UPS 2010 Annual Report Download - page 47

Download and view the complete annual report

Please find page 47 of the 2010 UPS annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 136

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136

impairment charge resulted from conversion offers from the issuers of these securities at prices well below the
stated redemption value of the preferred shares. These securities, which had a cost basis of $42 million, were
written down to their fair value of $25 million as of June 30, 2009, resulting in an other-than-temporary
impairment of $17 million.
Interest Expense
The decrease in interest expense in 2010 was primarily due to lower average debt balances, but this was
partially offset by lower capitalized interest, due to the recent completion of several large construction projects,
including our Worldport expansion. Excluding the currency remeasurement charge, the 2009 decrease in interest
expense was largely due to lower average debt balances and lower average interest rates incurred on variable rate
debt and interest rate swaps.
Income Tax Expense
Year Ended December 31, % Change
2010 2009 2008 2010 / 2009 2009 / 2008
Income Tax Expense ........................ $2,035 $1,214 $2,012 67.6% (39.7)%
Impact of Charge for Change in Tax Filing
Status for German Subsidiary ........... (76) — —
Impact of Restructuring Charge ........... 34 — —
Impact of Gain on Sales of Businesses ...... (23) — —
Impact of Gain on Sale of Real Estate ....... (48) — —
Impact of Aircraft Impairment Charge ...... — 65 —
Impact of Currency Remeasurement
Charge ............................. — 29 —
Adjusted Income Tax Expense ........ $1,922 $1,308 $2,012 46.9% (35.0)%
Effective Tax Rate .......................... 36.8% 36.1% 40.1%
Adjusted Effective Tax Rate .................. 35.0% 36.1% 36.0%
2010 compared to 2009
The increase in our effective tax rate in 2010 compared with 2009 was attributable to the higher marginal
tax rate applied to the gain on the sale of real estate, as well as the change in the tax filing status of a German
subsidiary that occurred in the first quarter of 2010. Additionally, 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
primarily due to the effect of having a higher proportion of our taxable income in 2010 being subject to tax
outside the United States, where statutory tax rates are generally lower.
2009 compared to 2008
Income tax expense declined primarily due to lower pre-tax income. The decrease in our effective tax rate
was primarily due to the goodwill and intangible impairment charges described previously, which were not
deductible for tax purposes and resulted in the effective tax rate increasing by 4.1%. This was partially offset by
an increase in our first quarter 2009 income tax provision as a result of providing a valuation allowance of $14
million against certain deferred tax assets in our International Package business.
35