Express has an indexed fuel surcharge for U.S. domestic and U.S. outbound shipments and for shipments originating internationally, where
legally and contractually possible. The surcharge percentage is subject to monthly adjustment based on a rounded average of a certain spot price for

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jet fuel. For example, the fuel surcharge for June 2012 was based on the average spot price for jet fuel published for April 2012. Changes to the
FedEx Express fuel surcharge, when calculated according to the average spot price for jet fuel and FedEx Express trigger points, are applied
effective from the first Monday of the month. These trigger points may change from time to time, but information on the fuel surcharge for each
month is available at fedex.com approximately two weeks before the surcharge is applicable. The weighted average U.S. domestic and U.S.
outbound fuel surcharge as a percentage of the base rates for the past three years was: 2012 — 14%; 2011 — 10%; and 2010 — 6%. These
percentages include certain fuel surcharge reductions that are associated with our annual base rate increases.
Operations
FedEx Express’s primary sorting facility, located in Memphis, serves as the center of the company’s multiple hub-and-spoke system. A second
national hub facility is located in Indianapolis. In addition to these national hubs, FedEx Express operates regional hubs in Newark, Oakland, Fort
Worth and Greensboro and major metropolitan sorting facilities in Los Angeles and Chicago.
Facilities in Anchorage, Paris, Guangzhou and Cologne/Bonn serve as sorting facilities for express package and freight traffic moving to and from
Asia, Europe and North America. Additional major sorting and freight handling facilities are located at Narita Airport in Tokyo, Stansted Airport
outside London, and Pearson Airport in Toronto. The facilities in Guangzhou, Paris and Cologne/Bonn are also designed to serve as regional hubs
for their respective market areas. A facility in Miami — the Miami Gateway Hub — serves our South Florida, Latin American and Caribbean
markets.
Throughout its worldwide network, FedEx Express operates city stations and employs a staff of customer service agents, cargo handlers and
couriers who pick up and deliver shipments in the station’s service area. In some international areas, independent agents (Global Service
Participants) have been selected to complete deliveries and to pick up packages. For more information about our sorting and handling facilities, see
Part I, Item 2 of this Annual Report on Form 10-K under the caption “FedEx Express Segment.”

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FedEx Office offers retail access to FedEx Express shipping services at all of its U.S. retail locations. FedEx Express also has alliances with certain
other retailers to provide in-store drop-off sites. Our unmanned FedEx Drop Boxes provide customers the opportunity to drop off packages in
office buildings, shopping centers, corporate or industrial parks and outside some U.S. Post Offices.
Fuel Supplies and Costs
During 2012, FedEx Express purchased jet fuel from various suppliers under contracts that vary in length and which provide for estimated amounts
of fuel to be delivered. The fuel represented by these contracts is purchased at market prices. Because of our indexed fuel surcharge, we do not
have any jet fuel hedging contracts. See “FedEx Express — Pricing.”
The following table sets forth FedEx Express’s costs for jet fuel and its percentage of consolidated revenues for the last five fiscal years:

Fiscal Year
Total Jet
Fuel Cost
(in millions)
Percentage of
Consolidated
Revenues
2012 $ 3,867 9.1%
2011 3,178 8.1
2010 2,342 6.7
2009 2,932 8.3
2008 3,396 8.9
Most of FedEx Express’s vehicle fuel needs are satisfied by retail purchases with various discounts.
Competition
As described in Item 1A of this Annual Report on Form 10-K (“Risk Factors”), the express package and freight markets are both highly
competitive and sensitive to price and service, especially in periods of little or no macro-economic growth. The ability to compete effectively
depends upon price, frequency, capacity and speed of scheduled service, ability to track packages, extent of geographic coverage, reliability and
innovative service offerings.
Competitors within the United States include other package delivery concerns, principally United Parcel Service, Inc. (“UPS”), passenger airlines
offering express package services, regional express delivery concerns, air freight forwarders and the USPS. FedEx Express’s principal international
competitors are DHL, UPS, TNT, other foreign postal authorities, freight forwarders, passenger airlines and all-cargo airlines. Many of FedEx

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Express’s international competitors are government-owned, -controlled or -subsidized carriers, which may have greater resources, lower costs, less
profit sensitivity and more favorable operating conditions than FedEx Express.
Employees
David J. Bronczek is the President and Chief Executive Officer of FedEx Express, which is headquartered in Memphis, Tennessee. As of May 31,
2012, FedEx Express employed approximately 101,000 permanent full-time and 48,000 permanent part-time employees, of which approximately
15% are employed in the Memphis area. FedEx Express’s international employees in the aggregate represent approximately 31% of all employees.

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The pilots of FedEx Express, who constitute a small percentage of our total employees, are represented by the Air Line Pilots Association,
International (“ALPA”), and are employed under a collective bargaining agreement. This agreement becomes amendable in March 2013.
Attempts by other labor organizations to organize certain other groups of employees occur from time to time. Although these organizing attempts
have not resulted in any certification of a U.S. domestic collective bargaining representative (other than ALPA), we cannot predict the outcome of
these labor activities or their effect, if any, on FedEx Express or its employees. Certain of FedEx Express’s non-U.S. employees are unionized.
FedEx Express believes its employee relations are excellent.
FedEx Trade Networks
FedEx Trade Networks provides international trade services, specializing in customs brokerage and global ocean and air freight forwarding. During
2012, FedEx Trade Networks continued to execute an aggressive plan to expand its global freight forwarding presence — by opening additional
facilities (over 130 freight forwarding offices are now open), including in Johannesburg, South Africa, Bologna, Italy, and Istanbul, Ankara and
Izmir, Turkey, and establishing new alliances throughout the world. FedEx Trade Networks provides customs clearance services for FedEx Express
at its major U.S. hub facilities. Value-added services include Global Trade Data, an information tool that allows customers to track and manage
imports. FedEx Trade Networks provides international trade advisory services, including assistance with the Customs-Trade Partnership Against
Terrorism (C-TPAT) program, and through its WorldTariff subsidiary, FedEx Trade Networks publishes customs duty and tax information for
approximately 180 customs areas worldwide. FedEx Trade Networks has approximately 4,200 employees and 138 offices in 117 service locations
throughout North America and in Asia, Europe, the Middle East and Latin America. FedEx Trade Networks maintains a network of air and ocean
freight-forwarding service providers and strategic alliances to provide services in certain countries in which it does not have owned offices.
FedEx SupplyChain Systems
FedEx SupplyChain is an integrated logistics provider offering a range of supply chain solutions that leverage FedEx information technology and
transportation networks around the world. The company offers services that include critical inventory logistics, transportation management and
temperature-controlled transportation through a network of owned and managed resources — all tightly integrated via advanced information
technology systems. FedEx SupplyChain recently rolled out new and expanded visibility and control features, as well as new stocking locations to
support worldwide FedEx Critical Inventory Logistics customers with high-value, critical orders.
FedEx Ground Segment
FedEx Ground
Overview
By leveraging the FedEx brand, maintaining a low cost structure and efficiently using information technology and advanced automation systems,
FedEx Ground continues to enhance its competitive position as a leading provider of business and residential money-back guaranteed ground
package delivery services. FedEx Ground serves customers in the North American small-package market, focusing on business and residential
delivery of packages weighing up to 150 pounds. Ground service is provided to 100%

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of the continental United States population and overnight service of up to 400 miles to nearly 100% of the continental United States population.
Service is also provided to nearly 100% of the Canadian population. In addition, FedEx Ground offers service to Alaska and Hawaii through a
ground and air network operation coordinated with other transportation providers.

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FedEx Ground continues to improve the speed, reach and service capabilities of its network, by reducing transit time for many of its lanes and
introducing or expanding overnight ground service in many metropolitan areas. For example, during the most recent two-year period, FedEx
Ground has reduced the transit times of 7% of its lanes. FedEx Ground’s ongoing network expansion program is substantially increasing the
company’s daily pickup capacity through the addition of new hubs featuring the latest automated sorting technology, the expansion of existing
hubs, and the expansion or relocation of other existing facilities.
The company offers our FedEx Home Delivery service, which reaches nearly 100% of U.S. residences. FedEx Home Delivery is dedicated to
meeting the delivery needs of residential customers and provides routine Saturday and evening delivery and premium options such as day-specific,
appointment and signature delivery. FedEx Home Delivery brings unmatched services to residential shippers and their customers and is the first
residential ground package delivery service to have offered a money-back guarantee.
Pricing
FedEx Ground periodically publishes list prices for the majority of its services in its Service Guide. In general, U.S. shipping rates are based on the
service selected, destination zone, weight, size, any ancillary service charge and whether the customer charged the shipment to a FedEx account.
FedEx Ground has an indexed fuel surcharge, which is subject to a monthly adjustment. The surcharge percentage is based on a rounded average of
the national U.S. on-highway average price for a gallon of diesel fuel as published monthly by the U.S. Department of Energy. For example, the
fuel surcharge for June 2012 was based on the average diesel fuel price published for April 2012. Changes to the FedEx Ground fuel surcharge,
when calculated according to the rounded index average and FedEx Ground trigger points, are applied effective from the first Monday of the
month. These trigger points may change from time to time, but information on the fuel surcharge for each month is available at fedex.com
approximately two weeks before the surcharge is applicable.
Operations
FedEx Ground operates a multiple hub-and-spoke sorting and distribution system consisting of 525 facilities, including 33 hubs, in the U.S. and
Canada. FedEx Ground conducts its operations primarily with 30,770 owner-operated vehicles and approximately 35,000 company-owned trailers.
To provide FedEx Home Delivery service, FedEx Ground leverages its existing pickup operation and hub and linehaul network. FedEx Home
Delivery’s operations are often co-located with existing FedEx Ground facilities to achieve further cost efficiencies.
Advanced automated sorting technology is used to streamline the handling of millions of packages daily. Using overhead laser and six-sided
camera-based bar code scan technology, hub conveyors electronically guide packages to their appropriate destination chute, where they are loaded
for transport to their respective destination terminals for local delivery. Software systems and Internet-based applications are also deployed to offer
customers new ways to connect internal package data with external delivery information. FedEx Ground provides shipment tracing and proof-of-
delivery signature functionality through the FedEx Web site, fedex.com. For additional information regarding FedEx Ground e-shipping tools and
solutions, see “FedEx Services — Technology.”

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FedEx Office offers retail access to FedEx Ground shipping services at all of its U.S. retail locations. FedEx Ground is also available as a service
option at many FedEx Authorized ShipCenters in the U.S.
As of May 31, 2012, FedEx Ground had approximately 50,500 employees. In addition, FedEx Ground relies on owner-operators to conduct its
linehaul and pickup-and-delivery operations, as the use of independent contractors is well suited to the needs of the ground delivery business and
its customers. David F. Rebholz is the President and Chief Executive Officer of FedEx Ground. FedEx Ground is headquartered in Pittsburgh,
Pennsylvania, and its primary competitors are UPS and the USPS.
Evolution of Independent Contractor Model
Although FedEx Ground is involved in numerous lawsuits and other proceedings (such as state tax audits or other administrative challenges) where
the classification of its independent contractors is at issue, a number of recent judicial decisions support the company’s classification, and the
company believes its relationship with its contractors is generally excellent. For a description of these proceedings, see Item 1A of this Annual
Report on Form 10-K (“Risk Factors”) and Note 17 of the accompanying consolidated financial statements.
FedEx Ground has made changes to its relationships with contractors that, among other things, provide incentives for improved service and
enhanced regulatory and other compliance by the contractors. For example, FedEx Ground has implemented or is implementing its Independent
Service Provider (“ISP”) model in a number of states. The ISP model requires pickup-and-delivery contractors based in those states to, among
other things: (i) assume responsibility for the pickup-and-delivery operations of an entire geographic service area that includes multiple routes, and
(ii) negotiate independent agreements with FedEx Ground, rather than agree to a standard contract. To date, FedEx Ground has transitioned to the

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ISP model in 17 states. Based upon the success of this model, FedEx Ground may transition to it in other states as well.
In addition, because of state-specific legal and regulatory issues, FedEx Ground only contracts with contractors that (i) are organized as
corporations registered and in good standing under applicable state law, and (ii) ensure that their personnel who provide services under an
operating agreement with FedEx Ground are treated as their employees. FedEx Ground also has an ongoing nationwide program to incentivize
contractors who choose to grow their businesses by adding routes. During May 2012, approximately 85% of FedEx Ground’s package volume was
delivered by multiple route owner-operators or independent service providers.
FedEx SmartPost
FedEx SmartPost (a subsidiary of FedEx Ground) is a leading national small-parcel consolidator, which specializes in the consolidation and
delivery of high volumes of low-weight, less time-sensitive business-to-consumer packages, using the USPS for final delivery to residences. The
company picks up shipments from customers (including e-tailers and catalog companies), provides sorting and linehaul services and then delivers
the packages to a USPS facility for final delivery by a postal carrier. Through its network of 25 distribution hubs and approximately 6,600
employees, FedEx SmartPost provides delivery to all residential addresses in the U.S., including PO Boxes and military destinations. For more
information about our relationship with the USPS, see Item 1A of this Annual Report on Form 10-K (“Risk Factors”).

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FedEx Freight Segment
FedEx Freight
FedEx Freight is a leading North American provider of LTL freight services, offering choice, simplicity and reliability to meet the needs of LTL
shippers – FedEx Freight Priority, when speed is critical to meet supply chain needs, and FedEx Freight Economy, when time can be traded for
cost savings. Through one comprehensive network of service centers and advanced information systems, FedEx Freight provides service to
virtually every U.S. ZIP code (including Alaska and Hawaii) with industry-leading transit times. FedEx Freight Priority offers a no-fee money-
back guarantee on eligible shipments. Internationally, FedEx Freight Canada offers FedEx Freight Priority throughout Canada and between Canada
and the U.S. To extend choice and simplicity to Canada, FedEx Freight Economy offers an economical option for LTL customers shipping from
Canada to the U.S. In addition, FedEx Freight serves Mexico, Puerto Rico and the U.S. Virgin Islands via alliances and purchased transportation.
Through its many service offerings, FedEx Freight can match customers’ time-critical needs with reduced transit times or after-hours pickup or
delivery. With the expansion of FedEx electronic solutions, LTL shippers have the convenience of a single shipping solution for FedEx Freight,
FedEx Express and FedEx Ground. FedEx Freight offers a fully integrated Web site and other electronic tools, including a bill of lading generator
and e-mail delivery notification, which make freight shipping easier and bring customers closer to their own account information. The FedEx
Freight Advance Notice feature available on FedEx Freight Priority shipments uses the company’s innovative technology systems to proactively
notify FedEx Freight customers via the Internet, e-mail or fax when a shipment may be delayed beyond its estimated delivery date, providing
customers with greater visibility and control of their LTL freight shipments. Additionally, FedEx Freight A.M. offers freight delivery by 10:30 a.m.
to select points in the U.S. and Canada, backed by a money-back guarantee. FedEx Freight has an indexed fuel surcharge, which is subject to
weekly adjustment based on a rounded average of the national U.S. on-highway average price for a gallon of diesel fuel.
As of May 31, 2012, FedEx Freight was operating approximately 58,000 vehicles and trailers from a network of 366 service centers, and the FedEx
Freight segment had approximately 33,900 employees. William J. Logue is the President and Chief Executive Officer of FedEx Freight, which is
based in Memphis, Tennessee. FedEx Freight’s primary competitors are YRC Worldwide Inc. (which includes YRC Regional Transportation and
YRC Freight), Con-way Freight (a subsidiary of Con-way Inc.), UPS Freight, Old Dominion Freight Line, Inc. and ABF Freight System, Inc.
FedEx Custom Critical
FedEx Custom Critical provides a range of expedited, time-specific freight-shipping services throughout the United States, Canada and Mexico.
Among its services are Surface Expedite, for exclusive-use and network-based transport of critical shipments and expedited shipments; Air
Expedite, which offers an array of air solutions to meet customers’ critical delivery times; and White Glove Services, for shipments that require
extra care in handling, temperature control or specialized security. In addition, its subsidiary FedEx Truckload Brokerage provides freight
brokerage solutions within the United States and into and out of Canada and Mexico. Service is available 24 hours a day, 365 days a year. FedEx
Custom Critical continuously monitors shipments through an integrated proprietary shipment-control system, including two-way satellite
communications on exclusive-use shipments. Through the company’s Shipping Toolkit, customers can quote, ship, track and map shipments; view
and print out copies of a shipment’s bill of lading, proof of delivery and invoice; and manage their online accounts. FedEx Custom Critical utilizes
approximately 1,450 vehicles, operated by independent contractors and their drivers, which are dispatched out of approximately 150
geographically-based staging areas.

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FedEx Services Segment
FedEx Services
FedEx Services provides our other companies with sales, marketing, information technology, communications, customer service and certain other
back-office support. Through FedEx Services and its subsidiary FedEx TechConnect, we provide a convenient single point of access for many
customer support functions, enabling us to more effectively sell the entire portfolio of transportation services and to help ensure a consistent and
outstanding experience for our customers.
T. Michael Glenn is the President and Chief Executive Officer of FedEx Services, which is based in Memphis, Tennessee. As of May 31, 2012, the
FedEx Services segment had approximately 34,400 employees (including approximately 16,500 at FedEx Office).
Technology
FedEx is a world leader in technology, and FedEx founder Frederick W. Smith’s vision that “the information about a package is as important as the
delivery of the package itself” remains at the core of our comprehensive technology strategy.
Our technology strategy is driven by our desire for customer satisfaction. We strive to build technology solutions that will solve our customers’
business problems with simplicity, convenience, speed and reliability. The focal point of our strategy is our award-winning Web site, together with
our customer integrated solutions.
The fedex.com Web site was launched over fifteen years ago, and during that time, customers have shipped and tracked billions of packages at
fedex.com. The fedex.com Web site is widely recognized for its speed, ease of use and customer-focused features. At fedex.com, our customers
ship packages, determine international documentation requirements, track package status, pay invoices and access FedEx Office services. The
advanced tracking capability within My FedEx provides customers with a consolidated view of inbound and outbound shipments. FedEx Desktop
provides customers the benefit of working offline and having real-time shipment updates sent directly to their computer desktop.
FedEx Mobile is a suite of services available on most Web-enabled mobile devices, such as the BlackBerry and Android™ smartphones, and
includes enhanced support for Apple products, such as the iPhone , iPod touch and iPad mobile digital devices. FedEx Mobile allows customers
to track the status of packages, create shipping labels, get account-specific rate quotes and access drop-off location data for FedEx shipments and
utilize FedEx Office Print & Go, a smartphone solution that allows customers to send documents directly for printing on digital copy machines at
FedEx Office locations across the United States. FedEx also uses wireless data collection devices to scan bar codes on shipments, thereby
enhancing and accelerating the package information available to our customers. The FedEx Mobile website has expanded to 206 countries and 25
languages.
We design our e-commerce tools and solutions to be easily integrated into our customers’ applications, as well as into third-party software being
developed by leading e-procurement, systems integration and enterprise resource planning companies. Our FedEx Ship Manager suite of solutions
offers a wide range of options to help our customers manage their shipping and associated processes, and FedEx Freight was recently integrated
into this platform.

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Marketing
The FedEx brand name is a symbol for high-quality service, reliability and speed. FedEx is one of the most widely recognized brands in the world.
Special emphasis is placed on promoting and protecting the FedEx brand, one of our most important assets. In addition to traditional print and
broadcast advertising, we promote the FedEx brand through corporate sponsorships and special events. For example, FedEx sponsors:

• The National Football League (NFL), as its “Official Delivery Service Sponsor”

• FedExField, home of the NFL’s Washington Redskins

• The #11 Joe Gibbs Racing Toyota Camry driven by Denny Hamlin in the NASCAR Sprint Cup Series

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• PGA TOUR and the Champions Tour golf organizations, as the “Official Shipping Company,” and FedExCup, a season-long points
competition for PGA TOUR players, which we recently extended through 2017

• The FedEx St. Jude Classic, a PGA TOUR event that raises millions of dollars for St. Jude Children’s Research Hospital

• FedExForum, home of the NBA’s Memphis Grizzlies

• ATP World Tour men’s professional tennis circuit and French Open tennis tournament
Information Security
FedEx Services has a team of highly qualified professionals dedicated to securing information about our customers’ shipments and protecting our
customers’ privacy, and we strive to provide a safe, secure online environment for our customers. We are committed to compliance with applicable
information security laws, regulations and industry standards — including, for example, the Payment Card Industry Data Security Standard, a set
of comprehensive requirements for enhancing payment account data security developed by the Payment Card Industry Security Standards Council.
For a description of risks related to information security, see Item 1A of this Annual Report on Form 10-K (“Risk Factors”).
Global ISO 9001 Certification
FedEx Services provides our customers with a high level of service quality, as evidenced by our ISO 9001 certification for our global express and
ground operations. ISO 9001 registration is required by thousands of customers around the world. FedEx’s global certification, encompassing the
processes of FedEx Express, FedEx Ground and FedEx Services, enhances our single-point-of-access strategy and solidifies our reputation as the
quality leader in the transportation industry. ISO 9001 is currently the most rigorous international standard for Quality Management and Assurance.
ISO standards were developed by the International Organization for Standardization in Geneva, Switzerland to promote and facilitate international
trade. More than 150 countries, including European Union members, the United States and Japan, recognize ISO standards.
FedEx Office
FedEx Office’s network of digitally-connected locations offers access to copying and digital printing through retail and Web-based platforms,
signs and graphics, professional finishing, computer rentals, and the full range of FedEx day-definite ground shipping and time-definite global
express shipping services. FedEx Office’s network of locations provides convenient access points to FedEx Express and FedEx Ground services for
higher margin retail customers.

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In addition, FedEx Office offers packing services, and packing supplies and boxes are included in its retail product assortment. By allowing
customers to have unpackaged items professionally packed by specially trained FedEx Office team members and then shipped using any of the full
range of FedEx day-definite ground shipping and time-definite global express shipping services, FedEx Office provides a complete “pack-and-
ship” solution.
Almost all FedEx Office locations provide local pick-up and delivery service – an offering whereby a FedEx courier picks up a customer’s job at
the customer’s location and then returns the finished product to the customer – with options and service areas varying by location. Additionally,
through FedEx Cloud Printing with Google Docs™, introduced this year, customers can upload files from their Google Docs account and then
select from a variety of printing options, and can chose to pick up their completed order at FedEx Office locations nationwide or have the order
delivered right to their door.
As of May 31, 2012, FedEx Office operated approximately 1,840 locations, including 55 locations in five foreign countries, as well as 20
commercial production centers. FedEx Office is headquartered in Dallas, Texas.
Trademarks
The “FedEx” trademark, service mark and trade name is essential to our worldwide business. FedEx, FedEx Express, FedEx Ground, FedEx
Freight, FedEx Office, FedEx Services, FedEx SupplyChain Systems, FedEx TechConnect, FedEx Trade Networks, FedEx SmartPost and FedEx
Custom Critical, among others, are trademarks, service marks and trade names of Federal Express Corporation, or the respective companies, for
which registrations, or applications for registration, are on file, as applicable. We have authorized, through licensing arrangements, the use of
certain of our trademarks, service marks and trade names by our contractors and Global Service Participants to support our business. In addition,
we license the use of certain of our trademarks, service marks and trade names on promotional items for the primary purpose of enhancing brand
awareness.
Regulation

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Air. Under the Federal Aviation Act of 1958, as amended, both the U.S. Department of Transportation (“DOT”) and the Federal Aviation
Administration (“FAA”) exercise regulatory authority over FedEx Express.
The FAA’s regulatory authority relates primarily to operational aspects of air transportation, including aircraft standards and maintenance, as well
as personnel and ground facilities, which may from time to time affect the ability of FedEx Express to operate its aircraft in the most efficient
manner. FedEx Express holds an air carrier certificate granted by the FAA pursuant to Part 119 of the federal aviation regulations. This certificate
is of unlimited duration and remains in effect so long as FedEx Express maintains its standards of safety and meets the operational requirements of
the regulations.
In September 2010, the FAA proposed rules that would significantly reduce the maximum number of hours on duty and increase the minimum
amount of rest time for our pilots, and thus require us to hire additional pilots and modify certain of our aircraft. When the FAA issued final
regulations in December 2011, all-cargo carriers, including FedEx Express, were exempt from these new pilot fatigue requirements, and instead
required to continue complying with previously enacted flight and duty time rules. In May 2012, however, the FAA indicated that it would
reconsider the exclusion of cargo pilots from these new pilot fatigue requirements. Thus, it is reasonably possible that these rules or other future
flight safety requirements could impose material costs on us.

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The DOT’s authority relates primarily to economic aspects of air transportation. The DOT’s jurisdiction extends to aviation route authority and to
other regulatory matters, including the transfer of route authority between carriers. FedEx Express holds various certificates issued by the DOT,
authorizing FedEx Express to engage in U.S. and international air transportation of property and mail on a worldwide basis.
Under the Aviation and Transportation Security Act of 2001, as amended, the Transportation Security Administration (“TSA”), an agency within
the Department of Homeland Security, has responsibility for aviation security. The TSA continues to require FedEx Express to comply with a Full
All-Cargo Aircraft Operator Standard Security Plan, which contains evolving and strict security requirements. These requirements are not static,
but change periodically as the result of regulatory and legislative requirements, imposing additional security costs and creating a level of
uncertainty for our operations. It is reasonably possible that these rules or other future security requirements could impose material costs on us.
FedEx Express participates in the Civil Reserve Air Fleet (“CRAF”) program. Under this program, the U.S. Department of Defense may
requisition for military use certain of FedEx Express’s wide-bodied aircraft in the event of a declared need, including a national emergency. FedEx
Express is compensated for the operation of any aircraft requisitioned under the CRAF program at standard contract rates established each year in
the normal course of awarding contracts. Through its participation in the CRAF program, FedEx Express is entitled to bid on peacetime military
cargo charter business. FedEx Express, together with a consortium of other carriers, currently contracts with the U.S. Government for such charter
flights.
Ground. The ground transportation performed by FedEx Express is integral to its air transportation services. The enactment of the Federal Aviation
Administration Authorization Act of 1994 abrogated the authority of states to regulate the rates, routes or services of intermodal all-cargo air
carriers and most motor carriers. States may now only exercise jurisdiction over safety and insurance. FedEx Express is registered in those states
that require registration.
The operations of FedEx Ground, FedEx Freight and FedEx Custom Critical in interstate commerce are currently regulated by the DOT and the
Federal Motor Carrier Safety Administration, which retain limited oversight authority over motor carriers. Federal legislation preempts regulation
by the states of rates and service in intrastate freight transportation.
Like other interstate motor carriers, our operations, including those at FedEx Express, are subject to certain DOT safety requirements governing
interstate operations. In addition, vehicle weight and dimensions remain subject to both federal and state regulations.
International. FedEx Express’s international authority permits it to carry cargo and mail from points in its U.S. route system to numerous points
throughout the world. The DOT regulates international routes and practices and is authorized to investigate and take action against discriminatory
treatment of United States air carriers abroad. The right of a United States carrier to serve foreign points is subject to the DOT’s approval and
generally requires a bilateral agreement between the United States and the foreign government. In addition, we must obtain the permission of
foreign governments to provide specific flights and services. The carrier must then be granted the permission of such foreign government to
provide specific flights and services. The regulatory environment for global aviation rights may from time to time impair the ability of FedEx
Express to operate its air network in the most efficient manner. Additionally, global air cargo carriers, such as FedEx Express, are subject to
current and potential additional aviation security regulation by foreign governments.

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Our operations outside of the United States, such as FedEx Express’s growing international domestic operations, are also subject to current and
potential regulations, including certain postal regulations and licensing requirements, that restrict, make difficult and sometimes prohibit, the
ability of foreign-owned companies such as FedEx Express to compete effectively in parts of the international domestic transportation and logistics
market.
Communication. Because of the extensive use of radio and other communication facilities in its aircraft and ground transportation operations,
FedEx Express is subject to the Federal Communications Commission Act of 1934, as amended. Additionally, the Federal Communications
Commission regulates and licenses FedEx Express’s activities pertaining to satellite communications.
Environmental. Pursuant to the Federal Aviation Act, the FAA, with the assistance of the U.S. Environmental Protection Agency, is authorized to
establish standards governing aircraft noise. FedEx Express’s aircraft fleet is in compliance with current noise standards of the federal aviation
regulations. In addition to federal regulation of aircraft noise, certain airport operators have local noise regulations, which limit aircraft operations
by type of aircraft and time of day. These regulations have had a restrictive effect on FedEx Express’s aircraft operations in some of the localities
where they apply but do not have a material effect on any of FedEx Express’s significant markets. Congress’s passage of the Airport Noise and
Capacity Act of 1990 established a National Noise Policy, which enabled FedEx Express to plan for noise reduction and better respond to local
noise constraints. FedEx Express’s international operations are also subject to noise regulations in certain of the countries in which it operates.
Concern over climate change, including the impact of global warming, has led to significant U.S. and international legislative and regulatory
efforts to limit greenhouse gas (“GHG”) emissions, including our aircraft and diesel engine emissions. For example, during 2009, the European
Commission approved the extension of the European Union Emissions Trading Scheme (“ETS”) for GHG emissions, to the airline industry. Under
this decision, all FedEx Express flights to and from any airport in any member state of the European Union are now covered by the ETS
requirements, and each year we are required to submit emission allowances in an amount equal to the carbon dioxide emissions from such flights.
For a description of such efforts and their potential effect on our cost structure and operating results, see Item 1A of this Annual Report on Form
10-K (“Risk Factors”).
We are subject to federal, state and local environmental laws and regulations relating to, among other things, the shipment of dangerous goods,
contingency planning for spills of petroleum products, the disposal of waste oil and the disposal of toners and other products used in FedEx
Office’s copy machines. Additionally, we are subject to numerous regulations dealing with underground fuel storage tanks, hazardous waste
handling, vehicle and equipment emissions and noise and the discharge of effluents from our properties and equipment. We have environmental
management programs to ensure compliance with these regulations.
Customs. Our activities, including customs brokerage and freight forwarding, are subject to regulation by the Bureau of Customs and Border
Protection and the TSA within the Department of Homeland Security (customs brokerage and security issues), the U.S. Federal Maritime
Commission (ocean freight forwarding) and the DOT (air freight forwarding). Our offshore operations are subject to similar regulation by the
regulatory authorities of foreign jurisdictions.
Labor. All U.S. employees at FedEx Express are covered by the Railway Labor Act of 1926, as amended (the “RLA”), while labor relations within
the United States at our other companies are governed by the National Labor Relations Act of 1935, as amended (the “NLRA”). Under the RLA,
groups that wish to unionize must do so across nationwide classes of employees. The RLA also requires mandatory government-led mediation of
contract disputes supervised by the National Mediation Board before a union can strike or an

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employer can replace employees or impose contract terms. This part of the RLA helps minimize the risk of strikes that would shut down large
portions of the economy. Under the NLRA, employees can unionize in small localized groups, and government-led mediation is not a required step
in the negotiation process.
The RLA was originally passed to govern railroad and express carrier labor negotiations. As transportation systems evolved, the law expanded to
cover airlines, which are the dominant national transportation systems of today. As an air express carrier with an integrated air/ground network,
FedEx Express and its employees have been covered by the RLA since the founding of the company in 1971. The purpose of the RLA is to offer
employees a process by which to unionize (if they choose) and engage in collective bargaining while also protecting global commerce from
damaging work stoppages and delays. Specifically, the RLA ensures that an entire transportation system, such as at FedEx Express, cannot be shut
down by the actions of a local segment of the network.
The U.S. Congress has, in the past, considered adopting changes in labor laws that would make it easier for unions to organize units of our
employees. For example, there is always a possibility that Congress could remove most FedEx Express employees from the jurisdiction of the

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RLA, thereby exposing the FedEx Express network to sporadic labor disputes and the risk that small groups of employees could disrupt the entire
air/ground network. In addition, federal and state governmental agencies have and may continue to take actions that could make it easier for our
employees to organize under the RLA or NLRA. For a description of these potential labor law changes, see Item 1A of this Annual Report on
Form 10-K (“Risk Factors”).
ITEM 1A. RISK FACTORS
We present information about our risk factors on pages 71 through 76 of this Annual Report on Form 10-K.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
FedEx Express Segment
FedEx Express’s principal owned and leased properties include its aircraft, vehicles, national, regional and metropolitan sorting facilities,
administration buildings, FedEx Drop Boxes and data processing and telecommunications equipment.

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Aircraft and Vehicles
As of May 31, 2012, FedEx Express’s aircraft fleet consisted of the following:

Description Owned Leased Total
Maximum Operational
Revenue Payload
(Pounds per Aircraft)
Boeing B777F 19 0 19 178,000
Boeing MD11 38 26 64 164,200
Boeing MD10-30 12 5 17 114,200
Boeing MD10-10 52 0 52 108,700
Airbus A300-600 35 36 71 85,600
Airbus A310-200/300 35 0 35 61,900
Boeing B757-200 73 0 73 45,800
Boeing B727-200 41 0 41 38,200
ATR 72-202/212 21 0 21 14,660
ATR 42-300/320 26 0 26 10,880
Cessna 208B 241 0 241 2,500

Total 593 67 660

(1) Maximum operational revenue payload is the lesser of the net volume-limited payload and the net maximum structural payload.

(2) Includes 18 aircraft not currently in operation and awaiting completion of modification.

• The B777Fs are two-engine, wide-bodied cargo aircraft that have a longer range and larger capacity than any other aircraft we operate.

• The MD11s are three-engine, wide-bodied aircraft that have a longer range and larger capacity than MD10s.

• The MD10s are three-engine, wide-bodied aircraft that have received an Advanced Common Flightdeck (ACF) modification, which includes
a conversion to a two-pilot cockpit, as well as upgrades of electrical and other systems.

• The A300s and A310s are two-engine, wide-bodied aircraft that have a longer range and more capacity than B757s and B727s.

• The B757s are two-engine, narrow-bodied aircraft configured for cargo service.

(1)
(2)

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• The B727s are three-engine, narrow-bodied aircraft configured for cargo service.

• The ATR and Cessna 208 turbo-prop aircraft are leased to independent operators to support FedEx Express operations in areas where
demand does not justify use of a larger aircraft.
An inventory of spare engines and parts is maintained for each aircraft type.
In addition, FedEx Express leases smaller aircraft to operators, and these operators use the aircraft to move FedEx packages to and from airports
served by FedEx Express’s larger jet aircraft. The lease agreements generally call for the lessee to provide the flight crews, maintenance, fuel and
other supplies required to operate the aircraft, and FedEx Express reimburses the lessee for these items. The lease agreements are for terms not
exceeding one year and are generally cancelable upon 30 days’ notice.
At May 31, 2012, FedEx Express operated approximately 52,400 ground transport vehicles, including pickup and delivery vans, larger trucks
called container transport vehicles and over-the-road tractors and trailers.

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Aircraft Purchase Commitments
The following table is a summary of the number and type of aircraft we were committed to purchase as of May 31, 2012, with the year of expected
delivery:

B757 B767F B777F Total

2013 10 — 4 14
2014 — 3 2 5
2015 — 6 2 8
2016 — 6 2 8
2017 — 6 2 8
Thereafter — 6 16 22

Total 10 27 28 65

(1) As of May 31, 2012, our obligation to purchase 13 of these aircraft was conditioned upon there being no event that causes FedEx Express or
its employees to not be covered by the RLA.
In June 2012, FedEx Express agreed to purchase 19 additional B767F aircraft. Four of these 19 additional B767F aircraft purchases are conditioned
upon there being no event that causes FedEx Express or its employees not to be covered by the RLA. These 19 additional B767F aircraft are
expected to be delivered from fiscal 2015 to 2019.
In conjunction with the additional B767F aircraft purchases, FedEx Express converted four B777F aircraft deliveries that were subject to the RLA
condition – two scheduled for delivery in fiscal 2016 and two scheduled for delivery in fiscal 2017 – to equivalent purchase value for the
additional B767F aircraft referenced above. These aircraft transactions are not included in the table above, as they occurred subsequent to May 31,
2012.
As of May 31, 2012, deposits and progress payments of $661 million had been made toward aircraft purchases and other planned aircraft-related
transactions. Also see Note 16 of the accompanying consolidated financial statements for more information about our purchase commitments.

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Sorting and Handling Facilities
At May 31, 2012, FedEx Express operated the following major sorting and handling facilities:

Square
Sorting
Capacity
Lease
Expiration
(1)
(1)

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Location Acres Feet (per hour) Lessor Year

National
Memphis, Tennessee 784 3,514,000 475,000 Memphis-Shelby County Airport Authority 2036
Indianapolis, Indiana 316 2,509,000 214,000 Indianapolis Airport Authority 2017/2028
Regional
Fort Worth, Texas 168 948,000 76,000 Fort Worth Alliance Airport Authority 2021
Newark, New Jersey 70 595,000 156,000 Port Authority of New York and New Jersey 2030
Oakland, California 75 320,000 54,000 City of Oakland 2031
Greensboro, N. Carolina 165 593,000 29,000 Piedmont Triad Airport Authority 2031
Metropolitan
Chicago, Illinois 66 597,000 23,000 City of Chicago 2018/2028
Los Angeles, California 34 305,000 57,000 City of Los Angeles 2021/2025
International
Anchorage, Alaska 64 332,000 25,000 Alaska Department of Transportation and Public Facilities 2023
Paris, France 111 1,238,000 63,000 Aeroports de Paris 2029
Cologne, Germany 7 325,000 20,000 Cologne Bonn Airport 2040
Guangzhou, China 155 882,000 64,000 Guangdong Airport Management Corp. 2029

(1) Documents and packages.

(2) Handles international express package and freight shipments to and from Asia, Europe and North America.

(3) Handles intra-Europe express package and freight shipments, as well as international express package and freight shipments to and from
Europe.

(4) Handles intra-Asia express package and freight shipments, as well as international express package and freight shipments to and from Asia.

(5) Property is held under two separate leases — lease for original hub expires in 2017, and lease for additional buildings expires in 2028.

(6) Property is held under two separate leases — lease for original hub expires in 2018, and lease for new facility expires in 2028.

(7) Property is held under two separate leases — lease for sorting and handling facility expires in 2021, and lease for ramp expansion expires in
2025.

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FedEx Express’s primary sorting facility, which serves as the center of its multiple hub-and-spoke system, is located at the Memphis International
Airport. FedEx Express’s facilities at the Memphis International Airport also include aircraft hangars, aircraft ramp areas, vehicle parking areas,
flight training and fuel facilities, administrative offices and warehouse space. FedEx Express leases these facilities from the Memphis-Shelby
County Airport Authority (the “Authority”). The lease obligates FedEx Express to maintain and insure the leased property and to pay all related
taxes, assessments and other charges. The lease is subordinate to, and FedEx Express’s rights thereunder could be affected by, any future lease or
agreement between the Authority and the U.S. Government.
FedEx Express has additional international sorting-and-handling facilities located at Narita Airport in Tokyo, Stansted Airport outside London,
and Pearson Airport in Toronto. FedEx Express also has a substantial presence at airports in Hong Kong, Taiwan, Dubai and Miami.
Administrative and Other Properties and Facilities
The World Headquarters of FedEx Express is located in southeastern Shelby County, Tennessee. The headquarters campus comprises nine separate
(5)
(6)
(7)
(2)
(3)
(3)
(4)

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buildings with approximately 1.3 million square feet of space. FedEx Express also leases 40 facilities in the Memphis area for administrative
offices and warehouses.
FedEx Express owns or leases approximately 660 facilities for city station operations in the United States. In addition, approximately 500 city
stations are owned or leased throughout FedEx Express’s international network. The majority of these leases are for terms of five to ten years. City
stations serve as a sorting and distribution center for a particular city or region. We believe that suitable alternative facilities are available in each
locale on satisfactory terms, if necessary.
As of May 31, 2012, FedEx Express had approximately 43,500 Drop Boxes, including 5,000 Drop Boxes outside U.S. Post Offices. The agreement
related to the 5,000 Drop Boxes outside U.S. Post Offices expired in June 2012, and we are preparing for removal of those drop boxes in
accordance with the terms of the agreement. As of May 31, 2012, FedEx Express also had approximately 14,000 FedEx Authorized ShipCenters
and other types of staffed drop-off locations, such as FedEx Office centers. Internationally, FedEx Express had approximately 5,800 drop-off
locations.
FedEx Ground Segment
FedEx Ground’s corporate offices are located in the Pittsburgh, Pennsylvania, area in an approximately 500,000 square-foot building owned by
FedEx Ground. As of May 31, 2012, FedEx Ground had approximately 35,000 company-owned trailers and owned or leased 525 facilities,
including 33 hubs. In addition, 30,770 owner-operated vehicles support FedEx Ground’s business. Of the 327 facilities that support FedEx Home
Delivery, 235 are co-located with existing FedEx Ground facilities. Leased facilities generally have terms of five years or less. The 33 hub
facilities are strategically located to cover the geographic area served by FedEx Ground. The hub facilities average approximately 338,000 square
feet and range in size from approximately 54,000 to approximately 715,000 square feet.
FedEx Freight Segment
FedEx Freight’s corporate headquarters are located in Memphis, Tennessee, and administrative offices for the FedEx Freight business are in
Harrison, Arkansas. As of May 31, 2012, FedEx Freight operated approximately 58,000 vehicles and trailers and 366 service centers, which are
strategically located to provide service throughout North America. These facilities range in size from 850 to 220,000 square feet of office and dock
space. FedEx Custom Critical’s headquarters are located in Green, Ohio.

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FedEx Services Segment
FedEx Services’ corporate headquarters are located in Memphis, Tennessee. FedEx Services and FedEx Express lease state-of-the-art technology
centers in Collierville, Tennessee, Irving, Texas, Colorado Springs, Colorado, and Orlando, Florida. These facilities house personnel responsible
for strategic software development and other functions that support FedEx’s technology and e-commerce solutions. FedEx Office’s corporate
headquarters are located in Dallas, Texas in leased facilities. As of May 31, 2012, FedEx Office operated approximately 1,840 locations, including
55 locations in five foreign countries, as well as 20 commercial production centers. Substantially all FedEx Office centers are leased, generally for
terms of five to ten years with varying renewal options. FedEx Office centers are generally located in strip malls, office buildings or stand-alone
structures and average approximately 4,000 square feet in size. We have a multi-year agreement with OfficeMax to offer U.S. domestic FedEx
Express and FedEx Ground shipping services at all U.S. OfficeMax retail locations (over 975 locations).

ITEM 3. LEGAL PROCEEDINGS
FedEx and its subsidiaries are subject to legal proceedings and claims that arise in the ordinary course of their business. For a description of
material pending legal proceedings, see Note 17 of the accompanying consolidated financial statements.

ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding executive officers of FedEx is as follows (included herein pursuant to Instruction 3 to Item 401(b) of Regulation S-K and
General Instruction G(3) of Form 10-K):

Name and Office Age Positions and Offices Held and Business Experience

Frederick W. Smith 67 Chairman, President and Chief Executive Officer of FedEx since

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Chairman, President and Chief Executive
Officer

January 1998; Chairman of FedEx Express since 1975; Chairman,
President and Chief Executive Officer of FedEx Express from April
1983 to January 1998; Chief Executive Officer of FedEx Express from
1977 to January 1998; and President of FedEx Express from June
1971 to February 1975.
David J. Bronczek
President and Chief Executive Officer,
FedEx Express

58

President and Chief Executive Officer of FedEx Express since January
2000; Executive Vice President and Chief Operating Officer of FedEx
Express from January 1998 to January 2000; Senior Vice President —
Europe, Middle East and Africa of FedEx Express from June 1995 to
January 1998; Senior Vice President — Europe, Africa and
Mediterranean of FedEx Express from June 1993 to June 1995; Vice
President — Canadian Operations of FedEx Express from February
1987 to March 1993; and several sales and operations managerial
positions at FedEx Express from 1976 to 1987. Mr. Bronczek serves
as a director of International Paper Company, an uncoated paper and
packaging company.

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Name and Office Age Positions and Offices Held and Business Experience

Robert B. Carter
Executive Vice President — FedEx
Information Services and Chief Information
Officer

53

Executive Vice President — FedEx Information Services and Chief
Information Officer of FedEx since January 2007; Executive Vice
President and Chief Information Officer of FedEx from June 2000 to
January 2007; Corporate Vice President and Chief Technology Officer
of FedEx from February 1998 to June 2000; Vice President —
Corporate Systems Development of FedEx Express from September
1993 to February 1998; Managing Director — Systems Development
of FedEx Express from April 1993 to September 1993. Mr. Carter
serves as a director of Saks Incorporated, a retailer operating luxury,
specialty and traditional department stores, and as a director of First
Horizon National Corporation, a financial services holding company.
T. Michael Glenn
Executive Vice President — Market
Development and Corporate
Communications

56

Executive Vice President — Market Development and Corporate
Communications of FedEx since January 1998; Senior Vice President
— Marketing, Customer Service and Corporate Communications of
FedEx Express from June 1994 to January 1998; Senior Vice
President — Marketing and Corporate Communications of FedEx
Express from December 1993 to June 1994; Senior Vice President —
Worldwide Marketing Catalog Services and Corporate
Communications of FedEx Express from June 1993 to December
1993; Senior Vice President — Catalog and Remail Services of FedEx
Express from September 1992 to June 1993; Vice President —
Marketing of FedEx Express from August 1985 to September 1992;
and various management positions in sales and marketing and senior
sales specialist of FedEx Express from 1981 to 1985. Mr. Glenn
serves as a director of Pentair, Inc., a diversified industrial
manufacturing company operating in water and technical products
business segments, and as a director of Renasant Corporation, a
financial services holding company.
Alan B. Graf, Jr.
Executive Vice President and Chief
Financial Officer
58 Executive Vice President and Chief Financial Officer of FedEx since
January 1998; Executive Vice President and Chief Financial Officer of
FedEx Express from February 1996 to January 1998; Senior Vice
President and Chief Financial Officer of FedEx Express from
December 1991 to February 1996; Vice President and Treasurer of

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FedEx Express from August 1987 to December 1991; and various
management positions in finance and a senior financial analyst of
FedEx Express from 1980 to 1987. Mr. Graf serves as a director of
Mid-America Apartment Communities Inc., a real estate investment
trust that focuses on acquiring, constructing, developing, owning and
operating apartment communities, and as a director of NIKE, Inc., a
designer and marketer of athletic footwear, apparel, equipment and
accessories for sports and fitness activities.

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Name and Office Age Positions and Offices Held and Business Experience

William J. Logue
President and Chief Executive Officer,
FedEx Freight Corporation

54

President and Chief Executive Officer of FedEx Freight
Corporation (parent of FedEx Freight) since March 2010;
President of FedEx Freight Corporation from December 2009
to February 2010; Executive Vice President and Chief
Operating Officer — U.S. of FedEx Express from March
2008 to November 2009; Executive Vice President — U.S.
Operations and System Support of FedEx Express from
September 2006 to March 2008; Senior Vice President —
U.S. Operations of FedEx Express from August 2004 to
September 2006; Senior Vice President — Air-Ground and
Freight Services of FedEx Express from 1999 to August
2004; Vice President — National Hub Operations, Memphis
Hub of FedEx Express from 1995 to 1999; and various
operations management positions with FedEx Express from
1989 to 1995.
David F. Rebholz
President and Chief Executive Officer,
FedEx Ground

59

President and Chief Executive Officer of FedEx Ground since
January 2007; President of FedEx Ground from September
2006 to January 2007; Executive Vice President —
Operations & Systems Support of FedEx Express from
December 1999 to September 2006; Senior Vice President —
U.S. of FedEx Express from January 1997 to November
1999; Senior Vice President —Sales & Customer Service of
FedEx Express from June 1993 to December 1996; Vice
President — Regional Operations of FedEx Express from
October 1991 to June 1993; Vice President — Customer
Service of FedEx Express from December 1988 to October
1991; and various other positions with FedEx Express from
1976 to 1988.
Christine P. Richards
Executive Vice President, General Counsel
and Secretary

57

Executive Vice President, General Counsel and Secretary of
FedEx since June 2005; Corporate Vice President —
Customer and Business Transactions of FedEx from March
2001 to June 2005; Senior Vice President and General
Counsel of FedEx Services from March 2000 to June 2005;
Staff Vice President — Customer and Business Transactions
of FedEx from November 1999 to March 2001; Vice
President — Customer and Business Transactions of FedEx
Express from 1998 to November 1999; and various legal
positions with FedEx Express from 1984 to 1998.
Executive officers are elected by, and serve at the discretion of, the Board of Directors. There is no arrangement or understanding between any
executive officer and any person, other than a director or executive officer of FedEx or of any of its subsidiaries acting in his or her official
capacity, pursuant to which any executive officer was selected. There are no family relationships between any executive officer and any other

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executive officer or director of FedEx or of any of its subsidiaries.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
FedEx’s common stock is listed on the New York Stock Exchange under the symbol “FDX.” As of July 13, 2012, there were 13,863 holders of
record of our common stock. The following table sets forth, for the periods indicated, the high and low sale prices, as reported on the NYSE, and
the cash dividends paid per share of common stock.

Sale Prices
High Low Dividend
Fiscal Year Ended May 31, 2012
Fourth Quarter $ 96.89 $ 84.86 $ 0.13
Third Quarter 97.19 76.95 0.13
Second Quarter 85.75 64.07 0.13
First Quarter 98.66 72.16 0.13
Fiscal Year Ended May 31, 2011
Fourth Quarter $ 96.89 $ 85.03 $ 0.12
Third Quarter 98.52 87.54 0.12
Second Quarter 93.03 79.04 0.12
First Quarter 87.74 69.78 0.12
FedEx also paid a cash dividend on July 2, 2012 ($0.14 per share). We expect to continue to pay regular quarterly cash dividends, though each
subsequent quarterly dividend is subject to review and approval by our Board of Directors. We evaluate the dividend payment amount on an annual
basis at the end of each fiscal year. There are no material restrictions on our ability to declare dividends, nor are there any material restrictions on
the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans or advances. FedEx did not repurchase any of its common
stock during the fourth quarter of 2012.

ITEM 6. SELECTED FINANCIAL DATA
Selected financial data as of and for the five years ended May 31, 2012 is presented on page 124 of this Annual Report on Form 10-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Management’s discussion and analysis of results of operations and financial condition is presented on pages 36 through 76 of this Annual Report on
Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative information about market risk is presented on page 123 of this Annual Report on Form 10-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FedEx’s consolidated financial statements, together with the notes thereto and the report of Ernst & Young LLP dated July 16, 2012 thereon, are
presented on pages 79 through 122 of this Annual Report on Form 10-K.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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None.

ITEM 9A. CONTROLS AND PROCEDURES
Management’s Evaluation of Disclosure Controls and Procedures
The management of FedEx, 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 FedEx 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 May 31, 2012 (the end of the period covered by this Annual Report on Form 10-K).
Assessment of Internal Control Over Financial Reporting
Management’s report on our internal control over financial reporting is presented on page 77 of this Annual Report on Form 10-K. The report of
Ernst & Young LLP with respect to our internal control over financial reporting is presented on page 78 of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
During our fiscal quarter ended May 31, 2012, 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.
ITEM 9B. OTHER INFORMATION
None.
PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding members of the Board of Directors, compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended,
FedEx’s Code of Business Conduct and Ethics and certain other aspects of FedEx’s corporate governance (such as the procedures by which
FedEx’s stockholders may recommend nominees to the Board of Directors and information about the Audit Committee, including its members and
our “audit committee financial expert”) will be presented in FedEx’s definitive proxy statement for its 2012 annual meeting of stockholders, which
will be held on September 24, 2012, and is incorporated herein by reference. Information regarding executive officers of FedEx is included above
in Part I of this Annual Report on Form 10-K under the caption “Executive Officers of the Registrant” pursuant to Instruction 3 to Item 401(b) of
Regulation S-K and General Instruction G(3) of Form 10-K. Information regarding FedEx’s Code of Business Conduct and Ethics is included
above in Part I, Item 1 of this Annual Report on Form 10-K under the caption “Reputation and Responsibility — Governance.”

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ITEM 11. EXECUTIVE COMPENSATION
Information regarding director and executive compensation will be presented in FedEx’s definitive proxy statement for its 2012 annual meeting of
stockholders, which will be held on September 24, 2012, and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information regarding security ownership of certain beneficial owners and management and related stockholder matters, as well as equity
compensation plan information, will be presented in FedEx’s definitive proxy statement for its 2012 annual meeting of stockholders, which will be
held on September 24, 2012, and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information regarding certain relationships and transactions with related persons (including FedEx’s policies and procedures for the review and
preapproval of related person transactions) and director independence will be presented in FedEx’s definitive proxy statement for its 2012 annual
meeting of stockholders, which will be held on September 24, 2012, and is incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding the fees for services provided by Ernst & Young LLP during 2012 and 2011 and the Audit Committee’s administration of
the engagement of Ernst & Young LLP, including the Committee’s preapproval policies and procedures (such as FedEx’s Policy on Engagement
of Independent Auditor), will be presented in FedEx’s definitive proxy statement for its 2012 annual meeting of stockholders, which will be held
on September 24, 2012, and is incorporated herein by reference.
PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) and (2) Financial Statements; Financial Statement Schedules
FedEx’s consolidated financial statements, together with the notes thereto and the report of Ernst & Young LLP dated July 16, 2012 thereon, are
listed on pages 34 through 35 and presented on pages 79 through 122 of this Annual Report on Form 10-K. FedEx’s “Schedule II — Valuation and
Qualifying Accounts,” together with the report of Ernst & Young LLP dated July 16, 2012 thereon, is presented on pages 125 through 126 of this
Annual Report on Form 10-K. All other financial statement schedules have been omitted because they are not applicable or the required
information is included in FedEx’s consolidated financial statements or the notes thereto.
(a)(3) Exhibits
See the Exhibit Index on pages E-1 through E-9 for a list of the exhibits being filed or furnished with or incorporated by reference into this Annual
Report on Form 10-K.

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.

FEDEX CORPORATION
Dated: July 16, 2012 By: /s/ FREDERICK W. SMITH
Frederick W. Smith
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.

Signature Capacity Date
/s/ FREDERICK W. SMITH
Frederick W. Smith
Chairman, President and Chief Executive Officer and Director
(Principal Executive Officer)
July 16, 2012
/s/ ALAN B. GRAF, JR.
Alan B. Graf, Jr.
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
July 16, 2012
/s/ JOHN L. MERINO
John L. Merino
Corporate Vice President and Principal Accounting Officer
(Principal Accounting Officer)
July 16, 2012
/s/ JAMES L. BARKSDALE *
James L. Barksdale
Director

July 16, 2012
/s/ JOHN A. EDWARDSON *
John A. Edwardson
Director

July 16, 2012

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/s/ SHIRLEY ANN JACKSON *
Shirley Ann Jackson
Director

July 16, 2012
/s/ STEVEN R. LORANGER *
Steven R. Loranger
Director

July 16, 2012

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Signature Capacity Date
/s/ GARY W. LOVEMAN *
Gary W. Loveman
Director

July 16, 2012
/s/ R. BRAD MARTIN *
R. Brad Martin
Director

July 16, 2012
/s/ JOSHUA COOPER RAMO *
Joshua Cooper Ramo
Director

July 16, 2012
/s/ SUSAN C. SCHWAB *
Susan C. Schwab
Director

July 16, 2012
/s/ JOSHUA I. SMITH *
Joshua I. Smith
Director

July 16, 2012
/s/ DAVID P. STEINER *
David P. Steiner
Director

July 16, 2012
/s/ PAUL S. WALSH *
Paul S. Walsh
Director

July 16, 2012
*By: /s/ JOHN L. MERINO July 16, 2012

John L. Merino
Attorney-in-Fact

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Table of Contents
FINANCIAL SECTION TABLE OF CONTENTS

PAGE
Management’s Discussion and Analysis of Results of Operations and Financial Condition
Overview of Financial Section 36
Results of Operations 37
New Accounting Guidance 46
Reportable Segments 47
FedEx Services Segment 47

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FedEx Express Segment 48
FedEx Ground Segment 52
FedEx Freight Segment 55
Financial Condition 57
Liquidity 57
Capital Resources 58
Liquidity Outlook 59
Contractual Cash Obligations and Off-Balance Sheet Arrangements 61
Critical Accounting Estimates 62
Retirement Plans 62
Self-Insurance Accruals 67
Long-Lived Assets 67
Contingencies 69
Risk Factors 71
Forward-Looking Statements 75
Consolidated Financial Statements
Management’s Report on Internal Control over Financial Reporting 77
Reports of Independent Registered Public Accounting Firm 78
Consolidated Balance Sheets
May 31, 2012 and 2011 80
Consolidated Statements of Income
Years Ended May 31, 2012, 2011 and 2010 82

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Table of Contents

PAGE
Consolidated Statements of Cash Flows
Years Ended May 31, 2012, 2011 and 2010 83
Consolidated Statements of Changes in Stockholders’ Investment and Comprehensive Income (Loss) Years Ended
May 31, 2012, 2011 and 2010 84
Notes to Consolidated Financial Statements 85
Other Financial Information
Quantitative and Qualitative Disclosures about Market Risk 123
Selected Financial Data 124
Report of Independent Registered Public Accounting Firm 125
Schedule II – Valuation and Qualifying Accounts 126
Computation of Ratio of Earnings to Fixed Charges 127

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Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW OF FINANCIAL SECTION
The financial section of the FedEx Corporation (“FedEx”) Annual Report on Form 10-K (“Annual Report”) consists of the following
Management’s Discussion and Analysis of Results of Operations and Financial Condition (“MD&A”), the Consolidated Financial Statements and
the notes to the Consolidated Financial Statements, and Other Financial Information, all of which include information about our significant
accounting policies, practices and the transactions that underlie our financial results. The following MD&A describes the principal factors
affecting the results of operations, liquidity, capital resources, contractual cash obligations and the critical accounting estimates of FedEx. The
discussion in the financial section should be read in conjunction with the other sections of this Annual Report, particularly “Item 1: Business” and
our detailed discussion of risk factors included in this MD&A.
ORGANIZATION OF INFORMATION
Our MD&A is composed of three major sections: Results of Operations, Financial Condition and Critical Accounting Estimates. These sections
include the following information:

• Results of Operations includes an overview of our consolidated 2012 results compared to 2011, and 2011 results compared to 2010. This
section also includes a discussion of key actions and events that impacted our results, as well as our outlook for 2013.

• The overview is followed by a financial summary and analysis (including a discussion of both historical operating results and our outlook for
2013) for each of our reportable transportation segments.

• Our financial condition is reviewed through an analysis of key elements of our liquidity, capital resources and contractual cash obligations,
including a discussion of our cash flows and our financial commitments.

• Critical accounting estimates discusses those financial statement elements that we believe are important to understanding certain of the
material judgments and assumptions incorporated in our financial results.

• We conclude with a discussion of risks and uncertainties that may impact our financial and operating results.
DESCRIPTION OF BUSINESS
We provide a broad portfolio of transportation, e-commerce and business services through companies competing collectively, operating
independently and managed collaboratively, under the respected FedEx brand. Our primary operating companies are Federal Express Corporation
(“FedEx Express”), the world’s largest express transportation company; FedEx Ground Package System, Inc. (“FedEx Ground”), a leading North
American provider of small-package ground delivery services; and FedEx Freight, Inc. (“FedEx Freight”), a leading North American provider of
less-than-truckload (“LTL”) freight services. These companies represent our major service lines and, along with FedEx Corporate Services, Inc.
(“FedEx Services”), form the core of our reportable segments. Our FedEx Services segment provides sales, marketing, information technology,
communications and back-office support to our transportation segments. In addition, the FedEx Services segment provides customers with retail
access to FedEx Express and FedEx Ground shipping services through FedEx Office and Print Services, Inc. (“FedEx Office”) and provides
customer service, technical support and billing and collection services through FedEx TechConnect, Inc. (“FedEx TechConnect”). See “Reportable
Segments” for further discussion and refer to “Item 1: Business” for a more detailed description of each of our operating companies.

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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 volumes of transportation services provided through our networks, primarily measured by our average daily volume and shipment weight;

• the mix of services purchased by our customers;

• the prices we obtain for our services, primarily measured by yield (revenue per package or pound or revenue per hundredweight for LTL
freight shipments);

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• 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.
Except as otherwise specified, references to years indicate our fiscal year ended May 31, 2012 or ended May 31 of the year referenced and
comparisons are to the prior year. References to our transportation segments include, collectively, our FedEx Express, FedEx Ground and FedEx
Freight segments.
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
The following table compares summary operating results (dollars in millions, except per share amounts) for the years ended May 31:

Percent Change
2012 2011 2010 2012/2011 2011/2010
Revenues $ 42,680 $ 39,304 $ 34,734 9 13
Operating income 3,186 2,378 1,998 34 19
Operating margin 7.5% 6.1% 5.8% 140bp 30bp
Net income $ 2,032 $ 1,452 $ 1,184 40 23

Diluted earnings per share $ 6.41 $ 4.57 $ 3.76 40 22

Operating expenses include an impairment charge of $134 million resulting from the decision to retire 24 aircraft and related engines at
FedEx Express and the reversal of a $66 million legal reserve associated with the ATA Airlines lawsuit which was initially recorded in 2011.

Operating expenses include $133 million in costs associated with the combination of our FedEx Freight and FedEx National LTL operations,
effective January 30, 2011, and a $66 million legal reserve associated with the ATA Airlines lawsuit against FedEx Express.

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The following table shows changes in revenues and operating income by reportable segment for 2012 compared to 2011, and 2011 compared to
2010 (dollars in millions):

Revenues Operating Income
Dollar Change Percent Change Dollar Change Percent Change
2012/2011 2011/2010 2012/2011 2011/2010 2012/2011 2011/2010 2012/2011 2011/2010
FedEx Express segment $ 1,934 $ 3,026 8 14 $ 32 $ 101 3 9
FedEx Ground segment 1,088 1,046 13 14 439 301 33 29
FedEx Freight segment 371 590 8 14 337 (22) 193 (14)
FedEx Services segment (13) (86) (1) (5) — — — —
Other and eliminations (4) (6) NM NM — — — —

$ 3,376 $ 4,570 9 13 $ 808 $ 380 34 19

FedEx Express segment 2012 operating expenses include an impairment charge of $134 million resulting from the decision to retire 24
aircraft and related engines at FedEx Express and the reversal of a $66 million legal reserve associated with the ATA Airlines lawsuit which
was initially recorded in 2011.

FedEx Freight segment 2011 operating expenses include $133 million in costs associated with the combination of our FedEx Freight and
FedEx National LTL operations, effective January 30, 2011.
Overview
(1) (2)
(1)
(2)
(1)
(2)
(1)
(2)

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Revenues, operating income and operating margins increased in 2012 due to the exceptional performance of our FedEx Ground segment, improved
profitability at FedEx Freight and increased yields across all our operating segments, despite moderating global economic conditions. Our results
for 2012 include the impact of certain charges and credits as described below, which favorably impacted our year-over-year results by $0.15 per
diluted share, after considering the effect of variable incentive compensation accruals. In addition, our results significantly benefited in 2012 from
the timing lag that exists between when fuel prices change and when indexed fuel surcharges automatically adjust. We also benefited from a milder
winter, as our 2011 results were negatively impacted by unusually severe winter weather.
Our 2012 results include the reversal of a $66 million reserve associated with the ATA Airlines lawsuit at FedEx Express. This reserve was
initially recorded in 2011 when a loss was deemed probable as a result of an adverse decision in the lawsuit. We reversed this reserve during 2012
when FedEx Express won the appeal of this case and the appeals court overturned the prior ruling (See Note 17 of the accompanying consolidated
financial statements). Additionally, our 2012 results include a noncash impairment charge of $134 million due to our decision to retire from service
18 Airbus A310-200 aircraft and 26 related engines, as well as six Boeing MD10-10 aircraft and 17 related engines. The decision to retire these
aircraft will better align the U.S. domestic air network capacity of FedEx Express to match current and anticipated shipment volumes. Our 2011
results include one-time costs associated with the combination of our FedEx Freight and FedEx National LTL operations of $133 million, including
$89 million of impairment and other charges.
Our results for 2011 reflected the momentum of improved global economic conditions and strong demand for our services, which drove yield
growth and volume increases across all our transportation segments, particularly in International Priority (“IP”) package shipments at FedEx
Express. Our FedEx Ground segment delivered strong results through increasing volume, yield and operating margins. The FedEx Freight segment
returned to profitability in the fourth quarter of 2011, primarily due to higher LTL yield. All of our transportation segments benefited from our
yield management initiatives in 2011.
The combination of our FedEx Freight and FedEx National LTL operations was completed in 2011. Our combined LTL network increases
efficiencies, reduces operational costs and provides customers both Priority and Economy LTL freight services across all lengths of haul from one
integrated company.

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

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Excludes international domestic operations.

Package statistics do not include the operations of FedEx SmartPost.

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

(1)
(2)

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Excludes international domestic operations.

Package statistics do not include the operations of FedEx SmartPost.
Revenue
During 2012, revenues increased 9% due to yield growth across all our transportation segments. At FedEx Express, revenues increased 8% in 2012
led by higher U.S. domestic and IP package yields. However, U.S. domestic package and IP package volumes declined due to weakening global
economic conditions. Revenues increased 13% during 2012 at our FedEx Ground segment due to higher yields and strong demand for all our
major services. At FedEx Freight, revenues increased 8% during 2012 due to higher LTL yield as a result of higher fuel surcharges and yield
management programs, despite a decrease in volume.
Revenues increased 13% during 2011 due to yield increases and volume growth across all our transportation segments. Yields improved due to
higher fuel surcharges and increased base rates under our yield improvement programs. At FedEx Express, revenues increased 14% in 2011 led by
IP volume growth in Asia, as well as U.S. domestic and IP package yield increases. At the FedEx Ground segment, revenues increased 14% in
2011 due to continued volume growth driven by market share gains and yield growth at both FedEx Ground and FedEx SmartPost. At FedEx
Freight, yield increases due to our yield management programs and higher LTL fuel surcharges, and higher average daily LTL volumes led to a
14% increase in revenues in 2011.

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Impairment and Other Charges
In May 2012, we made the decision to retire from service 18 Airbus A310-200 aircraft and 26 related engines, as well as six Boeing MD10-10
aircraft and 17 related engines. As a consequence of this decision, a noncash impairment charge of $134 million ($84 million, net of tax, or $0.26
(1)
(2)

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per diluted share) was recorded in the fourth quarter. The decision to retire these aircraft, the majority of which were temporarily idled and not in
revenue service, will better align the U.S. domestic air network capacity of FedEx Express to match current and anticipated shipment volumes.
In 2011, we incurred impairment and other charges of $89 million related to the combination of our LTL operations at FedEx Freight. In 2010, we
recorded a charge of $18 million for the impairment of goodwill related to the FedEx National LTL acquisition, eliminating the remaining goodwill
attributable to this reporting unit.
Operating Income
The following tables compare operating expenses expressed as dollar amounts (in millions) and as a percent of revenue for the years ended
May 31:

2012 2011 2010
Operating expenses:
Salaries and employee benefits $ 16,099 $ 15,276 $ 14,027
Purchased transportation 6,335 5,674 4,728
Rentals and landing fees 2,487 2,462 2,359
Depreciation and amortization 2,113 1,973 1,958
Fuel 4,956 4,151 3,106
Maintenance and repairs 1,980 1,979 1,715
Impairment and other charges 134 89 18
Other 5,390 5,322 4,825

Total operating expenses $ 39,494 $ 36,926 $ 32,736

Represents charges resulting from the decision to retire 24 aircraft and related engines at FedEx Express.

Represents charges associated with the combination of our FedEx Freight and FedEx National LTL operations, effective January 30, 2011.

Includes the 2012 reversal of a $66 million legal reserve associated with the ATA Airlines lawsuit which was initially recorded in 2011 (See
Note 17 of the accompanying consolidated financial statements).

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Percent of Revenue
2012 2011 2010
Operating expenses:
Salaries and employee benefits 37.7% 38.9% 40.4%
Purchased transportation 14.9 14.4 13.6
Rentals and landing fees 5.8 6.3 6.8
Depreciation and amortization 5.0 5.0 5.6
Fuel 11.6 10.6 8.9
Maintenance and repairs 4.6 5.0 4.9
Impairment and other charges 0.3 0.2 0.1
Other 12.6 13.5 13.9

Total operating expenses 92.5 93.9 94.2

Operating margin 7.5% 6.1% 5.8%

Represents charges resulting from the decision to retire 24 aircraft and related engines at FedEx Express.

Represents charges associated with the combination of our FedEx Freight and FedEx National LTL operations effective January 30, 2011.

Includes the 2012 reversal of a $66 million legal reserve associated with the ATA Airlines lawsuit which was initially recorded in 2011 (See
Note 17 of the accompanying consolidated financial statements).
Our 2012 operating income increased 34% and operating margin increased 140 basis points driven by higher yields across all our transportation
segments due to higher fuel surcharges and our yield management programs. Our results also significantly benefited in 2012 from the timing lag
that exists between when fuel prices change and when indexed fuel surcharges automatically adjust. FedEx Ground segment operating income
increased $439 million in 2012 driven by higher yields and strong demand for all our major services. At our FedEx Freight segment, operating
income increased $337 million due to higher LTL yield and efficiencies gained from the combination of our LTL operations in 2011. Additionally,
(1) (2)
(3)
(1)
(2)
(3)
(1) (2)
(3)
(1)
(2)
(3)

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our year-over-year comparisons were favorably impacted by several items as described above in the “Overview” section.
Salaries and benefits increased 5% in 2012 primarily due to higher incentive compensation costs and the full reinstatement of 401(k) company-
matching contributions effective January 1, 2011. Purchased transportation costs increased 12% in 2012 due to volume growth and higher fuel
surcharges at FedEx Ground, costs associated with the expansion of our freight forwarding business at FedEx Trade Networks and higher
utilization of third-party transportation providers in international locations primarily due to business acquisitions at FedEx Express.
The following graph for our transportation segments shows our average cost of jet and vehicle fuel per gallon for the years ended May 31:

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Fuel expense increased 19% during 2012 primarily due to price increases. Our fuel surcharges, which are more fully described in the “Quantitative
and Qualitative Disclosures About Market Risk” section of this MD&A, have a timing lag and are designed to pass through the price of fuel not
included in our base shipping rates to our customers. Based on a static analysis of the impact to operating income of year-over-year changes in
fuel prices compared changes in fuel surcharges, fuel surcharges significantly exceeded incremental fuel costs in 2012. If fuel prices remain at
current levels, that effect is expected to reverse in 2013.
Our analysis considers the estimated impact of the reduction in fuel surcharges included in the base rates charged for FedEx Express and FedEx
Ground services. However, this analysis does not consider the negative effects that fuel surcharge levels may have on our business, including
reduced demand and shifts by our customers to lower-yielding services. While fluctuations in fuel surcharge rates can be significant from period
to period, fuel surcharges represent one of the many individual components of our pricing structure that impact our overall revenue and yield.
Additional components include the mix of services sold, the base price and extra service charges we obtain for these services and the level of
pricing discounts offered. In order to provide information about the impact of fuel surcharges on the trend in revenue and yield growth, we have
included the comparative fuel surcharge rates in effect for 2012, 2011 and 2010 in the accompanying discussions of each of our transportation
segments.
In 2011, operating income increased 19% primarily due to yield and volume increases across all our transportation segments. Higher compensation
and benefits, including retirement plans and medical costs, and increased maintenance and repairs expenses had a negative impact on our
performance for 2011. Costs related to the combination of our FedEx Freight and FedEx National LTL operations also negatively impacted our
2011 results by $133 million. Unusually severe weather in the second half of 2011 caused widespread disruptions to our networks, which led to lost
revenues and drove higher purchased transportation, salaries and wages and other operational costs. Additionally, a $66 million reserve associated
with an adverse jury decision in the ATA Airlines lawsuit against FedEx Express was recognized in 2011.
Salaries and employee benefits increased 9% in 2011 due to the reinstatement of merit salary increases, increases in pension and medical costs and
the reinstatement of full 401(k) company-matching contributions effective January 1, 2011. Purchased transportation increased 20% in 2011 due to
volume growth, higher fuel surcharges and higher rates paid to our independent contractors at FedEx Ground, as well as costs associated with the
expansion of our freight forwarding business at FedEx Trade Networks. Maintenance and repairs expense increased 15% in 2011 primarily due to
an increase in maintenance events, as a result of timing, and higher utilization of our fleet driven by increased volumes. Other operating expense
increased 10% primarily due to volume- and weather-related expenses.
Fuel expense increased 34% during 2011 primarily due to increases in the average price per gallon of fuel and fuel consumption driven by volume
increases. 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

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surcharges, fuel had a positive impact on operating income in 2011, predominantly at FedEx Express.
Other Income and Expense
Interest expense decreased $34 million in 2012 due to debt maturities, an increase in capitalized interest related to the timing of progress payments
on aircraft purchases and lower financing fees. Interest expense increased $7 million in 2011 due to a decrease in capitalized interest related to
timing of construction projects and progress payments on aircraft purchases.
Income Taxes
Our effective tax rate was 35.3% in 2012, 35.9% in 2011 and 37.5% in 2010. Our 2012 rate was lower than our 2011 rate primarily due to
favorable audit developments. The 2011 rate was lower than our 2010 rate primarily due to increased permanently reinvested foreign earnings and
a lower state rate driven by favorable audit and legislative developments. Our permanent reinvestment strategy with respect to unremitted earnings
of our foreign subsidiaries provided a 1.3% benefit to our 2012 effective tax rate. Our total permanently reinvested foreign earnings were $1.0
billion at the end of 2012 and $640 million at the end of 2011.

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Our current federal income tax expenses in 2012, 2011 and 2010 were significantly reduced by accelerated depreciation deductions we claimed
under provisions of the Tax Relief and the Small Business Jobs Acts of 2010, the American Recovery and Reinvestment Tax Act of 2009, and the
Economic Stimulus Act of 2008. Those Acts, designed to stimulate new business investment in the U.S., accelerated our depreciation deductions
for new qualifying investments, such as our new Boeing 777 Freighter (“B777F”) aircraft. These are timing benefits only, in that the depreciation
would have otherwise been recognized in later years.
The components of the provision for federal income taxes for the years ended May 31 were as follows (in millions):

2012 2011 2010
Current $ (120) $ 79 $ 36
Deferred 947 485 408

Total Federal Provision $ 827 $ 564 $ 444

For 2013, we expect our effective tax rate to be between 37.0% and 38.0%. The actual rate, however, will depend on a number of factors,
including the amount and source of operating income. We also expect our current federal income tax expense will increase in 2013, possibly
significantly, due to lower accelerated depreciation benefits than in prior years.
Additional information on income taxes, including our effective tax rate reconciliation and liabilities for uncertain tax positions, can be found in
Note 11 of the accompanying consolidated financial statements.
Business Acquisitions
During 2012, we continued to expand our FedEx Express international network. On July 25, 2011, we completed our acquisition of Servicios
Nacionales Mupa, S.A. de C.V. (MultiPack), a Mexican domestic express package delivery company, for $128 million in cash from operations.
Last year, FedEx Express completed the acquisition of the Indian logistics, distribution and express businesses of AFL Pvt. Ltd. and its affiliate
Unifreight India Pvt. Ltd. for $96 million in cash on February 22, 2011. The financial results of these acquired businesses are included in the
FedEx Express segment from the date of acquisition and were not material, individually or in the aggregate, to our results of operations or financial
condition. Substantially all of the purchase price was allocated to goodwill, which was entirely attributed to our FedEx Express reporting unit.
Subsequent to year-end, we completed the following acquisitions:

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

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

• Rapidão Cometa Logística e Transportes S.A., a Brazilian transportation and logistics company, for $398 million in cash from
operations on July 4, 2012
Based on the timing of the completion of these acquisitions in relation to the date of issuance of the financial statements, the initial purchase price
accounting was not completed for these acquisitions. The financial results of these acquired businesses will be included in the FedEx Express
segment from the date of acquisition and will be immaterial to our 2013 results. These acquisitions will give us more robust transportation
networks within these countries and added capabilities in these important global markets.

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Outlook
We anticipate revenue and earnings growth in 2013 despite only modest growth in the global economy. We believe U.S. domestic and global
economic conditions will be impacted by the European debt crisis, slowing growth in Asia, and the uncertainty these issues create on the global
economy and the demand for our services. These weaker global economic conditions have driven a shift by our customers from premium services
to our deferred services, and we expect that trend to continue in 2013.
Our anticipated earnings growth in 2013 is predicated on continued improvement in profitability at our FedEx Freight segment from yield growth
and efficiency improvements and the sustained strong performance of our FedEx Ground segment. International revenue growth and network
efficiency improvements at FedEx Express should also contribute to our earnings growth in 2013. However, significant cost headwinds in pension
expense will hamper earnings growth in 2013 as a historically low discount rate at our May 31, 2012 measurement date will increase these costs by
approximately $150 million.
During 2013, we will continue to evaluate actions and opportunities to reduce costs, improve efficiencies and adjust our networks to match
anticipated demand. Initial actions were taken in 2012, as we made the decision to retire 24 aircraft and related engines at FedEx Express to better
align the U.S. domestic air network capacity to match current and anticipated shipment volumes. In addition, we remain focused on modernizing
our aircraft fleet at FedEx Express by adding newer aircraft that are more reliable, fuel efficient and technologically advanced, and retiring older,
less-efficient aircraft. As a result of these efforts, FedEx Express is shortening the depreciable lives of the following aircraft and related engines: 31
additional Boeing MD10-10s, 18 additional Airbus A310s, four Boeing 727s (“B727”) and one Boeing MD10-30. This will accelerate the
retirement of these aircraft to align with the delivery schedule for replacement Boeing 767-300 Freighter (“B767F”) and Boeing 757-200 (“B757”)
aircraft. The accelerated depreciation on these aircraft is expected to total $69 million in 2013, with a partial offset from the avoidance of
depreciation related to the aircraft retirements (described in the “Impairment and Other Charges” section above). FedEx Express is also developing
an operating and cost structure plan during 2013 to further improve its operational efficiency.
Our capital expenditures for 2013 are expected to decrease to approximately $3.9 billion, with fewer aircraft deliveries in 2013. We will continue
to evaluate our investments in critical long-term strategic projects to ensure our capital expenditures generate high returns on investments and are
balanced with our outlook for global economic conditions. On June 29, 2012, FedEx Express entered into a supplemental agreement to purchase
nine additional B767F aircraft, exercised ten B767F options available under the December 2011 agreement and purchased the right to 15 additional
options. In conjunction with the supplemental agreement to purchase B767F aircraft, FedEx Express converted four B777F aircraft deliveries to
equivalent purchase value for B767F aircraft purchased under the supplemental agreement. For additional details on key 2013 capital projects, refer
to the “Capital Resources” and “Liquidity Outlook” sections of this MD&A.
Our outlook is dependent upon a stable pricing environment for fuel, as volatility in fuel prices impacts our fuel surcharge levels, fuel expense and
demand for our services. Historically, our fuel surcharges have largely offset incremental fuel costs; however, volatility in fuel costs may impact
earnings because adjustments to our fuel surcharges lag changes in actual fuel prices paid. Therefore, the trailing impact of adjustments to our fuel
surcharges can significantly affect our earnings either positively or negatively in the short-term.
As described in Note 17 of the accompanying consolidated financial statements and the “Independent Contractor Matters” section of our FedEx
Ground segment MD&A, we are involved in a number of lawsuits and other proceedings that challenge the status of FedEx Ground’s owner-
operators as independent contractors. FedEx Ground anticipates continuing changes to its relationships with its contractors. The nature, timing and
amount of any changes are dependent on the outcome of numerous future events. We cannot reasonably estimate the potential impact of any such
changes or a meaningful range of potential outcomes, although they could be material. However, we do not believe that any such changes will
impair our ability to operate and profitably grow our FedEx Ground business.

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See “Risk Factors” for a discussion of these and other potential risks and uncertainties that could materially affect our future performance.
Seasonality of Business
Our businesses are cyclical in nature, as seasonal fluctuations affect volumes, revenues and earnings. Historically, the U.S. express package
business experiences an increase in volumes in late November and December. International business, particularly in the Asia-to-U.S. market,
peaks in October and November in advance of the U.S. holiday sales season. Our first and third fiscal quarters, because they are summer vacation

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and post winter-holiday seasons, have historically experienced lower volumes relative to other periods. Normally, the fall is the busiest shipping
period for FedEx Ground, while late December, June and July are the slowest periods. For FedEx Freight, the spring and fall are the busiest periods
and the latter part of December, January and February are the slowest periods. For FedEx Office, the summer months are normally the slowest
periods. Shipment levels, operating costs and earnings for each of our companies can also be adversely affected by inclement weather, particularly
the impact of severe winter weather in our third fiscal quarter.
NEW ACCOUNTING GUIDANCE
New accounting rules and disclosure requirements can significantly impact our reported results and the comparability of our financial statements.
During our fiscal year, the Financial Accounting Standards Board issued new guidance to make the presentation of items within other
comprehensive income (“OCI”) more prominent. The new standard will require companies to present items of net income, items of OCI and total
comprehensive income in one continuous statement or two separate consecutive statements, and companies will no longer be allowed to present
items of OCI in the statement of stockholders’ equity. This new standard is effective for our fiscal year ending May 31, 2013.
We believe there is no additional new accounting guidance adopted but not yet effective 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.

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

FedEx Express Segment

FedEx Express (express transportation)
FedEx Trade Networks (air and ocean freight forwarding and customs brokerage)
FedEx SupplyChain Systems (logistics services)
FedEx Ground Segment

FedEx Ground (small-package ground delivery)
FedEx SmartPost (small-parcel consolidator)
FedEx Freight Segment

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

FedEx Services (sales, marketing, information technology, communications and back-office functions)
FedEx TechConnect (customer service, technical support, billings and collections)
FedEx Office (document and business services and package acceptance)
FEDEX SERVICES SEGMENT
The FedEx Services segment operates combined sales, marketing, administrative and information technology functions in shared services
operations that support our transportation businesses and allow us to obtain synergies from the combination of these functions. For the international
regions of FedEx Express, some of these functions are performed on a regional basis by FedEx Express and reported in the FedEx Express segment
in expense line items outside of intercompany charges. The FedEx Services segment includes: FedEx Services, which provides sales, marketing,
information technology, communications and back-office support to our other companies; FedEx TechConnect, which is responsible for customer
service, technical support, billings and collections for U.S. customers of our major business units; and FedEx Office, which provides an array of
document and business services and retail access to our customers for our package transportation businesses.
The FedEx Services segment provides direct and indirect support to our transportation businesses, and we allocate all of the net operating costs of
the FedEx Services segment (including the net operating results of FedEx Office) to reflect the full cost of operating our transportation businesses
in the results of those segments. Within the FedEx Services segment allocation, the net operating results of FedEx Office, which are an immaterial
component of our allocations, are allocated to FedEx Express and FedEx Ground. The allocations of net operating costs are based on metrics such
as relative revenues or estimated services provided. We believe these allocations approximate the net cost of providing these functions. We review
and evaluate the performance of our transportation segments based on operating income (inclusive of FedEx Services segment allocations). For the
FedEx Services segment, performance is evaluated based on the impact of its total allocated net operating costs on our transportation segments.
The operating expenses line item “Intercompany charges” on the accompanying unaudited financial summaries of our transportation segments

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reflects the allocations from the FedEx Services segment to the respective transportation segments. The “Intercompany charges” caption also
includes charges and credits for administrative services provided between operating companies and certain other costs such as corporate
management fees related to services received for general corporate oversight, including executive officers and certain legal and finance functions.
We believe these allocations approximate the net cost of providing these functions.

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OTHER INTERSEGMENT TRANSACTIONS
Certain FedEx operating companies provide transportation and related services for other FedEx companies outside their reportable segment.
Billings for such services are based on negotiated rates, which we believe approximate fair value, and are reflected as revenues of the billing
segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenues and expenses are eliminated in our
consolidated results and are not separately identified in the following segment information, because the amounts are not material.
FEDEX EXPRESS SEGMENT
The following tables compare revenues, operating expenses, operating expenses as a percent of revenue, operating income and operating margin
(dollars in millions) for the years ended May 31:

Percent Change
2012 2011 2010 2012/2011 2011/2010
Revenues:
Package:
U.S. overnight box $ 6,546 $ 6,128 $ 5,602 7 9
U.S. overnight envelope 1,747 1,736 1,640 1 6
U.S. deferred 3,001 2,805 2,589 7 8

Total U.S. domestic package revenue 11,294 10,669 9,831 6 9
International priority 8,708 8,228 7,087 6 16
International domestic 853 653 578 31 13

Total package revenue 20,855 19,550 17,496 7 12
Freight:
U.S. 2,498 2,188 1,980 14 11
International priority 1,827 1,722 1,303 6 32
International airfreight 307 283 251 8 13

Total freight revenue 4,632 4,193 3,534 10 19
Other 1,028 838 525 23 60

Total revenues 26,515 24,581 21,555 8 14
Operating expenses:
Salaries and employee benefits 9,657 9,183 8,402 5 9
Purchased transportation 1,828 1,573 1,177 16 34
Rentals and landing fees 1,680 1,672 1,577 — 6
Depreciation and amortization 1,169 1,059 1,016 10 4
Fuel 4,304 3,553 2,651 21 34
Maintenance and repairs 1,332 1,353 1,131 (2) 20
Impairment and other charges 134 — — NM —
Intercompany charges 2,193 2,043 1,940 7 5
Other 2,958 2,917 2,534 1 15

Total operating expenses 25,255 23,353 20,428 8 14

Operating income $ 1,260 $ 1,228 $ 1,127 3 9

Operating margin 4.8% 5.0% 5.2% (20)bp (20)bp

International priority includes FedEx International Priority and FedEx International Economy services.

International domestic revenues include our international intra-country domestic express operations, including acquisitions in India (February
2011) and Mexico (July 2011).

Other revenues include FedEx Trade Networks and, beginning in the second quarter of 2010, FedEx SupplyChain Systems.

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Represents charges resulting from the decision to retire 24 aircraft and related engines.

Includes the 2012 reversal of a $66 million legal reserve associated with the ATA Airlines lawsuit which was initially recorded in 2011 (See
Note 17 of the accompanying consolidated financial statements).

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Percent of Revenue
2012 2011 2010
Operating expenses:
Salaries and employee benefits 36.4% 37.4% 39.0%
Purchased transportation 6.9 6.4 5.5
Rentals and landing fees 6.3 6.8 7.3
Depreciation and amortization 4.4 4.3 4.7
Fuel 16.2 14.4 12.3
Maintenance and repairs 5.0 5.5 5.2
Impairment and other charges 0.5 — —
Intercompany charges 8.3 8.3 9.0
Other 11.2 11.9 11.8

Total operating expenses 95.2 95.0 94.8

Operating margin 4.8% 5.0% 5.2%

Represents charges resulting from the decision to retire 24 aircraft and related engines.

Includes the 2012 reversal of a $66 million legal reserve associated with the ATA Airlines lawsuit which was initially recorded in 2011 (See
Note 17 of the accompanying consolidated financial statements).
The following table compares selected statistics (in thousands, except yield amounts) for the years ended May 31:

Percent Change
2012 2011 2010 2012/2011 2011/2010
Package Statistics
Average daily package volume (ADV):
U.S. overnight box 1,146 1,184 1,157 (3) 2
U.S. overnight envelope 586 627 614 (7) 2
U.S. deferred 845 873 867 (3) 1

Total U.S. domestic ADV 2,577 2,684 2,638 (4) 2
International priority 559 575 523 (3) 10
International domestic 495 348 318 42 9

Total ADV 3,631 3,607 3,479 1 4

Revenue per package (yield):
U.S. overnight box $ 22.31 $ 20.29 $ 19.00 10 7
U.S. overnight envelope 11.65 10.86 10.47 7 4
U.S. deferred 13.87 12.60 11.70 10 8
U.S. domestic composite 17.12 15.59 14.61 10 7
International priority 60.83 56.08 53.10 8 6
International domestic 6.74 7.38 7.14 (9) 3
Composite package yield 22.44 21.25 19.72 6 8
Freight Statistics
Average daily freight pounds:
U.S. 7,487 7,340 7,141 2 3
International priority 3,303 3,184 2,544 4 25
International airfreight 1,171 1,235 1,222 (5) 1

Total average daily freight pounds 11,961 11,759 10,907 2 8

Revenue per pound (yield):
U.S. $ 1.30 $ 1.17 $ 1.09 11 7
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International priority 2.16 2.12 2.01 2 5
International airfreight 1.02 0.90 0.81 13 11
Composite freight yield 1.51 1.40 1.27 8 10

Package and freight statistics include only the operations of FedEx Express.

International priority includes FedEx International Priority and FedEx International Economy services.

International domestic statistics include our international intra-country domestic express operations, including acquisitions in India (February
2011) and Mexico (July 2011).

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FedEx Express Segment Revenues
FedEx Express segment revenues increased 8% in 2012 primarily due to an increase in U.S. domestic and IP package yields, partially offset by
decreases in U.S. domestic and IP package volumes. In 2012, U.S. domestic package yields increased 10% due to higher fuel surcharges and
increased rate per pound. IP package yields increased 8% in 2012 due to higher fuel surcharges, increased package weights and increased rate per
pound. Continued softness in the global economy resulted in decreased demand for our U.S. domestic and IP package services in 2012. IP revenue
growth was negatively impacted by a lower-yielding mix of services, consisting of growth in deferred services and declines in premium services.
FedEx Express segment revenues increased 14% in 2011 on higher yields and volumes. In 2011, IP package volume increased 10% led by volume
growth from Asia, Europe and the U.S. FedEx Express U.S. domestic package yields increased 7% due to higher fuel surcharges, rate increases
and increased package weights. IP package yields increased 6% due to higher fuel surcharges, increased package weights and favorable exchange
rates. International priority freight pounds increased 25% led by volume growth in Europe.
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 years ended May 31:

2012 2011 2010
U.S. Domestic and Outbound Fuel Surcharge:
Low 11.50% 7.00% 1.00%
High 16.50 15.50 8.50
Weighted-average 14.23 9.77 6.20
International Fuel Surcharges:
Low 13.50 7.00 1.00
High 23.00 21.00 13.50
Weighted-average 17.45 12.36 9.47
In January 2012, we implemented a 5.9% average list price increase for FedEx Express U.S. domestic, U.S. export and U.S. import services, while
we lowered our fuel surcharge index by two percentage points. In January 2011, we implemented a 5.9% average list price increase on FedEx
Express U.S. domestic and U.S. outbound express package and freight shipments and made various changes to other surcharges, while we lowered
our fuel surcharge index by two percentage points.
FedEx Express Segment Operating Income
FedEx Express segment operating income increased 3% in 2012 primarily due to the benefit from the timing lag that exists between when fuel
prices change and when indexed fuel surcharges automatically adjust and U.S. domestic and IP package yield improvements. Results of the FedEx
Express segment reflect the impact of two one-time items in 2012. FedEx Express segment results for 2012 were negatively impacted by $134
million as a result of the decision to retire from service 18 Airbus A310-200 aircraft and 26 related engines as well as six Boeing MD10-10 aircraft
and 17 related engines to better align the U.S. domestic air network capacity of FedEx Express to match current and anticipated shipment volumes.
The 2012 operating results at the FedEx Express segment were favorably impacted by the reversal of a legal reserve of $66 million associated with
the ATA Airlines lawsuit which was initially recorded in 2011 (see Note 17 of the accompanying consolidated financial statements). FedEx
Express segment results also benefited from a milder winter compared to the negative impact of unusually severe winter weather in 2011.
Salaries and employee benefits increased 5% in 2012 due to higher incentive compensation accruals and the full reinstatement of
401(k) company-matching contributions effective January 1, 2011. Purchased transportation costs increased 16% in 2012 due to costs associated
with the expansion of our freight forwarding business at FedEx Trade Networks, recent business acquisitions in India and Mexico and higher
utilization of third-party transportation providers, primarily in Europe. Intercompany charges increased 7% in 2012 due to higher allocated variable
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incentive compensation expenses.

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Fuel costs increased 21% in 2012 due to increases in the average price per gallon of fuel. Fuel usage in 2012 was down slightly.
FedEx Express segment operating income increased in 2011 due to yield and volume growth, particularly in our higher-margin IP package
services, although operating margin was down slightly. Higher revenues in 2011 were partially offset by higher retirement plans and medical
expenses, increased aircraft maintenance costs, the reinstatement of certain employee compensation programs, and the negative impact of severe
weather during the second half of the year. Results in 2011 were also negatively impacted by a legal reserve associated with the ATA Airlines
lawsuit (see Note 17 of the accompanying consolidated financial statements).
Salaries and benefits increased 9% in 2011 due to volume-related increases in labor hours, the reinstatement of several employee compensation
programs including merit salary increases, higher pension and medical costs, and full 401(k) company-matching contributions. Purchased
transportation costs increased 34% in 2011 due to costs associated with the expansion of our freight forwarding business at FedEx Trade Networks
and IP package and freight volume growth. Other operating expenses increased 15% due to volume-related expenses and the ATA Airlines legal
reserve. Maintenance and repairs expense increased 20% in 2011 primarily due to an increase in aircraft maintenance expenses as a result of timing
of maintenance events and higher utilization of our fleet driven by increased volumes.
Fuel costs increased 34% in 2011 due to increases in the average price per gallon of fuel and fuel consumption driven by volume increases. 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
positive impact in 2011. This analysis considers the estimated impact of the reduction in fuel surcharges included in the base rates charged for
FedEx Express services.
FedEx Express Segment Outlook
We expect increased revenues in 2013 at the FedEx Express segment in our international services and moderately improved yields across all our
services as we continue to focus on our yield management programs. We anticipate a slight decline in U.S domestic package revenue in 2013 due
to lower volumes.
FedEx Express segment operating income and operating margin are expected to increase modestly in 2013, on continued growth in international
revenues led by IP package services. We also expect improved operating results due to productivity enhancements such as continued improvement
in on-road productivity, air operations initiatives and continued realignment of our network. FedEx Express is developing an operating and cost
structure plan during 2013 to further improve its operational efficiency.
We will continue to modernize our aircraft fleet at FedEx Express during 2013 by adding newer aircraft that are more reliable, fuel efficient and
technologically advanced, and retiring older, less-efficient aircraft. Due to the accelerated retirement of 54 aircraft and related engines to better
align with the delivery schedule for replacement aircraft, we expect an additional $69 million in depreciation expense in 2013, partially offset from
the avoidance of depreciation related to aircraft retirements (See the “Outlook” section for additional information).
Capital expenditures at FedEx Express are expected to decrease in 2013 as we have delayed the delivery of two B777F aircraft from 2013 related
to our aircraft modernization programs (see “Liquidity Outlook” for additional information) which will improve reliability, increase fuel efficiency
and reduce operating costs in future years.

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FEDEX GROUND SEGMENT
The following tables compare revenues, operating expenses, operating expenses as a percent of revenue, operating income and operating margin
(dollars in millions) and selected package statistics (in thousands, except yield amounts) for the years ended May 31:

Percent Change
2012 2011 2010 2012/2011 2011/2010
Revenues:
FedEx Ground $ 8,791 $ 7,855 $ 6,958 12 13
FedEx SmartPost 782 630 481 24 31

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Total revenues 9,573 8,485 7,439 13 14
Operating expenses:
Salaries and employee benefits 1,451 1,282 1,158 13 11
Purchased transportation 3,762 3,431 2,966 10 16
Rentals 284 263 244 8 8
Depreciation and amortization 389 337 334 15 1
Fuel 14 12 8 17 50
Maintenance and repairs 176 169 166 4 2
Intercompany charges 978 897 795 9 13
Other 755 769 744 (2) 3

Total operating expenses 7,809 7,160 6,415 9 12

Operating income $ 1,764 $ 1,325 $ 1,024 33 29

Operating margin 18.4% 15.6% 13.8% 280bp 180bp
Average daily package volume:
FedEx Ground 3,907 3,746 3,523 4 6
FedEx SmartPost 1,692 1,432 1,222 18 17
Revenue per package (yield):
FedEx Ground $ 8.77 $ 8.17 $ 7.73 7 6
FedEx SmartPost $ 1.81 $ 1.72 $ 1.56 5 10
Percent of Revenue
2012 2011 2010
Operating expenses:
Salaries and employee benefits 15.2% 15.1% 15.5%
Purchased transportation 39.3 40.4 39.9
Rentals 3.0 3.1 3.3
Depreciation and amortization 4.1 4.0 4.5
Fuel 0.1 0.1 0.1
Maintenance and repairs 1.8 2.0 2.2
Intercompany charges 10.2 10.6 10.7
Other 7.9 9.1 10.0

Total operating expenses 81.6 84.4 86.2

Operating margin 18.4% 15.6% 13.8%

FedEx Ground Segment Revenues
During 2012, FedEx Ground segment revenues increased 13% due to yield and volume growth at both FedEx Ground and FedEx SmartPost.

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FedEx Ground yields increased 7% during 2012 primarily due to rate increases, higher fuel surcharges and higher extra service revenue. Average
daily package volume increased 4% at FedEx Ground in 2012 due to market share gains from continued growth in our FedEx Home Delivery
service and an increase in our commercial business.
At FedEx SmartPost, yields increased 5% in 2012 primarily due to higher fuel surcharges and increased rates, partially offset by an unfavorable
service mix. FedEx SmartPost yield represents the amount charged to customers net of postage paid to the United States Postal Service (“USPS”).
Average daily volume increased 18% at FedEx SmartPost in 2012 as a result of growth in e-commerce.
FedEx Ground segment revenues increased 14% during 2011 due to volume and yield increases at both FedEx Ground and FedEx SmartPost.
FedEx Ground average daily package volume increased 6% during 2011 due to continued growth in our commercial business and our FedEx Home
Delivery service. The 6% yield improvement at FedEx Ground during 2011 was primarily due to rate increases, higher fuel surcharges and higher
extra service revenue, particularly in residential surcharges.

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FedEx SmartPost average daily volume grew 17% during 2011 primarily as a result of growth in e-commerce business, gains in market share and
the introduction of new service offerings. Yields increased 10% during 2011 primarily due to growth in higher yielding services, improved fuel
surcharges and lower postage costs as a result of increased deliveries to USPS final destination facilities.
The FedEx Ground fuel surcharge is based on a rounded average of the national U.S. on-highway average price for a gallon of diesel fuel, as
published by the Department of Energy. Our fuel surcharge ranged as follows for the years ended May 31:

2012 2011 2010
Low 7.50% 5.50% 2.75%
High 9.50 8.50 5.50
Weighted-average 8.46 6.20 4.23
In January 2012 and 2011, FedEx Ground and FedEx Home Delivery implemented a 4.9% average list price increase. The full average rate increase
of 5.9% was partially offset by adjusting the fuel price threshold at which the fuel surcharge begins, reducing the fuel surcharge by one percentage
point. FedEx SmartPost rates also increased. In January 2011, FedEx Ground made additional changes to dimensional weight charges and
surcharges.
FedEx Ground Segment Operating Income
FedEx Ground segment operating income increased 33% and operating margin increased 280 basis points during 2012 primarily due to higher
yields and volume growth. FedEx Ground has continued to shorten transit times throughout 2012 by accelerating various lanes throughout the U.S.
and Canada, while maintaining consistently high on-time service. Purchased transportation costs increased 10% in 2012 primarily as a result of
volume growth and higher fuel surcharges. Salaries and employee benefits increased 13% primarily due to increased staffing to support volume
growth and higher incentive compensation accruals. Intercompany charges increased 9% in 2012 primarily due to higher allocated information
technology costs. Depreciation expense increased 15% in 2012 due to higher capital spending across the network, including technology and
transportation equipment upgrades and an initiative to replace lighting fixtures throughout the network in order to reduce energy costs.
During 2011, FedEx Ground segment operating income increased 29% and operating margin increased 180 basis points due to improved yield and
higher volume resulting from market share growth. We realized a higher retention of our annual rate increase in 2011 as more customers
recognized the competitive advantage that we maintain across many shipping lanes in the U.S. We also improved our customers’ experience by
dramatically reducing our package loss and damage claims while maintaining exceptional service levels. Purchased transportation costs increased
16% in 2011 primarily due to volume growth, higher fuel surcharges and

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higher rates paid to our independent contractors. Salaries and employee benefits increased 11% in 2011 due primarily to increased staffing at
FedEx Ground and FedEx SmartPost to support volume growth and higher pension and medical costs. Intercompany charges increased in 2011
primarily due to higher allocated information technology costs.
Evolution of Independent Contractor Model
Although FedEx Ground is involved in numerous lawsuits and other proceedings (such as state tax audits or other administrative challenges) where
the classification of its independent contractors is at issue, a number of recent judicial decisions support our classification, and we believe our
relationship with the contractors is generally excellent. For a description of these proceedings, see “Risk Factors” and Note 17 of the accompanying
consolidated financial statements.
FedEx Ground has made changes to its relationships with contractors that, among other things, provide incentives for improved service and
enhanced regulatory and other compliance by the contractors. For example, FedEx Ground has implemented or is implementing its Independent
Service Provider (“ISP”) model in a number of states. To date, FedEx Ground has transitioned to the ISP model in 17 states. Based upon the
success of this model, FedEx Ground may transition to it in some other states in the future. For more information on the FedEx Ground ISP model,
see Part I, Item 1 of this Annual Report under the caption “Evolution of Independent Contractor Model.”
FedEx Ground Segment Outlook
FedEx Ground segment revenues are expected to continue to grow in 2013, led by volume growth across all our major services due to market share
gains while continuing to improve U.S. transit times on additional lanes. We also anticipate yield growth in 2013 through yield management
programs.
We expect continued growth in operating income at the FedEx Ground segment in 2013 due to volume and yield increases as well as through

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productivity enhancements such as automation of the planning and execution of our preload, pickup and delivery processes, and installation of GPS
devices on all trailers and dollies to improve fleet management.
Capital spending is expected to increase in 2013, with the majority of our spending resulting from our hub expansions, and vehicle and equipment
purchases.
We will continue to vigorously defend various attacks against our independent contractor model and incur ongoing legal costs as a part of this
process. While we believe that FedEx Ground’s owner-operators are properly classified as independent contractors, it is reasonably possible that
we could incur a material loss in connection with one or more of these matters or be required to make material changes to our contractor model.
However, we do not believe that any such changes will impair our ability to operate and profitably grow our FedEx Ground business.

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FEDEX FREIGHT SEGMENT
The following tables compare revenues, operating expenses, operating expenses as a percent of revenue, operating loss and operating margin
(dollars in millions) and selected statistics for the years ended May 31:

Percent Change
2012 2011 2010 2012/2011 2011/2010
Revenues $ 5,282 $ 4,911 $ 4,321 8 14
Operating expenses:
Salaries and employee benefits 2,316 2,303 2,128 1 8
Purchased transportation 851 779 690 9 13
Rentals 114 122 116 (7) 5
Depreciation and amortization 185 205 198 (10) 4
Fuel 636 585 445 9 31
Maintenance and repairs 192 182 148 5 23
Impairment and other charges — 89 18 NM 394
Intercompany charges 433 427 351 1 22
Other 393 394 380 — 4

Total operating expenses 5,120 5,086 4,474 1 14

Operating income (loss) $ 162 $ (175) $ (153) 193 (14)

Operating margin 3.1% (3.6)% (3.5)% 670bp (10)bp
Average daily LTL shipments (in thousands) 84.9 86.0 82.3 (1) 4
Weight per LTL shipment (lbs) 1,156 1,144 1,134 1 1
LTL yield (revenue per hundredweight) $ 19.57 $ 18.24 $ 17.07 7 7

In 2011, this charge includes severance, impairment and other charges associated with the combination of our FedEx Freight and FedEx
National LTL operations, effective January 30, 2011. In 2010, this charge represents impairment charges associated with goodwill related to
the FedEx National LTL acquisition.

Percent of Revenue
2012 2011 2010
Operating expenses:
Salaries and employee benefits 43.9% 46.9% 49.2%
Purchased transportation 16.1 15.9 16.0
Rentals 2.2 2.5 2.7
Depreciation and amortization 3.5 4.2 4.6
Fuel 12.0 11.9 10.3
Maintenance and repairs 3.6 3.7 3.4
Impairment and other charges — 1.8 0.4
Intercompany charges 8.2 8.7 8.1
Other 7.4 8.0 8.8

Total operating expenses 96.9 103.6 103.5

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Operating margin 3.1% (3.6)% (3.5)%

In 2011, this charge includes severance, impairment and other charges associated with the combination of our FedEx Freight and FedEx
National LTL operations, effective January 30, 2011. In 2010, this charge represents impairment charges associated with goodwill related to
the FedEx National LTL acquisition.
FedEx Freight Segment Revenues
During 2012, FedEx Freight revenues increased 8% due to increased LTL yield and weight per LTL shipment, partially offset by lower average
daily LTL shipments. LTL yield increased 7% during 2012 due to higher fuel surcharges and base yield improvement. Average daily LTL
shipments decreased 1% in 2012; however, during the second half of 2012, LTL shipment year-over-year comparisons improved sequentially (2%
in the third quarter and 4% in the fourth quarter) due to enhanced service levels, strong customer satisfaction from our service offerings and the
impact of severe weather in the prior year.

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FedEx Freight segment revenues increased 14% in 2011 due to higher LTL yield and average daily LTL shipments. LTL yields increased 7% in
2011 due to our yield management programs and higher fuel surcharges. Under these programs, LTL yields increased sequentially in each of the
previous four quarters, while average daily LTL shipments fell during the second half of 2011. For the full year, average daily LTL shipments
increased 4% in 2011 primarily due to volume increases during the first half of 2011 resulting from the impact of discounted pricing in contracts
signed during 2010.
The indexed LTL fuel surcharge is based on the average of the national U.S. on-highway average price for a gallon of diesel fuel, as published by
the Department of Energy. The indexed LTL fuel surcharge ranged as follows for the years ended May 31:

2012 2011 2010
Low 19.80% 15.10% 10.80%
High 24.30 20.70 16.10
Weighted-average 22.90 17.00 14.00
On June 8, 2012, FedEx Freight announced a general rate increase of 6.9% for LTL shipments to be effective on July 9, 2012. In June 2011, FedEx
Freight increased the fuel surcharge rate to a maximum of 3.6 percentage points above previous levels. In September 2011, we implemented a
general rate increase of 6.75% for LTL shipments. In November 2010, we implemented a 6.9% general rate increase for LTL shipments.
FedEx Freight Segment Operating Income (Loss)
In 2012, the FedEx Freight segment operating income increased significantly as a result of higher fuel surcharges, yield growth and ongoing
improvements in operational efficiencies due to the combination of our FedEx Freight and FedEx National LTL operations in 2011 (see below).
Additionally, the FedEx Freight segment’s 2012 results benefited from milder winter weather, while our 2011 results were negatively impacted by
unusually severe winter weather.
Purchased transportation costs increased 9% in 2012 due to higher rates and the increased utilization of rail, partially offset by a lower cost per
mile due to our ability to optimize mode of transportation while meeting service standards. Fuel costs increased 9% in 2012 due to a higher
average price per gallon of diesel fuel partially offset by the increased utilization of rail. 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 positive impact to operating income in 2012.
Depreciation and amortization expense decreased 10% in 2012 primarily due to accelerated depreciation in 2011 associated with the combination
of our LTL operations.
The FedEx Freight segment operating loss in 2011 included costs associated with the combination of our FedEx Freight and FedEx National LTL
operations and the significant impact from severe weather in the second half of the year. We incurred costs associated with the combination of
$133 million in 2011, including $89 million recorded in the “Impairment and other charges” caption of the consolidated income statement.
Salaries and employee benefits increased 8% in 2011 primarily due to volume-related increases in labor, wage increases, higher healthcare and
pension costs, and the reinstatement of full 401(k) company-matching contributions. Purchased transportation costs increased 13% in 2011 due to
higher shipment volumes and higher rates. Fuel costs increased 31% in 2011 due to a higher average price per gallon of diesel fuel and increased
fuel consumption as a result of higher shipment volumes. 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 slightly

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favorable impact to operating income in 2011. Maintenance and repairs expense increased 23% in 2011 due to higher volumes and the aging of
our fleet. Also, higher intercompany charges in 2011 reflect the transfer of sales and customer service employees from the FedEx Freight segment
entities in the first quarter of 2010.
FedEx Freight Segment Outlook
We expect revenue growth at the FedEx Freight segment in 2013 as customers increase their utilization of our integrated network. In addition, we
expect yield and volume improvement driven by the unique value proposition of our differentiated LTL services.
FedEx Freight operating income is expected to increase significantly in 2013 driven by improvements in yields and the continued improvement in
productivity and efficiency across our integrated network. We will continue to use investments in technology, focused on network and equipment
planning and customer automation, to further enhance customer service levels throughout 2013.
Capital expenditures in 2013 are expected to be comparable to 2012, with the majority of our spending for replacement of vehicles and freight
handling equipment.
FINANCIAL CONDITION
LIQUIDITY
Cash and cash equivalents totaled $2.8 billion at May 31, 2012, compared to $2.3 billion at May 31, 2011. The following table provides a
summary of our cash flows for the periods ended May 31 (in millions):

2012 2011 2010
Operating activities:
Net income $ 2,032 $ 1,452 $ 1,184
Impairment and other charges 134 29 18
Other noncash charges and credits 3,504 2,892 2,514
Changes in assets and liabilities (835) (332) (578)

Cash provided by operating activities 4,835 4,041 3,138

Investing activities:
Capital expenditures (4,007) (3,434) (2,816)
Business acquisitions, net of cash acquired (116) (96) —
Proceeds from asset dispositions and other 74 111 35

Cash used in investing activities (4,049) (3,419) (2,781)

Financing activities:
Purchase of treasury stock (197) — —
Principal payments on debt (29) (262) (653)
Dividends paid (164) (151) (138)
Other 146 126 99

Cash used in financing activities (244) (287) (692)
Effect of exchange rate changes on cash (27) 41 (5)

Net increase (decrease) in cash and cash equivalents $ 515 $ 376 $ (340)

Cash Provided by Operating Activities. Cash flows from operating activities increased $794 million in 2012 primarily due to increased earnings,
partially offset by higher pension contributions. Cash flows from operating activities increased $903 million in 2011 primarily due to increased
earnings and lower pension contributions.

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We made contributions of $722 million to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”) during 2012, including $226
million in voluntary contributions, and contributions of $480 million to our U.S. Pension Plans during 2011, including $121 million in voluntary
contributions. We made contributions of $848 million to our U.S. Pension Plans during 2010, including $495 million in voluntary contributions.
Cash Used in Investing Activities. Capital expenditures were 17% higher in 2012 largely due to increased spending at FedEx Express and FedEx
Freight and 22% higher in 2011 primarily due to increased spending at FedEx Express. See “Capital Resources” for a discussion of capital
expenditures during 2012 and 2011.
Financing Activities. During the second quarter of 2012, we repurchased 2.8 million FedEx common shares at an average price of $70 per share for
a total of $197 million. As of May 31, 2012, 2.9 million shares remained under existing share repurchase authorizations.
During 2011, we repaid our $250 million 7.25% notes that matured on February 15, 2011.
CAPITAL RESOURCES
Our operations are capital intensive, characterized by significant investments in aircraft, vehicles, technology, facilities, and package-handling and
sort equipment. The amount and timing of capital additions depend on various factors, including pre-existing contractual commitments, anticipated
volume growth, domestic and international economic conditions, new or enhanced services, geographical expansion of services, availability of
satisfactory financing and actions of regulatory authorities.
The following table compares capital expenditures by asset category and reportable segment for the years ended May 31 (in millions):

Percent Change
2012 2011 2010 2012/2011 2011/2010
Aircraft and related equipment $ 1,875 $ 1,988 $ 1,537 (6) 29
Facilities and sort equipment 638 555 630 15 (12)
Vehicles 723 282 220 156 28
Information and technology investments 541 455 289 19 57
Other equipment 230 154 140 49 10

Total capital expenditures $ 4,007 $ 3,434 $ 2,816 17 22

FedEx Express segment $ 2,689 $ 2,467 $ 1,864 9 32
FedEx Ground segment 536 426 400 26 7
FedEx Freight segment 340 153 212 122 (28)
FedEx Services segment 437 387 340 13 14
Other 5 1 — NM NM

Total capital expenditures $ 4,007 $ 3,434 $ 2,816 17 22

Capital expenditures during 2012 were higher than the prior year primarily due to increased spending for vehicles at FedEx Express, FedEx Freight
and FedEx Ground, although spending for aircraft and related equipment at FedEx Express decreased. Aircraft and aircraft-related equipment
purchases at FedEx Express during 2012 included the delivery of seven B777Fs and 15 B757s. Capital expenditures during 2011 were higher than
the prior year primarily due to increased spending at FedEx Express for aircraft and aircraft-related equipment and at FedEx Services for
information technology investments. Aircraft and aircraft-related equipment purchases at FedEx Express during 2011 included six new B777Fs and
22 B757s.

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LIQUIDITY OUTLOOK
We believe that our existing cash and cash equivalents, cash flow from operations, and available financing sources will be adequate to meet our
liquidity needs, including working capital, capital expenditure requirements and debt payment obligations. Our cash and cash equivalents balance
at May 31, 2012 includes $410 million of cash in offshore jurisdictions associated with our permanent reinvestment strategy. We do not believe
that the indefinite reinvestment of these funds offshore impairs our ability to meet our domestic debt or working capital obligations.
We have a shelf registration statement filed with the Securities and Exchange Commission (“SEC”) that allows us to sell, in one or more future
offerings, any combination of our unsecured debt securities and common stock. Historically, we have been successful in obtaining unsecured
financing, from both domestic and international sources, although the marketplace for such investment capital can become restricted depending on
a variety of economic factors.

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A $1 billion revolving credit facility is available to finance our operations and other cash flow needs and to provide support for the issuance of
commercial paper. The revolving credit agreement expires in April 2016. The agreement contains a financial covenant, which requires us to
maintain a leverage ratio of adjusted debt (long-term debt, including the current portion of such debt, plus six times our last four fiscal quarters’
rentals and landing fees) to capital (adjusted debt plus total common stockholders’ investment) that does not exceed 70%. Our leverage ratio of
adjusted debt to capital was 53% at May 31, 2012. We believe the leverage ratio covenant is our only significant restrictive covenant in our
revolving credit agreement. Our revolving credit agreement contains other customary covenants that do not, individually or in the aggregate,
materially restrict the conduct of our business. We are in compliance with the leverage ratio covenant and all other covenants of our revolving
credit agreement and do not expect the covenants to affect our operations, including our liquidity or expected funding needs. As of May 31, 2012,
no commercial paper was outstanding, and the entire $1 billion under the revolving credit facility was available for future borrowings.
Standard & Poor’s has assigned us a senior unsecured debt credit rating of BBB, commercial paper rating of A-2 and a ratings outlook of “stable.”
During 2012, Moody’s Investors Service raised our senior unsecured debt credit rating to Baa1 from Baa2 and affirmed a commercial paper rating
of P-2 and a ratings outlook of “stable.” If our credit ratings drop, our interest expense may increase. If our commercial paper ratings drop below
current levels, we may have difficulty utilizing the commercial paper market. If our senior unsecured debt credit ratings drop below investment
grade, our access to financing may become limited.
Subsequent to year-end, we completed acquisitions in Poland, Brazil and France for approximately $500 million (see “Business Acquisitions” for
additional information), and on June 15, 2012, we repaid our $300 million 9.65% unsecured notes when they matured.
Our capital expenditures are expected to be $3.9 billion in 2013. We anticipate that our cash flow from operations will be sufficient to fund our
capital expenditures in 2013, which will include spending for aircraft and aircraft-related equipment at FedEx Express, sort facility expansion at
FedEx Express and FedEx Ground and vehicle replacement at all our transportation segments. We expect approximately 46% of capital
expenditures in 2013 will be designated for growth initiatives and 54% dedicated to maintaining our existing operations. Our capital expenditures
are expected to decrease in 2013 due to delayed delivery of two B777F aircraft (see below) partially offset by increased spending on facility
investment. Our expected capital expenditures for 2013 include $1.3 billion in investments for delivery of aircraft as well as progress payments
toward future aircraft deliveries at FedEx Express. For 2013, we anticipate making required contributions to our U.S. Pension Plans totaling
approximately $550 million. Our U.S. Pension Plans have ample funds to meet expected benefit payments.
We have several aircraft modernization programs underway which are supported by the purchase of B777F, B767F and B757 aircraft. These
aircraft are significantly more fuel-efficient per unit than the aircraft type previously utilized, and these expenditures are necessary to achieve
significant long-term operating savings and to support projected long-term international volume growth. Our ability to delay the timing of these
aircraft-related expenditures is limited without incurring significant costs to modify existing purchase agreements. We will have a benefit from the
tax expensing and accelerated depreciation provisions of the Tax Relief Act of 2010 on qualifying capital investments we make until December 31,
2012.

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B777F Aircraft. We have agreed to purchase a total of 43 B777F aircraft (19 of which were in service at May 31, 2012, and an additional four to
be delivered in 2013). During the second quarter of 2012, FedEx Express delayed the delivery of two B777F aircraft from 2013, and in conjunction
with the execution of the December 2011 B767F aircraft purchase agreement (described below), also delayed the delivery of nine B777F aircraft,
five of which were deferred from 2014 and one per year from 2015 to 2018, to better align air network capacity to demand. FedEx Express also
exercised two B777F options for aircraft to be delivered at the end of the delivery schedule.
In conjunction with the June 29, 2012 supplemental agreement to purchase B767F aircraft (described below), we agreed to convert four contracted
B777F aircraft deliveries that were subject to the Railway Labor Act of 1926, as amended (“RLA”) (two scheduled for delivery in fiscal 2016 and
two scheduled for delivery in fiscal 2017) to equivalent purchase value for B767F aircraft acquired under the supplemental agreement referenced
below.
With consideration of the supplemental agreement, our obligation to purchase 9 of these B777F aircraft is conditioned upon there being no event
that causes FedEx Express or its employees not to be covered by the RLA.
B767F Aircraft. We have agreed to purchase a total of 46 B767F aircraft (the first three to be delivered in 2014). In December 2011, FedEx
Express entered into an agreement to acquire 27 new B767F aircraft, with the first three arriving in 2014 followed by six per year from 2015 to
2018. The B767F was selected as the best choice to begin replacing FedEx Express’s MD10 aircraft, some of which are more than 40 years old.
The B767Fs will provide similar capacity as the MD10s, with improved reliability, an approximate 30% increase in fuel efficiency and a minimum
of a 20% reduction in unit operating costs.
On June 29, 2012, FedEx Express entered into a supplemental agreement to purchase nine additional B767F aircraft. Additionally, FedEx Express
exercised ten B767F options available under the December 2011 agreement and purchased the right to 15 additional options. Four of these 19

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additional B767F aircraft purchases are subject to the RLA condition. These 19 additional B767F aircraft are expected to be delivered from fiscal
2015 to 2019 and will replace current MD10-10 and A310-200 aircraft.
B757 Aircraft. Our B757 aircraft are replacing our B727 aircraft, and we expect to be completely transitioned out of the B727 aircraft by 2015.

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CONTRACTUAL CASH OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
The following table sets forth a summary of our contractual cash obligations as of May 31, 2012. Certain of these contractual obligations are
reflected in our balance sheet, while others are disclosed as future obligations under accounting principles generally accepted in the United States.
Except for the current portion of long-term debt and capital lease obligations, this table does not include amounts already recorded in our balance
sheet as current liabilities at May 31, 2012. We have certain contingent liabilities that are not accrued in our balance sheet in accordance with
accounting principles generally accepted in the United States. These contingent liabilities are not included in the table below. We have other long-
term liabilities reflected in our balance sheet, including deferred income taxes, qualified and nonqualified pension and postretirement healthcare
plan liabilities and other self-insurance accruals. The payment obligations associated with these liabilities are not reflected in the table below due to
the absence of scheduled maturities. Accordingly, this table is not meant to represent a forecast of our total cash expenditures for any of the periods
presented.

Payments Due by Fiscal Year (Undiscounted)
(in millions)
2013 2014 2015 2016 2017 Thereafter Total
Operating activities:
Operating leases $ 1,872 $ 1,725 $ 1,572 $ 1,391 $ 1,433 $ 5,993 $ 13,986
Non-capital purchase obligations and other 173 191 139 78 52 134 767
Interest on long-term debt 98 97 78 78 78 1,581 2,010
Quarterly contributions to our U.S. Pension Plans 550 — — — — — 550
Investing activities:
Aircraft and aircraft-related capital commitments 965 558 824 912 1,009 5,166 9,434
Other capital purchase obligations 127 — — — — — 127
Financing activities:
Debt 300 250 — — — 989 1,539
Capital lease obligations 120 2 2 1 1 11 137

Total $ 4,205 $ 2,823 $ 2,615 $ 2,460 $ 2,573 $ 13,874 $ 28,550

Open purchase orders that are cancelable are not considered unconditional purchase obligations for financial reporting purposes and are not
included in the table above. Such purchase orders often represent authorizations to purchase rather than binding agreements. See Note 16 of the
accompanying consolidated financial statements for more information.
Operating Activities
In accordance with accounting principles generally accepted in the United States, future contractual payments under our operating leases (totaling
$14 billion on an undiscounted basis) are not recorded in our balance sheet. Credit rating agencies routinely use information concerning minimum
lease payments required for our operating leases to calculate our debt capacity. The amounts reflected in the table above for operating leases
represent future minimum lease payments under noncancelable operating leases (principally aircraft and facilities) with an initial or remaining term
in excess of one year at May 31, 2012. In the past, we financed a significant portion of our aircraft needs (and certain other equipment needs) using
operating leases (a type of “off-balance sheet financing”). At the time that the decision to lease was made, we determined that these operating
leases would provide economic benefits favorable to ownership with respect to market values, liquidity or after-tax cash flows.
The amounts reflected for purchase obligations represent noncancelable agreements to purchase goods or services that are not capital-related. Such
contracts include those for printing and advertising and promotions contracts.

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Included in the table above within the caption entitled “Non-capital purchase obligations and other” is our estimate of the current portion of the
liability ($1 million) for uncertain tax positions. We cannot reasonably estimate the timing of the long-term payments or the amount by which the
liability will increase or decrease over time; therefore, the long-term portion of the liability ($50 million) is excluded from the table. See Note 11 of
the accompanying consolidated financial statements for further information.
The amounts reflected in the table above for interest on long-term debt represent future interest payments due on our long-term debt, all of which
are fixed rate.
Investing Activities
The amounts reflected in the table above for capital purchase obligations represent noncancelable agreements to purchase capital-related
equipment. Such contracts include those for certain purchases of aircraft, aircraft modifications, vehicles, facilities, computers and other
equipment. 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.
Financing Activities
We have certain financial instruments representing potential commitments, not reflected in the table above, that were incurred in the normal course
of business to support our operations, including standby letters of credit and surety bonds. These instruments are required under certain U.S. self-
insurance programs and are also used in the normal course of international operations. The underlying liabilities insured by these instruments are
reflected in our balance sheets, where applicable. Therefore, no additional liability is reflected for the letters of credit and surety bonds themselves.
The amounts reflected in the table above for long-term debt represent future scheduled payments on our long-term debt. In 2013, we have
scheduled debt payments of $420 million, which includes $300 million for principal payments on our 9.65% unsecured notes that matured in June
2012, and principal and interest payments on capital leases.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to
make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are
alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting
policies and to evaluate the appropriateness of the many estimates that are required to prepare the financial statements of a complex, global
corporation. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and new or
better information.
The estimates discussed below include the financial statement elements that are either the most judgmental or involve the selection or application of
alternative accounting policies and are material to our financial statements. Management has discussed the development and selection of these
critical accounting estimates with the Audit Committee of our Board of Directors and with our independent registered public accounting firm.
RETIREMENT PLANS
OVERVIEW. We sponsor programs that provide retirement benefits to most of our employees. These programs include defined benefit pension
plans, defined contribution plans and postretirement healthcare plans.
Pension benefits for most employees are accrued under a cash balance formula we call the Portable Pension Account. Under the Portable Pension
Account, the retirement benefit is expressed as a dollar amount in a notional account that grows with annual credits based on pay, age and years of
credited service, and interest on the notional account balance. The Portable Pension Account benefit

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is payable as a lump sum or an annuity at retirement at the election of the employee. The plan interest credit rate varies from year to year based on
a U.S. Treasury index and corporate bond rates. Prior to 2009, certain employees earned benefits using a traditional pension formula (based on
average earnings and years of service). Benefits under this formula were capped on May 31, 2008 for most employees.
The current rules for pension accounting are complex and can produce tremendous volatility in our results, financial condition and liquidity. Our
pension expense is primarily a function of the value of our plan assets and the discount rate used to measure our pension liabilities at a single point
in time at the end of our fiscal year (the measurement date). Both of these factors are significantly influenced by the stock and bond markets, which
in recent years have experienced substantial volatility.

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In addition to expense volatility, we are required to record year-end adjustments to our balance sheet on an annual basis for the net funded status of
our pension and postretirement healthcare plans. These adjustments have fluctuated significantly over the past several years and like our pension
expense, are a result of the discount rate and value of our plan assets at the measurement date. The funded status of our plans also impacts our
liquidity, as current funding laws require increasingly aggressive funding levels for our pension plans. However, the cash funding rules operate
under a completely different set of assumptions and standards than those used for financial reporting purposes, so our actual cash funding
requirements can differ materially from our reported funded status.
Our retirement plans cost is included in the “Salaries and Employee Benefits” caption in our consolidated income statements. A summary of our
retirement plans costs over the past three years is as follows (in millions):

2012 2011 2010
U.S. domestic and international pension plans $ 524 $ 543 $ 308
U.S. domestic and international defined contribution plans 338 257 136
Postretirement healthcare plans 70 60 42

$ 932 $ 860 $ 486

Total retirement plans cost increased $72 million in 2012 primarily due to higher expenses for our 401(k) plans due to the full restoration of
company matching contributions on January 1, 2011. Total retirement plans cost increased $374 million in 2011 driven by lower discount rates
used to measure our benefit obligations at our May 31, 2010 measurement date. Additionally, we incurred higher expenses for our 401(k) plans in
2011 due to the partial reinstatement of company-matching contributions on January 1, 2010 (previously suspended in February 2009).
Our retirement plans costs are expected to increase significantly in 2013, as historically low discount rates at May 31, 2012 will increase our
expenses by over $165 million, of which $150 million is attributable to U.S. Pension Plan expense.
PENSION COST. The accounting for pension and postretirement healthcare plans includes numerous assumptions, including the discount rate and
expected long-term investment returns on plan assets. These assumptions most significantly impact our U.S. Pension Plans. The components of
pension cost for all pension plans are as follows (in millions):

2012 2011 2010
Service cost $ 593 $ 521 $ 417
Interest cost 976 900 823
Expected return on plan assets (1,240) (1,062) (955)
Recognized actuarial losses (gains) and other 195 184 23

Net periodic benefit cost $ 524 $ 543 $ 308

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Following is a discussion of the key estimates we consider in determining our pension cost:
DISCOUNT RATE. This is the interest rate used to discount the estimated future benefit payments that have been accrued to date (the projected
benefit obligation, or “PBO”) to their net present value and to determine the succeeding year’s pension expense. The discount rate is determined
each year at the plan measurement date. A decrease in the discount rate increases pension expense. The discount rate affects the PBO and pension
expense based on the measurement dates, as described below.

Measurement
Date
Discount
Rate
Amounts Determined by Measurement Date and
Discount Rate
5/31/2012 4.44% 2012 PBO and 2013 expense
5/31/2011 5.76 2011 PBO and 2012 expense
5/31/2010 6.37 2010 PBO and 2011 expense
5/31/2009 7.68 2009 PBO and 2010 expense
We determine the discount rate with the assistance of actuaries, who calculate the yield on a theoretical portfolio of high-grade corporate bonds
(rated Aa or better) with cash flows designed to match our expected benefit payments in future years. In developing this theoretical portfolio, we
select bonds that match cash flows to benefit payments, limit our concentration by industry and issuer, and apply screening criteria to ensure bonds
with a call feature have a low probability of being called. To the extent scheduled bond proceeds exceed the estimated benefit payments in a given
period, the calculation assumes those excess proceeds are reinvested at one-year forward rates.

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The discount rate assumption is highly sensitive, as the following table illustrates for our largest tax-qualified U.S. domestic pension plan:

Sensitivity (in millions)

Effect on 2013
Pension
Expense
Effect on 2012
Pension
Expense
One-basis-point change in discount rate $ 2.3 $ 1.9
At our May 31, 2012 measurement date, a 50-basis-point increase in the discount rate would have decreased our 2012 PBO by approximately $1.5
billion and a 50-basis-point decrease in the discount rate would have increased our 2012 PBO by approximately $1.7 billion. From 2009 to 2012,
the discount rate used to value our liabilities has declined by over 300 basis points, which increased the valuation of our liabilities by over $7
billion.
PLAN ASSETS. The estimated average rate of return on plan assets is a long-term, forward-looking assumption that also materially affects our
pension cost. It is required to be the expected future long-term rate of earnings on plan assets. Our pension plan assets are invested primarily in
listed securities, and our pension plans hold only a minimal investment in FedEx common stock that is entirely at the discretion of third-party
pension fund investment managers. As part of our strategy to manage future pension costs and net funded status volatility, we have transitioned to
a liability-driven investment strategy with a greater concentration of fixed-income securities to better align plan assets with liabilities.

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

• the duration of our pension plan liabilities, which drives the investment strategy we can employ with our pension plan assets;

• the types of investment classes in which we invest our pension plan assets and the expected compound geometric return we can reasonably
expect those investment classes to earn over time; and

• the investment returns we can reasonably expect our investment management program to achieve in excess of the returns we could expect if
investments were made strictly in indexed funds.
The following table summarizes our current asset allocation strategy (dollars in millions):

Plan Assets at Measurement Date
2012 2011
Asset Class Actual Actual % Target % Actual Actual % Target %
Domestic equities $ 5,616 33% 33% $ 5,761 37% 33%
International equities 1,657 10 12 2,013 13 12
Private equities 402 2 5 403 3 5

Total equities 7,675 45 50 8,177 53 50
Fixed-income securities 8,799 52 49 6,995 45 49
Cash and other 539 3 1 346 2 1

$17,013 100% 100% $15,518 100% 100%

We have assumed an 8.0% compound geometric long-term rate of return on our U.S. Pension Plan assets for 2013, 2012 and 2011. The actual
returns during each of the last three fiscal years have exceeded that long-term assumption. The actual historical return on our U.S. Pension Plan
assets, calculated on a compound geometric basis, was approximately 7.4%, net of investment manager fees, for the 15-year period ended May 31,
2012 and 7.8%, net of investment manager fees, for the 15-year period ended May 31, 2011. A one-basis-point change in our expected return on
plan assets impacts our pension expense by $1.7 million.
Pension expense is also affected by the accounting policy used to determine the value of plan assets at the measurement date. We use a calculated-
value method to determine the value of plan assets, which helps mitigate short-term volatility in market performance (both increases and decreases)
by amortizing certain actuarial gains or losses over a period no longer than four years. Another method used in practice applies the market value of
plan assets at the measurement date. For purposes of valuing plan assets for determining 2013 pension expense, the calculated value method
resulted in the same value as the market value.

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FUNDED STATUS. Following is information concerning the funded status of our pension plans as of May 31 (in millions):

2012 2011
Funded Status of Plans:
Projected benefit obligation (PBO) $ 22,187 $ 17,372
Fair value of plan assets 17,334 15,841

Funded status of the plans $ (4,853) $ (1,531)

Components of Funded Status by Plans:
U.S. qualified plans $ (4,179) $ (927)
U.S. nonqualified plans (355) (339)
International plans (319) (265)

Net funded status $ (4,853) $ (1,531)

Components of Amounts Included in Balance Sheets:
Current pension and other benefit obligations $ (35) $ (33)
Noncurrent pension and other benefit obligations (4,818) (1,498)

Net amount recognized $ (4,853) $ (1,531)

Cash Amounts:
Cash contributions during the year $ 780 $ 557
Benefit payments during the year $ 502 $ 468
The amounts recognized in the balance sheet reflect a snapshot of the state of our long-term pension liabilities at the plan measurement date and
the effect of year-end accounting on plan assets. At May 31, 2012, we recorded a decrease to equity through OCI of $2.4 billion (net of tax) to
reflect unrealized actuarial losses during 2012 related to a decline in the discount rate. Those losses are subject to amortization over future years
and may be reflected in future income statements unless they are recovered. At May 31, 2011, we recorded a decrease to equity through OCI of
$350 million (net of tax) to reflect unrealized actuarial losses during 2011 related to a decline in the discount rate.
The funding requirements for our U.S. Pension Plans are governed by the Pension Protection Act of 2006, which has aggressive funding
requirements in order to avoid benefit payment restrictions that become effective if the funded status determined under Internal Revenue Service
rules falls below 80% at the beginning of a plan year. All of our U.S. Pension Plans have funded status levels in excess of 80% and our plans
remain adequately funded to provide benefits to our employees as they come due. Additionally, current benefit payments are nominal compared to
our total plan assets (benefit payments for our U.S. Pension Plans for 2012 were approximately $465 million or 3% of plan assets).
During 2012, we made $722 million in contributions to our U.S. Pension Plans, including $226 million in voluntary contributions. Over the past
several years, we have made voluntary contributions to our U.S. Pension Plans in excess of the minimum required contributions. Amounts
contributed in excess of the minimum required result in a credit balance for funding purposes that can be used to meet minimum contribution
requirements in future years. For 2013, we anticipate making required contributions to our U.S. Pension Plans totaling approximately $550
million.
Cumulative unrecognized actuarial losses were $8.9 billion through May 31, 2012, compared to $5.4 billion through May 31, 2011. These
unrecognized losses reflect changes in the discount rates and differences between expected and actual asset returns, which are being amortized
over future periods. These unrecognized losses may be recovered in future periods through actuarial gains. However, unless they are below a
corridor amount, these unrecognized actuarial losses are required to be amortized and recognized in future periods. Our pension expense includes
amortization of these actuarial losses of $302 million in 2012, $276 million in 2011 and $125 million in 2010.

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SELF-INSURANCE ACCRUALS
We are self-insured up to certain limits for costs associated with workers’ compensation claims, vehicle accidents and general business liabilities,
and benefits paid under employee healthcare and long-term disability programs. Our reserves are established for estimates of loss on reported

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claims, including incurred-but-not-reported claims. Self-insurances accruals reflected in our balance sheet were $1.6 billion at May 31, 2012, and
May 31, 2011. Approximately 40% of these accruals were classified as current liabilities.
Our self-insurance accruals are primarily based on the actuarially estimated, undiscounted cost of claims incurred as of the balance sheet date.
These estimates include consideration of factors such as severity of claims, frequency of claims and future healthcare costs. Cost trends on material
accruals are updated each quarter. We self-insure up to certain limits that vary by operating company and type of risk. Periodically, we evaluate
the level of insurance coverage and adjust insurance levels based on risk tolerance and premium expense. Historically, it has been infrequent that
incurred claims exceeded our self-insured limits.
We believe the use of actuarial methods to account for these liabilities provides a consistent and effective way to measure these highly judgmental
accruals. However, the use of any estimation technique in this area is inherently sensitive given the magnitude of claims involved and the length of
time until the ultimate cost is known. We believe our recorded obligations for these expenses are consistently measured on a conservative basis.
Nevertheless, changes in healthcare costs, accident frequency and severity, insurance retention levels and other factors can materially affect the
estimates for these liabilities.
LONG-LIVED ASSETS
PROPERTY AND EQUIPMENT. Our key businesses are capital intensive, with approximately 58% of our total assets invested in our
transportation and information systems infrastructures. We capitalize only those costs that meet the definition of capital assets under accounting
standards. Accordingly, repair and maintenance costs that do not extend the useful life of an asset or are not part of the cost of acquiring the asset
are expensed as incurred.
The depreciation or amortization of our capital assets over their estimated useful lives, and the determination of any salvage values, requires
management to make judgments about future events. Because we utilize many of our capital assets over relatively long periods (the majority of
aircraft costs are depreciated over 15 to 30 years), we periodically evaluate whether adjustments to our estimated service lives or salvage values are
necessary to ensure these estimates properly match the economic use of the asset. This evaluation may result in changes in the estimated lives and
residual values used to depreciate our aircraft and other equipment. In May 2012, we made the decision to shorten the depreciable lives for 54
aircraft and related engines to accelerate the retirement of these aircraft to better align the U.S. domestic air network capacity to match current and
anticipated shipment volumes in light of the delivery schedule for replacement aircraft. Due to our decision to accelerate retirement of certain
aircraft and related engines, our depreciation expense will increase over the next three years, partially offset from the avoidance of depreciation
related to aircraft retirements. (See the “Outlook” section for additional information). For our aircraft, we typically assign no residual value due to
the utilization of these assets in cargo configuration, which results in little to no value at the end of their useful life. These estimates affect the
amount of depreciation expense recognized in a period and, ultimately, the gain or loss on the disposal of the asset. Changes in the estimated lives
of assets will result in an increase or decrease in the amount of depreciation recognized in future periods and could have a material impact on our
results of operations. Historically, gains and losses on disposals of operating equipment have not been material. However, such amounts may differ
materially in the future due to changes in business levels, technological obsolescence, accident frequency, regulatory changes and other factors
beyond our control.
Because of the lengthy lead times for aircraft manufacture and modifications, we must anticipate volume levels and plan our fleet requirements
years in advance, and make commitments for aircraft based on those projections. Furthermore, the timing and availability of certain used aircraft
types (particularly those with better fuel efficiency) may create limited opportunities to acquire these aircraft at favorable prices in advance of our
capacity needs. These activities create risks that asset capacity may exceed demand and that an impairment of our assets may occur. Aircraft
purchases (primarily aircraft in passenger configuration) that have not been placed in service totaled $127 million at May 31, 2012 and $173
million at May 31, 2011. We plan to modify these assets in the future and place them into operations.

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The accounting test for whether an asset held for use is impaired involves first comparing the carrying value of the asset with its estimated future
undiscounted cash flows. If the cash flows do not exceed the carrying value, the asset must be adjusted to its current fair value. We operate
integrated transportation networks and, accordingly, cash flows for most of our operating assets are assessed at a network level, not at an
individual asset level for our analysis of impairment. Further, decisions about capital investments are evaluated based on the impact to the overall
network rather than the return on an individual asset. We make decisions to remove certain long-lived assets from service based on projections of
reduced capacity needs or lower operating costs of newer aircraft types, and those decisions may result in an impairment charge. Assets held for
disposal must be adjusted to their estimated fair values less costs to sell when the decision is made to dispose of the asset and certain other criteria
are met. The fair value determinations for such aircraft may require management estimates, as there may not be active markets for some of these
aircraft. Such estimates are subject to revision from period to period.
During the fourth quarter of 2012, we incurred a noncash impairment charge of $134 million. This charge related to our May 2012 decision to
permanently retire 18 Airbus A310-200 aircraft and 26 related engines as well as six Boeing MD10-10 aircraft and 17 related engines to better

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align the U.S. domestic air network capacity of FedEx Express to match current and anticipated shipment volumes. The majority of these aircraft
were temporarily idled and not in revenue service.
In 2011, we incurred asset impairment charges of $29 million related to the combination of our LTL operations at FedEx Freight. There were no
material property and equipment impairment charges recognized in 2010.
LEASES. We utilize operating leases to finance certain of our aircraft, facilities and equipment. Such arrangements typically shift the risk of loss
on the residual value of the assets at the end of the lease period to the lessor. As disclosed in “Contractual Cash Obligations” and Note 7 of the
accompanying consolidated financial statements, at May 31, 2012 we had approximately $14 billion (on an undiscounted basis) of future
commitments for payments under operating leases. The weighted-average remaining lease term of all operating leases outstanding at May 31, 2012
was approximately six years. The future commitments for operating leases are not reflected as a liability in our balance sheet under current U.S.
accounting rules.
The determination of whether a lease is accounted for as a capital lease or an operating lease requires management to make estimates primarily
about the fair value of the asset and its estimated economic useful life. In addition, our evaluation includes ensuring we properly account for build-
to-suit lease arrangements and making judgments about whether various forms of lessee involvement during the construction period make the
lessee an agent for the owner-lessor or, in substance, the owner of the asset during the construction period. We believe we have well-defined and
controlled processes for making these evaluations, including obtaining third-party appraisals for material transactions to assist us in making these
evaluations.
Under a proposed revision to the accounting standards for leases, we would be required to record an asset and a liability for our outstanding
operating leases similar to the current accounting for capital leases. Notably, the amount we record in the future would be the net present value of
our future lease commitments at the date of adoption. This proposed guidance has not been issued and has been subjected to numerous revisions
since the proposal was issued. Accordingly, we cannot make any judgments about the specific impact of the new proposed standard to us.
However, our existing financing agreements and the rating agencies that evaluate our credit worthiness already take our operating leases into
account.

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GOODWILL. As of May 31, 2012, we had $2.4 billion of recorded goodwill from our acquisitions, representing the excess of the purchase price
over the fair value of the net assets we have acquired. Several factors give rise to goodwill in our acquisitions, such as the expected benefit from
synergies of the combination and the existing workforce of the acquired entity.
In our evaluation of goodwill impairment, we perform a qualitative assessment which requires management judgment and the use of estimates to
determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not
conclusive, we would proceed to a two-step process to test goodwill for impairment, including comparing the fair value of each reporting unit with
its carrying value (including attributable goodwill). Fair value is estimated using standard valuation methodologies (principally the income or
market approach) incorporating market participant considerations and management’s assumptions on revenue growth rates, operating margins,
discount rates and expected capital expenditures. Estimates used by management can significantly affect the outcome of the impairment test.
Changes in forecasted operating results and other assumptions could materially affect these estimates. We perform our annual impairment tests in
the fourth quarter unless circumstances indicate the need to accelerate the timing of the test.
Our reporting units with significant recorded goodwill include our FedEx Express, FedEx Freight and FedEx Office (reported in the FedEx
Services segment) reporting units. We evaluated these reporting units during the fourth quarters of 2012 and 2011. The estimated fair value of each
of these reporting units exceeded their carrying values in 2012 and 2011, and we do not believe that any of these reporting units were at risk as of
May 31, 2012. We have recorded goodwill impairment charges associated with our FedEx Office reporting unit in recent years. While the
performance of this business has improved, the realization of the value of the remaining attributable goodwill ($351 million) is dependent upon
execution of our growth strategies and initiatives in the future.
In connection with our annual impairment testing of goodwill conducted in the fourth quarter of 2010, we recorded a charge of $18 million for
impairment of the value of the remaining goodwill at our FedEx National LTL reporting unit. The impairment charge resulted from the significant
negative impact of the U.S. recession on the LTL industry, which resulted in volume and yield declines and operating losses. In connection with
the combination of our LTL networks in 2011, this unit was merged into the FedEx Freight reporting unit.
CONTINGENCIES
We are subject to various loss contingencies, including tax proceedings and litigation, in connection with our operations. Contingent liabilities are
difficult to measure, as their measurement is subject to multiple factors that are not easily predicted or projected. Further, additional complexity in
measuring these liabilities arises due to the various jurisdictions in which these matters occur, which makes our ability to predict their outcome

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highly uncertain. Moreover, different accounting rules must be employed to account for these items based on the nature of the contingency.
Accordingly, significant management judgment is required to assess these matters and to make determinations about the measurement of a liability,
if any. Our material pending loss contingencies are described in Note 17 of the accompanying consolidated financial statements. In the opinion of
management, the aggregate liability, if any, of individual matters or groups of matters not specifically described in Note 17 is not expected to be
material to our financial position, results of operations or cash flows. The following describes our methods and associated processes for evaluating
these matters.
TAX CONTINGENCIES. We are subject to income and operating tax rules of the U.S., its states and municipalities, and of the foreign jurisdictions
in which we operate. Significant judgment is required in determining income tax provisions, as well as deferred tax asset and liability balances and
related deferred tax valuation allowances, if necessary, due to the complexity of these rules and their interaction with one another. We account for
income taxes by recording both current taxes payable and deferred tax assets and liabilities. Our provision for income taxes is based on domestic
and international statutory income tax rates in the jurisdictions in which we operate, applied to taxable income, reduced by applicable tax credits.
Tax contingencies arise from uncertainty in the application of tax rules throughout the many jurisdictions in which we operate and are impacted by
several factors, including tax audits, appeals, litigation, changes in tax laws and other rules and their interpretations, and

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changes in our business. We regularly assess the potential impact of these factors for the current and prior years to determine the adequacy of our
tax provisions. We continually evaluate the likelihood and amount of potential adjustments and adjust our tax positions, including the current and
deferred tax liabilities, in the period in which the facts that give rise to a revision become known. In addition, management considers the advice of
third parties in making conclusions regarding tax consequences.
We recognize liabilities for uncertain income tax positions based on a two-step process. The first step is to evaluate the tax position for recognition
by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest
amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as
we must determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis or when new
information becomes available to management. These reevaluations are based on factors including, but not limited to, changes in facts or
circumstances, changes in tax law, successfully settled issues under audit and new audit activity. Such a change in recognition or measurement
could result in the recognition of a tax benefit or an increase to the related provision.
We classify interest related to income tax liabilities as interest expense, and if applicable, penalties are recognized as a component of income tax
expense. The income tax liabilities and accrued interest and penalties that are due within one year of the balance sheet date are presented as current
liabilities. The remaining portion of our income tax liabilities and accrued interest and penalties are presented as noncurrent liabilities because
payment of cash is not anticipated within one year of the balance sheet date. These noncurrent income tax liabilities are recorded in the caption
“Other liabilities” in the accompanying consolidated balance sheets.
We account for operating taxes based on multi-state, local and foreign taxing jurisdiction rules in those areas in which we operate. Provisions for
operating taxes are estimated based upon these rules, asset acquisitions and disposals, historical spend and other variables. These provisions are
consistently evaluated for reasonableness against compliance and risk factors.
We measure and record operating tax contingency accruals in accordance with accounting guidance for contingencies. As discussed below, this
guidance requires an accrual of estimated loss from a contingency, such as a tax or other legal proceeding or claim, when it is probable that a loss
will be incurred and the amount of the loss can be reasonably estimated.
OTHER CONTINGENCIES. Because of the complex environment in which we operate, we are subject to other legal proceedings and claims,
including those relating to general commercial matters, employment-related claims and FedEx Ground’s owner-operators. Accounting guidance
for contingencies requires an accrual of estimated loss from a contingency, such as a tax or other legal proceeding or claim, when it is probable
(i.e., the future event or events are likely to occur) that a loss will be incurred and the amount of the loss can be reasonably estimated. This
guidance also requires disclosure of a loss contingency matter when, in management’s judgment, a material loss is reasonably possible or probable.
During the preparation of our financial statements, we evaluate our contingencies to determine whether it is probable, reasonably possible or
remote that a liability has been incurred. A loss is recognized for all contingencies deemed probable and estimable, regardless of amount. For
unresolved contingencies with potentially material exposure that are deemed reasonably possible, we evaluate whether a potential loss or range of
loss can be reasonably estimated.
Our evaluation of these matters is the result of a comprehensive process designed to ensure that accounting recognition of a loss or disclosure of
these contingencies is made in a timely manner and involves our legal and accounting personnel, as well as external counsel where applicable. The

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process includes regular communications during each quarter and scheduled meetings shortly before the completion of our financial statements to
evaluate any new legal proceedings and the status of any existing matters.

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

• the current status of each matter within the scope and context of the entire lawsuit (i.e., the lengthy and complex nature of class-action
matters);

• the procedural status of each lawsuit;

• any opportunities to dispose of the lawsuit on its merits before trial (i.e., motion to dismiss or for summary judgment);

• the amount of time remaining before the trial date;

• the status of discovery;

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

• our judgment regarding the likelihood of success prior to or at trial.
In reaching our conclusions with respect to accrual of a loss or loss contingency disclosure, we take a holistic view of each matter based on these
factors and the information available prior to the issuance of our financial statements. Uncertainty with respect to an individual factor or
combination of these factors may impact our decisions related to accrual or disclosure of a loss contingency, including a conclusion that we are
unable to establish an estimate of possible loss or a meaningful range of possible loss. We update our disclosures to reflect our most current
understanding of the contingencies at the time we issue our financial statements. However, events may arise that were not anticipated and the
outcome of a contingency may result in a loss to us that differs materially from our previously estimated liability or range of possible loss.
Despite the inherent complexity in the accounting and disclosure of contingencies, we believe that our processes are robust and thorough and
provide a consistent framework for management in evaluating the potential outcome of contingencies for proper accounting recognition and
disclosure.
RISK FACTORS
Our financial and operating results are subject to many risks and uncertainties, as described below.
We are directly affected by the state of the economy. While macro-economic risks apply to most companies, we are particularly vulnerable. The
transportation industry is highly cyclical and especially susceptible to trends in economic activity, such as the recent global recession. Our primary
business is to transport goods, so our business levels are directly tied to the purchase and production of goods — key macro-economic
measurements. When individuals and companies purchase and produce fewer goods, we transport fewer goods. In addition, we have a relatively
high fixed-cost structure, which is difficult to quickly adjust to match shifting volume levels. Moreover, as we continue to grow our international
business, we are increasingly affected by the health of the global economy. In 2012, global economic conditions resulted in decreased demand for
our U.S. domestic and International Priority package services at FedEx Express, as customers utilized lower priced deferred services.
Our businesses depend on our strong reputation and the value of the FedEx brand. The FedEx brand name symbolizes high-quality service,
reliability and speed. FedEx is one of the most widely recognized, trusted and respected brands in the world, and the FedEx brand is one of our
most important and valuable assets. In addition, we have a strong reputation among customers and the general public for high standards of social
and environmental responsibility and corporate governance and ethics. The FedEx brand name and our corporate reputation are powerful sales and
marketing tools, and we devote significant resources to promoting and protecting them. Adverse publicity (whether or not justified) relating to
activities by our employees, contractors or agents, such as customer service mishaps or noncompliance with anti-corruption laws, could tarnish our
reputation and reduce the value of our brand. With the increase in the use of social media outlets such as YouTube and Twitter, adverse publicity
can be disseminated quickly and broadly, making it increasingly difficult for us to defend against. Damage to our reputation and loss of brand
equity could reduce demand for our services and thus have an adverse effect on our financial condition, liquidity and results of operations, as well
as require additional resources to rebuild our reputation and restore the value of our brand.

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We rely heavily on information and technology to operate our transportation and business networks, and any disruption to our technology
infrastructure or the Internet could harm our operations and our reputation among customers. Our ability to attract and retain customers and to
compete effectively depends in part upon the sophistication and reliability of our technology network, including our ability to provide features of
service that are important to our customers. External and internal risks, such as malware, code anomalies, “Acts of God,” attempts to penetrate our
networks, data leakage and human error, pose a direct threat to our products, services and data. Any disruption to the Internet or our complex,
global technology infrastructure, including those impacting our computer systems and customer Web sites, could adversely impact our customer
service, volumes, and revenues and result in increased costs. These types of adverse impacts could also occur in the event the confidentiality,
integrity, or availability of company and customer information was compromised due to a data loss by FedEx or a trusted third party. While we
have invested and continue to invest in technology security initiatives, information technology risk management and disaster recovery plans, these
measures cannot fully insulate us from technology disruptions or data loss and the resulting adverse effect on our operations and financial results.
Our transportation businesses may be impacted by the price and availability of fuel. We must purchase large quantities of fuel to operate our
aircraft and vehicles, and the price and availability of fuel can be unpredictable and beyond our control. To date, we have been mostly successful in
mitigating over time the expense impact of higher fuel costs through our indexed fuel surcharges, as the amount of the surcharges is closely linked
to the market prices for fuel. If we are unable to maintain or increase our fuel surcharges because of competitive pricing pressures or some other
reason, fuel costs could adversely impact our operating results. Even if we are able to offset the cost of fuel with our surcharges, high fuel
surcharges could move our customers, especially in the U.S. domestic market, away from our higher-yielding express services to our lower-
yielding ground services or even reduce customer demand for our services altogether. In addition, disruptions in the supply of fuel could have a
negative impact on our ability to operate our transportation networks.
Our businesses are capital intensive, and we must make capital decisions based upon projected volume levels. We make significant investments
in aircraft, vehicles, technology, package handling facilities, sort equipment, copy equipment and other assets to support our transportation and
business networks. We also make significant investments to rebrand, integrate and grow the companies that we acquire. The amount and timing of
capital investments depend on various factors, including our anticipated volume growth. We must make commitments to purchase or modify
aircraft years before the aircraft are actually needed. We must predict volume levels and fleet requirements and make commitments for aircraft
based on those projections. Missing our projections could result in too much or too little capacity relative to our shipping volumes. Overcapacity
could lead to asset dispositions or write-downs and undercapacity could negatively impact service levels. For example, in the fourth quarter of
2012, in order to better align the U.S. domestic air network capacity of FedEx Express to match current and anticipated shipment volumes, we
made a decision to retire from service certain aircraft and certain excess aircraft engines and thus recorded a noncash impairment charge of $134
million. We are also developing operating and cost structure plans to further improve our efficiency at FedEx Express.
We face intense competition. The transportation and business services markets are both highly competitive and sensitive to price and service,
especially in periods of little or no macro-economic growth. Some of our competitors have more financial resources than we do, or they are
controlled or subsidized by foreign governments, which enables them to raise capital more easily. We believe we compete effectively with these
companies — for example, by providing more reliable service at compensatory prices. However, an irrational pricing environment can limit our
ability not only to maintain or increase our prices (including our fuel surcharges in response to rising fuel costs), but also to maintain or grow our
market share. In addition, high volume package shippers could develop in-house ground delivery capabilities, which would in turn reduce our
revenues and market share. While we believe we compete effectively through our current service offerings, if our current competitors or potential
future competitors offer a broader range of services or more effectively bundle their services or our current customers become competitors, it could
impede our ability to maintain or grow our market share.

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If we do not effectively operate, integrate, leverage and grow acquired businesses, our financial results and reputation may suffer. Our strategy
for long-term growth, productivity and profitability depends in part on our ability to make prudent strategic acquisitions and to realize the benefits
we expect when we make those acquisitions. In furtherance of this strategy, we recently made strategic acquisitions in Mexico, Poland, France and
Brazil. While we expect our past and future acquisitions to enhance our value proposition to customers and improve our long-term profitability,
there can be no assurance that we will realize our expectations within the time frame we have established, if at all, or that we can continue to
support the value we allocate to these acquired businesses, including their goodwill or other intangible assets.
Labor organizations attempt to organize groups of our employees from time to time, and potential changes in labor laws could make it easier
for them to do so. If we are unable to continue to maintain good relationships with our employees and prevent labor organizations from organizing
groups of our employees, our operating costs could significantly increase and our operational flexibility could be significantly reduced. Despite
continual organizing attempts by labor unions, other than the pilots of FedEx Express, all of our U.S. employees have thus far chosen not to
unionize. The U.S. Congress has, in the past, considered adopting changes in labor laws, however, that would make it easier for unions to organize
units of our employees. For example, there is always a possibility that Congress could remove most FedEx Express employees from the purview of
the RLA. For additional discussion of the RLA, see Part I, Item 1 of this Annual Report under the caption “Regulation.” Such legislation could
expose our customers to the type of service disruptions that the RLA was designed to prevent — local work stoppages in key areas that interrupt

Form 10-K
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the timely flow of shipments of time-sensitive, high-value goods throughout our global network. Such disruptions could threaten our ability to
provide competitively priced shipping options and ready access to global markets. There is also the possibility that Congress could pass other labor
legislation that could adversely affect our companies, such as FedEx Ground and FedEx Freight, whose employees are governed by the National
Labor Relations Act of 1935, as amended (the “NLRA”). In addition, federal and state governmental agencies, such as the National Labor
Relations Board, have and may continue to take actions that could make it easier for our employees to organize under the RLA or NLRA. Finally,
changes to federal or state laws governing employee classification could impact the status of FedEx Ground’s owner-operators as independent
contractors.
FedEx Ground relies on owner-operators to conduct its linehaul and pickup-and-delivery operations, and the status of these owner-operators
as independent contractors, rather than employees, is being challenged. FedEx Ground’s use of independent contractors is well suited to the
needs of the ground delivery business and its customers, as evidenced by the strong growth of this business segment. We are involved in numerous
lawsuits and state tax and other administrative proceedings that claim that the company’s owner-operators or their drivers should be treated as our
employees, rather than independent contractors. We incur certain costs, including legal fees, in defending the status of FedEx Ground’s owner-
operators as independent contractors. We believe that FedEx Ground’s owner-operators are properly classified as independent contractors and that
FedEx Ground is not an employer of the drivers of the company’s independent contractors. However, adverse determinations in these matters
could, among other things, entitle certain of our contractors and their drivers to the reimbursement of certain expenses and to the benefit of wage-
and-hour laws and result in employment and withholding tax and benefit liability for FedEx Ground, and could result in changes to the independent
contractor status of FedEx Ground’s owner-operators. If FedEx Ground is compelled to convert its independent contractors to employees, labor
organizations could more easily organize these individuals, our operating costs could increase materially and we could incur significant capital
outlays.
The transportation infrastructure continues to be a target of terrorist activities. Because transportation assets continue to be a target of terrorist
activities, governments around the world are adopting or are considering adopting stricter security requirements that will increase operating costs
and potentially slow service for businesses, including those in the transportation industry. For example, the U.S. Transportation Security
Administration continues to require FedEx Express to comply with a Full All-Cargo Aircraft Operator Standard Security Plan, which contains
evolving and strict security requirements. These requirements are not static, but change periodically as the result of regulatory and legislative
requirements, imposing additional security costs and creating a level of uncertainty for our operations. Thus, it is reasonably possible that these
rules or other future security requirements could impose material costs on us. Moreover, a terrorist attack directed at FedEx or other aspects of the
transportation infrastructure could disrupt our operations and adversely impact demand for our services.

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Increased pilot safety requirements could impose substantial costs on us. The FAA, in September 2010, proposed rules that would significantly
reduce the maximum number of hours on duty and increase the minimum amount of rest time for our pilots, and thus require us to hire additional
pilots and modify certain of our aircraft. When the FAA issued final regulations in December 2011, all-cargo carriers, including FedEx Express,
were exempt from these new pilot fatigue requirements, and instead required to continue complying with previously enacted flight and duty time
rules. In May 2012, however, the FAA indicated that it would reconsider the exclusion of cargo pilots from these new pilot fatigue requirements.
Thus, it is reasonably possible that these rules or other future flight safety requirements could impose material costs on us.
The regulatory environment for global aviation or other transportation rights may impact our operations. Our extensive air network is critical to
our success. Our right to serve foreign points is subject to the approval of the Department of Transportation and generally requires a bilateral
agreement between the United States and foreign governments. In addition, we must obtain the permission of foreign governments to provide
specific flights and services. Our operations outside of the United States, such as FedEx Express’s growing international domestic operations, are
also subject to current and potential regulations, including certain postal regulations and licensing requirements, that restrict, make difficult and
sometimes prohibit, the ability of foreign-owned companies such as FedEx Express to compete effectively in parts of the international domestic
transportation and logistics market. Regulatory actions affecting global aviation or transportation rights or a failure to obtain or maintain aviation or
other transportation rights in important international markets could impair our ability to operate our networks.
We may be affected by global climate change or by legal, regulatory or market responses to such change. Concern over climate change,
including the impact of global warming, has led to significant U.S. and international legislative and regulatory efforts to limit greenhouse gas
(“GHG”) emissions, including our aircraft and diesel engine emissions. For example, during 2009, the European Commission approved the
extension of the European Union Emissions Trading Scheme (“ETS”) for GHG emissions, to the airline industry. Under this decision, all FedEx
Express flights to and from any airport in any member state of the European Union are now covered by the ETS requirements, and each year we
are required to submit emission allowances in an amount equal to the carbon dioxide emissions from such flights. In addition, the U.S. Congress
has, in the past, considered bills that would regulate GHG emissions, and some form of federal climate change legislation is possible in the future.
Increased regulation regarding GHG emissions, especially aircraft or diesel engine emissions, could impose substantial costs on us, especially at
FedEx Express. These costs include an increase in the cost of the fuel and other energy we purchase and capital costs associated with updating or
replacing our aircraft or vehicles prematurely. Until the timing, scope and extent of such regulation becomes known, we cannot predict its effect on

Form 10-K
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our cost structure or our operating results. It is reasonably possible, however, that it could impose material costs on us. Moreover, even without
such regulation, increased awareness and any adverse publicity in the global marketplace about the GHGs emitted by companies in the airline and
transportation industries could harm our reputation and reduce customer demand for our services, especially our air express services. Finally, given
the broad and global scope of our operations and our susceptibility to global macro-economic trends, we are particularly vulnerable to the physical
risks of climate change that could affect all of humankind, such as shifts in weather patterns and world ecosystems.
A localized disaster in a key geography could adversely impact our business. While we operate several integrated networks with assets distributed
throughout the world, there are concentrations of key assets within our networks that are exposed to localized risks from natural or manmade
disasters such as tornados, floods, earthquakes or terrorist attacks. The loss of a key location such as our Memphis super hub or one of our
information technology centers could cause a significant disruption to our operations and cause us to incur significant costs to reestablish or
relocate these functions. Moreover, resulting economic dislocations, including supply chain and fuel disruptions, could adversely impact demand
for our services.
Our business may be adversely impacted by disruptions or modifications in service by the USPS. The USPS is a significant customer and vendor
of FedEx, and thus, disruptions or modifications in services by the USPS as a consequence of the USPS’s current financial difficulties or any
resulting structural changes to its operations, network, service offerings or pricing could have an

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adverse effect on our operations and financial results. For instance, because FedEx SmartPost uses the USPS for final delivery to residences, any
changes in USPS services (such as the cessation of Saturday delivery) could impact the terms and cost of our FedEx SmartPost service.
In addition, the USPS has informed us that it intends to solicit proposals for the provision of air transportation services currently provided by
FedEx Express upon the expiration of the current agreement in September 2013. Accordingly, upon the expiration of the current agreement, the
transportation services we provide to the USPS could be transitioned, in whole or in part, to another provider. This would have a negative impact
on our asset utilization and profitability. Moreover, to the extent that any such services are retained by us, the terms and conditions of the new
arrangement may be less favorable than those currently in place.
We are also subject to other risks and uncertainties that affect many other businesses, including:

• 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 and defending against inappropriate or unjustified
enforcement or 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 the pilots of
FedEx Express (the current pilot contract is scheduled to become amendable in March 2013);

• 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; and

• availability of financing on terms acceptable to us and our ability to maintain our current credit ratings, especially given the capital intensity
of our operations.
FORWARD-LOOKING STATEMENTS
Certain statements in this report, including (but not limited to) those contained in “Outlook” (including segment outlooks), “Liquidity,” “Capital
Resources,” “Liquidity Outlook,” “Contractual Cash Obligations” and “Critical Accounting Estimates,” and the “Retirement Plans” and

Form 10-K
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“Contingencies” notes to the consolidated financial statements, 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

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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, the risk factors identified above and the
other risks and uncertainties you can find in our press releases and other SEC filings.
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 the forward-looking statements, which speak only as of the date of this report. We are under no obligation, and
we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or
otherwise.

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MANAGEMENT’S REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Our internal control over financial reporting includes, among other things,
defined policies and procedures for conducting and governing our business, sophisticated information systems for processing transactions and a
properly staffed, professional internal audit department. Mechanisms are in place to monitor the effectiveness of our internal control over financial
reporting and actions are taken to correct all identified deficiencies. Our procedures for financial reporting include the active involvement of senior
management, our Audit Committee and our staff of highly qualified financial and legal professionals.
Management, with the participation of our principal executive and financial officers, assessed our internal control over financial reporting as of
May 31, 2012, the end of our fiscal year. Management based its assessment on criteria established in Internal Control–Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
Based on this assessment, management has concluded that our internal control over financial reporting was effective as of May 31, 2012.
The effectiveness of our internal control over financial reporting as of May 31, 2012, has been audited by Ernst & Young LLP, the independent
registered public accounting firm who also audited the Company’s consolidated financial statements included in this Annual Report on Form 10-K.
Ernst & Young LLP’s report on the Company’s internal control over financial reporting is included in this Annual Report on Form 10-K.

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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
FedEx Corporation
We have audited FedEx Corporation’s internal control over financial reporting as of May 31, 2012, based on criteria established in Internal Control
—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). FedEx
Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial

Form 10-K
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Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, FedEx Corporation maintained, in all material respects, effective internal control over financial reporting as of May 31, 2012, based
on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
balance sheets of FedEx Corporation as of May 31, 2012 and 2011, and the related consolidated statements of income, changes in stockholders’
investment and comprehensive income (loss), and cash flows for each of the three years in the period ended May 31, 2012 of FedEx Corporation
and our report dated July 16, 2012 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Memphis, Tennessee
July 16, 2012

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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
FedEx Corporation
We have audited the accompanying consolidated balance sheets of FedEx Corporation as of May 31, 2012 and 2011, and the related consolidated
statements of income, changes in stockholders’ investment and comprehensive income (loss), and cash flows for each of the three years in the
period ended May 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of FedEx
Corporation at May 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the three years in the period
ended May 31, 2012, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), FedEx Corporation’s
internal control over financial reporting as of May 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the

Form 10-K
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Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 16, 2012 expressed an unqualified opinion
thereon.
/s/ Ernst & Young LLP
Memphis, Tennessee
July 16, 2012

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FEDEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)

May 31,
2012 2011
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,843 $ 2,328
Receivables, less allowances of $178 and $182 4,704 4,581
Spare parts, supplies and fuel, less allowances of $184 and $169 440 437
Deferred income taxes 533 610
Prepaid expenses and other 536 329

Total current assets 9,056 8,285
PROPERTY AND EQUIPMENT, AT COST
Aircraft and related equipment 14,360 13,146
Package handling and ground support equipment 5,912 5,591
Computer and electronic equipment 4,646 4,408
Vehicles 3,654 3,294
Facilities and other 7,592 7,247

36,164 33,686
Less accumulated depreciation and amortization 18,916 18,143

Net property and equipment 17,248 15,543
OTHER LONG-TERM ASSETS
Goodwill 2,387 2,326
Other assets 1,212 1,231

Total other long-term assets 3,599 3,557

$ 29,903 $ 27,385

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

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FEDEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)

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May 31,
2012 2011
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Current portion of long-term debt $ 417 $ 18
Accrued salaries and employee benefits 1,635 1,268
Accounts payable 1,613 1,702
Accrued expenses 1,709 1,894

Total current liabilities 5,374 4,882
LONG-TERM DEBT, LESS CURRENT PORTION 1,250 1,667
OTHER LONG-TERM LIABILITIES
Deferred income taxes 836 1,336
Pension, postretirement healthcare and other benefit obligations 5,582 2,124
Self-insurance accruals 963 977
Deferred lease obligations 784 779
Deferred gains, principally related to aircraft transactions 251 246
Other liabilities 136 154

Total other long-term liabilities 8,552 5,616
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS’ INVESTMENT
Common stock, $0.10 par value; 800 million shares authorized; 317 million shares issued as of May 31,
2012 and May 31, 2011 32 32
Additional paid-in capital 2,595 2,484
Retained earnings 17,134 15,266
Accumulated other comprehensive loss (4,953) (2,550)
Treasury stock, at cost (81) (12)

Total common stockholders’ investment 14,727 15,220

$ 29,903 $ 27,385

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

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FEDEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

Years ended May 31,
2012 2011 2010
REVENUES $ 42,680 $ 39,304 $ 34,734
OPERATING EXPENSES:
Salaries and employee benefits 16,099 15,276 14,027
Purchased transportation 6,335 5,674 4,728
Rentals and landing fees 2,487 2,462 2,359
Depreciation and amortization 2,113 1,973 1,958
Fuel 4,956 4,151 3,106
Maintenance and repairs 1,980 1,979 1,715

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Impairment and other charges 134 89 18
Other 5,390 5,322 4,825

39,494 36,926 32,736

OPERATING INCOME 3,186 2,378 1,998
OTHER INCOME (EXPENSE):
Interest expense (52) (86) (79)
Interest income 13 9 8
Other, net (6) (36) (33)

(45) (113) (104)

INCOME BEFORE INCOME TAXES 3,141 2,265 1,894
PROVISION FOR INCOME TAXES 1,109 813 710

NET INCOME $ 2,032 $ 1,452 $ 1,184

BASIC EARNINGS PER COMMON SHARE $ 6.44 $ 4.61 $ 3.78

DILUTED EARNINGS PER COMMON SHARE $ 6.41 $ 4.57 $ 3.76

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

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FEDEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)

Years ended May 31,
2012 2011 2010
OPERATING ACTIVITIES
Net income $ 2,032 $ 1,452 $ 1,184
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 2,113 1,973 1,958
Provision for uncollectible accounts 160 152 124
Deferred income taxes and other noncash items 1,126 669 331
Impairment and other charges 134 29 18
Stock-based compensation 105 98 101
Changes in assets and liabilities:
Receivables (254) (400) (906)
Other current assets (231) (114) 276
Pension assets and liabilities, net (453) (169) (611)
Accounts payable and other liabilities 144 370 710
Other, net (41) (19) (47)

Cash provided by operating activities 4,835 4,041 3,138
INVESTING ACTIVITIES
Capital expenditures (4,007) (3,434) (2,816)
Business acquisitions, net of cash acquired (116) (96) —
Proceeds from asset dispositions and other 74 111 35

Cash used in investing activities (4,049) (3,419) (2,781)
FINANCING ACTIVITIES
Principal payments on debt (29) (262) (653)

Form 10-K
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Proceeds from stock issuances 128 108 94
Excess tax benefit on the exercise of stock options 18 23 25
Dividends paid (164) (151) (138)
Purchase of treasury stock (197) — —
Other, net — (5) (20)

Cash used in financing activities (244) (287) (692)

Effect of exchange rate changes on cash (27) 41 (5)

Net increase (decrease) in cash and cash equivalents 515 376 (340)
Cash and cash equivalents at beginning of period 2,328 1,952 2,292

Cash and cash equivalents at end of period $ 2,843 $ 2,328 $ 1,952

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

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FEDEX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
INVESTMENT AND COMPREHENSIVE INCOME (LOSS)
(IN MILLIONS, EXCEPT SHARE DATA)

Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock Total
Balance at May 31, 2009 $ 31 $ 2,053 $ 12,919 $ (1,373) $ (4) $13,626
Net income — — 1,184 — — 1,184
Foreign currency translation adjustment, net of tax of
$2 — — — (25) — (25)
Retirement plans adjustments, net of tax of $617 — — — (1,042) — (1,042)

Total comprehensive income 117

Purchase of treasury stock — — — — (3) (3)
Cash dividends declared ($0.44 per share) — — (137) — — (137)
Employee incentive plans and other (2,375,753
shares issued) — 208 — — — 208

Balance at May 31, 2010 31 2,261 13,966 (2,440) (7) 13,811
Net income — — 1,452 — — 1,452
Foreign currency translation adjustment, net of tax of
$27 — — — 125 — 125
Retirement plans adjustments, net of tax of $141 — — — (235) — (235)

Total comprehensive income 1,342

Purchase of treasury stock — — — — (5) (5)
Cash dividends declared ($0.48 per share) — — (152) — — (152)
Employee incentive plans and other (2,229,051
shares issued) 1 223 — — — 224

Balance at May 31, 2011 32 2,484 15,266 (2,550) (12) 15,220
Net income — — 2,032 — — 2,032
Foreign currency translation adjustment, net of tax of
$26 — — — (95) — (95)
Retirement plans adjustments, net of tax of $1,369 — — — (2,308) — (2,308)

Total comprehensive loss (371)

Purchase of treasury stock — — — — (197) (197)
Cash dividends declared ($0.52 per share) — — (164) — — (164)
Employee incentive plans and other (2,359,659

Form 10-K
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shares issued) — 111 — — 128 239

Balance at May 31, 2012 $ 32 $ 2,595 $ 17,134 $ (4,953) $ (81) $14,727

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

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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS. FedEx Corporation (“FedEx”) provides a broad portfolio of transportation, e-commerce and business services
through companies competing collectively, operating independently and managed collaboratively, under the respected FedEx brand. Our primary
operating companies are Federal Express Corporation (“FedEx Express”), the world’s largest express transportation company; FedEx Ground
Package System, Inc. (“FedEx Ground”), a leading North American provider of small-package ground delivery services; and FedEx Freight, Inc.
(“FedEx Freight”), a leading North American provider of less-than-truckload (“LTL”) freight services. These companies represent our major
service lines and, along with FedEx Corporate Services, Inc. (“FedEx Services”), form the core of our reportable segments. Our FedEx Services
segment provides sales, marketing, information technology, communications and back-office support to our transportation segments. In addition,
the FedEx Services segment provides customers with retail access to FedEx Express and FedEx Ground shipping services through FedEx Office
and Print Services, Inc. (“FedEx Office”) and provides customer service, technical support and billing and collection services through FedEx
TechConnect, Inc. (“FedEx TechConnect”).
FISCAL YEARS. Except as otherwise specified, references to years indicate our fiscal year ended May 31, 2012 or ended May 31 of the year
referenced.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of FedEx and its subsidiaries, substantially all of
which are wholly owned. All significant intercompany accounts and transactions have been eliminated in consolidation.
REVENUE RECOGNITION. We recognize revenue upon delivery of shipments for our transportation businesses and upon completion of services
for our business services, logistics and trade services businesses. Transportation services are provided with the use of employees and independent
contractors. FedEx is the principal to the transaction for these services and revenue from these transactions is recognized on a gross basis (with the
exception of FedEx SmartPost as described below). Costs associated with independent contractor settlements are recognized as incurred and
included in the caption “Purchased transportation” in the accompanying consolidated statements of income. For shipments in transit, revenue is
recorded based on the percentage of service completed at the balance sheet date. Estimates for future billing adjustments to revenue and accounts
receivable are recognized at the time of shipment for money-back service guarantees and billing corrections. Delivery costs are accrued as
incurred.
Our contract logistics, global trade services and certain transportation businesses, such as FedEx SmartPost, engage in some transactions wherein
they act as agents. Revenue from these transactions is recorded on a net basis. Net revenue includes billings to customers less third-party charges,
including transportation or handling costs, fees, commissions, and taxes and duties.
Certain of our revenue-producing transactions are subject to taxes, such as sales tax, assessed by governmental authorities. We present these
revenues net of tax.
CREDIT RISK. We routinely grant credit to many of our customers for transportation and business services without collateral. The risk of credit
loss in our trade receivables is substantially mitigated by our credit evaluation process, short collection terms and sales to a large number of
customers, as well as the low revenue per transaction for most of our services. Allowances for potential credit losses are determined based on
historical experience and the impact of current economic factors on the composition of accounts receivable. Historically, credit losses have been
within management’s expectations.

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ADVERTISING. Advertising and promotion costs are expensed as incurred and are classified in other operating expenses. Advertising and
promotion expenses were $421 million in 2012, $375 million in 2011 and $374 million in 2010.

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CASH EQUIVALENTS. Cash in excess of current operating requirements is invested in short-term, interest-bearing instruments with maturities of
three months or less at the date of purchase and is stated at cost, which approximates market value.
SPARE PARTS, SUPPLIES AND FUEL. Spare parts (principally aircraft-related) are reported at weighted-average cost. Allowances for
obsolescence are provided for spare parts expected to be on hand at the date the aircraft are retired from service. These allowances are provided
over the estimated useful life of the related aircraft and engines. Additionally, allowances for obsolescence are provided for spare parts currently
identified as excess or obsolete. These allowances are based on management estimates, which are subject to change. Supplies and fuel are reported
at weighted average cost.
PROPERTY AND EQUIPMENT. Expenditures for major additions, improvements and flight equipment modifications are capitalized when such
costs are determined to extend the useful life of the asset or are part of the cost of acquiring the asset. Expenditures for equipment overhaul costs of
engines or airframes prior to their operational use are capitalized as part of the cost of such assets as they are costs required to ready the asset for its
intended use. Maintenance and repairs are charged to expense as incurred. We capitalize certain direct internal and external costs associated with
the development of internal-use software. Gains and losses on sales of property used in operations are classified within operating expenses.
For financial reporting purposes, we record depreciation and amortization of property and equipment on a straight-line basis over the asset’s
service life or related lease term, if shorter. For income tax purposes, depreciation is computed using accelerated methods when applicable. The
depreciable lives and net book value of our property and equipment are as follows (dollars in millions):

Net Book Value at May 31,
Range 2012 2011
Wide-body aircraft and related equipment 15 to 30 years $ 7,161 $ 6,536
Narrow-body and feeder aircraft and related equipment 5 to 18 years 1,881 1,517
Package handling and ground support equipment 3 to 30 years 2,101 1,985
Vehicles 3 to 15 years 1,411 1,076
Computer and electronic equipment 2 to 10 years 930 776
Facilities and other 2 to 40 years 3,764 3,653
Substantially all property and equipment have no material residual values. The majority of aircraft costs are depreciated on a straight-line basis over
15 to 30 years. We periodically evaluate the estimated service lives and residual values used to depreciate our property and equipment. This
evaluation may result in changes in the estimated lives and residual values as it did in 2012 with certain aircraft. Such changes did not materially
affect depreciation expense in any period presented; however, changes to the estimated lives of certain aircraft will impact 2013 depreciation
expense. In May 2012, FedEx Express made the decision to accelerate the retirement of 54 aircraft and related engines to better align with the
delivery schedule for replacement aircraft, and we expect an additional $69 million in accelerated depreciation expense in 2013, with a partial
offset from the avoidance of depreciation related to the aircraft retirements (described in the “Impairment of Long-Lived Assets” section below).
Depreciation expense, excluding gains and losses on sales of property and equipment used in operations, was $2.1 billion in 2012 and $1.9 billion
in 2011 and 2010. Depreciation and amortization expense includes amortization of assets under capital lease.
CAPITALIZED INTEREST. Interest on funds used to finance the acquisition and modification of aircraft, including purchase deposits, construction
of certain facilities, and development of certain software up to the date the asset is ready for its intended use is capitalized and included in the cost
of the asset if the asset is actively under construction. Capitalized interest was $85 million in 2012, $71 million in 2011 and $80 million in 2010.

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IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an
asset may not be recoverable. For assets that are to be held and used, an impairment is recognized when the estimated undiscounted cash flows
associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to
its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market
values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value
or estimated net realizable value.
We operate integrated transportation networks, and accordingly, cash flows for most of our operating assets are assessed at a network level, not at
an individual asset level, for our analysis of impairment.
In May 2012, we made the decision to retire from service 18 Airbus A310-200 aircraft and 26 related engines, as well as six Boeing MD10-10
aircraft and 17 related engines. As a consequence of this decision, a noncash impairment charge of $134 million ($84 million, net of tax, or $0.26
per diluted share) was recorded in the fourth quarter. The decision to retire these aircraft, the majority of which were temporarily idled and not in

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revenue service, will better align the U.S. domestic air network capacity of FedEx Express to match current and anticipated shipment volumes.
In 2011, we incurred asset impairment charges of $29 million related to the combination of our LTL operations at FedEx Freight (see “FedEx
Freight Network Combination” below for additional information). There were no material property and equipment impairment charges recognized
in 2010.
GOODWILL. Goodwill is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible net assets of
businesses acquired. Several factors give rise to goodwill in our acquisitions, such as the expected benefit from synergies of the combination and
the existing workforce of the acquired entity. Goodwill is reviewed at least annually for impairment. In our evaluation of goodwill impairment, we
perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If
the qualitative assessment is not conclusive, we would proceed to a two-step process to test goodwill for impairment including comparing the fair
value of each reporting unit with its carrying value (including attributable goodwill). Fair value for our reporting units is determined using an
income or market approach incorporating market participant considerations and management’s assumptions on revenue growth rates, operating
margins, discount rates and expected capital expenditures. Fair value determinations may include both internal and third-party valuations. Unless
circumstances otherwise dictate, we perform our annual impairment testing in the fourth quarter.
PENSION AND POSTRETIREMENT HEALTHCARE PLANS. Our defined benefit plans are measured using actuarial techniques that reflect
management’s assumptions for discount rate, expected long-term investment returns on plan assets, salary increases, expected retirement,
mortality, employee turnover and future increases in healthcare costs. We determine the discount rate (which is required to be the rate at which the
projected benefit obligation could be effectively settled as of the measurement date) with the assistance of actuaries, who calculate the yield on a
theoretical portfolio of high-grade corporate bonds (rated Aa or better) with cash flows that are designed to match our expected benefit payments
in future years. A calculated-value method is employed for purposes of determining the asset values for our tax-qualified U.S. domestic pension
plans (“U.S. Pension Plans”). Our expected rate of return is a judgmental matter which is reviewed on an annual basis and revised as appropriate.
The accounting guidance related to employers’ accounting for defined benefit pension and other postretirement plans requires recognition in the
balance sheet of the funded status of defined benefit pension and other postretirement benefit plans, and the recognition in other comprehensive
income (“OCI”) of unrecognized gains or losses and prior service costs or credits. Additionally, the guidance requires the measurement date for
plan assets and liabilities to coincide with the plan sponsor’s year end.

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At May 31, 2012, we recorded a decrease to equity through OCI of $2.4 billion (net of tax) based primarily on year-end adjustments related to
increases in our projected benefit obligation due to a decrease in the discount rate used to measure the liability at May 31, 2012. At May 31, 2011,
we recorded a decrease to equity through OCI of $350 million (net of tax) based primarily on year-end adjustments related to increases in our
projected benefit obligation due to a decrease in the discount rate used to measure the liability at May 31, 2011.
INCOME TAXES. Deferred income taxes are provided for the tax effect of temporary differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements. The liability method is used to account for income taxes, which requires deferred taxes to be
recorded at the statutory rate expected to be in effect when the taxes are paid.
We recognize liabilities for uncertain income tax positions based on a two-step process. The first step is to evaluate the tax position for recognition
by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest
amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as
we must determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis or when new
information becomes available to management. These reevaluations are based on factors including, but not limited to, changes in facts or
circumstances, changes in tax law, successfully settled issues under audit and new audit activity. Such a change in recognition or measurement
could result in the recognition of a tax benefit or an increase to the related provision.
We classify interest related to income tax liabilities as interest expense, and if applicable, penalties are recognized as a component of income tax
expense. The income tax liabilities and accrued interest and penalties that are due within one year of the balance sheet date are presented as current
liabilities. The remaining portion of our income tax liabilities and accrued interest and penalties are presented as noncurrent liabilities because
payment of cash is not anticipated within one year of the balance sheet date. These noncurrent income tax liabilities are recorded in the caption
“Other liabilities” in the accompanying consolidated balance sheets.
SELF-INSURANCE ACCRUALS. We are self-insured for costs associated with workers’ compensation claims, vehicle accidents and general
business liabilities, and benefits paid under employee healthcare and long-term disability programs. Accruals are primarily based on the actuarially
estimated, undiscounted cost of claims, which includes incurred-but-not-reported claims. Current workers’ compensation claims, vehicle and
general liability, employee healthcare claims and long-term disability are included in accrued expenses. We self-insure up to certain limits that

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vary by operating company and type of risk. Periodically, we evaluate the level of insurance coverage and adjust insurance levels based on risk
tolerance and premium expense.
LEASES. We lease certain aircraft, facilities, equipment and vehicles under capital and operating leases. The commencement date of all leases is
the earlier of the date we become legally obligated to make rent payments or the date we may exercise control over the use of the property. In
addition to minimum rental payments, certain leases provide for contingent rentals based on equipment usage principally related to aircraft leases
at FedEx Express and copier usage at FedEx Office. Rent expense associated with contingent rentals is recorded as incurred. Certain of our leases
contain fluctuating or escalating payments and rent holiday periods. The related rent expense is recorded on a straight-line basis over the lease
term. The cumulative excess of rent payments over rent expense is accounted for as a deferred lease asset and recorded in “Other assets” in the
accompanying consolidated balance sheets. The cumulative excess of rent expense over rent payments is accounted for as a deferred lease
obligation. Leasehold improvements associated with assets utilized under capital or operating leases are amortized over the shorter of the asset’s
useful life or the lease term.
DEFERRED GAINS. Gains on the sale and leaseback of aircraft and other property and equipment are deferred and amortized ratably over the life
of the lease as a reduction of rent expense. Substantially all of these deferred gains are related to aircraft transactions.

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FOREIGN CURRENCY TRANSLATION. Translation gains and losses of foreign operations that use local currencies as the functional currency are
accumulated and reported, net of applicable deferred income taxes, as a component of accumulated other comprehensive income within common
stockholders’ investment. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other
than the local currency are included in the caption “Other, net” in the accompanying consolidated statements of income and were immaterial for
each period presented. Cumulative net foreign currency translation gains in accumulated other comprehensive income were $60 million at May 31,
2012, $156 million at May 31, 2011 and $30 million at May 31, 2010.
EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS. The pilots of FedEx Express, which represent a small number of FedEx
Express’s total employees, are employed under a collective bargaining agreement. In 2011, the pilots ratified a new labor contract that includes
safety initiatives, increases in hourly pay rates and travel per diem rates, and provisions for opening a European crew base. The new contract
becomes amendable in March 2013. In addition to our pilots at FedEx Express, certain of FedEx’s non-U.S. employees are unionized.
STOCK-BASED COMPENSATION. We recognize compensation expense for stock-based awards under the provisions of the accounting guidance
related to share-based payments. This guidance requires recognition of compensation expense for stock-based awards using a fair value method.
TREASURY SHARES. During the second quarter of 2012, we repurchased 2.8 million FedEx common shares at an average price of $70 per share
for a total of $197 million. As of May 31, 2012, 2.9 million shares remained under existing share repurchase authorizations.
DIVIDENDS DECLARED PER COMMON SHARE. On June 4, 2012, our Board of Directors declared a quarterly dividend of $0.14 per share of
common stock. The dividend was paid on July 2, 2012 to stockholders of record as of the close of business on June 18, 2012. Each quarterly
dividend payment is subject to review and approval by our Board of Directors, and we evaluate our dividend payment amount on an annual basis at
the end of each fiscal year.
FEDEX FREIGHT NETWORK COMBINATION. The combination of our FedEx Freight and FedEx National LTL operations was completed on
January 30, 2011. These actions resulted in total program costs of $133 million, which includes $89 million of impairment and other charges and
$44 million of other program costs recorded during 2011.
USE OF ESTIMATES. The preparation of our consolidated financial statements requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities, the reported amounts of revenues and expenses and the disclosure of contingent liabilities. Management
makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial
statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the
period when new information becomes available to management. Areas where the nature of the estimate makes it reasonably possible that actual
results could materially differ from amounts estimated include: self-insurance accruals; retirement plan obligations; long-term incentive accruals;
tax liabilities; accounts receivable allowances; obsolescence of spare parts; contingent liabilities; loss contingencies, such as litigation and other
claims; and impairment assessments on long-lived assets (including goodwill).
NOTE 2: RECENT ACCOUNTING GUIDANCE
New accounting rules and disclosure requirements can significantly impact our reported results and the comparability of our financial statements.
We believe the following new accounting guidance is relevant to the readers of our financial statements.
During our fiscal year, the Financial Accounting Standards Board issued new guidance to make the presentation of items within OCI more

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one continuous statement or two separate consecutive statements, and companies will no longer be allowed to present items of OCI in the
statement of stockholders’ equity. This new standard is effective for our fiscal year ending May 31, 2013.
We believe there is no additional new accounting guidance adopted but not yet effective 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.
NOTE 3: BUSINESS COMBINATIONS
During 2012, we continued to expand our FedEx Express international network. On July 25, 2011, we completed our acquisition of Servicios
Nacionales Mupa, S.A. de C.V. (MultiPack), a Mexican domestic express package delivery company, for $128 million in cash from operations.
Last year, FedEx Express completed the acquisition of the Indian logistics, distribution and express businesses of AFL Pvt. Ltd. and its affiliate
Unifreight India Pvt. Ltd. for $96 million in cash on February 22, 2011. The financial results of these acquired businesses are included in the
FedEx Express segment from the date of acquisition and were not material, individually or in the aggregate, to our results of operations or financial
condition and therefore, pro forma financial information has not been presented. Substantially all of the purchase price was allocated to goodwill,
which was entirely attributed to our FedEx Express reporting unit.
Subsequent to year-end, we completed the following acquisitions:

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

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

• Rapidão Cometa Logística e Transportes S.A., a Brazilian transportation and logistics company, for $398 million in cash from
operations on July 4, 2012
Based on the timing of the completion of these acquisitions in relation to the date of issuance of the financial statements, the initial purchase price
accounting was not completed for these acquisitions. The financial results of these acquired businesses will be included in the FedEx Express
segment from the date of acquisition and will be immaterial to our 2013 results. These acquisitions will give us more robust transportation
networks within these countries and added capabilities in these important global markets.

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NOTE 4: GOODWILL AND OTHER INTANGIBLE ASSETS
GOODWILL. The carrying amount of goodwill attributable to each reportable operating segment and changes therein are as follows (in millions):

FedEx Express
Segment
FedEx Ground
Segment
FedEx Freight
Segment
FedEx Services
Segment Total
Goodwill at May 31, 2010 $ 1,145 $ 90 $ 736 $ 1,539 $ 3,510
Accumulated impairment charges — — (133) (1,177) (1,310)

Balance as of May 31, 2010 1,145 90 603 362 2,200
Goodwill acquired 89 — — — 89
Purchase adjustments and other 38 — (1) — 37

Balance as of May 31, 2011 1,272 90 602 362 2,326
Goodwill acquired 104 — — — 104
Purchase adjustments and other (32) — — (11) (43)

Balance as of May 31, 2012 $ 1,344 $ 90 $ 602 $ 351 $ 2,387

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Accumulated goodwill impairment charges
as of May 31, 2012 $ — $ — $ (133) $ (1,177) $ (1,310)

Goodwill acquired in 2011 relates to the acquisition of the Indian logistics, distribution and express businesses of AFL Pvt. Ltd. and its
affiliate Unifreight India Pvt. Ltd. See Note 3 for related disclosures.

Primarily currency translation adjustments.

Goodwill acquired in 2012 relates to the acquisition of the Mexican domestic express package delivery company, Multipack. See Note 3 for
related disclosures.
Our reporting units with significant recorded goodwill include our FedEx Express, FedEx Freight and FedEx Office (reported in the FedEx
Services segment) reporting units. We evaluated these reporting units during the fourth quarter of 2012. The estimated fair value of each of these
reporting units exceeded their carrying values in 2012 and 2011, and we do not believe that any of these reporting units were at risk as of May 31,
2012.
In 2010, we recorded a charge of $18 million for impairment of the value of the remaining goodwill at our FedEx National LTL reporting unit. The
impairment charge resulted from the significant negative impact of the U.S. recession on the LTL industry, which resulted in volume and yield
declines and operating losses. In connection with the combination of our LTL networks in 2011, this unit was merged into the FedEx Freight
reporting unit.
OTHER INTANGIBLE ASSETS. The net book value of our other intangible assets was $34 million at May 31, 2012 and $38 million at May 31,
2011. Amortization expense for intangible assets was $18 million in 2012, $32 million in 2011 and $51 million in 2010. Estimated amortization
expense is expected to be immaterial in 2013.

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NOTE 5: SELECTED CURRENT LIABILITIES
The components of selected current liability captions were as follows (in millions):

May 31,
2012 2011
Accrued Salaries and Employee Benefits
Salaries $ 280 $ 256
Employee benefits, including variable compensation 803 468
Compensated absences 552 544

$ 1,635 $ 1,268

Accrued Expenses
Self-insurance accruals $ 678 $ 696
Taxes other than income taxes 386 357
Other 645 841

$ 1,709 $ 1,894

NOTE 6: LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
The components of long-term debt (net of discounts), along with maturity dates for the years subsequent to May 31, 2012, are as follows (in
millions):

May 31,
2012 2011
Senior unsecured debt
Interest rate of 9.65%, due in 2013 $ 300 $ 300
Interest rate of 7.38%, due in 2014 250 250
Interest rate of 8.00%, due in 2019 750 750
Interest rate of 7.60%, due in 2098 239 239

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1,539 1,539
Capital lease obligations 128 146

1,667 1,685
Less current portion 417 18

$ 1,250 $ 1,667

Interest on our fixed-rate notes is paid semi-annually. Long-term debt, exclusive of capital leases, had carrying values of $1.5 billion at May 31,
2012 and May 31, 2011 compared with estimated fair values of $2.0 billion at May 31, 2012 and $1.9 billion at May 31, 2011. The estimated fair
values were determined based on quoted market prices or on the current rates offered for debt with similar terms and maturities.
We have a shelf registration statement filed with the Securities and Exchange Commission that allows us to sell, in one or more future offerings,
any combination of our unsecured debt securities and common stock.
During 2012, we made principal payments in the amount of $29 million related to capital lease obligations. During 2011, we repaid our $250
million 7.25% unsecured notes that matured on February 15, 2011. During 2011, we made principal payments in the amount of $12 million related
to capital lease obligations.

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A $1 billion revolving credit facility is available to finance our operations and other cash flow needs and to provide support for the issuance of
commercial paper. The revolving credit agreement expires in April 2016. The agreement contains a financial covenant, which requires us to
maintain a leverage ratio of adjusted debt (long-term debt, including the current portion of such debt, plus six times our last four fiscal quarters’
rentals and landing fees) to capital (adjusted debt plus total common stockholders’ investment) that does not exceed 70%. Our leverage ratio of
adjusted debt to capital was 53% at May 31, 2012. We believe the leverage ratio covenant is our only significant restrictive covenant in our
revolving credit agreement. Our revolving credit agreement contains other customary covenants that do not, individually or in the aggregate,
materially restrict the conduct of our business. We are in compliance with the leverage ratio covenant and all other covenants of our revolving
credit agreement and do not expect the covenants to affect our operations, including our liquidity or expected funding needs. As of May 31, 2012,
no commercial paper was outstanding, and the entire $1 billion under the revolving credit facility was available for future borrowings.
We issue other financial instruments in the normal course of business to support our operations, including standby letters of credit and surety
bonds. We had a total of $609 million in letters of credit outstanding at May 31, 2012, with $107 million unused under our primary $500 million
letter of credit facility, and $458 million in outstanding surety bonds placed by third-party insurance providers. These instruments are required
under certain U.S. self-insurance programs and are also used in the normal course of international operations. The underlying liabilities insured by
these instruments are reflected in our balance sheets, where applicable. Therefore, no additional liability is reflected for the letters of credit and
surety bonds themselves.
Our capital lease obligations include leases for aircraft and facilities. Our facility leases include leases that guarantee the repayment of certain
special facility revenue bonds that have been issued by municipalities primarily to finance the acquisition and construction of various airport
facilities and equipment. These bonds require interest payments at least annually, with principal payments due at the end of the related lease
agreement.
NOTE 7: LEASES
We utilize certain aircraft, land, facilities, retail locations and equipment under capital and operating leases that expire at various dates through
2045. We leased 10% of our total aircraft fleet under capital or operating leases as of May 31, 2012 as compared to 11% as of May 31, 2011. A
portion of our supplemental aircraft are leased by us under agreements that provide for cancellation upon 30 days’ notice. Our leased facilities
include national, regional and metropolitan sorting facilities, retail facilities and administrative buildings.
The components of property and equipment recorded under capital leases were as follows (in millions):

May 31,
2012 2011
Aircraft $ 7 $ 8
Package handling and ground support equipment 165 165
Vehicles 16 17
Other, principally facilities 147 145

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Less accumulated amortization 319 307

$ 16 $ 28

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Rent expense under operating leases for the years ended May 31 was as follows (in millions):

2012 2011 2010
Minimum rentals $ 2,018 $ 2,025 $ 2,001
Contingent rentals 210 193 152

$ 2,228 $ 2,218 $ 2,153

Contingent rentals are based on equipment usage.
A summary of future minimum lease payments under capital leases and noncancelable operating leases with an initial or remaining term in excess
of one year at May 31, 2012 is as follows (in millions):

Operating Leases

Capital
Leases
Aircraft
and Related
Equipment
Facilities
and Other
Total
Operating
Leases
2013 $ 120 $ 486 $ 1,386 $ 1,872
2014 2 462 1,263 1,725
2015 2 448 1,124 1,572
2016 1 453 938 1,391
2017 1 391 1,042 1,433
Thereafter 11 1,150 4,843 5,993

Total 137 $ 3,390 $ 10,596 $ 13,986

Less amount representing interest 9

Present value of net minimum lease payments $ 128

The weighted-average remaining lease term of all operating leases outstanding at May 31, 2012 was approximately six years. 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.
FedEx Express makes payments under certain leveraged operating leases that are sufficient to pay principal and interest on certain pass-through
certificates. The pass-through certificates are not direct obligations of, or guaranteed by, FedEx or FedEx Express.
We are the lessee in a series of operating leases covering a portion of our leased aircraft. The lessors are trusts established specifically to purchase,
finance and lease aircraft to us. These leasing entities meet the criteria for variable interest entities. We are not the primary beneficiary of the
leasing entities, as the lease terms are consistent with market terms at the inception of the lease and do not include a residual value guarantee, fixed-
price purchase option or similar feature that obligates us to absorb decreases in value or entitles us to participate in increases in the value of the
aircraft. As such, we are not required to consolidate the entity as the primary beneficiary. Our maximum exposure under these leases is included in
the summary of future minimum lease payments shown above.

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NOTE 8: PREFERRED STOCK
Our Certificate of Incorporation authorizes the Board of Directors, at its discretion, to issue up to 4,000,000 shares of preferred stock. The stock is
(1)
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issuable in series, which may vary as to certain rights and preferences, and has no par value. As of May 31, 2012, none of these shares had been
issued.
NOTE 9: STOCK-BASED COMPENSATION
Our total stock-based compensation expense for the years ended May 31 was as follows (in millions):

2012 2011 2010
Stock-based compensation expense $ 105 $ 98 $ 101
We have two types of equity-based compensation: stock options and restricted stock.
STOCK OPTIONS. Under the provisions of our incentive stock plans, key employees and non-employee directors may be granted options to
purchase shares of our common stock at a price not less than its fair market value on the date of grant. Vesting requirements are determined at the
discretion of the Compensation Committee of our Board of Directors. Option-vesting periods range from one to four years, with 83% of our
options vesting ratably over four years. Compensation expense associated with these awards is recognized on a straight-line basis over the requisite
service period of the award.
RESTRICTED STOCK. Under the terms of our incentive stock plans, restricted shares of our common stock are awarded to key employees. All
restrictions on the shares expire ratably over a four-year period. Shares are valued at the market price on the date of award. The terms of our
restricted stock provide for continued vesting subsequent to the employee’s retirement. Compensation expense associated with these awards is
recognized on a straight-line basis over the shorter of the remaining service or vesting period.
VALUATION AND ASSUMPTIONS. We use the Black-Scholes option pricing model to calculate the fair value of stock options. The value of
restricted stock awards is based on the stock price of the award on the grant date. We record stock-based compensation expense in the “Salaries and
employee benefits” caption in the accompanying consolidated statements of income.
The key assumptions for the Black-Scholes valuation method include the expected life of the option, stock price volatility, a risk-free interest rate,
and dividend yield. Following is a table of the weighted-average Black-Scholes value of our stock option grants, the intrinsic value of options
exercised (in millions), and the key weighted-average assumptions used in the valuation calculations for the options granted during the years ended
May 31, and then a discussion of our methodology for developing each of the assumptions used in the valuation model:

2012 2011 2010
Weighted-average Black-Scholes value $ 29.92 $ 28.12 $ 20.47
Intrinsic value of options exercised $ 67 $ 80 $ 77
Black-Scholes Assumptions:
Expected lives 6.0 years 5.9 years 5.7 years
Expected volatility 34% 34% 32%
Risk-free interest rate 1.79% 2.36% 3.24%
Dividend yield 0.563% 0.558% 0.742%
Expected Lives. This is the period of time over which the options granted are expected to remain outstanding. Options granted have a maximum
term of 10 years. We examine actual stock option exercises to determine the expected life of the options. An increase in the expected term will
increase compensation expense.

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Expected Volatility. Actual changes in the market value of our stock are used to calculate the volatility assumption. We calculate daily market
value changes from the date of grant over a past period equal to the expected life of the options to determine volatility. An increase in the expected
volatility will increase compensation expense.
Risk-Free Interest Rate. This is the U.S. Treasury Strip rate posted at the date of grant having a term equal to the expected life of the option. An
increase in the risk-free interest rate will increase compensation expense.
Dividend Yield. This is the annual rate of dividends per share over the exercise price of the option. An increase in the dividend yield will decrease
compensation expense.
The following table summarizes information about stock option activity for the year ended May 31, 2012:

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Stock Options
Shares
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic Value
(in millions)
Outstanding at June 1, 2011 20,163,163 $ 81.20

Granted 3,303,368 87.90
Exercised (2,142,410) 59.73
Forfeited (292,583) 84.70

Outstanding at May 31, 2012 21,031,538 $ 84.39 5.6 years $ 193

Exercisable 13,608,746 $ 87.59 4.2 years $ 115

Expected to vest 6,977,189 $ 78.53 8.2 years $ 73

Available for future grants 8,912,829

Only presented for options with market value at May 31, 2012 in excess of the exercise price of the option.
The options granted during the year ended May 31, 2012 are primarily related to our principal annual stock option grant in June 2011.
The following table summarizes information about vested and unvested restricted stock for the year ended May 31, 2012:

Restricted Stock
Shares
Weighted-
Average
Grant Date
Fair Value
Unvested at June 1, 2011 626,380 $ 73.20

Granted 214,435 88.95
Vested (248,413) 78.25
Forfeited (2,530) 74.98

Unvested at May 31, 2012 589,872 $ 76.79

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During the year ended May 31, 2011, there were 235,998 shares of restricted stock granted with a weighted-average fair value of $78.74. During
the year ended May 31, 2010, there were 391,786 shares of restricted stock granted with a weighted-average fair value of $57.07.
The following table summarizes information about stock option vesting during the years ended May 31:

Stock Options

Vested during
the year
Fair value
(in millions)
2010 2,296,211 $ 63
2011 2,721,602 67
2012 2,807,809 70
As of May 31, 2012, there was $150 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based
compensation arrangements. This compensation expense is expected to be recognized on a straight-line basis over the remaining weighted-average
vesting period of approximately three years.
Total shares outstanding or available for grant related to equity compensation at May 31, 2012 represented 9% of the total outstanding common
and equity compensation shares and equity compensation shares available for grant.
NOTE 10: COMPUTATION OF EARNINGS PER SHARE
The calculation of basic and diluted earnings per common share for the years ended May 31 was as follows (in millions, except per share amounts):
(1)
(1)

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2012 2011 2010
Basic earnings per common share:
Net earnings allocable to common shares $ 2,029 $ 1,449 $ 1,182
Weighted-average common shares 315 315 312

Basic earnings per common share $ 6.44 $ 4.61 $ 3.78

Diluted earnings per common share:
Net earnings allocable to common shares $ 2,029 $ 1,449 $ 1,182

Weighted-average common shares 315 315 312
Dilutive effect of share-based awards 2 2 2

Weighted-average diluted shares 317 317 314
Diluted earnings per common share $ 6.41 $ 4.57 $ 3.76

Anti-dilutive options excluded from diluted earnings per common share 12.6 9.3 11.5

Net earnings available to participating securities were immaterial in all periods presented.

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NOTE 11: INCOME TAXES
The components of the provision for income taxes for the years ended May 31 were as follows (in millions):

2012 2011 2010
Current provision (benefit)
Domestic:
Federal $ (120) $ 79 $ 36
State and local 80 48 54
Foreign 181 198 207

141 325 297

Deferred provision (benefit)
Domestic:
Federal 947 485 408
State and local 21 12 15
Foreign — (9) (10)

968 488 413

$ 1,109 $ 813 $ 710

Our current federal income tax expenses in 2012, 2011 and 2010 were significantly reduced by accelerated depreciation deductions we claimed
under provisions of the Tax Relief and the Small Business Jobs Acts of 2010, the American Recovery and Reinvestment Tax Act of 2009, and the
Economic Stimulus Act of 2008. Those Acts, designed to stimulate new business investment in the U.S., accelerated our depreciation deductions
for new qualifying investments, such as our new Boeing 777 Freighter (“B777F”) aircraft. These are timing benefits only, in that the depreciation
would have otherwise been recognized in later years.
Pre-tax earnings of foreign operations for 2012, 2011 and 2010 were $358 million, $472 million and $555 million, respectively, which represent
only a portion of total results associated with international shipments.
A reconciliation of the statutory federal income tax rate to the effective income tax rate for the years ended May 31 was as follows:

2012 2011 2010
Statutory U.S. income tax rate 35.0% 35.0% 35.0%
Increase (decrease) resulting from:
State and local income taxes, net of federal benefit 2.1 1.7 2.4
Other, net (1.8) (0.8) 0.1

Effective tax rate 35.3% 35.9% 37.5%
(1)
(1)
(1)

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Our 2012 rate was lower than our 2011 rate primarily due to favorable audit developments. The 2011 rate was lower than our 2010 rate primarily
due to increased permanently reinvested foreign earnings and a lower state rate driven by favorable audit and legislative developments.

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The significant components of deferred tax assets and liabilities as of May 31 were as follows (in millions):

2012 2011

Deferred Tax
Assets
Deferred Tax
Liabilities
Deferred Tax
Assets
Deferred Tax
Liabilities
Property, equipment, leases and intangibles $ 248 $ 3,436 $ 274 $ 2,675
Employee benefits 2,300 11 1,016 34
Self-insurance accruals 495 — 519 —
Other 338 271 422 269
Net operating loss/credit carryforwards 179 — 172 —
Valuation allowances (145) — (151) —

$ 3,415 $ 3,718 $ 2,252 $ 2,978

The net deferred tax liabilities as of May 31 have been classified in the balance sheets as follows (in millions):

2012 2011
Current deferred tax asset $ 533 $ 610
Noncurrent deferred tax liability (836) (1,336)

$ (303) $ (726)

We have $560 million of net operating loss carryovers in various foreign jurisdictions and $510 million of state operating loss carryovers. The
valuation allowances primarily represent amounts reserved for operating loss and tax credit carryforwards, which expire over varying periods
starting in 2013. As a result of this and other factors, we believe that a substantial portion of these deferred tax assets may not be realized.
Permanently reinvested earnings of our foreign subsidiaries amounted to $1 billion at the end of 2012 and $640 million at the end of 2011. We
have not recognized deferred taxes for U.S. federal income tax purposes on those earnings. In 2012, our permanent reinvestment strategy with
respect to unremitted earnings of our foreign subsidiaries provided a 1.3% benefit to our effective tax rate. Were the earnings to be distributed, in
the form of dividends or otherwise, these earnings could be subject to U.S. federal income tax and non-U.S. withholding taxes. Unrecognized
foreign tax credits potentially could be available to reduce a portion of any U.S. tax liability. Determination of the amount of unrecognized deferred
U.S. income tax liability is not practicable due to uncertainties related to the timing and source of any potential distribution of such funds, along
with other important factors such as the amount of associated foreign tax credits. Cash in offshore jurisdictions associated with our permanent
reinvestment strategy totaled $410 million at the end of 2012 and $300 million at the end of 2011.
We file income tax returns in the U.S., various U.S. state and local jurisdictions, and various foreign jurisdictions. The Internal Revenue Service is
currently auditing our consolidated U.S. income tax returns for the 2010 and 2011 tax years. We are no longer subject to U.S. federal income tax
examination for years through 2009 except for specific and immaterial U.S. federal income tax positions that are in various stages of litigation. We
anticipate resolution of part or all of this litigation could occur within 2013, but it would not have a material effect on our consolidated financial
statements. We are also subject to ongoing audits in state, local and foreign tax jurisdictions throughout the world.

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A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):

2012 2011 2010
Balance at beginning of year $ 69 $ 82 $ 72

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Increases for tax positions taken in the current year 2 2 3
Increases for tax positions taken in prior years 4 6 14
Decreases for tax positions taken in prior years (35) (10) (4)
Settlements (3) (11) (3)
Increases due to acquisitions 15 — —
Changes due to currency translation (1) — —

Balance at end of year $ 51 $ 69 $ 82

Our liabilities recorded for uncertain tax positions include $47 million at May 31, 2012 and $56 million at May 31, 2011 associated with positions
that if favorably resolved would provide a benefit to our effective tax rate. We classify interest related to income tax liabilities as interest expense,
and if applicable, penalties are recognized as a component of income tax expense. The balance of accrued interest and penalties was $29 million on
May 31, 2012 and $18 million on May 31, 2011. Total interest and penalties included in our consolidated statements of income are immaterial.
It is difficult to predict the ultimate outcome or the timing of resolution for tax positions. Changes may result from the conclusion of ongoing
audits, appeals or litigation in state, local, federal and foreign tax jurisdictions, or from the resolution of various proceedings between the U.S. and
foreign tax authorities. Our liability for uncertain tax positions includes no matters that are individually or collectively material to us. It is
reasonably possible that the amount of the benefit with respect to certain of our unrecognized tax positions will increase or decrease within the next
12 months, but an estimate of the range of the reasonably possible changes cannot be made. However, we do not expect that the resolution of any of
our uncertain tax positions will be material.
NOTE 12: RETIREMENT PLANS
We sponsor programs that provide retirement benefits to most of our employees. These programs include defined benefit pension plans, defined
contribution plans and postretirement healthcare plans. The accounting for pension and postretirement healthcare plans includes numerous
assumptions, such as: discount rates; expected long-term investment returns on plan assets; future salary increases; employee turnover; mortality;
and retirement ages. These assumptions most significantly impact our U.S. Pension Plans.
The accounting guidance related to postretirement benefits requires recognition in the balance sheet of the funded status of defined benefit pension
and other postretirement benefit plans, and the recognition in accumulated other comprehensive income (“AOCI”) of unrecognized gains or losses
and prior service costs or credits. The funded status is measured as the difference between the fair value of the plan’s assets and the projected
benefit obligation (“PBO”) of the plan. At May 31, 2012, we recorded a decrease to equity of $2.4 billion (net of tax) attributable to our plans. At
May 31, 2011, we recorded a decrease to equity of $350 million (net of tax) attributable to our plans.
A summary of our retirement plans costs over the past three years is as follows (in millions):

2012 2011 2010
U.S. domestic and international pension plans $ 524 $ 543 $ 308
U.S. domestic and international defined contribution plans 338 257 136
Postretirement healthcare plans 70 60 42

$ 932 $ 860 $ 486

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PENSION PLANS. Our largest pension plan covers certain U.S. employees age 21 and over, with at least one year of service. Pension benefits for
most employees are accrued under a cash balance formula we call the Portable Pension Account. Under the Portable Pension Account, the
retirement benefit is expressed as a dollar amount in a notional account that grows with annual credits based on pay, age and years of credited
service, and interest on the notional account balance. The Portable Pension Account benefit is payable as a lump sum or an annuity at retirement at
the election of the employee. The plan interest credit rate varies from year to year based on a U.S. Treasury index and corporate bond rates. Prior
to 2009, certain employees earned benefits using a traditional pension formula (based on average earnings and years of service). Benefits under
this formula were capped on May 31, 2008 for most employees. We also sponsor or participate in nonqualified benefit plans covering certain of
our U.S. employee groups and other pension plans covering certain of our international employees. The international defined benefit pension plans
provide benefits primarily based on final earnings and years of service and are funded in compliance with local laws and practices.
POSTRETIREMENT HEALTHCARE PLANS. Certain of our subsidiaries offer medical, dental and vision coverage to eligible U.S. retirees and
their eligible dependents. U.S. employees covered by the principal plan become eligible for these benefits at age 55 and older, if they have
permanent, continuous service of at least 10 years after attainment of age 45 if hired prior to January 1, 1988, or at least 20 years after attainment of

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age 35 if hired on or after January 1, 1988. Postretirement healthcare benefits are capped at 150% of the 1993 per capita projected employer cost,
which has been reached and, therefore, these benefits are not subject to additional future inflation.
PENSION PLAN ASSUMPTIONS. Our pension cost is materially affected by the discount rate used to measure pension obligations, the level of
plan assets available to fund those obligations and the expected long-term rate of return on plan assets.
We use a measurement date of May 31 for our pension and postretirement healthcare plans. Management reviews the assumptions used to measure
pension costs on an annual basis. Economic and market conditions at the measurement date impact these assumptions from year to year. Actuarial
gains or losses are generated for changes in assumptions and to the extent that actual results differ from those assumed. These actuarial gains and
losses are amortized over the remaining average service lives of our active employees if they exceed a corridor amount in the aggregate. Additional
information about our pension plans can be found in the Critical Accounting Estimates section of Management’s Discussion and Analysis of
Results of Operations and Financial Condition (“MD&A”) in this Annual Report on Form 10-K (“Annual Report”).
Weighted-average actuarial assumptions for our primary U.S. retirement plans, which represent substantially all of our PBO and accumulated
postretirement benefit obligation (“APBO”), are as follows:

Pension Plans Postretirement Healthcare Plans
2012 2011 2010 2012 2011 2010
Discount rate used to determine benefit obligation 4.44% 5.76% 6.37% 4.55% 5.67% 6.11%
Discount rate used to determine net periodic benefit cost 5.76 6.37 7.68 5.67 6.11 7.27
Rate of increase in future compensation levels used to determine
benefit obligation 4.62 4.58 4.63 — — —
Rate of increase in future compensation levels used to determine net
periodic benefit cost 4.58 4.63 4.42 — — —
Expected long-term rate of return on assets 8.00 8.00 8.00 — — —

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The estimated average rate of return on plan assets is the expected future long-term rate of earnings on plan assets and is a forward-looking
assumption that materially affects our pension cost. Establishing the expected future rate of investment return on our pension assets is a judgmental
matter. We review the expected long-term rate of return on an annual basis and revise it as appropriate. Management considers the following
factors in determining this assumption:

• the duration of our pension plan liabilities, which drives the investment strategy we can employ with our pension plan assets;

• the types of investment classes in which we invest our pension plan assets and the expected compound geometric return we can
reasonably expect those investment classes to earn over time; and

• the investment returns we can reasonably expect our investment management program to achieve in excess of the returns we could
expect if investments were made strictly in indexed funds.
Our estimated long-term rate of return on plan assets remains at 8% for 2013, consistent with our expected rate of return in 2012 and 2011. Our
actual return in each of the past three years exceeded that amount for our principal U.S. domestic pension plan. For the 15-year period ended
May 31, 2012, our actual returns were 7.4%.
Pension expense is also affected by the accounting policy used to determine the value of plan assets at the measurement date. We use a calculated-
value method to determine the value of plan assets, which helps mitigate short-term volatility in market performance (both increases and decreases)
by amortizing certain actuarial gains or losses over a period no longer than four years. Another method used in practice applies the market value of
plan assets at the measurement date. For purposes of valuing plan assets for determining 2013 pension expense, the calculated value method
resulted in the same value as the market value, as it did in 2011. For determining 2012 pension expense, we used the calculated value method
which resulted in a portion of the asset gain in 2011 being deferred to future years because our actual returns on plan assets significantly exceeded
our assumptions.
The investment strategy for pension plan assets is to utilize a diversified mix of global public and private equity portfolios, together with fixed-
income portfolios, to earn a long-term investment return that meets our pension plan obligations. Our pension plan assets are invested primarily in
listed securities, and our pension plans hold only a minimal investment in FedEx common stock that is entirely at the discretion of third-party
pension fund investment managers. Our largest holding classes are Corporate Fixed Income Securities, U.S. Large Cap Equities, which is indexed
to the S&P 500 Index, and Government Fixed Income Securities. Accordingly, we do not have any significant concentrations of risk. Active
management strategies are utilized within the plan in an effort to realize investment returns in excess of market indices. As part of our strategy to
manage future pension costs and net funded status volatility, we have transitioned to a liability-driven investment strategy with a greater

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concentration of fixed-income securities to better align plan assets with liabilities. Our investment strategy also includes the limited use of
derivative financial instruments on a discretionary basis to improve investment returns and manage exposure to market risk. In all cases, our
investment managers are prohibited from using derivatives for speculative purposes and are not permitted to use derivatives to leverage a portfolio.

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Following is a description of the valuation methodologies used for investments measured at fair value:

• Cash and cash equivalents. These Level 1 investments include cash, cash equivalents and foreign currency valued using exchange
rates. The Level 2 investments include commingled funds valued using the net asset value.

• Domestic and international equities. These Level 1 investments are valued at the closing price or last trade reported on the major
market on which the individual securities are traded. The Level 2 investments are commingled funds valued using the net asset value.

• Private equity. The valuation of these Level 3 investments requires significant judgment due to the absence of quoted market prices, the
inherent lack of liquidity and the long-term nature of such assets. Investments are valued based upon recommendations of our
investment managers incorporating factors such as contributions and distributions, market transactions, market comparables and
performance multiples.

• Fixed income. We determine the fair value of these Level 2 corporate bonds, U.S. government securities and other fixed income
securities by using bid evaluation pricing models or quoted prices of securities with similar characteristics.

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The fair values of investments by level and asset category and the weighted-average asset allocations for our domestic pension plans at the
measurement date are presented in the following table (in millions):

Plan Assets at Measurement Date
2012
Asset Class Fair Value Actual % Target %
Quoted Prices in
Active Markets
Level 1
Other Observable
Inputs
Level 2
Unobservable
Inputs
Level 3
Cash and cash equivalents $ 618 4 % 1 % $ 8 $ 610
Domestic equities
U.S. large cap equity 4,248 25 24 9 4,239
U.S. SMID cap equity 1,368 8 9 1,368
International equities 1,657 10 12 1,395 262
Private equities 402 2 5 $ 402
Fixed income securities 49
Corporate 4,565 27 4,565
Government 4,175 24 4,175
Mortgage backed and other 59 — 59
Other (79) — — (85) 6

$ 17,013 100 % 100 % $ 2,695 $ 13,916 $ 402

2011
Asset Class Fair Value Actual % Target %
Quoted Prices in
Active Markets
Level 1
Other Observable
Inputs
Level 2
Unobservable
Inputs
Level 3
Cash and cash equivalents $ 409 3 % 1 % $ 107 $ 302
Domestic equities
U.S. large cap equity 4,280 27 24 26 4,254
U.S. SMID cap equity 1,481 10 9 1,481
International equities 2,013 13 12 1,702 311
Private equities 403 3 5 $ 403

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Fixed income securities 49
Corporate 3,794 24 3,794
Government 3,135 20 3,135
Mortgage backed and other 66 — 66
Other (63) — — (59) (4)

$ 15,518 100 % 100 % $ 3,257 $ 11,858 $ 403

The change in fair value of Level 3 assets that use significant unobservable inputs is shown in the table below (in millions):

2012 2011
Balance at beginning of year $ 403 $ 399
Actual return on plan assets:
Assets held during current year 3 27
Assets sold during the year 38 36
Purchases, sales and settlements (42) (59)

Balance at end of the year $ 402 $ 403

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The following table provides a reconciliation of the changes in the pension and postretirement healthcare plans’ benefit obligations and fair value
of assets over the two-year period ended May 31, 2012 and a statement of the funded status as of May 31, 2012 and 2011 (in millions):

Pension Plans Postretirement Healthcare Plans
2012 2011 2012 2011
Accumulated Benefit Obligation (“ABO”) $ 21,556 $ 16,806

Changes in Projected Benefit Obligation (“PBO”) and
Accumulated Postretirement Benefit Obligation (“APBO”)
PBO/APBO at the beginning of year $ 17,372 $ 14,484 $ 648 $ 565
Service cost 593 521 35 31
Interest cost 976 900 36 34
Actuarial loss 3,789 1,875 98 44
Benefits paid (502) (468) (51) (48)
Other (41) 60 24 22

PBO/APBO at the end of year $ 22,187 $ 17,372 $ 790 $ 648

Change in Plan Assets
Fair value of plan assets at the beginning of year $ 15,841 $ 13,295 $ — $ —
Actual return on plan assets 1,235 2,425 — —
Company contributions 780 557 27 26
Benefits paid (502) (468) (51) (48)
Other (20) 32 24 22

Fair value of plan assets at the end of year $ 17,334 $ 15,841 $ — $ —

Funded Status of the Plans $ (4,853) $ (1,531) $ (790) $ (648)

Amount Recognized in the Balance Sheet at May 31:
Current pension, postretirement healthcare and other benefit
obligations $ (35) $ (33) $ (33) $ (31)
Noncurrent pension, postretirement healthcare and other benefit
obligations (4,818) (1,498) (757) (617)

Net amount recognized $ (4,853) $ (1,531) $ (790) $ (648)

Amounts Recognized in AOCI and not yet reflected in Net

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Periodic Benefit Cost:
Net actuarial loss (gain) $ 8,866 $ 5,386 $ 13 $ (85)
Prior service (credit) cost and other (897) (993) 2 2

Total $ 7,969 $ 4,393 $ 15 $ (83)

Amounts Recognized in AOCI and not yet reflected in Net
Periodic Benefit Cost expected to be amortized in next year’s
Net Periodic Benefit Cost:
Net actuarial loss (gain) $ 516 $ 307 $ — $ (1)
Prior service credit and other (114) (112) — —

Total $ 402 $ 195 $ — $ (1)

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Our pension plans included the following components at May 31, 2012 and 2011 (in millions):

ABO PBO
Fair Value of
Plan Assets Funded Status
2012
Qualified $ 20,667 $ 21,192 $ 17,013 $ (4,179)
Nonqualified 352 355 — (355)
International Plans 537 640 321 (319)

Total $ 21,556 $ 22,187 $ 17,334 $ (4,853)

2011
Qualified $ 16,024 $ 16,445 $ 15,518 $ (927)
Nonqualified 335 339 — (339)
International Plans 447 588 323 (265)

Total $ 16,806 $ 17,372 $ 15,841 $ (1,531)

The table above provides the ABO, PBO, fair value of plan assets and funded status of our pension plans on an aggregated basis. The following
table presents our plans on a disaggregated basis to show those plans (as a group) whose assets did not exceed their liabilities. These plans are
comprised of our unfunded nonqualified plans, certain international plans and our U.S. Pension Plans. At May 31, 2012 and 2011, the fair value of
plan assets for pension plans with a PBO or ABO in excess of plan assets were as follows (in millions):

PBO Exceeds the Fair Value
of Plan Assets
2012 2011
Pension Benefits
Fair value of plan assets $ 17,334 $ 15,815
PBO (22,187) (17,346)

Net funded status $ (4,853) $ (1,531)

ABO Exceeds the Fair Value
of Plan Assets
2012 2011
Pension Benefits
ABO $ (21,555) $ (16,530)
Fair value of plan assets 17,333 15,538
PBO (22,185) (17,014)

Net funded status $ (4,852) $ (1,476)

ABO not used in determination of funded status.
Contributions to our U.S. Pension Plans for the years ended May 31 were as follows (in millions):

(1)
(1)

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2012 2011
Required $ 496 $ 359
Voluntary 226 121

$ 722 $ 480

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Net periodic benefit cost for the three years ended May 31 were as follows (in millions):

Pension Plans Postretirement Healthcare Plans
2012 2011 2010 2012 2011 2010
Service cost $ 593 $ 521 $ 417 $ 35 $ 31 $ 24
Interest cost 976 900 823 36 34 30
Expected return on plan assets (1,240) (1,062) (955) — — —
Recognized actuarial losses (gains) and other 195 184 23 (1) (5) (12)

Net periodic benefit cost $ 524 $ 543 $ 308 $ 70 $ 60 $ 42

Pension costs in 2012 were slightly lower than 2011, as the benefit of significant investment returns on our pension plan assets in 2011 offset the
negative impact of a lower discount rate at our May 31, 2011 measurement date.
Amounts recognized in OCI for all plans were as follows (in millions):

2012 2011
Pension Plans
Postretirement
Healthcare Plans Pension Plans
Postretirement
Healthcare Plans

Gross
Amount
Net of Tax
Amount
Gross
Amount
Net of Tax
Amount
Gross
Amount
Net of Tax
Amount
Gross
Amount
Net of Tax
Amount
Net loss and other arising during period $ 3,777 $ 2,371 $ 97 $ 61 $ 511 $ 321 $ 44 $ 26
Loss from settlements and curtailments — — — — (13) (8) — —
Amortizations:
Prior services credit 113 71 — — 113 71 — —
Actuarial (losses) gains and other (311) (195) 1 — (284) (178) 5 3

Total recognized in OCI $ 3,579 $ 2,247 $ 98 $ 61 $ 327 $ 206 $ 49 $ 29

Benefit payments, which reflect expected future service, are expected to be paid as follows for the years ending May 31 (millions):

Pension Plans
Postretirement
Healthcare Plans
2013 $ 640 $ 33
2014 723 34
2015 803 36
2016 861 38
2017 922 40
2018-2022 6,289 246
These estimates are based on assumptions about future events. Actual benefit payments may vary significantly from these estimates.
Future medical benefit claims costs are estimated to increase at an annual rate of 8.0% during 2013, decreasing to an annual growth rate of 4.5% in
2029 and thereafter. Future dental benefit costs are estimated to increase at an annual rate of 6.9% during 2013, decreasing to an annual growth rate
of 4.5% in 2029 and thereafter. A 1% change in these annual trend rates would not have a significant impact on the APBO at May 31, 2012 or 2012
benefit expense because the level of these benefits is capped.

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NOTE 13: BUSINESS SEGMENT INFORMATION
FedEx Express, FedEx Ground and FedEx Freight represent our major service lines and, along with FedEx Services, form the core of our
reportable segments. Our reportable segments include the following businesses:

FedEx Express Segment FedEx Express (express transportation)
FedEx Trade Networks (air and ocean freight forwarding and customs brokerage)
FedEx SupplyChain Systems (logistics services)
FedEx Ground Segment FedEx Ground (small-package ground delivery)
FedEx SmartPost (small-parcel consolidator)
FedEx Freight Segment FedEx Freight (LTL freight transportation)
FedEx Custom Critical (time-critical transportation)
FedEx Services Segment FedEx Services (sales, marketing, information technology, communications and back-office functions)
FedEx TechConnect (customer service, technical support, billings and collections)
FedEx Office (document and business services and package acceptance)
FedEx Services Segment
The FedEx Services segment operates combined sales, marketing, administrative and information technology functions in shared services
operations that support our transportation businesses and allow us to obtain synergies from the combination of these functions. For the international
regions of FedEx Express, some of these functions are performed on a regional basis by FedEx Express and reported in the FedEx Express segment
in expense line items outside of intercompany charges. The FedEx Services segment includes: FedEx Services, which provides sales, marketing,
information technology, communications and back-office support to our other companies; FedEx TechConnect, which is responsible for customer
service, technical support, billings and collections for U.S. customers of our major business units; and FedEx Office, which provides an array of
document and business services and retail access to our customers for our package transportation businesses.
The FedEx Services segment provides direct and indirect support to our transportation businesses, and we allocate all of the net operating costs of
the FedEx Services segment (including the net operating results of FedEx Office) to reflect the full cost of operating our transportation businesses
in the results of those segments. Within the FedEx Services segment allocation, the net operating results of FedEx Office, which are an immaterial
component of our allocations, are allocated to FedEx Express and FedEx Ground. The allocations of net operating costs are based on metrics such
as relative revenues or estimated services provided. We believe these allocations approximate the net cost of providing these functions. We review
and evaluate the performance of our transportation segments based on operating income (inclusive of FedEx Services segment allocations). For the
FedEx Services segment, performance is evaluated based on the impact of its total allocated net operating costs on our transportation segments.
The operating expenses line item “Intercompany charges” on the accompanying unaudited financial summaries of our transportation segments in
MD&A reflects the allocations from the FedEx Services segment to the respective transportation segments. The “Intercompany charges” caption
also includes charges and credits for administrative services provided between operating companies and certain other costs such as corporate
management fees related to services received for general corporate oversight, including executive officers and certain legal and finance functions.
We believe these allocations approximate the net cost of providing these functions.

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Other Intersegment Transactions
Certain FedEx operating companies provide transportation and related services for other FedEx companies outside their reportable segment.
Billings for such services are based on negotiated rates, which we believe approximate fair value, and are reflected as revenues of the billing
segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenues and expenses are eliminated in our
consolidated results and are not separately identified in the following segment information, because the amounts are not material.
The following table provides a reconciliation of reportable segment revenues, depreciation and amortization, operating income (loss) and segment
assets to consolidated financial statement totals for the years ended or as of May 31 (in millions):

FedEx
Express
FedEx
Ground
FedEx
Freight
FedEx
Services Other and Consolidated
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Segment Segment Segment Segment Eliminations Total

Revenues
2012 $ 26,515 $ 9,573 $ 5,282 $ 1,671 $ (361) $ 42,680
2011 24,581 8,485 4,911 1,684 (357) 39,304
2010 21,555 7,439 4,321 1,770 (351) 34,734
Depreciation and amortization
2012 $ 1,169 $ 389 $ 185 $ 369 $ 1 $ 2,113
2011 1,059 337 205 371 1 1,973
2010 1,016 334 198 408 2 1,958
Operating income (loss)
2012 $ 1,260 $ 1,764 $ 162 $ — $ — $ 3,186
2011 1,228 1,325 (175) — — 2,378
2010 1,127 1,024 (153) — — 1,998
Segment assets
2012 $ 17,981 $ 6,154 $ 2,807 $ 4,546 $ (1,585) $ 29,903
2011 16,463 5,048 2,664 4,278 (1,068) 27,385
2010 14,819 4,118 2,786 4,079 (900) 24,902
FedEx Express segment 2012 operating expenses include an impairment charge of $134 million resulting from the decision to retire
24 aircraft and related engines and a reversal of a $66 million legal reserve associated with the ATA Airlines lawsuit which was
initially recorded in 2011.

FedEx Freight segment 2011 operating expenses include $133 million in costs associated with the combination of our FedEx Freight
and FedEx National LTL operations, effective January 30, 2011.

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

FedEx
Express
Segment
FedEx
Ground
Segment
FedEx
Freight
Segment
FedEx
Services
Segment Other
Consolidated
Total
2012 $ 2,689 $ 536 $ 340 $ 437 $ 5 $ 4,007
2011 2,467 426 153 387 1 3,434
2010 1,864 400 212 340 — 2,816

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

2012 2011 2010

FedEx Express segment:
Package:
U.S. overnight box $ 6,546 $ 6,128 $ 5,602
U.S. overnight envelope 1,747 1,736 1,640
U.S. deferred 3,001 2,805 2,589

Total U.S. domestic package revenue 11,294 10,669 9,831
International priority 8,708 8,228 7,087
International domestic 853 653 578

Total package revenue 20,855 19,550 17,496
Freight:
U.S. 2,498 2,188 1,980
International priority 1,827 1,722 1,303
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International airfreight 307 283 251

Total freight revenue 4,632 4,193 3,534
Other 1,028 838 525

Total FedEx Express segment 26,515 24,581 21,555

FedEx Ground segment:
FedEx Ground 8,791 7,855 6,958
FedEx SmartPost 782 630 481

Total FedEx Ground segment 9,573 8,485 7,439

FedEx Freight segment 5,282 4,911 4,321
FedEx Services segment 1,671 1,684 1,770
Other and eliminations (361) (357) (351)

$ 42,680 $ 39,304 $ 34,734

GEOGRAPHICAL INFORMATION
Revenues:
U.S. $ 29,837 $ 27,461 $ 24,852
International:
FedEx Express segment 12,370 11,437 9,547
FedEx Ground segment 216 177 140
FedEx Freight segment 101 84 60
FedEx Services segment 156 145 135

Total international revenue 12,843 11,843 9,882

$ 42,680 $ 39,304 $ 34,734

Noncurrent assets:
U.S. $ 18,874 $ 17,235 $ 16,089
International 1,973 1,865 1,529

$ 20,847 $ 19,100 $ 17,618

International priority includes FedEx International Priority and FedEx International Economy services.

International domestic revenues include our international intra-country domestic express operations, including acquisitions in India (February
2011) and Mexico (July 2011).

Other revenues include FedEx Trade Networks and, beginning in the second quarter of 2010, FedEx SupplyChain Systems.

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

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NOTE 14: SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest expense and income taxes for the years ended May 31 was as follows (in millions):

2012 2011 2010
Cash payments for:
Interest (net of capitalized interest) $ 52 $ 93 $ 88

Income taxes $ 403 $ 493 $ 322
Income tax refunds received (146) (106) (279)

Cash tax payments, net $ 257 $ 387 $ 43

NOTE 15: GUARANTEES AND INDEMNIFICATIONS
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In conjunction with certain transactions, primarily the lease, sale or purchase of operating assets or services in the ordinary course of business, we
may provide routine guarantees or indemnifications (e.g., environmental, fuel, tax and software infringement), the terms of which range in duration,
and often they are not limited and have no specified maximum obligation. As a result, the overall maximum potential amount of the obligation
under such guarantees and indemnifications cannot be reasonably estimated. Historically, we have not been required to make significant payments
under our guarantee or indemnification obligations and no amounts have been recognized in our financial statements for the underlying fair value
of these obligations.
Special facility revenue bonds have been issued by certain municipalities primarily to finance the acquisition and construction of various airport
facilities and equipment. These facilities were leased to us and are accounted for as either capital leases or operating leases. FedEx Express has
unconditionally guaranteed $667 million in principal of these bonds (with total future principal and interest payments of approximately $852
million as of May 31, 2012) through these leases. Of the $667 million bond principal guaranteed, $116 million was included in capital lease
obligations in our balance sheet at May 31, 2012. The remaining $551 million has been accounted for as operating leases.
NOTE 16: COMMITMENTS
Annual purchase commitments under various contracts as of May 31, 2012 were as follows (in millions):

Aircraft and
Aircraft Related
Facilities
and Other Total
2013 $ 965 $ 849 $ 1,814
2014 558 191 749
2015 824 139 963
2016 912 78 990
2017 1,009 52 1,061
Thereafter 5,166 134 5,300

Primarily vehicles, facilities, advertising contracts and $550 million of quarterly contributions to our U.S. Pension Plans.
The amounts reflected in the table above for purchase commitments represent noncancelable agreements to purchase goods or services. As of May
31, 2012, our obligation to purchase 13 B777Fs was 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 (“RLA”). 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.

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In December 2011, FedEx Express entered into an agreement to acquire 27 new Boeing 767-300 Freighter (“B767F”) aircraft, with the first three
arriving in 2014 followed by six per year from 2015 to 2018. In conjunction with the execution of the B767F aircraft purchase agreement, FedEx
Express also delayed the delivery of nine B777F aircraft, five of which were deferred from 2014 and one per year from 2015 to 2018, to better
align air network capacity to demand. FedEx Express also removed the RLA condition from two of the 15 B777F aircraft and exercised two B777F
options for aircraft to be delivered at the end of the delivery schedule.
We had $661 million in deposits and progress payments as of May 31, 2012 on aircraft purchases and other planned aircraft-related transactions.
These deposits are classified in the “Other assets” caption of our consolidated balance sheets. In addition to our commitment to purchase B777Fs
and B767Fs, our aircraft purchase commitments include the Boeing 757 (“B757”) 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 May 31, 2012, with the year of expected delivery:

B757 B767F B777F Total

2013 10 — 4 14
2014 — 3 2 5
2015 — 6 2 8
2016 — 6 2 8
2017 — 6 2 8
Thereafter — 6 16 22

Total 10 27 28 65

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On June 29, 2012, FedEx Express entered into a supplemental agreement to purchase nine additional B767F aircraft. Additionally, FedEx Express
exercised ten B767F options available under the December 2011 agreement and purchased the right to 15 additional options. Four of these 19
additional B767F aircraft purchases are subject to the RLA condition. These 19 additional B767F aircraft are expected to be delivered from fiscal
2015 to 2019 and will replace current MD10-10 and A310-200 aircraft to continue to improve efficiency and technology of FedEx Express’s
aircraft fleet.
In conjunction with the additional B767F aircraft purchases, four currently contracted B777F aircraft deliveries that were subject to the RLA
condition (two scheduled for delivery in fiscal 2016 and two scheduled for delivery in fiscal 2017) were converted to equivalent purchase value
for B767F aircraft. With consideration of these two agreements, there are nine B777F purchase obligations subject to the RLA condition. These
aircraft transactions are not included in the table above, as they occurred subsequent to May 31, 2012.
NOTE 17: CONTINGENCIES
Wage-and-Hour. We are a defendant in a number of lawsuits containing various class-action allegations of wage-and-hour violations. The
plaintiffs in these lawsuits allege, among other things, that they were forced to work “off the clock,” were not paid overtime or were not provided
work breaks or other benefits. The complaints generally seek unspecified monetary damages, injunctive relief, or both. We do not believe that a
material loss is reasonably possible with respect to any of these matters.
Independent Contractor — Lawsuits and State Administrative Proceedings. FedEx Ground is involved in numerous class-action lawsuits
(including 30 that have been certified as class actions), individual lawsuits and state tax and other administrative proceedings that claim that the
company’s owner-operators should be treated as employees, rather than independent contractors.

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Most of the class-action lawsuits were consolidated for administration of the pre-trial proceedings by a single federal court, the U.S. District Court
for the Northern District of Indiana. The multidistrict litigation court granted class certification in 28 cases and denied it in 14 cases. On
December 13, 2010, the court entered an opinion and order addressing all outstanding motions for summary judgment on the status of the owner-
operators (i.e., independent contractor vs. employee). In sum, the court has now ruled on our summary judgment motions and entered judgment in
favor of FedEx Ground on all claims in 20 of the 28 multidistrict litigation cases that had been certified as class actions, finding that the owner-
operators in those cases were contractors as a matter of the law of the following states: Alabama, Arizona, Georgia, Indiana, Kansas (the court
previously dismissed without prejudice the nationwide class claim under the Employee Retirement Income Security Act of 1974 based on the
plaintiffs’ failure to exhaust administrative remedies), Louisiana, Maryland, Minnesota, New Jersey, New York, North Carolina, Ohio,
Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, West Virginia and Wisconsin. The plaintiffs filed notices of appeal in all of
these 20 cases. The Seventh Circuit heard the appeal in the Kansas case in January 2012 and, in July 2012, issued an opinion that did not make a
determination with respect to the correctness of the district court’s decision and, instead, certified two questions to the Kansas Supreme Court
related to the classification of the plaintiffs as independent contractors under the Kansas Wage Payment Act.
The multidistrict litigation court remanded the other eight certified class actions back to the district courts where they were originally filed because
its summary judgment ruling did not completely dispose of all of the claims in those lawsuits. Specifically, in the five cases in Arkansas,
California, Florida, and Oregon (two certified cases), the court’s ruling granted summary judgment in FedEx Ground’s favor on all of the certified
claims but did not decide the uncertified claims. In the three cases filed in Kentucky, Nevada and New Hampshire, the court ruled in favor of
FedEx Ground on some of the claims and against FedEx Ground on at least one claim. In May 2012, the Oregon district court dismissed the two
Oregon cases, but in June 2012, the plaintiffs in both cases filed notices of appeal with the Ninth Circuit Court of Appeals. In June 2012, the
Kentucky district court ruled in favor of FedEx Ground on certain of the plaintiffs’ claims, thereby reducing our potential exposure in the matter.
In January 2008, one of the contractor-model lawsuits that is not part of the multidistrict litigation, Anfinson v. FedEx Ground, was certified as a
class action by a Washington state court. The plaintiffs in Anfinson represent a class of single-route, pickup-and-delivery owner-operators in
Washington from December 21, 2001 through December 31, 2005 and allege that the class members should be reimbursed as employees for their
uniform expenses and should receive overtime pay. In March 2009, a jury trial in the Anfinson case was held, and the jury returned a verdict in
favor of FedEx Ground, finding that all 320 class members were independent contractors, not employees. The plaintiffs appealed the verdict. In
December 2010, the Washington Court of Appeals reversed and remanded for further proceedings, including a new trial. We filed a motion to
reconsider, and this motion was denied. In March 2011, we filed a discretionary appeal with the Washington Supreme Court, and in August 2011,
that petition was granted. The Washington Supreme Court heard oral arguments in February 2012.
In August 2010, another one of the contractor-model lawsuits that is not part of the multidistrict litigation, Rascon v. FedEx Ground, was certified
as a class action by a Colorado state court. The plaintiff in Rascon represents a class of single-route, pickup-and-delivery owner-operators in
Colorado who drove vehicles weighing less than 10,001 pounds at any time from August 27, 2005 through the present. The lawsuit seeks unpaid
overtime compensation, and related penalties and attorneys’ fees and costs, under Colorado law. Our applications for appeal challenging this class

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certification decision have been rejected. We settled this matter for an immaterial amount, subject to court approval, in June 2012.
Other contractor-model cases that are not or are no longer part of the multidistrict litigation are in varying stages of litigation.
With respect to the state administrative proceedings relating to the classification of FedEx Ground’s owner-operators as independent contractors,
during the second quarter of 2011, the attorneys general in New York and Kentucky each filed lawsuits against FedEx Ground challenging the
validity of the contractor model. In January 2012, FedEx Ground settled the lawsuit filed by the Kentucky Attorney General for an immaterial
amount, and in April 2012, the lawsuit was dismissed.
While the granting of summary judgment in favor of FedEx Ground by the multidistrict litigation court in 20 of the 28 cases that had been certified
as class actions remains subject to appeal, we believe that it significantly improves the likelihood that our independent contractor model will be
upheld. Adverse determinations in matters related to FedEx Ground’s independent contractors, however,

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could, among other things, entitle certain of our contractors and their drivers to the reimbursement of certain expenses and to the benefit of wage-
and-hour laws and result in employment and withholding tax and benefit liability for FedEx Ground, and could result in changes to the independent
contractor status of FedEx Ground’s owner-operators in certain jurisdictions. We believe that FedEx Ground’s owner-operators are properly
classified as independent contractors and that FedEx Ground is not an employer of the drivers of the company’s independent contractors. While it
is reasonably possible that potential loss in some of these lawsuits or such changes to the independent contractor status of FedEx Ground’s owner-
operators could be material, we cannot yet determine the amount or reasonable range of potential loss. A number of factors contribute to this. The
number of plaintiffs in these lawsuits continues to change, with some being dismissed and others being added and, as to new plaintiffs, discovery is
still ongoing. In addition, the parties have not yet conducted any discovery into damages, which could vary considerably from plaintiff to plaintiff.
Further, the range of potential loss could be impacted considerably by future rulings on the merits of certain claims and FedEx Ground’s various
defenses, and on evidentiary issues. In any event, we do not believe that a material loss is probable in these matters.
ATA Airlines. In October 2010, a jury returned a verdict in favor of ATA Airlines in its breach of contract lawsuit against FedEx Express and
awarded damages of $66 million, and in January 2011, the court awarded ATA pre-judgment interest of $5 million. In December 2011, the
Seventh Circuit overturned the entire judgment entered against FedEx Express. ATA Airlines requested the Seventh Circuit to rehear oral argument
on appeal, and in February 2012, the Seventh Circuit denied the request. We have reversed the $66 million accrual established in the second
quarter of 2011. After the Seventh Circuit denied ATA Airlines’ request for the Seventh Circuit to rehear oral argument on appeal, ATA Airlines
asked the U.S. Supreme Court to accept a discretionary appeal of the matter. We believe that it is unlikely that the U.S. Supreme Court will accept
the discretionary appeal.
California Paystub Class Action. A federal court in California ruled in April 2011 that paystubs for certain FedEx Express employees in California
did not meet that state’s requirements to reflect pay period begin date, total overtime hours worked and the correct overtime wage rate. The ruling
came in a class action lawsuit filed by a former courier seeking damages on behalf of herself and all other FedEx Express employees in California
that allegedly received noncompliant paystubs. The court certified the class in June 2011. The court ruled that FedEx Express was liable to the
State of California and was prepared to rule as to whether FedEx Express was liable to class members who could prove they were injured by the
paystub deficiencies. The judge did not decide on the amount, if any, of liability to the State of California or to the class, but had wide discretion.
Prior to any decision on the amount of liability, we reached an agreement to settle this matter for an immaterial amount in October 2011, subject to
approval by the court. The court granted final approval of the settlement in July 2012.
Other Matters. In August 2010, a third-party consultant who works with shipping customers to negotiate lower rates filed a lawsuit in federal
district court in California against FedEx and 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. 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 are in an early stage 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 do not believe that we have engaged in any illegal activities and will vigorously defend ourselves

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in any action that may result from the investigation. We cannot estimate the amount or range of loss, if any, in this matter, as such analysis would
depend on facts and law that are not yet fully developed or resolved.

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FedEx 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.
NOTE 18: RELATED PARTY TRANSACTIONS
Our Chairman, President and Chief Executive Officer, Frederick W. Smith, currently holds an approximate 10% ownership interest in the National
Football League Washington Redskins professional football team (“Redskins”) and is a member of its board of directors. FedEx has a multi-year
naming rights agreement with the Redskins granting us certain marketing rights, including the right to name the Redskins’ stadium “FedExField.”
NOTE 19: SUMMARY OF QUARTERLY OPERATING RESULTS (UNAUDITED)

(in millions, except per share amounts)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2012
Revenues $ 10,521 $ 10,587 $ 10,564 $ 11,008
Operating income 737 780 813 856
Net income 464 497 521 550
Basic earnings per common share 1.46 1.57 1.66 1.74
Diluted earnings per common share 1.46 1.57 1.65 1.73
2011
Revenues $ 9,457 $ 9,632 $ 9,663 $ 10,552
Operating income 628 469 393 888
Net income 380 283 231 558
Basic earnings per common share 1.21 0.90 0.73 1.76
Diluted earnings per common share 1.20 0.89 0.73 1.75

The fourth quarter of 2012 includes an impairment charge of $134 million resulting from the decision to retire 24 aircraft and related engines
at FedEx Express. The third quarter of 2012 includes the reversal of a $66 million legal reserve associated with the ATA Airlines lawsuit.

The sum of the quarterly earnings per share may not equal annual amounts due to differences in the weighted-average number of shares
outstanding during the respective period.

The second quarter of 2011 includes a $66 million legal reserve associated with the ATA Airlines lawsuit. Costs related to the combination of
our FedEx Freight and FedEx National LTL operations in 2011 were $86 million in the second quarter and $43 million in the third quarter.

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NOTE 20: CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
We are required to present condensed consolidating financial information in order for the subsidiary guarantors (other than FedEx Express) of our
public debt to continue to be exempt from reporting under the Securities Exchange Act of 1934, as amended.
The guarantor subsidiaries, which are wholly owned by FedEx, guarantee $1 billion of our debt. The guarantees are full and unconditional and joint
and several. Our guarantor subsidiaries were not determined using geographic, service line or other similar criteria, and as a result, the “Guarantor
Subsidiaries” and “Non-guarantor Subsidiaries” columns each include portions of our domestic and international operations. Accordingly, this
basis of presentation is not intended to present our financial condition, results of operations or cash flows for any purpose other than to comply
with the specific requirements for subsidiary guarantor reporting.

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Condensed consolidating financial statements for our guarantor subsidiaries and non-guarantor subsidiaries are presented in the following tables (in
millions):
CONDENSED CONSOLIDATING BALANCE SHEETS
May 31, 2012

Parent
Guarantor
Subsidiaries
Non-guarantor
Subsidiaries Eliminations Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,906 $ 417 $ 636 $ (116) $ 2,843
Receivables, less allowances 3 3,793 943 (35) 4,704
Spare parts, supplies, fuel, prepaid expenses and other, less
allowances 261 671 44 — 976
Deferred income taxes — 514 19 — 533

Total current assets 2,170 5,395 1,642 (151) 9,056
PROPERTY AND EQUIPMENT, AT COST 29 34,301 1,834 — 36,164
Less accumulated depreciation and amortization 20 17,822 1,074 — 18,916

Net property and equipment 9 16,479 760 — 17,248
INTERCOMPANY RECEIVABLE — 323 1,524 (1,847) —
GOODWILL — 1,553 834 — 2,387
INVESTMENT IN SUBSIDIARIES 17,163 2,978 — (20,141) —
OTHER ASSETS 2,845 1,099 86 (2,818) 1,212

$ 22,187 $ 27,827 $ 4,846 $ (24,957) $ 29,903

LIABILITIES AND STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Current portion of long-term debt $ — $ 417 $ — $ — $ 417
Accrued salaries and employee benefits 83 1,365 187 — 1,635
Accounts payable 6 1,276 482 (151) 1,613
Accrued expenses 184 1,406 119 — 1,709

Total current liabilities 273 4,464 788 (151) 5,374
LONG-TERM DEBT, LESS CURRENT PORTION 1,000 250 — — 1,250
INTERCOMPANY PAYABLE 1,847 — — (1,847) —
OTHER LONG-TERM LIABILITIES
Deferred income taxes — 3,649 5 (2,818) 836
Other liabilities 4,341 3,193 182 — 7,716

Total other long-term liabilities 4,341 6,842 187 (2,818) 8,552
STOCKHOLDERS’ INVESTMENT 14,726 16,271 3,871 (20,141) 14,727

$ 22,187 $ 27,827 $ 4,846 $ (24,957) $ 29,903

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CONDENSED CONSOLIDATING BALANCE SHEETS
May 31, 2011

Parent
Guarantor
Subsidiaries
Non -guarantor
Subsidiaries Eliminations Consolidated

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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,589 $ 279 $ 546 $ (86) $ 2,328
Receivables, less allowances — 3,696 912 (27) 4,581
Spare parts, supplies, fuel, prepaid expenses and other, less allowances 77 645 44 — 766
Deferred income taxes — 598 12 — 610

Total current assets 1,666 5,218 1,514 (113) 8,285
PROPERTY AND EQUIPMENT, AT COST 24 31,916 1,746 — 33,686
Less accumulated depreciation and amortization 18 17,071 1,054 — 18,143

Net property and equipment 6 14,845 692 — 15,543
INTERCOMPANY RECEIVABLE — — 1,317 (1,317) —
GOODWILL — 1,564 762 — 2,326
INVESTMENT IN SUBSIDIARIES 15,404 2,705 — (18,109) —
OTHER ASSETS 1,652 1,039 63 (1,523) 1,231

$ 18,728 $ 25,371 $ 4,348 $ (21,062) $ 27,385

LIABILITIES AND STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Current portion of long-term debt $ — $ 18 $ — $ — $ 18
Accrued salaries and employee benefits 50 1,071 147 — 1,268
Accounts payable — 1,385 430 (113) 1,702
Accrued expenses 198 1,563 133 — 1,894

Total current liabilities 248 4,037 710 (113) 4,882
LONG-TERM DEBT, LESS CURRENT PORTION 1,000 667 — — 1,667
INTERCOMPANY PAYABLE 1,095 222 — (1,317) —
OTHER LONG-TERM LIABILITIES
Deferred income taxes — 2,842 17 (1,523) 1,336
Other liabilities 1,165 3,001 114 — 4,280

Total other long-term liabilities 1,165 5,843 131 (1,523) 5,616
STOCKHOLDERS’ INVESTMENT 15,220 14,602 3,507 (18,109) 15,220

$ 18,728 $ 25,371 $ 4,348 $ (21,062) $ 27,385

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CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Year Ended May 31, 2012

Parent
Guarantor
Subsidiaries
Non -guarantor
Subsidiaries Eliminations Consolidated
REVENUES $ — $ 36,412 $ 6,569 $ (301) $ 42,680
OPERATING EXPENSES:
Salaries and employee benefits 114 14,153 1,832 — 16,099
Purchased transportation — 4,509 1,944 (118) 6,335
Rentals and landing fees 5 2,221 267 (6) 2,487
Depreciation and amortization 1 1,962 150 — 2,113
Fuel — 4,877 79 — 4,956
Maintenance and repairs 1 1,882 97 — 1,980
Impairment and other charges — 134 — — 134
Intercompany charges, net (218) (323) 541 — —
Other 97 4,482 988 (177) 5,390

— 33,897 5,898 (301) 39,494

OPERATING INCOME — 2,515 671 — 3,186
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries 2,032 395 — (2,427) —
Interest, net (75) 31 5 — (39)
Intercompany charges, net 80 (102) 22 — —
Other, net (5) (10) 9 — (6)

INCOME BEFORE INCOME TAXES 2,032 2,829 707 (2,427) 3,141
Provision for income taxes — 875 234 — 1,109

NET INCOME $ 2,032 $ 1,954 $ 473 $ (2,427) $ 2,032

CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Year Ended May 31, 2011

Parent
Guarantor
Subsidiaries
Non -guarantor
Subsidiaries Eliminations Consolidated

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REVENUES $ — $ 33,124 $ 6,498 $ (318) $ 39,304
OPERATING EXPENSES:
Salaries and employee benefits 109 13,206 1,961 — 15,276
Purchased transportation — 4,034 1,745 (105) 5,674
Rentals and landing fees 4 2,209 253 (4) 2,462
Depreciation and amortization 1 1,784 188 — 1,973
Fuel — 4,003 148 — 4,151
Maintenance and repairs 1 1,862 116 — 1,979
Impairment and other charges — 28 61 — 89
Intercompany charges, net (222) (317) 539 — —
Other 107 4,392 1,032 (209) 5,322

— 31,201 6,043 (318) 36,926

OPERATING INCOME — 1,923 455 — 2,378
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries 1,452 200 — (1,652) —
Interest, net (88) 13 (2) — (77)
Intercompany charges, net 104 (135) 31 — —
Other, net (16) (14) (6) — (36)

INCOME BEFORE INCOME TAXES 1,452 1,987 478 (1,652) 2,265
Provision for income taxes — 677 136 — 813

NET INCOME $ 1,452 $ 1,310 $ 342 $ (1,652) $ 1,452

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CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Year Ended May 31, 2010

Parent
Guarantor
Subsidiaries
Non -guarantor
Subsidiaries Eliminations Consolidated
REVENUES $ — $ 29,360 $ 5,700 $ (326) $ 34,734
OPERATING EXPENSES:
Salaries and employee benefits 91 12,026 1,910 — 14,027
Purchased transportation — 3,424 1,392 (88) 4,728
Rentals and landing fees 4 2,118 240 (3) 2,359
Depreciation and amortization 1 1,751 206 — 1,958
Fuel — 2,946 160 — 3,106
Maintenance and repairs 1 1,589 125 — 1,715
Impairment and other charges — — 18 — 18
Intercompany charges, net (202) (109) 311 — —
Other 105 3,950 1,005 (235) 4,825

— 27,695 5,367 (326) 32,736

OPERATING INCOME — 1,665 333 — 1,998
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries 1,184 161 — (1,345) —
Interest, net (100) 41 (12) — (71)
Intercompany charges, net 114 (147) 33 — —
Other, net (14) (18) (1) — (33)

INCOME BEFORE INCOME TAXES 1,184 1,702 353 (1,345) 1,894
Provision for income taxes — 625 85 — 710

NET INCOME $ 1,184 $ 1,077 $ 268 $ (1,345) $ 1,184

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CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended May 31, 2012

Parent
Guarantor
Subsidiaries
Non -guarantor
Subsidiaries Eliminations Consolidated
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (88) $ 4,383 $ 570 $ (30) $ 4,835

Form 10-K
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INVESTING ACTIVITIES
Capital expenditures (5) (3,792) (210) — (4,007)
Business acquisition, net of cash acquired — — (116) — (116)
Proceeds from asset dispositions and other — 74 — — 74

CASH USED IN INVESTING ACTIVITIES (5) (3,718) (326) — (4,049)
FINANCING ACTIVITIES
Net transfers from (to) Parent 625 (550) (75) — —
Intercompany dividends — 76 (76) — —
Principal payments on debt — (29) — — (29)
Proceeds from stock issuances 128 — — — 128
Excess tax benefit on the exercise of stock options 18 — — — 18
Dividends paid (164) — — — (164)
Purchase of treasury stock (197) — — — (197)
Other, net — (19) 19 — —

CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 410 (522) (132) — (244)

Effect of exchange rate changes on cash — (5) (22) — (27)
Net increase (decrease) in cash and cash equivalents 317 138 90 (30) 515
Cash and cash equivalents at beginning of period 1,589 279 546 (86) 2,328

Cash and cash equivalents at end of period $ 1,906 $ 417 $ 636 $ (116) $ 2,843

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended May 31, 2011

Parent
Guarantor
Subsidiaries
Non -guarantor
Subsidiaries Eliminations Consolidated
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 25 $ 3,978 $ 65 $ (27) $ 4,041
INVESTING ACTIVITIES
Capital expenditures (1) (3,263) (170) — (3,434)
Business acquisition, net of cash acquired — (96) — — (96)
Proceeds from asset dispositions and other — 110 1 — 111

CASH USED IN INVESTING ACTIVITIES (1) (3,249) (169) — (3,419)
FINANCING ACTIVITIES
Net transfers from (to) Parent 530 (994) 464 — —
Payment on loan between subsidiaries — 235 (235) — —
Intercompany dividends — 61 (61) — —
Principal payments on debt (250) (12) — — (262)
Proceeds from stock issuances 108 — — — 108
Excess tax benefit on the exercise of stock options 23 — — — 23
Dividends paid (151) — — — (151)
Other, net (5) (9) 9 — (5)

CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 255 (719) 177 — (287)

Effect of exchange rate changes on cash — 11 30 — 41
Net increase (decrease) in cash and cash equivalents 279 21 103 (27) 376
Cash and cash equivalents at beginning of period 1,310 258 443 (59) 1,952

Cash and cash equivalents at end of period $ 1,589 $ 279 $ 546 $ (86) $ 2,328

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CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended May 31, 2010

Parent
Guarantor
Subsidiaries
Non -guarantor
Subsidiaries Eliminations Consolidated
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (450) $ 2,942 $ 653 $ (7) $ 3,138
INVESTING ACTIVITIES
Capital expenditures — (2,661) (155) — (2,816)
Proceeds from asset dispositions and other — 38 (3) — 35

CASH USED IN INVESTING ACTIVITIES — (2,623) (158) — (2,781)
FINANCING ACTIVITIES
Net transfers from (to) Parent 531 (397) (134) — —
Payment on loan between subsidiaries — 72 (72) — —
Intercompany dividends — 158 (158) — —
Principal payments on debt (500) (153) — — (653)
Proceeds from stock issuances 94 — — — 94
Excess tax benefit on the exercise of stock options 25 — — — 25

Form 10-K
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Dividends paid (138) — — — (138)
Other, net (20) (5) 5 — (20)

CASH USED IN FINANCING ACTIVITIES (8) (325) (359) — (692)

Effect of exchange rate changes on cash — (8) 3 — (5)
Net (decrease) increase in cash and cash equivalents (458) (14) 139 (7) (340)
Cash and cash equivalents at beginning of period 1,768 272 304 (52) 2,292

Cash and cash equivalents at end of period $ 1,310 $ 258 $ 443 $ (59) $ 1,952

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATES. While we currently have market risk sensitive instruments related to interest rates, we have no significant exposure to changing
interest rates on our long-term debt because the interest rates are fixed on all of our long-term debt. As disclosed in Note 6 to the accompanying
consolidated financial statements, we had outstanding fixed-rate, long-term debt (exclusive of capital leases) with estimated fair values of $2.0
billion at May 31, 2012 and $1.9 billion at May 31, 2011. Market risk for fixed-rate, long-term debt is estimated as the potential decrease in fair
value resulting from a hypothetical 10% increase in interest rates and amounts to $30 million as of May 31, 2012 and $36 million as of May 31,
2011. The underlying fair values of our long-term debt were estimated based on quoted market prices or on the current rates offered for debt with
similar terms and maturities.
We have interest rate risk with respect to our pension and postretirement benefit obligations. Changes in interest rates impact our liabilities
associated with these benefit plans as well as the amount of pension and postretirement benefit expense recognized. Declines in the value of plan
assets could diminish the funded status of our pension plans and potentially increase our requirement to make contributions to the plans.
Substantial investment losses on plan assets will also increase pension and postretirement benefit expense in the years following the losses.
FOREIGN CURRENCY. While we are a global provider of transportation, e-commerce and business services, the substantial majority of our
transactions are denominated in U.S. dollars. The principal foreign currency exchange rate risks to which we are exposed are in the British pound,
Canadian dollar, Chinese yuan, euro, Hong Kong dollar and Japanese yen. Historically, our exposure to foreign currency fluctuations is more
significant with respect to our revenues than our expenses, as a significant portion of our expenses are denominated in U.S. dollars, such as aircraft
and fuel expenses. During 2012 and 2011, foreign currency fluctuations positively impacted operating income. However, favorable foreign
currency fluctuations also may have had an offsetting impact on the price we obtained or the demand for our services, which is not quantifiable. At
May 31, 2012, the result of a uniform 10% strengthening in the value of the dollar relative to the currencies in which our transactions are
denominated would result in a decrease in operating income of $75 million for 2013. This theoretical calculation assumes that each exchange rate
would change in the same direction relative to the U.S. dollar. This calculation is not indicative of our actual experience in foreign currency
transactions. In addition to the direct effects of changes in exchange rates, fluctuations in exchange rates also affect the volume of sales or the
foreign currency sales price as competitors’ services become more or less attractive. The sensitivity analysis of the effects of changes in foreign
currency exchange rates does not factor in a potential change in sales levels or local currency prices.
COMMODITY. While we have market risk for changes in the price of jet and vehicle fuel, this risk is largely mitigated by our fuel surcharges
because our fuel surcharges are closely linked to market prices for fuel. Therefore, a hypothetical 10% change in the price of fuel would not be
expected to materially affect our earnings.
However, our fuel surcharges have a timing lag (approximately six to eight weeks for FedEx Express and FedEx Ground) before they are adjusted
for changes in fuel prices. Our fuel surcharge index also allows fuel prices to fluctuate approximately 2% for FedEx Express and approximately
4% for FedEx Ground before an adjustment to the fuel surcharge occurs. Accordingly, our operating income in a specific period may be
significantly affected should the spot price of fuel suddenly change by a substantial amount or change by amounts that do not result in an
adjustment in our fuel surcharges.
OTHER. We do not purchase or hold any derivative financial instruments for trading purposes.

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SELECTED FINANCIAL DATA
The following table sets forth (in millions, except per share amounts and other operating data) certain selected consolidated financial and operating
data for FedEx as of and for the five years ended May 31, 2012. This information should be read in conjunction with the Consolidated Financial

Form 10-K
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Statements, MD&A and other financial data appearing elsewhere in this Annual Report.

2012 2011 2010 2009 2008
Operating Results
Revenues $ 42,680 $ 39,304 $ 34,734 $ 35,497 $ 37,953
Operating income 3,186 2,378 1,998 747 2,075
Income before income taxes 3,141 2,265 1,894 677 2,016
Net income 2,032 1,452 1,184 98 1,125
Per Share Data
Earnings per share:
Basic $ 6.44 $ 4.61 $ 3.78 $ 0.31 $ 3.64
Diluted $ 6.41 $ 4.57 $ 3.76 $ 0.31 $ 3.60
Average shares of common stock outstanding 315 315 312 311 309
Average common and common equivalent shares outstanding 317 317 314 312 312
Cash dividends declared $ 0.52 $ 0.48 $ 0.44 $ 0.44 $ 0.30
Financial Position
Property and equipment, net $ 17,248 $ 15,543 $ 14,385 $ 13,417 $ 13,478
Total assets 29,903 27,385 24,902 24,244 25,633
Long-term debt, less current portion 1,250 1,667 1,668 1,930 1,506
Common stockholders’ investment 14,727 15,220 13,811 13,626 14,526
Other Operating Data
FedEx Express aircraft fleet 660 688 667 654 677

Results for 2012 include a $134 million ($84 million, net of tax or $0.26 per share) impairment charge resulting from the decision to retire 24
aircraft and related engines at FedEx Express and the reversal of a $66 million legal reserve associated with the ATA Airlines lawsuit which
was initially recorded in the second quarter of 2011. See Notes 1 and 17 to the accompanying consolidated financial statements.

Results for 2011 include charges of approximately $199 million ($104 million, net of tax and applicable variable incentive compensation
impacts, or $0.33 per diluted share) for the combination of our FedEx Freight and FedEx National LTL operations and a reserve associated
with a legal matter at FedEx Express. See Notes 1 and 17 to the accompanying consolidated financial statements.

Results for 2009 include a charge of $1.2 billion ($1.1 billion, net of tax, or $3.45 per diluted share) primarily for impairment charges
associated with goodwill and aircraft. Additionally, common stockholders’ investment includes an other comprehensive income charge of
$1.2 billion, net of tax, for the funded status of our retirement plans at May 31, 2009.

Results for 2008 include a charge of $891 million ($696 million, net of tax, or $2.23 per diluted share) recorded during the fourth quarter,
predominantly for impairment charges associated with intangible assets from the FedEx Office acquisition. Additionally, results for 2008
include several 2007 acquisitions.

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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
FedEx Corporation
We have audited the consolidated financial statements of FedEx Corporation as of May 31, 2012 and 2011, and for each of the three years in the
period ended May 31, 2012, and have issued our report thereon dated July 16, 2012 (included elsewhere in this Annual Report on Form 10-K).
Our audits also included the financial statement schedule listed in Item 15(a) in this Annual Report on Form 10-K. This schedule is the
responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP
(1) (2) (3) (4)
(1)
(2)
(3)
(4)

Form 10-K
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Memphis, Tennessee
July 16, 2012

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SCHEDULE II
FEDEX CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MAY 31, 2012, 2011, AND 2010
(IN MILLIONS)

ADDITIONS
DESCRIPTION
BALANCE
AT
BEGINNING
OF YEAR
CHARGED
TO
EXPENSES
CHARGED
TO
OTHER
ACCOUNTS DEDUCTIONS
BALANCE
AT
END OF
YEAR
Accounts Receivable Reserves:
Allowance for Doubtful Accounts
2012 $ 97 $ 160 $ — $ 163(a) $ 94

2011 93 152 — 148(a) 97

2010 114 124 — 145(a) 93

Allowance for Revenue Adjustments
2012 $ 85 $ — $ 570(b) $ 571(c) $ 84

2011 73 — 532(b) 520(c) 85

2010 82 — 430(b) 439(c) 73

Inventory Valuation Allowance:
2012 $ 169 $ 15 $ — $ — $ 184

2011 170 13 — 14 169

2010 175 12 — 17 170

(a) Uncollectible accounts written off, net of recoveries.

(b) Principally charged against revenue.

(c) Service failures, rebills and other.

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FEDEX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
(IN MILLIONS, EXCEPT RATIOS)

Year Ended May 31,
2012 2011 2010 2009 2008
Earnings:
Income before income taxes $ 3,141 $ 2,265 $ 1,894 $ 677 $ 2,016

Form 10-K
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Add back:
Interest expense, net of capitalized interest 52 86 79 85 98
Amortization of debt issuance costs 5 16 14 5 5
Portion of rent expense representative of interest factor 797 852 806 795 784

Earnings as adjusted $ 3,995 $ 3,219 $ 2,793 $ 1,562 $ 2,903

Fixed Charges:
Interest expense, net of capitalized interest $ 52 $ 86 $ 79 $ 85 $ 98
Capitalized interest 85 71 80 71 50
Amortization of debt issuance costs 5 16 14 5 5
Portion of rent expense representative of interest factor 797 852 806 795 784

$ 939 $ 1,025 $ 979 $ 956 $ 937

Ratio of Earnings to Fixed Charges 4.3 3.1 2.9 1.6 3.1

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EXHIBIT INDEX

Exhibit
Number Description of Exhibit
Certificate of Incorporation and Bylaws
3.1

Third Amended and Restated Certificate of Incorporation of FedEx. (Filed as Exhibit 3.1 to FedEx’s Current Report on Form
8-K dated September 26, 2011 and filed September 28, 2011, and incorporated herein by reference.)
3.2

Amended and Restated Bylaws of FedEx. (Filed as Exhibit 3.3 to FedEx’s Current Report on Form 8-K dated September 26,
2011 and filed September 28, 2011, and incorporated herein by reference.)
Facility Lease Agreements
10.1

Composite Lease Agreement dated May 21, 2007 (but effective as of January 1, 2007) between the Memphis-Shelby County
Airport Authority (the “Authority”) and FedEx Express. (Filed as Exhibit 10.1 to FedEx’s FY07 Annual Report on Form 10-
K, and incorporated herein by reference.)
10.2

First Amendment dated December 29, 2009 (but effective as of September 1, 2008) to the Composite Lease Agreement dated
May 21, 2007 (but effective as of January 1, 2007) between the Authority and FedEx Express. (Filed as Exhibit 10.1 to
FedEx’s FY10 Third Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.3

Second Amendment dated March 30, 2010 (but effective as of June 1, 2009) and Third Amendment dated April 27, 2010 (but
effective as of July 1, 2009), each amending the Composite Lease Agreement dated May 21, 2007 (but effective as of January
1, 2007) between the Authority and FedEx Express. (Filed as Exhibit 10.3 to FedEx’s FY10 Annual Report on Form 10-K,
and incorporated herein by reference.)
10.4

Fourth Amendment dated December 22, 2011 (but effective as of December 15, 2011) to the Composite Lease Agreement
dated May 21, 2007 (but effective as of January 1, 2007) between the Authority and FedEx Express. (Filed as Exhibit 10.4 to
FedEx’s FY12 Third Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.5

Special Facility Lease Agreement dated as of August 1, 1979 between the Authority and FedEx Express. (Filed as Exhibit
10.15 to FedEx Express’s FY90 Annual Report on Form 10-K, and incorporated herein by reference.)
10.6

First Special Facility Supplemental Lease Agreement dated as of May 1, 1982 between the Authority and FedEx Express.
(Filed as Exhibit 10.25 to FedEx Express’s FY93 Annual Report on Form 10-K, and incorporated herein by reference.)
10.7

Second Special Facility Supplemental Lease Agreement dated as of November 1, 1982 between the Authority and FedEx
Express. (Filed as Exhibit 10.26 to FedEx Express’s FY93 Annual Report on Form 10-K, and incorporated herein by
reference.)
10.8

Third Special Facility Supplemental Lease Agreement dated as of December 1, 1984 between the Authority and FedEx
Express. (Filed as Exhibit 10.25 to FedEx Express’s FY95 Annual Report on Form 10-K, and incorporated herein by
reference.)

Form 10-K
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E-1
Table of Contents
Exhibit
Number Description of Exhibit
10.9

Fourth Special Facility Supplemental Lease Agreement dated as of July 1, 1992 between the Authority and FedEx Express.
(Filed as Exhibit 10.20 to FedEx Express’s FY92 Annual Report on Form 10-K, and incorporated herein by reference.)
10.10

Fifth Special Facility Supplemental Lease Agreement dated as of July 1, 1997 between the Authority and FedEx Express.
(Filed as Exhibit 10.35 to FedEx Express’s FY97 Annual Report on Form 10-K, and incorporated herein by reference.)
10.11

Sixth Special Facility Supplemental Lease Agreement dated as of December 1, 2001 between the Authority and FedEx
Express. (Filed as Exhibit 10.28 to FedEx’s FY02 Annual Report on Form 10-K, and incorporated herein by reference.)
10.12

Seventh Special Facility Supplemental Lease Agreement dated as of June 1, 2002 between the Authority and FedEx Express.
(Filed as Exhibit 10.3 to FedEx’s FY03 First Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.13

Special Facility Lease Agreement dated as of July 1, 1993 between the Authority and FedEx Express. (Filed as Exhibit 10.29
to FedEx Express’s FY93 Annual Report on Form 10-K, and incorporated herein by reference.)
10.14

Special Facility Ground Lease Agreement dated as of July 1, 1993 between the Authority and FedEx Express. (Filed as
Exhibit 10.30 to FedEx Express’s FY93 Annual Report on Form 10-K, and incorporated herein by reference.)
10.15

First Amendment dated December 29, 2009 (but effective as of September 1, 2008) to the Special Facility Ground Lease
Agreement dated as of July 1, 1993 between the Authority and FedEx Express. (Filed as Exhibit 10.2 to FedEx’s FY10 Third
Quarter Report on Form 10-Q, and incorporated herein by reference.)
Aircraft-Related Agreements
10.16

Boeing 777 Freighter Purchase Agreement dated as of November 7, 2006 between The Boeing Company and FedEx Express.
Confidential treatment has been granted 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’s FY07 Second Quarter Report on
Form 10-Q, and incorporated herein by reference.)
10.17

Supplemental Agreement No. 1 dated as of June 16, 2008 to the Boeing 777 Freighter Purchase Agreement dated as of
November 7, 2006 between The Boeing Company and FedEx Express. (Filed as Exhibit 10.13 to FedEx’s FY08 Annual
Report on Form 10-K, and incorporated herein by reference.)
10.18

Supplemental Agreement No. 2 dated as of July 14, 2008 to the Boeing 777 Freighter Purchase Agreement dated as of
November 7, 2006 between The Boeing Company and FedEx Express. (Filed as Exhibit 10.3 to FedEx’s FY09 Second
Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.19

Supplemental Agreement No. 3 dated as of December 15, 2008 (and related side letters) to the Boeing 777 Freighter Purchase
Agreement dated as of November 7, 2006 between The Boeing Company and FedEx Express. Confidential treatment has been
granted 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’s FY09 Second Quarter Report on Form 10-Q, and incorporated herein by
reference.)

E-2
Table of Contents
Exhibit
Number Description of Exhibit
10.20

Supplemental Agreement No. 4 dated as of January 9, 2009 (and related side letters) to the Boeing 777 Freighter Purchase
Agreement dated as of November 7, 2006 between The Boeing Company and FedEx Express. Confidential treatment has been
granted 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’s FY09 Third Quarter Report on Form 10-Q, and incorporated herein by
reference.)

Form 10-K
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10.21

Side letters dated May 29, 2009 and May 19, 2009, amending the Boeing 777 Freighter Purchase Agreement dated as of
November 7, 2006 between The Boeing Company and FedEx Express. Confidential treatment has been granted for
confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended. (Filed as Exhibit 10.17 to FedEx’s FY09 Annual Report on Form 10-K, and incorporated herein by reference.)
10.22

Supplemental Agreement No. 5 dated as of January 11, 2010 to the Boeing 777 Freighter Purchase Agreement dated as of
November 7, 2006 between The Boeing Company and FedEx Express. Confidential treatment has been granted 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’s FY10 Third Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.23

Supplemental Agreement No. 6 dated as of March 17, 2010, Supplemental Agreement No. 7 dated as of March 17, 2010, and
Supplemental Agreement No. 8 (and related side letters) dated as of April 30, 2010, each amending the Boeing 777 Freighter
Purchase Agreement dated as of November 7, 2006 between The Boeing Company and FedEx Express. Confidential treatment
has been granted for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended. (Filed as Exhibit 10.22 to FedEx’s FY10 Annual Report on Form 10-K, and incorporated herein by
reference).
10.24

Supplemental Agreement No. 9 dated as of June 18, 2010, Supplemental Agreement No. 10 dated as of June 18, 2010,
Supplemental Agreement No. 11 (and related side letter) dated as of August 19, 2010, and Supplemental Agreement No. 13
(and related side letter) dated as of August 27, 2010, each amending the Boeing 777 Freighter Purchase Agreement dated as of
November 7, 2006 between The Boeing Company and FedEx Express. Confidential treatment has been granted 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’s FY11 First Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.25

Supplemental Agreement No. 12 (and related side letter) dated as of September 3, 2010, Supplemental Agreement No. 14 (and
related side letter) dated as of October 25, 2010, and Supplemental Agreement No. 15 (and related side letter) dated as of
October 29, 2010, each amending the Boeing 777 Freighter Purchase Agreement dated as of November 7, 2006 between The
Boeing Company and FedEx Express. Confidential treatment has been granted 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’s FY11 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)

E-3
Table of Contents
Exhibit
Number Description of Exhibit
10.26

Supplemental Agreement No. 16 (and related side letters) dated as of January 31, 2011, and Supplemental Agreement No. 17
dated as of February 14, 2011, each amending the Boeing 777 Freighter Purchase Agreement dated as of November 7, 2006
between The Boeing Company and FedEx Express. Confidential treatment has been granted 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’s FY11 Third Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.27

Supplemental Agreement No. 18 (and related side letter) dated as of March 30, 2011 to the Boeing 777 Freighter Purchase
Agreement dated as of November 7, 2006 between The Boeing Company and FedEx Express. Confidential treatment has been
granted for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended. (Filed as Exhibit 10.26 to FedEx’s FY11 Annual Report on Form 10-K, and incorporated herein by
reference.)
10.28

Supplemental Agreement No. 19 (and related side letter) dated as of October 27, 2011, amending the Boeing 777 Freighter
Purchase Agreement dated as of November 7, 2006 between The Boeing Company and FedEx Express. Confidential treatment
has been granted 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’s FY12 Second Quarter Report on Form 10-Q, and incorporated
herein by reference.)
10.29

Supplemental Agreement No. 20 (and related side letters) dated as of December 14, 2011, amending the Boeing 777 Freighter
Purchase Agreement dated as of November 7, 2006 between The Boeing Company and FedEx Express. Confidential treatment
has been granted 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’s FY12 Third Quarter Report on Form 10-Q, and incorporated
herein by reference.)
10.30 Boeing 767-3S2 Freighter Purchase Agreement dated as of December 14, 2011 between The Boeing Company and FedEx

Form 10-K
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Express. Confidential treatment has been granted 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’s FY12 Third Quarter Report on
Form 10-Q, and incorporated herein by reference.)
U.S. Postal Service Agreement
10.31

Transportation Agreement dated July 31, 2006 between the United States Postal Service and FedEx Express. Confidential
treatment has been granted 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’s FY07 First Quarter Report on Form 10-Q, and
incorporated herein by reference.)
10.32

Amendment dated November 30, 2006 to the Transportation Agreement dated July 31, 2006 between the United States Postal
Service and FedEx Express. Confidential treatment has been granted 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’s FY07
Second Quarter Report on Form 10-Q, and incorporated herein by reference.)

E-4
Table of Contents
Exhibit
Number Description of Exhibit
10.33

Letter Agreement dated March 8, 2007 and Letter Agreement dated May 14, 2007, each amending the Transportation
Agreement dated July 31, 2006 between the United States Postal Service and FedEx Express. Confidential treatment has been
granted for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended. (Filed as Exhibit 10.15 to FedEx’s FY07 Annual Report on Form 10-K, and incorporated herein by
reference.)
10.34

Amendment dated June 20, 2007 and Amendment dated July 31, 2007, each amending the Transportation Agreement dated
July 31, 2006 between the United States Postal Service and FedEx Express. Confidential treatment has been granted 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’s FY08 First Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.35

Amendment dated December 4, 2007 to the Transportation Agreement dated July 31, 2006 between the United States Postal
Service and FedEx Express. Confidential treatment has been granted 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’s FY08 Third
Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.36

Letter Agreement dated October 23, 2008 and Amendment dated October 23, 2008, each amending the Transportation
Agreement dated July 31, 2006 between the United States Postal Service and FedEx Express. Confidential treatment has been
granted 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’s FY09 Second Quarter Report on Form 10-Q, and incorporated herein by
reference.)
10.37

Letter Agreement dated March 4, 2009, amending the Transportation Agreement dated July 31, 2006 between the United
States Postal Service and FedEx Express. (Filed as Exhibit 10.24 to FedEx’s FY09 Annual Report on Form 10-K, and
incorporated herein by reference.)
10.38

Letter Agreement dated September 29, 2009, amending the Transportation Agreement dated July 31, 2006 between the United
States Postal Service and FedEx Express. Confidential treatment has been granted 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’s FY10 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.39

Amendment dated December 8, 2009 to the Transportation Agreement dated July 31, 2006 between the United States Postal
Service and FedEx Express. Confidential treatment has been granted 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’s FY10 Third
Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.40

Letter Agreement dated August 30, 2010, amending the Transportation Agreement dated July 31, 2006 between the United
States Postal Service and FedEx Express. Confidential treatment has been granted 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’s FY11 First Quarter Report on Form 10-Q, and incorporated herein by reference.)

Form 10-K
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E-5
Table of Contents
Exhibit
Number Description of Exhibit
10.41

Amendment dated November 22, 2010 to the Transportation Agreement dated July 31, 2006 between the United States Postal
Service and FedEx Express. Confidential treatment has been granted 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’s FY11
Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.42

Letter Agreement dated September 9, 2011, amending the Transportation Agreement dated July 31, 2006 between the United
States Postal Service and FedEx Express. Confidential treatment has been granted 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’s FY12 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.43

Amendment dated December 5, 2011 to the Transportation Agreement dated July 31, 2006 between the United States Postal
Service and FedEx Express. Confidential treatment has been granted 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’s FY12 Third
Quarter Report on Form 10-Q, and incorporated herein by reference.)
Financing Agreement
10.44

Five-Year Credit Agreement dated as of April 26, 2011, among FedEx, JPMorgan Chase Bank, N.A., individually and as
administrative agent, and certain lenders. (Filed as Exhibit 99.1 to FedEx’s Current Report on Form 8-K dated April 26, 2011
and filed April 29, 2011, and incorporated herein by reference.)

FedEx is not filing any other instruments evidencing any indebtedness because the total amount of securities authorized under
any single such instrument does not exceed 10% of the total assets of FedEx and its subsidiaries on a consolidated basis.
Copies of such instruments will be furnished to the Securities and Exchange Commission upon request.
Management Contracts/Compensatory Plans or Arrangements
10.45

1993 Stock Incentive Plan and Form of Stock Option Agreement pursuant to 1993 Stock Incentive Plan, as amended. (The
1993 Stock Incentive Plan was filed as Exhibit A to FedEx Express’s FY93 Definitive Proxy Statement, Commission File No.
1-7806, and is incorporated herein by reference, and the form of stock option agreement was filed as Exhibit 10.61 to FedEx
Express’s FY94 Annual Report on Form 10-K, and is incorporated herein by reference.)
10.46

Amendment to 1993 Stock Incentive Plan. (Filed as Exhibit 10.63 to FedEx Express’s FY94 Annual Report on Form 10-K,
and incorporated herein by reference.)
10.47

1995 Stock Incentive Plan and Form of Stock Option Agreement pursuant to 1995 Stock Incentive Plan. (The 1995 Stock
Incentive Plan was filed as Exhibit A to FedEx Express’s FY95 Definitive Proxy Statement, and is incorporated herein by
reference, and the form of stock option agreement was filed as Exhibit 99.2 to FedEx Express’s Registration Statement No.
333-03443 on Form S-8, and is incorporated herein by reference.)
10.48

Amendment to 1993 and 1995 Stock Incentive Plans. (Filed as Exhibit 10.79 to FedEx Express’s FY97 Annual Report on
Form 10-K, and incorporated herein by reference.)

E-6
Table of Contents
Exhibit
Number Description of Exhibit
10.49

1997 Stock Incentive Plan, as amended, and Form of Stock Option Agreement pursuant to 1997 Stock Incentive Plan. (The
1997 Stock Incentive Plan was filed as Exhibit 4.3 to FedEx’s Registration Statement on Form S-8, Registration No. 333-
71065, and is incorporated herein by reference, and the form of stock option agreement was filed as Exhibit 4.4 to FedEx’s
Registration Statement No. 333-71065 on Form S-8, and is incorporated herein by reference.)
10.50 Amendment to 1997 Stock Incentive Plan. (Filed as Exhibit A to FedEx’s FY98 Definitive Proxy Statement, and incorporated

Form 10-K
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herein by reference.)
10.51

1999 Stock Incentive Plan and Form of Stock Option Agreement pursuant to 1999 Stock Incentive Plan. (The 1999 Stock
Incentive Plan was filed as Exhibit 4.3 to FedEx’s Registration Statement No. 333-34934 on Form S-8, and is incorporated
herein by reference, and the form of stock option agreement was filed as Exhibit 4.4 to FedEx’s Registration Statement No.
333-34934 on Form S-8, and is incorporated herein by reference.)
10.52

2002 Stock Incentive Plan and Form of Stock Option Agreement pursuant to 2002 Stock Incentive Plan. (The 2002 Stock
Incentive Plan was filed as Exhibit 4.3 to FedEx’s Registration Statement No. 333-100572 on Form S-8, and is incorporated
herein by reference, and the form of stock option agreement was filed as Exhibit 4.4 to FedEx’s Registration Statement No.
333-100572 on Form S-8, and is incorporated herein by reference.)
10.53

2001 Restricted Stock Plan and Form of Restricted Stock Agreement pursuant to 2001 Restricted Stock Plan. (Filed as Exhibit
10.60 to FedEx’s FY01 Annual Report on Form 10-K, and incorporated herein by reference.)
10.54

Amendment to 2001 Restricted Stock Plan. (Filed as Exhibit 10.67 to FedEx’s FY02 Annual Report on Form 10-K, and
incorporated herein by reference.)
10.55

Amendment to 1995, 1997, 1999 and 2002 Stock Incentive Plans and 2001 Restricted Stock Plan. (Filed as Exhibit 10.3 to
FedEx’s FY04 Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.56

FedEx Corporation Incentive Stock Plan, as amended; Amendment to FedEx Corporation Incentive Stock Plan, as amended,
and 1997, 1999 and 2002 Stock Incentive Plans; Form of Terms and Conditions of stock option grant pursuant to FedEx
Corporation Incentive Stock Plan, as amended; and Form of Restricted Stock Agreement pursuant to FedEx Corporation
Incentive Stock Plan, as amended. (The FedEx Corporation Incentive Stock Plan, as amended, was filed as Exhibit 4.1 to
FedEx’s Registration Statement No. 333-156333 on Form S-8, and is incorporated herein by reference; the Amendment to
FedEx Corporation Incentive Stock Plan, as amended, and 1997, 1999 and 2002 Stock Incentive Plans was filed as Exhibit 4.2
to FedEx’s Registration Statement No. 333-156333 on Form S-8, and is incorporated herein by reference; the Form of Terms
and Conditions of stock option grant pursuant to FedEx Corporation Incentive Stock Plan, as amended, was filed as Exhibit
4.3 to FedEx’s Registration Statement No. 333-156333 on Form S-8, and is incorporated herein by reference; and the Form of
Restricted Stock Agreement pursuant to FedEx Corporation Incentive Stock Plan, as amended, was filed as Exhibit 4.4 to
FedEx’s Registration Statement No. 333-156333 on Form S-8, and is incorporated herein by reference.)

E-7
Table of Contents
Exhibit
Number Description of Exhibit
10.57

FedEx Corporation Incentive Stock Plan 2005 Inland Revenue Approved Sub-Plan for the United Kingdom and Form of
Share Option Agreement pursuant to the FedEx Corporation Incentive Stock Plan 2005 Inland Revenue Approved Sub-Plan
for the United Kingdom. (The United Kingdom Sub-Plan was filed as Exhibit 4.2 to FedEx’s Registration Statement No. 333-
130619 on Form S-8, and is incorporated herein by reference, and the form of share option agreement pursuant to the UK
Sub-Plan was filed as Exhibit 4.3 to FedEx’s Registration Statement No. 333-130619 on Form S-8, and is incorporated herein
by reference.)
10.58

Amendments to 1993, 1995, 1997, 1999 and 2002 Stock Incentive Plans, as amended, 2001 Restricted Stock Plan, as
amended, and FedEx Corporation Incentive Stock Plan, as amended. (Filed as Exhibit 10.48 to FedEx’s FY10 Annual Report
on Form 10-K, and incorporated herein by reference.)
10.59

Amendments to 1993, 1995, 1997, 1999 and 2002 Stock Incentive Plans, 2001 Restricted Stock Plan and FedEx Corporation
Incentive Stock Plan. (Filed as Exhibit 10.2 to FedEx’s FY11 Third Quarter Report on Form 10-Q, and incorporated herein by
reference.)
10.60

FedEx Corporation 2010 Omnibus Stock Incentive Plan; Form of Terms and Conditions of stock option grant pursuant to
FedEx Corporation 2010 Omnibus Stock Incentive Plan; and Form of Terms and Conditions of restricted stock grant pursuant
to FedEx Corporation 2010 Omnibus Stock Incentive Plan. (The FedEx Corporation 2010 Omnibus Stock Incentive Plan was
filed as Exhibit 4.3 to FedEx’s Registration Statement No. 333-171232 on Form S-8, and is incorporated herein by reference;
the Form of Terms and Conditions of stock option grant pursuant to FedEx Corporation 2010 Omnibus Stock Incentive Plan
was filed as Exhibit 4.4 to FedEx’s Registration Statement No. 333-171232 on Form S-8, and is incorporated herein by
reference; and the Form of Terms and Conditions of restricted stock grant pursuant to FedEx Corporation 2010 Omnibus Stock
Incentive Plan was filed as Exhibit 4.5 to FedEx’s Registration Statement No. 333-171232 on Form S-8, and is incorporated
herein by reference.)

Form 10-K
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10.61

Amended and Restated FedEx Corporation Retirement Parity Pension Plan. (Filed as Exhibit 10.35 to FedEx’s FY08 Annual
Report on Form 10-K, and incorporated herein by reference.)
10.62

FedEx Express Supplemental Long Term Disability Plan and Amendment to the Plan. (Filed as Exhibit 10.56 to FedEx’s
FY11 Annual Report on Form 10-K, and incorporated herein by reference.)
*10.63 Compensation Arrangements with Named Executive Officers.
10.64

Compensation Arrangements with Outside Directors. (Filed as Exhibit 10.1 to FedEx’s FY12 Second Quarter Report on Form
10-Q, and incorporated herein by reference.)
10.65

FedEx’s Amended and Restated Retirement Plan for Outside Directors. (Filed as Exhibit 10.2 to FedEx’s FY09 Second
Quarter Report on Form 10-Q, and incorporated herein by reference.)
10.66

Form of revised Management Retention Agreement, dated March 18, 2010, entered into between FedEx and each of Frederick
W. Smith, David J. Bronczek, Robert B. Carter, T. Michael Glenn, Alan B. Graf, Jr., William J. Logue, David F. Rebholz and
Christine P. Richards. (Filed as Exhibit 10.5 to FedEx’s FY10 Third Quarter Report on Form 10-Q, and incorporated herein
by reference.)

E-8
Table of Contents
Exhibit
Number Description of Exhibit
Other Exhibits
*12

Statement re Computation of Ratio of Earnings to Fixed Charges (presented on page 127 of this Annual Report on Form 10-
K).
*21 Subsidiaries of Registrant.
*23 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
*24 Powers of Attorney.
*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.

* Filed herewith.

E-9

sec.gov
Form 10-K

Sheet1

– Exceptional

4

4

zero for this section 10

4 20

zero for this section 20

4 20

zero for this section 20

4 10

10

4 20

zero for this section 20

Score

Total

CATEGORY

4

3 – Proficient

2 – Basic

1 – Unsatisfactory

0-Not met

10

Introduction (Abstract)

The introduction is inviting, states the main topic and previews the structure of the paper.

The introduction clearly states the main topic and previews the structure of the paper, but is not particularly inviting to the reader.

The introduction states the main topic, but does not adequately preview the structure of the paper nor is it particularly inviting to the reader.

There is no clear introduction of the main topic or structure of the paper.

zero for this section

5

20

Organization Paper is organized and readable; has distinct introduction, body, and conclusion

Paper is interesting and readable. It has a distinct introduction that grabs the reader’s attention; a body that clearly addresses all main points; and a conclusion that ties paper together. Paragraphs flow together with smooth transitions.

Paper is readable and has an introduction, a body, and a conclusion. Some points could have used stronger support, and stronger transitions could have helped paper have better flow

Some details are not in a logical or expected order, and this distracts the reader.

Many details are not in a logical or expected order. Paper is disorganized, has no introduction, body, or conclusion

Support for Topic (Content)

Relevant, telling, quality details give the reader important information that goes beyond the obvious or predictable.

Supporting details and information are relevant, but one key issue or portion of the storyline is unsupported.

Supporting details and information are relevant, but several key issues or portions of the storyline are unsupported.

Supporting details and information are typically unclear or not related to the topic.

Focus on Topic (Content)

There is one clear, well-focused topic. Main idea stands out and is supported by detailed information.

Main idea is clear but the supporting information is general.

Main idea is somewhat clear but there is a need for more supporting information.

The main idea is not clear. There is a seemingly random collection of information.

Grammar

Writing is error-free.

Writer makes 1-2 errors in grammar or spelling that distract the reader from the content.

Writer makes 3-4 errors in grammar or spelling that distract the reader from the content.

Writer makes 5-7 errors in grammar or spelling that distract the reader from the content.

zero for this section. Writer had more than 7 errors

APA Style Format

All sources used for quotes and facts are credible and cited correctly. Essay is free of APA style and formatting issues

Essay contains infrequent APA style and formatting errors (1 or 2 errors) (sources not cited within text)

Essay contains APA style and formatting errors (3 or 4 errors) sources not cited within text)

APA style and formatting guidelines not used. (5 or more errors) (level 3 not followed) (not double spaced)

100