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Item 7. Management’s Discussion and Analysis

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 
 
 ORGANIZATION OF INFORMATION 
 This Management’s Discussion and Analysis of Results of Operations and Financial Condition (“MD&A”) of FedEx Corporation (“FedEx”) is composed of three major sections: Results of Operations and Outlook, Financial Condition, and Critical Accounting Estimates. These sections include the following information: 
 • Results of operations includes an overview of our consolidated 2026 results compared to 2025 results. 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 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. 
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 • 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. 
 The discussion in MD&A should be read in conjunction with the other sections of this Annual Report, particularly “ Item 1. Business ,” “ Item 1A. Risk Factors ,” and “ Item 8. Financial Statements and Supplementary Data .” 
 
 DESCRIPTION OF BUSINESS SEGMENTS 
 We provide a broad portfolio of transportation, e-commerce, and business services, offering integrated business solutions utilizing our flexible, efficient, and intelligent global network. 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. 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. 
 The key indicators necessary to understand our operating results include: 
 • the overall customer demand for our various services based on macroeconomic factors and the global economy; 
 • the volumes of transportation services provided through our networks, primarily measured by our average daily volume and shipment weight and size; 
 • the mix of services purchased by our customers; 
 • the prices we obtain for our services, primarily measured by yield (revenue per package or pound or revenue per shipment or hundredweight for LTL freight shipments); 
 • our ability to manage our cost structure (capital expenditures and operating expenses) to match shifting volume levels; and 
 • the timing and amount of fluctuations in fuel prices and our ability to recover incremental fuel costs through our fuel surcharges. 
 Trends Affecting Our Business 
 The following trends significantly affect the indicators discussed above, as well as our business and operating results. See the risk factors identified under Item 1A. Risk Factors” for more information. 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 
 While macroeconomic risks apply to most companies, we are particularly vulnerable. The transportation industry is highly cyclical and especially susceptible to trends in economic activity. Our primary business is to transport goods, so our business levels are directly tied to the purchase and production of goods and the rate of global trade growth. The decline in U.S. 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. 
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 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. 
 Fuel 
 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. 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, 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 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. 
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 CONSOLIDATED RESULTS 
 The following table compares summary operating results (dollars in millions, except per share amounts) for the years ended May 31: 
 
 2026 2025 Percent Change 
 Consolidated revenue $ 94,720 $ 87,926 8 
 Operating income (loss): 
 Federal Express segment 5,912 4,885 21 
 FedEx Freight segment 616 1,489 (59) 
 Corporate, other, and eliminations (1,065) (1,157) (8) 
 Consolidated operating income $ 5,463 $ 5,217 5 
 Operating margin: 
 Federal Express segment 7.2 % 6.5 % 70 bp 
 FedEx Freight segment 7.0 % 16.7 % (970) bp 
 Consolidated operating margin 5.8 % 5.9 % (10) bp 
 Consolidated net income $ 4,433 $ 4,092 8 
 Diluted earnings per share $ 18.55 $ 16.81 10 

 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 Income 
 
 Federal Express segment $ 6,969 $ 1,027 
 FedEx Freight segment (97) (873) 
 Corporate, other, and eliminations (78) 92 
 $ 6,794 $ 246 

 The following is a summary of the effects of the (costs) benefits of certain items affecting our financial results for the years ended May 31 (in millions): 
 
 2026 2025 
 Items affecting Operating Income: 
 Spin-Off costs $ (738) $ (38) 
 Business optimization costs (366) (756) 
 
 Asset impairment charges (23) (21) 
 International regulatory and legacy FedEx Ground legal matters 12 (88) 
 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 
 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) 

 Overview 
 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 
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 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 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 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. 
 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. 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. 
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 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: 
 
 (1) International domestic average daily package volume relates to our international intra-country operations. International export average daily package volume relates to our international priority and economy services. 
 (2) International average daily freight pounds relate to our international priority and economy services. 
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 The following graphs for Federal Express and FedEx Freight show selected yield trends for the years ended May 31: 
 
 (1) International export revenue per package relates to our international priority and economy services. International domestic revenue per package relates to our international intra-country operations. 
 (2) International freight revenue per pound relates to our international priority and economy services. 
 Revenue 
 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. 
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 Operating Expenses 
 The following table compares operating expenses expressed as dollar amounts (in millions) and as a percent of revenue for the years ended May 31: 
 Percent Change Percent of Revenue 
 2026 2025 2026 2025 
 Operating expenses: 
 Salaries and employee benefits $ 33,844 $ 31,232 8 35.7 % 35.5 % 
 Purchased transportation 23,620 21,768 9 24.9 24.8 
 Rentals and landing fees 4,883 4,647 5 5.2 5.3 
 Depreciation and amortization 4,369 4,264 2 4.6 4.8 
 Fuel 4,052 3,775 7 4.3 4.3 
 Maintenance and repairs 3,330 3,245 3 3.5 3.7 
 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) 
 23 21 10 — — 
 Other (3) 
 13,999 12,963 8 14.8 14.7 
 Total operating expenses 89,257 82,709 8 94.2 94.1 
 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. 
 (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. 
 Fuel 
 We apply a fuel surcharge on our air and ground services, most of which are adjusted on a weekly basis. The fuel surcharge is based on a weekly fuel price from ten days prior to the week in which it is assessed. Some Federal Express international fuel surcharges are updated on a monthly basis. We routinely review our fuel surcharges and periodically update the tables used to determine our fuel surcharges at all of our transportation segments. 
 While fluctuations in fuel surcharge percentages can be significant from period to period, fuel surcharges represent one of the many individual components of our pricing structure that impact our overall revenue and yield. Additional components include the mix of services sold, the base price, and extra service charges we obtain for these services and level of pricing discounts offered. 
 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. For example, our contracts for jet fuel purchases at Federal Express are tied to various indices, including the U.S. Gulf Coast index. While many of these indices are aligned, each index may fluctuate at a different pace, driving variability in the prices paid for jet fuel. Furthermore, under these contractual arrangements, approximately 61% of our jet fuel is purchased based on the index price for the preceding week, with the remainder of our purchases tied primarily to the index price for the preceding month and preceding day, rather than based on daily spot rates. These contractual provisions mitigate the impact of rapidly changing daily spot rates on our jet fuel purchases. 
 Because of the factors described above, our operating results may be affected should the market price of fuel suddenly change by a significant amount or change by amounts that do not result in an adjustment in our fuel surcharges, which can significantly affect our earnings either positively or negatively in the short term. For more information, see “ Item 1A. Risk Factors .” 
 Separation and Other Costs 
 Spin-Off 
 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 
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 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 
 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. and Canada. 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 fiscal year 2025 and expect to complete the U.S. implementation by the end of calendar 2027. 
 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. 
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 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 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. 
 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. 
 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. 
 Income Taxes 
 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. 
 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. Pillar Two did not have a material effect on the company’s 2026 income tax provision. 
 We are subject to taxation in the U.S. and various U.S. state, local, and foreign jurisdictions. 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. However, we believe we have recorded adequate amounts of tax, including interest and penalties, for any adjustments expected to occur. 
 During 2021, we filed suit in U.S. District Court for the Western District of Tennessee challenging the validity of a tax regulation related to the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the Tax Cuts and Jobs Act (“TCJA”). Our lawsuit sought to have the court declare this regulation invalid and order the refund of overpayments of U.S. federal income taxes for 2018 and 2019 attributable to the denial of foreign tax credits under the regulation. We have recorded a cumulative benefit of $249 million attributable to our interpretation of the TCJA and the Internal Revenue Code. In March 2023, the District Court ruled that the regulation is invalid and contradicts the plain terms of the tax code. On February 13, 2025, the District Court ruled again in our favor with regard to a new argument raised by the U.S. government. 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. 
 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. 
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 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. 
 Outlook 
 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. 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, of which $147 million was incurred in fiscal year 2026. 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. 
 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. Risk Factors ,” “Trends Affecting Our Business,” and “ Critical Accounting Estimates ” for a discussion of these and other potential risks and uncertainties that could materially affect our future performance. 
 Seasonality of Business 
 Our businesses are cyclical in nature, as seasonal fluctuations affect volumes, revenue, and earnings. Historically, our U.S. express priority and deferred package services experience an increase in volumes in late November and December. Historically, the fall is the busiest shipping period for U.S. ground services, while late December, June and July are the slowest periods. International business, particularly in the Asia-to-U.S. market, peaks in October and November in advance of the U.S. holiday sales season. 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. See “ Item 1A. Risk Factors ” for more information. 
 
 RECENT ACCOUNTING GUIDANCE 
 See Note 2 of the accompanying consolidated financial statements for a discussion of recent accounting guidance. 
 
 REPORTABLE SEGMENTS 
 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. customers of our major business units and certain back-office support to FedEx Freight and our other operating segments which allows us to obtain synergies from the combination of these functions. We allocate the net operating costs of these services to reflect the full cost of operating our businesses in the results of those segments. We review and evaluate the performance of FedEx Freight and our other operating segments based on operating income inclusive of these allocations. 
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 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 approximated the net cost of providing these functions. Our allocation methodologies are refined periodically, as necessary, to reflect changes in our businesses. 
 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 
 Federal Express offers a wide range of U.S. domestic and international shipping services for delivery of packages and freight including priority, deferred, and economy services, which provide delivery on a time-definite or day-definite basis. The following table compares revenue, operating expenses, operating income (dollars in millions), operating margin, and operating expenses as a percent of revenue for the years ended May 31: 
 
 2026 2025 Percent Change 
 Revenue: 
 Package: 
 U.S. priority $ 11,603 $ 10,520 10 
 U.S. deferred 5,700 5,007 14 
 U.S. ground 37,335 33,887 10 
 Total U.S. domestic package revenue 54,638 49,414 11 
 International priority 9,639 8,737 10 
 International economy 5,925 5,861 1 
 Total international export package revenue 15,564 14,598 7 
 International domestic (1) 
 4,725 4,495 5 
 Total package revenue 74,927 68,507 9 
 Freight: 
 U.S. 1,252 1,536 (18) 
 International priority 2,560 2,320 10 
 International economy 2,244 1,975 14 
 Total freight revenue 6,056 5,831 4 Percent of Revenue 
 Other 1,290 966 34 2026 2025 
 Total revenue 82,273 75,304 9 100.0 % 100.0 % 
 Operating expenses: 
 Salaries and employee benefits 27,465 25,091 9 33.4 33.3 
 Purchased transportation 21,812 19,974 9 26.5 26.5 
 Rentals and landing fees 4,153 3,939 5 5.1 5.2 
 Depreciation and amortization 3,799 3,722 2 4.6 5.0 
 Fuel 3,565 3,316 8 4.3 4.4 
 Maintenance and repairs 2,906 2,799 4 3.5 3.7 
 Asset impairment charges 23 21 10 — — 
 Separation and other costs 92 — NM 0.1 — 
 Business optimization costs 303 384 (21) 0.4 0.5 
 Intercompany allocations (853) (791) 8 (1.0) (1.0) 
 Other 13,096 11,964 9 15.9 15.9 
 Total operating expenses 76,361 70,419 8 92.8 % 93.5 % 
 Operating income $ 5,912 $ 4,885 21 
 Operating margin 7.2 % 6.5 % 70 bp 

 (1) International domestic revenue relates to our international intra-country operations. 
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 The following table compares selected statistics (in thousands, except yield amounts) for the years ended May 31: 
 
 2026 2025 Percent Change 
 Package Statistics 
 Average daily package volume (ADV) (1) : 
 
 U.S. priority 1,678 1,609 4 
 U.S. deferred 1,136 1,052 8 
 U.S. ground commercial 4,329 4,252 2 
 U.S. ground home delivery/economy 7,442 7,041 6 
 Total U.S. domestic ADV 14,585 13,954 5 
 
 International priority 572 584 (2) 
 International economy 573 553 4 
 Total international export ADV 1,145 1,137 1 
 International domestic (2) 
 1,828 1,910 (4) 
 
 Total ADV 17,558 17,001 3 
 
 Revenue per package (yield): 
 U.S. priority $ 27.22 $ 25.74 6 
 U.S. deferred 19.75 18.75 5 
 U.S. ground 12.49 11.81 6 
 U.S. domestic composite 14.75 13.94 6 
 
 International priority $ 66.34 $ 58.89 13 
 International economy 40.75 41.74 (2) 
 International export composite 53.54 50.55 6 
 International domestic (2) 
 10.18 9.26 10 
 
 Composite package yield $ 16.80 $ 15.86 6 
 
 Freight Statistics 
 Average daily freight pounds: 
 U.S. 2,146 3,137 (32) 
 International priority 4,962 4,651 7 
 International economy 12,017 11,365 6 
 Total average daily freight pounds 19,125 19,153 — 
 
 Revenue per pound (yield): 
 U.S. $ 2.30 $ 1.93 19 
 International priority 2.03 1.96 4 
 International economy 0.74 0.68 9 
 Composite freight yield 1.25 1.20 4 

 (1) ADV is calculated on a 5-day-per-week basis. 
 (2) International domestic statistics relate to our international intra-country operations. 
 Federal Express Segment Revenue 
 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. Improved base 
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 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. 
 Volumes: 
 U.S. deferred package volumes increased 8% driven by large customer demand and peak-related growth. U.S. ground package volume increased 4% in 2026, benefitting from higher home delivery and economy package volumes driven by increased business-to-consumer volume. U.S. 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. 
 Yield: 
 U.S. 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 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. 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. 
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 FEDEX FREIGHT SEGMENT 
 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: 
 
 Percent Change Percent of Revenue 
 2026 2025 2026 2025 
 Revenue $ 8,795 $ 8,892 (1) 100.0 % 100.0 % 
 Operating expenses: 
 Salaries and employee benefits 3,991 3,865 3 45.4 43.5 
 Purchased transportation 807 807 — 9.2 9.1 
 Rentals 301 287 5 3.4 3.2 
 Depreciation and amortization 450 416 8 5.1 4.7 
 Fuel 485 457 6 5.5 5.1 
 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 
 Other 778 666 17 8.8 7.5 
 Total operating expenses 8,179 7,403 10 93.0 % 83.3 % 
 Operating income $ 616 $ 1,489 (59) 
 Operating margin 7.0% 16.7% (970) bp 
 Average daily shipments (in thousands): 
 Priority 59.5 61.8 (4) 
 Economy 26.6 28.3 (6) 
 Total average daily shipments 86.1 90.1 (4) 
 Weight per shipment (pounds): 
 Priority 933 941 (1) 
 Economy 925 873 6 
 Composite weight per shipment 931 920 1 
 Revenue per shipment: 
 Priority $ 370.90 $ 358.84 3 
 Economy 421.78 405.53 4 
 Composite revenue per shipment 386.63 373.52 4 
 Revenue per hundredweight: 
 Priority $ 39.74 $ 38.13 4 
 Economy 45.60 46.46 (2) 
 Composite revenue per hundredweight 41.54 40.61 2 

 FedEx Freight Segment Revenue 
 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 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. 
 
 
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 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. (“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. 
 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. customers. 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. 
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 FINANCIAL CONDITION 
 
 LIQUIDITY 
 Cash and cash equivalents totaled $13.3 billion at May 31, 2026, compared to $5.5 billion at May 31, 2025. The following table provides a summary of our cash flows for the years ended May 31 (in millions): 
 
 2026 2025 
 Operating activities: 
 Net income $ 4,433 $ 4,092 
 Retirement plans mark-to-market adjustments (647) (515) 
 Asset impairment charges 23 21 
 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 
 Changes in assets and liabilities (3,513) (4,715) 
 Cash provided by operating activities 8,925 7,036 
 Investing activities: 
 Capital expenditures (3,809) (4,055) 
 Purchase of investments (682) (262) 
 Proceeds from sale of investments 483 110 
 Proceeds from asset dispositions and other investments 97 115 
 Cash used in investing activities (3,911) (4,092) 
 Financing activities: 
 Proceeds from debt issuances 5,289 — 
 Short-term borrowings, net 742 — 
 Principal payments on debt (2,049) (157) 
 Proceeds from stock issuances 992 524 
 Dividends paid (1,374) (1,339) 
 Purchase of common stock (796) (3,017) 
 Other, net (55) (30) 
 Cash provided by (used in) financing activities 2,749 (4,019) 
 Effect of exchange rate changes on cash 46 76 
 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 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 $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 
 Our operations are capital intensive, characterized by significant investments in aircraft, package handling and sort equipment, technology, vehicles and trailers, and facilities. The amount and timing of capital investments depend on various factors, including pre-existing contractual commitments, anticipated volume growth, domestic and international economic conditions, new or enhanced services, geographical expansion of services, availability of satisfactory financing, and actions of regulatory authorities. 
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 The following table compares capital expenditures by asset category and reportable segment for the years ended May 31 (in millions): 
 
 2026 2025 Percent Change 
 Aircraft and related equipment $ 967 $ 1,251 (23) 
 Package handling and ground support equipment 1,015 935 9 
 Information technology 463 504 (8) 
 Vehicles and trailers 347 434 (20) 
 Facilities and other 1,017 931 9 
 Total capital expenditures $ 3,809 $ 4,055 (6) 
 
 Federal Express segment $ 3,349 $ 3,505 (4) 
 FedEx Freight segment 379 437 (13) 
 Other 81 113 (28) 
 Total capital expenditures $ 3,809 $ 4,055 (6) 

 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”) issued by Federal Express. 
 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”). FedEx owns, directly or indirectly, 100% of each Guarantor Subsidiary. The guarantees are (1) unsecured obligations of the respective Guarantor Subsidiary, (2) rank equally with all of their other unsecured and unsubordinated indebtedness, and (3) are full and unconditional and joint and several. If we sell, transfer, or otherwise dispose of all of the capital stock or all or substantially all of the assets of a Guarantor Subsidiary to any person that is not an affiliate of FedEx, the guarantee of that Guarantor Subsidiary will terminate, and holders of debt securities will no longer have a direct claim against such subsidiary under the guarantee. 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. See Note 6 of the accompanying consolidated financial statements for additional information regarding the terms of the Certificates. 
 The following tables present summarized financial information for FedEx (as Parent) and the Guarantor Subsidiaries on a combined basis after transactions and balances within the combined entities have been eliminated. 
 Parent and Guarantor Subsidiaries 
 The following table presents the summarized balance sheet information as of May 31, 2026 (in millions): 
 
 Current Assets $ 17,741 
 Intercompany Receivable 4,679 
 Total Assets 91,772 
 Current Liabilities 14,529 
 Intercompany Payable — 
 Total Liabilities 55,242 

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 The following table presents the summarized statement of income information as of May 31, 2026 (in millions): 
 
 Revenue $ 70,863 
 Intercompany Charges, net (3,891) 
 Operating Income 4,579 
 Intercompany Charges, net 303 
 Income Before Income Taxes 4,190 
 Net Income 3,028 

 The following tables present summarized financial information for FedEx (as Parent Guarantor) and Federal Express (as Subsidiary Issuer) on a combined basis after transactions and balances within the combined entities have been eliminated. 
 Parent Guarantor and Subsidiary Issuer 
 The following table presents the summarized balance sheet information as of May 31, 2026 (in millions): 
 
 Current Assets $ 16,506 
 Intercompany Receivable 9,321 
 Total Assets 77,084 
 Current Liabilities 13,358 
 Intercompany Payable — 
 Total Liabilities 51,387 

 The following table presents the summarized statement of income information as of May 31, 2026 (in millions): 
 
 Revenue $ 61,670 
 Intercompany Charges, net (4,648) 
 Operating Income 4,089 
 Intercompany Charges, net 82 
 Income Before Income Taxes 4,018 
 Net Income 2,994 

 
 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 global trade policy changes. 
 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. We are able to access the majority of this cash without a material tax cost and do not believe that the indefinite reinvestment of these funds impairs our ability to meet our U.S. domestic debt or working capital obligations. 
 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. 
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 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”). There are currently no required minimum contributions to our U.S. Pension Plan, and we maintain a credit balance related to our cumulative excess voluntary pension contributions over those required that exceeds $3.0 billion. The credit balance is subtracted from plan assets to determine the minimum funding requirements. Therefore, we have the flexibility to eliminate all required contributions to our principal U.S. Pension Plan for several years. Our U.S. Pension Plan has ample funds to meet expected benefit payments. 
 On June 8, 2026, our Board of Directors declared a quarterly cash dividend of $1.22 per share of common stock. 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”). 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. 
 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 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 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 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. 
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 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. If our unsecured debt or commercial paper ratings are reduced to below investment grade, our access to the capital markets may become limited. 
 
 CRITICAL ACCOUNTING ESTIMATES 
 The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the financial statements of a complex, global corporation. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and new or better information. 
 The estimates discussed below include the financial statement elements that are either the most judgmental or involve the selection or application of alternative accounting policies and are material to our results of operations and financial condition. Management has discussed the development and selection of these critical accounting estimates with the Audit and Finance Committee of our Board of Directors and with our independent registered public accounting firm. 
 
 PENSION PLANS 
 The rules for pension accounting are complex and can produce volatility in our earnings, financial condition, and liquidity. Our defined benefit pension plans are measured using actuarial techniques that reflect management’s assumptions for expected returns on assets (“EROA”), discount rate, and demographic experience such as salary increases, expected retirement, mortality, and employee turnover. Differences between these assumptions and actual experience are recognized in our earnings through MTM accounting. 
 Our annual MTM adjustment is highly sensitive to the discount rate and EROA assumptions, which are as follows: 
 
 U.S. Pension Plans International Pension Plans 
 2026 2025 2026 2025 
 Discount rate used to determine benefit obligation 5.76 % 5.94 % 4.88 % 4.40 % 
 Discount rate used to determine net periodic benefit cost 5.94 5.58 4.40 4.29 
 Expected long-term rate of return on assets 7.00 6.75 4.07 3.59 

 The following sensitivity analysis shows the impact of a 50-basis-point change in the EROA and discount rate assumptions for our largest pension plan and the resulting increase (decrease) in our projected benefit obligation (“PBO”) as of May 31, 2026 and expense for the year ended May 31, 2026 (in millions): 
 
 50 Basis
Point Increase 50 Basis
Point Decrease 
 Pension Plan 
 EROA: 
 Effect on pension expense $ (133) $ 133 
 Discount Rate: 
 Effect on pension expense 20 (23) 
 Effect on PBO (1,311) 1,436 

 See Note 12 of the accompanying consolidated financial statements for further information about our pension plans. 
 
 INCOME TAXES 
 We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our income taxes are a function of our income, tax planning opportunities available to us, statutory tax rates, and the income tax laws in the various jurisdictions in which we operate. These tax laws are complex and subject to different interpretations by us and the respective governmental taxing authorities. As a result, significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. 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 
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 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. These evaluations are based on factors including, but not limited to, changes in facts or circumstances, changes in tax laws or their interpretations, audit activity, and changes in our business. In addition, management considers the advice of third parties in making conclusions regarding tax consequences. 
 Tax contingencies arise from uncertainty in the application of tax rules throughout the many jurisdictions in which we operate. Despite our belief that our tax return positions are consistent with applicable tax laws, taxing authorities could challenge certain positions. We record tax benefits for uncertain tax positions based upon management’s evaluation of the information available at the reporting date. To be recognized in the financial statements, a tax benefit must be at least more likely than not of being sustained based on the technical merits. The benefit for positions meeting the recognition threshold is measured as the largest benefit more likely than not of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Significant judgment is required in making these determinations and adjustments to unrecognized tax benefits may be necessary to reflect actual taxes payable upon settlement. 
 Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss, capital loss, and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings, and available tax planning strategies. These sources of income rely heavily on estimates to make this determination, and as a result there is a risk that these estimates will have to be revised as new information is received. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. 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 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. As further guidance is issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, any resulting changes to our estimates will be treated in accordance with the relevant accounting guidance. 
 For more information, see the “Income Taxes” section of this MD&A and Note 11 of the accompanying consolidated financial statements. 
 
 SELF-INSURANCE ACCRUALS 
 Our self-insurance reserves are established for estimates of ultimate loss on all incurred claims, including incurred-but-not-reported claims. Components of our self-insurance reserves included in this critical accounting estimate are workers’ compensation claims, vehicle accidents, property and cargo loss, general business liabilities, and benefits paid under employee disability programs. These reserves are primarily based on the actuarially estimated cost of claims incurred as of the balance sheet date. These estimates include judgment about severity of claims, frequency and volume of claims, healthcare inflation, seasonality, and plan designs. The use of any estimation technique in this area is inherently sensitive given the magnitude of claims involved and the length of time until the ultimate cost is known, which may be several years. 
 We believe our recorded obligations for these expenses are consistently measured and appropriate. 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 as of the period ended May 31 are as follows (in millions): 
 
 2026 2025 
 Short-Term $ 1,969 $ 1,858 
 Long-Term 4,413 4,033 
 Total $ 6,382 $ 5,891 

 A five-percent reduction or improvement in the assumed claim severity used to estimate our self-insurance accruals would result in an increase or decrease of approximately $320 million in our reserves and expenses as of and for the year ended May 31, 2026. For more information, see “ Item 1A. Risk Factors ” of this Annual Report. 
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 LONG-LIVED ASSETS 
 USEFUL LIVES AND SALVAGE VALUES . Our business is capital intensive, with approximately 51% of our owned assets invested in our transportation and information system infrastructures. 
 The depreciation or amortization of our capital assets over their estimated useful lives, and the determination of any salvage values, requires management to make judgments about future events. Because we utilize many of our capital assets over relatively long periods (the majority of aircraft costs are depreciated over 18 to 30 years), we periodically evaluate whether adjustments to our estimated service lives or salvage values are necessary to ensure these estimates properly match the economic use of the asset. These evaluations consider usage, maintenance costs, and economic factors that affect the useful life of an asset. This evaluation may result in changes in the estimated lives and residual values used to depreciate our aircraft and other equipment. 
 For our aircraft, we consider actual experience with the same or similar aircraft types and future volume projections in estimating the useful lives and expected salvage values. We typically assign no residual value due to the utilization of our aircraft in cargo configuration, which results in little to no value at the end of their useful life. These estimates affect the amount of depreciation expense recognized in a period and, ultimately, the gain or loss on the disposal of the asset. Changes in the estimated lives of assets will result in an increase or decrease in the amount of depreciation recognized in future periods and could have a material impact on our results of operations (as described below). Historically, gains and losses on disposals of operating equipment have not been material. 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. 
 IMPAIRMENT. 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. While certain aircraft are utilized in primary geographic areas (U.S. versus international), we operate an integrated global network, and utilize our aircraft and other modes of transportation to achieve the lowest cost of delivery while maintaining our service commitments to our customers. Because of the integrated nature of our global network, our aircraft are interchangeable across routes and geographies, giving us flexibility with our fleet planning to meet changing global economic conditions and maintain and modify aircraft as needed. 
 Because of the lengthy lead times for aircraft manufacture and modifications, we must anticipate volume levels and plan our fleet requirements years in advance, and make commitments for aircraft based on those projections. Furthermore, the timing and availability of certain used aircraft types (particularly those with better fuel efficiency) may create limited opportunities to acquire these aircraft at favorable prices in advance of our capacity needs. These activities create risks that asset capacity may exceed demand. 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. If the cash flows do not exceed the carrying value, the asset must be adjusted to its current fair value. We operate integrated transportation networks, and accordingly, cash flows for most of our operating assets are assessed at a network level, not at an individual asset level for our analysis of impairment. Further, decisions about capital investments are evaluated based on the effect on the overall network rather than the return on an individual asset. We make decisions to remove certain long-lived assets from service based on projections of reduced capacity needs or lower operating costs of newer aircraft types, and those decisions may result in an impairment charge. Assets held for disposal must be adjusted to their estimated fair values less costs to sell when the decision is made to dispose of the asset and certain other criteria are met. The fair value determinations for such aircraft may require management estimates, as there may not be active markets for some of these aircraft. Such estimates are subject to revision from period to period. 
 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. 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. 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. 
 In 2023 we accelerated the retirement of the entire Boeing MD-11 fleet by the end of 2028. In 2025, we made the decision to extend the retirement plan to have the fleet retired by the end of 2032 to better align the air network capacity of Federal Express to match anticipated shipment volumes. As a result of this decision, we had a net decrease in depreciation expense in 2025 of $19 million. 
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 In the normal management of our aircraft fleet, we routinely idle aircraft and engines temporarily due to maintenance cycles and adjustments of our network capacity to match seasonality and overall customer demand levels. Temporarily idled assets are classified as available-for-use, and we continue to record depreciation expense associated with these assets. These temporarily idled assets are assessed for impairment and remaining life on a quarterly basis. The criteria for determining whether an asset has been permanently removed from service (and, as a result, is potentially impaired) include, but are not limited to, our global economic outlook and the impact of our outlook on our current and projected volume levels, including capacity needs during our peak shipping seasons; the introduction of new fleet types or decisions to permanently retire an aircraft fleet from operations; and changes to planned service expansion activities. 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. 
 LEASES . We utilize operating leases to finance certain of our aircraft, facilities, and equipment. Such arrangements typically shift the risk of loss on the residual value of the assets at the end of the lease period to the lessor. We had $17 billion in operating lease liabilities and $17 billion in related right-of-use assets on the balance sheet as of May 31, 2026. The weighted-average remaining lease term of all operating leases outstanding at May 31, 2026 was 9.2 years. 
 Our leases generally contain options to extend or terminate the lease. We reevaluate our leases on a regular basis to consider the economic and strategic incentives of exercising the renewal options, and how they align with our operating strategy. Therefore, substantially all the renewal option periods are not included within the lease term and the associated payments are not included in the measurement of the right-of-use asset and lease liability as the options to extend are not reasonably certain at lease commencement. Short-term leases with an initial term of 12 months or less are not recognized in the right-of-use asset and lease liability on the consolidated balance sheets. 
 The lease liabilities are measured at the lease commencement date and determined using the present value of the minimum lease payments not yet paid and our incremental borrowing rate, which approximates the rate at which we would borrow, on a collateralized basis, over the term of a lease in the applicable currency environment. The interest rate implicit in the lease is generally not determinable in transactions where we are the lessee. 
 The determination of whether a lease is accounted for as a finance lease or an operating lease requires management to make estimates primarily about the fair value of the asset and its estimated economic useful life. In addition, our evaluation includes ensuring we properly account for build-to-suit lease arrangements and making judgments about whether various forms of lessee involvement allow the lessee to control the underlying leased asset during the construction period. We believe we have well-defined and controlled processes for making these evaluations, including obtaining third-party appraisals for material transactions to assist us in making these evaluations. 
 GOODWILL . We had $6.7 billion of recorded goodwill at May 31, 2026 and $6.6 billion of recorded goodwill at May 31, 2025 from our business acquisitions, representing the excess of the purchase price over the fair value of the net assets acquired. Several factors give rise to goodwill in our acquisitions, such as the expected benefits from synergies of the combination and the existing workforce of the acquired business. 
 Goodwill is reviewed at least annually for impairment. In our evaluation of goodwill impairment, we perform a qualitative assessment that requires management judgment and the use of estimates to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. An entity has an unconditional option to bypass the qualitative assessment for any reporting unit and proceed directly to performing the quantitative goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. We performed a qualitative assessment of goodwill in the fourth quarter of 2026 and 2025. 
 As part of our qualitative assessment, we consider changes in the macroeconomic environment such as the general economic conditions, limitations on accessing capital, fluctuations in foreign exchange rates, and other developments in equity and credit markets. 
 When we perform quantitative assessments, we compare the fair value of the reporting unit to its carrying value (including attributable goodwill). Fair value is estimated using standard valuation methodologies (principally the income or market approach classified as Level 3 within the fair value hierarchy) incorporating market participant considerations and management’s assumptions on revenue growth rates, operating margins, discount rates, and expected capital expenditures. Estimates used by management can significantly affect the outcome of the impairment test. Changes in forecasted operating results and other assumptions could materially affect these estimates. 
 We evaluated each of our reporting units during the fourth quarters of 2026 and 2025 and the estimated fair value of each of our reporting units exceeded their carrying values as of the end of 2026 and 2025; therefore, no impairment was recorded during any of the years presented. 
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 LEGAL AND OTHER CONTINGENCIES 
 We are subject to various loss contingencies in connection with our operations. Contingent liabilities are difficult to measure, as their measurement is subject to multiple factors that are not easily predicted or projected. Further, additional complexity in measuring these liabilities arises due to the various jurisdictions in which these matters occur, which makes our ability to predict their outcome highly uncertain. Moreover, different accounting rules must be employed to account for these items based on the nature of the contingency. Accordingly, significant management judgment is required to assess these matters and to make determinations about the measurement of a liability, if any. Certain pending loss contingencies are described in Note 19 of the accompanying consolidated financial statements. In the opinion of management, the aggregate liability, if any, of individual matters or groups of related matters not specifically described in Note 19 is not expected to be material to our financial position, results of operations, or cash flows. The following describes our methods and associated processes for evaluating these matters. 
 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. 
 During the preparation of our financial statements, we evaluate our contingencies to determine whether it is probable, reasonably possible, or remote that a liability has been incurred. A loss is recognized for all contingencies deemed probable and reasonably estimable. For unresolved contingencies with potentially material exposure that are deemed reasonably possible, we evaluate whether a potential loss or range of loss can be reasonably estimated. 
 Our evaluation of these matters is the result of a comprehensive process designed to ensure that accounting recognition of a loss or disclosure of these contingencies is made in a timely manner and involves our legal and accounting personnel, as well as external counsel where applicable. The process includes regular communications during each quarter and scheduled meetings shortly before the issuance of our financial statements to evaluate any new legal proceedings and the status of existing matters. 
 In determining whether a loss should be accrued or a loss contingency disclosed, we evaluate, among other factors: 
 • the current status of each matter within the scope and context of the entire lawsuit or proceeding (e.g., the lengthy and complex nature of class-action matters); 
 • the procedural status of each matter; 
 • any opportunities to dispose of a lawsuit on its merits before trial (i.e., motion to dismiss or for summary judgment); 
 • the amount of time remaining before a trial date; 
 • the status of discovery; 
 • the status of settlement, arbitration, or mediation proceedings; and 
 • our judgment regarding the likelihood of success prior to or at trial. 
 In reaching our conclusions with respect to accrual of a loss or loss contingency disclosure, we take a holistic view of each matter based on these factors and the information available prior to the issuance of our financial statements. Uncertainty with respect to an individual factor or combination of these factors may impact our decisions related to accrual or disclosure of a loss contingency, including a conclusion that we are unable to establish an estimate of possible loss or a meaningful range of possible loss. We update our disclosures to reflect our most current understanding of the contingencies at the time we issue our financial statements. However, events may arise that were not anticipated and the outcome of a contingency may result in a loss to us that differs materially from our previously estimated liability or range of possible loss. 
 Despite the inherent complexity in the accounting and disclosure of contingencies, we believe that our processes are robust and thorough and provide a consistent framework for management in evaluating the potential outcome of contingencies for proper accounting recognition and disclosure.
FEDEX CORP 10-K

Item 7. Management’s Discussion and Analysis
