UPS (NYSE: UPS) today announced an accounting change relating to expense recognition for company-sponsored pension and postretirement benefit plans. The new method, adopted in the fourth quarter of 2011, will result in simpler, more transparent financial reporting.
Today's announcement is an accounting change only and does not affect benefits for plan participants. Additionally, there is no impact on pension plan funding or UPS cash flow.
This improved methodology records actuarial gains and losses, on the income statement, in the year incurred rather than amortizing them over time. A mark-to-market adjustment will be made in the fourth quarter of each year reflecting actuarial gains or losses that fall outside a recognition corridor (10% of the greater of plan assets or benefit obligations). These gains or losses result from changes in discount rates, the reconciliation to actual return on plan assets and other actuarial assumptions.
UPS will continue to record service costs, interest costs and expected return on assets at the business segment level. The projected impact of these items will be included in the company's annual guidance.
This methodology is fully acceptable under U.S. GAAP and is considered preferable since it aligns closer with fair value principles and does not delay the recognition of gains and losses into future periods.
UPS expects to record a pre-tax $827 million charge for the 2011 mark-to-market adjustment. On a GAAP basis, diluted earnings per share for the fourth quarter and total year will be reduced by $0.51 and $0.41, respectively which is inclusive of both the mark-to-market adjustment and the benefit resulting from the accounting change.
The accounting change is expected to add $0.03 to adjusted diluted earnings per share for the fourth quarter and $0.12 for the full year 2011.
"This policy provides greater transparency to the company's underlying operating results," said Kurt Kuehn, UPS's chief financial officer. "I want to emphasize that this change has no impact on benefits for plan participants or UPS cash flow."
Today's announcement is an accounting change only and does not affect benefits for plan participants. Additionally, there is no impact on pension plan funding or UPS cash flow.
This improved methodology records actuarial gains and losses, on the income statement, in the year incurred rather than amortizing them over time. A mark-to-market adjustment will be made in the fourth quarter of each year reflecting actuarial gains or losses that fall outside a recognition corridor (10% of the greater of plan assets or benefit obligations). These gains or losses result from changes in discount rates, the reconciliation to actual return on plan assets and other actuarial assumptions.
UPS will continue to record service costs, interest costs and expected return on assets at the business segment level. The projected impact of these items will be included in the company's annual guidance.
This methodology is fully acceptable under U.S. GAAP and is considered preferable since it aligns closer with fair value principles and does not delay the recognition of gains and losses into future periods.
UPS expects to record a pre-tax $827 million charge for the 2011 mark-to-market adjustment. On a GAAP basis, diluted earnings per share for the fourth quarter and total year will be reduced by $0.51 and $0.41, respectively which is inclusive of both the mark-to-market adjustment and the benefit resulting from the accounting change.
The accounting change is expected to add $0.03 to adjusted diluted earnings per share for the fourth quarter and $0.12 for the full year 2011.
"This policy provides greater transparency to the company's underlying operating results," said Kurt Kuehn, UPS's chief financial officer. "I want to emphasize that this change has no impact on benefits for plan participants or UPS cash flow."
