In response to allegations that it misvalued its freight sector, UPS agreed to pay $45 million, the Securities and Exchange Commission said Friday.
The regulatory body said that UPS’s failure to value its freight segment in accordance with generally accepted accounting principles resulted in a substantial misrepresentation of its profitability.
According to the SEC order, UPS estimated that its freight sector would likely sell for no more than $650 million in 2019. According to UPS’s own estimate, the company’s goodwill related to the operation was harmed to the tune of around $500 million.
However, the SEC said that UPS relied on an independent consultant’s assessment of the freight division rather than employing its own analysis, failing to provide the consultant with the information required to perform an equitable assessment of the company. According to the commission, the consultant evaluated the freight unit’s value to be roughly $2 billion, which is three times the amount UPS had calculated, based on assumptions that UPS had authorized.
When an asset’s face value on paper surpasses its fair value, this is known as goodwill impairment in accounting.
The SEC stated that UPS did not report a goodwill impairment in 2019 based on the consultant’s assessment. UPS’s earnings and other reported items would have been significantly lower if the division had been valued appropriately.
Additionally, according to the SEC’s ruling, UPS signed a non-binding term contract in 2020 to sell the freight unit for $800 million with future revisions that would likely lower the final price.
The Atlanta corporation once more relied on a consultant’s assessment of the unit in 2020 to support not harming the company’s goodwill, even after conducting its own study and adding it to this term sheet. The panel also claimed that UPS failed to disclose the term sheet to the consultant.
The SEC stated that UPS’s earnings and other reported items would have been significantly lower if the freight business and damaged goodwill had been evaluated appropriately, much like it was the year before.
Melissa Hodgman, assistant director, stated in a statement that it is critical for businesses to create accurate fair value estimations and, when necessary, impair goodwill. UPS regularly disregarded its own reasonable estimations of the sale price for freight in favor of shaky third-party appraisals, failing to fulfill these commitments.
UPS’s stock increased by almost 2% on Friday.
UPS announced on Friday that the settlement’s sum had been set aside and that company operations would not be significantly impacted.
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