8-KEarnings & ResultsLeadership ChangesFinancial Events+1

FEDEX CORP 8-K Report, Financial Results (Jun 2, 2008)

Filed June 2, 2008For Securities:FDX

Summary

FedEx Corporation (FDX) filed an 8-K report on June 2, 2008, announcing a significant non-cash charge of approximately $891 million ($2.22 per diluted share) primarily related to the impairment of the Kinko's trade name and goodwill. This charge stems from the decision to rebrand Kinko's as FedEx Office, a decline in Kinko's financial performance, and a slowdown in retail network expansion. The company does not anticipate any cash expenditures associated with this impairment. In addition to the impairment charge, the report details adjustments to executive compensation plans. For the fiscal year ending May 31, 2009, the annual incentive compensation (AIC) plan will measure company financial performance by diluted earnings per share (EPS) instead of pre-tax income. Furthermore, the impairment charge will be excluded from EPS calculations for certain long-term incentive (LTI) compensation plans covering fiscal years 2006-2008, 2007-2009, and 2008-2010, and will also be excluded when setting EPS goals for the 2009-2011 LTI plan. This exclusion is intended to prevent the charge from unfairly impacting incentive payouts and affecting management retention.

Key Highlights

  • 1FedEx announced a substantial non-cash impairment charge of approximately $891 million ($2.22 per diluted share) for the fiscal quarter ended May 31, 2008.
  • 2The impairment is primarily related to the Kinko's trade name ($515 million) and goodwill ($367 million) acquired in 2004.
  • 3Key drivers for the impairment include the rebranding of Kinko's to FedEx Office, underperformance of the Kinko's business, and reduced expansion plans for its retail network.
  • 4The company confirmed that no current or future cash expenditures are expected as a result of this impairment charge.
  • 5FedEx's Board of Directors approved a change in the fiscal year 2009 annual incentive compensation plan to measure company performance based on diluted EPS, replacing pre-tax income.
  • 6The significant Kinko's impairment charge will be excluded from EPS calculations for certain long-term incentive plans to ensure accurate performance assessment and aid in management retention.

Frequently Asked Questions

The primary reason is a significant non-cash impairment charge of approximately $891 million. This charge is mainly due to the reduced value of the Kinko's trade name and the goodwill associated with its acquisition, stemming from a strategic shift to rebrand Kinko's as FedEx Office, disappointing financial performance, and a decision to slow down the expansion of the Kinko's retail network.

No, FedEx explicitly stated that this is a non-cash charge. The company does not expect any current or future cash expenditures to be required as a result of recording this impairment.

The charge will be excluded from the calculation of earnings per share (EPS) for certain long-term incentive (LTI) compensation plans. This exclusion is intended to ensure that the impairment does not unfairly reduce incentive payouts and to help retain key management personnel. Additionally, the annual incentive compensation plan for fiscal year 2009 will now use diluted EPS as the primary measure of company financial performance, rather than consolidated pre-tax income.

The total impairment charge is approximately $891 million, which translates to a reduction of $2.22 per diluted share for the fiscal quarter and year ended May 31, 2008.