8-KEarnings & ResultsLeadership ChangesOther Events+1

FEDEX CORP 8-K Report, Financial Results (Jun 12, 2015)

Filed June 12, 2015For Securities:FDX

Summary

FedEx Corporation (FDX) filed an 8-K on June 12, 2015, to announce a significant change in its accounting method for defined benefit pension and other postretirement benefits. The company is adopting mark-to-market (MTM) accounting, which will immediately recognize actuarial gains and losses in operating results as they occur, rather than amortizing them over time. This change aims to enhance transparency by more quickly reflecting the impact of economic and interest rate conditions on plan obligations and investments. This accounting change will result in a substantial noncash, pre-tax charge of $2.2 billion ($1.4 billion net of tax, or $4.88 per diluted share) in the fourth quarter of fiscal 2015. Additionally, FedEx announced a settlement in principle for its independent contractor litigation concerning FedEx Ground for $228 million, leading to a $197 million charge ($133 million net of tax, or $0.47 per diluted share) in the fourth quarter. Importantly, these changes do not affect employee benefits or funding requirements for the pension plans. The company is also excluding these significant charges from fiscal 2015 incentive compensation plans to better reflect core operational performance.

Key Highlights

  • 1FedEx is adopting Mark-to-Market (MTM) accounting for pension and postretirement benefits, effective for the fiscal year ended May 31, 2015.
  • 2This accounting change will result in a non-cash, pre-tax charge of $2.2 billion ($1.4 billion net of tax, or $4.88 per diluted share) recognized in the fourth quarter of fiscal 2015.
  • 3The MTM adoption will allow for immediate recognition of actuarial gains and losses, improving transparency regarding economic and interest rate impacts on plan obligations.
  • 4FedEx Ground has reached an agreement in principle to settle independent contractor litigation for $228 million, incurring a $197 million charge ($133 million net of tax, or $0.47 per diluted share) in the fourth quarter.
  • 5These accounting and settlement charges will be excluded from fiscal 2015 annual incentive compensation (AIC) and long-term incentive (LTI) plans to better reflect core financial performance.
  • 6The company will continue to recognize an expected return on assets (EROA) at the segment level, setting it at 6.5% for all periods presented.
  • 7The changes will not impact employee pension benefits or the funding requirements of the pension plans.

Frequently Asked Questions

FedEx is changing its accounting method for defined benefit pension and other postretirement benefits to Mark-to-Market (MTM) accounting. This means actuarial gains and losses will be recognized immediately in the company's operating results when they occur, rather than being amortized over time.

The adoption of MTM accounting will result in a significant non-cash, pre-tax charge of $2.2 billion in the fourth quarter of fiscal 2015. This translates to a net charge of $1.4 billion, or $4.88 per diluted share for the quarter and $4.81 per diluted share for the full fiscal year.

FedEx Ground has agreed to settle independent contractor litigation for $228 million. This settlement has resulted in a charge of $197 million ($133 million net of tax, or $0.47 per diluted share) recorded in the fourth quarter of fiscal 2015 to increase the reserve for this matter.

FedEx's Board of Directors decided to exclude these significant charges (pension accounting change and litigation settlement) from the calculation of fiscal 2015 earnings for the annual incentive compensation (AIC) and long-term incentive (LTI) plans. This is intended to ensure that payouts more accurately reflect the company's core financial performance.

No, the filing explicitly states that these accounting changes will have no effect on employees' pension benefits or the funding requirements for any of FedEx's pension plans.