Federal Express 2005 Annual Report Download - page 50

Cash Used for Business Acquisitions. During the second quarter
of 2005, we acquired FedEx SmartPost for $122 million in cash.
On February 12, 2004, we acquired all of the common stock of
FedEx Kinko’s for approximately $2.4 billion in cash. See “Debt
Financing Activities” for further discussion of the FedEx Kinko’s
acquisition. See Note 3 of the accompanying audited financial
statements for further discussion of these acquisitions.
Cash Used for Capital Investments. Capital expenditures were
higher in 2005 than the prior year primarily due to planned aircraft
expenditures at FedEx Express to support IP volume growth. We
also made opportunistic purchases of aircraft in order to take
advantage of favorable pricing conditions in the used aircraft
market for certain strategically valuable aircraft types. For 2004,
capital expenditures declined due to lower aircraft expenditures
at FedEx Express, partially offset by an increase from network
capacity expansion at FedEx Ground. See “Capital Resources”
for further discussion.
Debt Financing Activities. During 2005, $600 million of senior
unsecured notes matured and were repaid and $45 million in tax
exempt bonds were called and prepaid. During 2004, $250 million
of senior unsecured notes matured and were repaid and $25 mil-
lion of unsecured debt at FedEx Express matured and was repaid.
Our commercial paper program is backed by unused commit-
ments under two revolving credit agreements, totaling $1 billion,
and any commercial paper borrowings reduces the amount
available under these agreements. In 2004, commercial paper
borrowings of $1.9 billion were necessary to finance part of our
$2.4 billion acquisition of FedEx Kinko’s. These borrowings were
backed by a six-month, $2 billion credit agreement. In March
2004, we issued $1.6 billion of senior unsecured notes in three
maturity tranches: one, three and five years, at $600 million, $500
million and $500 million, respectively. These notes are guaranteed
by all of our subsidiaries that are not considered minor under
Securities and Exchange Commission (“SEC”) regulations. Net
proceeds from these borrowings were used to repay our com-
mercial paper borrowings backed by the six-month facility. We
canceled the six-month credit facility in March 2004. At May 31,
2005 and 2004, no commercial paper borrowings were outstand-
ing and the entire $1 billion under the revolving credit agreements
was available for future borrowings.
Our credit agreements contain covenants requiring us to main-
tain certain fixed charge coverage and leverage ratios. We are
in compliance with all covenants of our credit agreements and
do not expect the covenants to significantly affect our operations
or ability to pay dividends. In addition, we use capital and operat-
ing leases to finance a portion of our aircraft as well as our other
facility and equipment needs. For more information regarding our
credit facilities, see Note 7 of the accompanying consolidated
financial statements.
We have a $1.0 billion shelf registration statement with the SEC to
provide flexibility and efficiency when obtaining financing. Under
this shelf registration statement we may issue, in one or more
offerings, either unsecured debt securities, common stock or a
combination of such instruments. The entire $1 billion is available
for future financings.
Cash Used for Share Repurchases. We did not repurchase any
shares in 2005. During 2004, our Board of Directors authorized us
to buy back a total of 15 million shares of common stock. During
the first half of 2004, we repurchased 2.6 million shares at an
average price of $68.14 per share, which decreased cash flows
by approximately $179 million. We repurchased 3.3 million
shares in 2003 at an average price of $56.66 per share and this
decreased cash flows by $186 million. Based on our current
financing strategy, we are issuing new shares in connection
with our equity compensation programs rather than utilizing
treasury shares. A total of 5.75 million shares remains under
existing share repurchase authorizations.
Dividends. Dividends paid in 2005, 2004 and 2003 were $84 million,
$66 million and $60 million, respectively. On May 27, 2005, our
Board of Directors declared a dividend of $0.08 per share of com-
mon stock, an increase of $0.01 per share. The dividend was paid
on July 1, 2005 to stockholders of record as of the close of busi-
ness on June 10, 2005. Each quarterly dividend payment is
subject to review and approval by our Board of Directors, and we
intend to evaluate our dividend payment amount on an annual
basis at the end of each fiscal year.
Other Liquidity Information. We believe that our existing cash and
cash equivalents, cash flow from operations, our commercial
paper program, revolving bank credit facilities and shelf registra-
tion statement with the SEC will adequately meet our working
capital and capital expenditure needs for the foreseeable future.
In the past we have been successful in obtaining investment
capital, both domestically and internationally, although the mar-
ketplace for such capital can become restricted depending on a
variety of economic factors. We believe the capital resources
available to us provide flexibility to access the most efficient
markets for our financing needs, including capital acquisitions,
and are adequate for our future capital needs.
We have a senior unsecured debt credit rating from Standard &
Poor’s of BBB and a commercial paper rating of A-2. Moody’s
Investors Service has assigned us a senior unsecured debt credit
rating of Baa2 and a commercial paper rating of P-2. Moody’s and
Standard & Poor’s both characterize our ratings outlook as
“stable.” If our credit ratings drop, our interest expense may
increase; similarly, we anticipate that our interest expense may
decrease if our credit ratings are raised. If our commercial paper
ratings drop below current levels, we may have difficulty utilizing
the commercial paper market. If our senior unsecured debt rat-
ings drop below investment grade, our access to financing may
become more limited.
FEDEX CORPORATION
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