UPS 2008 Annual Report Download - page 40

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As a result of weak performance in our domestic package operations in the United Kingdom, we reviewed
our long-lived assets, including intangible assets, for impairment within our U.K. domestic package entity. Based
on recent performance and near-term projections, the value assigned to a customer list intangible asset acquired
within the U.K. domestic package business was determined to be impaired. This was the result of both higher
than anticipated customer turnover and reduced operating margins associated with an acquired business.
Accordingly, an intangible asset impairment charge of $27 million was recorded for the year ended
December 31, 2008.
2007 compared to 2006
Consolidated operating expenses increased by $8.202 billion, or 20.0%, in 2007 compared with 2006.
Currency fluctuations in our International Package and Supply Chain & Freight segments resulted in
consolidated operating expenses increasing by $471 million for the year.
Compensation and benefits expense increased by $7.324 billion for the year, and was impacted by several
items including the charge for the withdrawal from the Central States Pension Fund, higher wage rates in the
union workforce, increased stock-based compensation, higher expense for union pension and welfare programs,
the SVSO charge, and the restructuring charge in our Supply Chain & Freight business in France. These
increases were slightly offset by lower workers compensation expense.
Our national master agreement with the Teamsters allowed us, upon ratification, to withdraw employees
from the Central States Pension Fund and to establish a jointly trusteed single-employer plan for this group
(“UPS IBT Pension Plan”). Upon ratification of the contract in December 2007 and our withdrawal from the
Central States Pension Fund, we recorded a pre-tax $6.100 billion charge to establish our withdrawal liability,
and made a December 2007 payment in the same amount to the Central States Pension Fund to satisfy this
liability.
The withdrawal liability was based on computations performed by independent actuaries employed by the
Central States Pension Fund, in accordance with the plan document and the applicable requirements of the
Employee Retirement Income Security Act of 1974 (“ERISA”). We negotiated our withdrawal from the Central
States Pension Fund as part of our national master agreement with the Teamsters, which included other
modifications to hourly wage rates, healthcare and pension benefits, and work rules. We sought to negotiate our
withdrawal from the Central States Pension Fund, as we believed the fund would likely continue to have funding
challenges, and would present a risk to UPS of having to face higher future contribution requirements and a risk
to the security of the pension benefits of those UPS employees who participated in the fund. We believe that we
benefited financially from the ability to achieve a ratified national master agreement seven months before the
expiration of the previous agreement, as well as by gaining better control over the future cost and funding of
pension benefits by limiting our obligations solely to UPS Teamster employees through the new UPS IBT
Pension Plan. As the UPS IBT Pension Plan matures, we believe that it will become cost beneficial from a cash
flow and earnings standpoint compared with having remained in the Central States Pension Fund.
In December 2006, we offered the SVSO to approximately 640 employees who work in non-operating
functions. This program was established to improve the efficiency of non-operating processes by eliminating
duplication and sharing expertise across the company. The SVSO ended in February 2007, and 195, or 30% of
eligible employees, accepted the offer. As a result, we recorded a charge to expense of $68 million in the first
quarter of 2007, to reflect the cash payout and the acceleration of stock compensation and certain retiree
healthcare benefits under the SVSO program.
In the third quarter of 2007, we initiated a restructuring plan for our forwarding and logistics operations in
France. The objective of this restructuring plan was to reduce our forwarding and logistics cost structure and
focus on profitable revenue growth in the Europe region. The restructuring principally consisted of an
employment reduction program, which was ratified by our company’s trade union representatives in France in
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