United Parcel Service's IPO

Harvard Business School Case #103-015

Case Software #XLS-352

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Exhibit 4 Overnight, Deferred, and Ground Market Shares, 19901999

By Revenue

By Volume

Overnight
UPS Next Day Air
FDX Overnight
ABF Next Day
USPS Express Mail
Deferred
UPS Deferred
FDX Deferred (E2, ES)
ABF Second Day
USPS Priority Mail
Ground
UPS Ground
FedEx Ground without RPS
withRPS*
USPS Parcel Post

1990
31%
51%
10%
8%

1991
30%
51%
11%
8%

1992
30%
50%
12%
8%

1993
30%
50%
13%
7%

1994
30%
50%
13%
7%

1995
30%
49%
14%
7%

1996
32%
49%
13%
6%

1997
31%
48%
15%
6%

1998
32%
47%
15%
6%

1999
34%
46%
14%
6%

1999
25%
46%
23%
6%

1990
40%
16%
5%
39%

1991
38%
17%
5%
40%

1992
35%
16%
6%
43%

1993
34%
18%
6%
42%

1994
32%
18%
6%
44%

1995
30%
19%
6%
45%

1996
30%
18%
7%
45%

1997
28%
20%
6%
46%

1998
26%
23%
6%
45%

1999
27%
22%
6%
45%

1999
13%
13%
4%
70%

1990
87%
0%
5%
8%

1991
87%
0%
5%
8%

1992
85%
0%
6%
9%

1993
85%
0%
7%
8%

1994
83%
0%
8%
9%

1995
82%
0%
8%
10%

1996
82%
0%
8%
10%

1997
81%
0%
9%
10%

1998
80%
0%
10%
10%

1999
80%
0%
10%
10%

1999
79%
0%
11%
10%

* RPS acquired by FedEx in 10/97

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
Source: SJ Consulting Group.

Exhibit 6 FedEx Stock Price Performance and Valuation Multiples

Market Data and Multiples(November 1,1999)
Shares outstanding (weighted average, diluted)
Share price
a
Price/Earnings
b
Price/Total revenue
c
Market/Book value
d
Equity Beta

300.6 million
$41.50
19.8
0.74
2.68
1.16

Source: FedEx company filings.

a

Total market capitalization/Net income.

Total market capitalization/Total revenue.

Total market capitalization/Shareholders equity.

Salomon Smith Barney Equity Research report on FedEx, June 22, 1999.

Exhibit 7 UPS Financial Statements, 19941999

Statement of Income (year-ended December 31)

(Financial data in millions, except per share amounts)

REVENUE
U.S. domestic package
International package
Non-package
TOTAL REVENUES
Operating expenses:
Compensation and benefits
Other
Restructuring charge
TOTAL OPERATING EXPENSES
OPERATING PROFIT (LOSS)
U.S. domestic package
International package
Non-package
Corporate
TOTAL OPERATING PROFIT
Other income (expense):
Investment income
Interest expense
Tax assessment
Miscellaneous, net
INCOME BEFORE INCOME TAXES
Income taxes
NET INCOME
Per share amounts:
Basic earnings per share
Diluted earnings per share

1996

1997

1998

Nine Months
Ended
September 30,
1998

Nine Months
Ended
September 30,
1999

1994

1995

16,943
2,346
287
19,576

17,773
2,886
386
21,045

18,881
2,989
498
22,368

18,868
2,934
656
22,458

20,650
3,237
901
24,788

15,129
2,342
653
18,124

16,239
2,562
805
19,606

11,727
6,293

18,020

12,401
6,478
372
19,251

13,326
7,013

20,339

13,289
7,461

20,760

14,346
7,352

21,698

10,587
5,315

15,902

11,226
5,522

16,748

1,821
(390)
125

1,556

1,937
(250)
107

1,794

2,181
(281)
129

2,029

1,654
(67)
111

1,698

2,899
56
135

3,090

2,098
19
105

2,222

2,522
147
85
104
2,858

13
(29)

35
1,575
632
943

26
(77)

(35)
1,708
665
1,043

39
(95)

(63)
1,910
764
1,146

70
(187)

(28)
1,553
644
909

84
(227)

(45)
2,902
1,161
1,741

56
(169)

(3)
2,106
847
1,259

115
(170)
(1,786)
(30)
987
765
222

0.84
0.82

0.93
0.92

1.03
1.01

0.82
0.81

1.59
1.57

1.16
1.14

0.20
0.20

Dividends declared per share

Net income before impact of tax assessment
As a percentage of revenue

0.28
943
4.8%

0.32
1,043
5.0%

1997

1998

460

2,405
669
417
526
4,477

1,240
389
2,713
703
380

5,425

3,519
6,771
654
1,433
1,734
4,063
328
18,502
7,495
11,007
428
15,912

3,482
7,739
651
1,478
1,803
4,144
257
19,554
8,170
11,384
258
17,067

Source: UPS Company Filings.

Exhibit 7 (continued)
BALANCE SHEET
United Parcel Service
In millions, except where noted.
As of December 31,
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Marketable securities and short-term investments
Accounts receivable
Prepaid employee benefit costs
Materials, supplies and other prepaid expenses
Common stock held for stock plans
Total Current Assets
PROPERTY, PLANT, AND EQUIPMENT
Vehicles
Aircraft (including aircraft under capitalized leases)
Land
Buildings
Leasehold improvements
Plant equipment
Construction-in-progress
Less accumulated depreciation and amortization
Net Property, Plant, and Equipment
Other Assets
TOTAL ASSETS
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES

0.34
1,146
5.1%

0.35
909
4.0%

0.43
1,741
7.0%

0.20
1,259
7.0%

0.28
1,664
8.5%

Accounts payable
Accrued wages and withholdings
Dividends payable
Deferred income taxes
Current maturities of long-term debt
Other current liabilities
Total Current Liabilities
Long-Term Debt (including capitalized lease obligations)
Accumulated Postretirement Benefit Obligation
Deferred Taxes, Credits and Other Liabilities
SHAREOWNERS' EQUITY
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
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Unrealized loss on marketable securities
Treasury stock, at cost (-0- and 23, 211,904 shares in 1997 and 1998)

TOTAL LIABILITIES AND SHAREOWNERS' EQUITY

1,207
1,194
191
140
41
625
3,398
2,583
911
2,933

1,322
1,092
247

410
646
3,717
2,191
969
3,017

56

6,112
(81)

6,087

11
325
7,325
(63)

7,598
(425)

6,087
15,912

7,173
17,067

Source: UPS Company Filings.

Exhibit 7 (continued)

Financial Data in Millions:

Balance Sheet Data (at end of period):
Working Capital

1994
$120

Year Ended December 31

1995
1996
1997
$261
$1,097
$1,079

1998
$1,708

6 Months Ended
June 30,1999
$434

Long-term debt
Total assets
Shareowner's equity

Source: UPS Company Filings.

$1,127 $1,729
$11,182 $12,645
$4,647 $ 5,151

$2,573
$14,954
$5,901

$2,583
$15,912
$6,087

$2,191 $2,138
$17,067 $18,302
$7,173 $6,122

Exhibit 8 FedEx Financial Statements, 19961999

CONSOLIDATED STATEMENTS OF INCOME
FDX Corporation
Years ended May 31
In thousands, except Earnings Per Share
REVENUES
OPERATING EXPENSES:
Salaries and employee benefits
Purchased transportation
Rentals and landing fees
Depreciation and amortization
Maintenance and repairs
Fuel
Merger expenses
Restructuring and impairment charges (credits)
Other

1996
$ 10,273,619
4,619,990
370,650
959,055
719,609
617,657
578,614
1,784,220
9,649,795
623,824

6,150,247
1,252,901
1,138,690
928,833
773,765
734,722
225,036
2,526,696
13,730,890
507,002

6,647,140
1,481,590
1,304,296
963,732
874,400
726,776
88,000
(16,000)
2,792,216
14,862,150
1,010,660

7,087,728
1,537,785
1,396,694
1,035,118
958,873
604,929
2,989,257
15,610,384
1,163,086

(95,599)
11,734
(83,865)

(104,195)
23,058
(81,137)

(124,413)
13,271
(111,142)

(98,191)
(3,831)
(102,022)

539,959
232,182
307,777

425,865
229,761
196,104

899,518
401,363
498,155

1,061,064
429,731
631,333

307,777 $

196,104 $

4,875
503,030 $

631,333

2.69 $

2.69 $

.67 $
.67 $

1.70 $
.02
1.72 $

2.13
2.13

OPERATING INCOME
OTHER INCOME (EXPENSE):
Interest, net
Other, net
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES
PROVISION FOR INCOME TAXES
INCOME FROM CONTINUING OPERATIONS
INCOME FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES
NET INCOME
EARNINGS PER COMMON SHARE
Continuing operations
Discontinued operations
EARNINGS PER COMMON SHARE,

1997*
1998
1999
$ 14,237,892 $ 15,872,810 $ 16,773,470

ASSUMING DILUTION
Continuing operations
Discontinued operations

$
$

2.69 $
2.69 $

.67 $
.67 $

1.67 $
.02
1.69 $

2.10
2.10

Source: FedEx Company Filings.

*

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

Exhibit 8 (continued) FedEx Corporation

CONSOLIDATED BALANCE SHEETS
FDX Corporation
May 31
In millions
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Receivables, less allowances
Spare parts, supplies and fuel
Deferred income taxes
Prepaid expenses and other
Total current assets
PROPERTY AND EQUIPMENT, AT COST
Flight equipment
Package handling and ground support equipment and vehicles
Computer and electronic equipment
Other
Less accumulated depreciation and amortization
Net property and equipment
OTHER ASSETS
Goodwill
Equipment deposits and other assets
Total other assets

1995

1996

1997*

1998

1999

357.6
1,130.3
193.3
115.8
72.2
1,869.1

93.5
1,271.6
222.1
92.6
48.5
1,728.3

160.9
1,878.0
339.4
197.0
68.6
2,643.7

229.6
1,943.4
364.7
232.8
109.6
2,880.1

325.3
2,153.2
291.9
290.7
79.9
3,141.0

3,006.7
1,841.1
1,224.0
1,625.9
7,697.7
3,982.5
3,715.2

3,372.6
2,148.5
1,439.9
1,717.5
8,678.5
4,561.9
4,116.6

3,741.4
3,131.1
1,957.9
2,557.6
11,387.9
5,917.5
5,470.4

4,056.5
3,425.3
2,162.6
2,819.4
12,463.9
6,528.8
5,935.1

4,556.7
3,858.8
2,363.6
2,940.7
13,719.9
7,160.7
6,559.2

397.3
451.8
849.0

380.7
473.4
854.1

370.3
559.8
930.2

356.3
514.6
870.9

344.0
604.0
948.0

LIABILITIES AND STOCKHOLDERS' INVESTMENT

CURRENT LIABILITIES
Current portion of long-term debt
Accounts payable
Accrued expenses
Other Liabilities
Total current liabilities
LONG-TERM DEBT, LESS CURRENT PORTION
DEFERRED INCOME TAXES
OTHER LIABILITIES
COMMITMENTS AND CONTINGENCIES (NOTES 5, 13 and 14)
COMMON STOCKHOLDERS' INVESTMENT
Common Stock, $.10 par value
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Less treasury stock, at cost, and deferred compensation
Total common stockholders' investment

6,433.4

6,699.0

9,044.3

9,686.1

10,648.2

255.4
618.6
904.5
1,778.5
1,324.7
56.0
1,028.6

8.0
705.5
904.9
1,618.4
1,325.3
64.0
1,115.1

356.7
999.8
1,223.0
2,579.5
1,598.0
181.8
1,183.9

257.5
1,145.4
1,400.9
2,803.8
1,385.2
274.1
1,261.7

14.9
1,134.0
895.4
740.5
2,784.8
1,359.7
293.5
1,546.6

5.6
775.3
1,466.4
0.0
2,247.3
1.7
2,245.6
6,433.4

5.7
815.1
1,766.6
0.0
2,587.4
11.3
2,576.1
6,699.0

14.8
938.0
2,621.5
0.0
3,574.3
73.1
3,501.2
9,044.3

14.7
992.8
2,999.4
(27.3)
3,979.6
18.4
3,961.2
9,686.1

29.8
1,061.3
3,615.8
(24.7)
4,682.2
18.5
4,663.7
10,648.2

Source: FedEx Company Filings.

*

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

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

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

1995
Operating Data:
Delivery volume (in millions of packages)
Average daily package volume (in thousands)
U.S. domestic:
Next Day Air
Deferred
Ground
Total U.S. domestic
International
Domestic
Export
Total International
Total average daily package volume
Average revenue per piece:
U.S. domestic:
Next Day Air
Deferred
Ground
Total U.S. domestic
International
Domestic
Export
Total International
Total average revenue per piece
Revenue:
U.S. domestic:
Next Day Air
Deferred
Ground
Total U.S. domestic
International

Year Ended December 31,

1996
1997

1998

3,094

3,153

3,038

3,137

668
716
9,949
11,333

760
763
10,015
11,538

822
771
9,521
11,114

938
783
9,645
11,366

722
175
897
12,230

683
194
877
12,415

678
217
895
12,009

730
256
986
12,352

$19.34
11.27
4.95
6.20

$19.34
11.39
5.09
6.44

$19.49
11.86
5.19
6.71

$19.69
12.39
5.51
7.15

6.22
37.18
12.26
$6.64

6.10
37.32
13.01
$6.91

5.36
35.01
12.55
$7.15

5.14
33.46
12.49
$7.58

$3,269
2,041
12,463
17,773

$3,734
2,207
12,940
18,881

$4,054
2,314
12,500
18,868

$4,690
2,464
13,496
20,650

Domestic
Export
Cargo
Total International
Non-package
Total revenue
Operating weekdays
Capital expenditures (in millions)

Source: UPS Prospectus Filing, September 1999.

1,136
1,646
176
2,958
314
$21,045
253
$2,096

1,058
1,839
177
3,074
413
$22,368
254
$2,333

919
1,922
226
3,067
523
$22,458
253
$1,984

953
2,176
270
3,399
739
$24,788
254
$1,645

Exhibit 10 Summary of FedEx and UPS Operating Statistics

UPS
Calendar 1998 Average Daily Package Volume
(thousands of packages)
U.S. Express
U.S. Deferred
U.S. Ground
Total U.S.
Total International
Total packages
Calendar 1998 Average U.S. Revenue per package
Express
Deferred
Ground
Number of Employees (full-time and contract positions)
Total on-balance sheet assets
Number of jet and small aircraft owned and leased
Number of vehicles

938
783
9,645
11,366
986
12,352

1,957
894
1,385
4,236
282
4,518

$19.69
$14.34
$12.39
$9.93
$5.51
$5.36
340,000
156,386
$23.0 billion $10.6 billion
536
634
149,000
46,000

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

a

FedEx

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

Exhibit 11 FedEx Note on Leases

May 31,1999 ($ thousands)
Package handling and ground support equipment and vehicles
Facilities
Computer and electronic equipment and other
Less accumulated depreciation

($ thousands)
Minimum rentals
Contingent rentals

($ thousands)
2000
2001
2002
2003
2004
Thereafter

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

$245,041
134,442
6,496
385,979
268,696
$117,283

$1,246,259
59,839
$1,306,098
Capital Leases
$15,023
15,023
15,023
15,023
14,894
302.502
$377,488

Operating Leases
$1,011,957
933,339
876,055
809,770
764,550
8,717,952
$13,113,623

Exhibit 12 UPS Note on Leases

1998 ($ millions)
Aircraft
Accumulated amortization

($ millions)
1999
2000
2001
2002
2003
After 2003
Total minimum lease payments
Less inputed interest
Present value of minimum capitalized lease payments
Less current portion
Long-term capitalized lease obligations

$614
(38)
$576
Capitalized Leases
$ 67
67
67
67
67
526
$861
(263)
598
(39)
$559

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

Operating Leases
$ 211
146
115
94
77
477
$1,120

Exhibit 13 Selected Best of Breed Ratios vs. Industrial Comparables

Stock Market Cap Net Incomeb
Price to Market
Pricea (billions)
(millions) ROE Earnings to Book
Home Depot
Lowes
Coca-Cola
PepsiCo
Wal-Mart
Target

$68.50
$49.31
$49.94
$32.19
$50.81
$64.31

100.8
18.9
124.7
48.9
227.4
28.4

1,979
556
3,174
1,921
4,927
1,052

25%
17%
40%
31%
25%
22%

50.9
34.1
39.3
25.5
46.1
27.0

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

As of close of trading October 15, 1999.

Latest 12 months.

12.7
5.8
15.6
7.9
11.6
6.0