8-KLeadership ChangesFinancial Events

FEDEX CORP 8-K Report, Material Impairment (Jun 19, 2020)

Filed June 19, 2020For Securities:FDX

Summary

This 8-K filing from FedEx Corp. (FDX) on June 18, 2020, primarily discloses a significant noncash goodwill impairment charge of approximately $348 million, expected to be recorded in the fourth quarter of fiscal year 2020. This impairment is largely attributed to the FedEx Office segment (formerly Kinko's) and is a direct result of the negative impacts of the COVID-19 pandemic, including declining print revenue and temporary store closures. The total asset impairment charges are projected to be around $370 million, also encompassing impairments related to FedEx Supply Chain and FedEx Logistics, none of which are expected to require current or future cash expenditures. Additionally, the filing details changes to executive compensation for fiscal year 2021. Notably, there will be no annual incentive compensation plan for executive officers. However, a special one-time restricted stock grant, approximating 50% of the annual grant, will be issued to most executive officers, and a special stock option grant will be given to the Chairman/CEO and President/COO. The company also approved a new three-year Long-Term Incentive (LTI) plan (FY21-FY23) with performance metrics focused on aggregate Earnings Per Share (EPS) and Capital Expenditures as a percentage of Revenue, signaling a continued emphasis on financial performance and capital efficiency.

Key Highlights

  • 1FedEx recorded a noncash goodwill impairment charge of approximately $348 million related to FedEx Office (formerly Kinko's), primarily due to COVID-19 impacts.
  • 2Total asset impairment charges for Q4 FY2020 are estimated to be around $370 million, including other impairments at FedEx Supply Chain and FedEx Logistics.
  • 3All impairment charges are noncash and are not expected to result in current or future cash expenditures.
  • 4There will be no annual incentive compensation plan for executive officers in fiscal year 2021.
  • 5Executive officers (excluding CEO) will receive a one-time special restricted stock grant, and the CEO and COO will receive a one-time special stock option grant.
  • 6A new three-year Long-Term Incentive (LTI) plan (FY21-FY23) was approved, focusing on aggregate EPS growth (75% weighting) and CapEx/Revenue ratio (25% weighting).

Frequently Asked Questions

FedEx is recording a noncash goodwill impairment charge of approximately $348 million in the fourth quarter of fiscal year 2020, primarily related to the FedEx Office segment. The total asset impairment charges are expected to be around $370 million. Importantly, these are noncash charges, meaning they do not require any immediate or future cash outlay from the company.

The impairment is a direct consequence of the COVID-19 pandemic, which has negatively impacted FedEx Office's operations. Factors include declining print revenue and temporary store closures. The company concluded that the value of the goodwill associated with the FedEx Office reporting unit had declined, necessitating the impairment charge.

For fiscal year 2021, FedEx will not have an annual incentive compensation plan for executive officers. However, executive officers will receive special one-time equity awards: most will receive restricted stock, and the Chairman/CEO and President/COO will receive stock options. These awards are intended to provide long-term incentives and align executive interests with the company's performance.

The FY21-FY23 LTI plan will focus on two financial performance metrics: aggregate Earnings Per Share (EPS) growth over the three-year period, which accounts for 75% of the payout opportunity, and the ratio of Capital Expenditures to Revenue (CapEx/Revenue), accounting for 25%. This structure aims to incentivize both earnings growth and efficient capital management.