10-KPeriod: FY2006

UNITED PARCEL SERVICE INC Annual Report, Year Ended Dec 31, 2006

Filed March 1, 2007For Securities:UPS

Summary

In 2006, United Parcel Service, Inc. (UPS) demonstrated robust growth, driven by strong performance across its U.S. Domestic Package and International Package segments. Total revenue increased by 11.7% to $47.5 billion. The company expanded its global reach and invested significantly in technology and infrastructure, including a major expansion of its Worldport facility in Louisville, KY, aimed at increasing sorting capacity and accommodating larger aircraft. UPS Freight, acquired in 2005, showed significant revenue growth but faced integration challenges impacting its operating profit. The company's competitive strengths, including its extensive global network, technological innovation, and diverse service portfolio, continue to support its growth strategy. UPS also emphasized its commitment to its "employee-owner" culture and financial strength, with a strong balance sheet and credit ratings. Key priorities for the upcoming year include continued international expansion, particularly in Asia, and further development of its comprehensive supply chain solutions to meet evolving customer needs.

Key Highlights

  • 1Total revenue grew by 11.7% to $47.5 billion in 2006, indicating strong market demand.
  • 2U.S. Domestic Package revenue increased by 6.5% and International Package revenue by 13.9%, showcasing growth in core businesses.
  • 3Significant capital expenditures of $3.1 billion were directed towards buildings, facilities, aircraft, vehicles, and IT, reflecting investment in future growth and operational efficiency.
  • 4The acquisition of Overnite Corp. (now UPS Freight) in August 2005 led to substantial revenue growth in the Supply Chain & Freight segment, though integration challenges impacted operating profit.
  • 5UPS continued its international expansion, with notable investments in Asia (China and India) and Europe, supported by expanded air hubs and increased flight frequencies.
  • 6The company is enhancing its technological capabilities, with nearly 74% of drivers using new re-engineered package pickup and delivery technology by the end of 2006.
  • 7UPS maintained a strong financial position with $1.983 billion in cash, cash equivalents, marketable securities, and short-term investments, and $15.482 billion in shareholder equity, supported by high credit ratings.

Frequently Asked Questions

UPS's revenue growth in 2006 was primarily driven by a solid U.S. economy and continued expansion in international markets. Specifically, the U.S. Domestic Package segment saw a 6.5% revenue increase, while the International Package segment experienced a 13.9% growth. The acquisition of Overnite Corp. (now UPS Freight) also significantly boosted revenue in the Supply Chain & Freight segment.

UPS invested heavily in its future by spending $3.1 billion on capital expenditures in 2006. These investments were allocated to upgrading buildings and facilities, expanding its aircraft fleet and parts, modernizing its vehicle fleet, and enhancing its information technology capabilities. A major initiative was the expansion of its Worldport air hub in Louisville, KY, to increase sorting capacity.

The report highlights several key risks, including the impact of general economic conditions, intense competition from postal services and other carriers, evolving government regulations, the potential for labor disruptions (strikes or work stoppages), and volatility in fuel prices. The integration of acquired businesses, like UPS Freight, also presents operational challenges.

UPS emphasizes its "employee-owner" concept, fostering dedication through stock ownership programs and a "promotion from within" policy. The company invests in extensive training and safety programs for its drivers and highlights its commitment to workforce diversity, receiving recognition as an employer of choice.