UPS 2009 Annual Report Download - page 70

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Goodwill and Intangible Assets
Costs of purchased businesses in excess of net assets acquired (goodwill), and indefinite-lived intangible
assets are tested for impairment at least annually, unless changes in circumstances indicate an impairment may
have occurred sooner. We are required to test goodwill on a “reporting unit” basis. A reporting unit is the
operating segment unless, for businesses within that operating segment, discrete financial information is prepared
and regularly reviewed by management, in which case such a component business is the reporting unit.
A fair value approach is used to test goodwill for impairment. An impairment charge is recognized for the
amount, if any, by which the carrying amount of goodwill exceeds its fair value. We primarily determine the fair
value of our reporting units using a discounted cash flow model, and supplement this with observable valuation
multiples for comparable companies, as applicable.
Finite-lived intangible assets, including trademarks, licenses, patents, customer lists, non-compete
agreements, and franchise rights are amortized on a straight-line basis over the estimated useful lives of the
assets, which range from 2 to 20 years. Capitalized software is amortized over periods ranging from 3 to 5 years.
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.
Pension and Postretirement Benefits
We incur certain employment-related expenses associated with pension and postretirement medical benefits.
These pension and postretirement medical benefit costs for company-sponsored benefit plans are calculated using
various actuarial assumptions and methodologies, including discount rates, expected return on plan assets, health
care cost trend rates, inflation, rates of compensation increase, mortality rates, and other factors. Actuarial
assumptions are reviewed on an annual basis, unless circumstances require an interim remeasurement date for
any of our plans.
We participate in a number of trustee-managed multi-employer pension and health and welfare plans for
employees covered under collective bargaining agreements. Our contributions to these plans are determined in
accordance with the respective collective bargaining agreements. We recognize expense for the contractually
required contribution for each period, and we recognize a liability for any contributions due and unpaid (included
in “other current liabilities”).
Income Taxes
Income taxes are accounted for on an asset and liability approach that requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events that have been recognized in our
financial statements or tax returns. In estimating future tax consequences, we generally consider all expected
future events other than proposed changes in the tax law or rates. Valuation allowances are provided if it is more
likely than not that a deferred tax asset will not be realized.
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