Federal Express 2006 Annual Report Download - page 53

Cash Used for Share Repurchases. We did not repurchase any
shares in 2006 or 2005. During the first half of 2004, we repur-
chased 2.6 million shares at an average price of $68.14 per share,
which decreased cash flows by approximately $179 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
remain under existing share repurchase authorizations.
Dividends. Dividends paid were $97 million in 2006, $84 million
in 2005 and $66 million in 2004. On May 26, 2006, our Board of
Directors declared a dividend of $0.09 per share of common
stock, an increase of $0.01 to our quarterly dividend. The divi-
dend was paid on July 3, 2006 to stockholders of record as of
the close of business on June 12, 2006. 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 facility and shelf registration
statement with the SEC will adequately meet our working capital
and capital expenditure needs for the foreseeable future and
finance our pending acquisitions. In the future, other forms of
secured financing may be used to obtain capital assets if we
determine that they best suit our needs. We have been successful
in obtaining investment capital, both domestic and international,
although the marketplace for such capital can become restricted
depending on a variety of economic factors. We believe the capi-
tal resources available to us provide flexibility to access the most
efficient markets for financing capital acquisitions, including air-
craft, 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 characterizes our ratings outlook as “ stable,” while
Standard & Poor’s characterizes our ratings outlook as “ positive.”
If our credit ratings drop, our interest expense may increase. If our
commercial paper ratings drop below current levels, we may have
difficulty utilizing the commercial paper market. If our senior
unsecured debt ratings drop below investment grade, our access
to financing may become more limited.
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 pre-existing 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
2006/ 2005/
2006 2005 2004 2005 2004
Aircraft and related
equipment $1,033 $ 990 $ 372 4166
Facilities and
sort equipment 507 496 332 249
Vehicles 413 261 212 58 23
Information and
technology investments 394 331 249 19 33
Other equipment 171 158 106 849
Total capital
expenditures $2,518 $2,236 $1,271 13 76
FedEx Express segment $1,408 $1,195 $ 592 18 102
FedEx Ground segment 487 456 314 745
FedEx Freight segment 274 217 130 26 67
FedEx Kinko’s segment 94 152 36 (38) NM
Other, principally
FedEx Services 255 216 199 18 9
Total capital
expenditures $2,518 $2,236 $1,271 13 76
Capital expenditures during 2006 were higher than the prior year
primarily due to the purchase of vehicles at FedEx Express and
FedEx Freight and information technology investments at FedEx
Services. In addition, investments were made in the FedEx Ground
and FedEx Freight networks to support growth in customer
demand. Capital expenditures were 76% higher in 2005, with the
year-over-year increase due to planned aircraft expenditures at
FedEx Express to support IP volume growth and FedEx Kinko’s
rebranding costs. Capital expenditures during 2005 included a full
year of FedEx Kinko’s.
Our capital expenditures are expected to be approximately $2.9
billion in 2007, with much of the year-over-year increase due to
facility expansions at FedEx Express, network expansions at
FedEx Kinko’s and vehicle expenditures at FedEx Ground to
support network expansions and replacement needs. We also
continue to invest in productivity-enhancing technologies and the
multi-year capacity expansion of the FedEx Ground network. We
currently expect to fund our 2007 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 actually needed.
We are closely managing our capital spending based on current
and anticipated volume levels and will defer or limit capital addi-
tions where economically feasible, while continuing to invest
strategically in growing service lines.
MANAGEM ENT’S DISCUSSION AND ANALYSIS
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