UPS ordered to pay $45 million for revaluation of cargo business – update

Ben Glickman

  Regulators have ordered United Parcel Service to pay $45 million for allegedly overstating the value of its freight business on its books, causing it to inflate reported profits. 

  The Securities and Exchange Commission on Friday said UPS did not properly record goodwill impairments related to its freight business, which it sold in 2021, as it overvalued the unit, resulting in artificially inflated earnings and other accounting reporting items. which misled investors. 

  The sale of UPS's domestic freight business to competitor TFI International for $800 million marked a major strategic shift for the company at the time. The shipping giant has decided to shift more focus to its small parcel delivery business, which has boomed during the pandemic as online retail orders have surged. 

  Regulators alleged that UPS deliberately ignored internal analyzes in its accounting processes that contradicted the higher value of its freight business. 

  A 2019 analysis of UPS found that the company's cargo division would likely be sold for $350 million to $650 million, according to an SEC order. The business was valued on the company's balance sheet at about $1.4 billion, meaning UPS will be required to report a goodwill impairment charge of nearly $500 million, according to the SEC. 

  Instead, the company relied in its accounting processes on the consultant's business valuation, which was about $2 billion, according to the SEC order. Regulators argued that UPS did not inform the consultant of its own analysis, which concluded that the business's profits would be lower due to a lack of synergies with other UPS divisions. 

  As a result, the company did not record an impairment loss either in 2019 or upon entering into a non-binding sale and purchase agreement in 2020. 

  UPS neither admitted nor denied the SEC's findings and agreed to cease and desist from further violations of the provisions, in addition to a civil penalty and other terms. 

  Write to Ben Glickman at [email protected]. 

  (END) Dow Jones News

  November 22, 2024 1:07 pm ET (6:07 pm GMT)
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