Federal Express 2001 Annual Report Download - page 16

Management’s Discussion and Analysis
14
Outlook
In 2002, we will continue the strategic realignment of FedEx Supply
Chain Services. The new FedEx Supply Chain Services business
model includes substantially less emphasis on warehousing activi-
ties and an increased focus on alliance-based and information
technology-sensitive business. The new business model is more
consistent with management’s strategy for this operating sub-
sidiary, which is to pursue business that enhances the services
offered by other operating companies in the FedEx family.
FINANCIAL CONDITION
LIQUIDITY
Cash and cash equivalents totaled $121 million at May 31, 2001,
compared to $68 million at May 31, 2000. Cash flows from operat-
ing activities during 2001 totaled $2.0 billion, compared to $1.6 bil-
lion for 2000 and $1.8 billion for 1999.
Because we incur significant noncash charges, including depre-
ciation and amortization, related to the material capital assets
utilized in our business, we believe that the following cash-based
measures are useful to us and to our investors as an additional
means of evaluating our financial condition. These measures
should not be considered as a superior alternative to net income,
operating income or cash from operations, or to any other operat-
ing or liquidity performance measure as defined by generally
accepted accounting principles.
FedEx’s operations have generated increased cash earnings per
share over the past three years. The following table compares
cash earnings (in billions, except per share amounts) for the
years ended May 31:
2001 2000 1999
EBITDA (earnings before interest, taxes,
depreciation and amortization) $2.3 $2.4 $ 2.2
Cash earnings per share (net income
plus depreciation and amortization
divided by average common and
common equivalent shares) $6.34 $6.22 $5.54
We have a $1.0 billion revolving credit facility that is generally
used to finance temporary operating cash requirements and to
provide support for the issuance of commercial paper. As of
May 31, 2001, the entire credit facility remained available and no
commercial paper was outstanding. For more information regard-
ing the credit facility, see Note 4 to our financial statements.
During 2001, we acquired American Freightways in a transaction
accounted for as a purchase. The $978 million purchase price
was a combination of cash and FedEx common stock (11.0 million
shares of treasury stock were utilized). We also assumed approx-
imately $240 million in American Freightways debt.
On February 12, 2001, we issued $750 million of senior unsecured
notes in three maturity tranches: three, five and ten years, at
$250 million each. Net proceeds from the borrowings were used
to repay indebtedness, principally borrowings under our commer-
cial paper program, and for general corporate purposes. These
notes are guaranteed by all of our subsidiaries that are not con-
sidered minor under Securities and Exchange Commission
(“SEC”) regulations. For more information regarding debt instru-
ments, see Notes 1 and 4 to our financial statements.
During 2002, certain existing debt at FedEx Express will mature,
principally $175 million of 9.875% Senior Notes due April 1, 2002.
These notes and the other scheduled 2002 debt payments are
reflected in the current portion of long-term debt at May 31, 2001.
In 1999, we filed a $1 billion shelf registration statement with the
SEC, indicating that we may issue up to that amount in one or
more offerings of either unsecured debt securities, preferred
stock or common stock, or a combination of such instruments.
We may, at our option, direct FedEx Express to issue guarantees
of the debt securities.
We believe that cash flow from operations, our commercial paper
program and revolving bank credit facility will adequately meet
our working capital needs for the foreseeable future.
CAPITAL RESOURCES
As mentioned previously, our operations are capital intensive,
characterized by significant investments in aircraft, vehicles,
computer and telecommunications equipment, package-handling
facilities and sort equipment. The amount and timing of capital
additions depend on various factors, including volume growth,
domestic and international economic conditions, new or enhanced
services, geographical expansion of services, competition, avail-
ability of satisfactory financing and actions of regulatory authorities.