In May 2022, the New Mexico Supreme Court upheld a $160 million jury verdict against Federal Express (FDX) in connection with a 2012 accident involving a FedEx Ground contractor that resulted in three deaths. In July 2022, FedEx paid approximately $370 million— damages awarded and $210 million in interest— to the plaintiffs and their lawyers.

In its latest annual report, FedEx revealed its insurer covered the damages awarded but not the interest expense. Initially, the language used suggests FedEx and the insurer are discussing reimbursement:

“...we are currently pursuing insurance coverage for reimbursement of approximately $210 million of pre- and post-judgment interest.”

But later in the filing, FeDex includes language often used in association with legal action:

“...we intend to vigorously pursue all insurance coverages for reimbursement of our payment of approximately $210 million of pre- and post-judgment interest.”

Investors should note the timing of the resolution and its impact on FedEx’s Income Statement and Statement of Cash Flows. The jury verdict was upheld two weeks before FedEx closed the books on FY22. This allowed the company to charge the verdict and interest against earnings in the year ended May 31, 2022.

Though the cash used to settle the matter will come out of current year totals— and was paid after FY23 guidance was given— any interest FedEx recovers will immediately drop to the bottom line of the Income Statement. The interest, based on consensus FY23 forecasts, is the equivalent of approximately 3.5% of FedEx’s estimated annual net income.