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UPS 2010 ANNUAL REPORT
THAN
STRONGER
EVER
THAN
STRONGER
EVER

Table of contents

  • Page 1
    UPS 2010 ANNUAL REPORT STRONGER EVER THAN

  • Page 2
    ... POSITIONED FOR UPS is the world's largest package delivery company, a leader in the U.S. less-than-truckload industry, and a global leader in supply chain management. UPS WEBSITES Investor Relations UPS Corporate Sustainability/Corporate Responsibility Services and Solutions investors.ups.com...

  • Page 3
    ... Cash and marketable securities 1.88 33,597 31,883 10,491 8,047 1,389 4,081 8,668 7,696 1,602 2,100 UPS Facts Founded Employees Customers Daily online tracking requests Delivery fleet 1907 400,600 8.5 million 26.2 million 99,795 Worldwide operating facilities Retail access points 2010 packages...

  • Page 4
    02 D. Scott Davis Chairman and Chief Executive Officer EMERGING STRONGER "We experienced balanced growth across all business segments and achieved record profit levels in International Package and Supply Chain and Freight."

  • Page 5
    ... in our industry-leading technology allowed us to introduce new products and services in 2010 that simplified and improved customers' business processes. • To help our customers better manage returns in the United States, we now offer UPS Returns® Flexible Access, a low cost and high quality...

  • Page 6
    ... Package Operations Improving economies around the world and market gains led to total package volume growth of 3.4 percent to 3.94 billion packages. • In the United States, we experienced slow but steady improvement as customers rebuilt and efficiently managed their inventories. Strong pricing...

  • Page 7
    UPS 2010 ANNUAL REPORT 05 2010 Revenue by Segment 2010 Revenue by Geography 18% 26% 22% 60% 74% U.S. Domestic Package International Package Supply Chain and Freight U.S. International Revenue (billions of dollars) Operating Margin (percent) 60 55 50 45 40 06 07 08 09 10 47.5 49.7 51.5 ...

  • Page 8
    ...06 07 08 09 10 Share Repurchase Expenditures (billions of dollars) Calculation of 2010 Free Cash Flow (millions of dollars) 4 3 2 1 0 06 07 2.5 3.6 2.6 Net cash from operations Capital expenditures Proceeds from disposals of PP&E 0.8 0.6 $3,835 (1,389) 304 108 230 $3,088 Net change in finance...

  • Page 9
    ... about the global economy in 2011 but expect to see economic expansion develop faster in certain regions than others, with UPS ready to take advantage. Our extensive global network and unique product portfolio provide UPS customers with the unmatched solutions for growing their businesses. D. Scott...

  • Page 10
    ..., Global Transportation Services and Labor Relations Christine M. Owens Senior Vice President, Communications and Brand Management Management Committee David P. Abney Senior Vice President and Chief Operating Officer David A. Barnes Senior Vice President and Chief Information Officer Daniel...

  • Page 11
    ...13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2010 or ' TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-15451 United Parcel Service, Inc. (Exact Name of...

  • Page 12
    ... REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2010 TABLE OF CONTENTS PART I Business ...Overview ...Operations ...Products and Services ...Technology ...Sustainability ...Sales and Marketing ...Employees ...Competition ...Competitive Strengths ...Government Regulation ...Item 1A. Risk Factors...

  • Page 13
    .... Total revenue in 2010 was $49.5 billion. Our primary business is the time-definite delivery of packages and documents worldwide. The UPS service portfolio also includes global supply chain services and less-than-truckload transportation, primarily in the United States. We report our operations in...

  • Page 14
    ...® air hub in Louisville, KY, our largest air hub. Worldport® sort capacity has been expanded to 416,000 packages per hour-a 37% increase. This expansion enables more cost-effective package processing and enables the use of larger, more fuel efficient aircraft. During the first quarter of 2010...

  • Page 15
    ... network with direct service to the Americas, Europe and Asia. It also connects points served in China by UPS. Also in 2008, we acquired our partner's interest in a small package shipping joint venture in Korea. In 2010, we opened a new Intra-Asia air hub. The Shenzhen Asia-Pacific Hub, located at...

  • Page 16
    ... 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 shipping...

  • Page 17
    ... owned and operated The UPS Store® and Mail Boxes Etc.® locations worldwide, 16,000 authorized shipping outlets and commercial counters, and 88,400 UPS drivers who can accept packages given to them. Supply Chain Services. Our freight forwarding and logistics businesses meet customers' supply chain...

  • Page 18
    ...tracking, pickup requests, rate quotes, account opening, wireless registration, drop-off locator, transit times and supply ordering services are all available at customers' desktops or laptops. The site also displays full domestic and international service information and allows customers to process...

  • Page 19
    ... 2010, supports our global small package, supply chain and freight businesses. Our corporate marketing function is engaged in market and customer research, brand management, segment management, rate-making and revenue management policy, pricing, new product development, product portfolio management...

  • Page 20
    ... 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 the...

  • Page 21
    ... achieve global scale; to invest in employee development, 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...

  • Page 22
    ... Regulatory Commission in an attempt to secure fair postal rates for competitive services. Customs We are subject to the customs laws in the countries in which we operate, regarding the import and export of shipments, including those related to the filing of documents on behalf of client importers...

  • Page 23
    ... 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 www.investors.ups.com. In the event that...

  • Page 24
    ... materially affect our business, financial condition or results of operations. You should read these Risk Factors in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 and our Consolidated Financial Statements and related notes in Item...

  • Page 25
    ...and reduce customer demand for our services, especially our air services. Strikes, work stoppages and slowdowns by our employees could adversely affect our business, financial position and results of operations. A significant number of our employees are employed under a national master agreement and...

  • Page 26
    ... customers, damage to our brand and reputation, or disruptions in our operations. 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...

  • Page 27
    ... 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 28
    ... programs for the risks arising out of the services we provide and the nature of our global operations, including claims exposure resulting from cargo loss, personal injury, property damage, aircraft and related liabilities, business interruption and workers' compensation. Workers' compensation...

  • Page 29
    ... 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. It also helps us to meet...

  • Page 30
    ... we own meet Stage III federal noise regulations and can operate at airports that have aircraft noise restrictions. We became the first major airline to successfully operate a 100% Stage III fleet more than three years in advance of the date required by federal regulations. During 2010, we took...

  • Page 31
    ...changes. Item 3. Legal Proceedings For a discussion of legal proceedings affecting us and our subsidiaries, please see the information under the sub-caption "Contingencies" of the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this report...

  • Page 32
    ...all shares authorized for repurchase under the program. A summary of repurchases of our class A and class B common stock during the fourth quarter of 2010 is as follows (in millions, except per share amounts): Total Number of Shares Purchased(1) Average Price Paid Per Share(1) Total Number of Shares...

  • Page 33
    ... Transportation Average, and our class B common stock. Comparison of Five Year Cumulative Total Return $160.00 $140.00 $120.00 $100.00 $80.00 $60.00 $40.00 2005 2006 2007 S&P 500 UPS 2008 DJ Transport 2009 2010 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10 United Parcel Service...

  • Page 34
    ...financial statements and related notes, Management's Discussion and Analysis of Financial Condition and Results of Operations, and other financial data appearing elsewhere in this report. 2010 Years Ended December 31, 2009 2008 2007 2006 Selected Income Statement Data Revenue: U.S. Domestic Package...

  • Page 35
    ... 7. Overview Management's Discussion and Analysis of Financial Condition and Results of Operations Our U.S. Domestic Package, International Package, and Supply Chain & Freight segments were all positively affected by the worldwide economic recovery in 2010. Our operating results had deteriorated...

  • Page 36
    ... to income tax expense, which resulted primarily from the write-off of related deferred tax assets which will not be realizable following the change in tax status. Results of Operations-Segment Review The results and discussions that follow are reflective of how our executive management monitors...

  • Page 37
    ... trends in our underlying businesses. U.S. Domestic Package Operations Year Ended December 31, 2010 2009 2008 % Change 2010 / 2009 2009 / 2008 Revenue (in millions): Next Day Air ...$ 5,835 Deferred ...2,975 Ground ...20,932 Total Revenue ...Average Daily Package Volume (in thousands): Next Day Air...

  • Page 38
    ...while the ground fuel surcharge is based on the U.S. Energy Department's On-Highway Diesel Fuel Price. Based on published rates, the average fuel surcharge for domestic air and ground products was as follows: Year Ended December 31, 2010 2009 2008 % Point Change 2010 / 2009 2009 / 2008 Next Day Air...

  • Page 39
    ...in fuel surcharge revenue compared with the decline in 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...

  • Page 40
    ...as market share gains and general economic improvement in Europe and the Americas. Volume was relatively stronger in the small and middle market customer segments. Revenue Per Piece 2010 compared to 2009 Export revenue per piece increased during 2010, largely due to higher fuel surcharge rates, base...

  • Page 41
    ...our total export volume. Revenue per piece in the fourth quarter benefited from a weaker U.S. Dollar, but continued to be adversely impacted by lower fuel surcharge rates. Fuel Surcharges On January 4, 2010 and January 5, 2009, we modified the fuel surcharge on certain U.S.-related international air...

  • Page 42
    ...in the demand for forwarding as a result of the continued expansion of the worldwide economy, inventory rebuilding and world trade. In our forwarding business, both air freight and ocean freight experienced solid revenue growth, due primarily to higher volumes, fuel surcharges, and other accessorial...

  • Page 43
    ... economic recession in the United States in 2009. Average LTL shipments per day also declined, as market share gains were more than offset by the impact of the weak economy. LTL revenue per hundredweight decreased, primarily as a result of the lower fuel surcharge rates, as total fuel surcharge...

  • Page 44
    ...changes in the workforce coverage of our individual plans. Excluding this reduction in vacation liabilities, the UPS Freight unit reported a small operating loss due to the economic recession and difficult LTL market in the United States. The combined operating income for all of our other businesses...

  • Page 45
    ... employees. Pension expense increases resulted primarily from higher union contribution rates for multi-employer pension plans. The relocation benefit costs relate to the restructuring of our domestic package operations that occurred in the first quarter of 2010. This increase in health and welfare...

  • Page 46
    ... primarily as a result of cost containment programs, such as employee expense reimbursements, office supplies, professional services, and advertising costs. Investment Income and Interest Expense Year Ended December 31, 2010 2009 2008 % Change 2010 / 2009 2009 / 2008 Investment Income and Interest...

  • Page 47
    ...we are currently unable to recognize the entire potential tax benefit of tax loss carryforwards generated from the sale of a Supply Chain & Freight business in Germany in the first quarter of 2010. Excluding these items, our adjusted year-to-date effective tax rate decreased in 2010 compared to 2009...

  • Page 48
    .... In 2009, operating cash flow was adversely impacted by the decline in profitability for our three reporting segments. In 2008, operating cash flow increased by approximately $1.228 billion due to tax refunds received that year related to our previous withdrawal from the Central States Pension Plan...

  • Page 49
    ...in Shanghai, China, and also began construction of our new intra-Asia air hub in Shenzhen, China, which became operational in February 2010. Capital spending on aircraft over the 2008 to 2010 period was largely due to scheduled deliveries of previous orders for the Boeing 767-300 and 747-400, and MD...

  • Page 50
    .... The timing of our share repurchases will depend upon market conditions. As a result of the uncertain economic environment in 2010 and 2009, we slowed our share repurchase activity, and repurchased shares at a rate that approximately offset the dilution from our stock compensation programs. Unless...

  • Page 51
    ... on debt related to our investment in certain partnerships. We consider the overall fixed and floating interest rate mix of our portfolio and the related overall cost of borrowing when planning for future issuances and non-scheduled repayments of debt. Cash received from common stock issuances to...

  • Page 52
    ... requirement for cash contributions in 2011 in the UPS Retirement Plan or UPS Pension Plan. The amount of any minimum funding requirement, as applicable, for these plans could change significantly in future periods, depending on many factors, including future plan asset returns and discount rates...

  • Page 53
    ... any, would have a material adverse effect on our financial condition, results of operations or liquidity. In AFMS LLC v. UPS and FedEx Corporation, a lawsuit filed in federal court in the Central District of California in August 2010, the plaintiff asserts that UPS and FedEx violated U.S. antitrust...

  • Page 54
    ... 31, 2014. 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 these plans, including unfavorable investment...

  • Page 55
    ...the index used to determine the ground fuel surcharge. UPS Next Day Air, UPS 2nd Day Air, UPS 3 Day Select, and international air shipments originating in the United States (including Worldwide Express, Worldwide Express Plus, UPS Worldwide Expedited and UPS International Standard Service) increased...

  • Page 56
    ... investments are reported in "other non-current assets" on the consolidated balance sheets. 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 funded status...

  • Page 57
    ... factors could result in a material difference between estimated and actual operating results. Contingent losses that are probable and estimable, excluding those related to income taxes and self insurance which are discussed further below, were not material to the Company's financial position as...

  • Page 58
    ... our UPS Freight reporting unit, which was formed through the acquisition of Overnite Corporation in 2005, had a goodwill impairment of $548 million. This impairment charge resulted from several factors, including a lower cash flow forecast due to a longer estimated economic recovery time for the...

  • Page 59
    ... 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. Pension and Postretirement Medical Benefits As discussed in Note 5 to our consolidated financial statements...

  • Page 60
    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 have resulted in the following increases (decreases) on the Company's reported costs and obligations for the year 2010 (in millions...

  • Page 61
    ... 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 62
    require consideration of historical loss experience, adjusted for current conditions, 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. ...

  • Page 63
    ...of finance receivables that accrue income at fixed and floating rates of interest. Equity Price Risk We hold investments in various common equity securities that are subject to price risk. These securities are primarily in the form of equity index funds. Credit Risk The forward contracts, swaps, and...

  • Page 64
    ... value and interest income of our marketable securities due to changes in equity prices and interest rates, respectively, was not material as of December 31, 2010 or 2009. The sensitivity in the fair value and interest income of our finance receivables due to changes in interest rates was also not...

  • Page 65
    ... Oversight Board (United States), the consolidated balance sheet of United Parcel Service, Inc. and its subsidiaries as of December 31, 2010, and the related statements of consolidated income, comprehensive income (loss), and cash flows for the year ended December 31, 2010 and our report dated...

  • Page 66
    ... 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, 2010 and 2009, and the related statements of consolidated income, comprehensive income (loss), and cash flows...

  • Page 67
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions) December 31, 2010 2009 ASSETS Current Assets: Cash and cash equivalents ...$ 3,370 Marketable securities ...711 Accounts receivable, net ...5,627 Finance receivables, net ...203 Deferred income tax assets ...659 ...

  • Page 68
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (In millions, except per share amounts) Years Ended December 31, 2010 2009 2008 Revenue ...$49,545 $45,297 $51,486 Operating Expenses: Compensation and benefits ...26,324 25,640 26,063 Repairs and maintenance ...1,131 1,...

  • Page 69
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (In millions) Years Ended December 31, 2010 2009 2008 Cash Flows From Operating Activities: Net income ...$ 3,488 $ 2,152 $ 3,003 Adjustments to reconcile net income to net cash from operating activities: ...

  • Page 70
    ... or package. Forwarding and Logistics-Freight forwarding revenue and the expense related to the transportation of freight are recognized at the time the services are performed. Material management and distribution revenue is recognized upon performance of the service provided. Customs brokerage...

  • Page 71
    ... PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Investments 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 comprehensive income...

  • Page 72
    ...-related expenses associated with pension and postretirement medical benefits. These pension and postretirement medical benefit costs for company-sponsored benefit plans are calculated using various actuarial assumptions and methodologies, including discount rates, expected returns on plan assets...

  • Page 73
    ... increase rates, 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...

  • Page 74
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Fair Value Measurements Our financial assets and liabilities measured at fair value on a recurring basis have been categorized based upon a fair value hierarchy. Level 1 inputs utilize quoted prices ...

  • Page 75
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) million reduction to retained earnings as of January 1, 2008. These investments are reported in "other non-current assets" on the consolidated balance sheets. Compensation-Retirement Benefits: We ...

  • Page 76
    ... at December 31, 2010 and 2009 (in millions): Cost Unrealized Gains Unrealized Losses Estimated Fair Value 2010 Current marketable securities: U.S. government and agency debt securities ...$207 Mortgage and asset-backed debt securities ...220 Corporate debt securities ...179 U.S. state and local...

  • Page 77
    ... TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Unrealized Gains Unrealized Losses Estimated Fair Value Cost 2009 Current marketable securities: U.S. government and agency debt securities ...$126 Mortgage and asset-backed debt securities ...158 Corporate debt securities ...213 U.S. state and...

  • Page 78
    ... (loss) on the statement of consolidated income. 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 79
    ... non-current assets on our consolidated balance sheets. Additional cash collateral provided is reflected in other investing activities in the statements of consolidated cash flows. This restricted cash is invested in money market funds and similar cash equivalent type assets. As of December 31, 2010...

  • Page 80
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Fair Value Measurements Marketable securities utilizing Level 1 inputs include active exchange-traded equity securities and equity index funds, and most U.S. Government debt securities, as these ...

  • Page 81
    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, 2010 and 2009, and indicates the fair value hierarchy of the valuation ...

  • Page 82
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table presents the changes in the above Level 3 instruments measured on a recurring basis for the year ended December 31, 2010 (in millions). Marketable Securities Other Investments ...

  • Page 83
    ...The following is an aging analysis of our finance receivables as of December 31, 2010 (in millions): Greater than 90 Days Past Due Total Finance Receivables 30-59 Days Past Due 60-90 Days Past Due Current Commercial term loans: U.S. Government guaranteed ...Other unguaranteed ...Other financing...

  • Page 84
    ... fleet utilization in light of current and projected volume levels, aircraft fuel prices, and other factors. In 2008, we 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...

  • Page 85
    ... the plan document 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...

  • Page 86
    ...for pension contributions to these multi-employer plans were $1.186, $1.125 and $1.069 billion during 2010, 2009, and 2008, respectively. We also contribute to several multi-employer health and welfare plans that cover both active and retired employees for which the subsequent disclosure information...

  • Page 87
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Net Periodic Benefit Cost Information about net periodic benefit cost for the company-sponsored pension and postretirement benefit plans is as follows (in millions): U.S. Pension Benefits 2010 2009 ...

  • Page 88
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) postretirement medical benefits discount rate on average 31 and 51 basis points for 2009 and 25 and 17 basis points for 2008. For 2010, each basis point increase in the discount rate decreases the ...

  • Page 89
    ... Benefits 2010 2009 U.S. Pension Benefits 2010 2009 Benefit Obligations: Net benefit obligation at beginning of year ...Service cost ...Interest cost ...Gross benefits paid ...Plan participants' contributions ...Plan amendments ...Actuarial (gain)/loss ...Foreign currency exchange rate changes...

  • Page 90
    ... measurement dates in each year, of our plans and the amounts recognized in our balance sheet as of December 31 (in millions): U.S. Pension Benefits 2010 2009 U.S. Postretirement Medical Benefits 2010 2009 International Pension Benefits 2010 2009 Funded Status: Fair value of plan assets ...Benefit...

  • Page 91
    ... from erosion of purchasing power; (2) provide investment results that meet or exceed the plans' expected long-term rate of return; and (3) match the duration of the liabilities and assets of the plans to reduce the potential risk of large employer contributions being necessary in the future. The...

  • Page 92
    ...31, 2010 and December 31, 2009, respectively. Pension assets utilizing Level 1 inputs include fair values of equity 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...

  • Page 93
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) comprised of corporate and government bonds, hedge funds, real estate investments and private equity funds. The commingled funds are valued using net asset values, adjusted, as appropriate, for ...

  • Page 94
    ... statements. 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: 2011 (expected) to plan trusts...

  • Page 95
    ... reporting unit, which was formed through the acquisition of Overnite Corporation in 2005, had a goodwill impairment of $548 million which is included in the caption "other expenses" in the consolidated income statement. This impairment charge resulted from several factors, including a lower cash...

  • Page 96
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) expectations. Additionally, the LTL sector in 2008 was adversely impacted by the economic recession in the U.S., lower industrial production and retail sales, volatile fuel prices, and significant ...

  • Page 97
    ... time by paying the greater of the principal amount or a "make-whole" amount, plus accrued interest. After pricing and underwriting discounts, we received a total of $3.961 billion in cash proceeds from the offering. The proceeds from the offering were used to reduce our outstanding commercial paper...

  • Page 98
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) In March 2009, we completed an offering of $1.0 billion of 3.875% senior notes due April 2014 and $1.0 billion of 5.125% senior notes due April 2019. These notes pay interest semiannually, and we may ...

  • Page 99
    ... Domestic Package and Supply Chain & Freight operations in the United States. These facilities are located around airport properties in Louisville, Kentucky; Dallas, Texas; and Philadelphia, Pennsylvania. Under these arrangements, we enter into a lease or loan agreement that covers the debt service...

  • Page 100
    ... risk associated with the bond cash flows. The average fixed interest rate payable on the swaps is 5.72%. Other Debt The other debt balance primarily relates to loans entered into in conjunction with our investment in various partnerships. Substantially all of this debt is classified as a current...

  • Page 101
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) As of December 31, 2010, we had outstanding letters of credit totaling approximately $1.580 billion issued in connection with our self-insurance reserves and other routine business requirements. We ...

  • Page 102
    ... and Aerospace Workers ("IAM"). Our agreement with the IAM runs through July 31, 2014. 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...

  • Page 103
    ..., or liquidity would result from our participation in these plans. 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...

  • Page 104
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTE 9. 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 voting...

  • Page 105
    ... changes are discussed further in Note 1. For the years ended December 31, 2010, 2009 and 2008, we repurchased a total of 12.4, 10.9 and 53.6 million shares of class A and class B common stock for $809 million, $569 million and $3.558 billion, respectively. In January 2008, our Board of Directors...

  • Page 106
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Deferred Compensation Obligations and Treasury Stock We maintain a deferred compensation plan whereby certain employees were previously able to elect to defer the gains on stock option exercises by ...

  • Page 107
    ...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 tax...

  • Page 108
    ... are based on the historical returns on our stock and the 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...

  • Page 109
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) We received cash of $60, $27, and $46 million during 2010, 2009, and 2008, respectively, from option holders resulting from the exercise of stock options. We received a tax benefit of $4, $1, and $4 ...

  • Page 110
    ...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 Etc...

  • Page 111
    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 112
    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): 2010 2009 2008 U.S. Domestic Package: Next Day Air ...Deferred ...Ground ...Total U.S. Domestic Package ......

  • Page 113
    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): 2010 2009 2008 Current: U.S. Federal ...$ 776 $ 715 $1,510 U.S. State ...

  • Page 114
    ...millions): 2010 2009 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...

  • Page 115
    ... with outstanding refund claims as of December 31, 2010, 2009 and 2008, respectively. Our continuing practice is to recognize interest and penalties associated with income tax matters as a component of income tax expense. We file income tax returns in the U.S. federal jurisdiction, most U.S. state...

  • Page 116
    ... receipt of the IRS reports on these matters by the end of the second quarter of 2011. We have filed all required U.S. state and local returns reporting the result of the resolution of the U.S. federal income tax audit of the tax years 2003 and 2004. A limited number of U.S. state and local matters...

  • Page 117
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTE 14. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT Risk Management Policies We are exposed to market risk, primarily related to foreign exchange rates, commodity prices and interest rates. These ...

  • Page 118
    ... cash flow hedges of the forecasted contractual payments and, therefore, the resulting gains and losses from these hedges are recognized in the income statement when the currency remeasurement gains and losses on the underlying debt obligations and leases are incurred. Interest Rate Risk Management...

  • Page 119
    ...as cash flow hedges of the forecasted payment obligations. The gains and losses resulting from fair value adjustments to the interest rate swap are recorded to AOCI. We periodically hedge the forecasted fixed-coupon interest payments associated with anticipated debt offerings, using forward starting...

  • Page 120
    ... the amount and location in the income statement in which derivative gains and losses, as well as the related amounts reclassified from AOCI, have been recognized for those derivatives designated as cash flow hedges for the years ended December 31, 2010 and 2009 (in millions): 2010 Amount of Gain...

  • Page 121
    ... changes in market conditions. The amount of ineffectiveness recognized in income on derivative instruments designated in cash flow hedging relationships was immaterial for the years ended December 31, 2010, 2009 and 2008. The following table indicates the amount and location in the income statement...

  • Page 122
    ... ...Interest Rate Contracts ...Total ... $ 63 74 $137 $ 51 15 $ 66 $ 63 74 $137 $ 51 15 $ 66 NOTE 15. RESTRUCTURING COSTS AND BUSINESS DISPOSITIONS We have incurred restructuring costs associated with the termination of employees, facility consolidations and other costs directly related to...

  • Page 123
    ... guarantee. This loss is recorded in the caption "other expenses" in the statements of consolidated income. Supply Chain & Freight-United States In December 2010, we completed the sale of our UPS Logistics Technologies, Inc. business unit, which produced transportation routing and fleet management...

  • Page 124
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) First quarter 2010 U.S. Domestic Package operating profit includes a $98 million restructuring charge related to the reorganization of our domestic management structure, as discussed in Note 15. First...

  • Page 125
    ...consolidated statements of income, comprehensive income and cash flows for the year ended December 31, 2010, has issued an attestation report on the Company's internal control over financial reporting, which is included herein. United Parcel Service, Inc. February 28, 2011 Item 9B. Other Information...

  • Page 126
    ... Vice President and Chief Information Officer (2005 - present). Senior Vice President and President, UPS International (2008 - present), President, Global Freight Forwarding (2006-2007), Corporate Controller (2004 - 2006). Chairman and Chief Executive Officer (2008 - present), Vice Chairman (2006...

  • Page 127
    ... "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 5, 2011 and is incorporated herein by reference. Information about our Code of Business Conduct is presented under the caption...

  • Page 128
    ... the caption "Election of Directors-Director Independence" in our definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 5, 2011 and is incorporated herein by reference. Item 14. Principal Accounting Fees and Services Information about aggregate fees billed to us by our...

  • Page 129
    ... 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. 117

  • Page 130
    ...undersigned, thereunto duly authorized. UNITED PARCEL SERVICE, INC. (REGISTRANT) By: /S/ D. SCOTT DAVIS D. Scott Davis Chairman and Chief Executive Officer Date: February 28, 2011 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following...

  • Page 131
    ...filed on May 12, 2010). Amended and Restated Bylaws of United Parcel Service, Inc. as of May 6, 2010 (incorporated by reference to Exhibit 3.1 to Form 8-K, filed on May 12, 2010). Form of Class A Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the registration statement on Form...

  • Page 132
    ..., effective January 1, 2010 (incorporated by reference to Exhibit 10.2 to the 2009 Annual Report on Form 10-K). †(1) Amendment No. 1 to the UPS Retirement Plan. UPS Savings Plan, as Amended and Restated (incorporated by reference to Exhibit 10.3 to 2008 Annual Report on Form 10-K). (1) Amendment...

  • Page 133
    ... J.P. Morgan Securities, Inc. as syndication agent (incorporated by reference to Exhibit 10.1 to Form 10-Q for the Quarter Ended March 31, 2010). Credit Agreement (5-Year Facility) dated April 19, 2007 among United Parcel Service, Inc., the initial lenders named therein, Citigroup Global Markets Inc...

  • Page 134
    ... Report on Form 10-Q for the quarter ended March 3, 2010). †(3) UPS Management Incentive Program Terms and Conditions effective as of January 1, 2011. 10.11 10.12 - - †Form of UPS Deferred Compensation Plan. United Parcel Service, Inc. Nonqualified Employee Stock Purchase Plan (incorporated...

  • Page 135
    ...: 201-680-6610 Investor Relations You can contact our Investor Relations Department at: United Parcel Service, Inc. 55 Glenlake Parkway N.E. Atlanta, GA 30328 800-877-1503 or 404-828-6059 investors.ups.com Direct Stock Purchase Plan Exchange Listings Our Class B common stock is listed on the New...

  • Page 136
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