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FEDEX ANNUAL REPORT 2014
The strength of our people
powers the strength of our results.

Table of contents

  • Page 1
    The strength of our people powers the strength of our results. FEDEX ANNUAL REPORT 2014

  • Page 2
    Strength in numbers. More than 300,000 FedEx team members worldwide work tirelessly to serve our customers and create value for shareowners. Thanks to their extraordinary efforts, FY14 returns to investors outperformed the S&P 500 and the Dow Jones Transportation Average. S&P 500 - The Purple ...

  • Page 3
    ... our best ever for a peak season. In fact, many team members volunteered to work on Christmas Day. It's no coincidence that FedEx was once again recognized by Fortune magazine as one of the world's 10 most admired companies and No. 1 in the delivery industry. MORE > fedex.com/AnnualReport2014 1

  • Page 4
    ... Express packages. FedEx Freight, the industry leader in market share and volume, is growing by making less-than-truckload (LTL) shipping easier than ever. In an industry where many LTL transactions are manual and pricing is complicated, our newly improved FedEx online shipping tools help customers...

  • Page 5
    ... to help our customers become more efficient with new FedEx solutions. The FedEx strategy of Compete Collectively, Operate Independently and Manage Collaboratively is based on maintaining separate FedEx Express, FedEx Ground and FedEx Freight networks. Our Express system, which has multiple hubs...

  • Page 6
    ..., FedEx has been investing in countries where business is growing. FY14 was no exception. Strategic acquisitions, new hubs and enhanced services strengthen the link between emerging economies and the global marketplace. As a result, customers have better access to opportunities than ever, and local...

  • Page 7
    ... include domestic services in international markets, value-added logistics and freight forwarding. New investments, including those in Mexico, now position us to pursue a much larger logistics and transportation marketplace worth $300 billion. • Asia. The same week the Mexico City hub opened, we...

  • Page 8
    ... this productivity? Twenty percent year-over-year revenue growth. As men around the world continue to dress better, Allen Edmonds is well positioned for the future. 6 FedEx Ground 75% FedEx Freight FedEx Express A BUNDLE OF VALUE Customers using all three FedEx transportation companies account...

  • Page 9
    ... on FedEx Ground for weekly merchandise deliveries to its 50 U.S. retail locations. E-commerce For its exploding e-commerce business, growing 60 percent year over year, Allen Edmonds uses FedEx Home Delivery® and FedEx Express - the latter popular with Allen Edmonds' more demanding customers, who...

  • Page 10
    ... Results for 2013 include $560 million ($353 million, net of tax or $1.11 per diluted share) of business realignment costs and a $100 million ($63 million, net of tax, or $0.20 per diluted share) impairment charge resulting from the decision to retire 10 aircraft and related engines at FedEx Express...

  • Page 11
    ... services through companies competing collectively, operating independently and managed collaboratively, under the respected FedEx brand. Our primary operating companies are Federal Express Corporation ("FedEx Express"), the world's largest express transportation company; FedEx Ground Package System...

  • Page 12
    ...retire 24 aircraft and related engines at FedEx Express and the reversal of a $66 million legal reserve that was initially recorded in 2011 at FedEx Express. The following table shows changes in revenues and operating income by reportable segment for 2014 compared to 2013, and 2013 compared to 2012...

  • Page 13
    ....0 FedEx Freight Average Daily LTL Shipments 90.6 86.0 84.9 85.7 2011 2012 2013 2014 FedEx Express and FedEx Ground Total Average Daily Package Volume 12,000 11,500 11,000 10,500 10,000 9,500 9,000 8,500 8,785 2011 2012 2013 2014 9,230 10,184 10,744 (1) International domestic average daily...

  • Page 14
    ... daily LTL shipments and revenue per LTL shipment. At FedEx Express, revenues were ï¬,at as lower fuel surcharges and lower freight revenue were offset by revenue growth in our base U.S. and international export package business and growth in our freight-forwarding business at FedEx Trade Networks...

  • Page 15
    ... at FedEx Ground and FedEx Express and improved volumes, revenue per shipment and operational efficiencies at FedEx Freight. Our results for all our transportation segments were positively impacted by the inclusion in 2013 of costs associated with our business realignment program and an aircraft...

  • Page 16
    ...due to volume growth at FedEx Ground, international business acquisitions during the year and the expansion of our freight forwarding business at FedEx Trade Networks. Salaries and benefits increased 3% in 2013 primarily due to increases in pension and group health insurance costs, partially offset...

  • Page 17
    ...including fuel prices and the pace of improvement in the global economy. Our capital expenditures for 2015 are expected to increase to approximately $4.2 billion for additional aircraft deliveries in 2015 to support our ï¬,eet modernization program and continued expansion of the FedEx Ground network...

  • Page 18
    ... Ground Segment > FedEx Express (express transportation) > FedEx Trade Networks (air and ocean freight forwarding and customs brokerage) > FedEx SupplyChain Systems (logistics services) > FedEx Ground (small-package ground delivery) > FedEx SmartPost (small-parcel consolidator) > FedEx Freight (LTL...

  • Page 19
    ... domestic revenues represent our international intra-country express operations including countries such as Mexico and Brazil. (2) Includes FedEx Trade Networks and FedEx SupplyChain Systems. (3) 2013 includes $143 million of predominantly severance costs associated with our voluntary buyout program...

  • Page 20
    ...51 FedEx Express Segment Revenues FedEx Express segment revenues were ï¬,at in 2014. Lower fuel surcharges, lower freight revenue, lower exchange rates and one Percent fewer operating day were offset by revenue growth in our U.S. and Change 2014/ 2013/ international export package base business and...

  • Page 21
    ... international fuel surcharges ranged as follows for the years ended May 31: FedEx Express Segment Operating Income FedEx Express operating income and operating margin in 2014 were positively impacted by the inclusion in 2013 of costs associated with our business realignment program and an aircraft...

  • Page 22
    ... in 2013. FedEx Express Segment Outlook We expect revenues and earnings to increase at FedEx Express during 2015 primarily due to improved U.S. domestic and international export package yields, as we continue to focus on revenue quality while managing costs. In addition, we expect operating income...

  • Page 23
    ... revenues were negatively impacted by one fewer operating day, unusually severe weather and lower fuel surcharges. Average daily volume at FedEx Ground increased 9% during 2014 due to market share gains resulting from continued growth in our FedEx Home Delivery service and commercial business. FedEx...

  • Page 24
    ... statements. FedEx Ground Segment Outlook FedEx Ground segment revenues and operating income are expected to continue to grow in 2015, led by volume growth across all our major services due to market share gains. We also anticipate yield growth in 2015 through yield management programs including...

  • Page 25
    ... AND ANALYSIS FedEx Freight Segment FedEx Freight service offerings include priority services when speed is critical and economy services when time can be traded for savings. Operating expenses: The following table compares revenues, operating expenses, operatSalaries and employee benefits...

  • Page 26
    ... changes in fuel prices compared to year-over-year changes in fuel surcharges, fuel had a minimal impact on operating income in 2014. During 2013, the FedEx Freight segment operating results improved as a result of LTL revenue per hundredweight growth and increased average daily LTL shipments, along...

  • Page 27
    MANAGEMENT'S DISCUSSION AND ANALYSIS FedEx Freight Segment Outlook We expect continued revenue and operating income growth at the FedEx Freight segment in 2015 driven by volume and revenue per shipment increases from our differentiated LTL services, as well as continued improvement in network and ...

  • Page 28
    ... on then-current market prices. During the fourth quarter of 2014, the ASR transactions were completed and we received 3.4 million additional shares. The final number of shares delivered upon settlement of each ASR agreement was determined based on a discount to the volume-weighted average price of...

  • Page 29
    ... ï¬,ow from operations will be sufficient to fund our increased capital expenditures in 2015, which will include spending for aircraft modernization and re-ï¬,eeting at FedEx Express and 2014 2013 2012 network expansion at FedEx Ground. We expect approximately 40% of Aircraft and related equipment...

  • Page 30
    ... our balance sheet, including deferred income taxes, qualified and nonqualified pension and postretirement healthcare plan liabilities, and other self-insurance accruals. The payment obligations associated with these liabilities are not reï¬,ected in the table below due to the absence of scheduled...

  • Page 31
    ... planned aircraft-related transactions. Operating Activities In accordance with accounting principles generally accepted in the United States, future contractual payments under our operating leases (totaling $15 billion on an undiscounted basis) are not recorded in our balance sheet. Credit rating...

  • Page 32
    ... independent registered public accounting firm. Our retirement plans cost is included in the "Salaries and Employee Benefits" caption in our consolidated income statements. A summary of our retirement plans costs over the past three years is as follows (in millions): 2014 2013 2012 U.S. domestic...

  • Page 33
    ... in publicly tradeable securities, and our pension plans hold only a minimal investment in FedEx common stock that is entirely at the discretion of third-party pension fund investment managers. As part of our strategy to manage pension costs and funded status volatility, we have transitioned to...

  • Page 34
    ... in business levels, technological obsolescence, accident frequency, regulatory changes and other factors beyond our control. In 2013, FedEx Express made the decision to accelerate the retirement of 76 aircraft and related engines to aid in our ï¬,eet modernization and improve our global network. In...

  • Page 35
    ...10 aircraft and 15 related engines, to align with the plans of FedEx Express to modernize its aircraft ï¬,eet and improve its global network. As a consequence of this decision, a noncash impairment charge of $100 million ($63 million, net of tax, or $0.20 per diluted share) was recorded in 2013. All...

  • Page 36
    ...legal proceedings and claims, including those relating to general commercial matters, governmental enforcement actions, employment-related claims and FedEx Ground's owner-operators. Accounting guidance for contingencies requires an accrual of estimated loss from a contingency, such as a tax or other...

  • Page 37
    ... our requirement to make contributions to the plans. Substantial investment losses on plan assets will also increase pension expense in the years following the losses. FOREIGN CURRENCY. While we are a global provider of transportation, e-commerce and business services, the substantial majority of...

  • Page 38
    ... our international business, we are increasingly affected by the health of the global economy and the typically more volatile economies of emerging markets. In 2014, we saw a continued customer preference for slower, less costly shipping services - particularly for international shipments - which...

  • Page 39
    ... lawsuits and state tax and other administrative proceedings that claim that the company's owner-operators or their drivers should be treated as our employees, rather than independent contractors. We incur certain costs, including legal fees, in defending the status of FedEx Ground's owner-operators...

  • Page 40
    ... our goal of annual profitability improvement at FedEx Express of $1.6 billion by the end of 2016. Our ability to achieve this objective is dependent on a number of factors, including the health of the global economy and future customer demand, particularly for our priority services. In light of...

  • Page 41
    ...icts on the United States and global economies in general, the transportation industry or us in particular, and what effects these events will have on our costs or the demand for our services; > any impacts on our businesses resulting from new domestic or international government laws and regulation...

  • Page 42
    FEDEX CORPORATION MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended)....

  • Page 43
    ... the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of FedEx Corporation as of May 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income (loss), changes in stockholders' investment, and cash ï¬,ows for...

  • Page 44
    FEDEX CORPORATION CONSOLIDATED STATEMENTS OF INCOME (in millions, except per share amounts) Revenues Operating Expenses: Salaries and employee benefits Purchased transportation Rentals and landing fees Depreciation and amortization Fuel Maintenance and repairs Business realignment, impairment and...

  • Page 45
    ... unrealized pension actuarial gains (losses) and other, net of tax expense of $104 and $677 in 2014 and 2013 and tax benefit of $1,369 in 2012 2014 $ 2,097 (25) 151 126 $ 2,223 Years ended May 31, 2013 $ 1,561 41 1,092 1,133 $ 2,694 2012 $ 2,032 (95) (2,308) (2,403) $ (371) Comprehensive Income...

  • Page 46
    ... salaries and employee benefits Accounts payable Accrued expenses Total current liabilities $ Long-Term Debt, Less Current Portion Other Long-Term Liabilities Deferred income taxes Pension, postretirement healthcare and other benefit obligations Self-insurance accruals Deferred lease obligations...

  • Page 47
    ... by operating activities: Depreciation and amortization Provision for uncollectible accounts Deferred income taxes and other noncash items Business realignment, impairment and other charges Stock-based compensation Changes in assets and liabilities: Receivables Other current assets Pension and...

  • Page 48
    FEDEX CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT Common Stock Balance at May 31, 2011 $ 32 Net income - Other comprehensive loss, net of tax of $1,395 - Purchase of treasury stock (2.8 million shares) - Cash dividends declared ($0.52 per share) - Employee incentive ...

  • Page 49
    ... services through companies competing collectively, operating independently and managed collaboratively, under the respected FedEx brand. Our primary operating companies are Federal Express Corporation ("FedEx Express"), the world's largest express transportation company; FedEx Ground Package System...

  • Page 50
    ... of our outlook on our current and projected volume levels, including capacity needs during our peak shipping seasons; the introduction of new ï¬,eet types or decisions to permanently retire an aircraft ï¬,eet from operations; or changes to planned service expansion activities. At May 31, 2014, we...

  • Page 51
    ... plans requires recognition in the balance sheet of the funded status of defined benefit pension and other postretirement benefit plans, and the recognition in other comprehensive income ("OCI") of unrecognized gains or losses and prior service costs or credits. We recorded a decrease to equity...

  • Page 52
    ...on an annual basis at the end of each fiscal year. BUSINESS REALIGNMENT COSTS. During 2013, we announced profit improvement programs primarily through initiatives at FedEx Express and FedEx Services and completed a program to offer voluntary cash buyouts to eligible U.S.-based employees in certain...

  • Page 53
    ...numerous new proposals under development which, if and when enacted, may have a significant impact on our financial reporting. NOTE 3: BUSINESS COMBINATIONS On May 1, 2014, we expanded the international service offerings of FedEx Express by completing our acquisition of the businesses operated by...

  • Page 54
    ..., 2013 Goodwill acquired(1) Purchase adjustments and other(2) Balance as of May 31, 2014 Accumulated goodwill impairment charges as of May 31, 2014 FedEx Express Segment $ 1,344 - 1,344 351 20 1,715 24 11 $ 1,750 $ - FedEx Ground Segment $ 90 - 90 - - 90 - - $ 90 $ - FedEx Freight FedEx Services...

  • Page 55
    ...letter of credit facility, and $531 million in outstanding surety bonds placed by third-party insurance providers. These instruments are required under certain U.S. self-insurance programs and are also used in the normal course of international operations. The underlying liabilities insured by these...

  • Page 56
    ... Line Item in the Amount Reclassified from AOCI Income Statement 2014 2013 2012 Retirement plans: Amortization of actuarial losses and other $ (382) $ (516) $ (310) Salaries and employee benefits Amortization of prior service credits 115 114 113 Salaries and employee benefits Total before tax...

  • Page 57
    ...yield is the annual rate of dividends per share over the exercise price of the option. The following table summarizes information about stock option activity for the year ended May 31, 2014: Outstanding at June 1, 2013 Granted Exercised Forfeited Outstanding at May 31, 2014 Exercisable Expected to...

  • Page 58
    ... TO CONSOLIDATED FINANCIAL STATEMENTS The options granted during the year ended May 31, 2014 are primarily related to our principal annual stock option grant in June 2013. The following table summarizes information about vested and unvested restricted stock for the year ended May 31, 2014: NOTE 11...

  • Page 59
    ...the Internal Revenue Service ("IRS") audit of our 2007-2009 consolidated income tax returns. The significant components of deferred tax assets and liabilities as of May 31 were as follows (in millions): 2014 Current provision (benefit) Domestic: Federal State and local Foreign 2013 2012 $ (120...

  • Page 60
    ... other transportation services. We are continually expanding our global network to meet our customers' needs, which requires increasing investment outside the U.S. We typically use cash generated overseas to fund these investments and have a foreign holding company which manages our investments in...

  • Page 61
    ... TO CONSOLIDATED FINANCIAL STATEMENTS The accounting guidance related to postretirement benefits requires recognition in the balance sheet of the funded status of defined benefit pension and other postretirement benefit plans, and the recognition in accumulated other comprehensive income ("AOCI...

  • Page 62
    ... as the market value, as it did in 2014 and 2013. The investment strategy for pension plan assets is to utilize a diversified mix of global public and private equity portfolios, together with fixed-income portfolios, to earn a long-term investment return that meets our pension plan obligations...

  • Page 63
    ... for our domestic pension plans at the measurement date are presented in the following table (in millions): Asset Class Cash and cash equivalents Equities U.S. large cap equity International equities Global equities U.S. SMID cap equity Private equities Fixed income securities Corporate Government...

  • Page 64
    ...assets at the beginning of year Actual return on plan assets Company contributions Benefits paid Other Fair value of plan assets at the end of year Funded Status of the Plans Amount Recognized in the Balance Sheet at May 31: Noncurrent asset Current pension, postretirement healthcare and other bene...

  • Page 65
    ...used in determination of funded status. $ (23,447) 21,542 (24,218) $ (2,676) $ (21,930) 19,404 (22,570) $ (3,166) Contributions to our U.S. Pension Plans for the years ended May 31 were as follows (in millions): Required Voluntary 2014 $ 645 15 $ 660 2013 $ 560 - $ 560 For 2015, we anticipate...

  • Page 66
    ...FINANCIAL STATEMENTS Net periodic benefit cost for the three years ended May 31 were as follows (in millions): Service cost Interest cost Expected return on plan assets Recognized actuarial losses (gains) and other Net periodic benefit cost 2014 $ 657 1,055 (1,495) 267 $ 484 Pension Plans 2013...

  • Page 67
    ... Ground Segment > FedEx Express (express transportation) > FedEx Trade Networks (air and ocean freight forwarding and customs brokerage) > FedEx SupplyChain Systems (logistics services) > FedEx Ground (small-package ground delivery) > FedEx SmartPost (small-parcel consolidator) > FedEx Freight (LTL...

  • Page 68
    ... of reportable segment revenues, depreciation and amortization, operating income and segment assets to consolidated financial statement totals for the years ended or as of May 31 (in millions): FedEx Express Segment(1) Revenues 2014 2013 2012 Depreciation and amortization 2014 2013 2012 Operating...

  • Page 69
    ... information for the years ended or as of May 31 (in millions): 2014 Revenue by Service Type FedEx Express segment: Package: $ 6,555 U.S. overnight box 1,636 U.S. overnight envelope 3,188 U.S. deferred Total U.S. domestic package revenue 11,379 6,451 International priority International economy...

  • Page 70
    .... FedEx Ground is involved in numerous class-action lawsuits (including 26 that have been certified as class actions), individual lawsuits and state tax and other administrative proceedings that claim that the company's owner-operators should be treated as employees, rather than independent...

  • Page 71
    ...owner-operators and their drivers to the reimbursement of certain expenses and to the benefit of wage-andhour laws and result in employment and withholding tax and benefit liability for FedEx Ground, and could result in changes to the independent contractor status of FedEx Ground's owner-operators...

  • Page 72
    ... in the weighted-average number of shares outstanding during the respective periods. (2) The fourth quarter of 2013 includes $496 million of business realignment costs and an impairment charge of $100 million resulting from the decision to retire 10 aircraft and related engines at FedEx Express. The...

  • Page 73
    ...' Investment Current Liabilities Current portion of long-term debt Accrued salaries and employee benefits Accounts payable Accrued expenses Total current liabilities Long-Term Debt, Less Current Portion Intercompany Payable Other Long-Term Liabilities Deferred income taxes Other liabilities Total...

  • Page 74
    ...' Investment Current Liabilities Current portion of long-term debt Accrued salaries and employee benefits Accounts payable Accrued expenses Total current liabilities Long-Term Debt, Less Current Portion Intercompany Payable Other Long-Term Liabilities Deferred income taxes Other liabilities Total...

  • Page 75
    ...694 73 Revenues Operating Expenses: Salaries and employee benefits Purchased transportation Rentals and landing fees Depreciation and amortization Fuel Maintenance and repairs Business realignment, impairment and other charges Intercompany charges, net Other Operating Income Other Income (Expense...

  • Page 76
    ... (371) Revenues Operating Expenses: Salaries and employee benefits Purchased transportation Rentals and landing fees Depreciation and amortization Fuel Maintenance and repairs Business realignment, impairment and other charges Intercompany charges, net Other Operating Income Other Income (Expense...

  • Page 77
    ... dividends Principal payments on debt Proceeds from stock issuances Excess tax benefit on the exercise of stock options Dividends paid Purchase of treasury stock Other, net Cash (used in) provided by financing activities Effect of exchange rate changes on cash Net increase (decrease) in...

  • Page 78
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders FedEx Corporation We have audited the accompanying consolidated balance sheets of FedEx Corporation as of May 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income (...

  • Page 79
    ... aircraft and related engines at FedEx Express. See Note 1 to the accompanying consolidated financial statements. Additionally, common stockholders' investment includes an other comprehensive income increase of $861 million, net of tax, for the funded status of our retirement plans at May 31, 2013...

  • Page 80
    ...Home improvement specialty retailer Kimberly A. Jabal (3) Professor University of Maryland School of Public Policy Former U.S. Trade Representative Chief Financial Officer Path, Inc. Social networking company Frederick W. Smith Chairman, President and Chief Executive Officer FedEx Corporation...

  • Page 81
    ... FedEx Express Barbara B. Wallander President and Chief Executive Officer FedEx SmartPost James R. Muhs, Sr. President and Chief Executive Officer FedEx Trade Networks Craig M. Simon President and Chief Executive Officer FedEx SupplyChain Systems FedEx Freight Segment FedEx Services Segment...

  • Page 82
    ...(901) 818-7500, fedex.com ANNUAL MEETING OF SHAREOWNERS: Monday, September 29, 2014, 8:00 a.m. local time, FedEx Express World Headquarters, 3670 Hacks Cross Road, Building G, Memphis, Tennessee 38125. STOCK LISTING: FedEx Corporation's common stock is listed on the New York Stock Exchange under the...

  • Page 83
    ... with Togolese women to traditionally harvest and process shea tree nuts. It's the key ingredient used in the fair trade body care products Alaffia sells through major retailers. Since 2003, the company has created hundreds of new jobs - and a growing community of kids on wheels. fedex.com/access

  • Page 84
    ... all new U.S. FedEx Express buildings. PROGRESS 22.3 since 2005 % 27.0 since 2005 % gigawatt hours since 2005 27 10 LEED certified buildings To learn more, read the 2013 FedEx Global Citizenship Report at csr.fedex.com. FEDEX CORPORATION 942 South Shady Grove Road Memphis, Tennessee 38120...