UPS » Topics » Note 5. Property, Plant and Equipment

This excerpt taken from the UPS 10-Q filed May 7, 2009.

NOTE 5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of March 31, 2009 and December 31, 2008 consists of the following (in millions):

 

     2009     2008  

Vehicles

   $ 5,455     $ 5,508  

Aircraft (including aircraft under capitalized leases)

     13,509       14,564  

Land

     1,066       1,068  

Buildings

     2,831       2,836  

Building and leasehold improvements

     2,725       2,702  

Plant equipment

     5,742       5,720  

Technology equipment

     1,610       1,620  

Equipment under operating leases

     132       136  

Construction-in-progress

     933       944  
                
     34,003       35,098  

Less: Accumulated depreciation and amortization

     (16,003 )     (16,833 )
                
   $ 18,000     $ 18,265  
                

We continually monitor our aircraft fleet utilization in light of current and projected volume levels, aircraft fuel prices, and other factors. In 2008, we had announced that we were in negotiations with DHL to provide air transportation services for all of DHL’s express, deferred and international package volume within the United States, as well as air transportation services between the United States, Canada and Mexico. During the first quarter of 2009, discussions on an agreement with DHL deteriorated as a result of the decreased scale of the air transportation services involved, and in early April 2009, UPS and DHL mutually agreed to terminate further discussions. Additionally, our U.S. Domestic Package air delivery volume has declined since the first quarter of 2008 as a result of persistent economic weakness and shifts in product mix from our premium air services to our lower cost ground services. As a result of these factors, the utilization of certain aircraft fleet types has declined and is expected to be lower in the future.

Based on the factors noted above, as well as FAA aging aircraft directives that would require significant future maintenance expenditures, we determined that the anticipated termination of the proposed DHL agreement and the continuing deterioration in volume was a triggering event that required an impairment assessment of our McDonnell-Douglas DC-8-71 and DC-8-73 aircraft fleets. We conducted an impairment analysis as of March 31, 2009, and determined that the cost basis of these fleets was not recoverable due to the accelerated expected retirement dates of the aircraft. Based on anticipated residual values for the airframes, engines, and parts, we recognized an impairment charge of $181 million in the first quarter of 2009. This charge is included in the caption “Other expenses” in the Statement of Consolidated Income, and impacted our U.S. Domestic Package segment. We currently continue to utilize and operate all of our other aircraft fleets.

 

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Table of Contents

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

These excerpts taken from the UPS 10-K filed Feb 27, 2009.

Property, Plant and Equipment

Property, plant and equipment are carried at cost. Depreciation and amortization are provided by the straight-line method over the estimated useful lives of the assets, which are as follows: Vehicles—5 to 15 years; Aircraft—12 to 30 years; Buildings—20 to 40 years; Leasehold Improvements—terms of leases; Plant Equipment—6 to 10 years; Technology Equipment—3 to 5 years. The costs of major airframe and engine overhauls, as well as routine maintenance and repairs, are charged to expense as incurred. During 2006, we reevaluated the anticipated service lives of our Boeing 757, Boeing 767, and Airbus A300 fleets, and as a result of this evaluation, increased the depreciable lives from 20 to 30 years and reduced the residual values from 30% to 10% of original cost. This change did not have a material effect on our results of operations.

Interest incurred during the construction period of certain property, plant and equipment is capitalized until the underlying assets are placed in service, at which time amortization of the capitalized interest begins, straight-line, over the estimated useful lives of the related assets. Capitalized interest was $48, $67, and $48 million for 2008, 2007, and 2006, respectively.

Property, Plant and Equipment

STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">Property, plant and equipment are carried at cost. Depreciation and amortization are provided by the straight-line method over the estimated useful lives
of the assets, which are as follows: Vehicles—5 to 15 years; Aircraft—12 to 30 years; Buildings—20 to 40 years; Leasehold Improvements—terms of leases; Plant Equipment—6 to 10 years; Technology Equipment—3 to 5 years.
The costs of major airframe and engine overhauls, as well as routine maintenance and repairs, are charged to expense as incurred. During 2006, we reevaluated the anticipated service lives of our Boeing 757, Boeing 767, and Airbus A300 fleets, and as
a result of this evaluation, increased the depreciable lives from 20 to 30 years and reduced the residual values from 30% to 10% of original cost. This change did not have a material effect on our results of operations.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Interest incurred during the construction period of certain property, plant and equipment is capitalized until the underlying assets are placed in
service, at which time amortization of the capitalized interest begins, straight-line, over the estimated useful lives of the related assets. Capitalized interest was $48, $67, and $48 million for 2008, 2007, and 2006, respectively.

STYLE="margin-top:18px;margin-bottom:0px">Impairment of Long-Lived Assets

In accordance with
the provisions of FASB Statement No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” we review long-lived assets for impairment when circumstances indicate the carrying

 


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Table of Contents



UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 



amount of an asset may not be recoverable based on the undiscounted future cash flows of the asset. If the carrying amount of the asset is determined not to
be recoverable, a write-down to fair value is recorded. Fair values are determined based on quoted market values, discounted cash flows, or external appraisals, as applicable. We review long-lived assets for impairment at the individual asset or the
asset group level for which the lowest level of independent cash flows can be identified.

NOTE 4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of December 31 consists of the following (in millions):

 

     2008     2007  

Vehicles

   $ 5,508     $ 5,295  

Aircraft (including aircraft under capitalized leases)

     14,564       13,541  

Land

     1,068       1,056  

Buildings

     2,836       2,837  

Building and leasehold improvements

     2,702       2,604  

Plant equipment

     5,720       5,537  

Technology equipment

     1,620       1,699  

Equipment under operating leases

     136       153  

Construction-in-progress

     944       889  
                
     35,098       33,611  

Less: Accumulated depreciation and amortization

     (16,833 )     (15,948 )
                
   $ 18,265     $ 17,663  
                

As a result of business changes that occurred in the first quarter of 2007, including capacity-optimization programs in our domestic and international air freight forwarding business as well as changes to our aircraft orders and planned delivery dates, we began a review process of our aircraft fleet types to ensure that we maintain the optimum mix of aircraft types to service our international and domestic package businesses. The review was completed in March 2007, and based on the results of our evaluation, we accelerated the planned retirement of certain Boeing 727 and 747 aircraft, and recognized an impairment and obsolescence charge of $221 million for the aircraft and related engines and parts in 2007. This charge is included in the caption “Other expenses” in the Statements of Consolidated Income, of which $159 million impacted our U.S. Domestic Package segment and $62 million impacted our International Package segment. No impairments of aircraft or other long-lived assets were recognized in 2008 or 2006.

We continually monitor our aircraft fleet utilization in light of current and projected volume levels, aircraft fuel prices, and other factors. Changes in any of these factors, including a continuation of the rapid economic decline experienced in the second half of 2008, could result in modifications to our current aircraft fleet plan. Such modifications could result in a reduction in the expected useful life of an aircraft type or in impairment losses related to the early retirement of particular aircraft.

This excerpt taken from the UPS 10-Q filed Nov 7, 2008.

Note 5. Property, Plant and Equipment

Property, plant and equipment as of September 30, 2008 and December 31, 2007 consists of the following (in millions):

 

     2008     2007  

Vehicles

   $ 5,473     $ 5,295  

Aircraft (including aircraft under capitalized leases)

     14,481       13,541  

Land

     1,080       1,056  

Buildings

     2,877       2,837  

Leasehold improvements

     2,702       2,604  

Plant equipment

     5,724       5,537  

Technology equipment

     1,730       1,699  

Equipment under operating lease

     143       153  

Construction-in-progress

     927       889  
                
     35,137       33,611  

Less: Accumulated depreciation and amortization

     (16,776 )     (15,948 )
                
   $ 18,361     $ 17,663  
                
This excerpt taken from the UPS 10-Q filed Aug 8, 2008.

Note 5. Property, Plant and Equipment

Property, plant and equipment as of June 30, 2008 and December 31, 2007 consists of the following (in millions):

 

     2008     2007  

Vehicles

   $ 5,427     $ 5,295  

Aircraft (including aircraft under capitalized leases)

     14,076       13,541  

Land

     1,086       1,056  

Buildings

     2,903       2,837  

Leasehold improvements

     2,666       2,604  

Plant equipment

     5,766       5,537  

Technology equipment

     1,755       1,699  

Equipment under operating lease

     144       153  

Construction-in-progress

     1,014       889  
                
     34,837       33,611  

Less: Accumulated depreciation and amortization

     (16,624 )     (15,948 )
                
   $ 18,213     $ 17,663  
                
This excerpt taken from the UPS 10-Q filed May 9, 2008.

Note 5. Property, Plant and Equipment

Property plant and equipment as of March 31, 2008 and December 31, 2007 consists of the following (in millions):

 

     2008     2007  

Vehicles

   $ 5,364     $ 5,295  

Aircraft (including aircraft under capitalized leases)

     13,878       13,541  

Land

     1,072       1,056  

Buildings

     2,868       2,837  

Leasehold improvements

     2,646       2,604  

Plant equipment

     5,656       5,537  

Technology equipment

     1,741       1,699  

Equipment under operating lease

     151       153  

Construction-in-progress

     892       889  
                
     34,268       33,611  

Less: Accumulated depreciation and amortization

     (16,347 )     (15,948 )
                
   $ 17,921     $ 17,663  
                
These excerpts taken from the UPS 10-K filed Feb 29, 2008.

NOTE 4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of December 31 consists of the following (in millions):

 

     2007     2006  

Vehicles

   $ 5,295     $ 4,970  

Aircraft (including aircraft under capitalized leases)

     13,541       13,162  

Land

     1,056       1,026  

Buildings

     2,837       2,667  

Leasehold improvements

     2,604       2,496  

Plant equipment

     5,537       5,230  

Technology equipment

     1,699       1,673  

Equipment under operating leases

     153       142  

Construction-in-progress

     889       715  
                
     33,611       32,081  

Less: Accumulated depreciation and amortization

     (15,948 )     (15,302 )
                
   $ 17,663     $ 16,779  
                

NOTE 4. PROPERTY, PLANT AND EQUIPMENT

STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">Property, plant and equipment as of December 31 consists of the following (in millions):

STYLE="font-size:12px;margin-top:0px;margin-bottom:0px"> 












































































































































































   2007  2006 

Vehicles

  $5,295  $4,970 

Aircraft (including aircraft under capitalized leases)

   13,541   13,162 

Land

   1,056   1,026 

Buildings

   2,837   2,667 

Leasehold improvements

   2,604   2,496 

Plant equipment

   5,537   5,230 

Technology equipment

   1,699   1,673 

Equipment under operating leases

   153   142 

Construction-in-progress

   889   715 
         
   33,611   32,081 

Less: Accumulated depreciation and amortization

   (15,948)  (15,302)
         
  $17,663  $16,779 
         
This excerpt taken from the UPS 10-Q filed Nov 9, 2007.

Note 5. Property, Plant and Equipment

Property plant and equipment as of September 30, 2007 and December 31, 2006 consists of the following (in millions):

 

     2007     2006  

Vehicles

   $ 5,100     $ 4,970  

Aircraft (including aircraft under capitalized leases)

     13,591       13,162  

Land

     1,049       1,026  

Buildings

     2,773       2,667  

Leasehold improvements

     2,552       2,496  

Plant equipment

     5,426       5,230  

Technology equipment

     1,731       1,673  

Equipment under operating lease

     138       142  

Construction-in-progress

     1,098       715  
                
     33,458       32,081  

Less: Accumulated depreciation and amortization

     (16,131 )     (15,302 )
                
   $ 17,327     $ 16,779  
                

 

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