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Item 7. Management’s Discussion and Analysis

2026-07-20 compared with 2025-07-21 · 325 added, 278 removed, 528 unchanged (53% of the section changed)

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This section also includes a discussion of key actions and events that impacted our results.

The results discussed for the year ended May 31, 2026 include the operations of FedEx Freight for the full fiscal year.

Discussion and analysis of 2024 results and year-over-year comparisons between 2025 results and 2024 results can be found in “Item 7.

Management’s Discussion and Analysis of Results of Operations and Financial Condition” of our Annual Report on Form 10-K (“Annual Report”) for the year ended May 31, 2025.

• The overview is followed by a discussion of both historical operating results for our business segments during 2025 and 2024 and our outlook for 2026, as well as a financial summary and analysis for each of our transportation segments in place during 2025 and 2024.

• Our financial condition is reviewed through an analysis of key elements of our liquidity and capital resources, financial commitments, and liquidity outlook for 2026.

• The overview is followed by a discussion of historical operating results for our business segments during 2026 and 2025, as well as a financial summary and analysis for each of our transportation segments in place during 2026 and 2025.

In light of our change in fiscal year end from May 31 to December 31, the discussion includes our outlook for the twelve months ending December 31 (“calendar year”).

Except as otherwise specified, any reference to a year indicates our fiscal year ending May 31, 2026 or ended May 31 of the year referenced, and comparisons are to the corresponding period of the prior year.

• Our financial condition is reviewed through an analysis of key elements of our liquidity and capital resources, financial commitments, and liquidity outlook for calendar year 2026.

• Critical accounting estimates discusses those financial statement elements that we believe are most important to understanding the material judgments and assumptions incorporated in our financial results.

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We provide a broad portfolio of transportation, e-commerce, and business services, offering integrated business solutions utilizing our flexible, efficient, and intelligent global network.

Our primary operating companies are Federal Express Corporation (“Federal Express”), the world’s largest express transportation company and a leading North American provider of small-package ground delivery services, and FedEx Freight, Inc.

During 2026 and 2025, our primary operating companies were Federal Express Corporation (“Federal Express”), the world’s largest express transportation company and a leading North American provider of small-package ground delivery services, and FedEx Freight, Inc.

(“FedEx Freight”), a leading North American provider of less-than-truckload (“LTL”) freight transportation services.

In connection with our one FedEx consolidation plan, on June 1, 2024, FedEx Ground Package System, Inc.

(“FedEx Ground”) and FedEx Corporate Services, Inc ("FedEx Services") were merged into Federal Express, becoming a single company operating a unified, fully integrated air-ground express network under the respected FedEx brand.

FedEx Freight continues to provide LTL freight transportation services as a separate subsidiary.

Beginning in the first quarter of 2025, Federal Express and FedEx Freight represent our major service lines and constitute our reportable segments.

Additionally, the results of FedEx Custom Critical, Inc.

(“FedEx Custom Critical”) are included in the FedEx Freight segment instead of the Federal Express segment in 2025.

Prior-year amounts were revised to reflect this presentation.

For those periods, Federal Express and FedEx Freight represented our major service lines and constituted our reportable segments.

This MD&A is based on our segment reporting that was in effect during 2026 and 2025.

On June 1, 2026, we completed the Spin-Off.

Effective as of this date, we will no longer consolidate FedEx Freight and FedEx Freight is no longer a reportable segment.

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

See “Reportable Segments” below and “ Item 1.

Business ” for additional information.

In December 2024, we announced that FedEx’s Board of Directors decided to pursue a full separation of FedEx Freight through the capital markets, creating a new publicly traded company.

The transaction, which would be implemented through the spin-off of shares of the new company to FedEx stockholders, is expected to be tax-free for U.S.

federal income tax purposes for FedEx stockholders and be completed by June 2026.

“Risk Factors – The planned spin-off of FedEx Freight may not be completed on the terms or timeline currently contemplated, if at all, and there is no guarantee that the spin-off, if completed, will achieve the intended financial and strategic benefits.

In January 2025, the Board of Directors approved a change in FedEx's fiscal year end from May 31 to December 31.

The fiscal year change will be effective for the period beginning June 1, 2026.

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

The key indicators necessary to understand our operating results include:

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Risk Factors” for more information.

Additionally, see “Results of Operations and Outlook – Consolidated Results – Business Optimization Costs and – Outlook” and “Financial Condition – Liquidity Outlook” below for additional information on efforts we are taking to mitigate adverse trends.

Additionally, see “ Results of Operations and Outlook – Consolidated Results – Separation and Other Costs – Business Optimization Costs and – Outlook” and “ Financial Condition – Liquidity Outlook ” below for additional information on efforts we are taking to mitigate adverse trends.

Macroeconomic Conditions

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The decline in U.S.

imports of consumer goods that started in late 2022, along with slowed global industrial production, has contributed to weakened business conditions for the transportation industry.

Consequently, this environment has led to lower shipments at FedEx Freight, negatively affecting our results in 2025.

In the latter half of 2025, the U.S.

government began the process of significantly increasing the rates and broadening the scope of tariffs imposed on goods imported into the United States.

In response, several foreign governments imposed new tariffs on certain goods imported from the United States, and additional U.S.

and retaliatory measures are possible in 2026.

Additional changes to global trade policies could lead to increased tariffs, export controls, quotas, embargoes, or sanctions, which may lead to increased prices or trade limitations for goods transported globally, potentially reducing customer demand for our services.

Inflation and Interest Rates

During 2025, global inflation decelerated year-over-year but continues to be above historical levels.

Additionally, global interest rates remained elevated in an effort to curb inflation.

We are experiencing pressure on demand for our transportation services, particularly our priority services, as elevated inflation and interest rates are negatively affecting consumer and business spending.

We expect inflation and high interest rates to continue to negatively affect our results in 2026.

imports of consumer goods that started in late 2022, along with slowed global industrial production, has contributed to continued weakened business conditions for the transportation industry leading to lower shipment volumes.

Additionally, recent changes in U.S.

and international trade policy have further weakened business conditions for the transportation industry.

Inflation and elevated interest rates are negatively affecting consumer and business spending, and we expect inflation and elevated interest rates to continue to negatively affect our results for the remainder of calendar year 2026.

Global Trade Policies

The United States government has taken certain actions that have negatively affected United States trade, including imposing tariffs on many goods imported into the United States.

Additionally, many foreign governments have imposed, and others have threatened to impose, new, expanded, or retaliatory tariffs, sanctions, embargoes, and/or quotas or trade barriers on certain goods imported from the United States.

These actions have contributed to weakness in the global economy that has adversely affected our results of operations.

On February 20, 2026 the U.S.

Supreme Court issued a decision invalidating tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”).

On February 23, 2026, FedEx filed a lawsuit in the U.S.

Court of International Trade against the U.S.

Customs and Border Protection (“CBP”), the CBP commissioner, and the United States of America seeking a full refund of all IEEPA tariffs paid.

On April 20, 2026, FedEx began filing refund claims through the CBP’s Consolidated Administration and Processing of Entries (“CAPE”) system.

As of May 31, 2026, we have submitted claims totaling $3.3 billion and we have received cash refunds of approximately $800 million.

FedEx recognizes amounts associated with these claims when cash is received or when realization is otherwise considered probable and estimable.

We continue to submit additional refund claims, pursuant to the CBP process, and expect to receive additional refunds as these claims are processed by CBP.

The ultimate amount and timing of refunds remain uncertain due to ongoing administrative processes and potential legal developments.

To the extent customers have previously paid amounts associated with these tariffs, FedEx plans to remit corresponding refunds as soon as practicable.

Accordingly, FedEx has recorded $749 million as of May 31, 2026 within current liabilities representing estimated customer refund obligations for cash refunds received.

Certain amounts associated with these tariffs were not collected from customers and were previously written off as credit losses.

Recoveries of such amounts are recognized in the period cash is received or when realization is reasonably assured which is generally when cash is received and are recorded as reductions of bad debt expense.

Additionally, fourteen nationwide class action lawsuits seeking refunds of IEEPA tariffs from FedEx were filed in U.S.

district courts in various states.

Thirteen of those lawsuits were consolidated into a single case pending in Tennessee federal court.

The remaining lawsuit is pending in the Court of International Trade.

The financial impact of these events is uncertain, as it is unclear to what extent duties will be refunded by CBP, what processes will govern such refunds in upcoming CAPE phases, or if we can fully collect related accounts receivable.

We are evaluating the impact of these developments on our business and financial statements.

No adjustments have been recorded in the accompanying consolidated financial statements as we cannot reasonably estimate the financial impact;

however, it is reasonably possible that it could be material.

MD-11 Operational Impact

In November 2025, the U.S.

Federal Aviation Administration issued an emergency Airworthiness Directive to address a potentially unsafe condition on all Boeing MD-11 aircraft, prohibiting further flight until the aircraft are inspected and all corrective actions are performed.

Consequently, we experienced operational disruptions during fiscal 2026 related to the grounding of our MD-11 aircraft fleet which had an adverse impact on our financial results.

In May 2026, following FAA approval of Boeing developed inspection and return-to-service protocols for MD-11 aircraft, we began systematically returning our MD-11 fleet to active commercial service.

We expect our MD-11 fleet to be fully returned to service by the end of calendar year 2026.

We must purchase large quantities of fuel to operate our aircraft and vehicles, and the price and availability of fuel is beyond our control and can be highly volatile.

The timing and amount of fluctuations in fuel prices and our ability to recover incremental fuel costs through our fuel surcharges can significantly affect our operating results either positively or negatively in the short term.

Lower fuel prices negatively affected yields through lower fuel surcharges at FedEx Freight and reduced fuel expense at both of our transportation segments during 2025.

In addition, our purchased transportation expense is affected by fuel costs.

During 2026, higher fuel prices positively affected yields through increased fuel surcharges and negatively affected fuel expenses.

To date, we have been mostly successful in mitigating over time the expense effect of higher fuel costs through our indexed fuel surcharges, as the amount of the surcharges is closely linked to the market prices for fuel.

If we are unable to maintain or increase our fuel surcharges because of competitive pricing pressures or some other reason, fuel costs could materially and adversely affect our operating results.

Geopolitical Conflicts

Given the nature of our business and our global operations, geopolitical conflicts may adversely affect our business and results of operations.

While we do not expect ongoing geopolitical conflicts between Russia and Ukraine and in the Middle East, or escalations thereof, to have a direct material impact on our business or results of operations, the broader consequences are adversely affecting the global economy and may also have the effect of heightening other risks disclosed under Item 1A.

“Risk Factors.

Given the nature of our business and our global operations, political, economic, and other conditions in foreign countries and regions, including international taxes, government-to-government relations, the typically more volatile economies of emerging markets, and geopolitical risks such as the ongoing conflicts between Russia and Ukraine, the United States and Iran, and other hostilities in the Middle East, may materially and adversely affect our business and results of operations.

RESULTS OF OPERATIONS AND OUTLOOK

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” includes costs associated with outside service contracts (such as information technology services, temporary labor, facility services, and security), insurance, professional fees, and operational supplies.

Except as otherwise specified, references to years indicate our fiscal year ended May 31, 2025 or ended May 31 of the year referenced, and comparisons are to the corresponding period of the prior year.

Therefore, the discussion of operating expenses 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” includes costs associated wi th outside service contracts (such as information technology services, facilities services, security, temporary labor and security), insurance, professional fees, and credit losses.

CONSOLIDATED RESULTS

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Diluted earnings per share $ 18.55 $ 16.81 10

The following table shows changes in revenue and operating results by reportable segment for 2025 compared to 2024 (in millions):

The following table shows changes in revenue and operating income results by reportable segment for 2026 compared to 2025 (in millions):

Year-over-Year Changes

Revenue Operating Results (1)

Revenue Operating Income

Federal Express segment $ 6,969 $ 1,027

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Items affecting Operating Income:

Spin-Off costs $ (738) $ (38)

Business optimization costs (366) (756)

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International regulatory and legacy FedEx Ground legal matters 12 (88)

FedEx Freight spin-off costs (38) —

Fiscal year change costs (33) —

$ (1,148) $ (903)

Items affecting Net Income:

Spin-Off costs, net of tax $ (589) $ (44)

Mark-to-market (“MTM”) retirement plans accounting adjustments, net of tax 497 390

FedEx Freight spin-off costs, net of tax (44) —

Remeasurement of state deferred income taxes under one FedEx structure — (54)

Operating income declined in 2025 primarily due to lower shipments and fuel surcharges at FedEx Freight, a continued mix shift toward deferred package services which constrained yield growth, and the expiration of our contract with the U.S.

Postal Service ("USPS").

In addition, operating results for 2025 were negatively affected by increased purchased transportation and wage rates and two fewer operating days at both of our transportation segments.

Partially offsetting these pressures were continued savings related to DRIVE and higher demand for international economy and U.S.

ground package services.

Our DRIVE initiatives for 2025 included the continued structural transformation of our network, improving

the efficiency of our information technology and back-office functions, optimizing operations in Europe, and increasing linehaul efficiencies.

Operating income in 2025 and 2024 includ es $756 million ($577 million, net of tax, or $2.37 per diluted share) and $582 million ( $444 million , net of tax, or $1.77 per diluted share), respectively, of ex penses associated with our DRIVE business optimization strategy to drive efficiency and lower our overhead and support costs.

Business optimization costs, net of tax (285) (577)

Asset impairment charges, net of tax (18) (16)

International regulatory and legacy FedEx Ground legal matters, net of tax 16 (90)

Fiscal year change costs, net of tax (26) —

$ (405) $ (337)

Operating income increased in 2026 primarily due to improved base yields for our package services, increased U.S.

domestic package volumes and higher fuel surcharges, combined with the continued structural cost reductions from business optimization initiatives, including from DRIVE initiatives commenced in prior years.

Operating income for 2026 was negatively affected by higher salaries and employee benefit expense, higher purchased transportation expense, the financial impact of global trade policy changes, and

increased costs related to the Spin-Off.

The increase in salaries and employee benefits was primarily driven by higher wage rates, variable incentive compensation, and employee benefit expenses.

Operating income includes separation and other costs of $771 million in 2026.

These costs are related to the Spin-Off and fiscal year change and are primarily related to professional services and an employee incentive plan.

In 2025, we incurred costs related to the Spin-Off of $56 million.

These costs are included in Corporate, other, and eliminations and consist of $38 million of professional and legal fees included in separation and other costs and $18 million related to the debt exchange offer and consent solicitation transactions discussed in Note 6 of the accompanying financial statements included in other, net.

See the “Separation and other costs” section of this MD&A for more information.

Operating income in 2026 and 2025 includes $366 million and $756 million, respectively, of business optimization expenses related to ongoing network optimization through Network 2.0, international operational transformation initiatives, and structural and overhead cost‑reduction initiatives under our DRIVE program commenced in prior years.

See the “Business Optimization Costs” section of this MD&A for more information.

Operating income in 2025 and 2024 includes $21 million ($16 million, net of tax, or $0.06 per diluted share) and $157 million ( $120 million , net of tax, or $0.48 per diluted share), respectively, of asset impairment charges associated with the decision to permanently retire certain aircraft and related engines at Federal Express.

Operating income in 2026 and 2025 includes $23 million and $21 million, respectively, of asset impairment charges associated with the decision to permanently retire certain aircraft and related engines at Federal Express.

See the “Asset Impairment Charges” section of this MD&A for more information.

Operating income in 2025 includes $88 million of net expenses ($90 million, net of tax, or $0.37 per diluted share) for international regulatory and legacy FedEx Ground legal matters included in Federal Express.

Operating income in 2024 includes a $57 million benefit ($44 million, net of tax, or $0.17 per diluted share) for insurance recoveries in connection with a separate legacy FedEx Ground legal matter included in "Corporate, other, and eliminations."

We incurred costs related to the planned spin-off of FedEx Freight of $56 million ($44 million, net of tax, or $0.18 per diluted share) in 2025.

These costs are included in Corporate, other, and eliminations and consist of $38 million of professional and legal fees included in other operating expenses and $18 million related to the debt exchange offer and consent solicitation transactions discussed in Note 7 of the accompanying financial statements included in other, net.

We did not incur any FedEx Freight spin-off costs in 2024.

Net income includes a pre-tax, noncash gain of $515 million in 2025 ($390 million, net of tax, or $1.60 per diluted share) and a gain of $561 million in 2024 ($426 million, net of tax, or $1.69 per diluted share) associated with our MTM retirement plans accounting adjustments.

Operating income in 2026 and 2025 includes a gain of $12 million and net expense of $88 million, respectively, associated with certain international regulatory and other legal matters.

Net income in 2026 and 2025 includes a pre-tax, noncash gain of $647 million and $515 million, respectively, associated with our MTM retirement plans accounting adjustments.

See the “Retirement Plans MTM Adjustments” section of this MD&A and Note 12 of the accompanying consolidated financial statements for more information.

Net income in 2024 includes a $54 million ($0.21 per diluted share) tax expense related to the remeasurement of state deferred income taxes under the new one FedEx structure.

See the “Income Taxes” section of this MD&A and Note 13 of the accompanying consolidated financial statements for more information.

During 2025, we repurchased 10.9 million shares of FedEx common stock under accelerated share repurchase ("ASR") and open market transactions at an average price of $274.34 per share for a total of $3.0 billion.

During fiscal year 2026, we repurchased 3.3 million shares of FedEx common stock under ASR or open market transactions at an average price of $233.07 per share for a total of $776 million.

Share repurchases had a benefit of $0.21 per diluted share in 2026.

In fiscal 2026 we have completed $500 million of share repurchases through open market transactions and as of July 21, 2025, $1.6 billion remained available to be used for repurchases under the stock repurchase program approved by our Board of Directors in March 2024.

See Note 1 of the accompanying consolidated financial statements and the “Financial Condition—Liquidity” section of this MD&A for additional information on our stock repurchases.

See “ Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities ” and Note 1 of the accompanying consolidated financial statements and the “Financial Condition—Liquidity” section of this MD&A for additional information on our stock repurchases during fiscal year 2026.

The following graphs for Federal Express and FedEx Freight show selected volume trends (in thousands) calculated on a 5-day-per-week basis for the years ended May 31:

Prior year statistical information has been revised to conform to the current year presentation.

(1) International domestic average daily package volume relates to our international intra-country operations.

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The following graphs for Federal Express and FedEx Freight show selected yield trends for the years ended May 31:

Prior year statistical information has been revised to conform to the current year presentation.

(1) International export revenue per package relates to our international priority and economy services.

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

Revenue was flat in 2025 primarily due to increased base yields at both of our transportation segments and higher volume at Federal Express, which offset two fewer operating days at both of our transportation segments, lower shipments and fuel surcharges at FedEx Freight, and unfavorable currency exchange rates.

Federal Express revenue increased 1% in 2025 primarily due to increased international economy and U.S.

ground package volume and improved base yields, partially offset by lower priority package volume, the expiration of our contract with the USPS on September 29, 2024, two fewer operating days, and unfavorable exchange rates.

FedEx Freight revenue decreased 6% in 2025 primarily due to lower shipments, fuel surcharges, weight per shipment, and two fewer operating days, partially offset by base yield improvement.

Revenue at Corporate, other, and eliminations increased in 2025 primarily due to higher yields and shipments at FedEx Logistics, Inc.

(“FedEx Logistics”).

Reven ue increased 8% in 2026 primarily due to improved base yields for our package services, increased U.S.

domestic package volumes, higher fuel surcharges, and favorable exchange rates, partially offset by the negative impacts from the expiration of our contract with the U.S.

Postal Service and lower shipments at FedEx Freight.

Federal Express segment revenue increased 9% in 2026 primarily due to improved package base yields, increased U.S.

domestic package volumes, higher fuel surcharges, favorable exchange rates, and growth in international freight volumes, partially offset by negative impacts from the expiration of our contract with the U.S.

Postal Service and global trade policy changes.

FedEx Freight segment revenue decreased 1% in 2026 primarily due to lower volume resulting from macroeconomic conditions, partially offset by higher fuel surcharges and base yield improvement.

Revenue at Corporate, other, and eliminations decreased in 2026 primarily due to lower demand at FedEx Logistics.

Operating Expenses

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Maintenance and repairs 3,330 3,245 3 3.5 3.7

Asset impairment charges (1)

21 157 (87) — 0.2

Business optimization costs (2)

Separation and other costs 771 38 NM 0.8 —

Business optimization and realignment costs (1)

366 756 (52) 0.4 0.9

Asset impairment charges (2)

13,999 12,963 8 14.8 14.7

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Total operating income $ 5,463 $ 5,217 5 5.8 % 5.9 %

(1) Includes costs associated with our transformation initiatives in 2026 and 2025.

(2) Includes asset impairment charges in 2026 and 2025 associated with the Federal Express operating segment.

(2) Includes costs associated with our DRIVE program in 2025 and 2024 and the workforce reduction plan in Europe in 2025.

(3) Includes $88 million of net expenses in 2025 associated with international regulatory and legacy FedEx Ground legal matters and $38 million of professional and legal fees also in 2025 related to the planned spin-off of FedEx Freight.

Includes a $57 million benefit in 2024 for insurance recoveries in connection with a separate legacy FedEx Ground legal matter.

In addition, operating results for 2025 were negatively affected by increased purchased transportation and wage rates and two fewer operating days at both of our transportation segments.

Partially offsetting these pressures were continued savings related to DRIVE and higher demand for international economy and U.S.

ground package services.

Our DRIVE initiatives for 2025 included the continued structural transformation of our network, improving the efficiency of our information technology and back-office functions, optimizing operations in Europe, and increasing linehaul efficiencies.

Purchased transportation expense increased 4% in 2025 primarily due to higher rates as well as an increase in U.S.

ground volume and commercial linehaul to support international economy volume growth and network changes, partially offset by savings from our DRIVE initiatives, lower fuel prices, and favorable currency exchange rates.

Other operating expenses increased 3% in 2025 primarily due to net expenses for international regulatory and legacy FedEx Ground legal matters in 2025 and higher bad debt and self-insurance accruals.

Salaries and employee benefits expense increased 1% in 2025 primarily due to an increase in wage rates and an increase in retirement benefits due to changes in our defined contribution plan that increased the number of eligible employees at Federal Express, partially offset by savings from our DRIVE initiatives, lower variable incentive compensation, and favorable currency exchange rates.

(3) Includes a gain of $12 million in 2026 for an international regulatory matter in Federal Express.

Includes $88 million of net expenses in 2025 associated with international regulatory and legacy FedEx Ground legal matters.

Salaries and employee benefits expe nse increased 8% in 2026 prim arily d riven by higher wage rates, variable incentive compensation, and employee benefit expenses, and unfavorable exchange rate impacts.

P urchased transportation ex pense increased 9% in 2026 primarily due to volume-related costs to support higher package volume and contracted service provider rates.

Other operating exp enses increased 8% in 2026 primarily due to increased credit losses, higher outside service contracts and professional fees, and unfavorable exchange rates.

We apply a fuel surcharge on our air and ground services, most of which are adjusted on a weekly basis.

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Additional components include the mix of services sold, the base price, and extra service charges we obtain for these services and level of pricing discounts offered.

Fuel expense decreased 20% during 2025 due to lower fuel prices and usage.

Fuel expense increased 7% during 2026 primarily due to higher fuel prices.

In addition to variability in usage and market prices, the manner in which we purchase fuel also influences our results.

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Risk Factors .”

Asset Impairment Charges

In 2025, we made the decision to permanently retire from service 12 aircraft and eight related engines, resulting in a noncash impairment charge of $21 million ($16 million, net of tax, or $0.06 per diluted share).

These retirements included two Boeing 757-200 aircraft, seven Airbus A300-600 aircraft, three Boeing MD-11 aircraft, and align with Federal Express’s fleet reduction and modernization strategy as we continue to improve our global network efficiency and better align air network capacity with anticipated demand.

In 2024, we made the decision to permanently retire from service 22 Boeing 757-200 aircraft and seven related engines to align with Federal Express’s fleet reduction and modernization strategy.

As a consequence of this decision, a noncash impairment charge of $157 million ($120 million, net of tax, or $0.48 per diluted share) was recorded in 2024.

Business Optimization Costs

In the second quarter of 2023, we announced DRIVE, a comprehensive program to improve long-term profitability.

This program includes a business optimization plan to drive efficiency within and between our transportation segments, lower our overhead and support costs, and transform our digital capabilities.

We have commenced our plan to consolidate our sortation facilities and equipment, reduce pickup-and-delivery routes, and optimize our enterprise linehaul network by moving beyond discrete collaboration to an end-to-end optimized network through Network 2.0, the multi-year effort to improve the efficiency with which FedEx picks up, transports, and delivers packages in the U.S.

We have implemented Network 2.0 optimization in approximately 290 locations in the U.S and Canada as of May 31, 2025.

Separation and Other Costs

We incurred costs related to the Spin-Off of $744 million ($589 million, net of tax, or $2.46 per diluted share) in 2026.

These costs primarily consist of professional services and an employee incentive plan related to the Spin-Off.

Separation costs of $738 million in

2026 are included within “Separation and other costs” and separation costs of $6 million are included in “Other, net” in the accompanying audited consolidated statements of income.

These costs are included in FedEx Freight;

Corporate, other, and eliminations;

and Federal Express.

In 2025, we incurred costs related to the Spin-Off of $56 million ($44 million, net of tax, or $0.18 per diluted share).

Professional and legal fees of $38 million are included within “Separation and other costs,” and $18 million related to a debt exchange offer and consent solicitation transactions discussed in Note 6 are included within “Other, net” in the accompanying consolidated statements of income.

These costs are included in Corporate, other, and eliminations.

Costs included in “Separation and other costs” for 2025 were reclassified from “Other” to conform to the current period presentation.

This change had no impact on total operating income or net income.

Additionally, “Separation and other costs, net of payments” of $15 million were reclassified from “Changes in assets and liabilities:

Accounts payable and other liabilities” in the consolidated statements of cash flows for 2025.

Fiscal year change

We incurred costs related to the fiscal year change of $33 million ($26 million, net of tax, or $0.11 per diluted share) in 2026.

These costs, included in Federal Express and Corporate, other, and eliminations were primarily related to professional fees.

We did not incur any fiscal year change costs in 2025.

Business Optimization and Realignment Costs

Our business optimization and realignment costs relate to transformation initiatives aimed to improve long-term profitability, drive efficiency within and between our transportation segments, lower our overhead and support costs, and transform our digital capabilities.

Costs included in “Business optimization and realignment costs” in the accompanying consolidated statements of income relate to our Network 2.0 program, our international operational transformation programs, and the Europe workforce reduction plan announced in June 2024.

We incurred business optimization and realignment costs of $366 million ($285 million, net of tax, or $1.19 per diluted share) in 2026.

These costs, included in Federal Express and Corporate, other, and eliminations, were primarily related to severance, professional services, and incentive payments to our contracted service providers in support of Network 2.0.

We incurred business optimization and realignment costs of $756 million ($577 million, net of tax, or $2.37 per diluted share) in 2025.

These costs, included in Federal Express and Corporate, other, and eliminations, were primarily related to professional services.

Network 2.0 is our multi-year effort to improve the efficiency with which FedEx picks up, transports, and delivers packages in the U.S.

Through Network 2.0, we continue to consolidate our sortation facilities and equipment, reduce pickup-and-delivery routes, and optimize our enterprise linehaul network by moving beyond discrete collaboration to an end-to-end optimized network.

We have implemented Network 2.0 optimization in approximately 410 locations in the U.S.

and Canada as of May 31, 2026.

Service providers will handle the pickup and delivery of Federal Express packages in some locations while employee couriers will handle others.

We completed Canada's implementation of Network 2.0 in the fourth quarter of 2025 and expect to complete the U.S.

We completed Canada’s implementation of Network 2.0 in the fourth quarter of fiscal year 2025 and expect to complete the U.S.

implementation by the end of calendar 2027.

In June 2024, Federal Express announced a workforce reduction plan in Europe as part of its ongoing measures to reduce structural costs.

The plan will impact approximately 1,400 employees in Europe across back-office and commercial functions.

The execution of the plan is subject to a consultation process that is expected to occur over an 18-month period in accordance with local country processes and regulations.

We expect savings from the plan to be approximately $150 million on an annualized basis beginning in calendar 2026.

We expect the pre-tax cost of the severance benefits and legal and professional fees to be provided under and related to our workforce reduction plan in Europe to range from $250 million to $275 million in cash expenditures through fiscal 2026.

The timing and amount of our business optimization expenses and the related cost savings from the workforce reduction plan may change as we revise and implement our plans.

The identification of costs as business optimization-related expenditures is subject to our disclosure controls and procedures.

We incurred business optimization costs of $756 million ($577 million, net of tax, or $2.37 per diluted share) in 2025, including $235 million of costs related to the workforce reduction plan in Europe.

These costs were primarily related to professional services and severance, and are included in Federal Express and Corporate, other, and eliminations.

We incurred costs associated with our business optimization activities of $582 million ($444 million, net of tax, or $1.77 per diluted share) in 2024.

These costs were primarily related to professional services and severance and are included in Corporate, other, and eliminations and Federal Express.

The aggregate pre-tax cost of our business optimization activities was $1.6 billion through 2025.

FedEx Freight Spin-Off Costs

We incurred costs related to the planned spin-off of FedEx Freight of $56 million ($44 million, net of tax, or $0.18 per diluted share) in 2025.

We did not incur any FedEx Freight spin-off costs in 2024.

Other Income and Expense

Interest expense increased $44 million and interest income decreased $7 million in 2025.

Higher notional balances on cross-currency swaps resulted in both higher interest income and higher interest expense, with the interest income being more than offset by lower average cash balances and lower interest rates.

International operational transformation programs

In January 2026, FedEx initiated operational transformation programs in certain international locations designed to modernize, streamline, and optimize international domestic operations.

These transformation programs may reduce approximately 5,000 operational employees, as well as changing working locations and schedules for up to 800 operational employees and is expected to occur over approximately 18 months, subject to required consultation processes in accordance with local regulations.

We expect the combined pre‑tax costs of severance benefits, legal and professional fees, and facilities‑related exit costs to range from $225 million to $325 million, substantially all of which are cash expenditures.

These charges are expected to be incurred through calendar year 2028 and will be recorded as business optimization expenses.

In 2026, we incurred $147 million of costs related to this program.

The timing and amount of our business optimization expenses and the related cost savings associated with this operational transformation program are dependent on local country consultation processes, regulations and the negotiation of social plans, and may change as we revise and implement our plans.

Europe workforce reduction plan

Our workforce reduction plan in Europe to reduce structural costs announced in June 2024 is now fully complete as of May 31, 2026.

The plan occurred over an 18-month period in accordance with local country processes and regulations and impacted approximately 1,400 employees across back-office and commercial functions.

Savings from the plan are expected to be approximately $150 million on an annualized basis beginning in calendar 2026.

The pre-tax cost of the severance benefits and legal and professional fees related to the plan have been recorded as business optimization expenses.

In 2026 and 2025, we incurred $13 million and $235 million, respectively, of costs related to this plan.

Retirement Plans MTM Adjustments

In 2026, we incurred a pre-tax, noncash MTM gain of $647 million ($497 million, net of tax, or $2.08 per diluted share) related to the year-end actuarial adjustments of pension and postretirement healthcare plans’ assets and liabilities.

These actuarial adjustments were due to higher discount rates, partially offset by changes to the actuarial assumptions regarding rates of retirement.

These actuarial adjustments were due to higher asset returns, partially offset by lower discount rates.

In 2025, we incurred a pre-tax, noncash MTM gain of $515 million ($390 million, net of tax, or $1.60 per diluted share) related to the year-end actuarial adjustments of pension and postretirement healthcare plans’ assets and liabilities.

These actuarial adjustments were due to higher discount rates, partially offset by changes to the actuarial assumptions regarding rates of retirement and short-term cash balance interest credits.

These actuarial adjustments were due to higher discount rates, partially offset by changes to the actuarial assumptions regarding rates of retirement.

For more information, see the “Critical Accounting Estimates” section of this MD&A and Note 1 and Note 12 of the accompanying consolidated financial statements.

Asset Impairment Charges

In 2026, we made the decision to permanently retire from service 10 aircraft, resulting in a noncash impairment charge of $23 million ($18 million, net of tax, or $0.08 per diluted share).

These retirements included four Boeing 757-200 aircraft, one Airbus A300-600 aircraft, and five MD-11 aircraft, and align with Federal Express’s fleet reduction and modernization strategy as we continue to improve our global network efficiency and better align air network capacity with anticipated demand.

Our effective tax rate was 23.5% for 2026, compared to 24.8% for 2025.

The 2026 tax provision includes a net income tax benefit of $100 million ($0.41 per diluted share) from the reduction of a Brazil valuation allowance on certain foreign tax loss carryforwards due to operational changes which impacted the determination of the realizability of the deferred tax asset in that jurisdiction.

The 2025 tax provision includes a net income tax benefit of $46 million ($0.19 per diluted share) arising primarily from changes in our corporate legal entity structure and revisions of prior year estimates for actual tax return results.

The 2024 tax provision includes an income tax expense of $54 million ($0.21 per diluted share) from the remeasurement of U.S.

state deferred tax balances related to the merger of FedEx Ground and FedEx Services into Federal Express.

On July 4, 2025, the One Big Beautiful Bill Act was signed into law.

Certain provisions within the act are interdependent and have implications for both the effective tax rate and cash taxes.

Several countries in which the company operates have adopted the Organization for Economic Cooperation and Development’s global framework implementing a 15% corporate minimum tax, commonly referred to as Pillar Two.

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state, local, and foreign jurisdictions.

We are currently under examination by the Internal Revenue Service (“IRS”) for the 2016 through 2021 tax years.

We are currently under examination by the IRS for the 2016 through 2021 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.

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On June 4, 2025, the District Court validated the amount of refunds owed for 2018 and 2019, which includes the foreign tax credits previously denied.

government has until August 4, 2025, to appeal the decision to the U.S.

On August 1, 2025, the government filed a notice to appeal the decision to the U.S.

Court of Appeals for the Sixth Circuit.

The government submitted its opening brief on January 7, 2026, and FedEx filed its response on March 23, 2026.

The government filed its reply brief on May 13, 2026.

Oral arguments are scheduled for July 30, 2026.

If we are ultimately unsuccessful in defending our position, we may be required to reverse the benefit previously recorded.

For more information on income taxes, see the “ Critical Accounting Estimates ” section of this MD&A and Note 11 of the accompanying consolidated financial statements.

Equity Investments

As of May 31, 2025 and 2024, the carrying value of our equity investments were $506 million and $360 million, respectively.

For more information on equity investments, see Note 20 of the accompanying consolidated financial statements.

The uncertainty over the current trade and geopolitical environment and the impact it may continue to have on customer demand and shipping patterns globally makes expectations for 2026 operating and financial performance inherently less clear.

However, based on the current trends, we expect the industrial economy to continue pressuring demand for our higher-yielding business-to-business services in the near term, and service mix to continue shifting further toward deferred service offerings.

We will continue to execute on our revenue quality strategy to mitigate yield pressures through surcharge management and optimizing our customer and service mix.

We will also continue our transformation programs, where we expect to see an incremental $1 billion in structural cost reduction benefits from DRIVE and Network 2.0 in 2026, as we continue to align our cost base with demand and increase the flexibility of our network.

We expect the unfavorable impact of the expiration of the contract for Federal Express to provide the USPS domestic transportation services in September 2024 to continue through September 2025.

See the “Business Optimization Costs” section of this MD&A for additional information on our DRIVE program and other cost savings initiatives.

Our capital expenditures for 2026 are expected to be approximately $4.5 billion, $0.4 billion higher than 2025.

The increase is driven by investment in Network 2.0 initiatives and other efforts to modernize our facilities and package handling equipment in the U.S.

and internationally.

Aircraft spend is expected to decline to approximately $1.0 billion, $0.3 billion lower than 2025.

Based on current trends, we anticipate revenue and operating profit growth to continue the remainder of calendar year 2026, driven by year-over-year growth in U.S.

Domestic and International segments.

We expect continued yield and volume improvement to more than offset expense increases, including higher wage and purchased transportation rates, higher costs associated with the newly ratified pilot CBA, which took effect June 29, 2026, and other inflationary matters.

We will continue to execute on our business optimization initiatives, including Network 2.0 and our one FedEx program, where we expect to achieve $1.0 billion in structural cost reduction by the end of calendar year 2026.

In January 2026, we initiated operational transformation programs in certain international locations designed to modernize, streamline, and optimize international domestic operations.

The remaining charges are expected to be incurred through calendar year 2028 and will be recorded as business optimization expenses.

Our workforce reduction plan in Europe to reduce structural costs announced in June 2024 is now fully complete as of May 31, 2026.

We expect savings from the plan to be approximately $150 million on an annualized basis beginning in calendar 2026.

These activities have been recorded as business optimization expenses.

See the “Business Optimization Costs” section of this MD&A for additional information on our transformation initiatives and other cost savings initiatives.

Our capital expenditures during calendar year 2026 are expected to be approximately $3.9 billion, $0.4 billion higher than calendar year 2025.

The increase is primarily driven by accelerated investment in Network 2.0 initiatives and modernization of U.S.

Domestic and International facilities.

Aircraft spend is expected to be approximately $1.0 billion for calendar year 2026.

Historical and projected capital expenditures exclude FedEx Freight.

We will continue to evaluate our investments in critical long-term strategic projects to ensure our capital expenditures are expected to generate high returns on investment and are balanced with our outlook for global economic conditions.

For additional details on key 2026 capital projects, refer to the “Financial Condition – Capital Resources” and “Financial Condition – Liquidity Outlook” sections of this MD&A.

In June 2024, Federal Express announced a workforce reduction plan in Europe as part of its ongoing measures to reduce structural costs.

The plan will impact approximately 1,400 employees in Europe across back-office and commercial functions.

The execution of the plan is subject to a consultation process that is expected to occur over an 18-month period in accordance with local country processes and regulations.

We expect the pre-tax cost of the severance benefits and legal and professional fees to be provided under and related to the plan to range from $250 million to $275 million in cash expenditures.

These charges are expected to be incurred through fiscal 2026 and will be classified as business optimization expenses.

In 2025, we incurred $235 million of costs related to this plan.

We expect savings from the plan to be approximately $150 million on an annualized basis beginning in calendar 2026.

In December 2024, we announced that FedEx’s management and Board of Directors had decided to pursue a full separation of FedEx Freight through the capital markets, creating a new publicly traded company.

The separation is expected to be executed by June 2026.

The uncertainty of international trade-related volatility, geopolitical challenges including the ongoing conflicts between Russia and Ukraine and in the Middle East, global inflation, and the effect these factors will have on the rate of growth of global trade, supply chains, fuel prices, and our business in particular, make any expectations for 2026 inherently less certain.

See “ Item 1A.

Risk Factors ” for more information.

We are directly affected by the state of the global economy and geopolitical developments.

Additional changes in international trade policies, including tariffs, and relations could significantly reduce the volume of goods transported globally, increase our costs, and materially and adversely affect our business, financial condition, cash flows, and results of operations.

Our transportation businesses and their profitability are affected by the price and availability of jet and vehicle fuel, as well as our ability to collect fuel surcharges.

The uncertainty of these factors make any expectations for calendar year 2026 inherently less certain.

See “ Forward-Looking Statements ,” “ Item 1A.

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holiday sales season.

Our first and third fiscal quarters, because they are summer vacation and post winter-holiday seasons, have historically experienced lower volumes relative to other periods.

For FedEx Freight, the spring and fall are the busiest periods and the latter part of December through February is the slowest period.

The quarters including summer vacation and post winter-holiday seasons have historically experienced lower volumes relative to other periods.

Shipment levels, operating costs, and earnings for each of our companies can also be adversely affected by inclement weather, particularly the impact of severe winter weather in our third fiscal quarter.

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REPORTABLE SEGMENTS

Federal Express and FedEx Freight represent our major service lines and constitute our reportable segments.

Our reportable segments include the following businesses.

Federal Express Segment Federal Express (express transportation, small-package ground delivery, and freight transportation)

FedEx Freight Segment FedEx Freight (LTL freight transportation)

FedEx Custom Critical (time-critical transportation)

During 2026 and 2025, Federal Express and FedEx Freight represented our major service lines and constitute our reportable segments.

The Federal Express segment operates combined sales, marketing, administrative, and information-technology functions in shared service operations for U.S.

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We review and evaluate the performance of FedEx Freight and our other operating segments based on operating income inclusive of these allocations.

Operating expenses for our FedEx Freight segment include allocations of these services from the Federal Express segment.

These allocations also include charges and credits for administrative services provided between operating companies.

Operating expenses for our FedEx Freight segment included allocations of these services from the Federal Express segment.

These allocations also included 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.

We believe these allocations approximated 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, certain other costs and credits not attributed to our core business, and certain costs associated with developing integrated business solutions through our FedEx Dataworks, 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 is the FedEx Office and Print Services, Inc.

(“FedEx Office”) operating segment, which provides an array of document and business services and retail access to our customers for our package transportation businesses, and the FedEx Logistics operating segment, which provides integrated supply chain management solutions, specialty transportation, 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 2025, the decline in operating results in Corporate, other, and eliminations was primarily due to a decrease in operating results at FedEx Dataworks and a $57 million benefit in 2024 at FedEx Corporate for insurance recoveries in connection with a legacy FedEx Ground legal matter, partially offset by improved operating results at FedEx Office.

The decline in operating results at FedEx Dataworks was primarily due to increased business optimization costs, salaries and employee benefits expense, and outside service contracts expense.

The improvement in operating results at FedEx Office was primarily due to lower salaries and employee benefits expense and higher revenue.

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 2025 FedEx Freight provided road and intermodal support for Federal Express.

In addition, Federal Express works with FedEx Logistics to secure air charters and other cargo space for U.S.

Billings for such services are based on negotiated rates 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.

On June 1, 2026, we completed the Spin-Off.

Effective as of this date, we will no longer consolidate the FedEx Freight business, and FedEx Freight is no longer a reportable segment.

This MD&A is based on our segment reporting that was in effect during 2026 and 2025.

FEDERAL EXPRESS SEGMENT

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Asset impairment charges 23 21 10 — —

Separation and other costs 92 — NM 0.1 —

Business optimization costs 303 384 (21) 0.4 0.5

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Composite freight yield 1.25 1.20 4

Prior year statistical information has been revised to conform to the current presentation.

(1) ADV is calculated on a 5-day-per-week basis.

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Federal Express Segment Revenue

Federal Express segment revenue increased 1% in 2025 primarily due to increased international economy and U.S.

ground package volume and improved base yields, partially offset by lower priority package and U.S.

freight volume, two fewer operating days, and unfavorable currency exchange rates.

domestic composite package yield increased slightly in 2025 due to higher base rates from our continued focus on revenue quality.

Composite freight yield increased 2% in 2025 primarily due to improved U.S.

freight yield resulting from the expiration of our contract with the USPS on September 29, 2024 and an increase in international economy freight yield due to improved market strength.

International export composite package yield decreased 3% in 2025 primarily due to unfavorable service mix.

International economy package volume increased 40% in 2025 primarily due to continued growth in our deferred service offerings as a result of strengthening e-commerce.

ground home delivery/economy package volume increased 5% in 2025, also primarily due to strong growth in e-commerce.

deferred package volume increased 4% in 2025 primarily due to mix shift toward our deferred service offerings.

International and U.S.

priority package volumes decreased 12% and 2%, respectively, in 2025 primarily due to softness in the global industrial economy.

average daily freight pounds decreased 44% in 2025 primarily due to the expiration of our contract with the USPS on September 29, 2024.

Federal Express segment revenue increased 9% in 2026 primarily due to improved package base yields, increased U.S.

Postal Service and global trade policy changes.

Improved base

yields and U.S.

domestic package volumes reflect strong residential e‑commerce growth in the U.S.

domestic business and international performance benefitted from increased international business‑to‑business demand.

deferred package volumes increased 8% driven by large customer demand and peak-related growth.

ground package volume increased 4% in 2026, benefitting from higher home delivery and economy package volumes driven by increased business-to-consumer volume.

priority package volu mes increased 4% in 2026 supported by growth in demand by business-to-business customers.

International export package volume increased 1% in 2026 primarily driven by higher business‑to‑business demand in Europe, offsetting the negative impacts of global trade policy changes and decrease in demand in Asia Pacific.

Total average daily freight pounds remained flat in 2026 reflecting international priority and economy freight volume increases, which were offset by a reduction of U.S.

postal-related volumes following the expiration of our contract with the U.S.

Postal Service.

domestic composite package y ield increased 6% in 2026 prim arily due t o higher base rates from our continued focus on revenue quality and higher fuel surcharges in the fourth quarter of 2026.

International priority package yiel d increased 13% in 2026 primarily due to increased weight per package, favorable exchange rates and higher fuel surcharges.

Int ernational economy package yield s decreased 2% primarily due to lower base yields, partially offset by favorable exchange rates and higher fuel surcharges.

Composite freight yield increased 4% in 2026 primarily due to favorable exchange rates, higher fuel surcharges, and a favorable mix impact from lower U.S.

postal-related volumes following the expiration of our contract with the U.S.

Postal Service.

Federal Express Segment Operating Income

Federal Express segment operating income increased 1% in 2025 primarily due to higher base yields and volume, partially offset by increased operating expenses and two fewer operating days.

The increase in operating expenses was driven by increased wage and purchased transportation rates, employee benefits, and business optimization costs, partially offset by lower fuel prices and continued benefits from DRIVE initiatives that drove a reduction in our permanent cost structure.

These initiatives included the continued structural transformation of our network, improving the efficiency of our information technology and back-office functions, optimizing operations in Europe, and increasing linehaul efficiencies.

Currency exchange rates had a negative effect on revenue and a positive effect on expenses and operating income in 2025.

Purchased transportation expense increased 3% in 2025 primarily due to higher rates as well as an increase in U.S.

ground volume and an increase in commercial linehaul to support international economy volume growth and network changes, partially offset by savings from our DRIVE initiatives and lower fuel prices.

Salaries and employee benefits expense increased 2% in 2025 primarily due to an increase in wage rates and an increase in retirement benefits due to changes to our defined contribution plan which increased the number of eligible employees, partially offset by savings from our DRIVE initiatives and lower variable incentive compensation.

Other operating expense increased 3% in 2025 primarily due to higher self-insurance accruals, net expenses for international regulatory and legacy FedEx Ground legal matters in 2025, and higher credit losses.

Fuel expense decreased 20% in 2025 due to decreases in fuel prices and usage from lower flight hours.

Federal Express segment results in 2025 and 2024 include business optimization costs of $384 million and $251 million, respectively, associated with our plan to drive efficiency and lower our overhead and support costs.

Federal Express segment operating income increased 21% in 2026 primar ily d ue to revenue growth described above and continued structural cost reductions realized from business optimization initiatives, including Network 2.0, Tricolor and our international operational transformation programs.

These improvements were partially offset by increased salaries and employee benefits expense, higher purchased transportation expense, the negative impacts from global trade policy changes including higher credit losses, the expiration of our contract with the U.S.

Postal Service, and the grounding of our MD-11 fleet.

Salaries and employee benefits expense increased 9% in 2026 primarily due to higher wage rates, variable incentive compensation and employee benefits expense, unfavorable exchange rates, and increased staffing to align with higher volumes in the U.S.

Purchased transportation expe nse increased 9% in 2026 primarily due to increased volume, higher contracted service provider rates, higher fuel rates, and unfavorable exchange rates.

Oth er operating expense increased 9% in 2026 primarily due to credit losses from higher revenue and impacts from global trade policy changes, increased outside service contracts and professional fees, and customs-related brokerage fees due to the removal of the de minimis exemption.

Fuel expense increased 8% in 2026 primarily due to an increase in fuel price.

Federal Express segment results include business optimization costs of $303 million and $384 million in 2026 and 2025, respectively, associated with our plan to drive efficiency and lower our overhead and support costs.

Results in 2026 also include $22 million of costs associated with our fiscal year change and $70 million of costs associated with the Spin-Off.

Federal Express did not incur any costs associated with our fiscal year change or the Spin-Off in 2025.

Federal Express segment results in 2026 and 2025 also include $23 million and $21 million, respectively, of asset impairment charges associated with the decision to permanently retire certain aircraft and related engines.

See the “Business Optimization Costs” and “Asset Impairment Charges” sections of this MD&A for more information.

In July 2023, Federal Express’s pilots failed to ratify the tentative successor agreement that was approved by the Air Line Pilots Association, International’s FedEx Master Executive Council in the prior month.

Negotiations have continued, and the ongoing bargaining process has no effect on our operations.

For more information, see Note 1 of the accompanying consolidated financial statements.

Results include a gain of $12 million in 2026 for an international regulatory matter and include $88 million of net expenses in 2025 associated with international regulatory and legacy FedEx Ground legal matters.

See the “Business Optimization Costs,” “Separation and Other Costs” and “Asset Impairment Charges” sections of this MD&A for more information.

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.

During 2026 and 2025, FedEx Freight LTL service offerings included priority services when speed is critical and economy services when time can be traded for savings.

The following table compares revenue, operating expenses, operating income (dollars in millions), operating margin, selected statistics, and operating expenses as a percent of revenue for the years ended May 31:

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Maintenance and repairs 314 332 (5) 3.6 3.7

Separation and other costs 492 — NM 5.6 —

Intercompany charges 561 573 (2) 6.4 6.5

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FedEx Freight Segment Revenue

FedEx Freight segment revenue decreased 6% in 2025 primarily due to lower shipments and yields.

Revenue was also negatively impacted by two fewer operating days in 2025.

Average daily shipments decreased 4% in 2025 due to reduced demand for our services, primarily resulting from weakness in the industrial economy.

Revenue per shipment decreased 1% in 2025 primarily due to lower fuel surcharges and weight per shipment, partially offset by base yield improvement from our continued focus on revenue quality.

FedEx Freight segment revenue decreased 1% in 2026 primarily due to lower volume resulting from macroeconomic conditions, partially offset by higher fuel surcharges and base yield improvement.

Average daily shipments decreased 4% in 2026 due to reduced demand for our services primarily resulting from macroeconomic conditions, including continued weak industrial production, global trade policy uncertainty, and excess capacity in the LTL industry.

Revenue per shipment increased 4% in 2026 primarily driven by higher fuel surcharges, as well as higher weight per shipment.

FedEx Freight Segment Operating Income

FedEx Freight segment operating income decreased 18% in 2025 due to decreased revenue, partially offset by reduced operating expenses.

Operating income was also negatively impacted by two fewer operating days in 2025.

Fuel and purchased transportation expense decreased 20% and 8%, respectively, in 2025 due to decreased shipments and lower fuel prices.

Salaries and employee benefits expense decreased 1% in 2025 primarily due to lower staffing to align with decreased shipments and lower variable incentive compensation, partially offset by higher wage rates.

FedEx Freight segment operating income decreased 59% in 2026 primarily due to higher costs related to the Spin-Off, including increased salaries and employee benefits expense, outside service contracts and professional fees, as well as reduced demand.

These impacts were partially offset by increased revenue per shipment due to the factors noted above.

Salaries and employee benefits expense increased 3% in 2026 largely reflecting Spin-Off-related personnel activity, including the transfer to FedEx Freight of over 1,500 employees from Federal Express during 2026, as well as higher wage rates, partially offset by lower volume.

Other operating expense increased 17% in 2026 due to increased outside service contracts and professional fees related to the Spin-Off, including incremental software license costs and other technology-related activities.

Separation and other costs of $492 million in 2026 are primarily professional fees and an employee incentive plan associated with the Spin-Off.

FedEx Freight did not incur any costs associated with the Spin-Off in 2025.

See the “Separation and Other Costs” section of this MD&A for more information.

CORPORATE, OTHER, AND ELIMINATIONS

Corporate, other, and eliminations includes corporate headquarters costs for executive officers and certain legal and finance functions, certain other costs and credits not attributed to our core business, and certain costs associated with developing integrated business solutions through our FedEx Dataworks, Inc.

("FedEx Dataworks") operating segment.

FedEx Dataworks is focused on creating new digital revenue streams using proven FedEx intelligence to digitize supply chains and create new opportunities for our customers and team members.

Also included in Corporate, other, and eliminations are the FedEx Office and Print Services, Inc.

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

Operat ing results in Corporate, other, and eliminations improved in 2026 due to improved operating results for FedEx Dataworks driven by lower business optimization costs and improved operating results for FedEx Office driven by higher revenue, offset by a decline in operating results for FedEx Logistics driven by higher salaries and benefits expense.

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 2026 FedEx Freight provided road and intermodal support for Federal Express.

In addition, Federal Express works with FedEx Logistics to secure air charters and other cargo space for U.S.

Billings for such services are based on negotiated rates 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.

FINANCIAL CONDITION

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Asset impairment charges 23 21

Business optimization costs, net of payments 43 26

Separation and other costs, net of payments 248 15

Business optimization and realignment costs, net of payments (48) 43

Other noncash charges and credits 8,429 8,095

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Financing activities:

Proceeds from debt issuances 5,289 —

Short-term borrowings, net 742 —

Principal payments on debt (2,049) (157)

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Other, net (55) (30)

Cash used in financing activities (4,019) (3,426)

Cash provided by (used in) financing activities 2,749 (4,019)

Effect of exchange rate changes on cash 46 76

Net decrease in cash and cash equivalents $ (999) $ (355)

Cash and cash equivalents at end of period $ 5,502 $ 6,501

Net increase (decrease) in cash and cash equivalents 7,809 (999)

Cash and cash equivalents at the end of period $ 13,311 $ 5,502

Cash Provided by Operating Activities.

Cash flows from operating activities decreased $1.3 billion in 2025 primarily due to working capital changes driven by an increase in accounts receivable and a decrease in accrued incentive compensation, partially offset by an increase in accounts payable from 2024.

Cash flows from operating activities increased $1.9 billion in 2026 primarily due to higher net income, net of non-cash adjustments, and favorable working capital changes driven by increases in accruals for variable incentive compensation, self-insurance, and professional fees, partially offset by an increase in accounts receivable.

Cash Used in Investing Activities .

Capital expenditures decreased i n 2025 primaril y due to decreased spending on aircraft and related equipment, facilities and other, vehicles and trailers, and information and technology investments.

See “Capital Resources” below for a more detailed discussion of capital expenditures during 2025.

Financing Activities .

We repurchased an aggregate of $3.0 billion, or 10.9 million shares, of our common stock in 2025 through ASR and open market transactions.

During 2024, we repurchased an aggregate of $2.5 billion, or 9.8 million shares, of our common stock through ASR transactions.

The following table provides a summary of repurchases of our common stock for the periods ended May 31 (dollars in millions, except per share amounts):

Purchased Average

per Share Total

Purchased Average

per Share Total

Common stock repurchases 10,935,794 $ 274.34 $ 3,000 9,790,704 $ 255.34 $ 2,500

In fiscal 2026 we completed $500 million of share repurchases through open market transactions through July 21, 2025.

After these repurchases, $1.6 billion remained avail able to be used for repurchases under the stock repurchase program approved by our Board of

Directors in March 2024, which is the only program that currently exists.

See “ Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities ” and Note 1 of the accompanying consolidated financial statements for additional information.

Capital expenditures decreased $0.2 billion in fiscal 2026 primarily due to lower spending on “aircraft and related equipment” at Federal Express and “vehicles and trailers” at Federal Express and FedEx Freight.

See “ Capital Resources ” below for a more detailed discussion of capital expenditures during fiscal 2026.

Cash Provided by (Used in) Financing Activities .

Cash flows from financing activities increased $6.8 billion in fiscal 2026 primarily due to the proceeds from debt issuances by FedEx Freight and lower repurchases of our common stock in fiscal 2026 when compared to fiscal 2025, offset by higher principal payments on debt in 2026.

See Note 1 and Note 6 of the accompanying audited consolidated financial statements, “ Liquidity Outlook ” below, and “ Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities ” for more information.

CAPITAL RESOURCES

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Total capital expenditures $ 3,809 $ 4,055 (6)

Capital expenditures decreased $1.1 billion during 2025 primarily due to decreased spending on aircraft and related equipment, vehicles and trailers, facilities and other, and information and technology investments at Federal Express.

Capital expenditures decreased $0.2 billion during 2026 primarily due to lower spending on “aircraft and related equipment” at Federal Express and “vehicles and trailers” at Federal Express and FedEx Freight, partially offset by increased investments in “facilities and other” at FedEx Freight and Federal Express and increased investments in “package handling and ground support equipment” at Federal Express.

These reductions are a result of continuing to prioritize investments that support increasing efficiency and reducing our cost to serve.

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”).

The $18.7 billion principal amount of 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”).

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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.

See Note 7 of the accompanying consolidated financial statements for information regarding the exchange offer and consent solicitation transactions related to the guarantee of FedEx Freight that were completed during the third quarter of 2025.

See Note 6 of the accompanying consolidated financial statements for information regarding the issuance by FedEx of its senior unsecured debt guaranteed by the Guarantor Subsidiaries that was completed during the first quarter of 2026.

As discussed in Note 6 , the senior unsecured debt issued by FedEx Freight Holding Company, Inc.

during the third quarter of 2026 was issued in an unregistered offering.

Additionally, FedEx fully and unconditionally guarantees the payment obligation of Federal Express in respect of the $685 million principal amount of the Certificates.

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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 response to the slowdown in the economy, inflationary pressures, changing fuel prices, geopolitical conflicts, and uncertainty regarding international trade, including the impact of tariffs.

We held $5.5 billion in cash at May 31, 2025 and had $3.5 billion in available liquidity under our $1.75 billion three-year credit agreement (the “Three-Year Credit Agreement) and $1.75 billion five-year credit agreement (the “Five-Year Credit Agreement” and together with the Three-Year Credit Agreement, the “Credit Agreements”), and we believe that our cash and cash equivalents, cash flow 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.

In the third quarter of 2025, we began incurring costs and expenses related to the planned spin-off of FedEx Freight, which are expected to be significant but will not materially adversely affect our liquidity.

During 2025, we completed $3.0 billion in share repurchases through ASR and open market transactions.

In fiscal 2026, we have completed $500 million of share repurchases through open market transactions through July 21, 2025 and expect to continue repurchasing additional shares of our common stock subject to market conditions, our liquidity needs, and other factors.

See Note 1 of the accompanying consolidated financial statements and “ Item 5.

Market for R e gistrant's Com mon Equity, R e lated Sto ckholder Matters, and Issuer Purchases of Equity Securities ” for more information.

We held $13.3 billion in cash and cash equivalents at May 31, 2026 and had $2.8 billion in available liquidity under our $1.75 billion three-year credit agreement (the “Three-Year Credit Agreement”) and $1.75 billion five-year credit agreement (the “Five-Year Credit Agreement” and together with the Three-Year Credit Agreement, the “Credit Agreements”), after offsetting outstanding commercial paper borrowings.

We believe that our cash and cash equivalents, cash flow from operations, and available financing sources will be adequate in the short-term and long-term to meet our liquidity needs, which include operational requirements, expected capital expenditures, voluntary pension contributions, dividend payments, and stock repurchases.

See Note 6 of the accompanying consolidated financial statements for information regarding recent amendments to the Credit Agreements.

Our cash and cash equivalents balance at May 31, 2026 includes $4.3 billion of cash in foreign jurisdictions associated with our permanent reinvestment strategy.

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domestic debt or working capital obligations.

Our capital expenditures for 2026 are expected to be approximately $4.5 billion, $0.4 billion higher than 2025.

The increase is driven by investment in Network 2.0 initiatives and other efforts to modernize our facilities and package handling equipment in the U.S.

and internationally.

Aircraft spend is expected to decline to approximately $1.0 billion, $0.3 billion lower than 2025.

We have several aircraft modernization programs under way that are supported by the purchase of Boeing 777 Freighter (“B777F”) 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 2025, Federal Express exercised options to purchase eight B777F aircraft and ten ATR 72-600F aircraft.

Of the eight B777F aircraft, three are expected to be delivered in calendar year 2026 and five are expected to be delivered in calendar year 2027.

Of the ten ATR 72-600F aircraft, three are expected to be delivered in calendar year 2027, four in calendar year 2028, and three in calendar year 2029.

Additionally, we have extended the retirement of the entire Boeing MD-11 fleet from 2028 to the end of 2032.

We have additional obligations as part of our ordinary course of business, beyond those committed for capital expenditures, which consist of debt obligations, lease obligations, and obligations and commitments for purchases of goods and services.

Refer to Note 7 , Note 8 , and Note 1 9 of the accompanying consolidated financial statements for more information.

In addition, we have certain tax positions that are further discussed in Note 1 3 of the accompanying consolidated financial statements.

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

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 Federal Express to sell, in one or more future offerings, pass-through certificates.

The Three-Year Credit Agreement and the Five-Year Credit Agreement expire in March 2027 and March 2029, respectively.

Each of the Credit Agreements has a $125 million letter of credit sublimit.

The Credit Agreements are available to finance our operations and other cash flow needs.

As of May 31, 2025, no amounts were outstanding under the Credit Agreements, no commercial paper was outstanding, and we had $250 million of the letter of credit sublimit unused under the Credit Agreements.

See Note 7 of the accompanying consolidated financial statements for a description of the terms and significant covenants of the Credit Agreements.

In fiscal 2026, we made voluntary contributions of $200 million to our tax-qualified U.S.

On July 1, 2026, FedEx announced that it would sell its FedEx Supply Chain business to CMA CGM Group for $1.4 billion as part of a strategic portfolio streamlining effort.

The transaction is expected to close in the second half of calendar year 2026.

See Note 20 of the accompanying consolidated financial statements for more information.

In July 2026, FedEx utilized the $4.1 billion dividend received from FedEx Freight Holding, together with cash on hand, to repurchase approximately $4.9 billion aggregate principal amount of its outstanding debt securities.

See Note 20 of the accompanying consolidated financial statements for more information.

Our capital expenditures during calendar year 2026 are expected to be approximately $3.9 billion, $0.4 billion higher than calendar year 2025.

The increase is primarily driven by accelerated investment in Network 2.0 initiatives and modernization of U.S.

Domestic and International facilities.

Aircraft spend is expected to be approximately $1.0 billion for calendar year 2026.

Historical and projected capital expenditures exclude FedEx Freight.

On February 9, 2026, InPost S.A.

(“InPost”) and a consortium including FedEx announced a conditional agreement on an intended recommended all-cash public offer for all issued and outstanding shares of InPost at an offer price of €15.60 (cum dividend) per share (the “Offer”).

Post-completion, the consortium will be structured with FedEx holding 37%.

InPost will continue to operate as a standalone company.

The Offer and the transactions contemplated thereby (the “Transaction”) are subject to certain customary closing conditions, including, among others, the receipt of regulatory approvals.

Based upon the proposed Offer price, FedEx’s investment will be valued at approximately €2.20 billion.

FedEx intends to fund its portion of the Offer by utilizing available cash balances, existing or new liquidity sources, or a combination thereof.

Once the Transaction is completed, InPost and FedEx will enter into arm’s length commercial agreements that will enable both businesses to benefit from complementary strengths and a shared vision.

The Transaction is expected to be completed in the second half of calendar year 2026.

In June 2026, we repurchased $0.3 billion of our common stock through open market transactions and executed an ASR agreement to repurchase $1.0 billion of our common stock with a completion date by the end of September 2026.

There are no amounts remaining available to be used for repurchases under the 2024 program.

On July 20, 2026, our Board of Directors authorized a new stock repurchase program for additional repurchases of up to $5.0 billion of FedEx common stock (“2026 program”).

Shares under the 2026 program may be repurchased from time to time in the open market or in privately negotiated transactions.

The program does not have any specified time limit and does not obligate us to purchase any particular amount of shares, but our Board of Directors may determine to suspend or discontinue the program at any time.

See “ Item 5.

Market for R e gistrant's Com mon Equity, R e lated Sto ckholder Matters, and Issuer Purchases of Equity Securities ” and Note 20 of the accompanying consolidated financial statements for more information regarding our stock repurchase programs and purchases made under the 2024 program through July 20, 2026.

During calendar year 2026, we anticipate making voluntary contributions of $475 million to our tax-qualified U.S.

domestic pension plan (“U.S.

Pension Plan”) through July 21, 2025 and anticipate making up to $400 million of additional voluntary contributions during the remainder of 2026.

Pension Plan”).

There are currently no required minimum contributions to our U.S.

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On June 8, 2026, our Board of Directors declared a quarterly cash dividend of $1.22 per share of common stock.

The dividend was paid on July 8, 2025 to stockholders of record as of the close of business on June 23, 2025.

The dividend of $292 million was paid on July 7, 2026 to stockholders of record as of the close of business on June 22, 2026.

Each quarterly dividend payment is subject to review and approval by our Board of Directors, and we evaluate our dividend payment amount on an annual basis.

There are no material restrictions on our ability to declare dividends, nor are there any material restrictions on the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans, or advances.

We have several aircraft modernization programs led by the purchase of Boeing 777 Freighters (“B777F”).

Our ability to delay the timing of these aircraft-related expenditures is limited without incurring significant costs to modify existing purchase agreements.

Refer to Note 6 , Note 7 , and Note 17 of the accompanying consolidated financial statements for more information.

In addition, we have certain tax positions that are further discussed in Note 11 of the accompanying consolidated financial statements.

We have a shelf registration statement filed with the SEC that allows us to sell, in one or more future offerings, any combination of our unsecured debt securities and common stock and allows pass-through trusts formed by Federal Express to sell, in one or more future offerings, pass-through certificates.

The Three-Year Credit Agreement and the Five-Year Credit Agreement expire in March 2028 and March 2030, respectively.

Each of the Credit Agreements has a $125 million letter of credit sublimit.

The Credit Agreements are available to finance our operations and other cash flow needs.

As of May 31, 2026, no amounts were outstanding under the Credit Agreements, $750 million of commercial paper was outstanding, and we had $250 million of the letter of credit sublimit unused under the Credit Agreements.

See Note 6 of the accompanying consolidated financial statements for a description of the terms and significant covenants of the Credit Agreements.

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.” Our interest expense may increase in the event of a reduction in our credit rating.

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Also, our effective tax rate is significantly affected by the earnings generated in each jurisdiction, so unexpected fluctuations in the geographic mix of earnings could significantly impact our tax rate.

Our intercompany transactions are based on globally accepted transfer pricing principles, which align profits with the business operations and functions of the various legal entities in our international business.

Our intercompany transactions are based on

globally accepted transfer pricing principles, which align profits with the business operations and functions of the various legal entities in our international business.

We evaluate our tax positions quarterly and adjust the balances as new information becomes available.

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We believe we will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets in our consolidated balance sheets that are not subject to valuation allowances.

We record the taxes for global intangible low-taxed income as a period cost.

We record taxes for net controlled foreign corporation (“CFC”) tested income (formerly global intangible low-taxed income) as a period cost.

Our income tax positions are based on currently enacted tax laws.

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Nevertheless, changes in accident frequency and severity, healthcare costs, insurance retention levels, and other factors can materially affect the estimates for these liabilities and affect our results of operations.

Self-insurance accruals reflected in our balance sheet for the period ended May 31 are as follows (in millions):

Self-insurance accruals reflected in our balance sheet as of the period ended May 31 are as follows (in millions):

Short-Term $ 1,969 $ 1,858

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However, such amounts may differ materially in the future due to changes in business levels, technological obsolescence, accident frequency, regulatory changes, and other factors beyond our control.

As of May 31, 2025, the Federal Express global air network included a fleet of 698 aircraft (including 312 supplemental aircraft) that provide delivery of packages and freight to more than 220 countries and territories through a wide range of U.S.

As of May 31, 2026, the Federal Express global air network included a fleet of 700 aircraft that provide delivery of packages and freight to more than 220 countries and territories through a wide range of U.S.

and international shipping services.

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These activities create risks that asset capacity may exceed demand.

At May 31, 2025, we had two purchased aircraft that were not yet placed into service.

At May 31, 2026, we had five purchased aircraft that were not yet placed into service.

We evaluate our long-lived assets used in operations for impairment when events and circumstances indicate that the undiscounted cash flows to be generated by that asset group are less than the carrying amounts of the asset group and may not be recoverable.

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Such estimates are subject to revision from period to period.

In the fourth quarter of 2025, we made the decision to permanently retire from service 12 aircraft and eight related engines, resulting in a noncash impairment charge of $21 million ($16 million, net of tax, or $0.06 per diluted share).

In the fourth quarter of 2026, we made the decision to permanently retire from service 10 aircraft, resulting in a noncash impairment charge of $23 million ($18 million, net of tax, or $0.08 per diluted share).

These retirements included five Boeing MD-11 aircraft, four Boeing 757-200 aircraft, and one Airbus A300-600 aircraft, and align with Federal Express’s fleet reduction and modernization strategy as we continue to improve our global network efficiency and better align air network capacity with anticipated demand.

Eight of these permanently retired aircraft were temporarily idled and not in revenue service.

During 2025, we made the decision to permanently retire from service 12 aircraft and eight related engines.

All of these permanently retired aircraft were temporarily idled and not in revenue service.

During 2024, Federal Express made the decision to permanently retire from service 22 Boeing 757-200 aircraft and seven related engines to align with Federal Express’s fleet reduction and modernization strategy.

As a consequence of this decision, a noncash impairment charge of $21 million ($16 million, net of tax, or $0.06 per diluted share) was recorded in 2025.

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and changes to planned service expansion activities.

At May 31, 2025, we had 22 aircraft temporarily idled.

These aircraft have been idled for an average of ten months and are expected to return to revenue service i n order to meet expected demand.

At May 31, 2026, we had 13 jet aircraft temporarily idled.

These aircraft have been idled for an average of 23 months and are expected to return to revenue service i n order to meet expected demand.

We utilize operating leases to finance certain of our aircraft, facilities, and equipment.

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Because of the complex environment in which we operate, we are subject to numerous legal proceedings and claims, including those relating to general commercial matters, governmental enforcement actions, employment-related claims, vehicle accidents, and service providers.

Accounting guidance for contingencies requires an accrual of estimated loss from a contingency, such as a non-income tax or other legal proceeding or claim, when it is probable (i.e., the future event or events are likely to occur) that a loss has been incurred

and the amount of the loss can be reasonably estimated.

This guidance also requires disclosure of a loss contingency matter when, in management’s judgment, a material loss is reasonably possible or probable.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis