At a Glance

  • United Parcel Service (UPS) will pay a $45 million fine to settle Securities and Exchange Commission (SEC) charges overmaterial financial misstatementsrelated to improper valuation of a business unit, according to a press release issued Friday.
  • The Atlanta, Georgia-based company failed to recognize a goodwill impairment on its UPS Freight unit in 2019, causing the unit, which offers less-than-truckload services, to be overvalued and misleading investors before its sale, the SEC's order found. UPS sold the Freight business to competitor TFI International for $800 million in 2021, according to a company press release at the time.
  • Although a company analysis in 2019 showed the unit could sell for between $350 million and $650 million, UPS ignored its own assessment when conducting impairment tests under generally accepted accounting principles (GAAP), the SEC said. Instead, UPS relied on a valuation from an external consultant, "without providing the consultant with the information it needed to fairly value the business," the order stated. "Using financial information and assumptions provided or approved by UPS, the consultant valued Freight at approximately $2 billion," the SEC said.

Deep Dive

UPS failed to provide the external consultant with key information, such as the company's internal analysis "that concluded potential buyers would expect Freight's profits to decline significantly after a sale because it would no longer benefit from synergies and other cost savings it received as part of UPS," the SEC said in its order.

UPS's own analysis valued the freight unit at $1.4 billion, and the analysis showed nearly $500 million in goodwill related to UPS Freight was impaired, the SEC said.

"It was clear that the consultant's valuation was based on assumptions that potential buyers would not make when valuing Freight, and therefore did not result in a fair value estimate determined in accordance with GAAP," the order wrote. "However, UPS relied on this valuation and did not record a goodwill impairment."

Goodwill balances provide investors with "valuable insight into whether a company is successfully operating its acquired businesses," Melissa Hodgman, associate director of enforcement, said in a statement. "Therefore, companies must prepare reliable fair value estimates and recognize goodwill impairments when required. UPS failed to meet these obligations, repeatedly ignoring its own reasonable estimates of Freight's sale price and instead relying on an unreliable third-party valuation."

UPS neither admitted nor denied the SEC's allegations as part of the settlement, a company spokesperson said in an email to CFO Dive, noting the company had previously disclosed the investigation, which concerned the company's "impairment analysis practices related to the divestiture of UPS Freight in April 2021," the spokesperson said. That analysis led to a non-cash goodwill impairment charge recognized in the quarter ended December 31, 2020, the spokesperson said.

"The settlement amount was previously fully accrued in our financial statements, and the settlement will not have a material impact on our business, financial condition, results of operations, or liquidity," the spokesperson said.

The sale of UPS Freight in 2021 represented akey strategic shiftfor the company at the time, moving away from trucking to focus on its package delivery business, the Wall Street Journal reported then. The move came just months after UPS CEO Carol Tomé took the top position in June 2020, reflecting her "better, not bigger" business strategy, the Journal said.

In recent months, the company has continued to narrow its core package business; in June, UPS announced plans to sell itsCoyote Logistics businessto fellow logistics transportation firm RXO Inc. These moves come as UPS seeks to boost volume and revenue while balancing higher labor costs, akey balancing actfor CFO Brian Dykes. A 15-year company veteran, Dykes took over the CFO role in July, CFO Dive previously reported.

In its most recent quarter ended September 30, UPSreported revenue of $22.2 billion, up 5.6% year over year, according to its earnings report. Operating profit for the quarter rose nearly 48% year over year to $2 billion, the company said.