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POISED FOR THE
UPS 2009 ANNUAL REPORT

Table of contents

  • Page 1
    POISED FOR THE UPS 2009 ANNUAL REPORT

  • Page 2
    UPS is the world's largest package delivery company, a leader in the U.S. IMPORTANT WEBSITES Investor Relations UPS Corporate Sustainability/Corporate Responsibility Services and Solutions investors.ups.com ups.com responsibility.ups.com businesssolutions.ups.com

  • Page 3
    ...declared per share Assets Long-term debt Shareowners' equity Capital expenditures Cash and marketable securities 1.80 31D883 8D668 7D696 1D602 2D100 less-than-truckload industry, and a global leader in supply chain management. UPS Facts Founded: Employees: Customers: Daily online tracking requests...

  • Page 4
    UPS 2009 Annual Report D. Scott Davis Chairman and Chief Executive Officer FOCUS 02 ON OUR BUSINESS "We took the necessary steps to manage the business wellD while focusing on the long-term health of our company."

  • Page 5
    ... the necessary steps to manage the business wellD while focusing on the long-term health of our company. UPS implemented unprecedented and comprehensive cost management initiatives in 2009. These initiatives included network changes as well as organizational and structural realignments intended to...

  • Page 6
    ... yet another year of market share gain in the international arena. The business achieved a 14.1 percent operating marginD essentially unchanged from 2008. This is quite an accomplishment considering the economic environment. By the fourth quarter of 2009D worldwide package 2009 Revenue by Geography...

  • Page 7
    ... and tonnage declinedD and the unit posted a slight loss for the year. NeverthelessD we believe this is the best strategy to preserve the long-term health of our businessD while leveraging our small package customer base. UPS Freight did gain market share in 2009. Revenue (billions of dollars) 70...

  • Page 8
    ...2009 Annual Report Return on Equity (percent) 40 30 20 10 0 05 Adjusted* 06 07 23.3 26.0 27.6 36.6 31.7 31.6 29.7 As we entered 2010D we took bold actions to improve how we go to market and interact with our customers by streamlining the U.S. small package structure. The new structure will move...

  • Page 9
    UPS 2009 Annual Report factD I believe that globally UPS is the best positioned company in our industry. Today we have the most balanced presence in all major areas of the worldD and we're getting stronger. We are building out an already well-established business in Europe; we are developing a ...

  • Page 10
    ... Tomé Chief Financial Officer and Executive Vice President- Corporate ServicesD The Home DepotD Inc. Director since 2003 Management Committee David P. Abney Senior Vice President and Chief Operating Officer David A. Barnes Senior Vice President and Chief Information Officer Daniel J. Brutto Senior...

  • Page 11
    ... of class A common stock and 713,924,267 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 6, 2010 are incorporated by reference into Part III of this report.

  • Page 12
    UNITED PARCEL SERVICE, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2009 TABLE OF CONTENTS PART I Item 1. Business ...Overview ...Operations ...Products and Services ...Technology ...Sustainability ...Sales and Marketing ...Employees ...Competition ...Competitive Strengths ......

  • Page 13
    ... and territories worldwide, and includes supply chain design and management, freight distribution, customs brokerage, mail and consulting services. UPS Freight offers a variety of less-thantruckload ("LTL") and truckload ("TL") services to customers in North America. Other business units within this...

  • Page 14
    ...cash flow. Operations We believe that our integrated global network is the most extensive in the industry. It is the only network that handles all levels of service (air, ground, domestic, international, commercial, residential) through one integrated pickup and delivery service system. All packages...

  • Page 15
    ... service expansion of our international shipping portfolio in more 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...

  • Page 16
    ... with short-term working capital, government guaranteed lending, global trade financing, credit cards and export financing. • • UPS Freight is an LTL service, which offers a full range of regional, inter-regional and long-haul LTL capabilities in all 50 states, Canada, Puerto Rico, Guam...

  • Page 17
    ... obtain international return labels and commercial invoices via e-mail, local post or from a UPS driver picking up the return package. In 2009, UPS pioneered a return service for its retail customers in partnership with the United States Postal Service. Customers may leave a return package in their...

  • Page 18
    ... and single invoicing for all services between the United States, Canada, and Mexico. Technology Technology is the backbone of everything we do at UPS. It is at the heart of customer access to the company. • UPS.com processes over 22 million package tracking transactions daily. A growing number of...

  • Page 19
    ...multi-shipping site customers, we manage sales through an organization of regionally based account managers, 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...

  • Page 20
    ... competitors include worldwide postal services, various motor carriers, express companies, freight forwarders, air couriers and others. Through our supply chain service offerings, we compete with a number of participants in the supply chain, financial services and information technology industries...

  • Page 21
    ...-time hourly UPS employees, and have spent their entire careers with us. Many of our executive officers have more than 30 years of service with UPS and have accumulated a meaningful ownership stake in our company. Therefore, our executive officers have a strong incentive to effectively manage UPS...

  • Page 22
    ... and maintenance activities, personnel and ground facilities. In 1988, the FAA granted us an operating certificate, which remains in effect so long as we meet the safety and operational requirements of the applicable FAA regulations. In addition, we are subject to non-U.S. government regulation of...

  • Page 23
    ... within our operations. 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 our investor relations website, located at www.investors.ups.com, as...

  • Page 24
    ... future results. From time to time, we also provide forward-looking statements in other materials we release as well as oral forward-looking statements. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. Management...

  • Page 25
    ...on our cost structure or our operating results, and these rules or other future security requirements may increase our costs of operations and reduce operating efficiencies. We may be affected by global climate change or by legal, regulatory or market responses to such potential change. Concern over...

  • Page 26
    ... Disclosures about Market Risk" section of this report. During 2008, credit markets tightened and the global economy slowed. We are not dependent on the credit markets to fund current operations. We monitor and manage our exposures to changes in currency exchange rates and interest rates, and make...

  • Page 27
    .... In addition, the cost and operational consequences of implementing further data protection measures could be significant. We have invested in a technology infrastructure which supports our global air and ground network and is critical to support our operations and customer needs. Any major...

  • Page 28
    ... our business, financial position, results of operations or require significant contributions to our pension plans. 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...

  • Page 29
    ... 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 in the U.S. Our principal air hub...

  • Page 30
    ... located on a 25-acre site in Alpharetta, Georgia, which serves as a backup to the main information technology operations facility in New Jersey. This facility provides production functions and backup capacity in the event that a power outage or other disaster incapacitates the main data center...

  • Page 31
    ... 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 Refer to Note 8 "Legal Proceedings and Contingencies" in the audited consolidated...

  • Page 32
    ... one share of our Class B common stock. The following is a summary of our Class B common stock price activity and dividend information for 2009 and 2008. Our Class B common stock is listed on the New York Stock Exchange under the symbol "UPS." High Low Close Dividends Declared 2009: First Quarter...

  • Page 33
    ... repurchase program and shares tendered to pay the exercise price and tax withholding on employee stock options. Shareowner Return Performance Graph The following Performance Graph and related information shall not be deemed "soliciting material" or to be "filed" with the Securities and Exchange...

  • Page 34
    ...report. 2009 Years Ended December 31, 2008 2007 2006 2005 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 35
    ...: Year Ended December 31, 2009 2008 2007 % Change 2009 / 2008 2008 / 2007 Revenue (in millions) ...Operating Expenses (in millions) ...Operating Profit (in millions) ...Operating Margin ...Average Daily Package Volume (in thousands) ...Average Revenue Per Piece ...Net Income (in millions) ...Basic...

  • Page 36
    ... 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 pension benefits, and work rules. We...

  • Page 37
    ... and retail sales reduced overall demand in the U.S. small package market. Our air product volume was stronger than our ground volume, as our air volume benefited from market share gains resulting from the recent departure of a competitor in the U.S. market, as well as improving economic trends in...

  • Page 38
    ... and a mix shift toward lower yielding products, reflecting the economic recession in the United States. The decline in revenue per piece for our ground products was primarily due to a decrease in the fuel surcharge rate, but was also impacted by lower average package weights. The factors decreasing...

  • Page 39
    ... fuel expense. We adjusted our air and ground networks to better match these lower volume levels, as well as reduced labor hours and employee headcount, resulting in cost savings. Operating profit trends improved during the fourth quarter of 2009 due to both improving volume trends and the positive...

  • Page 40
    International Package Operations Year Ended December 31, 2009 2008 2007 % Change 2009 / 2008 2008 / 2007 Revenue (in millions): Domestic ...Export ...Cargo ...Total Revenue ...Average Daily Package Volume (in thousands): Domestic ...Export ...Total Avg. Daily Package Volume ...Average Revenue Per ...

  • Page 41
    ... domestic businesses in the Euro zone and Canada, but negatively affected by the weak economic conditions in the United Kingdom. Revenue Per Piece 2009 compared to 2008 Export revenue per piece decreased, largely due to the adverse impact of currency exchange rates, lower fuel surcharge rates, and...

  • Page 42
    ... 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. As a result of this time lag, fuel positively impacted the change in operating profit during 2008, which is the opposite effect the company...

  • Page 43
    ...due to lower fuel surcharge rates and a decline in average daily LTL shipments. Total LTL weight per shipment declined for the year, reflecting the weak LTL market and the ongoing economic recession in the United States in 2009. Average LTL shipments per day also declined, as market share gains were...

  • Page 44
    ... reported improved profitability for 2009, due to a reduction in vacation accruals resulting from modifications in vacation policies and changes in the workforce coverage of our individual plans. Excluding this reduction in vacation liabilities, the UPS Freight unit reported a small operating loss...

  • Page 45
    ...a wage freeze. Benefits expense increased due to higher employee health and welfare program costs, which were impacted by higher union contribution rates, and increased pension expense. Pension expense increases resulted from higher union contribution rates for multi-employer pension plans, combined...

  • Page 46
    ...million as of June 30, 2009, resulting in an other-than-temporary impairment of $17 million. During the third quarter of 2008, we recorded impairment losses on two auction rate securities that were collateralized by preferred stock issued by the Federal National Mortgage Association ("FNMA") and the...

  • Page 47
    ... affecting our operating cash flows (in millions): 2009 2008 2007 Net income ...Non-cash operating activities(a) ...Pension and postretirement plan contributions (UPS-sponsored plans) ...Income tax receivables and payables ...Changes in working capital and other noncurrent assets and liabilities...

  • Page 48
    ... and foreign exchange, deferred income taxes, provisions for uncollectible accounts, pension and postretirement benefit expense, stock compensation expense, impairment charges, and other non-cash items. Contributions to our company-sponsored pension plans have largely varied based on whether...

  • Page 49
    ... for 2010 will be approximately $1.8 billion. The net change in finance receivables is primarily due to customer paydowns and new loan origination activity, primarily in our commercial lending, asset-based lending and leasing portfolios. The purchases and sales of marketable securities are...

  • Page 50
    As a result of the uncertain economic environment, we have slowed our share repurchase activity. We currently intend to repurchase shares in 2010 at a rate that should approximately offset the dilution from our stock compensation programs. In January 2008, the Board of Directors approved an increase...

  • Page 51
    ...aircraft purchase orders will provide for the replacement of existing capacity and anticipated future growth. Pension fundings represent the anticipated required cash contributions that will be made to the UPS IBT Pension Plan, which was established upon ratification of the national master agreement...

  • Page 52
    ... requirement, as applicable, for these plans could change significantly in future periods, depending on many factors, including future plan asset returns and discount rates. A sustained significant decline in the world equity markets, and the resulting impact on our pension assets and investment...

  • Page 53
    ... of operations, or liquidity. In January 2008, a class action complaint was filed in the United States District Court for the Eastern District of New York alleging price-fixing activities relating to the provision of freight forwarding services. UPS was not named in this case. On July 21, 2009, the...

  • Page 54
    ... into certain pricing practices in the air cargo industry in July 2006, and into certain pricing practices in the freight forwarding industry in December 2007. In October 2007, June 2008, and February 2009, we received information requests from the European Commission ("Commission") relating to its...

  • Page 55
    ... 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 January 1, 2008. Beginning in 2009, new guidance was adopted that required disclosures about plan assets of a defined benefit pension...

  • Page 56
    ...At the time of acquisition of Overnite Corporation, LTL equity valuations were higher and the economy was significantly stronger. We invested in operational improvements and technology upgrades to enhance service and performance, as well as expand service offerings. However, this process took longer...

  • Page 57
    .... 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 and overall trends in medical costs and...

  • Page 58
    ... 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 59
    ... expected life of an aircraft type (thus resulting in increased depreciation expense). In 2008, we had announced that we were in negotiations with DHL to provide air transportation services for all of DHL's express, deferred and international package volume within the United States, as well as air...

  • Page 60
    ...trends in customer payment frequency, and judgments about the probable effects of relevant observable data, including present economic conditions and the financial health of specific customers and market sectors. Our risk management process includes standards and policies for reviewing major account...

  • Page 61
    ... from changing fuel and energy prices. As of December 31, 2009 and 2008, however, we had no commodity option contracts outstanding. In the fourth quarter of 2008, we terminated several energy derivatives and received $87 million in cash. This transaction was reported in other investing activities in...

  • Page 62
    ...that meet established credit guidelines. We do not expect to incur any material losses as a result of counterparty default. Sensitivity Analysis The following analysis provides quantitative information regarding our exposure to commodity price risk, foreign currency exchange risk, interest rate risk...

  • Page 63
    ... Data Report of Independent Registered Public Accounting Firm 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 of December 31, 2009, based...

  • Page 64
    ... 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 subsidiaries (the "Company") as of December 31, 2009 and 2008, and the related statements of consolidated...

  • Page 65
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions) December 31, 2009 2008 ASSETS Current Assets: Cash and cash equivalents ...Marketable securities ...Accounts receivable, net ...Finance receivables, net ...Deferred income tax assets ...Income taxes receivable ...

  • Page 66
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (In millions, except per share amounts) Years Ended December 31, 2009 2008 2007 Revenue ...Operating Expenses: Compensation and benefits ...Repairs and maintenance ...Depreciation and amortization ...Purchased ...

  • Page 67
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (In millions) Years Ended December 31, 2009 2008 2007 Cash Flows From Operating Activities: Net income ...Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization ......

  • Page 68
    ... 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 make...

  • Page 69
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) premiums and accretion of discounts to maturity. Such amortization and accretion is included in investment income, along with interest and dividends. The cost of securities sold is based on the ...

  • Page 70
    ..., mortality rates, and other factors. Actuarial assumptions are reviewed on an annual basis, unless circumstances require an interim remeasurement date for any of our plans. We participate in a number of trustee-managed multi-employer pension and health and welfare plans for employees covered under...

  • Page 71
    ... pre-tax gains (losses) of $(45), $46, and $26 million in 2009, 2008 and 2007, respectively. Stock-Based Compensation All share-based awards to employees are 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...

  • Page 72
    ... 1, 2008. These investments are reported in "other non-current assets" on the consolidated balance sheet. Compensation-Retirement Benefits: We previously utilized the early measurement date option available in accounting for our pension and postretirement medical benefit plans, and we measured the...

  • Page 73
    ... on our financial statements. Accounting Standards Issued But Not Yet Effective Other new pronouncements issued but not effective until after December 31, 2009, are not expected to have a significant effect on our consolidated financial position or results of operations. Changes in Presentation...

  • Page 74
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTE 2. CASH AND INVESTMENTS The following is a summary of marketable securities classified as available-for-sale at December 31, 2009 and 2008 (in millions): Cost Unrealized Gains Unrealized Losses ...

  • Page 75
    ... in investment income (loss) on the income statement. During the third quarter of 2008, we recorded impairment losses on two auction rate securities that were collateralized by preferred stock issued by the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation...

  • Page 76
    ... SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) third quarter of 2008. We do not hold any other securities in any of these entities. The total of these credit-related impairment losses during the year was $23 million, which was recorded in investment income...

  • Page 77
    ... other non-current assets on our consolidated balance sheet. Additional cash collateral provided is reflected in other investing activities in the cash flow statement. This restricted cash is invested in money market funds and similar cash equivalent type assets. As of December 31, 2009 and 2008, we...

  • Page 78
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table presents information about our investments measured at fair value on a recurring basis as of December 31, 2009 and 2008, and indicates the fair value hierarchy of the valuation ...

  • Page 79
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTE 3. FINANCE RECEIVABLES The following is a summary of finance receivables at December 31, 2009 and 2008 (in millions): 2009 2008 Commercial term loans ...Investment in finance leases ...Asset-...

  • Page 80
    ... light of current and projected volume levels, aircraft fuel prices, and other factors. In 2008, we had announced that we were in negotiations with DHL to provide air transportation services for all of DHL's express, deferred and international package volume within the United States, as well as air...

  • Page 81
    ... benefits based on service credits earned by employees prior to retirement. The UPS IBT Pension Plan is noncontributory and includes employees that were previously members of the Central States, Southeast and Southwest Areas Pension Fund ("Central States Pension Fund"), a multi-employer pension plan...

  • Page 82
    ... 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 pension benefits, and work rules. We...

  • Page 83
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Company matches, in shares of UPS common stock or cash, a portion of the participating employees' contributions. In early 2009, we indefinitely suspended the company matching contributions to the ...

  • Page 84
    ... present value of our future benefit obligations. In 2008 and prior years, the discount rate for U.S. plans was 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. In 2008, we reduced the...

  • Page 85
    ... of the changes in the plans' benefit obligations and fair value of plan assets as of the respective measurement dates in each year (in millions). U.S. Postretirement Medical Benefits 2009 2008 International Pension Benefits 2009 2008 U.S. Pension Benefits 2009 2008 Benefit Obligations: Net...

  • Page 86
    ... ...Pension and postretirement benefit obligations ...Net asset (liability) at December 31 ...Amounts Recognized in AOCI: Unrecognized net transition obligation ...Unrecognized net prior service cost ...Unrecognized net actuarial loss ...Gross unrecognized cost at December 31 ...Deferred tax asset...

  • Page 87
    ... for our pension assets are to: (1) provide for a reasonable amount of long-term growth of capital, with prudent exposure to risk; and protect the assets from erosion of purchasing power; (2) provide investment results that meet or exceed the plans' actuarially assumed long-term rate of return; and...

  • Page 88
    ... investments, corporate debt instruments, and U.S. government securities that were determined by closing prices for those securities traded on national stock exchanges, while securities traded in the over-the-counter market and listed securities for which no sale was reported on the valuation date...

  • Page 89
    ... 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 Pension Benefits Employer Contributions: 2010 (expected) to plan trusts ...2010 (expected...

  • Page 90
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Expected benefit payments for pensions will be primarily paid from plan trusts. Expected benefit payments for postretirement medical benefits will be paid from plan trusts and corporate assets. Our ...

  • Page 91
    ...At the time of acquisition of Overnite Corporation, LTL equity valuations were higher and the economy was significantly stronger. We invested in operational improvements and technology upgrades to enhance service and performance, as well as expand service offerings. However, this process took longer...

  • Page 92
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Intangible Assets The following is a summary of intangible assets at December 31, 2009 and 2008 (in millions): Gross Carrying Amount Accumulated Amortization Net Carrying Value Weighted-Average ...

  • Page 93
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTE 7. DEBT OBLIGATIONS AND COMMITMENTS The carrying value of our debt obligations, as of December 31, consists of the following (in millions): Maturity 2009 2008 Commercial paper ...4.50% senior ...

  • Page 94
    ...sinking fund requirements. Floating Rate Senior Notes The floating rate senior notes bear interest at one-month LIBOR less 45 basis points. The average interest rates for 2009 and 2008 were 0.01% and 2.48%, respectively. These notes are callable at various times after 30 years at a stated percentage...

  • Page 95
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Facility Notes and Bonds We have entered into agreements with certain municipalities to finance the construction of, or improvements to, facilities that support our U.S. Domestic Package and Supply ...

  • Page 96
    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 97
    ...on a quarterly basis. As of December 31, 2009, our net worth, as defined, was equivalent to $12.757 billion. We do not expect these covenants to have a material impact on our financial condition or liquidity. Fair Value of Debt Based on the borrowing rates currently available to the Company for long...

  • Page 98
    ... 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 99
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) In January 2008, a class action complaint was filed in the United States District Court for the Eastern District of New York alleging price-fixing activities relating to the provision of freight ...

  • Page 100
    .... These accounting changes are discussed further in Note 1. As a result of the uncertain economic environment, we have slowed our share repurchase activity. We currently intend to repurchase shares in 2010 at a rate that should approximately offset the dilution from our stock compensation programs...

  • Page 101
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) repurchase authority to $10.0 billion. Unless terminated earlier by the resolution of our Board, the program will expire when we have purchased all shares authorized for repurchase under the program. ...

  • Page 102
    ... Incentive Compensation Plan The UPS Incentive Compensation Plan permits the grant of nonqualified and incentive stock options, stock appreciation rights, restricted stock and stock units, restricted performance shares and units, and management incentive awards to eligible employees. The number...

  • Page 103
    ... shares available to be issued under the Incentive Compensation Plan as of December 31, 2009. 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...

  • Page 104
    ... 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 option is granted. Persons earning the right to receive...

  • Page 105
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) We received cash of $27, $46, and $52 million during 2009, 2008, and 2007, respectively, from option holders resulting from the exercise of stock options. We received a tax benefit of $1, $4, and $9 ...

  • Page 106
    .... That cost is expected to be recognized over a weighted average period of 3 years and 5 months. Discounted Employee Stock Purchase Plan We maintain an employee stock purchase plan for all eligible employees, which was modified in 2009. Under the modified plan, shares of UPS class A common stock may...

  • Page 107
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) In evaluating financial performance, we focus on operating profit as a segment's measure of profit or loss. Operating profit is before investment income, interest expense, and income taxes. The ...

  • Page 108
    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): 2009 2008 2007 U.S. Domestic Package: Next Day Air ...Deferred ...Ground ...Total U.S. Domestic Package ......

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    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTE 12. INCOME TAXES The income tax expense (benefit) for the years ended December 31 consists of the following (in millions): 2009 2008 2007 Current: U.S. Federal ...U.S. State and Local ...Non...

  • Page 110
    ...millions): 2009 2008 Property, plant and equipment ...Goodwill and intangible assets ...Other ...Gross deferred tax liabilities ...Other postretirement benefits ...Pension plans ...Loss and credit carryforwards (non-U.S. and state) ...Insurance reserves ...Vacation pay accrual ...Stock compensation...

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    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) dividends or otherwise, we would be subject to U.S. income taxes and withholding taxes payable in various non-U.S. jurisdictions, which could potentially be offset by foreign tax credits. ...

  • Page 112
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) assessments. The IRS has not presented an official position with regard to these taxes at this time, and therefore we are not able to determine the technical merit of any potential assessment. We ...

  • Page 113
    ... ceases to be rated by either firm. We do not have any credit-risk triggers in our outstanding master agreements that require UPS or the bank counterparties to post collateral. We have not historically incurred, and do not expect to incur in the future, any losses as a result of counterparty default...

  • Page 114
    ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Types of Hedges Commodity Risk Management Currently, the fuel surcharges that we apply to our domestic and international package and LTL services are the primary means of reducing the risk of adverse fuel price changes on our business. We...

  • Page 115
    ... as well as by type of contract and whether the derivative is in an asset or liability position. Asset Derivatives Balance Sheet Location December 31, 2009 Fair Value Derivatives designated as hedges: Foreign exchange contracts ...Interest rate contracts ...Total Asset Derivatives ... Other current...

  • Page 116
    ... For the twelve months ended December 31, 2009, we recognized $15 million in losses, respectively, on the fair value of the foreign exchange forward contracts, which were reported in "other operating expenses" in the consolidated income statement, while the impact of the interest rate swap contracts...

  • Page 117
    ... of employees, facility consolidations and other costs directly related to restructuring initiatives. These initiatives have resulted from the integration of acquired companies, as well as restructuring activities associated with cost containment and operational efficiency programs. Supply...

  • Page 118
    ...PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) benefits that were formula-driven and in accordance with French statutory laws as well as the applicable collective bargaining agreements. The employment reduction program resulted in 103 employees accepting...

  • Page 119
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTE 16. QUARTERLY INFORMATION (unaudited) First Quarter 2009 2008 Second Quarter 2009 2008 Third Quarter 2009 2008 Fourth Quarter 2009 2008 Revenue: U.S. Domestic Package ...$ 6,949 $ 7,735 $ 6,789 ...

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    ...consolidated statements of income, comprehensive income and cash flows for the year ended December 31, 2009, has issued an attestation report on the Company's internal control over financial reporting, which is included herein. United Parcel Service, Inc. February 26, 2010 Item 9B. Other Information...

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    ...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 Region (2004-2008). Senior Vice President...

  • Page 122
    ... the caption "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 6, 2010 and is incorporated herein by reference. Information about our Code of Business Conduct is presented under the...

  • Page 123
    ... under the caption "Election of Directors-Director Independence" in our definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 6, 2010 and is incorporated herein by reference. Item 14. Principal Accountant and Fees and Services Information about aggregate fees billed to...

  • Page 124
    ... 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. 112

  • Page 125
    ... 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 26, 2010 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 126
    ... of United Parcel Service, Inc. (incorporated by reference to Exhibit 3.1 to Form 10-Q for the Quarter Ended June 30, 2002). Amended and Restated Bylaws of United Parcel Service, Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K, filed on November 12, 2008. Form of Class A Common Stock...

  • Page 127
    ...Savings Plan, as Amended and Restated (incorporated by reference to Exhibit 10.3 to 2008 Annual Report on Form 10-K). †(1) Amendment No. 1 to the UPS Savings Plan. †(2) Amendment No. 2 to the UPS Savings Plan. 10.4 - Credit Agreement (364-Day Facility) dated April 16, 2009 among United Parcel...

  • Page 128
    ... Definitive Proxy Statement, filed on March 13, 2009). UPS Deferred Compensation Plan, as amended and restated (incorporated by reference to Exhibit 10.10 to 2008 Annual Report on Form 10-K). United Parcel Service, Inc. Nonqualified Employee Stock Purchase Plan (incorporated by reference to Exhibit...

  • Page 129
    ... financial information from the Annual Report on Form 10-K for the year ended December 31, 2009, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv...

  • Page 130
    ... and Exchange Commission website, www.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 Shareholder Services For convenient access 24 hours a day, seven days a week: Class A Common Shareowners: www...

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