net working capital

Project Description:

how does net working capital work at fedex?
what do you think fedex two main goals for its effective management of working capital.
how is fedex been working towards these goals? how can you tell?

financial condition
li quidity
cash and cash equivalents totaled $2.3 billion at may 31, 2011, compared
to $2.0 billion at may 31, 2010. the following table provides a
summary of our cash flows for the periods ended may 31 (in millions):
cash provided by operating activities. cash flows from operating
activities increased $903 million in 2011 primarily due to increased
earnings in 2011 and lower pension contributions. cash flows from
operating activities increased $385 million in 2010 primarily due to the
receipt of income tax refunds of $279 million and increased income.
we made contributions of $480 million to our tax–qualified u.s.
domestic pension plans (“u.s. pension plans”) during 2011, including
$121 million in voluntary contributions and contributions of $848
million to our u.s. pension plans during 2010, including $495 million in
voluntary contributions. we made contributions of $1.1 billion to our
u.s. pension plans during 2009.
cash used in investing activities. capital expenditures were
22% higher in 2011 and 15% higher in 2010 largely due to increased
spending at fedex express. see “capital resources” for a discussion
of capital expenditures during 2011 and 2010.
financing activities. we have a shelf registration statement filed
with the securities and exchange commission (“sec”) that allows
us to sell, in one or more future offerings, any combination of our
unsecured debt securities and common stock. during 2011, we repaid
our $250 million 7.25% unsecured notes that matured on february
15, 2011. during 2010, we repaid our $500 million 5.50% notes that
matured on august 15, 2009 using cash from operations and a portion
of the proceeds of our january 2009 $1 billion senior unsecured debt
offering. during 2011, we made principal payments in the amount of
$12 million related to capital lease obligations. during 2010, we made
principal payments in the amount of $153 million related to capital
lease obligations.
a $1 billion revolving credit facility is available to finance our
operations and other cash flow needs and to provide support for the
issuance of commercial paper. this five–year credit agreement was
entered into on april 26, 2011, and replaced the $1 billion three–year
credit agreement dated july 22, 2009. the agreement contains a
financial covenant, which requires us to maintain a leverage ratio of
adjusted debt (long–term debt, including the current portion of such
debt, plus six times our last four fiscal quarters’ rentals and landing
fees) to capital (adjusted debt plus total common stockholders’
investment) that does not exceed 0.7 to 1.0. our leverage ratio of
adjusted debt to capital was 0.5 at may 31, 2011. under this financial
covenant, our additional borrowing capacity is capped, although this
covenant continues to provide us with ample liquidity, if needed. we
are in compliance with this and all other restrictive covenants of our
revolving credit agreement and do not expect the covenants to affect
our operations, including our liquidity or borrowing capacity. as of
may 31, 2011, no commercial paper was outstanding and the entire $1
billion under the revolving credit facility was available for
future borrowings.
capital resources
our operations are capital intensive, characterized by significant
investments in aircraft, vehicles, technology, facilities, and package–
handling and sort equipment. the amount and timing of capital
additions depend on various factors, including pre–existing contractual
commitments, anticipated volume growth, domestic and international
economic conditions, new or enhanced services, geographical expansion
of services, availability of satisfactory financing and actions of
regulatory authorities.
2011 2010 2009
operating activities:
net income $ 1,452 $ 1,184 $ 98
noncash impairment and other charges 29 18 1,103
other noncash charges and credits 2,892 2,514 2,554
changes in assets and liabilities (332) (578) (1,002)
cash provided by operating activities 4,041 3,138 2,753
investing activities:
capital expenditures (3,434) (2,816) (2,459)
business acquisition, net of cash
acquired (96) – –
proceeds from asset dispositions
and other 111 35 76
cash used in investing activities (3,419) (2,781) (2,383)
financing activities:
proceeds from debt issuance – – 1,000
principal payments on debt (262) (653) (501)
dividends paid (151) (138) (137)
other 126 99 38
cash (used in) provided by
financing activities (287) (692) 400
effect of exchange rate changes on cash 41 (5) (17)
net increase (decrease) in cash and

cash equivalents $ 376 $ (340) $ 753

the following table compares capital expenditures by asset category
and reportable segment for the years ended may 31 (in millions):
capital expenditures during 2011 were higher than the prior–year
period primarily due to increased spending at fedex express for aircraft
and aircraft–related equipment and at fedex services for information
technology investments. aircraft and aircraft–related equipment
purchases at fedex express during 2011 included the delivery of six
new b777fs and 22 b757s. capital expenditures during 2010 were
higher than the prior year primarily due to increased spending at
fedex express for aircraft and aircraft–related equipment. aircraft
and aircraft–related equipment purchases at fedex express during
2010 included six new b777fs and 12 b757s. fedex services capital
expenditures increased in 2010 due to information technology facility
expansions and projects. capital spending at fedex ground decreased
in 2010 due to decreased spending for facilities and sort equipment
and vehicles.

li quidity outloo k
we believe that our existing cash and cash equivalents, cash flow
from operations, and available financing sources will be adequate
to meet our liquidity needs, including working capital, capital expenditure
requirements and debt payment obligations. our cash and cash
equivalents balance at may 31, 2011 includes $300 million of cash
in offshore jurisdictions associated with our permanent reinvestment
strategy. we do not believe that the indefinite reinvestment of these
funds offshore impairs our ability to meet our domestic debt or working
capital obligations. although we expect higher capital expenditures
in 2012, we anticipate that our cash flow from operations will be
sufficient to fund these expenditures. historically, we have been
successful in obtaining unsecured financing, from both domestic
and international sources, although the marketplace for such
investment capital can become restricted depending on a variety
of economic factors.
our capital expenditures are expected to be $4.2 billion in 2012 and
will include spending for aircraft and aircraft–related equipment at
fedex express, network expansion at fedex ground and revenue equipment
at the fedex freight segment. we expect approximately 59% of
capital expenditures in 2012 will be designated for growth initiatives
and 41% dedicated to maintaining our existing operations. our capital
expenditures are expected to increase in 2012 due to spending for
vehicle equipment and on–going investments in aircraft programs. our
expected capital expenditures for 2012 include $2.0 billion in investments
for delivery of aircraft as well as progress payments toward
future aircraft deliveries at fedex express, including b757s and the
b777f which are significantly more fuel–efficient per unit than the
aircraft type previously utilized. our b757 aircraft are replacing our
boeing 727 aircraft, and we expect to be completely transitioned out of
this aircraft type by 2016. we will benefit from the tax expensing and
accelerated depreciation provisions of the tax relief act of 2010 on
qualifying capital investments we make in 2012.
we have agreed to purchase a total of 45 b777f aircraft (12 of which
were in service at may 31, 2011, and an additional seven to be
delivered in 2012). our obligation to purchase 15 of these aircraft is
conditioned upon there being no event that causes fedex express or
its employees not to be covered by the railway labor act of 1926, as
amended. these aircraft–related capital expenditures are necessary
to achieve significant long–term operating savings and to support
projected long–term international volume growth. our ability to delay
the timing of these aircraft–related expenditures is limited without
incurring significant costs to modify existing purchase agreements.
for 2012, we anticipate making required contributions to our u.s.
pension plans totaling approximately $500 million. our u.s. pension
plans have ample funds to meet expected benefit payments. in 2012,
we have scheduled principal and interest payments of $25 million on
capital leases.
standard & poor’s has assigned us a senior unsecured debt credit rating
of bbb and commercial paper rating of a–2 and a ratings outlook
of “stable.” during the third quarter of 2010, moody’s investors
service reaffirmed our senior unsecured debt credit rating of baa2
and commercial paper rating of p–2 and raised our ratings outlook to
“stable.” 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 credit ratings drop below investment grade, our access
to financing may become limited.
percent change
2011 2010 2009
/ 2010
aircraft and related equipment $ 1,988 $ 1,537 $ 925 29 66
facilities and sort equipment 555 630 742 (12) (15)
vehicles 282 220 319 28 (31)
information and technology
investments 455 289 298 57 (3)
other equipment 154 140 17
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