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 every Interactive Data File required to be submitted 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 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.

	November 30, 2018 (Unaudited)		May 31, 2018		February 28, 2019 (Unaudited)		May 31, 2018
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	2,123	$	3,265	$	2,872	$	3,265
Receivables, less allowances of $308 and $401		9,573		8,481
Spare parts, supplies and fuel, less allowances of $276 and $268		522		525
Receivables, less allowances of $318 and $401						9,037		8,481
Spare parts, supplies and fuel, less allowances of $339 and $268						546		525
Prepaid expenses and other		1,220		1,070		1,045		1,070
Total current assets		13,438		13,341		13,500		13,341
PROPERTY AND EQUIPMENT, AT COST		57,501		55,121		58,164		55,121
Less accumulated depreciation and amortization		28,114		26,967		28,396		26,967
Net property and equipment		29,387		28,154		29,768		28,154
OTHER LONG-TERM ASSETS
Goodwill		6,908		6,973		6,916		6,973
Other assets		3,556		3,862		4,280		3,862
Total other long-term assets		10,464		10,835		11,196		10,835
	$	53,289	$	52,330	$	54,464	$	52,330

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

	November 30, 2018 (Unaudited)			May 31, 2018			February 28, 2019 (Unaudited)			May 31, 2018
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Short-term borrowings	$	250		$	—		$	225		$	—
Current portion of long-term debt		642			1,342			973			1,342
Accrued salaries and employee benefits		1,850			2,177			1,659			2,177
Accounts payable		3,400			2,977			3,156			2,977
Accrued expenses		3,354			3,131			3,243			3,131
Total current liabilities		9,496			9,627			9,256			9,627
LONG-TERM DEBT, LESS CURRENT PORTION		16,399			15,243			17,218			15,243
OTHER LONG-TERM LIABILITIES
Deferred income taxes		3,253			2,867			3,211			2,867
Pension, postretirement healthcare and other benefit obligations		1,735			2,187			1,847			2,187
Self-insurance accruals		1,844			1,784			1,861			1,784
Deferred lease obligations		605			551			512			551
Deferred gains, principally related to aircraft transactions		137			121			118			121
Other liabilities		526			534			547			534
Total other long-term liabilities		8,100			8,044			8,096			8,044
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS’ INVESTMENT
Common stock, $0.10 par value; 800 million shares authorized; 318 million shares issued as of November 30, 2018 and May 31, 2018		32			32
Common stock, $0.10 par value; 800 million shares authorized; 318 million shares issued as of February 28, 2019 and May 31, 2018								32			32
Additional paid-in capital		3,185			3,117			3,209			3,117
Retained earnings		26,080			24,823			26,650			24,823
Accumulated other comprehensive loss		(817	)		(578	)		(737	)		(578	)
Treasury stock, at cost		(9,186	)		(7,978	)		(9,260	)		(7,978	)
Total common stockholders’ investment		19,294			19,416			19,894			19,416
	$	53,289		$	52,330		$	54,464		$	52,330

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

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	November 30,						November 30,						February 28,						February 28,
	2018			2017			2018			2017			2019			2018			2019			2018
				As Adjusted						As Adjusted						As Adjusted						As Adjusted
REVENUES	$	17,824		$	16,313		$	34,876		$	31,610		$	17,010		$	16,526		$	51,886		$	48,136
OPERATING EXPENSES:
Salaries and employee benefits		6,260			5,889			12,520			11,553			6,069			6,124			18,589			17,677
Purchased transportation		4,346			3,840			8,313			7,285			4,253			3,935			12,566			11,220
Rentals and landing fees		836			835			1,659			1,653			874			873			2,533			2,526
Depreciation and amortization		828			756			1,636			1,507			851			786			2,487			2,293
Fuel		1,052			818			2,038			1,521			907			914			2,945			2,435
Maintenance and repairs		751			665			1,486			1,340			658			628			2,144			1,968
Business realignment costs														4			—			4			—
Other		2,583			2,395			4,985			4,665			2,483			2,408			7,468			7,073
		16,656			15,198			32,637			29,524			16,099			15,668			48,736			45,192
OPERATING INCOME		1,168			1,115			2,239			2,086			911			858			3,150			2,944
OTHER INCOME (EXPENSE):
Interest, net		(129	)		(124	)		(241	)		(238	)		(135	)		(125	)		(393	)		(363	)
Other retirement plans income		158			147			316			293			158			143			474			436
Other, net		(20	)		1			(36	)		(20	)		(3	)		(2	)		(22	)		(22	)
		9			24			39			35			20			16			59			51
INCOME BEFORE INCOME TAXES		1,177			1,139			2,278			2,121			931			874			3,209			2,995
PROVISION FOR INCOME TAXES		242			364			508			750			192			(1,200	)		700			(450	)
NET INCOME	$	935		$	775		$	1,770		$	1,371		$	739		$	2,074		$	2,509		$	3,445
EARNINGS PER COMMON SHARE:
Basic	$	3.56		$	2.89		$	6.71		$	5.12		$	2.83		$	7.74		$	9.55		$	12.85
Diluted	$	3.51		$	2.84		$	6.60		$	5.03		$	2.80		$	7.59		$	9.41		$	12.63
DIVIDENDS DECLARED PER COMMON SHARE	$	0.65		$	0.50		$	1.95		$	1.50		$	0.65		$	0.50		$	2.60		$	2.00

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

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	November 30,						November 30,						February 28,						February 28,
	2018			2017			2018			2017			2019			2018			2019			2018
NET INCOME	$	935		$	775		$	1,770		$	1,371		$	739		$	2,074		$	2,509		$	3,445
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustments, net of tax benefit of $7 and $31 in 2018 and tax benefit of $7 and tax expense of $18 in 2017		(31	)		(90	)		(193	)		19
Amortization of prior service credit, net of tax benefit of $7 and $14 in 2018 and tax benefit of $11 and $22 in 2017		(23	)		(19	)		(46	)		(38	)
Foreign currency translation adjustments, net of tax expense of $9 and tax benefit of $22 in 2019 and tax expense of $9 and $26 in 2018														103			100			(90	)		119
Amortization of prior service credit, net of tax benefit of $7 and $21 in 2019 and tax benefit of $7 and $29 in 2018														(23	)		(23	)		(69	)		(61	)
		(54	)		(109	)		(239	)		(19	)		80			77			(159	)		58
COMPREHENSIVE INCOME	$	881		$	666		$	1,531		$	1,352		$	819		$	2,151		$	2,350		$	3,503

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

	Six Months Ended						Nine Months Ended
	November 30,						February 28,
	2018			2017			2019			2018
Operating Activities:
Net income	$	1,770		$	1,371		$	2,509		$	3,445
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		1,636			1,507			2,487			2,293
Provision for uncollectible accounts		160			116			221			177
Stock-based compensation		108			103			141			135
Deferred income taxes and other noncash items		236			327			250			(914	)
Changes in assets and liabilities:
Receivables		(1,343	)		(983	)		(780	)		(986	)
Other assets		(111	)		(338	)		(96	)		(151	)
Accounts payable and other liabilities		(227	)		(564	)		(1,307	)		(2,781	)
Other, net		(50	)		(41	)		(102	)		(56	)
Cash provided by operating activities		2,179			1,498			3,323			1,162
Investing Activities:
Capital expenditures		(2,634	)		(2,621	)		(3,757	)		(3,994	)
Business acquisitions, net of cash acquired		—			(44	)		—			(44	)
Proceeds from asset dispositions and other		53			12			62			21
Cash used in investing activities		(2,581	)		(2,653	)		(3,695	)		(4,017	)
Financing Activities:
Proceeds from short-term borrowings		248			250
Proceeds from short-term borrowings, net								220			797
Principal payments on debt								(874	)		(31	)
Proceeds from debt issuances		1,233			—			2,463			1,481
Principal payments on debt		(785	)		(28	)
Proceeds from stock issuances		45			205			58			284
Dividends paid		(173	)		(268	)		(514	)		(402	)
Purchase of treasury stock		(1,271	)		(270	)		(1,365	)		(558	)
Other, net		1			3			5			6
Cash used in financing activities		(702	)		(108	)
Cash (used in) provided by financing activities								(7	)		1,577
Effect of exchange rate changes on cash		(38	)		62			(14	)		98
Net decrease in cash and cash equivalents		(1,142	)		(1,201	)		(393	)		(1,180	)
Cash and cash equivalents at beginning of period		3,265			3,969			3,265			3,969
Cash and cash equivalents at end of period	$	2,123		$	2,768		$	2,872		$	2,789

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

	Three Months Ended						Nine Months Ended
	February 28,						February 28,
	2019			2018			2019			2018
Common Stock
Beginning Balance	$	32		$	32		$	32		$	32
Ending Balance		32			32			32			32
Additional Paid-in-Capital
Beginning Balance		3,185			3,055			3,117			3,005
Employee incentive plans and other		24			30			92			80
Ending Balance		3,209			3,085			3,209			3,085
Retained Earnings
Beginning Balance		26,080			21,785			24,823			20,833
Net Income		739			2,074			2,509			3,445
Cash dividends declared ($0.65, $0.50, $2.60, and $2.00 per share)		(169	)		(133	)		(683	)		(535	)
Employee incentive plans and other		—			(16	)		1			(33	)
Ending Balance		26,650			23,710			26,650			23,710
Accumulated Other Comprehensive Income
Beginning Balance		(817	)		(434	)		(578	)		(415	)
Other comprehensive income, net of tax (expense)/benefit of ($2), ($2), $43, and $3		80			77			(159	)		58
Ending Balance		(737	)		(357	)		(737	)		(357	)
Treasury Stock
Beginning Balance		(9,186	)		(7,383	)		(7,978	)		(7,382	)
Purchase of treasury stock (0.6, 1.2, 6.0, and 2.4 million shares)		(93	)		(288	)		(1,365	)		(558	)
Employee incentive plans and other (0.1, 0.7, 0.6, and 2.7 million shares)		19			95			83			364
Ending Balance		(9,260	)		(7,576	)		(9,260	)		(7,576	)
Total Common Stockholders' Investment Balance	$	19,894		$	18,894		$	19,894		$	18,894

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, 2018 (“Annual Report”). ~~Accordingly, significant~~Significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed in our Annual Report.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to present fairly our financial position as of ~~November 30, 2018,~~February 28, 2019, and the results of our operations for the three- and ~~six-month~~nine-month periods ended ~~November 30,~~February 28, 2019 and 2018, ~~and 2017 and~~ cash flows for the ~~six-month~~nine-month periods ended ~~November 30,~~February 28, 2019 and 2018, and ~~2017.~~changes in common stockholders’ investment for the three- and nine-month periods ended February 28, 2019 and 2018. Operating results for the three- and ~~six-month~~nine-month periods ended ~~November 30, 2018~~February 28, 2019 are not necessarily indicative of the results that may be expected for the year ending May 31, 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 is the principal to the transaction for most of these services and revenue is recognized on a gross basis based on the transfer of control to the customer. Costs associated with independent businesses providing transportation services are recognized as incurred and included in the 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 ~~$600~~$526 million and $542 million at ~~November 30, 2018~~February 28, 2019 and May 31, 2018, respectively. Contract assets net of deferred unearned revenue were ~~$423~~$353 million and $363 million at ~~November 30, 2018~~February 28, 2019 and May 31, 2018, respectively. Contract assets are included within current assets in the accompanying unaudited condensed consolidated balance sheets. Contract liabilities related to advance payments from customers were $9 million and $13 million at ~~November 30, 2018~~February 28, 2019 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 (e.g., every 15 days, 30 days, 45 days, etc.) 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 periods ended ~~November 30.~~February 28. This presentation is consistent with how we organize our segments internally for making operating decisions and measuring performance.

	Three Months Ended						Six Months Ended
	November 30,						November 30,						Three Months Ended				Nine Months Ended
	2018			2017			2018			2017			2019		2018		2019		2018
REVENUE BY SERVICE TYPE
FedEx Express segment:
Package:
U.S. overnight box	$	1,948		$	1,787		$	3,834		$	3,537		$	1,844	$	1,836	$	5,678	$	5,373
U.S. overnight envelope		444			432			912			882			433		435		1,345		1,317
U.S. deferred		1,060			922			2,012			1,800			1,119		996		3,131		2,796
Total U.S. domestic package revenue		3,452			3,141			6,758			6,219			3,396		3,267		10,154		9,486
International priority		1,896			1,865			3,770			3,628			1,738		1,841		5,508		5,469
International economy		885			815			1,735			1,585			806		793		2,541		2,378
Total international export package revenue		2,781			2,680			5,505			5,213			2,544		2,634		8,049		7,847
International domestic⁽¹⁾		1,203			1,228			2,334			2,284			1,078		1,140		3,412		3,424
Total package revenue		7,436			7,049			14,597			13,716			7,018		7,041		21,615		20,757
Freight:
U.S.		792			688			1,522			1,301			772		739		2,294		2,040
International priority		564			541			1,097			995			477		532		1,574		1,527
International economy		554			481			1,073			862			495		492		1,568		1,354
International airfreight		83			100			168			183			76		93		244		276
Total freight revenue		1,993			1,810			3,860			3,341			1,820		1,856		5,680		5,197
Other		175			217			369			419			167		201		536		620
Total FedEx Express segment		9,604			9,076			18,826			17,476			9,005		9,098		27,831		26,574
FedEx Ground segment		5,142			4,525			9,941			8,770			5,261		4,828		15,202		13,598
FedEx Freight segment		1,918			1,673			3,877			3,337			1,750		1,613		5,627		4,950
FedEx Services segment		429			416			846			816			402		397		1,248		1,213
FedEx Trade Networks operating segment		966			834			1,850			1,633
Eliminations		(235	)		(211	)		(464	)		(422	)
Other and eliminations⁽²⁾														592		590		1,978		1,801
	$	17,824		$	16,313		$	34,876		$	31,610		$	17,010	$	16,526	$	51,886	$	48,136

EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS. The pilots of Federal Express Corporation (“FedEx Express”), who are a small number of its total employees, are employed under a collective bargaining agreement that took effect on November 2, 2015. The collective bargaining agreement is scheduled to become amendable in November 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,” formerly~~Chain” (formerly GENCO Distribution System, Inc.)) in 2015, which already had a small number of employees who are members of unions). Additionally, certain of FedEx Express’s non-U.S. employees are ~~unionized.~~unionized, and a union has been certified to represent owner-drivers at a FedEx Freight, Inc. facility in Canada.

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 ~~$40~~$33 million for the three-month period ended ~~November 30, 2018~~February 28, 2019 and ~~$108~~$141 million for the ~~six-month~~nine-month period ended ~~November 30, 2018.~~February 28, 2019. Our stock-based compensation expense was ~~$41~~$32 million for the three-month period ended ~~November 30, 2017~~February 28, 2018 and ~~$103~~$135 million for the ~~six-month~~nine-month period ended ~~November 30, 2017.~~February 28, 2018. Due to its immateriality, additional disclosures related to stock-based compensation have been excluded from this quarterly report.

BUSINESS REALIGNMENT COSTS. In December 2018, we announced cost-reduction programs primarily through initiatives at FedEx Express and FedEx Corporate Services, Inc. (“FedEx Services”), including a U.S.-based voluntary employee buyout program.

During the third quarter of 2019, we began offering voluntary cash buyouts to eligible U.S.-based employees in certain staff functions. The U.S.-based voluntary employee buyout program includes voluntary severance payments and funding to healthcare reimbursement accounts, with the voluntary severance payment calculated based on four weeks of gross base salary for every year of continuous FedEx service up to a maximum payment of two years of pay. Eligible employees will be scheduled to vacate positions in phases to ensure a smooth transition in the impacted functions so that we maintain service levels to our customers. Costs of the benefits provided under the program will be recognized as special termination benefits in the period employees accept their offers.

We incurred costs of approximately $4 million ($3 million, net of tax, or $0.01 per diluted share) during the third quarter of 2019 associated with our business realignment activities. These costs related to certain employee severance arrangements and other external costs directly attributable to our business realignment activities, such as professional fees. Total costs of the U.S.-based voluntary employee buyout program will depend on acceptance rates and severance payments will be made at the time of departure. The cost of our business realignment activities is included in the caption “Business realignment costs” in our unaudited condensed consolidated statements of income.

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”). SAB 118 was issued to address the application of U.S. generally accepted accounting principles (“GAAP”) in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to finalize the calculations for 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~~had a one-year measurement period to complete the accounting for the initial tax effects of the TCJA. As of December 22, 2018, our accounting is complete for the tax effects of the TCJA, including the following elements initially recorded on a provisional basis:

In 2014, the Financial Accounting Standards Board (“FASB”) and International Accounting Standards Board issued a new accounting standard that supersedes virtually all existing revenue recognition guidance under generally accepted accounting principles in the United States. 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 adopted this standard as of June 1, 2018 (fiscal 2019) using the modified retrospective method of adoption as permitted by the standard. The new guidance did not have an impact on our revenue recognition policies, practices or 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 impacts our operating income but has no impact on our net income or earnings per share. We adopted this standard effective June 1, 2018 (fiscal 2019) and 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):

	Three Months Ended November 30, 2017								Six Months Ended November 30, 2017								Three Months Ended February 28, 2018								Nine Months Ended February 28, 2018
	Reported			Effect of Adoption of ASU 2017-07			As Adjusted		Reported			Effect of Adoption of ASU 2017-07			As Adjusted		Reported			Effect of Adoption of ASU 2017-07			As Adjusted		Reported			Effect of Adoption of ASU 2017-07			As Adjusted
Revenue	$	16,313		$	—		$	16,313	$	31,610		$	—		$	31,610	$	16,526		$	—		$	16,526	$	48,136		$	—		$	48,136
Operating Income		1,262			(147	)		1,115		2,379			(293	)		2,086		1,001			(143	)		858		3,380			(436	)		2,944
Other Income (Expense), net		(123	)		147			24		(258	)		293			35		(127	)		143			16		(385	)		436			51
Net Income		775			—			775		1,371			—			1,371		2,074			—			2,074		3,445			—			3,445

In August 2018, the SEC published Release No. 33-10532, Disclosure Update and Simplification (“DUSTR”), which adopted amendments to certain disclosure requirements that have become redundant, duplicative, overlapping, outdated or superseded, in light of other SEC disclosure requirements, GAAP, or changes in the information environment. While most of the DUSTR amendments eliminate outdated or duplicative disclosure requirements, the final rule amends the interim financial statement requirements to include a reconciliation of changes in common stockholders’ investment in the notes or as a separate statement for each period for which a statement of comprehensive income is required to be filed. The new interim reconciliation of changes in common stockholders’ investment is included herein as a separate statement.

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 of approximately $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 our lease portfolio as of the adoption date. We are currently 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 (ASU 2018-02) 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 these new rules in the fourth quarter of ~~fiscal~~ 2019.

In August 2018, the FASB issued an Accounting Standards Update (ASU 2018-15) that reduces the complexity for accounting for costs of implementing a cloud computing service arrangement and aligns the accounting for capitalizing implementation costs of hosting arrangements, regardless of whether they convey a license to the hosted software. These changes will be effective June 1, 2020 (fiscal 2021). We are assessing the impact of this new standard on our consolidated financial statements and related disclosures.

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 ~~second~~third quarter of 2019, we repurchased ~~2.8~~0.6 million shares of FedEx common stock at an average price of ~~$228.35~~$168.43 per share for a total of ~~$646~~$93 million. During the ~~first half~~nine months of 2019, we ~~purchased 5.4~~repurchased 6.0 million shares of FedEx common stock at an average price of ~~$233.44~~$227.42 per share for a total of ~~$1.3~~$1.4 billion. As of ~~November 30, 2018, 6.3~~February 28, 2019, 5.7 million shares remained under the current share repurchase authorization.

DIVIDENDS DECLARED PER COMMON SHARE. On ~~November 16, 2018,~~February 15, 2019, our Board of Directors declared a quarterly dividend of $0.65 per share of common stock. The dividend will be paid on ~~January 2,~~April 1, 2019 to stockholders of record as of the close of business on ~~December 10, 2018.~~March 11, 2019. 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.

The following table provides changes in AOCI, net of tax, reported in our unaudited condensed consolidated financial statements for the periods ended ~~November 30~~February 28 (in millions; amounts in parentheses indicate debits to AOCI):

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	2018			2017			2018			2017			2019			2018			2019			2018
Foreign currency translation loss:
Balance at beginning of period	$	(921	)	$	(576	)	$	(759	)	$	(685	)	$	(952	)	$	(666	)	$	(759	)	$	(685	)
Translation adjustments		(31	)		(90	)		(193	)		19			103			100			(90	)		119
Balance at end of period		(952	)		(666	)		(952	)		(666	)		(849	)		(566	)		(849	)		(566	)
Retirement plans adjustments:
Balance at beginning of period		158			251			181			270			135			232			181			270
Reclassifications from AOCI		(23	)		(19	)		(46	)		(38	)		(23	)		(23	)		(69	)		(61	)
Balance at end of period		135			232			135			232			112			209			112			209
Accumulated other comprehensive (loss) at end of period	$	(817	)	$	(434	)	$	(817	)	$	(434	)	$	(737	)	$	(357	)	$	(737	)	$	(357	)

The following table presents details of the reclassifications from AOCI for the periods ended ~~November 30~~February 28 (in millions; amounts in parentheses indicate debits to earnings):

	Amount Reclassified from AOCI												Affected Line Item in the Income Statement	Amount Reclassified from AOCI												Affected Line Item in the Income Statement
	Three Months Ended						Six Months Ended							Three Months Ended						Nine Months Ended
	2018			2017			2018			2017				2019			2018			2019			2018
Amortization of retirement plans prior service credits, before tax	$	30		$	30		$	60		$	60		Salaries and employee benefits	$	30		$	30		$	90		$	90		Salaries and employee benefits
Income tax benefit		(7	)		(11	)		(14	)		(22	)	Provision for income taxes		(7	)		(7	)		(21	)		(29	)	Provision for income taxes
AOCI reclassifications, net of tax	$	23		$	19		$	46		$	38		Net income	$	23		$	23		$	69		$	61		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.

During the third quarter of 2019, we issued $1.2 billion of senior unsecured debt under our current shelf registration statement, comprised of €640 million of 0.7% fixed-rate notes due in May 2022 and $500 million of 3.4% fixed-rate notes due in January 2022. We will use the net proceeds to pay the €500 million aggregate principal amount of floating rate notes due at maturity on April 11, 2019, and for general corporate purposes.

During the second quarter of 2019, we issued $1.25 billion of senior unsecured debt under our current shelf registration statement, comprised of $400 million of 4.20% fixed-rate notes due in October 2028 and $850 million of 4.95% fixed-rate notes due in October 2048. Interest on these notes is paid semi-annually. We used the net proceeds to redeem the $750 million aggregate principal amount of 8.00% notes due January 15, 2019, and for general corporate purposes.

We have a five-year $2.0 billion revolving credit facility that expires in November 2020. The facility, which 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 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 ~~2.1~~2.2 to 1.0 at ~~November 30, 2018.~~February 28, 2019. 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 ~~second~~third quarter of 2019, we issued commercial paper to provide us with additional short-term liquidity. The maximum amount outstanding during the quarter was ~~$600~~$750 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 ~~November 30, 2018, $250~~February 28, 2019, $225 million of commercial paper and ~~$54~~$53 million in letters of credit were outstanding, leaving ~~$1.696~~$1.722 billion available under the revolving credit facility for future borrowings.

Long-term debt, including current maturities and exclusive of capital leases, had carrying values of ~~$16.9~~$18.1 billion at ~~November 30, 2018~~February 28, 2019 and $16.5 billion at May 31, 2018, compared with estimated fair values of ~~$16.2~~$17.8 billion at ~~November 30, 2018~~February 28, 2019 and $16.6 billion at May 31, 2018. The annualized weighted-average interest rate on long-term debt was ~~3.5%~~3.4% at ~~November 30, 2018.~~February 28, 2019. 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 periods ended ~~November 30~~February 28 was as follows (in millions, except per share amounts):

	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	2018		2017		2018		2017		2019		2018		2019		2018
Basic earnings per common share:
Net earnings allocable to common shares⁽¹⁾	$	933	$	774	$	1,768	$	1,369	$	738	$	2,071	$	2,506	$	3,441
Weighted-average common shares		262		268		263		268		261		268		262		268
Basic earnings per common share	$	3.56	$	2.89	$	6.71	$	5.12	$	2.83	$	7.74	$	9.55	$	12.85
Diluted earnings per common share:
Net earnings allocable to common shares⁽¹⁾	$	933	$	774	$	1,768	$	1,369	$	738	$	2,071	$	2,506	$	3,441
Weighted-average common shares		262		268		263		268		261		268		262		268
Dilutive effect of share-based awards		4		4		5		4		2		5		4		4
Weighted-average diluted shares		266		272		268		272		263		273		266		272
Diluted earnings per common share	$	3.51	$	2.84	$	6.60	$	5.03	$	2.80	$	7.59	$	9.41	$	12.63
Anti-dilutive options excluded from diluted earnings per common share		4.0		2.9		3.8		3.0		7.2		1.9		5.0		2.6

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

Our effective tax rate was 20.6% for the ~~second~~third quarter and ~~22.3%~~21.8% for the ~~first half~~nine months of 2019, compared with ~~32.0%~~(137.3)% for the ~~second~~third quarter and ~~35.4%~~(15.0)% for the ~~first half~~nine months of 2018. The 2019 tax rates include a benefit of $90 million from the reduction of a valuation allowance on certain tax loss carryforwards and an expense of $50 million from the impact on our deferred taxes attributable to a recently enacted lower tax rate ~~was~~in the Netherlands. The 2019 tax rates were also favorably impacted by the TCJA, which resulted in benefits of approximately ~~$150 million and $285~~$60 million during the ~~second~~third quarter and ~~first half~~$230 million for the nine months of 2019, ~~respectively,~~ primarily from the lower statutory tax rate on fiscal 2019 earnings. The tax rate for the nine months of 2019 ~~tax rates were~~ also ~~favorably impacted~~benefited by ~~a tax benefit of~~ approximately $60 million from accelerated deductions ~~to be~~ claimed on ~~FedEx’s~~our 2018 U.S. income tax return. The 2018 tax ~~rate benefited~~rates were favorably impacted by a provisional benefit of $1.15 billion from the remeasurement of our net U.S. deferred tax liability and a provisional benefit of $36 million from foreign tax credits ~~associated with~~exceeding the one-time transition tax on previously deferred foreign earnings. In addition to these provisional amounts, we recognized a ~~dividend paid~~$204 million benefit from a $1.5 billion contribution to our ~~foreign operations~~tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”) in February 2018 and ~~tax benefits from share-based payments. The 2018~~$165 million related to the phase-in of a reduced statutory tax rate on 2018 year-to-date earnings, of which approximately $120 million was ~~negatively impacted by costs incurred~~recorded in ~~connection with~~ the ~~integration~~third quarter and attributable to the first half of ~~the foreign operations of FedEx Express and TNT Express B.V. (“TNT Express”), the effects of the NotPetya cyberattack on lower taxed foreign earnings and changes in uncertain tax positions.~~2018 earnings.

On ~~August 1, 2018,~~January 15, 2019, the U.S. Treasury Department ~~released proposed~~issued final 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~~final 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”). Notwithstanding this inconsistency, we ~~are~~remain confident in our interpretation of the TCJA and intend to defend this position through litigation, if necessary. ~~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 or~~ we are ultimately unsuccessful in defending our position, we may be required to reverse the 2018 Benefit.

~~The U.S. Treasury Department has also released proposed regulations related to~~During the ~~business interest expense limitations, foreign~~third quarter of 2019, we completed our accounting for the tax ~~credit guidance, base-erosion and anti-abuse tax provisions~~effects of the TCJA. ~~This proposed guidance is not authoritative and is subject~~No additional adjustments were made during the quarter. As a result, the only adjustment to ~~change~~the amounts initially recorded on a provisional basis in ~~the regulatory review process. We continue to review these proposed regulations and consider their potential impact on our effective~~2018 was a tax ~~rate.~~

The TCJA, enacted during the third quarter of fiscal 2018, significantly changed the U.S. corporate income tax system including, among other things, lowering the statutory federal income tax rate ~~reduction under~~from 35% to 21%. Due to our May 31 fiscal year-end, the ~~TCJA. As a result, we recognized $4 million of tax expense~~lower rate was phased in, resulting in a ~~decrease~~U.S. statutory federal rate of 29.2% for 2018 and a statutory federal rate of 21% for subsequent years.

The following table provides a reconciliation of the 2018 effective tax rates to the ~~$1.15 billion provisional benefit recorded in 2018. No other change to the provisional amounts recorded at May 31, 2018 has been recorded. We will continue to adjust provisional amounts for~~2019 effective tax rates, including the impacts of the TCJA, ~~as more information and further guidance becomes available during~~for the ~~measurement period, which ends December 22, 2018.~~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 periods ended ~~November 30~~February 28 were as follows (in millions):

	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	2018		2017		2018		2017		2019		2018		2019		2018
Defined benefit pension plans, net	$	29	$	37	$	57	$	74	$	28	$	39	$	85	$	113
Defined contribution plans		133		124		277		251		138		135		415		386
Postretirement healthcare plans		18		18		37		37		19		19		56		56
	$	180	$	179	$	371	$	362	$	185	$	193	$	556	$	555

Net periodic benefit cost of the pension and postretirement healthcare plans for the periods ended ~~November 30~~February 28 included the following components (in millions):

	Three Months Ended																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		2019			2018			2019			2018			2019		2018
Service cost	$	172		$	170		$	25		$	23		$	8	$	9	$	173		$	169		$	23		$	23		$	9	$	9
Other retirement plans (income) expense:
Interest cost		238			278			12			13			10		9		237			279			13			12			10		10
Expected return on plan assets		(376	)		(406	)		(12	)		(11	)		—		—		(376	)		(406	)		(12	)		(10	)		—		—
Amortization of prior service credit and other		(30	)		(29	)		—			(1	)		—		—		(30	)		(29	)		—			1			—		—
		(168	)		(157	)		—			1			10		9		(169	)		(156	)		1			3			10		10
	$	4		$	13		$	25		$	24		$	18	$	18	$	4		$	13		$	24		$	26		$	19	$	19

	Six Months Ended																Nine 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		2019			2018			2019			2018			2019		2018
Service cost	$	344		$	340		$	49		$	46		$	17	$	18	$	517		$	509		$	72		$	69		$	26	$	27
Other retirement plans (income) expense:
Interest cost		476			557			25			25			20		19		713			836			38			37			30		29
Expected return on plan assets		(753	)		(812	)		(24	)		(22	)		—		—		(1,129	)		(1,218	)		(36	)		(32	)		—		—
Amortization of prior service credit and other		(59	)		(59	)		(1	)		(1	)		—		—		(89	)		(88	)		(1	)		—			—		—
		(336	)		(314	)		—			2			20		19		(505	)		(470	)		1			5			30		29
	$	8		$	26		$	49		$	48		$	37	$	37	$	12		$	39		$	73		$	74		$	56	$	56

Contributions to our ~~tax-qualified~~ U.S. ~~domestic pension plans~~Pension Plans for the ~~six-month~~nine-month periods ended ~~November 30~~February 28 were as follows (in millions):

	2018		2017		2019		2018
Required	$	—	$	268	$	—	$	22
Voluntary		500		482		1,000		2,478
	$	500	$	750	$	1,000	$	2,500

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, 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 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”),~~ constitute our reportable segments.

References to our transportation segments include, collectively, the FedEx Express segment, the FedEx Ground segment and the FedEx Freight segment.

The FedEx Services segment operates combined sales, marketing, administrative and information-technology functions in shared services operations that support our transportation businesses and allow us to obtain synergies from the combination of these functions. For the international regions of FedEx Express, some of these functions are performed on a regional basis 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 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”)~~Logistics 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.

The following table provides a reconciliation of reportable segment revenues and operating income (loss) to our unaudited condensed consolidated financial statement totals for the periods ended ~~November 30~~February 28 (in millions):

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	2018			2017			2018			2017			2019			2018			2019			2018
Revenues:
FedEx Express segment	$	9,604		$	9,076		$	18,826		$	17,476		$	9,005		$	9,098		$	27,831		$	26,574
FedEx Ground segment		5,142			4,525			9,941			8,770			5,261			4,828			15,202			13,598
FedEx Freight segment		1,918			1,673			3,877			3,337			1,750			1,613			5,627			4,950
FedEx Services segment		429			416			846			816			402			397			1,248			1,213
Other and eliminations		731			623			1,386			1,211			592			590			1,978			1,801
	$	17,824		$	16,313		$	34,876		$	31,610		$	17,010		$	16,526		$	51,886		$	48,136
Operating income (loss):
FedEx Express segment	$	620		$	601		$	987		$	921		$	370		$	317		$	1,357		$	1,238
FedEx Ground segment		586			496			1,253			1,102			577			614			1,830			1,716
FedEx Freight segment		148			108			324			273			97			49			421			322
Corporate, other and eliminations		(186	)		(90	)		(325	)		(210	)		(133	)		(122	)		(458	)		(332	)
	$	1,168		$	1,115		$	2,239		$	2,086		$	911		$	858		$	3,150		$	2,944

As of ~~November 30, 2018,~~February 28, 2019, our purchase commitments under various contracts for the remainder of 2019 and annually thereafter were as follows (in millions):

	Aircraft and Related		Other⁽¹⁾		Total		Aircraft and Related		Other⁽¹⁾		Total
2019 (remainder)	$	832	$	572	$	1,404	$	421	$	296	$	717
2020		1,987		767		2,754		1,998		833		2,831
2021		2,285		513		2,798		2,276		597		2,873
2022		1,867		367		2,234		1,874		433		2,307
2023		1,577		266		1,843		1,586		275		1,861
Thereafter		3,015		534		3,549		3,079		535		3,614
Total	$	11,563	$	3,019	$	14,582	$	11,234	$	2,969	$	14,203

The amounts reflected in the table above for purchase commitments represent noncancelable agreements to purchase goods or services. As of ~~November 30, 2018,~~February 28, 2019, our obligation to purchase six Boeing 777 Freighter (“B777F”) aircraft and five Boeing 767-300 Freighter (“B767F”) 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. Open purchase orders that are cancelable are not considered unconditional purchase obligations for financial reporting purposes and are not included in the table above.

As of ~~November 30, 2018,~~February 28, 2019, we had ~~$1.0 billion~~$965 million in deposits and progress payments 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 related contracts are subject to price escalations. The following table is a summary of the key aircraft we are committed to purchase as of ~~November 30, 2018~~February 28, 2019 with the year of expected delivery:

	Cessna SkyCourier 408		ATR 72-600F		B767F		B777F		Total		Cessna SkyCourier 408		ATR 72-600F		B767F		B777F		Total
2019 (remainder)		-		-		7		2		9		-		-		4		1		5
2020		-		-		17		5		22		-		-		17		5		22
2021		12		5		18		2		37		12		5		18		2		37
2022		12		6		12		3		33		12		6		12		3		33
2023		12		6		6		4		28		12		6		6		4		28
Thereafter		14		13		-		6		33		14		13		-		6		33
Total		50		30		60		22		162		50		30		57		21		158

A summary of future minimum lease payments under noncancelable operating leases with an initial or remaining term in excess of one year at ~~November 30, 2018~~February 28, 2019 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
2019 (remainder)	$	281	$	1,104	$	1,385	$	26	$	571	$	597
2020		261		2,026		2,287		261		2,083		2,344
2021		203		1,858		2,061		203		1,923		2,126
2022		185		1,669		1,854		185		1,728		1,913
2023		127		1,499		1,626		127		1,555		1,682
Thereafter		48		8,465		8,513		48		8,926		8,974
Total	$	1,105	$	16,621	$	17,726	$	850	$	16,786	$	17,636

Future minimum lease payments under capital leases were immaterial at ~~November 30, 2018.~~February 28, 2019. 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 operating agreements no longer in 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 certain wage payments from the ~~benefit of wage-and-hour laws,~~owner-operators and FedEx Ground, 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 of these 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. The first-filed lawsuit ~~alleges~~alleged that FedEx Ground provided delivery services on behalf of four shippers, and the second-filed lawsuit ~~alleges~~alleged that FedEx Ground provided delivery services on behalf of six additional shippers; none of these shippers continue to ship in our network. 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~~identified no shippers or shipments, but generally ~~alleges~~alleged violations of the same laws that ~~are~~were the subject of the other two lawsuits.

On October 10, 2018, FedEx Ground and the City and State of New York reached an agreement in principle to settle the ~~pending~~ lawsuits arising from FedEx Ground’s and FedEx Freight’s alleged shipments of cigarettes to New York residents for $35.4 million. The settlement does not include any admission of liability by FedEx Ground or FedEx Freight. ~~An accrual has been established for~~In addition to the settlement amount, ~~of the settlement. Additionally,~~ we ~~have accrued $10.5~~recognized approximately $10 million for certain attorney’s fees in connection with this matter. In December 2018, the parties entered into a final settlement agreement and, subsequently, the settlement amount was paid and the lawsuits were dismissed by the court.

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.

In May 2018, FedEx Trade Networks was informed that CBP was 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. In October 2018, FedEx Trade Networks received notice from CBP that is has dropped the additional demand and that the claims for reduced-duty treatment and duty-free treatment are fully resolved.

Matters. 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 ~~six-month~~nine-month periods ended ~~November 30~~February 28 was as follows (in millions):

	2018			2017			2019			2018
Cash payments for:
Interest (net of capitalized interest)	$	308		$	238		$	498		$	430
Income taxes	$	220		$	617		$	346		$	707
Income tax refunds received		(6	)		(19	)		(34	)		(59	)
Cash tax payments, net	$	214		$	598		$	312		$	648

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 ~~$16.9~~$18.1 billion of our 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	$	688	$	187	$	1,310	$	(62	)	$	2,123	$	1,413	$	204	$	1,296	$	(41	)	$	2,872
Receivables, less allowances		40		5,848		3,868		(183	)		9,573		45		5,474		3,600		(82	)		9,037
Spare parts, supplies, fuel, prepaid expenses and other, less allowances		491		956		295		—			1,742		313		979		299		—			1,591
Total current assets		1,219		6,991		5,473		(245	)		13,438		1,771		6,657		5,195		(123	)		13,500
PROPERTY AND EQUIPMENT, AT COST		23		53,441		4,037		—			57,501		23		53,997		4,144		—			58,164
Less accumulated depreciation and amortization		17		26,166		1,931		—			28,114		17		26,384		1,995		—			28,396
Net property and equipment		6		27,275		2,106		—			29,387		6		27,613		2,149		—			29,768
INTERCOMPANY RECEIVABLE		845		1,628		—		(2,473	)		—		661		2,157		—		(2,818	)		—
GOODWILL		—		1,598		5,310		—			6,908		—		1,598		5,318		—			6,916
INVESTMENT IN SUBSIDIARIES		34,957		4,891		—		(39,848	)		—		35,803		4,904		—		(40,707	)		—
OTHER ASSETS		270		1,569		1,717		—			3,556		891		1,670		1,857		(138	)		4,280
	$	37,297	$	43,952	$	14,606	$	(42,566	)	$	53,289	$	39,132	$	44,599	$	14,519	$	(43,786	)	$	54,464
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Short-term borrowings	$	250	$	—	$	—	$	—		$	250	$	225	$	—	$	—	$	—		$	225
Current portion of long-term debt		567		69		6		—			642		966		2		5		—			973
Accrued salaries and employee benefits		49		1,192		609		—			1,850		52		1,149		458		—			1,659
Accounts payable		197		1,576		1,831		(204	)		3,400		188		1,430		1,656		(118	)		3,156
Accrued expenses		544		1,843		1,007		(40	)		3,354		510		1,848		890		(5	)		3,243
Total current liabilities		1,607		4,680		3,453		(244	)		9,496		1,941		4,429		3,009		(123	)		9,256
LONG-TERM DEBT, LESS CURRENT PORTION		16,101		287		11		—			16,399		16,921		287		10		—			17,218
INTERCOMPANY PAYABLE		—		—		2,473		(2,473	)		—		—		—		2,818		(2,818	)		—
OTHER LONG-TERM LIABILITIES
Deferred income taxes		92		3,055		106		—			3,253		—		3,252		97		(138	)		3,211
Other liabilities		203		3,643		1,002		(1	)		4,847		376		3,502		1,007		—			4,885
Total other long-term liabilities		295		6,698		1,108		(1	)		8,100		376		6,754		1,104		(138	)		8,096
STOCKHOLDERS’ INVESTMENT		19,294		32,287		7,561		(39,848	)		19,294
COMMON STOCKHOLDERS’ INVESTMENT													19,894		33,129		7,578		(40,707	)		19,894
	$	37,297	$	43,952	$	14,606	$	(42,566	)	$	53,289	$	39,132	$	44,599	$	14,519	$	(43,786	)	$	54,464

			Guarantor		Non-guarantor									Guarantor		Non-guarantor
	Parent		Subsidiaries		Subsidiaries		Eliminations			Consolidated		Parent		Subsidiaries		Subsidiaries		Eliminations			Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,485	$	257	$	1,538	$	(15	)	$	3,265	$	1,485	$	257	$	1,538	$	(15	)	$	3,265
Receivables, less allowances		3		4,970		3,586		(78	)		8,481		3		4,970		3,586		(78	)		8,481
Spare parts, supplies, fuel, prepaid expenses and other, less allowances		425		878		292		—			1,595		425		878		292		—			1,595
Total current assets		1,913		6,105		5,416		(93	)		13,341		1,913		6,105		5,416		(93	)		13,341
PROPERTY AND EQUIPMENT, AT COST		21		51,232		3,868		—			55,121		21		51,232		3,868		—			55,121
Less accumulated depreciation and amortization		17		25,111		1,839		—			26,967		17		25,111		1,839		—			26,967
Net property and equipment		4		26,121		2,029		—			28,154		4		26,121		2,029		—			28,154
INTERCOMPANY RECEIVABLE		1,487		924		—		(2,411	)		—		1,487		924		—		(2,411	)		—
GOODWILL		—		1,709		5,264		—			6,973		—		1,709		5,264		—			6,973
INVESTMENT IN SUBSIDIARIES		33,370		4,082		—		(37,452	)		—		33,370		4,082		—		(37,452	)		—
OTHER ASSETS		75		1,854		1,829		104			3,862		75		1,854		1,829		104			3,862
	$	36,849	$	40,795	$	14,538	$	(39,852	)	$	52,330	$	36,849	$	40,795	$	14,538	$	(39,852	)	$	52,330
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Current portion of long-term debt	$	1,332	$	1	$	9	$	—		$	1,342	$	1,332	$	1	$	9	$	—		$	1,342
Accrued salaries and employee benefits		65		1,506		606		—			2,177		65		1,506		606		—			2,177
Accounts payable		16		1,332		1,719		(90	)		2,977		16		1,332		1,719		(90	)		2,977
Accrued expenses		460		1,778		896		(3	)		3,131		460		1,778		896		(3	)		3,131
Total current liabilities		1,873		4,617		3,230		(93	)		9,627		1,873		4,617		3,230		(93	)		9,627
LONG-TERM DEBT, LESS CURRENT PORTION		14,942		288		13		—			15,243		14,942		288		13		—			15,243
INTERCOMPANY PAYABLE		—		—		2,411		(2,411	)		—		—		—		2,411		(2,411	)		—
OTHER LONG-TERM LIABILITIES
Deferred income taxes		—		2,626		137		104			2,867		—		2,626		137		104			2,867
Other liabilities		619		3,432		1,126		—			5,177		619		3,432		1,126		—			5,177
Total other long-term liabilities		619		6,058		1,263		104			8,044		619		6,058		1,263		104			8,044
STOCKHOLDERS’ INVESTMENT		19,415		29,832		7,621		(37,452	)		19,416
COMMON STOCKHOLDERS’ INVESTMENT													19,415		29,832		7,621		(37,452	)		19,416
	$	36,849	$	40,795	$	14,538	$	(39,852	)	$	52,330	$	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	$	—		$	12,874		$	5,050		$	(100	)	$	17,824		$	—		$	12,443		$	4,667		$	(100	)	$	17,010
OPERATING EXPENSES:
Salaries and employee benefits		34			4,797			1,429			—			6,260			28			4,720			1,321			—			6,069
Purchased transportation		—			2,650			1,731			(35	)		4,346			—			2,749			1,547			(43	)		4,253
Rentals and landing fees		1			640			196			(1	)		836			1			677			197			(1	)		874
Depreciation and amortization		—			709			119			—			828			—			731			120			—			851
Fuel		—			968			84			—			1,052			—			838			69			—			907
Maintenance and repairs		—			655			96			—			751			—			573			87			(2	)		658
Business realignment costs																	4			—			—			—			4
Intercompany charges, net		(152	)		(149	)		301			—			—			(93	)		(397	)		490			—			—
Other		117			1,675			863			(72	)		2,583			60			1,771			698			(46	)		2,483
		—			11,945			4,819			(108	)		16,656			—			11,662			4,529			(92	)		16,099
OPERATING INCOME		—			929			231			8			1,168			—			781			138			(8	)		911
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries		935			48			—			(983	)		—			739			16			—			(755	)		—
Interest, net		(180	)		63			(12	)		—			(129	)		(109	)		(54	)		28			—			(135	)
Other retirement plans income		—			155			3			—			158			—			155			3			—			158
Intercompany charges, net		162			(124	)		(38	)		—			—			149			(89	)		(60	)		—			—
Other, net		18			(22	)		(7	)		(9	)		(20	)		(40	)		71			(42	)		8			(3	)
INCOME BEFORE INCOME TAXES		935			1,049			177			(984	)		1,177			739			880			67			(755	)		931
Provision for income taxes		—			217			25			—			242			—			147			45			—			192
NET INCOME	$	935		$	832		$	152		$	(984	)	$	935		$	739		$	733		$	22		$	(755	)	$	739
COMPREHENSIVE INCOME	$	912		$	819		$	133		$	(983	)	$	881		$	713		$	732		$	129		$	(755	)	$	819

Parent

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations

Consolidated

REVENUES

$
—

$
12,044

$
4,362

$
(93
)

$
16,313

OPERATING EXPENSES:

Salaries and employee benefits

35

4,580

1,274

—

5,889

Purchased transportation

—

2,314

1,576

(50
)

3,840

Rentals and landing fees

1

640

197

(3
)

835

Depreciation and amortization

—

649

107

—

756

Fuel

—

746

72

—

818

Maintenance and repairs

—

584

81

—

665

Intercompany charges, net

(95
)

1

94

—

—

Other

59

1,592

784

(40
)

2,395

—

11,106

4,185

(93
)

15,198

OPERATING INCOME

—

938

177

—

1,115

OTHER INCOME (EXPENSE):

Equity in earnings of subsidiaries

775

40

—

(815
)

—

Interest, net

(130
)

11

(5
)

—

(124
)
Other retirement plans income

—

141

6

—

147

Intercompany charges, net

132

(70
)

(62
)

—

—

Other, net

(2
)

(8
)

11

—

1

INCOME BEFORE INCOME TAXES

775

1,052

127

(815
)

1,139

Provision for income taxes

—

225

139

—

364

NET INCOME

$
775

$
827

$
(12
)

$
(815
)

$
775

COMPREHENSIVE INCOME

$
756

$
817

$
(92
)

$
(815
)

$
666

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
REVENUES	$	—		$	12,433		$	4,229		$	(136	)	$	16,526
OPERATING EXPENSES:
Salaries and employee benefits		39			4,764			1,321			—			6,124
Purchased transportation		—			2,459			1,560			(84	)		3,935
Rentals and landing fees		2			684			189			(2	)		873
Depreciation and amortization		1			670			115			—			786
Fuel		—			837			77			—			914
Maintenance and repairs		1			543			84			—			628
Intercompany charges, net		(114	)		185			(71	)		—			—
Other		71			1,596			791			(50	)		2,408
		—			11,738			4,066			(136	)		15,668
OPERATING INCOME		—			695			163			—			858
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries		2,074			2			—			(2,076	)		—
Interest, net		(137	)		11			1			—			(125	)
Other retirement plans income		—			141			2			—			143
Intercompany charges, net		140			(78	)		(62	)		—			—
Other, net		(3	)		104			(103	)		—			(2	)
INCOME BEFORE INCOME TAXES		2,074			875			1			(2,076	)		874
Provision for income taxes		—			(1,197	)		(3	)		—			(1,200	)
NET INCOME	$	2,074		$	2,072		$	4		$	(2,076	)	$	2,074
COMPREHENSIVE INCOME	$	2,051		$	2,069		$	107		$	(2,076	)	$	2,151

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated			Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
REVENUES	$	—		$	25,241		$	9,837		$	(202	)	$	34,876		$	—		$	37,685		$	14,503		$	(302	)	$	51,886
OPERATING EXPENSES:
Salaries and employee benefits		82			9,580			2,858			—			12,520			110			14,300			4,179			—			18,589
Purchased transportation		—			5,032			3,364			(83	)		8,313			—			7,780			4,912			(126	)		12,566
Rentals and landing fees		3			1,271			388			(3	)		1,659			4			1,948			585			(4	)		2,533
Depreciation and amortization		—			1,402			234			—			1,636			1			2,133			353			—			2,487
Fuel		—			1,871			167			—			2,038			—			2,708			237			—			2,945
Maintenance and repairs		1			1,301			184			—			1,486			1			1,874			271			(2	)		2,144
Business realignment costs																	4			—			—			—			4
Intercompany charges, net		(264	)		(375	)		639			—			—			(357	)		(772	)		1,129			—			—
Other		178			3,221			1,711			(125	)		4,985			238			4,991			2,410			(171	)		7,468
		—			23,303			9,545			(211	)		32,637			1			34,962			14,076			(303	)		48,736
OPERATING INCOME		—			1,938			292			9			2,239			(1	)		2,723			427			1			3,150
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries		1,770			128			—			(1,898	)		—			2,509			145			—			(2,654	)		—
Interest, net		(338	)		122			(25	)		—			(241	)		(439	)		44			2			—			(393	)
Other retirement plans income		—			311			5			—			316			—			466			8			—			474
Intercompany charges, net		304			(246	)		(58	)		—			—			454			(335	)		(119	)		—			—
Other, net		34			(76	)		16			(10	)		(36	)		(14	)		18			(26	)		—			(22	)
INCOME BEFORE INCOME TAXES		1,770			2,177			230			(1,899	)		2,278			2,509			3,061			292			(2,653	)		3,209
Provision for income taxes		—			432			76			—			508			—			579			121			—			700
NET INCOME	$	1,770		$	1,745		$	154		$	(1,899	)	$	1,770		$	2,509		$	2,482		$	171		$	(2,653	)	$	2,509
COMPREHENSIVE INCOME	$	1,730		$	1,833		$	(133	)	$	(1,899	)	$	1,531		$	2,443		$	2,514		$	46		$	(2,653	)	$	2,350

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated			Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
REVENUES	$	—		$	23,611		$	8,216		$	(217	)	$	31,610		$	—		$	36,044		$	12,445		$	(353	)	$	48,136
OPERATING EXPENSES:
Salaries and employee benefits		73			8,949			2,531			—			11,553			112			13,713			3,852			—			17,677
Purchased transportation		—			4,377			3,040			(132	)		7,285			—			6,836			4,600			(216	)		11,220
Rentals and landing fees		2			1,267			388			(4	)		1,653			4			1,951			577			(6	)		2,526
Depreciation and amortization		—			1,288			219			—			1,507			1			1,958			334			—			2,293
Fuel		—			1,383			138			—			1,521			—			2,220			215			—			2,435
Maintenance and repairs		—			1,186			154			—			1,340			1			1,729			238			—			1,968
Intercompany charges, net		(211	)		115			96			—			—			(325	)		298			27			—			—
Other		136			3,068			1,542			(81	)		4,665			207			4,664			2,333			(131	)		7,073
		—			21,633			8,108			(217	)		29,524			—			33,369			12,176			(353	)		45,192
OPERATING INCOME		—			1,978			108			—			2,086			—			2,675			269			—			2,944
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries		1,371			37			—			(1,408	)		—			3,445			39			—			(3,484	)		—
Interest, net		(259	)		24			(3	)		—			(238	)		(396	)		35			(2	)		—			(363	)
Other retirement plans income		—			283			10			—			293			—			424			12			—			436
Intercompany charges, net		263			(140	)		(123	)		—			—			403			(220	)		(183	)		—			—
Other, net		(4	)		(16	)		—			—			(20	)		(7	)		88			(103	)		—			(22	)
INCOME BEFORE INCOME TAXES		1,371			2,166			(8	)		(1,408	)		2,121			3,445			3,041			(7	)		(3,484	)		2,995
Provision for income taxes		—			624			126			—			750			—			(573	)		123			—			(450	)
NET INCOME	$	1,371		$	1,542		$	(134	)	$	(1,408	)	$	1,371		$	3,445		$	3,614		$	(130	)	$	(3,484	)	$	3,445
COMPREHENSIVE INCOME	$	1,334		$	1,536		$	(110	)	$	(1,408	)	$	1,352		$	3,385		$	3,605		$	(3	)	$	(3,484	)	$	3,503

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated			Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	262		$	1,631	��	$	333		$	(47	)	$	2,179		$	(109	)	$	3,136		$	322		$	(26	)	$	3,323
INVESTING ACTIVITIES
Capital expenditures		(2	)		(2,337	)		(295	)		—			(2,634	)		(3	)		(3,359	)		(395	)		—			(3,757	)
Proceeds from asset dispositions and other		(45	)		83			15						53			(45	)		86			21			—			62
CASH USED IN INVESTING ACTIVITIES		(47	)		(2,254	)		(280	)		—			(2,581	)		(48	)		(3,273	)		(374	)		—			(3,695	)
FINANCING ACTIVITIES
Proceeds from short-term borrowings		248			—			—			—			248
Proceeds from short-term borrowings, net																	220			—			—			—			220
Net transfers from (to) Parent		(344	)		350			(6	)		—			—			2			(31	)		29			—			—
Payment on loan between subsidiaries																	(29	)		—			29			—			—
Intercompany dividends		—			113			(113	)		—			—			—			114			(114	)		—			—
Proceeds from debt issuances		1,233			—			—			—			1,233			2,463			—			—			—			2,463
Principal payments on debt		(750	)		(29	)		(6	)		—			(785	)		(750	)		(117	)		(7	)		—			(874	)
Proceeds from stock issuances		45			—			—			—			45			58			—			—			—			58
Dividends paid		(173	)		—			—			—			(173	)		(514	)		—			—			—			(514	)
Purchase of treasury stock		(1,271	)		—			—			—			(1,271	)		(1,365	)		—			—			—			(1,365	)
Other, net		—			128			(127	)		—			1			—			127			(122	)		—			5
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(1,012	)		562			(252	)		—			(702	)		85			93			(185	)		—			(7	)
Effect of exchange rate changes on cash		—			(9	)		(29	)		—			(38	)		—			(9	)		(5	)		—			(14	)
Net (decrease) increase in cash and cash equivalents		(797	)		(70	)		(228	)		(47	)		(1,142	)		(72	)		(53	)		(242	)		(26	)		(393	)
Cash and cash equivalents at beginning of period		1,485			257			1,538			(15	)		3,265			1,485			257			1,538			(15	)		3,265
Cash and cash equivalents at end of period	$	688		$	187		$	1,310		$	(62	)	$	2,123		$	1,413		$	204		$	1,296		$	(41	)	$	2,872

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated			Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	(1,959	)	$	3,504		$	(66	)	$	19		$	1,498		$	(3,537	)	$	4,664		$	25		$	10		$	1,162
INVESTING ACTIVITIES
Capital expenditures		—			(2,474	)		(147	)		—			(2,621	)		—			(3,746	)		(248	)		—			(3,994	)
Business acquisitions, net of cash acquired		—			(44	)		—			—			(44	)		—			(44	)		—			—			(44	)
Proceeds from asset dispositions and other		—			12			—			—			12			(5	)		23			3			—			21
CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES		—			(2,506	)		(147	)		—			(2,653	)		(5	)		(3,767	)		(245	)		—			(4,017	)
FINANCING ACTIVITIES
Proceeds from short-term borrowings, net																	797			—			—			—			797
Net transfers from (to) Parent		947			(1,019	)		72			—			—			807			(895	)		88			—			—
Payment on loan between subsidiaries		167			—			(167	)		—			—			210			—			(210	)		—			—
Proceeds from short-term borrowings		250			—			—			—			250
Proceeds from debt issuances																	1,481			—			—			—			1,481
Principal payments on debt		—			(18	)		(10	)		—			(28	)		—			(17	)		(14	)		—			(31	)
Proceeds from stock issuances		205			—			—			—			205			284			—			—			—			284
Dividends paid		(268	)		—			—			—			(268	)		(402	)		—			—			—			(402	)
Purchase of treasury stock		(270	)		—			—			—			(270	)		(558	)		—			—			—			(558	)
Other, net		3			—			—			—			3			2			4			—			—			6
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		1,034			(1,037	)		(105	)		—			(108	)		2,621			(908	)		(136	)		—			1,577
Effect of exchange rate changes on cash		—			56			6			—			62			(6	)		61			43			—			98
Net (decrease) increase in cash and cash equivalents		(925	)		17			(312	)		19			(1,201	)		(927	)		50			(313	)		10			(1,180	)
Cash and cash equivalents at beginning of period		1,884			325			1,807			(47	)		3,969			1,884			325			1,807			(47	)		3,969
Cash and cash equivalents at end of period	$	959		$	342		$	1,495		$	(28	)	$	2,768		$	957		$	375		$	1,494		$	(37	)	$	2,789

We have reviewed the accompanying condensed consolidated balance sheet of FedEx Corporation as of ~~November 30, 2018,~~February 28, 2019, and the related condensed consolidated statements of income and comprehensive income for the three-month and ~~six-month~~nine-month periods ended ~~November 30,~~February 28, 2019 and February 28, 2018, ~~and November 30, 2017 and~~ the condensed consolidated statements of cash flows for the ~~six-month~~nine-month periods ended ~~November 30,~~February 28, 2019 and February 28, 2018, and ~~November 30, 2017,~~the consolidated statements of changes in common stockholders’ investment for the three-month and nine-month periods ended February 28, 2019 and February 28, 2018, 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 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) (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 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 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.

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, 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 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”), constitute our reportable segments.

Our FedEx Services segment provides sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and certain back-office functions that support our transportation segments. 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 be found in our Annual Report.

As discussed in our Annual Report, the FedEx Logistics, Inc. (“FedEx Logistics” (formerly 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.

Many of our operating expenses are directly impacted by revenue and volume ~~levels. Accordingly,~~levels, and we expect these operating expenses to fluctuate on a year-over-year basis consistent with changes in revenues and volumes. Therefore, the discussion of operating expense captions focuses on the key drivers and trends impacting expenses other than those factors strictly related to changes in revenues and 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), professional fees, insurance, uniforms and taxes and licenses.

Except as otherwise specified, references to years indicate our fiscal year ending May 31, 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 ~~November 30:~~February 28:

	Three Months Ended						Percent				Six Months Ended						Percent				Three Months Ended						Percent				Nine Months Ended						Percent
	2018			2017			Change				2018			2017			Change				2019			2018			Change				2019			2018			Change
Revenues	$	17,824		$	16,313			9			$	34,876		$	31,610			10			$	17,010		$	16,526			3			$	51,886		$	48,136			8
Operating income (loss):
FedEx Express segment		620			601			3				987			921			7				370			317			17				1,357			1,238			10
FedEx Ground segment		586			496			18				1,253			1,102			14				577			614			(6	)			1,830			1,716			7
FedEx Freight segment		148			108			37				324			273			19				97			49			98				421			322			31
Corporate, other and eliminations		(186	)		(90	)		(107	)			(325	)		(210	)		(55	)			(133	)		(122	)		(9	)			(458	)		(332	)		(38	)
Consolidated operating income		1,168			1,115			5				2,239			2,086			7				911			858			6				3,150			2,944			7
Operating margin:
FedEx Express segment		6.5	%		6.6	%		(10	)	bp		5.2	%		5.3	%		(10	)	bp		4.1	%		3.5	%		60		bp		4.9	%		4.7	%		20		bp
FedEx Ground segment		11.4	%		11.0	%		40		bp		12.6	%		12.6	%		—		bp		11.0	%		12.7	%		(170	)	bp		12.0	%		12.6	%		(60	)	bp
FedEx Freight segment		7.7	%		6.5	%		120		bp		8.4	%		8.2	%		20		bp		5.5	%		3.0	%		250		bp		7.5	%		6.5	%		100		bp
Consolidated operating margin		6.6	%		6.8	%		(20	)	bp		6.4	%		6.6	%		(20	)	bp		5.4	%		5.2	%		20		bp		6.1	%		6.1	%		—		bp
Consolidated net income	$	935		$	775			21			$	1,770		$	1,371			29			$	739		$	2,074			(64	)		$	2,509		$	3,445			(27	)
Diluted earnings per share	$	3.51		$	2.84			24			$	6.60		$	5.03			31			$	2.80		$	7.59			(63	)		$	9.41		$	12.63			(25	)

	Change in Revenue				Change in Operating Income						Change in Revenue					Change in Operating Income
	Three Months Ended		Six Months Ended		Three Months Ended			Six Months Ended			Three Months Ended			Nine Months Ended		Three Months Ended			Nine Months Ended
FedEx Express segment	$	528	$	1,350	$	19		$	66		$	(93	)	$	1,257	$	53		$	119
FedEx Ground segment		617		1,171		90			151			433			1,604		(37	)		114
FedEx Freight segment		245		540		40			51			137			677		48			99
FedEx Services segment		13		30		—			—			5			35		—			—
Corporate, other and eliminations		108		175		(96	)		(115	)		2			177		(11	)		(126	)
	$	1,511	$	3,266	$	53		$	153		$	484		$	3,750	$	53		$	206

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 second quarter and first half 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 prior year results were negatively impacted by the NotPetya cyberattack by an estimated $100 million ($0.31 per diluted share) in the second quarter of 2018 and by an estimated $400 million ($1.10 per diluted share) in the first half of 2018, primarily from loss of revenue associated with decreased shipments in the TNT Express network, as well as incremental costs to restore information-technology systems. Additional information on the NotPetya cyberattack can be found in our Annual Report. During the second quarter of 2019, we purchased insurance coverage designed to address certain aspects of cyber risks.

~~Our consolidated~~Consolidated operating income improved during the ~~second~~third quarter and ~~first half~~nine months of 2019 primarily due to lower variable incentive compensation expenses, volume growth, ~~increased yields and~~ the favorable net impact of fuel at all of our transportation ~~segments. In addition, lower~~segments and increased yields at FedEx Freight and FedEx Ground. Lower variable incentive compensation ~~accruals~~expenses benefited our results by approximately $350 million in the ~~second~~third quarter and the nine months of 2019. ~~A change in product mix from FedEx Express international package volume to freight volume, which intensified during~~During the ~~second~~third quarter and nine months of 2019, ~~increased costs and~~softening global economic conditions negatively impacted ~~operating margins in the second quarter and first half of 2019. In addition, growth in U.S. deferred~~international package volumes at FedEx Express. Lower weights in U.S. domestic package shipments at FedEx Express ~~and higher operating costs in salaries and employee benefits and maintenance and repairs~~also negatively impacted ~~operating margins~~our results. Compounding these factors, we also experienced a product mix shift to lower yielding services due in part to an increase in e-commerce traffic at FedEx Express. In addition, higher purchased transportation costs, resulting from increased contractor settlement rates at FedEx Ground and expanding the ~~second quarter and~~FedEx Ground network operations to six days year-round, starting in January 2019, negatively affected our results. Comparables for the nine months of 2019 are affected by the impact of the NotPetya cyberattack, which reduced earnings in the first half of ~~2019. Furthermore, at FedEx Express, operating results were negatively impacted~~2018 by ~~increasing softness in international volumes during the quarter, as we saw a significant slowing of the Eurozone economy, as well as continued softness in economic~~approximately $400 million ($1.14 per diluted share). Winter weather conditions in ~~Asia.~~2019 did not have a material effect on comparisons to 2018 for either the third-quarter or nine-month periods.

The comparison of ~~our merit pay increases for certain~~net income between 2019 and 2018 is significantly affected by a provisional benefit of ~~our hourly employees during late 2018 following~~$1.15 billion ($4.21 per diluted share) attributable to the enactment of the Tax Cuts and Jobs Act (“TCJA”)~~, ahead~~ recognized during the third quarter of 2018, specifically related to the ~~normal October~~remeasurement of our net U.S. deferred tax liability. Net income for the third quarter of 2019 includes tax benefits of $90 million ($0.34 per diluted share) from the reduction of a valuation allowance on certain tax loss carryforwards and $60 million ($0.23 per diluted share) primarily related to a lower statutory income tax rate under the TCJA. These items were partially offset by tax expense of $50 million ($0.19 per diluted share) related to a recently enacted lower tax rate in the Netherlands applied to our deferred tax balances. Additionally, we recognized an income tax benefit of approximately $230 million ($0.86 per diluted share) in the nine months of 2019, primarily related to a lower statutory income tax rate under the TCJA. Our results for the third quarter of 2018 ~~timing. The impact~~included tax benefits of ~~this expense timing difference negatively affected~~$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 $165 million ($0.60 per diluted share) related to the ~~year-over-year comparison~~phase-in of a reduced statutory tax rate on 2018 year-to-date earnings, of which approximately $120 million ($0.44 per diluted share) was recorded in the third quarter and attributable to the first half of ~~2019 results by approximately $75~~2018 earnings. See the “Income Taxes” section below for further information.

We incurred TNT Express integration expenses totaling $69 million ($5855 million, net of tax, or $0.21 per diluted share).

~~We recognized an income tax benefit of approximately $150 million ($0.56 per diluted share) and $285 million ($1.06 per diluted share) during~~ in the ~~second~~third quarter ~~and first half~~ of 2019, ~~respectively, primarily related to~~ a ~~lower statutory income tax rate on fiscal 2019 earnings as a result of~~$37 million decrease from the ~~enactment of the TCJA. In addition, our prior year results included a tax benefit of approximately $80 million ($0.29 per diluted share) recognized in the second~~third quarter of ~~2018 attributable to foreign tax credits associated with a dividend paid from our foreign operations. See the “Income Taxes” section below for further information.~~

~~We incurred~~2018. TNT Express integration expenses ~~totaling $114~~were $304 million ($90243 million, net of tax, or ~~$0.34~~$0.92 per diluted share) in the ~~second quarter and $235 million ($188 million, net of tax, or $0.70 per diluted share) in the first half~~nine months of 2019, ~~an $8~~a $37 million decrease from the ~~second quarter and $1 million increase from the first half~~nine months of 2018. The integration expenses are predominantly incremental costs directly associated with the integration of TNT Express, including professional and legal fees, salaries and employee benefits, travel and advertising expenses, ~~and travel,~~ and include any restructuring charges at TNT Express. Internal salaries and employee benefits are included only to the extent the individuals are assigned full-time to integration activities. These costs were incurred at FedEx Express and FedEx Corporate. The identification of these costs as integration-related expenditures is subject to our disclosure controls and procedures.

Our second quarter and first half of 2019 results include $46 million ($46 million, net of tax, or $0.17 per diluted share) of charges related to certain expected losses and professional fees in connection with an agreement in principle to settle a litigation matter involving FedEx Ground. These items are included in “Corporate, other and eliminations.” See Note 9 of the accompanying unaudited condensed consolidated financial statements for further discussion.

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 9%3% in the ~~second~~third quarter and ~~10%~~8% in the ~~first half~~nine months of 2019 due to higher volumes ~~and increased yields~~ at all of our transportation ~~segments. Revenues~~segments and increased yields at FedEx ~~Express increased 6% in the second quarter~~Ground and 8% in the first half of 2019 primarily due to international package and freight volume recovery from the NotPetya cyberattack and U.S. domestic package volume growth. However, we experienced a deceleration in international package volume growth during the quarter at FedEx ~~Express, as we saw a significant slowing of the Eurozone economy, as well as continued softness in economic conditions in Asia.~~Freight. At FedEx Ground, revenues increased ~~14%~~9% in the ~~second~~third quarter and ~~13%~~12% in the ~~first half~~nine months of 2019 due to volume growth and increased yields. FedEx Freight revenues increased ~~15%~~8% in the ~~second~~third quarter and ~~16%~~14% in the ~~first half~~nine months of 2019 due to higher revenue per shipment and average daily shipments. Revenues at FedEx Express decreased 1% in the third quarter of 2019 primarily due to lower international priority and international domestic package revenue. At FedEx Express, unfavorable exchange rates, lower base rates and decreased weights contributed to the decline in international revenue in the third quarter of 2019. Currency exchange rates had a negative impact on revenues at FedEx Express but did not have an impact on operating income in the third quarter of 2019. Revenues at FedEx Express increased 5% in the nine months of 2019 primarily due to U.S. domestic package volume growth and international package and freight volume recovery from the NotPetya cyberattack, partially offset by package yield declines. FedEx Express revenue during the third quarter and nine months of 2019 was negatively impacted by continued softness in international package volume growth resulting from weakening global economic conditions. Higher fuel surcharges had a positive impact on revenues at all of our transportation segments in the ~~second~~third quarter and ~~first half~~nine months of 2019.

The following tables compare operating expenses expressed as dollar amounts (in millions) and as a percent of revenue for the periods ended ~~November 30:~~February 28:

	Three Months Ended				Six Months Ended				Three Months Ended				Percent			Nine Months Ended				Percent
	2018		2017		2018		2017		2019		2018		Change			2019		2018		Change
Operating expenses:
Salaries and employee benefits	$	6,260	$	5,889	$	12,520	$	11,553	$	6,069	$	6,124		(1	)	$	18,589	$	17,677		5
Purchased transportation		4,346		3,840		8,313		7,285		4,253		3,935		8			12,566		11,220		12
Rentals and landing fees		836		835		1,659		1,653		874		873		—			2,533		2,526		—
Depreciation and amortization		828		756		1,636		1,507		851		786		8			2,487		2,293		8
Fuel		1,052		818		2,038		1,521		907		914		(1	)		2,945		2,435		21
Maintenance and repairs		751		665		1,486		1,340		658		628		5			2,144		1,968		9
Business realignment costs⁽¹⁾										4		—	NM				4		—	NM
Other		2,583		2,395		4,985		4,665		2,483		2,408		3			7,468		7,073		6
Total operating expenses	$	16,656	$	15,198	$	32,637	$	29,524	$	16,099	$	15,668		3		$	48,736	$	45,192		8
Operating income	$	1,168	$	1,115	$	2,239	$	2,086	$	911	$	858		6		$	3,150	$	2,944		7

	Percent of Revenue												Percent of Revenue
	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	2018			2017			2018			2017			2019			2018			2019			2018
Operating expenses:
Salaries and employee benefits		35.1	%		36.1	%		35.9	%		36.5	%		35.7	%		37.1	%		35.8	%		36.7	%
Purchased transportation		24.4			23.6			23.8			23.1			25.0			23.8			24.2			23.3
Rentals and landing fees		4.7			5.1			4.8			5.2			5.1			5.3			4.9			5.2
Depreciation and amortization		4.6			4.6			4.7			4.8			5.0			4.7			4.8			4.8
Fuel		5.9			5.0			5.8			4.8			5.3			5.5			5.7			5.1
Maintenance and repairs		4.2			4.1			4.3			4.2			3.9			3.8			4.1			4.1
Business realignment costs⁽¹⁾														0.0			—			0.0			—
Other		14.5			14.7			14.3			14.8			14.6			14.6			14.4			14.7
Total operating expenses		93.4			93.2			93.6			93.4			94.6			94.8			93.9			93.9
Operating margin		6.6	%		6.8	%		6.4	%		6.6	%		5.4	%		5.2	%		6.1	%		6.1	%

Operating margin ~~declined~~improved in the ~~second~~third quarter of 2019 primarily due to ~~a change in product mix from FedEx Express international package volume to freight volume. In addition, growth in U.S. deferred package volumes and~~lower variable incentive compensation expenses, partially offset by higher operating costs in ~~salaries~~purchased transportation, driven by higher rates at FedEx Ground and ~~employee benefits and maintenance and repairs~~FedEx Freight as well as expanding the FedEx Ground network operations to six days year-round, starting in January 2019. In addition, lower yields at FedEx Express ~~contributed to the~~negatively affected operating margin ~~decline~~ in the ~~second~~third quarter ~~and first half~~ of 2019. ~~Furthermore, our results were negatively impacted~~Operating margin remained flat in the nine months of 2019 primarily due to increased revenue and lower variable incentive compensation expenses, offset by ~~increasing softness in international volumes during the quarter~~higher operating costs. An overall product mix shift at FedEx Express ~~as we saw a significant slowing of the Eurozone economy,~~from international priority volume to international deferred volume, as well as continued softness in international volumes at FedEx Express resulting from weakening global economic conditions, ~~in Asia.~~negatively impacted operating margin during the third quarter and nine months of 2019.

Purchased transportation costs increased ~~13%~~8% in the ~~second~~third quarter and ~~14%~~12% in the ~~first half~~nine months of 2019 primarily due to higher volumes at all of our transportation segments ~~as well as~~and increased rates, including fuel costs, at FedEx Ground and FedEx ~~Freight.~~Freight, reflecting the inflationary impact of the tight labor market on our rates. Salaries and employee benefits expense decreased 1% in the third quarter of 2019 primarily due to lower variable incentive compensation expenses, partially offset by higher staffing to support volume growth and annual merit increases. Salaries and employee benefits expense increased 6%5% in the ~~second quarter and 8% in the first half~~nine months of 2019 primarily due to higher staffing and merit increases, ~~including the impact of accelerated merit increases, and higher staffing to support volume growth at all of our transportation segments. Lower~~partially offset by lower variable incentive compensation ~~accruals partially offset these higher expenses~~expenses. Depreciation and amortization expense increased 8% in the ~~second~~third quarter and nine months of ~~2019.~~2019 primarily due to continued investment in aircraft and related equipment at FedEx Express. Maintenance and repairs expense increased ~~13%~~5% in the ~~second~~third quarter and ~~11%~~9% in the ~~first half~~nine months of 2019 primarily due to ~~the timing of~~increased aircraft engine maintenance ~~events~~expense at FedEx Express.

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 29%~~decreased 1% in the ~~second~~third quarter ~~and 34%~~of 2019 primarily due to decreased fuel prices at FedEx Express, offset by higher mileage at FedEx Freight. Fuel expense increased 21% in the ~~first half~~nine months of 2019 primarily due to increased fuel prices. However, fuel prices represent only one component of the 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 ~~second~~third quarters of 2019 and 2018 in the accompanying discussion of each of our transportation segments.

Most of 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. Some FedEx Express international fuel surcharges incorporate a timing lag of approximately six to eight weeks.

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~~surcharges. On March 18, 2019, we updated the tables used to determine our fuel ~~surcharge methodology.~~surcharges for FedEx Express U.S. domestic services and at FedEx Ground. 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 ~~second~~third quarter and ~~first half~~nine months of 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. In addition, our purchased transportation expense may be impacted by fuel costs. 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 20.6% for the ~~second~~third quarter and ~~22.3%~~21.8% for the ~~first half~~nine months of 2019, compared with ~~32.0%~~(137.3)% for the ~~second~~third quarter and ~~35.4%~~(15.0)% for the ~~first half~~nine months of 2018. The 2019 tax rates include a benefit of $90 million from the reduction of a valuation allowance on certain tax loss carryforwards and an expense of $50 million from the impact on our deferred taxes attributable to a recently enacted lower tax rate ~~was~~in the Netherlands. The 2019 tax rates were also favorably impacted by the TCJA, which resulted in benefits of approximately ~~$150 million and $285~~$60 million during the ~~second~~third quarter and ~~first half~~$230 million for the nine months of 2019, ~~respectively,~~ primarily from the lower statutory tax rate on fiscal 2019 earnings. The tax rate for the nine months of 2019 ~~tax rates were~~ also ~~favorably impacted~~benefited by ~~a tax benefit of~~ approximately $60 million from accelerated deductions ~~to be~~ claimed on ~~FedEx’s~~our 2018 U.S. income tax return. The 2018 tax ~~rate benefited~~rates were favorably impacted by a provisional benefit of $1.15 billion from the remeasurement of our net U.S. deferred tax liability and a provisional benefit of $36 million from foreign tax credits ~~associated with~~exceeding the one-time transition tax on previously deferred foreign earnings. In addition to these provisional amounts, we recognized a ~~dividend paid~~$204 million benefit from a $1.5 billion contribution to our ~~foreign operations~~U.S. Pension Plans in February 2018 and ~~tax benefits from share-based payments. The 2018~~$165 million related to the phase-in of a reduced statutory tax rate on 2018 year-to-date earnings, of which approximately $120 million was ~~negatively impacted by costs incurred~~recorded in ~~connection with~~ the ~~integration~~third quarter and attributable to the first half of ~~the foreign operations of FedEx Express and TNT Express, the effects of the NotPetya cyberattack on lower taxed foreign earnings and changes in uncertain tax positions.~~2018 earnings.

~~During~~expense of $4 million recognized in the second quarter of 2019 ~~we revised~~as a revision of the provisional benefit associated with the remeasurement of our net U.S. deferred tax ~~liability due to~~liability. See Note 1 of the accompanying unaudited condensed consolidated financial statements for further discussion.

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 2016 and 2017 tax years. In addition, we have initiated appeals proceedings with respect to the IRS’s proposed audit adjustment 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~~is not expected to be material to our consolidated financial statements. As of ~~November 30, 2018,~~February 28, 2019, there were no material changes to our liabilities for unrecognized tax benefits subsequent to May 31, 2018.

In December 2018, we announced cost-reduction programs primarily through initiatives at FedEx Express and FedEx Services in response to current business and economic conditions that include the following:

During the third quarter of 2019, we began offering voluntary cash buyouts to eligible U.S.-based employees in certain staff functions. The U.S.-based voluntary employee buyout program includes voluntary severance payments and funding to healthcare reimbursement accounts, with the voluntary severance payment calculated based on four weeks of gross base salary for every year of continuous FedEx service up to a maximum payment of two years of pay. Eligible employees will be scheduled to vacate positions in phases to ensure a smooth transition in the impacted functions so that we maintain service levels to our customers. Employees in the first phase will vacate their positions on May 31, 2019, and we expect all employees who accept the buyout to vacate their positions by the end of 2020. Costs of the benefits provided under the program will be recognized as special termination benefits in the period employees accept their offers, which is expected to be predominantly in the fourth quarter of 2019.

We incurred costs of approximately $4 million ($3 million, net of tax, or $0.01 per diluted share) during the third quarter of 2019 associated with our business realignment activities. These costs related to certain employee severance arrangements and other external costs directly attributable to our business realignment activities, such as professional fees. We expect the 2019 pre-tax cost of our business realignment activities, including the U.S.-based voluntary employee buyout program, to range from $450 million to $575 million in pre-tax cash expenditures, but actual costs will depend on acceptance rates. Severance payments will be made at the time of departure. Additional costs are expected to be incurred beyond 2019, primarily related to professional fees. We expect savings from our business realignment activities to be between $225 million to $275 million in 2020.

We expect ~~volume growth at all of our transportation segments to support~~continued revenue and earnings growth at FedEx Freight in the ~~second half~~fourth quarter of 2019 ~~prior~~ to ~~any mark-to-market retirement plans adjustment~~be driven by volume and yield growth. While FedEx Ground revenue growth is expected to remain strong in the fourth quarter of 2019, higher operating costs ~~associated with~~are expected to continue to negatively impact results, as we continue to focus on growing volumes to fill the capacity of our new six-day network. While the launch of six-day operations will continue to be a ~~new voluntary employee buyout program (discussed below).~~modest headwind, we believe it will allow for the more efficient use of our existing assets, which ultimately will drive improved performance and enhance our competitive position. At FedEx Ground and FedEx Freight, we will continue to concentrate on operational improvement programs for the remainder of 2019 that are designed to increase operational efficiency and safety, enhance service offerings to our customers and manage our cost structure. We expect earnings to decrease at FedEx Express in the fourth quarter of 2019 due to lower yields and continued softness in international package volumes resulting from slowing global economic conditions, particularly in Asia and Europe. As a response to these negative business trends, we are implementing revenue-quality enhancement and cost-reduction actions; however, the full benefits of these actions will not be realized immediately.

Our expectations for ~~earnings growth in~~the remainder of 2019 are dependent on key external factors, including fuel prices, moderate U.S. domestic economic growth and no further weakening in international economic conditions from our current forecast.

During the first half of 2019, we experienced an accelerating shift in service mix at FedEx Express from international package volume to freight volume, which intensified during the second quarter and increased costs and negatively impacted operating margin. In addition, growth in U.S. deferred package volumes and higher operating costs in our FedEx Express operations negatively impacted margins during the first half of 2019. Furthermore, during the second quarter of 2019, we experienced declining trends in revenue growth in our international operations, particularly in Europe and Asia. Absent significant improvements in international economic conditions, including a more stable trade environment, we expect these trends to continue for the remainder of our fiscal year. As a response to these trends, we have implemented new cost-reduction actions (as described below); however, the benefits of some of these actions will not be fully realized immediately.

While we still believe that we will realize the benefits that we expected when we acquired TNT Express, reductions in base business levels largely due to increasing international economic weakness during the second quarter, which is expected to continue, and a change in service mix following the NotPetya cyberattack in 2018 will delay the realization of those benefits past 2020. As a consequence, our operating profit improvement goal for our FedEx Express segment of $1.2 billion to $1.5 billion from 2017 will not be realized in 2020.

In response to current business and economic conditions, we have implemented cost controls over discretionary spending at FedEx Express and FedEx Services for the remainder of 2019, and we are making adjustments to our global air network to reduce capacity. We will also offer voluntary buyout incentives to certain U.S.-based employees as part of our ongoing efforts to improve efficiencies and reduce costs. It is anticipated that the vast majority of employees eligible for these incentives will be staff employees at FedEx Express and FedEx Services. Similar programs are being considered for employees in our international regions.

The U.S.-based employee voluntary buyout program will include voluntary severance payments to be calculated based on four weeks of gross base salary for every year of FedEx service up to a maximum payment of two years of pay and funding to healthcare reimbursement accounts. These incentives will not include any changes to retirement eligibility or payments. However, employees who are eligible for this program and are also eligible to retire may elect to accept the buyout and retire.

Costs of the benefits to be provided under the voluntary program will be recognized in the period that eligible employees accept their offers, which is expected to be predominantly in the fourth quarter of 2019 for the U.S.-based program. We expect the pre-tax cost of the U.S.-based program to range from $450 million to $575 million in pre-tax cash expenditures, but actual costs will depend on employee acceptance rates. We expect savings from the U.S.-based program to be between $225 million to $275 million on an annualized basis beginning in 2020.

~~During the remainder of 2019, we will~~ continue to execute our TNT Express integration ~~plans~~plans. The integration process is complex as it spans over 200 countries and territories and involves combining our 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. We have completed the operational integration in the U.S., Canada and Middle East, and expect to have the sales forces substantially integrated by the end of 2019. The sales force integration will ~~be focused on integrating~~allow both the ~~largest~~FedEx Express and ~~most complex~~TNT Express sales teams to sell our full suite of services to customers.

A significant milestone in the integration includes key projects that enable the injection of FedEx Express shipments into the TNT Express European road network. This integration milestone will allow FedEx Express customers to benefit from transit time improvements for their intra-European shipments. We began rolling out this service in Europe in February 2019 and expect to have this service improvement completed in June 2019. In addition, by the end of 2020, we expect to complete projects across our European hub and station locations that will allow interoperability between networks for both FedEx Express and TNT Express packages, which will further lower costs as the related FedEx Express linehaul operations are optimized.

In 2019, we have begun the operational network integration process for the key countries in Europe, which ~~include the largest~~represent a significant percentage of international revenue, workforces and facilities. Integration activities in Europe are complex and require consultations with works councils and employee representatives in a number of countries. While we expect to make significant progress on integration activities in 2020, particularly in Europe, integration work will continue into 2021.

We ~~continue to expect the aggregate~~currently estimate integration program ~~expense, including restructuring charges at TNT Express, through 2020~~expenses to ~~be approximately~~exceed $1.5 billion through 2021 and ~~expect to incur approximately $450 million of these costs during 2019. However, based on the timing of the completion of integration activities and any international voluntary employee buyout program,~~ we may incur additional ~~integration~~ costs ~~after 2020.~~related to investments that will further transform and optimize the combined business. The timing and amount of integration expenses and ~~capital~~other investments in any future period may change as we ~~continue~~revise and implement our plans. We expect to ~~execute the~~incur approximately $435 million of integration expenses in 2019, down from our previous estimate of ~~TNT Express.~~

At FedEx Ground and FedEx Freight, we will continue executing operational improvement programs for the remainder of 2019 that are designed to increase operational efficiency and safety, enhance service offerings to our customers and reduce our cost structure. FedEx Ground is once again running six- and seven-day operations through the holiday season, and will continue six-day operations throughout its U.S. network year-round to serve the rapidly growing demand for e-commerce services.$450 million.

Other Outlook Matters. For details on key 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 network. The transition to the ISP model is being accomplished on a district-by-district basis and we are now targeting the transition to be completed during the second quarter of 2020. As of ~~November 30, 2018,~~February 28, 2019, over two-thirds 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, 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.

Also included in corporate and other is the FedEx ~~Trade Networks~~Logistics 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. (“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. (“FedEx Forward Depots”). In the ~~second~~third quarter and ~~first half~~nine months of 2019, the operating loss increase in “Corporate, other and eliminations” was driven primarily by ~~the litigation matter at~~ FedEx ~~Ground (discussed above),~~Logistics resulting from operating losses, ~~at FedEx Supply Chain,~~ the inclusion of FedEx Forward Depots following the realignment of FedEx ~~Trade Networks in the fourth quarter of 2018~~Logistics and lower transportation volumes due to weakness in the ~~international~~global economy. In addition, costs incurred in connection with the settlement of a legal matter involving FedEx Ground, including certain professional fees, negatively impacted our results during the nine months of 2019.

FedEx Express offers a wide range of U.S. domestic and international shipping services for delivery of packages and freight including priority, deferred and economy services, which provide delivery on a time-definite or day-definite basis. 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 ~~November 30:~~February 28:

	Three Months Ended						Percent				Six Months Ended						Percent				Three Months Ended						Percent				Nine Months Ended						Percent
	2018			2017			Change				2018			2017			Change				2019			2018			Change				2019			2018			Change
Revenues:
Package:
U.S. overnight box	$	1,948		$	1,787			9			$	3,834		$	3,537			8			$	1,844		$	1,836			—			$	5,678		$	5,373			6
U.S. overnight envelope		444			432			3				912			882			3				433			435			—				1,345			1,317			2
U.S. deferred		1,060			922			15				2,012			1,800			12				1,119			996			12				3,131			2,796			12
Total U.S. domestic package revenue		3,452			3,141			10				6,758			6,219			9				3,396			3,267			4				10,154			9,486			7
International priority		1,896			1,865			2				3,770			3,628			4				1,738			1,841			(6	)			5,508			5,469			1
International economy		885			815			9				1,735			1,585			9				806			793			2				2,541			2,378			7
Total international export package revenue		2,781			2,680			4				5,505			5,213			6				2,544			2,634			(3	)			8,049			7,847			3
International domestic⁽¹⁾		1,203			1,228			(2	)			2,334			2,284			2				1,078			1,140			(5	)			3,412			3,424			—
Total package revenue		7,436			7,049			5				14,597			13,716			6				7,018			7,041			—				21,615			20,757			4
Freight:
U.S.		792			688			15				1,522			1,301			17				772			739			4				2,294			2,040			12
International priority		564			541			4				1,097			995			10				477			532			(10	)			1,574			1,527			3
International economy		554			481			15				1,073			862			24				495			492			1				1,568			1,354			16
International airfreight		83			100			(17	)			168			183			(8	)			76			93			(18	)			244			276			(12	)
Total freight revenue		1,993			1,810			10				3,860			3,341			16				1,820			1,856			(2	)			5,680			5,197			9
Other		175			217			(19	)			369			419			(12	)			167			201			(17	)			536			620			(14	)
Total revenues		9,604			9,076			6				18,826			17,476			8				9,005			9,098			(1	)			27,831			26,574			5
Operating expenses:
Salaries and employee benefits		3,441			3,339			3				6,914			6,553			6				3,389			3,493			(3	)			10,303			10,046			3
Purchased transportation		1,354			1,304			4				2,661			2,488			7				1,267			1,285			(1	)			3,928			3,773			4
Rentals and landing fees		474			492			(4	)			944			976			(3	)			504			526			(4	)			1,448			1,502			(4	)
Depreciation and amortization		449			410			10				885			825			7				456			423			8				1,341			1,248			7
Fuel		899			703			28				1,744			1,306			34				771			782			(1	)			2,515			2,088			20
Maintenance and repairs		514			445			16				1,016			904			12				433			419			3				1,449			1,323			10
Intercompany charges		527			514			3				1,066			1,011			5				505			536			(6	)			1,571			1,547			2
Other		1,326			1,268			5				2,609			2,492			5				1,310			1,317			(1	)			3,919			3,809			3
Total operating expenses		8,984			8,475			6				17,839			16,555			8				8,635			8,781			(2	)			26,474			25,336			4
Operating income	$	620		$	601			3			$	987		$	921			7			$	370		$	317			17			$	1,357		$	1,238			10
Operating margin		6.5	%		6.6	%		(10	)	bp		5.2	%		5.3	%		(10	)	bp		4.1	%		3.5	%		60		bp		4.9	%		4.7	%		20		bp

	Percent of Revenue												Percent of Revenue
	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	2018			2017			2018			2017			2019			2018			2019			2018
Operating expenses:
Salaries and employee benefits		35.8	%		36.8	%		36.7	%		37.5	%		37.6	%		38.4	%		37.0	%		37.8	%
Purchased transportation		14.1			14.4			14.1			14.2			14.1			14.1			14.1			14.2
Rentals and landing fees		4.9			5.4			5.0			5.6			5.6			5.8			5.2			5.6
Depreciation and amortization		4.7			4.5			4.7			4.7			5.1			4.6			4.8			4.7
Fuel		9.4			7.7			9.3			7.5			8.6			8.6			9.1			7.9
Maintenance and repairs		5.4			4.9			5.4			5.2			4.8			4.6			5.2			5.0
Intercompany charges		5.4			5.7			5.7			5.8			5.6			5.9			5.6			5.8
Other		13.8			14.0			13.9			14.2			14.5			14.5			14.1			14.3
Total operating expenses		93.5			93.4			94.8			94.7			95.9			96.5			95.1			95.3
Operating margin		6.5	%		6.6	%		5.2	%		5.3	%		4.1	%		3.5	%		4.9	%		4.7	%

The following table compares selected statistics (in thousands, except yield amounts) for the periods ended ~~November 30:~~February 28:

	Three Months Ended				Percent			Six Months Ended				Percent			Three Months Ended				Percent			Nine Months Ended				Percent
	2018		2017		Change			2018		2017		Change			2019		2018		Change			2019		2018		Change
Package Statistics
Average daily package volume (ADV):
U.S. overnight box		1,308		1,248		5			1,269		1,217		4			1,307		1,315		(1	)		1,282		1,249		3
U.S. overnight envelope		532		547		(3	)		541		552		(2	)		524		541		(3	)		536		548		(2	)
U.S. deferred		1,082		938		15			998		907		10			1,224		1,026		19			1,071		946		13
Total U.S. domestic ADV		2,922		2,733		7			2,808		2,676		5			3,055		2,882		6			2,889		2,743		5
International priority		555		552		1			540		530		2			530		537		(1	)		537		532		1
International economy		302		277		9			289		264		9			289		266		9			289		265		9
Total international export ADV		857		829		3			829		794		4			819		803		2			826		797		4
International domestic⁽¹⁾		2,670		2,706		(1	)		2,530		2,475		2			2,410		2,467		(2	)		2,491		2,473		1
Total ADV		6,449		6,268		3			6,167		5,945		4			6,284		6,152		2			6,206		6,013		3
Revenue per package (yield):
U.S. overnight box	$	23.63	$	22.73		4		$	23.60	$	22.70		4		$	22.75	$	22.53		1		$	23.32	$	22.64		3
U.S. overnight envelope		13.24		12.53		6			13.16		12.48		5			13.31		12.97		3			13.21		12.64		5
U.S. deferred		15.54		15.58		—			15.75		15.51		2			14.76		15.66		(6	)		15.38		15.56		(1	)
U.S. domestic composite		18.75		18.24		3			18.80		18.15		4			17.93		18.29		(2	)		18.50		18.20		2
International priority		54.25		53.70		1			54.52		53.54		2			52.95		55.25		(4	)		54.01		54.10		—
International economy		46.45		46.77		(1	)		46.92		46.86		—			44.94		48.01		(6	)		46.28		47.24		(2	)
International export composite		51.50		51.38		—			51.87		51.32		1			50.12		52.85		(5	)		51.31		51.82		(1	)
International domestic⁽¹⁾		7.15		7.20		(1	)		7.21		7.21		—			7.21		7.45		(3	)		7.21		7.29		(1	)
Composite package yield		18.30		17.86		2			18.49		18.03		3			18.01		18.46		(2	)		18.33		18.17		1
Freight Statistics
Average daily freight pounds:
U.S.		8,917		8,475		5			8,608		8,095		6			8,905		8,757		2			8,705		8,311		5
International priority		5,684		5,660		—			5,469		5,260		4			5,030		5,389		(7	)		5,326		5,302		—
International economy		15,373		13,231		16			14,401		11,733		23			14,067		13,209		6			14,292		12,215		17
International airfreight		1,759		2,145		(18	)		1,738		1,997		(13	)		1,615		1,951		(17	)		1,697		1,982		(14	)
Total average daily freight pounds		31,733		29,511		8			30,216		27,085		12			29,617		29,306		1			30,020		27,810		8
Revenue per pound (yield):
U.S.	$	1.41	$	1.29		9		$	1.38	$	1.26		10		$	1.40	$	1.36		3		$	1.39	$	1.29		8
International priority		1.57		1.52		3			1.57		1.48		6			1.53		1.60		(4	)		1.56		1.52		3
International economy		0.57		0.58		(2	)		0.58		0.57		2			0.57		0.60		(5	)		0.58		0.58		—
International airfreight		0.75		0.74		1			0.75		0.72		4			0.76		0.77		(1	)		0.76		0.73		4
Composite freight yield		1.00		0.97		3			1.00		0.96		4			0.99		1.02		(3	)		1.00		0.98		2

FedEx Express segment revenues ~~increased 6%~~decreased 1% in the ~~second~~third quarter ~~and 8% in the first half~~ of 2019 primarily due to lower international package yields driven by unfavorable exchange rates, lower base rates and decreased weights. Currency exchange rates had a negative impact on revenues but did not have an impact on operating income in the third quarter of 2019. In addition, lower U.S. domestic package yields due to decreased weight and increased deferred volume contributed to the decline in the third quarter of 2019. U.S. domestic package volume growth partially offset these negative impacts. FedEx Express segment revenues increased 5% in the nine months of 2019 primarily due to U.S. domestic package volume growth and international package and freight volume recovery from the NotPetya ~~cyberattack~~cyberattack. Continued softness in international package volumes resulting from weakening global economic conditions negatively impacted revenues for the third quarter and ~~U.S. domestic package volume growth.~~nine months of 2019. Higher fuel surcharges ~~also contributed to an increase in~~positively impacted revenue in both the ~~second~~third quarter and the ~~first half~~nine months of 2019. However, FedEx Express experienced a deceleration in international package volume growth during the quarter as we saw a significant slowing of the Eurozone economy, as well as continued softness in economic conditions in Asia.

U.S. domestic package average daily volumes increased 7%6% in the ~~second~~third quarter and 5% in the ~~first half~~nine months of 2019 driven by deferred ~~and overnight~~ services, as e-commerce continues to drive growth. U.S. domestic package yields ~~increased 3%~~decreased 2% in the ~~second~~third quarter of 2019 primarily due to base yield declines driven by lower package weights and 4%increased deferred volume. U.S. domestic package yields increased 2% in the ~~first half~~nine months of 2019 driven primarily by higher fuel surcharges. Average daily freight pounds increased 1% in the third quarter and 8% in the ~~second quarter and 12% in the first half~~nine months of 2019 primarily due to higher volume in international freight services, ~~driven by~~reflecting recovery from the NotPetya cyberattack and an overall product mix shift from package to freight. Freight yields ~~increased~~decreased 3% in the ~~second~~third quarter ~~and 4% in the first half~~ of 2019 primarily due to unfavorable exchange rates, partially offset by higher fuel surcharges. Freight yields increased 2% in the nine months of 2019 primarily due to higher fuel surcharges on U.S. domestic freight ~~services driven by higher fuel surcharges and higher base rates.~~services. International export average daily volumes increased 3%2% in the ~~second~~third quarter and 4% in the ~~first half~~nine months of 2019 primarily due to the recovery from the NotPetya cyberattack. However, international package volume growth has slowed across most regions, as discussed above. International export package yields ~~slightly increased~~decreased 5% in the ~~second~~third quarter and ~~first half~~1% in the nine months of 2019 ~~as higher fuel surcharges were offset~~driven by base yield declines and unfavorable exchange ~~rates.~~rates, partially offset by higher fuel surcharges.

FedEx Express’s U.S. domestic and outbound fuel surcharge and international fuel surcharges ranged as follows for the periods ended ~~November 30:~~February 28:

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	2018			2017			2018			2017			2019			2018			2019			2018
U.S. Domestic and Outbound Fuel Surcharge:
Low		7.90	%		4.42	%		7.02	%		2.21	%		5.47	%		5.05	%		5.47	%		2.21	%
High		10.80			4.87			10.80			4.87			8.23			5.91			10.80			5.91
Weighted-average		8.60			4.63			7.87			3.67			6.21			5.56			7.32			4.31
International Fuel Surcharges:
Low		8.65			5.65			8.47			3.38			6.22			6.25			6.22			3.38
High		18.82			12.16			18.82			13.75			17.88			15.87			18.82			15.87
Weighted-average		16.77			10.54			16.58			9.66			14.89			12.24			16.05			10.53

~~On November 5, 2018,~~Effective January 7, 2019, FedEx Express ~~announced~~implemented a 4.9% average list price increase for U.S. domestic, U.S. export and U.S. import ~~services effective January 7, 2019.~~services. On 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.

FedEx Express segment operating income increased ~~during~~17% in the ~~second~~third quarter ~~and first half~~ of 2019 due to ~~higher revenues and~~lower variable incentive compensation expenses, the ~~positive~~favorable net impact of fuel ~~as well as~~and volume growth, partially offset by lower package yields. FedEx Express segment operating income increased 10% in the nine months of 2019 due to the favorable net impact of fuel, higher revenues and lower variable incentive compensation accruals. A change in product mix from international package volume to freight volume, which intensified during the second quarter of 2019, increased costs and negatively impacted operating margins in the second quarter and first half of 2019. In addition, growth in U.S. deferred package volumes andexpenses, partially offset by higher operating costs in salaries and employee benefits, ~~and~~purchased transportation, maintenance and repairs ~~negatively impacted~~and depreciation and amortization. Lower variable incentive compensation expenses benefited operating margin and operating income by approximately $200 million in the ~~second~~third quarter and ~~first half~~the nine months of 2019. ~~Furthermore, FedEx Express results were negatively impacted~~An overall product mix shift from international package volume to international freight volume, growth in deferred services driven by ~~increasing~~e-commerce and continued softness in international volumes ~~during~~partially offset the operating income and operating margin increases in the third quarter ~~as we saw a significant slowing~~and nine months of 2019. The NotPetya cyberattack discussed above drove lower results in the ~~Eurozone economy, as well as continued softness in economic conditions in Asia.~~nine months of 2018.

FedEx Express segment results included approximately ~~$99~~$56 million of TNT Express integration expenses in the ~~second~~third quarter and ~~$201~~$257 million of such expenses in the ~~first half~~nine months of 2019, a $3$30 million ~~increase~~decrease from the ~~second~~third quarter and ~~$17~~a $13 million ~~increase~~decrease from the ~~first half~~nine months of 2018.

Salaries and employee benefits expense decreased 3% in the third quarter of 2019 primarily due to lower variable incentive compensation expenses. Salaries and employee benefits increased 3% in the ~~second quarter and 6% in the first half~~nine months of 2019 primarily due to merit increases ~~including impacts of the accelerated merit increase during late 2018 following the passage of the TCJA (described in the “Overview” section above)~~ and higher staffing to support volume ~~growth. The increase in salaries and employee benefits expense in the second quarter of 2019 was~~growth, partially offset by lower variable incentive compensation ~~accruals.~~expenses and favorable exchange rates. Purchased transportation expense decreased 1% in the third quarter of 2019 primarily due to favorable exchange rates, partially offset by higher volume. Purchased transportation expense increased 4% in the ~~second quarter and 7% in the first half~~nine months of 2019 primarily due to higher volume, partially offset by favorable exchange rates. Maintenance and repairs expense increased ~~16%~~3% in the ~~second~~third quarter and ~~12%~~10% in the ~~first half~~nine months of 2019 primarily due to ~~the timing of~~increased aircraft engine maintenance ~~events.~~expense. Depreciation and amortization expense increased 8% in the third quarter and 7% in the nine months of 2019 primarily due to continued investment in aircraft and related equipment. Intercompany charges expense declined 6% in the third quarter of 2019 due to lower variable incentive compensation expenses and spending controls at FedEx Services.

Fuel expense decreased 1% in the third quarter of 2019 due to decreased fuel prices. Fuel expense increased ~~28%~~20% in the ~~second quarter and 34% in the first half~~nine months of 2019 due to higher fuel prices. ~~However, the~~The net impact of fuel had a significant benefit to operating income in the ~~second~~third quarter and ~~first half~~nine months of 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 ~~November 30:~~February 28:

	Three Months Ended						Percent			Six Months Ended						Percent			Three Months Ended						Percent				Nine Months Ended						Percent
	2018			2017			Change			2018			2017			Change			2019			2018			Change				2019			2018			Change
Revenues	$	5,142		$	4,525			14		$	9,941		$	8,770			13		$	5,261		$	4,828			9			$	15,202		$	13,598			12
Operating expenses:
Salaries and employee benefits		891			767			16			1,696			1,447			17			874			799			9				2,570			2,246			14
Purchased transportation		2,342			2,014			16			4,404			3,790			16			2,466			2,154			14				6,870			5,944			16
Rentals		200			190			5			391			374			5			204			192			6				595			566			5
Depreciation and amortization		180			166			8			353			327			8			185			177			5				538			504			7
Fuel		4			4			—			7			6			17			4			4			—				11			10			10
Maintenance and repairs		84			77			9			161			152			6			86			75			15				247			227			9
Intercompany charges		394			366			8			791			725			9			371			374			(1	)			1,162			1,099			6
Other		461			445			4			885			847			4			494			439			13				1,379			1,286			7
Total operating expenses		4,556			4,029			13			8,688			7,668			13			4,684			4,214			11				13,372			11,882			13
Operating income	$	586		$	496			18		$	1,253		$	1,102			14		$	577		$	614			(6	)		$	1,830		$	1,716			7
Operating margin		11.4	%		11.0	%		40	bp		12.6	%		12.6	%		—	bp		11.0	%		12.7	%		(170	)	bp		12.0	%		12.6	%		(60	)	bp
Average daily package volume		9,237			8,576			8			8,721			8,125			7			9,550			8,993			6				8,992			8,408			7
Revenue per package (yield)	$	8.81		$	8.35			6		$	8.88		$	8.41			6		$	8.87		$	8.64			3			$	8.88		$	8.49			5

	Percent of Revenue												Percent of Revenue
	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	2018			2017			2018			2017			2019			2018			2019			2018
Operating expenses:
Salaries and employee benefits		17.3	%		17.0	%		17.1	%		16.5	%		16.6	%		16.5	%		16.9	%		16.5	%
Purchased transportation		45.5			44.5			44.3			43.2			46.9			44.6			45.2			43.7
Rentals		3.9			4.2			3.9			4.2			3.9			4.0			3.9			4.2
Depreciation and amortization		3.5			3.7			3.5			3.7			3.5			3.7			3.5			3.7
Fuel		0.1			0.1			0.1			0.1			0.1			0.1			0.1			0.1
Maintenance and repairs		1.6			1.7			1.6			1.7			1.6			1.6			1.6			1.7
Intercompany charges		7.7			8.0			8.0			8.3			7.0			7.7			7.7			8.1
Other		9.0			9.8			8.9			9.7			9.4			9.1			9.1			9.4
Total operating expenses		88.6			89.0			87.4			87.4			89.0			87.3			88.0			87.4
Operating margin		11.4	%		11.0	%		12.6	%		12.6	%		11.0	%		12.7	%		12.0	%		12.6	%

FedEx Ground segment revenues increased ~~14%~~9% in the ~~second~~third quarter and ~~13%~~12% in the ~~first half~~nine months of 2019 due to volume growth and increased yields. Average daily volume ~~at FedEx Ground~~ increased 8%6% in the ~~second~~third quarter and 7% in the ~~first half~~nine months of 2019 primarily due to continued growth in residential services driven by e-commerce. FedEx Ground ~~yield~~yields increased 6%3% in ~~both~~ the ~~second~~third quarter and 5% in the ~~first half~~nine months of 2019 primarily ~~driven~~due to by higher fuel surcharges, product mix and base 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. The fuel surcharge ranged as follows for the periods ended ~~November 30:~~February 28:

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	2018			2017			2018			2017			2019			2018			2019			2018
Low		6.25	%		4.50	%		6.25	%		4.00	%		6.50	%		5.30	%		6.25	%		4.00	%
High		7.75			5.25			7.75			5.25			7.50			5.80			7.75			5.80
Weighted-average		7.40			5.02			6.87			4.68			6.84			5.50			6.86			5.00

~~On November 5, 2018,~~Effective January 7, 2019, FedEx Ground announced a 4.9% average list price ~~increase effective January 7, 2019.~~increase. On January 1, 2018, FedEx Ground 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.

FedEx Ground segment operating income ~~increased 18%~~decreased 6% in the ~~second~~third quarter of 2019 due to higher operating costs driven by higher purchased transportation, resulting from increased contractor settlement rates and expanding the operations of the FedEx Ground network to six days per week year-round starting in January 2019, staffing and network expansion costs. Higher revenues and the favorable net impact of fuel partially offset these factors. Higher operating costs also contributed to the operating margin decline in the third quarter and ~~14%~~nine months of 2019. FedEx Ground segment operating income increased 7% in the ~~first half~~nine months of 2019 due to volume growth, increased yields and the ~~positive~~favorable net impact of fuel. ~~Operating margin remained flat~~In addition, lower variable incentive compensation expenses benefited operating income by approximately $75 million in the ~~first half~~third quarter and nine months of ~~2019 as higher purchased transportation, staffing and network expansion costs offset the benefits from higher revenues.~~2019.

Purchased transportation expense increased 14% in the third quarter and 16% in ~~both~~ the ~~second quarter and first half~~nine months of 2019 primarily due to higher volumes, increased contractor settlement rates and ~~higher~~expanding to six-day operations year-round. Higher fuel ~~costs.~~costs also contributed to an increase in purchased transportation expense in the nine months of 2019. Salaries and employee benefits expense increased ~~16%~~9% in the ~~second~~third quarter and ~~17%~~14% in the ~~first half~~nine months of 2019 primarily due to additional staffing to support volume growth, merit increases and network ~~expansion. Lower~~expansion, partially offset by lower variable incentive compensation ~~accruals partially offset these increased expenses in the second quarter of 2019.~~expenses.

The net impact of fuel had a ~~significant~~moderate benefit to operating income in the ~~second~~third quarter and ~~first half~~nine months of 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 is involved in lawsuits and administrative proceedings claiming that owner-operators engaged under operating agreements no longer in 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 of these independent contractors.

For additional information on the FedEx Ground 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 ~~November 30:~~February 28:

	Three Months Ended						Percent				Six Months Ended						Percent				Three Months Ended						Percent				Nine Months Ended						Percent
	2018			2017			Change				2018			2017			Change				2019			2018			Change				2019			2018			Change
Revenues	$	1,918		$	1,673			15			$	3,877		$	3,337			16			$	1,750		$	1,613			8			$	5,627		$	4,950			14
Operating expenses:
Salaries and employee benefits		919			820			12				1,847			1,613			15				865			816			6				2,712			2,429			12
Purchased transportation		250			208			20				509			406			25				213			204			4				722			610			18
Rentals		42			37			14				84			73			15				45			41			10				129			114			13
Depreciation and amortization		76			72			6				154			140			10				88			76			16				242			216			12
Fuel		150			112			34				287			209			37				131			127			3				418			336			24
Maintenance and repairs		63			59			7				125			115			9				53			52			2				178			167			7
Intercompany charges		137			127			8				275			252			9				128			129			(1	)			403			381			6
Other		133			130			2				272			256			6				130			119			9				402			375			7
Total operating expenses		1,770			1,565			13				3,553			3,064			16				1,653			1,564			6				5,206			4,628			12
Operating income	$	148		$	108			37			$	324		$	273			19			$	97		$	49			98			$	421		$	322			31
Operating margin		7.7	%		6.5	%		120		bp		8.4	%		8.2	%		20		bp		5.5	%		3.0	%		250		bp		7.5	%		6.5	%		100		bp
Average daily shipments (in thousands):
Priority		81.7			76.3			7				81.4			75.3			8				73.2			69.7			5				78.7			73.5			7
Economy		35.4			32.3			10				35.0			32.0			9				32.7			30.6			7				34.3			31.5			9
Total average daily shipments		117.1			108.6			8				116.4			107.3			8				105.9			100.3			6				113.0			105.0			8
Weight per shipment (lbs):
Priority		1,203			1,201			—				1,211			1,192			2				1,210			1,232			(2	)			1,211			1,205			—
Economy		1,043			1,153			(10	)			1,026			1,150			(11	)			1,106			1,133			(2	)			1,050			1,144			(8	)
Composite weight per shipment		1,155			1,187			(3	)			1,155			1,180			(2	)			1,178			1,202			(2	)			1,162			1,187			(2	)
Revenue per shipment:
Priority	$	249.76		$	232.25			8			$	248.24		$	229.17			8			$	253.35		$	242.49			4			$	249.78		$	233.31			7
Economy		297.73			286.35			4				295.00			281.64			5				308.44			295.31			4				299.17			285.99			5
Composite revenue per shipment	$	264.27		$	248.36			6			$	262.29		$	244.81			7			$	270.82		$	259.20			4			$	264.89		$	249.32			6
Revenue per hundredweight:
Priority	$	20.76		$	19.34			7			$	20.50		$	19.22			7			$	20.94		$	19.67			6			$	20.63		$	19.37			7
Economy		28.55			24.84			15				28.76			24.49			17				27.89			26.07			7				28.48			24.99			14
Composite revenue per hundredweight	$	22.89		$	20.93			9			$	22.71		$	20.75			9			$	22.99		$	21.56			7			$	22.79		$	21.01			8

	Percent of Revenue												Percent of Revenue
	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	2018			2017			2018			2017			2019			2018			2019			2018
Operating expenses:
Salaries and employee benefits		47.9	%		49.0	%		47.6	%		48.3	%		49.4	%		50.6	%		48.2	%		49.1	%
Purchased transportation		13.0			12.4			13.1			12.2			12.2			12.7			12.8			12.3
Rentals		2.2			2.2			2.2			2.2			2.6			2.5			2.3			2.3
Depreciation and amortization		4.0			4.3			4.0			4.2			5.0			4.7			4.3			4.3
Fuel		7.8			6.7			7.4			6.3			7.5			7.9			7.4			6.8
Maintenance and repairs		3.3			3.5			3.2			3.4			3.0			3.2			3.2			3.4
Intercompany charges		7.2			7.6			7.1			7.5			7.3			8.0			7.2			7.7
Other		6.9			7.8			7.0			7.7			7.5			7.4			7.1			7.6
Total operating expenses		92.3			93.5			91.6			91.8			94.5			97.0			92.5			93.5
Operating margin		7.7	%		6.5	%		8.4	%		8.2	%		5.5	%		3.0	%		7.5	%		6.5	%

FedEx Freight segment revenues increased ~~15%~~8% in the ~~second~~third quarter and ~~16%~~14% in the ~~first half~~nine months of 2019 due to higher revenue per shipment and average daily shipments. Revenue per shipment increased 4% in the third quarter and 6% in the ~~second quarter and 7% in the first half~~nine months of 2019 primarily due to higher base rates driven by our ongoing yield management initiatives and higher fuel surcharges. Average daily shipments increased 6% in the third quarter and 8% in ~~both~~ the ~~second quarter and first half~~nine months of 2019 due to higher demand for our service offerings.

The weekly indexed fuel surcharge is based on the average of the U.S. on-highway prices for a gallon of diesel fuel, as published by the Department of Energy. The indexed FedEx Freight fuel surcharge ranged as follows for the periods ended ~~November 30:~~February 28:

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	2018			2017			2018			2017			2019			2018			2019			2018
Low		24.90	%		22.40	%		24.60	%		20.90	%		23.40	%		23.10	%		23.40	%		20.90	%
High		25.60			23.20			25.60			23.20			24.60			24.00			25.60			24.00
Weighted-average		25.19			22.70			24.97			21.96			23.77			23.59			24.62			22.46

~~On November 5, 2018,~~Effective January 7, 2019, FedEx Freight announced a 5.9% average list price increase in certain U.S. and other shipping ~~rates effective January 7, 2019.~~rates. On January 1, 2018, FedEx Freight implemented a 4.9% average increase in certain U.S. and other shipping rates.

FedEx Freight segment operating income increased ~~37% in the second quarter and 19% in the first half of 2019~~98% and operating margin improved ~~120~~250 basis points in the ~~second~~third quarter of 2019. Additionally, FedEx Freight segment operating income increased 31% and 20operating margin improved 100 basis points in the ~~first half~~nine months of ~~2019~~2019. These positive results were achieved primarily ~~driven~~ by higher revenue per shipment. In addition, lower variable incentive compensation expenses benefited operating income by approximately $40 million in the third quarter and nine months of 2019.

Salaries and employee benefits expense increased 6% in the third quarter and 12% in the ~~second quarter and 15% in the first half~~nine months of 2019 ~~driven primarily by~~reflecting higher staffing levels to support volume growth and merit ~~increases.~~increases, partially offset by lower variable incentive compensation expenses. Purchased transportation expense increased ~~20%~~4% in the ~~second~~third quarter and ~~25%~~18% in the ~~first half~~nine months of 2019 due to increased rates ~~higher fuel costs~~ and higher volumes. ~~Lower variable incentive compensation accruals partially offset these increased expenses~~Higher fuel costs also contributed to an increase in purchased transportation expense in the ~~second quarter~~nine months of 2019.

Fuel expense increased ~~34%~~3% in the ~~second~~third quarter ~~and 37%~~of 2019 primarily due to higher mileage. Fuel expense increased 24% in the ~~first half~~nine months of 2019 primarily due to higher fuel prices. The net impact of fuel had a moderate benefit to operating income in the third quarter of 2019 and a significant benefit to operating income in the ~~second quarter and first half~~nine months of 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.

Cash and cash equivalents totaled ~~$2.1~~$2.9 billion at ~~November 30, 2018,~~February 28, 2019, compared to $3.3 billion at May 31, 2018. The following table provides a summary of our cash flows for the ~~six-month~~nine-month periods ended ~~November 30~~February 28 (in millions):

	2018			2017			2019			2018
Operating activities:
Net income	$	1,770		$	1,371		$	2,509		$	3,445
Noncash charges and credits		2,140			2,053			3,099			1,691
Changes in assets and liabilities		(1,731	)		(1,926	)		(2,285	)		(3,974	)
Cash provided by operating activities		2,179			1,498			3,323			1,162
Investing activities:
Capital expenditures		(2,634	)		(2,621	)		(3,757	)		(3,994	)
Business acquisitions, net of cash acquired		—			(44	)		—			(44	)
Proceeds from asset dispositions and other		53			12			62			21
Cash used in investing activities		(2,581	)		(2,653	)		(3,695	)		(4,017	)
Financing activities:
Proceeds from short-term borrowings		248			250
Proceeds from short-term borrowings, net								220			797
Proceeds from debt issuances		1,233			—			2,463			1,481
Principal payments on debt		(785	)		(28	)		(874	)		(31	)
Proceeds from stock issuances		45			205			58			284
Dividends paid		(173	)		(268	)		(514	)		(402	)
Purchase of treasury stock		(1,271	)		(270	)		(1,365	)		(558	)
Other		1			3			5			6
Cash used in financing activities		(702	)		(108	)
Cash (used in) provided by financing activities								(7	)		1,577
Effect of exchange rate changes on cash		(38	)		62			(14	)		98
Net decrease in cash and cash equivalents	$	(1,142	)	$	(1,201	)	$	(393	)	$	(1,180	)
Cash and cash equivalents at the end of period	$	2,123		$	2,768		$	2,872		$	2,789

Cash flows from operating activities increased ~~$681 million~~$2.2 billion in the ~~first half~~nine months of 2019 due to lower pension contributions, higher net income and decreased tax payments, partially offset by ~~increased~~higher variable incentive compensation ~~payments and higher interest~~ payments. Capital expenditures ~~increased~~decreased slightly during the ~~first half~~nine months of 2019 primarily due to ~~increased~~lower spending onrelated to facilities, equipment and vehicles at FedEx Ground, as well as ~~package handling and ground support equipment at FedEx Express, higher~~lower spending ~~related to information technology at FedEx Services and~~on aircraft and related equipment ~~purchases~~ at FedEx Express, partially offset by ~~lower~~increased spending ~~on network expansion projects~~related to facilities and equipment at FedEx ~~Ground.~~Express. See “Capital Resources” for a discussion of capital expenditures during 2019 and 2018.

During the second quarter of 2019, we issued $1.25 billion of senior unsecured debt under our current shelf registration ~~statement.~~statement, comprised of $400 million of 4.20% fixed-rate notes due in October 2028 and $850 million of 4.95% fixed-rate notes due in October 2048. Interest on these notes is paid semi-annually. We used the net proceeds to redeem the $750 million aggregate principal amount of 8.00% notes due January 15, 2019, and for general corporate purposes. ~~See Note 3 of the accompanying unaudited condensed consolidated financial statements for further discussion.~~

During the ~~second~~third quarter of 2019, we issued commercial paper to provide us with additional short-term liquidity. As of ~~November 30, 2018,~~February 28, 2019, we had ~~$250~~$225 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 approved a share repurchase program of up to 25 million shares. During the ~~second~~third quarter of 2019, we repurchased ~~2.8~~0.6 million shares of FedEx common stock at an average price of ~~$228.35~~$168.43 per share for a total of ~~$646~~$93 million. During the ~~first half~~nine months of 2019, we repurchased ~~5.4~~6.0 million shares of FedEx common stock at an average price of ~~$233.44~~$227.42 per share for a total of ~~$1.3~~$1.4 billion. As of ~~November 30, 2018, 6.3~~February 28, 2019, 5.7 million shares remained under the current share repurchase authorization. Shares under 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- handling and sort equipment. The amount and timing of capital additions depend on various factors, including pre-existing contractual commitments, anticipated volume growth, domestic and international economic conditions, new or enhanced services, geographical expansion of services, availability of satisfactory financing and actions of regulatory authorities.

The following table compares capital expenditures by asset category and reportable segment for the periods ended ~~November 30~~February 28 (in millions):

									Percent Change														Percent Change
									2018/2017														2019/2018
	Three Months Ended				Six Months Ended				Three Months			Six Months			Three Months Ended				Nine Months Ended				Three Months			Nine Months
	2018		2017		2018		2017		Ended			Ended			2019		2018		2019		2018		Ended			Ended
Aircraft and related equipment	$	604	$	629	$	1,075	$	1,040		(4	)		3		$	397	$	591	$	1,472	$	1,631		(33	)		(10	)
Package handling and ground support equipment		223		217		417		414		3			1			167		207		584		621		(19	)		(6	)
Vehicles		275		390		435		511		(29	)		(15	)		206		237		640		748		(13	)		(14	)
Information technology		157		135		332		261		16			27			182		116		515		378		57			36
Facilities and other		196		206		375		395		(5	)		(5	)		171		221		546		616		(23	)		(11	)
Total capital expenditures	$	1,455	$	1,577	$	2,634	$	2,621		(8	)		—		$	1,123	$	1,372	$	3,757	$	3,994		(18	)		(6	)

FedEx Express segment	$	932	$	872	$	1,692	$	1,453		7			16		$	673	$	858	$	2,364	$	2,312		(22	)		2
FedEx Ground segment		253		409		429		715		(38	)		(40	)		137		221		566		936		(38	)		(40	)
FedEx Freight segment		136		172		227		199		(21	)		14			177		198		403		397		(11	)		2
FedEx Services segment		119		112		260		220		6			18			127		87		387		306		46			26
Other		15		12		26		34		25			(24	)		9		8		37		43		13			(14	)
Total capital expenditures	$	1,455	$	1,577	$	2,634	$	2,621		(8	)		—		$	1,123	$	1,372	$	3,757	$	3,994		(18	)		(6	)

Capital expenditures ~~increased~~decreased slightly during the ~~first half~~nine months of 2019 primarily due to ~~increased~~lower spending onrelated to facilities, equipment and vehicles at FedEx Ground, as well as ~~package handling~~lower spending on aircraft and ~~ground support~~related equipment at FedEx Express, ~~higher~~partially offset by increased spending related to ~~information technology~~facilities and equipment at FedEx Services and aircraft and related equipment purchases at FedEx Express, which included the delivery of nine Boeing 767-300 Freighter aircraft and two Boeing 777 Freighter aircraft, partially offset by lower spending on network expansion projects at FedEx Ground.Express.

We believe that our cash and cash equivalents, cash flow from operations and available financing sources will be adequate to meet our liquidity needs, including working capital, capital expenditure requirements, debt payment obligations, pension contributions, ~~and~~ TNT Express integration ~~expenses.~~expenses and business realignment activities (including the U.S.-based voluntary employee buyout program). Our cash and cash equivalents balance at ~~November 30, 2018~~February 28, 2019 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.

Our capital expenditures are expected to be approximately $5.6 billion in 2019, and include spending for aircraft modernization at FedEx Express and spending on facilities and sort equipment, primarily at FedEx Express and FedEx ~~Ground, and spending for TNT Express integration-related investments.~~Ground. We invested ~~$1.1~~$1.5 billion in aircraft and related equipment in the ~~first half~~nine months of 2019 and expect to invest an additional ~~$0.8~~$0.6 billion for aircraft and related equipment during the remainder of 2019. In addition, over the next several years, we will be investing a total of approximately $1.5 billion to significantly expand the FedEx Express Indianapolis hub and a total of approximately $1$1.0 billion to modernize the FedEx Express Memphis World Hub. We anticipate that our cash flow from operations will be sufficient to fund 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 have a shelf registration statement filed with the Securities and Exchange Commission (“SEC”) that allows us to sell, in one or more future offerings, any combination of our unsecured debt securities and common stock.

We have a five-year $2.0 billion revolving credit 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 ~~first half~~nine months of 2019, we made voluntary contributions totaling ~~$500 million~~$1.0 billion to our U.S. Pension Plans. We do not expect to make anany additional ~~$500 million contribution~~contributions to our U.S. Pension Plans during the fourth quarter of 2019. 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, a commercial paper rating of A-2 and a ratings outlook of “stable.” Moody’s Investors Service has assigned us an unsecured debt credit rating of Baa2, a commercial paper rating of P-2 and a ratings outlook of “stable.” If our credit ratings drop, our interest expense may increase. If our commercial paper ratings drop below current levels, we may have difficulty utilizing the commercial paper market. If our senior unsecured debt credit ratings drop below investment grade, our access to financing may become limited.

The following table sets forth a summary of our contractual cash obligations as of ~~November 30, 2018.~~February 28, 2019. 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 ~~November 30, 2018.~~February 28, 2019. 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. 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)
	2019 ⁽¹⁾		2020		2021		2022		2023		Thereafter		Total		2019 ⁽¹⁾		2020		2021		2022		2023		Thereafter		Total
Operating activities:
Operating leases	$	1,385	$	2,287	$	2,061	$	1,854	$	1,626	$	8,513	$	17,726	$	597	$	2,344	$	2,126	$	1,913	$	1,682	$	8,974	$	17,636
Non-capital purchase obligations and other		705		792		580		406		312		2,882		5,677		397		873		662		476		309		2,952		5,669
Interest on long-term debt		317		599		587		587		580		10,511		13,181		126		621		609		609		580		10,510		13,055
Quarterly contributions to our U.S. Pension Plans		—		—		—		—		—		—		—
Investing activities:
Aircraft and related capital commitments		761		1,935		2,193		1,805		1,508		661		8,863		396		1,930		2,186		1,808		1,529		656		8,505
Other capital purchase obligations		57		27		25		23		23		6		161		48		28		25		23		23		6		153
Financing activities:
Debt		570		968		—		—		1,601		13,958		17,097		569		967		—		1,226		1,600		13,957		18,319
Total	$	3,795	$	6,608	$	5,446	$	4,675	$	5,650	$	36,531	$	62,705	$	2,133	$	6,763	$	5,608	$	6,055	$	5,723	$	37,055	$	63,337

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 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 facilities and aircraft) with an initial or remaining term in excess of one year at ~~November 30, 2018.~~February 28, 2019.

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 ($~~119~~124 million) for uncertain tax positions. We cannot reasonably estimate the timing of the long-term payments or the amount by which the liability will increase or decrease over time; therefore, the long-term portion of the liability ($4238 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,~~spare engines, vehicles, facilities, computers and other equipment.

We had ~~$1.0 billion~~$965 million in deposits and progress payments as of ~~November 30, 2018~~February 28, 2019 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 ~~November 30, 2018,~~February 28, 2019, 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 “General,” “Fuel,” “Income Taxes,” “Outlook,” “Independent Contractor Model,” “Liquidity,” “Liquidity Outlook,” “Contractual Cash Obligations and Off-Balance Sheet Arrangements” and “Critical Accounting Estimates,” and the “General,” “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,” “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:

~~- 50 -~~a significant data breach or other disruption to our technology infrastructure, which could adversely affect our reputation, business or results of operations;

•	~~a significant data breach or other disruption to our technology infrastructure, which could adversely affect our reputation, business or results of operations;~~

anti-trade measures and changes in international trade policies;

- 53 -

•	our ability to successfully integrate the businesses and operations of FedEx Express and TNT Express in the expected time frame and at the expected cost and to achieve the expected benefits from the combined businesses;

the impact of the United Kingdom’s vote to leave the European Union and the terms of the United Kingdom’s withdrawal, if it ultimately occurs;

damage to our reputation or loss of brand equity;

the price and availability of jet and vehicle fuel;

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

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

any impacts on our businesses resulting from evolving or new U.S. domestic or international government regulations, laws, and policies, which could be unfavorable to our business, including regulatory actions affecting data privacy and sovereignty, global aviation or other transportation rights, increased air cargo and other security or safety requirements, the use of new technology and tax, accounting, trade (such as protectionist measures or restrictions on free trade), foreign exchange intervention, labor (such as card-check legislation, joint employment standards or changes to the Railway Labor Act of 1926, as amended, affecting FedEx Express employees), environmental (such as global climate change legislation) or postal rules;

future guidance, regulations, interpretations, or challenges to our tax positions relating to the TCJA and our ability to defend our interpretations and realize the benefits of certain provisions of the TCJA;

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

our ability to successfully implement our cost-reduction initiatives and productivity enhancements;

the acceptance rate of the U.S.-based voluntary cash buyout offers and the timing of such acceptances, and our ability to realize the expected savings from the U.S.-based voluntary employee buyout program;

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

the impact of costs related to (i) challenges to the status of owner-operators engaged by FedEx Ground as independent contractors and direct employers of drivers providing services on their behalf, and (ii) any related changes to our relationship with these owner-operators and their drivers;

any impact on our business from disruptions or modifications in service by, or changes in the business or financial soundness of, the U.S. Postal Service, which is a significant customer and vendor of FedEx;

~~the impact of the United Kingdom’s vote to leave the European Union;~~

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

adverse weather or localized disasters in key geographic areas, such as earthquakes, volcanoes, wildfires, hurricanes, conflicts or unrest, or terrorist attacks, which can disrupt our electrical service, damage our property, disrupt our operations, increase our fuel costs and adversely impact demand for our services;

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

changes in our ability to attract and retain pilots, drivers and package and freight handlers;

- 5154 -

•	the increasing costs of compliance with federal, state and foreign governmental agency mandates (including the Foreign Corrupt Practices Act and the U.K. Bribery Act) and defending against inappropriate or unjustified enforcement or other actions by such agencies;

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

market acceptance of our new service and growth initiatives;

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

the outcome of future negotiations to reach new collective bargaining agreements — including with the union that represents the pilots of FedEx Express (the current pilot agreement is scheduled to become amendable in November 2021) ~~and~~, with the union elected in 2015 to represent drivers at a FedEx Freight, Inc. ~~facility;~~facility in the U.S., and with the union certified in 2019 to represent owner-drivers at a FedEx Freight, Inc. facility in Canada;

the impact of technology developments on our operations and on demand for our services, and our ability to successfully mitigate unique operational and regulatory risks relating to such developments and continue to identify and eliminate unnecessary information-technology redundancy and complexity throughout the organization;

governmental underinvestment in transportation infrastructure, which could increase our costs and adversely impact our service levels due to traffic congestion or sub-optimal routing of our vehicles and aircraft;

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

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

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

As a result of these and other factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances and those future events or circumstances may not occur. You should not place undue reliance on 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.

- 5255 -

Item 3. Quantitative and ~~Qualitat~~Qualitative Disclosures About Market Risk

As of ~~November 30, 2018,~~February 28, 2019, 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 relate to the euro, Chinese yuan, British pound, Canadian dollar, Brazilian real 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 ~~first half~~nine months of 2019, the U.S. dollar strengthened relative to the currencies of the foreign countries in which we operate, as compared to May 31, 2018, and this strengthening had a slightly 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.”

Item 4. Controls and Procedures

The management of FedEx, with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 ~~November 30, 2018~~February 28, 2019 (the end of the period covered by this Quarterly Report on Form 10-Q).

During our fiscal quarter ended ~~November 30, 2018,~~February 28, 2019, 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.

- 5356 -

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Other than the risk ~~factor~~factors 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.~~10-K, as updated by our quarterly reports on Form 10-Q.

~~Failure~~

The United Kingdom’s vote to leave the European Union could adversely impact our business, results of operations and financial condition. There is substantial uncertainty surrounding the United Kingdom’s 2016 vote to leave the European Union (“Brexit”), which is scheduled for March 29, 2019. Any impact of Brexit depends on the terms of the United Kingdom’s withdrawal from the European Union. The ongoing uncertainty within the United Kingdom’s government and Parliament on the status of a withdrawal agreement with the European Union sustains the possibility of the United Kingdom leaving the European Union without a withdrawal agreement and associated transition period in place, which would likely cause significant market and economic disruption and negatively impact customer experience and service quality, and could depress the demand for our services.

Even if an agreement setting forth the terms of the United Kingdom’s withdrawal from the European Union is approved, the withdrawal could result in a global economic downturn. The United Kingdom also could lose access to the single European Union market and to the global trade deals negotiated by the European Union on behalf of its members, depressing trade between the United Kingdom and other countries, which would negatively impact our international operations. Additionally, we may face new regulations regarding trade, aviation, security and employees, among others, in the United Kingdom. Compliance with such regulations could be costly, negatively impacting our business, results of operations and financial condition. Brexit could also adversely affect European and worldwide economic and market conditions and could contribute to instability in global financial and foreign exchange markets, including volatility in the value of the euro and the British pound.

Our autonomous delivery strategy is dependent upon our ability to successfully ~~implement~~mitigate unique technological, operational and regulatory risks. We recently announced the development through a partnership of an autonomous delivery device designed to help retailers make same-day and last-mile deliveries to their customers. Autonomous delivery is a new and evolving market, which makes it difficult to predict its acceptance, growth, the magnitude and timing of necessary investments and other trends. This aspect of our ~~cost-reduction initiatives~~business strategy is subject to a variety of risks inherent with the development of new technologies, including: the ability to continue to develop autonomous delivery software and ~~productivity enhancements will cause~~hardware; access to sufficient capital; our ~~future~~ability to develop and maintain necessary partnerships; risks related to the manufacture of autonomous devices; and significant competition from other companies, some of which may have more resources and capital to devote to autonomous technologies than we do.

In addition, we face risks related to the commercial deployment of autonomous delivery devices on our targeted timeline or at all, including consumer acceptance, achievement of adequate safety and other performance standards and compliance with uncertain, evolving and potentially conflicting federal and state regulations. To the extent accidents, cybersecurity breaches or other adverse events associated with our autonomous delivery devices occur, we could be subject to liability, government scrutiny, further regulation and reputational damage. Any of the foregoing could adversely impact our results of operations, financial ~~results to suffer.~~ We are implementing various cost-reduction initiatives, including a U.S.-based voluntary buyout program for eligible employees, international network capacity reductions at FedEx Express, limited hiring in staff functionscondition and reductions in discretionary spending. If we are not able to successfully implement these cost-reduction initiatives and our ongoing productivity enhancements in the face of challenging economic and business conditions, our future financial results may suffer.growth prospects.

- 5457 -

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

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

ISSUER PURCHASES OF EQUITY SECURITIES

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

Sep. 1-30, 2018

600,000

$
245.93

600,000

8,522,200

Oct. 1-31, 2018

1,730,000

223.48

1,730,000

6,792,200

Nov. 1-30, 2018

500,000

224.09

500,000

6,292,200

Total

2,830,000

$
228.35

2,830,000

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, 2018		100,000	$	156.50		100,000		6,192,200
Jan. 1-31, 2019		305,000		166.48		305,000		5,887,200
Feb. 1-28, 2019		150,000		180.37		150,000		5,737,200
Total		555,000	$	168.43		555,000

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 ~~December 17, 2018, 6.3~~March 18, 2019, 5.6 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.

Item 5. Other Information

Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 and Section 13(r) of the Exchange Act. We have comprehensive export controls and economic sanctions programs designed to ensure compliance with United States and other applicable export controls and sanctions laws, rules and regulations. We recently identified the shipments described below involving P2P Mailing Limited (“P2P”), an e-commerce transportation solutions company that FedEx acquired in March 2018. P2P is based in the United Kingdom and organized under the laws of England and Wales. These shipments were not made in accordance with our internal policies and procedures and require disclosure pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 and Section 13(r) of the Exchange Act.

P2P provides customers with unique low-cost international transportation solutions, leveraging its relationships with private, postal, retail and clearance providers in over 200 countries and territories. Its technology and processes provide plug-and-play options with carrier networks and customer systems. It recently came to our attention that from the date FedEx acquired P2P in March 2018 through early February 2019, P2P facilitated the shipment into Iran of approximately 120 packages through its TrakPak service offering and approximately 960 packages through its Untrak service offering. All of P2P’s customers that shipped packages to Iran sell consumer goods. The aggregate gross revenue for these shipments was £16,067 (approximately $21,300) and the aggregate profit was £5,083 (approximately $6,700). In the case of the TrakPak shipments, one of P2P’s vendors used Iran Air, an entity identified by the United States Treasury Department’s Office of Foreign Assets Control (“OFAC”) as owned or controlled by the Government of Iran (“GoI”), to move the shipments from the United Kingdom into Iran. Because all of the shipments in question were postal shipments, Iran Post, an entity FedEx understands to be owned or controlled by the GoI, provided the last-mile delivery for both the TrakPak and Untrak shipments after they arrived in Iran. P2P did not directly contract with, provide payment to or otherwise transact with Iran Air or Iran Post.

P2P does not intend to continue this activity. Promptly upon learning of these shipments, we put in place a mechanism designed to prevent shipments into Iran through P2P’s service offerings, and P2P has not facilitated any such shipments since that time. Additionally, we have implemented enhanced controls, procedures and other measures to ensure P2P’s compliance with our export controls and economic sanctions programs.

We have made an initial notification of voluntary self-disclosure to OFAC and will perfect the disclosure at the appropriate time. We intend to fully cooperate with OFAC regarding these matters.

- 5558 -

Item 6. Exhibits

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. 6,7, dated as of ~~October 17, 2018,~~January 16, 2019, 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 ~~October 17, 2018,~~January 16, 2019, and incorporated herein by reference.)

4.3		Form of ~~4.200%~~3.400% Note due ~~2028.~~2022. (Included in Exhibit 4.2 to FedEx’s Current Report on Form 8-K dated and filed ~~October 17, 2018,~~January 16, 2019, and incorporated herein by reference.)

4.4		Supplemental Indenture No. 8, dated as of January 18, 2019, between FedEx, the Guarantors named therein, Wells Fargo Bank, National Association, as trustee, and Elavon Financial Services DAC, UK Branch, as paying agent. (Filed as Exhibit 4.2 to FedEx’s Current Report on Form 8-K dated and filed January 18, 2019, and incorporated herein by reference.)

4.5		Form of ~~4.950%~~0.700% Note due ~~2048.~~2022. (Included in Exhibit 4.2 to FedEx’s Current Report on Form 8-K dated and filed ~~October 17, 2018,~~January 18, 2019, and incorporated herein by reference.)

10.1		Amendment dated ~~September~~December 11, 2018 (but effective as of ~~May 30,~~October 29, 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”).~~Act.

10.2		Amendment dated ~~September 11,~~December 20, 2018 (but effective as of ~~April 30,~~September 3, 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 ~~September 11,~~December 20, 2018 (but effective as of ~~July 2,~~November 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.

10.4		Amendment dated ~~September 11, 2018~~January 3, 2019 (but effective as of ~~June 4,~~October 1, 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 ~~September 11, 2018~~January 15, 2019 (but effective as of ~~July 2,~~October 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.

10.6		Amendment dated ~~September 11, 2018~~January 15, 2019 (but effective as of ~~July 30,~~October 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 dated ~~September 27, 2018~~January 29, 2019 (but effective as of ~~August 27,~~December 31, 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.

10.8		Amendment dated ~~October 18, 2018~~February 7, 2019 (but effective as of ~~September 3,~~November 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.

10.9		Eleventh Amendment dated ~~October 16, 2018~~January 22, 2019 (but effective as of ~~November 24, 2018), amending~~January 1, 2019) to the ~~USPS Transportation Agreement. Confidential treatment has been requested for confidential commercial~~Composite Lease Agreement dated May 21, 2007 (but effective as of January 1, 2007) between the Memphis-Shelby County Airport Authority and ~~financial information, pursuant to Rule 24b-2 under the Exchange Act.~~FedEx Express.

10.10		~~Amendment~~Separation and Release Agreement, dated ~~October 26,~~December 3, 2018, ~~(but effective~~between FedEx Express and David L. Cunningham, Jr. (Filed as ~~of July 30, 2018), amending the USPS Transportation Agreement. Confidential treatment has been requested for confidential commercial~~Exhibit 99.1 to FedEx’s Current Report on Form 8-K dated December 3, 2018 and ~~financial information, pursuant to Rule 24b-2 under the Exchange Act.~~

~~10.11~~		~~Amendment dated November 20,~~filed December 7, 2018, ~~(but effective as of October 1, 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.~~incorporated herein by reference.)

- 5659 -

Exhibit Number		Description of Exhibit
~~10.12~~10.11		~~Supplemental Agreement No. 31 dated as of September 14, 2018, amending the Boeing 777 Freighter Purchase~~Separation and Release Agreement, dated February 13, 2019, between FedEx and David J. Bronczek. (Filed as ~~of November 7, 2006, between The Boeing Company~~Exhibit 99.1 to FedEx’s Current Report on Form 8-K dated February 13, 2019 and ~~FedEx Express (the “Boeing 777 Freighter Purchase Agreement”). Confidential treatment has been requested for confidential commercial~~filed February 14, 2019, and ~~financial information, pursuant to Rule 24b-2 under the Exchange Act.~~

~~10.13~~		Letter Agreement dated as of September 14, 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.incorporated herein by reference.)

15.1		Letter re: Unaudited Interim Financial Statements.

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

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

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

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

101.1		Interactive Data Files.

- 5760 -

SIGNATURE

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

			FEDEX CORPORATION

Date: ~~December 18, 2018~~March 19, 2019			/s/ JOHN L. MERINO
			JOHN L. MERINO
			CORPORATE VICE PRESIDENT AND
			PRINCIPAL ACCOUNTING OFFICER

- 5861 -

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 ☐

Common Stock		Outstanding Shares at ~~December 14, 2018~~March 15, 2019
Common Stock, par value $0.10 per share		~~261,043,625~~260,574,612

		PAGE

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets ~~November 30, 2018~~February 28, 2019 and May 31, 2018		3
Condensed Consolidated Statements of Income Three and ~~Six~~Nine Months Ended ~~November 30,~~February 28, 2019 and 2018 ~~and 2017~~		5
Condensed Consolidated Statements of Comprehensive Income Three and ~~Six~~Nine Months Ended ~~November 30,~~February 28, 2019 and 2018 ~~and 2017~~		6
Condensed Consolidated Statements of Cash Flows ~~Six~~Nine Months Ended ~~November 30,~~February 28, 2019 and 2018 ~~and 2017~~		7
Condensed Consolidated Statements of Changes In Common Stockholders' Investment Three and Nine Months Ended February 28, 2019 and 2018		8
Notes to Condensed Consolidated Financial Statements		89
Report of Independent Registered Public Accounting Firm		2830
ITEM 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition		2931
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		5356
ITEM 4. Controls and Procedures		5356

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings		5457
ITEM 1A. Risk Factors		5457
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		5558
ITEM 5. Other Information		58
ITEM 6. Exhibits		5659
Signature		5861

~~Exhibit 4.1~~ ~~Exhibit 4.2~~ ~~Exhibit 4.3~~ ~~Exhibit 4.4~~ 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 10.11~~ ~~Exhibit 10.12~~ ~~Exhibit 10.13~~
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 Effective Tax Rate^(a)		(137.3	)%		(15.0	)%
Remeasurement of net U.S. deferred tax liability in 2018		131.5			38.5
Effect of February 2018 pension contribution^(b)		23.3			6.8
Lower statutory tax rate on first-half 2018 earnings (35% to 29.2%)^(c)		12.5			—
Reduction of valuation allowance on tax loss carryforwards in 2019		(10.3	)		(3.0	)
Lower statutory tax rate on 2019 earnings (29.2% to 21%)^(c)		(7.6	)		(7.6	)
Remeasurement of net Dutch deferred tax asset in 2019		5.3			1.5
Transition tax provisional benefit in 2018		4.1			1.2
Foreign tax credits on foreign dividends in 2018		1.2			2.9
Accelerated deductions claimed in 2019 on the 2018 U.S. income tax return		—			(1.8	)
Other, net^(d)		(2.1	)		(1.7	)
2019 Effective Tax Rate^(a)		20.6	%		21.8	%


FedEx Express Segment	FedEx Express (express transportation)
	TNT Express (international express transportation, small-package ground delivery and freight transportation)

FedEx Ground Segment	FedEx Ground (small-package ground delivery)

FedEx Freight Segment	FedEx Freight (LTL freight 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)