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

GENERAL

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, 2021 (“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 collaboratively, and innovating digitally, under the respected FedEx brand. Our primary operating companies are Federal Express Corporation (“FedEx Express”), the world’s largest express transportation company; FedEx Ground Package System, Inc. (“FedEx Ground”), a leading North American provider of small-package ground delivery services; and FedEx Freight Corporation (“FedEx Freight”), a leading North American provider of less-than-truckload (“LTL”) freight transportation services. These companies represent our major service lines and, along with FedEx Corporate Services, Inc. (“FedEx Services”), constitute our reportable segments.

Our FedEx Services segment operates combined sales, marketing, administrative, and information-technology functions in shared services operations for U.S. customers of our major business units and certain back-office support to our operating segments which allows us to obtain synergies from the combination of these functions. For the international regions of FedEx Express, some of these functions are performed on a regional basis and reported by FedEx Express in their natural expense line items. See “Reportable Segments” for further discussion. Additional information on our businesses can be found in our Annual Report.

The key indicators necessary to understand our operating results include:

•	the overall customer demand for our various services based on macroeconomic factors and the global economy;

•	the volumes of transportation services provided through our networks, primarily measured by our average daily volume and shipment weight and size;

•	the mix of services purchased by our customers;

•	the prices we obtain for our services, primarily measured by yield (revenue per package or pound or revenue per shipment or hundredweight for LTL freight shipments);

•	our ability to manage our cost structure (capital expenditures and operating expenses) to match shifting volume levels; and

•	the timing and amount of fluctuations in fuel prices and our ability to recover incremental fuel costs through our fuel surcharges.

Many of our operating expenses are directly affected by revenue and volume levels, and we expect these operating expenses to fluctuate on a year-over-year basis consistent with changes in revenue and volumes. Therefore, the discussion of operating expense captions focuses on the key drivers and trends affecting expenses other than those factors strictly related to changes in revenue and volumes. The line item “Other operating expense” includes costs associated with outside service contracts (such as facility services and cargo handling, temporary labor, and security), insurance, professional fees, and operational supplies.

Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2022 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.

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RESULTS OF OPERATIONS

CONSOLIDATED RESULTS

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

		Three Months Ended								Percent					Six Months Ended								Percent
		2021				2020				Change					2021				2020				Change
Revenue		$	23,474			$	20,563				14				$	45,477			$	39,884				14
Operating income (loss):
FedEx Express segment			949				900				5					1,516				1,610				(6	)
FedEx Ground segment			481				552				(13	)				1,152				1,386				(17	)
FedEx Freight segment			334				252				33					724				526				38
Corporate, other, and eliminations			(167	)			(239	)			30					(397	)			(467	)			15
Consolidated operating income			1,597				1,465				9					2,995				3,055				(2	)
Operating margin:
FedEx Express segment			8.2	%			8.7	%			(50	)	bp			6.7	%			8.0	%			(130	)	bp
FedEx Ground segment			5.8	%			7.5	%			(170	)	bp			7.2	%			9.6	%			(240	)	bp
FedEx Freight segment			14.7	%			13.0	%			170		bp			16.0	%			14.0	%			200		bp
Consolidated operating margin			6.8	%			7.1	%			(30	)	bp			6.6	%			7.7	%			(110	)	bp
Consolidated net income		$	1,044			$	1,226				(15	)			$	2,156			$	2,471				(13	)
Diluted earnings per share		$	3.88			$	4.55				(15	)			$	7.97			$	9.26				(14	)

		Change in Revenue								Change in Operating Results
		Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
FedEx Express segment		$	1,237			$	2,556			$	49			$	(94	)
FedEx Ground segment			920				1,557				(71	)			(234	)
FedEx Freight segment			336				761				82				198
FedEx Services segment			69				96				—				—
Corporate, other, and eliminations			349				623				72				70
		$	2,911			$	5,593			$	132			$	(60	)

Overview

Operating income improved in the second quarter of 2022 due to increased yields resulting from various pricing initiatives at all of our transportation segments. However, our operating results for the second quarter and first half of 2022 were negatively affected by labor market challenges that contributed to global supply chain disruptions. The challenging labor market affected the availability and cost of labor resulting in network inefficiencies, higher purchased transportation costs, and higher wage rates. Operating income was positively affected by a mix shift to our higher yielding services in the second quarter and first half of 2022 due to strategic actions to improve revenue quality, as well as growth in our commercial services as businesses continue to recover from the effect of the coronavirus (“COVID-19”) pandemic. In addition, the net impact of fuel across all of our transportation segments benefited operating income in the second quarter and first half of 2022.

Operating income includes business realignment costs of $44 million ($34 million, net of tax, or $0.13 per diluted share) in the second quarter and $111 million ($85 million, net of tax, or $0.31 per diluted share) in the first half of 2022 associated with our workforce reduction plan in Europe previously announced in 2021. See the “Business Realignment Costs” section of this MD&A for more information.

We incurred TNT Express integration expenses totaling $34 million ($26 million, net of tax, or $0.10 per diluted share) in the second quarter and $63 million ($49 million, net of tax, or $0.18 per diluted share) in the first half of 2022, a $14 million decrease from the second quarter and a $34 million decrease from the first half of 2021. The integration expenses are predominantly incremental costs directly associated with the integration of TNT Express, including professional and legal fees and other operating expenses. Internal salaries and employee benefits are included only to the extent the individuals are assigned full-time to integration activities. These costs were incurred at FedEx Express and FedEx Corporate. The identification of these costs as integration-related expenditures is subject to our disclosure controls and procedures. Integration expenses do not include costs associated with our business realignment activities (discussed above).

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Consolidated net income in the second quarter and first half of 2022 includes a pre-tax, noncash net loss of $260 million ($195 million, net of tax; $0.73 per diluted share in the second quarter and $0.72 per diluted share in the first half of 2022) associated with our mark-to-market (“MTM”) retirement plans accounting adjustments. Consolidated net income in the second quarter and first half of 2021 includes a pre-tax, noncash MTM net loss of $52 million ($41 million, net of tax, or $0.15 per diluted share) associated with freezing our TNT Express Netherlands Pension Plan. See the “Retirement Plans MTM Adjustments” section of this MD&A and Note 6 of the accompanying unaudited condensed consolidated financial statements for additional information.

The comparison of net income between 2022 and 2021 is affected by a tax benefit of $191 million ($0.71 per diluted share) recognized in the second quarter of 2021 from an increase in our 2020 tax loss that the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) allowed us to carry back to 2015, when the U.S. federal income tax rate was 35%. See the “Income Taxes” section of this MD&A for additional information.

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

	(1)	International domestic average daily package volume relates to our international intra-country operations. International export average daily package volume relates to our international priority and economy services.

	(2)	Ground commercial average daily package volume is calculated on a 5-day-per-week basis, while home delivery and economy average daily package volumes are calculated on a 7-day-per-week basis. Prior year statistical information has been revised to conform to the current year presentation.

	(3)	International average daily freight pounds relate to our international priority, economy, and airfreight services.

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

	(1)	International export revenue per package relates to our international priority and economy services. International domestic revenue per package relates to our international intra-country operations.

	(2)	International freight revenue per pound relates to our international priority, economy, and airfreight services.

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Revenue

Revenue increased 14% in both the second quarter and first half of 2022 primarily due to yield improvement reflecting our revenue quality initiatives, higher fuel surcharges, and volume growth.

Revenue at FedEx Express increased 12% in the second quarter and 13% in the first half of 2022 due to increased international and U.S. domestic package yield. In addition, international export package, international priority freight, and U.S. domestic package volume growth positively affected revenue in the first half of 2022. At FedEx Ground, revenue increased 13% in the second quarter and 11% in the first half of 2022 primarily due to yield improvement, as well as commercial and home delivery volume growth. FedEx Freight revenue increased 17% in the second quarter and 20% in the first half of 2022 primarily due to higher revenue per shipment and increased average daily shipments.

Operating Expenses

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

		Three Months Ended								Percent					Six Months Ended								Percent
		2021				2020				Change					2021				2020				Change
Operating expenses:
Salaries and employee benefits		$	8,135			$	7,443				9				$	15,911			$	14,295				11
Purchased transportation			6,241				5,407				15					11,900				10,384				15
Rentals and landing fees			1,177				1,006				17					2,310				1,942				19
Depreciation and amortization			995				936				6					1,966				1,862				6
Fuel			1,145				625				83					2,154				1,190				81
Maintenance and repairs			839				815				3					1,708				1,621				5
Business realignment costs			44				—			NM						111				—			NM
Other			3,301				2,866				15					6,422				5,535				16
Total operating expenses			21,877				19,098				15					42,482				36,829				15
Operating income		$	1,597			$	1,465				9				$	2,995			$	3,055				(2	)

		Percent of Revenue
		Three Months Ended										Six Months Ended
		2021					2020					2021					2020
Operating expenses:
Salaries and employee benefits			34.6		%			36.2		%			35.0		%			35.8		%
Purchased transportation			26.6					26.3					26.2					26.0
Rentals and landing fees			5.0					4.9					5.1					4.9
Depreciation and amortization			4.2					4.6					4.3					4.7
Fuel			4.9					3.0					4.7					3.0
Maintenance and repairs			3.6					4.0					3.8					4.0
Business realignment costs			0.2					—					0.2					—
Other			14.1					13.9					14.1					13.9
Total operating expenses			93.2					92.9					93.4					92.3
Operating margin			6.8		%			7.1		%			6.6		%			7.7		%

Operating income improved in the second quarter of 2022 driven by increased yields resulting from our revenue quality initiatives. However, our operating results for the second quarter and first half of 2022 were negatively affected by higher operating expenses as a result of labor market challenges that contributed to global supply chain disruptions. The challenging labor market affected labor availability and resulted in network inefficiencies, higher purchased transportation costs, and higher wage rates.

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Salaries and employee benefits expense increased 9% in the second quarter and 11% in the first half of 2022 primarily due to higher labor costs and network inefficiencies in the constrained labor market, increased utilization of healthcare benefits postponed from 2021 due to the COVID-19 pandemic, volume growth, and merit increases. Purchased transportation costs increased 15% in both the second quarter and first half of 2022 primarily due to the challenging labor market resulting in higher rates at FedEx Ground and increased utilization of third-party service providers at all transportation segments. Additionally, higher volumes and higher fuel surcharges contributed to an increase in purchased transportation costs in the second quarter and first half of 2022. Other operating expenses increased 15% in the second quarter and 16% in the first half of 2022 primarily due to increased costs related to information technology expenses, self-insurance accruals, variable costs associated with the constrained labor market, and additional volume-related expenses. Rentals and landing fees expense increased 17% in the second quarter and 19% in the first half of 2022 primarily driven by increased vehicle and aircraft leases at FedEx Express and network expansion at FedEx Ground.

Fuel

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

Fuel expense increased 83% in the second quarter and 81% in the first half of 2022 due to higher fuel prices. Fuel prices represent only one component of the factors we consider meaningful in understanding the effect 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 effect of fuel on our business. In order to provide information about the effect 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 three- and six-month periods ended November 30, 2021 and 2020 in the accompanying discussion of each of our transportation segments.

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 periodically update the tables used to determine our fuel surcharges at all of our transportation segments. The net impact of fuel on operating income described below and for each segment below excludes the effect from these table changes.

The net impact of fuel had a moderate benefit to operating income in the second quarter and first half of 2022 as higher fuel surcharges outpaced increased fuel prices.

Business Realignment Costs

In 2021, FedEx Express announced a workforce reduction plan in Europe as it nears the completion of the network integration of TNT Express. The plan will affect between 5,500 and 6,300 employees in Europe across operational teams and back-office functions. The execution of the plan is subject to a works council consultation process that will occur over an 18-month period in accordance with local country processes and regulations.

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We incurred costs associated with our business realignment activities of $44 million ($34 million, net of tax, or $0.13 per diluted share) in the second quarter and $111 million ($85 million, net of tax, or $0.31 per diluted share) in the first half of 2022. We recognized $116 million ($90 million, net of tax, or $0.33 per diluted share) of costs under this program in the second half of 2021. These costs are related to certain employee severance arrangements. Payments under this program totaled approximately $25 million in the second quarter and $56 million in the first half of 2022. We expect the pre-tax cost of our business realignment activities to range from $300 million to $575 million through fiscal 2023. We expect savings from our business realignment activities to be between $275 million and $350 million on an annualized basis beginning in fiscal 2024. The actual amount and timing of business realignment costs and related cost savings resulting from the workforce reduction plan are dependent on local country consultation processes and regulations and negotiated social plans and may differ from our current expectations and estimates.

Retirement Plans MTM Adjustments

In the second quarter of 2022, we incurred a pre-tax, noncash MTM net loss of $260 million ($195 million, net of tax; $0.73 per diluted share in the second quarter and $0.72 per diluted share in the first half of 2022) related to the termination of the TNT Express Netherlands Pension Plan and a curtailment charge related to the U.S. FedEx Freight Pension Plan.

The termination of the TNT Express Netherlands Pension Plan resulted in a pre-tax, noncash MTM net loss of $224 million in the second quarter of 2022. Effective October 1, 2021, the responsibility of all pension assets and liabilities of this plan was transferred to a separate, multi-employer pension plan. The remaining $36 million net loss related to the U.S. FedEx Freight Pension Plan consisted of a $75 million MTM loss due to a lower discount rate, partially offset by a $39 million curtailment gain. See Note 6 of the accompanying unaudited condensed consolidated financial statements for additional information.

In the second quarter of 2021, we incurred a pre-tax, noncash MTM net loss of $52 million ($41 million, net of tax, or $0.15 per diluted share) related to amendments to the TNT Express Netherlands Pension Plan. Benefits for approximately 2,100 employees were frozen effective December 31, 2020. Effective January 1, 2021, these employees began earning pension benefits under a separate, multi-employer pension plan. This $52 million net loss consisted of a $106 million MTM loss due to a lower discount rate and a $54 million curtailment gain.

Income Taxes

Our effective tax rate was 24.3% for the second quarter and 24.0% for the first half of 2022, compared to 12.8% for the second quarter and 18.0% for the first half of 2021. The 2021 tax rates include a benefit of $191 million from an increase in our 2020 tax loss that the CARES Act allowed us to carry back to 2015, when the U.S. federal income tax rate was 35%.

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 2016 through 2019 tax years. It is reasonably possible that certain income tax return proceedings will be completed during the next 12 months and could result in a change in our balance of unrecognized tax benefits. However, we believe we have recorded adequate amounts of tax, including interest and penalties, for any adjustments expected to occur.

During 2021, we filed suit in U.S. District Court for the Western District of Tennessee challenging the validity of a tax regulation related to the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the Tax Cuts and Jobs Act (“TCJA”). Our lawsuit seeks to have the court declare this regulation invalid and order the refund of overpayments of U.S. federal income taxes for 2018 and 2019 attributable to the denial of foreign tax credits under the regulation. We have recorded a cumulative benefit of $215 million through the second quarter of 2022 attributable to our interpretation of the TCJA and the Internal Revenue Code. We continue to pursue this lawsuit; however, if we are ultimately unsuccessful in defending our position, we may be required to reverse the benefit previously recorded.

Equity Investment

On December 8, 2021, FedEx Express’s strategic alliance with Delhivery Limited (“Delhivery”) came into effect. In connection with the strategic alliance, FedEx Express and Delhivery entered into equity and commercial agreements. As part of the collaboration, FedEx Express made a $100 million equity investment in Delhivery, FedEx Express sold certain assets pertaining to its domestic business in India to Delhivery, and the companies entered into a long-term commercial agreement. FedEx Express will focus on international export and import services to and from India, and Delhivery will, in addition to FedEx, sell FedEx Express international products and services in the India market and provide pickup-and-delivery services across India. This transaction will be recorded in the third quarter of 2022 and is not expected to be material to our 2022 results of operations.

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Outlook

We anticipate revenue and operating profit to improve across our transportation segments for 2022 primarily as a result of yield growth, coupled with U.S. domestic and international export volume improvement. We expect elevated costs associated with the challenging labor market to continue pressuring operating profit in the second half of 2022, although we anticipate those pressures to begin subsiding as labor market conditions improve. We are focused on yield management and improving revenue quality to better align with rising operating costs due to limited labor availability and inflationary pressures. We will also continue executing targeted actions to mitigate labor market constraints in the remainder of 2022, including hiring process enhancements, retention improvement initiatives, and actions to improve productivity both through advanced technology and optimization of operations.

We expect global capacity constraints resulting from the COVID-19 pandemic to continue to drive strong demand for international export shipments for the remainder of 2022. In addition, we anticipate continued strong demand for both residential and commercial services in the U.S. to continue for the remainder of 2022, as businesses continue to recover from the effect of the COVID-19 pandemic. We will continue optimizing capacity, including our FedEx Ground seven-day-per-week residential delivery network, to meet evolving customer needs, and flexing our network as needed to align with volumes and operating conditions.

We expect to complete the final phase of FedEx Express and TNT Express international air network interoperability in early calendar 2022 allowing us to leverage the capabilities that TNT Express adds to our portfolio, which is expected to improve our European revenue and profitability. We expect to incur approximately $85 million of integration expenses in the remainder of 2022 primarily in the form of professional fees and other operating expenses. We expect the aggregate integration program expenses to be approximately $1.8 billion through the completion of the physical network integration of TNT Express into FedEx Express in 2022.

We will continue to execute initiatives in addition to the physical network integration to further transform and optimize the FedEx Express international business, particularly in Europe, for the remainder of 2022. These actions are focused on reducing the complexity and fragmentation of our international business, improving efficiency to meet changing customer expectations and business dynamics, lowering costs, increasing profitability, and improving service levels. We expect to incur additional costs, over multiple years, including transformation costs and capital investments related to these actions. As part of this strategy, in 2021 we announced a workforce reduction plan in Europe. We expect the pre-tax cost of the severance benefits to be provided under the plan to range from $300 million to $575 million in cash expenditures through fiscal 2023. We expect savings from our business realignment activities to be between $275 million and $350 million on an annualized basis beginning in fiscal 2024. See the “Business Realignment Costs” section of this MD&A for additional information.

We expect continued uncertainty in our business and the global economy due to the duration and spread of the COVID-19 pandemic, the success of efforts to contain it and treat its effect, the possibility of additional subsequent widespread outbreaks and variant strains, the resulting effects on the economic conditions in the global markets in which we operate, the future rate of e-commerce growth, and the timeline for recovery of passenger airline cargo capacity.

Our expectations for the remainder of 2022 are dependent on key external factors, including no further weakening of global economic conditions or additional shut-downs related to the COVID-19 pandemic, gradual improvement in labor availability beginning in the second half of 2022, current fuel price expectations, and no additional adverse developments in international trade policies and relations.

Other Outlook Matters. For details on key 2022 capital projects, refer to the “Liquidity Outlook” section of this MD&A.

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.

RECENT ACCOUNTING GUIDANCE

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

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REPORTABLE SEGMENTS

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

FedEx Express Segment	FedEx Express (express transportation, small-package ground delivery, and freight transportation)
	FedEx Custom Critical, Inc. (time-critical transportation)
	FedEx Cross Border Holdings, Inc. (cross-border e-commerce technology and e-commerce transportation solutions)
FedEx Ground Segment	FedEx Ground (small-package ground delivery)
FedEx Freight Segment	FedEx Freight (LTL freight transportation)
FedEx Services Segment	FedEx Services (sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and back-office functions)

FEDEX SERVICES SEGMENT

The FedEx Services segment provides direct and indirect support to our operating segments, and we allocate all of the net operating costs of the FedEx Services segment to reflect the full cost of operating our businesses in the results of those segments. 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 effect of its total allocated net operating costs on our operating segments.

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

CORPORATE, OTHER, AND ELIMINATIONS

Corporate and other includes corporate headquarters costs for executive officers and certain legal and finance functions, including certain other costs and credits not attributed to our core business, as well as certain costs associated with developing our innovate digitally strategic pillar through our FedEx Dataworks (including ShopRunner, Inc.) (“FedEx Dataworks”) operating segment. FedEx Dataworks is focused on creating solutions to transform the digital and physical experiences of our customers and team members.

Also included in Corporate and other are the FedEx Office and Print Services, Inc. operating segment, which provides an array of document and business services and retail access to our customers for our package transportation businesses, and the FedEx Logistics, Inc. (“FedEx Logistics”) operating segment, which provides integrated supply chain management solutions, specialty transportation, customs brokerage, and global ocean and air freight forwarding.

The results of Corporate, other, and eliminations are not allocated to the other business segments.

In the second quarter and first half of 2022, the increase in operating results in Corporate, other, and eliminations was primarily due to improved operating income at FedEx Logistics. Market capacity constraints related to the COVID-19 pandemic drove higher revenue due to increased yields, which was partially offset by higher purchased transportation costs.

Certain FedEx operating companies provide transportation and related services for other FedEx companies outside their reportable segment in order to optimize our resources. For example, during the second quarter and first half of 2022 FedEx Ground provided delivery support for certain FedEx Express packages as part of our last-mile optimization efforts, and FedEx Freight provided road and intermodal support for both FedEx Ground and FedEx Express. In addition, FedEx Express is working with FedEx Logistics to secure air charters for U.S. customers. Billings for such services are based on negotiated rates, which we believe approximate fair value, and are reflected as revenue of the billing segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenue and expenses are eliminated in our consolidated results and are not separately identified in the following segment information because the amounts are not material.

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FEDEX EXPRESS SEGMENT

FedEx Express offers a wide range of U.S. domestic and international shipping services for delivery of packages and freight including priority, deferred, and economy services, which provide delivery on a time-definite or day-definite basis. The following tables compare revenue, operating expenses, operating income (dollars in millions), operating margin, and operating expenses as a percent of revenue for the periods ended November 30:

		Three Months Ended								Percent					Six Months Ended								Percent
		2021				2020				Change					2021				2020				Change
Revenue:
Package:
U.S. overnight box		$	2,249			$	2,012				12				$	4,419			$	3,873				14
U.S. overnight envelope			474				435				9					956				861				11
U.S. deferred			1,307				1,204				9					2,538				2,300				10
Total U.S. domestic package revenue			4,030				3,651				10					7,913				7,034				12
International priority			3,107				2,510				24					5,946				4,827				23
International economy			706				658				7					1,375				1,274				8
Total international export package revenue			3,813				3,168				20					7,321				6,101				20
International domestic(1)			1,147				1,206				(5	)				2,261				2,294				(1	)
Total package revenue			8,990				8,025				12					17,495				15,429				13
Freight:
U.S.			775				799				(3	)				1,550				1,632				(5	)
International priority			994				737				35					1,867				1,390				34
International economy			438				408				7					852				779				9
International airfreight			47				65				(28	)				94				140				(33	)
Total freight revenue			2,254				2,009				12					4,363				3,941				11
Other			361				334				8					713				645				11
Total revenue			11,605				10,368				12					22,571				20,015				13
Operating expenses:
Salaries and employee benefits			4,141				3,922				6					8,225				7,664				7
Purchased transportation			1,623				1,449				12					3,174				2,753				15
Rentals and landing fees			649				542				20					1,284				1,046				23
Depreciation and amortization			510				482				6					1,002				959				4
Fuel			989				529				87					1,857				1,025				81
Maintenance and repairs			525				542				(3	)				1,098				1,093				—
Business realignment costs			44				—			NM						111				—			NM
Intercompany charges			497				486				2					1,005				947				6
Other			1,678				1,516				11					3,299				2,918				13
Total operating expenses			10,656				9,468				13					21,055				18,405				14
Operating income		$	949			$	900				5				$	1,516			$	1,610				(6	)
Operating margin			8.2	%			8.7	%			(50	)	bp			6.7	%			8.0	%			(130	)	bp

(1)	International domestic revenue relates to our international intra-country operations.

- 31 -

		Percent of Revenue
		Three Months Ended										Six Months Ended
		2021					2020					2021					2020
Operating expenses:
Salaries and employee benefits			35.7		%			37.8		%			36.4		%			38.3		%
Purchased transportation			14.0					14.0					14.1					13.8
Rentals and landing fees			5.6					5.2					5.7					5.2
Depreciation and amortization			4.4					4.7					4.4					4.8
Fuel			8.5					5.1					8.2					5.1
Maintenance and repairs			4.5					5.2					4.9					5.5
Business realignment costs			0.4					—					0.5					—
Intercompany charges			4.3					4.7					4.5					4.7
Other			14.4					14.6					14.6					14.6
Total operating expenses			91.8					91.3					93.3					92.0
Operating margin			8.2		%			8.7		%			6.7		%			8.0		%

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

		Three Months Ended								Percent				Six Months Ended								Percent
		2021				2020				Change				2021				2020				Change
Package Statistics
Average daily package volume (ADV):
U.S. overnight box			1,477				1,453				2				1,444				1,369				5
U.S. overnight envelope			517				512				1				516				497				4
U.S. deferred			1,285				1,339				(4	)			1,268				1,272				—
Total U.S. domestic ADV			3,279				3,304				(1	)			3,228				3,138				3
International priority			834				748				11				802				722				11
International economy			289				296				(2	)			276				277				—
Total international export ADV			1,123				1,044				8				1,078				999				8
International domestic(1)			2,141				2,635				(19	)			2,071				2,464				(16	)
Total ADV			6,543				6,983				(6	)			6,377				6,601				(3	)
Revenue per package (yield):
U.S. overnight box		$	24.18			$	21.98				10			$	23.91			$	22.10				8
U.S. overnight envelope			14.55				13.50				8				14.49				13.53				7
U.S. deferred			16.14				14.27				13				15.64				14.12				11
U.S. domestic composite			19.51				17.54				11				19.15				17.51				9
International priority			59.15				53.26				11				57.92				52.24				11
International economy			38.85				35.29				10				38.97				35.84				9
International export composite			53.93				48.17				12				53.08				47.69				11
International domestic(1)			8.50				7.27				17				8.53				7.27				17
Composite package yield		$	21.81			$	18.24				20			$	21.43			$	18.26				17
Freight Statistics
Average daily freight pounds:
U.S.			8,666				9,511				(9	)			8,348				9,175				(9	)
International priority			6,969				6,234				12				6,778				5,862				16
International economy			13,062				13,560				(4	)			12,362				12,581				(2	)
International airfreight			1,241				1,605				(23	)			1,234				1,590				(22	)
Total average daily freight pounds			29,938				30,910				(3	)			28,722				29,208				(2	)
Revenue per pound (yield):
U.S.		$	1.42			$	1.33				7			$	1.45			$	1.39				4
International priority			2.26				1.88				20				2.15				1.85				16
International economy			0.53				0.48				10				0.54				0.48				13
International airfreight			0.59				0.64				(8	)			0.59				0.69				(14	)
Composite freight yield		$	1.20			$	1.03				17			$	1.19			$	1.05				13

(1)	International domestic statistics relate to our international intra-country operations.

- 32 -

FedEx Express Segment Revenue

FedEx Express segment revenue increased 12% in the second quarter and 13% in the first half of 2022 due to higher fuel surcharges, as well as increased international and U.S. domestic package yield reflecting our revenue quality initiatives. In addition, international export package, international priority freight, and U.S. domestic package volume growth positively affected revenue in the first half of 2022.

FedEx Express segment revenue in the second quarter and first half of 2021 included a benefit from a reduction in aviation excise taxes on cargo provided by the CARES Act, which expired on December 31, 2020.

International export package yield increased 12% in the second quarter and 11% in the first half of 2022 primarily driven by higher fuel surcharges and base yield improvement. International export package average daily volumes increased 8% in both the second quarter and first half of 2022 primarily due to growth in our international priority service offering, as industry-wide capacity constraints and actions to prioritize premium-yielding products drove a mix shift from international economy to international priority services. U.S. domestic package yield increased 11% in the second quarter and 9% in the first half of 2022 driven by higher fuel surcharges and base rate improvement. U.S. domestic package average daily volumes decreased 1% in the second quarter due to a decline in deferred service offerings, partially offset by growth in overnight service offerings. U.S. domestic package average daily volumes increased 3% in the first half of 2022 driven by growth in overnight box and overnight envelope volume. Composite freight yield increased 17% in the second quarter and 13% in the first half of 2022 primarily due to higher fuel surcharges and base yield improvement. Total average daily freight pounds decreased 3% in the second quarter and 2% in the first half of 2022 as the prior year included a surge in charter flights due to the COVID-19 pandemic. This decrease was partially offset by higher international priority freight pounds resulting from increased demand for international freight capacity during the second quarter and first half of 2022.

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

		Three Months Ended								Six Months Ended
		2021				2020				2021				2020
U.S. Domestic and Outbound Fuel Surcharge:
Low			8.81	%			3.50	%			7.72	%			2.73	%
High			12.48				3.83				12.48				4.12
Weighted-average			10.69				3.64				9.64				3.54
International Export and Freight Fuel Surcharge:
Low			9.22				1.17				6.39				0.28
High			26.69				16.52				26.69				17.00
Weighted-average			20.25				10.67				19.14				10.49
International Domestic Fuel Surcharge:
Low			3.88				2.62				3.88				2.62
High			19.95				19.21				21.51				20.33
Weighted-average			9.01				5.91				8.62				5.92

FedEx Express Segment Operating Income

FedEx Express segment operating income increased 5% in the second quarter of 2022 primarily due to increased yields reflecting our revenue quality initiatives, partially offset by higher operating expenses related to ongoing COVID-19 pandemic restrictions to industry operations and labor market challenges that contributed to global supply chain disruptions. Operating income decreased 6% in the first half of 2022 as these disruptive market effects more than offset yield improvement. In addition, lower U.S. average daily freight pounds primarily due to a surge in charter flights in the prior year negatively affected operating income in the second quarter and first half of 2022. The net impact of fuel benefited results in the second quarter and first half of 2022. FedEx Express operating results include a pre-tax benefit of approximately $70 million in the second quarter and $135 million in the first half of 2021 from a reduction in aviation excise taxes provided by the CARES Act.

FedEx Express segment results include business realignment costs of $44 million in the second quarter and $111 million in the first half of 2022 associated with our workforce reduction plan in Europe. See the “Business Realignment Costs” section of this MD&A for more information. FedEx Express segment results also include $27 million of TNT Express integration expenses in the second quarter and $53 million of such expenses in the first half of 2022, a $16 million decrease from the second quarter and a $27 million decrease from the first half of 2021.

- 33 -

Salaries and employee benefits expense increased 6% in the second quarter and 7% in the first half of 2022 primarily due to higher labor costs and network inefficiencies in the constrained labor market, as well as increased utilization of healthcare benefits and merit increases. Purchased transportation expense increased 12% in the second quarter and 15% in the first half of 2022 primarily due to higher utilization of third-party transportation providers and increased rates. Other operating expense increased 11% in the second quarter and 13% in the first half of 2022 primarily due to higher outside service contract expense, which includes variable costs associated with the constrained labor market, additional volume-related expenses, and higher self-insurance accruals. Rentals and landing fees expense increased 20% in the second quarter and 23% in the first half of 2022 primarily driven by increased vehicle and aircraft leases.

Fuel expense increased 87% in the second quarter and 81% in the first half of 2022 due to increased fuel prices. The net impact of fuel had a moderate benefit to operating income in the second quarter and first half of 2022 as higher fuel surcharges outpaced 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 SEGMENT

FedEx Ground service offerings include day-certain delivery to businesses in the U.S. and Canada and to 100% of U.S. residences. Prior year statistical information has been revised to conform to the current year presentation. The following tables compare revenue, operating expenses, operating income (dollars in millions), operating margin, selected package statistics (in thousands, except yield amounts), and operating expenses as a percent of revenue for the periods ended November 30:

		Three Months Ended								Percent					Six Months Ended								Percent
		2021				2020				Change					2021				2020				Change
Revenue		$	8,264			$	7,344				13				$	15,941			$	14,384				11
Operating expenses:
Salaries and employee benefits			1,855				1,557				19					3,468				2,831				23
Purchased transportation			3,915				3,488				12					7,418				6,779				9
Rentals			348				289				20					666				553				20
Depreciation and amortization			223				205				9					449				409				10
Fuel			7				5				40					13				9				44
Maintenance and repairs			149				124				20					285				231				23
Intercompany charges			480				446				8					971				878				11
Other			806				678				19					1,519				1,308				16
Total operating expenses			7,783				6,792				15					14,789				12,998				14
Operating income		$	481			$	552				(13	)			$	1,152			$	1,386				(17	)
Operating margin			5.8	%			7.5	%			(170	)	bp			7.2	%			9.6	%			(240	)	bp
Average daily package volume (ADV)(1):
Ground commercial			4,774				4,392				9					4,595				4,174				10
Home delivery			4,328				3,913				11					4,035				3,796				6
Economy			1,278				1,696				(25	)				1,220				1,697				(28	)
Total ADV			10,380				10,001				4					9,850				9,667				2
Revenue per package (yield)		$	10.26			$	9.42				9				$	10.27			$	9.38				9

(1)	Ground commercial ADV is calculated on a 5-day-per-week basis, while home delivery and economy ADV are calculated on a 7-day-per-week basis.

- 34 -

		Percent of Revenue
		Three Months Ended										Six Months Ended
		2021					2020					2021					2020
Operating expenses:
Salaries and employee benefits			22.4		%			21.2		%			21.8		%			19.7		%
Purchased transportation			47.4					47.5					46.5					47.1
Rentals			4.2					3.9					4.2					3.9
Depreciation and amortization			2.7					2.8					2.8					2.8
Fuel			0.1					0.1					0.1					0.1
Maintenance and repairs			1.8					1.7					1.8					1.6
Intercompany charges			5.8					6.1					6.1					6.1
Other			9.8					9.2					9.5					9.1
Total operating expenses			94.2					92.5					92.8					90.4
Operating margin			5.8		%			7.5		%			7.2		%			9.6		%

FedEx Ground Segment Revenue

FedEx Ground segment revenue increased 13% in the second quarter and 11% in the first half of 2022 primarily due to improved yields related to service mix and pricing initiatives, commercial and home delivery volume growth, and higher fuel surcharges.

FedEx Ground yield increased 9% in both the second quarter and first half of 2022 primarily due to higher fuel surcharges, service mix, and pricing initiatives. Average daily volume increased 4% in the second quarter and 2% in the first half of 2022 primarily due to growth in commercial and home delivery services, partially offset by lower economy volume. Commercial services experienced growth in the second quarter and first half of 2022 as businesses continue to recover from the effect of the COVID-19 pandemic. In addition, strategic actions to improve revenue quality and prioritize capacity for higher yielding business-to-consumer volume drove a mix shift from economy to home delivery services in the second quarter and first half of 2022. During the second quarter and first half of 2021, we experienced a surge in e-commerce demand resulting from the COVID-19 pandemic which negatively affected the year-over-year comparison in the second quarter and first half of 2022.

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

		Three Months Ended								Six Months Ended
		2021				2020				2021				2020
Low			9.25	%			5.50	%			8.00	%			5.50	%
High			12.25				5.75				12.25				5.75
Weighted-average			10.57				5.73				9.80				5.74

FedEx Ground Segment Operating Income

FedEx Ground segment operating income decreased 13% in the second quarter and 17% in the first half of 2022 primarily due to the constrained labor market, which affected labor availability and resulted in network inefficiencies, higher purchased transportation costs, and higher wage rates. In addition, during the second quarter and first half of 2022 we experienced increased costs related to network expansion, higher self-insurance accruals, and higher healthcare costs due to increased utilization from the prior year. Yield improvement due to service mix and pricing initiatives, as well as commercial and home delivery volume growth, partially offset these higher operating costs during the second quarter and first half of 2022.

Purchased transportation expense increased 12% in the second quarter and 9% in the first half of 2022 due to the challenging labor market resulting in increased rates, higher utilization of third-party providers, and network inefficiencies, as well as higher fuel surcharges and volume. Salaries and employee benefits expense increased 19% in the second quarter and 23% in the first half of 2022 due to increased labor expenses and network inefficiencies in the constrained labor market, as well as increased utilization of healthcare benefits. Other operating expense increased 19% in the second quarter and 16% in the first half of 2022 primarily due to higher self-insurance accruals, higher variable costs associated with the constrained labor market, and additional volume-related expenses. Rentals expense increased 20% in both the second quarter and first half of 2022 due to network expansion.

The net impact of fuel had a moderate benefit to operating income in the second quarter and first half of 2022 as higher fuel surcharges outpaced 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.

- 35 -

FEDEX FREIGHT SEGMENT

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 revenue, operating expenses, operating income (dollars in millions), operating margin, selected statistics, and operating expenses as a percent of revenue for the periods ended November 30:

		Three Months Ended								Percent					Six Months Ended								Percent
		2021				2020				Change					2021				2020				Change
Revenue		$	2,272			$	1,936				17				$	4,523			$	3,762				20
Operating expenses:
Salaries and employee benefits			1,029				915				12					2,017				1,773				14
Purchased transportation			244				209				17					483				379				27
Rentals			62				59				5					121				115				5
Depreciation and amortization			105				105				—					204				211				(3	)
Fuel			147				90				63					282				155				82
Maintenance and repairs			67				57				18					130				110				18
Intercompany charges			132				122				8					258				241				7
Other			152				127				20					304				252				21
Total operating expenses			1,938				1,684				15					3,799				3,236				17
Operating income		$	334			$	252				33				$	724			$	526				38
Operating margin			14.7	%			13.0	%			170		bp			16.0	%			14.0	%			200		bp
Average daily shipments (in thousands):
Priority			81.4				78.1				4					80.9				74.6				8
Economy			33.1				32.9				1					33.3				31.5				6
Total average daily shipments			114.5				111.0				3					114.2				106.1				8
Weight per shipment (lbs):
Priority			1,088				1,106				(2	)				1,086				1,101				(1	)
Economy			940				1,015				(7	)				939				1,006				(7	)
Composite weight per shipment			1,045				1,079				(3	)				1,043				1,073				(3	)
Revenue per shipment:
Priority		$	305.87			$	264.05				16				$	298.27			$	262.02				14
Economy			350.85				313.35				12					341.66				308.15				11
Composite revenue per shipment		$	318.87			$	278.66				14				$	310.93			$	275.71				13
Revenue per hundredweight:
Priority		$	28.11			$	23.86				18				$	27.46			$	23.79				15
Economy			37.33				30.88				21					36.39				30.62				19
Composite revenue per hundredweight		$	30.51			$	25.82				18				$	29.80			$	25.69				16

		Percent of Revenue
		Three Months Ended										Six Months Ended
		2021					2020					2021					2020
Operating expenses:
Salaries and employee benefits			45.3		%			47.3		%			44.6		%			47.1		%
Purchased transportation			10.7					10.8					10.7					10.1
Rentals			2.7					3.0					2.7					3.1
Depreciation and amortization			4.6					5.4					4.5					5.6
Fuel			6.5					4.7					6.2					4.1
Maintenance and repairs			3.0					2.9					2.9					2.9
Intercompany charges			5.8					6.3					5.7					6.4
Other			6.7					6.6					6.7					6.7
Total operating expenses			85.3					87.0					84.0					86.0
Operating margin			14.7		%			13.0		%			16.0		%			14.0		%

FedEx Freight Segment Revenue

FedEx Freight segment revenue increased 17% in the second quarter and 20% in the first half of 2022 primarily due to higher revenue per shipment reflecting our ongoing revenue quality initiatives, increased average daily shipments, and higher fuel surcharges.

- 36 -

Revenue per shipment increased 14% in the second quarter and 13% in the first half of 2022 primarily due to higher base rates and higher fuel surcharges, which more than offset the effect of lower weight per shipment. Average daily shipments increased 3% in the second quarter and 8% in the first half of 2022 due to higher demand for our service offerings.

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

		Three Months Ended								Six Months Ended
		2021				2020				2021				2020
Low			25.80	%			21.00	%			25.40	%			21.00	%
High			29.50				21.40				29.50				21.40
Weighted-average			27.40				21.10				26.50				21.20

FedEx Freight Segment Operating Income

FedEx Freight segment operating income increased 33% in the second quarter and 38% in the first half of 2022 driven by continued focus on revenue quality and cost management. Higher purchased transportation costs, network inefficiencies, and higher wage rates as a result of constrained labor market conditions negatively affected results in the second quarter and first half of 2022.

Salaries and employee benefits expense increased 12% in the second quarter and 14% in the first half of 2022 primarily due to higher volumes, network inefficiencies and higher labor costs in the constrained labor market, increased utilization of healthcare benefits, and merit increases. Purchased transportation expense increased 17% in the second quarter and 27% in the first half of 2022 primarily due to the challenging labor market resulting in increased utilization of third-party service providers, as well as higher fuel surcharges and rates.

Fuel expense increased 63% in the second quarter and 82% in the first half of 2022 primarily due to increased fuel prices. The net impact of fuel had a moderate benefit to operating income in the second quarter and first half of 2022 as higher fuel surcharges outpaced 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.

FINANCIAL CONDITION

LIQUIDITY

Cash and cash equivalents totaled $6.8 billion at November 30, 2021, compared to $7.1 billion at May 31, 2021. The following table provides a summary of our cash flows for the six-month periods ended November 30 (in millions):

		2021				2020
Operating activities:
Net income		$	2,156			$	2,471
Business realignment costs			55				—
Other noncash charges and credits			4,262				3,808
Changes in assets and liabilities			(2,391	)			(1,049	)
Cash provided by operating activities			4,082				5,230
Investing activities:
Capital expenditures			(3,143	)			(2,826	)
Proceeds from asset dispositions and other			31				14
Cash used in investing activities			(3,112	)			(2,812	)
Financing activities:
Principal payments on debt			(72	)			(75	)
Proceeds from debt issuances			—				970
Proceeds from stock issuances			111				431
Dividends paid			(400	)			(341	)
Purchase of treasury stock			(748	)			—
Other, net			—				(12	)
Cash (used in) provided by financing activities			(1,109	)			973
Effect of exchange rate changes on cash			(115	)			67
Net (decrease) increase in cash and cash equivalents		$	(254	)		$	3,458
Cash and cash equivalents at the end of period		$	6,833			$	8,339

- 37 -

Cash flows from operating activities decreased $1.1 billion in the first half of 2022 primarily due to the timing of variable incentive compensation payments and a decrease in income and other tax liabilities, including prior year relief from certain taxes in the U.S. pursuant to the CARES Act, partially offset by lower accounts receivable due to the prior year effects of the COVID-19 pandemic. Capital expenditures increased during the first half of 2022 primarily due to increased spending on package handling equipment, information technology, and aircraft. See “Capital Resources” for a discussion of capital expenditures during 2022 and 2021.

In January 2016, our Board of Directors authorized a stock repurchase program of up to 25 million shares. During the second quarter of 2022, we repurchased 0.9 million shares of FedEx common stock under the 2016 program at an average price of $223.90 per share for a total of $199 million. During the first half of 2022, we repurchased 2.8 million shares of FedEx common stock under the 2016 program at an average price of $267.27 per share for a total of $748 million. As of November 30, 2021, 2.3 million shares remained available for repurchase under the 2016 stock repurchase authorization.

In December 2021, our Board of Directors authorized a new stock repurchase program of up to $5 billion of FedEx common stock, including $1.5 billion of FedEx common stock to be repurchased through an accelerated share repurchase (“ASR”) agreement with a bank. The ASR will be used in part to complete the 2016 stock repurchase authorization. Shares under the 2016 and 2021 repurchase programs 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 limits were set for the completion of the programs, and the programs may be suspended or discontinued at any time.

CAPITAL RESOURCES

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

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

																		Percent Change 2021/2020
		Three Months Ended								Six Months Ended								Three Months				Six Months
		2021				2020				2021				2020				Ended				Ended
Aircraft and related equipment		$	582			$	500			$	1,346			$	1,273				16				6
Package handling and ground support equipment			401				344				710				561				17				27
Vehicles and trailers			59				104				146				141				(43	)			4
Information technology			284				177				467				371				60				26
Facilities and other			247				277				474				480				(11	)			(1	)
Total capital expenditures		$	1,573			$	1,402			$	3,143			$	2,826				12				11
FedEx Express segment		$	829			$	804			$	1,877			$	1,832				3				2
FedEx Ground segment			455				387				807				591				18				37
FedEx Freight segment			28				59				41				98				(53	)			(58	)
FedEx Services segment			233				129				370				247				81				50
Other			28				23				48				58				22				(17	)
Total capital expenditures		$	1,573			$	1,402			$	3,143			$	2,826				12				11

Capital expenditures increased in the first half of 2022 primarily due to increased spending on package handling equipment at FedEx Ground, increased spending on information technology at FedEx Services, and higher aircraft spending at FedEx Express.

GUARANTOR FINANCIAL INFORMATION

We are providing the following information in compliance with Rule 13-01 of Regulation S-X, “Financial Disclosures about Guarantors and Issuers of Guaranteed Securities” with respect to our senior unsecured debt securities and Pass-Through Certificates, Series 2020-1AA (the “Certificates”).

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The $19.3 billion principal amount of the senior unsecured notes were issued by FedEx under a shelf registration statement and are guaranteed by certain direct and indirect subsidiaries of FedEx (“Guarantor Subsidiaries”). FedEx owns, directly or indirectly, 100% of each Guarantor Subsidiary. The guarantees are (1) unsecured obligations of the respective Guarantor Subsidiary, (2) rank equally with all of their other unsecured and unsubordinated indebtedness, and (3) are full and unconditional and joint and several. If we sell, transfer, or otherwise dispose of all of the capital stock or all or substantially all of the assets of a Guarantor Subsidiary to any person that is not an affiliate of FedEx, the guarantee of that Guarantor Subsidiary will terminate and holders of debt securities will no longer have a direct claim against such subsidiary under the guarantee.

Additionally, FedEx fully and unconditionally guarantees the payment obligation of FedEx Express in respect of the $918 million principal amount of the Certificates. See Note 4 of the accompanying unaudited condensed consolidated financial statements and Note 7 to the financial statements included in our Annual Report for additional information regarding the terms of the Certificates.

The following tables present summarized financial information for FedEx (as Parent) and the Guarantor Subsidiaries on a combined basis after transactions and balances within the combined entities have been eliminated.

Parent and Guarantor Subsidiaries

The following table presents the summarized balance sheet information as of November 30, 2021 and May 31, 2021 (in millions):

		November 30, 2021				May 31, 2021
Current Assets		$	12,389			$	12,795
Intercompany Receivable			4,311				3,348
Total Assets			82,758				80,470
Current Liabilities			9,760				9,135
Intercompany Payable			—				—
Total Liabilities			57,083				55,783

The following table presents the summarized statement of income information for the six-month period ended November 30, 2021 (in millions):

Revenue		$	32,702
Intercompany Charges, net			(2,335	)
Operating Income			2,490
Intercompany Charges, net			65
Income Before Income Taxes			2,532
Net Income		$	1,982

The following tables present summarized financial information for FedEx (as Parent Guarantor) and FedEx Express (as Subsidiary Issuer) on a combined basis after transactions and balances within the combined entities have been eliminated.

Parent Guarantor and Subsidiary Issuer

The following table presents the summarized balance sheet information as of November 30, 2021 and May 31, 2021 (in millions):

		November 30, 2021				May 31, 2021
Current Assets		$	4,958			$	5,281
Intercompany Receivable			—				—
Total Assets			68,852				67,084
Current Liabilities			4,789				4,325
Intercompany Payable			7,055				5,929
Total Liabilities			46,985				46,386

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The following table presents the summarized statement of income information for the six-month period ended November 30, 2021 (in millions):

Revenue		$	12,116
Intercompany Charges, net			(1,438	)
Operating Income			814
Intercompany Charges, net			243
Income Before Income Taxes			2,050
Net Income		$	1,812

LIQUIDITY OUTLOOK

In response to current business and economic conditions as referenced above in the “Outlook” section of this MD&A, we are continuing to actively manage and optimize our capital allocation in a still-challenging macroeconomic environment from the ongoing COVID-19 pandemic and labor availability constraints. We have $6.8 billion in cash at November 30, 2021 and $3.5 billion in available liquidity under our $2.0 billion five-year credit agreement (the “Five-Year Credit Agreement”) and $1.5 billion 364-day credit agreement (the “364-Day Credit Agreement” and together with the Five-Year Credit Agreement, the “Credit Agreements”), and we believe that our cash and cash equivalents, cash from operations, and available financing sources will be adequate to meet our liquidity needs, which include operational requirements, expected capital expenditures, voluntary pension contributions, dividend payments, and stock repurchases.

See “Financial Condition—Liquidity” above for information about our new $5 billion stock repurchase program authorized in December 2021. We expect to enter into a $1.5 billion ASR agreement and complete repurchases under the ASR agreement prior to the end of 2022. Approximately 80% of the shares to be repurchased under the ASR will be received by FedEx at the ASR agreement’s inception.

Our cash and cash equivalents balance at November 30, 2021 includes $2.7 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 and do not believe that the indefinite reinvestment of these funds impairs our ability to meet our U.S. domestic debt or working capital obligations.

Our capital expenditures are expected to be approximately $7.2 billion in 2022, a $1.3 billion increase from 2021. While we continue to invest in our business, the capital intensity relative to revenue remains below historical levels. Total capital expenditures will include strategic investments to increase capacity to support elevated volume levels, aircraft modernization at FedEx Express, and investments in productivity and safety. We invested $1.3 billion in aircraft and related equipment in the first half of 2022 and expect to invest an additional $0.8 billion for aircraft and related equipment during the remainder of 2022. In addition, we are making investments over multiple years of approximately $1.5 billion to significantly expand the FedEx Express Indianapolis hub and approximately $1.5 billion to modernize the FedEx Express Memphis World Hub. We expect these investments in hubs will provide productivity gains. We anticipate that our cash flow from operations will be sufficient to fund our capital expenditures for the remainder of 2022. Historically, we have been successful in obtaining unsecured financing from both domestic and international sources, although the marketplace for such investment capital can become restricted depending on a variety of economic factors.

We have several aircraft modernization programs underway that are supported by the purchase of Boeing 777 Freighter and Boeing 767-300 Freighter (“B767F”) aircraft. These aircraft are significantly more fuel-efficient per unit than the aircraft types previously utilized, and these expenditures are necessary to achieve significant long-term operating savings and to replace older aircraft. Our ability to delay the timing of these aircraft-related expenditures is limited without incurring significant costs to modify existing purchase agreements.

During the first quarter of 2022, FedEx Express exercised options to purchase an additional 20 B767F aircraft, ten of which will be delivered in 2024 and ten of which will be delivered in 2025.

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 and allows pass-through trusts formed by FedEx Express to sell, in one or more future offerings, pass-through certificates.

The Five-Year Credit Agreement expires in March 2026 and includes a $250 million letter of credit sublimit. The 364-Day Credit Agreement expires in March 2022. The Credit Agreements are available to finance our operations and other cash flow needs. See Note 4 of the accompanying unaudited condensed consolidated financial statements for a description of the terms and significant covenants of the Credit Agreements.

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During the first half of 2022, we made voluntary contributions totaling $250 million to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”). We anticipate making voluntary contributions of $250 million to our U.S. Pension Plans in the second half of 2022. We do not anticipate contributions to our U.S. Pension Plans will be required for the foreseeable future based on our funded status and the fact we have a credit balance related to our cumulative excess voluntary pension contributions over those required that exceeds $3 billion. The credit balance is subtracted from plan assets to determine the minimum funding requirements. Therefore, we could eliminate all required contributions to our principal U.S. Pension Plans for several years if we were to choose to waive part of that credit balance in any given year. Our U.S. Pension Plans have ample funds to meet expected benefit payments.

Standard & Poor’s has assigned us a senior unsecured debt credit rating of BBB, a Certificates rating of AA-, a commercial paper rating of A-2, and a ratings outlook of “stable.” Moody’s Investors Service has assigned us an unsecured debt credit rating of Baa2, a Certificates rating of Aa3, a commercial paper rating of P-2, and a ratings outlook of “stable.” If our credit ratings drop, our interest expense may increase. If our commercial paper ratings drop below current levels, we may have difficulty utilizing the commercial paper market. If our senior unsecured debt credit ratings drop below investment grade, our access to financing may become limited.

CONTRACTUAL CASH OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

There have been no material changes to the contractual commitments described in Part II, Item 7 in our Annual Report.

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

See Note 8 to the accompanying unaudited condensed consolidated financial statements for additional information on our purchase commitments.

OTHER BUSINESS MATTERS

On June 24, 2019, FedEx filed suit in U.S. District Court in the District of Columbia seeking to enjoin the U.S. Department of Commerce (the “DOC”) from enforcing prohibitions contained in the Export Administration Regulations against FedEx. On September 11, 2020, the court granted the DOC’s motion to dismiss the lawsuit. On November 5, 2020, we appealed this decision.

CRITICAL ACCOUNTING ESTIMATES

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 change of events or circumstances that would indicate that a reevaluation of the goodwill of our reporting units is required as of November 30, 2021, nor do we believe the goodwill of our reporting units is at risk of failing impairment testing. For additional details on goodwill impairment testing, refer to Note 1 to the financial statements included in our Annual Report.

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

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FORWARD-LOOKING STATEMENTS

Certain statements in this report, including (but not limited to) those contained in “Business Realignment Costs,” “Income Taxes,” “Outlook,” and “Liquidity Outlook,” and the “General,” “Financing Arrangements,” “Retirement Plans,” “Commitments,” and “Contingencies” notes to our unaudited condensed 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 and the assumptions underlying such statements. Forward-looking statements include those preceded by, followed by, or that include the words “will,” “may,” “could,” “would,” “should,” “believes,” “expects,” “anticipates,” “plans,” “estimates,” “targets,” “projects,” “intends,” or similar expressions. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated (expressed or implied) by such forward-looking statements because of, among other things, potential risks and uncertainties, such as:

•	economic conditions in the global markets in which we operate;

•	significant changes in the volumes of shipments transported through our networks, customer demand for our various services, or the prices we obtain for our services;

•	our ability to meet our labor and purchased transportation needs while controlling related costs and maintain our company culture;

•	a significant data breach or other disruption to our technology infrastructure;

•	the continuing effect of the COVID-19 pandemic;

•	anti-trade measures and additional changes in international trade policies and relations;

•

our ability to successfully implement our business strategy, effectively respond to changes in market dynamics and customer preferences, and achieve the anticipated benefits and associated cost savings of such strategies and actions, including our ability to successfully implement our FedEx Express workforce reduction plan in Europe and to continue to transform and optimize the FedEx Express international business, particularly in Europe;

•	damage to our reputation or loss of brand equity;

•	changes in the business or financial soundness of the U.S. Postal Service (“USPS”), including strategic changes to its operations to reduce its reliance on the air network of FedEx Express, or our relationship with the USPS;

•	the price and availability of jet and vehicle fuel;

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

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

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

•	the future rate of e-commerce growth and our ability to successfully expand our e-commerce services portfolio;

•	the timeline for recovery of passenger airline cargo capacity;

•

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

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•	adverse changes in tax laws, regulations, and interpretations or challenges to our tax positions;

•	the effect of costs related to lawsuits in which it is alleged that FedEx Ground should be treated as an employer of drivers employed by service providers engaged by FedEx Ground;

•	increased insurance and claims expenses related to workers’ compensation claims, vehicle accidents, property and cargo loss, general business liabilities, and benefits paid under employee healthcare and disability programs;

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

•	our ability to quickly and effectively restore operations following adverse weather or a localized disaster or disturbance in a key geography;

•	our ability to achieve our goal of carbon neutrality for our global operations by calendar 2040;

•	our ability to successfully mitigate unique technological, operational, and regulatory risks related to our autonomous delivery strategy;

•	our ability to maintain good relationships with our employees and avoid attempts by labor organizations to organize groups of our employees, which could significantly increase our operating costs and reduce our operational flexibility, as well as the outcome of future negotiations to reach new collective bargaining agreements;

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

•	the effects of global climate change;

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

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

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

•	any liability resulting from and the costs of defending against class-action, derivative, and other litigation, such as wage-and-hour, joint employment, securities, and discrimination and retaliation claims, and any other legal or governmental proceedings, including the matters discussed in Note 9 of the accompanying unaudited condensed consolidated financial statements;

•	the effect of technology developments on our operations and on demand for our services, and our ability to continue to identify and eliminate unnecessary information-technology redundancy and complexity throughout the organization;

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

•	disruptions in global supply chains, which can limit the access of FedEx and our service providers to vehicles and other key capital resources and increase our costs;

•

constraints, volatility, or disruption in the capital markets, our ability to maintain our current credit ratings, commercial paper ratings, senior unsecured debt, and pass-through certificate credit ratings, our ability to meet Credit Agreement financial covenants, and factors affecting the amount and timing of share repurchases, including our ability to complete the ASR within the expected timeframe and the number of shares that will be delivered to FedEx under the ASR;

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•	the alternative interest rates we are able to negotiate with counterparties pursuant to the relevant provisions of our Credit Agreements following cessation of the publication of the London Interbank Offered Rate in the event the euro interbank offered rate also ceases to exist and we make borrowings under the agreements; and

•	other risks and uncertainties you can find in our press releases and SEC filings, including the risk factors identified under Part I, Item IA. “Risk Factors” in our Annual Report, as updated by our quarterly reports on Form 10-Q.

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

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