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

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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 February 28:

Three Months EndedPercentNine Months EndedPercent
20222021Change20222021Change
Revenue$23,641$21,51010$69,118$61,39413
Operating income (loss):
FedEx Express segment520463122,0362,073(2)
FedEx Ground segment641702(9)1,7932,088(14)
FedEx Freight segment3371191831,06164564
Corporate, other, and eliminations(172)(279)38(569)(746)24
Consolidated operating income1,3261,005324,3214,0606
Operating margin:
FedEx Express segment4.6%4.3%30bp6.0%6.7%(70)bp
FedEx Ground segment7.3%8.8%(150)bp7.2%9.3%(210)bp
FedEx Freight segment15.0%6.5%850bp15.7%11.5%420bp
Consolidated operating margin5.6%4.7%90bp6.3%6.6%(30)bp
Consolidated net income$1,112$89225$3,268$3,363(3)
Diluted earnings per share$4.20$3.3027$12.17$12.55(3)
Change in RevenueChange in Operating Results
Three Months EndedNine Months EndedThree Months EndedNine Months Ended
FedEx Express segment$516$3,072$57$(37)
FedEx Ground segment8202,377(61)(295)
FedEx Freight segment4171,178218416
FedEx Services segment57153——
Corporate, other, and eliminations321944107177
$2,131$7,724$321$261

Overview

Operating income improved in the third quarter and nine months of 2022 due to yield management actions and the favorable net impact of fuel at all of our transportation segments, as well as volume growth at FedEx Ground and FedEx Freight in the nine months of 2022. Additionally, lower variable incentive compensation expense, as well as severe winter weather experienced in the prior year, benefited year-over-year operating income comparisons in the third quarter and nine months of 2022. Operating results in the third quarter and nine months of 2022 also benefited from two additional ground commercial operating weekdays at FedEx Ground and one additional operating day at FedEx Freight.

Our operating results for the third quarter and nine months of 2022 were negatively affected by the coronavirus (“COVID-19”) pandemic and labor market challenges. Global recovery from the impacts of the COVID-19 pandemic slowed with the onset of the Omicron variant, which spread quickly during the third quarter of 2022. The Omicron variant compounded pandemic-related pressures on our operations, resulting in reduced shipping demand and network disruptions. Our operating results for the third quarter and nine months of 2022 also reflect higher operating expenses related to labor market challenges and wage pressures. The challenging labor market contributed to global supply chain disruptions and affected the availability and cost of labor resulting in network inefficiencies, higher purchased transportation costs, and higher wage rates.

Operating income includes business realignment costs of $107 million ($82 million, net of tax, or $0.31 per diluted share) in the third quarter and $218 million ($168 million, net of tax, or $0.63 per diluted share) in the nine months 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.

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We incurred TNT Express integration expenses totaling $29 million ($23 million, net of tax, or $0.08 per diluted share) in the third quarter and $92 million ($71 million, net of tax, or $0.27 per diluted share) in the nine months of 2022, a $20 million decrease from the third quarter and a $54 million decrease from the nine months of 2021. The integration expenses are predominantly incremental costs directly associated with the integration of TNT Express, primarily related to professional and legal fees. 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).

Consolidated net income in the nine months of 2022 includes a pre-tax, noncash net loss of $260 million ($195 million, net of tax, or $0.73 per diluted share) associated with our mark-to-market (“MTM”) retirement plans accounting adjustments. Consolidated net income in the nine months 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 $78 million ($0.29 per diluted share) recognized in the third quarter of 2022 related to revisions of prior year estimates identified during the preparation of U.S. and foreign tax returns. The year-over-year comparisons of net income are also affected by a tax benefit of $299 million ($1.12 per diluted share) recognized during the nine months of 2021, of which we recognized $108 million during the third quarter of 2021 from a tax rate increase in the Netherlands applied to deferred tax balances and associated with voluntary contributions to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”) and a benefit of $191 million during 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.

During the third quarter of 2022, our Board of Directors authorized a new stock repurchase program of up to $5 billion of FedEx common stock (in addition to a 25 million share repurchase program authorized in 2016), and we entered into an accelerated share repurchase (“ASR”) agreement with a bank to repurchase an aggregate of $1.5 billion of our common stock. Share repurchases had a benefit of $0.06 per diluted share for the third quarter and nine months of 2022. See Note 1 of the accompanying unaudited condensed consolidated financial statements, “Financial Condition—Liquidity” below, and Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” of this Form 10-Q for additional information on our repurchase programs (defined below).

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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:

img165780153_0.jpgimg165780153_1.jpg

img165780153_2.jpgimg165780153_3.jpg

img165780153_4.jpgimg165780153_5.jpg

(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:

img165780153_6.jpgimg165780153_7.jpg

img165780153_8.jpgimg165780153_9.jpg

img165780153_10.jpg

(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 10% in the third quarter and 13% in the nine months of 2022 primarily due to yield management actions and higher fuel surcharges, as well as volume growth at FedEx Ground and FedEx Freight in the nine months of 2022. Two additional ground commercial operating weekdays at FedEx Ground and one additional operating day at FedEx Freight also contributed to the increase in revenue during the third quarter and nine months of 2022. In addition, we experienced severe winter weather in the prior year which positively affected the year-over-year comparisons in the third quarter and nine months of 2022. These factors were partially offset by decreased U.S. domestic package volume reflecting year-over-year impacts of the COVID-19 pandemic on consumer behavior.

Revenue at FedEx Express increased 5% in the third quarter and 10% in the nine months of 2022 due to package and international priority freight yield improvement, partially offset by decreased U.S. domestic package volume, as well as decreased international domestic package volume driven by yield management actions. Additionally, we experienced lower U.S. average daily freight pounds, primarily due to decreased demand and a reduction in charter flights, in the third quarter and nine months of 2022. At FedEx Ground, revenue increased 10% in the third quarter and 11% in the nine months of 2022 primarily due to yield improvement, as well as commercial and home delivery volume growth in the nine months of 2022. FedEx Freight revenue increased 23% in the third quarter and 21% in the nine months 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 February 28:

Three Months EndedPercentNine Months EndedPercent
20222021Change20222021Change
Operating expenses:
Salaries and employee benefits$8,244$8,0103$24,155$22,3058
Purchased transportation6,2725,6601118,17216,04413
Rentals and landing fees1,2251,13183,5353,07315
Depreciation and amortization98695632,9522,8185
Fuel1,201756593,3551,94672
Maintenance and repairs822822—2,5302,4434
Business realignment costs10710NM21810NM
Other3,4583,16099,8808,69514
Total operating expenses22,31520,505964,79757,33413
Operating income$1,326$1,00532$4,321$4,0606
Percent of Revenue
Three Months EndedNine Months Ended
2022202120222021
Operating expenses:
Salaries and employee benefits34.9%37.2%34.9%36.3%
Purchased transportation26.526.326.326.1
Rentals and landing fees5.25.35.15.0
Depreciation and amortization4.24.44.34.6
Fuel5.13.54.83.2
Maintenance and repairs3.53.83.74.0
Business realignment costs0.40.10.3—
Other14.614.714.314.2
Total operating expenses94.495.393.793.4
Operating margin5.6%4.7%6.3%6.6%

Operating income improved in the third quarter and nine months of 2022 driven by yield management actions and the favorable net impact of fuel at all of our transportation segments, as well as volume growth at FedEx Ground and FedEx Freight in the nine months of 2022. Lower variable incentive compensation expense, as well as severe winter weather experienced in the prior year, benefited our year-over-year operating income comparisons in the third quarter and nine months of 2022. Operating results in the third quarter and nine months of 2022 also benefited from two additional ground commercial operating weekdays at FedEx Ground and one additional operating day at FedEx Freight. These factors were partially offset by higher operating expenses including labor market challenges and wage pressures in the third quarter and nine months of 2022. In addition, the Omicron variant compounded pandemic-related pressures on our operations in the third quarter of 2022 which negatively impacted shipping demand, and caused network disruptions and staffing shortages, particularly at FedEx Express.

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Purchased transportation costs increased 11% in the third quarter and 13% in the nine months 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, as well as higher fuel surcharges. Salaries and employee benefits expense increased 3% in the third quarter and 8% in the nine months of 2022 primarily due to higher labor costs and network inefficiencies related to the constrained labor market and wage pressures, as well as merit increases, partially offset by lower variable incentive compensation expense. Other operating expenses increased 9% in the third quarter and 14% in the nine months of 2022 primarily due to increased costs related to self-insurance accruals, information technology expenses, variable costs associated with the constrained labor market, and additional volume-related expenses. Rentals and landing fees expense increased 8% in the third quarter and 15% in the nine months 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:

img165780153_11.jpg

Fuel expense increased 59% in the third quarter and 72% in the nine months 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 nine-month periods ended February 28, 2022 and 2021 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 significant benefit to operating income in the third quarter and nine months of 2022 as higher fuel surcharges outpaced increased fuel prices.

For more information on potential impacts of fuel on our business and results of operations, see “Outlook” below and Part II, Item 1A. “Risk Factors.”

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 approximately 5,000 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 through 2023 in accordance with local country processes and regulations.

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We incurred costs associated with our business realignment activities of $107 million ($82 million, net of tax, or $0.31 per diluted share) in the third quarter and $218 million ($168 million, net of tax, or $0.63 per diluted share) in the nine months 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 $30 million in the third quarter and $86 million in the nine months of 2022. We expect the pre-tax cost of our business realignment activities to range from $380 million to $450 million through 2023. We expect savings from our business realignment activities to be between $275 million and $350 million on an annualized basis beginning in 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 nine months of 2022, we incurred a pre-tax, noncash MTM net loss of $260 million ($195 million, net of tax, or $0.73 per diluted share) 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 19.1% for the third quarter and 22.4% for the nine months of 2022, compared to 15.0% for the third quarter and 17.2% for the nine months of 2021. The tax rate for the third quarter of 2022 includes a benefit of $78 million related to revisions of prior year tax estimates identified during the preparation of U.S. and foreign tax returns. The tax rate for the third quarter of 2021 includes benefits of $108 million from a tax rate increase in the Netherlands applied to our deferred tax balances and associated with voluntary contributions to our U.S. Pension Plans. The tax rate for the nine months of 2021 also includes 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 third 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.

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Equity Investment

On December 8, 2021, FedEx Express finalized its strategic alliance with Delhivery Limited (“Delhivery”). 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 services in the India market and provide pickup-and-delivery services across India. This transaction was recorded in the third quarter of 2022 and was not material to our results of operations.

Russia and Ukraine Conflict

The crisis in Russia and Ukraine that began in February 2022 continues as of the date of this quarterly report. The safety of our team members in Ukraine is our top priority. We are providing team members in Ukraine with financial assistance and other resources. We will provide more than $1.5 million in humanitarian aid, which includes $1 million in in-kind shipping to organizations who are transporting supplies into the area and $550,000 in cash donations to non-government organizations in Europe. As we focus on the safety of our team members, we have suspended all services in Ukraine, Russia, and Belarus, which has not had and is not expected to have a material impact on our operating results. For more information about the conflict between Russia and Ukraine and its effect on FedEx’s business and results of operations, see Part II, Item IA “Risk Factors.”

Outlook

We anticipate revenue and operating income to improve in the fourth quarter of 2022 primarily as a result of yield growth. We are focused on yield management and improving revenue quality to better align with increased labor costs and inflationary pressures. We expect cost pressures associated with the challenging labor markets to subside in the fourth quarter of 2022 as we begin to lap the onset of labor market deterioration in the prior year. We will continue executing targeted actions to improve productivity both through advanced technology and optimization of operations in order to mitigate elevated labor costs. We will also 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 late March 2022, allowing us to leverage the capabilities that TNT Express adds to our portfolio, which is expected to improve our European revenue and profitability over time. We expect to incur approximately $60 million of integration expenses in the fourth quarter of 2022 primarily in the form of professional and legal fees. 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, in the fourth quarter 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 $380 million to $450 million in cash expenditures through 2023. We expect savings from our business realignment activities to be between $275 million and $350 million on an annualized basis beginning in 2024. See the “Business Realignment Costs” section of this MD&A for additional information.

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, continued gradual improvement in labor availability, current fuel price expectations, and no additional adverse geopolitical developments.

The uncertainty over the extent and duration of the ongoing conflict between Russia and Ukraine, and the impact it will have on the global economy, supply chains and fuel prices generally, and our business in particular, makes any expectations for the fourth quarter of 2022 inherently less certain. See “Russia and Ukraine Conflict” above and Part II, Item IA “Risk Factors” for more information.

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.

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RECENT ACCOUNTING GUIDANCE

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

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 SegmentFedEx Express (express transportation, small-package ground delivery, and freight transportation)
FedEx Custom Critical, Inc. (time-critical transportation)
FedEx Ground SegmentFedEx Ground (small-package ground delivery)
FedEx Freight SegmentFedEx Freight (LTL freight transportation)
FedEx Services SegmentFedEx Services (sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and back-office functions)

During the third quarter of 2022, FedEx Cross Border Holdings, Inc. was merged into FedEx Express.

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 third quarter and nine months 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.

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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 third quarter and nine months 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.

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 February 28:

Three Months EndedPercentNine Months EndedPercent
20222021Change20222021Change
Revenue:
Package:
U.S. overnight box$2,275$2,0789$6,694$5,95112
U.S. overnight envelope47944481,4351,30510
U.S. deferred1,4221,418—3,9603,7187
Total U.S. domestic package revenue4,1763,940612,08910,97410
International priority2,9912,596158,9377,42320
International economy69765372,0721,9278
Total international export package revenue3,6883,2491411,0099,35018
International domestic(1)1,0161,162(13)3,2773,456(5)
Total package revenue8,8808,351626,37523,78011
Freight:
U.S.712860(17)2,2622,492(9)
International priority948775222,8152,16530
International economy378383(1)1,2301,1626
International airfreight4056(29)134196(32)
Total freight revenue2,0782,074—6,4416,0157
Other346363(5)1,0591,0085
Total revenue11,30410,788533,87530,80310
Operating expenses:
Salaries and employee benefits4,1824,352(4)12,40712,0163
Purchased transportation1,5661,46074,7404,21313
Rentals and landing fees66765031,9511,69615
Depreciation and amortization490490—1,4921,4493
Fuel1,040647612,8971,67273
Maintenance and repairs509549(7)1,6071,642(2)
Business realignment costs10710NM21810NM
Intercompany charges494509(3)1,4991,4563
Other1,7291,65845,0284,57610
Total operating expenses10,78410,325431,83928,73011
Operating income$520$46312$2,036$2,073(2)
Operating margin4.6%4.3%30bp6.0%6.7%(70)bp

(1)

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

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Percent of Revenue
Three Months EndedNine Months Ended
2022202120222021
Operating expenses:
Salaries and employee benefits37.0%40.3%36.6%39.0%
Purchased transportation13.913.514.013.7
Rentals and landing fees5.96.05.85.5
Depreciation and amortization4.34.64.44.7
Fuel9.26.08.65.4
Maintenance and repairs4.55.14.85.4
Business realignment costs0.90.10.6—
Intercompany charges4.44.74.44.7
Other15.315.414.814.9
Total operating expenses95.495.794.093.3
Operating margin4.6%4.3%6.0%6.7%

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

Three Months EndedPercentNine Months EndedPercent
20222021Change20222021Change
Package Statistics
Average daily package volume (ADV):
U.S. overnight box1,4571,529(5)1,4481,4212
U.S. overnight envelope497508(2)5105012
U.S. deferred1,3571,562(13)1,2971,367(5)
Total U.S. domestic ADV3,3113,599(8)3,2553,289(1)
International priority79976548017369
International economy282294(4)278283(2)
Total international export ADV1,0811,05921,0791,0196
International domestic(1)1,8662,353(21)2,0042,427(17)
Total ADV6,2587,011(11)6,3386,735(6)
Revenue per package (yield):
U.S. overnight box$25.18$21.9115$24.32$22.0410
U.S. overnight envelope15.5414.081014.8213.728
U.S. deferred16.9014.651516.0714.3212
U.S. domestic composite20.3417.661519.5517.5611
International priority60.4354.711058.7453.0811
International economy39.8535.871139.2635.8510
International export composite55.0649.491153.7248.3011
International domestic(1)8.787.96108.607.4915
Composite package yield$22.89$19.2119$21.90$18.5818
Freight Statistics
Average daily freight pounds:
U.S.7,3709,943(26)8,0299,426(15)
International priority6,5956,28656,7196,00012
International economy11,64012,135(4)12,12612,435(2)
International airfreight1,1231,417(21)1,1981,534(22)
Total average daily freight pounds26,72829,781(10)28,07229,395(5)
Revenue per pound (yield):
U.S.$1.56$1.4011$1.48$1.396
International priority2.321.99172.201.9016
International economy0.520.5120.530.498
International airfreight0.580.64(9)0.590.67(12)
Composite freight yield$1.25$1.1212$1.21$1.0812

(1)

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

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FedEx Express Segment Revenue

FedEx Express segment revenue increased 5% in the third quarter and 10% in the nine months of 2022 due to increased package and international priority freight yields driven by yield management actions, as well as higher fuel surcharges. In addition, severe winter weather experienced in the prior year positively affected our year-over-year comparisons in the third quarter and nine months of 2022. These factors were partially offset by decreased U.S. domestic package volume reflecting year-over-year impacts of the COVID-19 pandemic on consumer behavior, as well as decreased international domestic package volume driven by yield management actions in the third quarter and nine months of 2022. Additionally, we experienced lower U.S. average daily freight pounds primarily due to decreased demand and a reduction in charter flights in the third quarter and nine months of 2022.

FedEx Express segment revenue in the third quarter and nine months 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 11% in both the third quarter and nine months of 2022 primarily driven by higher fuel surcharges and base yield improvement. International export package average daily volumes increased 2% in the third quarter and 6% in the nine months 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 15% in the third quarter and 11% in the nine months of 2022 driven by base rate improvement and higher fuel surcharges. U.S. domestic package average daily volumes decreased 8% in the third quarter and 1% in the nine months of 2022 primarily due to a decline in our deferred service offerings, reflecting year-over-year impacts of the COVID-19 pandemic on consumer behavior. Composite freight yield increased 12% in both the third quarter and nine months of 2022 primarily due to higher fuel surcharges and base yield improvement. Total average daily freight pounds decreased 10% in the third quarter and 5% in the nine months of 2022 primarily due to decreased demand and a reduction in charter flights. This decrease was partially offset by higher international priority freight pounds resulting from increased demand for international freight capacity during the third quarter and nine months of 2022. International domestic package yield increased 10% in the third quarter and 15% in the nine months of 2022 primarily due to base yield improvement. International domestic package average daily volumes decreased 21% in the third quarter and 17% in the nine months of 2022 primarily due to yield management actions.

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

Three Months EndedNine Months Ended
2022202120222021
U.S. Domestic and Outbound Fuel Surcharge:
Low11.27%4.61%7.72%2.73%
High14.546.4414.546.44
Weighted-average12.615.2110.644.13
International Export and Freight Fuel Surcharge:
Low10.412.966.390.28
High29.4519.8829.4519.88
Weighted-average21.6113.4819.9511.51
International Domestic Fuel Surcharge:
Low4.964.253.882.62
High44.7620.3944.7620.39
Weighted-average10.526.289.206.04

FedEx Express Segment Operating Income

FedEx Express segment operating income increased 12% in the third quarter of 2022 primarily due to yield management actions and the favorable net impact of fuel, partially offset by higher operating expenses related to labor market challenges and wage pressures. Operating income decreased 2% in the nine months of 2022 as higher operating expenses more than offset yield improvement and the favorable net impact of fuel. In addition, lower U.S. domestic package volume resulting from year-over-year impacts of the COVID-19 pandemic on consumer behavior negatively affected operating income in the third quarter and nine months of 2022. Further, we experienced lower U.S. average daily freight pounds primarily due to decreased demand and a reduction in charter flights in the third quarter and nine months of 2022. The Omicron variant compounded pandemic-related pressures on our operations in the third quarter of 2022, resulting in reduced shipping demand, network disruptions, and staffing shortages particularly affecting our air operations.

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FedEx Express prior year operating results included a pre-tax benefit of approximately $30 million in the third quarter and $165 million in the nine months from a reduction in aviation excise taxes provided by the CARES Act, which negatively affected year-over-year comparisons in the third quarter and nine months of 2022. Lower variable incentive compensation expense, as well as severe winter weather experienced in the prior year, positively affected our year-over-year operating income comparisons in the third quarter and nine months of 2022.

FedEx Express segment results include business realignment costs of $107 million in the third quarter and $218 million in the nine months 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 $24 million of TNT Express integration expenses in the third quarter and $77 million of such expenses in the nine months of 2022, a $17 million decrease from the third quarter and a $44 million decrease from the nine months of 2021.

Purchased transportation expense increased 7% in the third quarter and 13% in the nine months of 2022 primarily due to higher utilization of third-party transportation providers and increased rates. Other operating expense increased 10% in the nine months of 2022 primarily due to higher outside service contract expense, which includes variable costs associated with the constrained labor market, as well as additional volume-related expenses and higher self-insurance accruals. Salaries and employee benefits expense decreased 4% in the third quarter of 2022 primarily due to lower variable incentive compensation expense, partially offset by higher labor costs related to the constrained labor market and wage pressures. Salaries and employee benefits expense increased 3% in the nine months of 2022 primarily due to higher labor costs related to the constrained labor market and wage pressures, partially offset by lower variable incentive compensation expense. Rentals and landing fees expense increased 15% in the nine months of 2022 primarily driven by increased vehicle and aircraft leases.

Fuel expense increased 61% in the third quarter and 73% in the nine months of 2022 due to increased fuel prices. The net impact of fuel had a significant benefit to operating income in the third quarter and nine months 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 February 28:

Three Months EndedPercentNine Months EndedPercent
20222021Change20222021Change
Revenue$8,800$7,98010$24,741$22,36411
Operating expenses:
Salaries and employee benefits1,9501,652185,4184,48321
Purchased transportation4,0233,745711,44110,5249
Rentals373306221,03985921
Depreciation and amortization23321496826239
Fuel9650221547
Maintenance and repairs1481251843335622
Intercompany charges48948021,4601,3588
Other934750252,4532,05819
Total operating expenses8,1597,2781222,94820,27613
Operating income$641$702(9)$1,793$2,088(14)
Operating margin7.3%8.8%(150)bp7.2%9.3%(210)bp
Average daily package volume (ADV)(1):
Ground commercial4,5034,32744,5654,2248
Home delivery4,8604,64554,3054,0746
Economy1,2071,611(25)1,2161,669(27)
Total ADV10,57010,583—10,0869,9671
Revenue per package (yield)$10.62$9.729$10.40$9.4910

(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.

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Percent of Revenue
Three Months EndedNine Months Ended
2022202120222021
Operating expenses:
Salaries and employee benefits22.2%20.7%21.9%20.0%
Purchased transportation45.746.946.247.1
Rentals4.23.84.23.8
Depreciation and amortization2.62.72.82.8
Fuel0.10.10.10.1
Maintenance and repairs1.71.61.81.6
Intercompany charges5.66.05.96.1
Other10.69.49.99.2
Total operating expenses92.791.292.890.7
Operating margin7.3%8.8%7.2%9.3%

FedEx Ground Segment Revenue

FedEx Ground segment revenue increased 10% in the third quarter and 11% in the nine months of 2022 primarily due to yield management actions, higher fuel surcharges, and two additional ground commercial operating weekdays. Revenue also benefited from commercial and home delivery volume growth in the nine months of 2022. In addition, during the third quarter and nine months of 2021, we experienced severe winter weather which positively affected the year-over-year comparison in the third quarter and nine months of 2022. These factors were partially offset by the negative effects of the Omicron variant on demand during the third quarter of 2022.

FedEx Ground yield increased 9% in the third quarter and 10% in the nine months of 2022 primarily due to higher fuel surcharges, service mix, and pricing initiatives. Average daily volume remained flat in the third quarter of 2022 as lower economy volume offset growth in commercial and home delivery services. Average daily volume increased slightly in the nine months of 2022 primarily due to growth in commercial and home delivery services, partially offset by lower economy volume. 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 third quarter and nine months 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 February 28:

Three Months EndedNine Months Ended
2022202120222021
Low11.75%5.75%8.00%5.50%
High13.007.0013.007.00
Weighted-average12.136.3010.615.93

FedEx Ground Segment Operating Income

FedEx Ground segment operating income decreased 9% in the third quarter and 14% in the nine months of 2022 primarily due to higher operating expenses related to labor market challenges and wage pressures, as well as increased costs related to network expansion. The constrained labor market affected the availability and cost of labor resulting in higher purchased transportation costs, network inefficiencies, and higher wage rates. In addition, the Omicron variant negatively affected shipping demand during the third quarter of 2022. These factors were partially offset by yield management actions, the favorable net impact of fuel, and two additional ground commercial operating weekdays in the third quarter and nine months of 2022. Commercial and home delivery volume growth also benefited results in the nine months of 2022. Severe winter weather experienced in the prior year positively affected year-over-year operating income comparisons in the third quarter and nine months of 2022.

Salaries and employee benefits expense increased 18% in the third quarter and 21% in the nine months of 2022 due to increased labor expenses and network inefficiencies related to the constrained labor market and wage pressures. Purchased transportation expense increased 7% in the third quarter and 9% in the nine months 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. Other operating expense increased 25% in the third quarter and 19% in the nine months 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 22% in the third quarter and 21% in the nine months of 2022 due to network expansion.

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The net impact of fuel had a significant benefit to operating income in the third quarter and nine months 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 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 February 28:

Three Months EndedPercentNine Months EndedPercent
20222021Change20222021Change
Revenue$2,253$1,83623$6,776$5,59821
Operating expenses:
Salaries and employee benefits1,014911113,0312,68413
Purchased transportation2372031772058224
Rentals615771821726
Depreciation and amortization99104(5)303315(4)
Fuel1521034843425868
Maintenance and repairs65542019516419
Intercompany charges128128—3863695
Other160157246440913
Total operating expenses1,9161,717125,7154,95315
Operating income$337$119183$1,061$64564
Operating margin15.0%6.5%850bp15.7%11.5%420bp
Average daily shipments (in thousands):
Priority75.072.6378.974.07
Economy30.431.1(2)32.431.34
Total average daily shipments105.4103.72111.3105.36
Weight per shipment (lbs):
Priority1,1041,110(1)1,0921,104(1)
Economy9599501945988(4)
Composite weight per shipment1,0621,062—1,0491,070(2)
Revenue per shipment:
Priority$329.05$275.4419$307.86$266.3016
Economy376.76315.1120352.50310.3914
Composite revenue per shipment$342.83$287.3219$320.85$279.4215
Revenue per hundredweight:
Priority$29.81$24.8220$28.20$24.1217
Economy39.2833.161837.2931.4019
Composite revenue per hundredweight$32.28$27.0619$30.58$26.1217
Percent of Revenue
Three Months EndedNine Months Ended
2022202120222021
Operating expenses:
Salaries and employee benefits45.0%49.6%44.7%48.0%
Purchased transportation10.511.110.610.4
Rentals2.73.12.73.1
Depreciation and amortization4.45.74.55.6
Fuel6.75.66.44.6
Maintenance and repairs2.92.92.92.9
Intercompany charges5.77.05.76.6
Other7.18.56.87.3
Total operating expenses85.093.584.388.5
Operating margin15.0%6.5%15.7%11.5%

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FedEx Freight Segment Revenue

FedEx Freight segment revenue increased 23% in the third quarter and 21% in the nine months of 2022 primarily due to higher revenue per shipment reflecting our ongoing focus on improving revenue quality and profitable growth, increased average daily shipments, and higher fuel surcharges. In addition, severe winter weather experienced in the prior year, as well as one additional operating day, benefited our year-over-year comparisons in the third quarter and nine months of 2022.

Revenue per shipment increased 19% in the third quarter and 15% in the nine months of 2022 primarily due to higher base rates and higher fuel surcharges, which more than offset the effect of slightly lower weight per shipment. Average daily shipments increased 2% in the third quarter and 6% in the nine months 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 February 28:

Three Months EndedNine Months Ended
2022202120222021
Low28.90%21.40%25.40%21.00%
High31.1024.0031.1024.00
Weighted-average29.6022.5027.5021.60

FedEx Freight Segment Operating Income

FedEx Freight segment operating income increased significantly in the third quarter and nine months of 2022 driven by continued focus on revenue quality and profitable growth. Severe winter weather experienced in the prior year, as well as one additional operating day, benefited our year-over-year operating income comparisons in the third quarter and nine months of 2022. Higher purchased transportation costs, network inefficiencies, and higher wage rates as a result of constrained labor market conditions negatively affected results in the third quarter and nine months of 2022.

Salaries and employee benefits expense increased 11% in the third quarter and 13% in the nine months of 2022 primarily due to higher volumes, merit increases, and network inefficiencies in the constrained labor market. Purchased transportation expense increased 17% in the third quarter and 24% in the nine months 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 48% in the third quarter and 68% in the nine months of 2022 primarily due to increased fuel prices. The net impact of fuel had a significant benefit to operating income in the third quarter and nine months 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.

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FINANCIAL CONDITION

LIQUIDITY

Cash and cash equivalents totaled $6.1 billion at February 28, 2022, compared to $7.1 billion at May 31, 2021. The following table provides a summary of our cash flows for the nine-month periods ended February 28 (in millions):

20222021
Operating activities:
Net income$3,268$3,363
Business realignment costs128—
Other noncash charges and credits6,1885,479
Changes in assets and liabilities(3,254)(1,450)
Cash provided by operating activities6,3307,392
Investing activities:
Capital expenditures(4,379)(4,202)
Business acquisitions, net of cash acquired—(225)
Purchase of investments(145)—
Proceeds from asset dispositions and other7188
Cash used in investing activities(4,453)(4,339)
Financing activities:
Principal payments on debt(113)(105)
Proceeds from debt issuances—970
Proceeds from stock issuances151482
Dividends paid(598)(513)
Purchase of treasury stock(2,248)—
Other, net—(13)
Cash (used in) provided by financing activities(2,808)821
Effect of exchange rate changes on cash(91)101
Net (decrease) increase in cash and cash equivalents$(1,022)$3,975
Cash and cash equivalents at the end of period$6,065$8,856

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

In January 2016, our Board of Directors approved a stock repurchase program of up to 25 million shares (the “2016 repurchase program”). In December 2021, our Board of Directors authorized a new stock repurchase program of up to $5 billion of FedEx common stock (the “2022 repurchase program” and together with the 2016 repurchase program, the “repurchase programs”). As part of the repurchase programs, we entered into an ASR agreement with a bank in December 2021 to repurchase an aggregate of $1.5 billion of our common stock.

During the third quarter of 2022, the ASR transaction was completed, and 6.1 million shares were delivered under the ASR agreement. During the nine months of 2022, including the ASR transaction, we repurchased 8.9 million shares of FedEx common stock at an average price of $253.85 per share for a total of $2.2 billion. As of February 28, 2022, approximately $4.1 billion remained available to use for repurchases under the 2022 repurchase program. No shares remain available for repurchase under the 2016 repurchase program. Shares under the 2022 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 limits were set for the completion of the program, and the program may be suspended or discontinued at any time. See Note 1 of the accompanying unaudited condensed consolidated financial statements for additional information.

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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 February 28 (in millions):

Percent Change 2022/2021
Three Months EndedNine Months EndedThree MonthsNine Months
2022202120222021EndedEnded
Aircraft and related equipment$136$536$1,482$1,809(75)(18)
Package handling and ground support equipment4103041,1208653529
Vehicles and trailers2271393732806333
Information technology167189634560(12)13
Facilities and other2962087706884212
Total capital expenditures$1,236$1,376$4,379$4,202(10)4
FedEx Express segment$462$732$2,339$2,564(37)(9)
FedEx Ground segment5723491,3799406447
FedEx Freight segment84130125228(35)(45)
FedEx Services segment94145464392(35)18
Other2420727820(8)
Total capital expenditures$1,236$1,376$4,379$4,202(10)4

Capital expenditures increased in the nine months of 2022 primarily due to increased spending on package handling equipment at all transportation segments, higher spending on vehicles and trailers at FedEx Express and FedEx Ground, increased spending on facilities at FedEx Ground, and higher information technology spending at FedEx Services, partially offset by decreased aircraft spending at FedEx Express.

GUARANTOR FINANCIAL IN****FORMATION

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”).

The $19.4 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 $892 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.

- 39 -

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 February 28, 2022 and May 31, 2021 (in millions):

February 28, 2022May 31, 2021
Current Assets$10,777$12,795
Intercompany Receivable4,5563,348
Total Assets91,65980,470
Current Liabilities9,7169,135
Intercompany Payable——
Total Liabilities57,52255,783

The following table presents the summarized statement of income information for the nine-month period ended February 28, 2022 (in millions):

Revenue$50,033
Intercompany Charges, net(3,659)
Operating Income3,682
Intercompany Charges, net96
Income Before Income Taxes3,743
Net Income$2,993

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 February 28, 2022 and May 31, 2021 (in millions):

February 28, 2022May 31, 2021
Current Assets$3,847$5,281
Intercompany Receivable——
Total Assets67,98367,084
Current Liabilities4,8684,325
Intercompany Payable7,4115,929
Total Liabilities46,87946,386

The following table presents the summarized statement of income information for the nine-month period ended February 28, 2022 (in millions):

Revenue$18,346
Intercompany Charges, net(2,347)
Operating Income1,219
Intercompany Charges, net376
Income Before Income Taxes3,157
Net Income$2,762

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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, labor availability and supply chain constraints, inflationary pressures, rising fuel prices, and geopolitical conflicts. We have $6.1 billion in cash at February 28, 2022 and $3.5 billion in available liquidity at March 15, 2022 under our $2.0 billion five-year credit agreement (the “Five-Year Credit Agreement”) and $1.5 billion three-year credit agreement (the “Three-Year 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.

Our cash and cash equivalents balance at February 28, 2022 includes $3.1 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 $7.0 billion in 2022, a $1.1 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 $1.5 billion in aircraft and related equipment in the nine months 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 Three-Year Credit Agreement expires in March 2025. 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, as well as Part II, Item 5. “Other Information” for information on the recent amendment of the Five-Year Credit Agreement and replacement of our previously existing $1.5 billion 364-day credit agreement with the Three-Year Credit Agreement, the replacement of references to the London Interbank Offered Rate with the Secured Overnight Financing Rate, and a description of the other terms of and significant covenants in the Credit Agreements.

During the nine months of 2022, we made voluntary contributions totaling $500 million to our U.S. Pension Plans. We do not expect to make any additional contributions to our U.S. Pension Plans in the fourth quarter 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 $4 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.

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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 February 28, 2022, 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.

FORWARD-LOOKING STATEMENTS

Certain statements in this report, including (but not limited to) those contained in “Business Realignment Costs,” “Income Taxes,” “Russia and Ukraine Conflict,” “Outlook,” “Liquidity Outlook,” and “Critical Accounting Estimates,” 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;

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the effect of any international conflicts or terrorist activities, including the current conflict between Russia and Ukraine, on the United States and global economies in general, the transportation industry, or FedEx in particular, and what effects these events will have on our costs and the demand for our services;

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, including significant increases in fuel prices as a result of the ongoing conflict between Russia and Ukraine;

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, 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;

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;

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;

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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, and our ability to meet Credit Agreement financial covenants;

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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