UPS 2012 Annual Report Download - page 27

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Severe weather or other natural or manmade disasters could adversely affect our business.
Severe weather conditions and other natural or manmade disasters, including storms, floods, fires and earthquakes, may
result in decreased revenues, as our customers reduce their shipments, or increased costs to operate our business, which could
have an adverse effect on our results of operations for a quarter or year. Any such event affecting one of our major facilities
could result in a significant interruption in or disruption of our business.
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 a weak 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 impairments of our intangible,
fixed 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 399,000 employees, including approximately 323,000 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 and the decreasing trend of discount rates in which we use to value our
pension liabilities. 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 multiemployer 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.