Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

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

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

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

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

	November 30, 2017 (Unaudited)		May 31, 2017		August 31, 2018 (Unaudited)		May 31, 2018
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	2,768	$	3,969	$	2,369	$	3,265
Receivables, less allowances of $353 and $252		8,655		7,599
Spare parts, supplies and fuel, less allowances of $248 and $237		533		514
Receivables, less allowances of $296 and $401						8,716		8,481
Spare parts, supplies and fuel, less allowances of $271 and $268						523		525
Prepaid expenses and other		925		546		1,033		1,070
Total current assets		12,881		12,628		12,641		13,341
PROPERTY AND EQUIPMENT, AT COST		53,240		50,626		56,326		55,121
Less accumulated depreciation and amortization		25,950		24,645		27,547		26,967
Net property and equipment		27,290		25,981		28,779		28,154
OTHER LONG-TERM ASSETS
Goodwill		7,325		7,154		6,869		6,973
Other assets		2,785		2,789		3,612		3,862
Total other long-term assets		10,110		9,943		10,481		10,835
	$	50,281	$	48,552	$	51,901	$	52,330

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

	November 30, 2017 (Unaudited)			May 31, 2017			August 31, 2018 (Unaudited)			May 31, 2018
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Short-term borrowings	$	250		$	—		$	299		$	—
Current portion of long-term debt		11			22			1,404			1,342
Accrued salaries and employee benefits		1,912			1,914			1,686			2,177
Accounts payable		3,147			2,752			3,066			2,977
Accrued expenses		2,907			3,230			3,151			3,131
Total current liabilities		8,227			7,918			9,606			9,627
LONG-TERM DEBT, LESS CURRENT PORTION		15,180			14,909			15,241			15,243
OTHER LONG-TERM LIABILITIES
Deferred income taxes		3,088			2,485			2,948			2,867
Pension, postretirement healthcare and other benefit obligations		3,868			4,487			1,963			2,187
Self-insurance accruals		1,651			1,494			1,809			1,784
Deferred lease obligations		633			531			557			551
Deferred gains, principally related to aircraft transactions		122			137			156			121
Other liabilities		457			518			448			534
Total other long-term liabilities		9,819			9,652			7,881			8,044
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS’ INVESTMENT
Common stock, $0.10 par value; 800 million shares authorized; 318 million shares issued as of November 30, 2017 and May 31, 2017		32			32
Common stock, $0.10 par value; 800 million shares authorized; 318 million shares issued as of August 31, 2018 and May 31, 2018								32			32
Additional paid-in capital		3,055			3,005			3,154			3,117
Retained earnings		21,785			20,833			25,315			24,823
Accumulated other comprehensive loss		(434	)		(415	)		(763	)		(578	)
Treasury stock, at cost		(7,383	)		(7,382	)		(8,565	)		(7,978	)
Total common stockholders’ investment		17,055			16,073			19,173			19,416
	$	50,281		$	48,552		$	51,901		$	52,330

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

													Three Months Ended
	Three Months Ended						Six Months Ended						August 31,
	November 30,						November 30,						2018			2017
	2017			2016			2017			2016						As Adjusted
REVENUES	$	16,313		$	14,931		$	31,610		$	29,594		$	17,052		$	15,297
OPERATING EXPENSES:
Salaries and employee benefits		5,742			5,353			11,260			10,664			6,260			5,664
Purchased transportation		3,840			3,431			7,285			6,671			3,967			3,445
Rentals and landing fees		835			802			1,653			1,592			823			818
Depreciation and amortization		756			740			1,507			1,479			808			751
Fuel		818			658			1,521			1,308			986			703
Maintenance and repairs		665			579			1,340			1,177			735			675
Other		2,395			2,201			4,665			4,272			2,402			2,270
		15,051			13,764			29,231			27,163			15,981			14,326
OPERATING INCOME		1,262			1,167			2,379			2,431			1,071			971
OTHER INCOME (EXPENSE):
Interest, net		(124	)		(119	)		(238	)		(232	)		(112	)		(114	)
Other retirement plans income														158			146
Other, net		1			30			(20	)		21			(16	)		(21	)
		(123	)		(89	)		(258	)		(211	)		30			11
INCOME BEFORE INCOME TAXES		1,139			1,078			2,121			2,220			1,101			982
PROVISION FOR INCOME TAXES		364			378			750			805			266			386
NET INCOME	$	775		$	700		$	1,371		$	1,415		$	835		$	596
EARNINGS PER COMMON SHARE:
Basic	$	2.89		$	2.63		$	5.12		$	5.32		$	3.15		$	2.22
Diluted	$	2.84		$	2.59		$	5.03		$	5.24		$	3.10		$	2.19
DIVIDENDS DECLARED PER COMMON SHARE	$	0.50		$	0.40		$	1.50		$	1.20		$	1.30		$	1.00

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

	Three Months Ended						Six Months Ended						Three Months Ended
	November 30,						November 30,						August 31,
	2017			2016			2017			2016			2018			2017
NET INCOME	$	775		$	700		$	1,371		$	1,415		$	835		$	596
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustments, net of tax of $7, $21, $18, and $16		(90	)		(230	)		19			(218	)
Amortization of prior service credit, net of tax of $11, $11, $22, and $22		(19	)		(19	)		(38	)		(38	)
Foreign currency translation adjustments, net of tax benefit of $24 in 2018 and tax expense of $25 in 2017														(162	)		109
Amortization of prior service credit, net of tax benefit of $7 in 2018 and $11 in 2017														(23	)		(19	)
		(109	)		(249	)		(19	)		(256	)		(185	)		90
COMPREHENSIVE INCOME	$	666		$	451		$	1,352		$	1,159		$	650		$	686

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

	Six Months Ended						Three Months Ended
	November 30,						August 31,
	2017			2016			2018			2017
Operating Activities:
Net income	$	1,371		$	1,415		$	835		$	596
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		1,507			1,479			808			751
Provision for uncollectible accounts		116			76			82			60
Stock-based compensation		103			93			68			62
Deferred income taxes and other noncash items		327			320			23			97
Gain from sale of investment		—			(35	)
Changes in assets and liabilities:
Receivables		(983	)		(513	)		(380	)		(271	)
Other assets		(338	)		(250	)		(120	)		(142	)
Accounts payable and other liabilities		(564	)		67			(584	)		(540	)
Other, net		(41	)		(17	)		(31	)		(23	)
Cash provided by operating activities		1,498			2,635			701			590
Investing Activities:
Capital expenditures		(2,621	)		(2,681	)		(1,179	)		(1,044	)
Business acquisitions, net of cash acquired		(44	)		—
Proceeds from asset dispositions and other		12			100			78			6
Cash used in investing activities		(2,653	)		(2,581	)		(1,101	)		(1,038	)
Financing Activities:
Proceeds from short-term borrowings		250			—			299			—
Principal payments on debt		(28	)		(43	)		(2	)		(12	)
Proceeds from stock issuances		205			164			25			150
Dividends paid		(268	)		(213	)		(173	)		(134	)
Purchase of treasury stock		(270	)		(334	)		(625	)		(86	)
Other, net		3			(5	)		4			(6	)
Cash used in financing activities		(108	)		(431	)		(472	)		(88	)
Effect of exchange rate changes on cash		62			(98	)		(24	)		70
Net decrease in cash and cash equivalents		(1,201	)		(475	)		(896	)		(466	)
Cash and cash equivalents at beginning of period		3,969			3,534			3,265			3,969
Cash and cash equivalents at end of period	$	2,768		$	3,059		$	2,369		$	3,503

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

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

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to present fairly our financial position as of ~~November 30, 2017,~~August 31, 2018, and the results of our operations ~~for the three- and six-month periods ended November 30, 2017 and 2016,~~ and cash flows for the ~~six-month~~three-month periods ended ~~November 30, 2017~~August 31, 2018 and ~~2016.~~2017. Operating results for the ~~three- and six-month~~three-month periods ended ~~November 30, 2017~~August 31, 2018 are not necessarily indicative of the results that may be expected for the year ending May 31, ~~2018.~~2019.

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

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

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

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

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

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

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

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

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

Our contract logistics, global trade services and certain transportation businesses engage in some transactions wherein they act as agents. Revenue from these transactions is recorded on a net basis. Net revenue includes billings to customers less third-party charges, including transportation or handling costs, fees, commissions and taxes and duties.

Certain of our revenue-producing transactions are subject to taxes, such as sales tax, assessed by governmental authorities. We present these revenues net of tax. Under the typical payment terms of our customer contracts, the customer pays at periodic intervals (i.e., every 15 days, 30 days, 45 days, etc.) ~~segment from~~for shipments included on invoices received. It is not customary business practice to extend payment terms past 90 days, and as such, we do not have a practice of including a significant financing component within our revenue contracts with customers.

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

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

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

Our stock-based compensation expense was ~~$41~~$68 million for the three-month period ended ~~November 30, 2017~~August 31, 2018 and ~~$103 million for the six-month period ended November 30, 2017. Our stock-based compensation expense was $36~~$62 million for the three-month period ended ~~November 30, 2016 and $93 million for the six-month period ended November 30, 2016.~~August 31, 2017. Due to its immateriality, additional disclosures related to stock-based compensation have been excluded from this quarterly report.

RECENT ACCOUNTING GUIDANCE. New accounting rules and disclosure requirements can significantly impact our reported results and the comparability of our financial statements. We believe the following new accounting guidance is relevant to the readers of our financial statements.

In December 2017, the ~~first quarter~~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 in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to finalize the calculations for certain income tax effects of the TCJA. In accordance with SAB 118, we made reasonable estimates and recorded provisional amounts for the TCJA during 2018. Under the transitional provisions of SAB 118, we have a one-year measurement period to complete the accounting for the initial tax effects of the TCJA. We are still in the process of completing that accounting. As of August 31, 2018, ~~we early adopted~~there were no changes to the ~~Accounting Standards Update issued by~~provisional amounts recorded at May 31, 2018.

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

~~On May 28, 2014, the FASB~~ and International Accounting Standards Board issued a new accounting standard that ~~will supersede~~supersedes virtually all existing revenue recognition guidance under generally accepted accounting principles in the United States. ~~This standard will be effective for us beginning June 1, 2018 (fiscal 2019).~~ The fundamental principles of the new guidance are that companies should recognize revenue in a manner that reflects the timing of the transfer of services to customers and the amount of revenue recognized reflects the consideration that a company expects to receive for the goods and services provided. The new guidance establishes a five-step approach for the recognition of revenue. We ~~are continuing to complete~~adopted this standard as of June 1, 2018 (fiscal 2019) using the ~~assessment~~modified retrospective method of adoption as permitted by the ~~impact this new standard will have on our consolidated financial statements and related disclosures, including ongoing contract reviews. We do not anticipate that the~~standard. The new guidance ~~will~~did not have ~~a material~~an impact on our revenue recognition policies, practices or ~~systems.~~systems; therefore, there was no cumulative-effect adjustment to retained earnings as of June 1, 2018.

~~On February 25,~~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 2016, the FASB issued a new lease accounting standard which requires lessees to put most leases on their balance sheets but recognize the expenses in their income statements in a manner similar to current practice. The new standard states that a lessee will recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. Expenses related to leases determined to be operating leases will be recognized on a straight-line basis, while those determined to be financing leases will be recognized following a front-loaded expense profile in which interest and amortization are presented separately in the income statement. Based on our lease portfolio, we currently anticipate recognizing a lease liability and related right-of-use asset on ~~the~~our balance sheet in excess of $13 billion, with an immaterial impact on our income statement compared to the current lease accounting model. However, the ultimate impact of the standard will depend on ~~the company’s~~our lease portfolio as of the adoption date. We are currently ~~in the process of evaluating our existing lease portfolios, including~~ accumulating all of the necessary information required to properly account for the leases under the new standard. Additionally, we are implementing an enterprise-wide lease management system to assist in the accounting and are evaluating additional changes to our processes and internal controls to ensure we meet the standard’s reporting and disclosure requirements. These changes will be effective ~~for our fiscal year beginning~~ June 1, 2019 (fiscal 2020)~~, with a modified retrospective adoption method to the beginning of 2018.~~.

In ~~March 2017,~~February 2018, the FASB issued an Accounting Standards Update that will permit companies to reclassify the income tax effect of the TCJA on items within accumulated other comprehensive income (loss) (“AOCI”) to retained earnings. These changes ~~how~~will be effective June 1, 2019 (fiscal 2020). We are continuing to assess the impact of this new standard on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued an Accounting Standards Update (ASU 2018-14) that modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit ~~plans present~~plans. The guidance removes disclosures that are no longer considered cost beneficial, clarifies the ~~net periodic benefit cost in the income statement. This~~specific requirements of disclosures and adds disclosure requirements identified as relevant. We expect this new guidance requires entities to report the service cost component in the same line item or items as other compensation costs. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component outside of income from operations. This standard will impact our operating income but will have nominimal impact on our net income or earnings per share. For example, adoption of this guidance would have reduced operating income by $146 million in the second quarter and $292 million in the first half of 2018, and by $112 million in the second quarter and $224 million in the first half of 2017, but would not have impacted our net income in these periods. This new guidancefinancial reporting. These changes will be effective ~~for our fiscal year beginning~~ June 1, ~~2018~~2020 (fiscal ~~2019)~~2021) and will be applied retrospectively. We plan to early adopt in the fourth quarter of fiscal 2019.

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

During the ~~second~~first quarter of ~~2018,~~2019, we repurchased ~~0.8~~2.6 million shares of FedEx common stock at an average price of ~~$220.67~~$238.95 per share for a total of ~~$184 million. During the first half of 2018, we repurchased 1.2 million shares of FedEx common stock at an average price of $216.45 per share for a total of $270~~$625 million. As of ~~November 30, 2017, 14.8~~August 31, 2018, 9.1 million shares remained under the current share repurchase authorization.

DIVIDENDS DECLARED PER COMMON SHARE. On ~~November~~August 17, ~~2017,~~2018, our Board of Directors declared a quarterly dividend of ~~$0.50~~$0.65 per share of common stock. The dividend will be paid on ~~January 2,~~October 1, 2018 to stockholders of record as of the close of business on ~~December 11, 2017.~~September 10, 2018. Each quarterly dividend payment is subject to review and approval by our Board of Directors, and we evaluate our dividend payment amount on an annual basis at the end of each fiscal year.

The following table provides changes in ~~accumulated other comprehensive income (loss) (“AOCI”),~~AOCI, net of tax, reported in our unaudited condensed consolidated financial statements for the three-month periods ended ~~November 30~~August 31 (in millions; amounts in parentheses indicate debits to AOCI):

	Three Months Ended						Six Months Ended
	2017			2016			2017			2016			2018			2017
Foreign currency translation loss:
Balance at beginning of period	$	(576	)	$	(502	)	$	(685	)	$	(514	)	$	(759	)	$	(685	)
Translation adjustments		(90	)		(230	)		19			(218	)		(162	)		109
Balance at end of period		(666	)		(732	)		(666	)		(732	)		(921	)		(576	)
Retirement plans adjustments:
Balance at beginning of period		251			326			270			345			181			270
Reclassifications from AOCI		(19	)		(19	)		(38	)		(38	)		(23	)		(19	)
Balance at end of period		232			307			232			307			158			251
Accumulated other comprehensive (loss) at end of period	$	(434	)	$	(425	)	$	(434	)	$	(425	)	$	(763	)	$	(325	)

The following table presents details of the reclassifications from AOCI for the three-month periods ended ~~November 30~~August 31 (in millions; amounts in parentheses indicate debits to earnings):

	Amount Reclassified from AOCI												Affected Line Item in the Income Statement
	Three Months Ended						Six Months Ended							Amount Reclassified from AOCI						Affected Line Item in the Income Statement
	2017			2016			2017			2016				2018			2017
Amortization of retirement plans prior service credits, before tax	$	30		$	30		$	60		$	60		Salaries and employee benefits	$	30		$	30		Salaries and employee benefits
Income tax benefit		(11	)		(11	)		(22	)		(22	)	Provision for income taxes		(7	)		(11	)	Provision for income taxes
AOCI reclassifications, net of tax	$	19		$	19		$	38		$	38		Net income	$	23		$	19		Net income

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

We have a five-year ~~$1.75~~$2.0 billion revolving credit facility that expires in November 2020. The facility, which includes a $500 million letter of credit sublimit, is available to finance our operations and other cash flow needs. The agreement contains a financial covenant, which requires us to maintain a ratio of debt to consolidated earnings (excluding non-cash ~~pension~~retirement plans mark-to-market adjustments and non-cash asset impairment charges) before interest, taxes, depreciation and amortization (“adjusted EBITDA”) of not more than 3.5 to 1.0, calculated as of the end of the applicable quarter on a rolling four-quarters basis. The ratio of our debt to adjusted EBITDA was ~~1.9~~2.0 to 1.0 at ~~November 30, 2017.~~August 31, 2018. We believe this covenant is the only significant restrictive covenant in our revolving credit agreement. Our revolving credit agreement contains other customary covenants that do not, individually or in the aggregate, materially restrict the conduct of our business. We are in compliance with ~~the~~this financial covenant and all other covenants of our revolving credit agreement and do not expect the covenants to affect our operations, including our liquidity or expected funding needs.

During the ~~second~~first quarter of ~~2018,~~2019, we issued ~~$250 million of~~ commercial paper ~~providing~~to provide us with additional short-term ~~liquidity flexibility.~~liquidity. The maximum amount outstanding during the quarter was $300 million. Our commercial paper program is backed by unused commitments under the revolving credit facility and borrowings under the program reduce the amount available under the credit facility. As of ~~November 30, 2017, $250~~August 31, 2018, $300 million of commercial paper and ~~$255~~$54 million in letters of credit were outstanding, leaving ~~$1.245~~$1.646 billion available under the revolving credit facility for future borrowings.

Long-term debt, exclusive of capital leases, had carrying values of ~~$15.1~~$16.5 billion at ~~November 30, 2017~~August 31, 2018 and ~~$14.9 billion at~~ May 31, ~~2017,~~2018, compared with estimated fair values of ~~$15.9~~$16.5 billion at ~~November 30, 2017~~August 31, 2018 and ~~$15.5~~$16.6 billion at May 31, ~~2017.~~2018. The annualized ~~weighted average~~weighted-average interest rate on long-term debt was 3.6% ~~for the six-months ended November 30, 2017.~~at August 31, 2018. The estimated fair values were determined based on quoted market prices and the current rates offered for debt with similar terms and maturities. The fair value of our long-term debt is classified as Level 2 within the fair value hierarchy. This classification is defined as a fair value determined using market-based inputs other than quoted prices that are observable for the liability, either directly or indirectly.

The calculation of basic and diluted earnings per common share for the three-month periods ended ~~November 30~~August 31 was as follows (in millions, except per share amounts):

	Three Months Ended				Six Months Ended				Three Months Ended
	2017		2016		2017		2016		2018		2017
Basic earnings per common share:
Net earnings allocable to common shares⁽¹⁾	$	774	$	700	$	1,369	$	1,414	$	834	$	595
Weighted-average common shares		268		266		268		266		265		268
Basic earnings per common share	$	2.89	$	2.63	$	5.12	$	5.32	$	3.15	$	2.22
Diluted earnings per common share:
Net earnings allocable to common shares⁽¹⁾	$	774	$	700	$	1,369	$	1,414	$	834	$	595
Weighted-average common shares		268		266		268		266		265		268
Dilutive effect of share-based awards		4		4		4		4		4		4
Weighted-average diluted shares		272		270		272		270		269		272
Diluted earnings per common share	$	2.84	$	2.59	$	5.03	$	5.24	$	3.10	$	2.19
Anti-dilutive options excluded from diluted earnings per common share		2.9		5.1		3.0		5.1		3.7		3.2

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

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

We are still completing our accounting for the income tax effects of the TCJA. As of August 31, 2018, there were no changes to the provisional amounts recorded at May 31, 2018.

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

Our retirement plans costs for the three-month periods ended ~~November 30~~August 31 were as follows (in millions):

	Three Months Ended				Six Months Ended				2018		2017
	2017		2016		2017		2016
Defined benefit pension plans	$	37	$	58	$	74	$	116
Defined benefit pension plans, net									$	28	$	37
Defined contribution plans		124		112		251		231		144		127
Postretirement healthcare plans		18		19		37		38		19		19
	$	179	$	189	$	362	$	385	$	191	$	183

Net periodic benefit cost of the pension and postretirement healthcare plans for the three-month periods ended ~~November 30~~August 31 included the following components (in millions):

	Three Months Ended
	U.S. Pension Plans						International Pension Plans						Postretirement Healthcare Plans				U.S. Pension Plans						International Pension Plans						Postretirement Healthcare Plans
	2017			2016			2017			2016			2017		2016		2018			2017			2018			2017			2018		2017
Service cost	$	170		$	160		$	23		$	20		$	9	$	9	$	172		$	170		$	24		$	23		$	9	$	9
Other retirement plans (income) expense:
Interest cost		278			282			13			11			9		10		238			279			13			12			10		10
Expected return on plan assets		(406	)		(375	)		(11	)		(11	)		—		—		(377	)		(406	)		(12	)		(11	)		—		—
Amortization of prior service credit and other		(29	)		(30	)		(1	)		1			—		—		(29	)		(30	)		(1	)		—			—		—
	$	13		$	37		$	24		$	21		$	18	$	19		(168	)		(157	)		—			1			10		10
																	$	4		$	13		$	24		$	24		$	19	$	19
	Six Months Ended
	U.S. Pension Plans						International Pension Plans						Postretirement Healthcare Plans
	2017			2016			2017			2016			2017		2016
Service cost	$	340		$	319		$	46		$	41		$	18	$	18
Interest cost		557			564			25			22			19		20
Expected return on plan assets		(812	)		(751	)		(22	)		(21	)		—		—
Amortization of prior service credit and other		(59	)		(59	)		(1	)		1			—		—
	$	26		$	73		$	48		$	43		$	37	$	38

~~Contributions~~We made voluntary contributions to our tax-qualified U.S. domestic pension plans ~~for~~(“U.S. Pension Plans”) of $250 million during the ~~six-month periods ended November 30 were as follows (in millions):~~first quarters of 2019 and 2018. In September 2018, we made additional voluntary contributions to our U.S. Pension Plans of $250 million.

We provide a broad portfolio of transportation, e-commerce and business services through companies competing collectively, operating independently and managed collaboratively, under the respected FedEx brand. Our primary operating companies are FedEx Express, including TNT Express, ~~B.V. (“TNT Express”),~~ the world’s largest express transportation company; FedEx Ground Package System, Inc. (“FedEx Ground”), a leading North American provider of small-package ground delivery services; and FedEx Freight ~~Inc.~~Corporation (“FedEx Freight”), a leading U.S. provider of less-than-truckload (“LTL”) freight transportation services. These companies represent our major service lines and, along with FedEx Corporate Services, ~~form the core of~~Inc. (“FedEx Services”), constitute our reportable segments.

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

The FedEx Services segment operates combined sales, marketing, administrative and ~~information technology~~information-technology functions in shared services operations that support our transportation businesses and allow us to obtain synergies from the combination of these functions. For the international regions of FedEx Express, some of these functions are performed on a regional basis and reported by FedEx Express in their natural expense line items. The FedEx Services segment includes: FedEx Services, which provides sales, marketing, information technology, communications, customer service, technical support, billing and collection services for U.S. customers of our major business units and certain back-office support to our other companies; and FedEx Office and Print Services, Inc. (“FedEx Office”), which provides an array of document and business services and retail access to our customers for our package transportation businesses.

The FedEx Services segment provides direct and indirect support to our transportation businesses, and we allocate all of the net operating costs of the FedEx Services segment (including the net operating results of FedEx Office) to reflect the full cost of operating our transportation businesses in the results of those segments. Within the FedEx Services segment allocation, the net operating results of FedEx Office, which are an immaterial component of our allocations, are allocated to FedEx Express and FedEx Ground. We review and evaluate the performance of our transportation segments based on operating income (inclusive of FedEx Services segment allocations). For the FedEx Services segment, performance is evaluated based on the impact of its total allocated net operating costs on our transportation segments.

Operating expenses for each of our transportation segments include the allocations from the FedEx Services segment to the respective transportation segments. These allocations also include charges and credits for administrative services provided between operating companies. The allocations of net operating costs are based on metrics such as relative revenues or estimated services provided. We believe these allocations approximate the net cost of providing these functions. Our allocation methodologies are refined periodically, as necessary, to reflect changes in our businesses.

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

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

Certain FedEx operating companies provide transportation and related services for other FedEx companies outside their reportable segment. Billings for such services are based on negotiated rates, which we believe approximate fair value, and are reflected as revenues of the billing segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenues and expenses are eliminated in our consolidated results and are not separately identified in the following segment information because the amounts are not material.

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

The following table provides a reconciliation of reportable segment revenues and operating income (loss) to our unaudited condensed consolidated financial statement totals for the three-month periods ended ~~November 30~~August 31 (in millions):

	Three Months Ended						Six Months Ended						2018			2017
	2017			2016			2017			2016
Revenues
Revenues:
FedEx Express segment	$	9,354		$	8,642		$	18,006		$	17,102		$	9,222		$	8,400
FedEx Ground segment		4,929			4,419			9,568			8,709			4,799			4,245
FedEx Freight segment		1,762			1,597			3,514			3,255			1,959			1,664
FedEx Services segment		416			414			816			809			417			400
Eliminations and other		(148	)		(141	)		(294	)		(281	)
Other and eliminations														655			588
	$	16,313		$	14,931		$	31,610		$	29,594		$	17,052		$	15,297
Operating Income
Operating income (loss):
FedEx Express segment	$	717		$	706		$	1,150		$	1,316		$	367		$	320
FedEx Ground segment		521			465			1,147			1,075			667			606
FedEx Freight segment		118			88			294			223			176			165
Eliminations, corporate and other		(94	)		(92	)		(212	)		(183	)
Corporate, other and eliminations														(139	)		(120	)
	$	1,262		$	1,167		$	2,379		$	2,431		$	1,071		$	971

As of ~~November 30, 2017,~~August 31, 2018, our purchase commitments under various contracts for the remainder of 2018 and annually thereafter were as follows (in millions):

	Aircraft and Aircraft-Related		Other⁽¹⁾		Total		Aircraft and Related		Other⁽¹⁾		Total
2018 (remainder)	$	870	$	469	$	1,339
2019		1,723		679		2,402
2019 (remainder)							$	1,341	$	664	$	2,005
2020		1,965		525		2,490		1,991		786		2,777
2021		1,488		386		1,874		2,315		500		2,815
2022		1,451		235		1,686		1,856		363		2,219
2023								1,561		263		1,824
Thereafter		3,334		499		3,833		2,986		532		3,518
Total	$	10,831	$	2,793	$	13,624	$	12,050	$	3,108	$	15,158

The amounts reflected in the table above for purchase commitments represent noncancelable agreements to purchase goods or services. As of ~~November 30, 2017,~~August 31, 2018, our obligation to purchase ~~four Boeing 767-300 Freighter (“B767F”) aircraft and~~ six Boeing 777 Freighter (“B777F”) aircraft and five Boeing 767-300 Freighter (“B767F”) aircraft is conditioned upon there being no event that causes FedEx Express or its employees not to be covered by the Railway Labor Act of 1926, as ~~amended.~~amended (“RLA”). Open purchase orders that are cancelable are not considered unconditional purchase obligations for financial reporting purposes and are not included in the table above.

During the ~~second~~ quarter, ~~of 2018,~~ FedEx Express entered into ~~an agreement~~agreements to purchase ~~50 Cessna SkyCourier 408~~12 incremental B777F aircraft ~~with options~~and 12 incremental B767F aircraft. Six of the B777F and one of the B767F aircraft purchases are conditioned upon there being no event that causes FedEx Express or its employees not to ~~purchase up to 50 additional Cessna SkyCourier 408 aircraft.~~be covered by the RLA (the RLA condition was removed from three previously ordered B777F aircraft). The ~~50 firm-order Cessna SkyCourier 408~~B777F aircraft are expected to be delivered ~~from fiscal~~between 2021 ~~through 2024.~~

~~During the second quarter of 2018, FedEx Express entered into an agreement to purchase 30 ATR 72-600F aircraft with options to purchase up to 20 additional ATR 72-600F aircraft.~~and 2025. The ~~30 firm-order ATR 72-600F~~B767F aircraft are expected to be delivered between 2020 and 2022. As part of these agreements, one B777F and one B767F aircraft delivery were accelerated from ~~fiscal 2021~~2020 to 2019.

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

WeAs of August 31, 2018, we had ~~$684~~$992 million in deposits and progress payments ~~as of November 30, 2017~~ on aircraft purchases and other planned aircraft-related transactions. These deposits are classified in the “Other assets” caption of our accompanying unaudited condensed consolidated balance sheets. Aircraft and ~~aircraft-related~~related contracts are subject to price escalations. The following table is a summary of the key aircraft we are committed to purchase as of ~~November 30, 2017~~August 31, 2018, with the year of expected delivery:

	Cessna SkyCourier 408		ATR 72-600F		B767F		B777F		Total		Cessna SkyCourier 408		ATR 72-600F		B767F		B777F		Total
2018 (remainder)		-		-		8		1		9
2019		-		-		15		2		17
2019 (remainder)												-		-		11		3		14
2020		-		-		16		3		19		-		-		17		5		22
2021		12		5		10		3		30		12		5		18		2		37
2022		12		6		10		4		32		12		6		12		3		33
2023												12		6		6		4		28
Thereafter		26		19		6		-		51		14		13		-		6		33
Total		50		30		65		13		158		50		30		64		23		167

A summary of future minimum lease payments under noncancelable operating leases with an initial or remaining term in excess of one year at ~~November 30, 2017~~August 31, 2018 is as follows (in millions):

	Aircraft and Related Equipment		Facilities and Other		Total Operating Leases		Aircraft and Related Equipment		Facilities and Other		Total Operating Leases
2018 (remainder)	$	335	$	1,113	$	1,448
2019		343		2,014		2,357
2019 (remainder)							$	307	$	1,623	$	1,930
2020		261		1,799		2,060		261		1,961		2,222
2021		203		1,623		1,826		203		1,796		1,999
2022		185		1,464		1,649		185		1,615		1,800
2023								127		1,459		1,586
Thereafter		175		8,746		8,921		48		8,319		8,367
Total	$	1,502	$	16,759	$	18,261	$	1,131	$	16,773	$	17,904

Future minimum lease payments under capital leases were immaterial at ~~November 30, 2017.~~August 31, 2018. While certain of our lease agreements contain covenants governing the use of the leased assets or require us to maintain certain levels of insurance, none of our lease agreements include material financial covenants or limitations.

Independent Contractor — Lawsuits and Administrative Proceedings. During the second quarter of 2018, the final objector to the $228 million settlement in the case that was remanded by the multidistrict litigation court to California and appealed to the Ninth Circuit Court of Appeals settled with plaintiffs’ counsel and FedEx Ground paid the settlement amount.

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

City and State of New York Cigarette Suit. The City of New York and the State of New York filed two related lawsuits against FedEx Ground in December 2013 and November 2014 arising from FedEx Ground’s alleged shipments of cigarettes to New York residents in contravention of several statutes, including the Racketeer Influenced and Corrupt Organizations Act (“RICO”) and New York’s Public Health Law, as well as common law nuisance claims. In April 2016, the two lawsuits were consolidated and will now proceed as one lawsuit. The first-filed lawsuit alleges that FedEx Ground provided delivery services on behalf of four shippers, and the second-filed lawsuit alleges that FedEx Ground provided delivery services on behalf of six additional shippers; none of these shippers continue to ship in our network. Following motions to dismiss filed in both lawsuits, some of the claims were dismissed entirely or limited. In the first-filed lawsuit, the New York Public Health Law and common law nuisance claims were dismissed and the plaintiffs voluntarily dismissed another claim. In the second-filed lawsuit, the common law nuisance claim was dismissed entirely and the New York Public Health Law claim has been limited to claims arising after September 27, 2013, when an amendment to that law provided enforcement authority to the City of New York and State of New York. Other claims, including the RICO claims, remain in both lawsuits. The consolidated lawsuit is set for jury trial beginning October 9, 2018. The likelihood of loss is reasonably possible, but the amount or range of loss, if any, cannot be estimated at this stage of the ~~litigation, but we~~litigation. We expect the amount of any loss to be immaterial.

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

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

On September 9, 2016, FedEx Supply Chain received a written offer from several District Attorneys’ Offices in California to settle a civil action that the District Attorneys intend to file against FedEx Supply Chain for alleged violations of the state’s hazardous waste regulations. Specifically, the District Attorneys’ Offices allege FedEx Supply Chain unlawfully disposed of hazardous waste at one of its California facilities and caused the illegal transportation and disposal of hazardous waste from the retail stores of a FedEx Supply Chain customer at this same facility. The District Attorneys allege these violations began in 2006 and continued until the facility closed in the spring of 2015. We believe an immaterial loss in this matter is probable, and we will pursue all available remedies against the sellers of GENCO to recover any losses in this matter.

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

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

FedEx and its subsidiaries are subject to other legal proceedings that arise in the ordinary course of business, including certain lawsuits containing various class-action allegations of wage-and-hour violations in which plaintiffs claim, among other things, that they were forced to work “off the clock,” were not paid overtime or were not provided work breaks or other benefits. In the opinion of management, the aggregate liability, if any, with respect to these other actions will not have a material adverse effect on our financial position, results of operations or cash flows.

Cash paid for interest expense and income taxes for the ~~six-month~~three-month periods ended ~~November 30~~August 31 was as follows (in millions):

	2017			2016			2018			2017
Cash payments for:
Interest (net of capitalized interest)	$	238		$	232		$	203		$	153
Income taxes	$	617		$	216		$	93		$	96
Income tax refunds received		(19	)		(13	)		(3	)		(10	)
Cash tax payments, net	$	598		$	203		$	90		$	86

We are required to present condensed consolidating financial information in order for the subsidiary guarantors of our public debt to continue to be exempt from reporting under the Securities Exchange Act of 1934, as amended.

The guarantor subsidiaries, which are 100% owned by FedEx, guarantee ~~$15.0~~$16.4 billion of our ~~long-term~~public debt. The guarantees are full and unconditional and joint and several. Our guarantor subsidiaries were not determined using geographic, service line or other similar criteria, and as a result, the “Guarantor Subsidiaries” and “Non-guarantor Subsidiaries” columns each include portions of our domestic and international operations. Accordingly, this basis of presentation is not intended to present our financial condition, results of operations or cash flows for any purpose other than to comply with the specific requirements for subsidiary guarantor reporting.

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

			Guarantor		Non-guarantor									Guarantor		Non-guarantor
	Parent		Subsidiaries		Subsidiaries		Eliminations			Consolidated		Parent		Subsidiaries		Subsidiaries		Eliminations			Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	959	$	342	$	1,495	$	(28	)	$	2,768	$	938	$	180	$	1,293	$	(42	)	$	2,369
Receivables, less allowances		2		5,340		3,441		(128	)		8,655		41		5,233		3,550		(108	)		8,716
Spare parts, supplies, fuel, prepaid expenses and other, less allowances		286		931		241		—			1,458		285		993		278		—			1,556
Total current assets		1,247		6,613		5,177		(156	)		12,881		1,264		6,406		5,121		(150	)		12,641
PROPERTY AND EQUIPMENT, AT COST		22		49,585		3,633		—			53,240		21		52,339		3,966		—			56,326
Less accumulated depreciation and amortization		18		24,349		1,583		—			25,950		17		25,670		1,860		—			27,547
Net property and equipment		4		25,236		2,050		—			27,290		4		26,669		2,106		—			28,779
INTERCOMPANY RECEIVABLE		1,175		3,184		—		(4,359	)		—		1,385		1,240		—		(2,625	)		—
GOODWILL		—		1,571		5,754		—			7,325		—		1,589		5,280		—			6,869
INVESTMENT IN SUBSIDIARIES		29,116		2,903		—		(32,019	)		—		34,038		4,867		—		(38,905	)		—
OTHER ASSETS		3,501		1,197		1,297		(3,210	)		2,785		241		1,591		1,780		—			3,612
	$	35,043	$	40,704	$	14,278	$	(39,744	)	$	50,281	$	36,932	$	42,362	$	14,287	$	(41,680	)	$	51,901
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
CURRENT LIABILITIES
Short-term borrowings	$	250	$	—	$	—	$	—		$	250	$	299	$	—	$	—	$	—		$	299
Current portion of long-term debt		—		1		10		—			11		1,332		65		7		—			1,404
Accrued salaries and employee benefits		59		1,325		528		—			1,912		43		1,102		541		—			1,686
Accounts payable		153		1,636		1,514		(156	)		3,147		187		1,252		1,778		(151	)		3,066
Accrued expenses		451		1,621		835		—			2,907		466		1,786		899		—			3,151
Total current liabilities		913		4,583		2,887		(156	)		8,227		2,327		4,205		3,225		(151	)		9,606
LONG-TERM DEBT, LESS CURRENT PORTION		14,872		289		19		—			15,180		14,942		288		11		—			15,241
INTERCOMPANY PAYABLE		—		—		4,359		(4,359	)		—		—		—		2,624		(2,624	)		—
OTHER LONG-TERM LIABILITIES
Deferred income taxes		—		6,102		196		(3,210	)		3,088		101		2,730		117		—			2,948
Other liabilities		2,203		3,642		886		—			6,731		389		3,613		931		—			4,933
Total other long-term liabilities		2,203		9,744		1,082		(3,210	)		9,819		490		6,343		1,048		—			7,881
STOCKHOLDERS’ INVESTMENT		17,055		26,088		5,931		(32,019	)		17,055		19,173		31,526		7,379		(38,905	)		19,173
	$	35,043	$	40,704	$	14,278	$	(39,744	)	$	50,281	$	36,932	$	42,362	$	14,287	$	(41,680	)	$	51,901

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

Parent

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations

Consolidated

REVENUES

$
—

$
12,044

$
4,362

$
(93
)

$
16,313

OPERATING EXPENSES:

Salaries and employee benefits

35

4,439

1,268

—

5,742

Purchased transportation

—

2,314

1,576

(50
)

3,840

Rentals and landing fees

1

640

197

(3
)

835

Depreciation and amortization

—

649

107

—

756

Fuel

—

746

72

—

818

Maintenance and repairs

—

584

81

—

665

Intercompany charges, net

(95
)

—

95

—

—

Other

59

1,592

784

(40
)

2,395

—

10,964

4,180

(93
)

15,051

OPERATING INCOME

—

1,080

182

—

1,262

OTHER INCOME (EXPENSE):

Equity in earnings of subsidiaries

775

40

—

(815
)

—

Interest, net

(130
)

11

(5
)

—

(124
)
Intercompany charges, net

132

(71
)

(61
)

—

—

Other, net

(2
)

(8
)

11

—

1

INCOME BEFORE INCOME TAXES

775

1,052

127

(815
)

1,139

Provision for income taxes

—

225

139

—

364

NET INCOME

$
775

$
827

$
(12
)

$
(815
)

$
775

COMPREHENSIVE INCOME

$
756

$
817

$
(92
)

$
(815
)

$
666

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated			Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
REVENUES	$	—		$	10,997		$	4,004		$	(70	)	$	14,931		$	—		$	12,367		$	4,787		$	(102	)	$	17,052
OPERATING EXPENSES:
Salaries and employee benefits		29			4,161			1,163			—			5,353			48			4,783			1,429			—			6,260
Purchased transportation		—			2,074			1,383			(26	)		3,431			—			2,380			1,634			(47	)		3,967
Rentals and landing fees		2			625			177			(2	)		802			1			631			192			(1	)		823
Depreciation and amortization		—			634			106			—			740			—			693			115			—			808
Fuel		—			584			74			—			658			—			902			84			—			986
Maintenance and repairs		—			504			75			—			579			—			646			89			—			735
Intercompany charges, net		(89	)		38			51			—			—			(111	)		(226	)		337			—			—
Other		58			1,429			756			(42	)		2,201			62			1,546			848			(54	)		2,402
		—			10,049			3,785			(70	)		13,764			—			11,355			4,728			(102	)		15,981
OPERATING INCOME		—			948			219			—			1,167			—			1,012			59			—			1,071
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries		700			54			—			(754	)		—			835			81			—			(916	)		—
Interest, net		(123	)		4			—			—			(119	)		(158	)		59			(13	)		—			(112	)
Other retirement plans income																	—			193			13			(48	)		158
Intercompany charges, net		124			(64	)		(60	)		—			—			143			(154	)		(21	)		32			—
Other, net		(1	)		(5	)		36			—			30			(3	)		327			(340	)		—			(16	)
INCOME BEFORE INCOME TAXES		700			937			195			(754	)		1,078			817			1,518			(302	)		(932	)		1,101
Provision for income taxes		—			291			87			—			378			—			215			51			—			266
NET INCOME	$	700		$	646		$	108		$	(754	)	$	700		$	817		$	1,303		$	(353	)	$	(932	)	$	835
COMPREHENSIVE INCOME	$	682		$	635		$	(112	)	$	(754	)	$	451		$	800		$	1,401		$	(618	)	$	(933	)	$	650

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated			Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
REVENUES	$	—		$	23,611		$	8,216		$	(217	)	$	31,610		$	—		$	11,567		$	3,854		$	(124	)	$	15,297
OPERATING EXPENSES:
Salaries and employee benefits		73			8,666			2,521			—			11,260			38			4,368			1,258			—			5,664
Purchased transportation		—			4,377			3,040			(132	)		7,285			—			2,063			1,464			(82	)		3,445
Rentals and landing fees		2			1,267			388			(4	)		1,653			1			627			191			(1	)		818
Depreciation and amortization		—			1,288			219			—			1,507			—			639			112			—			751
Fuel		—			1,383			138			—			1,521			—			637			66			—			703
Maintenance and repairs		—			1,186			154			—			1,340			—			602			73			—			675
Intercompany charges, net		(211	)		113			98			—			—			(116	)		114			2			—			—
Other		136			3,068			1,542			(81	)		4,665			77			1,476			758			(41	)		2,270
		—			21,348			8,100			(217	)		29,231			—			10,526			3,924			(124	)		14,326
OPERATING INCOME		—			2,263			116			—			2,379			—			1,041			(70	)		—			971
OTHER INCOME (EXPENSE):
Equity in earnings of subsidiaries		1,371			37			—			(1,408	)		—			596			(3	)		—			(593	)		—
Interest, net		(259	)		24			(3	)		—			(238	)		(129	)		13			2			—			(114	)
Other retirement plans income																	—			141			5			—			146
Intercompany charges, net		263			(142	)		(121	)		—			—			131			(70	)		(61	)		—			—
Other, net		(4	)		(16	)		—			—			(20	)		(2	)		(8	)		(11	)		—			(21	)
INCOME BEFORE INCOME TAXES		1,371			2,166			(8	)		(1,408	)		2,121			596			1,114			(135	)		(593	)		982
Provision for income taxes		—			624			126			—			750			—			399			(13	)		—			386
NET INCOME	$	1,371		$	1,542		$	(134	)	$	(1,408	)	$	1,371		$	596		$	715		$	(122	)	$	(593	)	$	596
COMPREHENSIVE INCOME	$	1,334		$	1,536		$	(110	)	$	(1,408	)	$	1,352		$	578		$	719		$	(18	)	$	(593	)	$	686

Parent

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations

Consolidated

REVENUES

$
—

$
21,900

$
7,834

$
(140
)

$
29,594

OPERATING EXPENSES:

Salaries and employee benefits

65

8,267

2,332

—

10,664

Purchased transportation

—

3,991

2,734

(54
)

6,671

Rentals and landing fees

3

1,245

347

(3
)

1,592

Depreciation and amortization

—

1,245

234

—

1,479

Fuel

—

1,162

146

—

1,308

Maintenance and repairs

—

1,030

147

—

1,177

Intercompany charges, net

(179
)

100

79

—

—

Other

111

2,802

1,442

(83
)

4,272

—

19,842

7,461

(140
)

27,163

OPERATING INCOME

—

2,058

373

—

2,431

OTHER INCOME (EXPENSE):

Equity in earnings of subsidiaries

1,415

110

—

(1,525
)

—

Interest, net

(245
)

13

—

—

(232
)
Intercompany charges, net

246

(145
)

(101
)

—

—

Other, net

(1
)

(10
)

32

—

21

INCOME BEFORE INCOME TAXES

1,415

2,026

304

(1,525
)

2,220

Provision for income taxes

—

671

134

—

805

NET INCOME

$
1,415

$
1,355

$
170

$
(1,525
)

$
1,415

COMPREHENSIVE INCOME

$
1,378

$
1,337

$
(31
)

$
(1,525
)

$
1,159

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

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated			Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	(1,959	)	$	3,504		$	(66	)	$	19		$	1,498		$	(878	)	$	1,717		$	(256	)	$	7		$	590
INVESTING ACTIVITIES
Capital expenditures		—			(2,474	)		(147	)		—			(2,621	)		—			(985	)		(59	)		—			(1,044	)
Business acquisitions, net of cash acquired		—			(44	)		—			—			(44	)
Proceeds from asset dispositions and other		—			12			—			—			12			—			6			—			—			6
CASH USED IN INVESTING ACTIVITIES		—			(2,506	)		(147	)		—			(2,653	)
CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES																	—			(979	)		(59	)		—			(1,038	)
FINANCING ACTIVITIES
Net transfers from (to) Parent		947			(1,019	)		72			—			—			744			(735	)		(9	)		—			—
Payment on loan between subsidiaries		167			—			(167	)		—			—
Proceeds from short-term borrowings		250			—			—			—			250
Principal payments on debt		—			(18	)		(10	)		—			(28	)		—			(8	)		(4	)		—			(12	)
Proceeds from stock issuances		205			—			—			—			205			150			—			—			—			150
Dividends paid		(268	)		—			—			—			(268	)		(134	)		—			—			—			(134	)
Purchase of treasury stock		(270	)		—			—			—			(270	)		(86	)		—			—			—			(86	)
Other, net		3			—			—			—			3			3			—			(9	)		—			(6	)
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		1,034			(1,037	)		(105	)		—			(108	)		677			(743	)		(22	)		—			(88	)
Effect of exchange rate changes on cash		—			56			6			—			62			(2	)		23			49			—			70
Net (decrease) increase in cash and cash equivalents		(925	)		17			(312	)		19			(1,201	)		(203	)		18			(288	)		7			(466	)
Cash and cash equivalents at beginning of period		1,884			325			1,807			(47	)		3,969			1,884			325			1,807			(47	)		3,969
Cash and cash equivalents at end of period	$	959		$	342		$	1,495		$	(28	)	$	2,768		$	1,681		$	343		$	1,519		$	(40	)	$	3,503

Parent

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations

Consolidated

CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES

$
(376
)

$
2,550

$
473

$
(12
)

$
2,635

INVESTING ACTIVITIES

Capital expenditures

—

(2,455
)

(226
)

—

(2,681
)
Proceeds from asset dispositions and other

84

13

3

—

100

CASH USED IN INVESTING ACTIVITIES

84

(2,442
)

(223
)

—

(2,581
)
FINANCING ACTIVITIES

Net transfers from (to) Parent

24

(94
)

70

—

—

Payment on loan between subsidiaries

8

(15
)

7

—

—

Intercompany dividends

—

1

(1
)

—

—

Principal payments on debt

—

(31
)

(12
)

—

(43
)
Proceeds from stock issuances

164

—

—

—

164

Dividends paid

(213
)

—

—

—

(213
)
Purchase of treasury stock

(334
)

—

—

—

(334
)
Other, net

4

(2
)

(7
)

—

(5
)
CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES

(347
)

(141
)

57

—

(431
)
Effect of exchange rate changes on cash

(5
)

1

(94
)

—

(98
)
Net (decrease) increase in cash and cash equivalents

(644
)

(32
)

213

(12
)

(475
)
Cash and cash equivalents at beginning of period

1,974

326

1,277

(43
)

3,534

Cash and cash equivalents at end of period

$
1,330

$
294

$
1,490

$
(55
)

$
3,059

We have reviewed the accompanying condensed consolidated balance sheet of FedEx Corporation as of ~~November 30, 2017,~~August 31, 2018, and the related condensed consolidated statements of income, ~~and~~ comprehensive income ~~for the three-month~~ and ~~six-month periods ended November 30, 2017 and November 30, 2016 and the condensed consolidated statements of~~ cash flows for the ~~six-month~~three-month periods ended ~~November 30,~~August 31, 2018 and August 31, 2017, and ~~November 30, 2016. These~~the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements ~~are the responsibility of the Company’s management.~~for them to be in conformity with U.S. generally accepted accounting principles.

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

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

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

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

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

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

We provide a broad portfolio of transportation, e-commerce and business services through companies competing collectively, operating independently and managed collaboratively, under the respected FedEx brand. Our primary operating companies are Federal Express Corporation (“FedEx Express”), including TNT Express B.V. (“TNT Express”), the world’s largest express transportation company; FedEx Ground Package System, Inc. (“FedEx Ground”), a leading North American provider of small-package ground delivery services; and FedEx Freight ~~Inc.~~Corporation (“FedEx Freight”), a leading U.S. provider of less-than-truckload (“LTL”) freight transportation services. These companies represent our major service lines and, along with FedEx Corporate Services, Inc. (“FedEx Services”), ~~form the core of~~constitute our reportable segments.

As noted in our Annual Report, beginning in the first quarter of 2018, we began to report TNT Express as part of the FedEx Express segment. Prior year amounts have been revised to conform to the current year presentation. See Note 6 of the accompanying unaudited condensed consolidated financial statements for further discussion.

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

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

~~The majority~~Many of our operating expenses are directly impacted by revenue and volume levels. Accordingly, we expect these operating expenses to fluctuate on a year-over-year basis consistent with ~~the change~~changes in revenues and volumes. Therefore, the discussion of operating expense captions focuses on the key drivers and trends impacting expenses other than changes in revenues and ~~volume.~~volumes. The line item “Other operating expenses” predominantly includes costs associated with outside service contracts (such as ~~security,~~ facility services and cargo ~~handling)~~handling, temporary labor and security), ~~insurance,~~ professional fees, ~~uniforms and~~insurance, taxes and ~~licenses.~~licenses and uniforms.

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

The following tables compare summary operating results and changes in revenue and operating income (dollars in millions, except per share amounts) for the periods ended ~~November 30:~~August 31:

	Three Months Ended						Percent				Six Months Ended						Percent				Three Months Ended						Percent
	2017			2016			Change				2017			2016			Change				2018			2017			Change
Revenues	$	16,313		$	14,931			9			$	31,610		$	29,594			7			$	17,052		$	15,297			11
Operating income:
Operating income (loss):
FedEx Express segment		717			706			2				1,150			1,316			(13	)			367			320			15
FedEx Ground segment		521			465			12				1,147			1,075			7				667			606			10
FedEx Freight segment		118			88			34				294			223			32				176			165			7
Eliminations, corporate and other		(94	)		(92	)		(2	)			(212	)		(183	)		(16	)
Corporate, other and eliminations																						(139	)		(120	)		(16	)
Consolidated operating income		1,262			1,167			8				2,379			2,431			(2	)			1,071			971			10
Operating margin:
FedEx Express segment		7.7	%		8.2	%		(50	)	bp		6.4	%		7.7	%		(130	)	bp	��	4.0	%		3.8	%		20		bp
FedEx Ground segment		10.6	%		10.5	%		10		bp		12.0	%		12.3	%		(30	)	bp		13.9	%		14.3	%		(40	)	bp
FedEx Freight segment		6.7	%		5.5	%		120		bp		8.4	%		6.9	%		150		bp		9.0	%		9.9	%		(90	)	bp
Consolidated operating margin		7.7	%		7.8	%		(10	)	bp		7.5	%		8.2	%		(70	)	bp		6.3	%		6.3	%		—		bp
Consolidated net income	$	775		$	700			11			$	1,371		$	1,415			(3	)		$	835		$	596			40
Diluted earnings per share	$	2.84		$	2.59			10			$	5.03		$	5.24			(4	)		$	3.10		$	2.19			42

	Change in Revenue						Change in Operating Income						Year-over-Year Changes
	Three Months Ended			Six Months Ended			Three Months Ended			Six Months Ended			Revenue		Operating Income (Loss)
FedEx Express segment	$	712		$	904		$	11		$	(166	)	$	822	$	47
FedEx Ground segment		510			859			56			72			554		61
FedEx Freight segment		165			259			30			71			295		11
FedEx Services segment		2			7			—			—			17		—
Eliminations, corporate and other		(7	)		(13	)		(2	)		(29	)
Corporate, other and eliminations														67		(19	)
	$	1,382		$	2,016		$	95		$	(52	)	$	1,755	$	100

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

~~Our results improved in the second quarter of 2018 primarily due to increased yields, volume growth and the favorable net impact of fuel at all~~The comparison of our ~~transportation segments. These factors were partially offset~~first quarter results between 2019 and 2018 is significantly affected by the ~~continued impact~~direct and indirect effects at FedEx Express of the NotPetya cyberattack ~~described below. The cyberattack also drove declining results~~ in ~~the~~June 2017. Our first ~~half of~~quarter 2018 ~~which were partially offset by the same positive factors noted above.~~

~~Our~~ results were negatively impacted by an estimated $300 million ($0.79 per diluted share) due to the NotPetya cyberattack, ~~by an estimated $100 million or $0.31 per diluted share in the second quarter of 2018 and by an estimated $400 million or $1.10 per diluted share in the first half of 2018,~~ primarily from loss of revenue ~~due to~~associated with decreased shipments in the TNT Express network, as well as incremental costs to restore information-technology systems. Additional information ~~technology systems.~~on the NotPeyta cyberattack can be found in our Annual Report.

In addition to the direct effects of reduced revenue and increased expenses, the NotPetya cyberattack impacted the amount and timing of variable compensation recognized in 2018. During the first quarter of 2018, we recognized substantially lower expense for our annual incentive compensation programs and reduced accruals for our long-term cash incentive program. As ~~previously announced, on June 27, 2017,~~results improved and we recovered from the ~~worldwide operations of TNT Express~~NotPetya cyberattack later in the fiscal year, these accruals were ~~significantly affected by the cyberattack known as NotPetya. Immediately following the attack, contingency plans were implemented~~increased to ~~recover TNT Express operations and communications systems, and substantially all TNT Express services were fully restored~~more normalized attainment levels. Conversely, we recognized full variable compensation accruals during the first quarter of ~~2018. All~~2019. In addition, we accelerated the timing of TNT Express’s critical operational systems have now been fully restored, critical business data has been recovered and shipping services and solutions are back in place. However, not all customers are shipping at pre-attack volume levels. For a descriptionour merit pay increases for certain of our hourly employees during late 2018 following the enactment of the ~~ongoing~~Tax Cuts and Jobs Act (“TCJA”), ahead of the normal October 2018 timing. Therefore, the first quarter of 2019 includes the full impact of the ~~cyberattack, see~~merit increase that would typically not be incurred until the ~~discussion under~~second quarter. The aggregate impact of these expense timing differences negatively affected the ~~heading “Outlook” below.~~year-over-year comparison of first quarter 2019 results by approximately $170 million ($130 million, net of tax, or $0.48 per diluted share).

Volume growth and increased yields at all of our transportation segments also contributed to an increase in operating income in the first quarter of 2019. In addition, the favorable net impact of fuel at all of our transportation segments positively impacted our first quarter results. These factors were partially offset by higher purchased transportation expenses and higher salaries and employee benefits expense (discussed above) in the first quarter of 2019.

During the first quarter of 2019, we recognized an income tax benefit of approximately $135 million ($0.50 per diluted share) primarily related to a lower statutory income tax rate on first quarter 2019 earnings as a result of the enactment of the TCJA. See the “Income Taxes” section below for further information.

We ~~also~~ incurred TNT Express integration expenses totaling ~~an aggregate of $122~~$121 million ($9198 million, net of tax, or $0.33 per diluted share) in the second quarter of 2018, a $64 million increase from the second quarter of 2017. TNT Express integration expenses were an aggregate $234 million ($173 million, net of tax, or $0.64$0.36 per diluted share) in the first ~~half~~quarter of ~~2018,~~2019, a ~~$108~~$9 million increase from the first ~~half~~quarter of ~~2017.~~2018. The integration expenses are predominantly incremental costs directly associated with the integration of TNT Express, including salaries and wages, professional and legal fees, ~~salaries and wages,~~ advertising expenses and ~~travel.~~travel, and include any restructuring charges at TNT Express. Internal salaries and wages are included only to the extent the individuals are assigned ~~full time~~full-time to integration activities. These costs were incurred at FedEx Express and FedEx ~~Corporation.~~Corporate. The identification of these costs as integration-related expenditures is subject to our disclosure controls and procedures.

In addition, our results include a tax benefit of approximately $80 million ($0.29 per diluted share) in the second quarter of 2018 attributable to foreign tax credits associated with a dividend paid from our foreign operations.

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

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

Revenues increased ~~9% in the second quarter and 7%~~11% in the first ~~half~~quarter of ~~2018~~2019 due to improved performance at all of our transportation segments. Revenues at FedEx Express increased ~~8% in the second quarter and 5%~~10% in the first ~~half~~quarter of ~~2018~~2019 primarily due to ~~improved base yields,~~international package and freight volume ~~growth and favorable exchange rates, which were partially offset by the loss of volume due to~~recovery from the NotPetya ~~cyberattack.~~cyberattack, higher freight pounds and U.S. domestic package volume and yield growth. At FedEx Ground, revenues increased ~~12% in the second quarter and 10%~~13% in the first ~~half~~quarter of ~~2018~~2019 due to volume growth and increased yields. FedEx Freight revenues increased ~~10% in the second quarter and 8%~~18% in the first ~~half~~quarter of ~~2018~~2019 primarily due to higher ~~LTL~~ revenue per shipment and average daily ~~LTL~~ shipments. Higher fuel surcharges had a positive impact on revenues at all of our transportation segments in the ~~second~~first quarter ~~and first half~~ of ~~2018.~~2019.

The following tables compare operating expenses expressed as dollar amounts (in millions) and as a percent of revenue for the three- month periods ended ~~November 30:~~August 31:

	Percent of Revenue
	Three Months Ended						Six Months Ended										Percent of Revenue
	2017			2016			2017			2016			2018		2017		2018			2017
Operating expenses:
Salaries and employee benefits		35.2	%		35.8	%		35.6	%		36.1	%	$	6,260	$	5,664		36.7	%		37.1	%
Purchased transportation		23.6			23.0			23.1			22.5			3,967		3,445		23.3			22.5
Rentals and landing fees		5.1			5.4			5.2			5.4			823		818		4.8			5.4
Depreciation and amortization		4.6			5.0			4.8			5.0			808		751		4.7			4.9
Fuel		5.0			4.4			4.8			4.4			986		703		5.8			4.6
Maintenance and repairs		4.1			3.9			4.2			4.0			735		675		4.3			4.4
Other		14.7			14.7			14.8			14.4			2,402		2,270		14.1			14.8
Total operating expenses		92.3			92.2			92.5			91.8		$	15,981	$	14,326		93.7			93.7
Operating margin		7.7	%		7.8	%		7.5	%		8.2	%
Operating income													$	1,071	$	971		6.3	%		6.3	%

Operating margin ~~declined~~remained flat in the ~~second~~first quarter ~~and first half~~ of ~~2018~~2019 primarily ~~as a result of~~due to the increased revenue related to the recovery from the NotPetya cyberattack, ~~discussed above~~offset by increased operating expenses across all transportation segments.

Salaries and employee benefits expense increased ~~TNT Express integration expenses.~~

11% in the first quarter of 2019 primarily due to the timing of advanced annual pay increases for certain hourly team members following the passage of the TCJA, higher staffing to support volume growth and higher variable compensation at all of our transportation segments. Purchased transportation costs increased ~~12% in the second quarter and 9%~~15% in the first ~~half~~quarter of ~~2018~~2019 primarily due to higher volumes at all of our transportation segments, as well as higher fuel surcharges and increased rates at FedEx Ground and ~~unfavorable exchange rates at~~ FedEx Express. Salaries and employee benefits expense increased 7% in the second quarter and 6% in the first half of 2018 primarily due to volume growth and merit increases at our transportation segments. Other expenses increased 9% in the second quarter and first half of 2018 primarily due to TNT Express integration expenses at FedEx Express and higher self-insurance reserves at FedEx Ground. Maintenance and repairs expense increased 15% in the second quarter and 14% in the first half of 2018 primarily due to the timing of aircraft maintenance events at FedEx Express.Freight.

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

Fuel expense increased ~~24% in the second quarter and 16%~~40% in the first ~~half~~quarter of ~~2018~~2019 primarily due to increased fuel prices. ~~Fuel~~However, fuel prices represent only one component of the ~~two~~ factors we consider meaningful in understanding the impact of fuel on our business. Consideration must also be given to the fuel surcharge revenue we collect. Accordingly, we believe discussion of the net impact of fuel on our results, which is a comparison of the year-over-year change in these two factors, is important to understand the impact of fuel on our business. In order to provide information about the impact of fuel surcharges on the trend in revenue and yield growth, we have included the comparative weighted-average fuel surcharge percentages in effect for the ~~second quarter~~first quarters of ~~2018~~2019 and ~~2017~~2018 in the accompanying ~~discussions~~discussion of each of our transportation segments.

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

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

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

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

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

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

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

Our effective tax rate was ~~32.0%~~24.2% for the second quarter and 35.4% for the first half of 2018, compared with 35.1% in the second quarter and 36.3% for the first half of 2017. The 2018 effective tax rate benefited from foreign tax credits associated with a dividend paid from our foreign operations. We recognized approximately $80 million of this benefit in the second quarter and the full-year benefit from this dividend will be considered in our annual effective tax rate for 2018. These benefits were partially offset by the effect of the cyberattack on lower-taxed foreign earnings, changes in uncertain tax positions and tax costs incurred in the first quarter of 2019, compared with 39.3% for the first quarter of 2018. The 2019 tax rate was favorably impacted by the TCJA, which resulted in an approximate $135 million benefit primarily from the lower statutory tax rate on first quarter 2019 earnings. The 2018 tax rate was negatively impacted by costs incurred in connection with the integration of the foreign operations of FedEx Express and TNT ~~Express. For~~Express and the effects of the NotPetya cyberattack on lower taxed foreign earnings, which were partially offset by tax benefits from share-based payments.

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

We are still completing our accounting for the income tax effects of ~~pending U.S. tax legislation, see~~ the ~~“Outlook” section below.~~TCJA. As of August 31, 2018, there were no changes to the provisional amounts recorded at May 31, 2018.

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 for the 2014 and 2015 tax years. It is reasonably possible that certain income tax return proceedings will be completed during the next twelve months and could result in a change in our balance of unrecognized tax benefits. The expected impact of any changes would not be material to our consolidated financial statements. As of ~~November 30, 2017,~~August 31, 2018, there were no material changes to our liabilities for unrecognized tax benefits ~~from~~subsequent to May 31, ~~2017.~~

On October 13, 2017, FedEx acquired Northwest Research, Inc., a leader in inventory research and management, for $50 million in cash from operations. The majority of the purchase price was allocated to property, plant and equipment. The financial results of this acquired business are included in the FedEx Services segment from the date of acquisition and were not material to our results of operations.2018.

We expect ~~yield~~volume and ~~volume~~yield growth at all of our transportation segments to support revenue and earnings growth in ~~the second half of 2018,~~2019, prior to any mark-to-market ~~benefit~~retirement plans adjustment. ~~In addition, we are implementing various cost reduction plans~~We will continue executing operational improvement programs at FedEx Ground ~~for the remainder of 2018. We expect ongoing, but diminishing, financial impacts from the cyberattack in the second half of 2018 in the form of lower revenues. However, we~~and FedEx Freight that are ~~highly focused on improving TNT Express revenues~~designed to increase operational efficiency and ~~volumes. Consequences~~safety, enhance service offerings to our customers and ~~risks associated with the ongoing impact of the cyberattack that could negatively impact results of operations and financial condition in the future, particularly if~~reduce our continuing recovery efforts do not proceed as expected, are described in Part II, Item 1A Risk Factors of this Quarterly Report on Form 10-Q. In addition, our third quarter and full-year 2018 results will be negatively affected by our TNT Express integration activities.cost structure.

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

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

The integration process is complex as it spans over 200 countries and territories and involves combining our ~~pickup and delivery~~pickup-and-delivery operations at a local level, our global and regional air and ground networks, and our extensive operations, customs clearance, sales and back-office information technology systems. The integration is expected to be substantially ~~complete~~completed by the end of 2020. We are targeting operating income improvement at the FedEx Express segment of $1.2 billion to $1.5 billion in 2020 from 2017 assuming moderate economic growth, stability in global trade and current accounting rules and ~~U.S.~~ tax laws and continued recovery from the NotPetya cyberattack. This target includes TNT Express synergies, as well as base business and other operational improvements across the global FedEx Express network.

~~We expect the aggregate~~laws. Although we are targeting to complete our integration program ~~expense, including restructuring charges at TNT Express, over~~by the ~~four years to be up to $1.4 billion and expect to incur approximately $450 million~~end of ~~these costs during 2018. Our expected integration expenses have increased from our previous estimates of $350 million for 2018 and $800 million~~2020, we are investing in total based on our decision to accelerate the integration process and to increase investments to move TNT Express information technology, operations and commercial infrastructure to FedEx infrastructure due to the recent cyberattack at TNT Express. In addition, we have identified opportunities to improve the capabilities of the integrated business for future profitability, including in periods beyond 2020. Further, a portion of the incremental integration expenses relate to the ongoing establishment of our new international corporate structure which will leverage synergies to maximize our international profitability, ultimately benefiting our effective tax rate. The timing and amount of integration expenses and capital investments in any future period may change as we implement our plans.

As of the date of this filing, Congress has passed and the President is expected to sign the Tax Cuts and Jobs Act of 2017 into law. If enacted, we estimate a tax benefit between $1.2 billion and $1.5 billion for 2018, primarily due to the revaluation of our net deferred tax liabilities as well as a lower tax rate on 2018 earnings.

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

FedEx Ground previously announced plans to implement the Independent Service Provider (“ISP”) model throughout its entire U.S. ~~pickup and delivery network, including the 29 states that had not yet begun transitioning to the ISP model.~~pickup-and-delivery network. The transition to the ISP model ~~in these 29 states~~ is being accomplished on a district-by-district basis and ~~is expected~~we are now targeting the transition to be completed induring the second ~~half~~quarter of ~~calendar~~ 2020. As of ~~November 30, 2017, 64%~~August 31, 2018, over 60% of FedEx Ground volume was being delivered by small businesses operating under the ISP model. The costs associated with these transitions will be recognized in the periods incurred and are not expected to be material to any future quarter.

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

New accounting rules and disclosure requirements can significantly impact our reported results and the comparability of our financial statements. We believe the following new accounting guidance is relevant to the readers of our financial statements.

During the first quarter of 2018, we early adopted the Accounting Standards Update issued by the Financial Accounting Standards Board (“FASB”) related to Intra-Entity Transfers of Assets Other Than Inventory. This update requires companies to recognize the income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs, as opposed to when the assets are ultimately sold to an outside party. See Note 1~~This new guidance had a minimal impact on our accounting and financial reporting for the second quarter and first half of 2018.~~

On May 28, 2014, the FASB and International Accounting Standards Board issued a new accounting standard that will supersede virtually all existing revenue recognition guidance under generally accepted accounting principles in the United States. This standard will be effective for us beginning June 1, 2018 (fiscal 2019). The fundamental principles of the new guidance are that companies should recognize revenue in a manner that reflects the timing of the transfer of services to customers and the amount of revenue recognized reflects the consideration that a company expects to receive for the goods and services provided. The new guidance establishes a five-step approach for the recognition of revenue. We are continuing to complete the assessment of the impact this new standard will have on ouraccompanying unaudited condensed consolidated financial statements ~~and related disclosures, including ongoing contract reviews. We do not anticipate that the new guidance will have~~for a ~~material impact on our revenue recognition policies, practices or systems.~~discussion of recent accounting guidance.

On February 25, 2016, the FASB issued a new lease accounting standard which requires lessees to put most leases on their balance sheets but recognize the expenses in their income statements in a manner similar to current practice. The new standard states that a lessee will recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. Expenses related to leases determined to be operating leases will be recognized on a straight-line basis, while those determined to be financing leases will be recognized following a front-loaded expense profile in which interest and amortization are presented separately in the income statement. Based on our lease portfolio, we currently anticipate recognizing a lease liability and related right-of-use asset on the balance sheet in excess of $13 billion with an immaterial impact on our income statement compared to the current lease accounting model. However, the ultimate impact of the standard will depend on the company’s lease portfolio as of the adoption date. We are currently in the process of evaluating our existing lease portfolios, including accumulating all of the necessary information required to properly account for the leases under the new standard. Additionally, we are implementing an enterprise-wide lease management system to assist in the accounting and are evaluating additional changes to our processes and internal controls to ensure we meet the standard’s reporting and disclosure requirements. These changes will be effective for our fiscal year beginning June 1, 2019 (fiscal 2020), with a modified retrospective adoption method to the beginning of 2018.

In March 2017, the FASB issued an Accounting Standards Update that changes how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the income statement. This new guidance requires entities to report the service cost component in the same line item or items as other compensation costs. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component outside of income from operations. This standard will impact our operating income but will have no impact on our net income or earnings per share. For example, adoption of this guidance would have reduced operating income by $146 million in the second quarter and $292 million in the first half of 2018, and by $112 million in the second quarter and $224 million in the first half of 2017, but would not have impacted our net income in these periods. This new guidance will be effective for our fiscal year beginning June 1, 2018 (fiscal 2019) and will be applied retrospectively.

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

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

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

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

FedEx Express offers a wide range of U.S. domestic and international shipping services for delivery of packages and freight including priority, deferred orand economy services, which provide delivery on a time-definite or day-definite basis. ~~As discussed in our Annual Report, we are reporting TNT Express as part of the FedEx Express segment. Prior year amounts have been revised to conform to the current year presentation.~~ The following tables compare revenues, operating expenses, operating income (dollars in millions), operating margin and operating expenses as a percent of revenue ~~operating income (dollars in millions) and operating margin~~ for the periods ended ~~November 30:~~August 31:

	Three Months Ended						Percent				Six Months Ended						Percent				Three Months Ended						Percent
	2017			2016			Change				2017			2016			Change				2018			2017			Change
Revenues:
Package:
U.S. overnight box	$	1,787		$	1,709			5			$	3,537		$	3,431			3			$	1,886		$	1,750			8
U.S. overnight envelope		432			422			2				882			865			2				468			450			4
U.S. deferred		922			834			11				1,800			1,644			9				952			878			8
Total U.S. domestic package revenue		3,141			2,965			6				6,219			5,940			5				3,306			3,078			7
International priority		1,839			1,762			4				3,580			3,477			3				1,848			1,741			6
International economy		815			716			14				1,585			1,409			12				850			770			10
Total international export package revenue		2,654			2,478			7				5,165			4,886			6				2,698			2,511			7
International domestic⁽¹⁾		1,214			1,088			12				2,258			2,103			7				1,127			1,044			8
Total package revenue		7,009			6,531			7				13,642			12,929			6				7,131			6,633			8
Freight:
U.S.		688			612			12				1,301			1,228			6				730			613			19
International priority		560			476			18				1,030			925			11				551			470			17
International economy		481			419			15				862			828			4				519			381			36
International airfreight		90			93			(3	)			173			186			(7	)			85			83			2
Total freight revenue		1,819			1,600			14				3,366			3,167			6				1,885			1,547			22			Percent of Revenue
Other⁽²⁾		526			511			3				998			1,006			(1	)
Other																						206			220			(6	)		2018			2017
Total revenues		9,354			8,642			8				18,006			17,102			5				9,222			8,400			10				100.0	%		100.0	%
Operating expenses:
Salaries and employee benefits		3,321			3,114			7				6,517			6,223			5				3,473			3,214			8				37.7			38.3
Purchased transportation		1,502			1,352			11				2,868			2,677			7				1,307			1,184			10				14.2			14.1
Rentals and landing fees		498			485			3				988			972			2				470			484			(3	)			5.1			5.7
Depreciation and amortization		412			412			—				829			832			—				436			415			5				4.7			4.9
Fuel		703			565			24				1,306			1,120			17				845			603			40				9.2			7.2
Maintenance and repairs		447			379			18				907			772			17				502			459			9				5.4			5.5
Intercompany charges		505			468			8				993			930			7				539			497			8				5.8			5.9
Other		1,249			1,161			8				2,448			2,260			8				1,283			1,224			5				13.9			14.6
Total operating expenses		8,637			7,936			9				16,856			15,786			7				8,855			8,080			10				96.0	%		96.2	%
Operating income	$	717		$	706			2			$	1,150		$	1,316			(13	)		$	367		$	320			15
Operating margin		7.7	%		8.2	%		(50	)	bp		6.4	%		7.7	%		(130	)	bp		4.0	%		3.8	%		20		bp

The following table compares selected statistics (in thousands, except yield amounts) for the periods ended ~~November 30:~~August 31:

	Three Months Ended				Percent			Six Months Ended				Percent			Three Months Ended				Percent
	2017		2016		Change			2017		2016		Change			2018		2017		Change
Package Statistics⁽¹⁾
Average daily package volume (ADV):
U.S. overnight box		1,248		1,283		(3	)		1,217		1,269		(4	)		1,231		1,188		4
U.S. overnight envelope		547		557		(2	)		552		563		(2	)		551		557		(1	)
U.S. deferred		938		866		8			907		845		7			916		876		5
Total U.S. domestic ADV		2,733		2,706		1			2,676		2,677		—			2,698		2,621		3
International priority		544		538		1			523		519		1			518		504		3
International economy		277		259		7			265		248		7			276		252		10
Total international export ADV		821		797		3			788		767		3			794		756		5
International domestic⁽²⁾⁽¹⁾		2,830		2,696		5			2,622		2,500		5			2,395		2,238		7
Total ADV		6,384		6,199		3			6,086		5,944		2			5,887		5,615		5
Revenue per package (yield):
U.S. overnight box	$	22.73	$	21.15		7		$	22.70	$	21.13		7		$	23.57	$	22.67		4
U.S. overnight envelope		12.53		12.00		4			12.48		11.98		4			13.09		12.43		5
U.S. deferred		15.58		15.30		2			15.51		15.21		2			15.98		15.42		4
U.S. domestic composite		18.24		17.39		5			18.15		17.33		5			18.85		18.07		4
International priority		53.67		52.06		3			53.47		52.41		2			54.84		53.17		3
International economy		46.77		43.80		7			46.86		44.28		6			47.43		46.95		1
International export composite		51.34		49.37		4			51.25		49.78		3			52.27		51.09		2
International domestic⁽²⁾⁽¹⁾		6.81		6.40		6			6.73		6.57		2			7.24		7.18		1
Composite package yield		17.43		16.72		4			17.51		16.99		3			18.64		18.17		3
Freight Statistics⁽¹⁾
Average daily freight pounds:
U.S.		8,475		8,177		4			8,095		8,121		—			8,309		7,727		8
International priority		5,706		5,417		5			5,300		5,099		4			5,315		4,906		8
International economy		13,231		12,593		5			11,733		11,863		(1	)		13,459		10,281		31
International airfreight		2,016		1,959		3			1,895		1,913		(1	)		1,717		1,853		(7	)
Total average daily freight pounds		29,428		28,146		5			27,023		26,996		—			28,800		24,767		16
Revenue per pound (yield):
U.S.	$	1.29	$	1.19		8		$	1.26	$	1.18		7		$	1.35	$	1.22		11
International priority		1.56		1.39		12			1.52		1.42		7			1.60		1.48		8
International economy		0.58		0.53		9			0.57		0.55		4			0.59		0.57		4
International airfreight		0.71		0.76		(7	)		0.71		0.76		(7	)		0.76		0.69		10
Composite freight yield		0.98		0.90		9			0.97		0.92		5			1.01		0.96		5

FedEx Express segment revenues increased 8%10% in the ~~second~~first quarter of 2019 primarily due to international package and freight volume recovery from the NotPetya cyberattack, higher freight pounds, U.S. domestic package volume and yield growth and higher fuel surcharges.

International export average daily volumes increased 5% in the first ~~half~~quarter of ~~2018~~2019 primarily due to ~~improved base yields and growth in international services, as well as higher fuel surcharges and favorable exchange rates. These factors were partially offset by~~increased volume from the recovery of the NotPetya ~~cyberattack discussed above.~~

U.S. domestic package yields increased 5% in the second quarter and the first half of 2018 primarily due to higher base rates and fuel surcharges. U.S. domestic average daily volume increased 1% in the second quarter and remained flat in the first half of 2018 driven by our U.S. deferred service, offset by declines in our overnight service offerings.cyberattack. International export package yields increased ~~4% in the second quarter and 3%~~2% in the first ~~half~~quarter of ~~2018~~2019 due to higher fuel surcharges, ~~favorable exchange rates and favorable service mix,~~ partially offset by lower base rates. ~~International export~~Average daily freight pounds increased 16% in the first quarter of 2019 primarily due to higher volume in international freight services, driven by NotPetya cyberattack recovery as well as base business growth. Freight yields increased 5% in the first quarter of 2019 primarily due to higher fuel surcharges and base rates. U.S. domestic package average daily volumes increased 3% in the ~~second~~first quarter of 2019 driven by our deferred and ~~the first half of 2018 primarily due to increased international economy shipments, partially offset by the decrease in volume due to the NotPetya cyberattack. Freight~~overnight service offerings. U.S. domestic package yields increased ~~9% in the second quarter and 5%~~4% in the first ~~half~~quarter of ~~2018~~2019 primarily due to higher ~~base rates, higher~~ fuel surcharges and ~~favorable exchange~~base rates. ~~Freight average daily pounds increased 5% in the second quarter of 2018 primarily due to higher international volume, partially offset by the NotPetya cyberattack.~~

FedEx Express’s U.S. domestic and outbound fuel surcharge and ~~the~~ international fuel surcharges ranged as follows for the periods ended ~~November 30:~~August 31:

	Three Months Ended						Six Months Ended						Three Months Ended
	2017			2016			2017			2016			2018			2017
U.S. Domestic and Outbound Fuel Surcharge:
Low		4.42	%		2.00	%		2.21	%		0.96	%		7.02	%		2.21	%
High		4.87			2.28			4.87			2.53			7.27			3.33
Weighted-average		4.63			2.09			3.67			1.96			7.11			2.71
International Fuel Surcharges:
Low		5.65			2.11			3.38			1.16			8.14			3.38
High		12.16			9.33			13.75			9.51			17.97			13.73
Weighted-average		10.54			7.20			9.66			7.12			15.14			8.18

~~On September 18, 2017,~~Effective January 1, 2018, FedEx Express ~~announced~~implemented a 4.9% average list price increase for U.S. domestic, U.S. export and U.S. import services effective January 1, 2018. Effective February 6, 2017, FedEx Express fuel surcharges are adjusted on a weekly basis compared to the previous monthly adjustment. On January 2, 2017, FedEx Express implemented a 3.9% average list price increase for U.S. domestic, U.S. export and U.S. import services and a change to the U.S. domestic dimensional weight divisor.services.

FedEx Express segment operating income and margin increased in the ~~second~~first quarter of ~~2018~~2019 due to international package and freight volume recovery from the NotPetya cyberattack, higher ~~revenues,~~freight pounds, U.S. domestic package volume growth and the positive net impact of ~~fuel~~fuel. The increased variable compensation accruals during 2019 and ~~continued cost efficiencies. However, impacts from~~accelerated annual merit pay increases during late 2018 for certain of our hourly employees following the passage of the TCJA (described in the “Overview” section above) negatively impacted the year-over-year comparison of operating income by approximately $100 million. In addition, changes in service mix following the NotPetya cyberattack ~~and higher TNT Express integration expenses drove a decline in~~negatively impacted operating margin in the ~~second~~first quarter ~~and also drove a decline in operating income and margin~~of 2019.

~~The NotPetya cyberattack negatively affected results by an estimated $100 million in the second quarter and $400 million in the first half of 2018. Results also included $96~~2019 include approximately $102 million of TNT Express integration expenses, ~~in the second quarter and $184 million in the first half of 2018,~~ a ~~$68 million increase from the second quarter and $114~~$14 million increase from the first ~~half~~quarter of ~~2017.~~2018.

Salaries and employee benefits increased 7% in the second quarter and 5% in the first half of 2018 primarily due to merit increases, increased volume and unfavorable exchange rates. Purchased transportation increased 11% in the second quarter and 7% in the first half of 2018 due to increased volume and unfavorable exchange rates. Other expensesexpense increased 8% in the ~~second~~first quarter ~~and first half~~ of ~~2018~~2019 primarily due to the pay increases noted above and higher staffing to support volume growth. Purchased transportation expense increased ~~outside service contracts~~10% in the first quarter of 2019 primarily ~~related~~due to higher volume from the recovery of the NotPetya ~~cyberattack, TNT Express integration expenses and unfavorable exchange rates.~~cyberattack. Maintenance and repairs expense increased ~~18% in the second quarter and 17%~~9% in the first ~~half~~quarter of ~~2018~~2019 primarily due ~~primarily~~ to the timing of aircraft engine maintenance events.

Fuel expense increased ~~24% in the second quarter and 17%~~40% in the first ~~half~~quarter of ~~2018~~2019 due to ~~increased~~higher fuel prices. However, the net impact of fuel had a ~~moderate~~significant benefit to operating income in the ~~second~~first quarter ~~and first half~~ of ~~2018~~2019, as higher fuel surcharges more than offset increased fuel prices. See the “Fuel” section of this MD&A for a description and additional discussion of the net impact of fuel on our operating results.

FedEx Ground service offerings include day-certain delivery to businesses in the U.S. and Canada and to 100% of U.S. residences. The following tables compare revenues, operating expenses, operating ~~expenses as a percent of revenue, operating~~ income (dollars in millions), operating margin, ~~and~~ selected package statistics (in thousands, except yield amounts) and operating expenses as a percent of revenue for the periods ended ~~November 30:~~August 31:

Three Months Ended

Percent

Six Months Ended

Percent

2017

2016

Change

2017

2016

Change

Revenues:

FedEx Ground

$
4,521

$
4,015

13

$
8,762

$
7,906

11

FedEx Supply Chain

408

404

1

806

803

—

Total revenues

4,929

4,419

12

9,568

8,709

10

Operating expenses:

Salaries and employee benefits

919

820

12

1,755

1,586

11

Purchased transportation

2,100

1,861

13

3,959

3,553

11

Rentals

207

189

10

408

370

10

Depreciation and amortization

177

168

5

350

331

6

Fuel

4

3

33

6

5

20

Maintenance and repairs

85

78

9

167

154

8

Intercompany charges

362

328

10

716

653

10

Other

554

507

9

1,060

982

8

Total operating expenses

4,408

3,954

11

8,421

7,634

10

Operating income

$
521

$
465

12

$
1,147

$
1,075

7

Operating margin

10.6
%

10.5
%

10

bp

12.0
%

12.3
%

(30
)
bp
Average daily package volume

FedEx Ground

8,576

8,005

7

8,125

7,692

6

Revenue per package (yield)

FedEx Ground

$
8.35

$
7.95

5

$
8.41

$
8.02

5

	Percent of Revenue												Three Months Ended						Percent				Percent of Revenue
	Three Months Ended						Six Months Ended						2018			2017			Change				2018			2017
	2017			2016			2017			2016
Revenues													$	4,799		$	4,245			13				100.0	%		100.0	%
Operating expenses:
Salaries and employee benefits		18.6	%		18.5	%		18.3	%		18.2	%		805			680			18				16.8			16.0
Purchased transportation		42.6			42.1			41.4			40.8			2,062			1,776			16				43.0			41.8
Rentals		4.2			4.3			4.3			4.2			191			184			4				4.0			4.3
Depreciation and amortization		3.6			3.8			3.6			3.8			173			161			7				3.6			3.8
Fuel		0.1			0.1			0.1			0.1			3			2			50				—			—
Maintenance and repairs		1.7			1.8			1.7			1.8			77			75			3				1.6			1.8
Intercompany charges		7.4			7.4			7.5			7.5			397			359			11				8.3			8.5
Other		11.2			11.5			11.1			11.3			424			402			5				8.8			9.5
Total operating expenses		89.4			89.5			88.0			87.7			4,132			3,639			14				86.1	%		85.7	%
Operating income													$	667		$	606			10
Operating margin		10.6	%		10.5	%		12.0	%		12.3	%		13.9	%		14.3	%		(40	)	bp
Average daily package volume														8,221			7,688			7
Revenue per package (yield)													$	8.96		$	8.47			6

FedEx Ground segment revenues increased ~~12% in the second quarter and 10%~~13% in the first ~~half~~quarter of ~~2018~~2019 due to volume growth and increased yields. Average daily volume at FedEx Ground increased 7% in the ~~second~~first quarter ~~and 6% in the first half~~ of ~~2018~~2019 primarily due to continued growth in ~~our~~commercial and residential ~~and commercial services.~~services driven by e-commerce growth. FedEx Ground yield increased 5%6% during the ~~second~~first quarter ~~and first half~~ of ~~2018~~2019 primarily driven by higher fuel surcharges and base ~~rates in our commercial services and higher fuel surcharges.~~yields.

The FedEx Ground fuel surcharge is based on a rounded average of the national U.S. on-highway average price for a gallon of diesel fuel, as published by the Department of Energy. ~~Our~~The fuel surcharge ranged as follows for the periods ended ~~November 30:~~August 31:

	Three Months Ended						Six Months Ended						Three Months Ended
	2017			2016			2017			2016			2018			2017
Low		4.50	%		3.80	%		4.00	%		3.30	%		6.30	%		4.00	%
High		5.25			4.00			5.25			4.00			6.50			4.50
Weighted-average		5.02			3.90			4.68			3.80			6.30			4.32

~~On September 18, 2017,~~Effective January 1, 2018, FedEx Ground ~~announced~~implemented a 4.9% average list price ~~increase effective January 1, 2018.~~increase. In addition, as announced on September 18, 2017, dimensional weight pricing ~~will apply~~applies to ~~all~~the majority of FedEx SmartPost shipments effective January 22, 2018. Effective February 6, 2017, FedEx Ground fuel surcharges are adjusted on a weekly basis compared to the previous monthly adjustment. On January 2, 2017, FedEx Ground implemented a 4.9% average list price increase and a change to the U.S. domestic dimensional weight divisor. On January 4, 2016, FedEx Ground implemented a 4.9% increase in average list price.

FedEx Ground segment operating income increased ~~12% in the second quarter and 7%~~10% in the first ~~half~~quarter of ~~2018~~2019 due to volume growth and increased yields. ~~Higher~~The increased variable compensation accruals during 2019 and accelerated annual merit pay increases during late 2018 for certain of our hourly employees following the passage of the TCJA (described in the “Overview” section above) negatively impacted the year-over-year comparison of operating income by approximately $30 million. In addition, higher purchased transportation, staffing and network expansion ~~and staffing~~ costs ~~and increased self-insurance reserves~~ partially offset ~~these~~the benefits from higher revenues and ~~also~~ drove ~~the operating margin~~a decline in ~~the first half of 2018.~~operating margin.

Purchased transportation expense increased ~~13% in the second quarter and 11%~~16% in the first ~~half~~quarter of ~~2018~~2019 primarily due to higher volumes, increased rates and ~~increased rates.~~higher fuel costs. Salaries and employee benefits expense increased ~~12% in the second quarter and 11%~~18% in the first ~~half~~quarter of ~~2018~~2019 primarily due to additional staffing to support volume growth, ~~network expansion~~the pay increases noted above and merit increases. Other expense increased 9% in the second quarter and 8% in the first half of 2018 due to higher self-insurance reserves. Intercompany charges increased 10% in the second quarter and first half of 2018 due to higher allocated information technology and marketing and sales costs. Rentals and depreciation and amortization expense increased 8% in the second quarter and first half of 2018 due to network expansion.

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

FedEx Freight LTL service offerings include priority services when speed is critical and economy services when time can be traded for savings. The following tables compare revenues, operating expenses, operating ~~expenses as a percent of revenue, operating~~ income (dollars in millions), operating margin, ~~and~~ selected statistics and operating expenses as a percent of revenue for the periods ended ~~November 30:~~August 31:

	Three Months Ended						Percent			Six Months Ended						Percent			Three Months Ended						Percent				Percent of Revenue
	2017			2016			Change			2017			2016			Change			2018			2017			Change				2018			2017
Revenues	$	1,762		$	1,597			10		$	3,514		$	3,255			8		$	1,959		$	1,664			18				100.0	%		100.0	%
Operating expenses:
Salaries and employee benefits		828			761			9			1,630			1,533			6			928			793			17				47.4			47.7
Purchased transportation		271			250			8			529			509			4			259			198			31				13.2			11.9
Rentals		37			35			6			73			65			12			42			36			17				2.1			2.1
Depreciation and amortization		73			66			11			142			130			9			78			68			15				4.0			4.1
Fuel		112			92			22			209			183			14			137			97			41				7.0			5.8
Maintenance and repairs		60			55			9			117			109			7			62			56			11				3.2			3.4
Intercompany charges		128			124			3			254			250			2			138			125			10				7.0			7.5
Other		135			126			7			266			253			5			139			126			10				7.1			7.6
Total operating expenses		1,644			1,509			9			3,220			3,032			6			1,783			1,499			19				91.0	%		90.1	%
Operating income	$	118		$	88			34		$	294		$	223			32		$	176		$	165			7
Operating margin		6.7	%		5.5	%		120	bp		8.4	%		6.9	%		150	bp		9.0	%		9.9	%		(90	)	bp
Average daily LTL shipments (in thousands)
Average daily shipments (in thousands)
Priority		76.3			72.7			5			75.3			72.6			4			81.2			74.4			9
Economy		32.3			31.4			3			32.0			31.9			—			34.6			31.6			9
Total average daily LTL shipments		108.6			104.1			4			107.3			104.5			3
Weight per LTL shipment (lbs)
Total average daily shipments																				115.8			106.0			9
Weight per shipment (lbs)
Priority		1,201			1,165			3			1,192			1,171			2			1,218			1,184			3
Economy		1,153			1,113			4			1,150			1,105			4			1,009			1,147			(12	)
Composite weight per LTL shipment		1,187			1,149			3			1,180			1,151			3
LTL revenue per shipment
Composite weight per shipment																				1,156			1,173			(1	)
Revenue per shipment
Priority	$	232.25		$	220.34			5		$	229.17		$	218.89			5		$	246.77		$	226.16			9
Economy		286.35			261.28			10			281.64			258.26			9			292.33			277.04			6
Composite LTL revenue per shipment	$	248.36		$	232.70			7		$	244.81		$	230.90			6
LTL yield (revenue per hundredweight)
Composite revenue per shipment																			$	260.39		$	241.34			8
Revenue per hundredweight
Priority	$	19.34		$	18.92			2		$	19.22		$	18.70			3		$	20.26		$	19.11			6
Economy		24.84			23.48			6			24.49			23.37			5			28.97			24.15			20
Composite LTL yield	$	20.93		$	20.25			3		$	20.75		$	20.07			3
Composite revenue per hundredweight																			$	22.53		$	20.58			9

FedEx Freight segment revenues increased ~~10% in the second quarter and 8%~~18% in the first ~~half~~quarter of ~~2018~~2019 primarily due to higher ~~LTL~~ revenue per shipment and average daily ~~LTL~~ shipments. ~~LTL revenue~~Revenue per shipment increased ~~7% in the second quarter and 6%~~8% in the first ~~half~~quarter of ~~2018~~2019 primarily due to higher base rates driven by our ongoing yield management initiatives and higher fuel surcharges. Average daily ~~LTL~~ shipments increased ~~4% in the second quarter and 3%~~9% in the first ~~half~~quarter of ~~2018~~2019 due to higher demand for our ~~LTL~~ service offerings.

The weekly indexed ~~LTL~~ fuel surcharge is based on the average of the ~~national~~ U.S. on-highway ~~average~~ prices for a gallon of diesel fuel, as published by the Department of Energy. The indexed ~~LTL~~FedEx Freight fuel surcharge ranged as follows for the periods ended ~~November 30:~~August 31:

	Three Months Ended						Six Months Ended						Three Months Ended
	2017			2016			2017			2016			2018			2017
Low		22.40	%		20.50	%		20.90	%		20.20	%		24.60	%		20.90	%
High		23.20			21.00			23.20			21.00			25.00			21.60
Weighted-average		22.70			20.75			21.96			20.64			24.77			21.26

~~On September 18, 2017, FedEx Freight announced a 4.9% average increase in certain U.S. and other shipping rates effective~~Effective January 1, ~~2018. On January 2, 2017,~~2018, FedEx Freight implemented a 4.9% average increase in certain U.S. and other shipping rates.

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

Salaries and employee benefits expense increased ~~9% in the second quarter and 6%~~17% in the first ~~half~~quarter of ~~2018~~2019 driven primarily by higher staffing levels to support volume growth ~~and merit increases.~~as well as the pay increases noted above. Purchased transportation expense increased ~~8% in the second quarter and 4%~~31% in the first ~~half~~quarter of ~~2018~~2019 due to ~~higher volumes and~~ increased rates, ~~which were partially offset by the movement of certain services within FedEx Custom Critical to the FedEx Ground segment.~~higher fuel surcharges and higher volumes.

Fuel expense increased ~~22% in the second quarter and 14%~~41% in the first ~~half~~quarter of ~~2018~~2019 primarily due to higher fuel prices. The net impact of fuel had a ~~slight~~moderate benefit to operating income in the ~~second~~first quarter ~~and first half~~ of ~~2018~~2019 as higher fuel surcharges more than offset increased fuel prices.

Cash and cash equivalents totaled ~~$2.8~~$2.4 billion at ~~November 30, 2017,~~August 31, 2018, compared to ~~$4.0~~$3.3 billion at May 31, ~~2017.~~2018. The following table provides a summary of our cash flows for the ~~six-month~~three-month periods ended ~~November 30~~August 31 (in millions):

	2017			2016			2018			2017
Operating activities:
Net income	$	1,371		$	1,415		$	835		$	596
Noncash charges and credits		2,053			1,968			981			970
Gain from sale of investment		—			(35	)
Changes in assets and liabilities		(1,926	)		(713	)		(1,115	)		(976	)
Cash provided by operating activities		1,498			2,635			701			590
Investing activities:
Capital expenditures		(2,621	)		(2,681	)		(1,179	)		(1,044	)
Business acquisitions, net of cash acquired		(44	)		—
Proceeds from asset dispositions and other		12			100			78			6
Cash used in investing activities		(2,653	)		(2,581	)		(1,101	)		(1,038	)
Financing activities:
Proceeds from short-term borrowings		250			—			299			—
Principal payments on debt		(28	)		(43	)		(2	)		(12	)
Proceeds from stock issuances		205			164			25			150
Dividends paid		(268	)		(213	)		(173	)		(134	)
Purchase of treasury stock		(270	)		(334	)		(625	)		(86	)
Other		3			(5	)		4			(6	)
Cash used in financing activities		(108	)		(431	)		(472	)		(88	)
Effect of exchange rate changes on cash		62			(98	)		(24	)		70
Net decrease in cash and cash equivalents	$	(1,201	)	$	(475	)	$	(896	)	$	(466	)
Cash and cash equivalents at the end of period	$	2,768		$	3,059		$	2,369		$	3,503

Cash flows from operating activities ~~decreased $1.1 billion~~increased $111 million in the first ~~half~~quarter of ~~2018~~2019 primarily due to higher net income, including as a result of recovery from the NotPetya cyberattack, ~~higher income tax payments, pension contributions and the payment of a previously accrued legal settlement.~~partially offset by increased variable compensation payments. Capital expenditures ~~decreased slightly~~increased during the first ~~half~~quarter of ~~2018~~2019 primarily due to ~~lower spending~~aircraft and related ~~to package handling and ground support~~ equipment purchases at FedEx ~~Ground~~Express, increased spending on information technology at FedEx Services and increased vehicle purchases at FedEx Freight and FedEx Express, partially offset by ~~increased facilities and other~~lower spending on network expansion projects at FedEx Ground. See “Capital Resources” for a discussion of capital expenditures during ~~2018~~the first quarters of 2019 and ~~2017.~~2018.

During the ~~second~~first quarter of 2019, we issued commercial paper to provide us with additional short-term liquidity. As of August 31, 2018, we ~~issued $250~~had $300 million of commercial paper ~~providing us with additional short-term liquidity flexibility. Upon maturity in~~outstanding. See Note 3 of the accompanying unaudited condensed consolidated financial statements for further discussion.

In January ~~2018, we will re-evaluate our short-term liquidity needs and assess whether to issue additional commercial paper in order to maintain this short-term liquidity flexibility.~~

~~On January 26,~~ 2016, our Board of Directors approved a share repurchase program of up to 25 million shares. During the ~~second~~first quarter of ~~2018,~~2019, we repurchased ~~0.8~~2.6 million shares of FedEx common stock at an average price of ~~$220.67~~$238.95 per share for a total of ~~$184 million. During the first half of 2018, we repurchased 1.2 million shares of FedEx common stock at an average price of $216.45 per share for a total of $270~~$625 million. As of ~~November 30, 2017, 14.8~~August 31, 2018, 9.1 million shares remained under the current share repurchase authorization. Shares under ~~the current~~this repurchase program may be repurchased from time to time in the open market or in privately negotiated transactions. The timing and volume of repurchases are at the discretion of management, based on the capital needs of the business, the market price of FedEx common stock and general market conditions. No time limit was set for the completion of the program, and the program may be suspended or discontinued at any time.

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

The following table compares capital expenditures by asset category and reportable segment for the periods ended ~~November 30~~August 31 (in millions):

									Percent Change										Percent Change
									2017/2016										2018/2017
	Three Months Ended				Six Months Ended				Three Months			Six Months			Three Months Ended				Three Months
	2017		2016		2017		2016		Ended			Ended			2018		2017		Ended
Aircraft and related equipment	$	629	$	443	$	1,040	$	1,035		42			—		$	472	$	410		15
Package handling and ground support equipment		217		326		414		524		(33	)		(21	)		193		197		(2	)
Vehicles		390		369		511		518		6			(1	)		160		122		31
Information technology		135		119		261		278		13			(6	)		175		126		39
Facilities and other		206		209		395		326		(1	)		21			179		189		(5	)
Total capital expenditures	$	1,577	$	1,466	$	2,621	$	2,681		8			(2	)	$	1,179	$	1,044		13
FedEx Express segment	$	873	$	723	$	1,455	$	1,555		21			(6	)	$	760	$	581		31
FedEx Ground segment		420		504		747		740		(17	)		1			176		306		(42	)
FedEx Freight segment		172		162		199		208		6			(4	)		90		28		221
FedEx Services segment		112		77		220		178		45			24			142		107		33
Other																11		22		(50	)
Total capital expenditures	$	1,577	$	1,466	$	2,621	$	2,681		8			(2	)	$	1,179	$	1,044		13

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

We believe that our cash and cash equivalents, cash flow from operations and available financing sources ~~are~~will be adequate to meet our liquidity needs, including working capital, capital expenditure requirements, ~~and~~ debt payment ~~obligations.~~obligations, pension contributions and TNT Express integration expenses. Our cash and cash equivalents balance at ~~November 30, 2017 included $1.1~~August 31, 2018 includes $1.0 billion of cash in foreign jurisdictions associated with our permanent reinvestment strategy. We are able to access the majority of this cash without a material tax cost, as the enactment of the TCJA significantly reduced the cost of repatriating foreign earnings from a U.S. tax perspective. We do not believe that the indefinite reinvestment of these funds impairs our ability to meet our U.S. domestic debt or working capital obligations. ~~Although we expect higher~~

Our capital expenditures are expected to be approximately $5.6 billion in ~~2018,~~2019, and include spending for aircraft modernization at FedEx Express, spending on facilities and sort equipment, primarily at FedEx Express and FedEx Ground, and spending for TNT Express integration-related investments. We invested $0.5 billion in aircraft and related equipment in the first quarter of 2019 and expect to invest an additional $1.3 billion for aircraft and related equipment during the remainder of 2019. In addition, over the next several years, we will be investing approximately $1.5 billion to significantly expand the FedEx Express Indianapolis hub and approximately $1 billion to modernize the FedEx Express Memphis World Hub. We anticipate that our cash flow from operations will be sufficient to fund ~~these expenditures.~~our capital expenditures in 2019. Historically, we have been successful in obtaining unsecured financing, from both domestic and international sources, although the marketplace for such investment capital can become restricted depending on a variety of economic factors.

Our capital expenditures are expected to be approximately $5.9 billion in 2018 and include spending for aircraft and aircraft-related equipment at FedEx Express, sort facility expansion, primarily at FedEx Ground, and new and replacement vehicles at all of our transportation segments. We expect to invest an additional $1.2 billion for aircraft and aircraft-related equipment during the remainder of 2018. However, we may increase our capital expenditures in 2018 if the Tax Cuts and Jobs Act of 2017 is enacted.

During the ~~second~~ quarter, ~~of 2018,~~ FedEx Express entered into ~~an agreement~~agreements to purchase ~~50 Cessna SkyCourier 408~~12 incremental B777F aircraft ~~with options~~and 12 incremental B767F aircraft. Six of the B777F and one of the B767F aircraft purchases are conditioned upon there being no event that causes FedEx Express or its employees not to ~~purchase up to 50 additional Cessna SkyCourier 408 aircraft.~~be covered by the Railway Labor Act of 1926, as amended (“RLA”). The ~~50 firm-order Cessna SkyCourier 408~~B777F aircraft are expected to be delivered ~~from fiscal~~between 2021 ~~through 2024.~~

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

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

We have a five-year ~~$1.75~~$2.0 billion revolving credit facility that expires in November 2020. See Note 3 of the accompanying unaudited condensed consolidated financial statements for a description of the ~~term~~terms and significant covenants of our revolving credit facility.

~~During~~For the ~~first half~~remainder of ~~2018,~~2019, we ~~made~~anticipate making additional voluntary contributions ~~totaling $750 million~~ to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”), ~~of which $268 million were required.~~ although at a much lower level than in 2018. We ~~expect to make an additional $250 million contribution~~do not anticipate contributions to our U.S. Pension Plans ~~during 2018.~~will be required for the foreseeable future based on our funded status and the fact we have a credit balance related to our cumulative excess voluntary pension contributions over those required that exceeds $3 billion. The credit balance is subtracted from plan assets to determine the minimum funding requirements. Therefore, we could eliminate all required contributions to our principal U.S. Pension Plans for several years if we were to choose to waive part of that credit balance in any given year. During the first quarter of 2019, we made voluntary contributions totaling $250 million to our U.S. Pension Plans. In September 2018, we made additional voluntary contributions to our U.S. Pension Plans of $250 million. Our U.S. Pension Plans have ample funds to meet expected benefit payments.

Standard & Poor’s has assigned us a senior unsecured debt credit rating of BBB, ~~and~~a commercial paper rating of A-2 and a ratings outlook of “stable.” Moody’s Investors Service has assigned ~~our~~us an unsecured debt a credit rating of Baa2, ~~and our~~a commercial paper a rating of P-2 and a ratings outlook of “stable.” If our credit ratings drop, our interest expense may increase. If our commercial paper ratings drop below current levels, we may have difficulty utilizing the commercial paper market. If our senior unsecured debt credit ratings drop below investment grade, our access to financing may become limited.

The following table sets forth a summary of our contractual cash obligations as of ~~November 30, 2017.~~August 31, 2018. Certain of these contractual obligations are reflected in our balance sheet, while others are disclosed as future obligations under accounting principles generally accepted in the United States. Except for the current portion of interest on long-term debt, this table does not include amounts already recorded in our balance sheet as current liabilities at ~~November 30, 2017.~~August 31, 2018. We have certain contingent liabilities that are not accrued in our balance sheet in accordance with accounting principles generally accepted in the United States. These contingent liabilities are not included in the table below. We have other long-term liabilities reflected in our balance sheet, including deferred income taxes, qualified and nonqualified pension and postretirement healthcare plan liabilities and other self-insurance accruals. ~~The~~Unless statutorily required, the payment obligations associated with these liabilities are not reflected in the table below due to the absence of scheduled maturities. Accordingly, this table is not meant to represent a forecast of our total cash expenditures for any of the periods presented.

		Payments Due by Fiscal Year (Undiscounted) (in millions)														Payments Due by Fiscal Year (Undiscounted) (in millions)
		2018 ⁽¹⁾		2019		2020		2021		2022		Thereafter		Total		2019 ⁽¹⁾		2020		2021		2022		2023		Thereafter		Total
Operating activities:
Operating leases		$	1,448	$	2,357	$	2,060	$	1,826	$	1,649	$	8,921	$	18,261	$	1,930	$	2,222	$	1,999	$	1,800	$	1,586	$	8,367	$	17,904
Non-capital purchase obligations and other			426		677		524		385		234		492		2,738		807		809		579		384		287		2,840		5,706
Interest on long-term debt			291		546		484		472		472		8,719		10,984		411		541		529		529		522		9,348		11,880
Quarterly contributions to our U.S. Pension Plans			15		—		—		—		—		—		15		—		—		—		—		—		—		—
Investing activities:
Aircraft and aircraft-related capital commitments			870		1,723		1,965		1,488		1,451		3,334		10,831
Aircraft and related capital commitments																	1,271		1,941		2,211		1,812		1,514		672		9,421
Other capital purchase obligations			66		2		1		1		1		7		78		26		27		25		23		23		6		130
Financing activities:
Debt	��		3		1,350		997		—		—		12,928		15,278		1,335		983		—		—		1,624		12,745		16,687
Total		$	3,119	$	6,655	$	6,031	$	4,172	$	3,807	$	34,401	$	58,185	$	5,780	$	6,523	$	5,343	$	4,548	$	5,556	$	33,978	$	61,728

Open purchase orders that are cancelable are not considered unconditional purchase obligations for financial reporting purposes and are not included in the table above. Such purchase orders often represent authorizations to purchase rather than binding agreements.

See Note 78 of the accompanying unaudited condensed consolidated financial statements for more ~~information.~~information on such purchase orders.

The amounts reflected in the table above for operating leases represent undiscounted future minimum lease payments under noncancelable operating leases (principally ~~aircraft~~facilities and ~~facilities)~~aircraft) with an initial or remaining term in excess of one year at ~~November 30, 2017.~~August 31, 2018.

Included in the table above within the caption entitled “Non-capital purchase obligations and other” is our estimate of the current portion of the liability ($3899 million) for uncertain tax positions and amounts for purchase obligations that represent noncancelable agreements to purchase goods or services that are not capital related. Such contracts include those for printing and advertising and promotions contracts.positions. We cannot reasonably estimate the timing of the long-term payments or the amount by which the liability ~~for uncertain tax positions~~ will increase or decrease over time; therefore, the long-term portion of the liability ~~for uncertain tax positions~~ ($3956 million) is excluded from the table.

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

~~We had $684 million in deposits and progress payments as of November 30, 2017 on aircraft purchases and other planned aircraft-related transactions.~~

The amounts reflected in the table above for capital purchase obligations represent noncancelable agreements to purchase capital-related equipment. Such contracts include those for certain purchases of aircraft, aircraft modifications, vehicles, facilities, computers and other equipment.

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

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

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

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

GOODWILL. Goodwill is tested for impairment between annual tests whenever events or circumstances make it more likely than not that the fair value of a reporting unit has fallen below its carrying value. We do not believe there has been any other change of events or circumstances that would indicate that a reevaluation of the goodwill of our reporting units is required as of ~~November 30, 2017,~~August 31, 2018, nor do we believe the goodwill of our reporting units is at risk of failing impairment testing. For additional details on goodwill impairment testing, refer to Note 1 ofto the financial statements included in our Annual Report.

Information regarding our critical accounting estimates can be found in our Annual Report, including Note 1 to the financial statements therein. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors and with our independent registered public accounting firm.

Certain statements in this report, including (but not limited to) those contained in “Fuel,” “Income Taxes,” “Outlook,~~” “Recent Accounting Guidance,~~” “Liquidity,” “Liquidity Outlook,” “Contractual Cash Obligations and Off-Balance Sheet Arrangements” and “Critical Accounting Estimates,” and the “General,” ~~“Retirement Plans,~~“Financing Arrangements,” “Income Taxes,” “Commitments” and “Contingencies” notes to the consolidated financial statements, are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations, cash flows, plans, objectives, future performance and business. Forward-looking statements include those preceded by, followed by or that include the words “will,” “may,” “could,” “would,” “should,~~” “will,~~” “believes,” “expects,” “anticipates,” “plans,” “estimates,” “targets,” “projects,” “intends” or similar expressions. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated (expressed or implied) by such forward-looking statements because of, among other things, potential risks and uncertainties, such as:

As a result of these and other factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. We are under no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

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

As of ~~November 30, 2017,~~August 31, 2018, there ~~had been~~were no material changes in our market risk sensitive instruments and positions since our disclosures in our Annual Report.

The principal foreign currency exchange rate risks to which we are exposed ~~are in~~relate to the euro, Chinese yuan, British pound, Canadian dollar, Brazilian real ~~Canadian dollar~~ and Mexican peso. Historically, our exposure to foreign currency fluctuations is more significant with respect to our revenues than our expenses, as a significant portion of our expenses are denominated in U.S. dollars, such as aircraft and fuel expenses. During the first ~~half~~three months of ~~2018,~~2019, the U.S. dollar strengthened relative to the currencies of the foreign countries in which we operate, as compared to May 31, ~~2017,~~2018, and this strengthening had a slightly ~~negative~~positive impact on our results.

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

The management of FedEx, with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such information is accumulated and communicated to FedEx management as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of ~~November 30, 2017~~August 31, 2018 (the end of the period covered by this Quarterly Report on Form 10-Q).

During our fiscal quarter ended ~~November 30, 2017,~~August 31, 2018, no change occurred in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

For a description of all material pending legal proceedings, see Note 89 of the accompanying unaudited condensed consolidated financial statements.

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

~~TNT Express experienced a significant cyberattack~~We could be subject to adverse changes in regulations and interpretations or challenges to our tax positions relating to the Tax Cuts and Jobs Act. We are subject to taxation in the ~~first quarter of fiscal 2018~~U.S. and numerous foreign jurisdictions. From time to time, changes in tax laws or regulations may be enacted that could significantly affect our overall tax liability. In December 2017, the United States government enacted comprehensive tax legislation through the Tax Cuts and Jobs Act (“TCJA”), which significantly changed the U.S. corporate income tax system. The TCJA requires complex computations to be performed that were not previously required in U.S. tax law, significant judgments, estimates and calculations to be made in interpreting its provisions, and the preparation and analysis of information not previously relevant or regularly produced.

The U.S. Treasury Department, the Internal Revenue Service, and other standard-setting bodies could interpret or issue guidance on how provisions of the TCJA will be applied or otherwise administered that is different from our interpretation. As we continue our ongoing analysis of the TCJA and its related interpretations, collect and prepare necessary data, and interpret any additional guidance, we may be required to make adjustments to amounts that we have recorded that may adversely impact ~~could negatively affect~~ our results of operations and financial ~~condition~~condition. For example, on August 1, 2018, the U.S. Treasury Department released proposed regulations covering the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the TCJA. Certain guidance included in these proposed regulations is inconsistent with our interpretation that led to the recognition of a $225 million, or $0.94 per diluted share, benefit in fiscal 2018 (the “2018 Benefit”). This proposed guidance is not authoritative and is subject to change in the ~~future, particularly~~regulatory review process. However, if ~~our continuing recovery efforts do not proceed~~the proposed guidance is included in the final regulations as ~~expected.~~

~~On June 28, 2017,~~drafted, we ~~announced that~~may be required to reverse the ~~worldwide operations of TNT Express were significantly affected~~2018 Benefit in the quarter the regulations become final. In addition, further legislative action could be taken to address questions or issues caused by the ~~cyberattack known as NotPetya, which involved~~TCJA. State and foreign governments may also enact tax laws in response to the ~~spread of an information technology virus~~TCJA or other global initiatives that ~~infiltrated TNT Express systems~~could result in further changes to our taxation and encrypted its data. While TNT Express’s critical operational systems have been fully restored, critical business data has been recovered and shipping services and solutions are back in place, not all customers are shipping at pre-attack volume levels and we are continuing to engage in related recovery efforts. Our results of operations and financial condition could be negatively impacted in the future if our recovery efforts do not proceed as expected, particularly if lost revenues or incremental costs associated with the cyberattack exceed our expectations. The following consequences or potential consequences of the cyberattack could have an adverseadversely impact on our results of operations and financial ~~condition in the future:~~condition.

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

The repurchases were made under the stock repurchase program approved by our Board of Directors and announced on January 26, 2016 and through which we are authorized to purchase, in the open market or in privately negotiated transactions, up to an aggregate of 25 million shares of our common stock. As of ~~December 19, 2017, 14.6~~September 14, 2018, 8.8 million shares remained authorized for purchase under the January 2016 stock repurchase program, which is the only such program that currently exists. The program does not have an expiration date.

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

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

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

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

Common Stock		Outstanding Shares at ~~December 18, 2017~~September 13, 2018
Common Stock, par value $0.10 per share		~~267,889,623~~263,515,857

		PAGE

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets ~~November 30, 2017~~August 31, 2018 and May 31, ~~2017~~2018		3
Condensed Consolidated Statements of Income Three ~~and Six~~ Months Ended ~~November 30,~~August 31, 2018 and 2017 ~~and November 30, 2016~~		5
Condensed Consolidated Statements of Comprehensive Income Three ~~and Six~~ Months Ended ~~November 30,~~August 31, 2018 and 2017 ~~and November 30, 2016~~		6
Condensed Consolidated Statements of Cash Flows ~~Six~~Three Months Ended ~~November 30,~~August 31, 2018 and 2017 ~~and November 30, 2016~~		7
Notes to Condensed Consolidated Financial Statements		8
Report of Independent Registered Public Accounting Firm		2625
ITEM 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition		2726
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		4948
ITEM 4. Controls and Procedures		4948

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings		5049
ITEM 1A. Risk Factors		5049
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		5150
ITEM 6. Exhibits		5251
Signature		53
~~Exhibit Index~~		~~E-1~~52

Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Exhibit 10.6
Exhibit 10.7
Exhibit 10.8
~~Exhibit 10.9~~
~~Exhibit 10.10~~
~~Exhibit 10.11~~
~~Exhibit 10.12~~
Exhibit 12.1
Exhibit 15.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 101.1 Interactive Data Files




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


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


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


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

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

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

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program		Maximum Number of Shares That May Yet Be Purchased Under the Program
Sep. 1-30, 2017		195,000	$	216.32		195,000		15,412,500
Oct. 1-31, 2017		330,000		223.80		330,000		15,082,500
Nov. 1-30, 2017		307,500		220.08		307,500		14,775,000
Total		832,500	$	220.67		832,500

Exhibit Number		Description of Exhibit

10.1		Amendment dated ~~October 16, 2017~~July 17, 2018 (but effective as of ~~May 1, 2017)~~February 26, 2018), amending the Transportation Agreement dated April 23, 2013 between the United States Postal Service and ~~Federal~~FedEx Express ~~Corporation~~ (the “USPS Transportation Agreement”). Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

10.2		Amendment dated ~~October 16, 2017~~July 17, 2018 (but effective as of ~~June 5, 2017)~~February 26, 2018), amending the USPS Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act.

10.3		Amendment dated ~~October 16, 2017~~July 17, 2018 (but effective as of ~~July 3, 2017)~~April 2, 2018), amending the USPS Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act.

10.4		Amendment dated ~~October 16, 2017~~June 29, 2018 (but effective as of ~~August 28, 2017)~~June 4, 2018), amending the USPS Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act.

10.5		Amendment dated ~~October 16, 2017~~July 17, 2018 (but effective as of ~~July 31, 2017)~~April 2, 2018), amending the USPS Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act.

10.6		Amendment dated ~~October 16, 2017~~August 1, 2018 (but effective as of ~~August 28, 2017)~~June 29, 2018), amending the USPS Transportation Agreement. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act.

10.7		~~Amendment~~Supplemental Agreement No. 11 (and related side letters) dated ~~October 16, 2017 (but effective~~ as of ~~January 2, 2017),~~June 18, 2018, amending the ~~USPS Transportation Agreement.~~Boeing 767-3S2 Freighter Purchase Agreement dated as of December 14, 2011 between The Boeing Company and FedEx Express. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act.

10.8		~~Amendment~~Supplemental Agreement No. 30 (and related side letters) dated as of June 18, 2018, amending the Boeing 777 Freighter Purchase Agreement dated as of November 7, ~~2017 (but effective as of October 2, 2017), amending the USPS Transportation Agreement.~~2006, between The Boeing Company and FedEx Express. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act.

~~10.9~~		~~Amendment dated November 7, 2017 (but effective as of October 2, 2017), amending the USPS Transportation Agreement.~~

~~10.10~~		Amendment dated November 7, 2017 (but effective as of October 30, 2017), 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.

~~10.11~~		~~Supplemental Agreement No. 27 (and related side letter) dated as of October 12, 2017, amending the Boeing 777~~ ~~Freighter~~ Purchase Agreement dated as of November 7, 2006, between The Boeing Company and Federal Express Corporation. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act.

~~10.12~~		~~FedEx Corporation 2010 Omnibus Stock Incentive Plan, as amended.~~

12.1		Computation of Ratio of Earnings to Fixed Charges.

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.

			FEDEX CORPORATION

Date: ~~December 20, 2017~~September 17, 2018			/s/ JOHN L. MERINO
			JOHN L. MERINO
			CORPORATE VICE PRESIDENT AND
			PRINCIPAL ACCOUNTING OFFICER

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

~~10.1~~		Amendment dated October 16, 2017 (but effective as of May 1, 2017), amending the Transportation Agreement dated April 23, 2013 between the United States Postal Service and Federal Express Corporation (the “USPS Transportation Agreement”). Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

~~10.2~~		Amendment dated October 16, 2017 (but effective as of June 5, 2017), 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 October 16, 2017 (but effective as of July 3, 2017), 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 October 16, 2017 (but effective as of August 28, 2017), 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 October 16, 2017 (but effective as of July 31, 2017), 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 October 16, 2017 (but effective as of August 28, 2017), 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 October 16, 2017 (but effective as of January 2, 2017), 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 November 7, 2017 (but effective as of October 2, 2017), 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~~		~~Amendment dated November 7, 2017 (but effective as of October 2, 2017), amending the USPS Transportation Agreement.~~

~~10.10~~		Amendment dated November 7, 2017 (but effective as of October 30, 2017), 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.

~~10.11~~		~~Supplemental Agreement No. 27 (and related side letter) dated as of October 12, 2017, amending the Boeing 777~~ ~~Freighter~~ Purchase Agreement dated as of November 7, 2006, between The Boeing Company and Federal Express Corporation. Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act.

~~10.12~~		~~FedEx Corporation 2010 Omnibus Stock Incentive Plan, as amended.~~

~~12.1~~		~~Computation of Ratio of Earnings to Fixed Charges.~~

~~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.~~