8-KFinancial Events

FEDEX CORP 8-K Report, Material Impairment (May 29, 2018)

Filed May 29, 2018For Securities:FDX

Summary

FedEx Corporation (FDX) announced a significant non-cash goodwill impairment charge of approximately $374 million in connection with its fiscal fourth quarter ending May 31, 2018. This charge is related to the 2015 acquisition of GENCO Distribution System, Inc. (now FedEx Supply Chain). The impairment stems from the underperformance of the FedEx Supply Chain business, which failed to meet expected operating synergies, revenue, and profit growth targets, and experienced erosion in its base business during fiscal 2018. The company clarified that this impairment charge relates to substantially all of the goodwill specifically attributed to the FedEx Supply Chain reporting unit. Importantly, the majority of the original $1.2 billion goodwill from the acquisition was allocated to other reporting units and is not affected. FedEx has stated that this non-cash charge will not require any current or future cash expenditures, and it is part of a broader reorganization aimed at improving the business. The total asset impairment charges for the quarter are expected to be around $380 million, also non-cash.

Key Highlights

  • 1FedEx to record a non-cash goodwill impairment charge of approximately $374 million for the fourth quarter of fiscal year 2018.
  • 2The impairment relates to the goodwill generated from the January 2015 acquisition of GENCO Distribution System, Inc. (now FedEx Supply Chain).
  • 3The charge is due to the underperformance of FedEx Supply Chain, failing to achieve anticipated operating synergies, revenue, and profit growth.
  • 4The FedEx Supply Chain business also experienced erosion in its base operations during fiscal 2018.
  • 5The $374 million impairment represents substantially all goodwill attributed to the FedEx Supply Chain reporting unit; other reporting units' goodwill is not impacted.
  • 6The majority of the original acquisition goodwill ($1.2 billion) was allocated elsewhere and is not impaired.
  • 7The impairment is a non-cash charge and will not result in any current or future cash expenditures.

Frequently Asked Questions

The goodwill impairment charge of approximately $374 million is primarily due to the underperformance of the FedEx Supply Chain business. This segment failed to achieve the expected operating synergies, revenue growth, and profit targets anticipated at the time of its acquisition in January 2015.

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

No, the $374 million charge relates to substantially all the goodwill attributed specifically to the FedEx Supply Chain reporting unit. The majority of the original $1.2 billion goodwill from the acquisition was allocated to other FedEx reporting units and is not being impaired by this event.

FedEx Supply Chain was reorganized during the fourth quarter of fiscal 2018 under FedEx Trade Networks. The company has stated that a plan to improve the FedEx Supply Chain business is currently underway.