UPS 2007 Annual Report Download

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UPS ANNUAL REPORT 2007
moving ahead

Table of contents

  • Page 1
    moving ahead UPS ANNUAL REPORT 2007

  • Page 2

  • Page 3
    ... businesses. CONTENTS 3 Chairman's Message 7 Our Corporate Commitment 8 Products and Services 10 Customer Stories 12 Board of Directors and Senior Management 13 Annual Report Form 10-K UPS FACTS Founded: Employees: Customers: Online tracking: Operating facilities: Jet aircraft: Package delivery...

  • Page 4
    ... 2007, the UPS Board of Directors named the company's Chief Financial Officer, Scott Davis, as the successor to retiring Chairman and Chief Executive Officer Mike Eskew, effective January 1, 2008. Davis, who joined UPS in 1986, was formerly CEO of II Morrow, a technology company acquired by UPS...

  • Page 5
    ... operating margin • Invested in the company's future through new services and technology, infrastructure expansion and aircraft • Returned significant amounts of cash to our shareowners: $1.7 billion in dividends and $2.6 billion to repurchase 35.9 million shares of stock GLO BAL SM ALL PACKAGE...

  • Page 6
    ... cost - in short, synchronized commerce. In today's global environment, our market opportunities are significant. UPS participates in a $225 billion global arena that includes small package shipping, domestic less-than-truckload freight and global air freight. We have about a 20 percent share...

  • Page 7
    ... customers, our employees and our shareowners - have a tremendous opportunity to move forward with us as we capitalize on global opportunities. FAREW ELL TO A VISIO N ARY At the close of 2007, M ike Eskew, our Chairman and Chief Executive O fficer for six years, retired. In M ike's 35-year career...

  • Page 8
    ... 2007 pre-tax results include: a $6.1 billion payment to withdraw 45,000 Teamster employees from a multi-employer pension plan, an impairment charge of $221 million on the accelerated retirement of certain aircraft, a $68 million charge for the special voluntary separation opportunity, and a $46...

  • Page 9
    ... and water; recycling electronic and solid waste materials; introducing new technologies and practices to reduce emissions, fuel and energy use; and improving routing technologies to reduce miles driven. Corporate responsibility at community.ups.com Code of Business Conduct at shareholder.com/ups

  • Page 10
    ... information attached to the shipments. We also offer logistics and financial services related to package delivery, distribution and supply chain management. package freight distribution W H EN SPEED CO UN TS We have the services customers need when speed is their top priority. Whether shipping...

  • Page 11
    ...drop boxes, at The UPS Store® and M ail Boxes Etc.® locations worldwide, through customer centers and authorized outlets, or by arranging service through ups.com ®. customs brokerage technology solutions N EW SERVICES TO H ELP CUSTOM ERS H AN DLE EM ERGEN CIES AN D SAVE RESO URCES Save the Day...

  • Page 12
    ... freight to move batteries from suppliers in Asia to its Wisconsin distribution facility. Plus, UPS express and ground services then are used to move the batteries to stores nation wide. Shipping services get the products there, and visibility tools keep Reynolds' employees and customers informed...

  • Page 13
    ... hits the ground. UPS then takes the shipment to its Louisville facility, where it is stocked 11 or put into customer-specific packaging and shipped out. M ost of N ikon's cameras are manufactured in Asia, according to Arnold Kamen, vice president of operations, who oversees activities within the...

  • Page 14
    ... Executive Officer Alan Gershenhorn Senior Vice President, Worldwide Sales and Marketing John J. McDevitt Senior Vice President, Global Transportation Services SENIOR OPERATIONS MANAGEMENT David Bowles President, Global Logistics and Distribution Jack A. Holmes President, UPS Freight Glenn...

  • Page 15
    ... of class A common stock and 692,320,301 outstanding shares of class B common stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for its annual meeting of shareowners scheduled for May 8, 2008 are incorporated by reference into Part III of this report.

  • Page 16
    ... China, India and Europe, experience economic growth. Package shipments will increase as a result of just-in-time inventory management, greater use of the Internet for ordering goods, and direct-to-consumer business models. Outsourcing supply chain management is becoming more prevalent, as customers...

  • Page 17
    ... domestic revenue through cross-selling services to our large and diverse customer base, to limit the rate of expense growth, and to employ technology-driven efficiencies to increase operating profit. International Package The International Package segment provides air and ground delivery of small...

  • Page 18
    ... rate than that of the U.S., and our international package operations have historically been growing faster than the market. We plan to use our worldwide infrastructure and broad product portfolio to grow high-margin premium services. We will also implement cost, process and technology improvements...

  • Page 19
    ... provide a broad range of transportation solutions to customers worldwide, including air, ocean and ground freight, as well as customs brokerage, and trade and materials management. We provide service, information technology systems and distribution facilities adapted to the unique supply chains of...

  • Page 20
    ..., operations and the customer experience. These efforts have resulted in expanded market presence, despite a challenging economic environment. Significant service and reliability improvements for freight transportation enabled us to implement a no-fee, guaranteed delivery service in early 2008...

  • Page 21
    ... center employees handle any packages. This plan reduces mileage driven, resulting in substantial savings in fuel usage. The re-engineered system provides the basis for unique customer-focused services based on the customerspecific data which powers the system. Sales and Marketing The UPS worldwide...

  • Page 22
    ... Technology. We are a global leader in developing technology that helps our customers optimize their shipping and logistics business processes to lower costs, improve service and increase efficiency. Technology powers virtually every service we offer and every operation we perform. Our technology...

  • Page 23
    ... benefit from business solutions that integrate many UPS services in addition to package delivery. For example, our supply chain services-such as freight forwarding, customs brokerage, order fulfillment, and returns management-help improve the efficiency of the supply chain management process...

  • Page 24
    ... regulations. Where You Can Find More Information We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports available free of charge through the investor relations page of our website, located at www.shareholder.com...

  • Page 25
    ... (2008 - present), Senior Vice President, Worldwide Sales and Marketing (2004 - 2007), Vice President, Investor Relations (1999 - 2003). Senior Vice President, General Counsel and Corporate Secretary (2006 - present), Corporate Legal Department Manager (2005 - 2006), Compliance Department Manager...

  • Page 26
    ... Vice President Item 1A. Risk Factors 56 Information about risk factors can be found in Item 7 of this report under the 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...

  • Page 27
    ...during 2008. Rapid expansion is planned to a sorting capacity of 17,000 pieces per hour. The new hub will link all of China via Shanghai to UPS's international network with direct service to the Americas, Europe and Asia. It also will connect points served in China by UPS through a dedicated service...

  • Page 28
    ... to purchase 10 additional A380-800 aircraft. Vehicles We operate a ground fleet of approximately 100,000 package cars, vans, tractors and motorcycles. Our ground support fleet consists of over 26,000 pieces of equipment designed specifically to support our aircraft fleet, ranging from non-powered...

  • Page 29
    ... conditioning and safety-related habits. 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...

  • Page 30
    ..., 2007 in courts across the nation. The cases have been consolidated for pretrial purposes in a Multi-District Litigation proceeding in the United States District Court for the Northern District of Georgia. The lawsuits allege that the defendants conspired to fix fuel surcharge rates, and they seek...

  • Page 31
    ...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 convertible into one share of our Class B common stock. The following is a summary of our Class B common stock price activity and...

  • Page 32
    ... return on investment, which is the change in the quarterly stock price plus reinvested dividends for each of the quarterly periods, assumes that $100 was invested on December 31, 2002 in the S&P 500 Index, the Dow Jones Transportation Average, and the class B common stock of United Parcel Service...

  • Page 33
    ...,589,843 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
    ... 2003 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 ...Operating profit (loss): U.S. Domestic Package ...International Package...

  • Page 35
    Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Operations The following tables set forth information showing the change in revenue, average daily package volume, and average revenue per piece, both in dollars or amounts and in percentage terms: Year ...

  • Page 36
    ... Supply Chain & Freight ...Consolidated ...Average Daily Package Volume (in thousands): U.S. Domestic Package: Next Day Air ...Deferred ...Ground ...Total U.S. Domestic Package ...International Package: Domestic ...Export ...Total International Package ...Consolidated ...Operating days in period...

  • Page 37
    ...acquired on August 5, 2005. The information presented above reflects the performance of UPS Freight for the period subsequent to the date of acquisition. Operating Profit and Margin The following tables set forth information showing the change in operating profit (loss), both in dollars (in millions...

  • Page 38
    ... the fuel surcharge on domestic air services by reducing the index used to determine the fuel surcharge by 2%. This fuel surcharge continues to be based on the U.S. Energy Department's Gulf Coast spot price for a gallon of kerosene-type jet fuel. Based on published rates, the average fuel surcharge...

  • Page 39
    ...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 residential surcharge...

  • Page 40
    ... per piece improvements described above. The change in operating profit was also positively affected by $153 million during the year due to favorable currency exchange rates, net of hedging activity. International Package operating profit was adversely affected in 2007 by charges related to the...

  • Page 41
    ... business was driven by improvements in international air freight and mail services, which were impacted by overall market growth and lower customer turnover rates. UPS Freight increased revenue $156 million, or 8.0%, for the year as a result of improved yields and a strong increase in average daily...

  • Page 42
    ...led to service issues, which resulted in a loss of revenue, as well as productivity setbacks resulting in increased costs. The integration of the Menlo Worldwide Forwarding business resulted in increased costs and some lost sales resulting from customer turnover. The increase in operating profit was...

  • Page 43
    ...well as the applicable collective bargaining agreements. We recorded a restructuring charge of $46 million ($42 million related to severance costs, and thus recorded in compensation and benefits expense) in 2007 related to this program. Stock-based and other management incentive compensation expense...

  • Page 44
    ...changes to our aircraft orders and planned delivery dates, we began a review 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. The review was completed in March 2007, and based on the results...

  • Page 45
    ... in our International Package business, currency fluctuations, higher fuel prices, increased rail costs, and changes to the freight forwarding business model described previously. The 2.3% increase in repairs and maintenance was largely due to increased expense on airframe and engine repairs. The...

  • Page 46
    ... pay approximately $28 million in the first quarter of 2008 related to this program. On November 9, 2007, we announced a rate increase and a change in the fuel surcharge that took effect on December 31, 2007. We increased the base rates 6.9% on UPS Next Day Air, UPS 2nd Day Air, and UPS 3 Day Select...

  • Page 47
    ... Diesel Fuel Price. Rate changes for shipments originating outside the U.S. were made throughout the past year and varied by geographic market. In January 2008, UPS Freight announced a general rate increase averaging 5.4 percent covering non-contractual shipments in the United States and Canada. The...

  • Page 48
    ... of Directors and will depend on various factors, including our net income, financial condition, cash requirements, future prospects, and other relevant factors. We expect to continue the practice of paying regular cash dividends. On January 31, 2008, our Board declared a dividend of $0.45 per share...

  • Page 49
    ... of $4.0 billion in senior notes that were used to reduce the commercial paper balance. 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. In February 2007, we announced...

  • Page 50
    ... benefit plan with a material minimum funding requirement as of December 31, 2007. The pension funding requirements were estimated under the provisions of the Pension Protection Act of 2006 and the Employee Retirement Income Security Act of 1974, using discount rates, asset returns, and...

  • Page 51
    ... 31, 2009. Apart from the Central States Pension Fund, 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 cause us to make significantly higher future contributions to...

  • Page 52
    ... 15 to the consolidated financial statements. Commodity Price Risk We are exposed to changes in the prices of refined fuels, principally jet-A, diesel, and unleaded gasoline. Currently, the fuel surcharges that we apply to our domestic and international package and LTL services are the primary means...

  • Page 53
    ... 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 54
    ... the provisions of FAS 158, we will be required to use a December 31 measurement date for all of our pension and postretirement benefit plans beginning in 2008. As a result of this change in measurement date, we recorded a cumulative effect after-tax $44 million reduction to retained earnings as of...

  • Page 55
    ... condition and results of operations are based on our consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America. As indicated in Note 1 to our consolidated financial statements, the amounts of assets, liabilities...

  • Page 56
    ... 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 57
    ... our results of operations. A quantitative sensitivity analysis of our exposure to changes in commodity prices, foreign currency exchange rates, interest rates, and equity prices is presented in the "Market Risk" section of this report. Depreciation, Residual Value, and Impairment of Fixed Assets-As...

  • Page 58
    ...changes to our aircraft orders and planned delivery dates, we began a review 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. The review was completed in March 2007, and based on the results...

  • Page 59
    .... Risk Factors The following are some of the factors that could cause our actual results to differ materially from the expected results described in our forward-looking statements: • The effect of general economic and other conditions in the markets in which we operate, both in the United States...

  • Page 60
    ... 31, 2007, has issued an attestation report on the Company's internal control over financial reporting, which is included herein. United Parcel Service, Inc. February 29, 2008 Item 9B. Other Information None. 45 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

  • Page 61
    ... "Election of Directors-Committees of the Board of Directors-Audit Committee" in our definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 8, 2008 and is incorporated herein by reference. Information about our Code of Business Conduct is presented under the caption...

  • Page 62
    ...page F-1 for a list of the financial statements filed with this report. 2. Financial Statement Schedules. None. 3. List of Exhibits. See the Exhibit 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...

  • Page 63
    ... by the undersigned, thereunto duly authorized. UNITED PARCEL SERVICE, INC. (REGISTRANT) By: /s/ D. SCOTT DAVIS D. Scott Davis Chairman and Chief Executive Officer Date: February 29, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 64
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Item 8-Financial Statements Page Number Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting ...Report of Independent Registered Public Accounting Firm ...Consolidated balance ...

  • Page 65
    ... Independent Registered Public Accounting Firm on Internal Control over Financial Reporting Board of Directors and Shareowners United Parcel Service, Inc. Atlanta, Georgia We have audited the internal control over financial reporting of United Parcel Service, Inc. and subsidiaries (the "Company") as...

  • Page 66
    ... statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free...

  • Page 67
    ...-Term Debt ...Pension and Postretirement Benefit Obligations ...Deferred Income Tax Liabilities ...Self-Insurance Reserves ...Other Non-Current Liabilities ...Shareowners' Equity: Class A common stock (349 and 401 shares issued in 2007 and 2006) ...Class B common stock (694 and 672 shares issued in...

  • Page 68
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (In millions, except per share amounts) Years Ended December 31, 2007 2006 2005 Revenue ...Operating Expenses: Compensation and benefits ...Repairs and maintenance ...Depreciation and amortization ...Purchased ...

  • Page 69
    ... Pension and postretirement benefit contributions ...(687) (1,625) (995) Deferred taxes, credits and other ...(249) 99 189 Stock compensation expense ...447 369 234 Self-insurance reserves ...69 180 261 Asset impairment and obsolescence charge ...221 - - Other (gains) losses ...243 128 170 Changes...

  • Page 70
    ... of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the...

  • Page 71
    ...changes to our aircraft orders and planned delivery dates, we began a review 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. The review was completed in March 2007, and based on the results...

  • Page 72
    ..., which incorporate historical loss experience and judgments about the present and expected levels of cost per claim. Income Taxes Income taxes are accounted for under FASB Statement No. 109, "Accounting for Income Taxes" ("FAS 109"). FAS 109 is an asset and liability approach that requires the...

  • Page 73
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Foreign Currency Translation We translate the results of operations of our foreign subsidiaries using average exchange rates during each period, whereas balance sheet accounts are translated using ...

  • Page 74
    ... the provisions of FAS 158, we will be required to use a December 31 measurement date for all of our pension and postretirement benefit plans beginning in 2008. As a result of this change in measurement date, we recorded a cumulative effect after-tax $44 million reduction to retained earnings as of...

  • Page 75
    ... of marketable securities and short-term investments classified as available-for-sale at December 31, 2007 and 2006 (in millions): Cost Unrealized Gains Unrealized Losses Estimated Fair Value 2007 U.S. government and agency securities ...U.S. mortgage and asset-backed securities ...U.S. corporate...

  • Page 76
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Unrealized Gains Unrealized Losses Estimated Fair Value Cost 2006 U.S. government and agency securities ...U.S. mortgage and asset-backed securities ...U.S. corporate securities ...U.S. state and ...

  • Page 77
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Estimated Fair Value Cost Due... Commercial term loans ...Investment in finance leases ...Asset-based lending ...Receivable factoring ...Gross finance receivables ...Less: Allowance for credit losses ...

  • Page 78
    ... benefit plans in Canada and the United Kingdom (including the Lynx acquisition in 2005). In addition, many of our International employees are covered by governmentsponsored retirement and pension plans. We are not directly responsible for providing benefits to participants of government-sponsored...

  • Page 79
    ...collective bargaining unit. This plan generally provides for retirement benefits based on average compensation levels earned by employees prior to retirement. Benefits payable under this plan are subject to maximum compensation limits and the annual benefit limits for a tax qualified defined benefit...

  • Page 80
    .... 106, "Employers' Accounting for Postretirement 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...

  • Page 81
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Assumed health care cost trends have a significant effect on the amounts reported for the U.S. postretirement medical plans. A one-percent change in assumed health care cost trend rates would have the...

  • Page 82
    ... of FAS 158, we will be required to use a December 31 measurement date for all of our pension and postretirement benefit plans beginning in 2008. Employer contributions and benefits paid under the pension plans include $19 and $24 million paid from employer assets in 2007 and 2006, respectively...

  • Page 83
    ... cost in 2008 are as follows (in millions): U.S. Pension Benefits U.S. Postretirement Medical Benefits International Pension Benefits Transition obligation ...Prior service cost / (benefit) ...Actuarial loss ... $ 4 185 8 $- (4) 19 $ 15 $- 1 - $ 1 $197 Plan Asset Investment Policy The asset...

  • Page 84
    ... from plan trusts. Expected benefit payments for postretirement medical benefits will be paid from plan trusts and corporate assets. Our funding policy for U.S. plans is to contribute amounts annually that are at least equal to the amounts required by applicable laws and regulations, or to directly...

  • Page 85
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Contributions are also made to defined contribution money purchase plans under certain collective bargaining agreements. Amounts charged to expense were $72, $62, and $55 million for 2007, 2006, and ...

  • Page 86
    ..., and had taken direct control of operations in all 23 locations. The operations acquired are reported within our International Package reporting segment. In May 2005, we acquired Messenger Service Stolica S.A. ("Stolica"), one of the leading parcel and express delivery companies in Poland. Stolica...

  • Page 87
    ... fixed rate notes subsequent to December 31, 2007. In 2006, the entire commercial paper balance was classified as a current liability. The amount of commercial paper outstanding in 2008 is expected to fluctuate. We are authorized to borrow up to $10.0 billion under the U.S. commercial paper program...

  • Page 88
    ...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; Philadelphia, PA; and Dayton, OH. Under these arrangements, we enter into a lease or...

  • Page 89
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) interest thereon discounted to the date of redemption at a benchmark U.K. government bond yield plus 15 basis points and accrued interest. The £66 million of existing notes that were not exchanged ...

  • Page 90
    ... the company, and all covenant tests were passed as of December 31, 2007. 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 of these cases, Marlo...

  • Page 91
    ... 31, 2009. Apart from the Central States Pension Fund, 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 cause us to make significantly higher future contributions to...

  • Page 92
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTE 10. SHAREOWNERS' EQUITY Capital Stock, Additional Paid-In Capital, and Retained Earnings We maintain two classes of common stock, which are distinguished from each other by their respective ...

  • Page 93
    ..., net of tax: Balance at beginning of year ...Current period changes in fair value (net of tax effect of $(177), $(4), and $81) ...Reclassification to earnings (net of tax effect of $(14), $(5), and $(14)) ...Balance at end of year ...Unrecognized pension and postretirement benefit costs, net of tax...

  • Page 94
    ...the time of grant. These management incentive awards are generally granted in the fourth quarter of each year. Upon vesting, RSUs result in the issuance of the equivalent number of UPS class A common shares after required tax withholdings. Except in the case of death, disability, or retirement, RSUs...

  • Page 95
    ...maintain fixed stock option plans, under which options are granted to purchase shares of UPS class A common stock. Stock options granted in connection with the Incentive Compensation Plan must have an exercise price at least equal to the NYSE closing price of UPS class B common stock on the date the...

  • Page 96
    ...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 the option grant...

  • Page 97
    ... equivalent number of UPS class A common shares after required tax withholdings. Persons earning the right to receive RPUs are determined each year by the Compensation Committee. Except in the case of death, disability, or retirement, all RPUs granted prior to 2008 vest five years after the date of...

  • Page 98
    ...and territories 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...

  • Page 99
    ... expense, and income taxes. The accounting policies of the reportable segments are the same as those described in the summary of accounting policies (see Note 1), with certain expenses allocated between the segments using activity-based costing methods. Unallocated assets are comprised primarily of...

  • Page 100
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Revenue by product type for the years ended December 31 is as follows (in millions): 2007 2006 2005 U.S. Domestic Package: Next Day Air ...Deferred ...Ground ...Total U.S. Domestic Package ......

  • Page 101
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTE 13. INCOME TAXES The income tax expense (benefit) for the years ended December 31 consists of the following (in millions): 2007 2006 2005 Current: U.S. Federal ...U.S. State and Local ...Non...

  • Page 102
    ...assets ...Pension plans ...Other ...Gross deferred tax liabilities ...Other postretirement benefits ...Loss and credit carryforwards (non-U.S. and state) ...Insurance reserves ...Vacation pay accrual ...Other ...Gross deferred tax assets ...Deferred tax assets valuation allowance ...Net deferred tax...

  • Page 103
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table summarizes the activity related to our unrecognized tax benefits (in millions): Balance at January 1, 2007 ...Additions for tax positions of the current year ...Additions for tax ...

  • Page 104
    ...instruments for trading or speculative purposes. Commodity Price Risk Management We are exposed to changes in the prices of refined fuels, principally jet-A, diesel, and unleaded gasoline. Currently, the fuel surcharges that we apply to our domestic and international package and LTL services are the...

  • Page 105
    ... 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 106
    ... pre-tax losses related to cash flow hedges that are currently deferred in OCI are expected to be reclassified to income over the 12 month period ending December 31, 2008. The actual amounts that will be reclassified to income over the next 12 months will vary from this amount as a result of changes...

  • Page 107
    ...$ 40 Employee severance costs related to severance packages for approximately 550 people. These packages were involuntary and were formula-driven based on salary levels and past service. The separations spanned the entire business unit, including the operations, information technology, finance, and...

  • Page 108
    ... bargaining agreements. The employment reduction program resulted in 103 employees accepting the voluntary termination offer and 342 positions identified for the involuntary termination program. The restructuring also included costs incurred related to contract terminations for leased facilities...

  • Page 109
    ...earnings per share by $0.03. Fourth quarter 2007 operating profit includes the $6.100 billion charge in the U.S. Domestic Package segment related to the withdrawal from the Central States Pension Fund, as discussed in Note 5. The after-tax impact of this charge reduced fourth quarter 2007 net income...

  • Page 110
    ...-Q for the Quarter Ended June 30, 2002). - Form of Bylaws of United Parcel Service, Inc. (incorporated by reference to Exhibit 3.2 to the registration statement on Form S-4 (No. 333-83349), filed on July 21, 1999, as amended). - Form of Class A Common Stock Certificate (incorporated by reference to...

  • Page 111
    ... Credit Agreement (364-Day Facility) dated October 19, 2007 among United Parcel Service, Inc., the initial lenders named therein, Citigroup Global Markets Inc. as arranger and book manager, and Citibank, N.A. as administrative agent (incorporated by reference to Exhibit 10.1 to the Current Report on...

  • Page 112
    ...and Trust Agreement. †(15) Amendment No. 15 to the UPS Qualified Stock Ownership Plan and Trust Agreement. †(16) Amendment No. 16 to the UPS Qualified Stock Ownership Plan and Trust Agreement. 10.10 - Form of United Parcel Service, Inc. Incentive Compensation Plan (incorporated by reference to...

  • Page 113
    ... (1) Amendment to the UPS Deferred Compensation Plan (incorporated by reference to Exhibit 10.12(1) to 2004 Annual Report on Form 10-K). 10.12 10.13 - United Parcel Service, Inc. Nonqualified Employee Stock Purchase Plan (incorporated by reference to the registration statement on Form S-8 (No. 333...

  • Page 114
    ...Exchange Commission website, w w w.sec.gov. The Form 10-K also is available free of charge by calling, contacting via the website or writing to the Investor Relations Department. UPS SH AREOW N ER SERVICES For convenient access 24 hours a day, seven days a week: Class A Shareowners www.bnymellon.com...

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