Federal Express 2005 Annual Report Download - page 51

CAPITAL RESOURCES
Our operations are capital intensive, characterized by significant
investments in aircraft, vehicles, technology, package-handling
facilities and sort equipment. The amount and timing of capital
additions depend on various factors, including preexisting con-
tractual commitments, anticipated volume growth, domestic and
international economic conditions, new or enhanced services,
geographical expansion of services, competition, availability of
satisfactory financing and actions of regulatory authorities.
The following table compares capital expenditures by asset
category and reportable segment for the years ended May 31
(in millions): Percent Change
2005/ 2004/
2005 2004 2003 2004 2003
Aircraft and related
equipment $ 990 $ 372 $ 762 166 (51)
Facilities and sort
equipment 496 332 254 49 31
Information technology 331 249 273 33 (9)
Vehicles 261 212 116 23 83
Other equipment 158 106 106 49 –
Total capital
expenditures $2,236 $1,271 $1,511 76 (16)
FedEx Express segment $1,195 $ 592 $ 917 102 (35)
FedEx Ground segment 456 314 252 45 25
FedEx Freight segment 217 130 139 67 (6)
FedEx Kinko’s segment 152 36 – NM NM
Other, principally
FedEx Services 216 199 203 9(2)
Total capital
expenditures $2,236 $1,271 $1,511 76 (16)
Capital expenditures during 2005 were 76% higher than the prior
year primarily due to planned aircraft expenditures at FedEx
Express to support IP volume growth. We also made opportunis-
tic purchases of aircraft in order to take advantage of favorable
pricing conditions in the used aircraft market for certain strategi-
cally valuable aircraft types. Also, additional investments were
made in the FedEx Ground and FedEx Freight networks to support
growth in customer demand. In addition, capital expenditures
during 2005 include a full year of FedEx Kinko’s. Capital expendi-
tures were 16% lower in 2004, with the year-over-year decrease
due to lower aircraft expenditures at FedEx Express, partially off-
set by an increase in network capacity expansion
at FedEx Ground. FedEx Ground continues to expand its network
and is on track to increase daily package pickup capacity to
approximately five million by 2010.
Our capital expenditures are expected to be approximately $2.5
billion in 2006, with much of the year-over-year increase coming
from planned aircraft and vehicle expenditures at FedEx Express
to support future IP volume growth and replace vehicles. We also
continue to invest in infrastructure upgrades and productivity-
enhancing technologies, the multi-year capacity expansion of the
FedEx Ground network and growth and replacement vehicle
needs at FedEx Freight. We currently expect to fund our 2006
capital requirements with cash generated from operations.
Because of substantial lead times associated with the manufac-
ture or modification of aircraft, we must generally plan our
aircraft orders or modifications three to eight years in advance.
While we also pursue market opportunities to purchase aircraft
when they become available, we must make commitments
regarding our airlift requirements years before aircraft are actu-
ally needed. We are closely managing our capital spending
based on current and anticipated volume levels and will defer or
limit capital additions where economically feasible, while contin-
uing to invest strategically in growing service lines.
CONTRACTUAL CASH OBLIGATIONS
As required under SEC rules and regulations, the following table
sets forth a summary of our contractual cash obligations as of
May 31, 2005. Certain of these contractual obligations are
reflected in our balance sheet, while others are disclosed as
future obligations under accounting principles generally accepted
in the United States. Except for the current portion of long-term
debt and capital lease obligations, this table does not include
amounts already recorded on our balance sheet as current
liabilities at May 31, 2005. Accordingly, this table is not meant to
represent a forecast of our total cash expenditures
for any of the periods presented.
Payments Due by Fiscal Year
There-
(in millions) 2006 2007 2008 2009 2010 after Total
Amounts reflected in Balance Sheet:
Long-term debt $ 265 $ 844 $ – $ 499 $ – $ 787 $ 2,395
Capital lease
obligations(1) 121 22 99 11 96 130 479
Other cash obligations not reflected in Balance Sheet:
Unconditional
purchase
obligations(2) 930 312 253 665 595 861 3,616
Interest on
long-term debt 135 107 83 83 65 1,664 2,137
Operating leases 1,646 1,518 1,356 1,191 1,045 7,249 14,005
Total $3,097 $2,803 $ 1,791 $2,449 $1,801 $10,691 $22,632
(1) Capital lease obligations represent principal and interest payments.
(2) See Note 18 to the accompanying consolidated financial statements.
We have certain contingent liabilities that are not accrued in our
balance sheet in accordance with accounting principles gener-
ally accepted in the United States. These contingent liabilities are
not included in the table above.
MANAGEMENT’S DISCUSSION AND ANALYSIS
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