A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the basis of revenue recognition in accordance with GAAP. To determine the proper revenue recognition method for contracts, we evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. For most of our contracts, the customer contracts with us to provide distinct transportation services within a single contract. Substantially all of our transportation service contracts with customers include only one performance obligation, the transportation services themselves. However, if a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative stand-alone selling prices of the promised services underlying each performance obligation. We frequently sell standard transportation services with observable stand-alone sales prices. In these instances, the observable stand-alone sales are used to determine the stand-alone selling price.

For transportation services, revenue is recognized over time as we perform the services in the contract because of the continuous transfer of control to the customer. Our customers receive the benefit of our services as the goods are transported from one location to another. If we were unable to complete delivery to the final location, another entity would not need to reperform the transportation service already performed. As control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the services to be provided. We use an output method of progress based on time-in-transit because it depicts the transfer of control to the customer that occurs throughout the time-in-transit.

Contracts are often modified to account for changes in the rates we charge our customers or to add distinct services. We consider contract modifications to exist when the modification either creates new enforceable rights and obligations or alters the existing arrangement. Contract modifications that add distinct services are treated as separate contracts. Contract modifications that do not add distinct services typically change the price of existing services. These contract modifications are accounted for prospectively as the remaining performance obligations are distinct.

Certain contracts contain customer incentives, guaranteed service refunds, and other provisions that can either increase or decrease the transaction price. These incentives are generally awarded based upon achieving certain performance metrics. We estimate variable consideration as the most likely amount to which we expect to be entitled. We include estimated amounts of revenue, which may be reduced by incentives or other contract provisions, in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based on an assessment of anticipated customer spending and all information (historical, current, and forecasted) that is reasonably available to us.

Contract assets include billed and unbilled amounts resulting from in-transit shipments, as we have an unconditional right to payment only once all performance obligations have been completed (e.g., delivery has occurred). Contract assets are generally classified as current, and the full balance is converted each quarter based on the short-term nature of the transactions.

The Company’s contract assets were historically included in the balances sold to FedEx pursuant to the Company’s historical factoring arrangement. 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 the Company reacquired all outstanding U.S. trade receivables previously sold to FedEx. Refer to Note 10, Related Party Transactions, for additional information related to the Company’s participation in the historical factoring agreement with FedEx.

Gross contract assets related to in-transit shipments totaled $150 million at May 31, 2026, and were not material at May 31, 2025. Contract assets net of deferred unearned revenue were $76 million at May 31, 2026, and were not material at May 31, 2025. Contract assets are included within “Receivables” in the accompanying Consolidated Balance Sheets.

Certain of our revenue-producing transactions are subject to taxes and duties, such as sales tax, assessed by governmental authorities. We present these revenues net of tax. Under the typical payment terms of our customer contracts, the customer pays at periodic intervals (e.g., every 15 days, 30 days, 45 days) for shipments included on invoices received. It is not customary business practice to extend payment terms past 90 days, and as such, we do not have a practice of including a significant financing component within our revenue contracts with customers.

FACTORING AGREEMENTS. We historically sold certain of our trade accounts receivable on a non-recourse basis to FedEx under a legally enforceable factoring agreement. We accounted for these transactions as sales of receivables and reflected the transfer of receivables as a reduction of “Receivables” on the accompanying Consolidated Balance Sheets. The cash proceeds from the factoring agreement were presented as “Cash provided by operating activities” in the accompanying Consolidated Statements of Cash Flows.

On November 30, 2025, the Company’s factoring agreement with FedEx was terminated in preparation for the Spin-Off. As a result, no customer receivables were sold during the second half of the year ended May 31, 2026. On November 18, 2025, the Company entered into a True Sale and Assignment Agreement with FedEx, effective December 1, 2025, under which the Company reacquired all outstanding U.S. trade receivables previously sold to FedEx under the Company’s factoring arrangement. See Note 10, Related Party Transactions, for additional information.

CREDIT RISK. We routinely grant credit to many of our customers without collateral. The risk of credit loss in our non-factored trade receivables is substantially mitigated by our credit evaluation process, short collection terms, and our broad and diverse customer base. Allowances for potential credit losses are updated monthly and determined on accounts receivable using historical experience and the impact of current economic conditions. Historically, credit losses have been within management’s expectations.

Activity related to receivables historically sold under the Company’s factoring agreement with FedEx is excluded from the changes in the allowance for credit losses and allowance for revenue adjustments for periods prior to December 1, 2025. Refer to Note 10, Related Party Transactions, for additional information related to the Company’s participation in the historical factoring agreement with FedEx and factoring fees incurred.


	2026		2025		2024
Allowance, beginning of period	$	12	$	8	$	8
Repurchases of previously factored accounts receivable	96		—		—
Current period provision for expected credit losses	91		19		11
Write-offs charged against allowance	(62)		(15)		(11)
Recoveries collected	3		—		—
Allowance, end of period	$	140	$	12	$	8

Excluded from the table above are adjustments to revenue recognized prior to the termination of the factoring agreement. These revenue adjustments were $83 million in 2026, $111 million in 2025, and $235 million in 2024. Refer to Note 10, Related Party Transactions, for additional information related to the Company’s participation in the historical factoring agreement with FedEx.

CASH. Cash held in FedEx Freight bank accounts as of May 31, 2026 and 2025 are included in the Consolidated Balance Sheets. FedEx reviews excess cash in certain jurisdictions that accumulates based on customer payer location and executes periodic dividend payments from its subsidiaries for company-wide use. In 2026, the Company made a $48 million dividend payment to FedEx from cash held in a foreign jurisdiction. Dividend payments to FedEx were not material in 2025 and 2024. See Note 1, Description of Business and Basis of Presentation, for discussion of our participation in FedEx’s centralized cash management program for domestic cash balances. On May 31, 2026, we distributed approximately $4.1 billion of cash, from our debt proceeds, to FedEx as part of the consideration for the assets to be contributed to us by FedEx in connection with the Spin-Off.

PROPERTY AND EQUIPMENT. Expenditures for major additions, improvements, and equipment modifications are capitalized when such costs are determined to extend the useful life of the asset or are part of the cost of acquiring the asset. Maintenance and repairs costs are charged to expense as incurred. We capitalize certain direct internal and external costs associated with the development of internal-use software, including implementation of cloud computing service arrangements. Gains and losses on sales of property used in operations are classified within operating expenses and historically have been nominal.

Substantially all property and equipment have no material residual values. We periodically evaluate the estimated service lives and residual values used to depreciate our property and equipment. Finance right-of-use assets included in property and equipment were $258 million and $44 million as of May 31, 2026 and 2025, respectively.

Depreciation and amortization expense, excluding amounts allocated to us by FedEx and gains and losses on sales of property and equipment used in operations, was $459 million in 2026, $456 million in 2025, and $444 million in 2024. Depreciation and amortization expense includes amortization of assets under finance leases. See Note 10 , Related Party Transactions for amounts allocated to us by FedEx.

Gains on sales of property and equipment used in operations were primarily due to facility closures. We incurred gains on sales of property and equipment of $10 million in 2026, $40 million in 2025, and $40 million in 2024, which are included in the “Depreciation and amortization” line item in the accompanying Consolidated Statements of Income.

IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. For assets that are to be held and used, an impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows, or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.

GEOGRAPHIC INFORMATION. Non-current assets include property and equipment, operating lease right-of-use assets, and other long-term assets. Non-current assets in the United States were $4.6 billion at May 31, 2026, and $4.1 billion at May 31, 2025. Non-current assets in international jurisdictions were $150 million and $51 million at May 31, 2026 and 2025, respectively.

GOODWILL. Goodwill is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible net assets of businesses 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 to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive, we proceed to test goodwill for impairment, including comparing the fair value of the reporting unit to its carrying value (including attributable goodwill). Fair value for our reporting units is determined using an income or market approach incorporating market participant considerations and management’s assumptions on revenue growth rates, operating margins, discount rates, and expected capital expenditures. Fair value determinations may include both internal and third-party valuations. Unless circumstances otherwise dictate, we perform our annual impairment testing in the fourth quarter. We evaluated our reporting units during the fourth quarters of 2026, 2025, and 2024, and the estimated fair value of each reporting unit exceeded its carrying value as of the end of 2026, 2025, and 2024; therefore, no impairment was recorded during any of the years presented.

For all periods presented, certain of our U.S. employees and retirees participated in defined benefit pension and postretirement healthcare plans sponsored by FedEx. Our participation in the defined benefit pension and postretirement healthcare plans sponsored by FedEx is accounted for under the multiemployer approach. Accordingly, we did not record an asset or liability to recognize the funded status of the plans in the accompanying Consolidated Balance Sheets as of May 31, 2026 and 2025. The accompanying Consolidated Statements of Income reflect a proportionate allocation of net periodic benefit costs for the multiemployer plans associated with FedEx Freight employees for all periods presented. These expenses are reflected within “Salaries and employee benefits” and “Other, net” as applicable in the accompanying Consolidated Statements of Income. Expenses associated with our

Certain of our employees in Canada participate in a defined contribution plan sponsored by FedEx Freight while certain of our employees in the United States participate in a defined contribution plan sponsored by FedEx. All contributions in the United States are subject to maximum compensation and contribution limits for a tax-qualified defined contribution plan as prescribed by the Internal Revenue Service. Expenses associated with our employees’ participation in all defined contribution plans and an allocation of shared employee costs are reflected within “Salaries and employee benefits” in the accompanying Consolidated Statements of Income and were $146 million, $132 million, and $137 million in 2026, 2025, and 2024, respectively.

INCOME TAXES. The Company’s income tax provision was prepared following the separate return method. The separate return method applies Accounting Standard Codification 740, Income Taxes, to the stand-alone financial statements of each member of the combined group as if the group members were a separate taxpayer. The calculation of the Company’s income taxes on a separate return basis requires a considerable amount of judgment and use of both estimates and allocations. Furthermore, the tax treatment of certain items reflected in the accompanying consolidated financial statements of the Company may not be reflected in the consolidated financial statements and tax returns of FedEx. Such items, including net operating losses, credit carry-forwards, and valuation allowances, may exist in the accompanying consolidated financial statements that may or may not exist in FedEx’s consolidated financial statements. As a result, the income taxes of the Company as presented in the accompanying consolidated financial statements may not be indicative of the income taxes that the Company will generate in the future. Furthermore, current obligations for taxes where the Company’s operations were included in tax returns with the activities of FedEx are deemed settled with FedEx as a component of “(Accumulated deficit) Retained earnings” for purposes of the accompanying consolidated financial statements.

Deferred income taxes are provided for the tax effect of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The liability method is used to account for income taxes, which requires deferred taxes to be recorded at the statutory rate expected to be in effect when the taxes are paid.

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 the accompanying Consolidated Balance Sheets that are not subject to valuation allowances. We record the taxes for global intangible low-taxed income as a period cost.

We recognize liabilities for uncertain income tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as we must determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis or when new information becomes available to management. These reevaluations are based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, successfully settled issues under audit, and new audit activity. Such a change in recognition or measurement could result in the recognition of a tax benefit or an increase to the related provision.

We classify interest related to income tax liabilities as interest expense, and if applicable, penalties are recognized as a component of income tax expense. The income tax liabilities and accrued interest and penalties that are due within one year of the balance sheet date are presented as current liabilities. The noncurrent portion of our income tax liabilities and accrued interest and penalties are included within “Other liabilities” in the accompanying Consolidated Balance Sheets.

SELF-INSURANCE ACCRUALS. FedEx is self-insured for costs associated with workers’ compensation claims, vehicle accidents, property and cargo loss, general business liabilities, and benefits paid under employee health and disability programs. Accruals are primarily based on the actuarially estimated cost of claims incurred as of the balance sheet date. FedEx self-insures up to certain limits that vary by operating company and type of risk. Claims costs are recognized on a gross basis and a receivable is recorded for amounts covered by third-party insurance, as well as FedEx’s captive insurance program. Periodically, FedEx evaluates the level of insurance coverage and adjusts insurance levels based on risk tolerance and premium expense.

A portion of FedEx’s self-insurance reserve is attributable to FedEx Freight, up to a certain limit, representing FedEx Freight’s obligation. 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. FedEx Freight has retained self-insurance reserves related to cargo loss, certain employee group health claims, disability claims, and certain workers’

compensation claims due to local jurisdiction requirements. In April 2026, approximately $34 million of liabilities attributable to FedEx Freight for benefits paid under long-term disability programs were assumed by a third-party insurance company. Any remaining long-term disability benefits are expected to be assumed by a third-party insurance company by December 31, 2026.

Liabilities for the risks we retain are not discounted and are estimated, in part, by considering historical cost experience, demographic and severity factors, and judgments about current and expected levels of cost per claim and retention levels. Changes in these assumptions and factors can impact actual costs paid to settle the claims and those amounts may be different than our estimates.

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 within the accompanying 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 incremental borrowing rate applied to the measurement of lease liabilities for the periods presented is not necessarily indicative of the incremental borrowing rate incurred had FedEx Freight operated as an independent, stand-alone entity during the periods presented, nor is it indicative of FedEx Freight’s future incremental borrowing rate.

For real estate leases, we account for lease components and non-lease components (such as common area maintenance) as a single lease component. Certain real estate leases require additional payments based on sales volume and index-based rate increases, as well as reimbursement for real estate taxes, common area maintenance, and insurance, which are expensed as incurred as variable lease costs. Certain leases contain fixed lease payments for items such as real estate taxes, common area maintenance, and insurance. These fixed payments are considered part of the lease payment and included in the right-of-use asset and lease liability. See Note 6 , Leases, for additional information.

FOREIGN CURRENCY TRANSLATION. Translation gains and losses of foreign operations that use local currencies as the functional currency are accumulated and reported, net of applicable deferred income taxes, as a component of “Accumulated other comprehensive loss” (“AOCL”) within equity in the accompanying Consolidated Balance Sheets. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the local currency are included within “Other, net” in the accompanying Consolidated Statements of Income and were immaterial for each period presented.

STOCK-BASED COMPENSATION. Certain of our employees participate in the stock-based compensation plans sponsored by FedEx for the periods presented. The accounting guidance related to share-based payments requires recognition of compensation expense for stock-based awards using a fair value method. FedEx uses the Black-Scholes option pricing model to calculate the fair value of stock options. The value of restricted stock awards is based on the stock price of the award on the grant date. Expenses associated with our employees’ participation in the stock-based compensation plans and an allocation of shared employee costs are reflected within “Salaries and employee benefits” in the accompanying Consolidated Statements of Income and were $13 million in 2026, $10 million in 2025, and $12 million in 2024.

As of May 31, 2026, there was $17 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements. This compensation expense is expected to be recognized on a straight-line basis over the remaining weighted-average vesting period of approximately 2 years.

SEGMENT INFORMATION. As described in Note 1, Description of Business and Basis of Presentation, we operate as one reportable segment. John A. Smith, President and Chief Executive Officer of FedEx Freight, is our CODM and utilizes operating income as the primary measure of segment performance because it reflects the underlying business performance and provides the CODM with a basis for making resource allocation decisions. Operating income is defined as income before other income (expense) and income tax expense. Our CODM utilizes operating income in the annual budget and monthly forecasting processes, and considers forecast-to-actual variances on a monthly basis, when making resource allocation decisions. Our CODM regularly reviews significant expense details, which include salaries and employee benefits, purchased transportation, rentals, depreciation and amortization, fuel, maintenance and repairs, separation and other costs, and other operating expenses. These expense categories are included within operating expenses in the accompanying Consolidated Statements of Income and are used by the CODM in assessing performance and allocating resources.

CONTINGENCIES. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. Refer to Note 13 , Contingencies, for further discussion.