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UPS 2011 ANNUAL REPORT
focus

Table of contents

  • Page 1
    UPS 2011 ANNUAL REPORT focus

  • Page 2
    UPS has an extensive portfolio of services, a global transportation network, superior technology, and people worldwide who are focused on creating value for our customers and delivering on our promises.

  • Page 3
    ... millions except for per-share amounts) UPS Facts 2011 2010 $49,545 43,904 3,338 Founded: Employees: Customers: Daily online tracking requests: Delivery fleet: Worldwide operating facilities: Retail access points: 2011 delivery volume: Daily flight segments: Alternative fuel vehicles: 1907 398,300...

  • Page 4
    02 create transform invest "In 2011, we created value for our customers, transformed our business, and invested to grow- and the results were rewarding." D. Scott Davis, UPS Chairman and Chief Executive Officer

  • Page 5
    ...the number of new subscribers approached 750,000 by the end of the year. To assist our customers with reverse logistics, we introduced UPS Returns® Exchange and UPS Returns® Pack and Collect. These two unique solutions provide retailers in North America and Europe with new and cost-efficient ways...

  • Page 6
    ... technology with advanced analytics. Last, but not least, there's our industry-leading sustainability program. Our efforts to improve the fuel efficiency of our air and ground fleet continues to provide benefits to our operations while also reducing the impact on the environment. U.S. International...

  • Page 7
    ... improve living standards, and were heartened in 2011 that the United States passed three free trade agreements with South Korea, Colombia, and Panama. UPS continues to invest in its global portfolio of customer solutions to support the rapid growth of trade and cross-border commerce. Latin America...

  • Page 8
    ...delivery industry. Looking Ahead While 2011 was a great year for UPS, we are looking 10 11 0 07 Adjusted* 08 09 GAAP forward to 2012. UPS will celebrate 105 years of excellence and achievement in August this year. UPS will be responsible for virtually all the distribution and logistics services...

  • Page 9
    ... in the Euro zone and Asia is slowing, while the United States economy is improving at a modest rate. Our expectation is for mixed economic growth around the world in 2012. Overall we expect global economic expansion to be slightly weaker than 2011. In spite of the macro outlook, UPS expects another...

  • Page 10
    ... Chief Operating Officer David A. Barnes Senior Vice President and Chief Information Officer Daniel J. Brutto Senior Vice President and President, UPS International D. Scott Davis Chairman and Chief Executive Officer Alan Gershenhorn Senior Vice President and Chief Sales and Marketing Officer Myron...

  • Page 11
    ... ACT OF 1934 For the fiscal year ended December 31, 2011 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 Registrant as Specified in Its...

  • Page 12
    ... ...Operating Facilities ...Fleet ...Item 3. Legal Proceedings ...Item 4. Mine Safety Disclosures ...Item 1. PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...Shareowner Return Performance Graph ...Item 6. Selected Financial Data...

  • Page 13
    ...Overview United Parcel Service, Inc. ("UPS") was founded in 1907 as a private messenger and delivery service in Seattle, Washington. Today, UPS is the world's largest package delivery company, a leader in the U.S. less-thantruckload industry and the premier provider of global supply chain management...

  • Page 14
    ... market for logistics services, which include transportation, distribution, forwarding, ground, ocean and air freight, brokerage and financing. Our technology seamlessly binds our service portfolio. We have three reportable segments: U.S. Domestic Package, International Package and Supply Chain...

  • Page 15
    ... of delivery, allow shippers to collect accounts receivable more quickly), allow for inbound volume planning, manage third party shipping costs, automatically notify customers of incoming shipments, and of course, track shipments and let the customer react if a specific shipment status changes. 3

  • Page 16
    ... reduce training time. • • • Reporting Segments and Products & Services As a global leader in logistics, UPS offers a broad range of domestic and export delivery services; the facilitation of international trade; and the deployment of advanced technology to more efficiently manage the world...

  • Page 17
    ... largest international air hub is in Cologne, Germany, with other regional international hubs in Miami, Florida; Canada; Hong Kong; Singapore; Taiwan; and China. U.S. Domestic Package Reporting Segment UPS is a leader in time-definite, money-back guaranteed, small package delivery services. We offer...

  • Page 18
    ... UPS Ground network with final delivery provided by the U.S. Postal Service. International Package Reporting Segment Our International Package reporting segment includes the small package operations in Europe, Asia, Canada and Latin America. UPS offers a wide selection of guaranteed, day and time...

  • Page 19
    ...world's largest customs brokers by both the number of shipments processed annually and by the number of dedicated brokerage employees worldwide. With decades of customs brokerage experience, we provide our customers with customs clearance, trade management and international trade consulting services...

  • Page 20
    ... day-definite, on-time guarantee at no additional cost. Additionally, many user-friendly small package technology offerings are also available for freight. Applications such as UPS WorldShip, Billing Center, and Quantum View allow customers to process and track LTL shipments, create electronic bills...

  • Page 21
    ... are located internationally. Our global workforce includes approximately 71,000 management employees (36% of whom are part-time) and 327,000 hourly employees (46% of whom are part-time). As of December 31, 2011, we had approximately 245,000 employees employed under a national master agreement and...

  • Page 22
    ...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. Competition We are the largest package delivery company in the world, in terms of both revenue and volume. We offer...

  • Page 23
    ... to package delivery. For example, our supply chain services-such as freight forwarding, customs brokerage, order fulfillment, and returns management-help improve the efficiency of the supply chain management process. Customer Relationships. We focus on building and maintaining long-term customer...

  • Page 24
    ...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 aviation rights involving non-U.S. jurisdictions, and non-U.S. customs regulation. FAA regulations mandate an aircraft corrosion control program...

  • Page 25
    ... 13(a) of the Securities Exchange Act of 1934 are made available through our website www.investors.ups.com as soon as reasonably practical after we electronically file or furnish the reports to the SEC. Also available on the Corporation's website are the Company's Corporate Governance Guidelines and...

  • Page 26
    ... 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 8. General economic conditions, both in the U.S. and internationally, may adversely affect our results...

  • Page 27
    ... the effects of changing prices of energy, including gasoline, diesel and jet fuel, and interruptions in supplies of these commodities. Changing fuel and energy costs may have a significant impact on our operations. We require significant quantities of fuel for our aircraft and delivery vehicles and...

  • Page 28
    ... in exchange rates or interest rates may have an adverse effect on our results. We conduct business across the globe with a significant portion of our revenue derived from operations outside the United States. Our operations in international markets are affected by changes in the exchange rates for...

  • Page 29
    ... 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...

  • Page 30
    ...Not applicable. Item 2. Properties Operating Facilities We own our headquarters, which are located in Atlanta, Georgia and consist of about 735,000 square feet of office space on an office campus, and our UPS Supply Chain Solutions group's headquarters, which are located in Alpharetta, Georgia, and...

  • Page 31
    ... intra-Asia air hub at Clark Air Force Base in the Philippines, and serves as our primary transit hub in Asia. The facility was built on a parcel of almost 1 million square feet, and has a sorting capacity of 18,000 packages per hour. Our primary information technology operations are consolidated in...

  • Page 32
    ...-100 aircraft fleets during 2011. Vehicles We operate a global ground fleet of approximately 101,000 package cars, vans, tractors and motorcycles. Our ground support fleet consists of 31,800 pieces of equipment designed specifically to support our aircraft fleet, ranging from non-powered container...

  • Page 33
    ...52 quarterly dividend in 2011. In January 2008, the Board of Directors approved an increase in our share repurchase authorization to $10.0 billion. Share repurchases may take the form of accelerated share repurchases, open market purchases, or other such methods as we deem appropriate. The timing of...

  • Page 34
    ...Average, and our class B common stock. Comparison of Five Year Cumulative Total Return $140.00 $130.00 $120.00 $110.00 $100.00 $90.00 $80.00 $70.00 $60.00 2006 2007 2008 S&P 500 UPS 2009 DJ Transport 2010 2011 12/31/06 12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 United Parcel Service...

  • Page 35
    ...related notes, Management's Discussion and Analysis of Financial Condition and Results of Operations, and other financial data appearing elsewhere in this report. 2011 Years Ended December 31, 2010 2009 2008 2007 Selected Income Statement Data Revenue: U.S. Domestic Package ...International Package...

  • Page 36
    ... efficiency and contain costs, which led to solid improvements in operating margin and profit in our U.S. Domestic Package and Supply Chain & Freight segments. During 2010, we completed the second phase of our Worldport expansion which has allowed the use of larger and more fuel-efficient aircraft...

  • Page 37
    ... the following items (in millions): Year Ended December 31, 2011 2010 2009 Operating Expenses: Pension and Postretirement Benefit Plans Mark-to-Market Charge ...Restructuring Charge ...Gain on Sales of Businesses ...Gains on Real Estate Transactions ...Aircraft Impairment Charge ...Interest Expense...

  • Page 38
    ... segments. We supplement the reporting of our financial information determined under generally accepted accounting principles ("GAAP") with certain non-GAAP financial measures, including operating profit, operating margin, pre-tax income, net income and earnings per share adjusted for the non...

  • Page 39
    U.S. Domestic Package Operations Year Ended December 31, 2011 2010 2009 % Change 2011 / 2010 2010 / 2009 Average Daily Package Volume (in thousands): Next Day Air ...Deferred ...Ground ...Total Avg. Daily Package Volume ...Average Revenue Per Piece: Next Day Air ...Deferred ...Ground ...Total Avg. ...

  • Page 40
    ... for our ground and air products in 2010, largely due to a combination of base price increases and fuel surcharge rate changes, which are discussed further below. The revenue per piece for our air products also improved as a result of higher average package weights and the overall mix shift from...

  • Page 41
    ...-type jet fuel, while the ground fuel surcharge is based on the DOE'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, 2011 2010 2009 % Point Change 2011 / 2010 2010 / 2009 Next Day Air...

  • Page 42
    ... through increased network efficiencies and cost containment initiatives, leading to an increase in the operating margin in 2010 compared with 2009. International Package Operations Year Ended December 31, 2011 2010 2009 % Change 2011 / 2010 2010 / 2009 Average Daily Package Volume (in thousands...

  • Page 43
    ... factors for the years ended December 31, 2011 and 2010, compared with the prior years: Rates / Product Mix Fuel Surcharge Total Revenue Change Volume Currency Revenue Change Drivers: 2011 vs 2010 ...2010 vs 2009 ...Volume 2011 compared to 2010 4.7% 13.6% 0.6% (1.7)% 4.0% 3.1% 0.7% (0.2)% 10...

  • Page 44
    ...market. Fuel Surcharges In connection with our base rate increases on January 3, 2011 and January 4, 2010, we modified the fuel surcharges on certain U.S.-related international air services by reducing the index used to determine the fuel surcharge by 2% in each of the two years. The fuel surcharges...

  • Page 45
    ...the year, primarily as a result of higher fuel prices and increased package volume. Package sorting expenses increased $61 million, and were impacted by higher labor costs and increased depreciation on certain operating facilities. Operating Profit and Margin 2011 compared to 2010 Adjusted operating...

  • Page 46
    ... primarily due to growth in LTL shipments, an increase in base rates, and increased fuel surcharge rates. LTL shipments per day increased in 2011, largely due to improving LTL market conditions in the first half of the year and an increase in market share. However, volume declined in the latter half...

  • Page 47
    ... fuel costs operating our vehicle fleet, as well as higher fuel surcharge rates passed to us from outside transportation carriers, as a result of higher diesel fuel prices and increased volume. Additionally, compensation and benefit costs increased primarily as a result of higher pension and health...

  • Page 48
    ... relate to the cost of operating our linehaul network which increased $73 million in 2010 compared with 2009, and pick-up, delivery and dock costs which increased $98 million for the year. We incurred higher fuel costs operating our vehicle fleet, as well as higher fuel surcharge rates passed...

  • Page 49
    ... the year, primarily due to improved results in our UPS Capital business unit. Operating Expenses Year Ended December 31, 2011 2010 2009 % Change 2011 / 2010 2010 / 2009 Operating Expenses (in millions): Compensation and Benefits ...Pension and Postretirement Benefit Plans Mark-to-Market Charge...

  • Page 50
    ... primarily relates to higher maintenance costs on our office buildings and operating facilities. 2010 compared to 2009 The increase in repairs and maintenance expense in 2010 compared with 2009 was largely due to maintenance costs on our vehicle fleet, which increased by $35 million during the year...

  • Page 51
    ... quarter of 2009, as well as corporate sponsorships entered into in 2010. Purchased Transportation 2011 compared to 2010 The increase in purchased transportation in 2011 was caused by a combination of higher volume, as well as increased fuel surcharges and base rates charged to us by third-party air...

  • Page 52
    ... and customer claims for lost or damaged packages. Investment Income and Interest Expense The following table sets forth investment income and interest expense for the years ended December 31, 2011, 2010 and 2009 (in millions): Year Ended December 31, 2011 2010 2009 % Change 2011 / 2010 2010 / 2009...

  • Page 53
    ...and 2009 (in millions): Year Ended December 31, 2011 2010 2009 % Change 2011 / 2010 2010 / 2009 Income Tax Expense ...Income Tax Impact of: Pension and Postretirement Benefit Plans Mark-to-Market Charge ...Change in Tax Filing Status for German Subsidiary ...Restructuring Charge ...Gain on Sales of...

  • Page 54
    ...elective awards under our management incentive awards program, which shifted the payout of $253 million in awards from 2011 to the first quarter of 2012. The change in the cash flows for income tax receivables and payables in 2011 and 2010 was primarily related to the timing of discretionary pension...

  • Page 55
    ... recoveries. The net decline in finance receivables in the 2009 through 2011 period is primarily due to customer paydowns and loan sales activity, primarily in our commercial lending, asset-based lending and leasing portfolios. The purchases and sales of marketable securities are largely determined...

  • Page 56
    ... leases. In 2010 and 2009, we completed senior fixed rate note offerings of $2.0 billion in each year. These note offerings were used for various purposes, including discretionary contributions to UPS-sponsored pension plans, the retirement of existing debt instruments and other general corporate...

  • Page 57
    ...redemptions of our UPS Notes program and certain facilities bonds, and scheduled principal payments on our capitalized lease obligations. 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...

  • Page 58
    ... further in Note 5 to the consolidated financial statements. The pension funding requirements were estimated under the provisions of the Pension Protection Act of 2006 and the Employee Retirement Income Security Act of 1974, using discount rates, asset returns and other assumptions appropriate for...

  • Page 59
    ... requirement for cash contributions in 2012 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 60
    ...our financial condition, results of operations or liquidity. In Canada, three purported class-action cases were filed against us in British Columbia (2006); Ontario (2007) and Québec (2006). The cases each allege inadequate disclosure concerning the existence and cost of brokerage services provided...

  • Page 61
    ... 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. In July 2009, the...

  • Page 62
    ... our ground mechanics who are not employed under agreements with the Teamsters are employed under collective bargaining agreements with the IAM. Our agreement with the IAM runs through July 31, 2014. We participate in a number of trustee-managed multiemployer pension and health and welfare plans for...

  • Page 63
    ... the air fuel surcharge. These rate changes are customary and occur on an annual basis. Rate changes for shipments originating outside the U.S. are made throughout the year and vary by geographic market. New Accounting Pronouncements Recently Adopted Accounting Standards In September 2011, the...

  • Page 64
    ...of our reporting units on an annual basis. Our reporting units are comprised of the Europe, Asia, and Americas reporting units in the International Package reporting segment, and the Forwarding, Logistics, UPS Freight, MBE / The UPS Store and UPS Capital reporting units in the Supply Chain & Freight...

  • Page 65
    ...the fixed income, equity, foreign exchange and commodity markets will impact our estimates of fair value in the future, potentially affecting our results of operations. A quantitative sensitivity analysis of our exposure to changes in commodity prices, foreign currency exchange rates, interest rates...

  • Page 66
    ... for the year ended, December 31, 2011 (in millions). 25 Basis Point Increase 25 Basis Point Decrease Pension Plans Discount Rate: Effect on ongoing net periodic benefit cost ...Effect on projected benefit obligation ...Return on Assets: Effect on ongoing net periodic benefit cost ...Postretirement...

  • Page 67
    ... mix from our premium air services to our lower cost ground services. As a result of these factors, the utilization of certain aircraft fleet types had declined and was expected to be lower in the future. Based on the factors noted above, as well as FAA aging aircraft directives that would require...

  • Page 68
    ... years ended December 31, 2011, 2010 and 2009 was $147, $199 and $254 million, respectively. Item 7A. Quantitative and Qualitative Disclosures about Market Risk We are exposed to market risk from changes in certain commodity prices, foreign currency exchange rates, interest rates and equity prices...

  • Page 69
    ... swaps as part of our program to manage the fixed and floating interest rate mix of our total debt portfolio and related overall cost of borrowing. The notional amount, interest payment and maturity dates of the swaps match the terms of the associated debt. We also utilize forward starting swaps and...

  • Page 70
    ... 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, 2011 or 2010. The sensitivity in the fair value and interest income of our finance receivables due to changes in interest rates was also not...

  • Page 71
    ...11-Stock-Based Compensation ...Note 12-Segment and Geographic Information ...Note 13-Income Taxes ...Note 14-Earnings Per Share ...Note 15-Derivative Instruments and Risk Management ...Note 16-Restructuring Costs and Business Dispositions ...Note 17-Subsequent Events ...Note 18-Quarterly Information...

  • Page 72
    ... Accounting Oversight Board (United States), the consolidated balance sheet of United Parcel Service, Inc. and its subsidiaries as of December 31, 2011, and the related statements of consolidated income, comprehensive income, and cash flows for the year ended December 31, 2011 and our report dated...

  • Page 73
    ... benefit pension and other post-retirement benefit plan costs in 2011. Such changes are reflected in the accompanying consolidated balance sheets as of December 31, 2011 and 2010, and the related statements of consolidated income, comprehensive income, and cash flows for each of the three years...

  • Page 74
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions) December 31, 2011 2010 ASSETS Current Assets: Cash and cash equivalents ...Marketable securities ...Accounts receivable, net ...Deferred income tax assets ...Other current assets ...Total Current Assets ......

  • Page 75
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (In millions, except per share amounts) Years Ended December 31, 2011 2010 2009 Revenue ...Operating Expenses: Compensation and benefits ...Repairs and maintenance ...Depreciation and amortization ...Purchased ...

  • Page 76
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (In millions) Years Ended December 31, 2011 2010 2009 Cash Flows From Operating Activities: Net income ...$ 3,804 $ 3,338 $ 1,968 Adjustments to reconcile net income to net cash from operating activities: ...

  • Page 77
    ... we recognize revenue net of the cost of the purchased transportation. Financial Services-Income on loans and direct finance leases is recognized on the effective interest method. Accrual of interest income is suspended at the earlier of the time at which collection of an account becomes doubtful or...

  • Page 78
    ... 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 79
    ... factors, including macroeconomic conditions, industry and market conditions, overall financial performance of the reporting unit, changes in management, strategy or customers, and relevant reporting unit specific events such as a change in the carrying amount of net assets, a more-likely-than...

  • Page 80
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) We participate in a number of trustee-managed multiemployer pension and health and welfare plans for employees covered under collective bargaining agreements. Our contributions to these plans are ...

  • Page 81
    ... per share data): 2010 2009 2011 Recognized Under Recognized Under Previously Previously Previous Method New Method Reported Adjusted Reported Adjusted Statements of Consolidated Income: Operating Expenses: Compensation and benefits ...Operating Profit ...Income Before Income Taxes ...Income Tax...

  • Page 82
    ...operating expenses were pre-tax gains (losses) of $(1), $7 and $(45) million in 2011, 2010 and 2009, respectively. Stock-Based Compensation All share-based awards to employees are measured based on their fair values and expensed over the period during which an employee is required to provide service...

  • Page 83
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Recently Adopted Accounting Standards In September 2011, the Financial Accounting Standards Board ("FASB") issued an accounting standards update regarding disclosure of an employer's participation in ...

  • Page 84
    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, 2011 and 2010 (in millions): Cost Unrealized Gains Unrealized Losses ...

  • Page 85
    ... losses for the U.S. government and agency debt securities, mortgage and asset-backed debt securities, corporate debt securities and other debt securities primarily relate to holdings of various fixed income securities, and are primarily due to changes in market interest rates. We have both the...

  • Page 86
    ... the quarterly change in investment value recognized in investment income on the statements of consolidated income. 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...

  • Page 87
    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, 2011 and 2010, and indicates the fair value hierarchy of the valuation ...

  • Page 88
    ... 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 years ended December 31, 2011 and 2010 (in millions). Marketable Securities Other Investments...

  • Page 89
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following is a rollforward of the allowance for credit losses on finance receivables (in millions): 2011 2010 Balance at January 1 ...Provisions charged to operations ...Charge-offs, net of ...

  • Page 90
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following is an analysis of impaired finance receivables as of December 31, 2011 (in millions): Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest ...

  • Page 91
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) We continually monitor our aircraft fleet utilization in light of current and projected volume levels, aircraft fuel prices and other factors. In 2011 and 2010, there were no indicators of impairment ...

  • Page 92
    ... money purchase plans under certain collective bargaining agreements. Amounts charged to expense were $76, $78 and $80 million for 2011, 2010, and 2009, respectively. Net Periodic Benefit Cost Information about net periodic benefit cost for the company-sponsored pension and postretirement benefit...

  • Page 93
    ...measurement date, which is typically annually. An assumption for expected return on plan assets is used to determine a component of net periodic benefit cost for the fiscal year. This assumption for our U.S. plans was developed using a long-term projection of returns for each asset class, and taking...

  • Page 94
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Assumed health care cost trends can have a significant effect on the amounts reported for the U.S. postretirement medical plans. A one-percent change in assumed health care cost trend rates would have...

  • Page 95
    ...27) The accumulated benefit obligation for our pension plans as of the measurement dates in 2011 and 2010 was $23.307 and $20.241 billion, respectively. Benefit payments under the pension plans include $14 million paid from employer assets in both 2011 and 2010. Benefit payments (net of participant...

  • Page 96
    ... of net periodic benefit cost in 2012 are as follows (in millions): U.S. Pension Benefits U.S. Postretirement Medical Benefits International Pension Benefits Prior service cost / (benefit) ...Pension and Postretirement Plan Assets $173 $5 $2 The applicable benefit plan committees establish...

  • Page 97
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The fair values of U.S. pension and postretirement benefit plan assets by asset category as of December 31, 2011 are presented below (in millions), as well as the percentage that each category ...

  • Page 98
    ... stock directly held in plan assets as of December 31, 2011. Equity securities include UPS class A shares of common stock in the amount of $346 million (1.7% of total plan assets) as of December 31, 2010. Pension assets utilizing Level 1 inputs include fair values of equity investments, corporate...

  • Page 99
    ... be material. At December 31, 2011 and 2010, $3.895 and $3.766 billion of plan assets are held in commingled stock funds that hold U.S. and international public market securities. The plans held the right to liquidate positions in these commingled stock funds at any time, subject only to a brief...

  • Page 100
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The fair value disclosures above have not been provided for our international pension benefit plans since asset allocations are determined and managed at the individual country level. In general, the ...

  • Page 101
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The discussion that follows sets forth the financial impact on our results of operations and cash flows for the years ended December 31, 2011, 2010 and 2009 from our participation in multiemployer ...

  • Page 102
    ... Fund ...Teamster Pension Fund of Philadelphia and Vicinity ...Teamsters Joint Council No. 83 of Virginia Pension Fund ...Teamsters Local 639-Employers Pension Trust ...Teamsters Negotiated Pension Plan ...Truck Drivers and Helpers Local Union No. 355 Retirement Pension Plan ...United Parcel Service...

  • Page 103
    ...) UPS Contributions 2011 2010 2009 Health and Welfare Fund Bay Area Delivery Drivers ...Central Pennsylvania Teamsters Health & Pension Fund ...Central States, South East & South West Areas Health and Welfare Fund ...Delta Health Systems-East Bay Drayage Drivers ...Employer-Teamster Local Nos...

  • Page 104
    ... effects of these transactions were not material. The results of operations of these acquired companies have been included in our statements of consolidated income from the date of acquisition. Goodwill Impairment We test our goodwill for impairment annually, as of October 1st, on a reporting unit...

  • Page 105
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) We did not have any goodwill impairment charges in 2011, 2010 or 2009. Cumulatively, our Supply Chain & Freight reporting segment has recorded goodwill impairment charges of $622 million, while our ...

  • Page 106
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTE 8. DEBT AND FINANCING ARRANGEMENTS The carrying value of our debt obligations, as of December 31, consists of the following (in millions): Maturity 2011 2010 Commercial paper ...4.50% senior ...

  • Page 107
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) After pricing and underwriting discounts, we received a total of $1.989 billion in cash proceeds from the offering. The proceeds from the offering were used for general corporate purposes, including ...

  • Page 108
    ... payments due at various dates from 2012 through 3004. 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 Chain & Freight operations in the United...

  • Page 109
    ... renewal or purchase options. Rent expense related to our operating leases was $629, $615 and $622 million for 2011, 2010, and 2009, respectively. The following table sets forth the aggregate minimum lease payments under capital and operating leases, the aggregate annual principal payments due under...

  • Page 110
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) credit default swap spread, subject to a minimum rate of 0.15% and a maximum rate of 0.75%. The applicable margin for advances bearing interest based on the base rate is 1.00% below the applicable ...

  • Page 111
    ... as a class action in September 2009, the plaintiff asserts a breach of contract claim arising from UPS's assessment of shipping charge corrections when UPS determines that the "dimensional weight" of packages is greater than that reported by the shipper. On June 1, 2011, we reached an agreement in...

  • Page 112
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) brokerage services provided by us under applicable provincial consumer protection legislation and infringement of interest restriction provisions under the Criminal Code of Canada. The British ...

  • Page 113
    ... 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. In July 2009, the...

  • Page 114
    ...): Shares 2011 Dollars Shares 2010 Dollars Shares 2009 Dollars Class A Common Stock Balance at beginning of year ...Common stock purchases ...Stock award plans ...Common stock issuances ...Conversions of class A to class B common stock ...Class A shares issued at end of year ...Class B Common Stock...

  • Page 115
    ......Balance at end of year ...Unrecognized pension and postretirement benefit costs, net of tax: Balance at beginning of year ...Reclassification to earnings (net of tax effect of $378, $150 and $197) ...Net actuarial gain (loss) and prior service cost resulting from remeasurements of plan assets and...

  • Page 116
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) able to defer the gains from stock options exercised subsequent to December 31, 2004. Activity in the deferred compensation program for the years ended December 31, 2011, 2010, and 2009 is as follows ...

  • Page 117
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Compensation Program Changes Effective January 1, 2011, we modified certain components of our management compensation programs for future award grants, as follows: • We eliminated our Long-Term ...

  • Page 118
    ... 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. Executive officers and certain senior managers annually...

  • Page 119
    ...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 be purchased at quarterly intervals at 95% of the NYSE closing price of UPS class B common stock...

  • Page 120
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Employees purchased 1.3, 1.5 and 0.6 million shares at average prices of $66.86, $57.98 and $44.30 per share during 2011, 2010, and 2009, respectively. Subsequent to the modification, the plan is no ...

  • Page 121
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Segment information as of, and for the years ended, December 31 is as follows (in millions): 2011 2010 2009 Revenue: U.S. Domestic Package ...International Package ...Supply Chain & Freight ......

  • Page 122
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Geographic information as of, and for the years ended, December 31 is as follows (in millions): 2011 2010 2009 United States: Revenue ...Long-lived assets ...International: Revenue ...Long-lived ...

  • Page 123
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) A reconciliation of the statutory federal income tax rate to the effective income tax rate for the years ended December 31 consists of the following: 2011 2010 2009 Statutory U.S. federal income tax ...

  • Page 124
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Deferred tax liabilities and assets are comprised of the following at December 31 (in millions): 2011 2010 Property, plant and equipment ...Goodwill and intangible assets ...Other ...Gross deferred ...

  • Page 125
    .... We also had gross recognized tax benefits of $291, $326 and $329 million recorded as of December 31, 2011, 2010 and 2009, respectively, associated with outstanding refund claims for prior tax years. Therefore, we had a net receivable recorded with respect to prior years' income tax matters in the...

  • Page 126
    ...): 2011 2010 2009 Numerator: Net income attributable to common shareowners ...Denominator: Weighted average shares ...Deferred compensation obligations ...Vested portion of restricted shares ...Denominator for basic earnings per share ...Effect of dilutive securities: Restricted performance units...

  • Page 127
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTE 15. 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 128
    ...net investment hedge refers to the use of cross currency swaps, forward contracts or foreign currency denominated debt to hedge portions of our net investments in foreign operations. For hedges that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange...

  • Page 129
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) payments using cross-currency interest rate swaps, which effectively convert the foreign currency denominated contractual payments into U.S. Dollar denominated payments. We have designated and account...

  • Page 130
    ... well as by type of contract and whether the derivative is in an asset or liability position. Fair Value Hierarchy December 31, 2011 December 31, 2010 Level Fair Value Fair Value Asset Derivatives Balance Sheet Location Derivatives designated as hedges: Foreign exchange contracts ...Interest rate...

  • Page 131
    ... 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, 2011, 2010 and 2009. The following table indicates the amount and location in the statements of consolidated...

  • Page 132
    ... the amounts recorded in the statements of consolidated income related to fair value changes and settlements of these foreign currency forward and interest rate swap contracts not designated as hedges for the years ended December 31, 2011 and 2010 (in millions): 2011 Amount of Gain (Loss) Recognized...

  • Page 133
    ... certain costs associated with employee severance payments, other employee benefits, transition services, and leases on operating facilities and equipment. Additionally, we provided a guarantee for a period of two years from the date of sale for certain employee benefit payments being assumed...

  • Page 134
    ...these transactions increased net income by $20 million, and basic and diluted earnings per share by $0.02. Fourth quarter 2011 operating profit was impacted by a mark-to-market loss on our pension and postretirement benefit plans related to the remeasurement of plan assets and liabilities recognized...

  • Page 135
    ...consolidated statements of income, comprehensive income and cash flows for the year ended December 31, 2011, has issued an attestation report on the Company's internal control over financial reporting, which is included herein. United Parcel Service, Inc. February 27, 2012 Item 9B. Other Information...

  • Page 136
    ... (2011 - present), Senior Vice President, Worldwide Sales and Marketing (2008 - 2010), Senior Vice President and President, UPS International (2007), President, UPS Supply Chain Solutions - Asia and Europe (2006). Senior Vice President, U.S. Operations (2009 - present), Vice President, Americas...

  • Page 137
    ... Beneficial Owners and Management and Related Stockholder Matters Information about security ownership is presented under the caption "Beneficial Ownership of Common Stock" in our definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 3, 2012 and is incorporated herein...

  • Page 138
    ... the caption "Election of Directors-Director Independence" in our definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 3, 2012 and is incorporated herein by reference. Item 14. Principal Accounting Fees and Services Information about aggregate fees billed to us by our...

  • Page 139
    PART IV Item 15. Exhibits and Financial Statement Schedules (a) 1. Financial Statements. See Item 8 for the financial statements filed with this report. 2. Financial Statement Schedules. None. 3. List of Exhibits. See the Exhibit Index for a list of the exhibits incorporated by reference into or ...

  • Page 140
    ... 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 27, 2012 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 141
    Signature Title Date /S/ JOHN W. THOMPSON John W. Thompson Director February 16, 2012 /S/ CAROL B. TOMÉ Carol B. Tomé Director February 16, 2012 129

  • Page 142
    ... Parcel Service of America, Inc., United Parcel Service, Inc. and UPS Merger Subsidiary, Inc. (incorporated by reference to Form S-4 (No. 333-83349), filed on July 21, 1999, as amended). Agreement and Plan of Merger, dated as of May 15, 2005, among United Parcel Service, Inc., Overnite Corporation...

  • Page 143
    ... the 2010 Annual Report on Form 10-K). †(4) Amendment No. 4 to the UPS Savings Plan. †(5) Amendment No. 5 to the UPS Savings Plan. 10.3 - Credit Agreement (364-Day Facility) dated April 14, 2011 among United Parcel Service, Inc., the initial lenders named therein, Citigroup Global Markets Inc...

  • Page 144
    ... 10.11 to the 2010 Annual Report on Form 10-K). United Parcel Service, Inc. Nonqualified Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to the registration statement on Form S-8 (No. 333-34054), filed on April 5, 2000). Discounted Employee Stock Purchase Plan, as amended and...

  • Page 145
    ... financial information from the Annual Report on Form 10-K for the year ended December 31, 2011, 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...

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  • Page 147
    ... Services" section above. Form 10-K Our Annual Report on Form 10-K for the year ended December 31, 2011 forms part of the UPS 2011 Annual Report. If you would like an additional copy of our Form 10-K, you can access it through the Investor Relations website at investors.ups.com or at the Securities...

  • Page 148
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