Krause Fund Research Spring 2021

March 26th, 2021 FEDEX CORPORATION (NYSE: FDX) INDUSTRIALS Stock Performance HighlightsRATING : BUY

Analysts: Carson Steffen Drake Evans Dee Le Target Price: $342-$389 [email protected] [email protected] [email protected]

Investment Thesis Company Overview

We recommend a BUY rating for FedEx Corporation. FedEx Corp. is a global leader in providing integrated Drivers of Thesis: freight & logistics services, based in Memphis, ❖ Currently monopolizing the Sundays and holiday Tennessee. They operate under four main segments:

shipments. FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services. Their FedEx Express unit is the world ❖ Strong e-commerce growth during and after the largest transportation provider to 220 countries and COVID-19 pandemic elevates the demands for territories. FedEx maintains a fleet of over 680 aircrafts shipping delivery services. and 183,000 vehicles. About 70% of their revenue is ❖ Loosening of trade restrictions post-pandemic generated in the United States. increases revenue generated from international

transactions. Stock Performance Highlights

❖ Replacing old aircrafts and increasing uses of new Current Price $281.34 technology to optimize the Express and Ground 52wk Range $103.40 - $305.66 operations while reducing their costs. Beta 1.032 Average Daily Volume 2.27 M Risks of Thesis: Share Highlights ❖ Low senior unsecured debt credit ratings potentially decrease future access to capitals. Market Capitalization $75.16 B ❖ Corporate tax hike adds more income tax expenses, Shares Outstanding 265.34 M

lowering profitability. EPS (TTM) th $11.36 March 26 , 2021 ❖ Competition threats imposed by Amazon in the long P/E Ratio (TTM) 24.94

term. Dividend Yield 0.92% Dividend Payout Ratio (most recent) 23.05%

Financial Ratios (2020) 12 Months FDX Stock Performance VS. S&P500 Cash Ratio 0.47 Asset Turnover 0.27 Debt/Equity 2.06 ROE 7.03%

Operating Profit Margin 3.49% ROA 1.75% Dividend Payout Ratio 23.05%

EPS Forecasts

Source: Krause Fund Model 1

Executive Summary for their business segments, risk factors, and SWOT analysis. Our group of analysts recommends a BUY rating for shares The table below shows their forecasted growth rates between of FedEx. Our predictions show an upside of 20% over the 2021 and 2023. next five years due to higher online consumption. Moving Revenue Growth % 3y 2021E 2022E 2023E forward, we believe that FedEx will become upgrade their Forecast. FedEx Express 18.72% 5.63% 4.12% technology and become one of the most efficient package FedEx Ground 35.55% 8.25% 7.14% service providers. The recent merger with TNT Express in FedEx Freight 5.10% 7.69% 5.26% FedEx Services 31.25% 6.46% 3.03% Europe will also make them a global leader in parcel delivery Source: Krause Fund Model services in the years to come. FedEx managed to keep their We forecast all segments to grow between 3.22% and delivery percentage higher than expected at the beginning of 35.55% over the next five years. the pandemic and we predict their revenue to get stronger. Corporate Strategy Company Description The holding business model of FedEx allows their FedEx Corporation (NYSE: FDX) is a holding company subsidiaries to compete collectively, operate independently providing a portfolio of transportation, e-commerce, and while managing collaboratively to achieve the highest business services. Their subsidiaries operate independently overall long-term return on capital for their business as a but are managed under the FedEx brand. The company’s whole.1 FedEx competes collectively by representing principal segments are FedEx Express, including TNT themselves as one brand worldwide; segments operate Express, FedEx Ground, FedEx Freight, and FedEx Services. independently by focusing on their independent networks to The largest revenue segment is FedEx Express, comprising meet distinct customer needs; and they manage 1 54.33% of the whole revenue portfolio. Information related collaboratively by working together to sustain loyal to FedEx’s business lines is discussed in greater detail later relationships with their workforce, customers, and investors. in this section. In each of their sub-companies, FedEx focuses on making necessary investments in cost-effective, sustainable assets and technology to optimize long-term earnings performance and cash flow. Their portfolio-liked strategy also provides flexibility for their businesses to accommodate with corresponding macroeconomic conditions, gaining their own experiences of solving their market uncertainty and volatility.

In 2020, FedEx concentrates on five key areas to sustaining their long-term success: e-commerce, business-to-business shipping, operational excellence, international

profitability, and revenue quality.1 Firstly, their core Source: 2020 FDX 10k business operations are correlated with the growth of online Additionally, the Company Description will touch on shopping, which is accelerated by the COVID-19 pandemic. FedEx’s corporate strategy, forecasted revenue assumptions During this challenging time, FedEx Ground and FedEx Freight collaborate to handle the significant increases in e- commerce and large package volume, resulting in their boost

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in interim revenues between June 2020 and February 2021.2 ❖ Continuing with the aircraft fleet modernization Secondly, business-to-business shipping accounts for the strategy by replacing oldest and least efficient majority of FedEx revenue, which the corporation aims to aircraft with Boeing 777 Freighter (“B777F”) advances their service delivery quality and speed as demand aircraft and Boeing 767-300 Freighter (“B767F”) rises. Thirdly, FedEx is working on enhancing operations aircraft to furtherly improve fuel efficiency and fleet while reducing costs by updating their businesses with better reliability. technology. Also, they plan to reallocate their investments to ❖ Launching FedEx Cares 50 by 50, their global accommodate the pandemic protocols and shifting consumer community engagement program to positively behaviors to improve revenue quality. FedEx reduced the impacting 50 million people by 2023 operation of some stores that belong to the FedEx Office FedEx Express segment, while purchasing more assets for their major The Express business, generating more than 50% of total segments, and health, safety equipment for the whole revenue in 2020, is the world's largest express transportation 1 business. Lastly, with customers in more than 220 countries company.1 It offers domestic and international shipping and territories, FedEx earns more profit internationally services for the delivery of packages and freight. The firm through their aircraft fleet modernization program, integration consists of three U.S. domestic overnight package delivery of TNT Express, and streamlined services provided by FedEx services and same-day services available all year round, Express to the global market. throughout all 50 states. In terms of international operations, FedEx Express provides deliveries in between one and five Here are some notable innovations that FedEx executed business days windows. In 2016, FedEx acquired TNT 1. during 2020 and early 2021: Express and integrated it with their Express segment to ❖ Expanding FedEx Ground residential delivery accelerate their European and global growth. TNT Express is operations to 7 days per week year-round for most stated to have lower-cost road networks and expertise related of the U.S. population, so there would be services to Europe, the Middle East, and the Asia market. available even during holidays and weekends. Management cites that in response to the COVID-19 ❖ Beginning testing of Roxo, the FedEx Same Day pandemic, they suspended our money-back guarantee for all Bot, in selected markets and collaborating with two FedEx Express services and implemented surcharges on the business partners to launch a pilot drone delivery international package and airfreight shipments to reduce service as a potential solution for enhancing last- service costs, getting more funds to supply safety equipment mile residential delivery. to customers and employees. ❖ Collaborating with Microsoft (Nasdaq “MSFT” @microsoft) to create FedEx Surround, which leverages data to provide near-real-time analytics into shipment tracking using the logistics network of FedEx and Azure, Dynamics 365 technology of Microsoft. ❖ Progressing the FedEx Express/TNT Express integration to improve their European ground

network. Source: Krause Fund Model

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Our team projects a growth period for Express’s revenue complex uncertainty and interconnectedness of the global between 2021 and 2025, based on the booming of e- market. The 2021 interim reports show their strong earnings commerce, TNT acquisitions, and FedEx’s aircraft fleet performance due to large domestic package volumes and modernization strategy. Our prediction of an 18.72% increase safety supplies, vaccine distributions.2 From 2022, we in sales of this segment is deduced from the positive financial predict this segment’s revenue will grow between 7-8%. results of the previous quarters of 2021.2 The pandemic Online shopping trends in North America will continue to drives the demands for Express services as well as results in rise, sustaining the demands for Ground services. favorable exchange rates for FedEx international business. We believe the recovery from COVID-19 from the second FedEx Freight half of 2021 and loosening travel restrictions will lead to a FedEx Freight Segment offers less-than-truckload freight healthy rise of 5.63% in revenue. As FedEx continues with services across all lengths of haul, including FedEx Freight their aircraft upgrade scheme and Indianapolis and Memphis Priority and Economy services. 1 They contribute 10% of the hub modernization, expansion programs that increase aggregate revenue. This business line is directly involved the 1 productivity while lowering expenses, Express segment Express and Ground segments; hence, their revenue growth would continue generating higher earnings. rate is positively correlated with other major subsidiaries. Management recently introduced FedEx Freight Direct, FedEx Ground which makes deliveries straight into homes to address the The Ground segment generates more than 30% of total needs for delivery of heavy, bulky products to residences and revenue in 2020 from providing low-cost small-package businesses during the COVID-19 pandemic. The 2021 ground delivery services primarily in North America. 1 The quarterly results of the Freight subsidiary emphasize the company recently integrated FedEx SmartPost, a business-to- increasing demands.2 consumer package business that uses US Postal Service for the final mile delivery, into this segment to keep pace with We project the Freight segment revenue to rise steadily in the higher demands for residential services. Management invests next five years, resulting from comparable sales trend of more business resources into this segment during the Express and Ground segments. pandemic, increases hiring at FedEx Ground whilst making temporary reductions in other workforces.

Source: Krause Fund Model

Source: Krause Fund Model FedEx Services

Finally, the FedEx Services subsidiary offers sales, Historically, the Ground segment has higher annual growth marketing, technology supports, and other back-office rates than the Express segment as it is less exposed to the

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functions that support their transportation segments.1 This phase from the pandemic, FedEx’s financial results may unit includes FedEx Office and Print Services, providing suffer due to challenges on tax positions from the Biden document and business services. The plummeting drop in administration, increasingly intensive competition, rising revenue between 2020 and 2021 is due to their accounting fuel and vehicle prices, and volatility of costs and funding approach alteration. Management allocates revenue and requirements for employee benefits, especially pension and operating expenses from the Services segment to other healthcare benefit. These factors would incur more expenses, respective operating segments to reflect their costs’ utility. reducing their net income in the future.

SWOT Analysis Strengths One of FedEx’s competitive advantages is their strong brand recognition for their Express and Ground segments’ reliability, speed, and high-quality service. 1 Notably speaking, FedEx Express is recognized as the largest express provider in the world. Their Ground service is distinguishing itself from its competitors due to their Sundays and holidays

residential deliveries to much of the domestic population. Source: Krause Fund Model FedEx’s holding strategy allows their sub-businesses to Again, the sales of this segment change accordingly with the utilize their market-specific expertise to cope with varying transportation businesses' revenue. Therefore, they are economic conditions and meet distinct customers’ demands. predicted to rise slowly around 5% yearly, sharing the same It also brings more flexibility in terms of reallocating capitals increasing trends with other subsidiaries. among subsidiaries, based on their quick business

restructures in response to COVID-19. Additionally, Risk Factors management emphasizes their technology-orientated goals, While FedEx expresses strong earnings performances including the utilization of drones, robots, as well as aircraft during the COVID-19 pandemic, they still face negative fleets, and facilities modernizations. These improve FedEx’s impacts due to uncertainty and volatile conditions of the efficiency and decrease costs in the long run. domestic and global markets. One of the noted risks is the disruption of global supply chains, interruption in economic Weaknesses activity, and preventative measures that reduce international Though the significant increase in the volumes of shipments sales and make it difficult for the company to predict transported during the COVID-19 pandemic boosts the services’ demands.1 Additionally, the pandemic delays their demand for FedEx’s services, it can severely affect the facility expansions, information technology initiatives, and company’s profitability if capacity-demand is managed the TNT Express integration, postponing cost reduction and poorly, as FedEx has high operating leverage due to heavy revenue-boosting schemes that FedEx aims to implement. investment in fixed assets. Other key weaknesses are their Remote work arrangements also increase the enterprise liquidation problems as well as lower debt credit rating transporting hubs’ exposure to cyber risks and security compared to its strong rivals Amazon and UPS. Standard & collapses, which lead to loss of critical confidential Poor’s has assigned them a senior unsecured debt credit information, adversely affecting their business reputation and rating of BBB with an outlook of “negative,” while Moody’s competitive advantages. When approaching the recovery 5

Investors Service has given a “negative” rating of Baa2. 1 The make any expectations for the second half of 2021 to be company routinely grants credit to customers without inherently less certain. Thirdly, as mentioned in our Risk collateral, leading to high bad debt expense and hazardous Factors section, cyber risk exposure during the pandemic credit risk. Also, a lot of their debts have floating interest rate, might harm their reputation, deteriorating their competitive which is adversely impacted during volatile economic advantages. Overall, the company’s most prominent threat is conditions. If their credit ratings drop, they may have intense competition, posing by Amazon’s own shipping difficulty utilizing the commercial paper market, resulting in delivery services. Amazon is aiming to expand its logistic limitations to access to capital. network and developing drone technology, which might undermine FedEx in terms of pricing and speedy services. Opportunities The continuing impacts of the COVID-19 pandemic drive e- Economic Outlook commerce sales, which increases the demand for FedEx World GDP services, resulting in improved year-over-year revenue and operating income for the remainder of 2021. The positive e-commerce trend is projected to sustain even after post- COVID-19, as the internet utilization rate increases during shelters in places or work from home scenarios, leading to people becoming more adjusted to the amenities provided by technology. Additionally, the pandemic economic situation makes the exchange rates more favorable for FedEx’s international transactions. With the loosening of preventive measures as well as global trading restrictions due to vaccine Source: International Monetary Fund (shown bigger in Appendix 1) recess, international sales are expected to boost. Moreover, if The global GDP has made significant rebounds since the FedEx successfully integrates the businesses and operations beginning of the COVID-19 pandemic. This heat map shows of FedEx Express and TNT Express in the expected period first-quarter GDP changes by country around the world. The and cost, they will receive more demand from the European dark green colors show higher growth change in GDP while markets; hence expanding their profitability. red stands for loss. This is an incredibly positive sign for all business and economic sectors because it shows that the Threats world's economy is growing which will lead to business-to- To begin with, in the short run, rising variable accruals, labor business growth all around the world. costs, and other costs related to the COVID-19 pandemic U.S. GDP would continue incurring in the remainder of 2021. Besides, there will be headwinds related to the December 31, 2020, expiration of the aviation excise tax holiday created by the CARES Act and a higher effective income tax rate for the second half of 2021. In March 2021, the Biden administration was eyeing a major corporate tax hike to 28% from 21%, which might lead to higher income tax expenses for FedEx.3 Source: Bureau of Economic Analysis Secondly, the current government-related travel restrictions

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This chart shows RGDP percentage change each quarter for allocation of new airplanes and other vehicles for their air and the last four years and into 2021. The US shows an increase express cargo. in Real GDP of 4.6% after the first quarter of 2021 while we Industry Analysis still work our way through the pandemic. With a vaccine now being vastly distributed and implemented throughout the Industry Description country capital markets and economies are slowly moving FedEx is a part of the Integrated Freight & Logistics industry back to full functionality which we assume will lead to even within the Industrials sector. Integrated Freight & Logistics can further GDP growth throughout the rest of the year. be broken down into 5 subcategories: Logistics Services, Air and Express Delivery Services, Freight Rail, Maritime, and Trucking. COVID-19 Impacts FedEx is a part of all subcategories excluding maritime. While economies and global GDP have rebounded from the pandemic there is still concern as to variants in COVID and the lasting effects of the vaccine. One of which has just been recalled for a rare blood clotting. If there was a variant that was not susceptible to the antibodies being administered right now, we could be heading for another shut down or the Source: Fred Economic Data (Shown larger in Appendix 2) slowing of production for business and reversing the progress the world has been making over the past 6 months. Producer Price Index: Air and Express Delivery Services Consumer Spending This graph is the average production price for the air and 11 Consumer spending has been down throughout the pandemic express delivery services industry from 1994 to 2020. There as people have been prepared for the worst. However, these has been 320% growth in the price of these services over the numbers have increased as stimulus has been distributed past 25 years. This shows that industry has steadily grown throughout the country and people have been spending the with the economy and inflation and the companies that stimulus money if they did not exactly need it to cover living deliver these services are healthy. FedEx was the North expenses. American Leader for both freight cargo deliveries and air cargo deliveries in 2020.

Interest Rates Industry Lifecycle A big concern with the cost of borrowing and interest rates The main subcategories that FedEx falls under in the Air & has resurfaced as the stimulus brought into the economy is Freight Logistics industry are very cyclical. This is because going to have to be paid and stopped sometime in the future. this industry requires the demand for consumers and While we do not know exactly when this is coming, it will businesses to be buying and shipping products. If the certainly have an impact on most companies and the economy is in a recession or is consumer spending is lower economies of the world. The 10yr, 20yr, and 30yr Treasury than this lowers the potential revenue for companies like yields have already slightly from the beginning of the FedEx in this industry. pandemic and will continue to rise going forward. This will increase the cost of borrowing for many companies, such as FedEx who borrows a large amount of money for the

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Industry Trends could be highly volatile which could both positively and Technology negatively impact potential revenue for FedEx. More There are many ways that FedEx and its competitors must regulation that will be coming into effect in the future will look at to outpace the competition in delivering product faster drone policy. California recently became the first state to and more efficient. Drone technology has been the biggest allow the use of drones for delivery. If many other states, advancement for ground and expedited delivery services that follow, or federal policy was put in place to allow the use of has been in the works for years now. The freight industry has drones for delivery FedEx could potentially see exceedingly been looking to convert their coal emitting rails into hydrogen high revenue numbers if they were able to implement drones fuel cell rails making the deliveries more efficient and better into their services. However, if big competitors like Amazon for the environment. Another leading technology that is not implement these services before FedEx this could lead to an too far from being put into use is the use of biofuels instead exceptionally large decrease in market share for the FedEx of rocket fuels for jet engines. This would significantly segment all around. reduce the cost of air delivery companies like FedEx and leave a lot of capital to buy more planes with the same Demographics capabilities. Another advancement being made is the use of The demand for truck driver for FedEx’s ground delivery electric or hydrogen powered trucks that could one day be have increased in recent years as the amount of truck drivers self-driving which would also significantly reduce the cost of in the United States has begun to decrease. This will lead to companies that have primary expenses being the amount of a higher pay for the retained driver and higher operating employees that they have. expenses for the company. The idea of self-driving electric vehicles has also become more relevant with the emergence of companies like Tesla and Nikola who forecast there will Social Changes be fully self-automated trucking available to service Consumers and Investors have become increasingly companies like FedEx by the year 2024. While this would concerned with the use of sustainable component in all help in no longer needing as many drivers as possible or aspects of the business model. Going forward, we will see a employees and effectively lowering the cost of operating lot of these logistics companies pushing for advancements in expenses, FedEx would now have to invest in more Property, the efficiency in the vehicles that they use along with the Plant, and Equipment which may be more costly for the environmental impact that the vehicles they use have. The company and create liquidity issues. companies that can become the most sustainable will be the ones that people lean toward using. Not only will this lead to more business, but also to lower costs if there are Porter’s Five Forces governmental changes that require these companies to have Degree of Rivalry/Competition: High lower emissions or are subsidized for being ahead of the There is a remarkably elevated level of competition in the Air competition when it comes to the use of renewable energy. & Freight Logistics industry. UPS and Amazon have extremely high market capitalizations and large market Government shares as well. The Unites States Postal Service is also a key As mentioned above, Government could have a lasting competitor however, they rely on FedEx to transport most of impact on how companies in this industry are allowed to their air and freight deliveries. However, those two operate. Depending on trade policies with foreign countries subcategories are FedEx’s strongholds where they are the the demand for international package transportation services North American leader for both Air and Freight delivery.

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UPS and Amazon pose the most threat to FedEx’s ground UPS, and Amazon would be hard for a new company to deliveries. acquire and be able to offer the same delivery speeds and pricing. Bargaining Power of Customers: Low The bargaining powers of customers in the industry is low Comparative Analysis since there are only a few substitutes usually offering the same prices for the same service. What also needs to be considered is that when consumers are buying product from businesses, they are only usually offered one or two companies for their potential delivery service providers.

Bargaining Power of Suppliers: Medium Boeing, Cessna, and Airbus are the three suppliers of air couriers for FedEx. While Freightliner, Dodge, Mercedes- Benz, and Volkswagen make up its suppliers of trucks for ground services. This shows that FedEx has some options Source: FactSet when it comes to choosing a supplier for its ground services *Note: Amazon market cap ($1.7T) too large to include. and may be able to lower cost for capital expenditures in that business segment. However, there a limited aerospace manufacturing companies in the market which means FedEx must spend large amount of capital or take on debt at the amount the suppliers want for their vehicles.

Threats of Substitutes: High There is a prominent level of threat for substitutes in this industry mostly coming from FedEx’s largest competitors in UPS and the rise of Amazon. These companies are constantly competing for business are always looking to lower rates for Source: FactSet In the freight and logistics sub-industry, Property, Plant, and companies and speed up shipping times where they can. Equipment is incredibly significant. Machinery and These companies also offer the similar rates and delivery equipment take up an exceptionally sizable percentage of times. capital expenditures (47% for FedEx in 2020).2 This sub-

industry also saw a 56% increase in Net PP&E from 2019 to Threats of New Entrants: Low 2020. We included the graphs above to show FedEx in While the emergence of Amazon is a prime example of a new comparison to its competitors to help forecast the future. entrant to the delivery service market this is a rare occurrence PP&E as a percent of total assets help display which because of the other services that Amazon already offers. It companies can expand domestically and internationally due would be difficult for a new company to emerge in this to machinery and equipment making up a large amount of already highly competitive and saturated market. The amount these companies PP&E. Also, this is a great indication of of PPE and infrastructure needed to compete with FedEx, which companies would be able to satisfy drastic increases in 9

deliveries/services. As far as market capitalization, FedEx is J.B. Hunt Transport Services (JBHT) second largest in the industry with UPS being the largest. JBHT offers logistical services such as intermodal freight Although Amazon is in a different industry, we included it in operations for rail carriers as well as private fleet conversion the second chart above because many segments of their and final-mile delivery services. business overlap into the same sub-industry. FedEx differs itself from its competitors with their air fleet. They have XPO Logistics (XPO) nearly double the air fleet of UPS leading their pricing to be XPO is a trucking company that operates in two segments. cheaper in time-sensitive delivery. FedEx also operates under Their transportation segment engages in freight brokerage, multiple networks (Express, Ground, Services, etc.) while full truckload, less-than-truckload, last mile, and global UPS and many of the other competitors operate as one. FedEx forwarding services. The logistics segment engages in also uses independent contractors for a substantial part of its warehousing and distribution, inventory solutions, and other ground transportation. FedEx’s large air freight footprint is contract logistics services. allowing them to grow a lot faster than many of its competitors internationally. C.H. Robinson Worldwide (CHRW) CHRW engages in freight transporting services through their two segments: North American Surface Transportation United Parcel Service (UPS) and Global Forwarding. UPS engages in the transportation, distribution, ground freight, air freight, ocean freight and other logistics services. Amazon (AMZN) UPS is mostly known for its specialization in ground Amazon is known worldwide for their online retail shopping delivery services. UPS is the world leader in logistics with services. Increasingly, Amazon is taking market share in the FedEx as a close second. As opposed to FedEx, UPS uses logistics industry. In this recent month, “Amazon added 15 its own employees for all deliveries and no independent cargo planes totaling 70 in the air by mid-2021.” contractors.7 UPS is a direct competitor to FedEx, and we Comparingly, FedEx has 680 cargo planes ten times that of forecast it to continue to be. UPS is currently focusing in on Amazon. However, Amazon has an average “click-to-door" small/medium sized businesses, international markets, and time of 3.2 days while the average of the freight and logistics health care.5 Like FedEx, UPS currently services over 220 industry is 4.3 days.6 In response to Amazon’s insane growth, countries and territories. in mid-2019 FedEx ended its service contract with Amazon. With FedEx working on autonomous delivery robots and Amazon working on their autonomous delivery drones, it is Expeditors International of Washington (EXPD) going to be increasingly competitive in this industry. EXPD engages in air and air freight services as well as temperature-controlled transit, cargo insurance, and other Valuation Analysis logistics services. EXPD had a 2020 quarter of 55% revenue growth compared to that of the same quarter of the previous Revenue year.8 With this growth it is possible for EXPD to become a As addressed in the Company Description, we anticipate that bigger competitor of FedEx in coming years. all FedEx’s main segments’ revenues will increase throughout five years, leading to an overall rise in total sales from $65,370 million in 2020 to $100,385 million in 2025.

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The bar chart below depicts our forecasted numbers, portraying a steady rise in the future. The most prominent Cost of Equity revenue growth will occur between 2020 and 2021, because Risk-Free Rate 1.67% of the major boost in online shopping in the domestic Beta 1.032 Equity Risk Premium 4.26% markets. FedEx will continue with its growth, if they keep Cost of Equity 6.07% pursuing the TNT Express integration, upgrading their fixed Source: Krause Fund Model assets, and implementing innovations into their operations. Their growth rates may face declining threats due to the We use the CAPM model to calculate the cost of equity. Our Biden administration’s tax hike scheme, 3 additional risk-free rate is from the 10-year US Treasury Note rate. The competition, and capital-intensive investments in technology. beta value is taken from the Bloomberg Terminal's 2-year raw figure, plotted weekly. Finally, the equity risk premium is referred from professor Damodaran’s spreadsheets, which include the implied, COVID-19 adjusted rate as of April 2021. Together, we derive a cost of the equity value of 6.07%.

Cost of Debt Risk-Free Rate 1.67% Implied Default Premium 0.74% Pre-Tax Cost of Debt 2.41% Marginal Tax Rate 25.82% Source: Krause Fund Model After-Tax Cost of Debt 1.79% Source: Krause Fund Model Operating Expense Except for 2021, we project the 2022-2024 operating The pre-tax cost of debt is pulled from the FINRA website, expenses as 94% of their corresponding total revenues. We which lists out most of FedEx bonds. We select a contract computed this percentage from taking the historical average that expires in 2030, the one that has the closest horizon to 10 of the prior ten years' operating expenses as proportions of years and use its yield as our pre-tax cost of debt. Our the total revenues. The sales and operating expenses are marginal tax rate is computed as the sum of FedEx’s positively correlated with each other, as FedEx’s strategy Statutory tax, state and local tax, and foreign income tax, then demands them to immediately pay for their costs incurred by dividing it by the corresponding income before tax. We then the fixed assets and reinvest their earnings into modernizing anticipate that the future tax rates will be the same as the 2020 and purchasing new machinery. In 2021, the quarterly results rate. Finally, we get an after-tax cost of debt of 1.79%. suggest that there was a substantial rise in the operating expense due to the extra costs for compensating employees, WACC buying medical supplies, and losses caused by the COVID- To derive the WACC, we first calculate the equity and debt 19 pandemic. We assume the average of 2021 first three weights. The market value of FedEx’s equity is computed by quarters operating expenses to be the figure for the last multiplying the total number of shares outstanding by the interim, then sum them together to get the 2021 number. current stock price, which gives us $73.430 B. By adding all Therefore the 2021 operating expense equals 98.44% of total the interest-bearing debts with the PV of operating leases, we sales instead of 94%. have a market value of debt figure of $37.522 B. These lead

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to the weights of equity and debt being 66.18% and 33.82% different tax levels. We forecasted conservatively in our respectively. Finally, we get a WACC of 4.62%. NOPLAT CV growth, using GDP growth of 3.1%, so this Models testing will example prices at higher NOPLAT growth. Models Price DCF/EP $388.70 Pre-tax cost of Debt vs. Risk-free Rate DDM $342.18 We then compared the pre-tax cost of debt calculated by P/E (Rel_EPS) $286.91 PEG (Rel_EPS) $363.93 taking the rate of a 10-year FedEx bond against the risk-free Source: Krause Fund Model rate calculated from the rate on a 10-year US Treasury bond.

We chose these two variables due to the enormous impact they The P/E relative valuation model has the price that is closest have in the WACC which the changes of lead onto our DCF to the current price of $281.34. All the peers used in the and EP models. As portrayed in the chart above, a change in model have a lower price than FedEx; however, their average the risk-free rate minimally affects the forecasted price. P/E is higher, which makes the overall estimate more However, a change in the pre-tax cost of debt causes a drastic consistent. Both DCF/EP and DMM show the higher price change in stock price. This is because FedEx holds 34% than FedEx’s market price, showing that the company’s market value of debt. fundamental values have been underestimated by the market.

This would suggest a buy signal for contrarian investors. CV Growth of EPS vs. CV ROE

Sensitivity Analysis We compared CV Growth of EPS to CV ROE to test

sensitivity in our DDM model. We felt that these two variables Beta vs Equity Risk Premium would be the most significant to test against each other since We compared our two year weekly average beta against they are massive parts of the DDM calculation. As expected, Damodaran’s equity risk premium calculation to test for changes in growth of EPS cause large price changes in the sensitivity in FedEx’s stock price from factors compared to the forecasted stock price while changes in ROE cause only slight overall stock market. We chose a two-year average weekly changes in stock price. beta instead of a five-year because we felt the five year was not a correct representation of the average beta due to WACC vs. CV ROIC volatility after changing corporate strategy and the acquisition Lastly, we compared the WACC against the CV ROIC due to TNT. As you can see in the table above, changes in both the their significant impact in our valuations. The WACC as well beta and the equity risk premium do not cause a substantial as the CV ROIC are used to calculate the DCF and the EP change in stock price. We find this to be a sign of how stable valuation methods. As shown in the chart above, the WACC FedEx is as a company. effects the stock price about three times more than the CV

ROIC when increasing/decreasing it by .1%. The highest price CV Growth % of NOPLAT vs. Marginal Tax Rate was yielded from the lowest WACC with the highest ROIC as We next compared the CV growth % of NOPLAT against the we expected. We specifically wanted to test these two marginal tax rate to see how the stock price would respond in variables because we believe it is quite possible for the WACC times of change in tax. This is especially important because to change due interest rates rising and the CV ROIC to change with there being a new party in office, there could be a due to the many ways Invested Capital or NOPLAT can tremendous change in marginal taxes affecting FedEx. We fluctuate. tested this against CV % of growth to also see how much the price would be affected when growing NOPLAT with 12

References 1. FedEx 10K 2020 2. FactSet - FedEx

3. Bloomberg – Biden Administration tax hike 4. Thomson Reuters - XPO Logistics Inc Profile 5. UPS – Investors Relations 6. GeekWire - the next AWS

7. Diffen - FedEx vs UPS 8. CSIMarket - EXPD Growth Comparisons 9. Bureau of Economic Analysis – GDP 10. IMF – Real GDP Growth % Change

11. Fred Economic Data - Producer Price Index by Industry 12. Bureau of Economic analysis – Personal Income and Outlays, Feb. 2021

13. Data Source a) FactSet – Model b) Damodaran – Model c) Bloomberg Terminal – Model d) FINRA Bond Data - Model c) Yahoo! Finance – Tear Sheet Chart and data

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Appendix

Appendix 1. Bureau of Economic Analysis – GDP

Appendix 2. Fred Economic Data - Producer Price Index by Industry

University of Iowa Krause Fund 14

Important Disclaimer

This report was created by students enrolled in the Security Analysis (6F:112) class at the University of Iowa. The report was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report also provides potential employers and other interested parties an example of the students’ skills, knowledge, and abilities. Members of the Krause Fund are not registered investment advisors, brokers or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or solicitation to buy or sell any of the securities mentioned. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Krause Fund may hold a financial interest in the companies mentioned in this report.

University of Iowa Krause Fund 15

FedEx Corporation Sensitivity Tables

Beta CV Growth of EPS 388.70 0.43 0.63 0.83 1.03 1.23 1.43 1.63 342.18 2.20% 2.40% 2.60% 2.80% 3.00% 3.20% 3.40% 3.36% 379.74 381.79 383.83 385.89 387.90 389.94 391.97 13.45% 284.33 294.12 305.05 317.32 331.18 346.98 365.15 3.66% 380.13 382.36 384.58 386.83 389.02 391.24 393.45 15.45% 291.25 302.09 314.18 327.75 343.09 360.57 380.68 3.96% 380.53 382.93 385.34 387.76 390.14 392.53 394.93 17.45% 296.59 308.23 321.22 335.79 352.27 371.05 392.64 4.26% 380.92 383.51 386.09 388.70 391.26 393.83 396.40 19.45% 300.83 313.11 326.81 342.18 359.56 379.37 402.14 4.56% 381.31 384.08 386.85 389.64 392.37 395.12 397.87 21.45% 304.28 317.08 331.36 347.38 365.50 386.14 409.88

4.86% 381.70 384.66 387.60 390.58 393.49 396.42 399.35 ROE Year CV 23.45% 307.14 320.37 335.13 351.69 370.42 391.75 416.29

EquityRiskPremium 5.16% 382.10 385.23 388.36 391.51 394.60 397.71 400.82 25.45% 309.56 323.15 338.31 355.33 374.56 396.48 421.69

CV Growth % of NOPLAT WACC 388.70 2.80% 2.90% 3.00% 3.10% 3.20% 3.30% 3.40% 388.70 4.32% 4.42% 4.52% 4.62% 4.72% 4.82% 4.92% 22.82% 339.46 354.14 370.63 389.29 410.58 435.10 463.63 6.04% 502.60 448.49 402.01 361.67 326.32 295.09 267.30 23.82% 339.28 353.96 370.44 389.10 410.38 434.89 463.41 6.14% 514.33 459.29 412.01 370.97 335.01 303.25 274.99 24.82% 339.10 353.77 370.25 388.90 410.17 434.67 463.19 6.24% 525.68 469.74 421.69 379.98 343.43 311.15 282.42 25.82% 338.92 353.59 370.06 388.70 409.97 434.46 462.96 6.34% 536.67 479.86 431.06 388.70 351.59 318.80 289.62 26.82% 338.75 353.40 369.87 388.51 409.77 434.25 462.74 6.44% 547.32 489.67 440.14 397.15 359.49 326.21 296.60 CV ROIC CV 27.82% 338.57 353.22 369.68 388.31 409.56 434.03 462.52 6.54% 557.65 499.17 448.95 405.35 367.14 333.40 303.37

Marginal Tax Rate Tax Marginal 28.82% 338.39 353.04 369.49 388.11 409.36 433.82 462.29 6.64% 567.67 508.39 457.49 413.29 374.57 340.36 309.93

Pre-Tax Cost of Debt 388.70 1.81% 2.01% 2.21% 2.41% 2.61% 2.81% 3.01% 0.77% 367.20 373.55 379.90 386.31 392.60 398.95 405.30 1.07% 367.95 374.32 380.68 387.11 393.41 399.78 406.14 1.37% 368.70 375.08 381.46 387.91 394.22 400.60 406.98 1.67% 369.45 375.85 382.24 388.70 395.03 401.43 407.82 1.97% 370.20 376.61 383.02 389.50 395.84 402.25 408.66 2.27% 370.95 377.38 383.80 390.29 396.65 403.08 409.50 Risk-Free Rate Rate Risk-Free 2.57% 371.70 378.14 384.58 391.09 397.46 403.90 410.34 FedEx Corporation Revenue Decomposition in $ million / millions of packages Fiscal Years Ending May.31 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025CV Express Segment Average Daily Package Volume (Domestic) 2.726 2.729 2.901 2.808 3.910 4.164 4.260 4.459 4.553 Package Volume (Domestic) 994.990 996.085 1,058.865 1,027.728 1,427.150 1,519.915 1,554.873 1,631.944 1,661.663 Average Daily Package Volume (International) 2.424 2.454 2.471 2.337 2.429 2.475 2.492 2.545 2.563 Package Volume (International) 884.760 895.710 901.915 855.342 886.585 903.430 909.483 931.400 935.338 Total Net Sales 27,358 36,172 37,331 35,513 42,162 44,536 46,371 48,017 49,563 % Growth 3.43% 32.22% 3.20% -4.87% 18.72% 5.63% 4.12% 3.55% 3.22% Ground Segment Average Daily Package Volume 7.896 8.336 8.952 9.997 11.810 12.572 13.381 14.594 15.222 Package Volume 2,882.040 3,042.640 3,267.480 3,648.905 4,310.816 4,588.864 4,883.928 5,326.900 5,555.957 Total Net Sales 18,075 18,395 20,522 22,733 30,814 33,356 35,738 38,700 41,541 % Growth 9.06% 1.77% 11.56% 10.77% 35.55% 8.25% 7.14% 8.29% 7.34% Freight Segment Total Net Sales 6,443 6,812 7,582 7,102 7,464 8,038 8,461 8,867 9,244 % Growth 3.92% 5.73% 11.30% -6.33% 5.10% 7.69% 5.26% 4.80% 4.25% Services Segment Total Net Sales 1,621 1,650 1,691 22 32 34 35 36 37 % Growth 1.76% 1.79% 2.48% -98.70% 31.25% 6.46% 3.03% 3.54% 3.16% Total Business Segment Sales 60,898 63,029 67,126 65,370 80,472 85,964 90,604 95,620 100,385 % Growth 19.84% 3.50% 6.50% -2.62% 18.77% 6.39% 5.12% 5.25% 4.75% FedEx Corporation Income Statement in $millions Fiscal Years Ending May.31 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025CV Total revenue 60,319 65,450 69,693 69,217 80,472 85,964 90,604 95,620 100,385 Total operating expenses -55,753 -61,178 -65,227 -66,800 -79,213 -81,081 -85,463 -90,265 -94,844 Salaries and employee benefits -21,989 -23,795 -24,776 -25,031 -30,894 -31,549 -33,252 -35,093 -36,841 Purchased transportation -13,630 -15,101 -16,654 -17,466 -22,046 -20,545 -21,564 -22,758 -23,892 Rentals and landing fees -3,240 -3,361 -3,360 -3,712 -4,302 -4,212 -4,440 -4,685 -4,919 Depreciation and amortization -2,995 -3,095 -3,353 -3,615 -3,789 -4,401 -4,734 -5,068 -5,401 Fuel -2,773 -3,374 -3,889 -3,156 -2,798 -3,954 -4,168 -4,399 -4,618 Maintenance and repairs -2,374 -2,622 -2,834 -2,893 -3,273 -3,782 -3,987 -4,207 -4,417 Asset impairment charges 0 -380 0 -435 0 0 0 0 0 Business realignment costs 0 0 -320 0 -10 0 0 0 0 Other -8,752 -9,450 -10,041 -10,492 -12,101 -12,637 -13,319 -14,056 -14,757 Total operating income / loss 4,566 4,272 4,466 2,417 1,259 4,883 5,142 5,355 5,541

Total other expense / income 13 -517 -3,811 -748 229 -521 -577 -639 -693 Interest, net -479 -510 -529 -617 -508 -521 -577 -639 -693 Interest expense -512 -558 -588 -672 -572 -603 -643 -689 -737 Interest income 33 48 59 55 64 82 65 50 44 Other retirement plans income 471 598 -3,251 -122 737 0 0 0 0 Other, net 21 -7 -31 -9 0 0 0 0 0 Income before income taxes 4,579 4,353 655 1,669 1,488 4,362 4,564 4,716 4,848 Provision for income taxes -1,582 219 -115 -383 -342 -1,003 -1,050 -1,085 -1,115 Net income / loss 2,997 4,572 540 1,286 1,146 3,359 3,515 3,631 3,733

Per Share EPS 11.07 16.79 2.03 4.90 4.35 13.15 14.09 14.95 15.36 Basic Shares Outstanding 266 267 262 261 267.67 263.17 255.45 249.49 242.96 Dividends per Share 1.60 2.00 2.60 2.60 2.62 2.87 3.16 3.28 3.58 FedEx Corporation Common Size Income Statement % of sales Fiscal Years Ending May.31 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025CV

Total revenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Total operating expenses -92.43% -93.47% -93.59% -96.51% -98.44% -94.32% -94.33% -94.40% -94.48% Salaries and employee benefits -36.45% -36.36% -35.55% -36.16% -38.39% -36.70% -36.70% -36.70% -36.70% Purchased transportation -22.60% -23.07% -23.90% -25.23% -27.40% -23.90% -23.80% -23.80% -23.80% Rentals and landing fees -5.37% -5.14% -4.82% -5.36% -5.35% -4.90% -4.90% -4.90% -4.90% Depreciation and amortization -4.97% -4.73% -4.81% -5.22% -4.71% -5.12% -5.23% -5.30% -5.38% Fuel -4.60% -5.16% -5.58% -4.56% -3.48% -4.60% -4.60% -4.60% -4.60% Maintenance and repairs -3.94% -4.01% -4.07% -4.18% -4.07% -4.40% -4.40% -4.40% -4.40% Asset impairment charges 0.00% -0.58% 0.00% -0.63% 0.00% 0.00% 0.00% 0.00% 0.00% Business realignment costs 0.00% 0.00% -0.46% 0.00% -0.01% 0.00% 0.00% 0.00% 0.00% Other -14.51% -14.44% -14.41% -15.16% -15.04% -14.70% -14.70% -14.70% -14.70% Total operating income / loss 7.57% 6.53% 6.41% 3.49% 1.56% 5.68% 5.67% 5.60% 5.52%

Total other expense / income 0.02% -0.79% -5.47% -1.08% 0.28% -0.61% -0.64% -0.67% -0.69% Interest, net -0.79% -0.78% -0.76% -0.89% -0.63% -0.61% -0.64% -0.67% -0.69% Interest expense -0.85% -0.85% -0.84% -0.97% -0.71% -0.70% -0.71% -0.72% -0.73% Interest income 0.05% 0.07% 0.08% 0.08% 0.08% 0.10% 0.07% 0.05% 0.04% Other retirement plans income 0.78% 0.91% -4.66% -0.18% 0.92% 0.00% 0.00% 0.00% 0.00% Other, net 0.03% -0.01% -0.04% -0.01% 0.00% 0.00% 0.00% 0.00% 0.00% Income before income taxes 7.59% 6.65% 0.94% 2.41% 1.85% 5.07% 5.04% 4.93% 4.83% Provision for income taxes -2.62% 0.33% -0.17% -0.55% -0.43% -1.17% -1.16% -1.13% -1.11% Net income / loss 4.97% 6.99% 0.77% 1.86% 1.42% 3.91% 3.88% 3.80% 3.72% FedEx Corporation Balance Sheet in $millions Fiscal Years Ending May.31 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025CV Assets Current Assets Cash & Short-Term Investments 3,969 3,265 2,319 4,881 6,233 4,955 3,786 3,300 2,418 Accounts Receivables, Net 7,599 8,481 9,116 10,558 11,968 11,605 12,232 12,909 13,552 Accounts Receivables, Gross 7,851 8,882 9,416 10,948 12,771 12,035 12,685 13,387 14,054 Bad Debt/Doubtful Accounts -252 -401 -300 -390 -803 -430 -453 -478 -502 Spare parts, supplies and fuel, Net 514 525 553 572 577 705 743 784 823 Spare parts, supplies and fuel, Gross 751 793 888 907 926 1,118 1,178 1,243 1,305 Inventory Valuation Allowance -237 -268 -335 -335 -349 -413 -435 -459 -482 Prepaid expenses and other 546 1,070 1,098 372 853 860 906 956 1,004 Total Current Assets 12,628 13,341 13,086 16,383 19,631 18,125 17,667 17,949 17,797

Long-Term Assets Net Property, Plant & Equipment 25,981 28,154 30,429 33,608 35,277 37,684 40,221 42,899 45,710 Property, Plant & Equipment - Gross 51,355 55,121 59,511 65,024 69,590 75,092 80,891 87,011 93,435 Aircraft and related equipment 18,833 20,749 22,793 24,518 26,691 29,012 31,458 34,040 36,750 Package handling and ground support equipment 8,989 9,727 10,409 11,382 12,227 13,130 14,081 15,085 16,139 Computer and Electronic Equipment 5,396 5,794 6,268 6,884 7,407 7,966 8,555 9,176 9,829 Vehicles and Trailers 6,961 7,708 8,339 9,101 9,906 10,765 11,671 12,628 13,631 Facilities and other 10,447 11,143 11,702 13,139 13,360 14,220 15,126 16,082 17,086 Accumulated Depreciation -24,645 -26,967 -29,082 -31,416 -34,313 -37,408 -40,669 -44,112 -47,726 Total Other Long-term Assets 10,198 10,835 10,888 23,546 26,898 29,500 30,706 32,010 33,249 Operating Lease Right-of-Use Assets 0 0 0 13,917 15,198 18,052 19,027 20,080 21,081 Goodwill 7,154 6,973 6,884 6,372 7,149 7,149 7,149 7,149 7,149 Other Assets 3,044 3,862 4,004 3,257 4,551 4,298 4,530 4,781 5,019 Total Assets 48,807 52,330 54,403 73,537 81,806 85,309 88,595 92,858 96,756

Liabilities & Shareholders' Equity Current Liabilities ST Debt & Curr. Portion LT Debt 22 1,342 964 51 656 538 574 615 658 Accounts Payable 2,752 2,977 3,030 3,269 4,316 3,868 4,077 4,303 4,517 Other Current Liabilities 5,144 5,308 5,019 7,024 9,512 9,026 9,513 10,040 10,540 Accrued salaries and employee benefits 1,914 2,177 1,741 1,569 2,604 2,321 2,446 2,582 2,710 Acrued expenses 3,230 3,131 3,278 3,532 4,720 4,298 4,530 4,781 5,019 Operating Lease Liabilities 0 0 0 1,923 2,188 2,407 2,537 2,677 2,811 Total Current Liabilities 7,918 9,627 9,013 10,344 14,484 13,433 14,164 14,958 15,715

Long-Term Liabilities Long-term debt, less current portion 14,909 15,243 16,617 21,952 23,074 24,470 26,073 27,959 29,895 Other Long-Term Liabilities 9,652 8,044 11,016 22,946 24,857 27,479 28,917 30,472 31,949 Deferred Lease Obligations 531 551 531 0 0 0 0 0 0 Operating Lease Liabilities 0 0 0 12,195 12,904 14,614 15,403 16,255 17,065 Deferred Income Taxes 2,485 2,867 2,821 3,162 3,759 3,439 3,624 3,825 4,015 Pension, postretirement healthcare, and other benefit obligations 4,487 2,187 5,095 5,019 4,966 6,017 6,342 6,693 7,027 Self-insurance accruals 1,494 1,784 1,899 2,104 2,398 2,579 2,718 2,869 3,012 Other Liabilities 655 655 670 466 830 830 830 830 830 Total Liabilities 32,479 32,914 36,646 55,242 62,415 65,382 69,155 73,389 77,560

Equity Common Stock 32 32 32 32 32 32 32 32 32 Additional paid-in capital 3,005 3,117 3,231 3,356 3,480 3,602 3,728 3,858 3,993 Retained Earnings 20,833 24,823 24,648 25,216 25,677 28,268 30,951 33,744 36,583 Accumulated Other Comprehensive Loss / Income -415 -578 -865 -1,147 -636 -712 -798 -894 -1,001 Treasury Stock -7,382 -7,978 -9,289 -9,162 -9,162 -11,262 -14,472 -17,272 -20,412 Total common stockholders' investment 16,073 19,416 17,757 18,295 19,391 19,927 19,441 19,469 19,196 Total Liabilities & Shareholders' Equity 48,807 52,330 54,403 73,537 81,806 85,309 88,595 92,858 96,756 FedEx Corporation Balance Sheet in $millions Fiscal Years Ending May.31 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025CV Assets Current Assets Cash & Short-Term Investments 8.13% 6.24% 4.26% 6.64% 7.62% 5.81% 4.27% 3.55% 2.50% Accounts Receivables, Net 15.57% 16.21% 16.76% 14.36% 14.63% 13.60% 13.81% 13.90% 14.01% Accounts Receivables, Gross 16.09% 16.97% 17.31% 14.89% 15.61% 14.11% 14.32% 14.42% 14.53% Bad Debt/Doubtful Accounts -0.52% -0.77% -0.55% -0.53% -0.98% -0.50% -0.51% -0.51% -0.52% Spare parts, supplies and fuel, Net 1.05% 1.00% 1.02% 0.78% 0.71% 0.83% 0.84% 0.84% 0.85% Spare parts, supplies and fuel, Gross 1.54% 1.52% 1.63% 1.23% 1.13% 1.31% 1.33% 1.34% 1.35% Bad Debt/Doubtful Accounts -0.49% -0.51% -0.62% -0.46% -0.43% -0.48% -0.49% -0.49% -0.50% Prepaid expenses and other 1.12% 2.04% 2.02% 0.51% 1.04% 1.01% 1.02% 1.03% 1.04% Total Current Assets 25.87% 25.49% 24.05% 22.28% 24.00% 21.25% 19.94% 19.33% 18.39%

Long-Term Assets Net Property, Plant & Equipment 53.23% 53.80% 55.93% 45.70% 43.12% 44.17% 45.40% 46.20% 47.24% Property, Plant & Equipment - Gross 105.22% 105.33% 109.39% 88.42% 85.07% 88.02% 91.30% 93.70% 96.57% Aircraft and related equipment 38.59% 39.65% 41.90% 33.34% 32.63% 34.01% 35.51% 36.66% 37.98% Package handling and ground support equipment 18.42% 18.59% 19.13% 15.48% 14.95% 15.39% 15.89% 16.25% 16.68% Computer and Electronic Equipment 11.06% 11.07% 11.52% 9.36% 9.05% 9.34% 9.66% 9.88% 10.16% Vehicles and Trailers 14.26% 14.73% 15.33% 12.38% 12.11% 12.62% 13.17% 13.60% 14.09% Facilities and other 21.40% 21.29% 21.51% 17.87% 16.33% 16.67% 17.07% 17.32% 17.66% Accumulated Depreciation -50.49% -51.53% -53.46% -42.72% -41.94% -43.85% -45.91% -47.50% -49.33% Total Other Long-term Assets 20.89% 20.71% 20.01% 32.02% 32.88% 34.58% 34.66% 34.47% 34.36% Operating Lease Right-of-Use Assets 0.00% 0.00% 0.00% 18.93% 18.58% 21.16% 21.48% 21.62% 21.79% Goodwill 14.66% 13.33% 12.65% 8.67% 8.74% 8.38% 8.07% 7.70% 7.39% Other Assets 6.24% 7.38% 7.36% 4.43% 5.56% 5.04% 5.11% 5.15% 5.19% Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Liabilities & Shareholders' Equity Current Liabilities ST Debt & Curr. Portion LT Debt 0.05% 2.56% 1.77% 0.07% 0.80% 0.63% 0.65% 0.66% 0.68% Accounts Payable 5.64% 5.69% 5.57% 4.45% 5.28% 4.53% 4.60% 4.63% 4.67% Other Current Liabilities 10.54% 10.14% 9.23% 9.55% 11.63% 10.58% 10.74% 10.81% 10.89% Accrued salaries and employee benefits 3.92% 4.16% 3.20% 2.13% 3.18% 2.72% 2.76% 2.78% 2.80% Acrued expenses 6.62% 5.98% 6.03% 4.80% 5.77% 5.04% 5.11% 5.15% 5.19% Operating Lease Liabilities 0.00% 0.00% 0.00% 2.62% 2.67% 2.82% 2.86% 2.88% 2.91% Total Current Liabilities 16.22% 18.40% 16.57% 14.07% 17.71% 15.75% 15.99% 16.11% 16.24%

Long-Term Liabilities Long-term debt, less current portion 30.55% 29.13% 30.54% 29.85% 28.21% 28.68% 29.43% 30.11% 30.90% Other Long-Term Liabilities 19.78% 15.37% 20.25% 31.20% 30.39% 32.21% 32.64% 32.82% 33.02% Deferred Lease Obligations 1.09% 1.05% 0.98% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Operating Lease Obligations 0.00% 0.00% 0.00% 16.58% 15.77% 17.13% 17.39% 17.51% 17.64% Deferred Income Taxes 5.09% 5.48% 5.19% 4.30% 4.60% 4.03% 4.09% 4.12% 4.15% Pension, postretirement healthcare, and other benefit obligations 9.19% 4.18% 9.37% 6.83% 6.07% 7.05% 7.16% 7.21% 7.26% Self-insurance accruals 3.06% 3.41% 3.49% 2.86% 2.93% 3.02% 3.07% 3.09% 3.11% Other Liabilities 1.34% 1.25% 1.23% 0.63% 1.01% 0.97% 0.94% 0.89% 0.86% Total Liabilities 66.55% 62.90% 67.36% 75.12% 76.30% 76.64% 78.06% 79.03% 80.16%

Equity Common Stock 0.07% 0.06% 0.06% 0.04% 0.04% 0.04% 0.04% 0.03% 0.03% Additional paid-in capital 6.16% 5.96% 5.94% 4.56% 4.25% 4.22% 4.21% 4.16% 4.13% Retained Earnings 42.68% 47.44% 45.31% 34.29% 31.39% 33.14% 34.94% 36.34% 37.81% Accumulated Other Comprehensive Loss / Income -0.85% -1.10% -1.59% -1.56% -0.78% -0.83% -0.90% -0.96% -1.03% Treasury Stock -15.12% -15.25% -17.07% -12.46% -11.20% -13.20% -16.34% -18.60% -21.10% Total Common Stockholders' Investment 32.93% 37.10% 32.64% 24.88% 23.70% 23.36% 21.94% 20.97% 19.84% Total Liabilities & Shareholders' Equity 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% FedEx Corporation Historical Cash Flow Statement in $millions Fiscal Years Ending May.31 2017 2018 2019 2020 Operating Activities Net income 2,997 4,572 540 1,286 Adjustments to reconcile net income to cash provided by operating activities 1,933 102 5,073 3,811 Depreciation and amortization 2,995 3,095 3,353 3,615 Other, net 1,199 477 228 3,494 Provision for uncollectible accounts 136 246 295 442 Deferred income taxes and other noncash items 909 -231 -233 2,449 Stock-based compensation 154 167 174 168 Gain from sale of business 0 -85 -8 0 Impairment charges 0 380 0 435 Retirement plans mark-to-market adjustment -24 -10 3,882 794 Gain from sale of an investment -35 0 0 0 Business realignment costs 0 0 101 0 Changes in operating assets and liabilities, net -2,202 -3,460 -2,491 -4,092 Receivables -556 -1,049 -873 -1,331 Other assets 78 -135 -25 -59 Pension and postretirement healthcare assets and liabilities, net -1,688 -2,345 -909 -908 Accounts payable and other liabilities 103 141 -571 -1,787 Other, net -139 -72 -113 -7 Net Operating Cash Flow 4,930 4,674 5,613 5,097

Investing Activities Capital expenditures -5,116 -5,663 -5,490 -5,868 Proceeds from asset dispositions and other 135 -14 17 22 Business acquisitions, net of cash acquired 0 -179 -66 0 Proceeds from sale of business 0 123 0 0 Proceeds from asset dispositions and other excluding business acquisitions, net of cash acquired and proceeds from sale of 135 42 83 22 Net Investing Cash Flow -4,981 -5,677 -5,473 -5,846

Financing Activities Proceeds from short-term borrowings, net 0 0 0 0 Principal payments on debt -82 -38 -1,436 -2,548 Proceeds from debt issuances 1,190 1,480 2,463 6,556 Proceeds from stock issuances 337 327 101 64 Dividend Paid -426 -535 -683 -679 Purchase of Treasury Stock -509 -1,017 -1,480 -3 Other, net 18 10 -4 -9 Net Financing Cash Flow 528 227 -1,039 3,381

Effect of exchange rate changes on cash -42 72 -47 -70 Net increase / decrease in cash and cash equivalents 435 -704 -946 2,562 Beginning Cash Balance 3,534 3,969 3,265 2,319 Ending Cash Balance 3,969 3,265 2,319 4,881 FedEx Corporation Forecasted Cash Flow Statement

Fiscal Years Ending May.31 2021E 2022E 2023E 2024E 2025CV Operating Activities Net income 1,146 3,359 3,515 3,631 3,733 Adjustments to reconcile net income to cash provided by operating activities Depreciation and amortization 3789 4401 4734 5068 5401 Allowance for doubtful accounts 803 430 453 478 502 Stock-based compensation 216 221 233 246 258

Changes in operating assets and liabilities, net Receivables -413 373 -23 -25 -24 Spare parts, supplies and fuel -14 -64 -22 -24 -23 Prepaid expenses and other -481 -7 -46 -50 -48 Operating Lease Right-of-Use Assets -1281 -2854 -974 -1053 -1001 Accounts payable 1047 -448 209 226 214 Accrued salaries and employee benefits 1035 -283 125 135 129 Acrued expenses 1188 -422 232 251 238 Operating Lease Liabilities 974 1929 919 993 943 Pension and postretirement healthcare assets and liabilities, net -53 1051 325 351 334 Deferred Income Taxes 597 -320 186 201 191 Self-insurance accruals 294 181 139 150 143 Other Long-term Liabilities 364 0 0 0 0 Net Operating Cash Flow 8553 7366 9864 10427 10847

Investing Activities Capital expenditures -4566 -5502 -5799 -6120 -6425 Change in Short-term Investments -1663 -48 -594 -1615 -751 Business Acquisitions (Change in Goodwill) -777 0 0 0 0 Change in Other Long-term Assets -1294 253 -232 -251 -238 Net Investing Cash Flow -8300 -5297 -6625 -7986 -7414

Financing Activities Proceeds from issuance of long-term debt 1,727 1,278 1,638 1,927 1,979 Principal payments on debt 0 -1,853 -2,105 -1,324 -2,315 Payment of Finance Lease -67 -26 -25 -24 -81 Proceeds from issuance of Common Stock 124 122 126 130 135 Dividend Paid -685 -768 -832 -838 -893 Repurchase of Treasury Stock 0 -2,100 -3,210 -2,800 -3,140 Net Financing Cash Flow 1,099 -3,347 -4,408 -2,928 -4,316

Beginning Cash Balance 4,881 6,233 4,955 3,786 3,300 Ending Balance of Cash 6,233 4,955 3,786 3,300 2,418 Net increase / decrease in cash and cash equivalents 1,352 -1,277 -1,169 -486 -882 FedEx Corporation Value Driver Estimation

Fiscal Years Ending May.31 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025CV

NOPLAT: Net Sales 60,319 65,450 69,693 69,217 80,472 85,964 90,604 95,620 100,385 Less: Operating Expense -55,753 -61,178 -65,227 -66,800 -79,213 -81,081 -85,463 -90,265 -94,844 Salaries and employee benefits -21,989 -23,795 -24,776 -25,031 -30,894 -31,549 -33,252 -35,093 -36,841 Purchased transportation -13,630 -15,101 -16,654 -17,466 -22,046 -20,545 -21,564 -22,758 -23,892 Rentals and landing fees -3,240 -3,361 -3,360 -3,712 -4,302 -4,212 -4,440 -4,685 -4,919 Depreciation and amortization -2,995 -3,095 -3,353 -3,615 -3,789 -4,401 -4,734 -5,068 -5,401 Fuel -2,773 -3,374 -3,889 -3,156 -2,798 -3,954 -4,168 -4,399 -4,618 Maintenance and repairs -2,374 -2,622 -2,834 -2,893 -3,273 -3,782 -3,987 -4,207 -4,417 Asset impairment charges 0 -380 0 -435 0 0 0 0 0 Business realignment costs 0 0 -320 0 -10 0 0 0 0

Add: Implied Interest on Operating Leases 380.40 382.22 386.70 387.21 366.58 435.42 458.93 484.34 508.47 EBITA 4,946 4,654 4,853 2,804 1,626 5,319 5,601 5,839 6,050

Adjusted Taxes Marginal Tax Rate 36.75% 27.89% 34.05% 25.82% 25.82% 25.82% 25.82% 25.82% 25.82% Income Tax Provision 1582.00 -219.00 115.00 383.00 342.25 1003.33 1049.80 1084.64 1114.98 Tax Shield on Interest Expense (+) 188.18 155.62 200.19 173.54 147.79 155.75 165.95 177.95 190.28 Tax on Interest on Operating Leases (-) -139.81 -106.60 -131.65 -99.99 -94.65 -112.43 -118.50 -125.06 -131.29 Tax on interest income (-) -12.13 -13.39 -20.09 -14.20 -16.64 -21.24 -16.89 -12.91 -11.25 Tax shield on Other retirement plans income (+) -173.11 -166.78 1106.83 31.51 -190.29 0.00 0.00 0.00 0.00 Tax shield on other non-operating income (+) -7.72 1.95 10.55 2.32 0.00 0.00 0.00 0.00 0.00 Total adjusted taxes (subtract from EBITDA) 1437.41 -348.19 1280.83 476.17 188.46 1025.40 1080.36 1124.64 1162.72 Change in Deferred Taxes (plus, cash basis vs GAAP) 918 382 -46 341 597 -320 186 201 191

NOPLAT 4,427 5,384 3,526 2,669 2,034 3,973 4,706 4,915 5,077

Invested Capital (IC): Operating Current Assets Normal Cash (3.33% of sales) (+) 2,007 2,178 2,319 2,303 2,678 2,860 3,015 3,182 3,340 Account Receivables (+) 7,599 8,481 9,116 10,558 11,968 11,605 12,232 12,909 13,552 Spare parts, supplies and fuel (+) 514 525 553 572 577 705 743 784 823 Prepaid expenses and other (+) 546 1,070 1,098 372 853 860 906 956 1,004

Non Interest-Bearning Current Liabilities Accounts Payable 2,752 2,977 3,030 3,269 4,316 3,868 4,077 4,303 4,517 Other Current Liabilities 5,144 5,308 5,019 7,024 9,512 9,026 9,513 10,040 10,540

Net Operating Working Capital 2,770 3,969 5,037 3,512 2,248 3,135 3,305 3,488 3,661 Net Property, Plant, and Equipment (+) 51,355 55,121 59,511 65,024 69,590 75,092 80,891 87,011 93,435 Net Other Operating Assets (+) 15,847 16,032 16,053 15,519 15,198 18,052 19,027 20,080 21,081 Net Other Operating Liabilities (-) 9,652 8,044 11,016 22,946 24,857 27,479 28,917 30,472 31,949

Invested Capital 60,320 67,078 69,585 61,109 62,179 68,801 74,305 80,106 86,228

Free Cash Flow (FCF): NOPLAT 4,427 5,384 3,526 2,669 2,034 3,973 4,706 4,915 5,077 Change in IC 6,022 6,758 2,507 -8,477 1,070 6,622 5,504 5,801 6,122 FCF -1,595 -1,374 1,018 11,146 964 -2,649 -798 -886 -1,045

Return on Invested Capital (ROIC): NOPLAT 4,427 5,384 3,526 2,669 2,034 3,973 4,706 4,915 5,077 Beginning IC 54,297 60,320 67,078 69,585 61,109 62,179 68,801 74,305 80,106 ROIC 8.15% 8.93% 5.26% 3.84% 3.33% 6.39% 6.84% 6.62% 6.34%

Economic Profit (EP): Beginning IC * (ROIC-WACC) Economic Profit (Total) 1,918 2,598 427 -546 -789 1,100 1,527 1,483 1,377 FedEx Corporation Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth of NOPLAT 3.10% CV Year ROIC 6.34% WACC 4.62% Cost of Equity 6.07%

Fiscal Years Ending May.31 2021E 2022E 2023E 2024E 2025CV

DCF Model: Free Cash Flow (FCF) 963.8 -2649.3 -798.1 -885.6 -1044.5 Continuing Value (CV) 170709.2 PV of FCF 921.2 -2420.5 -696.9 -739.3 142494.5

Value of Operating Assets: 139559.0 Non-Operating Adjustments (+)Excess Cash 2577.8 - ESOP -2185.7 (-) MV of Total Debt -37521.7 (-) Underfunded Pension -5064.0 Value of Equity 97365.5 Shares Outstanding 261.0 Intrinsic Value of Last FYE $ 373.05 Implied Price as of Today $ 388.70

EP Model: Economic Profit (EP) -789.1 1100.1 1527.2 1482.5 1376.5 Continuing Value (CV) 90602.9 PV of EP -754.3 1005.1 1333.7 1237.5 75628.1

Total PV of EP 78450.1 Invested Capital (last FYE) 61108.8 Value of Operating Assets: 139559.0 Non-Operating Adjustments (+)Excess Cash 2577.8 - ESOP -2185.7 (-) MV of Total Debt -37521.7 (-) Underfunded Pension -5064.0 Value of Equity 97365.5 Shares Outstanding 261.0 Intrinsic Value of Last FYE $ 373.05 Implied Price as of Today $ 388.70 FedEx Corporation Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending 2021E 2022E 2023E 2024E 2025CV

EPS$ 4.35 $ 13.15 $ 14.09 $ 14.95 $ 15.36

Key Assumptions CV growth of EPS 2.80% CV Year ROE 19.45% Cost of Equity 6.07%

Future Cash Flows P/E Multiple (CV Year) 26.21 EPS (CV Year)$ 15.36 Future Stock Price$ 402.65 Dividends Per Share 2.62 2.87 3.16 3.28 Discounted Cash Flows 2.47 2.55 2.65 2.59$ 318.14

Intrinsic Value as of Last FYE $ 328.40 Implied Price as of Today $ 342.18 FedEx Corporation Relative Valuation Models Prices as of 3/26/21

EPS EPS Est. 5yr Ticker Company Price 2021E 2022E P/E 21 P/E 22 EPS gr. PEG 21 PEG 22 UPS United Parcel Service (UPS) $167.98 $8.88 $9.63 19.60 18.30 10.06 1.95 1.82 EXPD Expeditors International of Washington, Inc. $107.80 $4.26 $4.39 25.60 25.10 4.20 6.10 5.98 JBHT J.B. Hunt Transport Services, Inc. $166.90 $6.19 $7.63 27.70 23.30 20.73 1.34 1.12 XPO XPO Logisitics, Inc. $123.21 $5.07 $5.92 24.90 21.50 10.14 2.46 2.12 CHRW C.H. Robinson Worldwide, Inc. $97.70 $4.43 $4.69 22.50 20.90 9.94 2.26 2.10 Average 24.06 21.82 2.82 2.63

FDX FedEx Corporation $281.34 $4.35 $13.15 16.1 14.5 10.5 1.5 1.4

Implied Relative Value: P/E (EPS20) $ 104.75 P/E (EPS21)$ 286.91 PEG (EPS20)$ 129.28 PEG (EPS21)$ 363.93 FedEx Corporation Weighted Average Cost of Capital (WACC) Estimation

Cost of Equity: ASSUMPTIONS: Risk-Free Rate 1.67% 10-year Treasury Note used Beta 1.032 2 year weekly raw beta from Bloomberg Equity Risk Premium 4.26% Damodaran implied COVID-19-adjusted ERP as of 1-Apr-2021 Cost of Equity 6.07%

Cost of Debt: Risk-Free Rate 1.67% 10-year Treasury Note used Implied Default Premium 0.74% Pre-Tax Cost of Debt 2.41% YTM on company's 9-year corporate bond Marginal Tax Rate 25.82% After-Tax Cost of Debt 1.79%

Market Value of Common Equity: MV Weights Total Shares Outstanding 261 Current Stock Price $281.34 MV of Equity 73,429.74 66.18%

Market Value of Debt: Short-Term Debt 0 Current Portion of LTD 51 Long-Term Debt 21,952 PV of Operating Leases 15,519 MV of Total Debt 37,521.67 33.82%

Market Value of the Firm 110,951.41 100.00%

Estimated WACC 4.62% FedEx Corporation Key Management Ratios

Fiscal Years Ending May.31 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025CV

Liquidity Ratios: Current Ratio (Current Asset/Current Liabilities) 1.59 1.39 1.45 1.58 1.36 1.35 1.25 1.20 1.13 Quick Ratio (current assets - inventory/ current liabilities) 1.53 1.33 1.39 1.53 1.32 1.30 1.19 1.15 1.08 Cash Ratio (Cash & Short-Term Investments/Cunrrent Liabilities) 0.50 0.34 0.26 0.47 0.43 0.37 0.27 0.22 0.15

Asset-Management Ratios: Asset Turnover (Total Revenue/ average total assets) 0.32 0.32 0.33 0.27 0.26 0.26 0.26 0.26 0.26 Receivable Turnover (Total Revenue/average Accounts Receivables) 2.03 2.04 1.98 1.76 1.72 1.73 1.83 1.83 1.83 Fixed Asset Turnover (Total Revenue/ average fixed assets) 0.60 0.60 0.59 0.54 0.58 0.59 0.58 0.58 0.57

Financial Leverage Ratios: Debt Ratio (Total liabilities/Total assets) 0.67 0.63 0.67 0.75 0.76 0.77 0.78 0.79 0.80 Equity Ratio (total shareholders equity/total assets) 0.24 0.23 0.22 0.21 0.20 0.24 0.23 0.22 0.21 Debt to equity ratio (total liabilities/total shareholders equity) 2.34 2.02 1.70 2.06 3.02 3.22 3.28 3.56 3.77

Profitability Ratios: Return on Equity (NI/Beg TSE) 18.65% 23.55% 3.04% 7.03% 5.91% 16.86% 18.08% 18.65% 19.45% Operating Profit Margin (Operating Income / Total Revenues) 7.57% 6.53% 6.41% 3.49% 1.56% 5.68% 5.67% 5.60% 5.52% Return on Assets (Net income / Total assets) 6.14% 8.74% 0.99% 1.75% 1.40% 3.94% 3.97% 3.91% 3.86%

Payout Policy Ratios: Dividend Payout Ratio (Dividend/EPS) 14.45% 11.91% 128.08% 53.06% 60.27% 21.83% 22.43% 21.95% 23.30% Total Payout Ratio ((Divs. + Repurchases)/NI) 31.2% 33.9% 400.6% 53.0% 59.8% 85.4% 115.0% 100.2% 108.0% FedEx Corporation Present Value of Operating Lease Obligations

Fiscal Years Ending May.31 2017 2018 2019 2020 Year 1 2,445 2,471 2,497 2,416 Year 2 2,230 2,177 2,263 2,266 Year 3 1,931 1,951 2,028 2,012 Year 4 1,709 1,762 1,779 1,689 Year 5 1,540 1,548 1,486 1,515 Thereafter 8,019 8,193 8,062 7,552 Total Minimum Payments 17874.0 18102.0 18115.0 17450.0 Less: Cumulative Interest 2027.4 2069.8 2061.5 1931.3 PV of Minimum Payments 15846.6 16032.2 16053.5 15518.7

Implied Interest in Year 1 Payment 380.4 382.2 386.7 387.2

Pre-Tax Cost of Debt 2.41% 2.41% 2.41% 2.41% Years Implied by Year 6 Payment 5.2 5.3 5.4 5.0 Expected Obligation in Year 6 & Beyond 1540 1548 1486 1515

Present Value of Lease Payments PV of Year 1 2387.4 2412.8 2438.2 2359.1 PV of Year 2 2126.2 2075.7 2157.7 2160.5 PV of Year 3 1797.8 1816.4 1888.1 1873.2 PV of Year 4 1553.6 1601.8 1617.2 1535.4 PV of Year 5 1367.0 1374.1 1319.1 1344.8 PV of 6 & beyond 6614.7 6751.5 6633.3 6245.7 Capitalized PV of Payments 15846.6 16032.2 16053.5 15518.7 FedEx Corporation Effects of ESOP Exercise and Share Repurchases on Common Stock Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 16,124,745 Average Time to Maturity (years): 6.20 Expected Annual Number of Options Exercised: 2,600,765

Current Average Strike Price: $ 167.79 Cost of Equity: 6.07% Current Stock Price: $281.34

Fiscal Years Ending May.31 2021E 2022E 2023E 2024E 2025CV Increase in Shares Outstanding: 2,600,765 2,600,765 2,600,765 2,600,765 2,600,765 Average Strike Price: $ 167.79 $ 167.79 $ 167.79 $ 167.79 $ 167.79 Increase in Common Stock Account: 436,382,413 436,382,413 436,382,413 436,382,413 436,382,413

Share Repurchases ($) 0 2,100,000,000 3,210,000,000 2,800,000,000 3,140,000,000 Expected Price of Repurchased Shares: $ 281.34 $ 295.82 $ 311.04 $ 327.05 $ 343.88 Number of Shares Repurchased: 0.00 7,098,943.74 10,320,135.38 8,561,390.68 9,131,073.84

Shares Outstanding (beginning of the year) 265,070,592 267,671,357 263,173,179 255,453,809 249,493,183 Plus: Shares Issued Through ESOP 2,600,765 2,600,765 2,600,765 2,600,765 2,600,765 Less: Shares Repurchased in Treasury - 7,098,944 10,320,135 8,561,391 9,131,074 Shares Outstanding (end of the year) 267,671,357 263,173,179 255,453,809 249,493,183 242,962,875 FedEx Corporation Valuation of Options Granted under ESOP

Current Stock Price $281.34 Risk Free Rate 1.67% Current Dividend Yield 0.92% Annualized St. Dev. of Stock Returns 31.67%

Average Average B-S Value Range of Number Exercise Remaining Option of Options Outstanding Options of Shares Price Life (yrs) Price Granted Range 1 16,124,745 167.79 6.20 $ 135.55 $ 2,185,689,830 Total 16,124,745$ 167.79 6.20$ 149.06 $ 2,185,689,830