UPS 2008 Annual Report Download - page 44

income tax payments was lower in 2007 compared with 2006, also primarily relating to the deductibility of the
pension withdrawal payment. As of December 31, 2008, we have received substantially all of the expected cash
tax benefits resulting from the withdrawal payment.
Changes in package volume and pricing affect operating cash flow. As noted previously, we increased 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, and 5.9% on UPS Ground. We also
increased the base rates 6.9% for international shipments originating in the United States (Worldwide Express,
Worldwide Express Plus, UPS Worldwide Expedited and UPS International Standard service). Other pricing
changes included a $0.10 increase in the residential surcharge, and an increase of $0.10 in the delivery area
surcharge on both residential and commercial services to certain ZIP codes. These rate changes are customary,
and are consistent with previous years’ rate increases. Additionally, we modified the fuel surcharge on domestic
and U.S.-origin international air services by reducing by 2% the index used to determine the fuel surcharge. The
UPS Ground fuel surcharge continues to fluctuate based on the U.S. Energy Department’s On-Highway Diesel
Fuel Price. Rate changes for shipments originating outside the U.S. are made throughout the year and vary by
geographic market.
In October 2008, UPS Freight announced a general rate increase averaging 5.9% covering non-contractual
shipments in the United States and Canada. The increase took effect on January 5, 2009, and applies to minimum
charge, LTL and TL rates.
Investing Activities
Net cash used in investing activities was $3.179, $2.199, and $2.340 billion in 2008, 2007, and 2006,
respectively. The increase in cash used in 2008 compared with 2007 was primarily due to increased net purchases
of marketable securities. Net (purchases) sales of marketable securities were ($278), $621, and $482 million in
2008, 2007, and 2006, respectively. The net sales of marketable securities in 2007 and 2006 were primarily used
to fund our pension and postretirement medical benefit plans, as well as to repurchase shares.
Capital expenditures represent a primary use of cash in investing activities, as follows (in millions):
2008 2007 2006
Buildings and facilities ....................................... $ 968 $ 853 $ 720
Aircraft and parts ........................................... 852 1,137 1,150
Vehicles .................................................. 539 492 831
Information technology ...................................... 277 338 384
$2,636 $2,820 $3,085
As described in the “Contractual Commitments” section below, we have commitments for the purchase of
aircraft, vehicles, equipment and other fixed assets to provide for the replacement of existing capacity and
anticipated future growth. We fund our capital expenditures with our cash from operations. The reduction in
capital expenditures was largely due to the timing of aircraft deliveries. Capital expenditures on buildings and
facilities increased in 2008, primarily resulting from our Worldport hub expansion, as well as the expansion and
new construction projects at other facilities in Europe, Canada, and China. In the fourth quarter of 2008, we
opened our new international air hub in Shanghai, China, and also began construction of our new intra-Asia air
hub in Shenzhen, China.
We had a net cash use of $49 and $39 million in 2008 and 2007, respectively, and net cash generation of
$68 million in 2006, due to originations, sales, and customer paydowns of finance receivables, primarily in our
commercial lending, asset-based lending, and leasing portfolios.
33