Federal Express 2006 Annual Report Download - page 52

FedEx Kinko’s Segment Outlook
FedEx Kinko’s has initiated a multi-year network expansion pro-
gram to increase the retail locations for customer access to FedEx
Kinko’s business services and the FedEx Express and FedEx
Ground shipping network. In addition, FedEx Kinko’s will focus
on key strategies related to improving customer service and
employee training and development. The network expansion pro-
gram, combined with employee training programs, is anticipated
to result in modest revenue growth; however, profitability will be
negatively impacted by costs associated with adding new loca-
tions and expenses associated with enhancing service levels.
FINANCIAL CONDITION
LIQUIDITY
Cash and cash equivalents totaled $1.937 billion at May 31, 2006,
compared to $1.039 billion at May 31, 2005 and $1.046 billion at
May 31, 2004. The following table provides a summary of our cash
flows for the years ended May 31 (in millions):
2006 2005 2004
Operating activities:
Net income $1,806 $ 1,449 $ 838
Noncash charges and credits 1,997 1,662 1,516
Changes in operating assets
and liabilities (127) 6 666
Net cash provided
by operating activities 3,676 3,117 3,020
Investing activities:
Business acquisitions,
net of cash acquired – (122) (2,410)
Capital expenditures and
other investing activities (2,454) (2,226) (1,252)
Net cash used in
investing activities (2,454) (2,348) (3,662)
Financing activities:
Proceeds from debt issuances –– 1,599
Principal payments on debt (369) (791) (319)
Repurchase of treasury stock –– (179)
Dividends paid (97) (84) (66)
Other financing activities 142 99 115
Net cash (used in) provided
by financing activities (324) (776) 1,150
Net increase (decrease)
in cash and cash
equivalents $ 898 $ (7) $ 508
Cash Provided by Operating Activities. The $559 million increase
in cash flows from operating activities in 2006 was principally due
to increased earnings. The $97 million increase in cash flows
from operating activities in 2005 was largely attributable to
increased earnings and improvement in accounts receivable col-
lections, partially offset by a $140 million increase in voluntary
contributions to our U.S. domestic pension plans and a decrease
in the growth of operating liabilities.
Pension Contributions. Net cash provided by operating activities
reflect voluntary U.S. domestic pension plan contributions of $456
million during 2006, compared to $460 million during 2005 and $320
million during 2004.
Cash Used for Business Acquisitions. During the second quarter
of 2005, we acquired FedEx SmartPost for $122 million in cash. In
the third quarter of 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 2006 primarily due to expenditures associated with vehi-
cle acquisitions at FedEx Express and FedEx Freight, facility
expansion at FedEx Ground and information technology invest-
ments at FedEx Services. In 2005, capital expenditures increased
due to planned aircraft expenditures at FedEx Express. See
“ Capital Resources” for further discussion.
Debt Financing Activities. During 2006, $250 million of senior
unsecured notes matured and were repaid. During 2005, $600 mil-
lion of senior unsecured notes matured and were repaid and $45
million in tax exempt bonds were called and prepaid.
A new $1.0 billion five-year revolving credit facility was executed
in the first quarter of 2006, which replaced our prior revolving
credit facilities. The revolving credit facility is available to finance
our operations and other cash flow needs and to provide support
for the issuance of commercial paper. Any commercial paper bor-
rowings reduce the amount available under the revolving credit
facility. At both May 31, 2006 and 2005, no commercial paper was
outstanding and the entire $1.0 billion under the revolving credit
facility was available for future borrowings. Borrowings under the
revolving credit facility will bear interest at short-term interest
rates (based on the London Interbank Offered Rate (“ LIBOR” ), the
Prime Rate or the Federal Funds Rate) plus a margin dependent
upon our senior unsecured long-term debt ratings.
Our revolving credit agreement contains a financial covenant
that requires us to maintain a leverage ratio of adjusted debt
(long-term debt, including the current portion of such debt, plus
six times rentals and landing fees) to capital (adjusted debt plus
total common stockholders’ investment) that does not exceed 0.7
to 1.0. Throughout 2006, we were in compliance with this and all
other restrictive covenants of our revolving credit agreement and
do not expect the covenants to significantly affect our operations.
For more information on our credit facility, see Note 7 of the
accompanying consolidated financial statements.
We also use capital and operating leases to finance a portion of
our aircraft, facility, vehicles and equipment needs. In addition,
we have a $1.0 billion shelf registration statement filed with the
SEC to provide flexibility and efficiency when obtaining certain
financing. Under this shelf registration statement we may issue,
in one or more offerings, unsecured debt securities, common
stock or a combination of such instruments. The entire $1.0 billion
is available for future financings.
FEDEX CORPORATION
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