UPS 2004 Annual Report Download - page 66

64 UPS Annual Report 2004
Notes to consolidated financial statements
Restricted Performance Units
Beginning in 2003, we issued restricted performance units under
the Incentive Compensation Plan. Upon vesting, restricted per-
formance units result in the issuance of the equivalent number of
UPS Class A common shares after required tax withholdings.
Persons earning the right to receive restricted performance units
are determined each year by the Compensation Committee of
the UPS Board of Directors. Except in the case of death, disabil-
ity, or retirement, restricted performance units vest five years
after the date of grant. All restricted performance units granted
are subject to earlier cancellation or vesting under certain condi-
tions. Dividends earned on restricted performance units are
reinvested in additional restricted performance units at each divi-
dend payable date. During 2004 and 2003, the Company issued
1.083 and 1.164 million restricted performance units with a
weighted average fair value of $70.70 and $62.40, respectively.
As of December 31, 2004, we had the following restricted
performance units outstanding:
Units Outstanding Remaining Vesting Avg. Fair Value
Year of Award (in thousands) Period (in years) at Grant Date
2003 1,140 3.33 $ 62.40
2004 1,074 4.33 70.70
2,214 3.82 $ 66.43
Discounted Employee Stock Purchase Plan
We maintain an employee stock purchase plan for all eligible
employees. Under the plan, shares of UPS Class A common stock
may be purchased at quarterly intervals at 90% of the lower of
the NYSE closing price on the first or the last day of each quar-
terly period. Employees purchased 1.8, 1.9, and 1.8 million
shares at average prices of $62.75, $54.08, and $50.79 per share
during 2004, 2003, and 2002, respectively.
Deferred Compensation Obligations
We maintain a deferred compensation plan whereby certain
employees may elect to defer the gains on stock option exercises
by deferring the shares received upon exercise into a rabbi trust.
The shares held in this trust are classified as treasury stock, and
the liability to participating employees is classified as “Deferred
compensation obligations” in the shareowners’ equity section
of the balance sheet. The amount of shares needed to settle
the liability for deferred compensation obligations is included
in the denominator in both the basic and diluted earnings per
share calculations.
NOTE 12. SEGMENT AND GEOGRAPHIC INFORMATION
We report our operations in three segments: U.S. domestic
package operations, international package operations, and non-
package operations. Package operations represent our most
significant business and are broken down into regional opera-
tions 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-Pacific, Canada, and Americas operating segments.
Non-Package
Non-package operations include UPS Supply Chain Solutions,
Mail Boxes Etc. (the franchisor of Mail Boxes Etc. and The UPS
Store), UPS Capital, our mail and consulting services, and our
excess value package insurance business. UPS Supply Chain
Solutions, which comprises our former UPS Freight Services and
UPS Logistics Group businesses, provides supply chain design
and management, freight forwarding, and customs brokerage
services.
In evaluating financial performance, we focus on operating
profit as a segment’s 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 (see
Note 1), with certain expenses allocated between the segments
using activity-based costing methods. Unallocated assets are
comprised primarily of cash, marketable securities, and short-
term investments.