UPS 2006 Annual Report Download - page 104

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
value of the Dayton facility was reduced to its fair market value as of the date of the acquisition. These accrued
costs, and related reductions in the fair value of recorded assets, resulted in an adjustment of $160 million to the
amount of goodwill initially recorded in the Menlo Worldwide Forwarding acquisition.
Additionally, we incurred costs related to integration activities, such as employee relocations, the moving of
inventory and fixed assets, and the consolidation of information systems, and these amounts were expensed as
incurred. We completed the majority of our integration activities for the air freight restructuring program in the
fourth quarter of 2006. The remaining restructuring liabilities existing as of December 31, 2006, primarily
represent costs that will continue to be incurred under various long-term contracts without any economic benefit
to our Company.
Set forth below is a summary of activity related to the air freight restructuring program and resulting
liability for the year ended December 31, 2006 (in millions):
Employee
Severance
Asset
Impairment
Facility
Consolidation Other Total
Balance at January 1, 2005 .......................... $— $— $— $— $—
Costs accrued ..................................... 31 56 48 25 160
Cash spent ....................................... (7) — (1) — (8)
Charges against assets .............................. — (56) — — (56)
Balance at December 31, 2005 ....................... 24 — 47 25 96
Cash spent ....................................... (17) — (3) (10) (30)
Charges against assets .............................. — — — — —
Reversals, currency, and other ........................ (7) — (4) (2) (13)
Balance at December 31, 2006 ....................... $— $— $ 40 $ 13 $ 53
Employee severance costs related to severance packages for approximately 550 people. These packages
were involuntary and were formula-driven based on salary levels and past service. The separations spanned the
entire business unit, including the operations, information technology, finance, and business development
functions.
Asset impairment charges resulted from establishing new carrying values for assets which were abandoned.
Impaired assets consisted primarily of the Menlo Worldwide Forwarding facility in Dayton, Ohio, which we
closed in June 2006.
Facility consolidation costs are associated with terminating operating leases on offices, warehouses, and
other acquired facilities as well as other maintenance costs associated with certain facilities.
Other costs consist primarily of costs associated with the termination of certain acquired legal entities and
joint ventures, as well as environmental remediation costs.
Lynx Express Ltd.
In conjunction with our integration of the Lynx business, we have implemented a series of initiatives to
reduce operating costs and maximize the efficiencies of the UPS network in the United Kingdom. These
initiatives include closing existing hubs and constructing a consolidated sorting facility as well as establishing a
European shared service center in Poland. As a result of these initiatives, we have accrued certain costs related to
employee severance, lease terminations and other facility costs as well as recorded a reduction in the fair value of
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