Document and Entity Information
Document and Entity Information | |||
3 Months Ended
Mar. 31, 2010 | Apr. 29, 2010
Class B common stock | Apr. 29, 2010
Class A Common Stock | |
Document Type | 10-Q | ||
Amendment Flag | false | ||
Document Period End Date | 2010-03-31 | ||
Document Fiscal Year Focus | 2,010 | ||
Document Fiscal Period Focus | Q1 | ||
Trading Symbol | UPS | ||
Entity Registrant Name | UNITED PARCEL SERVICE INC | ||
Entity Central Index Key | 0001090727 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Common Stock, Shares Outstanding | 720,339,087 | 270,136,836 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS (USD $) | ||
In Millions | Mar. 31, 2010
| Dec. 31, 2009
|
Current Assets: | ||
Cash and cash equivalents | $2,544 | $1,542 |
Marketable securities | 571 | 558 |
Accounts receivable, net | 5,077 | 5,369 |
Finance receivables, net | 277 | 287 |
Deferred income tax assets | 563 | 585 |
Income tax receivable | 245 | 266 |
Other current assets | 783 | 668 |
Total Current Assets | 10,060 | 9,275 |
Property, Plant and Equipment, Net | 17,758 | 17,979 |
Goodwill | 2,070 | 2,089 |
Intangible Assets, Net | 628 | 596 |
Non-Current Finance Receivables, Net | 337 | 337 |
Other Non-Current Assets | 1,651 | 1,607 |
Total Assets | 32,504 | 31,883 |
Current Liabilities: | ||
Current maturities of long-term debt and commercial paper | 1,406 | 853 |
Accounts payable | 1,788 | 1,766 |
Accrued wages and withholdings | 1,788 | 1,416 |
Self-insurance reserves | 774 | 757 |
Income taxes accrued | 348 | 258 |
Other current liabilities | 1,262 | 1,189 |
Total Current Liabilities | 7,366 | 6,239 |
Long-Term Debt | 8,548 | 8,668 |
Pension and Postretirement Benefit Obligations | 4,954 | 5,457 |
Deferred Income Tax Liabilities | 1,494 | 1,293 |
Self-Insurance Reserves | 1,702 | 1,732 |
Other Non-Current Liabilities | 827 | 798 |
Shareowners' Equity: | ||
Additional paid-in capital | 2 | |
Retained earnings | 12,692 | 12,745 |
Accumulated other comprehensive loss | (5,155) | (5,127) |
Deferred compensation obligations | 99 | 108 |
Less: Treasury stock (2 shares in 2010 and 2009) | (99) | (108) |
Total Equity for Controlling Interests | 7,547 | 7,630 |
Total Equity for Non-Controlling Interests | 66 | 66 |
Total Shareowners' Equity | 7,613 | 7,696 |
Total Liabilities and Shareowners' Equity | 32,504 | 31,883 |
Class B common stock | ||
Shareowners' Equity: | ||
Common stock | 7 | 7 |
Class A Common Stock | ||
Shareowners' Equity: | ||
Common stock | $3 | $3 |
1_CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS (Parenthetical) | ||
Share data in Millions | Mar. 31, 2010
| Dec. 31, 2009
|
Treasury stock, shares | 2 | 2 |
Class B common stock | ||
Common stock, shares issued | 717 | 711 |
Class A Common Stock | ||
Common stock, shares issued | 275 | 285 |
STATEMENTS OF CONSOLIDATED INCO
STATEMENTS OF CONSOLIDATED INCOME (USD $) | ||
In Millions, except Per Share data | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Revenue | $11,728 | $10,938 |
Operating Expenses: | ||
Compensation and benefits | 6,539 | 6,332 |
Repairs and maintenance | 274 | 276 |
Depreciation and amortization | 451 | 430 |
Purchased transportation | 1,501 | 1,212 |
Fuel | 678 | 496 |
Other occupancy | 262 | 272 |
Other expenses | 981 | 1,202 |
Total Operating Expenses | 10,686 | 10,220 |
Operating Profit | 1,042 | 718 |
Other Income and (Expense): | ||
Investment income (loss) | (4) | 13 |
Interest expense | (85) | (82) |
Total Other Income and (Expense) | (89) | (69) |
Income Before Income Taxes | 953 | 649 |
Income Tax Expense | 420 | 248 |
Net Income | $533 | $401 |
Basic Earnings Per Share | 0.54 | 0.4 |
Diluted Earnings Per Share | 0.53 | 0.4 |
STATEMENTS OF CONSOLIDATED COMP
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Net income | $533 | $401 |
Change in foreign currency translation adjustment | (128) | (75) |
Change in unrealized gain (loss) on marketable securities, net of tax | 19 | (3) |
Change in unrealized gain (loss) on cash flow hedges, net of tax | 39 | 42 |
Change in unrecognized pension and postretirement benefit costs, net of tax | 42 | 39 |
Comprehensive income | $505 | $404 |
STATEMENTS OF CONSOLIDATED CASH
STATEMENTS OF CONSOLIDATED CASH FLOWS (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Cash Flows From Operating Activities: | ||
Net income | $533 | $401 |
Adjustments to reconcile net income to net cash from operating activities: | ||
Depreciation and amortization | 451 | 430 |
Pension and postretirement benefit expense | 224 | 218 |
Pension and postretirement benefit contributions | (656) | (24) |
Self-insurance reserves | (13) | (72) |
Deferred taxes, credits and other | 139 | (73) |
Stock compensation expense | 100 | 105 |
Asset impairment charges | 181 | |
Other (gains) losses | 97 | (69) |
Changes in assets and liabilities, net of effect of acquisitions: | ||
Accounts receivable | 177 | 750 |
Other current assets | (20) | 118 |
Accounts payable | 48 | (114) |
Accrued wages and withholdings | 379 | 178 |
Other current liabilities | 89 | 126 |
Other operating activities | 1 | 41 |
Net cash from operating activities | 1,549 | 2,196 |
Cash Flows From Investing Activities: | ||
Capital expenditures | (283) | (382) |
Proceeds from disposals of property, plant and equipment | 20 | 6 |
Purchases of marketable securities and short-term investments | (310) | (865) |
Sales and maturities of marketable securities and short-term investments | 334 | 763 |
Net (increase) decrease in finance receivables | 60 | |
Other investing activities | (11) | 22 |
Net cash (used in) investing activities | (250) | (396) |
Cash Flows From Financing Activities: | ||
Net change in short-term debt | 628 | (434) |
Proceeds from long-term borrowings | 52 | 3,016 |
Repayments of long-term borrowings | (206) | (346) |
Purchases of common stock | (278) | (116) |
Issuances of common stock | 45 | 31 |
Dividends | (456) | (438) |
Other financing activities | (42) | (256) |
Net cash provided by (used in) financing activities | (257) | 1,457 |
Effect Of Exchange Rate Changes On Cash And Cash Equivalents | (40) | (26) |
Net Increase (Decrease) In Cash And Cash Equivalents | 1,002 | 3,231 |
Cash And Cash Equivalents: | ||
Beginning of period | 1,542 | 507 |
End of period | $2,544 | $3,738 |
BASIS OF PRESENTATION
BASIS OF PRESENTATION | |
3 Months Ended
Mar. 31, 2010 | |
BASIS OF PRESENTATION | NOTE 1. BASIS OF PRESENTATION Principles of Consolidation In our opinion, the accompanying interim, unaudited, consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. These consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly our financial position as of March31, 2010, our results of operations for the three months ended March31, 2010 and 2009, and cash flows for the three months ended March31, 2010 and 2009. The results reported in these consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December31, 2009. For interim consolidated financial statement purposes, we provide for accruals under our various employee benefit plans and self-insurance reserves for each three month period based on one quarter of the estimated annual expense. Certain prior period amounts have been reclassified to conform to the current period presentation. Fair Value of Financial Instruments The carrying amount of our cash and cash equivalents, accounts receivable, finance receivables, and accounts payable approximate fair values as of March 31, 2010. The fair value of our investment securities is disclosed in Note4, our short and long-term debt in Note 8, and our derivative instruments in Note 13. Accounting Estimates The preparation of the accompanying interim, unaudited, consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Estimates have been prepared on the basis of the most current and best information and actual results could differ materially from those estimates. |
RECENT ACCOUNTING PRONOUNCEMENT
RECENT ACCOUNTING PRONOUNCEMENTS | |
3 Months Ended
Mar. 31, 2010 | |
RECENT ACCOUNTING PRONOUNCEMENTS | NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS Adoption of New Accounting Standards There were no accounting standards adopted during the three months ended March31, 2010 that had a material impact on our consolidated financial statements. Standards Issued But Not Yet Effective Other new pronouncements issued but not effective until after March31, 2010, are not expected to have a significant effect on our consolidated financial position or results of operations. |
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION | |
3 Months Ended
Mar. 31, 2010 | |
STOCK-BASED COMPENSATION | NOTE 3. STOCK-BASED COMPENSATION We issue employee share-based awards under the UPS Incentive Compensation Plan, which permits the grant of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, performance shares, performance units, and management incentive awards to eligible employees. The primary compensation programs offered under the UPS Incentive Compensation Plan include the UPS Management Incentive Awards Program, the UPS Long-Term Incentive Program and the UPS Long-Term Incentive Performance Award program. We also maintain an employee stock purchase plan which allows eligible employees to purchase shares of UPS class A common stock at a discount. During the first quarter of 2010, we granted target restricted stock units (RSUs) under the UPS Long-Term Incentive Performance Award program to eligible management. Of the total 2010 target award, 90% of the target award will be divided into three substantially equal tranches, one for each calendar year in the three-year award cycle from 2010 to 2012, using performance criteria targets established each year. For 2010, those targets consist of consolidated operating return on invested capital and growth in consolidated revenue. The remaining 10% of the total 2010 target award will be based upon our achievement of adjusted earnings per share for the three-year award cycle compared to a target established at the beginning of the award cycle. The number of RSUs earned each year will be the target number adjusted for the percentage achievement of performance criteria targets for the year. The percentage of achievement used to determine the RSUs earned may be a percentage less than or more than 100% of the target RSUs for each tranche. Based on the date that the eligible management population and performance targets were approved for the 2010 performance tranches, we determined the award measurement date to be March18, 2010, and therefore the target RSU grant was valued for stock compensation expense purposes using the closing New York Stock Exchange price of $64.42 on that date. Awards granted under the UPS Long-Term Incentive program are normally granted during the second quarter of each year, and awards granted under the Management Incentive Awards program are normally granted during the fourth quarter of each year. Compensation expense for share-based awards recognized in net income for the three months ended March31, 2010 and 2009 was $102 and $105 million pre-tax, respectively. |
CASH AND INVESTMENTS
CASH AND INVESTMENTS | |
3 Months Ended
Mar. 31, 2010 | |
CASH AND INVESTMENTS | NOTE 4. CASH AND INVESTMENTS The following is a summary of marketable securities classified as available-for-sale as of March31, 2010 and December31, 2009 (in millions): Cost Unrealized Gains Unrealized Losses Estimated FairValue March31, 2010 Current marketable securities: U.S. government and agency debt securities $ 148 $ 1 $ (2 ) $ 147 Mortgage and asset-backed debt securities 164 3 (1 ) 166 Corporate debt securities 196 6 202 U.S. state and local municipal debt securities 22 22 Other debt and equity securities 27 7 34 Current marketable securities 557 17 (3 ) 571 Non-current marketable securities: Asset-backed debt securities 127 (18 ) 109 U.S. state and local municipal debt securities 107 (22 ) 85 Common equity securities 20 11 31 Preferred equity securities 16 2 (1 ) 17 Non-current marketable securities 270 13 (41 ) 242 Total marketable securities $ 827 $ 30 $ (44 ) $ 813 Cost Unrealized Gains Unrealized Losses Estimated FairValue December31, 2009 Current marketable securities: U.S. government and agency debt securities $ 126 $ $ (1 ) $ 125 Mortgage and asset-backed debt securities 158 2 (1 ) 159 Corporate debt securities 213 6 219 U.S. state and local municipal debt securities 22 22 Other debt and equity securities 28 5 33 Current marketable securities 547 13 (2 ) 558 Non-current marketable securities: Asset-backed debt securities 150 (38 ) 112 U.S. state and local municipal debt securities 115 (26 ) 89 Common equity securities 21 10 31 Preferred equity securities 16 (1 ) 15 Non-current marketable securities 302 10 (65 ) 247 Total marketable securities $ 849 $ 23 $ (67 ) $ 805 Auction Rate Securities At March31, 2010, we held $250 million in principal value of investments in auction rate securities. Some of these investments take the form of debt securities, and are structured as direct obligations of local governments or agencies (classified as U.S. state and local municipal securities). Other auction rate security investments are structured as obligations of asset-backed trusts (classified as Asset-backed debt securities), generally all of which are collateralized by student loans and are guaranteed by the U.S. Government or through private insurance. The remaining auction rate securities take the form of preferred sto |
PROPERTY, PLANT AND EQUIPMENT
PROPERTY, PLANT AND EQUIPMENT | |
3 Months Ended
Mar. 31, 2010 | |
PROPERTY, PLANT AND EQUIPMENT | NOTE 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment as of March31, 2010 and December31, 2009 consists of the following (in millions): 2010 2009 Vehicles $ 5,421 $ 5,480 Aircraft (including aircraft under capitalized leases) 13,928 13,777 Land 1,073 1,079 Buildings 3,065 3,076 Building and leasehold improvements 2,800 2,800 Plant equipment 6,359 6,371 Technology equipment 1,567 1,591 Equipment under operating leases 142 145 Construction-in-progress 453 488 34,808 34,807 Less: Accumulated depreciation and amortization (17,050 ) (16,828 ) $ 17,758 $ 17,979 We continually monitor our aircraft fleet utilization in light of current and projected volume levels, aircraft fuel prices, and other factors. In 2008, we had announced that we were in negotiations with DHL to provide air transportation services for all of DHLs express, deferred and international package volume within the United States, as well as air transportation services between the United States, Canada and Mexico. In early April 2009, UPS and DHL mutually agreed to terminate further discussions on providing these services. Additionally, our U.S. Domestic Package air delivery volume had declined for several quarters as a result of persistent economic weakness and shifts in product 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 significant future maintenance expenditures, we determined that a triggering event had occurred that required an impairment assessment of our McDonnell-Douglas DC-8-71 and DC-8-73 aircraft fleets. We conducted an impairment analysis as of March31, 2009, and determined that the carrying amount of these fleets was not recoverable due to the accelerated expected retirement dates of the aircraft. Based on anticipated residual values for the airframes, engines, and parts, we recognized an impairment charge of $181 million in the first quarter of 2009. This charge is included in the caption Other expenses in the Statement of Consolidated Income, and impacted our U.S. Domestic Package segment. The DC-8 fleets were subsequently retired from service. We currently continue to utilize and operate all of our other aircraft fleets. The impaired airframes, engines, and parts had a net carrying value of $192 million, and were written down to an aggregate fair value of $11 million. The fair values for the impaired airframes, engines, and parts were determined using unobservable inputs (Level 3). |
EMPLOYEE BENEFIT PLANS
EMPLOYEE BENEFIT PLANS | |
3 Months Ended
Mar. 31, 2010 | |
EMPLOYEE BENEFIT PLANS | NOTE 6. EMPLOYEE BENEFIT PLANS Information about net periodic benefit cost for our pension and postretirement benefit plans is as follows for the three month period ended March31, 2010 and 2009 (in millions): U.S.PensionBenefits U.S.Postretirement Medical Benefits International PensionBenefits 2010 2009 2010 2009 2010 2009 Net Periodic Cost: Service cost $ 181 $ 172 $ 22 $ 21 $ 6 $ 5 Interest cost 300 283 53 53 8 7 Expected return on assets (400 ) (372 ) (5 ) (7 ) (9 ) (6 ) Amortization of: Transition obligation 1 Prior service cost 43 45 1 2 Actuarial (gain) loss 19 11 4 3 1 Settlements / curtailments Net periodic benefit cost $ 143 $ 140 $ 75 $ 72 $ 6 $ 6 During the first three months of 2010, we contributed $633 and $23 million to our company-sponsored pension and postretirement medical benefit plans, respectively. We expect to contribute $405 and $66 million over the remainder of the year to the pension and postretirement medical benefit plans, respectively. |
GOODWILL AND INTANGIBLE ASSETS
GOODWILL AND INTANGIBLE ASSETS | |
3 Months Ended
Mar. 31, 2010 | |
GOODWILL AND INTANGIBLE ASSETS | NOTE 7. GOODWILL AND INTANGIBLE ASSETS The following table indicates the allocation of goodwill by reportable segment as of March31, 2010 and December31, 2009 (in millions): U.S.Domestic Package International Package SupplyChain Freight Consolidated December31, 2009 balance $ $ 374 $ 1,715 $ 2,089 Acquired Currency / Other (10 ) (9 ) (19 ) March31, 2010 balance $ 364 $ 1,706 $ 2,070 The decrease in goodwill in the International Package and Supply Chain Freight segments was due to the impact of the strengthening U.S.Dollar on the translation of non-U.S.Dollar goodwill balances. The following is a summary of intangible assets as of March31, 2010 and December31, 2009 (in millions): GrossCarrying Amount Accumulated Amortization NetCarrying Value March31, 2010: Trademarks, licenses, patents, and other $ 187 $ (18 ) $ 169 Customer lists 107 (55 ) 52 Franchise rights 109 (48 ) 61 Capitalized software 1,843 (1,497 ) 346 Total Intangible Assets, Net $ 2,246 $ (1,618 ) $ 628 December31, 2009: Trademarks, licenses, patents, and other $ 132 $ (9 ) $ 123 Customer lists 107 (52 ) 55 Franchise rights 109 (46 ) 63 Capitalized software 1,812 (1,457 ) 355 Total Intangible Assets, Net $ 2,160 $ (1,564 ) $ 596 |
DEBT AND FINANCING ARRANGEMENTS
DEBT AND FINANCING ARRANGEMENTS | |
3 Months Ended
Mar. 31, 2010 | |
DEBT AND FINANCING ARRANGEMENTS | NOTE 8. DEBT AND FINANCING ARRANGEMENTS The carrying value of our outstanding debt as of March31, 2010 and December31, 2009 consists of the following (in millions): Maturity 2010 2009 Commercial paper 2010 $ 1,276 $ 672 4.50% senior notes 2013 1,783 1,773 3.875% senior notes 2014 1,044 1,023 5.50% senior notes 2018 762 758 5.125% senior notes 2019 998 991 6.20% senior notes 2038 1,480 1,480 8.375% debentures 2020-2030 739 739 Floating rate senior notes 2049-2053 397 409 Facility notes and bonds 2015-2036 320 320 PoundSterling notes 2031-2050 736 791 Capital lease obligations 2010-2021 343 369 UPS Notes 2010-2021 55 175 Other debt 2010-2012 21 21 Total debt 9,954 9,521 Less current maturities (1,406 ) (853 ) Long-term debt $ 8,548 $ 8,668 Sources of Credit We are authorized to borrow up to $10.0 billion under the U.S. commercial paper program we maintain. We had $1.276 billion outstanding under this program as of March31, 2010, with an average interest rate of 0.12%. As of March31, 2010, we have classified the entire commercial paper balance as a current liability in our consolidated balance sheet. We also maintain a European commercial paper program under which we are authorized to borrow up to 1.0 billion in a variety of currencies, however there were no amounts outstanding under this program as of March31, 2010. We maintain two credit agreements with a consortium of banks. One of these agreements provides revolving credit facilities of $1.5 billion, and expires on April14, 2011. Interest on any amounts we borrow under this facility would be charged at 90-day LIBOR plus a percentage determined by quotations from Markit Group Ltd. for our 1-year credit default swap spread, subject to certain minimum rates and maximum rates based on our public debt ratings from Standard Poors and Moodys. If our public debt ratings are A / A2 or above, the minimum applicable margin is 0.50% and the maximum applicable margin is 1.50%; if our public debt ratings are lower than A / A2, the minimum applicable margin is 1.00% and the maximum applicable margin is 2.50%. The second agreement provides revolving credit facilities of $1.0 billion, and expires on April19, 2012. Interest on any amounts we borrow under this facility would be charged at 90-day LIBOR plus 15 basis points. At March31, 2010, there were no outstanding borrowings under either of these facilities. In addition to these credit facilities, we have an automatically effective registration statement on Form S-3 filed with the SEC that is available for registered offerings of short or long-term debt securities. 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 redeem the notes at any time by pa |
LEGAL PROCEEDINGS AND CONTINGEN
LEGAL PROCEEDINGS AND CONTINGENCIES | |
3 Months Ended
Mar. 31, 2010 | |
LEGAL PROCEEDINGS AND CONTINGENCIES | NOTE 9. LEGAL PROCEEDINGS AND CONTINGENCIES We are a defendant in a number of lawsuits filed in state and federal courts containing various class-action allegations under state wage-and-hour laws. In one of these cases, Marlo v. UPS, which was certified as a class action in a California federal court in September 2004, plaintiffs allege that they improperly were denied overtime, and seek penalties for missed meal and rest periods, and interest and attorneys fees. Plaintiffs purport to represent a class of 1,300 full-time supervisors. In August 2005, the court granted summary judgment in favor of UPS on all claims, and plaintiffs appealed the ruling. In October 2007, the appeals court reversed the lower courts ruling. In April 2008, the Court decertified the class and vacated the trial scheduled for that month. After decertification, some plaintiffs filed individual lawsuits raising the same allegations as in the underlying class action. These individual lawsuits are in various stages. We have denied any liability with respect to these claims and intend to vigorously defend ourselves in these cases. At this time, we have not determined the amount of any liability that may result from these matters or whether such liability, if any, would have a material adverse effect on our financial condition, results of operations, or liquidity. In another case, Hohider v. UPS, which in July 2007 was certified as a class action in a Pennsylvania federal court, plaintiffs have challenged certain aspects of the Companys interactive process for assessing requests for reasonable accommodation under the Americans with Disabilities Act. Plaintiffs purport to represent a class of over 35,000 current and former employees, and seek back-pay, and compensatory and punitive damages, as well as attorneys fees. In August 2007, the Third Circuit Court of Appeals granted our petition to hear the appeal of the trial courts certification order. In July 2009, the Third Circuit issued its decision decertifying the class and remanding the case to the trial court for further proceedings. We have denied any liability with respect to these claims and intend to vigorously defend ourselves in this case. At this time, we have not determined the amount of any liability that may result from this matter or whether such liability, if any, would have a material adverse effect on our financial condition, results of operations, or liquidity. UPS and our subsidiary Mail Boxes Etc., Inc. are defendants in various lawsuits brought by franchisees who operate Mail Boxes Etc. centers and The UPS Store locations. These lawsuits relate to the rebranding of Mail Boxes Etc. centers to The UPS Store, The UPS Store business model, the representations made in connection with the rebranding and the sale of The UPS Store franchises, and UPSs sale of services in the franchisees territories. In one of the actions, which is pending in California state court, the court certified a class consisting of all Mail Boxes Etc. branded stores that rebranded to The UPS Store in March 2003. We have denied any liability with respect to these claims and intend to defend ourselves vigorously. At this time, we h |
SHAREOWNERS' EQUITY
SHAREOWNERS' EQUITY | |
3 Months Ended
Mar. 31, 2010 | |
SHAREOWNERS' EQUITY | NOTE 10. SHAREOWNERS EQUITY Capital Stock, Additional Paid-In Capital, and Retained Earnings We maintain two classes of common stock, which are distinguished from each other primarily by their respective voting rights. ClassA shares are entitled to 10 votes per share, whereas Class B shares are entitled to one vote per share. ClassA shares are primarily held by UPS employees and retirees, and these shares are fully convertible into Class B shares at any time. Class B shares are publicly traded on the New York Stock Exchange (NYSE) under the symbol UPS. ClassA and B shares both have a $0.01 par value, and as of March31, 2010, there were 4.6 billion ClassA shares and 5.6 billion Class B shares authorized to be issued. Additionally, there are 200million preferred shares, with a $0.01 par value, authorized to be issued; as of March31, 2010, no preferred shares had been issued. The following is a roll-forward of our common stock, additional paid-in capital, and retained earnings accounts for the three months ended March31, 2010 and 2009 (in millions, except per share amounts): 2010 2009 Shares Dollars Shares Dollars ClassA Common Stock Balance at beginning of period 285 $ 3 314 $ 3 Common stock purchases (1 ) (3 ) Stock award plans 1 Common stock issuances 1 1 Conversions of ClassA to Class B common stock (10 ) (10 ) ClassA shares issued at end of period 275 $ 3 303 $ 3 Class B Common Stock Balance at beginning of period 711 $ 7 684 $ 7 Common stock purchases (4 ) Conversions of ClassA to Class B common stock 10 10 Class B shares issued at end of period 717 $ 7 694 $ 7 Additional Paid-In Capital Balance at beginning of period $ 2 $ Stock award plans 95 111 Common stock purchases (145 ) (113 ) Common stock issuances 48 48 Balance at end of period $ $ 46 Retained Earnings Balance at beginning of period $ 12,745 $ 12,412 Net income 533 401 Dividends ($0.47 and $0.45 per share) (469 ) (450 ) Common stock purchases (117 ) Balance at end of period $ 12,692 $ 12,363 We currently intend to repurchase shares in 2010 at a rate that will at least offset the dilution from our stock compensation programs. We repurchased a total of 4.5million shares of ClassA and Class B common stock for $262 million during the three months ended March31, 2010, and 2.5million shares for $113 million for the three months ended March31, 2009. As of March31, 2010, we had $5.741 billion |
SEGMENT INFORMATION
SEGMENT INFORMATION | |
3 Months Ended
Mar. 31, 2010 | |
SEGMENT INFORMATION | NOTE 11. SEGMENT INFORMATION We report our operations in three segments: U.S. Domestic Package operations, International Package operations, and Supply Chain Freight operations. Package operations represent our most significant business and are broken down into regional operations around the world. Regional operations managers are responsible for both domestic and export operations within their geographic area. U.S. Domestic Package Domestic Package operations include the time-definite delivery of letters, documents, and packages throughout the United States. International Package International Package operations include delivery to more than 200 countries and territories worldwide, including shipments wholly outside the United States, as well as shipments with either origin or distribution outside the United States. Our International Package reporting segment includes the operations of our Europe, Asia, and Americas operating segments. Supply Chain Freight Supply Chain Freight includes our forwarding and logistics operations, UPS Freight, and other aggregated business units. Our forwarding and logistics business provides services in more than 175 countries and territories worldwide, and includes supply chain design and management, freight distribution, customs brokerage, mail and consulting services. UPS Freight offers a variety of less-than-truckload (LTL) and truckload (TL) services to customers in North America. Other aggregated business units within this segment include Mail Boxes, Etc. (the franchisor of Mail Boxes, Etc. and The UPS Store) and UPS Capital. In evaluating financial performance, we focus on operating profit as a segments measure of profit or loss. Operating profit is before investment income, interest expense, and income taxes. The accounting policies of the reportable segments are the same as those described in the summary of accounting policies included in the financial statements in our Annual Report on Form 10-K for the year ended December31, 2009, with certain expenses allocated between the segments using activity-based costing methods. Unallocated assets are comprised primarily of cash, marketable securities, short-term investments, and investments in limited partnerships. Segment information for the three months ended March31, 2010 and 2009 is as follows (in millions): 2010 2009 Revenue: U.S. Domestic Package $ 7,102 $ 6,949 International Package 2,639 2,240 Supply Chain Freight 1,987 1,749 Consolidated $ 11,728 $ 10,938 Operating Profit: U.S. Domestic Package $ 562 $ 384 International Package 427 294 Supply Chain Freight 53 40 Consolidated $ 1,042 $ 718 As discussed in Note 5, the U.S. Domestic Package segment operating profit was adversely impacted by a $181 million impairment charge in the first quarter of 2009, related to our McDonnell-Douglas DC-8-71 and DC-8-73 airframes, engines, and related parts. As discussed in Note 14, the U.S. Domestic Package segment operating profit was adversely imp |
EARNINGS PER SHARE
EARNINGS PER SHARE | |
3 Months Ended
Mar. 31, 2010 | |
EARNINGS PER SHARE | NOTE 12. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share for the three months ended March31, 2010 and 2009 (in millions, except per share amounts): 2010 2009 Numerator: Net income $ 533 $ 401 Denominator: Weighted average shares 992 995 Deferred compensation obligations 2 2 Vested portion of restricted shares 1 Denominator for basic earnings per share 995 997 Effect of dilutive securities: Restricted performance units 3 3 Restricted stock units 6 3 Stock options Denominator for diluted earnings per share 1,004 1,003 Basic earnings per share $ 0.54 $ 0.40 Diluted earnings per share $ 0.53 $ 0.40 Diluted earnings per share for the three months ended March31, 2010 and 2009 exclude the effect of 14.9 and 18.1million shares of common stock, respectively, that may be issued upon the exercise of employee stock options because such effect would be antidilutive. |
DERIVATIVE INSTRUMENTS AND RISK
DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT | |
3 Months Ended
Mar. 31, 2010 | |
DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT | NOTE 13. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT Risk Management Policies We are exposed to market risk, primarily related to foreign exchange rates, commodity prices, equity prices, and interest rates. These exposures are actively monitored by management. To manage the volatility relating to certain of these exposures, we enter into a variety of derivative financial instruments. Our objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in foreign currency rates, commodity prices, equity prices, and interest rates. It is our policy and practice to use derivative financial instruments only to the extent necessary to manage exposures. As we use price sensitive instruments to hedge a certain portion of our existing and anticipated transactions, we expect that any loss in value for those instruments generally would be offset by increases in the value of those hedged transactions. We do not hold or issue derivative financial instruments for trading or speculative purposes. Credit Risk Management The forward contracts, swaps, and options discussed below contain an element of risk that the counterparties may be unable to meet the terms of the agreements. However, we minimize such risk exposures for these instruments by limiting the counterparties to banks and financial institutions that meet established credit guidelines, and monitoring counterparty credit risk to prevent concentrations of credit risk with any single counterparty. Additionally, the majority of our master agreements for derivatives provide for the early termination of any derivative transactions in the event that either the bank counterparty or UPS receives a credit rating below BBB by Standard Poors or Baa2 by Moodys, or ceases to be rated by either firm. We do not have any credit-risk triggers in our outstanding master agreements that require UPS or the bank counterparties to post collateral. We have not historically incurred, and do not expect to incur in the future, any losses as a result of counterparty default. Accounting Policy for Derivative Instruments We recognize all derivative instruments as assets or liabilities in the balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the derivative, based upon the exposure being hedged, as a cash flow hedge, a fair value hedge, or a hedge of a net investment in a foreign operation. A cash flow hedge refers to hedging the exposure to variability in expected future cash flows that is attributable to a particular risk. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of AOCI, and reclassified into earnings in the same period during which the hedged transaction affects earnings. The remaining gain or loss on the d |
RESTRUCTURING COSTS AND RELATED
RESTRUCTURING COSTS AND RELATED EXPENSES | |
3 Months Ended
Mar. 31, 2010 | |
RESTRUCTURING COSTS AND RELATED EXPENSES | NOTE 14. RESTRUCTURING COSTS AND RELATED EXPENSES In the first quarter of 2010, we incurred restructuring costs associated with the termination of employees, facility consolidations and other costs directly related to restructuring initiatives. These initiatives have resulted from the integration of acquired companies, as well as restructuring activities associated with cost containment and operational efficiency programs. Supply Chain FreightGermany In February 2010, we completed the sale of a specialized transportation and express freight business in Germany within our Supply Chain Freight segment. As part of the sale transaction, we incurred certain costs associated with employee severance payments, other employee benefits, transition services, and leases on operating facilities and equipment. Additionally, we have provided a guarantee for a period of two years for certain employee benefit payments being assumed by the buyer. We recorded a pre-tax loss of $38 million ($35 million after-tax) for this transaction in the first quarter of 2010, which included the costs associated with the sale transaction and the fair value of the guarantee. U.S. Domestic Package Restructuring In an effort to improve performance in the U.S. Domestic Package segment, we announced a program to streamline our domestic management structure in January 2010. As part of this restructuring, we are reducing the number of domestic districts and regions in our U.S. small package operation, in order to better align our operations geographically and allow more local decision-making and resources to be deployed for our customers. Effective in April 2010, we reduced our U.S. regions from five to three and our U.S. districts from 46 to 20. The restructuring will eliminate approximately 1,800 management and administrative positions in the U.S. To facilitate this goal, approximately 1,100 employees were offered voluntary severance packages. Other impacted employees received severance benefits and access to support programs based on length of service. We recorded a pre-tax charge of $98 million ($64 million after-tax) in the first quarter of 2010 related to the costs of this program, which reflects the value of voluntary retirement benefits, severance benefits and unvested stock compensation. Throughout the remainder of 2010, we will incur additional costs related to relocation of employees and other restructuring activities, however we believe those costs will be approximately offset by savings from the staffing reductions. |
INCOME TAXES
INCOME TAXES | |
3 Months Ended
Mar. 31, 2010 | |
INCOME TAXES | NOTE 15. INCOME TAXES In the first quarter of 2010, we changed the tax status of a German subsidiary that was taxable in the U.S. and its local jurisdiction to one that is taxed solely in its local jurisdiction. This change was made primarily to allow for more flexibility in funding this subsidiarys operations with local liquidity sources, improve the cash flow position in the U.S., and help mitigate future currency re-measurement risk. As a result of this change in tax status, we recorded a non-cash charge of $76 million, which resulted primarily from the write-off of related deferred tax assets which will not be realizable following the change in tax status. We file income tax returns in the U.S. federal jurisdiction, most U.S. state and local jurisdictions, and many non-U.S. jurisdictions. We have substantially resolved all U.S. federal income tax matters for tax years prior to 2003. During the third quarter of 2009, we received a refund of $271 million as a result of the resolution of tax years 1999 through 2002 with the Internal Revenue Service (IRS) Appeals Office. For the tax years 2003 through 2004, we anticipate concluding the limited number of unagreed issues with the IRS Appeals Office by the end of the second quarter of 2010. Along with the audit for tax years 2005 through 2007, the IRS is currently examining non-income based taxes, including employment and excise taxes, which could lead to proposed assessments. The IRS has not presented an official position with regard to these taxes at this time, and therefore we are not able to determine the technical merit of any potential assessment. We anticipate receipt of the IRS reports on these matters by the end of the second quarter of 2010. 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 1999 through 2002. A limited number of U.S. state and local matters are the subject of ongoing audits, administrative appeals or litigation. |