United Parcel Service, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

GOODWILL AND INTANGIBLE ASSETS

GOODWILL AND INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2020

The following table indicates the allocation of goodwill by segment (in millions):


	U.S. Domestic Package		International Package		Supply Chain & Freight		Consolidated
Balance on January 1, 2019	$	715	$	417	$	2,679	$	3,811
Acquired	—		2		3		5
Currency / Other	—		(3)		—		(3)
Balance on December 31, 2019	$	715	$	416	$	2,682	$	3,813
Acquired	—		—		—		—
Impairments	—		—		(494)		(494)
Currency / Other	—		6		42		48
Balance on December 31, 2020	$	715	$	422	$	2,230	$	3,367

2020 Goodwill Activity

As of December 31, 2020 we classified our UPS Freight reporting unit as held for sale, which resulted in a goodwill impairment charge of $494 million for the Supply Chain & Freight segment.

The remaining change in goodwill for both the Supply Chain & Freight and International Package segments was due to immaterial purchase accounting adjustments and the impact of changes in the value of the U.S. Dollar on the translation of non-U.S. Dollar goodwill balances.

2019 Goodwill Activity

The change in goodwill acquired for the International Package segment was due to our January 2019 acquisition of Transmodal Services Private Limited in India. The goodwill acquired in the Supply Chain & Freight segment was primarily due to our July 2019 acquisitions by Marken in Europe.

The remaining change in goodwill for the International Package segment was due to immaterial purchase accounting adjustments and the impact of changes in the value of the U.S. Dollar on the translation of non-U.S. Dollar goodwill balances.

Goodwill Impairment

We completed our annual goodwill impairment evaluation as of July 1st on a reporting unit basis. Except as discussed below, no triggering events were identified for the periods presented that required an interim impairment test.

U.S. Domestic Package is our largest reporting segment and reporting unit. In our International Package reporting segment, we have the following reporting units: Europe, Asia, Americas and ISMEA. In our Supply Chain & Freight reporting segment we have the following reporting units: Forwarding, Logistics, UPS Mail Innovations, UPS Freight, The UPS Store, UPS Capital, Marken and Coyote.

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, we calculate the fair value of a reporting unit to test goodwill for impairment. 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. A comparison of the fair value of the reporting unit with its aggregate carrying value, including goodwill, is performed. If the carrying amount of a reporting unit exceeds its fair value, we record the excess amount as goodwill impairment, not to exceed the total amount of goodwill allocated to the reporting unit.

In 2020, we utilized a qualitative assessment to determine that it was more likely than not that the reporting unit fair value exceeded the carrying value for U.S. Domestic Package, Europe Package, Asia Package, Americas Package, ISMEA Package, The UPS Store and UPS Capital. For the remaining reporting units owned at the annual goodwill impairment testing date, we utilized the quantitative process to test goodwill for impairment.

In the fourth quarter of 2020, we determined that our UPS Freight reporting unit should be classified as held for sale. Accordingly, we tested goodwill for impairment as of December 31, 2020, and determined that the fair value of the reporting unit had decreased. A goodwill impairment charge of $494 million, representing the remaining goodwill balance for UPS Freight, is included within Other expenses in the statements of consolidated income. We did not record any goodwill impairment charges in 2019 or 2018. Cumulatively, our Supply Chain & Freight segment has recorded $1.1 billion of goodwill impairment charges, while our International and U.S. Domestic Package segments have not recorded any goodwill impairment charges. For additional information on the pending divestiture of UPS Freight, see note 4.

Intangible Assets

The following is a summary of intangible assets as of December 31, 2020 and 2019 (in millions):


	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Weighted-Average Amortization Period (in years)
December 31, 2020
Capitalized software	$	4,531	$	(2,962)	$	1,569	6.9
Licenses	100		(37)		63		3.8
Franchise rights	165		(113)		52		20.0
Customer relationships	729		(344)		385		10.6
Trade name	200		—		200		N/M
Trademarks, patents and other	18		(13)		5		12.0
Total Intangible Assets	$	5,743	$	(3,469)	$	2,274	7.7
December 31, 2019
Capitalized software	$	4,125	$	(2,704)	$	1,421
Licenses	117		(64)		53
Franchise rights	146		(109)		37
Customer relationships	730		(282)		448
Trade name	200		—		200
Trademarks, patents and other	29		(21)		8
Total Intangible Assets	$	5,347	$	(3,180)	$	2,167

A trade name and licenses with carrying values of $200 and $5 million, respectively, as of December 31, 2020 are deemed to be indefinite-lived intangible assets, and therefore are not amortized. Impairment tests for indefinite-lived intangible assets are performed on an annual basis. All of our other recorded intangible assets are deemed to be finite-lived intangibles, and are amortized over their estimated useful lives. Impairment tests for these intangible assets are only performed when a triggering event occurs that may indicate that the carrying value of the intangible may not be recoverable. Impairments of finite-lived intangible assets were $13 and $2 million in 2020 and 2019, respectively.

Amortization of intangible assets was $416, $377 and $339 million during 2020, 2019 and 2018, respectively. Expected amortization of finite-lived intangible assets recorded as of December 31, 2020 for the next five years is as follows (in millions): 2021—$512; 2022—$437; 2023—$372; 2024—$297; 2025—$222. Amortization expense in future periods will be affected by business acquisitions and divestitures, software development, licensing agreements, franchise rights purchased and other factors.