(10) Condensed Consolidating Financial Statements

We are required to present condensed consolidating financial information in order for the subsidiary guarantors 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 100% owned by FedEx, guarantee $14.6 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.

Condensed consolidating financial statements for our guarantor subsidiaries and non-guarantor subsidiaries are presented in the following tables (in millions):

CONDENSED CONSOLIDATING BALANCE SHEETS

(UNAUDITED)

February 28, 2017

			Guarantor		Non-guarantor
	Parent		Subsidiaries		Subsidiaries		Eliminations			Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,475	$	301	$	1,442	$	(45	)	$	3,173
Receivables, less allowances		1		4,636		2,824		(43	)		7,418
Spare parts, supplies, fuel, prepaid expenses and other, less allowances		292		819		236		—			1,347
Total current assets		1,768		5,756		4,502		(88	)		11,938
PROPERTY AND EQUIPMENT, AT COST		22		46,448		3,282		—			49,752
Less accumulated depreciation and amortization		18		22,810		1,311		—			24,139
Net property and equipment		4		23,638		1,971		—			25,613
INTERCOMPANY RECEIVABLE		2,216		1,442		—		(3,658	)		—
GOODWILL		—		1,571		5,429		—			7,000
INVESTMENT IN SUBSIDIARIES		26,637		2,744		—		(29,381	)		—
OTHER ASSETS		3,043		1,031		1,052		(2,896	)		2,230
	$	33,668	$	36,182	$	12,954	$	(36,023	)	$	46,781
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Current portion of long-term debt	$	—	$	31	$	14	$	—		$	45
Accrued salaries and employee benefits		52		1,184		454		—			1,690
Accounts payable		124		1,354		1,317		(88	)		2,707
Accrued expenses		811		1,419		778		—			3,008
Total current liabilities		987		3,988		2,563		(88	)		7,450
LONG-TERM DEBT, LESS CURRENT PORTION		14,443		244		26		—			14,713
INTERCOMPANY PAYABLE		—		—		3,658		(3,658	)		—
OTHER LONG-TERM LIABILITIES
Deferred income taxes		—		4,978		217		(2,896	)		2,299
Other liabilities		3,054		3,345		736		—			7,135
Total other long-term liabilities		3,054		8,323		953		(2,896	)		9,434
STOCKHOLDERS’ INVESTMENT		15,184		23,627		5,754		(29,381	)		15,184
	$	33,668	$	36,182	$	12,954	$	(36,023	)	$	46,781

CONDENSED CONSOLIDATING BALANCE SHEETS

May 31, 2016

			Guarantor		Non-guarantor
	Parent		Subsidiaries		Subsidiaries		Eliminations			Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,974	$	326	$	1,277	$	(43	)	$	3,534
Receivables, less allowances		1		4,461		2,831		(41	)		7,252
Spare parts, supplies, fuel, prepaid expenses and other, less allowances		233		724		246		—			1,203
Total current assets		2,208		5,511		4,354		(84	)		11,989
PROPERTY AND EQUIPMENT, AT COST		22		43,760		3,236		—			47,018
Less accumulated depreciation and amortization		17		21,566		1,151		—			22,734
Net property and equipment		5		22,194		2,085		—			24,284
INTERCOMPANY RECEIVABLE		2,437		1,284		—		(3,721	)		—
GOODWILL		—		1,571		5,176		—			6,747
INVESTMENT IN SUBSIDIARIES		24,766		3,697		—		(28,463	)		—
OTHER ASSETS		3,359		967		1,851		(3,238	)		2,939
	$	32,775	$	35,224	$	13,466	$	(35,506	)	$	45,959
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Current portion of long-term debt	$	—	$	13	$	16	$	—		$	29
Accrued salaries and employee benefits		54		1,377		541		—			1,972
Accounts payable		8		1,501		1,519		(84	)		2,944
Accrued expenses		883		1,411		769		—			3,063
Total current liabilities		945		4,302		2,845		(84	)		8,008
LONG-TERM DEBT, LESS CURRENT PORTION		13,451		245		37		—			13,733
INTERCOMPANY PAYABLE		—		—		3,721		(3,721	)		—
OTHER LONG-TERM LIABILITIES
Deferred income taxes		—		4,436		369		(3,238	)		1,567
Other liabilities		4,595		3,375		897		—			8,867
Total other long-term liabilities		4,595		7,811		1,266		(3,238	)		10,434
STOCKHOLDERS’ INVESTMENT		13,784		22,866		5,597		(28,463	)		13,784
	$	32,775	$	35,224	$	13,466	$	(35,506	)	$	45,959

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

Three Months Ended February 28, 2017

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
REVENUES	$	—		$	11,275		$	3,794		$	(72	)	$	14,997
OPERATING EXPENSES:
Salaries and employee benefits		29			4,210			1,156			—			5,395
Purchased transportation		—			2,219			1,306			(27	)		3,498
Rentals and landing fees		1			657			177			(1	)		834
Depreciation and amortization		1			649			112			—			762
Fuel		—			657			78			—			735
Maintenance and repairs		1			514			73			—			588
Intercompany charges, net		(87	)		(33	)		120			—			—
Other		55			1,428			721			(44	)		2,160
		—			10,301			3,743			(72	)		13,972
OPERATING INCOME		—			974			51			—			1,025
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries		562			(41	)		—			(521	)		—
Interest, net		(129	)		6			1			—			(122	)
Intercompany charges, net		130			(79	)		(51	)		—			—
Other, net		(1	)		(118	)		115			—			(4	)
INCOME BEFORE INCOME TAXES		562			742			116			(521	)		899
Provision for income taxes		—			280			57			—			337
NET INCOME	$	562		$	462		$	59		$	(521	)	$	562
COMPREHENSIVE INCOME	$	543		$	444		$	187		$	(521	)	$	653

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

Three Months Ended February 29, 2016

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries		Eliminations			Consolidated
REVENUES	$	—		$	10,838		$	1,892	$	(76	)	$	12,654
OPERATING EXPENSES:
Salaries and employee benefits		32			4,072			608		—			4,712
Purchased transportation		—			2,106			545		(28	)		2,623
Rentals and landing fees		1			660			84		(1	)		744
Depreciation and amortization		—			608			55		—			663
Fuel		—			520			17		—			537
Maintenance and repairs		—			471			33		—			504
Intercompany charges, net		(344	)		294			50		—			—
Other		311			1,344			399		(47	)		2,007
		—			10,075			1,791		(76	)		11,790
OPERATING INCOME		—			763			101		—			864
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries		507			86			—		(593	)		—
Interest, net		(90	)		6			3		—			(81	)
Intercompany charges, net		95			(105	)		10		—			—
Other, net		(5	)		(1	)		5		—			(1	)
INCOME BEFORE INCOME TAXES		507			749			119		(593	)		782
Provision for income taxes		—			249			26		—			275
NET INCOME	$	507		$	500		$	93	$	(593	)	$	507
COMPREHENSIVE INCOME	$	488		$	487		$	7	$	(593	)	$	389

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

Nine Months Ended February 28, 2017

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
REVENUES	$	—		$	33,175		$	11,628		$	(212	)	$	44,591
OPERATING EXPENSES:
Salaries and employee benefits		94			12,477			3,488			—			16,059
Purchased transportation		—			6,210			4,040			(81	)		10,169
Rentals and landing fees		4			1,902			524			(4	)		2,426
Depreciation and amortization		1			1,894			346			—			2,241
Fuel		—			1,819			224			—			2,043
Maintenance and repairs		1			1,544			220			—			1,765
Intercompany charges, net		(266	)		67			199			—			—
Other		166			4,230			2,163			(127	)		6,432
		—			30,143			11,204			(212	)		41,135
OPERATING INCOME		—			3,032			424			—			3,456
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries		1,977			69			—			(2,046	)		—
Interest, net		(374	)		19			1			—			(354	)
Intercompany charges, net		376			(224	)		(152	)		—			—
Other, net		(2	)		(128	)		147			—			17
INCOME BEFORE INCOME TAXES		1,977			2,768			420			(2,046	)		3,119
Provision for income taxes		—			951			191			—			1,142
NET INCOME	$	1,977		$	1,817		$	229		$	(2,046	)	$	1,977
COMPREHENSIVE INCOME	$	1,921		$	1,781		$	156		$	(2,046	)	$	1,812

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

Nine Months Ended February 29, 2016

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries		Eliminations			Consolidated
REVENUES	$	—		$	31,190		$	6,449	$	(253	)	$	37,386
OPERATING EXPENSES:
Salaries and employee benefits		92			11,811			1,904		—			13,807
Purchased transportation		—			5,481			2,132		(108	)		7,505
Rentals and landing fees		4			1,843			278		(4	)		2,121
Depreciation and amortization		1			1,792			171		—			1,964
Fuel		—			1,808			56		—			1,864
Maintenance and repairs		—			1,476			105		—			1,581
Intercompany charges, net		(525	)		338			187		—			—
Other		428			3,901			1,211		(141	)		5,399
		—			28,450			6,044		(253	)		34,241
OPERATING INCOME		—			2,740			405		—			3,145
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries		1,890			220			—		(2,110	)		—
Interest, net		(246	)		20			8		—			(218	)
Intercompany charges, net		257			(264	)		7		—			—
Other, net		(11	)		(10	)		15		—			(6	)
INCOME BEFORE INCOME TAXES		1,890			2,706			435		(2,110	)		2,921
Provision for income taxes		—			915			116		—			1,031
NET INCOME	$	1,890		$	1,791		$	319	$	(2,110	)	$	1,890
COMPREHENSIVE INCOME	$	1,834		$	1,758		$	77	$	(2,110	)	$	1,559

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(UNAUDITED)

Nine Months Ended February 28, 2017

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	(1,497	)	$	3,615		$	529		$	(2	)	$	2,645
INVESTING ACTIVITIES
Capital expenditures		—			(3,456	)		(334	)		—			(3,790	)
Proceeds from asset dispositions and other		85			16			22			—			123
CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES		85			(3,440	)		(312	)		—			(3,667	)
FINANCING ACTIVITIES
Net transfers from (to) Parent		117			(148	)		31			—			—
Payment on loan between subsidiaries		36			(15	)		(21	)		—			—
Intercompany dividends		—			1			(1	)		—			—
Principal payments on debt		—			(33	)		(16	)		—			(49	)
Proceeds from debt issuance		1,190			—			—			—			1,190
Proceeds from stock issuances		265			—			—			—			265
Dividends paid		(319	)		—			—			—			(319	)
Purchase of treasury stock		(358	)		—			—			—			(358	)
Other, net		(8	)		(12	)		22			—			2
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		923			(207	)		15			—			731
Effect of exchange rate changes on cash		(10	)		7			(67	)		—			(70	)
Net (decrease) increase in cash and cash equivalents		(499	)		(25	)		165			(2	)		(361	)
Cash and cash equivalents at beginning of period		1,974			326			1,277			(43	)		3,534
Cash and cash equivalents at end of period	$	1,475		$	301		$	1,442		$	(45	)	$	3,173

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(UNAUDITED)

Nine Months Ended February 29, 2016

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	(833	)	$	4,213		$	370		$	46		$	3,796
INVESTING ACTIVITIES
Capital expenditures		—			(3,434	)		(128	)		—			(3,562	)
Proceeds from asset dispositions and other		(55	)		26			12			—			(17	)
CASH USED IN INVESTING ACTIVITIES		(55	)		(3,408	)		(116	)		—			(3,579	)
FINANCING ACTIVITIES
Net transfers from (to) Parent		1,036			(1,039	)		3			—			—
Payment on loan between subsidiaries		—			109			(109	)		—			—
Intercompany dividends		—			20			(20	)		—			—
Principal payments on debt		—			(7	)		(21	)		—			(28	)
Proceeds from debt issuance		1,238			—			—			—			1,238
Proceeds from stock issuances		79			—			—			—			79
Dividends paid		(210	)		—			—			—			(210	)
Purchase of treasury stock		(2,133	)		—			—			—			(2,133	)
Other, net		(7	)		(27	)		27			—			(7	)
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		3			(944	)		(120	)		—			(1,061	)
Effect of exchange rate changes on cash		—			(17	)		(61	)		—			(78	)
Net (decrease) increase in cash and cash equivalents		(885	)		(156	)		73			46			(922	)
Cash and cash equivalents at beginning of period		2,383			487			971			(78	)		3,763
Cash and cash equivalents at end of period	$	1,498		$	331		$	1,044		$	(32	)	$	2,841