# FedEx Freight Holding Company, Inc. (FDXF) FY 2026 MD&A Verbatim Item 7 Management's Discussion and Analysis from FedEx Freight Holding Company, Inc.'s 10-K for fiscal year 2026. SEC filing source: https://www.sec.gov/Archives/edgar/data/2082247/000162828026053359/fdxf-20260531.htm Accession: 0001628280-26-053359 Filing date: 2026-08-05 Report date: 2026-05-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/FDXF/ All MD&A years: /company/FDXF/mda/ ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion and analysis of our results of operations and financial condition should be read in conjunction with the consolidated financial statements and corresponding notes included elsewhere in this Annual Report. The following discussion and analysis provides information management believes to be relevant to understanding the financial condition and results of operations of FedEx Freight for the years ended May 31, 2026, and 2025. For additional information on the year ended May 31, 2024, and year-over-year comparisons to May 31, 2025, refer to “Management's Discussion and Analysis of Results of Operations and Financial Condition” in our final information statement dated May 13, 2026, attached as Exhibit 99.1 to our Current Report on Form 8-K filed with the SEC on May 13, 2026. This discussion contains forward-looking statements that are based upon current expectations and are subject to uncertainty and changes in circumstances. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed below and elsewhere in this Annual Report. See Item 1A. “Risk Factors” and “Forward-Looking Statements” for a discussion of the uncertainties, risks, and assumptions associated with these statements. The following tables are presented in millions of U.S. dollars unless otherwise stated except for per-share amounts, which are presented in U.S. dollars. Except as otherwise specified, references to years indicate our fiscal year ended May 31, 2026, or ended May 31 of the year referenced. The “Company,” “FedEx Freight,” “we,” “us,” and “our” refer to FedEx Freight Holding Company, Inc. and its direct and indirect subsidiaries after giving effect to the reorganization completed on May 29, 2026 in preparation for the Spin-Off or, when referencing the time period prior to the reorganization, FedEx Freight, Inc. Description of Business FedEx Freight is a leading North American provider of LTL freight transportation services. We offer a range of services designed to meet the diverse needs of LTL shippers including time-critical transportation needs leveraging our advanced tracking capabilities and a comprehensive network of service centers and hubs that facilitate efficient delivery and pickup. FedEx Freight’s service offerings include priority services when speed is critical and economy services when time can be traded for savings. FedEx Freight is our sole reportable segment. FedEx Freight, Inc. was created through several acquisitions by FedEx Corporation (“FedEx”), including Viking Freight, Inc. in January 1998, American Freightways, Inc. in February 2001, and Watkins Motor Lines in May 2006. In April 2002, American Freightways, Inc. was renamed FedEx Freight East, Inc. and Viking Freight, Inc. was renamed FedEx Freight West, Inc. In May 2006, the Watkins Motor Lines business was renamed FedEx National LTL, Inc. In December 2008, FedEx Freight East, Inc. and FedEx Freight West, Inc. merged and became FedEx Freight, Inc., which was wholly owned by FedEx Freight Corporation. In January 2011, FedEx National LTL, Inc. merged into FedEx Freight, Inc. On June 1, 2024, FedEx Freight Corporation merged into FedEx Freight, Inc., and ownership of FedEx Custom Critical, Inc. (“FedEx Custom Critical”) was transferred from another FedEx subsidiary to FedEx Freight, Inc. On September 1, 2024, FedEx Freight Canada Holding Company, Inc., formerly a subsidiary of FedEx Freight Corporation, merged into FedEx Freight, Inc. and its subsidiary, FedEx Freight Canada Corp. (“FedEx Freight Canada”), became a subsidiary of FedEx Freight, Inc. On July 14, 2025, FedEx Freight Holding Company, Inc. was incorporated to serve as the ultimate parent company of FedEx Freight, Inc. in connection with the planned Spin-Off. Subsequently, on February 11, 2026, FDXF Holding Corporation was formed as an intermediate holding company to become a direct subsidiary of FedEx Freight Holding Company, Inc. On May 29, 2026, ownership of FedEx Freight, Inc. and its subsidiaries was transferred from another FedEx subsidiary to FDXF Holding Corporation. Immediately thereafter, ownership of FDXF Holding Corporation and its subsidiaries was transferred to FedEx Freight Holding Company, Inc. The consolidated financial statements include the consolidated results of operations, financial position, and cash flows of FedEx Freight Holding Company, Inc. and its subsidiaries for all periods presented since the reorganizations were transactions under common control. See “Summary of Results” below and Item 1. “Business” elsewhere in this Annual Report 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 North American and global economies; •the volumes of transportation services provided through our network, primarily measured by our average daily shipments 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 shipment or hundredweight); •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. In analyzing the components of our revenue, we monitor changes and trends in our LTL volumes and LTL revenue per hundredweight. While LTL revenue per hundredweight is a yield measurement, it is also a commonly used indicator for general pricing trends in the LTL -23- Table of Contents industry. This yield metric is not a true measure of price, however, as it can be influenced by many other factors, such as changes in fuel surcharges and weight per shipment. As a result, changes in revenue per hundredweight do not necessarily indicate actual changes in underlying base rates. LTL revenue per hundredweight and the key factors that can impact this metric are described in more detail below: •Revenue Per Hundredweight — Our LTL transportation services are generally priced based on weight, commodity, and distance. This measurement reflects the application of our pricing policies to the services we provide, which are influenced by competitive market conditions and our growth objectives. Generally, freight is rated by a class system, which is established by the National Motor Freight Traffic Association (“NMFTA”). Light, bulky freight typically has a higher class and is priced higher than dense, heavy freight. Fuel surcharges, accessorial charges, and revenue adjustments reflected in the “Revenue” line item in the accompanying consolidated statements of income are included in this measurement. •Weight Per Shipment — Fluctuations in weight per shipment can indicate changes in the mix of freight we receive from our customers, as well as changes in the number of units included in a shipment. Generally, increases in weight per shipment indicate higher demand for our customers’ products and overall increased economic activity. Changes in weight per shipment can also be influenced by shifts between LTL and other modes of transportation, such as truckload and intermodal, in response to capacity, service, and pricing conditions. Fluctuations in weight per shipment generally have an inverse effect on our revenue per hundredweight, as a decrease in weight per shipment will typically cause an increase in revenue per hundredweight. •Revenue Per Shipment — This measurement is primarily determined by the two metrics listed above and is used in conjunction with the number of LTL shipments we receive to evaluate LTL revenue. Transition to Stand-Alone Company FedEx Freight Holding Company, Inc. was incorporated in Delaware on July 14, 2025, for the purpose of receiving, pursuant to a reorganization, all of the outstanding equity interests of FedEx Freight, Inc. On June 1, 2026, FedEx distributed shares representing approximately 80.1% of FedEx Freight Holding Company, Inc.'s outstanding common stock to holders of record of FedEx's common stock as of the close of business on May 15, 2026 (the "Distribution"), in a Spin-Off that was tax-free for U.S. federal income tax purposes. Following the Distribution, FedEx Freight became an independent, publicly traded company. For additional information, see Note 1, Description of Business and Basis of Presentation, and Note 14, Subsequent Events, of the accompanying consolidated financial statements. Effective for the period beginning June 1, 2026, the Company's fiscal year-end has changed from May 31 to December 31. Relationship with FedEx As a wholly owned subsidiary of FedEx prior to the Spin-Off, we relied on FedEx to manage certain of our operations and provide certain services, the costs of which were either allocated or directly billed to us. Historical costs for such services may not necessarily reflect the actual expenses we would have incurred, or will incur, as an independent company. In connection with the Spin-Off, we entered into the Separation and Distribution Agreement and certain other agreements with FedEx, including the Transition Services Agreement, the Tax Matters Agreement, the Employee Matters Agreement, the Intellectual Property Cross-License Agreement, the Trademark License Agreement, and the Stockholder and Registration Rights Agreement, as described in Item 13. “Certain Relationships and Related Transactions, and Director Independence,” which provides a framework for our relationship with FedEx after the separation. We will utilize certain FedEx services for a transitional period following the Spin-Off, but generally not longer than 24 months after the Spin-Off before we replace these services over time with services supplied either internally or by third parties. The costs for the services we receive from FedEx initially, and then internally or from third parties, may vary from the historical costs directly billed and allocated to us for the same services. Addressing the needs that arise from becoming a stand-alone company will require significant resources, including time and attention from our senior management and others throughout the Company. We will continue to monitor potential separation dis-synergies and we have incurred, and anticipate we will further incur, certain one-time costs associated with creating our own capabilities to manage operations and provide certain services we previously received as part of FedEx. Stand-Alone Company Expenses As a result of the Spin-Off, we have become subject to federal and state securities law and stock exchange requirements and have begun to establish additional procedures and practices as a stand-alone public company. As a result, subsequent to the Spin-Off, we have started to and will continue to incur additional expenditures consisting primarily of employee-related costs, costs to establish certain stand-alone functions and information technology systems, and other transaction-related costs. Additionally, we will continue to incur incremental costs that arise from becoming a stand-alone public company, including costs related to external reporting, internal audit, treasury, investor relations, board of directors and officers, and stock administration, as well as costs from expanding the services of existing functions, such as information technology, finance, human resources, legal, tax, facilities, branding, security, government relations, community outreach, and insurance. In line with our long-term cost strategy, we will continue to look for operational cost improvement opportunities as a stand-alone company by utilizing our lean culture and innovative technologies to drive lower costs and increased productivity levels across our business and corporate functions. Results of Operations Many of our operating expenses are directly affected by revenue and volume levels, and we expect these operating expenses to fluctuate on a year-over-year basis consistent with changes in revenue and volumes. Therefore, the discussion of operating expense -24- Table of Contents below focuses on the key drivers and trends affecting expenses other than those factors strictly related to changes in revenue and volumes. The line item “Other operating expenses” includes shared services and general corporate costs, finance charges for factored trade receivables, self-insurance claims, and costs associated with professional fees and outside service contracts (such as information technology services, facility services, temporary labor, and security). Seasonality Our business is cyclical in nature, as seasonal fluctuations affect volumes, revenues, and earnings. The spring and fall are the busiest periods, while the latter part of December through February is the slowest period. Shipment levels, operating costs, earnings, and cash flow can also be affected by timing of merit-based compensation increases, our annual general rate increase, and severe weather. 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. The FedEx Board oversaw and monitored the risks related to FedEx Freight prior to the Spin-Off. Our Board has assumed oversight of these risks upon completion of the Spin-Off and, with management and through our Risk Oversight Committee, will continue to assess whether developments related to these risks have had, or are reasonably likely to have, a material impact on the Company. Macroeconomic Conditions While our operations are limited to the United States, Canada, and Mexico, we are indirectly impacted by, and particularly vulnerable to, broader macroeconomic activity. 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, changes in U.S. and international trade policy have in the past, and could in the future, lead to further weakened business conditions for the transportation industry. We also have experienced, and may continue to experience, a decline in demand for our transportation services as inflation and elevated interest rates are negatively affecting consumer and business spending. We expect inflation and elevated interest rates to continue to negatively affect our results for the remainder of calendar year 2026. Based on the current trends, we expect the softness in the industrial economy to continue to put pressure on demand for LTL services for the remainder of calendar year 2026. In addition, we expect to continue to experience elevated expense levels in support of our separation from FedEx. We will continue to execute our revenue quality strategy and focus on cost management to align expenses to lower demand levels. The uncertainty of slowing North American and global economies, global inflation, geopolitical challenges, and the effects these factors will have on the rate of growth of North American and global trade, supply chains, fuel prices, and our business in particular, make any expectations for the remainder of calendar year 2026 inherently less certain. See Item 1A. “Risk Factors,” “Forward-Looking Statements,” and “— Critical Accounting Estimates” for a discussion of these and other potential risks and uncertainties that could materially affect our future performance. Global Trade Policies The United States government has taken certain actions that have negatively affected U.S. trade, including imposing and threatening to impose tariffs on many goods imported into the United States (including certain goods from Canada and Mexico). Additionally, many foreign governments (including Canada and Mexico) have imposed, and others have threatened to impose, tariffs on certain goods exported from the United States. These actions have contributed to weakness in the global economy and in the transportation industry, which has led to lower shipments, adversely affecting our results of operations. These or additional changes in U.S. or international trade policy could lead to further weakened business conditions for the transportation industry. Fuel We apply fuel surcharges on our 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. We routinely review our fuel surcharges and periodically update the tables used to determine our fuel surcharges. 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, extra service charges, and the level of discounts offered. In addition to variability in usage and market prices, the manner in which we purchase fuel (whether through retail or bulk suppliers) also influences our results. We must purchase large quantities of fuel to operate our vehicles, and the price and availability of fuel are beyond our control and can be highly volatile. For example, recent disruptions to shipping have contributed to a significant increase in fuel prices, and global volatility in fuel prices may persist due to ongoing regional and global tensions and conflicts in the Middle East and elsewhere. In addition, our purchased transportation expense is affected by fuel costs. -25- Table of Contents 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. 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. For more information, see Item 1A. “Risk Factors.” Summary of Results The following table compares summary operating results (dollars in millions, except per share amounts): [[GREPCENT_TABLE]] [["","Years Ended May 31,"],["","2026","","2025","","Percent Change"],["Revenue","$","8,795","","","$","8,892","","","(1)"],["Operating income","$","540","","","$","1,404","","","(62)"],["Operating margin","6.1","%","","15.8","%","","(970)","bp"],["Net income","$","655","","","$","1,346","","","(51)"],["Diluted earnings per share(1)","$","4.38","","","$","9.00","","","(51)"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Immediately prior to the Spin-Off, the Company effected a recapitalization whereby its 100 issued and outstanding shares of common stock were reclassified and converted into 149,505,248 shares of common stock. All historical share and per-share amounts presented herein have been retrospectively adjusted to reflect this recapitalization."]] [[/GREPCENT_TABLE]] Overview Operating income in 2026 was negatively affected by higher costs related to the Spin-Off — including increased salaries and employee benefits, outside service contracts and professional fees — as well as by reduced demand, partially offset by increased yield. We incurred costs related to the Spin-Off of $492 million in 2026. These costs consisted of fees for professional services, as well as employee incentive plan amounts, all of which are included in the "Separation and other costs" line item in the accompanying consolidated statements of income. All separation costs in 2025 were recognized by FedEx and, therefore, we did not incur any Spin-Off costs in 2025. -26- Table of Contents The following table compares revenue, operating expenses, operating income, operating margin, selected statistics, and operating expenses as a percent of revenue (dollars in millions): [[GREPCENT_TABLE]] [["","Years Ended May 31,","","Percent Change","","Percent of Revenue"],["","2026","","2025","","","2026","","2025"],["Revenue","$","8,795","","","$","8,892","","","(1)","","","100.0","%","","100.0","%"],["Operating expenses:"],["Salaries and employee benefits","4,276","","","4,157","","","3","","","48.6","","","46.7"],["Purchased transportation","807","","","807","","","\u2014","","","9.2","","","9.1"],["Rentals","308","","","295","","","4","","","3.5","","","3.3"],["Depreciation and amortization","512","","","471","","","9","","","5.8","","","5.3"],["Fuel","486","","","457","","","6","","","5.6","","","5.1"],["Maintenance and repairs","343","","","362","","","(5)","","","3.9","","","4.1"],["Separation and other costs","492","","","\u2014","","","NM","","5.6","","","\u2014"],["Other","1,031","","","939","","","10","","","11.7","","","10.6"],["Total operating expenses","8,255","","","7,488","","","10","","","93.9","%","","84.2","%"],["Operating income","$","540","","","$","1,404","","","(62)"],["Operating margin","6.1","%","","15.8","%","","(970)","bp"],["Operating days","252","","","252","","","\u2014"],["Average daily shipments (in thousands):"],["Priority","59.5","","","61.8","","","(4)"],["Economy","26.6","","","28.3","","","(6)"],["Total average daily shipments","86.1","","","90.1","","","(4)"],["Weight per shipment (pounds):"],["Priority","933","","","941","","","(1)"],["Economy","925","","","873","","","6"],["Composite weight per shipment","931","","","920","","","1"],["Revenue per shipment (dollars):"],["Priority","$","370.90","","","$","358.84","","","3"],["Economy","421.78","","","405.53","","","4"],["Composite revenue per shipment","$","386.63","","","$","373.52","","","4"],["Revenue per hundredweight (dollars):"],["Priority","$","39.74","","","$","38.13","","","4"],["Economy","45.60","","","46.46","","","(2)"],["Composite revenue per hundredweight","$","41.54","","","$","40.61","","","2"]] [[/GREPCENT_TABLE]] Revenue 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 and weight per shipment. Operating Income Operating income decreased 62% in 2026 primarily due to higher costs related to the Spin-Off, including higher 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 driven by higher fuel surcharges and weight per shipment. Fuel expense increased 6% in 2026 primarily due to higher diesel fuel price-per-gallon, partially offset by lower mileage and higher miles-per-gallon. Salaries and employee benefits increased 3% in 2026 largely reflecting Spin-Off-related personnel activity, including the transfer to us of over 1,500 employees from FedEx, as well as higher wage rates, partially offset by lower volume. Other operating expenses increased 10% in 2026 due to increased outside service contracts related to the Spin-Off, including incremental software license costs and other technology-related activities, and higher bad debt expense due to the termination of our participation in the factoring agreement with FedEx. For additional information regarding our prior factoring agreement with FedEx, see “— Financial -27- Table of Contents Condition — Liquidity Outlook,” and Note 2, Summary of Significant Accounting Policies and Note 10, Related Party Transactions, of the accompanying consolidated financial statements. Separation and other costs of $492 million in 2026 are primarily related to legal, consulting, and advisory fees for professional services and an employee incentive plan associated with the Spin-Off. FedEx Freight did not incur any costs associated with the Spin-Off in 2025. Income Taxes Our effective tax rates were 25.9% and 25.3% for 2026 and 2025, respectively, and varied from the statutory tax rate due to a jurisdictional mix of earnings, revisions of prior-year tax estimates for actual tax return results, and tax credits. On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. Certain provisions within the OBBBA are interdependent and have implications for both the effective tax rate and cash taxes. The provisions within the OBBBA did not have a material impact to the Company’s overall effective tax rate. Cash taxes were not materially impacted as the consolidated financial statements reflect cash taxes paid where the Company does not file a consolidated tax return with FedEx. The foreign countries in which FedEx Freight 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. Based on currently issued guidance, FedEx Freight qualifies for the Transitional Country by Country Safe Harbor based on the simplified effective tax rate test, thus our financial results were not impacted by Pillar Two. For more information on income taxes, see “— Critical Accounting Estimates” and Note 8, Income Taxes, of the accompanying consolidated financial statements. Recent Accounting Guidance See Note 3, Recent Accounting Guidance, of the accompanying consolidated financial statements for a discussion of recent accounting guidance. Financial Condition Liquidity Cash totaled $251 million as of May 31, 2026, compared to $109 million as of May 31, 2025. The following table provides a summary of our cash flows (in millions): [[GREPCENT_TABLE]] [["","Years Ended May 31,"],["","2026","","2025"],["Operating activities:"],["Net income","$","655","","","$","1,346"],["Separation and other costs, net of payments","135","","","\u2014"],["Other noncash charges and credits","790","","673"],["Changes in assets and liabilities","(1,413)","","","(488)"],["Cash provided by operating activities","167","","","1,531"],["Investing activities:"],["Capital expenditures","(379)","","","(437)"],["Proceeds from asset dispositions and other","16","","52"],["Cash used in investing activities","(363)","","","(385)"],["Financing activities:"],["Principal payments on debt","(26)","","","(63)"],["Proceeds from debt issuances","4,271","","","\u2014"],["Net transfers to Parent","(3,910)","","","(1,077)"],["Cash provided by (used in) financing activities","335","","","(1,140)"],["Effect of exchange rate changes on cash","3","","(3)"],["Net increase in cash","142","","","3"],["Cash at end of period","$","251","","","$","109"]] [[/GREPCENT_TABLE]] Cash Provided by Operating Activities. Cash flows from operating activities decreased $1.4 billion in 2026 primarily due to lower net income and working capital changes, driven by an increase in accounts receivable related to approximately $1.0 billion of reacquired outstanding U.S. trade receivables, partially offset by a decrease in intercompany amounts due to Parent. Both the reacquired receivables and decrease in intercompany amounts were related to the termination of the Company's factoring agreement with FedEx -28- Table of Contents in preparation for the Spin-off. For additional information regarding our prior factoring agreement with FedEx, see Note 2, Summary of Significant Accounting Policies, and Note 10, Related Party Transactions, of the accompanying consolidated financial statements. Cash Used in Investing Activities. Capital expenditures were 13% lower in 2026 primarily due to decreased spending on vehicles and trailers and ground support and dock equipment, partially offset by increased spending on facilities and other and information technology. See “— Capital Resources” for a more detailed discussion of capital expenditures during 2026. Cash Provided by (Used in) Financing Activities. Cash provided by financing activities primarily reflects debt proceeds and net transfers to FedEx. In 2026, cash provided by financing activities increased $1.5 billion, driven by $4.3 billion in proceeds from our debt issuance, partially offset by a $2.8 billion increase in net transfers to FedEx. For additional information related to FedEx’s centralized cash management program see Note 1, Description of Business and Basis of Presentation, and Note 10, Related Party Transactions, to the accompanying consolidated financial statements. Capital Resources Our operations are capital intensive, characterized by significant investments in vehicles and trailers, facilities, ground support and dock equipment, and technology. The amount and timing of capital investments depend on various factors, including pre-existing contractual commitments, anticipated volume growth, economic conditions, new or enhanced services, geographical expansion of services, availability of satisfactory financing, and actions of regulatory authorities. The following table compares capital expenditures by asset category (in millions): [[GREPCENT_TABLE]] [["","Years Ended May 31,"],["","2026","","2025","","Percent Change"],["Vehicles and trailers","$","193","","","$","274","","","(30)","%"],["Facilities and other","107","","","67","","","60"],["Ground support and dock equipment","57","","","83","","","(31)"],["Information technology","22","","","13","","","69"],["Total capital expenditures","$","379","","","$","437","","","(13)","%"]] [[/GREPCENT_TABLE]] Capital expenditures decreased $58 million in 2026 primarily due to decreased spending on vehicles and trailers and ground support and dock equipment, partially offset by increased investments in facilities and other and information technology. These changes in capital expenditures are a result of continuing to prioritize investments that support increasing efficiency and reducing our cost to serve. Our capital expenditures for the remainder of calendar year 2026 are expected to range between $320 million and $340 million, funded by cash on hand and available liquidity. Our expected capital expenditures for the remainder of calendar year 2026 include investments in technology required for our exit from the Transition Services Agreement. 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 North American and global economic conditions. For additional details on key capital projects in the remainder of calendar year 2026, refer to “— Financial Condition — Liquidity Outlook.” Liquidity Outlook We continually evaluate our liquidity requirements in light of our operating needs, growth initiatives, and capital resources. We believe our existing cash upon completion of the Spin-Off, cash flows generated from operations, availability under our revolving credit facility, and access to capital markets will provide adequate resources to fund our future cash flow needs. Following the Spin-Off, we are further evaluating our liquidity needs, capital structure, and sources of capital on a stand-alone basis. In response to current business and economic conditions as referenced in the “— Results of Operations — Trends Affecting our Business,” we are continuing to actively manage and optimize our capital allocation in response to the slowdown in the economy, inflationary pressures, changing fuel prices, geopolitical conflicts, and uncertainty regarding international trade, including the impact of tariffs. We have historically participated in FedEx’s centralized approach to cash management and financing of its domestic operations. We have historically generated, and expect to continue to generate, positive cash flow from operations. As a result of the Spin-Off, we no longer participate in FedEx cash pooling arrangements, and our cash is held and used solely for our own operations. We historically factored certain of our U.S. trade receivables through FedEx on a non-recourse basis pursuant to a factoring agreement. We accounted for transfers under the factoring agreement as sales because we sold full title and ownership in the underlying receivables and control of the receivables was considered transferred. These receivables were not recognized on our Consolidated Balance Sheets in the accompanying consolidated financial statements. On November 30, 2025, the Company’s factoring agreement with FedEx was terminated in preparation for the Spin-Off. Additionally, on November 18, 2025, the Company entered into a True Sale and Assignment Agreement with FedEx, effective December 1, 2025, under which we reacquired all outstanding U.S. trade receivables -29- Table of Contents previously sold to FedEx under the Company's factoring arrangement described above. This transaction was structured as a true sale without recourse, resulting in the Company resuming ownership and collection of its outstanding receivable balances. As a result of this transaction, accounts receivable balances presented in the Consolidated Balance Sheets of the accompanying consolidated financial statements have materially increased as of May 31, 2026, compared to May 31, 2025. The Company's decision to reacquire all outstanding U.S. trade receivables previously sold to FedEx could result in a slower cash conversion cycle from sales to cash collection. There is no guarantee we, if desired to enter into a similar financing arrangement, will be able to enter into such an arrangement with a third party or be able to sell similar volumes of U.S. trade receivables compared to the amounts historically sold to FedEx. For additional information regarding our prior factoring agreement with FedEx, see Note 2, Summary of Significant Accounting Policies, and Note 10, Related Party Transactions, of the accompanying consolidated financial statements. We have additional obligations as part of our ordinary course of business beyond those committed for capital expenditures, which include lease obligations. Refer to Note 6, Leases, of the accompanying consolidated financial statements for more information. In addition, we have certain tax positions that are further discussed in Note 8, Income Taxes, of the accompanying consolidated financial statements. We do not have any guarantees or other off-balance sheet financing arrangements that we believe could have a material impact on our financial condition or liquidity. Refer to Note 13, Contingencies, of the accompanying consolidated financial statements for discussion of guarantees of FedEx debt. In contemplation of the Spin-Off, we incurred $4.3 billion of indebtedness, net of debt issuance costs and discounts of $36 million, consisting of $3.7 billion in senior notes and a $0.6 billion term loan under a delayed draw term loan facility, all of which is long-term. This indebtedness has an estimated weighted-average interest rate of 4.79%. The actual rates of interest may be different from those assumed. The terms of such indebtedness are described in Note 5, Long-Term Debt, of the accompanying consolidated financial statements. Upon completion of the Spin-Off on June 1, 2026, FedEx was automatically released from its guarantee of these financing arrangements, and FedEx Custom Critical joined FedEx Freight, Inc. as a guarantor. In connection with the Spin-Off, we distributed, from the net proceeds of such borrowings, $4.1 billion of cash to FedEx as part of the consideration for the assets FedEx contributed to us in connection with the Spin-Off. We have also entered into a revolving credit facility that provides for borrowings of up to $1.2 billion; however, the revolving credit facility was not utilized prior to the Spin-Off or to fund the distribution of $4.1 billion to FedEx. 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 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 Committee and with our independent registered public accounting firm. See Note 2, Summary of Significant Accounting Policies, to the accompanying consolidated financial statements for further information on our significant accounting policies. Shared Services and Corporate Allocations FedEx allocated certain shared services and general corporate costs to us that are reflected as expenses in the accompanying consolidated financial statements including, but not limited to, information technology, marketing, sales, financial services, support services, customer experience, and corporate executives’ salaries and employee benefits. These expenses have been allocated to FedEx Freight based on direct usage or benefit where specifically identifiable, with the remainder allocated pro rata based on an applicable measure of total revenue, headcount, specific revenue by function, transaction volume, or other relevant measures. Management considers these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided, to us. These allocated amounts, however, are not necessarily indicative of the actual amounts that might have been incurred or realized had we operated as an independent, stand-alone entity, during the periods presented, nor are they indicative of our future operations. Income Taxes We are subject to income taxes in the United States, Canada, and Mexico. 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. Our intercompany transactions are based on globally accepted transfer pricing principles, which align profits with the business operations and functions of the various legal entities in our international business. We evaluate our tax positions quarterly and adjust the balances as new information becomes available. 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. -30- Table of Contents Tax contingencies arise from uncertainty in the application of tax rules throughout the 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 record the taxes for 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 Internal Revenue Service, and other standard-setting bodies, any resulting changes to our estimates will be made in accordance with the relevant accounting guidance. For more information, see “— Summary of Results — Income Taxes” and Note 8, Income Taxes, of the accompanying consolidated financial statements. Self-Insurance Accruals Our self-insurance reserves are established for estimates of ultimate loss on all claims incurred, 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. As of May 31, 2026, FedEx assumed substantially all of the self-insurance reserves related to workers’ compensation claims, vehicle accidents, and property and general business liabilities attributable to FedEx Freight, amounting to $330 million. This amount is included in “Net transfers from (to) Parent” in the accompanying Consolidated Statements of Changes in Equity. See Note 2, Summary of Significant Accounting Policies, for more information. Self-insurance accruals reflected in our balance sheet are as follows (in millions): [[GREPCENT_TABLE]] [["","May 31,"],["","2026","","2025"],["Short-Term","$","56","","","$","103"],["Long-Term","13","","","315"],["Total","$","69","","","$","418"]] [[/GREPCENT_TABLE]] A five-percent increase or decrease in the assumed claim severity used to estimate our self-insurance accruals would result in a corresponding increase or decrease of approximately $3 million in our reserves and expenses as of and for the year ended May 31, 2026. For more information, see Item 1A. “Risk Factors." Long-Lived Assets Useful Lives and Salvage Values. Our business is capital intensive, with approximately 58% of our owned assets invested in our property and equipment at May 31, 2026. 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, 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 equipment. -31- Table of Contents Impairment. 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 an integrated transportation network, and accordingly, cash flows for most of our operating assets are assessed at the 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. Leases. We utilize operating leases to finance certain of our facilities and vehicles. 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. 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. For more information, see Note 2, Summary of Significant Accounting Policies, of the accompanying consolidated financial statements. Goodwill. We had $602 million of recorded goodwill as of May 31, 2026 and 2025 from our business acquisitions, representing the excess of the purchase price over the fair value of the net assets acquired. 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. As part of our qualitative assessments, we consider changes in the macroeconomic environment such as the general economic conditions, limitations on accessing capital, and other developments in equity and credit markets. We evaluated goodwill during the fourth quarters of 2026 and 2025 and the estimated fair value of each reporting unit exceeded its carrying value as of the end of each respective fiscal year; therefore, we do not believe that goodwill was impaired as of the balance sheet dates.