UPS 2010 Annual Report Download - page 27

We make significant capital investments in our business of which a significant portion is tied to projected
volume levels.
We require significant capital investments in our business consisting of aircraft, vehicles, technology, facilities
and sorting and other types of equipment to support both our existing business and anticipated growth. Forecasting
projected volume involves many factors which are subject to uncertainty, such as general economic trends, changes
in governmental regulation, and competition. If we do not accurately forecast our future capital investment needs,
we could have excess capacity or insufficient capacity, either of which would negatively affect our revenues and
profitability. In addition to forecasting our capital investment requirements, we adjust other elements of our
operations and cost structure in response to adverse economic conditions; however, these adjustments may not be
sufficient to allow us to maintain our operating margins in an adverse economy.
We derive a significant portion of our revenues from our international operations and are subject to the risks
of doing business in emerging markets.
We have significant international operations and while the geographical diversity of our international
operations helps ensure that we are not overly reliant on a single region or country, we are continually exposed to
changing economic, political and social developments beyond our control. Emerging markets are typically more
volatile than those in the developed world, and any broad-based downturn in these markets could reduce our
revenues and adversely affect our business, financial position and results of operations.
We are subject to changes in markets and our business plans that have resulted, and may in the future result,
in substantial write-downs of the carrying value of our assets, thereby reducing our net income.
Our regular review of the carrying value of our assets has resulted, from time to time, in significant
impairments, and we may in the future be required to recognize additional impairment charges. Changes in
business strategy, government regulations, or economic or market conditions have resulted and may result in
further substantial impairment write-downs of our intangible or other assets at any time in the future. In addition,
we have been and may be required in the future to recognize increased depreciation and amortization charges if
we determine that the useful lives of our fixed assets are shorter than we originally estimated. Such changes
could reduce our net income.
Employee health and retiree health and pension benefit costs represent a significant expense to us.
With approximately 400,600 employees, including approximately 330,600 in the U.S., our expenses relating
to employee health and retiree health and pension benefits are significant. In recent years, we have experienced
significant increases in certain of these costs, largely as a result of economic factors beyond our control,
including, in particular, ongoing increases in health care costs well in excess of the rate of inflation. Continued
increasing health care costs, volatility in investment returns and discount rates, as well as changes in laws,
regulations and assumptions used to calculate retiree health and pension benefit expenses, may adversely affect
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 cause us to make significantly
higher future contributions to these plans, including unfavorable investment performance, increases in health care
costs, changes in demographics, and increased benefits to participants. At this time, we are unable to determine
the amount of additional future contributions, if any, or whether any material adverse effect on our financial
condition, results of operations, or liquidity could result from our participation in these plans.
We may be subject to various claims and lawsuits that could result in significant expenditures.
The nature of our business exposes us to the potential for various claims and litigation related to labor and
employment, personal injury, property damage, business practices, environmental liability and other matters.
Any material litigation or a catastrophic accident or series of accidents could have a material adverse effect on
our business, financial position and results of operations.
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