Annual report pursuant to Section 13 and 15(d)

GOODWILL AND INTANGIBLE ASSETS

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GOODWILL AND INTANGIBLE ASSETS
 12 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
GOODWILL AND INTANGIBLE ASSETS GOODWILL AND INTANGIBLE ASSETS
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, 2018
$
715

 
$
435

 
$
2,722

 
$
3,872

Acquired
—

 
—

 
—

 
—

Currency / Other
—

 
(18
)
 
(43
)
 
(61
)
Balance on December 31, 2018
$
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


2019 Goodwill Activity
The goodwill acquired in the International Package segment is related to our January 2019 acquisition of Transmodal Services Private Limited in India. The goodwill acquired in the Supply Chain & Freight segment is primarily due to 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.
2018 Goodwill Activity
The change in goodwill for both the Supply Chain & Freight and the 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.
Goodwill Impairment
We completed our annual goodwill impairment evaluation, as of July 1st, on a reporting unit basis. For the periods presented, no triggering events were identified 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 segment we have the following reporting units: Forwarding, Logistics, UPS Mail Innovations, UPS Freight, The UPS Store, UPS Capital, Marken and Coyote.
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.

In 2019, 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, Forwarding, Logistics, Coyote, UPS Mail Innovations and The UPS Store. For the remaining reporting units owned at the annual goodwill impairment testing date, we utilized the two-step process to test goodwill for impairment. We did not have any goodwill impairment charges in 2019, 2018 or 2017. Cumulatively, our Supply Chain & Freight segment has recorded $622 million of goodwill impairment charges, while our International and U.S. Domestic Package segments have not recorded any goodwill impairment charges.


Intangible Assets
The following is a summary of intangible assets at December 31, 2019 and 2018 (in millions):
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Value
 
Weighted-Average
Amortization
Period
(in years)
December 31, 2019
 
 
 
 
 
 
 
Capitalized software
$
4,125

 
$
(2,704
)
 
$
1,421

 
6.9
Licenses
117

 
(64
)
 
53

 
3.9
Franchise rights
146

 
(109
)
 
37

 
20.0
Customer relationships
730

 
(282
)
 
448

 
10.6
Trade name
200

 
—

 
200

 
N/A
Trademarks, patents and other
29

 
(21
)
 
8

 
7.7
Total Intangible Assets
$
5,347

 
$
(3,180
)
 
$
2,167

 
7.7
December 31, 2018
 
 
 
 
 
 
 
Capitalized software
$
3,693

 
$
(2,478
)
 
$
1,215

 
 
Licenses
117

 
(36
)
 
81

 
 
Franchise rights
145

 
(105
)
 
40

 
 
Customer relationships
736

 
(217
)
 
519

 
 
Trade name
200

 
—

 
200

 
 
Trademarks, patents and other
52

 
(31
)
 
20

 
 
Total Intangible Assets
$
4,943

 
$
(2,867
)
 
$
2,075

 
 

A trade name and licenses with carrying values of $200 and $4 million, respectively, as of December 31, 2019 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 thus 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 $2 and $12 million in 2019 and 2018, respectively.
Amortization of intangible assets was $377, $339 and $287 million during 2019, 2018 and 2017, respectively. Expected amortization of finite-lived intangible assets recorded as of December 31, 2019 for the next five years is as follows (in millions): 2020—$481; 2021—$403; 2022—$332; 2023—$276; 2024—$220. Amortization expense in future periods will be affected by business acquisitions, software development, licensing agreements, franchise rights purchased and other factors.