By Douglas Price
July 1, 2020
As the second half of the whirlwind year that is 2020 get started, second quarter financials are about to be released. As impacts of Covid-19 continued to hit businesses from all directions, FedEx decided to release some information ahead of the calendar milestone.
On June 19th, over three months into the Covid-19 economic slowdown, the global package delivery leader filed a Form 8-K current report with the Securities and Exchange Commission (SEC). The report detailed “a noncash charge of approximately $348 million for impairment of the value of goodwill would need to be recorded in the fourth quarter ended May 31, 2020, related to reduction in the value of the goodwill recorded as a result of the February 2004 acquisition of Kinko’s, Inc. (now known as FedEx Office and Print Services, Inc. (“FedEx Office”)).”
FedEx stated the charge reflects FedEx’s “impairment testing of goodwill and other intangible assets conducted in the fourth quarter in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 350, “Intangibles—Goodwill and Other” and in connection with the preparation of the financial statements to be included in FedEx’s annual report on Form 10-K for the fiscal year ended May 31, 2020.” The goodwill impairment charge was recognized based on declining print revenue and temporary store closures at FedEx Office during the fourth quarter of fiscal 2020 resulting from the COVID-19 pandemic. The COVID-19 pandemic is expected to continue to negatively impact FedEx Office’s near-term operating performance. The goodwill impairment charge of $348 million represents all of the remaining goodwill attributed to the FedEx Office reporting unit.”
Earlier in the year, FedEx reported a $66 million asset impairment charge in the previous fiscal quarter ended on February 29. However, this charge was linked to a 2nd quarter decision to remove aircraft assets from service.
The earlier SEC filing stated, “In the second quarter of 2020, we made the decision to permanently retire from service 10 Airbus A310-300 aircraft and 12 related engines at Federal Express Corporation (“FedEx Express”) to align with the needs of the U.S. domestic network and modernize its aircraft fleet. [Because of] this decision, noncash impairment charges of $66 million were recorded in the FedEx Express segment in the second quarter. Seven of these aircraft were temporarily idled.”
According to its Form 10-Q released this past March, revenue for FY 2020 through three quarters for the company was flat compared to last year, while operating income was off by more than 50% over the same period.
However, Covid-19 reporting was not the only reason for financial transparency. One of the other reasons for disclosing this information is likely tied to deadlines imposed by the Financial Accounting Standards Board (FASB), the quasi-regulatory body for transparency in financial reporting. According to the September 2018 issue of CPA Journal, FASB issued a guidance document in 2017 for implementing goodwill impairment charges for certain triggering events. In this case, it seems FedEx has determined that Covid-19 business
interruption is such an event. But even without the extraordinary losses that have befallen most customer-facing businesses, the FASB announcement required public company SEC filers like FedEx with fiscal years beginning after December 15, 2019 to implement their updated goodwill amortization policy. Since FedEx’s 2020 fiscal year ended on May 31, the statement on goodwill impairment would have to be addressed in its annual report and Form 10-K soon to be filed with the SEC.
(On June 30, FedEx released another 8-K current report, this time with its fourth-quarter and year-end financial results. The company stated that the matters are “excluded from our fourth quarter and full-year fiscal 2020 and 2019 consolidated and FedEx Express segment non-GAAP financial measures, as applicable, because they are unrelated to our core operating performance and/or to assist investors with assessing trends in our underlying businesses.unrelated to our core operating performance and/or to assist investors with assessing trends in our underlying businesses.”)
Corporate QnK 