FedEx is confident in its ground-delivery business amid challenges concerning lawsuits from drivers and an order from the Internal Revenue Service to pay US$319 million in back taxes and fines related to how these workers are classified.
The shipping giant uses independent contractors in its FedEx Ground business and has faced legal challenges from contractors seeking a change in classification to obtain overtime wages and health benefits.
When FedEx reported fiscal second-quarter results on December 20, it noted that it was facing increased regulatory and legal uncertainty regarding its contractors, and that reasonably possible changes to its relationship with contractors could lead to material increases in the cost of operations.
The IRS anticipated assessing tax and penalties of $319 million plus interest for 2002. The company also said similar issues are under audit for calendar years 2004 through 2006.
Frederick Smith, FedEx's chairman and chief executive, said the company was surprised by the IRS's preliminary finding, and that FedEx believes in its business model.
Smith said the company doesn't believe a loss is probable, despite the hefty penalty.
FedEx reiterated its confidence in its ability to grow the FedEx Ground business, gain market share and provide excellent service to customers.
FedEx plans to meet with the IRS audit team in the spring this year to review the issue and provide an initial response. The company said a final resolution would not occur for some time.
In the recent fiscal quarter, FedEx's Ground business posted a 12 percent climb to $1.7 billion in revenue. Still, operating income declined 10 percent to $173 million due to an independent contractor incentive programme, higher net fuel costs and investments to expand capacity.
Smith said FedEx offered incentives last fall for independent contractors in California to become multi-route contractors or sell their route, and that virtually all of them accepted offers.
Smith said the use of independent contractors is common in the US.
|
