UPS 2005 Annual Report Download - page 6

In Asia, UPS is pursuing a comprehensive growth
strategy, with China as our priority. Acquiring direct
control of our express operations in China from our
long-time partner made UPS the fi rst global package
delivery company to establish large-scale, wholly owned
operations there. During 2005, we added new air routes
connecting China to other Asian countries, as well as
directly to the United States. We also expanded and
added facilities to support both our supply chain and
air operations in China. In 2007, we plan to open a
new air hub in Shanghai.
Asian growth opportunities are not limited to China. By
the end of 2006, we expect to serve all key metropolitan
areas across Japan with new UPS-branded facilities,
service providers and vehicles. We are developing our
operations and services in Hong Kong, which is vital
to linking China with the lucrative Asia-Europe trade
lanes. UPS is the only foreign company that operates a
hub in Taiwan, and we have more than 20 strategically
placed centers throughout India in locations where the
majority of foreign investment occurs.
We expect this part of the world will provide growth
opportunities for UPS for years to come.
The supply chain and freight segment more than
doubled revenue, with operating profi t up 13 percent.
These results refl ect the full-year impact of the Menlo
Worldwide Forwarding acquisition, which closed in late
2004, and the fi ve-month impact from the acquisition
of Overnite, which marked UPS’s entry into the North
American, less-than-truckload freight market.
The Menlo integration will be complete in mid-2006
when we open a new air freight facility in Louisville,
KY — our primary heavy air hub — and in fi ve regional
air hubs around the United States. We anticipate
achieving $50 million to $100 million in savings in
2006 and at least $200 million in 2007 after these
facilities become operational.
The acquisition of Overnite rounded out our
service portfolio. UPS can now offer our customers
time-defi nite, guaranteed delivery of any shipment
— from a letter to heavy freight. Overnite’s
performance since the acquisition has been solid.
We anticipate achieving revenue synergies between
Overnite and our small package business, once
we complete the transition in the second half
of 2006.
In 2005, we implemented a major change to our
management incentive compensation program, which
is offered to about 30,000 management employees
beginning with the supervisor level. Prior to 2005,
bonuses were awarded entirely in shares of common
stock on the basis of company profi tability. Now they
are determined by a multi-metric, performance-based
system. This change better aligns incentives with the
way we manage the business. The new plan continues
to support UPS’s ownership culture by providing half
the award in the form of Class A shares.
The road ahead
Here’s what we expect to accomplish in 2006:
• Grow operating profi t in all three of our
business segments
• Generate a healthy cash fl ow once again
• Increase earnings for 2006 between 11 and
16 percent over 2005 results
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UPS Annual Report 2005
4