UPS 2008 Annual Report Download - page 53

expand service offerings. However, this process took longer than initially anticipated, and thus financial results
have been below our expectations. Additionally, the LTL sector in 2008 has been adversely impacted by the
economic recession in the U.S., lower industrial production and retail sales, volatile fuel prices, and significant
levels of price-based competition. By the fourth quarter of 2008, the combination of these internal and external
factors reduced our near term expectations for this unit, leading to the goodwill impairment charge. None of the
other reporting units incurred an impairment of goodwill in 2008, nor did we have any goodwill impairment
charges in 2007 or 2006.
All of our recorded intangible assets other than goodwill are deemed to be finite-lived intangibles, and are
thus amortized over their estimated useful lives. In accordance with Statement of Financial Accounting Standards
No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“FAS 144”), impairment tests for
these intangible assets are only performed when a triggering event occurs that indicates that the carrying value of
the intangible may not be recoverable based on the undiscounted future cash flows of the intangible. If the
carrying amount of the intangible is determined not to be recoverable, a write-down to fair value is recorded. Fair
values are determined based on a DCF model. As a result of weak performance in our domestic U.K. package
operations, we reviewed our 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 UK 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. No
other intangible asset impairments were recognized in 2008, nor were any such impairments recognized in 2007
or 2006.
Self-Insurance Accruals—We self-insure costs associated with workers’ compensation claims, automotive
liability, health and welfare, and general business liabilities, up to certain limits. Insurance reserves are
established for estimates of the loss that we will ultimately incur on reported claims, as well as estimates of
claims that have been incurred but not yet reported. Recorded balances are based on reserve levels, which
incorporate historical loss experience and judgments about the present and expected levels of cost per claim.
Trends in actual experience are a significant factor in the determination of such reserves. We believe our
estimated reserves for such claims are adequate, but actual experience in claim frequency and/or severity could
materially differ from our estimates and affect our results of operations.
Workers’ compensation, automobile liability and general liability insurance claims may take several years to
completely settle. Consequently, actuarial estimates are required to project the ultimate cost that will be incurred
to fully resolve the claims. A number of factors can affect the actual cost of a claim, including the length of time
the claim remains open, trends in health care costs and the results of related litigation. Furthermore, claims may
emerge in future years for events that occurred in a prior year at a rate that differs from previous actuarial
projections. Changes in state legislation with respect to workers compensation can affect the adequacy of our
self-insurance accruals. All of these factors can result in revisions to prior actuarial projections and produce a
material difference between estimated and actual operating results.
We sponsor a number of health and welfare insurance plans for our employees. These liabilities and related
expenses are based on estimates of the number of employees and eligible dependents covered under the plans,
anticipated medical usage by participants and overall trends in medical costs and inflation. Actual results may
differ from these estimates and, therefore, produce a material difference between estimated and actual operating
results.
Pension and Postretirement Medical Benefits—As discussed in Note 5 to our consolidated financial
statements, we maintain several defined benefit and postretirement benefit plans. Our pension and other
postretirement benefit costs are calculated using various actuarial assumptions and methodologies as prescribed
by Statement of Financial Accounting Standards No. 87, “Employers’ Accounting for Pensions” and Statement
of Financial Accounting Standards No. 106, “Employers’ Accounting for Postretirement Benefits Other than
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