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.

	February 28, 2019 (Unaudited)		May 31, 2018		February 29, 2020 (Unaudited)		May 31, 2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	2,872	$	3,265	$	1,766	$	2,319
Receivables, less allowances of $318 and $401		9,037		8,481
Spare parts, supplies and fuel, less allowances of $339 and $268		546		525
Receivables, less allowances of $307 and $300						9,323		9,116
Spare parts, supplies and fuel, less allowances of $332 and $335						568		553
Prepaid expenses and other		1,045		1,070		884		1,098
Total current assets		13,500		13,341		12,541		13,086
PROPERTY AND EQUIPMENT, AT COST		58,164		55,121		64,305		59,511
Less accumulated depreciation and amortization		28,396		26,967		30,999		29,082
Net property and equipment		29,768		28,154		33,306		30,429
OTHER LONG-TERM ASSETS
Operating lease right-of-use assets, net						13,981		—
Goodwill		6,916		6,973		6,814		6,884
Other assets		4,280		3,862		3,372		4,004
Total other long-term assets		11,196		10,835		24,167		10,888
	$	54,464	$	52,330	$	70,014	$	54,403

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

	February 28, 2019 (Unaudited)			May 31, 2018			February 29, 2020 (Unaudited)			May 31, 2019
LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Short-term borrowings	$	225		$	—		$	300		$	—
Current portion of long-term debt		973			1,342			35			964
Accrued salaries and employee benefits		1,659			2,177			1,472			1,741
Accounts payable		3,156			2,977			3,193			3,030
Operating lease liabilities								1,902			—
Accrued expenses		3,243			3,131			3,423			3,278
Total current liabilities		9,256			9,627			10,325			9,013
LONG-TERM DEBT, LESS CURRENT PORTION		17,218			15,243			18,973			16,617
OTHER LONG-TERM LIABILITIES
Deferred income taxes		3,211			2,867			3,101			2,821
Pension, postretirement healthcare and other benefit obligations		1,847			2,187			4,165			5,095
Self-insurance accruals		1,861			1,784			1,933			1,899
Operating lease liabilities								12,232			—
Deferred lease obligations		512			551			—			531
Deferred gains, principally related to aircraft transactions		118			121
Other liabilities		547			534			454			670
Total other long-term liabilities		8,096			8,044			21,885			11,016
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS’ INVESTMENT
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
Common stock, $0.10 par value; 800 million shares authorized; 318 million shares issued as of February 29, 2020 and May 31, 2019								32			32
Additional paid-in capital		3,209			3,117			3,324			3,231
Retained earnings		26,650			24,823			25,569			24,648
Accumulated other comprehensive loss		(737	)		(578	)		(887	)		(865	)
Treasury stock, at cost		(9,260	)		(7,978	)		(9,207	)		(9,289	)
Total common stockholders’ investment		19,894			19,416			18,831			17,757
	$	54,464		$	52,330		$	70,014		$	54,403

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

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	February 28,						February 28,						February 29, 2020			February 28, 2019			February 29, 2020			February 28, 2019
	2019			2018			2019			2018
				As Adjusted						As Adjusted
REVENUES	$	17,010		$	16,526		$	51,886		$	48,136
REVENUE													$	17,487		$	17,010		$	51,859		$	51,886
OPERATING EXPENSES:
Salaries and employee benefits		6,069			6,124			18,589			17,677			6,382			6,069			18,704			18,589
Purchased transportation		4,253			3,935			12,566			11,220			4,558			4,253			12,914			12,566
Rentals and landing fees		874			873			2,533			2,526			964			874			2,808			2,533
Depreciation and amortization		851			786			2,487			2,293			908			851			2,688			2,487
Fuel		907			914			2,945			2,435			879			907			2,639			2,945
Maintenance and repairs		658			628			2,144			1,968			684			658			2,226			2,144
Asset impairment charges														—			—			66			—
Business realignment costs		4			—			4			—			—			4			—			4
Other		2,483			2,408			7,468			7,073			2,701			2,483			7,872			7,468
		16,099			15,668			48,736			45,192			17,076			16,099			49,917			48,736
OPERATING INCOME		911			858			3,150			2,944			411			911			1,942			3,150
OTHER INCOME (EXPENSE):
Interest, net		(135	)		(125	)		(393	)		(363	)		(155	)		(135	)		(443	)		(393	)
Other retirement plans income		158			143			474			436			168			158			504			474
Other, net		(3	)		(2	)		(22	)		(22	)		(4	)		(3	)		(15	)		(22	)
		20			16			59			51			9			20			46			59
INCOME BEFORE INCOME TAXES		931			874			3,209			2,995			420			931			1,988			3,209
PROVISION FOR INCOME TAXES		192			(1,200	)		700			(450	)		105			192			368			700
NET INCOME	$	739		$	2,074		$	2,509		$	3,445		$	315		$	739		$	1,620		$	2,509
EARNINGS PER COMMON SHARE:
Basic	$	2.83		$	7.74		$	9.55		$	12.85		$	1.21		$	2.83		$	6.21		$	9.55
Diluted	$	2.80		$	7.59		$	9.41		$	12.63		$	1.20		$	2.80		$	6.17		$	9.41
DIVIDENDS DECLARED PER COMMON SHARE	$	0.65		$	0.50		$	2.60		$	2.00		$	0.65		$	0.65		$	2.60		$	2.60

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

	Three Months Ended						Nine Months Ended
	February 28,						February 28,						Three Months Ended						Nine Months Ended
	2019			2018			2019			2018			February 29, 2020			February 28, 2019			February 29, 2020			February 28, 2019
NET INCOME	$	739		$	2,074		$	2,509		$	3,445		$	315		$	739		$	1,620		$	2,509
OTHER COMPREHENSIVE INCOME (LOSS):
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	)
Foreign currency translation adjustments, net of tax benefit of $6 and $3 in 2020 and tax expense of $9 and tax benefit of $22 in 2019														(1	)		103			(12	)		(90	)
Amortization of prior service credit, net of tax benefit of $7 and $19 in 2020 and tax benefit of $7 and $21 in 2019														(20	)		(23	)		(61	)		(69	)
		80			77			(159	)		58			(21	)		80			(73	)		(159	)
COMPREHENSIVE INCOME	$	819		$	2,151		$	2,350		$	3,503		$	294		$	819		$	1,547		$	2,350

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

	Nine Months Ended
	February 28,						Nine Months Ended
	2019			2018			February 29, 2020			February 28, 2019
Operating Activities:
Net income	$	2,509		$	3,445		$	1,620		$	2,509
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		2,487			2,293			2,688			2,487
Asset impairment charges								66			—
Provision for uncollectible accounts		221			177			295			221
Stock-based compensation		141			135			137			141
Deferred income taxes and other noncash items		250			(914	)
Other noncash items and deferred income taxes								1,758			250
Changes in assets and liabilities:
Receivables		(780	)		(986	)		(504	)		(780	)
Other assets		(96	)		(151	)		(149	)		(96	)
Accounts payable and other liabilities		(1,307	)		(2,781	)		(2,612	)		(1,307	)
Other, net		(102	)		(56	)		(21	)		(102	)
Cash provided by operating activities		3,323			1,162			3,278			3,323
Investing Activities:
Capital expenditures		(3,757	)		(3,994	)		(4,705	)		(3,757	)
Business acquisitions, net of cash acquired		—			(44	)
Proceeds from asset dispositions and other		62			21			15			62
Cash used in investing activities		(3,695	)		(4,017	)		(4,690	)		(3,695	)
Financing Activities:
Proceeds from short-term borrowings, net		220			797			298			220
Principal payments on debt		(874	)		(31	)		(1,045	)		(874	)
Proceeds from debt issuances		2,463			1,481			2,093			2,463
Proceeds from stock issuances		58			284			38			58
Dividends paid		(514	)		(402	)		(509	)		(514	)
Purchase of treasury stock		(1,365	)		(558	)		(3	)		(1,365	)
Other, net		5			6			(5	)		5
Cash (used in) provided by financing activities		(7	)		1,577
Cash provided by (used in) financing activities								867			(7	)
Effect of exchange rate changes on cash		(14	)		98			(8	)		(14	)
Net decrease in cash and cash equivalents		(393	)		(1,180	)		(553	)		(393	)
Cash and cash equivalents at beginning of period		3,265			3,969			2,319			3,265
Cash and cash equivalents at end of period	$	2,872		$	2,789		$	1,766		$	2,872

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

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON ~~STOCKHOLDERS'~~STOCKHOLDERS’ INVESTMENT

	Three Months Ended						Nine Months Ended
	February 28,						February 28,						Three Months Ended						Nine Months Ended
	2019			2018			2019			2018			February 29, 2020			February 28, 2019			February 29, 2020			February 28, 2019
Common Stock
Beginning Balance	$	32		$	32		$	32		$	32		$	32		$	32		$	32		$	32
Ending Balance		32			32			32			32			32			32			32			32
Additional Paid-in-Capital
Beginning Balance		3,185			3,055			3,117			3,005			3,287			3,185			3,231			3,117
Employee incentive plans and other		24			30			92			80			37			24			93			92
Ending Balance		3,209			3,085			3,209			3,085			3,324			3,209			3,324			3,209
Retained Earnings
Beginning Balance		26,080			21,785			24,823			20,833			25,431			26,080			24,648			24,823
Net Income		739			2,074			2,509			3,445			315			739			1,620			2,509
Cash dividends declared ($0.65, $0.50, $2.60, and $2.00 per share)		(169	)		(133	)		(683	)		(535	)
Cash dividends declared ($0.65, $0.65, $2.60, and $2.60 per share)														(170	)		(169	)		(679	)		(683	)
Employee incentive plans and other		—			(16	)		1			(33	)		(7	)		—			(16	)		1
Adoption of new accounting standards on June 1, 2019⁽¹⁾														—			—			(4	)		—
Ending Balance		26,650			23,710			26,650			23,710			25,569			26,650			25,569			26,650
Accumulated Other Comprehensive Income
Beginning Balance		(817	)		(434	)		(578	)		(415	)		(866	)		(817	)		(865	)		(578	)
Other comprehensive income, net of tax (expense)/benefit of ($2), ($2), $43, and $3		80			77			(159	)		58
Other comprehensive income, net of tax (expense)/benefit of $13, ($2), $22, and $43														(21	)		80			(73	)		(159	)
Reclassification to retained earnings due to the adoption of a new accounting standard on June 1, 2019⁽²⁾														—			—			51			—
Ending Balance		(737	)		(357	)		(737	)		(357	)		(887	)		(737	)		(887	)		(737	)
Treasury Stock
Beginning Balance		(9,186	)		(7,383	)		(7,978	)		(7,382	)		(9,225	)		(9,186	)		(9,289	)		(7,978	)
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
Purchase of treasury stock (0.0, 0.6, 0.02, and 6.0 million shares)														—			(93	)		(3	)		(1,365	)
Employee incentive plans and other (0.1, 0.1, 0.6, and 0.6 million shares)														18			19			85			83
Ending Balance		(9,260	)		(7,576	)		(9,260	)		(7,576	)		(9,207	)		(9,260	)		(9,207	)		(9,260	)
Total Common Stockholders' Investment Balance	$	19,894		$	18,894		$	19,894		$	18,894		$	18,831		$	19,894		$	18,831		$	19,894

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~~2019 (“Annual Report”). Significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed in our Annual Report.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to present fairly our financial position as of February ~~28, 2019,~~29, 2020, and the results of our operations for the three- and nine-month periods ended February 29, 2020 and February 28, 2019, ~~and 2018,~~ cash flows for the nine-month periods ended February 29, 2020 and February 28, 2019, ~~and 2018,~~ and changes in common stockholders’ investment for the three- and nine-month periods ended February 29, 2020 and February 28, ~~2019 and 2018.~~2019. Operating results for the three- and nine-month periods ended February 29, 2020 and February 28, 2019 are not necessarily indicative of the results that may be expected for the year ending May 31, ~~2019.~~2020.

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 ~~$526~~$491 million and ~~$542~~$533 million at February ~~28, 2019~~29, 2020 and May 31, ~~2018,~~2019, respectively. Contract assets net of deferred unearned revenue were ~~$353~~$360 million and ~~$363~~$364 million at February ~~28, 2019~~29, 2020 and May 31, ~~2018,~~2019, 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$10 million and ~~$13~~$11 million at February ~~28, 2019~~29, 2020 and May 31, ~~2018,~~2019, 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~~(in millions) for the periods ended February ~~28.~~29, 2020 and February 28, 2019. This presentation is consistent with how we organize our segments internally for making operating decisions and measuring performance.

	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	2019		2018		2019		2018		2020		2019		2020		2019
REVENUE BY SERVICE TYPE
FedEx Express segment:
Package:
U.S. overnight box	$	1,844	$	1,836	$	5,678	$	5,373	$	1,865	$	1,844	$	5,595	$	5,678
U.S. overnight envelope		433		435		1,345		1,317		459		433		1,395		1,345
U.S. deferred		1,119		996		3,131		2,796		1,127		1,119		3,063		3,131
Total U.S. domestic package revenue		3,396		3,267		10,154		9,486		3,451		3,396		10,053		10,154
International priority		1,738		1,841		5,508		5,469		1,710		1,738		5,344		5,508
International economy		806		793		2,541		2,378		810		806		2,538		2,541
Total international export package revenue		2,544		2,634		8,049		7,847		2,520		2,544		7,882		8,049
International domestic⁽¹⁾		1,078		1,140		3,412		3,424		1,075		1,078		3,316		3,412
Total package revenue		7,018		7,041		21,615		20,757		7,046		7,018		21,251		21,615
Freight:
U.S.		772		739		2,294		2,040		739		772		2,132		2,294
International priority		477		532		1,574		1,527		439		477		1,376		1,574
International economy		495		492		1,568		1,354		499		495		1,556		1,568
International airfreight		76		93		244		276		61		76		197		244
Total freight revenue		1,820		1,856		5,680		5,197		1,738		1,820		5,261		5,680
Other		167		201		536		620		140		167		441		536
Total FedEx Express segment		9,005		9,098		27,831		26,574		8,924		9,005		26,953		27,831
FedEx Ground segment		5,261		4,828		15,202		13,598		5,845		5,261		16,339		15,202
FedEx Freight segment		1,750		1,613		5,627		4,950		1,738		1,750		5,487		5,627
FedEx Services segment		402		397		1,248		1,213		6		4		15		17
Other and eliminations⁽²⁾		592		590		1,978		1,801		974		990		3,065		3,209
	$	17,010	$	16,526	$	51,886	$	48,136	$	17,487	$	17,010	$	51,859	$	51,886

LEASES. We lease certain facilities, aircraft, equipment and vehicles under operating and finance leases. A determination of whether a contract contains a lease is made at the inception of the arrangement. Our leased facilities include national, regional and metropolitan sorting facilities, retail facilities and administrative buildings. We leased 5% of our total aircraft fleet as of February 29, 2020 and 6% as of May 31, 2019.

Our leases generally contain options to extend or terminate the lease. We reevaluate our leases on a regular basis to consider the economic and strategic incentives of exercising the renewal options, and how they align with our operating strategy. Therefore, substantially all the renewal option periods are not included within the lease term and the associated payments are not included in the measurement of the right-of-use asset and lease liability as the options to extend are not reasonably certain at lease commencement.

The lease liabilities are measured at the lease commencement date and determined using the present value of the minimum lease payments not yet paid and our incremental borrowing rate, which approximates the rate at which we would borrow, on a collateralized basis, over the term of a lease in the applicable currency environment. The interest rate implicit in the lease is generally not determinable in transactions where we are the lessee.

For real estate leases, we account for lease components and non-lease components (such as common area maintenance) as a single lease component. Certain real estate leases require additional payments based on sales volume and index-based rate increases, as well as reimbursement for real estate taxes, common area maintenance and insurance, which are expensed as incurred as variable lease costs. Certain leases contain fixed lease payments for items such as real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and included in the right-of-use assets and lease liabilities.

IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. For assets that are to be held and used, an impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.

We operate integrated transportation networks, and accordingly, cash flows for most of our operating assets to be held and used are assessed at a network level, not at an individual asset level, for our analysis of impairment.

In the second quarter of 2020, we made the decision to permanently retire from service 10 Airbus A310-300 aircraft and 12 related engines at Federal Express Corporation (“FedEx Express”) to align with the needs of the U.S. domestic network and modernize its aircraft fleet. As a consequence of this decision, noncash impairment charges of $66 million ($50 million, net of tax, or $0.19 per diluted share) were recorded in the FedEx Express segment in the second quarter. NaN of these aircraft were temporarily idled.

EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS. The pilots of ~~Federal~~FedEx 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 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~~Express non-U.S. employees are unionized, and a union has been certified to represent owner-drivers at a FedEx Freight ~~Inc. facility in Canada.~~Canada, Corp. facility.

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 $33 million for the three-month period ended February 29, 2020 and $137 million for the nine-month period ended February 29, 2020. Our stock-based compensation expense was $33 million for the three-month period ended February 28, 2019 and $141 million for the nine-month period ended February 28, 2019. ~~Our stock-based compensation expense was $32 million for the three-month period ended February 28, 2018 and $135 million for the nine-month period ended February 28, 2018.~~ Due to its immateriality, additional disclosures related to stock-based compensation have been excluded from this quarterly report.

~~BUSINESS REALIGNMENT COSTS.~~ DERIVATIVE FINANCIAL INSTRUMENTS. Our risk management strategy includes the select use of derivative instruments to reduce the effects of volatility in foreign currency exchange exposure on operating results and cash flows. In ~~December 2018,~~accordance with our risk management policies, we ~~announced cost-reduction programs primarily through initiatives~~do not hold or issue derivative instruments for trading or speculative purposes. All derivative instruments are recognized in the financial statements at ~~FedEx Express~~fair value, regardless of the purpose or intent for holding them.

When we become a party to a derivative instrument and ~~FedEx Corporate Services, Inc. (“FedEx Services”), including~~intend to apply hedge accounting, we formally document the hedge relationship and the risk management objective for undertaking the hedge, which includes designating the instrument for financial reporting purposes as a ~~U.S.-based voluntary employee buyout program.~~fair value hedge, a cash flow hedge or a net investment hedge.

~~During~~If a derivative is designated as a cash flow hedge, 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 transitionentire change in the ~~impacted functions so that we maintain service levels to our customers. Costs~~fair value 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 ishedging instrument included in the ~~caption “Business realignment costs”~~assessment of hedge effectiveness is recorded in other comprehensive income. For net investment hedges, the entire change in the fair value is recorded in the currency translation adjustment section of other comprehensive income. Any portion of a change in the fair value of a derivative that is considered to be ineffective, along with the change in fair value of any derivatives not designated in a hedging relationship, is immediately recognized in the income statement. We do not have any derivatives designated as a cash flow hedge for any period presented. Accordingly, additional disclosures about cash flow hedges are excluded from this quarterly report. On August 13, 2019, we designated €294 million of debt and on November 8, 2019, we designated an additional €98 million of debt, for a total of €392 million, as a net investment hedge to reduce the volatility of the U.S. dollar value of a portion of our ~~unaudited condensed~~net investment in a euro-denominated consolidated ~~statements~~subsidiary. As of ~~income.~~February 29, 2020, the requirements for the application of hedge accounting continue to be met and the hedge remains effective.

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 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,~~2016, 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):~~

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~~Lessees are required to 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~~are recognized on a straight-line basis, while those determined to be ~~financing~~finance leases ~~will be~~are recognized following a front-loaded expense profile in which interest and amortization are presented separately in the income statement. ~~Based~~

We adopted this new standard on June 1, 2019 using a modified retrospective transition method. Using the modified retrospective transition method of adoption, we did not adjust the balance sheet for comparative periods but recorded a cumulative effect adjustment to retained earnings on June 1, 2019. We have elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical accounting relating to lease identification and classification for existing leases upon adoption. We also elected the practical expedient to not separate lease and non-lease components for the majority of our classes of assets. For leases in which the lease ~~portfolio, we currently anticipate recognizing a~~and non-lease components have been combined, the lease expense includes expenses such as common area maintenance. We have made an accounting policy election not to recognize leases with an initial term of 12 months or less on the consolidated balance sheet.

The adoption of the new lease accounting standard resulted in the recognition of an operating lease liability of $14.2 billion and ~~related~~an operating right-of-use asset ~~on our balance sheet~~ of ~~approximately $13~~$14.1 billion, with an immaterial impact on our income statement compared to the ~~current~~previous lease accounting model. ~~However,~~Existing prepaid asset and net deferred rent liability balances of $154 million and $309 million, respectively, were recorded to the ~~ultimate impact of the standard will depend on our lease portfolio as~~right-of-use asset. The cumulative effect of the adoption ~~date. We are currently accumulating~~to retained earnings was an increase of $57 million ($47 million, net of tax), primarily related to the reclassification of deferred gains related to sale-leasebacks of aircraft. Substantially all of ~~the necessary information required to properly account for the~~our lease arrangements are operating leases under the new standard. ~~Additionally, we are implementing an enterprise-wide lease management system to assist in the accounting~~The new standard had a material impact on our balance sheet, but did not materially impact consolidated operating results and ~~are evaluating~~ had no impact on operating cash flows.

See “Leases” and Note 8 for 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)~~information.

In February 2018, the FASB issued ~~an Accounting Standards Update (ASU 2018-02)~~ASU 2018-02 that ~~will permit~~permits companies to reclassify the income tax effect of the ~~TCJA~~Tax Cuts and Jobs Act (“TCJA”) on items within ~~accumulated other comprehensive income (loss)~~Accumulated Other Comprehensive Income (“AOCI”) to retained earnings. ~~These~~We adopted this new standard on June 1, 2019.

In June 2016, the FASB issued ASU 2016-13 that changes how entities will bemeasure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. We will adopt this standard effective June 1, ~~2019~~2020 (fiscal ~~2020)~~2021). ~~We are continuing to assess the~~This standard will not have a material 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 2019.

~~In August 2018, the FASB issued an Accounting Standards Update (ASU 2018-15)~~ASU 2018-15 that reduces the complexity ~~for~~of 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~~We will beadopt this standard effective June 1, 2020 (fiscal 2021) and apply these changes prospectively. This new guidance will have a minimal impact on our financial reporting.

In December 2019, the FASB issued ASU 2019-12, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This standard is effective June 1, 2021 (fiscal 2022). We are ~~assessing~~currently evaluating the impact of this new standard but do not currently expect it will have a material impact on our consolidated financial statements and related disclosures.

In March 2020, the SEC amended Rule 3-10 of Regulation S-X regarding financial disclosure requirements for registered debt offerings involving subsidiaries as either issuers or guarantors and affiliates whose securities are pledged as collateral. This new guidance narrows the circumstances that require separate financial statements of subsidiary issuers and guarantors and streamlines the alternative disclosures required in lieu of those statements. This rule is effective January 4, 2021 (fiscal 2021) with earlier adoption permitted. We are currently evaluating the impact of this new rule on our consolidated financial statements and related disclosures.

TREASURY SHARES. In January 2016, our Board of Directors authorized a ~~share~~stock 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~~We did 0t repurchase any shares of FedEx common stock during the third quarter of ~~2019,~~2020. During the nine months of 2020, we repurchased ~~0.6~~0.02 million shares of FedEx common stock at an average price of ~~$168.43~~$156.90 per share for a total of ~~$93~~$3 million. ~~During the nine months of 2019, we repurchased 6.0 million shares of FedEx common stock at an average price of $227.42 per share for a total of $1.4 billion.~~ As of February ~~28, 2019, 5.7~~29, 2020, 5.1 million shares remained under the ~~current share~~stock repurchase authorization.

DIVIDENDS DECLARED PER COMMON SHARE. On February ~~15, 2019,~~14, 2020, our Board of Directors declared a quarterly dividend of $0.65 per share of common stock. The dividend will be paid on April 1, ~~2019~~2020 to stockholders of record as of the close of business on March ~~11, 2019.~~9, 2020. 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 February 29, 2020 and February 28, 2019 (in millions; amounts in parentheses indicate debits to AOCI):

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	2019			2018			2019			2018			2020			2019			2020			2019
Foreign currency translation loss:
Balance at beginning of period	$	(952	)	$	(666	)	$	(759	)	$	(685	)	$	(964	)	$	(952	)	$	(954	)	$	(759	)
Translation adjustments		103			100			(90	)		119			(1	)		103			(12	)		(90	)
Reclassification to retained earnings due to the adoption of ASU 2018-02														—			—			1			—
Balance at end of period		(849	)		(566	)		(849	)		(566	)		(965	)		(849	)		(965	)		(849	)
Retirement plans adjustments:
Balance at beginning of period		135			232			181			270			98			135			89			181
Reclassifications from AOCI		(23	)		(23	)		(69	)		(61	)		(20	)		(23	)		(61	)		(69	)
Reclassification to retained earnings due to the adoption of ASU 2018-02														—			—			50			—
Balance at end of period		112			209			112			209			78			112			78			112
Accumulated other comprehensive (loss) at end of period	$	(737	)	$	(357	)	$	(737	)	$	(357	)	$	(887	)	$	(737	)	$	(887	)	$	(737	)

The following table presents details of the reclassifications from AOCI for the periods ended February 29, 2020 and February 28, 2019 (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						Nine Months Ended							Three Months Ended						Nine Months Ended
	2019			2018			2019			2018				2020			2019			2020			2019
Amortization of retirement plans prior service credits, before tax	$	30		$	30		$	90		$	90		Salaries and employee benefits	$	27		$	30		$	80		$	90		Salaries and employee benefits
Income tax benefit		(7	)		(7	)		(21	)		(29	)	Provision for income taxes		(7	)		(7	)		(19	)		(21	)	Provision for income taxes
AOCI reclassifications, net of tax	$	23		$	23		$	69		$	61		Net income	$	20		$	23		$	61		$	69		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~~first quarter of ~~2019,~~2020, we issued ~~$1.2~~$2.1 billion of senior unsecured debt under our current shelf registration statement, comprised of ~~€640 million~~$1.0 billion of ~~0.7%~~3.10% fixed-rate notes due in ~~May 2022 and $500~~August 2029, €500 million of ~~3.4%~~0.45% fixed-rate notes due in ~~January 2022.~~August 2025 and €500 million of 1.30% fixed-rate notes due in August 2031. We ~~will use~~used the net proceeds to ~~pay~~make voluntary contributions to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”) during the first quarter of 2020 and to redeem the $400 million aggregate principal amount of 2.30% notes due February 1, 2020 and the €500 million aggregate principal amount of ~~floating rate~~0.50% notes due ~~at maturity on~~ April ~~11, 2019, and~~9, 2020. The remaining net proceeds are being used 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~~five-year credit ~~facility that~~agreement (the “Five-Year Credit Agreement”) and a $1.5 billion 364-day credit agreement (the “364-Day Credit Agreement” and, together with the Five-Year Credit Agreement, the “Credit Agreements”). The Five-Year Credit Agreement expires in ~~November 2020. The facility, which~~March 2025 and includes a ~~$500~~$250 million letter of credit ~~sublimit, is~~sublimit. The 364-Day Credit Agreement expires in March 2021. The Credit Agreements are available to finance our operations and other cash flow needs. The ~~agreement contains~~Credit Agreements contain a financial covenant ~~which requires~~requiring us to maintain a ratio of debt to consolidated earnings (excluding ~~non-cash~~noncash retirement plans mark-to-market adjustments and ~~non-cash~~noncash asset impairment charges) before interest, taxes, depreciation and amortization (“adjusted EBITDA”) of not more than 3.5 to 1.0, calculated as of the end of the applicable quarter on a rolling four-quarters basis. The ratio of our debt to adjusted EBITDA was ~~2.2~~2.8 to 1.0 at February ~~28, 2019.~~29, 2020. We believe this covenant is the only significant restrictive covenant in ~~our revolving credit agreement. Our revolving credit agreement contains~~the Credit Agreements. The Credit Agreements contain other customary covenants that do not, individually or in the aggregate, materially restrict the conduct of our business. We are in compliance with ~~this~~the financial covenant and all other covenants ~~of our revolving credit agreement~~in the Credit Agreements and do not expect the covenants to affect our operations, including our liquidity or expected funding needs. If we failed to comply with the financial covenant or any other covenants in the Credit Agreements, our access to financing could become limited.

During the third quarter of ~~2019,~~2020, we issued commercial paper to provide us with additional short-term liquidity. The maximum amount outstanding during the quarter was ~~$750 million.~~$1.1 billion. Our commercial paper program is backed by unused commitments under the revolving credit facility, and borrowings under the program reduce the amount available under the credit facility. As of February ~~28, 2019, $225~~29, 2020, $300 million of commercial paper and ~~$53~~$0.3 million in letters of credit were outstanding, leaving ~~$1.722~~$3.200 billion available under the ~~revolving credit facility~~Credit Agreements for future borrowings.

Long-term debt, including current maturities and exclusive of ~~capital~~finance leases, had carrying values of ~~$18.1~~$18.5 billion at February ~~28, 2019~~29, 2020 and ~~$16.5~~$17.5 billion at May 31, ~~2018,~~2019, compared with estimated fair values of ~~$17.8~~$20.0 billion at February ~~28, 2019~~29, 2020 and ~~$16.6~~$17.8 billion at May 31, ~~2018.~~2019. The annualized weighted-average interest rate on long-term debt was ~~3.4%~~3.5% at February ~~28, 2019.~~29, 2020. 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 February 29, 2020 and February 28, 2019 was as follows (in millions, except per share amounts):

	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	2019		2018		2019		2018		2020		2019		2020		2019
Basic earnings per common share:
Net earnings allocable to common shares⁽¹⁾	$	738	$	2,071	$	2,506	$	3,441	$	314	$	738	$	1,617	$	2,506
Weighted-average common shares		261		268		262		268		261		261		261		262
Basic earnings per common share	$	2.83	$	7.74	$	9.55	$	12.85	$	1.21	$	2.83	$	6.21	$	9.55
Diluted earnings per common share:
Net earnings allocable to common shares⁽¹⁾	$	738	$	2,071	$	2,506	$	3,441	$	314	$	738	$	1,617	$	2,506
Weighted-average common shares		261		268		262		268		261		261		261		262
Dilutive effect of share-based awards		2		5		4		4		1		2		1		4
Weighted-average diluted shares		263		273		266		272		262		263		262		266
Diluted earnings per common share	$	2.80	$	7.59	$	9.41	$	12.63	$	1.20	$	2.80	$	6.17	$	9.41
Anti-dilutive options excluded from diluted earnings per common share		7.2		1.9		5.0		2.6		11.7		7.2		11.2		5.0

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

Our effective tax rate was 25.0% for the third quarter and 18.5% for the nine months of 2020 compared with 20.6% for the third quarter and 21.8% for the nine months of ~~2019, compared with (137.3)%~~2019. The tax rate for the nine months of 2020 includes a benefit of $133 million from the reduction of a valuation allowance on certain foreign tax loss carryforwards due to operational changes which impacted the determination of the realizability of the deferred tax asset in that jurisdiction. The 2020 tax rates were negatively impacted by decreased earnings in certain non-U.S. jurisdictions. The tax rates for the third quarter and ~~(15.0)% for the~~ nine months of ~~2018. The~~ 2019 ~~tax rates include~~included a benefit of $90 million from the reduction of a valuation allowance on certain tax loss carryforwards, ~~and~~partially offset by an expense of $50 million from the impact on our deferred taxes attributable to the enactment of a ~~recently enacted~~ lower tax rate in the Netherlands. The tax rate for the nine months of 2019 ~~tax rates were~~was also favorably impacted by the TCJA, which resulted in ~~benefits of approximately~~an approximate $60 million ~~during the third quarter and $230 million for the nine months of 2019, primarily from the lower statutory~~ tax ~~rate on fiscal 2019 earnings. The tax rate for the nine months of 2019 also benefited by approximately $60 million~~benefit from accelerated deductions claimed on our 2018 ~~U.S. income~~ tax return. The 2018 tax 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 exceeding the one-time transition tax on previously deferred foreign earnings. In addition to these provisional amounts, we recognized a $204 million benefit from a $1.5 billion contribution to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”)return filed in February 2018 and $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 recorded in the third quarter and attributable to the first half of 2018 earnings.2019.

On January 15, 2019, the U.S. Treasury Department 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 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 remain confident in our interpretation of the TCJA and intend to defend this position through litigation, if necessary. However, if we are ultimately unsuccessful in defending our position, we may be required to reverse the 2018 Benefit.

During the third quarter of 2019, we completed our accounting for the tax effects of the TCJA. No additional adjustments were made during the quarter. As a result, the only adjustment to the amounts initially recorded on a provisional basis in 2018 was a tax expense of $4 million recognized in the second quarter of 2019 as a revision of the provisional benefit associated with the remeasurement of our net U.S. deferred tax liability.

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 from 35% to 21%. Due to our May 31 fiscal year-end, the lower rate was phased in, resulting in a 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 2019 effective tax rates, including the impacts of the TCJA, for the periods ended February 28:~~

We sponsor programs that provide retirement benefits to most of our employees. These programs include defined benefit pension plans, defined contribution plans and postretirement healthcare plans. Key terms of our retirement plans are provided in our Annual Report.

Our retirement plans costs for the periods ended February 29, 2020 and February 28, 2019 were as follows (in millions):

	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	2019		2018		2019		2018		2020		2019		2020		2019
Defined benefit pension plans, net	$	28	$	39	$	85	$	113	$	38	$	28	$	112	$	85
Defined contribution plans		138		135		415		386		147		138		425		415
Postretirement healthcare plans		19		19		56		56		21		19		64		56
	$	185	$	193	$	556	$	555	$	206	$	185	$	601	$	556

Net periodic benefit cost of the pension and postretirement healthcare plans for the periods ended February 29, 2020 and February 28, 2019 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
	2019			2018			2019			2018			2019		2018		2020			2019			2020			2019			2020		2019
Service cost	$	173		$	169		$	23		$	23		$	9	$	9	$	192		$	173		$	25		$	23		$	10	$	9
Other retirement plans (income) expense:
Interest cost		237			279			13			12			10		10		250			237			11			13			11		10
Expected return on plan assets		(376	)		(406	)		(12	)		(10	)		—		—		(400	)		(376	)		(13	)		(12	)		—		—
Amortization of prior service credit and other		(30	)		(29	)		—			1			—		—		(26	)		(30	)		(1	)		—			—		—
		(169	)		(156	)		1			3			10		10		(176	)		(169	)		(3	)		1			11		10
	$	4		$	13		$	24		$	26		$	19	$	19	$	16		$	4		$	22		$	24		$	21	$	19

	Nine 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
	2019			2018			2019			2018			2019		2018		2020			2019			2020			2019			2020		2019
Service cost	$	517		$	509		$	72		$	69		$	26	$	27	$	576		$	517		$	73		$	72		$	31	$	26
Other retirement plans (income) expense:
Interest cost		713			836			38			37			30		29		750			713			33			38			33		30
Expected return on plan assets		(1,129	)		(1,218	)		(36	)		(32	)		—		—		(1,201	)		(1,129	)		(39	)		(36	)		—		—
Amortization of prior service credit and other		(89	)		(88	)		(1	)		—			—		—		(78	)		(89	)		(2	)		(1	)		—		—
		(505	)		(470	)		1			5			30		29		(529	)		(505	)		(8	)		1			33		30
	$	12		$	39		$	73		$	74		$	56	$	56	$	47		$	12		$	65		$	73		$	64	$	56

~~Contributions~~We made voluntary contributions to our U.S. Pension Plans of $1.0 billion during the nine months of 2020 and 2019.

During the second quarter of 2020, we announced the closing of our U.S.-based defined benefit pension plans to new non-union employees hired on or after January 1, 2020. We will introduce an all 401(k) plan retirement benefit structure for eligible employees with a higher company match of up to 8% across all U.S.-based operating companies. During 2020, current eligible employees under the ~~nine-month periods ended February 28 were as follows (in millions):~~

Portable Pension Account (PPA) pension formula will be given a one-time option to continue to be eligible for pension compensation credits under the existing PPA formula and remain in the existing 401(k) plan with its match of up to 3.5%, or to cease receiving compensation credits under the pension plan and move to the new 401(k) plan with the higher match of up to 8%. Changes to the new 401(k) plan structure become effective beginning January 1, 2021. While this new program will provide employees greater flexibility and reduce our long-term pension costs, it will not have a material impact on current or near-term financial 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 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.~~North American 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.

Effective June 1, 2019, the results of the FedEx Office operating segment are included in “Corporate, other and eliminations.” This change was made to reflect our internal management reporting structure. Prior year amounts have been revised to reflect current year presentation.

The FedEx Services segment operates combined sales, marketing, administrative and information-technology functions in shared services operations ~~that~~for U.S. customers of our major business units and certain back-office support to our ~~transportation businesses and allow~~operating segments which allows 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,~~operating segments, 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~~operating 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~~revenue 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 Office operating segment, which provides an array of document and business services and retail access to our customers for our package transportation businesses, and the FedEx Logistics operating segment, which provides integrated supply chain management solutions, specialty transportation, cross-border e-commerce technology and e-commerce transportation solutions, 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.forwarding.

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~~revenue of the billing segment. These rates are adjusted from time to time based on market conditions. Such intersegment ~~revenues~~revenue 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~~revenue and operating income (loss) to our unaudited condensed consolidated financial statement totals for the periods ended February 29, 2020 and February 28, 2019 (in millions):

The following table is a summary of the components of net lease cost for the periods ended February 29, 2020 (in millions):

Three Months Ended

Nine Months Ended

2019

2018

2019

2018

Revenues:

FedEx Express segment

$
9,005

$
9,098

$
27,831

$
26,574

FedEx Ground segment

5,261

4,828

15,202

13,598

FedEx Freight segment

1,750

1,613

5,627

4,950

FedEx Services segment

402

397

1,248

1,213

Other and eliminations

592

590

1,978

1,801

$
17,010

$
16,526

$
51,886

$
48,136

Operating income (loss):

FedEx Express segment

$
370

$
317

$
1,357

$
1,238

FedEx Ground segment

577

614

1,830

1,716

FedEx Freight segment

97

49

421

322

Corporate, other and eliminations

(133
)

(122
)

(458
)

(332
)

$
911

$
858

$
3,150

$
2,944

	Three Months Ended		Nine Months Ended
	2020		2020
Operating lease cost⁽¹⁾	$	675	$	2,025
Finance lease cost:
Amortization of right-of-use assets		6		12
Interest on lease liabilities		6		8
Total finance lease cost		12		20
Short-term lease cost		60		141
Variable lease cost⁽¹⁾		301		850
Net lease cost	$	1,048	$	3,036

⁽¹⁾Expenses are primarily accounted for in the “Rentals and landing fees” line item. Additional amounts related to embedded leases are accounted for in the “Purchased transportation,” “Fuel” and “Other” line items in the unaudited condensed consolidated statements of income.

Supplemental cash flow information related to leases for the nine months ended February 29 is as follows (in millions):

Supplemental balance sheet information related to leases as of February 29 is as follows (in millions, except lease term and discount rate):

~~(8)~~ ~~Commitments~~A summary of future minimum lease payments under noncancelable operating and finance leases with an initial or remaining term in excess of one year at February 29, 2020 is as follows (in millions):

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.

As of February ~~28,~~29, 2020, FedEx has entered into additional leases which have not yet commenced and are therefore not part of the right-of-use asset and liability. These leases are generally for build-to-suit facilities and have undiscounted future payments of approximately $1.7 billion, and will commence when FedEx gains beneficial access to the leased asset. Commencement dates are expected to be from fiscal 2020 to fiscal 2022.

As previously disclosed in our Annual Report and under the previous lease accounting standard, future minimum lease payments under noncancelable operating leases with an initial or remaining term in excess of one year at May 31, 2019 would have been as follows (in millions):

As of February 29, 2020, our purchase commitments under various contracts for the remainder of ~~2019~~2020 and annually thereafter were as follows (in millions):

	Aircraft and Related		Other⁽¹⁾		Total		Aircraft and Related		Other⁽¹⁾		Total
2019 (remainder)	$	421	$	296	$	717
2020		1,998		833		2,831
2020 (remainder)							$	159	$	331	$	490
2021		2,276		597		2,873		2,285		797		3,082
2022		1,874		433		2,307		2,630		570		3,200
2023		1,586		275		1,861		2,069		381		2,450
2024								698		227		925
Thereafter		3,079		535		3,614		3,358		585		3,943
Total	$	11,234	$	2,969	$	14,203	$	11,199	$	2,891	$	14,090

The amounts reflected in the table above for purchase commitments represent noncancelable agreements to purchase goods or services. As of February ~~28, 2019,~~29, 2020, our obligation to purchase ~~six~~6 Boeing 777 Freighter (“B777F”) aircraft and ~~five~~3 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.

During the first quarter of 2020, FedEx Express exercised options to purchase an additional 6 B767F aircraft for delivery in 2022.

During the third quarter of 2020, FedEx Express executed two contract amendments rescheduling 2 B777F aircraft deliveries from 2023 to 2022 and 2 B767F aircraft deliveries from 2022 to 2023.

As of February ~~28, 2019,~~29, 2020, we had ~~$965~~$733 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 February ~~28, 2019~~29, 2020 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)		-		-		4		1		5
2020		-		-		17		5		22
2020 (remainder)												—		—		6		—		6
2021		12		5		18		2		37		12		5		18		2		37
2022		12		6		12		3		33		12		6		16		5		39
2023		12		6		6		4		28		12		6		8		2		28
2024												14		6		—		4		24
Thereafter		14		13		-		6		33		—		7		—		2		9
Total		50		30		57		21		158		50		30		48		15		143

~~A summary of future minimum lease payments under noncancelable operating leases with an initial or remaining term in excess of one year at February 28, 2019 is as follows (in millions):~~(10) Contingencies

Future minimum lease payments under capital leases were immaterial at 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 —~~Service Provider Lawsuits ~~and Administrative Proceedings.~~. FedEx Ground is ~~involved~~defending lawsuits 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 wherewhich it is alleged that FedEx Ground should be treated as an employer of ~~the~~ drivers employed by ~~owner-operators~~service providers 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 these 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~~service providers’ drivers to certain wage payments from the ~~owner-operators~~service providers 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.~~businesses.

~~City~~Federal Securities Litigation and ~~State~~Derivative Lawsuits. On June 26, 2019 and July 2, 2019, FedEx and certain present and former officers were named as defendants in two putative class action securities lawsuits filed in the U.S. District Court for the Southern District of New ~~York Cigarette Suit.~~York. The ~~City~~complaints, which have been consolidated, allege violations of ~~New York~~Sections 10(b) and 20(a) of the ~~State~~Securities Exchange Act of ~~New York filed two related lawsuits against FedEx Ground~~1934, as amended, and Rule 10b-5 promulgated thereunder relating to alleged misstatements or omissions in FedEx’s public filings with the SEC and other public statements during the period from September 19, 2017 to December ~~2013~~18, 2018. We are not currently able to estimate the probability of loss or the amount or range of potential loss, if any, at this stage of the litigation.

On September 17, 2019 and November ~~2014 arising from~~6, 2019, FedEx, ~~Ground’s alleged shipments~~its Board of ~~cigarettes to New York residents~~Directors and certain present and former directors and officers were named as defendants in ~~contravention~~two stockholder derivative lawsuits filed in the U.S. District Court for the District of ~~several statutes, including~~Delaware. The complaints, which have been consolidated, repeat the ~~Racketeer Influenced~~allegations in the federal securities litigation complaints discussed above, and ~~Corrupt Organizations Act (“RICO”)~~assert new claims against the FedEx Board of Directors and ~~New York’s Public Health Law, as well as common law nuisance claims. The first-filed lawsuit alleged that FedEx Ground provided delivery services on behalf~~certain present and former directors and officers for breach of ~~four shippers,~~fiduciary duty, waste of corporate assets, unjust enrichment, insider selling and the second-filed lawsuit 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 identified no shippers or shipments, but generally alleged violations of the ~~same laws that were~~federal securities laws. We are not currently able to estimate the ~~subject~~probability of loss or the amount or range of potential loss, if any, at this stage of the ~~other two lawsuits.~~litigation.

~~On October 10, 2018, FedEx Ground~~Environmental Matters. SEC regulations require disclosure of certain environmental matters when a governmental authority is a party to the proceedings and the ~~City~~proceedings involve potential monetary sanctions that management reasonably believes could exceed $100,000.

Prior to our acquisition of TNT Express, a lawsuit was filed in Simões Filho, Bahia, Brazil against a subsidiary of TNT Express alleging violations of Brazilian environmental laws. Specifically, the lawsuit alleges that in 2012, certain employees unlawfully discarded non-toxic trash on a highway. We could be subject to monetary sanctions and ~~State~~fines related to such activity that exceed $100,000. We believe that the aggregate amount of ~~New York reached an agreement in principle to settle the lawsuits arising from FedEx Ground’s~~any such sanctions 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. In addition to the settlement amount, we 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.fines will be immaterial.

Other ~~Matters.~~ 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 nine-month periods ended February 29, 2020 and February 28, 2019 was as follows (in millions):

	2019			2018			2020			2019
Cash payments for:
Interest (net of capitalized interest)	$	498		$	430		$	511		$	498
Income taxes	$	346		$	707		$	291		$	346
Income tax refunds received		(34	)		(59	)		(321	)		(34	)
Cash tax payments, net	$	312		$	648
Cash tax (refunds) payments, net							$	(30	)	$	312

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 ~~$18.1~~$18.5 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	$	1,413	$	204	$	1,296	$	(41	)	$	2,872	$	246	$	203		$	1,333	$	(16	)	$	1,766
Receivables, less allowances		45		5,474		3,600		(82	)		9,037		71		5,752			3,585		(85	)		9,323
Spare parts, supplies, fuel, prepaid expenses and other, less allowances		313		979		299		—			1,591		207		895			350		—			1,452
Total current assets		1,771		6,657		5,195		(123	)		13,500		524		6,850			5,268		(101	)		12,541
PROPERTY AND EQUIPMENT, AT COST		23		53,997		4,144		—			58,164		28		59,777			4,500		—			64,305
Less accumulated depreciation and amortization		17		26,384		1,995		—			28,396		18		28,761			2,220		—			30,999
Net property and equipment		6		27,613		2,149		—			29,768		10		31,016			2,280		—			33,306
INTERCOMPANY RECEIVABLE		661		2,157		—		(2,818	)		—		3,349		(136	)		—		(3,213	)		—
OPERATING LEASE RIGHT-OF-USE ASSETS, NET													38		11,715			2,228		—			13,981
GOODWILL		—		1,598		5,318		—			6,916		—		1,587			5,227		—			6,814
INVESTMENT IN SUBSIDIARIES		35,803		4,904		—		(40,707	)		—		35,407		5,020			—		(40,427	)		—
OTHER ASSETS		891		1,670		1,857		(138	)		4,280		962		1,134			1,763		(487	)		3,372
	$	39,132	$	44,599	$	14,519	$	(43,786	)	$	54,464	$	40,290	$	57,186		$	16,766	$	(44,228	)	$	70,014
LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Short-term borrowings	$	225	$	—	$	—	$	—		$	225	$	300	$	—		$	—	$	—		$	300
Current portion of long-term debt		966		2		5		—			973		—		27			8		—			35
Accrued salaries and employee benefits		52		1,149		458		—			1,659		87		975			410		—			1,472
Accounts payable		188		1,430		1,656		(118	)		3,156		194		1,554			1,545		(100	)		3,193
Operating lease liabilities													4		1,435			463		—			1,902
Accrued expenses		510		1,848		890		(5	)		3,243		416		2,033			975		(1	)		3,423
Total current liabilities		1,941		4,429		3,009		(123	)		9,256		1,001		6,024			3,401		(101	)		10,325
LONG-TERM DEBT, LESS CURRENT PORTION		16,921		287		10		—			17,218		18,298		634			41		—			18,973
INTERCOMPANY PAYABLE		—		—		2,818		(2,818	)		—		—		—			3,213		(3,213	)		—
OTHER LONG-TERM LIABILITIES
Deferred income taxes		—		3,252		97		(138	)		3,211		—		3,016			572		(487	)		3,101
Operating lease liabilities													36		10,378			1,818		—			12,232
Other liabilities		376		3,502		1,007		—			4,885		2,124		3,473			955		—			6,552
Total other long-term liabilities		376		6,754		1,104		(138	)		8,096		2,160		16,867			3,345		(487	)		21,885
COMMON STOCKHOLDERS’ INVESTMENT		19,894		33,129		7,578		(40,707	)		19,894		18,831		33,661			6,766		(40,427	)		18,831
	$	39,132	$	44,599	$	14,519	$	(43,786	)	$	54,464	$	40,290	$	57,186		$	16,766	$	(44,228	)	$	70,014

Guarantor

Non-guarantor

Parent

Subsidiaries

Subsidiaries

Eliminations

Consolidated

ASSETS

CURRENT ASSETS

Cash and cash equivalents

$
1,485

$
257

$
1,538

$
(15
)

$
3,265

Receivables, less allowances

3

4,970

3,586

(78
)

8,481

Spare parts, supplies, fuel, prepaid expenses and other,
less allowances

425

878

292

—

1,595

Total current assets

1,913

6,105

5,416

(93
)

13,341

PROPERTY AND EQUIPMENT, AT COST

21

51,232

3,868

—

55,121

Less accumulated depreciation and amortization

17

25,111

1,839

—

26,967

Net property and equipment

4

26,121

2,029

—

28,154

INTERCOMPANY RECEIVABLE

1,487

924

—

(2,411
)

—

GOODWILL

—

1,709

5,264

—

6,973

INVESTMENT IN SUBSIDIARIES

33,370

4,082

—

(37,452
)

—

OTHER ASSETS

75

1,854

1,829

104

3,862

$
36,849

$
40,795

$
14,538

$
(39,852
)

$
52,330

LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT

CURRENT LIABILITIES

Current portion of long-term debt

$
1,332

$
1

$
9

$
—

$
1,342

Accrued salaries and employee benefits

65

1,506

606

—

2,177

Accounts payable

16

1,332

1,719

(90
)

2,977

Accrued expenses

460

1,778

896

(3
)

3,131

Total current liabilities

1,873

4,617

3,230

(93
)

9,627

LONG-TERM DEBT, LESS CURRENT PORTION

14,942

288

13

—

15,243

INTERCOMPANY PAYABLE

—

—

2,411

(2,411
)

—

OTHER LONG-TERM LIABILITIES

Deferred income taxes

—

2,626

137

104

2,867

Other liabilities

619

3,432

1,126

—

5,177

Total other long-term liabilities

619

6,058

1,263

104

8,044

COMMON STOCKHOLDERS’ INVESTMENT

19,415

29,832

7,621

(37,452
)

19,416

$
36,849

$
40,795

$
14,538

$
(39,852
)

$
52,330

Parent

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations

Consolidated

REVENUES

$
—

$
12,443

$
4,667

$
(100
)

$
17,010

OPERATING EXPENSES:

Salaries and employee benefits

28

4,720

1,321

—

6,069

Purchased transportation

—

2,749

1,547

(43
)

4,253

Rentals and landing fees

1

677

197

(1
)

874

Depreciation and amortization

—

731

120

—

851

Fuel

—

838

69

—

907

Maintenance and repairs

—

573

87

(2
)

658

Business realignment costs

4

—

—

—

4

Intercompany charges, net

(93
)

(397
)

490

—

—

Other

60

1,771

698

(46
)

2,483

—

11,662

4,529

(92
)

16,099

OPERATING INCOME

—

781

138

(8
)

911

OTHER INCOME (EXPENSE):

Equity in earnings of subsidiaries

739

16

—

(755
)

—

Interest, net

(109
)

(54
)

28

—

(135
)
Other retirement plans income

—

155

3

—

158

Intercompany charges, net

149

(89
)

(60
)

—

—

Other, net

(40
)

71

(42
)

8

(3
)
INCOME BEFORE INCOME TAXES

739

880

67

(755
)

931

Provision for income taxes

—

147

45

—

192

NET INCOME

$
739

$
733

$
22

$
(755
)

$
739

COMPREHENSIVE INCOME

$
713

$
732

$
129

$
(755
)

$
819

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

REVENUES

$
—

$
37,685

$
14,503

$
(302
)

$
51,886

OPERATING EXPENSES:

Salaries and employee benefits

110

14,300

4,179

—

18,589

Purchased transportation

—

7,780

4,912

(126
)

12,566

Rentals and landing fees

4

1,948

585

(4
)

2,533

Depreciation and amortization

1

2,133

353

—

2,487

Fuel

—

2,708

237

—

2,945

Maintenance and repairs

1

1,874

271

(2
)

2,144

Business realignment costs

4

—

—

—

4

Intercompany charges, net

(357
)

(772
)

1,129

—

—

Other

238

4,991

2,410

(171
)

7,468

1

34,962

14,076

(303
)

48,736

OPERATING INCOME

(1
)

2,723

427

1

3,150

OTHER INCOME (EXPENSE):

Equity in earnings of subsidiaries

2,509

145

—

(2,654
)

—

Interest, net

(439
)

44

2

—

(393
)
Other retirement plans income

—

466

8

—

474

Intercompany charges, net

454

(335
)

(119
)

—

—

Other, net

(14
)

18

(26
)

—

(22
)
INCOME BEFORE INCOME TAXES

2,509

3,061

292

(2,653
)

3,209

Provision for income taxes

—

579

121

—

700

NET INCOME

$
2,509

$
2,482

$
171

$
(2,653
)

$
2,509

COMPREHENSIVE INCOME

$
2,443

$
2,514

$
46

$
(2,653
)

$
2,350

			Guarantor			Non-guarantor
	Parent		Subsidiaries			Subsidiaries		Eliminations			Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	826	$	158		$	1,381	$	(46	)	$	2,319
Receivables, less allowances		56		5,603			3,684		(227	)		9,116
Spare parts, supplies, fuel, prepaid expenses and other, less allowances		366		953			332		—			1,651
Total current assets		1,248		6,714			5,397		(273	)		13,086
PROPERTY AND EQUIPMENT, AT COST		25		55,341			4,145		—			59,511
Less accumulated depreciation and amortization		17		27,066			1,999		—			29,082
Net property and equipment		8		28,275			2,146		—			30,429
INTERCOMPANY RECEIVABLE		2,877		(405	)		—		(2,472	)		—
GOODWILL		—		1,589			5,295		—			6,884
INVESTMENT IN SUBSIDIARIES		33,725		5,449			—		(39,174	)		—
OTHER ASSETS		995		1,811			1,789		(591	)		4,004
	$	38,853	$	43,433		$	14,627	$	(42,510	)	$	54,403
LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Current portion of long-term debt	$	959	$	2		$	3	$	—		$	964
Accrued salaries and employee benefits		143		1,100			498		—			1,741
Accounts payable		16		1,469			1,808		(263	)		3,030
Accrued expenses		521		1,853			914		(10	)		3,278
Total current liabilities		1,639		4,424			3,223		(273	)		9,013
LONG-TERM DEBT, LESS CURRENT PORTION		16,322		287			8		—			16,617
INTERCOMPANY PAYABLE		—		—			2,472		(2,472	)		—
OTHER LONG-TERM LIABILITIES
Deferred income taxes		—		2,832			580		(591	)		2,821
Other liabilities		3,135		3,965			1,095		—			8,195
Total other long-term liabilities		3,135		6,797			1,675		(591	)		11,016
COMMON STOCKHOLDERS’ INVESTMENT		17,757		31,925			7,249		(39,174	)		17,757
	$	38,853	$	43,433		$	14,627	$	(42,510	)	$	54,403

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
REVENUE	$	—		$	12,925		$	4,658		$	(96	)	$	17,487
OPERATING EXPENSES:
Salaries and employee benefits		24			4,934			1,424			—			6,382
Purchased transportation		—			3,211			1,392			(45	)		4,558
Rentals and landing fees		2			749			216			(3	)		964
Depreciation and amortization		—			789			119			—			908
Fuel		—			839			40			—			879
Maintenance and repairs		—			597			87			—			684
Intercompany charges, net		(93	)		(574	)		667			—			—
Other		67			1,842			840			(48	)		2,701
		—			12,387			4,785			(96	)		17,076
OPERATING INCOME		—			538			(127	)		—			411
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries		315			22			—			(337	)		—
Interest, net		(159	)		3			1			—			(155	)
Other retirement plans income		—			163			5			—			168
Intercompany charges, net		160			(120	)		(40	)		—			—
Other, net		(1	)		11			(14	)		—			(4	)
INCOME (LOSS) BEFORE INCOME TAXES		315			617			(175	)		(337	)		420
Provision for income taxes (benefit)		—			82			23			—			105
NET INCOME (LOSS)	$	315		$	535		$	(198	)	$	(337	)	$	315
COMPREHENSIVE INCOME (LOSS)	$	298		$	535		$	(202	)	$	(337	)	$	294

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated			Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
REVENUES	$	—		$	36,044		$	12,445		$	(353	)	$	48,136
REVENUE																$	—		$	12,443		$	4,667		$	(100	)	$	17,010
OPERATING EXPENSES:
Salaries and employee benefits		112			13,713			3,852			—			17,677			28			4,720			1,321			—			6,069
Purchased transportation		—			6,836			4,600			(216	)		11,220			—			2,749			1,547			(43	)		4,253
Rentals and landing fees		4			1,951			577			(6	)		2,526			1			677			197			(1	)		874
Depreciation and amortization		1			1,958			334			—			2,293			—			731			120			—			851
Fuel		—			2,220			215			—			2,435			—			838			69			—			907
Maintenance and repairs		1			1,729			238			—			1,968			—			573			87			(2	)		658
Business realignment costs																	4			—			—			—			4
Intercompany charges, net		(325	)		298			27			—			—			(93	)		(397	)		490			—			—
Other		207			4,664			2,333			(131	)		7,073			60			1,771			698			(46	)		2,483
		—			33,369			12,176			(353	)		45,192			—			11,662			4,529			(92	)		16,099
OPERATING INCOME		—			2,675			269			—			2,944			—			781			138			(8	)		911
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries		3,445			39			—			(3,484	)		—			739			16			—			(755	)		—
Interest, net		(396	)		35			(2	)		—			(363	)		(109	)		(54	)		28			—			(135	)
Other retirement plans income		—			424			12			—			436			—			155			3			—			158
Intercompany charges, net		403			(220	)		(183	)		—			—			149			(89	)		(60	)		—			—
Other, net		(7	)		88			(103	)		—			(22	)		(40	)		71			(42	)		8			(3	)
INCOME BEFORE INCOME TAXES		3,445			3,041			(7	)		(3,484	)		2,995
INCOME (LOSS) BEFORE INCOME TAXES																	739			880			67			(755	)		931
Provision for income taxes		—			(573	)		123			—			(450	)		—			147			45			—			192
NET INCOME	$	3,445		$	3,614		$	(130	)	$	(3,484	)	$	3,445
COMPREHENSIVE INCOME	$	3,385		$	3,605		$	(3	)	$	(3,484	)	$	3,503
NET INCOME (LOSS)																$	739		$	733		$	22		$	(755	)	$	739
COMPREHENSIVE INCOME (LOSS)																$	713		$	732		$	129		$	(755	)	$	819

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
REVENUE	$	—		$	37,474		$	14,660		$	(275	)	$	51,859
OPERATING EXPENSES:
Salaries and employee benefits		66			14,441			4,197			—			18,704
Purchased transportation		—			8,619			4,416			(121	)		12,914
Rentals and landing fees		6			2,175			633			(6	)		2,808
Depreciation and amortization		1			2,335			352			—			2,688
Fuel		—			2,497			142			—			2,639
Maintenance and repairs		—			1,966			261			(1	)		2,226
Asset impairment charges		—			66			—			—			66
Intercompany charges, net		(249	)		(1,677	)		1,926			—			—
Other		176			5,261			2,582			(147	)		7,872
		—			35,683			14,509			(275	)		49,917
OPERATING INCOME		—			1,791			151			—			1,942
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries		1,620			66			—			(1,686	)		—
Interest, net		(476	)		23			9			1			(443	)
Other retirement plans income		1			488			15			—			504
Intercompany charges, net		485			(357	)		(127	)		(1	)		—
Other, net		(10	)		38			(43	)		—			(15	)
INCOME (LOSS) BEFORE INCOME TAXES		1,620			2,049			5			(1,686	)		1,988
Provision for income taxes (benefit)		—			388			(20	)		—			368
NET INCOME (LOSS)	$	1,620		$	1,661		$	25		$	(1,686	)	$	1,620
COMPREHENSIVE INCOME (LOSS)	$	1,569		$	1,620		$	44		$	(1,686	)	$	1,547

Parent

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations

Consolidated

CASH PROVIDED BY (USED IN) OPERATING
   ACTIVITIES

$
(109
)

$
3,136

$
322

$
(26
)

$
3,323

INVESTING ACTIVITIES

Capital expenditures

(3
)

(3,359
)

(395
)

—

(3,757
)
Proceeds from asset dispositions and other

(45
)

86

21

—

62

CASH USED IN INVESTING
   ACTIVITIES

(48
)

(3,273
)

(374
)

—

(3,695
)
FINANCING ACTIVITIES

Proceeds from short-term borrowings, net

220

—

—

—

220

Net transfers from (to) Parent

2

(31
)

29

—

—

Payment on loan between subsidiaries

(29
)

—

29

—

—

Intercompany dividends

—

114

(114
)

—

—

Proceeds from debt issuances

2,463

—

—

—

2,463

Principal payments on debt

(750
)

(117
)

(7
)

—

(874
)
Proceeds from stock issuances

58

—

—

—

58

Dividends paid

(514
)

—

—

—

(514
)
Purchase of treasury stock

(1,365
)

—

—

—

(1,365
)
Other, net

—

127

(122
)

—

5

CASH (USED IN) PROVIDED BY FINANCING
   ACTIVITIES

85

93

(185
)

—

(7
)
Effect of exchange rate changes on cash

—

(9
)

(5
)

—

(14
)
Net (decrease) increase in cash and cash equivalents

(72
)

(53
)

(242
)

(26
)

(393
)
Cash and cash equivalents at beginning of period

1,485

257

1,538

(15
)

3,265

Cash and cash equivalents at end of period

$
1,413

$
204

$
1,296

$
(41
)

$
2,872

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
REVENUE	$	—		$	37,685		$	14,503		$	(302	)	$	51,886
OPERATING EXPENSES:
Salaries and employee benefits		110			14,300			4,179			—			18,589
Purchased transportation		—			7,780			4,912			(126	)		12,566
Rentals and landing fees		4			1,948			585			(4	)		2,533
Depreciation and amortization		1			2,133			353			—			2,487
Fuel		—			2,708			237			—			2,945
Maintenance and repairs		1			1,874			271			(2	)		2,144
Business realignment costs		4			—			—			—			4
Intercompany charges, net		(357	)		(772	)		1,129			—			—
Other		238			4,991			2,410			(171	)		7,468
		1			34,962			14,076			(303	)		48,736
OPERATING INCOME		(1	)		2,723			427			1			3,150
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries		2,509			145			—			(2,654	)		—
Interest, net		(439	)		44			2			—			(393	)
Other retirement plans income		—			466			8			—			474
Intercompany charges, net		454			(335	)		(119	)		—			—
Other, net		(14	)		18			(26	)		—			(22	)
INCOME (LOSS) BEFORE INCOME TAXES		2,509			3,061			292			(2,653	)		3,209
Provision for income taxes		—			579			121			—			700
NET INCOME (LOSS)	$	2,509		$	2,482		$	171		$	(2,653	)	$	2,509
COMPREHENSIVE INCOME (LOSS)	$	2,443		$	2,514		$	46		$	(2,653	)	$	2,350

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	(1,794	)	$	4,864		$	178		$	30		$	3,278
INVESTING ACTIVITIES
Capital expenditures		(2	)		(4,288	)		(415	)		—			(4,705	)
Proceeds from asset dispositions and other		(12	)		20			7			—			15
CASH USED IN INVESTING ACTIVITIES		(14	)		(4,268	)		(408	)		—			(4,690	)
FINANCING ACTIVITIES
Proceeds from short-term borrowings, net		298			—			—			—			298
Net transfers from (to) Parent		597			(869	)		272			—			—
Payment on loan between subsidiaries		(326	)		—			326			—			—
Intercompany dividends		—			398			(398	)		—			—
Principal payments on debt		(956	)		(81	)		(8	)		—			(1,045	)
Proceeds from debt issuances		2,093			—			—			—			2,093
Proceeds from stock issuances		38			—			—			—			38
Dividends paid		(509	)		—			—			—			(509	)
Purchase of treasury stock		(3	)		—			—			—			(3	)
Other, net		(4	)		—			(1	)		—			(5	)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		1,228			(552	)		191			—			867
Effect of exchange rate changes on cash		—			1			(9	)		—			(8	)
Net (decrease) increase in cash and cash equivalents		(580	)		45			(48	)		30			(553	)
Cash and cash equivalents at beginning of period		826			158			1,381			(46	)		2,319
Cash and cash equivalents at end of period	$	246		$	203		$	1,333		$	(16	)	$	1,766

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated			Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	(3,537	)	$	4,664		$	25		$	10		$	1,162		$	(109	)	$	3,136		$	322		$	(26	)	$	3,323
INVESTING ACTIVITIES
Capital expenditures		—			(3,746	)		(248	)		—			(3,994	)		(3	)		(3,359	)		(395	)		—			(3,757	)
Business acquisitions, net of cash acquired		—			(44	)		—			—			(44	)
Proceeds from asset dispositions and other		(5	)		23			3			—			21			(45	)		86			21			—			62
CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES		(5	)		(3,767	)		(245	)		—			(4,017	)
CASH USED IN INVESTING ACTIVITIES																	(48	)		(3,273	)		(374	)		—			(3,695	)
FINANCING ACTIVITIES
Proceeds from short-term borrowings, net		797			—			—			—			797			220			—			—			—			220
Net transfers from (to) Parent		807			(895	)		88			—			—			2			(31	)		29			—			—
Payment on loan between subsidiaries		210			—			(210	)		—			—			(29	)		—			29			—			—
Intercompany dividends																	—			114			(114	)		—			—
Principal payments on debt																	(750	)		(117	)		(7	)		—			(874	)
Proceeds from debt issuances		1,481			—			—			—			1,481			2,463			—			—			—			2,463
Principal payments on debt		—			(17	)		(14	)		—			(31	)
Proceeds from stock issuances		284			—			—			—			284			58			—			—			—			58
Dividends paid		(402	)		—			—			—			(402	)		(514	)		—			—			—			(514	)
Purchase of treasury stock		(558	)		—			—			—			(558	)		(1,365	)		—			—			—			(1,365	)
Other, net		2			4			—			—			6			—			127			(122	)		—			5
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		2,621			(908	)		(136	)		—			1,577
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES																	85			93			(185	)		—			(7	)
Effect of exchange rate changes on cash		(6	)		61			43			—			98			—			(9	)		(5	)		—			(14	)
Net (decrease) increase in cash and cash equivalents		(927	)		50			(313	)		10			(1,180	)
Net decrease in cash and cash equivalents																	(72	)		(53	)		(242	)		(26	)		(393	)
Cash and cash equivalents at beginning of period		1,884			325			1,807			(47	)		3,969			1,485			257			1,538			(15	)		3,265
Cash and cash equivalents at end of period	$	957		$	375		$	1,494		$	(37	)	$	2,789		$	1,413		$	204		$	1,296		$	(41	)	$	2,872

~~PUBLIC ACCOUNTING FIRM~~Report of Independent Registered Public Accounting Firm

We have reviewed the accompanying condensed consolidated balance sheet of FedEx Corporation (the Company) as of February ~~28, 2019,~~29, 2020, and the related condensed consolidated statements of income, ~~and~~ comprehensive income, ~~for the three-month~~ and nine-month periods ended February 28, 2019 and February 28, 2018, the condensed consolidated statements of cash flows for the nine-month periods ended February 28, 2019 and February 28, 2018, and the consolidated statements of changes in common stockholders’ investment for the three-month and nine-month periods ended February ~~28, 2019~~29, 2020 and February 28, ~~2018,~~2019, the related condensed consolidated statements of cash flows for the nine-month periods ended February 29, 2020 and February 28, 2019, 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~~the Company as of May 31, ~~2018, and~~2019, the related consolidated statements of income, comprehensive income, cash flows and changes in common 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,~~2019, 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,~~2019, 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~~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~~2019 (“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.~~North American 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~~operating 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, as of June 1, 2019 the results of the FedEx ~~Logistics,~~Office and Print Services, Inc. (“FedEx ~~Logistics” (formerly FedEx Trade Networks, Inc.)~~Office”) operating segment ~~results~~ are included in “Corporate, other and ~~eliminations” in~~eliminations.” This change was made to reflect our ~~segment reporting.~~internal management reporting structure. 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, and we expect these operating expenses to fluctuate on a year-over-year basis consistent with changes in ~~revenues~~revenue 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~~revenue and volumes. The line item “Other operating ~~expenses”~~expense” includes costs associated with outside service contracts (such as facility services and cargo handling, temporary labor and security), insurance, professional fees ~~insurance, uniforms~~ and ~~taxes and licenses.~~uniforms.

Except as otherwise specified, references to years indicate our fiscal year ending May 31, ~~2019~~2020 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year. References to our transportation segments include, collectively, the FedEx Express segment, the FedEx Ground segment and the FedEx Freight segment.

The following tables compare summary operating results and changes in revenue and operating income (dollars in millions, except per share amounts) for the periods ended February ~~28:~~29, 2020 and February 28, 2019:

	Three Months Ended						Percent				Nine Months Ended						Percent				Three Months Ended						Percent				Nine Months Ended						Percent
	2019			2018			Change				2019			2018			Change				2020			2019			Change				2020			2019			Change
Revenues	$	17,010		$	16,526			3			$	51,886		$	48,136			8
Revenue																					$	17,487		$	17,010			3			$	51,859		$	51,886			—
Operating income (loss):
FedEx Express segment		370			317			17				1,357			1,238			10				137			389			(65	)			658			1,407			(53	)
FedEx Ground segment		577			614			(6	)			1,830			1,716			7				355			586			(39	)			1,341			1,852			(28	)
FedEx Freight segment		97			49			98				421			322			31				113			97			16				448			421			6
Corporate, other and eliminations		(133	)		(122	)		(9	)			(458	)		(332	)		(38	)			(194	)		(161	)		(20	)			(505	)		(530	)		5
Consolidated operating income		911			858			6				3,150			2,944			7				411			911			(55	)			1,942			3,150			(38	)
Operating margin:
FedEx Express segment		4.1	%		3.5	%		60		bp		4.9	%		4.7	%		20		bp		1.5	%		4.3	%		(280	)	bp		2.4	%		5.1	%		(270	)	bp
FedEx Ground segment		11.0	%		12.7	%		(170	)	bp		12.0	%		12.6	%		(60	)	bp		6.1	%		11.1	%		(500	)	bp		8.2	%		12.2	%		(400	)	bp
FedEx Freight segment		5.5	%		3.0	%		250		bp		7.5	%		6.5	%		100		bp		6.5	%		5.5	%		100		bp		8.2	%		7.5	%		70		bp
Consolidated operating margin		5.4	%		5.2	%		20		bp		6.1	%		6.1	%		—		bp		2.4	%		5.4	%		(300	)	bp		3.7	%		6.1	%		(240	)	bp
Consolidated net income	$	739		$	2,074			(64	)		$	2,509		$	3,445			(27	)		$	315		$	739			(57	)		$	1,620		$	2,509			(35	)
Diluted earnings per share	$	2.80		$	7.59			(63	)		$	9.41		$	12.63			(25	)		$	1.20		$	2.80			(57	)		$	6.17		$	9.41			(34	)

	Change in Revenue					Change in Operating Income						Change in Revenue						Change in Operating Income (Loss)
	Three Months Ended			Nine Months Ended		Three Months Ended			Nine Months Ended			Three Months Ended			Nine Months Ended			Three Months Ended			Nine Months Ended
FedEx Express segment	$	(93	)	$	1,257	$	53		$	119		$	(81	)	$	(878	)	$	(252	)	$	(749	)
FedEx Ground segment		433			1,604		(37	)		114			584			1,137			(231	)		(511	)
FedEx Freight segment		137			677		48			99			(12	)		(140	)		16			27
FedEx Services segment		5			35		—			—			2			(2	)		—			—
Corporate, other and eliminations		2			177		(11	)		(126	)		(16	)		(144	)		(33	)		25
	$	484		$	3,750	$	53		$	206		$	477		$	(27	)	$	(500	)	$	(1,208	)

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.

~~Consolidated operating income improved during~~Weaker global economic conditions, including the impact of the COVID-19 pandemic, negatively impacted our results in the third quarter and nine months of ~~2019 primarily~~2020. The COVID-19 pandemic had a negative impact on the demand for our services due to ~~lower variable incentive compensation expenses, volume growth, the favorable net impact~~its disruption of ~~fuel at all of our transportation segments~~global manufacturing, supply chains and ~~increased yields at FedEx Freight and FedEx Ground. Lower variable incentive compensation expenses benefited our results by approximately $350 million in~~consumer spending during the third quarter ~~and the nine months~~ of ~~2019. During~~2020. In addition, our results for the third quarter and nine months of ~~2019, softening global economic conditions~~2020 were negatively impacted ~~international package volumes at FedEx Express. Lower weights in U.S. domestic package shipments at FedEx Express also negatively impacted our results. Compounding these factors, we also experienced~~by higher self-insurance accruals, the loss of business from a ~~product~~large customer, increased costs to expand services, the continued mix shift to ~~lower yielding~~lower-yielding services ~~due in part to an increase in e-commerce traffic at FedEx Express. In addition, higher purchased transportation costs, resulting from~~and an increased ~~contractor settlement rates~~competitive pricing environment. These factors were partially offset by residential delivery volume growth at FedEx Ground and ~~expanding~~increased yields at FedEx Freight. Our third quarter 2020 results were positively impacted by approximately $100 million due to one additional operating weekday. The year-over-year comparison of variable incentive compensation expense negatively impacted our results by approximately $115 million in the third quarter of 2020, but positively impacted our results by approximately $250 million in the nine months of 2020. The year-over-year comparison of variable incentive compensation expense was impacted by the elimination of our variable incentive compensation payout in the third quarter of 2019 due to cost containment actions. During the second quarter of 2020, we recorded asset impairment charges of $66 million ($50 million, net of tax, or $0.19 per diluted share) associated with the decision to permanently retire certain aircraft and related engines at FedEx ~~Ground network operations to six days year-round, starting in January 2019, negatively affected our results. Comparables~~Express (see “Asset Impairment Charges” below for more information).

Consolidated net income for the nine months of ~~2019 are affected by the impact~~2020 includes a tax benefit of ~~the NotPetya cyberattack, which reduced earnings in the first half of 2018 by approximately $400~~$133 million ($~~1.14~~0.51 per diluted share)~~. Winter weather conditions in 2019 did not have~~ from the reduction of a ~~material effect~~valuation allowance on ~~comparisons to 2018 for either the third-quarter or nine-month periods.~~

~~The comparison of~~certain foreign tax loss carryforwards. Consolidated net income between 2019 and 2018 is significantly affected by a provisional benefit of $1.15 billion ($4.21 per diluted share) attributable to the enactment of the Tax Cuts and Jobs Act (“TCJA”) recognized during the third quarter of 2018, specifically related to the remeasurement of our net U.S. deferred tax liability. Net income for the third quarter of 2019 ~~includes~~included 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~~carryforwards. This was partially offset by tax expense of $50 million ($0.19 per diluted share) in the third quarter of 2019 related to a ~~recently~~lower 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 included tax benefits of $204 million ($0.75 per diluted share) from a $1.5 billion contribution to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”) in February 2018 and $165 million ($0.60 per diluted share) related to the 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 2018 earnings. See the “Income Taxes” section below for ~~further~~more information.

We incurred TNT Express integration expenses totaling ~~$69~~$72 million ($5556 million, net of tax, or $0.21 per diluted share) in the third quarter ~~of 2019, a $37~~and $207 million ~~decrease from the third quarter of 2018. TNT Express integration expenses were $304 million~~ ($~~243~~161 million, net of tax, or ~~$0.92~~$0.61 per diluted share) in the nine months of ~~2019,~~2020, a ~~$37~~$3 million increase from the third quarter and a $97 million decrease from the nine months of ~~2018.~~2019. 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 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.

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 3% in the third quarter ~~and 8%~~of 2020 primarily due to residential delivery volume growth at FedEx Ground. Revenue decreased slightly in the nine months of ~~2019~~2020 primarily due to ~~higher volumes~~the loss of business from a large customer and the impact from macroeconomic weakness. In addition, one additional operating weekday at all of our transportation segments ~~and increased yields at FedEx Ground and FedEx Freight.~~ positively impacted revenue in the third quarter of 2020.

At FedEx Ground, ~~revenues~~revenue increased 9%11% in the third quarter and ~~12%~~7% in the nine months of ~~2019~~2020 due to residential delivery volume growth, ~~and increased yields. FedEx Freight revenues increased 8% in~~partially offset by the ~~third quarter and 14% in the nine months~~loss of ~~2019 due to higher revenue per shipment and average daily shipments. Revenues~~business from a large customer. Revenue 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%3% in the nine months of ~~2019~~2020 primarily due to ~~U.S. domestic~~the loss of business from a large customer and lower freight revenue as a result of macroeconomic weakness and trade uncertainty, as well as decreased international export package yields. In addition, unfavorable exchange rates and lower fuel surcharges negatively impacted revenue at FedEx Express in the nine months of 2020. These factors were partially offset by international export package volume growth ~~and international package and freight volume recovery from the NotPetya cyberattack, partially offset by package yield declines. FedEx Express revenue during~~in both 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 segments2020. FedEx Freight revenue decreased 1% in the third quarter and 2% in the nine months of ~~2019.~~2020 due to decreased average daily shipments, partially offset by higher revenue per shipment.

The following tables compare operating expenses expressed as dollar amounts (in millions) and as a percent of revenue for the periods ended February ~~28:~~29, 2020 and February 28, 2019:

⁽¹⁾

~~Predominantly costs associated with our U.S.-based voluntary employee buyout program.~~

	Three Months Ended				Percent			Nine Months Ended				Percent
	2020		2019		Change			2020		2019		Change
Operating expenses:
Salaries and employee benefits	$	6,382	$	6,069		5		$	18,704	$	18,589		1
Purchased transportation		4,558		4,253		7			12,914		12,566		3
Rentals and landing fees		964		874		10			2,808		2,533		11
Depreciation and amortization		908		851		7			2,688		2,487		8
Fuel		879		907		(3	)		2,639		2,945		(10	)
Maintenance and repairs		684		658		4			2,226		2,144		4
Asset impairment charges		—		—		—			66		—	NM
Business realignment costs		—		4	NM				—		4	NM
Other		2,701		2,483		9			7,872		7,468		5
Total operating expenses		17,076		16,099		6			49,917		48,736		2
Operating income	$	411	$	911		(55	)	$	1,942	$	3,150		(38	)

Our results declined in the third quarter and nine months of ~~2019~~2020 primarily due to lower variable incentive compensation expenses, partially offset by higher operating costs in purchased transportation, driven by higher rates at FedEx Ground and 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 negatively affected operating margin in the third quarter of 2019. Operating margin remained flat in the nine months of 2019 primarily due to increased revenue and lower variable incentive compensation expenses, offset by higher operating costs. An overall product mix shift at FedEx Express from international priority volume to international deferred volume, as well as continued softness in international volumes at FedEx Express resulting from weakeningweaker global economic conditions, including the impact of the COVID-19 pandemic, higher self-insurance accruals, the loss of business from a large customer and increased costs to expand services. In addition, continued mix shift to lower-yielding services and an increased competitive pricing environment negatively impacted ~~operating margin~~our results during the third quarter and nine months of ~~2019.~~

~~Purchased transportation costs~~2020. These factors were partially offset by residential delivery volume growth at FedEx Ground and increased 8%yields at FedEx Freight in the third quarter and ~~12% in the~~ nine months of ~~2019 primarily due to higher volumes~~2020. Our results were also positively impacted by an additional operating weekday at all of our transportation segments and increased rates, including fuel costs, at FedEx Ground and FedEx 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~~2020. The year-over-year variable incentive compensation expense negatively impacted operating income comparisons in the third quarter of 2020 as discussed above; however, the operating income comparisons were benefited in the nine months of 2020.

During the second quarter of 2020, we recorded asset impairment charges of $66 million ($50 million, net of tax, or $0.19 per diluted share) associated with the decision to permanently retire certain aircraft and related engines at FedEx Express (see “Asset Impairment Charges” below for more information).

The adoption of the new lease accounting standard during the first quarter of 2020 resulted in a reclassification from other operating expense to rentals and landing fees expense of $45 million in the third quarter and $136 million in the nine months of 2020 and maintenance and repairs expense to rentals and landing fees expense of $11 million in the third quarter and $33 million in the nine months of 2020. These amounts were reclassified in order to properly align the lease and rental expenses to the appropriate line items in accordance with the new standard and are excluded from the following year-over-year expense change discussion.

Other operating expense increased 9% in the third quarter and 5% in the nine months of 2020 primarily due to ~~lower variable incentive compensation expenses, partially offset by~~ higher ~~staffing~~self-insurance accruals and higher outside service contract expense, including costs associated with cloud computing services. Purchased transportation costs increased 7% in the third quarter and 3% in the nine months of 2020 primarily due to ~~support volume growth~~higher volumes and ~~annual merit increases.~~increased contractor settlement rates at FedEx Ground, including expanding residential delivery to seven days per week year-round. Depreciation and amortization expense increased 8% in the nine months of 2020 primarily due to continued strategic investment programs at all of our transportation segments. Salaries and employee benefits expense increased 5% in the third quarter of 2020 primarily due to the year-over-year variable incentive compensation expense comparison discussed above, higher staffing to support volume growth and merit increases. Salaries and employee benefits expense increased 1% in the nine months of ~~2019~~2020 primarily due to merit increases and higher staffing ~~and merit increases,~~to support volume growth, partially offset by lower variable incentive compensation expenses. Depreciation and amortization expense increased 8% in the third quarter and nine months of 2019 primarily due to continued investment in aircraft and related equipment at FedEx Express. Maintenance and repairs expense increased 5% in the third quarter and 9% in the nine months of 2019 primarily due to increased aircraft engine maintenance expense at FedEx Express.expense.

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 decreased 1%3% in the third quarter of ~~2019~~2020 primarily due to lower usage. Fuel expense decreased 10% in the nine months of 2020 primarily due to decreased fuel ~~prices at FedEx Express, offset by higher mileage at FedEx Freight.~~prices. Fuel ~~expense increased 21% in the 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 third quarters of ~~2019~~2020 and ~~2018~~2019 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 and preceding day, 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. On March 2, 2020, we updated the tables used to determine our fuel surcharges at all of our transportation segments. On March 18, 2019, we updated the tables used to determine our fuel 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 on operating income described above and for each segment below excludes the impact from these table changes.

The net impact of fuel had a ~~significant benefit~~slightly negative impact to operating income in the third quarter and nine months of ~~2019 as higher~~2020 due to lower fuel surcharges, ~~more than~~partially offset ~~increased~~by decreased fuel ~~prices.~~prices in the nine months of 2020.

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.

During the second quarter of 2020, we made the decision to permanently retire from service 10 Airbus A310-300 aircraft and 12 related engines at FedEx Express to align with the needs of the U.S. domestic network and modernize its aircraft fleet. As a consequence of this decision, noncash impairment charges of $66 million ($50 million, net of tax, or $0.19 per diluted share) were recorded in the FedEx Express segment in the second quarter. Seven of these aircraft were temporarily idled.

Our effective tax rate was 25.0% for the third quarter and 18.5% for the nine months of 2020 compared with 20.6% for the third quarter and 21.8% for the nine months of ~~2019, compared with (137.3)%~~2019. The tax rate for the nine months of 2020 includes a benefit of $133 million from the reduction of a valuation allowance on certain foreign tax loss carryforwards due to operational changes which impacted the determination of the realizability of the deferred tax asset in that jurisdiction. The 2020 tax rates were negatively impacted by decreased earnings in certain non-U.S. jurisdictions. The tax rates for the third quarter and ~~(15.0)% for the~~ nine months of ~~2018. The~~ 2019 ~~tax rates include~~included a benefit of $90 million from the reduction of a valuation allowance on certain tax loss carryforwards, ~~and~~partially offset by an expense of $50 million from the impact on our deferred taxes attributable to the enactment of a ~~recently enacted~~ lower tax rate in the Netherlands. The 2019 tax rates were also favorably impacted by the TCJA, which resulted in benefits of approximately $60 million during the third quarter and $230 million for the nine months of 2019, primarily from the lower statutory tax rate on fiscal 2019 earnings. The tax rate for the nine months of 2019 was also ~~benefited~~favorably impacted by ~~approximately~~the Tax Cuts and Jobs Act (“TCJA”), which resulted in an approximate $60 million tax benefit from accelerated deductions claimed on our 2018 ~~U.S. income~~ tax return. The 2018 tax 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 exceeding the one-time transition tax on previously deferred foreign earnings. In addition to these provisional amounts, we recognized a $204 million benefit from a $1.5 billion contribution to our U.S. Pension Plansreturn filed in February 2018 and $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 recorded in the third quarter and attributable to the first half of 2018 earnings.2019.

~~The following table provides a reconciliation of the 2018 effective tax rates to the 2019 effective tax rates, including the impacts of the TCJA, for the periods ended February 28:~~

We are subject to taxation in the United States and various U.S. state, local and foreign jurisdictions. We are currently under examination by the Internal Revenue Service ~~(“IRS”)~~ for the 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 impact of any changes is not expected to be material to our consolidated financial statements. As

While we expect continued revenue growth at FedEx Ground during the fourth quarter of ~~February 28, 2019, there were no material changes~~2020, we expect weaker global economic conditions to negatively impact our ~~liabilities for unrecognized tax benefits subsequent to May 31, 2018.~~

~~In December 2018, we announced cost-reduction programs primarily through initiatives~~results at FedEx Express and FedEx ~~Services in response~~Freight. In addition, we anticipate that higher operating costs at FedEx Ground from our expansion 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 employeesyear-round seven-day residential delivery will ~~be scheduled to vacate positions in phases to ensure a smooth transition in the impacted functions so that we maintain service levels to~~negatively impact 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 predominantlyresults in the fourth quarter of ~~2019.~~2020.

~~We expect continued revenue and earnings growth at FedEx Freight~~exacerbated in the fourth quarter of ~~2019~~2020 by the impacts of the COVID-19 pandemic, including the disruption of manufacturing operations and supply chains around the world. While the global economy may recover quickly from repercussions linked to ~~be driven by volume~~the COVID-19 pandemic, we cannot currently predict if or when the economic recovery will occur.

Our international operations are much more sensitive to changes in global trade than our U.S. domestic operations because of the higher concentration of business-to-business shipments internationally. The softer economic outlook will continue to create an ongoing revenue shortfall from planned levels, particularly in Europe and ~~yield growth. While FedEx Ground revenue growth~~Asia Pacific. Furthermore, the cost of maintaining two separate networks in Europe while we execute the TNT Express integration is expected to ~~remain strong~~compound the impact of the revenue shortfall on our near-term results. We will continue to manage network capacity at FedEx Express by reducing international flight hours in the fourth quarter of ~~2019, higher operating costs are~~2020 if global economic conditions deteriorate further. However, if global airfreight demand increases as the world recovers from the COVID-19 pandemic, we have the ability to flex our network to meet the needs of our customers.

In the U.S. domestic package market, permanently expanding our FedEx Ground network operations to seven days per week year-round, combined with volume declines from the loss of a large customer, has created a near-term cost-to-volume disparity. In addition, an increasingly competitive pricing environment is expected to continue ~~to negatively impact results, as~~pressuring our margins. However, we ~~continue to focus on growing volumes to fill the capacity of~~expect that our ~~new six-day network. While the launch of six-day~~investments in our U.S. domestic package operations will ~~continue~~ultimately result in higher revenue and increased productivity that more than offsets the implementation costs associated with these programs. We have made adjustments to ~~be a modest headwind,~~our FedEx Express U.S. domestic air network to better match capacity with demand by accelerating retirement of certain aircraft in the second quarter of 2020. In addition, we ~~believe it~~are focused on optimizing the cost of last-mile residential deliveries by directing certain U.S. day-definite, residential FedEx Express shipments into the FedEx Ground network beginning in March 2020. We expect last-mile optimization 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 designedus to increase ~~operational~~ efficiency and ~~safety, enhance~~lower our cost-to-serve as e-commerce growth continues to impact our service ~~offerings to our customers~~mix. We also are focused on improving revenue quality and ~~manage our cost structure. We expect earnings to decrease~~lowering costs through investments in technology aimed at ~~FedEx Express in~~improving productivity.

For 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,2020, 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 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.

We continue to execute our TNT Express integration ~~plans. The integration process is complex as it spans over 200 countries~~plans 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 allow both the FedEx Express and 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 completeare focused on completing projects across our European hub and station locations that will allow interoperability between the ground networks for both FedEx Express and TNT Express ~~packages, which will further lower costs as~~packages. In addition, we continue to focus on integrating the ~~related~~ FedEx Express and TNT Express linehaul and pickup-and-delivery operations ~~are optimized.~~

~~In 2019, we have begun the operational network integration process~~ for the key countries in Europe, which 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~~By the end of the fourth quarter 2020, we expect European ground network interoperability to ~~make significant progress on~~be substantially completed. The next key integration ~~activities in 2020, particularly in Europe,~~milestones include completing the integration ~~work~~of the FedEx Express and TNT Express linehaul and pickup-and-delivery operations and completing a single portfolio of services during 2021. We expect to complete international air network interoperability during the first half of 2022. We expect synergies from the combined FedEx Express/TNT Express network will ~~continue into 2021.~~ accelerate during 2021 once the linehaul and pickup-and-delivery networks are optimized, and expect synergy realization to increase significantly after international air network interoperability is completed.

We ~~currently estimate~~expect to incur approximately $100 million of integration expenses in the fourth quarter of 2020 in the form of professional fees, outside service contracts, salaries and wages and other operating expense. We expect the aggregate integration program expenses, including restructuring charges at TNT Express, to ~~exceed $1.5~~be approximately $1.7 billion through 2021, and we may incur additional costs, ~~related to~~including investments that will further transform and optimize the combined ~~business.~~businesses. The timing and amount of integration expenses and ~~other~~capital investments in any future period may change as we revise and implement our plans. ~~We expect to incur approximately $435 million~~

Our expectations for the fourth quarter of ~~integration expenses~~2020 are dependent on key external factors, including no further weakening in ~~2019, down~~economic conditions, including the impact of the COVID-19 pandemic, from our ~~previous estimate of $450 million.~~current forecast, current fuel price expectations and no additional adverse developments in international trade policies and relations.

Other Outlook Matters. For details on key ~~2019~~2020 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 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:

Effective March 1, 2020, the results of FedEx Custom Critical, Inc. will be included in the FedEx Express segment. This change was made to reflect our internal management reporting structure.

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~~operating segments. The allocations of net operating costs are based on metrics such as relative ~~revenues~~revenue or estimated services provided.

Also included in corporate and other is the FedEx ~~Logistics~~Office operating segment, which provides an array of document and business services and retail access to our customers for our package transportation businesses, and the FedEx Logistics, Inc. operating segment, which provides integrated supply chain management solutions, specialty transportation, cross-border e-commerce technology and e-commerce transportation solutions, 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”).forwarding. In the ~~third quarter and~~ nine months of ~~2019,~~2020, the ~~operating loss increase~~decrease in revenue in “Corporate, other and eliminations” was driven primarily by ~~FedEx Logistics resulting from operating losses, the inclusion of FedEx Forward Depots following the realignment of FedEx Logistics and~~ lower transportation volumes due to weakness in the ~~global economy. In addition, costs incurred in connection with~~international economy as a result of trade uncertainty, including the ~~settlement~~impact of ~~a legal matter involving FedEx Ground, including certain professional fees, negatively impacted our results during~~ the ~~nine months of 2019.~~COVID-19 pandemic.

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,~~revenue, operating expenses, operating income (dollars in millions), operating margin and operating expenses as a percent of revenue for the periods ended February ~~28:~~29, 2020 and February 28, 2019:

	Three Months Ended						Percent				Nine Months Ended						Percent				Three Months Ended						Percent				Nine Months Ended						Percent
	2019			2018			Change				2019			2018			Change				2020			2019			Change				2020			2019			Change
Revenues:
Revenue:
Package:
U.S. overnight box	$	1,844		$	1,836			—			$	5,678		$	5,373			6			$	1,865		$	1,844			1			$	5,595		$	5,678			(1	)
U.S. overnight envelope		433			435			—				1,345			1,317			2				459			433			6				1,395			1,345			4
U.S. deferred		1,119			996			12				3,131			2,796			12				1,127			1,119			1				3,063			3,131			(2	)
Total U.S. domestic package revenue		3,396			3,267			4				10,154			9,486			7				3,451			3,396			2				10,053			10,154			(1	)
International priority		1,738			1,841			(6	)			5,508			5,469			1				1,710			1,738			(2	)			5,344			5,508			(3	)
International economy		806			793			2				2,541			2,378			7				810			806			—				2,538			2,541			—
Total international export package revenue		2,544			2,634			(3	)			8,049			7,847			3				2,520			2,544			(1	)			7,882			8,049			(2	)
International domestic⁽¹⁾		1,078			1,140			(5	)			3,412			3,424			—				1,075			1,078			—				3,316			3,412			(3	)
Total package revenue		7,018			7,041			—				21,615			20,757			4				7,046			7,018			—				21,251			21,615			(2	)
Freight:
U.S.		772			739			4				2,294			2,040			12				739			772			(4	)			2,132			2,294			(7	)
International priority		477			532			(10	)			1,574			1,527			3				439			477			(8	)			1,376			1,574			(13	)
International economy		495			492			1				1,568			1,354			16				499			495			1				1,556			1,568			(1	)
International airfreight		76			93			(18	)			244			276			(12	)			61			76			(20	)			197			244			(19	)
Total freight revenue		1,820			1,856			(2	)			5,680			5,197			9				1,738			1,820			(5	)			5,261			5,680			(7	)
Other		167			201			(17	)			536			620			(14	)			140			167			(16	)			441			536			(18	)
Total revenues		9,005			9,098			(1	)			27,831			26,574			5
Total revenue																						8,924			9,005			(1	)			26,953			27,831			(3	)
Operating expenses:
Salaries and employee benefits		3,389			3,493			(3	)			10,303			10,046			3				3,520			3,389			4				10,297			10,303			—
Purchased transportation		1,267			1,285			(1	)			3,928			3,773			4				1,212			1,267			(4	)			3,711			3,928			(6	)
Rentals and landing fees		504			526			(4	)			1,448			1,502			(4	)			538			504			7				1,556			1,448			7
Depreciation and amortization		456			423			8				1,341			1,248			7				478			456			5				1,409			1,341			5
Fuel		771			782			(1	)			2,515			2,088			20				744			771			(4	)			2,241			2,515			(11	)
Maintenance and repairs		433			419			3				1,449			1,323			10				429			433			(1	)			1,460			1,449			1
Asset impairment charges																						—			—			—				66			—		NM
Intercompany charges		505			536			(6	)			1,571			1,547			2				500			486			3				1,469			1,521			(3	)
Other		1,310			1,317			(1	)			3,919			3,809			3				1,366			1,310			4				4,086			3,919			4
Total operating expenses		8,635			8,781			(2	)			26,474			25,336			4				8,787			8,616			2				26,295			26,424			—
Operating income	$	370		$	317			17			$	1,357		$	1,238			10			$	137		$	389			(65	)		$	658		$	1,407			(53	)
Operating margin		4.1	%		3.5	%		60		bp		4.9	%		4.7	%		20		bp		1.5	%		4.3	%		(280	)	bp		2.4	%		5.1	%		(270	)	bp

	Percent of Revenue												Percent of Revenue
	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	2019			2018			2019			2018			2020			2019			2020			2019
Operating expenses:
Salaries and employee benefits		37.6	%		38.4	%		37.0	%		37.8	%		39.5	%		37.6	%		38.2	%		37.0	%
Purchased transportation		14.1			14.1			14.1			14.2			13.6			14.1			13.8			14.1
Rentals and landing fees		5.6			5.8			5.2			5.6			6.0			5.6			5.8			5.2
Depreciation and amortization		5.1			4.6			4.8			4.7			5.4			5.1			5.2			4.8
Fuel		8.6			8.6			9.1			7.9			8.3			8.6			8.3			9.0
Maintenance and repairs		4.8			4.6			5.2			5.0			4.8			4.8			5.4			5.2
Asset impairment charges														—			—			0.2			—
Intercompany charges		5.6			5.9			5.6			5.8			5.6			5.4			5.5			5.5
Other		14.5			14.5			14.1			14.3			15.3			14.5			15.2			14.1
Total operating expenses		95.9			96.5			95.1			95.3			98.5			95.7			97.6			94.9
Operating margin		4.1	%		3.5	%		4.9	%		4.7	%		1.5	%		4.3	%		2.4	%		5.1	%

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

	Three Months Ended				Percent			Nine Months Ended				Percent			Three Months Ended				Percent			Nine Months Ended				Percent
	2019		2018		Change			2019		2018		Change			2020		2019		Change			2020		2019		Change
Package Statistics
Average daily package volume (ADV):
U.S. overnight box		1,307		1,315		(1	)		1,282		1,249		3			1,258		1,307		(4	)		1,240		1,282		(3	)
U.S. overnight envelope		524		541		(3	)		536		548		(2	)		536		524		2			548		536		2
U.S. deferred		1,224		1,026		19			1,071		946		13			1,215		1,224		(1	)		1,067		1,071		—
Total U.S. domestic ADV		3,055		2,882		6			2,889		2,743		5			3,009		3,055		(2	)		2,855		2,889		(1	)
International priority		530		537		(1	)		537		532		1			542		530		2			546		537		2
International economy		289		266		9			289		265		9			293		289		1			300		289		4
Total international export ADV		819		803		2			826		797		4			835		819		2			846		826		2
International domestic⁽¹⁾		2,410		2,467		(2	)		2,491		2,473		1			2,405		2,410		—			2,475		2,491		(1	)
Total ADV		6,284		6,152		2			6,206		6,013		3			6,249		6,284		(1	)		6,176		6,206		—
Revenue per package (yield):
U.S. overnight box	$	22.75	$	22.53		1		$	23.32	$	22.64		3		$	23.54	$	22.75		3		$	23.75	$	23.32		2
U.S. overnight envelope		13.31		12.97		3			13.21		12.64		5			13.59		13.31		2			13.39		13.21		1
U.S. deferred		14.76		15.66		(6	)		15.38		15.56		(1	)		14.73		14.76		—			15.11		15.38		(2	)
U.S. domestic composite		17.93		18.29		(2	)		18.50		18.20		2			18.21		17.93		2			18.53		18.50		—
International priority		52.95		55.25		(4	)		54.01		54.10		—			50.07		52.95		(5	)		51.53		54.01		(5	)
International economy		44.94		48.01		(6	)		46.28		47.24		(2	)		43.88		44.94		(2	)		44.44		46.28		(4	)
International export composite		50.12		52.85		(5	)		51.31		51.82		(1	)		47.90		50.12		(4	)		49.01		51.31		(4	)
International domestic⁽¹⁾		7.21		7.45		(3	)		7.21		7.29		(1	)		7.09		7.21		(2	)		7.05		7.21		(2	)
Composite package yield		18.01		18.46		(2	)		18.33		18.17		1		$	17.90	$	18.01		(1	)	$	18.11	$	18.33		(1	)
Freight Statistics
Average daily freight pounds:
U.S.		8,905		8,757		2			8,705		8,311		5			8,356		8,905		(6	)		8,244		8,705		(5	)
International priority		5,030		5,389		(7	)		5,326		5,302		—			4,752		5,030		(6	)		4,924		5,326		(8	)
International economy		14,067		13,209		6			14,292		12,215		17			13,806		14,067		(2	)		14,252		14,292		—
International airfreight		1,615		1,951		(17	)		1,697		1,982		(14	)		1,422		1,615		(12	)		1,567		1,697		(8	)
Total average daily freight pounds		29,617		29,306		1			30,020		27,810		8			28,336		29,617		(4	)		28,987		30,020		(3	)
Revenue per pound (yield):
U.S.	$	1.40	$	1.36		3		$	1.39	$	1.29		8		$	1.40	$	1.40		—		$	1.36	$	1.39		(2	)
International priority		1.53		1.60		(4	)		1.56		1.52		3			1.47		1.53		(4	)		1.47		1.56		(6	)
International economy		0.57		0.60		(5	)		0.58		0.58		—			0.57		0.57		—			0.57		0.58		(2	)
International airfreight		0.76		0.77		(1	)		0.76		0.73		4			0.68		0.76		(11	)		0.66		0.76		(13	)
Composite freight yield		0.99		1.02		(3	)		1.00		0.98		2		$	0.97	$	0.99		(2	)	$	0.96	$	1.00		(4	)

FedEx Express segment ~~revenues~~revenue decreased 1% in the third quarter ~~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%3% in the nine months of ~~2019~~2020 primarily due to ~~U.S. domestic~~the loss of business from a large customer, lower freight revenue and decreased international export package yields. In addition, unfavorable exchange rates and lower fuel surcharges negatively impacted revenue in the nine months of 2020. These factors were partially offset by international export package volume growth ~~and international package and freight volume recovery from the NotPetya cyberattack. Continued softness~~ in ~~international package volumes resulting from weakening global economic conditions negatively impacted revenues for~~both the third quarter and nine months of ~~2019. Higher fuel surcharges positively impacted~~2020. One additional operating weekday benefited revenue in ~~both~~ the third quarter ~~and the nine months~~ of ~~2019.~~2020.

~~U.S. domestic package average~~Average daily ~~volumes increased 6%~~freight pounds decreased 4% in the third quarter and 5%3% in the nine months of ~~2019 driven by deferred services, as e-commerce continues to drive growth. U.S. domestic package yields decreased 2% in the third quarter of 2019~~2020 primarily due to ~~base yield declines driven by~~ lower package weights and increased deferred volume. U.S. domestic package yields increased 2% in the nine months of 2019 driven primarily by higher fuel surcharges. Average daily freight pounds increased 1% in the third quarter and 8% in the nine months of 2019 primarily due to higher volume in ~~international~~ freight services ~~reflecting recovery from the NotPetya cyberattack~~as a result of macroeconomic weakness and ~~an overall product mix shift from package to freight.~~trade uncertainty. Freight yields decreased 3% in the third quarter 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. International export average daily volumes increased 2% in the third quarter and 4% in the nine months of ~~2019~~2020 primarily due to base yield declines, lower fuel surcharges and unfavorable exchange rates. International export package average daily volumes increased 2% in both the ~~recovery from the NotPetya cyberattack. However, international package~~third quarter and nine months of 2020 led by volume growth ~~has slowed across most regions, as discussed above.~~in Europe. International export package yields decreased 5%4% in both the third quarter and nine months of 2020 primarily driven by base yield declines and unfavorable exchange rates. U.S. domestic package average daily volumes decreased 2% in the third quarter and 1% in the nine months of ~~2019~~2020 driven by the loss of business from a large customer. U.S. domestic package yields increased 2% in the third quarter of 2020 driven by higher base ~~yield declines~~yields and ~~unfavorable exchange rates, partially offset by~~ higher fuel surcharges. International domestic package average daily volumes decreased 1% in the nine months of 2020 primarily due to targeted yield management actions. International domestic package yields decreased 2% in both the third quarter and nine months of 2020 as base yield improvement was more than offset by unfavorable exchange rates.

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

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	2019			2018			2019			2018			2020			2019			2020			2019
U.S. Domestic and Outbound Fuel Surcharge:
Low		5.47	%		5.05	%		5.47	%		2.21	%		7.25	%		5.47	%		7.21	%		5.47	%
High		8.23			5.91			10.80			5.91			8.00			8.23			8.45			10.80
Weighted-average		6.21			5.56			7.32			4.31			7.38			6.21			7.48			7.32
International Fuel Surcharges:
International Export and Freight Fuel Surcharge:
Low		6.22			6.25			6.22			3.38			6.66			5.75			6.66			5.75
High		17.88			15.87			18.82			15.87			18.09			15.57			18.56			18.09
Weighted-average		14.89			12.24			16.05			10.53			15.23			12.74			15.47			14.11
International Domestic Fuel Surcharge:
Low														2.98			2.69			2.98			2.25
High														19.18			20.63			19.47			20.63
Weighted-average														7.32			5.89			7.36			5.88

~~Effective~~On March 2, 2020, we updated the tables used to determine our fuel surcharges at FedEx Express. On January 6, 2020, FedEx Express implemented a 4.9% average list price increase for U.S. domestic, U.S. export and U.S. import services. On March 18, 2019, we updated the tables used to determine our fuel surcharges for FedEx Express U.S. domestic services. On January 7, 2019, FedEx Express implemented a 4.9% average list price increase for U.S. domestic, U.S. export and U.S. import services. On ~~January 1,~~September 10, 2018, we updated the tables used to determine our fuel surcharges at FedEx ~~Express implemented a 4.9% average list price increase for U.S. domestic, U.S. export and U.S. import services.~~Express.

FedEx Express segment operating income decreased 65% in the third quarter and 53% in the nine months of 2020 primarily due to weaker global economic conditions, including the impact of the COVID-19 pandemic, continued mix shift to lower-yielding services and an increased ~~17%~~competitive pricing environment. In addition, the loss of business from a large customer negatively impacted our results during the nine months of 2020. Operating income and operating margin were positively impacted by one additional operating weekday in the third quarter of ~~2019 due to lower~~2020. The year-over-year variable incentive compensation ~~expenses, the favorable net impact of fuel and volume growth, partially offset by lower package yields. FedEx Express segment~~expense negatively impacted operating income ~~increased 10%~~comparisons by approximately $65 million in the third quarter of 2020 as discussed above; however, the operating income comparisons were benefited by approximately $135 million in the nine months of ~~2019 due~~2020. During the second quarter of 2020, we recorded asset impairment charges of $66 million associated with the decision to ~~the favorable net impact of fuel, higher revenues~~permanently retire certain aircraft and lower variable incentive compensation expenses, partially offset by higher operating costs in salaries and employee benefits, purchased transportation, maintenance and repairs and depreciation and amortization. Lower variable incentive compensation expenses benefited operating margin and operating income by approximately $200 million in the third quarter and the nine months of 2019. An overall product mix shift from international package volume to international freight volume, growth in deferred services driven by e-commerce and continued softness in international volumes partially offset the operating income and operating margin increases in the third quarter and nine months of 2019. The NotPetya cyberattack discussedrelated engines (see “Asset Impairment Charges” above ~~drove lower results in the nine months of 2018.~~for more information).

FedEx Express segment results included ~~approximately $56~~$62 million of TNT Express integration expenses in the third quarter and ~~$257~~$168 million of such expenses in the nine months of ~~2019,~~2020, a ~~$30~~$6 million ~~decrease~~increase from the third quarter and ~~a $13~~an $89 million decrease from the nine months of ~~2018.~~2019.

~~Salaries and employee benefits~~The lease standard reclassification discussed in the “Overview” section above is excluded from the following year-over-year expense ~~decreased 3%~~change discussion. Other operating expense increased 4% in both the third quarter and nine months of ~~2019~~2020 primarily due to ~~lower variable incentive compensation expenses. Salaries and employee benefits increased 3%~~higher outside service contract expense, including costs associated with cloud computing services. Purchased transportation expense decreased 6% in the nine months of ~~2019~~2020 primarily due to ~~merit increases and higher staffing to support volume growth, partially offset by~~ lower ~~variable incentive compensation expenses~~freight volumes, resulting in lower utilization of third-party transportation providers, 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~~Depreciation and amortization expense increased 4%5% in the nine months of 2019 primarily due to higher volume, partially offset by favorable exchange rates. Maintenance and repairs expense increased 3% in the third quarter and 10% in the nine months of 2019 primarily due to increased aircraft engine maintenance expense. Depreciation and amortization expense increased 8% in the third quarter and 7% in the nine months of 20192020 primarily due to continued investment in aircraft and related equipment. ~~Intercompany charges~~Salaries and employee benefits expense ~~declined 6%~~increased 4% in the third quarter of ~~2019~~2020 primarily due to ~~lower~~the year-over-year variable incentive compensation ~~expenses~~expense comparison discussed above, higher staffing to support peak-related volume growth and ~~spending controls at FedEx Services.~~merit increases.

Fuel expense decreased 1%4% in the third quarter of ~~2019~~2020 primarily due to ~~decreased fuel prices.~~lower usage. Fuel expense ~~increased 20%~~decreased 11% in the nine months of ~~2019~~2020 primarily due to ~~higher~~decreased fuel prices. The net impact of fuel had a ~~significant benefit~~slightly negative impact to operating income in the third quarter and nine months of ~~2019, as higher~~2020 due to lower fuel surcharges, ~~more than~~partially offset ~~increased~~by decreased 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,~~revenue, operating expenses, operating income (dollars in millions), operating margin, selected package statistics (in thousands, except yield amounts) and operating expenses as a percent of revenue for the periods ended February ~~28:~~29, 2020 and February 28, 2019:

	Three Months Ended						Percent				Nine Months Ended						Percent				Three Months Ended						Percent				Nine Months Ended						Percent
	2019			2018			Change				2019			2018			Change				2020			2019			Change				2020			2019			Change
Revenues	$	5,261		$	4,828			9			$	15,202		$	13,598			12
Revenue																					$	5,845		$	5,261			11			$	16,339		$	15,202			7
Operating expenses:
Salaries and employee benefits		874			799			9				2,570			2,246			14				1,046			874			20				2,888			2,570			12
Purchased transportation		2,466			2,154			14				6,870			5,944			16				2,908			2,466			18				7,772			6,870			13
Rentals		204			192			6				595			566			5				256			204			25				744			595			25
Depreciation and amortization		185			177			5				538			504			7				197			185			6				585			538			9
Fuel		4			4			—				11			10			10				4			4			—				11			11			—
Maintenance and repairs		86			75			15				247			227			9				101			86			17				286			247			16
Intercompany charges		371			374			(1	)			1,162			1,099			6				405			362			12				1,174			1,140			3
Other		494			439			13				1,379			1,286			7				573			494			16				1,538			1,379			12
Total operating expenses		4,684			4,214			11				13,372			11,882			13				5,490			4,675			17				14,998			13,350			12
Operating income	$	577		$	614			(6	)		$	1,830		$	1,716			7			$	355		$	586			(39	)		$	1,341		$	1,852			(28	)
Operating margin		11.0	%		12.7	%		(170	)	bp		12.0	%		12.6	%		(60	)	bp		6.1	%		11.1	%		(500	)	bp		8.2	%		12.2	%		(400	)	bp
Average daily package volume		9,550			8,993			6				8,992			8,408			7				10,536			9,550			10				9,637			8,992			7
Revenue per package (yield)	$	8.87		$	8.64			3			$	8.88		$	8.49			5			$	8.78		$	8.87			(1	)		$	8.90		$	8.88			—

	Percent of Revenue												Percent of Revenue
	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	2019			2018			2019			2018			2020			2019			2020			2019
Operating expenses:
Salaries and employee benefits		16.6	%		16.5	%		16.9	%		16.5	%		17.9	%		16.6	%		17.7	%		16.9	%
Purchased transportation		46.9			44.6			45.2			43.7			49.7			46.9			47.6			45.2
Rentals		3.9			4.0			3.9			4.2			4.4			3.9			4.5			3.9
Depreciation and amortization		3.5			3.7			3.5			3.7			3.4			3.5			3.6			3.5
Fuel		0.1			0.1			0.1			0.1			0.1			0.1			0.1			0.1
Maintenance and repairs		1.6			1.6			1.6			1.7			1.7			1.6			1.7			1.6
Intercompany charges		7.0			7.7			7.7			8.1			6.9			6.9			7.2			7.5
Other		9.4			9.1			9.1			9.4			9.8			9.4			9.4			9.1
Total operating expenses		89.0			87.3			88.0			87.4			93.9			88.9			91.8			87.8
Operating margin		11.0	%		12.7	%		12.0	%		12.6	%		6.1	%		11.1	%		8.2	%		12.2	%

FedEx Ground segment ~~revenues~~revenue increased ~~9% in the third quarter and 12% in the nine months of 2019 due to volume growth and increased yields. Average daily volume increased 6%~~11% in the third quarter and 7% in the nine months of ~~2019~~2020 due to residential delivery volume growth, partially offset by the loss of business from a large customer. Revenue was also positively impacted by the timing of Cyber Week, as well as one additional operating weekday in the third quarter of 2020.

Average daily volume increased 10% in the third quarter and 7% in the nine months of 2020 primarily due to continued growth in residential services driven by ~~e-commerce.~~e-commerce, as well as the timing of Cyber Week in the third quarter of 2020. FedEx Ground yields ~~increased 3%~~decreased 1% in the third quarter and 5%remained flat in the nine months of ~~2019~~2020 primarily due to ~~by higher fuel surcharges, product~~continued mix ~~and base yields.~~shift to lower-yielding services.

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 February ~~28:~~29, 2020 and February 28, 2019:

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	2019			2018			2019			2018			2020			2019			2020			2019
Low		6.50	%		5.30	%		6.25	%		4.00	%		6.50	%		6.50	%		6.50	%		6.25	%
High		7.50			5.80			7.75			5.80			7.00			7.50			7.25			7.75
Weighted-average		6.84			5.50			6.86			5.00			6.91			6.84			6.96			6.86

~~Effective January 7, 2019,~~On March 2, 2020, we updated the tables used to determine our fuel surcharges at FedEx ~~Ground announced a 4.9% average list price increase.~~Ground. On January ~~1, 2018,~~6, 2020, FedEx Ground implemented a 4.9% average list price increase. ~~In addition, as announced on~~On March 18, 2019, we updated the tables used to determine our fuel surcharges at FedEx Ground. On January 7, 2019, FedEx Ground implemented a 4.9% average list price increase. On September ~~18, 2017, dimensional weight pricing applies~~10, 2018, we updated the tables used to ~~the majority of~~determine our fuel surcharges at FedEx ~~SmartPost shipments effective January 22, 2018.~~Ground.

FedEx Ground segment operating income decreased 6%39% in the third quarter and 28% in the nine months of ~~2019~~2020 due to higher ~~operating~~self-insurance accruals, increased 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~~expand services and the ~~favorable net impact~~loss of ~~fuel partially offset these factors. Higher operating costs also contributed~~business from a large customer. In addition, continued mix shift to ~~the operating margin decline in~~lower-yielding services and an increased competitive pricing environment negatively impacted our results during the third quarter and nine months of ~~2019. FedEx Ground segment operating income increased 7% in the nine months of 2019 due to~~2020. These items were partially offset by residential delivery volume growth ~~increased yields and the favorable net impact of fuel. In addition, lower variable incentive compensation expenses benefited operating income by approximately $75 million~~ in both the third quarter and nine months of ~~2019.~~2020, as well as the timing of Cyber Week and one additional operating weekday in the third quarter of 2020.

The lease standard reclassification discussed in the “Overview” section above is excluded from the following year-over-year expense change discussion. Purchased transportation expense increased ~~14%~~18% in the third quarter and ~~16%~~13% in the nine months of ~~2019 primarily~~2020 due to higher volumes and increased contractor settlement rates, ~~and~~including expanding operations to ~~six-day operations~~seven days per week year-round. ~~Higher fuel costs also contributed to an increase in purchased transportation expense in the nine months of 2019.~~ Salaries and employee benefits expense increased 9%20% in the third quarter and ~~14%~~12% in the nine months of ~~2019 primarily~~2020 due to additional staffing to support volume growth, including expansion of seven day per week year-round operations, merit increases and network ~~expansion, partially offset by lower~~expansion. In addition, the year-over-year comparison of variable incentive compensation ~~expenses.~~expense negatively impacted our results in the third quarter of 2020 as discussed above, but positively impacted our results in the nine months of 2020. Other operating expense increased 16% in the third quarter and 12% in the nine months of 2020 primarily due to higher self-insurance accruals of approximately $110 million and $200 million, respectively.

The net impact of fuel had a ~~moderate benefit~~slightly negative impact to operating income in the third quarter of 2020 due to lower fuel surcharges and increased fuel prices. The net impact of fuel had a slightly negative impact to operating income in the nine months of ~~2019, as higher~~2020 due to lower fuel surcharges, ~~more than~~partially offset ~~increased~~by decreased 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,~~revenue, operating expenses, operating income (dollars in millions), operating margin, selected statistics and operating expenses as a percent of revenue for the periods ended February ~~28:~~29, 2020 and February 28, 2019:

	Three Months Ended						Percent				Nine Months Ended						Percent				Three Months Ended						Percent				Nine Months Ended						Percent
	2019			2018			Change				2019			2018			Change				2020			2019			Change				2020			2019			Change
Revenues	$	1,750		$	1,613			8			$	5,627		$	4,950			14
Revenue																					$	1,738		$	1,750			(1	)		$	5,487		$	5,627			(2	)
Operating expenses:
Salaries and employee benefits		865			816			6				2,712			2,429			12				846			865			(2	)			2,665			2,712			(2	)
Purchased transportation		213			204			4				722			610			18				176			213			(17	)			550			722			(24	)
Rentals		45			41			10				129			114			13				54			45			20				158			129			22
Depreciation and amortization		88			76			16				242			216			12				92			88			5				283			242			17
Fuel		131			127			3				418			336			24				130			131			(1	)			385			418			(8	)
Maintenance and repairs		53			52			2				178			167			7				59			53			11				192			178			8
Intercompany charges		128			129			(1	)			403			381			6				133			128			4				389			403			(3	)
Other		130			119			9				402			375			7				135			130			4				417			402			4
Total operating expenses		1,653			1,564			6				5,206			4,628			12				1,625			1,653			(2	)			5,039			5,206			(3	)
Operating income	$	97		$	49			98			$	421		$	322			31			$	113		$	97			16			$	448		$	421			6
Operating margin		5.5	%		3.0	%		250		bp		7.5	%		6.5	%		100		bp		6.5	%		5.5	%		100		bp		8.2	%		7.5	%		70		bp
Average daily shipments (in thousands):
Priority		73.2			69.7			5				78.7			73.5			7				70.5			73.2			(4	)			75.5			78.7			(4	)
Economy		32.7			30.6			7				34.3			31.5			9				29.8			32.7			(9	)			31.8			34.3			(7	)
Total average daily shipments		105.9			100.3			6				113.0			105.0			8				100.3			105.9			(5	)			107.3			113.0			(5	)
Weight per shipment (lbs):
Priority		1,210			1,232			(2	)			1,211			1,205			—				1,137			1,210			(6	)			1,144			1,211			(6	)
Economy		1,106			1,133			(2	)			1,050			1,144			(8	)			1,000			1,106			(10	)			980			1,050			(7	)
Composite weight per shipment		1,178			1,202			(2	)			1,162			1,187			(2	)			1,096			1,178			(7	)			1,096			1,162			(6	)
Revenue per shipment:
Priority	$	253.35		$	242.49			4			$	249.78		$	233.31			7			$	265.17		$	253.35			5			$	259.61		$	249.78			4
Economy		308.44			295.31			4				299.17			285.99			5				308.65			308.44			—				299.59			299.17			—
Composite revenue per shipment	$	270.82		$	259.20			4			$	264.89		$	249.32			6			$	279.40		$	270.82			3			$	272.09		$	264.89			3
Revenue per hundredweight:
Priority	$	20.94		$	19.67			6			$	20.63		$	19.37			7			$	23.33		$	20.94			11			$	22.69		$	20.63			10
Economy		27.89			26.07			7				28.48			24.99			14				30.85			27.89			11				30.57			28.48			7
Composite revenue per hundredweight	$	22.99		$	21.56			7			$	22.79		$	21.01			8			$	25.49		$	22.99			11			$	24.84		$	22.79			9

	Percent of Revenue												Percent of Revenue
	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	2019			2018			2019			2018			2020			2019			2020			2019
Operating expenses:
Salaries and employee benefits		49.4	%		50.6	%		48.2	%		49.1	%		48.7	%		49.4	%		48.6	%		48.2	%
Purchased transportation		12.2			12.7			12.8			12.3			10.1			12.2			10.0			12.8
Rentals		2.6			2.5			2.3			2.3			3.1			2.6			2.9			2.3
Depreciation and amortization		5.0			4.7			4.3			4.3			5.3			5.0			5.1			4.3
Fuel		7.5			7.9			7.4			6.8			7.5			7.5			7.0			7.4
Maintenance and repairs		3.0			3.2			3.2			3.4			3.4			3.0			3.5			3.2
Intercompany charges		7.3			8.0			7.2			7.7			7.6			7.3			7.1			7.2
Other		7.5			7.4			7.1			7.6			7.8			7.5			7.6			7.1
Total operating expenses		94.5			97.0			92.5			93.5			93.5			94.5			91.8			92.5
Operating margin		5.5	%		3.0	%		7.5	%		6.5	%		6.5	%		5.5	%		8.2	%		7.5	%

FedEx Freight segment ~~revenues increased 8%~~revenue decreased 1% in the third quarter and ~~14%~~2% in the nine months of ~~2019~~2020 primarily due to decreased average daily shipments, partially offset by higher revenue per ~~shipment~~shipment. Revenue was also positively impacted by one additional operating weekday in the third quarter of 2020.

Average daily shipments decreased 5% in both the third quarter and ~~average daily shipments.~~nine months of 2020 due to lower demand for our service offerings as a result of softer economic conditions. Revenue per shipment increased 4%3% in both the third quarter and ~~6% in the~~ nine months of ~~2019~~2020 primarily due to higher base rates ~~driven by~~reflecting our ongoing ~~yield management~~revenue quality initiatives, ~~and higher fuel surcharges. Average daily shipments increased 6% in the third quarter and 8% in the nine months of 2019 due to higher demand for our service offerings.~~partially offset by lower weight per shipment.

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 February ~~28:~~29, 2020 and February 28, 2019:

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	2019			2018			2019			2018			2020			2019			2020			2019
Low		23.40	%		23.10	%		23.40	%		20.90	%		23.00	%		23.40	%		23.00	%		23.40	%
High		24.60			24.00			25.60			24.00			24.00			24.60			24.40			25.60
Weighted-average		23.77			23.59			24.62			22.46			23.70			23.77			23.80			24.62

~~Effective~~On March 2, 2020, we updated the tables used to determine our fuel surcharges at FedEx Freight. On January ~~7, 2019,~~6, 2020, FedEx Freight ~~announced~~implemented a 5.9% average list price increase in certain U.S. and other shipping rates. On January ~~1, 2018,~~7, 2019, FedEx Freight implemented a ~~4.9%~~5.9% average list price increase in certain U.S. and other shipping rates.

FedEx Freight segment operating income increased ~~98% and operating margin improved 250 basis points~~16% in the third quarter ~~of 2019. Additionally, FedEx Freight segment operating income increased 31%~~ and ~~operating margin improved 100 basis points~~6% in the nine months of ~~2019. These positive results were achieved~~2020 driven by continued focus on yield management and aligning our cost structure with current and anticipated business levels, enabling FedEx Freight to improve profit and more than offset the impact of lower volumes from softer economic conditions.

The lease standard reclassification discussed in the “Overview” section above is excluded from the following year-over-year expense change discussion. Purchased transportation expense decreased 17% in the third quarter and 24% in the nine months of 2020 primarily due to lower utilization of third-party transportation providers, lower weight per shipment and lower volumes. Salaries and employee benefits expense decreased 2% in the nine months of 2020 primarily due to lower volumes and improving productivities driven by ~~higher revenue per shipment. In addition, lower variable incentive compensation expenses benefited~~the alignment of our cost structure, partially offset by merit increases. Depreciation and amortization expense increased 17% in the nine months of 2020 primarily due to investments in vehicles and trailers, as well as facility expansion. Other operating ~~income by approximately $40 million~~expense increased 4% in both the third quarter and nine months of ~~2019.~~2020 primarily due to a favorable adjustment in prior year self-insurance accruals, as well as increased bad debt expense.

~~Salaries and employee benefits~~Fuel expense ~~increased 6%~~decreased 1% in the third quarter ~~and 12%~~of 2020 primarily due to lower usage. Fuel expense decreased 8% in the nine months of 2019 reflecting higher staffing levels to support volume growth and merit increases, partially offset by lower variable incentive compensation expenses. Purchased transportation expense increased 4% in the third quarter and 18% in the nine months of 2019 due to increased rates and higher volumes. Higher fuel costs also contributed to an increase in purchased transportation expense in the nine months of 2019.

~~Fuel expense increased 3% in the third quarter of 2019~~2020 primarily due to ~~higher mileage. Fuel expense increased 24% in the nine months of 2019 primarily due to higher~~decreased fuel prices. The net impact of fuel had a ~~moderate benefit~~moderately negative impact to operating income in the third quarter of ~~2019~~2020 and a ~~significant benefit to operating income~~significantly negative impact in the nine months of ~~2019 as higher~~2020 due to lower fuel surcharges, ~~more than~~partially offset ~~increased~~by decreased 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 ~~$2.9~~$1.8 billion at February ~~28, 2019,~~29, 2020, compared to ~~$3.3~~$2.3 billion at May 31, ~~2018.~~2019. The following table provides a summary of our cash flows for the nine-month periods ended February 29, 2020 and February 28, 2019 (in millions):

	2019			2018			2020			2019
Operating activities:
Net income	$	2,509		$	3,445		$	1,620		$	2,509
Noncash charges and credits		3,099			1,691			4,944			3,099
Changes in assets and liabilities		(2,285	)		(3,974	)		(3,286	)		(2,285	)
Cash provided by operating activities		3,323			1,162			3,278			3,323
Investing activities:
Capital expenditures		(3,757	)		(3,994	)		(4,705	)		(3,757	)
Business acquisitions, net of cash acquired		—			(44	)
Proceeds from asset dispositions and other		62			21			15			62
Cash used in investing activities		(3,695	)		(4,017	)		(4,690	)		(3,695	)
Financing activities:
Proceeds from short-term borrowings, net		220			797			298			220
Principal payments on debt								(1,045	)		(874	)
Proceeds from debt issuances		2,463			1,481			2,093			2,463
Principal payments on debt		(874	)		(31	)
Proceeds from stock issuances		58			284			38			58
Dividends paid		(514	)		(402	)		(509	)		(514	)
Purchase of treasury stock		(1,365	)		(558	)		(3	)		(1,365	)
Other		5			6
Cash (used in) provided by financing activities		(7	)		1,577
Other, net								(5	)		5
Cash provided by (used in) financing activities								867			(7	)
Effect of exchange rate changes on cash		(14	)		98			(8	)		(14	)
Net decrease in cash and cash equivalents	$	(393	)	$	(1,180	)	$	(553	)	$	(393	)
Cash and cash equivalents at the end of period	$	2,872		$	2,789		$	1,766		$	2,872

Cash flows from operating activities ~~increased $2.2 billion~~decreased $45 million in the nine months of ~~2019~~2020 primarily due to lower ~~pension contributions, higher~~ net income, ~~and decreased tax payments,~~ partially offset by ~~higher~~lower variable incentive compensation payments. Capital expenditures ~~decreased slightly~~increased during the nine months of ~~2019~~2020 primarily due to ~~lower~~higher spending related to facilities ~~equipment and vehicles at FedEx Ground, as well as lower spending on aircraft and related equipment~~ at FedEx Express, ~~partially offset by~~ increased spending ~~related to facilities~~on vehicles and ~~equipment~~trailers at our transportation segments and increased spending on information technology at FedEx ~~Express.~~Express, FedEx Services and FedEx Freight. See “Capital Resources” for a discussion of capital expenditures during ~~2019~~2020 and ~~2018.~~2019.

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 the9, 2020. The remaining net proceeds ~~to redeem the $750 million aggregate principal amount of 8.00% notes due January 15, 2019, and~~are being used for general corporate purposes.

During the third quarter of ~~2019,~~2020, we issued commercial paper to provide us with additional short-term liquidity. As of February ~~28, 2019,~~29, 2020, we had ~~$225~~$300 million of commercial paper outstanding. See Note 3 of the accompanying unaudited condensed consolidated financial statements for further discussion.

In January 2016, our Board of Directors approved a ~~share~~stock repurchase program of up to 25 million shares. During the third quarter of 2019, we repurchased 0.6 million shares of FedEx common stock at an average price of $168.43 per share for a total of $93 million. During the nine months of 2019, we repurchased 6.0 million shares of FedEx common stock at an average price of $227.42 per share for a total of $1.4 billion. As of 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. We did not repurchase any shares of FedEx common stock during the third quarter of 2020. During the nine months of 2020, we repurchased 0.02 million shares of FedEx common stock at an average price of $156.90 per share for a total of $3 million. As of February 29, 2020, 5.1 million shares remained under the stock repurchase authorization.

Our operations are capital intensive, characterized by significant investments in aircraft, vehicles and trailers, technology, facilities, and ~~package-~~package handling and sort equipment. The amount and timing of capital additions depend on various factors, including pre-existing contractual commitments, anticipated volume growth, domestic and international economic conditions, new or enhanced services, geographical expansion of services, availability of satisfactory financing and actions of regulatory authorities.

The following table compares capital expenditures by asset category and reportable segment for the periods ended February 29, 2020 and February 28, 2019 (in millions):

									Percent Change														Percent Change
									2019/2018														2020/2019
	Three Months Ended				Nine Months Ended				Three Months			Nine Months			Three Months Ended				Nine Months Ended				Three Months			Nine Months
	2019		2018		2019		2018		Ended			Ended			2020		2019		2020		2019		Ended			Ended
Aircraft and related equipment	$	397	$	591	$	1,472	$	1,631		(33	)		(10	)	$	399	$	397	$	1,527	$	1,472		1			4
Package handling and ground support equipment		167		207		584		621		(19	)		(6	)		228		167		636		584		37			9
Vehicles		206		237		640		748		(13	)		(14	)
Vehicles and trailers																260		206		920		640		26			44
Information technology		182		116		515		378		57			36			239		182		704		515		31			37
Facilities and other		171		221		546		616		(23	)		(11	)		313		171		918		546		83			68
Total capital expenditures	$	1,123	$	1,372	$	3,757	$	3,994		(18	)		(6	)	$	1,439	$	1,123	$	4,705	$	3,757		28			25

FedEx Express segment	$	673	$	858	$	2,364	$	2,312		(22	)		2		$	929	$	672	$	2,941	$	2,364		38			24
FedEx Ground segment		137		221		566		936		(38	)		(40	)		275		137		818		566		101			45
FedEx Freight segment		177		198		403		397		(11	)		2			97		176		414		403		(45	)		3
FedEx Services segment		127		87		387		306		46			26			110		112		415		336		(2	)		24
Other		9		8		37		43		13			(14	)		28		26		117		88		8			33
Total capital expenditures	$	1,123	$	1,372	$	3,757	$	3,994		(18	)		(6	)	$	1,439	$	1,123	$	4,705	$	3,757		28			25

Capital expenditures ~~decreased slightly~~increased during the nine months of ~~2019~~2020 primarily due to ~~lower~~higher spending related to facilities ~~equipment and vehicles at FedEx Ground, as well as lower spending on aircraft and related equipment~~ at FedEx Express, ~~partially offset by~~ increased spending ~~related to facilities~~on vehicles and ~~equipment~~trailers at our transportation segments and increased spending on information technology at FedEx ~~Express.~~Express, FedEx Services and FedEx Freight.

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 and business realignment activities (including the U.S.-based voluntary employee buyout program).~~expenses. Our cash and cash equivalents balance at February ~~28, 2019~~29, 2020 includes ~~$1.0 billion~~$930 million 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~~$5.9 billion in ~~2019,~~2020, and include spending for aircraft and hub modernization at FedEx Express, ~~and spending on facilities and sort equipment, primarily~~investments that increase our efficiency in handling large packages at FedEx ~~Express~~Ground and ~~FedEx Ground.~~investments in technology across all transportation segments that will further optimize our networks and enhance our capabilities. We invested $1.5 billion in aircraft and related equipment in the nine months of ~~2019~~2020 and expect to invest an additional ~~$0.6~~$0.2 billion for aircraft and related equipment during the ~~remainder~~fourth quarter of ~~2019.~~2020. In addition, we are making investments over ~~the next several~~multiple years ~~we will be investing a total~~in our facilities of approximately $1.5 billion to significantly expand the FedEx Express Indianapolis hub and ~~a total of~~ approximately ~~$1.0~~$1.5 billion to modernize the FedEx Express Memphis World Hub. Despite our declining capacity needs, these investments in hubs will provide productivity gains in a competitive labor environment. We anticipate that our cash flow from operations will be sufficient to fund our capital expenditures ~~in 2019.~~for the remainder of 2020. 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.

During the first quarter of 2020, FedEx Express exercised options to purchase an additional six Boeing 767-300 Freighter (“B767F”) aircraft for delivery in 2022.

During the third quarter of 2020, FedEx Express executed two contract amendments rescheduling two Boeing 777 Freighter aircraft deliveries from 2023 to 2022 and two B767F aircraft deliveries from 2022 to 2023.

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.

During the nine months of ~~2019,~~2020, we made voluntary contributions totaling $1.0 billion to our U.S. Pension Plans. We do not expect to make any additional contributions to our U.S. Pension Plans during the fourth quarter of ~~2019.~~2020. 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.~~“negative.” 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.~~“negative.” 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 COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition.

The following table sets forth a summary of our contractual cash obligations as of 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 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		2020 ⁽¹⁾		2021		2022		2023		2024		Thereafter		Total
Operating activities:
Operating leases	$	597	$	2,344	$	2,126	$	1,913	$	1,682	$	8,974	$	17,636	$	451	$	2,430	$	2,175	$	1,931	$	1,614	$	8,071	$	16,672
Non-capital purchase obligations and other		397		873		662		476		309		2,952		5,669		451		1,037		805		609		455		3,711		7,068
Interest on long-term debt		126		621		609		609		580		10,510		13,055		134		648		648		619		598		10,181		12,828
Investing activities:
Aircraft and related capital commitments		396		1,930		2,186		1,808		1,529		656		8,505		101		2,019		2,371		1,818		469		227		7,005
Other capital purchase obligations		48		28		25		23		23		6		153		38		26		24		23		1		5		117
Financing activities:
Debt		569		967		—		1,226		1,600		13,957		18,319		—		—		1,194		1,563		750		15,228		18,735
Finance leases																31		26		26		25		24		728		860
Total	$	2,133	$	6,763	$	5,608	$	6,055	$	5,723	$	37,055	$	63,337	$	1,206	$	6,186	$	7,243	$	6,588	$	3,911	$	38,151	$	63,285

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 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 ($~~124~~100 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 ($3835 million) is excluded from the table.

~~The amounts reflected~~We had $733 million in ~~the table above for interest~~deposits and progress payments as of February 29, 2020 on ~~long-term debt represent future interest payments due on our long-term debt.~~

~~Investing Activities~~aircraft purchases and other planned aircraft-related transactions.

The amounts reflected in the table above for ~~capital purchase obligations~~finance leases represent undiscounted future minimum lease payments under noncancelable ~~agreements to purchase capital-related equipment. Such contracts include those for certain purchases~~finance leases with an initial or remaining term in excess of ~~aircraft, spare engines, vehicles, facilities, computers and other equipment.~~

~~We had $965 million in deposits and progress payments as of~~one year at 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.~~29, 2020.

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

We do not have any guarantees or other off-balance sheet financing arrangements, including variable interest entities, which we believe could have a material impact on our financial condition or liquidity.

During the first quarter of 2020, FedEx filed suit in U.S. District Court in the District of Columbia seeking to enjoin the U.S. Department of Commerce from enforcing prohibitions contained in the Export Administration Regulations (the “EARs”) against FedEx. FedEx believes that the EARs violate common carriers’ rights to due process under the Fifth Amendment of the U.S. Constitution as they unreasonably hold common carriers strictly liable for shipments that may violate the EARs without requiring evidence that the carriers had knowledge of any violations.

The China State Post Bureau is currently conducting an investigation into the operations of FedEx Express regarding its handling of certain packages while attempting to comply with the EARs. FedEx Express has and will continue to fully cooperate with the Chinese authorities on the investigation.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the financial statements of a complex, global corporation. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and new or better information.

GOODWILL. Goodwill is tested for impairment between annual tests whenever events or circumstances make it more likely than not that the fair value of a reporting unit has fallen below its carrying value. We do not believe there has been any other change of events or circumstances that would indicate that a reevaluation of the goodwill of our reporting units is required as of February ~~28, 2019,~~29, 2020, 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,~~“Retirement Plans,” “Leases,” “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.~~business and the assumptions underlying such statements. 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:

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.

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

As of February ~~28, 2019,~~29, 2020, 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~~Australian dollar and Mexican peso. Historically, our exposure to foreign currency fluctuations is more significant with respect to our ~~revenues~~revenue than our expenses, as a significant portion of our expenses are denominated in U.S. dollars, such as aircraft and fuel expenses. During the nine months of ~~2019,~~2020, the U.S. dollar strengthened relative to the currencies of the foreign countries in which we operate, as compared to May 31, ~~2018,~~2019 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.”

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~~Securities and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to FedEx management as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of February ~~28, 2019~~29, 2020 (the end of the period covered by this Quarterly Report on Form 10-Q).

In the first quarter of 2020, we adopted Accounting Standards Update 2016-02, Leases (Topic 842), and began implementing new systems and internal controls in conjunction with the new lease standard. The implementation of such systems and internal controls continued in the third quarter of 2020. In addition, during the second quarter of 2020, we began implementing new internal controls in conjunction with the migration to an enterprise resource planning cloud-based financial system. The implementation of such internal controls continued in the third quarter of 2020. During our fiscal quarter ended February ~~28, 2019,~~29, 2020, no change occurred in our internal control over financial reporting, including the new controls described above, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

For a description of all material pending legal proceedings, see Note 910 of the accompanying unaudited condensed consolidated financial statements.

Other than the risk 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.

The widespread outbreak of an illness or any other communicable disease, or any other public health crisis, could adversely affect our business, results of operations and financial condition. We could be negatively impacted by the widespread outbreak of an illness or any other communicable disease, or any other public health crisis that results in economic and trade disruptions, including the disruption of global supply chains. In December 2019, an outbreak of a new strain of coronavirus (“COVID-19”) began in Wuhan, Hubei Province, China. In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. The extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and spread of the pandemic and related restrictions on travel and transports, all of which are uncertain and cannot be predicted. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition.

Additional changes in international trade policies and relations could significantly reduce the volume of goods transported globally and adversely affect our business and results of operations. The U.S. government has made significant changes in U.S. trade policy and has taken certain actions that have negatively impacted U.S. trade, including imposing tariffs on certain goods imported into the United States. To date, several governments, including the European Union (“EU”), China and India, have imposed tariffs on certain goods imported from the United States. These actions contributed to weakness in the global economy that adversely affected our results of operations during fiscal 2019 and the first three quarters of fiscal 2020, and we expect such weakness to continue to be present during the fourth quarter of fiscal 2020. Any further changes in U.S. or international trade policy could trigger additional retaliatory actions by affected countries, resulting in “trade wars” and further increased costs for goods transported globally, which may reduce customer demand for these products if the parties having to pay those tariffs increase their prices, or in trading partners limiting their trade with countries that impose anti-trade measures. Political uncertainty surrounding international trade and other disputes could also have a negative effect on consumer confidence and spending. Such conditions could have an adverse effect on our business, results of operations and financial condition, as ~~updated~~well as on the price of our common stock.

Additionally, the U.S. government has taken action to limit the ability of domestic companies to engage in commerce with certain foreign entities under certain circumstances. Given the nature of our business and our global recognizability, foreign governments may target FedEx by limiting the ability of foreign entities to do business with us in certain instances, imposing monetary or other penalties or taking other retaliatory action, which could have an adverse effect on our ~~quarterly reports~~business, results of operations and financial condition, as well as on ~~Form 10-Q.~~

the price of our common stock. For example, the China State Post Bureau is currently conducting an investigation into the operations of FedEx Express regarding its handling of certain packages while attempting to comply with the Export Administration Regulations.

The United Kingdom’s ~~vote to leave~~withdrawal from the ~~European Union~~EU 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 ofOn January 31, 2020, the United Kingdom ~~leaving~~left 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.~~EU (“Brexit”). The United Kingdom ~~also could lose~~and EU are now in a transitional period during which the United Kingdom will maintain access to the EU single ~~European Union~~ market and to the global trade deals negotiated by the ~~European Union~~EU on behalf of its members, ~~depressing trade between~~and remain subject to EU law, until December 31, 2020.

The uncertainty regarding the status of Brexit has negatively impacted the United Kingdom’s and the EU’s economies. This negative impact will likely continue until the United Kingdom and ~~other countries, which~~EU reach and implement a definitive resolution on their future trading relationship. Any additional impact of Brexit will depend on the terms of such resolution. Even if the United Kingdom maintains access to the EU single market and trade deals following the transition period, Brexit could result in further economic downturn globally. If the United Kingdom ultimately loses access to the EU single market and trade deals, significant market and economic disruption would likely occur, our customer experience, service quality and international operations would likely be negatively ~~impact~~impacted, and the demand for our ~~international operations.~~ services could be depressed.

Additionally, we may face new regulations regarding trade, aviation, tax, 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~~Proposed pilot flight and duty time regulations could impair our ~~ability~~operations and impose substantial costs on us. In September 2010, the Federal Aviation Administration (“FAA”) proposed regulations that would change the flight and duty time rules applicable to ~~successfully mitigate unique technological, operational~~all-cargo air carriers. When the FAA issued final regulations in December 2011 (the “2011 regulations”), all-cargo carriers, including FedEx Express, were exempt from these new requirements. Instead, all-cargo carriers were required to continue complying with previously enacted flight and ~~regulatory risks.~~ ~~We recently announced the development through a partnership of an autonomous delivery device designed~~duty time rules and allowed 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 business strategy is subject to a variety of risks inherent withpursue the development of ~~new technologies, including: the ability to continue~~fatigue risk management systems to develop ~~autonomous delivery software~~fatigue mitigations unique to each operation. In December 2012, the FAA reaffirmed the exclusion of all-cargo carriers from the 2011 regulations, and ~~hardware; access~~litigation in the U.S. Court of Appeals for the District of Columbia affirmed the FAA’s decision. However, legislation has recently been introduced in the U.S. Senate and U.S. House of Representatives that, if adopted, would require all-cargo carriers to ~~sufficient capital; our ability to develop and maintain necessary partnerships; risks related to~~comply with 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 and2011 regulations. Required compliance with ~~uncertain, evolving~~the 2011 regulations would make it more difficult to avoid pilot fatigue 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~~impose substantial costs on us in order to ~~liability, government scrutiny, further regulation and reputational damage. Any of the foregoing could adversely impact our results of operations, financial condition and growth prospects.~~

~~The following table provides information on FedEx’s repurchases~~We did not repurchase any shares of ~~our~~FedEx common stock during the third quarter of ~~2019:~~2020.

~~The repurchases were made under the~~On January 26, 2016, we announced a stock repurchase program approved by our Board of Directors, ~~and announced on January 26, 2016 and~~ through which we are authorized to purchase, in the open market or in privately negotiated transactions, up to an aggregate of 25 million shares of our common stock. As of March ~~18,~~13, 2019, ~~5.6~~5.1 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.

~~Disclosure Pursuant to Section 219~~ See Note 1 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 revenueaccompanying unaudited condensed consolidated financial statements 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.~~

˄ Certain attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K because the information contained therein is

not material and is not otherwise publicly disclosed. FedEx will furnish supplementally a copy of such attachments to the SEC or

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

Delaware	62-1721435
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

942 South Shady Grove Road, Memphis, Tennessee	38120
(Address of principal executive offices)	(ZIP Code)


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.10 per share	FDX	New York Stock Exchange
0.700% Notes due 2022	FDX 22B	New York Stock Exchange
1.000% Notes due 2023	FDX 23A	New York Stock Exchange
0.450% Notes due 2025	FDX 25A	New York Stock Exchange
1.625% Notes due 2027	FDX 27	New York Stock Exchange
1.300% Notes due 2031	FDX 31	New York Stock Exchange

Large accelerated filer ☑	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☐	Emerging growth company ☐

Common Stock		Outstanding Shares at March ~~15, 2019~~13, 2020
Common Stock, par value $0.10 per share		~~260,574,612~~261,249,779

		PAGE

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets February ~~28, 2019~~29, 2020 and May 31, ~~2018~~2019		3
Condensed Consolidated Statements of Income Three and Nine Months Ended February 29, 2020 and February 28, 2019 ~~and 2018~~		5
Condensed Consolidated Statements of Comprehensive Income Three and Nine Months Ended February 29, 2020 and February 28, 2019 ~~and 2018~~		6
Condensed Consolidated Statements of Cash Flows Nine Months Ended February 29, 2020 and February 28, 2019 ~~and 2018~~		7
Condensed Consolidated Statements of Changes In Common ~~Stockholders'~~Stockholders’ Investment Three and Nine Months Ended February 29, 2020 and February 28, 2019 ~~and 2018~~		8
Notes to Condensed Consolidated Financial Statements		9
Report of Independent Registered Public Accounting Firm		3032
ITEM 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition		3133
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		5657
ITEM 4. Controls and Procedures		5657

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings		5758
ITEM 1A. Risk Factors		5758
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		58
~~ITEM 5. Other Information~~		5860
ITEM 6. Exhibits		5961
Signature		6163

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 10.14
Exhibit 15.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 101.1 Interactive Data Files Exhibit 104.1 Cover Page Interactive Data File

	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
Revenue	$	16,526		$	—		$	16,526	$	48,136		$	—		$	48,136
Operating Income		1,001			(143	)		858		3,380			(436	)		2,944
Other Income (Expense), net		(127	)		143			16		(385	)		436			51
Net Income		2,074			—			2,074		3,445			—			3,445

	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)~~

	2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	2,016
Operating cash flows paid for interest portion of finance leases		10
Financing cash flows paid for principal portion of finance leases		84
Right-of-use assets obtained in exchange for new operating lease liabilities	$	1,390
Right-of-use assets obtained in exchange for new finance lease liabilities	$	464

	2020
Operating leases:
Operating lease right-of-use assets, net	$	13,981

Current portion of operating lease liabilities		1,902
Operating lease liabilities		12,232
Total operating lease liabilities	$	14,134

Finance leases:
Net property and equipment	$	464

Current portion of long-term debt		35
Long-term debt, less current portion		437
Total finance lease liabilities	$	472

Weighted-average remaining lease term
Operating leases		10.0
Finance leases		33.3

Weighted-average discount rate
Operating leases		3.23	%
Finance leases		3.59	%

	Aircraft and Related Equipment			Facilities and Other			Total Operating Leases			Finance Leases			Total Leases
2020 (remainder)	$	38		$	413		$	451		$	31		$	482
2021		249			2,181			2,430			26			2,456
2022		234			1,941			2,175			26			2,201
2023		198			1,733			1,931			25			1,956
2024		102			1,512			1,614			24			1,638
Thereafter		314			7,757			8,071			728			8,799
Total lease payments		1,135			15,537			16,672			860			17,532
Less imputed interest		(99	)		(2,439	)		(2,538	)		(388	)		(2,926	)
Present value of lease liability	$	1,036		$	13,098		$	14,134		$	472		$	14,606

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

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. 7, dated as of 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 January 16, 2019, and incorporated herein by reference.)

~~4.3~~		~~Form of 3.400% Note due 2022. (Included in Exhibit 4.2 to FedEx’s Current Report on Form 8-K dated and filed 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 0.700% Note due 2022. (Included in Exhibit 4.2 to FedEx’s Current Report on Form 8-K dated and filed January 18, 2019, and incorporated herein by reference.)~~

*˄10.1		Amendment dated December ~~11, 2018~~5, 2019 (but effective as of ~~October~~July 29, ~~2018)~~2019), 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~~

*˄10.2		Amendment dated December 5, 2019 (but effective as of September 2, 2019), amending the USPS Transportation Agreement.

*˄10.3		Amendment dated December 5, 2019 (but effective as of September 30, 2019), amending the USPS Transportation Agreement.

*˄10.4		Amendment dated December 18, 2019 (but effective as of July 1, 2019), amending the USPS Transportation Agreement.

*˄10.5		Amendment dated January 28, 2020 (but effective as of July 29, 2019), amending the USPS Transportation Agreement.

*˄10.6		Amendment dated February 4, 2020 (but effective as of September 2, 2019), amending the USPS Transportation Agreement.

*˄10.7		Amendment dated February 11, 2020 (but effective as of September 30, 2019), amending the USPS Transportation Agreement.

*10.8		Letter Agreement dated as of December 19, 2019, amending the Boeing 777 Freighter Purchase Agreement dated as of November 7, 2006 between The Boeing Company and ~~financial information, pursuant to Rule 24b-2 under~~FedEx Express (the “Boeing 777 Freighter Purchase Agreement”) and the ~~Exchange Act.~~Boeing 767-3S2 Freighter Purchase Agreement dated as of December 14, 2011 between The Boeing Company and FedEx Express (the “Boeing 767-3S2 Freighter Purchase Agreement”).

*10.9		Letter Agreement dated as of February 7, 2020, amending the Boeing 777 Freighter Purchase Agreement.

*˄10.10		Supplemental Agreement No. 32 (and related side letters) dated as of February 28, 2020, amending the Boeing 777 Freighter Purchase Agreement.

*10.11		Letter Agreement dated as of December 19, 2019, amending the Boeing 767-3S2 Freighter Purchase Agreement.

*10.12		Letter Agreement dated as of January 30, 2020, amending the Boeing 767-3S2 Freighter Purchase Agreement.

*˄10.13		Supplemental Agreement No. 14 (and related side letters) dated as of February 28, 2020, amending the Boeing 767-3S2 Freighter Purchase Agreement.

†10.14		Amended and Restated FedEx Retirement Parity Pension Plan, effective January 1, 2020.

15.1		Letter re: Unaudited Interim Financial Statements.

~~10.2~~		Amendment dated December 20, 2018 (but effective as of 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 December 20, 2018 (but effective as of 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 January 3, 2019 (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.

~~10.5~~		Amendment dated January 15, 2019 (but effective as of 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 January 15, 2019 (but effective as of 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 January 29, 2019 (but effective as of 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 February 7, 2019 (but effective as of 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 January 22, 2019 (but effective as of January 1, 2019) to the Composite Lease Agreement dated May 21, 2007 (but effective as of January 1, 2007) between the Memphis-Shelby County Airport Authority and FedEx Express.

~~10.10~~		Separation and Release Agreement, dated December 3, 2018, between FedEx Express and David L. Cunningham, Jr. (Filed as Exhibit 99.1 to FedEx’s Current Report on Form 8-K dated December 3, 2018 and filed December 7, 2018, and incorporated herein by reference.)

~~Exhibit~~ ~~Number~~		~~Description of Exhibit~~
~~10.11~~		Separation and Release Agreement, dated February 13, 2019, between FedEx and David J. Bronczek. (Filed as Exhibit 99.1 to FedEx’s Current Report on Form 8-K dated February 13, 2019 and filed February 14, 2019, and 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.~~Files pursuant to Rule 405 of Regulation S-T formatted in Inline Extensible Business Reporting Language (“Inline XBRL”).

104.1		Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101.1).

			FEDEX CORPORATION

Date: March ~~19, 2019~~17, 2020			/s/ JOHN L. MERINO
			JOHN L. MERINO
			CORPORATE VICE PRESIDENT AND
			PRINCIPAL ACCOUNTING OFFICER