UPS 2008 Annual Report Download

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Table of contents

  • Page 1
    ups 2008 annual report

  • Page 2
    ... package delivery company, a leader in the U.S. less-than-truckload industry, and a global leader in supply chain management. important weB sites Investor Relations Sustainability/Corporate Responsibility Services and Solutions UPS Corporate investor.shareholder.com/ups sustainability.ups.com...

  • Page 3
    ..., global economies and small package markets were expected to grow. However, the U.S. economy weakened, followed by sharply escalating fuel prices. Then the credit crisis erupted, causing substantial slowing of economies outside the United States. economic weakness restrains Global package Growth...

  • Page 4
    ... by declines in U.S. imports and slowing global economies in the second half of 2008. The unprecedented run-up in fuel prices precipitated very significant increases in our fuel surcharge rates, resulting in a product mix shift from more expensive premium air services to ground. This trend was...

  • Page 5
    ... per share* 3.50 Dividends declared per share Assets Long-term debt Shareowners' equity Capital expenditures Cash and investments 1.80 31,879 7,797 6,780 2,636 1,049 "We intend to benefit from 47.5 36.6 42.6 49.7 51.5 the challenges as well as the opportunities before us." Lastly, UPS moved...

  • Page 6
    ... rating from the major credit rating agencies. This is particularly important today as more customers make it clear that they want a transportation partner who is financially strong and stable for the long term. This financial strength also rewards our shareowners. We increased our dividend in 2008...

  • Page 7
    ... UPS well for the long term is our unique business model. All packages - domestic or international, commercial or residential, air or ground - go through one integrated network. This extremely efficient use of assets has allowed UPS to consistently produce industry-leading margins and return on...

  • Page 8
    ... Internet continues to grow in importance as a means of creating commerce. Small package shipment is the bond that joins retailer and buyer in this direct-to-consumer business model. We may look back at 2008 and 2009 as a real test ...a test of the resiliency and management skill that has been our...

  • Page 9
    ...é Chief Financial officer and Executive vice President- Corporate Services, The Home Depot, Inc. Director since 2003 Ben verwaayen* Chief Executive officer, Alcatel-Lucent Director since 2005 *Ben Verwaayen is not standing for re-election to the UPS Board in May 2009. manaGement Committee David...

  • Page 10
    ... 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 Principal Executive...

  • Page 11
    UNITED PARCEL SERVICE, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2008 TABLE OF CONTENTS PART I Item 1. Business ...Overview ...Operations ...Products and Services ...Technology ...Sales and Marketing ...Employees ...Competition ...Competitive Strengths ...Government Regulation ...

  • Page 12
    ...operations, UPS Freight, and other related business units. Our forwarding and logistics business provides services in more than 175 countries and territories worldwide, and includes supply chain design and management, freight distribution, customs brokerage, mail and consulting services. UPS Freight...

  • Page 13
    .... Our goal is to develop business solutions that create value and competitive advantages for our customers, enabling them to achieve supply chain efficiencies, better customer service for their customers and improved cash flow. Operations We believe that our integrated global network is the most...

  • Page 14
    ... than a decade. UPS began offering customers three, rather than two, daily time-definite delivery options to and from the world's most active trading markets, giving customers greater flexibility in managing their businesses. In 2008, we completed construction of a new hub in Tamworth, England, UPS...

  • Page 15
    ... 1. The Changing Nature of the Supply Chain Past Ori gin Shipper Local Pickup Consolidation Line Haul Deconsolidation Local Delivery End Customer Georgia South Carolina Arkansas Atlanta Chicago Naperville Present Origin Shipper Local Pickup Origin Freight Station Export Customs Origin...

  • Page 16
    ... own business processes, helping them create supply chain efficiencies, better serve their customers and improve their cash flows. These products and services support LTL and air freight shipments, as well as small package transportation. UPS offers a variety of technology solutions for automated...

  • Page 17
    ... daily. A growing number of those tracking requests now come from customers in countries that have wireless access to UPS tracking information. Package tracking, pickup requests, rate quotes, account opening, wireless registration, drop-off locator, transit times and supply ordering services...

  • Page 18
    ..., reporting directly to executive management. Our sales force also includes specialized groups that work with our general sales organization to support the sale of customer technology solutions, international package delivery, LTL and freight transportation, and warehousing and distribution services...

  • Page 19
    ... for their requirements. Increasingly, our customers 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...

  • Page 20
    ... to achieve global scale; to invest in technology, transportation equipment and buildings; to pursue strategic opportunities that facilitate our growth; and to return value to our shareowners in the form of dividends and share repurchases. Government Regulation Air Operations The U.S. Department of...

  • Page 21
    ..., our customs brokerage entities are subject to those same laws and regulations as they relate to the filing of documents on behalf of client importers and exporters. Environmental We are subject to federal, state, and local environmental laws and regulations across all of our business units. These...

  • Page 22
    ... a written Code of Business Conduct that applies to all of our directors, officers and employees, including our principal executive officer and senior financial officers. It is available in the governance section of the investor relations website, located at http://investor.shareholder.com/ups. In...

  • Page 23
    ... space. UPS Freight owns 135 of these service centers, while the remainder are occupied under operating lease agreements. The main offices of UPS Freight are located in Richmond, Virginia and consist of about 240,000 square feet of office space. Our aircraft are operated in a hub and spokes pattern...

  • Page 24
    ... disaster incapacitates 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, 2008: Short-term...

  • Page 25
    ... 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 26
    .... UPS Freight, along with several other companies involved in the LTL freight business, is a defendant in a Multi-District Litigation pending 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...

  • Page 27
    ... quarter of 2008 is as follows (in millions, except per share amounts): Approximate Dollar Total Number Value of Shares that of Shares Purchased May Yet be Purchased Total Number Average Price Paid as Part of Publicly Under the Program of Shares (as of month-end) Purchased(1) Per Share(1) Announced...

  • Page 28
    ... 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, 2003 in the S&P 500 Index, the Dow Jones Transportation Average, and the class B common stock of United Parcel Service...

  • Page 29
    ...report. 2008 Years Ended December 31, 2007 2006 2005 2004 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...

  • Page 30
    ... ...Total 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...

  • Page 31
    ... ...Total 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...

  • Page 32
    ... (in millions) and in percentage terms, for each reporting segment: Year Ended December 31, 2008 2007 Change $ % Reporting Segment U.S. Domestic Package ...International Package ...Supply Chain & Freight ...Consolidated Operating Profit ... $ 3,907 1,580 (105) $ 5,382 $(1,531) 1,831 278 $ 578...

  • Page 33
    ... prices in 2008 compared with 2007. 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, and 4.9% on UPS Ground. Other pricing changes...

  • Page 34
    ... profit benefited from the approximate two month time lag between the fuel price changes and when the monthly surcharge rates are applied to package shipments. Because of this time lag, fuel positively impacted the change in operating profit during 2008, which is opposite of the effect the company...

  • Page 35
    ...). Rate changes for international shipments originating outside the United States vary by geographical market and occur throughout the year. Additionally, we modified the fuel surcharge on certain U.S.-related international air services by reducing the index used to determine the fuel surcharge by...

  • Page 36
    ... benefited from the approximate two month time lag between the fuel price changes and when the monthly surcharge rates are applied to package shipments. As a result of this time lag, fuel positively impacted the change in operating profit during 2008, which is opposite of the effect the company...

  • Page 37
    ... was affected by fuel and security surcharges, expanded air freight service offerings, overall market growth and improved customer retention rates. Growth was negatively impacted by weakness in the ocean freight business. Revenue declined by $98 million in the fourth quarter of 2008 compared with...

  • Page 38
    ... utilization in the air freight business, through better utilizing space available on our own aircraft. Finally, revenue management initiatives put into place last year are producing better returns through reducing less profitable accounts, and ensuring that new accounts meet specific criteria that...

  • Page 39
    ... Supply Chain & Freight reporting segment. The impairment test involves a two-step process. First, a comparison of the fair value of the applicable reporting unit with the aggregate carrying values, including goodwill, is performed. We primarily determine the fair value of our reporting units using...

  • Page 40
    ... and the applicable requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). We negotiated our withdrawal from the Central States Pension Fund as part of our national master agreement with the Teamsters, which included other modifications to hourly wage rates, healthcare and...

  • Page 41
    ... capacity-optimization programs in our domestic and international air freight forwarding business as well as 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...

  • Page 42
    ... from the Central States Pension Fund. Increased interest charges were somewhat offset, however, by higher capitalized interest related to various construction projects, including aircraft purchases and our Worldport expansion. Income Tax Expense 2008 compared to 2007 Income tax expense increased...

  • Page 43
    ...2008 operating cash flows compared with 2007 was impacted by several items, including changes in pension fundings, tax payments and refunds, and rates for our delivery services. In 2007, operating cash flow was adversely impacted by the $6.100 billion payment made to withdraw from the Central States...

  • Page 44
    ... rates in our package delivery and LTL services at the end of 2007. Additionally, in October 2008, we announced a base rate increase and a change in the fuel surcharge that took effect on January 5, 2009. We increased the base rates 6.9% on UPS Next Day Air, UPS 2nd Day Air, and UPS 3 Day Select...

  • Page 45
    ... shares of Class A and Class B common stock for $3.558, $2.618, and $2.455 billion, respectively ($3.570, $2.639, and $2.460 billion reported on the statement of cash flows due to timing of settlements). Our quarterly cash dividends declared were $0.45, $0.42, and $0.38 per share in 2008, 2007...

  • Page 46
    ... 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 February 11, 2009, our Board declared a dividend of $0.45 per share, which is payable on March 10, 2009 to shareowners of...

  • Page 47
    ... Pension Plan. These plans are discussed further in Note 5 to the consolidated financial statements. 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...

  • Page 48
    ...and capital resources to 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...

  • Page 49
    ... 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 these plans, including unfavorable investment performance, changes in...

  • Page 50
    ...$2.097 billion and a reduction of long-term deferred tax liabilities of $1.258 billion. Additionally, we previously utilized the early measurement date option available under Statement No. 87 "Employers' Accounting for Pensions", and we measured the funded status of our plans as of September 30 each...

  • Page 51
    ..., results of operations, or cash flows. These new disclosures will be required for us beginning in our Form 10-Q for the quarter ended March 31, 2009. In October 2008, the FASB issued Staff Position No. FAS 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset is Not...

  • Page 52
    ... UPS Capital reporting units in the Supply Chain & Freight reporting segment. Our annual goodwill impairment testing date is October 1st for each reporting unit. The impairment test involves a two-step process. First, a comparison of the fair value of the applicable reporting unit with the aggregate...

  • Page 53
    ... estimated and actual operating results. We sponsor a number of health and welfare insurance plans for our employees. These liabilities and related expenses are based on estimates of the number of employees and eligible dependents covered under the plans, anticipated medical usage by participants...

  • Page 54
    ... and future expense. A 25 basis point change in the assumed discount rate, expected return on assets, and health care cost trend rate for the U.S. pension and postretirement benefit plans would result in the following increases (decreases) on the Company's costs and obligations for the year...

  • Page 55
    ... in an aircraft impairment charge or a reduction of the expected life of an aircraft type (thus resulting in increased depreciation expense). We continually monitor our aircraft fleet utilization in light of current and projected volume levels, aircraft fuel prices, and other factors. Changes in any...

  • Page 56
    ... modifications to our current aircraft fleet plan. Such modifications could result in a reduction in the expected useful life of an aircraft type or in impairment losses related to the early retirement of particular aircraft. As a result of business changes that occurred in the first quarter of 2007...

  • Page 57
    ... for doubtful accounts charged to expense during the years ended December 31, 2008, 2007, and 2006 was $277, $225, and $159 million, respectively. Forward-Looking Statements "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other parts of this report contain...

  • Page 58
    ... Note 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...

  • Page 59
    ... in Note 3 to the consolidated financial statements, we hold a portfolio of finance receivables that accrue income at fixed and floating rates of interest. The potential change in the annual income resulting from a hypothetical 100 basis point change in interest rates applied to our variable...

  • Page 60
    ... 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, 2008, and the related statements of consolidated income, comprehensive income (loss), and cash flows for the year ended December 31...

  • Page 61
    ... United Parcel Service, Inc. Atlanta, Georgia We have audited the accompanying consolidated balance sheets of United Parcel Service, Inc. and subsidiaries (the "Company") as of December 31, 2008 and 2007, and the related statements of consolidated income, comprehensive income (loss), and cash...

  • Page 62
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions) December 31, 2008 2007 ASSETS Current Assets: Cash and cash equivalents ...Marketable securities ...Accounts receivable, net ...Finance receivables, net ...Deferred income tax assets ...Income taxes receivable ...

  • Page 63
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (In millions, except per share amounts) Years Ended December 31, 2008 2007 2006 Revenue ...Operating Expenses: Compensation and benefits ...Repairs and maintenance ...Depreciation and amortization ...Purchased ...

  • Page 64
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (In millions) Years Ended December 31, 2008 2007 2006 Cash Flows From Operating Activities: Net income ...Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization ......

  • Page 65
    ... 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 66
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Marketable Securities Marketable securities are classified as available-for-sale and are carried at fair value, with related unrealized gains and losses reported, net of tax, as accumulated other ...

  • Page 67
    ... the fair value of our reporting units using a discounted cash flow model, and supplement this with observable valuation multiples for comparable companies, as applicable. Finite-lived intangible assets, including trademarks, licenses, patents, customer lists, non-compete agreements, and franchise...

  • Page 68
    ...-prospective transition method, requires all share-based awards to employees to be measured based on their fair values and expensed over the period during which an employee is required to provide service in exchange for the award (the vesting period). Prior to January 1, 2006, we accounted for stock...

  • Page 69
    ..., results of operations, or cash flows. These new disclosures will be required for us beginning in our Form 10-Q for the quarter ended March 31, 2009. In October 2008, the FASB issued Staff Position No. FAS 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset is Not...

  • Page 70
    ... marketable securities classified as available-for-sale at December 31, 2008 and 2007 (in millions): Unrealized Gains Unrealized Losses Estimated Fair Value Cost 2008 Current marketable securities: U.S. government and agency debt securities ...Mortgage and asset-backed debt securities ...Corporate...

  • Page 71
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The gross realized gains on sales of marketable securities totaled $19, $23, and $12 million in 2008, 2007, and 2006, respectively. The gross realized losses totaled $10, $9, and $21 million in 2008, ...

  • Page 72
    ... and asset-backed securities primarily relate to the auction rate securities discussed previously. The unrealized losses for the non-auction rate securities within those categories are primarily related to various fixed income securities, and are primarily due to changes in market interest rates. We...

  • Page 73
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Outstanding receivable balances at December 31, 2008 and 2007 are net of unearned income of $26 and $30 million, respectively. When we "factor" (i.e., purchase) a customer invoice from a client, we ...

  • Page 74
    ... half of 2008, could result in modifications to our current aircraft fleet plan. Such modifications could result in a reduction in the expected useful life of an aircraft type or in impairment losses related to the early retirement of particular aircraft. NOTE 5. EMPLOYEE BENEFIT PLANS We sponsor...

  • Page 75
    ... and the applicable requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). We negotiated our withdrawal from the Central States Pension Fund as part of our national master agreement with the Teamsters, which included other modifications to hourly wage rates, healthcare and...

  • Page 76
    ...$2.097 billion and a reduction of long-term deferred tax liabilities of $1.258 billion. Additionally, we previously utilized the early measurement date option available under Statement No. 87 "Employers' Accounting for Pensions", and we measured the funded status of our plans as of September 30 each...

  • Page 77
    ...used to determine the present value of our future benefit obligations. For plans in the U.S., Canada, and the U.K., the discount rate is determined by matching the expected cash flows to a yield curve based on long-term, high quality fixed income debt instruments available as of the measurement date...

  • Page 78
    ...)/loss ...Foreign currency exchange rate changes ...Curtailments and settlements ...Effect of eliminating early measurement date ...Other ...Net benefit obligation at end of year ...Fair Value of Plan Assets: Fair value of plan assets at beginning of year ...Actual return on plan assets ...Employer...

  • Page 79
    ...from employer assets in 2008 and 2007, respectively. As a result of losses experienced in the global equity markets, our U.S. domestic pension plans experienced a negative return on assets of approximately 26% in 2008. This negative return on assets, combined with a change in the discount rate, will...

  • Page 80
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) At the respective measurement dates in 2008 and 2007, the projected benefit obligation, the accumulated benefit obligation, and the fair value of plan assets for pension plans with an accumulated ...

  • Page 81
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Equity securities include UPS Class A shares of common stock in the amounts of $338 million (2.6% of total plan assets) and $460 million (2.5% of total plan assets), as of December 31, 2008 and ...

  • Page 82
    ... CONSOLIDATED FINANCIAL STATEMENTS-(Continued) We also sponsor several defined contribution plans for all employees not covered under collective bargaining agreements, and for certain employees covered under collective bargaining agreements. The Company matches, in shares of UPS common stock or cash...

  • Page 83
    ... customer turnover and reduced operating margins associated with an acquired business. Accordingly, an intangible asset impairment charge of $27 million was recorded for the year ended December 31, 2008, which is included in the caption "Other expenses" in the consolidated income statement...

  • Page 84
    ... Package reporting segment. Pro forma results of operations have not been presented for this acquisition because the effects of this transaction were not material. The results of operations are included in our statements of consolidated income from the date of acquisition. The purchase price...

  • Page 85
    ... 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 86
    ...sum of the present values of the remaining scheduled payout of principal and 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 continue to bear interest...

  • Page 87
    ... borrowing rates currently available to the Company for long-term debt with similar terms and maturities, the fair value of long-term debt, including current maturities, is approximately $10.287 and $11.238 billion as of December 31, 2008 and 2007, respectively. We lease certain aircraft, facilities...

  • Page 88
    .... UPS Freight, along with several other companies involved in the LTL freight business, is a defendant in a Multi-District Litigation pending 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...

  • Page 89
    ... 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 these plans, including unfavorable investment performance, changes in...

  • Page 90
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following is a rollforward of our common stock, additional paid-in capital, and retained earnings accounts (in millions, except per share amounts): Shares 2008 Dollars Shares 2007 Dollars Shares ...

  • Page 91
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Accumulated Other Comprehensive Income (Loss) We incur activity in AOCI for unrealized holding gains and losses on available-for-sale securities, foreign currency translation adjustments, unrealized ...

  • Page 92
    ... of cash or unrestricted shares of class A common stock and is fully vested at 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...

  • Page 93
    ... expected to be recognized over a weighted average period of 3 years and 7 months. Nonqualified Stock Options We 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...

  • Page 94
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following is an analysis of options to purchase shares of class A common stock issued and outstanding: Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) ...

  • Page 95
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table summarizes information about stock options outstanding and exercisable at December 31, 2008: Options Outstanding Shares (in thousands) Average Life (in years) Average Exercise ...

  • Page 96
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Discounted Employee Stock Purchase Plan We maintain an employee stock purchase plan for all eligible employees. Under the plan, shares of UPS class A common stock may be purchased at quarterly ...

  • Page 97
    ... 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 franchisor of Mail Boxes...

  • Page 98
    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): 2008 2007 2006 U.S. Domestic Package: Next Day Air ...Deferred ...Ground ...Total U.S. Domestic Package ......

  • Page 99
    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): 2008 2007 2006 Current: U.S. Federal ...U.S. State and Local ...Non...

  • 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): 2008 2007 Property, plant and equipment ...Goodwill and intangible assets ...Pension plans ...Other ...

  • Page 101
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes- an Interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 requires that we determine ...

  • Page 102
    ...6.3 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 103
    ... from changing fuel and energy prices. The net fair value of such contracts subject to price risk, excluding the underlying exposures, as of December 31, 2008 and 2007 was an asset (liability) of $0 and $(179) million, respectively. We have designated and account for these contracts as cash flow...

  • Page 104
    ... related to cash flow hedges that are currently deferred in AOCI are expected to be reclassified to income over the 12 month period ending December 31, 2009. The actual amounts that will be reclassified to income over the next 12 months will vary from this amount as a result of changes in market...

  • Page 105
    ... for at fair value under other accounting standards. The election to use the fair value option is available at specified election dates, such as when an entity first recognizes a financial asset or financial liability or upon entering into a firm commitment. Subsequent changes in fair value must be...

  • Page 106
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table presents information about our assets and liabilities measured at fair value on a recurring basis as of December 31, 2008, and indicates the fair value hierarchy of the valuation ...

  • Page 107
    ...-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 $68 million in the first quarter of 2007, to reflect the cash payout...

  • Page 108
    ... this charge reduced third quarter 2007 net income by $31 million, which reduced basic and diluted 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...

  • Page 109
    ... public accounting firm of Deloitte & Touche LLP, as auditors of the consolidated balance sheet of United Parcel Service, Inc. and its subsidiaries as of December 31, 2008 and the related consolidated statements of income, comprehensive income and cash flows for the year ended December 31, 2008...

  • Page 110
    ...Chain Solutions - Asia and Europe (2006), President, UPS Supply Chain Solutions - Shared Services (2005), President, United Parcel Service Canada, Ltd. (2002 - 2004). Senior Vice President, U.S. Operations (2009 - present), Vice President, Americas Region (2008 - 2009), Vice President, North Central...

  • Page 111
    ... definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 7, 2009 and is incorporated herein by reference. Information about our Code of Business Conduct is presented under the caption "Where You Can Find More Information" in Part I, Item 1 of this report. Information about...

  • Page 112
    ... independence is presented under the caption "Election of Directors-Director Independence" in our definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 7, 2009 and is incorporated herein by reference. Item 14. Principal Accountant and Fees and Services Information about...

  • Page 113
    ... 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. 102

  • Page 114
    ... 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 27, 2009 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 115
    ...10-Q for the Quarter Ended June 30, 2002). - Bylaws of United Parcel Service, Inc. (incorporated by reference to Exhibit 3.1 to the Form 8-K, filed on November 12, 2008. - Form of Class A Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the registration statement on Form S-4 (No...

  • Page 116
    ...1 through 37 (incorporated by reference to Exhibit 10.2 to 2007 Annual Report on Form 10-K). - UPS Savings Plan, as Amended and Restated. - Credit Agreement (364-Day Facility) dated April 17, 2008 among United Parcel Service, Inc., the initial lenders named therein, Citigroup Global Markets Inc. and...

  • Page 117
    ...) to 2007 Annual Report on Form 10-K). †(17) Amendment No. 17 to the UPS Qualified Stock Ownership Plan and Trust Agreement. 10.9 - Form of United Parcel Service, Inc. Incentive Compensation Plan (incorporated by reference to the registration statement on Form S-4 (No. 333-83349), filed on July 21...

  • Page 118
    ...-34054), filed on April 5, 2000. - Form of United Parcel Service, Inc. Discounted Employee Stock Purchase Plan (incorporated by reference to Appendix B to Definitive Proxy Statement for 2001 Annual Meeting of Shareowners). (1) Amendment to the Discounted Employee Stock Purchase Plan (incorporated by...

  • Page 119
    ...also is available free of charge by calling, contacting via the Web site, or writing to the Investor Relations Department. ups shareowner services For convenient access 24 hours a day, seven days a week. Class a Common shareowners www.bnymellon.com/shareowner/equityaccess 888-663-8325 Class B Common...

  • Page 120
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