Contemporary Strategic Audit

CORE COMPETENCY

2

Infrastructure (Asset)

Strong Management

(Skill)

Employees / Financials

(Skill)

Innovative Systems Coordination

Logistics Management

ASSETS / SKILLS

CORE COMPETENCY

CAPABILITY

STRENGTHS Strong Brand Name

Substantial Cash holdings  

Customer Service  

Largely non-unionized environment  

Provides services to the U.S. Government  

Strong Infrastructure with large scale operations  

Strong Management Team  

SWOT ANALYSIS

WEAKNESSES High Fixed Cost Structure

High Capital Expenditure

Volatile Margins

Inability to differentiate from competition

SWOT ANALYSIS

Customer Churn

OPPORTUNITIES Fuel cost rising

Green initiatives

Emerging markets and expansions

Expanding e-retailing

Growth of 3PL & 4PL

Nonunionized Advantages

SWOT ANALYSIS

THREATS Rising fuel costs

New Entrants

Downsizing of USPS

The Internet as a substitute of delivering information

Competition from industry rival

Disruptions to technology/infrastructure

SWOT ANALYSIS

STRATEGIC FACTOR SUMMARY SCORE

7

0 1 2 3 4 5SFAS  2.80  

Below   Average   Above  

IFAS: Weighted Score = 2.84 Avg. Major Strengths Strong Brand Name Strong Infrastructure with large scale operations

Major Weaknesses High Fixed Cost Structure High Capital Expenditure

EFAS: Weighted Score = 2.78 Avg. Major Opportunities Fuel Cost Rising Expanding e-retailing Major Threats Rising fuel costs U.S. & Global Economic Slowdown

CURRENT STRATEGY

8

STRATEGY  INTEGRATION  

Objec8ve  2    

Operate    

Independently  

Objec8ve  3    

Manage    

Collabora8vely  

Objec8ve  1    

Compete    

Collec8vely  

FINANCIAL OVERVIEW

9

Revenues (in $US Millions) 2007 2008 2009 2010 2011

FDX Revenues 35,214 37,953 35,497 34,734 39,304

UPS Revenues 49,692 51,486 45,297 49,545 53,105

FedEx Revenues have exhibited slow growth the last 5 years

FINANCIAL OVERVIEW

10

Debt (in $US Millions) 2007 2008 2009 2010 2011 Short-term debt 639 502 653 262 18 Long-term debt 2,007 1,506 1,930 1,668 1,667

Short- and long-term debt is being paid off

and is going down

CASH FLOWS (in $US Millions) 2007 2008 2009 2010 2011

Cash Flows From Operations 3,563 3,484 2,753 3,138 4,041

Free cash flow -2,201 537 294 322 607

Cash flows are positive

FINANCIAL OVERVIEW

11

Financial Health 2007 2008 2009 2010 2011 Ind. Avg.

Current Ratio 1.22 1.35 1.57 1.57 1.7 1.70

Quick Ratio 1.02 1.1 1.26 1.32 1.42 1.50

Debt/Equity 0.16 0.1 0.14 0.12 0.11 .50

Goodwill $3.5B $3.2B $2.2B $2.2B $2.3B $2.4B

Ratios are consecutively improving

STOCK PRICE

12

52  W

EEK  HIGH

 52  W

EEK  LOW  

$98.66

$64.07

HISTORICAL HIGH $121.42

HISTORICAL LOW $27.75

$89.37

FEDEX TOBIN’S – Q VALUE: 1.03

INDUSTRY OUTLOOK

13

Global Slow Down

INDUSTRY OUTLOOK

14

High jet fuel costs and a weakening economy adds up to a squeeze on profitability

15

PRO FORMA – CURRENT STRATEGY

Due to increased expenses and slow growth in revenues,

operating income will slowly decline

FedEx Future Income Statement (in $US Millions) 2011 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E

Revenue $39,304 $40,876 $42,511 $44,212 $45,980 $47,819 $49,732 Cost of Revenue $11,804 $12,701 $13,666 $14,705 $15,823 $17,025 $18,319 GROSS PROFIT $27,500 $28,175 $28,845 $29,507 $30,158 $30,794 $31,413

Operating Expenses Sales, General & Administrative $17,738 $17,915 $18,095 $18,275 $18,458 $18,643 $18,829 Depreciation and Amortization $1,973 $1,989 $2,005 $2,021 $2,037 $2,053 $2,070 Other Operating Expenses $5,411 $5,822 $6,265 $6,741 $7,253 $7,804 $8,398

TOTAL OPERATING EXPENSES $25,122 $25,726 $26,364 $27,037 $27,748 $28,500 $29,296

TOTAL OPERATING INCOME $2,378 $2,449 $2,481 $2,470 $2,409 $2,294 $2,117

16

PRO FORMA – CONTINUED

FedEx Future Income Statement (in $US Millions) 2011 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E

Interest Expense $(86) $(86) $(86) $(86) $(86) $(86) $ (86) Other Income (Expense) $(27) $(28) $(28) $(29) $(29) $(30) $(30) Income before Taxes $2,265 $2,335 $2,367 $2,355 $2,294 $2,178 $2,000 Provision for Income Taxes $813 $710 $620 $542 $473 $413 $361 NET INCOME $1,452 $1,625 $1,747 $1,813 $1,821 $1,765 $1,639

With the current strategy, Net Income will grow and

then decline

NEW STRATEGY

17

STRATEGY  RESTRUCTURING  

Objec8ve  1  Posi8on  the  Firm  for  a  Corporate  

Buyout  

Objec8ve  2    Maximize  

Shareholder  Wealth  

FEDEX VALUATION

18

Cash

PP&E

Intangible Assets

Brand Value

$7.0 B

$15.5 B

$1.2 B

$10.0 B

FedEx

FedEx Express

FedEx Ground

FedEx Freight

FedEx Services

$34.0 B

$21.1 B

$7.5 B

$4.4 B

$1.0 B

Total Value $34.0 B

19

BALANCE SHEET FedEx Corporation (FDX) Balance Sheet

USD in millions except per share data. 2011 2011 % Composition Future Assets Current assets Cash and cash equivalents 6,909 25.23% 5,242 Inventories 437 1.60% 437 Deferred income taxes 610 2.23% 610 Prepaid expenses 329 1.20% 329 Total current assets 8,285 30.25% 6618 Non-current assets Property, plant and equipment Gross property, plant and equipment 33,686 123.01% 33,686 Accumulated Depreciation -18,143 -66.25% -18,143 Net property, plant and equipment 15,543 56.76% 15,543 Goodwill 2,326 8.49% 0 Intangible assets 1,231 4.50% 1,231 Total non-current assets 19,100 69.75% 16,774 Total assets 27,385 100.00% 23,392

20

BALANCE SHEET Liabilities (USD in Millions) 2011 2011 % Composition Future Current liabilities Short-term debt 18 0.07% 18 Accounts payable 1,702 6.22% 1,702 Accrued liabilities 3,162 11.55% 3,162 Total current liabilities 4,882 17.83% 4,882 Non-current liabilities Long-term debt 1,667 6.09% 0 Deferred taxes liabilities 1,336 4.88% 1,336 Accrued liabilities 977 3.57% 977 Deferred revenues 246 0.90% 246 Pensions and other benefits 2,124 7.76% 2,124 Other long-term liabilities 933 3.41% 933 Total non-current liabilities 7,283 26.59% 7,283 Total liabilities 12,165 44.42% 10,498 Stockholders' equity Common stock 32 0.12% 32 Additional paid-in capital 2,484 9.07% 2,484 Retained earnings 15,266 55.75% 12,940 Treasury stock -12 -0.04% -12 Accumulated other comprehensive income -2,550 -9.31% -2,550 Total stockholders' equity 15,220 55.58% 12,894 Total liabilities and stockholders' equity 27,385 100.00% 23,392

FEDEX RE-VALUATION

21

Cash

PP&E

Intangible Assets

Brand Value

$7.0 B

$15.5 B

$1.2 B

$10.0 B

Total FedEx Value $30.0 B

FedEx

FedEx Express

FedEx Ground

FedEx Freight

FedEx Services

$30.0 B

$18.6 B

$6.6 B

$3.9 B

$0.9 B

Goodwill ($2.3 B)

Debt ($1.7 B)

ENTERPRISE VALUE

22

EV = 27.24 | EBITDA = 5.27 | EV without Debt & Goodwill = 23.24 | New EV/EBITDA = 4.41

FedEx Corporation Current P/E Forward P/E Ratio 13.56 11.73

Earnings are projected to go up

FUNCTIONS & GOALS

23

ACCOUNTING

Increase confidence in accounting practices 1.  Conduct an external audit to evaluate financials at a cost of $30 M ± $3M by

2013 ± 6 months

2.  Pay off Debt and write down Goodwill by 2013 ± 3 months

OPERATIONS

Discontinue future acquisitions and expansions 1.  Finalize current integration of acquisitions by 2014 ± 6 months

2.  Limit investments on PP&E by 2014 ± 6 months for savings of $8B ± $2B

FUNCTIONS & GOALS

24

HUMAN RESOURCES

Reduce cost to support strategic actions 1.  Institute a hiring/wage freeze by 2013 ± 3 months with average savings of

$44,000 ± 25% per hire

2.  Identify top talent by 2014 ± 3 months to attract potential buyers

LEGAL

Settle legal contingencies to support strategic actions 1.  Settle law suits by 2014 ± 6 months with future cost savings of $80M ± $5M

2.  Hire a legal firm to ensure fairness of acquisitions at a cost of $20M ± $5M by 2014 ± 6 months

E-RETAILING

25

Global e-commerce spending is projected to increase more than 90% and reach an estimated $1.4 Trillion

E-RETAILING

26

AMAZON

27

Stock Price 52 Week Range Price-to-Earnings Market Cap

$225.16 $166.97-$246.71 185.93 Forward: 88.65 $101.44B

Cash FCF Debt D/E Goodwill

$9.6B $3.05B $0 N/A $1.9B

AMAZON

28

ACQUISITION OPTIONS

AMAZON

29

FREDERICK W. SMITH JOHN S. BROWN

FedEx Corporation: CEO and Chairman Former Director: Forstmann Little & Co.

Amazon: Board Member Former Director: Forstmann Little & Co.

AMAZON

30

SHIRLEY ANN JACKSON PATRICIA STONESIFER

FedEx Corporation: Board Member Smithsonian Institution: Board Member

Amazon: Board Member Smithsonian Institution: Vice Chair

31

GOOGLE

Stock Price 52 Week Range Price-to-Earnings Market Cap

$607.55 $473.02-$670.25 18.41 Forward: 12.03 $198.06B

Cash FCF Debt D/E Goodwill

$44.6B $11.1B $5.4B 8% $7.3B

32

GOOGLE JAMES L. BARKSDALE K. RAM SHRIRAM

FedEx Corporation: Board Member Netscape Communications Corporation:

Former CEO and President

Google: Board Member Netscape Communications Corporation:

Former Executive Team Member

33

GOOGLE JAMES L. BARKSDALE ERIC E. SCHMIDT

FedEx Corporation: Board Member Sun Microsystems, Inc. –

Former Board Member

Google: Executive Chairman Sun Microsystems, Inc. – Former

Chief Technology Officer

34

CURRENT STAND ALONE INTRINSIC VALUE CALCULATION OF NWC FOR FEDEX’S FREE CASH FLOWS

Number in Millions 2011 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E

Current Assets $8,285 $8,450 $8,619 $8,792 $8,968 $9,147 $9,330 Current

Liabilities $4,882 $4,979 $5,079 $5,180 $5,284 $5,390 $5,497

CA - CL $3,403 $3,471 $3,540 $3,611 $3,683 $3,757 $3,832 Change in NWC $ 68 $69 $71 $72 $74 $75

FORECASTED VALUES (in $US Millions) 2011 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E Operating Income $2,378 $2,711 $2,873 $3,017 $3,153 $3,374 $3,610 Subtract Taxes (35%) $832 $949 $1,006 $1,056 $1,104 $1,181 $1,263

NOPAT $1,546 $ 1,762 $1,868 $1,961 $2,049 $2,193 $2,346 Add Depreciation $ 1,973 $1,983 $1,993 $2,003 $2,013 $2,023 $2,033 Operating Cash Flow $3,519 $3,745 $3,861 $3,964 $4,062 $4,216 $4,379

Subtract Capital Expenditures $3,434 $3,537 $3,643 $3,752 $3,865 $3,981 $4,100

Subtract Increase in NWC - $68 $69 $71 $72 $74 $75 Free Cash Flow $ 140 $148 $ 141 $125 $161 $204

NPV = $2.14 B EVA = $1.25 B