UPS 2007 Annual Report Download - page 108

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
European shared service center in Poland. As a result of these initiatives, we accrued certain costs related to
employee severance, lease terminations and other facility costs as well as recorded a reduction in the fair value of
certain assets acquired. The restructuring costs that impacted the acquired Lynx business resulted in an
adjustment to goodwill of $7 million in 2006. The remaining integration costs for this restructuring program,
including facility costs associated with capacity expansion, will be recognized as expense when incurred. We
anticipate completing this integration program during 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 profitable revenue growth, we initiated a
restructuring plan for our Supply Chain Solutions forwarding & logistics operations in the fourth quarter of 2006.
This restructuring involved a reduction of non-operating expenses by approximately 20%, including a reduction
in non-operating staff of approximately 1,400 people. During 2006, $12 million in costs were accrued related to
employee severance.
In the third quarter of 2007, we initiated a restructuring plan for our forwarding and logistics operations in
France. The objective of this restructuring plan was to reduce our forwarding and logistics cost structure and
focus on profitable revenue growth in the Europe region. The restructuring principally consisted of an
employment reduction program which included a voluntary termination phase followed by an involuntary
termination phase. The employment reduction program was ratified by our company’s trade union
representatives in France in July 2007 and communicated to employees immediately following the ratification.
Employees participating in this program are entitled to severance benefits, including certain bonuses for
employees participating in the voluntary termination phase. These severance benefits are formula-driven and are
in accordance with French statutory laws as well as the applicable collective 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, vehicles and equipment as well as impairment charges
associated with long-lived assets. We have recorded a restructuring charge of $42 million related to severance
costs and $4 million for impairments and other contract termination costs. We anticipate completing this
restructuring plan during 2008.
UPS Special Voluntary Separation Opportunity
In December 2006, we offered a special voluntary separation opportunity (“SVSO”) to approximately 640
employees who work in non-operating functions. This program was established to improve the efficiency of
non-operating processes by eliminating duplication and sharing expertise across the company. The SVSO ended
in February 2007, and 195, or 30% of eligible employees, accepted the offer. As a result, we recorded a charge to
expense of approximately $68 million in the first quarter of 2007, to reflect the cash payout and the acceleration
of stock compensation and certain retiree healthcare benefits under the SVSO program. The cash payout in the
first quarter of 2007 totaled $35 million, and we expect to pay $28 million in the first quarter of 2008 related to
this program. The $68 million charge is included in the caption “Compensation and benefits” in the Statement of
Consolidated Income, of which $53 million impacted our U.S. Domestic Package segment, $8 million impacted
our Supply Chain & Freight segment, and $7 million impacted our International Package segment.
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