By Chelsey Dulaney and Laura Stevens
FedEx Corp. said Friday that it will book a $2.2 billion pretax
charge in its most recently ended quarter as a result of its
decision to switch to a pension accounting method that it said
makes it easier to gauge plan performance.
FedEx joins dozens of companies, such as AT&T Inc., that
have adopted mark-to-market pension accounting in the last few
years. The method allows pension gains and losses to flow into
earnings sooner than under old rules, which allow companies to
smooth out the impact over several years.
FedEx said it will now recognize actuarial gains and losses in
the fourth quarter of its fiscal year rather than amortizing them
over several years, making its operating performance easier to
understand and more transparent.
Net of tax, the charge is valued at $1.4 billion, or $4.88 a
share. Before the announcement, analysts polled by Thomson Reuters
expected FedEx to post $2.68 a share in adjusted earnings in its
fiscal fourth quarter, which ended in May.
FedEx said the plan won't impact its employees' pension benefits
or the company's cash flows.
FedEx said it also booked a charge of 47 cents a share in the
fourth quarter related to a $228 million settlement in a
long-running independent contractor lawsuit. FedEx has tussled for
years over its practice of classifying its U.S. delivery drivers as
independent contractors.
FedEx faced a setback in the long-running suit last year when a
Ninth Circuit Court of Appeals panel ruled against the company on
the issue. FedEx had appealed that decision to the full court.
The decision to settle "is focused on California state law,
while other pending cases will be decided consistent with the laws
of the states in which they are pending," FedEx said in a
statement.
Companies often choose to settle in California due to the legal
climate in the state, said Kevin Sterling, an analyst with BB&T
Capital Markets. "I don't think it will impact other cases in other
states," he added.
The company faced an additional legal setback on the issue last
year when the Kansas Supreme Court issued an opinion that hundreds
of drivers suing FedEx in Kansas were employees, which could impact
the outcome of a number of pending class-action lawsuits before the
Seventh Circuit Court of Appeals. The company is defending itself
against additional cases on the same issue, according to its most
recent quarterly report.
FedEx since 2011 has only contracted with incorporated
businesses that employ drivers, and the disputed independent
contractor business model at the heart of the lawsuits is no longer
in use.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com and Laura
Stevens at laura.stevens@wsj.com
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