UPS 2009 Annual Report Download - page 69

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
premiums and accretion of discounts to maturity. Such amortization and accretion is included in investment
income, along with interest and dividends. The cost of securities sold is based on the specific identification
method; realized gains and losses resulting from such sales are included in investment income.
We periodically review our investments for indications of other than temporary impairment considering
many factors, including the extent and duration to which a security’s fair value has been less than its cost, overall
economic and market conditions, and the financial condition and specific prospects for the issuer. Impairment of
investment securities results in a charge to income when a market decline below cost is other than temporary.
Accounts Receivable
Losses on accounts receivable are recognized when they are incurred, which requires us to make our best
estimate of the probable losses inherent in our customer receivables at each balance sheet date. These estimates
require consideration of historical loss experience, adjusted for current conditions, trends in customer payment
frequency, and judgments about the probable effects of relevant observable data, including present economic
conditions and the financial health of specific customers and market sectors. Our risk management process
includes standards and policies for reviewing major account exposures and concentrations of risk.
Our total allowance for doubtful accounts as of December 31, 2009 and 2008 was $138 and $155 million,
respectively. Our total provision for doubtful accounts charged to expense during the years ended December 31,
2009, 2008, and 2007 was $254, $277, and $225 million, respectively.
Inventories
Jet fuel, diesel, and unleaded gasoline inventories are valued at the lower of average cost or market. Fuel
and other materials and supplies inventories are recognized as inventory when purchased, and then charged to
expense when used in our operations. Total inventories were $281 and $332 million as of December 31, 2009
and 2008, respectively, and are included in “other current assets” on the consolidated balance sheet.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation and amortization are provided by the
straight-line method over the estimated useful lives of the assets, which are as follows: Vehicles—6 to 15 years;
Aircraft—12 to 30 years; Buildings—20 to 40 years; Leasehold Improvements—terms of leases; Plant
Equipment—6 to 8
1
⁄ 4 years; Technology Equipment—3 to 5 years. The costs of major airframe and engine
overhauls, as well as routine maintenance and repairs, are charged to expense as incurred.
Interest incurred during the construction period of certain property, plant and equipment is capitalized until
the underlying assets are placed in service, at which time amortization of the capitalized interest begins, straight-
line, over the estimated useful lives of the related assets. Capitalized interest was $37, $48, and $67 million for
2009, 2008, and 2007, respectively.
We review long-lived assets for impairment when circumstances indicate the carrying amount of an asset
may not be recoverable based on the undiscounted future cash flows of the asset. If the carrying amount of the
asset is determined not to be recoverable, a write-down to fair value is recorded. Fair values are determined based
on quoted market values, discounted cash flows, or external appraisals, as applicable. We review long-lived
assets for impairment at the individual asset or the asset group level for which the lowest level of independent
cash flows can be identified.
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