Federal Express 2006 Annual Report Download - page 54

FEDEX CORPORATION
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We have certain contingent liabilities that are not accrued in our
balance sheets in accordance with accounting principles gener-
ally accepted in the United States. These contingent liabilities are
not included in the table above.
Amounts Reflected in Balance Sheet
We have certain financial instruments representing potential
commitments, not reflected in the table above, that were incurred
in the normal course of business to support our operations,
including surety bonds and standby letters of credit. These instru-
ments are generally required under certain U.S. self-insurance
programs and are also used in the normal course of international
operations. While the notional amounts of these instruments are
material, there are no additional contingent liabilities associated
with them because the underlying liabilities are already reflected
in our balance sheet.
We have other long-term liabilities reflected in our balance sheet,
including deferred income taxes, nonqualified pension and postre-
tirement healthcare liabilities and other self-insurance accruals.
The payment obligations associated with these liabilities are not
reflected in the table above due to the absence of scheduled
maturities. Therefore, the timing of these payments cannot be
determined, except for amounts estimated to be payable within
twelve months that are included in current liabilities.
Other Cash Obligations Not Reflected in Balance Sheet
The amounts reflected in the table above for purchase commit-
ments represent noncancelable agreements to purchase goods
or services. Such contracts include those for certain purchases
of aircraft, aircraft modifications, vehicles, facilities, computers,
printing and other equipment and advertising and promotions con-
tracts. In addition, we have committed to modify our DC10 aircraft
for passenger-to-freighter and two-man cockpit configurations,
which is reflected in the table above. Commitments to purchase
aircraft in passenger configuration do not include the attendant
costs to modify these aircraft for cargo transport unless we have
entered into a noncancelable commitment. Open purchase orders
that are cancelable are not considered unconditional purchase
obligations for financial reporting purposes and are not included
in the table above. Such purchase orders often represent author-
izations to purchase rather than binding agreements.
The amounts reflected in the table above for interest on long-term
debt represent future interest payments due on our long-term
debt, which are primarily fixed rate.
The amounts reflected in the table above for operating leases
represent future minimum lease payments under noncancelable
operating leases (principally aircraft and facilities) with an initial
or remaining term in excess of one year at May 31, 2006. In the
past, we financed a significant portion of our aircraft needs (and
certain other equipment needs) using operating leases (a type of
“ off-balance sheet financing”). At the time that the decision to
lease was made, we determined that these operating leases
would provide economic benefits favorable to ownership with
respect to market values, liquidity or after-tax cash flows.
In accordance with accounting principles generally accepted in
the United States, our operating leases are not recorded in our
balance sheet. Credit rating agencies routinely use information
concerning minimum lease payments required for our operating
leases to calculate our debt capacity. In addition, we have guar-
antees under certain operating leases, amounting to $34 million
as of May 31, 2006, for the residual values of vehicles and facili-
ties at the end of the respective operating lease periods.
Although some of these leased assets may have a residual value
at the end of the lease term that is less than the value specified in
the related operating lease agreement, we do not believe it is
probable that we will be required to fund material amounts under
the terms of these guarantee arrangements. Accordingly, no
material accruals have been recognized for these guarantees.
CONTRACTUAL CASH OBLIGATIONS
The following table sets forth a summary of our contractual cash obligations as of May 31, 2006. 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 in our balance sheet as current liabilities at May 31, 2006. 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
(In millions) 2007 2008 2009 2010 2011 Thereafter Total
Amounts reflected in Balance Sheet:
Long-term debt $ 844 $ – $ 500 $ – $ 249 $ 539 $ 2,132
Capital lease obligations(1) 24 100 12 96 8 144 384
Other cash obligations not reflected in Balance Sheet:
Unconditional purchase obligations(2) 1,182 674 613 791 582 383 4,225
Interest on long-term debt 110 83 83 65 65 1,599 2,005
Operating leases 1,672 1,478 1,290 1,120 984 6,780 13,324
Total $3,832 $2,335 $2,498 $2,072 $1,888 $9,445 $22,070
(1) Capital lease obligations represent principal and interest payments.
(2) See Note 18 to the accompanying consolidated financial statements.