Federal Express 2009 Annual Report Download - page 28

FEDEX CORPORATION
26
LIQUIDITY OUTLOOK
We had $2.3 billion in cash and cash equivalents as of May 31,
2009. For 2010, we believe that our existing cash and cash
equivalents, cash fl ow from operations, and available fi nancing
sources will be adequate to meet our liquidity needs, including
working capital, capital expenditure requirements and debt pay-
ment obligations (described above). Although we expect higher
capital expenditures in 2010, we anticipate that our cash fl ow
from operations will exceed our investing activities, excluding
any acquisitions. 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 con-
tinuing to invest strategically for future growth.
Secured fi nancing may be used to obtain capital assets if we
determine that it best suits our needs. Historically, we have been
successful in obtaining unsecured fi nancing, from both domes-
tic and international sources, although the marketplace for such
investment capital can become restricted depending on a variety
of economic factors, as we experienced in 2009. During 2009,
global credit markets experienced signifi cant liquidity disrup-
tions, and continued uncertainty in the credit markets has
made fi nancing terms for borrowers less attractive and in cer-
tain cases resulted in the unavailability of certain types of debt
fi nancing, such as commercial paper. Although these factors
may make it more diffi cult or expensive for us to access credit
markets, we still have access to credit, as evidenced by our debt
issuance in the third quarter of 2009.
The American Recovery and Reinvestment Act of 2009 was signed
into law in February 2009. Among other things, this law extends
the bonus tax depreciation deductions for qualified assets
acquired and placed into service during calendar year 2009. As
a result of this extension, we estimate that the net benefi t from
bonus tax depreciation provisions passed in 2008 and 2009 could
be approximately $50 million in 2010; however, the actual amount
is subject to the nature and timing of our capital expenditures in
2010, which may be impacted by economic conditions.
Our capital expenditures are expected to be $2.6 billion in 2010
and will include spending for aircraft and related equipment at
FedEx Express, network expansion at FedEx Ground and revenue
equipment at FedEx Freight. We also continue to invest in produc-
tivity-enhancing technologies. We expect approximately 61% of
capital expenditures in 2010 will be designated for growth initia-
tives and 39% for ongoing maintenance activities. Our expected
capital expenditures for 2010 include $1.1 billion in investments
for aircraft and aircraft-related equipment at FedEx Express.
Aircraft-related capital outlays include the B757s, the fi rst of
which entered revenue service in 2009 and which are substan-
tially more fuel-effi cient per unit than the aircraft type they are
replacing, and the new B777Fs, the fi rst of which is expected
to enter revenue service in 2010. These aircraft-related capital
expenditures are necessary to achieve signifi cant long-term
operating savings and to support projected long-term interna-
tional volume growth. Our ability to delay the timing of these
aircraft-related expenditures is limited without incurring signifi -
cant costs to modify existing purchase agreements.
In December 2008, we reached an agreement with Boeing to
defer the delivery of certain B777F aircraft by up to 17 months. In
addition, in January 2009, we exercised our option with Boeing to
purchase an additional 15 B777F aircraft and obtained an option
to purchase an additional 15 B777F aircraft. Our obligation to pur-
chase these additional aircraft is conditioned upon there being no
event that causes FedEx Express or its employees not to be cov-
ered by the Railway Labor Act of 1926, as amended. Accordingly,
we have now agreed, subject to the above contractual condition,
to purchase a total of 30 B777F aircraft and hold an option to
purchase an additional 15 B777F aircraft.
During 2009, we made $1.1 billion in tax-deductible voluntary
contributions to our U.S. Retirement Plans in order to improve
their funded status. These contributions included $483 mil-
lion in September 2008 and $600 million in May 2009. Our U.S.
Retirement Plans have ample funds to meet benefi t payments.
However, current market conditions have negatively impacted
our plan asset values, resulting in the 2009 recognition of a
$1.2 billion charge to OCI, and increasing our minimum expected
funding requirements for 2010. For 2010, we anticipate making
contributions to our U.S. Retirement Plans totaling approximately
$850 million, including approximately $500 million in voluntary
contributions and $350 million in minimum required contributions,
beginning in the second quarter of 2010.
In June 2009, Standard & Poor’s reaffi rmed our senior unsecured
debt credit rating of BBB and commercial paper rating of A-2
and our ratings outlook as “stable.” During the third quarter of
2009, Moody’s Investors Service reaffi rmed our senior unsecured
debt credit rating of Baa2 and commercial paper rating of P-2.
However, Moody’s downgraded our ratings outlook to “ negative.”
If our credit ratings drop, our interest expense may increase. If
our commercial paper ratings drop below current levels, we may
have diffi culty utilizing the commercial paper market. If our senior
unsecured debt ratings drop below investment grade, our access
to fi nancing may become limited.
In 2010, scheduled debt payments include $664 million of principal
payments on unsecured notes and capitalized leases.