UPS 2008 Annual Report Download - page 83

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
income statement. This impairment charge resulted from several factors, including a lower cash flow forecast due
to a longer estimated economic recovery time for the LTL sector, and significant deterioration in equity
valuations for other similar LTL industry participants. At the time of acquisition of Overnite Corporation, LTL
equity valuations were higher and the economy was significantly stronger. We invested in operational
improvements and technology upgrades to enhance service and performance, as well as 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.
The following is a summary of intangible assets at December 31, 2008 and 2007 (in millions):
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
Weighted-Average
Amortization
Period (in years)
December 31, 2008:
Trademarks, licenses, patents, and other ..... $ 47 $ (40) $ 7 4.6
Customer lists ......................... 113 (48) 65 8.9
Franchise rights ........................ 110 (41) 69 20.0
Capitalized software .................... 1,728 (1,358) 370 3.2
Total Intangible Assets, Net .............. $1,998 $(1,487) $511 4.5
December 31, 2007:
Trademarks, licenses, patents, and other ..... $ 75 $ (54) $ 21
Customer lists ......................... 162 (40) 122
Franchise rights ........................ 110 (35) 75
Capitalized software .................... 1,663 (1,253) 410
Total Intangible Assets, Net .............. $2,010 $(1,382) $628
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 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. 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, which is included in the caption “Other expenses” in the
consolidated income statement.
Amortization of intangible assets was $202, $236, and $255 million during 2008, 2007 and 2006,
respectively. Expected amortization of finite-lived intangible assets recorded as of December 31, 2008 for the
next five years is as follows (in millions): 2009—$197; 2010—$138; 2011—$77; 2012—$20; 2013—$17.
Amortization expense in future periods will be affected by business acquisitions, software development, and
other factors.
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