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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
54
Rate Adjustments
Effective December 28, 2015, UPS Ground rates and accessorial charges increased by an average net 4.9 percent. UPS
Air and International services and accessorials, including UPS Air Freight rates within and between the U.S., Canada and
Puerto Rico, increased an average net 5.2 percent. UPS Freight® rates increased an average net 4.9 percent, effective October
26, 2015.
Effective November 2, 2015, the surcharge increased for Over Maximum Packages and the tables for Ground, Air and
International fuel surcharges were adjusted. Effective January 4, 2016, there will be a charge for UPS’s Third-Party Billing
Service.
These rate changes are customary and occur on an annual basis. Rate changes for shipments originating outside the U.S.
are made throughout the year and vary by geographic market.
New Accounting Pronouncements
Recently Adopted Accounting Standards
See note 1 to the audited consolidated financial statements for a discussion of recently adopted accounting standards.
Accounting Standards Issued But Not Yet Effective
See note 1 to the audited consolidated financial statements for a discussion of accounting standards issued, but not yet
effective.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial
statements, which are prepared in accordance with accounting principles generally accepted in the United States of America. As
indicated in note 1 to our consolidated financial statements, the amounts of assets, liabilities, revenue, and expenses reported in
our financial statements are affected by estimates and judgments that are necessary to comply with generally accepted
accounting principles. We base our estimates on prior experience and other assumptions that we consider reasonable to our
circumstances. Actual results could differ from our estimates, which would affect the related amounts reported in our
consolidated financial statements. While estimates and judgments are applied in arriving at many reported amounts, we believe
that the following matters may involve a higher degree of judgment and complexity.
Contingencies
As discussed in note 9 to our consolidated financial statements, we are involved in various legal proceedings and
contingencies. The events that may impact our contingent liabilities are often unique and generally are not predictable. At the
time a contingency is identified, we consider all relevant facts as part of our evaluation. We record a liability for a loss when the
loss is probable of occurring and reasonably estimable. Events may arise that were not anticipated and the outcome of a
contingency may result in a loss to us that differs from our previously estimated liability. These factors could result in a
material difference between estimated and actual operating results. Contingent losses that are probable and estimable,
excluding those related to income taxes and self-insurance which are discussed further below, were not material to our financial
position or results of operations as of, and for the year ended, December 31, 2015. In addition, we have certain contingent
liabilities that have not been recognized as of December 31, 2015, because a loss is not reasonably estimable.
Goodwill and Intangible Impairment
We perform impairment testing of goodwill for each of our reporting units on an annual basis. Our reporting units are
comprised of the U.S. Domestic Package, Europe, Asia, Americas and ISMEA (Indian Subcontinent, Middle East and Africa)
reporting units in the International Package reporting segment, and the Forwarding, Logistics, UPS Freight, The UPS Store and
UPS Capital and Coyote Logistic reporting units in the Supply Chain & Freight reporting segment. Our annual goodwill
impairment testing date is October 1st for each reporting unit. In assessing 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. 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