UPS 2008 Annual Report Download - page 96

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 of
UPS class B common stock on the first or the last day of each quarterly period. Employees purchased 1.9, 1.8,
and 1.9 million shares at average prices of $55.27, $64.20, and $66.64 per share during 2008, 2007, and 2006,
respectively. Compensation cost is measured for the fair value of employees’ purchase rights under our
discounted employee stock purchase plan using the Black-Scholes option pricing model. In 2009, we modified
the employee stock purchase plan whereby shares of UPS class A common stock are now purchased at 95% of
the NYSE closing price of UPS class B common stock on the last day of each quarterly period. Under the
provisions of FAS 123(R), no compensation cost will be measured for the modified employees’ purchase rights.
The weighted average assumptions used and the calculated weighted average fair value of employees’
purchase rights granted, are as follows:
2008 2007 2006
Expected dividend yield ............................................... 2.59% 2.13% 1.79%
Risk-free interest rate ................................................. 1.76% 4.60% 4.59%
Expected life in years ................................................. 0.25 0.25 0.25
Expected volatility ................................................... 16.81% 16.26% 15.92%
Weighted average fair value of purchase rights* ............................ $ 8.85 $ 9.80 $10.30
* Includes the 10% discount from the market price.
Expected volatilities are based on the historical price volatility on our publicly-traded class B shares. The
expected dividend yield is based on the recent historical dividend yields for our stock, taking into account
changes in dividend policy. The risk-free interest rate is based on the term structure of interest rates on U.S.
Treasury securities at the time of the option grant. The expected life represents the three month option period
applicable to the purchase rights.
NOTE 12. SEGMENT AND GEOGRAPHIC 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.
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