United Parcel Service's IPOHarvard Business School Case #103-015Case Software #XLS-352

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By Revenue By VolumeOvernight

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 1999UPS Next Day Air 31% 30% 30% 30% 30% 30% 32% 31% 32% 34% 25%FDX Overnight 51% 51% 50% 50% 50% 49% 49% 48% 47% 46% 46%ABF Next Day 10% 11% 12% 13% 13% 14% 13% 15% 15% 14% 23%USPS Express Mail 8% 8% 8% 7% 7% 7% 6% 6% 6% 6% 6%Deferred

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 1999UPS Deferred 40% 38% 35% 34% 32% 30% 30% 28% 26% 27% 13%FDX Deferred (E2, ES) 16% 17% 16% 18% 18% 19% 18% 20% 23% 22% 13%ABF Second Day 5% 5% 6% 6% 6% 6% 7% 6% 6% 6% 4%USPS Priority Mail 39% 40% 43% 42% 44% 45% 45% 46% 45% 45% 70%Ground

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 1999UPS Ground 87% 87% 85% 85% 83% 82% 82% 81% 80% 80% 79%

0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%withRPS* 5% 5% 6% 7% 8% 8% 8% 9% 10% 10% 11%

USPS Parcel Post 8% 8% 9% 8% 9% 10% 10% 10% 10% 10% 10%

* RPS acquired by FedEx in 10/97

Source: SJ Consulting Group.

Exhibit 4 Overnight, Deferred, and Ground Market Shares, 1990–1999

FedEx Ground without RPS

Note: Ground market shares are based on the revenues and volume of the largest providers in the industry. They do not include data for private delivery fleets of individual companies, courier services, regional delivery services, LTL trucking firms and third-party logistics companies

Market Data and Multiples—(November 1,1999)

Shares outstanding (weighted average, diluted) 300.6 millionShare price $41.50

19.8

0.74

2.68

1.16

Source: FedEx company filings.

Exhibit 6 FedEx Stock Price Performance and Valuation Multiples

Price/Earningsa

Price/Total revenueb

Market/Book valuec

Equity Betad

aTotal market capitalization/Net income.bTotal market capitalization/Total revenue.cTotal market capitalization/Shareholders’ equity.dSalomon Smith Barney Equity Research report on FedEx, June 22, 1999.

Statement of Income (year-ended December 31)

(Financial data in millions, except per share amounts) 1994 1995 1996 1997 1998REVENUEU.S. domestic package 16,943 17,773 18,881 18,868 20,650 15,129International package 2,346 2,886 2,989 2,934 3,237 2,342Non-package 287 386 498 656 901 653TOTAL REVENUES 19,576 21,045 22,368 22,458 24,788 18,124Operating expenses:Compensation and benefits 11,727 12,401 13,326 13,289 14,346 10,587Other 6,293 6,478 7,013 7,461 7,352 5,315Restructuring charge — 372 — — — —TOTAL OPERATING EXPENSES 18,020 19,251 20,339 20,760 21,698 15,902OPERATING PROFIT (LOSS)U.S. domestic package 1,821 1,937 2,181 1,654 2,899 2,098International package (390) (250) (281) (67) 56 19Non-package 125 107 129 111 135 105Corporate — — — — — —TOTAL OPERATING PROFIT 1,556 1,794 2,029 1,698 3,090 2,222Other income (expense):Investment income 13 26 39 70 84 56Interest expense (29) (77) (95) (187) (227) (169)Tax assessment — — — — — —Miscellaneous, net 35 (35) (63) (28)· (45) (3)INCOME BEFORE INCOME TAXES 1,575 1,708 1,910 1,553 2,902 2,106Income taxes 632 665 764 644 1,161 847NET INCOME 943 1,043 1,146 909 1,741 1,259Per share amounts:Basic earnings per share 0.84 0.93 1.03 0.82 1.59 1.16

Exhibit 7 UPS Financial Statements, 1994–1999

Nine Months Ended

September 30, 1998

Diluted earnings per share 0.82 0.92 1.01 0.81 1.57 1.14Dividends declared per share 0.28 0.32 0.34 0.35 0.43 0.20Net income before impact of tax assessment 943 1,043 1,146 909 1,741 1,259As a percentage of revenue 4.8% 5.0% 5.1% 4.0% 7.0% 7.0%Source: UPS Company Filings.

Exhibit 7 (continued)

BALANCE SHEETUnited Parcel ServiceIn millions, except where noted.As of December 31, 1997 1998ASSETSCURRENT ASSETSCash and cash equivalents 460 1,240Marketable securities and short-term investments — 389Accounts receivable 2,405 2,713Prepaid employee benefit costs 669 703Materials, supplies and other prepaid expenses 417 380Common stock held for stock plans 526 —Total Current Assets 4,477 5,425PROPERTY, PLANT, AND EQUIPMENTVehicles 3,519 3,482Aircraft (including aircraft under capitalized leases) 6,771 7,739Land 654 651Buildings 1,433 1,478Leasehold improvements 1,734 1,803Plant equipment 4,063 4,144Construction-in-progress 328 257

18,502 19,554Less accumulated depreciation and amortization 7,495 8,170Net Property, Plant, and Equipment 11,007 11,384Other Assets 428 258TOTAL ASSETS 15,912 17,067

LIABILITIES AND SHAREOWNERS' EQUITYCURRENT LIABILITIESAccounts payable 1,207 1,322Accrued wages and withholdings 1,194 1,092Dividends payable 191 247Deferred income taxes 140 —Current maturities of long-term debt 41 410Other current liabilities 625 646Total Current Liabilities 3,398 3,717Long-Term Debt (including capitalized lease obligations) 2,583 2,191Accumulated Postretirement Benefit Obligation 911 969Deferred Taxes, Credits and Other Liabilities 2,933 3,017SHAREOWNERS' EQUITY

— —

56 11Additional paid-in capital — 325Retained earnings 6,112 7,325Accumulated other comprehensive loss (81) (63)Unrealized loss on marketable securities — —

6,087 7,598Treasury stock, at cost (-0- and 23, 211,904 shares in 1997 and 1998) — (425)

6,087 7,173TOTAL LIABILITIES AND SHAREOWNERS' EQUITY 15,912 17,067Source: UPS Company Filings.

Exhibit 7 (continued)

Preferred stock, no par value, authorized 200,000,000 shares, none issued

Class A common stock, par value $.01 per share, authorized 4,600,000,000 shares, issued 1,101,295,534 and 1,118,000,000 in 1999 and 1998

Class B common stock, par value $.01 per share, authorized 5,600,000,000 shares, issued 109,400,000 and -0- in 1999 and 1998

Financial Data in Millions: Year Ended December 31 6 Months EndedBalance Sheet Data (at end of period): 1994 1995 1996 1997 1998 June 30,1999Working Capital $120 $261 $1,097 $1,079 $1,708 $434 Long-term debt $1,127 $1,729 $2,573 $2,583 $2,191 $2,138 Total assets $11,182 $12,645 $14,954 $15,912 $17,067 $18,302Shareowner's equity $4,647 $ 5,151 $5,901 $6,087 $7,173 $6,122

Source: UPS Company Filings.

Statement of Income (year-ended December 31)

16,2392,562

80519,606

11,2265,522

—16,748

2,522147

85104

2,858

115(170)

(1,786)(30)987765222

0.20

Nine Months Ended

September 30, 1999

0.200.28

1,6648.5%

Source: UPS Company Filings.

CONSOLIDATED STATEMENTS OF INCOMEFDX Corporation

Years ended May 31In thousands, except Earnings Per Share 1996 1997* 1998 1999REVENUES $ 10,273,619 $ 14,237,892 $ 15,872,810 $ 16,773,470OPERATING EXPENSES:Salaries and employee benefits 4,619,990 6,150,247 6,647,140 7,087,728Purchased transportation 370,650 1,252,901 1,481,590 1,537,785Rentals and landing fees 959,055 1,138,690 1,304,296 1,396,694Depreciation and amortization 719,609 928,833 963,732 1,035,118Maintenance and repairs 617,657 773,765 874,400 958,873Fuel 578,614 734,722 726,776 604,929Merger expenses - - 88,000 -Restructuring and impairment charges (credits) - 225,036 (16,000) -Other 1,784,220 2,526,696 2,792,216 2,989,257

9,649,795 13,730,890 14,862,150 15,610,384OPERATING INCOME 623,824 507,002 1,010,660 1,163,086OTHER INCOME (EXPENSE):Interest, net (95,599) (104,195) (124,413) (98,191)Other, net 11,734 23,058 13,271 (3,831)

(83,865) (81,137) (111,142) (102,022)INCOME FROM CONTINUING OPERATIONSBEFORE INCOME TAXES 539,959 425,865 899,518 1,061,064PROVISION FOR INCOME TAXES 232,182 229,761 401,363 429,731INCOME FROM CONTINUING OPERATIONS 307,777 196,104 498,155 631,333INCOME FROM DISCONTINUED OPERATIONS,NET OF INCOME TAXES - - 4,875 -NET INCOME $ 307,777 $ 196,104 $ 503,030 $ 631,333EARNINGS PER COMMON SHARE

Continuing operations $ 2.69 $ .67 $ 1.70 $ 2.13Discontinued operations - .02 -

$ 2.69 $ .67 $ 1.72 $ 2.13

Exhibit 8 FedEx Financial Statements, 1996–1999

EARNINGS PER COMMON SHARE,ASSUMING DILUTION

Continuing operations $ 2.69 $ .67 $ 1.67 $ 2.10Discontinued operations - - .02 -

$ 2.69 $ .67 $ 1.69 $ 2.10

Source: FedEx Company Filings.

CONSOLIDATED BALANCE SHEETSFDX Corporation

May 31In millions 1995 1996 1997* 1998 1999ASSETSCURRENT ASSETSCash and cash equivalents 357.6 93.5 160.9 229.6 325.3Receivables, less allowances 1,130.3 1,271.6 1,878.0 1,943.4 2,153.2Spare parts, supplies and fuel 193.3 222.1 339.4 364.7 291.9Deferred income taxes 115.8 92.6 197.0 232.8 290.7Prepaid expenses and other 72.2 48.5 68.6 109.6 79.9

Total current assets 1,869.1 1,728.3 2,643.7 2,880.1 3,141.0PROPERTY AND EQUIPMENT, AT COSTFlight equipment 3,006.7 3,372.6 3,741.4 4,056.5 4,556.7Package handling and ground support equipment and vehicles 1,841.1 2,148.5 3,131.1 3,425.3 3,858.8Computer and electronic equipment 1,224.0 1,439.9 1,957.9 2,162.6 2,363.6Other 1,625.9 1,717.5 2,557.6 2,819.4 2,940.7

7,697.7 8,678.5 11,387.9 12,463.9 13,719.9Less accumulated depreciation and amortization 3,982.5 4,561.9 5,917.5 6,528.8 7,160.7

Net property and equipment 3,715.2 4,116.6 5,470.4 5,935.1 6,559.2OTHER ASSETSGoodwill 397.3 380.7 370.3 356.3 344.0

*Financial results for 1997 and subsequent years are consolidated to include the acquisition of Caliber System Inc.

Exhibit 8 (continued) FedEx Corporation

Equipment deposits and other assets 451.8 473.4 559.8 514.6 604.0Total other assets 849.0 854.1 930.2 870.9 948.0

6,433.4 6,699.0 9,044.3 9,686.1 10,648.2LIABILITIES AND STOCKHOLDERS' INVESTMENTCURRENT LIABILITIESCurrent portion of long-term debt 255.4 8.0 356.7 257.5 14.9Accounts payable 618.6 705.5 999.8 1,145.4 1,134.0Accrued expenses 904.5 904.9 1,223.0 1,400.9 895.4Other Liabilities - - - - 740.5

Total current liabilities 1,778.5 1,618.4 2,579.5 2,803.8 2,784.8LONG-TERM DEBT, LESS CURRENT PORTION 1,324.7 1,325.3 1,598.0 1,385.2 1,359.7DEFERRED INCOME TAXES 56.0 64.0 181.8 274.1 293.5OTHER LIABILITIES 1,028.6 1,115.1 1,183.9 1,261.7 1,546.6COMMITMENTS AND CONTINGENCIES (NOTES 5, 13 and 14)COMMON STOCKHOLDERS' INVESTMENTCommon Stock, $.10 par value 5.6 5.7 14.8 14.7 29.8Additional paid-in capital 775.3 815.1 938.0 992.8 1,061.3Retained earnings 1,466.4 1,766.6 2,621.5 2,999.4 3,615.8Accumulated other comprehensive income 0.0 0.0 0.0 (27.3) (24.7)

2,247.3 2,587.4 3,574.3 3,979.6 4,682.2Less treasury stock, at cost, and deferred compensation 1.7 11.3 73.1 18.4 18.5

Total common stockholders' investment 2,245.6 2,576.1 3,501.2 3,961.2 4,663.76,433.4 6,699.0 9,044.3 9,686.1 10,648.2

Source: FedEx Company Filings.

The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets.

*Note: Financial results for 1997 and subsequent years are consolidated to include the acquisition of Caliber System Inc.

Year Ended December 31,1995 1996 1997 1998

Operating Data:Delivery volume (in millions of packages) 3,094 3,153 3,038 3,137Average daily package volume (in thousands)U.S. domestic:

Next Day Air 668 760 822 938Deferred 716 763 771 783Ground 9,949 10,015 9,521 9,645

Total U.S. domestic 11,333 11,538 11,114 11,366International

Domestic 722 683 678 730Export 175 194 217 256

Total International 897 877 895 986Total average daily package volume 12,230 12,415 12,009 12,352Average revenue per piece:U.S. domestic:

Next Day Air $19.34 $19.34 $19.49 $19.69Deferred 11.27 11.39 11.86 12.39Ground 4.95 5.09 5.19 5.51

Total U.S. domestic 6.20 6.44 6.71 7.15International

Domestic 6.22 6.10 5.36 5.14Export 37.18 37.32 35.01 33.46

Total International 12.26 13.01 12.55 12.49Total average revenue per piece $6.64 $6.91 $7.15 $7.58

Revenue:U.S. domestic:

Next Day Air $3,269 $3,734 $4,054 $4,690Deferred 2,041 2,207 2,314 2,464Ground 12,463 12,940 12,500 13,496

Total U.S. domestic 17,773 18,881 18,868 20,650

Exhibit 9 Selected UPS Operating Statistics (financial data in millions)

InternationalDomestic 1,136 1,058 919 953Export 1,646 1,839 1,922 2,176Cargo 176 177 226 270

Total International 2,958 3,074 3,067 3,399Non-package 314 413 523 739Total revenue $21,045 $22,368 $22,458 $24,788Operating weekdays 253 254 253 254Capital expenditures (in millions) $2,096 $2,333 $1,984 $1,645

Source: UPS Prospectus Filing, September 1999.

UPS FedExCalendar 1998 Average Daily Package Volume(thousands of packages)

● U.S. Express 938 1,957● U.S. Deferred 783 894● U.S. Ground 9,645 1,385● Total U.S. 11,366 4,236● Total International 986 282● Total packages 12,352 4,518

● Express $19.69 $14.34● Deferred $12.39 $9.93● Ground $5.51 $5.36

Number of Employees (full-time and contract positions) 340,000 156,386Total on-balance sheet assets $23.0 billion $10.6 billionNumber of jet and small aircraft owned and leased 536 634Number of vehicles 149,000 46,000

Source: Derived by casewriters using UPS and FedEx Company Filings.

Exhibit 10 Summary of FedEx and UPS Operating Statistics

Calendar 1998 Average U.S. Revenue per packageᵃ

aRevenues per package (yield) is a function of both average package weight and distance.

May 31,1999 ($ thousands)Package handling and ground support equipment and vehicles $245,041Facilities 134,442Computer and electronic equipment and other 6,496

385,979Less accumulated depreciation 268,696

$117,283

($ thousands)Minimum rentals $1,246,259Contingent rentals 59,839

$1,306,098

($ thousands) Capital Leases Operating Leases2000 $15,023 $1,011,9572001 15,023 933,3392002 15,023 876,0552003 15,023 809,7702004 14,894 764,550Thereafter 302.502 8,717,952

$377,488 $13,113,623

Source: 1999 FedEx Annual Report, Notes to Consolidated Statements.

Exhibit 11 FedEx Note on Leases

1998 ($ millions)Aircraft $614Accumulated amortization (38)

$576

($ millions) Capitalized Leases Operating Leases1999 $ 67 $ 2112000 67 1462001 67 1152002 67 942003 67 77After 2003 526 477Total minimum lease payments $861 $1,120Less inputed interest (263)Present value of minimum capitalized lease payments 598Less current portion (39)Long-term capitalized lease obligations $559

Source: UPS Prospectus Filing, September 1999, Notes to Financial Statements.

Exhibit 12 UPS Note on Leases

ROE

Home Depot $68.50 100.8 1,979 25% 50.9 12.7Lowes $49.31 18.9 556 17% 34.1 5.8Coca-Cola $49.94 124.7 3,174 40% 39.3 15.6PepsiCo $32.19 48.9 1,921 31% 25.5 7.9Wal-Mart $50.81 227.4 4,927 25% 46.1 11.6Target $64.31 28.4 1,052 22% 27.0 6.0

Source: Derived by case writers using SEC filings and market data from bigcharts.com. accessed on 06/23/02

Exhibit 13 Selected “Best of Breed” Ratios vs. Industrial Comparables

Stock Pricea

Market Cap (billions)

Net Incomeb

(millions)Price to

EarningsMarket to Book

aAs of close of trading October 15, 1999.bLatest 12 months.