UPS 2011 Annual Report Download - page 104

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 7. BUSINESS ACQUISITIONS, GOODWILL AND INTANGIBLE ASSETS
The following table indicates the allocation of goodwill by reportable segment (in millions):
U.S. Domestic
Package
International
Package
Supply Chain &
Freight Consolidated
December 31, 2009 balance ...................... $— $374 $1,715 $2,089
Acquired ................................. — — — —
Purchase Accounting Adjustments ............ — 5 (2) 3
Currency / Other .......................... — (2) (9) (11)
December 31, 2010 balance ...................... $— $377 $1,704 $2,081
Acquired ................................. — — 46 46
Currency / Other .......................... — (16) (10) (26)
December 31, 2011 balance ...................... $— $361 $1,740 $2,101
Business Acquisitions
The increase in goodwill within the Supply Chain & Freight segment in 2011 was due to the December
acquisition of the Pieffe Group (“Pieffe”), an Italian pharmaceutical logistics company. Pieffe offers storage,
distribution and other logistics services to some of the world’s leading pharmaceutical companies. The purchase
price allocation was not complete as of December 31, 2011, and therefore adjustments to the recorded amount of
goodwill may occur in 2012 prior to the one year anniversary of the acquisition. This increase in goodwill was
partially offset by the impact of the strengthening of the U.S. Dollar on the translation of non-U.S. Dollar
goodwill balances.
The increase to goodwill in the International Package segment during 2010 was due to adjustments to the
purchase price allocation for Unsped Paket Servisi San ve Ticaret A.S. (“Unsped”), which was acquired in
August 2009. This increase in goodwill was partially offset by the impact of the strengthening of the U.S. Dollar
on the translation of non-U.S. Dollar goodwill balances.
Pro forma results of operations have not been presented for these acquisitions, because the effects of these
transactions were not material. The results of operations of these acquired companies have been included in our
statements of consolidated income from the date of acquisition.
Goodwill Impairment
We test our goodwill for impairment annually, as of October 1st, on a reporting unit basis. Our reporting
units are comprised of the Europe, Asia, and Americas reporting units in the International Package reporting
segment, and the Forwarding, Logistics, UPS Freight, MBE / The UPS Store, and UPS Capital reporting units in
the Supply Chain & Freight reporting segment.
In assessing our goodwill for impairment, we initially evaluate qualitative factors to determine if it is more
likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment
is not conclusive and it is necessary to calculate the fair value of a reporting unit, then we utilize a two-step
process to test goodwill for impairment. First, a comparison of the fair value of the applicable reporting unit with
the aggregate carrying value, including goodwill, is performed. 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. If the carrying amount of a reporting unit exceeds the reporting unit’s fair
value, we perform the second step of the goodwill impairment test to determine the amount of impairment loss.
The second step includes comparing the implied fair value of the affected reporting unit’s goodwill with the
carrying value of that goodwill.
92