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 ☒ No ☐

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

	February 28, 2018 (Unaudited)		May 31, 2017		August 31, 2018 (Unaudited)		May 31, 2018
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	2,789	$	3,969	$	2,369	$	3,265
Receivables, less allowances of $373 and $252		8,671		7,599
Spare parts, supplies and fuel, less allowances of $258 and $237		523		514
Receivables, less allowances of $296 and $401						8,716		8,481
Spare parts, supplies and fuel, less allowances of $271 and $268						523		525
Prepaid expenses and other		1,592		546		1,033		1,070
Total current assets		13,575		12,628		12,641		13,341
PROPERTY AND EQUIPMENT, AT COST		54,377		50,626		56,326		55,121
Less accumulated depreciation and amortization		26,680		24,645		27,547		26,967
Net property and equipment		27,697		25,981		28,779		28,154
OTHER LONG-TERM ASSETS
Goodwill		7,464		7,154		6,869		6,973
Other assets		3,115		2,789		3,612		3,862
Total other long-term assets		10,579		9,943		10,481		10,835
	$	51,851	$	48,552	$	51,901	$	52,330

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

	February 28, 2018 (Unaudited)			May 31, 2017			August 31, 2018 (Unaudited)			May 31, 2018
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Short-term borrowings	$	799		$	—		$	299		$	—
Current portion of long-term debt		764			22			1,404			1,342
Accrued salaries and employee benefits		1,945			1,914			1,686			2,177
Accounts payable		3,102			2,752			3,066			2,977
Accrued expenses		2,893			3,230			3,151			3,131
Total current liabilities		9,503			7,918			9,606			9,627
LONG-TERM DEBT, LESS CURRENT PORTION		16,017			14,909			15,241			15,243
OTHER LONG-TERM LIABILITIES
Deferred income taxes		2,401			2,485			2,948			2,867
Pension, postretirement healthcare and other benefit obligations		2,181			4,487			1,963			2,187
Self-insurance accruals		1,715			1,494			1,809			1,784
Deferred lease obligations		532			531			557			551
Deferred gains, principally related to aircraft transactions		124			137			156			121
Other liabilities		484			518			448			534
Total other long-term liabilities		7,437			9,652			7,881			8,044
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS’ INVESTMENT
Common stock, $0.10 par value; 800 million shares authorized; 318 million shares issued as of February 28, 2018 and May 31, 2017		32			32
Common stock, $0.10 par value; 800 million shares authorized; 318 million shares issued as of August 31, 2018 and May 31, 2018								32			32
Additional paid-in capital		3,085			3,005			3,154			3,117
Retained earnings		23,710			20,833			25,315			24,823
Accumulated other comprehensive loss		(357	)		(415	)		(763	)		(578	)
Treasury stock, at cost		(7,576	)		(7,382	)		(8,565	)		(7,978	)
Total common stockholders’ investment		18,894			16,073			19,173			19,416
	$	51,851		$	48,552		$	51,901		$	52,330

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

													Three Months Ended
	Three Months Ended						Nine Months Ended						August 31,
	February 28,						February 28,						2018			2017
	2018			2017			2018			2017						As Adjusted
REVENUES	$	16,526		$	14,997		$	48,136		$	44,591		$	17,052		$	15,297
OPERATING EXPENSES:
Salaries and employee benefits		5,981			5,395			17,241			16,059			6,260			5,664
Purchased transportation		3,935			3,498			11,220			10,169			3,967			3,445
Rentals and landing fees		873			834			2,526			2,426			823			818
Depreciation and amortization		786			762			2,293			2,241			808			751
Fuel		914			735			2,435			2,043			986			703
Maintenance and repairs		628			588			1,968			1,765			735			675
Other		2,408			2,160			7,073			6,432			2,402			2,270
		15,525			13,972			44,756			41,135			15,981			14,326
OPERATING INCOME		1,001			1,025			3,380			3,456			1,071			971
OTHER INCOME (EXPENSE):
Interest, net		(125	)		(122	)		(363	)		(354	)		(112	)		(114	)
Other retirement plans income														158			146
Other, net		(2	)		(4	)		(22	)		17			(16	)		(21	)
		(127	)		(126	)		(385	)		(337	)		30			11
INCOME BEFORE INCOME TAXES		874			899			2,995			3,119			1,101			982
PROVISION FOR INCOME TAXES		(1,200	)		337			(450	)		1,142			266			386
NET INCOME	$	2,074		$	562		$	3,445		$	1,977		$	835		$	596
EARNINGS PER COMMON SHARE:
Basic	$	7.74		$	2.11		$	12.85		$	7.43		$	3.15		$	2.22
Diluted	$	7.59		$	2.07		$	12.63		$	7.31		$	3.10		$	2.19
DIVIDENDS DECLARED PER COMMON SHARE	$	0.50		$	0.40		$	2.00		$	1.60		$	1.30		$	1.00

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

	Three Months Ended						Nine Months Ended						Three Months Ended
	February 28,						February 28,						August 31,
	2018			2017			2018			2017			2018			2017
NET INCOME	$	2,074		$	562		$	3,445		$	1,977		$	835		$	596
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustments, net of tax of $9, $3, $26, and $19		100			110			119			(108	)
Amortization of prior service credit, net of tax of $7, $12, $29, and $34		(23	)		(19	)		(61	)		(57	)
Foreign currency translation adjustments, net of tax benefit of $24 in 2018 and tax expense of $25 in 2017														(162	)		109
Amortization of prior service credit, net of tax benefit of $7 in 2018 and $11 in 2017														(23	)		(19	)
		77			91			58			(165	)		(185	)		90
COMPREHENSIVE INCOME	$	2,151		$	653		$	3,503		$	1,812		$	650		$	686

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

	Nine Months Ended						Three Months Ended
	February 28,						August 31,
	2018			2017			2018			2017
Operating Activities:
Net income	$	3,445		$	1,977		$	835		$	596
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		2,293			2,241			808			751
Provision for uncollectible accounts		177			115			82			60
Stock-based compensation		135			123			68			62
Deferred income taxes and other noncash items		(914	)		474			23			97
Gain from sale of investment		—			(35	)
Changes in assets and liabilities:
Receivables		(986	)		(340	)		(380	)		(271	)
Other assets		(151	)		(235	)		(120	)		(142	)
Accounts payable and other liabilities		(2,781	)		(1,642	)		(584	)		(540	)
Other, net		(56	)		(33	)		(31	)		(23	)
Cash provided by operating activities		1,162			2,645			701			590
Investing Activities:
Capital expenditures		(3,994	)		(3,790	)		(1,179	)		(1,044	)
Business acquisitions, net of cash acquired		(44	)		—
Proceeds from asset dispositions and other		21			123			78			6
Cash used in investing activities		(4,017	)		(3,667	)		(1,101	)		(1,038	)
Financing Activities:
Proceeds from short-term borrowings, net		797			—
Proceeds from short-term borrowings								299			—
Principal payments on debt		(31	)		(49	)		(2	)		(12	)
Proceeds from debt issuances		1,481			1,190
Proceeds from stock issuances		284			265			25			150
Dividends paid		(402	)		(319	)		(173	)		(134	)
Purchase of treasury stock		(558	)		(358	)		(625	)		(86	)
Other, net		6			2			4			(6	)
Cash provided by financing activities		1,577			731
Cash used in financing activities								(472	)		(88	)
Effect of exchange rate changes on cash		98			(70	)		(24	)		70
Net decrease in cash and cash equivalents		(1,180	)		(361	)		(896	)		(466	)
Cash and cash equivalents at beginning of period		3,969			3,534			3,265			3,969
Cash and cash equivalents at end of period	$	2,789		$	3,173		$	2,369		$	3,503

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. These interim financial statements of FedEx Corporation (“FedEx”) have been prepared in accordance with accounting principles generally accepted in the United States and Securities and Exchange Commission (“SEC”) instructions for interim financial information, and should be read in conjunction with our Annual Report on Form 10-K for the year ended May 31, ~~2017~~2018 (“Annual Report”). Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed in our Annual Report.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to present fairly our financial position as of ~~February 28,~~August 31, 2018, and the results of our operations ~~for the three- and nine-month periods ended February 28, 2018 and 2017,~~ and cash flows for the ~~nine-month~~three-month periods ended ~~February 28,~~August 31, 2018 and 2017. Operating results for the ~~three- and nine-month~~three-month periods ended ~~February 28,~~August 31, 2018 are not necessarily indicative of the results that may be expected for the year ending May 31, ~~2018.~~2019.

RECLASSIFICATIONS. Certain reclassifications have been made to the prior years’ condensed consolidated financial statements to conform to the current year presentation.

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 businesses that contract with FedEx. FedEx ~~acquired Northwest Research, Inc.,~~is the principal to the transaction for most of these services and revenue is recognized on a ~~leader in inventory research~~gross basis based on the transfer of control to the customer. Costs associated with independent businesses are recognized as incurred and ~~management, for $50 million in cash from operations. The majority of the purchase price was allocated to property and equipment. The financial results of this acquired business are~~ included in the ~~FedEx Corporate Services, Inc. (“FedEx Services”~~caption “Purchased transportation” in the accompanying unaudited condensed consolidated statements of income.

For shipments in transit, revenue is recorded based on the percentage of service completed at the balance sheet date which results in our recognizing revenue over time as we perform the services in the contract because of the continuous transfer of control to the customer. Our customers receive the benefit of our services as the goods are transported from one location to another. If we were unable to complete delivery to the final location, another entity would not need to reperform the transportation service already performed. As control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation.

The vast majority of our contracts include only one performance obligation, which is short in duration and spans only a few days. However, if a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative stand-alone selling prices of the promised goods or services underlying each performance obligation. We frequently sell standard transportation services with observable stand-alone sales prices. In these instances, the observable stand-alone sales are used to determine the stand-alone selling price.

We sell customized customer-specific solutions, such as logistics, through which we provide the service of integrating a complex set of tasks and components into a single capability (even if that single capability results in the delivery of multiple units). Therefore, the entire contract is accounted for as one performance obligation. In these cases we typically use the expected cost plus a margin approach to estimate the stand-alone selling price of each performance obligation.

It is common for our contracts to contain customer incentives, guaranteed service refunds or other provisions that can either increase or decrease the transaction price. These variable amounts are generally awarded based upon certain incentive achievements or performance metrics. We estimate variable consideration as the most likely amount to which we expect to be entitled. Estimates for adjustments to revenue and accounts receivable are recognized at the time of shipment for certain customer initiatives, money-back service guarantees and billing corrections based on our assessment of historical, current and forecasted information available. Delivery costs are accrued as incurred.

Contracts are often modified to account for changes in the rates we charge our customers or to add additional distinct services. We consider contract modifications to exist when the modification either creates new enforceable rights and obligations or alters the existing arrangement. Contract modifications that add distinct goods or services are treated as separate contracts. Contract modifications that do not add distinct goods or services typically change the price of existing services. These contract modifications are accounted for prospectively as the remaining performance obligations are executed.

Contract assets include billed and unbilled amounts resulting from in-transit packages, as we have an unconditional right to payment only once all performance obligations have been completed (e.g., packages have been delivered). Contract assets are generally classified as current and the full balance is converted each quarter based on the short-term nature of the transactions. Our contract liabilities consist of advance payments and billings in excess of revenue. The full balance of deferred revenue is converted each quarter based on the short-term nature of the transactions.

Gross contract assets related to in-transit packages totaled $513 million and $542 million at August 31, 2018 and May 31, 2018, respectively. Contract assets net of deferred unearned revenue were $351 million and $363 million at August 31, 2018 and May 31, 2018, respectively. Contract assets are included within other current assets in the accompanying unaudited condensed consolidated balance sheets. Contract liabilities related to advance payments from customers were $15 million and $13 million at August 31, 2018 and May 31, 2018, respectively. Contract liabilities are included within current liabilities in the accompanying unaudited condensed consolidated balance sheets.

Our contract logistics, global trade services and certain transportation businesses 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. Under the typical payment terms of our customer contracts, the customer pays at periodic intervals (i.e., every 15 days, 30 days, 45 days, etc.) ~~segment from~~for shipments included on invoices received. It is not customary business practice to extend payment terms past 90 days, and as such, we do not have a practice of including a significant financing component within our revenue contracts with customers.

The following table provides revenue by service type (dollars in millions) for the ~~date of acquisition~~periods ended August 31. This presentation is consistent with how we organize our segments internally for making operating decisions and ~~were not material to our results of operations. Therefore, pro forma financial information has not been provided.~~measuring performance.

EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS. The pilots of Federal Express Corporation (“FedEx Express”), who ~~represent~~are a small number of its total employees, are employed under a collective bargaining agreement that took effect on November 2, 2015. ~~This~~The collective bargaining agreement is scheduled to become amendable in November ~~2021, after a six-year term. In addition to our~~2021. Other than the pilots at FedEx Express and drivers at one FedEx Freight, Inc. facility, our U.S. employees have thus far chosen not to unionize (we acquired FedEx Supply Chain Distribution System, Inc. (“FedEx Supply ~~Chain”~~Chain,” formerly GENCO Distribution System, Inc.) ~~has~~in 2015, which already had a small number of employees ~~who~~that are members of ~~unions, and~~unions). Additionally, certain of FedEx Express’s non-U.S. employees are unionized.

STOCK-BASED COMPENSATION. We have two types of equity-based compensation: stock options and restricted stock. The key terms of the stock option and restricted stock awards granted under our incentive stock plans and all financial disclosures about these programs are set forth in our Annual Report.

Our stock-based compensation expense was ~~$32~~$68 million for the three-month period ended ~~February 28,~~August 31, 2018 and ~~$135 million for the nine-month period ended February 28, 2018. Our stock-based compensation expense was $31~~$62 million for the three-month period ended ~~February 28, 2017 and $123 million for the nine-month period ended February 28,~~August 31, 2017. Due to its immateriality, additional disclosures related to stock-based compensation have been excluded from this quarterly report.

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.

In December 2017, the SEC staff issued Staff Accounting Bulletin (“SAB”) 118 to provide guidance to registrants in accounting for income taxes under the Tax Cuts and Jobs Act (“TCJA”). ~~See Note 5~~SAB 118 was issued to address the application of U.S. generally accepted accounting principles in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to finalize the calculations for ~~further discussion related~~certain income tax effects of the TCJA. In accordance with SAB 118, we made reasonable estimates and recorded provisional amounts for the TCJA during 2018. Under the transitional provisions of SAB 118, we have a one-year measurement period to ~~applying this guidance.~~complete the accounting for the initial tax effects of the TCJA. We are still in the process of completing that accounting. As of August 31, 2018, there were no changes to the provisional amounts recorded at May 31, 2018.

~~During the first quarter of 2018, we early adopted the Accounting Standards Update issued by~~In 2014, the Financial Accounting Standards Board (“FASB”) related to Intra-Entity Transfers of Assets Other Than Inventory. This update requires companies to recognize the income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs, as opposed to when the assets are ultimately sold to an outside party. This new guidance had an immaterial impact on our accounting and financial reporting for the third quarter and nine months of 2018.

In January 2017, the FASB issued an Accounting Standards Update that simplifies the subsequent measurement of goodwill, eliminating Step 2 from the goodwill impairment test. Under this new guidance, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an

impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This guidance will be applied prospectively and will be effective for us beginning June 1, 2020 (fiscal 2021). Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. We expect to early adopt the guidance during the fourth quarter of 2018.

~~In 2014, the FASB~~ and International Accounting Standards Board issued a new accounting standard that ~~will supersede~~supersedes virtually all existing revenue recognition guidance under generally accepted accounting principles in the United States. ~~This standard will be effective for us beginning June 1, 2018 (fiscal 2019).~~ The fundamental principles of the new guidance are that companies should recognize revenue in a manner that reflects the timing of the transfer of services to customers and the amount of revenue recognized reflects the consideration that a company expects to receive for the goods and services provided. The new guidance establishes a five-step approach for the recognition of revenue. We ~~are finalizing~~adopted this standard as of June 1, 2018 (fiscal 2019) using the ~~assessment~~modified retrospective method of ~~the impact this new standard will have on our consolidated financial statements and related disclosures, including ongoing contract reviews, which will be completed~~adoption as permitted by the ~~end of 2018. We do not anticipate that the~~standard. The new guidance ~~will~~did not have ~~a material~~an impact on our revenue recognition policies, practices or ~~systems.~~systems; therefore, there was no cumulative-effect adjustment to retained earnings as of June 1, 2018.

In March 2017, the FASB issued an Accounting Standards Update (ASU 2017-07) that changes how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the income statement. This new guidance requires entities to report the service cost component in the same line item or items as other compensation costs. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component outside of income from operations. This standard ~~will impact~~impacts our operating income but ~~will have~~has no impact on our net income or earnings per share. ~~For example, adoption of~~We adopted this guidance would have reduced operating income by $143 million in the third quarter and $436 million in the nine months of 2018, and by $113 million in the third quarter and $337 million in the nine months of 2017, but would not have impacted our net income in these periods. This new guidance will bestandard effective June 1, 2018 (fiscal 2019) and ~~will be~~ applied these changes retrospectively. As such, prior year financial results are recast to conform to these new rules upon adoption.

The following table presents our results under our historical method of accounting and as adjusted to reflect our adoption of ASU 2017-07 (in millions):

In 2016, the FASB issued a new lease accounting standard which requires lessees to put most leases on their balance sheets but recognize the expenses in their income statements in a manner similar to current practice. The new standard states that a lessee will recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. Expenses related to leases determined to be operating leases will be recognized on a straight-line basis, while those determined to be financing leases will be recognized following a front-loaded expense profile in which interest and amortization are presented separately in the income statement. Based on our lease portfolio, we currently anticipate recognizing a lease liability and related right-of-use asset on our balance sheet in excess of $13 billion, with an immaterial impact on our income statement compared to the current lease accounting model. However, the ultimate impact of the standard will depend on ~~the company’s~~our lease portfolio as of the adoption date. We are currently ~~in the process of evaluating our existing lease portfolio, including~~ accumulating all of the necessary information required to properly account for the leases under the new standard. Additionally, we are implementing an enterprise-wide lease management system to assist in the accounting and are evaluating additional changes to our processes and internal controls to ensure we meet the standard’s reporting and disclosure requirements. These changes will be effective June 1, 2019 (fiscal 2020).

In February 2018, the FASB issued an Accounting Standards Update that will permit companies to reclassify the income tax effect of the TCJA on items within accumulated other comprehensive income (loss) (“AOCI”) to retained earnings. These changes will be effective June 1, 2019 (fiscal 2020). We are continuing to assess the impact of this new standard on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued an Accounting Standards Update (ASU 2018-14) that modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans. The guidance removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. We expect this new guidance will have minimal impact on our financial reporting. These changes will be effective June 1, 2020 (fiscal 2021) and will be applied retrospectively. We plan to early adopt in the fourth quarter of fiscal 2019.

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

During the ~~third~~first quarter of ~~2018,~~2019, we repurchased ~~1.2~~2.6 million shares of FedEx common stock at an average price of ~~$248.73~~$238.95 per share for a total of ~~$288 million. During the nine months of 2018, we repurchased 2.4 million shares of FedEx common stock at an average price of $232.00 per share for a total of $558~~$625 million. As of ~~February 28,~~August 31, 2018, ~~13.6~~9.1 million shares remained under the current share repurchase authorization.

DIVIDENDS DECLARED PER COMMON SHARE. On ~~February 16,~~August 17, 2018, our Board of Directors declared a quarterly dividend of ~~$0.50~~$0.65 per share of common stock. The dividend will be paid on ~~April 2,~~October 1, 2018 to stockholders of record as of the close of business on ~~March 12,~~September 10, 2018. 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.

The following table provides changes in AOCI, net of tax, reported in our unaudited condensed consolidated financial statements for the three-month periods ended ~~February 28~~August 31 (in millions; amounts in parentheses indicate debits to AOCI):

	Three Months Ended						Nine Months Ended
	2018			2017			2018			2017			2018			2017
Foreign currency translation loss:
Balance at beginning of period	$	(666	)	$	(732	)	$	(685	)	$	(514	)	$	(759	)	$	(685	)
Translation adjustments		100			110			119			(108	)		(162	)		109
Balance at end of period		(566	)		(622	)		(566	)		(622	)		(921	)		(576	)
Retirement plans adjustments:
Balance at beginning of period		232			307			270			345			181			270
Reclassifications from AOCI		(23	)		(19	)		(61	)		(57	)		(23	)		(19	)
Balance at end of period		209			288			209			288			158			251
Accumulated other comprehensive (loss) at end of period	$	(357	)	$	(334	)	$	(357	)	$	(334	)	$	(763	)	$	(325	)

The following table presents details of the reclassifications from AOCI for the three-month periods ended ~~February 28~~August 31 (in millions; amounts in parentheses indicate debits to earnings):

	Amount Reclassified from AOCI												Affected Line Item in the Income Statement
	Three Months Ended						Nine Months Ended							Amount Reclassified from AOCI						Affected Line Item in the Income Statement
	2018			2017			2018			2017				2018			2017
Amortization of retirement plans prior service credits, before tax	$	30		$	31		$	90		$	91		Salaries and employee benefits	$	30		$	30		Salaries and employee benefits
Income tax benefit		(7	)		(12	)		(29	)		(34	)	Provision for income taxes		(7	)		(11	)	Provision for income taxes
AOCI reclassifications, net of tax	$	23		$	19		$	61		$	57		Net income	$	23		$	19		Net income

We have a shelf registration statement filed with the SEC that allows us to sell, in one or more future offerings, any combination of our unsecured debt securities and common stock.

We have a five-year $2.0 billion of senior unsecured debt under our current shelf registration statement, comprised of $500 million of 3.40% fixed-rate notes due in February 2028, and $1 billion of 4.05% fixed-rate notes due in February 2048. Interest on these notes is paid semi-annually. We used the net proceeds for a voluntary incremental contribution in February 2018 to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”).

~~During the quarter, we amended our five-year~~ revolving credit facility ~~to increase the aggregate amount available under the facility from $1.75 billion to $2.0 billion.~~that expires in November 2020. The facility, which ~~expires in November 2020 and~~ includes a $500 million letter of credit sublimit, is available to finance our operations and other cash flow needs. The agreement contains a financial covenant, which requires us to maintain a ratio of debt to consolidated earnings (excluding non-cash ~~pension~~retirement plans mark-to-market adjustments and non-cash asset impairment charges) before interest, taxes, depreciation and amortization (“adjusted EBITDA”) of not more than 3.5 to 1.0, calculated as of the end of the applicable quarter on a rolling four-quarters basis. The ratio of our debt to adjusted EBITDA was ~~2.2~~2.0 to 1.0 at ~~February 28,~~August 31, 2018. We believe this covenant is the 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 this financial 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.

During the ~~third~~first quarter of ~~2018,~~2019, we issued commercial paper ~~which provided~~to provide us with additional short-term liquidity. The maximum amount outstanding during the quarter was ~~$800~~$300 million. Our commercial paper program is backed by unused commitments under the revolving credit facility and borrowings under the program reduce the amount available under the credit facility. As of ~~February 28,~~August 31, 2018, ~~$800~~$300 million of commercial paper and $54 million in letters of credit were outstanding, leaving ~~$1.146~~$1.646 billion available under the revolving credit facility for future borrowings.

Long-term debt, exclusive of capital leases, had carrying values of ~~$16.7~~$16.5 billion at ~~February 28,~~August 31, 2018 and ~~$14.9 billion at~~ May 31, ~~2017,~~2018, compared with estimated fair values of ~~$17.0~~$16.5 billion at ~~February 28,~~August 31, 2018 and ~~$15.5~~$16.6 billion at May 31, ~~2017.~~2018. The annualized

weighted-average interest rate on long-term debt was 3.6% at ~~February 28,~~August 31, 2018. The estimated fair values were determined based on quoted market prices and the current rates offered for debt with similar terms and maturities. The fair value of our long-term debt is classified as Level 2 within the fair value hierarchy. This classification is defined as a fair value determined using market-based inputs other than quoted prices that are observable for the liability, either directly or indirectly.

The calculation of basic and diluted earnings per common share for the three-month periods ended ~~February 28~~August 31 was as follows (in millions, except per share amounts):

	Three Months Ended				Nine Months Ended				Three Months Ended
	2018		2017		2018		2017		2018		2017
Basic earnings per common share:
Net earnings allocable to common shares⁽¹⁾	$	2,071	$	561	$	3,441	$	1,974	$	834	$	595
Weighted-average common shares		268		266		268		266		265		268
Basic earnings per common share	$	7.74	$	2.11	$	12.85	$	7.43	$	3.15	$	2.22
Diluted earnings per common share:
Net earnings allocable to common shares⁽¹⁾	$	2,071	$	561	$	3,441	$	1,974	$	834	$	595
Weighted-average common shares		268		266		268		266		265		268
Dilutive effect of share-based awards		5		5		4		4		4		4
Weighted-average diluted shares		273		271		272		270		269		272
Diluted earnings per common share	$	7.59	$	2.07	$	12.63	$	7.31	$	3.10	$	2.19
Anti-dilutive options excluded from diluted earnings per common share		1.9		4.0		2.6		4.7		3.7		3.2

⁽¹⁾Net earnings available to participating securities were immaterial in all periods presented.

Our effective tax rate was 24.2% for the first quarter of 2019, compared with 39.3% for the first quarter of 2018. The 2019 tax rate was favorably impacted by the TCJA, which resulted in an approximate $135 million benefit primarily from the lower statutory tax rate on first quarter 2019 earnings. The 2018 tax rate was negatively impacted by costs incurred in connection with the integration of the foreign operations of FedEx Express and TNT Express B.V. (“TNT Express”) and the effects of the NotPetya cyberattack on lower taxed foreign earnings, which were partially offset by tax benefits from share-based payments.

On August 1, 2018, the U.S. Treasury Department released proposed regulations covering the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the TCJA. Certain guidance included in these proposed regulations is inconsistent with our interpretation that led to the recognition of a $225 million ($0.94 per diluted share) benefit in 2018 (the “2018 Benefit”). This proposed guidance is not authoritative and is subject to change in the regulatory review process. However, if the proposed guidance is included in the final regulations as drafted, we may be required to reverse the 2018 Benefit in the quarter the regulations become final.

On December 22, 2017, the United States government enacted comprehensive tax legislation through the TCJA. The TCJA significantly changes the U.S. corporate income tax system including, among other things, lowering the statutory federal income tax rate from 35% to 21%, eliminating or reducing certain income tax deductions, and implementing a modified territorial tax system that includes a one-time transition tax on previously deferred foreign earnings. Due toWe are still completing our ~~May 31 fiscal year end, the lower rate will be phased in, resulting in a U.S. statutory federal rate of 29.2% for 2018 and a 21% statutory federal rate for subsequent years.~~

~~In December 2017, the SEC staff issued SAB 118, which provides guidance on~~ accounting for the ~~tax effects of the TCJA. SAB 118 provides for a measurement period of up to one year from the enactment date for companies to complete the accounting for the initial~~ income tax effects of the TCJA. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting is complete and provide a provisional estimate (where determinable) of the income tax effects of the TCJA where the accounting is incomplete. The provisional estimate is required to be updated throughout the measurement period.

As of ~~February 28,~~August 31, 2018, we have not completed our initial accounting of the tax effects of the TCJA; however, where determinable, we have made an estimate of the effects on our existing deferred tax balances and the one-time transition tax. During the quarter, we recognized a provisional benefit of $1.15 billion related to the remeasurement of our net U.S. deferred tax liability and a provisional benefit of $36 million from foreign tax credits exceeding the one-time transition tax on previously deferred foreign earnings.

~~In addition~~there were no changes to the provisional amounts above, we recognized a one-time benefit of $204 million from a $1.5 billion contribution to our U.S. Pension Plans in February 2018 and a benefit of $165 million related to a lower statutory income tax rate on fiscal 2018 year-to-date earnings. recorded at May 31, 2018.

~~The following table provides a reconciliation of the 2017 effective tax rates to the 2018 effective tax rates, including the impact of the TCJA, for the periods ended February 28:~~

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. Key terms of our retirement plans are provided in our Annual Report.

Our retirement plans costs for the three-month periods ended ~~February 28~~August 31 were as follows (in millions):

	Three Months Ended				Nine Months Ended				2018		2017
	2018		2017		2018		2017
Defined benefit pension plans	$	39	$	57	$	113	$	173
Defined benefit pension plans, net									$	28	$	37
Defined contribution plans		135		117		386		348		144		127
Postretirement healthcare plans		19		19		56		57		19		19
	$	193	$	193	$	555	$	578	$	191	$	183

Net periodic benefit cost of the pension and postretirement healthcare plans for the three-month periods ended ~~February 28~~August 31 included the following components (in millions):

	Three Months Ended
	U.S. Pension Plans						International Pension Plans						Postretirement Healthcare Plans				U.S. Pension Plans						International Pension Plans						Postretirement Healthcare Plans
	2018			2017			2018			2017			2018		2017		2018			2017			2018			2017			2018		2017
Service cost	$	169		$	160		$	23		$	20		$	9	$	9	$	172		$	170		$	24		$	23		$	9	$	9
Other retirement plans (income) expense:
Interest cost		279			282			12			11			10		10		238			279			13			12			10		10
Expected return on plan assets		(406	)		(375	)		(10	)		(9	)		—		—		(377	)		(406	)		(12	)		(11	)		—		—
Amortization of prior service credit and other		(29	)		(30	)		1			(2	)		—		—		(29	)		(30	)		(1	)		—			—		—
	$	13		$	37		$	26		$	20		$	19	$	19		(168	)		(157	)		—			1			10		10
																	$	4		$	13		$	24		$	24		$	19	$	19
	Nine Months Ended
	U.S. Pension Plans						International Pension Plans						Postretirement Healthcare Plans
	2018			2017			2018			2017			2018		2017
Service cost	$	509		$	479		$	69		$	61		$	27	$	27
Interest cost		836			846			37			33			29		30
Expected return on plan assets		(1,218	)		(1,126	)		(32	)		(30	)		—		—
Amortization of prior service credit and other		(88	)		(89	)		—			(1	)		—		—
	$	39		$	110		$	74		$	63		$	56	$	57

~~Contributions~~We made voluntary contributions to our tax-qualified U.S. domestic pension plans (“U.S. Pension ~~Plans for~~Plans”) of $250 million during the ~~nine-month periods ended February 28 were as follows (in millions):~~

~~During the third quarter~~first quarters of 2019 and 2018. In September 2018, we made additional voluntary contributions to our U.S. Pension Plans of ~~$1.75 billion.~~$250 million.

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 FedEx Express, including TNT Express, ~~B.V. (“TNT 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.~~Corporation (“FedEx Freight”), a leading U.S. provider of less-than-truckload (“LTL”) freight transportation services. These companies represent our major service lines and, along with FedEx Corporate Services, ~~form the core of~~Inc. (“FedEx Services”), constitute our reportable segments.

As discussed in our Annual Report, in the first quarter of 2018, we began to report TNT Express as part of the FedEx Express segment. Prior year amounts have been revised to conform to the current year presentation.

Effective March 1, 2018, we realigned our specialty logistics and e-commerce solutions in a new organizational structure under FedEx Trade Networks, Inc. in the FedEx Express segment. The realignment allows us to improve our ability to deliver the capabilities of our specialty companies to customers. The new structure includes FedEx Custom Critical, FedEx Cross Border, FedEx Supply Chain, FedEx Trade Networks Transport & Brokerage and, effective June 1, 2018, a new company called FedEx Forward Depots. Prior period segment results will be recast to conform to current year presentation beginning in the fourth quarter of 2018.

The FedEx Services segment operates combined sales, marketing, administrative and ~~information technology~~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 and reported by FedEx Express in their natural expense line items. The FedEx Services segment includes: FedEx Services, which provides sales, marketing, information technology, communications, customer service, technical support, billing and collection services for U.S. customers of our major business units and certain back-office support to our other companies; and FedEx Office and Print Services, Inc. (“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. 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.

Operating expenses for each of our transportation segments include the allocations from the FedEx Services segment to the respective transportation segments. These allocations also include charges and credits for administrative services provided between operating companies. 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. Our allocation methodologies are refined periodically, as necessary, to reflect changes in our businesses.

Corporate and ~~Other~~other includes corporate headquarters costs for executive officers and certain legal and finance functions, as well as certain other costs and credits not attributed to our core business. These costs are not allocated to the other business segments.

Also included in corporate and other is the FedEx Trade Networks, Inc. (“FedEx Trade Networks”) operating segment, which provides customs brokerage and global ocean and air freight forwarding through FedEx Trade Networks Transport & Brokerage, Inc.; cross-border enablement and technology solutions and e-commerce transportation solutions through FedEx Cross Border Technologies, Inc.; integrated supply chain management solutions through FedEx Supply Chain; time-critical shipment services through FedEx Custom Critical, Inc.; and, effective September 1, 2018, critical inventory and service parts logistics, 3-D printing and technology repair through FedEx Forward Depots, Inc.

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.

Corporate and other includes corporate headquarters costs for executive officers and certain legal and financial functions, as well as certain other costs and credits not attributed to our core business. These costs are not allocated to the business segments.

The following table provides a reconciliation of reportable segment revenues and operating income (loss) to our unaudited condensed consolidated financial statement totals for the three-month periods ended ~~February 28~~August 31 (in millions):

	Three Months Ended						Nine Months Ended						2018			2017
	2018			2017			2018			2017
Revenues
Revenues:
FedEx Express segment	$	9,370		$	8,569		$	27,376		$	25,671		$	9,222		$	8,400
FedEx Ground segment		5,222			4,688			14,790			13,397			4,799			4,245
FedEx Freight segment		1,694			1,492			5,208			4,747			1,959			1,664
FedEx Services segment		397			389			1,213			1,198			417			400
Eliminations and other		(157	)		(141	)		(451	)		(422	)
Other and eliminations														655			588
	$	16,526		$	14,997		$	48,136		$	44,591		$	17,052		$	15,297
Operating Income
Operating income (loss):
FedEx Express segment	$	424		$	557		$	1,574		$	1,873		$	367		$	320
FedEx Ground segment		634			515			1,781			1,590			667			606
FedEx Freight segment		55			41			349			264			176			165
Eliminations, corporate and other		(112	)		(88	)		(324	)		(271	)
Corporate, other and eliminations														(139	)		(120	)
	$	1,001		$	1,025		$	3,380		$	3,456		$	1,071		$	971

As of ~~February 28,~~August 31, 2018, our purchase commitments under various contracts for the remainder of 2018 and annually thereafter were as follows (in millions):

	Aircraft and Aircraft-Related		Other⁽¹⁾		Total		Aircraft and Related		Other⁽¹⁾		Total
2018 (remainder)	$	516	$	254	$	770
2019		1,789		725		2,514
2019 (remainder)							$	1,341	$	664	$	2,005
2020		1,931		621		2,552		1,991		786		2,777
2021		1,244		400		1,644		2,315		500		2,815
2022		1,364		251		1,615		1,856		363		2,219
2023								1,561		263		1,824
Thereafter		3,314		508		3,822		2,986		532		3,518
Total	$	10,158	$	2,759	$	12,917	$	12,050	$	3,108	$	15,158

The amounts reflected in the table above for purchase commitments represent noncancelable agreements to purchase goods or services. As of ~~February 28,~~August 31, 2018, our obligation to purchase ~~four~~six Boeing 777 Freighter (“B777F”) aircraft and five Boeing 767-300 Freighter (“B767F”~~) aircraft and three Boeing 777 Freighter (“B777F”~~) aircraft is conditioned upon there being no event that causes FedEx Express or its employees not to be covered by the Railway Labor Act of 1926, as ~~amended.~~amended (“RLA”). Open purchase orders that are cancelable are not considered unconditional purchase obligations for financial reporting purposes and are not included in the table above.

During the quarter, FedEx Express entered into agreements to purchase 12 incremental B777F aircraft and 12 incremental B767F aircraft. Six of the B777F and one of the B767F aircraft purchases are conditioned upon there being no event that causes FedEx Express or its employees not to be covered by the RLA (the RLA condition was removed from three previously ordered B777F aircraft). The B777F aircraft are expected to be delivered between 2021 and 2025. The B767F aircraft are expected to be delivered between 2020 and 2022. As part of these agreements, one B777F and one B767F aircraft delivery were accelerated from 2020 to 2019.

During the quarter, FedEx Express also acquired options to purchase an ~~agreement to accelerate~~additional 14 B777F aircraft, and the delivery dates of ~~two~~11 existing B777F option aircraft were rescheduled. As a result, FedEx Express now has options to purchase a total of 25 B777F aircraft ~~from 2021~~for delivery through 2028. FedEx Express also acquired options to ~~2020, one B777F~~purchase an additional six B767F aircraft. As a result, FedEx Express now has options to purchase a total of 50 B767F aircraft ~~from 2021 to 2019, and one B777F aircraft from 2022 to 2020.~~for delivery through 2026.

WeAs of August 31, 2018, we had ~~$922~~$992 million in deposits and progress payments ~~as of February 28, 2018~~ on aircraft purchases and other planned aircraft-related transactions. These deposits are classified in the “Other assets” caption of our accompanying unaudited condensed consolidated balance sheets. Aircraft and ~~aircraft-related~~related contracts are subject to price escalations. The following table is a summary of the key aircraft we are committed to purchase as of ~~February 28,~~August 31, 2018, with the year of expected delivery:

	Cessna SkyCourier 408		ATR 72-600F		B767F		B777F		Total		Cessna SkyCourier 408		ATR 72-600F		B767F		B777F		Total
2018 (remainder)		-		-		4		1		5
2019		-		-		15		3		18
2019 (remainder)												-		-		11		3		14
2020		-		-		16		6		22		-		-		17		5		22
2021		12		5		10		-		27		12		5		18		2		37
2022		12		6		10		3		31		12		6		12		3		33
2023												12		6		6		4		28
Thereafter		26		19		6		-		51		14		13		-		6		33
Total		50		30		61		13		154		50		30		64		23		167

A summary of future minimum lease payments under noncancelable operating leases with an initial or remaining term in excess of one year at ~~February 28,~~August 31, 2018 is as follows (in millions):

	Aircraft and Related Equipment		Facilities and Other		Total Operating Leases		Aircraft and Related Equipment		Facilities and Other		Total Operating Leases
2018 (remainder)	$	47	$	585	$	632
2019		343		2,065		2,408
2019 (remainder)							$	307	$	1,623	$	1,930
2020		261		1,854		2,115		261		1,961		2,222
2021		203		1,675		1,878		203		1,796		1,999
2022		185		1,510		1,695		185		1,615		1,800
2023								127		1,459		1,586
Thereafter		175		9,018		9,193		48		8,319		8,367
Total	$	1,214	$	16,707	$	17,921	$	1,131	$	16,773	$	17,904

Future minimum lease payments under capital leases were immaterial at ~~February 28,~~August 31, 2018. 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.

Independent Contractor — Lawsuits and Administrative Proceedings. FedEx Ground is involved in lawsuits and administrative proceedings claiming that owner-operators engaged under ~~a contractor model~~operating agreements no longer in ~~use~~place should have been treated as employees of FedEx Ground, rather than independent contractors. In addition, we are defending joint-employer cases where it is alleged that FedEx Ground should be treated as an employer of the drivers employed by owner-operators engaged by FedEx Ground. These cases are in varying stages of litigation, and we are not currently able to estimate an amount or range of potential loss in all of these matters. However, we do not expect to incur, individually or in the aggregate, a material loss in these matters. Nevertheless, adverse determinations in matters related to owner-operators engaged by FedEx Ground could, among other things, entitle certain owner-operators to the reimbursement of certain expenses, and their drivers to the benefit of wage-and-hour laws, and result in employment and withholding tax and benefit liability for FedEx Ground. We continue to believe that owner-operators engaged by FedEx Ground are properly classified as independent contractors and that FedEx Ground is not an employer or joint employer of the drivers ~~employed by~~of these ~~owner-operators.~~independent contractors.

City and State of New York Cigarette Suit. The City of New York and the State of New York filed two related lawsuits against FedEx Ground in December 2013 and November 2014 arising from FedEx Ground’s alleged shipments of cigarettes to New York residents in contravention of several statutes, including the Racketeer Influenced and Corrupt Organizations Act (“RICO”) and New York’s Public Health Law, as well as common law nuisance claims. In April 2016, the two lawsuits were consolidated and will now proceed as one lawsuit. The first-filed lawsuit alleges that FedEx Ground provided delivery services on behalf of four shippers, and the second-filed lawsuit alleges that FedEx Ground provided delivery services on behalf of six additional shippers; none of these shippers continue to ship in our network. Following motions to dismiss filed in both lawsuits, some of the claims were dismissed entirely or limited. In the first-filed lawsuit, the New York Public Health Law and common law nuisance claims were dismissed and the plaintiffs voluntarily dismissed another claim. In the second-filed lawsuit, the common law nuisance claim was dismissed entirely and the New York Public Health Law claim has been limited to claims arising after September 27, 2013, when an amendment to that law provided enforcement authority to the City of New York and State of New York. Other claims, including the RICO claims, remain in both

lawsuits. The consolidated lawsuit is set for jury trial beginning October 9, 2018. The likelihood of loss is reasonably possible, but the amount or range of loss, if any, cannot be estimated at this stage of the litigation. We expect the amount of any loss to be immaterial.

On July 10, 2017, the City of New York and the State of New York filed a third lawsuit against FedEx Ground and included FedEx Freight as a co-defendant. This additional case identifies no shippers or shipments, but generally alleges violations of the same laws that are the subject of the other two lawsuits. The amount or range of loss, if any, cannot be estimated at this stage of the lawsuit.

~~Environmental Matters~~. SEC regulations require disclosure of certain environmental matters when a governmental authority is a party to the proceedings and the proceedings involve potential monetary sanctions that management reasonably believes could exceed $100,000.

On September 9, 2016, FedEx Supply Chain received a written offer from several District Attorneys’ Offices in California to settle a civil action that the District Attorneys intend to file against FedEx Supply Chain for alleged violations of the state’s hazardous waste regulations. Specifically, the District Attorneys’ Offices allege FedEx Supply Chain unlawfully disposed of hazardous waste at one of its California facilities and caused the illegal transportation and disposal of hazardous waste from the retail stores of a FedEx Supply Chain customer at this same facility. The District Attorneys allege these violations began in 2006 and continued until the facility closed in the spring of 2015. In March 2018, we settled this matter for an immaterial amount, and the settlement agreement has been approved by the court. We have been reimbursed by the sellers of GENCO for the amount of the settlement.

Other Matters. During the third quarter of 2017, FedEx Trade Networks informed U.S. Customs and Border Protection (“CBP”) that in connection with certain customs entries it may have made improper claims for (i) reduced-duty treatment and (ii) duty-free treatment. In the fourth quarter of 2017 we established accruals totaling $39.3 million for the then-current estimated probable loss for these matters. In the first quarter of 2018, FedEx Trade Networks tendered payments to CBP in these matters totaling $46.5 million, and an additional expense of $7.2 million was recognized. CBP acknowledged receipt of the amounts tendered in these ~~matters,~~matters.

In May 2018, FedEx Trade Networks was informed that CBP is demanding additional payment for duty loss plus interest in connection with the claims for reduced-duty treatment. In June 2018, we submitted a response to CBP challenging the additional demand, and we are ~~awaiting~~waiting for a reply. We have established an accrual for an immaterial amount in connection with this additional demand. We continue to await a response from CBP indicating whether ~~these matters~~the claims for duty-free treatment are fully resolved.

FedEx and its subsidiaries are subject to other legal proceedings that arise in the ordinary course of business, including certain lawsuits containing various class-action allegations of wage-and-hour violations in which plaintiffs claim, 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. 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.

Cash paid for interest expense and income taxes for the ~~nine-month~~three-month periods ended ~~February 28~~August 31 was as follows (in millions):

	2018			2017			2018			2017
Cash payments for:
Interest (net of capitalized interest)	$	430		$	400		$	203		$	153
Income taxes	$	707		$	294		$	93		$	96
Income tax refunds received		(59	)		(16	)		(3	)		(10	)
Cash tax payments, net	$	648		$	278		$	90		$	86

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 ~~$16.6~~$16.4 billion of our ~~long-term~~public 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):

			Guarantor		Non-guarantor									Guarantor		Non-guarantor
	Parent		Subsidiaries		Subsidiaries		Eliminations			Consolidated		Parent		Subsidiaries		Subsidiaries		Eliminations			Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	957	$	375	$	1,494	$	(37	)	$	2,789	$	938	$	180	$	1,293	$	(42	)	$	2,369
Receivables, less allowances		1		5,308		3,462		(100	)		8,671		41		5,233		3,550		(108	)		8,716
Spare parts, supplies, fuel, prepaid expenses and other, less allowances		920		928		267		—			2,115		285		993		278		—			1,556
Total current assets		1,878		6,611		5,223		(137	)		13,575		1,264		6,406		5,121		(150	)		12,641
PROPERTY AND EQUIPMENT, AT COST		22		50,601		3,754		—			54,377		21		52,339		3,966		—			56,326
Less accumulated depreciation and amortization		18		24,999		1,663		—			26,680		17		25,670		1,860		—			27,547
Net property and equipment		4		25,602		2,091		—			27,697		4		26,669		2,106		—			28,779
INTERCOMPANY RECEIVABLE		1,401		2,508		130		(4,039	)		—		1,385		1,240		—		(2,625	)		—
GOODWILL		—		1,571		5,893		—			7,464		—		1,589		5,280		—			6,869
INVESTMENT IN SUBSIDIARIES		31,295		2,928		—		(34,223	)		—		34,038		4,867		—		(38,905	)		—
OTHER ASSETS		2,706		1,566		1,268		(2,425	)		3,115		241		1,591		1,780		—			3,612
	$	37,284	$	40,786	$	14,605	$	(40,824	)	$	51,851	$	36,932	$	42,362	$	14,287	$	(41,680	)	$	51,901
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Short-term borrowings	$	799	$	—	$	—	$	—		$	799	$	299	$	—	$	—	$	—		$	299
Current portion of long-term debt		750		6		8		—			764		1,332		65		7		—			1,404
Accrued salaries and employee benefits		69		1,362		514		—			1,945		43		1,102		541		—			1,686
Accounts payable		149		1,483		1,607		(137	)		3,102		187		1,252		1,778		(151	)		3,066
Accrued expenses		379		1,605		909		—			2,893		466		1,786		899		—			3,151
Total current liabilities		2,146		4,456		3,038		(137	)		9,503		2,327		4,205		3,225		(151	)		9,606
LONG-TERM DEBT, LESS CURRENT PORTION		15,713		288		16		—			16,017		14,942		288		11		—			15,241
INTERCOMPANY PAYABLE		—		—		4,039		(4,039	)		—		—		—		2,624		(2,624	)		—
OTHER LONG-TERM LIABILITIES
Deferred income taxes		—		4,285		541		(2,425	)		2,401		101		2,730		117		—			2,948
Other liabilities		531		3,605		900		—			5,036		389		3,613		931		—			4,933
Total other long-term liabilities		531		7,890		1,441		(2,425	)		7,437		490		6,343		1,048		—			7,881
STOCKHOLDERS’ INVESTMENT		18,894		28,152		6,071		(34,223	)		18,894		19,173		31,526		7,379		(38,905	)		19,173
	$	37,284	$	40,786	$	14,605	$	(40,824	)	$	51,851	$	36,932	$	42,362	$	14,287	$	(41,680	)	$	51,901

			Guarantor		Non-guarantor									Guarantor		Non-guarantor
	Parent		Subsidiaries		Subsidiaries		Eliminations			Consolidated		Parent		Subsidiaries		Subsidiaries		Eliminations			Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,884	$	325	$	1,807	$	(47	)	$	3,969	$	1,485	$	257	$	1,538	$	(15	)	$	3,265
Receivables, less allowances		3		4,729		2,928		(61	)		7,599		3		4,970		3,586		(78	)		8,481
Spare parts, supplies, fuel, prepaid expenses and other, less allowances		25		787		248		—			1,060		425		878		292		—			1,595
Total current assets		1,912		5,841		4,983		(108	)		12,628		1,913		6,105		5,416		(93	)		13,341
PROPERTY AND EQUIPMENT, AT COST		22		47,201		3,403		—			50,626		21		51,232		3,868		—			55,121
Less accumulated depreciation and amortization		18		23,211		1,416		—			24,645		17		25,111		1,839		—			26,967
Net property and equipment		4		23,990		1,987		—			25,981		4		26,121		2,029		—			28,154
INTERCOMPANY RECEIVABLE		1,521		2,607		—		(4,128	)		—		1,487		924		—		(2,411	)		—
GOODWILL		—		1,571		5,583		—			7,154		—		1,709		5,264		—			6,973
INVESTMENT IN SUBSIDIARIES		27,712		2,636		—		(30,348	)		—		33,370		4,082		—		(37,452	)		—
OTHER ASSETS		3,494		1,271		1,249		(3,225	)		2,789		75		1,854		1,829		104			3,862
	$	34,643	$	37,916	$	13,802	$	(37,809	)	$	48,552	$	36,849	$	40,795	$	14,538	$	(39,852	)	$	52,330
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Current portion of long-term debt	$	—	$	9	$	13	$	—		$	22	$	1,332	$	1	$	9	$	—		$	1,342
Accrued salaries and employee benefits		72		1,335		507		—			1,914		65		1,506		606		—			2,177
Accounts payable		10		1,411		1,439		(108	)		2,752		16		1,332		1,719		(90	)		2,977
Accrued expenses		991		1,522		717		—			3,230		460		1,778		896		(3	)		3,131
Total current liabilities		1,073		4,277		2,676		(108	)		7,918		1,873		4,617		3,230		(93	)		9,627
LONG-TERM DEBT, LESS CURRENT PORTION		14,641		244		24		—			14,909		14,942		288		13		—			15,243
INTERCOMPANY PAYABLE		—		—		4,128		(4,128	)		—		—		—		2,411		(2,411	)		—
OTHER LONG-TERM LIABILITIES
Deferred income taxes		—		5,472		238		(3,225	)		2,485		—		2,626		137		104			2,867
Other liabilities		2,856		3,448		863		—			7,167		619		3,432		1,126		—			5,177
Total other long-term liabilities		2,856		8,920		1,101		(3,225	)		9,652		619		6,058		1,263		104			8,044
STOCKHOLDERS’ INVESTMENT		16,073		24,475		5,873		(30,348	)		16,073		19,415		29,832		7,621		(37,452	)		19,416
	$	34,643	$	37,916	$	13,802	$	(37,809	)	$	48,552	$	36,849	$	40,795	$	14,538	$	(39,852	)	$	52,330

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated			Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
REVENUES	$	—		$	12,433		$	4,229		$	(136	)	$	16,526		$	—		$	12,367		$	4,787		$	(102	)	$	17,052
OPERATING EXPENSES:
Salaries and employee benefits		39			4,623			1,319			—			5,981			48			4,783			1,429			—			6,260
Purchased transportation		—			2,459			1,560			(84	)		3,935			—			2,380			1,634			(47	)		3,967
Rentals and landing fees		2			684			189			(2	)		873			1			631			192			(1	)		823
Depreciation and amortization		1			670			115			—			786			—			693			115			—			808
Fuel		—			837			77			—			914			—			902			84			—			986
Maintenance and repairs		1			543			84			—			628			—			646			89			—			735
Intercompany charges, net		(114	)		185			(71	)		—			—			(111	)		(226	)		337			—			—
Other		71			1,596			791			(50	)		2,408			62			1,546			848			(54	)		2,402
		—			11,597			4,064			(136	)		15,525			—			11,355			4,728			(102	)		15,981
OPERATING INCOME		—			836			165			—			1,001			—			1,012			59			—			1,071
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries		2,074			2			—			(2,076	)		—			835			81			—			(916	)		—
Interest, net		(137	)		11			1			—			(125	)		(158	)		59			(13	)		—			(112	)
Other retirement plans income																	—			193			13			(48	)		158
Intercompany charges, net		140			(78	)		(62	)		—			—			143			(154	)		(21	)		32			—
Other, net		(3	)		104			(103	)		—			(2	)		(3	)		327			(340	)		—			(16	)
INCOME BEFORE INCOME TAXES		2,074			875			1			(2,076	)		874			817			1,518			(302	)		(932	)		1,101
Provision for income taxes		—			(1,197	)		(3	)		—			(1,200	)		—			215			51			—			266
NET INCOME	$	2,074		$	2,072		$	4		$	(2,076	)	$	2,074		$	817		$	1,303		$	(353	)	$	(932	)	$	835
COMPREHENSIVE INCOME	$	2,051		$	2,069		$	107		$	(2,076	)	$	2,151		$	800		$	1,401		$	(618	)	$	(933	)	$	650

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated			Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
REVENUES	$	—		$	11,275		$	3,794		$	(72	)	$	14,997		$	—		$	11,567		$	3,854		$	(124	)	$	15,297
OPERATING EXPENSES:
Salaries and employee benefits		29			4,210			1,156			—			5,395			38			4,368			1,258			—			5,664
Purchased transportation		—			2,219			1,306			(27	)		3,498			—			2,063			1,464			(82	)		3,445
Rentals and landing fees		1			657			177			(1	)		834			1			627			191			(1	)		818
Depreciation and amortization		1			649			112			—			762			—			639			112			—			751
Fuel		—			657			78			—			735			—			637			66			—			703
Maintenance and repairs		1			514			73			—			588			—			602			73			—			675
Intercompany charges, net		(87	)		(33	)		120			—			—			(116	)		114			2			—			—
Other		55			1,428			721			(44	)		2,160			77			1,476			758			(41	)		2,270
		—			10,301			3,743			(72	)		13,972			—			10,526			3,924			(124	)		14,326
OPERATING INCOME		—			974			51			—			1,025			—			1,041			(70	)		—			971
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries		562			(41	)		—			(521	)		—			596			(3	)		—			(593	)		—
Interest, net		(129	)		6			1			—			(122	)		(129	)		13			2			—			(114	)
Other retirement plans income																	—			141			5			—			146
Intercompany charges, net		130			(79	)		(51	)		—			—			131			(70	)		(61	)		—			—
Other, net		(1	)		(118	)		115			—			(4	)		(2	)		(8	)		(11	)		—			(21	)
INCOME BEFORE INCOME TAXES		562			742			116			(521	)		899			596			1,114			(135	)		(593	)		982
Provision for income taxes		—			280			57			—			337			—			399			(13	)		—			386
NET INCOME	$	562		$	462		$	59		$	(521	)	$	562		$	596		$	715		$	(122	)	$	(593	)	$	596
COMPREHENSIVE INCOME	$	543		$	444		$	187		$	(521	)	$	653		$	578		$	719		$	(18	)	$	(593	)	$	686

Parent

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations

Consolidated

REVENUES

$
—

$
36,044

$
12,445

$
(353
)

$
48,136

OPERATING EXPENSES:

Salaries and employee benefits

112

13,289

3,840

—

17,241

Purchased transportation

—

6,836

4,600

(216
)

11,220

Rentals and landing fees

4

1,951

577

(6
)

2,526

Depreciation and amortization

1

1,958

334

—

2,293

Fuel

—

2,220

215

—

2,435

Maintenance and repairs

1

1,729

238

—

1,968

Intercompany charges, net

(325
)

298

27

—

—

Other

207

4,664

2,333

(131
)

7,073

—

32,945

12,164

(353
)

44,756

OPERATING INCOME

—

3,099

281

—

3,380

OTHER INCOME (EXPENSE):

Equity in earnings of subsidiaries

3,445

39

—

(3,484
)

—

Interest, net

(396
)

35

(2
)

—

(363
)
Intercompany charges, net

403

(220
)

(183
)

—

—

Other, net

(7
)

88

(103
)

—

(22
)
INCOME BEFORE INCOME TAXES

3,445

3,041

(7
)

(3,484
)

2,995

Provision for income taxes

—

(573
)

123

—

(450
)
NET INCOME

$
3,445

$
3,614

$
(130
)

$
(3,484
)

$
3,445

COMPREHENSIVE INCOME

$
3,385

$
3,605

$
(3
)

$
(3,484
)

$
3,503

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	785		$	(159	)	$	102		$	(27	)	$	701
INVESTING ACTIVITIES
Capital expenditures		—			(983	)		(196	)		—			(1,179	)
Proceeds from asset dispositions and other		(5	)		78			5			—			78
CASH USED IN INVESTING ACTIVITIES		(5	)		(905	)		(191	)		—			(1,101	)
FINANCING ACTIVITIES
Proceeds from short-term borrowings		299			—			—			—			299
Net transfers from (to) Parent		(853	)		763			90			—			—
Payment on loan between subsidiaries		—			—			—			—			—
Intercompany dividends		—			81			(81	)		—			—
Principal payments on debt		—			—			(2	)		—			(2	)
Proceeds from stock issuances		25			—			—			—			25
Dividends paid		(173	)		—			—			—			(173	)
Purchase of treasury stock		(625	)		—			—			—			(625	)
Other, net		—			148			(144	)		—			4
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(1,327	)		992			(137	)		—			(472	)
Effect of exchange rate changes on cash		—			(5	)		(19	)		—			(24	)
Net (decrease) increase in cash and cash equivalents		(547	)		(77	)		(245	)		(27	)		(896	)
Cash and cash equivalents at beginning of period		1,485			257			1,538			(15	)		3,265
Cash and cash equivalents at end of period	$	938		$	180		$	1,293		$	(42	)	$	2,369

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

Parent

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations

Consolidated

CASH PROVIDED BY (USED IN) OPERATING
   ACTIVITIES

$
(3,537
)

$
4,664

$
25

$
10

$
1,162

INVESTING ACTIVITIES

Capital expenditures

—

(3,746
)

(248
)

—

(3,994
)
Business acquisitions, net of cash acquired

—

(44
)

—

—

(44
)
Proceeds from asset dispositions and other

(5
)

23

3

—

21

CASH USED IN INVESTING
   ACTIVITIES

(5
)

(3,767
)

(245
)

—

(4,017
)
FINANCING ACTIVITIES

Proceeds from short-term borrowings, net

797

—

—

—

797

Net transfers from (to) Parent

807

(895
)

88

—

—

Payment on loan between subsidiaries

210

—

(210
)

—

—

Proceeds from debt issuances

1,481

—

—

—

1,481

Principal payments on debt

—

(17
)

(14
)

—

(31
)
Proceeds from stock issuances

284

—

—

—

284

Dividends paid

(402
)

—

—

—

(402
)
Purchase of treasury stock

(558
)

—

—

—

(558
)
Other, net

2

4

—

—

6

CASH (USED IN) PROVIDED BY FINANCING
   ACTIVITIES

2,621

(908
)

(136
)

—

1,577

Effect of exchange rate changes on cash

(6
)

61

43

—

98

Net (decrease) increase in cash and cash equivalents

(927
)

50

(313
)

10

(1,180
)
Cash and cash equivalents at beginning of period

1,884

325

1,807

(47
)

3,969

Cash and cash equivalents at end of period

$
957

$
375

$
1,494

$
(37
)

$
2,789

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated			Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	(1,497	)	$	3,615		$	529		$	(2	)	$	2,645		$	(878	)	$	1,717		$	(256	)	$	7		$	590
INVESTING ACTIVITIES
Capital expenditures		—			(3,456	)		(334	)		—			(3,790	)		—			(985	)		(59	)		—			(1,044	)
Proceeds from asset dispositions and other		85			16			22			—			123			—			6			—			—			6
CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES		85			(3,440	)		(312	)		—			(3,667	)		—			(979	)		(59	)		—			(1,038	)
FINANCING ACTIVITIES
Net transfers from (to) Parent		117			(148	)		31			—			—			744			(735	)		(9	)		—			—
Payment on loan between subsidiaries		36			(15	)		(21	)		—			—
Intercompany dividends		—			1			(1	)		—			—
Principal payments on debt		—			(33	)		(16	)		—			(49	)		—			(8	)		(4	)		—			(12	)
Proceeds from debt issuances		1,190			—			—			—			1,190
Proceeds from stock issuances		265			—			—			—			265			150			—			—			—			150
Dividends paid		(319	)		—			—			—			(319	)		(134	)		—			—			—			(134	)
Purchase of treasury stock		(358	)		—			—			—			(358	)		(86	)		—			—			—			(86	)
Other, net		(8	)		(12	)		22			—			2			3			—			(9	)		—			(6	)
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		923			(207	)		15			—			731			677			(743	)		(22	)		—			(88	)
Effect of exchange rate changes on cash		(10	)		7			(67	)		—			(70	)		(2	)		23			49			—			70
Net (decrease) increase in cash and cash equivalents		(499	)		(25	)		165			(2	)		(361	)		(203	)		18			(288	)		7			(466	)
Cash and cash equivalents at beginning of period		1,974			326			1,277			(43	)		3,534			1,884			325			1,807			(47	)		3,969
Cash and cash equivalents at end of period	$	1,475		$	301		$	1,442		$	(45	)	$	3,173		$	1,681		$	343		$	1,519		$	(40	)	$	3,503

We have reviewed the accompanying condensed consolidated balance sheet of FedEx Corporation as of ~~February 28,~~August 31, 2018, and the related condensed consolidated statements of income, ~~and~~ comprehensive income ~~for the three-month~~ and ~~nine-month periods ended February 28, 2018 and February 28, 2017 and the condensed consolidated statements of~~ cash flows for the ~~nine-month~~three-month periods ended ~~February 28,~~August 31, 2018 and ~~February 28, 2017. These~~August 31, 2017, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements ~~are the responsibility of the Company’s management.~~for them to be in conformity with U.S. generally accepted accounting principles.

We ~~conducted our review~~have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the consolidated balance sheet of FedEx Corporation as of May 31, 2018, and the related consolidated statements of income, comprehensive income, changes in stockholders’ investment, and cash flows for the year then ended, and the related notes and schedules (not presented herein); and in our report dated July 16, 2018, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of May 31, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

These financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial ~~information~~statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States),~~PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

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

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of FedEx Corporation as of May 31, 2017, and the related consolidated statements of income, comprehensive income, changes in stockholders’ investment, and cash flows for the year then ended (not presented herein) and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated July 17, 2017. In our opinion, the accompanying condensed consolidated balance sheet of FedEx Corporation as of May 31, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

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

The following Management’s Discussion and Analysis of Results of Operations and Financial Condition (“MD&A”) describes the principal factors affecting the results of operations, liquidity, capital resources, contractual cash obligations and critical accounting estimates of FedEx Corporation (“FedEx”). This discussion should be read in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements and our Annual Report on Form 10-K for the year ended May 31, ~~2017~~2018 (“Annual Report”). Our Annual Report includes additional information about our significant accounting policies, practices and the transactions that underlie our financial results, as well as a detailed discussion of the most significant risks and uncertainties associated with our financial condition and operating results.

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”), including TNT Express B.V. (“TNT 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.~~Corporation (“FedEx Freight”), a leading U.S. provider of less-than-truckload (“LTL”) freight transportation services. These companies represent our major service lines and, along with FedEx Corporate Services, Inc. (“FedEx Services”), ~~form the core of~~constitute our reportable segments.

As noted in our Annual Report, beginning in the first quarter of 2018, we began to report TNT Express as part of the FedEx Express segment. Prior year amounts have been revised to conform to the current year presentation. See Note 7 of the accompanying unaudited condensed consolidated financial statements for further discussion.

Our FedEx Services segment provides sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and certain back-office ~~support~~ functions that support our transportation segments. ~~In addition, the~~The FedEx Services segment also provides customers with retail access to FedEx Express and FedEx Ground shipping services through FedEx Office and Print Services, Inc. (“FedEx Office”). See “Reportable Segments” for further discussion. Additional information on our businesses can ~~also~~ be found in our Annual Report.

As discussed in our Annual Report, the FedEx Trade Networks, Inc. (“FedEx Trade Networks”) operating segment results are included in “Corporate, other and eliminations” in our segment reporting. Prior year amounts have been revised to conform to the current year presentation.

~~The majority~~Many 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~~changes 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.~~volumes. The line item “Other operating expenses” predominantly includes costs associated with outside service contracts (such as facility services and cargo handling, temporary labor and security), ~~insurance,~~ professional fees, insurance, taxes and licenses and uniforms.

Except as otherwise specified, references to years indicate our fiscal year ending May 31, ~~2018~~2019 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year. References to our transportation segments include, collectively, the FedEx Express segment, the FedEx Ground segment and the FedEx Freight segment.

The following tables compare summary operating results and changes in revenue and operating income (dollars in millions, except per share amounts) for the periods ended ~~February 28:~~August 31:

	Three Months Ended						Percent				Nine Months Ended						Percent				Three Months Ended						Percent
	2018			2017			Change				2018			2017			Change				2018			2017			Change
Revenues	$	16,526		$	14,997			10			$	48,136		$	44,591			8			$	17,052		$	15,297			11
Operating income:
Operating income (loss):
FedEx Express segment		424			557			(24	)			1,574			1,873			(16	)			367			320			15
FedEx Ground segment		634			515			23				1,781			1,590			12				667			606			10
FedEx Freight segment		55			41			34				349			264			32				176			165			7
Eliminations, corporate and other		(112	)		(88	)		(27	)			(324	)		(271	)		(20	)
Corporate, other and eliminations																						(139	)		(120	)		(16	)
Consolidated operating income		1,001			1,025			(2	)			3,380			3,456			(2	)			1,071			971			10
Operating margin:
FedEx Express segment		4.5	%		6.5	%		(200	)	bp		5.7	%		7.3	%		(160	)	bp	��	4.0	%		3.8	%		20		bp
FedEx Ground segment		12.1	%		11.0	%		110		bp		12.0	%		11.9	%		10		bp		13.9	%		14.3	%		(40	)	bp
FedEx Freight segment		3.2	%		2.7	%		50		bp		6.7	%		5.6	%		110		bp		9.0	%		9.9	%		(90	)	bp
Consolidated operating margin		6.1	%		6.8	%		(70	)	bp		7.0	%		7.8	%		(80	)	bp		6.3	%		6.3	%		—		bp
Consolidated net income	$	2,074		$	562			269			$	3,445		$	1,977			74			$	835		$	596			40
Diluted earnings per share	$	7.59		$	2.07			267			$	12.63		$	7.31			73			$	3.10		$	2.19			42

	Change in Revenue						Change in Operating Income						Year-over-Year Changes
	Three Months Ended			Nine Months Ended			Three Months Ended			Nine Months Ended			Revenue		Operating Income (Loss)
FedEx Express segment	$	801		$	1,705		$	(133	)	$	(299	)	$	822	$	47
FedEx Ground segment		534			1,393			119			191			554		61
FedEx Freight segment		202			461			14			85			295		11
FedEx Services segment		8			15			—			—			17		—
Eliminations, corporate and other		(16	)		(29	)		(24	)		(53	)
Corporate, other and eliminations														67		(19	)
	$	1,529		$	3,545		$	(24	)	$	(76	)	$	1,755	$	100

As of June 1, 2018, we adopted new accounting guidance that changes how employers that sponsor defined benefit pension or other postretirement benefit plans present net periodic benefit cost in their income statement. This new guidance requires us to report only the service cost component in the salaries and employee benefits line item. The other components of net benefit cost are required to be presented in the income statement in other income, outside of income from operations. This new guidance impacts operating income and margin but has no impact on net income or earnings per share. We have applied these changes retrospectively.

The comparison of our first quarter results between 2019 and 2018 is significantly affected by the direct and indirect effects at FedEx Express of the NotPetya cyberattack in June 2017. Our ~~operating income declined slightly~~first quarter 2018 results were negatively impacted by an estimated $300 million ($0.79 per diluted share) due to the NotPetya cyberattack, primarily from loss of revenue associated with decreased shipments in the ~~third~~TNT Express network, as well as incremental costs to restore information-technology systems. Additional information on the NotPeyta cyberattack can be found in our Annual Report.

In addition to the direct effects of reduced revenue and increased expenses, the NotPetya cyberattack impacted the amount and timing of variable compensation recognized in 2018. During the first quarter of 2018, ~~primarily due to significantly higher~~we recognized substantially lower expense for our annual incentive compensation programs and reduced accruals ~~(described below)~~for our long-term cash incentive program. As results improved and we recovered from the NotPetya cyberattack later in the fiscal year, these accruals were increased to more normalized attainment levels. Conversely, we recognized full variable compensation accruals during the first quarter of 2019. In addition, we accelerated the timing of our merit pay increases for certain of our hourly employees during late 2018 following the enactment of the Tax Cuts and Jobs Act (“TCJA”), ~~higher peak-related costs at FedEx Express, increased TNT Express integration expenses~~ahead of the normal October 2018 timing. Therefore, the first quarter of 2019 includes the full impact of the merit increase that would typically not be incurred until the second quarter. The aggregate impact of these expense timing differences negatively affected the year-over-year comparison of first quarter 2019 results by approximately $170 million ($130 million, net of tax, or $0.48 per diluted share).

Volume growth and ~~the negative impacts of inclement winter weather at FedEx Express. These factors were partially offset by~~ increased yields ~~and~~at all of our transportation segments also contributed to an increase in operating income in the first quarter of 2019. In addition, the favorable net impact of fuel at all of our transportation segments positively impacted our first quarter results. These factors were partially offset by higher purchased transportation expenses and ~~volume growth at FedEx Ground~~higher salaries and ~~FedEx Freight. The NotPetya cyberattack (described below) also drove lower results~~employee benefits expense (discussed above) in the ~~nine months~~first quarter of ~~2018.~~2019.

~~Net~~During the first quarter of 2019, we recognized an income ~~for the third quarter and nine months of 2018 was positively impacted by a provisional~~tax benefit of ~~$1.15 billion~~approximately $135 million ($~~4.21~~0.50 per diluted share) attributable to the enactment of the Tax Cuts and Jobs Act (“TCJA”), specifically related to the remeasurement of our net U.S. deferred tax liability. In addition, we recognized a one-time benefit of $204 million ($0.75 per diluted share) from a $1.5 billion contribution to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”) in February 2018 and a benefit of $165 million ($0.60 per diluted share)primarily related to a lower statutory income tax rate on ~~fiscal 2018 year- to-date earnings.~~first quarter 2019 earnings as a result of the enactment of the TCJA. See the “Income Taxes” section below for further information.

During the third quarter of 2018 we announced more than $3.2 billion in wage increases, bonuses, pension funding and expanded U.S. capital investment following the passage of the TCJA. In connection with this, during the third quarter of 2018 we made a pension funding contribution (noted above) and funded increases in performance-based incentive compensation plans. The incentive compensation adjustments made in the third quarter of 2018 include the year-to-date impact of the announced changes. Expenses related to wage increases will start to be recognized during the fourth quarter of 2018.

We incurred TNT Express integration expenses totaling ~~an aggregate of $106~~$121 million ($9298 million, net of tax, or ~~$0.34~~$0.36 per diluted share) in the ~~third~~first quarter of ~~2018,~~2019, a ~~$28~~$9 million increase from the ~~third~~first quarter of ~~2017. TNT Express integration expenses were an aggregate $341 million ($265 million, net of tax, or $0.97 per diluted share) in the nine months of 2018, a $137 million increase from~~

~~the nine months of 2017.~~2018. The integration expenses are predominantly incremental costs directly associated with the integration of TNT Express, including salaries and wages, professional and legal fees, ~~salaries and wages,~~ advertising expenses and travel, and include any restructuring charges at TNT Express. Internal salaries and wages are included only to the extent the individuals are assigned ~~full time~~full-time to integration activities. These costs were incurred at FedEx Express and FedEx ~~Corporation.~~Corporate. The identification of these costs as integration-related expenditures is subject to our disclosure controls and procedures.

As previously announced, on June 27, 2017, the worldwide operations of TNT Express were significantly affected by the cyberattack known as NotPetya. Immediately following the attack, contingency plans were implemented to recover TNT Express operations and communications systems, and substantially all TNT Express services were fully restored during the first quarter of 2018. As of the second quarter of 2018, all of TNT Express’s critical operational systems were fully restored, critical business data was recovered and shipping services and solutions were back in place.

Our results for the first half of 2018 were negatively impacted by the NotPetya cyberattack by an estimated $400 million ($1.14 per diluted share for the nine months of 2018), primarily from loss of revenue due to decreased shipments in the TNT Express network, as well as incremental costs to restore information technology systems. In addition, we continued to experience lingering revenue impacts from the NotPetya cyberattack in the third quarter of 2018 in the form of lower volumes at TNT Express.

The following graphs for FedEx Express, FedEx Ground and FedEx Freight show selected volume trends (in thousands) over the five most recent quarters:

The following graphs for FedEx Express, FedEx Ground and FedEx Freight show selected yield trends over the five most recent quarters:

Revenues increased ~~10%~~11% in the ~~third~~first quarter ~~and 8% in the nine months~~ of ~~2018~~2019 due to improved performance at all of our transportation segments. Revenues at FedEx Express increased 9%10% in the ~~third~~first quarter ~~and 7% in the nine months~~ of ~~2018~~2019 primarily due to ~~improved base yields~~international package and ~~favorable exchange rates, despite impacts~~freight volume recovery from the NotPetya cyberattack, ~~discussed above.~~higher freight pounds and U.S. domestic package volume and yield growth. At FedEx Ground, revenues increased ~~11%~~13% in the ~~third~~first quarter ~~and 10% in the nine months~~ of ~~2018~~2019 due to volume growth and increased yields. FedEx Freight revenues increased ~~14%~~18% in the ~~third~~first quarter ~~and 10% in the nine months~~ of ~~2018~~2019 primarily due to higher ~~LTL~~ revenue per shipment and average daily ~~LTL~~ shipments. Higher fuel surcharges had a positive impact on revenues at all of our transportation segments in the ~~third~~first quarter ~~and nine months~~ of ~~2018.~~2019.

The following tables compare operating expenses expressed as dollar amounts (in millions) and as a percent of revenue for the three- month periods ended ~~February 28:~~August 31:

	Percent of Revenue
	Three Months Ended						Nine Months Ended										Percent of Revenue
	2018			2017			2018			2017			2018		2017		2018			2017
Operating expenses:
Salaries and employee benefits		36.2	%		36.0	%		35.8	%		36.0	%	$	6,260	$	5,664		36.7	%		37.1	%
Purchased transportation		23.8			23.3			23.3			22.8			3,967		3,445		23.3			22.5
Rentals and landing fees		5.3			5.6			5.2			5.4			823		818		4.8			5.4
Depreciation and amortization		4.7			5.1			4.8			5.0			808		751		4.7			4.9
Fuel		5.5			4.9			5.1			4.6			986		703		5.8			4.6
Maintenance and repairs		3.8			3.9			4.1			4.0			735		675		4.3			4.4
Other		14.6			14.4			14.7			14.4			2,402		2,270		14.1			14.8
Total operating expenses		93.9			93.2			93.0			92.2		$	15,981	$	14,326		93.7			93.7
Operating margin		6.1	%		6.8	%		7.0	%		7.8	%
Operating income													$	1,071	$	971		6.3	%		6.3	%

Operating margin ~~declined~~remained flat in the ~~third~~first quarter of ~~2018~~2019 primarily ~~as a result of significantly higher incentive compensation accruals, higher peak-related costs at FedEx Express,~~due to the ~~negative impacts of inclement winter weather at FedEx Express and~~ increased ~~TNT Express integration expenses. The impacts of~~revenue related to the recovery from the NotPetya cyberattack, ~~discussed above also drove the~~offset by increased operating ~~margin decline in the nine months of 2018.~~expenses across all transportation segments.

Salaries and employee benefits expense increased 11% in the ~~third~~first quarter ~~and 7% in the nine months~~ of ~~2018~~2019 primarily due to ~~merit~~the timing of advanced annual pay increases for certain hourly team members following the passage of the TCJA, higher staffing to support volume growth and ~~significantly~~ higher ~~incentive~~variable compensation ~~accruals~~ at all of our transportation ~~segments, unfavorable exchange rates at FedEx Express and higher staffing at FedEx Ground and FedEx Freight.~~segments. Purchased transportation costs increased ~~12%~~15% in the ~~third~~first quarter ~~and 10% in the nine months~~ of ~~2018~~2019 primarily due to higher volumes at all of our transportation segments, unfavorable exchange rates at FedEx Express and increased rates and higher fuel expenses at FedEx Ground. Other expenses increased 11% in the third quarter of 2018 primarily due to unfavorable exchange rates, increased outside service contracts at FedEx Express and TNT Express integration expenses. Other expenses increased 10% in the nine months of 2018 due to these same factors as well as higher ~~self-insurance reserves~~fuel surcharges and increased rates at FedEx ~~Ground. Maintenance~~Ground and ~~repairs expense increased 12% in the nine months of 2018 primarily due to the timing of aircraft engine maintenance events at~~ FedEx ~~Express.~~Freight.

The following graph for our transportation segments shows our average cost of jet and vehicle fuel per gallon for the five most recent quarters:

Fuel expense increased ~~24%~~40% in the ~~third~~first quarter ~~and 19% in the nine months~~ of ~~2018~~2019 primarily due to increased fuel prices. ~~Fuel~~However, fuel prices represent only one component of the ~~two~~ factors we consider meaningful in understanding the impact of fuel on our business. Consideration must also be given to the fuel surcharge revenue we collect. Accordingly, we believe discussion of the net impact of fuel on our results, which is a comparison of the year-over-year change in these two factors, is important to understand the impact of fuel on our business. In order to provide information about the impact of fuel surcharges on the trend in revenue and yield growth, we have included the comparative weighted-average fuel surcharge percentages in effect for the ~~third quarter~~first quarters of ~~2018~~2019 and ~~2017~~2018 in the accompanying ~~discussions~~discussion of each of our transportation segments.

Our fuel surcharges are adjusted on a weekly basis. The fuel surcharge is based on a weekly fuel price from two weeks prior to the week in which it is assessed. ~~The index used to determine the fuel surcharge percentage for our FedEx Freight business continues to adjust weekly.~~ Some FedEx Express international fuel surcharges continue to incorporate a timing lag of approximately six to eight weeks.

Prior to February 6, 2017, our fuel surcharges for the FedEx Express and FedEx Ground businesses incorporated a timing lag of approximately six to eight weeks before they were adjusted for changes in fuel prices. For example, the fuel surcharge index in effect at FedEx Express in January 2017 was set based on November 2016 fuel prices.

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

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

We routinely review our fuel surcharges and our fuel surcharge methodology. On September 10, 2018, we updated the tables used to determine our fuel surcharges at FedEx Express and FedEx Ground.

The net impact of fuel had a significant benefit to operating income in the ~~third~~first quarter ~~and nine months~~ of ~~2018~~2019 as higher fuel surcharges more than offset increased fuel prices.

The net impact of fuel on our operating results does not consider the effects that fuel surcharge levels may have on our business, including changes in demand and shifts in the mix of services purchased by our customers. While fluctuations in fuel surcharge percentages can be significant from period to period, fuel surcharges represent one of the many individual components of our pricing structure that impact our overall revenue and yield. Additional components include the mix of services sold, the base price and extra service charges we obtain for these services and the level of pricing discounts offered.

Our effective tax rate was 24.2% for the first quarter of 2019, compared with 39.3% for the first quarter of 2018. The 2019 tax rate was favorably impacted by the TCJA, which resulted in an approximate $135 million benefit primarily from the lower statutory tax rate on first quarter 2019 earnings. The 2018 tax rate was negatively impacted by costs incurred in connection with the integration of the foreign operations of FedEx Express and TNT Express and the effects of the NotPetya cyberattack on lower taxed foreign earnings, which were partially offset by tax benefits from share-based payments.

On ~~December 22, 2017, the United States government enacted comprehensive tax legislation through the TCJA. The TCJA significantly changes~~August 1, 2018, the U.S. ~~corporate income tax system including, among other things, lowering~~Treasury Department released proposed regulations covering the ~~statutory federal income tax rate from 35% to 21%, eliminating or reducing certain income tax deductions, and implementing a modified territorial tax system that includes a~~ one-time transition tax on ~~previously deferred~~unrepatriated foreign ~~earnings. Due~~earnings, which was enacted as part of the TCJA. Certain guidance included in these proposed regulations is inconsistent with our interpretation that led to ~~our May 31 fiscal year end,~~ the ~~lower rate will~~recognition of a $225 million ($0.94 per diluted share) benefit in 2018 (the “2018 Benefit”). This proposed guidance is not authoritative and is subject to change in the regulatory review process. However, if the proposed guidance is included in the final regulations as drafted, we may be ~~phased~~required to reverse the 2018 Benefit in ~~resulting in a U.S. statutory federal rate of 29.2% for 2018 and a 21% statutory federal rate for subsequent years.~~the quarter the regulations become final.

~~In December 2017, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on~~We are still completing our accounting for the ~~tax effects of the TCJA. SAB 118 provides for a measurement period of up to one year from the enactment date for companies to complete the accounting for the initial~~ income tax effects of the TCJA. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting is complete and provide a provisional estimate (where determinable) of the income tax effects of the TCJA where the accounting is incomplete. The provisional estimate is required to be updated throughout the measurement period.

~~The following table provides a reconciliation of the 2017 effective tax rates to the 2018 effective tax rates, including the impact of the TCJA, for the periods ended February 28:~~

We are subject to taxation in the United States and various U.S. state, local and foreign jurisdictions. We are currently under examination by the Internal Revenue Service ~~(“IRS”)~~ for the 2014 and 2015 tax years. It is reasonably possible that certain income tax return proceedings will be completed during the next twelve months and could result in a change in our balance of unrecognized tax benefits. The expected impact of any changes would not be material to our consolidated financial statements. As of ~~February 28,~~August 31, 2018, there were no material changes to our liabilities for unrecognized tax benefits subsequent to May 31, ~~2017.~~2018.

~~See Note 5 of the accompanying unaudited condensed consolidated financial statements for further discussion related to income taxes.~~

On October 13, 2017, FedEx acquired Northwest Research, Inc., a leader in inventory research and management, for $50 million in cash from operations. The majority of the purchase price was allocated to property and equipment. The financial results of this acquired business are included in the FedEx Services segment from the date of acquisition and were not material to our results of operations.

We expect ~~yield~~volume and ~~volume~~yield growth at all of our transportation segments to support revenue and earnings growth in ~~the fourth quarter and full year of 2018,~~2019, prior to any mark-to-market ~~benefit~~retirement plans adjustment. We ~~expect to~~will continue ~~implementing various cost management plans~~executing operational improvement programs at FedEx Ground ~~for the remainder of 2018. Our fourth quarter~~ and ~~full-year 2018 results will be negatively affected by~~FedEx Freight that are designed to increase operational efficiency and safety, enhance service offerings to our ~~TNT Express integration activities as well as increased compensation for certain of~~customers and reduce our ~~hourly team members and higher incentive compensation for our salaried personnel.~~ cost structure.

Our expectations for earnings growth in ~~2018 assumes~~2019 are dependent on key external factors, including fuel prices, moderate economic ~~growth.~~growth and stability in global trade.

During the remainder of ~~2018,~~2019, we will continue to execute our TNT Express integration ~~plans.~~plans and will be focused on integrating the largest and most complex countries, which include the largest workforces and facilities. We expect the aggregate integration program expense, including restructuring charges at TNT Express, over the four years through 2020 to be approximately ~~$1.4~~$1.5 billion and expect to incur approximately $450 million of these costs during ~~2018.~~2019. The timing and amount of integration expenses and capital investments in any future period may change as we implement our plans.

The integration process is complex as it spans over 200 countries and territories and involves combining our ~~pickup and delivery~~pickup-and-delivery operations at a local level, our global and regional air and ground networks, and our extensive operations, customs clearance, sales and back-office information technology systems. In addition, a portion of our integration expenses relate to the ongoing establishment of our new international corporate structure which will leverage synergies to maximize our international profitability, ultimately benefiting our effective tax rate. The integration is expected to be substantially ~~complete~~completed by the end of 2020. We are targeting operating income improvement at the FedEx Express segment of $1.2 billion to $1.5 billion in 2020 from 2017 assuming moderate economic growth, stability in global trade and current accounting rules and tax laws. ~~This target includes TNT Express synergies as well as base business and other operational improvements across the global FedEx Express network.~~ Although we are targeting to complete our integration program by the end of 2020, we are investing in opportunities to improve the capabilities of the integrated business for future profitability, including periods beyond 2020.

As noted above, we recorded a provisional reduction to our net U.S. deferred tax liability during the third quarter of 2018 in connection with the recently enacted TCJA. The final impact of the TCJA on our reported results for fiscal year 2018 and beyond may differ from the estimates recorded, possibly materially, due to changes in interpretations and assumptions we have made, future guidance that may be issued, and other changes that may occur as we complete our analysis of the TCJA.

Other Outlook Matters. For details on key ~~2018~~2019 capital projects, refer to the “Liquidity Outlook” section of this MD&A.

FedEx Ground previously announced plans to implement the Independent Service Provider (“ISP”) model throughout its entire U.S. ~~pickup and delivery~~pickup-and-delivery network. The transition to the ISP model is being accomplished on a district-by-district basis and ~~is expected~~we are now targeting the transition to be completed induring the second ~~half~~quarter of ~~calendar~~ 2020. As of ~~February 28,~~August 31, 2018, ~~64%~~over 60% of FedEx Ground volume was being delivered by small businesses operating under the ISP model. The costs associated with these transitions will be recognized in the periods incurred and are not expected to be material to any future quarter.

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

See Note 1 of the accompanying unaudited condensed consolidated financial statements for a discussion of recent accounting guidance.

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

The operating expense line item “Intercompany charges” on the accompanying unaudited condensed consolidated financial statements of our transportation segments reflects the allocations from the FedEx Services segment to the respective transportation segments. The allocations of net operating costs are based on metrics such as relative revenues or estimated services provided.

Corporate and other includes corporate headquarters costs for executive officers and certain legal and finance functions, as well as certain other costs and credits not attributed to our core business. These costs are not allocated to the other business segments.

Also included in corporate and other is the FedEx Trade Networks operating segment, which provides customs brokerage and global ocean and air freight forwarding through FedEx Trade Networks Transport & Brokerage, Inc.; cross-border enablement and technology solutions and e-commerce transportation solutions through FedEx Cross Border Technologies, Inc.; integrated supply chain management solutions through FedEx Supply Chain Distribution System, Inc.; time-critical shipment services through FedEx Custom Critical, Inc.; and, effective September 1, 2018, critical inventory and service parts logistics, 3-D printing and technology repair through FedEx Forward Depots, Inc.

FedEx Express offers a wide range of U.S. domestic and international shipping services for delivery of packages and freight including priority, deferred orand economy services, which provide delivery on a time-definite or day-definite basis. As discussed in our Annual Report, we are reporting TNT Express as part of the FedEx Express segment. Prior year amounts have been revised to conform to the current year presentation, including revised statistical information. The following tables compare revenues, operating expenses, operating income (dollars in millions), operating margin and operating expenses as a percent of revenue for the periods ended ~~February 28:~~August 31:

	Three Months Ended						Percent				Nine Months Ended						Percent				Three Months Ended						Percent
	2018			2017			Change				2018			2017			Change				2018			2017			Change
Revenues:
Package:
U.S. overnight box	$	1,836		$	1,742			5			$	5,373		$	5,173			4			$	1,886		$	1,750			8
U.S. overnight envelope		435			422			3				1,317			1,287			2				468			450			4
U.S. deferred		996			954			4				2,796			2,598			8				952			878			8
Total U.S. domestic package revenue		3,267			3,118			5				9,486			9,058			5				3,306			3,078			7
International priority		1,813			1,667			9				5,393			5,144			5				1,848			1,741			6
International economy		793			692			15				2,378			2,101			13				850			770			10
Total international export package revenue		2,606			2,359			10				7,771			7,245			7				2,698			2,511			7
International domestic⁽¹⁾		1,128			1,033			9				3,386			3,136			8				1,127			1,044			8
Total package revenue		7,001			6,510			8				20,643			19,439			6				7,131			6,633			8
Freight:
U.S.		739			667			11				2,040			1,895			8				730			613			19
International priority		551			471			17				1,581			1,396			13				551			470			17
International economy		492			437			13				1,354			1,265			7				519			381			36
International airfreight		86			84			2				259			270			(4	)			85			83			2
Total freight revenue		1,868			1,659			13				5,234			4,826			8				1,885			1,547			22			Percent of Revenue
Other⁽²⁾		501			400			25				1,499			1,406			7
Other																						206			220			(6	)		2018			2017
Total revenues		9,370			8,569			9				27,376			25,671			7				9,222			8,400			10				100.0	%		100.0	%
Operating expenses:
Salaries and employee benefits		3,484			3,170			10				10,001			9,393			6				3,473			3,214			8				37.7			38.3
Purchased transportation		1,478			1,286			15				4,346			3,963			10				1,307			1,184			10				14.2			14.1
Rentals and landing fees		532			511			4				1,520			1,483			2				470			484			(3	)			5.1			5.7
Depreciation and amortization		425			420			1				1,254			1,252			—				436			415			5				4.7			4.9
Fuel		782			633			24				2,088			1,753			19				845			603			40				9.2			7.2
Maintenance and repairs		420			386			9				1,327			1,158			15				502			459			9				5.4			5.5
Intercompany charges		528			473			12				1,521			1,403			8				539			497			8				5.8			5.9
Other		1,297			1,133			14				3,745			3,393			10				1,283			1,224			5				13.9			14.6
Total operating expenses		8,946			8,012			12				25,802			23,798			8				8,855			8,080			10				96.0	%		96.2	%
Operating income	$	424		$	557			(24	)		$	1,574		$	1,873			(16	)		$	367		$	320			15
Operating margin		4.5	%		6.5	%		(200	)	bp		5.7	%		7.3	%		(160	)	bp		4.0	%		3.8	%		20		bp

The following table compares selected statistics (in thousands, except yield amounts) for the periods ended ~~February 28:~~August 31:

	Three Months Ended				Percent			Nine Months Ended				Percent			Three Months Ended				Percent
	2018		2017		Change			2018		2017		Change			2018		2017		Change
Package Statistics⁽¹⁾
Average daily package volume (ADV):
U.S. overnight box		1,315		1,322		(1	)		1,249		1,286		(3	)		1,231		1,188		4
U.S. overnight envelope		541		549		(1	)		548		559		(2	)		551		557		(1	)
U.S. deferred		1,026		1,025		—			946		904		5			916		876		5
Total U.S. domestic ADV		2,882		2,896		—			2,743		2,749		—			2,698		2,621		3
International priority		529		535		(1	)		525		522		1			518		504		3
International economy		266		253		5			265		250		6			276		252		10
Total international export ADV		795		788		1			790		772		2			794		756		5
International domestic⁽²⁾⁽¹⁾		2,445		2,471		(1	)		2,447		2,391		2			2,395		2,238		7
Total ADV		6,122		6,155		(1	)		5,980		5,912		1			5,887		5,615		5
Revenue per package (yield):
U.S. overnight box	$	22.53	$	21.24		6		$	22.64	$	21.17		7		$	23.57	$	22.67		4
U.S. overnight envelope		12.97		12.41		5			12.64		12.12		4			13.09		12.43		5
U.S. deferred		15.66		15.00		4			15.56		15.13		3			15.98		15.42		4
U.S. domestic composite		18.29		17.36		5			18.20		17.34		5			18.85		18.07		4
International priority		55.26		50.28		10			54.06		51.82		4			54.84		53.17		3
International economy		48.01		44.05		9			47.24		44.24		7			47.43		46.95		1
International export composite		52.83		48.27		9			51.77		49.37		5			52.27		51.09		2
International domestic⁽²⁾⁽¹⁾		7.44		6.74		10			7.29		6.90		6			7.24		7.18		1
Composite package yield		18.45		17.06		8			18.17		17.31		5			18.64		18.17		3
Freight Statistics⁽¹⁾
Average daily freight pounds:
U.S.		8,757		8,458		4			8,311		8,231		1			8,309		7,727		8
International priority		5,430		5,238		4			5,342		5,145		4			5,315		4,906		8
International economy		13,209		12,578		5			12,215		12,095		1			13,459		10,281		31
International airfreight		1,757		1,995		(12	)		1,850		1,941		(5	)		1,717		1,853		(7	)
Total average daily freight pounds		29,153		28,269		3			27,718		27,412		1			28,800		24,767		16
Revenue per pound (yield):
U.S.	$	1.36	$	1.27		7		$	1.29	$	1.21		7		$	1.35	$	1.22		11
International priority		1.64		1.45		13			1.56		1.43		9			1.60		1.48		8
International economy		0.60		0.56		7			0.58		0.55		5			0.59		0.57		4
International airfreight		0.78		0.68		15			0.74		0.73		1			0.76		0.69		10
Composite freight yield		1.02		0.95		7			0.99		0.93		6			1.01		0.96		5

FedEx Express segment revenues increased 9%10% in the ~~third~~first quarter ~~and 7% in the nine months~~ of ~~2018~~2019 primarily due to ~~improved base yields, favorable exchange rates~~international package and ~~higher fuel surcharges, despite impacts~~freight volume recovery from the NotPetya cyberattack, ~~discussed above.~~

~~International export~~higher freight pounds, U.S. domestic package ~~yields increased 9% in the third quarter of 2018 due to~~volume and yield growth and higher fuel ~~surcharges, favorable exchange rates and higher base rates. International export package yields increased 5% in the nine months of 2018 due to higher fuel surcharges and favorable exchange rates.~~ surcharges.

International export average daily volumes increased 1%5% in the ~~third~~first quarter ~~and 2% in the nine months~~ of ~~2018~~2019 primarily due to increased ~~international economy shipments. This benefit was~~volume from the recovery of the NotPetya cyberattack. International export package yields increased 2% in the first quarter of 2019 due to higher fuel surcharges, partially offset by ~~the decrease in volume due to the NotPetya cyberattack. U.S. domestic package yields increased 5% in the third quarter and nine months of 2018 primarily due to higher~~lower base ~~rates and fuel surcharges. Freight yields increased 7% in the third quarter and 6% in the nine months of 2018 primarily due to higher base rates, favorable exchange rates and higher fuel surcharges.~~rates. Average daily freight pounds increased 3%16% in the ~~third~~first quarter of ~~2018~~2019 primarily due to higher volume in international freight services, driven by NotPetya cyberattack recovery as well as base business growth. Freight yields increased 5% in the first quarter of 2019 primarily due to higher fuel surcharges and base rates. U.S. ~~freight services.~~domestic package average daily volumes increased 3% in the first quarter of 2019 driven by our deferred and overnight service offerings. U.S. domestic package yields increased 4% in the first quarter of 2019 primarily due to higher fuel surcharges and base rates.

FedEx Express’s U.S. domestic and outbound fuel surcharge and ~~the~~ international fuel surcharges ranged as follows for the periods ended ~~February 28:~~August 31:

	Three Months Ended						Nine Months Ended						Three Months Ended
	2018			2017			2018			2017			2018			2017
U.S. Domestic and Outbound Fuel Surcharge:
Low		5.05	%		2.50	%		2.21	%		0.96	%		7.02	%		2.21	%
High		5.91			3.40			5.91			3.40			7.27			3.33
Weighted-average		5.56			2.97			4.31			2.30			7.11			2.71
International Fuel Surcharges:
Low		6.25			2.60			3.38			1.16			8.14			3.38
High		15.87			11.25			15.87			11.25			17.97			13.73
Weighted-average		12.24			8.21			10.53			7.48			15.14			8.18

Effective January 1, 2018, FedEx Express implemented a 4.9% average list price increase for U.S. domestic, U.S. export and U.S. import services. Effective February 6, 2017, FedEx Express fuel surcharges are adjusted on a weekly basis compared to the previous monthly adjustment. On January 2, 2017, FedEx Express implemented a 3.9% average list price increase for U.S. domestic, U.S. export and U.S. import services and a change to the U.S. domestic dimensional weight divisor.

FedEx Express segment operating income and margin ~~decreased~~increased in the ~~third~~first quarter of ~~2018~~2019 due to international package and freight volume recovery from the NotPetya cyberattack, higher incentive compensation accruals, higher peak-related costs, increased TNT Express integration expenses, the negative impacts of inclement winter weather and unfavorable exchange rates, partially offset by yieldfreight pounds, U.S. domestic package volume growth and the positive net impact of fuel. The increased variable compensation accruals during 2019 and accelerated annual merit pay increases during late 2018 for certain of our hourly employees following the passage of the TCJA (described in the “Overview” section above) negatively impacted the year-over-year comparison of operating income by approximately $100 million. In addition, changes in service mix following the NotPetya cyberattack ~~discussed above also drove declining results~~negatively impacted operating margin in the ~~nine months~~first quarter of ~~2018.~~2019.

~~The NotPetya cyberattack had an estimated $400 million negative impact for~~Results in the first ~~half of 2018 with lingering impacts in the third~~ quarter of ~~2018. Results also included $86~~2019 include approximately $102 million of TNT Express integration expenses, ~~in the third quarter and $270 million in the nine months of 2018,~~ a ~~$33~~$14 million increase from the ~~third~~first quarter ~~and $148 million increase from the nine months~~ of ~~2017.~~2018.

Salaries and employee benefits expense increased 8% in the first quarter of 2019 primarily due to the pay increases noted above and higher staffing to support volume growth. Purchased transportation expense increased 10% in the third quarter and 6% in the nine months of 2018 primarily due to merit increases, unfavorable exchange rates and higher incentive compensation accruals. Purchased transportation increased 15% in the third quarter and 10% in the nine months of 2018 due to unfavorable exchange rates and increased international volume. Other expenses increased 14% in the third quarter and 10% in the nine months of 2018 primarily due to unfavorable exchange rates, increased outside service contracts and TNT Express integration expenses. Intercompany charges increased 12% in the thirdfirst quarter of ~~2018~~2019 primarily due to higher ~~incentive compensation accruals.~~volume from the recovery of the NotPetya cyberattack. Maintenance and repairs expense increased ~~15%~~9% in the ~~nine months~~first quarter of ~~2018~~2019 primarily due to the timing of aircraft engine maintenance events.

Fuel expense increased ~~24%~~40% in the ~~third~~first quarter ~~and 19% in the nine months~~ of ~~2018~~2019 due to ~~increased~~higher fuel prices. However, the net impact of fuel had a ~~moderate benefit to operating income in the third quarter of 2018 and a~~ significant benefit to operating income in the ~~nine months~~first quarter of ~~2018~~2019, as higher fuel surcharges more than offset increased fuel prices. See the “Fuel” section of this MD&A for a description and additional discussion of the net impact of fuel on our operating results.

FedEx Ground service offerings include day-certain delivery to businesses in the U.S. and Canada and to 100% of U.S. residences. The following tables compare revenues, operating expenses, operating income (dollars in millions), operating margin, selected package statistics (in thousands, except yield amounts) and operating expenses as a percent of revenue for the periods ended ~~February 28:~~August 31:

Three Months Ended

Percent

Nine Months Ended

Percent

2018

2017

Change

2018

2017

Change

Revenues:

FedEx Ground

$
4,824

$
4,296

12

$
13,586

$
12,202

11

FedEx Supply Chain

398

392

2

1,204

1,195

1

Total revenues

5,222

4,688

11

14,790

13,397

10

Operating expenses:

Salaries and employee benefits

956

834

15

2,711

2,420

12

Purchased transportation

2,235

2,015

11

6,194

5,568

11

Rentals

209

197

6

617

567

9

Depreciation and amortization

187

177

6

537

508

6

Fuel

4

3

33

10

8

25

Maintenance and repairs

82

83

(1
)

249

237

5

Intercompany charges

371

330

12

1,087

983

��

11

Other

544

534

2

1,604

1,516

6

Total operating expenses

4,588

4,173

10

13,009

11,807

10

Operating income

$
634

$
515

23

$
1,781

$
1,590

12

Operating margin

12.1
%

11.0
%

110

bp

12.0
%

11.9
%

10

bp
Average daily package volume

FedEx Ground

8,993

8,522

6

8,408

7,963

6

Revenue per package (yield)

FedEx Ground

$
8.64

$
8.12

6

$
8.49

$
8.05

5

	Percent of Revenue												Three Months Ended						Percent				Percent of Revenue
	Three Months Ended						Nine Months Ended						2018			2017			Change				2018			2017
	2018			2017			2018			2017
Revenues													$	4,799		$	4,245			13				100.0	%		100.0	%
Operating expenses:
Salaries and employee benefits		18.3	%		17.8	%		18.3	%		18.1	%		805			680			18				16.8			16.0
Purchased transportation		42.8			43.0			41.9			41.5			2,062			1,776			16				43.0			41.8
Rentals		4.0			4.2			4.2			4.2			191			184			4				4.0			4.3
Depreciation and amortization		3.6			3.7			3.6			3.8			173			161			7				3.6			3.8
Fuel		0.1			0.1			0.1			0.1			3			2			50				—			—
Maintenance and repairs		1.6			1.8			1.7			1.8			77			75			3				1.6			1.8
Intercompany charges		7.1			7.0			7.3			7.3			397			359			11				8.3			8.5
Other		10.4			11.4			10.9			11.3			424			402			5				8.8			9.5
Total operating expenses		87.9			89.0			88.0			88.1			4,132			3,639			14				86.1	%		85.7	%
Operating income													$	667		$	606			10
Operating margin		12.1	%		11.0	%		12.0	%		11.9	%		13.9	%		14.3	%		(40	)	bp
Average daily package volume														8,221			7,688			7
Revenue per package (yield)													$	8.96		$	8.47			6

FedEx Ground segment revenues increased ~~11%~~13% in the ~~third~~first quarter ~~and 10% in the nine months~~ of ~~2018~~2019 due to volume growth and increased yields. Average daily volume at FedEx Ground increased 6%7% in the ~~third~~first quarter ~~and nine months~~ of ~~2018~~2019 primarily due to continued growth in ~~our~~commercial and residential ~~services.~~services driven by e-commerce growth. FedEx Ground yield increased 6% during the ~~third~~first quarter ~~and 5% during the nine months~~ of ~~2018~~2019 primarily driven by higher fuel surcharges and base ~~rates and higher fuel surcharges.~~yields.

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~~The fuel surcharge ranged as follows for the periods ended ~~February 28:~~August 31:

	Three Months Ended						Nine Months Ended						Three Months Ended
	2018			2017			2018			2017			2018			2017
Low		5.30	%		4.00	%		4.00	%		3.30	%		6.30	%		4.00	%
High		5.80			4.50			5.80			4.50			6.50			4.50
Weighted-average		5.50			4.10			5.00			3.90			6.30			4.32

Effective January 1, 2018, FedEx Ground ~~announced~~implemented a 4.9% average list price increase. In addition, as announced on September 18, 2017, dimensional weight pricing applies to the majority of FedEx SmartPost shipments effective January 22, 2018. Effective February 6, 2017, FedEx Ground fuel surcharges are adjusted on a weekly basis compared to the previous monthly adjustment. On January 2, 2017, FedEx Ground implemented a 4.9% average list price increase and a change to the U.S. domestic dimensional weight divisor.

FedEx Ground segment operating income increased ~~23%~~10% in the ~~third~~first quarter ~~and 12% in the nine months~~ of ~~2018~~2019 due to volume growth and increased ~~yields~~yields. The increased variable compensation accruals during 2019 and ~~benefits associated with ongoing cost management. Higher~~accelerated annual merit pay increases during late 2018 for certain of our hourly employees following the passage of the TCJA (described in the “Overview” section above) negatively impacted the year-over-year comparison of operating income by approximately $30 million. In addition, higher purchased transportation, ~~seasonal~~ staffing and network expansion costs ~~and higher incentive compensation accruals~~ partially offset ~~these benefits.~~the benefits from higher revenues and drove a decline in operating margin.

Purchased transportation expense increased ~~11%~~16% in the ~~third~~first quarter ~~and nine months~~ of ~~2018~~2019 primarily due to higher volumes, increased rates and higher fuel ~~expenses.~~costs. Salaries and employee benefits expense increased ~~15%~~18% in the ~~third~~first quarter ~~and 12% in the nine months~~ of ~~2018~~2019 primarily due to additional staffing to support volume growth, ~~higher incentive compensation accruals, network expansion~~the pay increases noted above and merit increases. Intercompany charges increased 12% in the third quarter and 11% in the nine months of 2018 primarily due to higher incentive compensation accruals. Other expenses increased 6% in the nine months of 2018 primarily due to higher self-insurance reserves. Rentals and depreciation and amortization expense increased 6% in the third quarter and 7% in the nine months of 2018 due to network expansion.

FedEx Ground is involved in lawsuits and administrative proceedings claiming that owner-operators engaged under ~~a contractor model~~operating agreements no longer in ~~use~~place should have been treated as employees of FedEx Ground, rather than independent contractors. In addition, we are defending joint-employer cases where it is alleged that FedEx Ground should be treated as an employer of the drivers employed by owner-operators engaged by FedEx Ground. These cases are in varying stages of litigation. We will continue to vigorously defend ourselves in these proceedings and continue to believe that owner-operators engaged by FedEx Ground are properly classified as independent contractors and that FedEx Ground is not an employer or joint employer of the drivers ~~employed by~~of these ~~owner-operators.~~

For additional information on the FedEx Ground ~~Independent Service Provider~~ISP model, see “Other Outlook Matters” under Consolidated Results of this MD&A.

FedEx Freight LTL service offerings include priority services when speed is critical and economy services when time can be traded for savings. The following tables compare revenues, operating expenses, operating income (dollars in millions), operating margin, selected statistics and operating expenses as a percent of revenue for the periods ended ~~February 28:~~August 31:

	Three Months Ended						Percent				Nine Months Ended						Percent			Three Months Ended						Percent				Percent of Revenue
	2018			2017			Change				2018			2017			Change			2018			2017			Change				2018			2017
Revenues	$	1,694		$	1,492			14			$	5,208		$	4,747	��		10		$	1,959		$	1,664			18				100.0	%		100.0	%
Operating expenses:
Salaries and employee benefits		825			733			13				2,455			2,266			8			928			793			17				47.4			47.7
Purchased transportation		263			230			14				792			739			7			259			198			31				13.2			11.9
Rentals		41			36			14				114			101			13			42			36			17				2.1			2.1
Depreciation and amortization		77			69			12				219			199			10			78			68			15				4.0			4.1
Fuel		127			99			28				336			282			19			137			97			41				7.0			5.8
Maintenance and repairs		52			50			4				169			159			6			62			56			11				3.2			3.4
Intercompany charges		130			120			8				384			370			4			138			125			10				7.0			7.5
Other		124			114			9				390			367			6			139			126			10				7.1			7.6
Total operating expenses		1,639			1,451			13				4,859			4,483			8			1,783			1,499			19				91.0	%		90.1	%
Operating income	$	55		$	41			34			$	349		$	264			32		$	176		$	165			7
Operating margin		3.2	%		2.7	%		50		bp		6.7	%		5.6	%		110	bp		9.0	%		9.9	%		(90	)	bp
Average daily LTL shipments (in thousands)
Average daily shipments (in thousands)
Priority		69.7			65.6			6				73.5			70.3			5			81.2			74.4			9
Economy		30.6			29.0			6				31.5			30.9			2			34.6			31.6			9
Total average daily LTL shipments		100.3			94.6			6				105.0			101.2			4
Weight per LTL shipment (lbs)
Total average daily shipments																					115.8			106.0			9
Weight per shipment (lbs)
Priority		1,232			1,179			4				1,205			1,173			3			1,218			1,184			3
Economy		1,133			1,155			(2	)			1,144			1,121			2			1,009			1,147			(12	)
Composite weight per LTL shipment		1,202			1,172			3				1,187			1,157			3
LTL revenue per shipment
Composite weight per shipment																					1,156			1,173			(1	)
Revenue per shipment
Priority	$	242.49		$	224.63			8			$	233.31		$	220.64			6		$	246.77		$	226.16			9
Economy		295.31			272.74			8				285.99			262.72			9			292.33			277.04			6
Composite LTL revenue per shipment	$	259.20		$	239.82			8			$	249.32		$	233.64			7
LTL yield (revenue per hundredweight)
Composite revenue per shipment																				$	260.39		$	241.34			8
Revenue per hundredweight
Priority	$	19.67		$	19.06			3			$	19.37		$	18.81			3		$	20.26		$	19.11			6
Economy		26.07			23.61			10				24.99			23.44			7			28.97			24.15			20
Composite LTL yield	$	21.56		$	20.47			5			$	21.01		$	20.19			4
Composite revenue per hundredweight																				$	22.53		$	20.58			9

FedEx Freight segment revenues increased ~~14%~~18% in the ~~third~~first quarter ~~and 10% in the nine months~~ of ~~2018~~2019 primarily due to higher ~~LTL~~ revenue per shipment and average daily ~~LTL~~ shipments. ~~LTL revenue~~Revenue per shipment increased 8% in the ~~third~~first quarter ~~and 7% in the nine months~~ of ~~2018~~2019 primarily due to higher base rates driven by our ongoing yield management initiatives and higher fuel ~~surcharges and higher weight per shipment.~~surcharges. Average daily ~~LTL~~ shipments increased 6%9% in the ~~third~~first quarter ~~and 4% in the nine months~~ of ~~2018~~2019 due to higher demand for our ~~LTL~~ service offerings.

The weekly indexed ~~LTL~~ fuel surcharge is based on the average of the ~~national~~ U.S. on-highway ~~average~~ prices for a gallon of diesel fuel, as published by the Department of Energy. The indexed ~~LTL~~FedEx Freight fuel surcharge ranged as follows for the periods ended ~~February 28:~~August 31:

	Three Months Ended						Nine Months Ended						Three Months Ended
	2018			2017			2018			2017			2018			2017
Low		23.10	%		21.00	%		20.90	%		20.20	%		24.60	%		20.90	%
High		24.00			21.60			24.00			21.60			25.00			21.60
Weighted-average		23.59			21.40			22.46			20.80			24.77			21.26

Effective January 1, 2018, FedEx Freight implemented a 4.9% average increase in certain U.S. and other shipping rates. ~~On January 2, 2017, FedEx Freight implemented a 4.9% average increase in certain U.S. and other shipping rates.~~

FedEx Freight segment operating income increased ~~34%~~7% in the ~~third~~first quarter ~~and 32% in the nine months~~ of ~~2018~~2019 primarily driven by higher ~~LTL~~ revenue per shipment. Operating margin declined slightly in the first quarter of 2019 due to increased salaries and employee benefits expense and higher purchased transportation expense. In addition, the increased variable compensation accruals during 2019 and accelerated annual merit pay increases during late 2018 for certain of our hourly employees following the passage of the TCJA (described in the “Overview” section above) negatively impacted the year-over-year comparison of operating income by approximately $30 million.

Salaries and employee benefits expense increased ~~13%~~17% in the ~~third~~first quarter ~~and 8% in the nine months~~ of ~~2018~~2019 driven primarily by higher staffing levels to support volume growth ~~higher incentive compensation accruals and merit increases.~~as well as the pay increases noted above. Purchased transportation expense increased ~~14%~~31% in the ~~third~~first quarter ~~and 7% in the nine months~~ of ~~2018~~2019 due to increased rates, higher ~~volumes~~fuel surcharges and ~~increased rates.~~higher volumes.

Fuel expense increased ~~28%~~41% in the ~~third~~first quarter ~~and 19% in the nine months~~ of ~~2018~~2019 primarily due to higher fuel prices. The net impact of fuel had a moderate benefit to operating income in the ~~third~~first quarter ~~and nine months~~ of ~~2018~~2019 as higher fuel surcharges more than offset increased fuel prices.

Cash and cash equivalents totaled ~~$2.8~~$2.4 billion at ~~February 28,~~August 31, 2018, compared to ~~$4.0~~$3.3 billion at May 31, ~~2017.~~2018. The following table provides a summary of our cash flows for the ~~nine-month~~three-month periods ended ~~February 28~~August 31 (in millions):

	2018			2017			2018			2017
Operating activities:
Net income	$	3,445		$	1,977		$	835		$	596
Noncash charges and credits		1,691			2,953			981			970
Gain from sale of investment		—			(35	)
Changes in assets and liabilities		(3,974	)		(2,250	)		(1,115	)		(976	)
Cash provided by operating activities		1,162			2,645			701			590
Investing activities:
Capital expenditures		(3,994	)		(3,790	)		(1,179	)		(1,044	)
Business acquisitions, net of cash acquired		(44	)		—
Proceeds from asset dispositions and other		21			123			78			6
Cash used in investing activities		(4,017	)		(3,667	)		(1,101	)		(1,038	)
Financing activities:
Proceeds from short-term borrowings, net		797			—
Proceeds from short-term borrowings								299			—
Principal payments on debt		(31	)		(49	)		(2	)		(12	)
Proceeds from debt issuances		1,481			1,190
Proceeds from stock issuances		284			265			25			150
Dividends paid		(402	)		(319	)		(173	)		(134	)
Purchase of treasury stock		(558	)		(358	)		(625	)		(86	)
Other		6			2			4			(6	)
Cash provided by financing activities		1,577			731
Cash used in financing activities								(472	)		(88	)
Effect of exchange rate changes on cash		98			(70	)		(24	)		70
Net decrease in cash and cash equivalents	$	(1,180	)	$	(361	)	$	(896	)	$	(466	)
Cash and cash equivalents at the end of period	$	2,789		$	3,173		$	2,369		$	3,503

Cash flows from operating activities ~~decreased $1.5 billion~~increased $111 million in the ~~nine months~~first quarter of ~~2018~~2019 primarily due to ~~voluntary pension contributions, the payment~~higher net income, including as a result of ~~a previously accrued legal settlement and~~recovery from the NotPetya ~~cyberattack.~~cyberattack, partially offset by increased variable compensation payments. Capital expenditures increased during the ~~nine months~~first quarter of ~~2018~~2019 primarily due to aircraft and related equipment purchases at FedEx Express, increased spending on ~~facilities and other~~information technology at ~~all of our transportation segments~~FedEx Services and increased vehicle purchases at FedEx Freight and FedEx Express, partially offset by lower spending ~~related to package handling and ground support equipment~~on network expansion projects at FedEx Ground. See “Capital Resources” for a discussion of capital expenditures during ~~2018~~the first quarters of 2019 and ~~2017.~~2018.

During the ~~third~~first quarter of 2018, we issued $1.5 billion of senior unsecured debt under our current shelf registration statement. We used the net proceeds for a voluntary incremental contribution in February 2018 to our U.S. Pension Plans. See Note 3 of the accompanying unaudited condensed consolidated financial statements for further discussion of this debt issuance.

~~During the third quarter of 2018,~~2019, we issued commercial paper ~~which provided~~to provide us with additional short-term liquidity. As of ~~February 28,~~August 31, 2018, we ~~have $800~~had $300 million of commercial paper outstanding. See Note 3 of the accompanying unaudited condensed consolidated financial statements for further discussion.

In January 2016, our Board of Directors ~~authorized~~approved a share repurchase program of up to 25 million shares. During the ~~third~~first quarter of ~~2018,~~2019, we repurchased ~~1.2~~2.6 million shares of FedEx common stock at an average price of ~~$248.73~~$238.95 per share for a total of ~~$288 million. During the nine months of 2018, we repurchased 2.4 million shares of FedEx common stock at an average price of $232.00 per share for a total of $558~~$625 million. As of ~~February 28,~~August 31, 2018, ~~13.6~~9.1 million shares remained under the current share repurchase authorization. Shares under ~~the current~~this repurchase program may be repurchased from time to time in the open market or in privately negotiated transactions. The timing and volume of repurchases are at the discretion of management, based on the capital needs of the business, the market price of FedEx common stock and general market conditions. No time limit was set for the completion of the program, and the program may be suspended or discontinued at any time.

Our operations are capital intensive, characterized by significant investments in aircraft, vehicles, technology, facilities, and ~~package~~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 ~~tax laws~~ and actions of regulatory authorities.

The following table compares capital expenditures by asset category and reportable segment for the periods ended ~~February 28~~August 31 (in millions):

									Percent Change										Percent Change
									2018/2017										2018/2017
	Three Months Ended				Nine Months Ended				Three Months			Nine Months			Three Months Ended				Three Months
	2018		2017		2018		2017		Ended			Ended			2018		2017		Ended
Aircraft and related equipment	$	591	$	284	$	1,631	$	1,319		108			24		$	472	$	410		15
Package handling and ground support equipment		207		295		621		819		(30	)		(24	)		193		197		(2	)
Vehicles		237		219		748		737		8			1			160		122		31
Information technology		116		134		378		412		(13	)		(8	)		175		126		39
Facilities and other		221		177		616		503		25			22			179		189		(5	)
Total capital expenditures	$	1,372	$	1,109	$	3,994	$	3,790		24			5		$	1,179	$	1,044		13
FedEx Express segment	$	860	$	479	$	2,316	$	2,034		80			14		$	760	$	581		31
FedEx Ground segment		227		387		974		1,127		(41	)		(14	)		176		306		(42	)
FedEx Freight segment		198		152		397		360		30			10			90		28		221
FedEx Services segment		87		91		307		269		(4	)		14			142		107		33
Other																11		22		(50	)
Total capital expenditures	$	1,372	$	1,109	$	3,994	$	3,790		24			5		$	1,179	$	1,044		13

Capital expenditures increased during the ~~nine months~~first quarter of ~~2018~~2019 primarily due to aircraft and related equipment purchases at FedEx Express, which included the delivery of ~~ten Boeing 767-300 Freighter aircraft and three~~one Boeing 777 Freighter (“B777F”) aircraft and five Boeing 767-300 Freighter (“B767F”) aircraft, increased spending on ~~facilities and other~~information technology at ~~all of our transportation segments~~FedEx Services and increased vehicle purchases at FedEx Freight and FedEx Express, partially offset by lower spending ~~related to package handling and ground support equipment~~on network expansion projects at FedEx Ground.

We believe that our cash and cash equivalents, cash flow from operations and available financing sources ~~are~~will be adequate to meet our liquidity needs, including working capital, capital expenditure requirements, ~~and~~ debt payment ~~obligations.~~obligations, pension contributions and TNT Express integration expenses. Our cash and cash equivalents balance at ~~February 28,~~August 31, 2018 ~~included $1.1~~includes $1.0 billion of cash in foreign jurisdictions associated with our permanent reinvestment strategy. We are able to access the majority of this cash without a material tax cost, as the enactment of the TCJA significantly reduced the cost of repatriating foreign earnings from a U.S. tax perspective. We do not believe that the indefinite reinvestment of these funds impairs our ability to meet our U.S. domestic debt or working capital obligations. ~~Although we expect higher~~

Our capital expenditures are expected to be approximately $5.6 billion in ~~2018,~~2019, and include spending for aircraft modernization at FedEx Express, spending on facilities and sort equipment, primarily at FedEx Express and FedEx Ground, and spending for TNT Express integration-related investments. We invested $0.5 billion in aircraft and related equipment in the first quarter of 2019 and expect to invest an additional $1.3 billion for aircraft and related equipment during the remainder of 2019. In addition, over the next several years, we will be investing approximately $1.5 billion to significantly expand the FedEx Express Indianapolis hub and approximately $1 billion to modernize the FedEx Express Memphis World Hub. We anticipate that our cash flow from operations will be sufficient to fund ~~these expenditures.~~our capital expenditures in 2019. 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. We are currently re-evaluating our permanent reinvestment strategy as a result of the TCJA and, as of the date of this filing, any deferred tax liability associated with a change of assertion is not expected to be material.

Our capital expenditures are expected to be approximately $5.8 billion in 2018 and include spending for aircraft and aircraft-related equipment at FedEx Express, sort facility expansion, primarily at FedEx Ground, and new and replacement vehicles at all of our transportation segments. We expect to invest an additional $867 million for aircraft and aircraft-related equipment during the remainder of 2018. In addition, over multiple years, we will be investing over $1.5 billion to significantly expand the FedEx Express Indianapolis hub and over $1 billion to modernize and expand the Memphis SuperHub.

During the quarter, FedEx Express entered into agreements to purchase 12 incremental B777F aircraft and 12 incremental B767F aircraft. Six of the B777F and one of the B767F aircraft purchases are 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”). The B777F aircraft are expected to be delivered between 2021 and 2025. The B767F aircraft are expected to be delivered between 2020 and 2022. As part of these agreements, one B777F and one B767F aircraft delivery were accelerated from 2020 to 2019.

One B777F aircraft and five B767F aircraft were delivered during the quarter. FedEx Express now has a total of 23 firm orders for B777F aircraft scheduled for delivery during the remainder of 2019 through 2025 and a total of 64 firm orders for B767F aircraft for delivery during the remainder of 2019 through 2023. Six of the B777F orders and five of the B767F orders are conditioned upon there being no event that causes FedEx Express or its employees not to be covered by the RLA (the RLA condition was removed from three previously ordered B777F aircraft).

Upon maturity of commercial paper during the fourth quarter of 2018, we will re-evaluate our short-term liquidity needs and assess whether to issue additional commercial paper in order to maintain this short-term liquidity.for delivery through 2026.

We have a shelf registration statement filed with the ~~SEC~~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.

~~During the quarter, we amended our~~We have a five-year $2.0 billion revolving credit facility ~~to increase the aggregate amount available under the facility from $1.75 billion to $2.0 billion. The facility~~that expires in November 2020. See Note 3 of the accompanying unaudited condensed consolidated financial statements for a description of the terms and significant covenants of our revolving credit facility.

For the remainder of 2019, we anticipate making additional voluntary contributions to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”), although at a much lower level than in 2018. We do not anticipate contributions to our U.S. Pension Plans will be required for the foreseeable future based on our funded status and the fact we have a credit balance related to our cumulative excess voluntary pension contributions over those required that exceeds $3 billion. The credit balance is subtracted from plan assets to determine the minimum funding requirements. Therefore, we could eliminate all required contributions to our principal U.S. Pension Plans for several years if we were to choose to waive part of that credit balance in any given year. During the ~~nine months~~first quarter of 2019, we made voluntary contributions totaling $250 million to our U.S. Pension Plans. In September 2018, we ~~have~~ made additional voluntary contributions ~~totaling $2.5 billion~~ to our U.S. Pension Plans of ~~which $22 million were required. We do not expect to make any additional contributions to our U.S. Pension Plans during the fourth quarter of 2018.~~$250 million. Our U.S. Pension Plans have ample funds to meet expected benefit payments.

Standard & Poor’s has assigned us a senior unsecured debt credit rating of BBB, ~~and~~a commercial paper rating of A-2 and a ratings outlook of “stable.” Moody’s Investors Service has assigned ~~our~~us an unsecured debt a credit rating of Baa2, ~~and our~~a commercial paper a 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.

The following table sets forth a summary of our contractual cash obligations as of ~~February 28,~~August 31, 2018. 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 interest on long-term debt, this table does not include amounts already recorded in our balance sheet as current liabilities at ~~February 28,~~August 31, 2018. 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~~Unless statutorily required, the payment obligations associated with these liabilities are not reflected in the table below due to the absence of scheduled maturities. Accordingly, this table is not meant to represent a forecast of our total cash expenditures for any of the periods presented.

	Payments Due by Fiscal Year (Undiscounted) (in millions)														Payments Due by Fiscal Year (Undiscounted) (in millions)
	2018 ⁽¹⁾		2019		2020		2021		2022		Thereafter		Total		2019 ⁽¹⁾		2020		2021		2022		2023		Thereafter		Total
Operating activities:
Operating leases	$	632	$	2,408	$	2,115	$	1,878	$	1,695	$	9,193	$	17,921	$	1,930	$	2,222	$	1,999	$	1,800	$	1,586	$	8,367	$	17,904
Non-capital purchase obligations and other		254		794		683		480		304		2,925		5,440		807		809		579		384		287		2,840		5,706
Interest on long-term debt		104		607		543		531		531		9,877		12,193		411		541		529		529		522		9,348		11,880
Quarterly contributions to our U.S. Pension Plans		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Investing activities:
Aircraft and aircraft-related capital commitments		492		1,717		1,868		1,162		1,310		890		7,439
Aircraft and related capital commitments																1,271		1,941		2,211		1,812		1,514		672		9,421
Other capital purchase obligations		73		3		1		2		1		7		87		26		27		25		23		23		6		130
Financing activities:
Debt		3		1,367		1,015		—		—		14,500		16,885		1,335		983		—		—		1,624		12,745		16,687
Total	$	1,558	$	6,896	$	6,225	$	4,053	$	3,841	$	37,392	$	59,965	$	5,780	$	6,523	$	5,343	$	4,548	$	5,556	$	33,978	$	61,728

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 8 of the accompanying unaudited condensed consolidated financial statements for more ~~information.~~information on such purchase orders.

The amounts reflected in the table above for operating leases represent undiscounted future minimum lease payments under noncancelable operating leases (principally ~~aircraft~~facilities and ~~facilities)~~aircraft) with an initial or remaining term in excess of one year at ~~February 28,~~August 31, 2018.

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 ($4999 million) for uncertain tax positions and amounts for purchase obligations that represent noncancelable agreements to purchase goods or services that are not capital related. Such contracts include those for printing and advertising and promotions contracts.positions. We cannot reasonably estimate the timing of the long-term payments or the amount by which the liability ~~for uncertain tax positions~~ will increase or decrease over time; therefore, the long-term portion of the liability ~~for uncertain tax positions~~ ($3256 million) is excluded from the table.

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

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.

We had ~~$922~~$992 million in deposits and progress payments as of ~~February 28,~~August 31, 2018 on aircraft purchases and other planned aircraft-related transactions.

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

Additional information on amounts included within the operating, investing and financing activities captions in the table above can be found in our Annual Report.

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.

GOODWILL. Goodwill is tested for impairment between annual tests whenever events or circumstances make it more likely than not that the fair value of a reporting unit has fallen below its carrying value. We do not believe there has been any other change of events or circumstances that would indicate that a reevaluation of the goodwill of our reporting units is required as of ~~February 28,~~August 31, 2018, nor do we believe the goodwill of our reporting units is at risk of failing impairment testing. For additional details on goodwill impairment testing, refer to Note 1 to the financial statements included in our Annual Report.

Information regarding our critical accounting estimates can be found in our Annual Report, including Note 1 to the financial statements therein. 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.

Certain statements in this report, including (but not limited to) those contained in “Fuel,” “Income Taxes,” “Outlook,” “Liquidity,” “Liquidity Outlook,” “Contractual Cash Obligations and Off-Balance Sheet Arrangements” and “Critical Accounting Estimates,” and the “General,” ~~“Retirement Plans,~~“Financing Arrangements,” “Income Taxes,” “Commitments” and “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 include the words “will,” “may,” “could,” “would,” “should,~~” “will,~~” “believes,” “expects,” “anticipates,” “plans,” “estimates,” “targets,” “projects,” “intends” or similar expressions. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated (expressed or implied) by such forward-looking statements because of, among other things, potential risks and uncertainties, such as:

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.

As of ~~February 28,~~August 31, 2018, there were no material changes in our market risk sensitive instruments and positions since our disclosures in our Annual Report.

The principal foreign currency exchange rate risks to which we are exposed ~~are in~~relate to the euro, Chinese yuan, British pound, Canadian dollar, Brazilian real ~~Canadian dollar~~ and Mexican peso. 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 the ~~nine~~first three months of ~~2018,~~2019, the U.S. dollar ~~weakened~~strengthened relative to the currencies of the foreign countries in which we operate, as compared to May 31, ~~2017,~~2018, and this ~~weakening~~strengthening had a slightly ~~negative~~positive impact on our results.

While we have market risk for changes in the price of jet and vehicle fuel, this risk is largely mitigated by our indexed fuel surcharges. For additional discussion of our indexed fuel surcharges see the “Fuel” section of “Management’s Discussion and Analysis of Results of Operations and Financial Condition.”

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 SEC’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 ~~February 28,~~August 31, 2018 (the end of the period covered by this Quarterly Report on Form 10-Q).

During our fiscal quarter ended ~~February 28,~~August 31, 2018, 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.

For a description of all material pending legal proceedings, see Note 9 of the accompanying unaudited condensed consolidated financial statements.

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

A significant data breach or other disruption to our technology infrastructure could disrupt our operations and result in the loss of critical confidential information, adversely impacting our reputation, business or results of operations. Our ability to attract and retain customers, to efficiently operate our businesses, 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, to protect our confidential business information and the information provided by our customers, and to maintain customer confidence in our ability to protect our systems and to provide services consistent with their expectations. We are subject to risks imposed by data breaches and operational disruptions, particularly through cyber-attack or cyber-intrusion, including by computer hackers, foreign governments and cyber terrorists. Data breaches of companies and governments have increased in recent years as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Additionally, risks such as code anomalies, “Acts of God,” transitional challenges in migrating operating company functionality to our FedEx enterprise automation platform, data leakage and human error pose a direct threat to our products, services and data and could result in unauthorized access to sensitive or confidential data regarding our operations, customers, employees, and suppliers, including personal information.

We also use technology and systems from third-party service providers, including cloud service providers, for a variety of reasons and such providers may have access to information we maintain about our company, customers, employees and vendors or operate systems that are critical to our business operations and services. Like us, our third-party service providers are subject to risks imposed by data breaches and cyber-attacks. We have security processes, protocols and standards in place, including contractual provisions requiring such security measures, that are applicable to our service providers and are designed to protect information that is held by them, or to which they have access, as a result of their engagements with us. Nevertheless, a cyber-attack could defeat one or more of our third-party service providers’ security measures, allowing an attacker to obtain information about our company, customers, employees and vendors or disrupt our operations. Our third-party service providers may also experience operational disruptions or human error that could result in unauthorized access to sensitive or confidential data regarding our operations, customers, employees and suppliers, including personal information.

Any disruption to our complex, global technology infrastructure, including those impacting our computer systems and websites, could result in the loss of confidential business or customer information, adversely impact our operations, customer service, volumes and revenues, or could lead to litigation or investigations, resulting in significant 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. Recently, there has also been heightened regulatory and enforcement focus on data protection in the U.S. and abroad, and failure to comply with applicable U.S. or foreign data protection regulations or other data protection standards may expose us to litigation, fines, sanctions or other penalties, which could harm our reputation and adversely impact our business, results of operations and financial condition.

We have invested and continue to invest in technology security initiatives, information technology risk management and disaster recovery plans. The development and maintenance of these measures is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly more sophisticated. Despite our efforts, we are not fully insulated from data breaches, technology disruptions or data loss, which could adversely impact our competitiveness and results of operations. For instance, in May 2017 FedEx was one of many companies attacked by the rapidly spreading ransomware described as WannaCry that exploited vulnerability in Microsoft Windows and infected computers using that program, encrypting files and holding them for ransom. Additionally, during the third quarter of 2018 we discovered an unsecured server hosted by one of our third-party cloud service providers, which exposed some archived account information related to a service discontinued after our 2015 acquisition of Bongo International, LLC. The server has been secured, and we have found no indication that any information has been misappropriated in connection with the incident. Neither incident caused a material disruption to our systems or resulted in any material costs to FedEx. In addition, in June 2017 TNT Express worldwide operations were significantly affected due to the infiltration of an information technology virus known as NotPetya, as further described in the following risk factor.

~~While we have significant security processes and initiatives in place, we may be unable to detect or prevent a material breach or disruption in the future.~~

TNT Express experienced a significant cyberattack in the first quarter of fiscal 2018 and the ongoing impact could negatively affect our results of operations and financial condition in the future, particularly if our continuing recovery efforts do not proceed as expected. On June 28, 2017, we announced that the worldwide operations of TNT Express were significantly affected by the cyberattack known as NotPetya, which involved the spread of an information technology virus that infiltrated TNT Express systems and encrypted its data. While TNT Express’s critical operational systems have been fully restored, critical business data has been recovered and shipping services and solutions are back in place, not all customers are shipping at pre-attack volume levels and we are continuing to engage in related recovery efforts. Our results of operations and financial condition could be negatively impacted in the future if our recovery efforts do not proceed as expected, particularly if lost revenues or incremental costs associated with the cyberattack exceed our expectations. The following consequences or potential consequences of the cyberattack could have an adverse impact on our results of operations and financial condition in the future:

We could be subject to adverse changes in regulations and interpretations or challenges to our tax positions relating to the Tax Cuts and Jobs Act. We are subject to taxation in the U.S. and numerous foreign jurisdictions. From time to time, changes in tax laws or regulations may be ~~proposed or~~ enacted that could significantly affect our overall tax liability. ~~For example, on~~In December ~~22,~~ 2017, the United States government enacted comprehensive tax legislation through the ~~TCJA,~~Tax Cuts and Jobs Act (“TCJA”), which significantly ~~changes~~changed the U.S. corporate income tax system. The TCJA requires complex computations to be performed that were not previously required in U.S. tax law, significant judgments, estimates and calculations to be made in interpreting its provisions, and the preparation and analysis of information not previously relevant or regularly produced.

The U.S. Treasury Department, the ~~IRS,~~Internal Revenue Service, and other standard-setting bodies could interpret or issue guidance on how provisions of the TCJA will be applied or otherwise administered that is different from our interpretation. As we continue our ongoing analysis of the TCJA and its related interpretations, collect and prepare necessary data, and interpret any additional guidance, we may be required to make adjustments to amounts that we have recorded that may adversely impact our results of operations and financial condition. For example, on August 1, 2018, the U.S. Treasury Department released proposed regulations covering the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the TCJA. Certain guidance included in these proposed regulations is inconsistent with our interpretation that led to the recognition of a $225 million, or $0.94 per diluted share, benefit in fiscal 2018 (the “2018 Benefit”). This proposed guidance is not authoritative and is subject to change in the regulatory review process. However, if the proposed guidance is included in the final regulations as drafted, we may be required to reverse the 2018 Benefit in the quarter the regulations become final. In addition, further legislative action could be taken to address questions or issues caused by the TCJA. As we complete our analysis of the TCJA, collect and prepare necessary data, and interpret any additional guidance, we may make adjustments to provisional amounts that we have recorded that may adversely impact our results of operations and financial condition. Additionally, stateState and foreign governments may also enact tax laws in response to the TCJA or other global initiatives that could result in further changes to our taxation and adversely impact our results of operations and financial condition.

The following table provides information on FedEx’s repurchases of our common stock during the ~~third~~first quarter of ~~2018:~~2019:

The repurchases were made under the stock repurchase program approved by our Board of Directors and announced on January 26, 2016 and through which we are authorized to purchase, in the open market or in privately negotiated transactions, up to an aggregate of 25 million shares of our common stock. As of ~~March 20,~~September 14, 2018, ~~13.2~~8.8 million shares remained authorized for purchase under the January 2016 stock repurchase program, which is the only such program that currently exists. The program does not have an expiration date.

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

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)

Large accelerated filer ☑	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☐	Emerging growth company ☐
		~~(Do not check if a smaller reporting company)~~

Common Stock		Outstanding Shares at ~~March 19,~~September 13, 2018
Common Stock, par value $0.10 per share		~~267,215,207~~263,515,857

		PAGE

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets ~~February 28,~~August 31, 2018 and May 31, ~~2017~~2018		3
Condensed Consolidated Statements of Income Three ~~and Nine~~ Months Ended ~~February 28,~~August 31, 2018 and 2017		5
Condensed Consolidated Statements of Comprehensive Income Three ~~and Nine~~ Months Ended ~~February 28,~~August 31, 2018 and 2017		6
Condensed Consolidated Statements of Cash Flows ~~Nine~~Three Months Ended ~~February 28,~~August 31, 2018 and 2017		7
Notes to Condensed Consolidated Financial Statements		8
Report of Independent Registered Public Accounting Firm		2725
ITEM 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition		2826
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		5148
ITEM 4. Controls and Procedures		5148

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings		5249
ITEM 1A. Risk Factors		5249
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		5450
ITEM 6. Exhibits		5551
Signature		57
~~Exhibit Index~~		~~E-1~~52

Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Exhibit 10.6
Exhibit 10.7
Exhibit 10.8
~~Exhibit 10.9~~
~~Exhibit 10.10~~
Exhibit 12.1
Exhibit 15.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 101.1 Interactive Data Files

	Three Months Ended			Nine Months Ended
	2018			2018
2017 Effective Tax Rate		37.5	%		36.6	%
Remeasurement of net U.S. deferred tax liability		(131.5	)		(38.4	)
Effect of February 2018 pension contribution (a)		(23.3	)		(6.8	)
Lower statutory tax rate		(18.9	)		(5.5	)
Transition tax		(4.1	)		(1.2	)
Other (b)		3.0			0.3
2018 Effective Tax Rate		(137.3	)%		(15.0	)%

	Three Months Ended August 31,
	2018			2017
REVENUE BY SERVICE TYPE
FedEx Express segment:
Package:
U.S. overnight box	$	1,886		$	1,750
U.S. overnight envelope		468			450
U.S. deferred		952			878
Total U.S. domestic package revenue		3,306			3,078
International priority		1,848			1,741
International economy		850			770
Total international export package revenue		2,698			2,511
International domestic⁽¹⁾		1,127			1,044
Total package revenue		7,131			6,633
Freight:
U.S.		730			613
International priority		551			470
International economy		519			381
International airfreight		85			83
Total freight revenue		1,885			1,547
Other		206			220
Total FedEx Express segment		9,222			8,400
FedEx Ground segment		4,799			4,245
FedEx Freight segment		1,959			1,664
FedEx Services segment		417			400
FedEx Trade Networks segment		884			799
Eliminations		(229	)		(211	)
	$	17,052		$	15,297

	Three Months Ended August 31, 2017
	Reported			Effect of Adoption of ASU 2017-07			As Adjusted
Revenue	$	15,297		$	—		$	15,297
Operating Income		1,117			(146	)		971
Other Income (Expense), net		(135	)		146			11
Net Income		596			—			596




FedEx Express Segment	FedEx Express (express transportation)
	TNT Express (international express transportation, small-package ground delivery and freight transportation)
	~~FedEx Trade Networks (air and ocean freight forwarding, customs brokerage and cross-border enablement technology and solutions)~~


FedEx Ground Segment	FedEx Ground (small-package ground delivery)
	~~FedEx Supply Chain (third-party logistics)~~


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


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

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program		Maximum Number of Shares That May Yet Be Purchased Under the Program
Dec. 1-31, 2017		195,000	$	241.14		195,000		14,580,000
Jan. 1-31, 2018		272,800		266.12		272,800		14,307,200
Feb. 1-28, 2018		690,000		244.00		690,000		13,617,200
Total		1,157,800	$	248.73		1,157,800

Exhibit Number		Description of Exhibit

~~4.1~~		Indenture, dated as of October 23, 2015, between FedEx, the Guarantors named therein and Wells Fargo Bank, National Association, as trustee. (Filed as Exhibit 4.1 to FedEx’s Current Report on Form 8-K dated and filed October 23, 2015, and incorporated herein by reference.)

~~4.2~~		Supplemental Indenture No. 5, dated as of January 31, 2018, between FedEx, the Guarantors named therein and Wells Fargo Bank, National Association, as trustee. (Filed as Exhibit 4.2 to FedEx’s Current Report on Form 8-K dated and filed January 31, 2018, and incorporated herein by reference.)

~~4.3~~		~~Form of 3.400% Note due 2028. (Included in Exhibit 4.2 to FedEx’s Current Report on Form 8-K dated and filed January 31, 2018, and incorporated herein by reference.)~~

~~4.4~~		~~Form of 4.050% Note due 2048. (Included in Exhibit 4.2 to FedEx’s Current Report on Form 8-K dated and filed January 31, 2018, and incorporated herein by reference.)~~

10.1		Amendment dated ~~December 8, 2017~~July 17, 2018 (but effective as of ~~August 28, 2017)~~February 26, 2018), amending the Transportation Agreement dated April 23, 2013 between the United States Postal Service and FedEx Express (the “USPS Transportation Agreement”). Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

10.2		Amendment dated ~~December 8, 2017~~July 17, 2018 (but effective as of ~~November 27, 2017)~~February 26, 2018), amending the USPS Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act.

10.3		Amendment dated ~~December 8, 2017~~July 17, 2018 (but effective as of ~~October~~April 2, ~~2017)~~2018), amending the USPS Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act.

10.4		Amendment dated ~~January 8,~~June 29, 2018 (but effective as of ~~January 1,~~June 4, 2018), amending the USPS Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act.

10.5		Amendment dated ~~January 11,~~July 17, 2018 (but effective as of ~~October 30, 2017)~~April 2, 2018), amending the USPS Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act.

10.6		Amendment dated ~~January 26,~~August 1, 2018 (but effective as of ~~November 27, 2017)~~June 29, 2018), amending the USPS Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act.

10.7		~~Amendment~~Supplemental Agreement No. 11 (and related side letters) dated ~~February 16, 2018 (but effective~~ as of ~~January 29, 2018),~~June 18, 2018, amending the ~~USPS Transportation Agreement.~~Boeing 767-3S2 Freighter Purchase Agreement dated as of December 14, 2011 between The Boeing Company and FedEx Express. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act.

10.8		Supplemental Agreement No. 2830 (and related side ~~letter)~~letters) dated as of ~~January 26,~~June 18, 2018, amending the Boeing 777 Freighter Purchase Agreement dated as of November 7, 2006, between The Boeing Company and FedEx ~~Express (the “Boeing 777 Freighter Purchase Agreement”).~~Express. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act.

~~10.9~~		~~Supplemental Agreement No. 29 (and related side letters) dated as of February 2, 2018, amending the Boeing 777~~ ~~Freighter~~ ~~Purchase Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act.~~

~~10.10~~		First Amendment dated as of January 26, 2018, between FedEx and JPMorgan Chase Bank, N.A., as administrative agent, amending the Five-Year Credit Agreement dated as of November 13, 2015, among FedEx, JPMorgan Chase Bank, N.A., individually and as administrative agent, and certain lenders.

12.1		Computation of Ratio of Earnings to Fixed Charges.

15.1		Letter re: Unaudited Interim Financial Statements.

~~Exhibit~~ ~~Number~~		~~Description of Exhibit~~

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.

			FEDEX CORPORATION

Date: ~~March 21,~~September 17, 2018			/s/ JOHN L. MERINO
			JOHN L. MERINO
			CORPORATE VICE PRESIDENT AND
			PRINCIPAL ACCOUNTING OFFICER

~~Exhibit~~ ~~Number~~		~~Description of Exhibit~~


~~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.~~