FedEx Corp. said today it has adopted mark-to-market pension accounting for its defined benefit pension and other post-retirement plans. This accounting change will have no effect on employees’ pension benefits or the funding requirements for any FedEx pension plans or FedEx cash flows.
This accounting method will make FedEx’s operating performance easier to understand and more transparent by immediately recognizing actuarial gains and losses in the fourth quarter of the fiscal year rather than amortizing them over many years. Mark-to-market accounting has been adopted by many large U.S. corporations, and is considered the preferred accounting method because it provides a more current picture of pension plan performance.
“Adopting the mark-to-market approach will align our accounting to provide greater transparency by removing certain legacy pension costs from segment operating results and recognizing them in a year-end adjustment,” said Alan B. Graf, Jr., executive vice president and chief financial officer of FedEx Corp. “This change has no operational or cash-flow impact and, importantly, does not affect benefits for plan participants. In addition, the funded status of our principal plan remains very strong.”
FedEx also announced it will lower its expected return on plan assets to 6.50 percent for segment reporting in all periods and on a consolidated basis starting in fiscal 2016. This change reflects its outlook for long-term investment returns and the current strategy for its investment portfolio.
The company said it will record an estimated $2.2 billion non-cash, pretax charge for the fourth quarter of fiscal 2015 ($1.4 billion, net of tax, or $4.88 per diluted share for the fourth quarter and $1.4 billion, net of tax, or $4.81 per diluted share for fiscal year 2015) in connection with the changes in its pension accounting methods.
FedEx will continue to record service cost, interest cost and expected return on pension assets at the business segments which will be included in the company’s annual earnings forecast. The annual adjustment will reflect actual return on pension plan assets, changes in discount rates and differences from other actuarial assumptions. The balance-sheet funded status of retirement plans is not affected by this change.
Financial results from prior periods have been recast to include the impact of these changes in all periods.
Reconciliations between previously reported company earnings and revised company earnings for fiscal years 2013 and 2014, for each quarter of fiscal 2014, and for the first three quarters of fiscal 2015 are available to provide year-over-year comparability for future periods.
Source: Market Watch