UPS 2006 Annual Report Download

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Synchronizing Global Commerce
2006
UPS Annual Report

Table of contents

  • Page 1
    Synchronizing Global Commerce UPS Annual Report 2006

  • Page 2
    ..., providing time-definite delivery of a single letter, small package, and heavy freight via air or ground. And, the company provides services to manage a customer's supply chain, including air, ocean, ground, and rail transportation; customs brokerage; distribution; and post-sales support. By...

  • Page 3
    ... our ï¬,agship air hub in Louisville, KY, to increase sorting capacity by 60 percent to 487,000 packages per hour. • Operating facilities: • Access points: • Aircraft: • Package delivery vehicles: 94,500 • Freight vehicles: FINANCIAL HIGHLIGHTS (in millions, except for per-share amounts...

  • Page 4
    ... expansion of UPS Worldport®, our ï¬,agship global air hub in Louisville, KY. This effort will increase sorting capacity by 60 percent to accommodate the volume growth driven by the increase in international trade. The U.S. small package business posted a 9.6 percent increase in operating profits...

  • Page 5
    ... of two locations in China and two in India that are similar to The UPS Store® in the United States and Canada. SUPPLY CHAIN AND FREIGHT The Supply Chain and Freight segment produced disappointing results. This segment includes our heavy freight business (ground, air, and ocean), brokerage, and...

  • Page 6
    ... in our logistics business (distribution and post-sales). Simply, all supply chain solutions must meet two criteria. One, they must be linked to the transportation network and two, they must be repeatable, that is, able to be used by a number of customers simultaneously. As a result, we shed some...

  • Page 7
    ... Officer of the company after a 36-year career with UPS. David Abney succeeded John and brings extensive experience across our business, including small package, supply chain, and international operations. Replacing him is Alan Gershenhorn, who has joined the Management Committee. Alan has broad...

  • Page 8
    ... major trading markets around the world. Within the United States, UPS offers a variety of time- or day-definite delivery options including guaranteed ground delivery; next-day, second-day, and threeday delivery; and same-day service. Logistics Management, Distribution, and Post-Sales Support - UPS...

  • Page 9
    ... products company uses UPS Trade Direct® Ocean to import items custom-made in China for use at events around the United States. The service allows orders to be packed individually but clear customs as one shipment. The shipment is then deconsolidated at a UPS facility and delivered via UPS small...

  • Page 10
    ... they should be-increasing the long-term value of the enterprise. A TRACK RECORD OF SUCCESS ...THE LAST FIVE YEARS Since 2002, consolidated volume has increased at a compound annual growth rate of 4 percent. This resulted in the daily delivery of nearly 15.6 million packages in 2006, an increase of...

  • Page 11
    ... International segment contributing about 33 percent (compared with 26 percent in 2006). The U.S. Small Package segment should remain strong and post steady gains, while the Supply Chain and Freight segment is expected to be producing positive returns. Earnings per share compound annual growth rate...

  • Page 12
    ... are a number of key points that I like to review with investors whenever I speak with them: • Our industry is critical to global commerce. • UPS's position in this industry is strong. • We have a track record of delivering exceptional financial results over a long period of time. • Our...

  • Page 13
    ... wages, paying taxes, and practicing philanthropy. • We encourage community involvement and volunteerism by our employees. • We proactively employ solutions that minimize the impact of our business on the environment. Our corporate sustainability report can be found at www.sustainability.ups.com...

  • Page 14
    ..., and Public Affairs; General Counsel and Corporate Secretary John J. McDevitt Senior Vice President, Global Transportation Services Christine M. Owens Senior Vice President, Communications and Brand Management Robert E. Stoffel Senior Vice President, Engineering, Strategy, and Supply Chain James...

  • Page 15
    ... to Commission file number 001-15451 United Parcel Service, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 58-2480149 (I.R.S. Employer Identification No.) 55 Glenlake Parkway, N.E. Atlanta, Georgia (Address of...

  • Page 16
    ... United Parcel Service, Inc. ("UPS") is the world's largest package delivery company and a global leader in supply chain management. We were founded in 1907 as a private messenger and delivery service in Seattle, Washington. Today, we deliver packages each business day for 1.8 million shipping...

  • Page 17
    ... from business solutions that integrate many UPS services in addition to package delivery. We offer over 60 supply chain services - such as freight forwarding, customs brokerage, order fulfillment, and returns management - that help improve efficiency of the supply chain management process. Customer...

  • Page 18
    ... on Our Leadership Position in Our U.S. Business. We believe that our tradition of reliable package delivery service, our experienced and dedicated employees and our unmatched integrated air and ground network provide us with the advantages of reputation, service quality and economies of scale that...

  • Page 19
    ... for a global service offering that incorporates transportation, distribution and international trade services with financial and information services. We believe that we are well positioned to capitalize on this growth for the following reasons: • • We manage supply chains for large and small...

  • Page 20
    ... solutions to customers worldwide, including air, ocean and ground freight, as well as customs brokerage and trade and materials management. We provide standardized service, information technology systems and specialized distribution facilities and services adapted to the unique supply chains...

  • Page 21
    ...: supply chain management, distribution center design, planning and management, order fulfillment, inventory management, receiving and shipping, service parts logistics, reverse logistics and cross docking. International Trade Management: freight forwarding, full-service customs brokerage and...

  • Page 22
    ... be used separately or together, depending on customer needs. Flex® Global View provides UPS Supply Chain Solutions customers supply chain visibility of multimodal (air, ocean, ground and rail-freight or UPS small package) transportation, purchase order, customer and inventory management data via...

  • Page 23
    ... also supports both our traditional U.S. domestic and international small package delivery business and our Supply Chain & Freight business. Our corporate marketing function is engaged in market and customer research, brand management, rate-making and revenue management policy, new product...

  • Page 24
    ... maintain customers. As we expand our supply chain solutions service offerings, we compete with a number of participants in the supply chain, financial services and information technology industries. Government Regulation The U.S. Department of Homeland Security, through the Transportation Security...

  • Page 25
    ... free of charge through the investor relations page of our website, located at www.shareholder.com/ups, as soon as reasonably practicable after they are filed with or furnished to the SEC. We have adopted a written Code of Business Conduct that applies to all of our directors, officers and employees...

  • Page 26
    ...). Senior Vice President and President, UPS International (2007 - present), President, UPS Supply Chain Solutions - Asia and Europe (2005 - 2007), President, UPS Supply Chain Solutions - Shared Services (2004 - 2005), President, United Parcel Service Canada, Ltd. (2001 - 2004). Senior Vice President...

  • Page 27
    ... caption "Risk Factors". Item 1B. Unresolved Staff Comments Not applicable. Item 2. Properties Operating Facilities We own our headquarters, which are located in Atlanta, Georgia and consist of about 735,000 square feet of office space on an office campus, and our UPS Supply Chain Solutions group...

  • Page 28
    ... the main data center. It also helps us to meet our internal communication needs. We believe that our facilities are adequate to support our current operations. Fleet Aircraft The following table shows information about our aircraft fleet as of December 31, 2006, including the Boeing 767-300 order...

  • Page 29
    ...delivery of the Airbus A380-800 aircraft between 2009 and 2012. The signing of this agreement will have no material impact on our results of operations or financial condition. Vehicles We operate a ground fleet of approximately 101,000 package cars, vans, tractors and motorcycles. Our ground support...

  • Page 30
    .... Our employee co-chaired health and safety committees complete comprehensive facility audits and injury analyses, and recommend facility and work process changes. Item 3. Legal Proceedings We are a defendant in a number of lawsuits filed in state and federal courts containing various class-action...

  • Page 31
    PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our Class A common stock is not listed on a national securities exchange or traded in an organized over-the-counter market, but each share of our Class A common stock is ...

  • Page 32
    ...except to the extent that the Company specifically incorporates it by reference into such filing. The following graph shows a five-year comparison of cumulative total shareowners' returns for our class B common stock, the S&P 500 Index, and the Dow Jones Transportation Average. The comparison of the...

  • Page 33
    ...,407,810 Our shareowners have approved the United Parcel Service, Inc. Incentive Compensation Plan and the United Parcel Service, Inc. Discounted Employee Stock Purchase Plan. The material features of each of these plans are described in Note 11 to our consolidated financial statements included in...

  • Page 34
    ... elsewhere in this report. 2006 Years Ended December 31, 2005 2004 2003 2002 Selected Income Statement Data Revenue: U.S. Domestic Package ...International Package ...Supply Chain & Freight ...Total revenue ...Operating expenses: Compensation and benefits ...Other ...Total operating expenses...

  • Page 35
    ... percentage terms: Year Ended December 31, 2006 2005 Change $ % Revenue (in millions): U.S. Domestic Package: Next Day Air ...Deferred ...Ground ...Total U.S. Domestic Package ...International Package: Domestic ...Export ...Cargo ...Total International Package ...Supply Chain & Freight: Forwarding...

  • Page 36
    Year Ended December 31, 2005 2004 Change $ % Revenue (in millions): U.S. Domestic Package: Next Day Air ...Deferred ...Ground ...Total U.S. Domestic Package ...International Package: Domestic ...Export ...Cargo ...Total International Package ...Supply Chain & Freight: Forwarding and Logistics ......

  • Page 37
    ... (in millions) and in percentage terms, as well as the operating margin for each reporting segment: Year Ended December 31, 2006 2005 Change $ % Reporting Segment U.S. Domestic Package ...International Package ...Supply Chain & Freight ...Consolidated Operating Profit ... $4,923 1,710 2 $6,635...

  • Page 38
    ...Next Day Air, UPS 2nd Day Air, and UPS 3 Day Select, and 3.9% on UPS Ground. Other pricing changes included a new charge for undeliverable packages after three delivery attempts and an increase in rates for proof of delivery features for our Delivery Required and Signature Confirmation services. The...

  • Page 39
    ... rates 2.9% on UPS Next Day Air, UPS 2nd Day Air, UPS 3 Day Select, and UPS Ground. Other pricing changes included an increase of $0.25 for delivery area surcharge on both residential and commercial services to certain ZIP codes. The residential surcharge increased $0.10 for UPS Ground services...

  • Page 40
    ... Express Plus, UPS Worldwide Expedited and UPS International Standard services. Rate changes for international shipments originating outside the United States varied by geographical market and occured throughout the year. In January 2005, we modified the fuel surcharge on U.S. export products...

  • Page 41
    ..., as well as revenue earned from our previously-announced contract to provide domestic air transportation for the U.S. Postal Service. For the year, the Supply Chain & Freight segment reported $2 million in operating profit, as compared with a $156 million in operating profit for 2005. These results...

  • Page 42
    ... our International Package and Supply Chain & Freight segments resulted in operating expenses increasing by $84 million for the year. Compensation and benefits increased by $1.904 billion, or 8.5%, for the year, largely due to the acquisitions mentioned above, as well as increased health and welfare...

  • Page 43
    ..., as well as increased health and welfare benefit costs and higher pension expense for our union benefit plans. Stock-based and other management incentive compensation expense decreased $297 million, or 33.4%, in the year, due to a change in our Management Incentive Awards program implemented in...

  • Page 44
    ...by volume growth in our International Package business and higher fuel prices. The 9.2% increase in repairs and maintenance was largely due to higher expense on vehicle parts (partially affected by the Overnite acquisition), airframe and aircraft engine maintenance. The 6.5% increase in depreciation...

  • Page 45
    ...change in the fuel surcharge that took effect on January 1, 2007. We increased the base rates 6.9% on UPS Next Day Air, UPS 2nd Day Air, and UPS 3 Day Select, and 4.9% on UPS Ground. We also increased the base rates 6.9% for international shipments originating in the United States (Worldwide Express...

  • Page 46
    ...and short-term investments, largely to fund the acquisition of Overnite as well as to make fundings to our pension and postretirement medical benefit plans. In 2005, we spent $1.488 billion on business acquisitions, primarily Overnite Corp., Lynx Express Ltd. in the United Kingdom, Messenger Service...

  • Page 47
    ... rate swap agreements. Purchase commitments represent contractual agreements to purchase goods or services that are legally binding, the largest of which are orders for aircraft, engines, and parts. We have firm commitments to purchase four Boeing MD-11 aircraft, and we expect to take delivery...

  • Page 48
    ...meet our expected long-term needs for the operation of our business, including anticipated capital expenditures, such as commitments for aircraft purchases, for the foreseeable future. Contingencies We are a defendant in a number of lawsuits filed in state and federal courts containing various class...

  • Page 49
    ... cases will not have a material adverse effect on our financial condition, results of operations, or liquidity. We participate in a number of trustee-managed multi-employer pension and health and welfare plans for employees covered under collective bargaining agreements. Several factors could result...

  • Page 50
    ...would arise from the market shifts modeled. A discussion of our accounting policies for derivative instruments and further disclosures are provided in Note 15 to the consolidated financial statements. Commodity Price Risk We are exposed to an increase in the prices of refined fuels, principally jet...

  • Page 51
    ... should not be viewed as forecasts. We adjust the fixed and floating interest rate mix of our interest rate sensitive assets and liabilities in response to changes in market conditions. Equity Price Risk We hold investments in various common equity securities that are subject to price risk, and for...

  • Page 52
    ... FSP AUG AIR-1 "Accounting for Planned Major Maintenance Activities"; FAS 156 "Accounting for Servicing of Financial Assets"; and FSP FAS 13-2 "Accounting for a Change in the Timing of Cash Flows Related to Income Taxes Generated by a Leveraged Lease Transaction". Critical Accounting Policies and...

  • Page 53
    ...use in our DCF model are updated annually and will change over time based on the historical performance and changing business conditions for each of our reporting units. As of December 31, 2006, our recorded goodwill was $2.533 billion, of which $2.243 billion relates to our Supply Chain and Freight...

  • Page 54
    ... No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." These assumptions include discount rates, health care cost trend rates, inflation, rate of compensation increases, expected return on plan assets, mortality rates, and other factors. Actual results that differ from...

  • Page 55
    ...tax rate involves judgments related to tax planning and expectations regarding future events, including the impact of adjustments, if any, resulting from the resolution of audits of open tax years by the Internal Revenue Service or other taxing authorities. We recognize deferred tax assets for items...

  • Page 56
    ...service. The terms of future collective bargaining agreements also may affect our competitive position and results of operations. Possible disruption of supplies, or an increase in the prices, of gasoline, diesel and jet fuel for our aircraft and delivery vehicles as a result of war or other factors...

  • Page 57
    ...to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. There were no changes in the Company's internal controls over financial reporting during the year ended December 31, 2006...

  • Page 58
    ... for the Annual Meeting of Shareowners to be held on May 10, 2007 and is incorporated herein by reference. Item 11. Executive Compensation Information about executive compensation is presented under the captions "Compensation to Executive Officers," "Compensation of Directors," "Report of the...

  • Page 59
    ... Index for a list of the exhibits incorporated by reference into or filed with this report. (b) Exhibits required by Item 601 of Regulation S-K. See the Exhibit Index for a list of the exhibits incorporated by reference into or filed with this report. (c) Financial Statement Schedules. None. 44

  • Page 60
    ... the Securities Exchange Act of 1934, United Parcel Service, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED PARCEL SERVICE, INC. (REGISTRANT) By: /s/ Michael L. Eskew Michael L. Eskew Chairman and Chief Executive Officer Date: March...

  • Page 61
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Item 8-Financial Statements Page Number Management's Report on Internal Control Over Financial Reporting ...Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting ...Report of ...

  • Page 62
    ... 31, 2006 and the related consolidated statements of income, comprehensive income and cash flows for the year ended December 31, 2006, has issued an attestation report on management's assessment of the Company's internal control over financial reporting. United Parcel Service, Inc. March 1, 2007...

  • Page 63
    ... Public Accounting Firm on Internal Control over Financial Reporting Board of Directors and Shareowners United Parcel Service, Inc. Atlanta, Georgia We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that United...

  • Page 64
    ... of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of United Parcel Service, Inc. and its subsidiaries as of December 31, 2006, and the related consolidated statements of income, comprehensive income, and cash flows for the year ended December 31...

  • Page 65
    ... PUBLIC ACCOUNTING FIRM Board of Directors and Shareowners United Parcel Service, Inc. Atlanta, Georgia We have audited the accompanying consolidated balance sheets of United Parcel Service, Inc. and its subsidiaries (the "Company") as of December 31, 2006 and 2005, and the related consolidated...

  • Page 66
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions) December 31, 2006 2005 ASSETS Current Assets: Cash and cash equivalents ...Marketable securities and short-term investments ...Accounts receivable, net ...Finance receivables, net ...Deferred income tax assets ...

  • Page 67
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (In millions, except per share amounts) Years Ended December 31, 2006 2005 2004 Revenue ...Operating Expenses: Compensation and benefits ...Repairs and maintenance ...Depreciation and amortization ...Purchased ...

  • Page 68
    ... 442 483 Pension and postretirement benefit contributions ...(1,625) (995) (586) Deferred taxes, credits and other ...279 450 289 Stock compensation expense ...369 234 610 Other (gains) losses ...128 170 144 Changes in assets and liabilities, net of effect of acquisitions: Accounts receivable, net...

  • Page 69
    ... Through our Supply Chain & Freight subsidiaries, we are also a global provider of specialized transportation, logistics, and financial services. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to...

  • Page 70
    ... a number of Boeing 727, 747 and McDonnell Douglas DC-8 aircraft. As a result of the actual and planned retirement of these aircraft, we conducted an impairment evaluation, which resulted in a $110 million impairment charge during the fourth quarter for these aircraft (including the related engines...

  • Page 71
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Goodwill and Intangible Assets Costs of purchased businesses in excess of net assets acquired (goodwill), and intangible assets are accounted for under the provisions of FASB Statement No. 142 "...

  • Page 72
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Stock-Based Compensation In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based Payment" ("FAS 123(R)"), which replaces FASB Statement No. 123 "Accounting for Stock-Based ...

  • Page 73
    ... on our results of operations or financial condition: • FSP AUG AIR-1 "Accounting for Planned Major Maintenance Activities"; • FAS 156 "Accounting for Servicing of Financial Assets"; and • FSP FAS 13-2 "Accounting for a Change in the Timing of Cash Flows Related to Income Taxes Generated by...

  • Page 74
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTE 2. MARKETABLE SECURITIES AND SHORT-TERM INVESTMENTS The following is a summary of marketable securities and short-term investments classified as available-forsale at December 31, 2006 and 2005 (...

  • Page 75
    ...288 - 1 $289 $- 2 1 - - 3 - - $ 3 The unrealized losses in the U.S. government & agency securities, mortgage & asset-backed securities, and corporate securities relate to various fixed income securities, and are primarily due to changes in market interest rates. We have both the intent and ability...

  • Page 76
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Outstanding receivable balances at December 31, 2006 and 2005 are net of unearned income of $29 and $34 million, respectively. When we "factor" (i.e., purchase) a customer invoice from a client, we ...

  • Page 77
    ... and members of collective bargaining units that elect to participate in the plan. This plan provides for retirement benefits based on service credits earned by employees prior to retirement. We also sponsor postretirement medical plans in the U.S. that provide health care benefits to our retirees...

  • Page 78
    ... benefit plans is as follows (in millions): U.S. Pension Benefits 2006 2005 2004 U.S. Postretirement Medical Benefits 2006 2005 2004 International Pension Benefits 2006 2005 2004 Net Periodic Cost: Service cost ...Interest cost ...Expected return on assets ...Amortization of: Transition...

  • Page 79
    ... Benefits Other than Pensions." These assumptions include discount rates, expected return on plan assets, health care cost trend rates, inflation, rate of compensation increases, mortality rates, and other factors. Actuarial assumptions are reviewed on an annual basis. A discount rate is used...

  • Page 80
    ... 30 ...Fair Value of Plan Assets: Fair value of plan assets at October 1, prior year ...Actual return on plan assets ...Employer contributions ...Plan participants' contributions ...Gross benefits paid ...Acquired businesses ...Foreign currency exchange rate changes ...Curtailments and settlements...

  • Page 81
    ... our measurement date on September 30 and the amounts recognized in our balance sheet as of year-end, on a pre-tax basis (in millions): U.S. Pension Benefits 2006 2005 U.S. Postretirement Medical Benefits 2006 2005 International Pension Benefits 2006 2005 Funded Status: Fair value of plan assets at...

  • Page 82
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) At September 30, 2006 and 2005, the projected benefit obligation, the accumulated benefit obligation, and the fair value of plan assets for pension plans with a projected benefit obligation in excess ...

  • Page 83
    ... results that meet or exceed the plans' actuarially assumed long-term rate of return. Expected Cash Flows Information about expected cash flows for the pension and postretirement benefit plans is as follows (in millions): U.S. Pension Benefits U.S. Postretirement Medical Benefits International...

  • Page 84
    ... for the Supply Chain & Freight segment during 2006 resulted primarily from finalizing the purchase price allocation of Overnite Corp. The goodwill acquired in the International Package segment during 2005 resulted primarily from the purchase of Lynx Express Delivery Ltd. in the United Kingdom...

  • Page 85
    .... was a global freight forwarder that provided a full suite of heavy air freight forwarding services, ocean services and international trade management, including customs brokerage. The former operations of Menlo Worldwide Forwarding, Inc. are included as part of our Supply Chain & Freight reporting...

  • Page 86
    ... parcel carriers in the United Kingdom. Lynx also offers customers a broad suite of logistics and spare parts logistics services. The operating results of Lynx are included in our International Package reporting segment from the date of acquisition. NOTE 8. LONG-TERM DEBT AND COMMITMENTS Long-term...

  • Page 87
    ... entered into agreements with certain municipalities to finance the construction of, or improvements to, facilities that support our U.S. Domestic Package and Supply Chain & Freight operations in the United States. These facilities are located around airport properties in Louisville, KY; Dallas, TX...

  • Page 88
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) • Bonds with a principal balance of $29 million issued by the Dallas / Forth Worth International Airport Facility Improvement Corporation associated with our Dallas, TX airport facilities. The bonds...

  • Page 89
    ... financial condition of the company, and all covenant tests were passed as of December 31, 2006. NOTE 9. LEGAL PROCEEDINGS AND CONTINGENCIES We are a defendant in a number of lawsuits filed in state and federal courts containing various class-action allegations under state wage-and-hour laws. In one...

  • Page 90
    ... cases will not have a material adverse effect on our financial condition, results of operations, or liquidity. We participate in a number of trustee-managed multi-employer pension and health and welfare plans for employees covered under collective bargaining agreements. Several factors could result...

  • Page 91
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) vote per share. Class A shares are primarily held by UPS employees and retirees, and these shares are fully convertible into Class B shares at any time. Class B shares are publicly traded on the New ...

  • Page 92
    ... pension and postretirement benefit costs as of December 31, 2006. Deferred Compensation Obligations and Treasury Stock We maintain a deferred compensation plan whereby certain employees were previously able to elect to defer the gains on stock option exercises by deferring the shares received...

  • Page 93
    ... under the Incentive Compensation Plan. Management Incentive Awards & Restricted Stock Units Persons earning the right to receive management incentive awards are determined annually by the Compensation Committee of the UPS Board of Directors. Our management incentive awards program provides that...

  • Page 94
    ... Plan must have an exercise price at least equal to the NYSE closing price of UPS class B common stock on the date the option is granted. Persons earning the right to receive stock options are determined each year by the Compensation Committee. Except in the case of death, disability, or retirement...

  • Page 95
    ..., as well as the implied volatility of our publicly-traded options. The expected dividend yield is based on the recent historical dividend yields for our stock, taking into account changes in dividend policy. The risk-free interest rate is based on the term structure of interest rates at the time of...

  • Page 96
    ... are based on the historical price volatility on our publicly-traded class B shares. The expected dividend yield is based on the recent historical dividend yields for our stock, taking into account changes in dividend policy. The risk-free interest rate is based on the term structure of interest...

  • Page 97
    ... worldwide, and includes supply chain design and management, freight distribution, customs brokerage, mail and consulting services. UPS Freight offers a variety of LTL and TL services to customers in North America. Other aggregated business units within this segment include Mail Boxes, Etc. (the...

  • Page 98
    ...Revenue by product type for the years ended December 31 is as follows (in millions): 2006 2005 2004 U.S. Domestic Package: Next Day Air ...Deferred ...Ground ...Total U.S. Domestic Package ...International Package: Domestic ...Export ...Cargo ...Total International Package ...Supply Chain & Freight...

  • Page 99
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Revenue, for geographic disclosure, is based on the location in which service originates. Long-lived assets include property, plant and equipment, pension and postretirement benefit assets, long-term ...

  • Page 100
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Deferred tax liabilities and assets are comprised of the following at December 31 (in millions): 2006 2005 Property, plant and equipment ...Goodwill and intangible assets ...Pension plans ...Other ...

  • Page 101
    ...4.1 million shares, respectively, of common stock that may be issued upon the exercise of employee stock options because such effect would be antidilutive. NOTE 15. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT We are exposed to market risk, primarily related to foreign exchange rates, commodity prices...

  • Page 102
    ... institutions that meet established credit guidelines. We do not expect to incur any losses as a result of counterparty default. Derivatives Not Designated As Hedges Derivatives not designated as hedges primarily consist of a small portfolio of stock warrants in public and private companies that are...

  • Page 103
    ... the movement of air freight. During the third quarter of 2005, we finalized our plans to exit the Dayton facility, as well as various other acquired facilities, and accrued certain costs related to employee severance, lease terminations, and related items. As part of this restructuring program, the...

  • Page 104
    ...UPS network in the United Kingdom. These initiatives include closing existing hubs and constructing a consolidated sorting facility as well as establishing a European shared service center in Poland. As a result of these initiatives, we have accrued certain costs related to employee severance, lease...

  • Page 105
    ..., will be recognized as incurred. We anticipate completing this integration program by fiscal year 2008 at which time certain hubs will be closed and the new consolidated sorting facility will be fully operational. Supply Chain Solutions In an effort to rationalize our cost structure and focus on...

  • Page 106
    ... re-evaluation process of our aircraft fleet types, to ensure that we maintain the optimum mix of aircraft types to service our international and domestic package businesses. This process might result in the planned retirement of certain less-efficient and older aircraft models at dates earlier than...

  • Page 107
    ... September 22, 1999, among United Parcel Service of America, Inc., United Parcel Service, Inc. and UPS Merger Subsidiary, Inc. (incorporated by reference to the registration statement on Form S-4 (No. 333-83349), filed on July 21, 1999, as amended). - Agreement and Plan of Merger, dated as of May 15...

  • Page 108
    ...the UPS Savings Plan (incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2005). 10.4 - Credit Agreement (364-Day Facility) dated April 20, 2006 among United Parcel Service, Inc., the initial lenders named therein, Citigroup Global Markets Inc...

  • Page 109
    .... 10 to the UPS Qualified Stock Ownership Plan and Trust Agreement (incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2005). 10.9 - Form of United Parcel Service, Inc. Incentive Compensation Plan (incorporated by reference to the registration...

  • Page 110
    ... available free of charge by calling, contacting via the Web site, or writing the Investor Relations Department. UPS SHAREOWNER SERVICES Convenient access 24 hours a day, seven days a week. Class A Common Shareowners www.melloninvestor.com Select "MellonOne" 888-663-8325 Class B Common Shareowners...

  • Page 111
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