UPS 2009 Annual Report Download - page 44

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Operating Profit and Margin
2009 compared to 2008
The lower operating profit in the forwarding unit was impacted by the weak global demand for forwarding
services, as well as capacity reductions by outside ocean and air freight carriers. During the latter half of 2009
and particularly in the fourth quarter, capacity constraints led to rapidly escalating rates on air freight which
could not be passed on to customers, resulting in a negative impact to operating profit and margin. The operating
profit for our logistics unit declined slightly, and was impacted by the loss incurred on the sale of some non-core
European logistics operations. However, the operating margin in this business remained stable, as costs were
reduced commensurate with the decline in revenues.
Our UPS Freight unit reported improved profitability for 2009, due to a reduction in vacation accruals
resulting from modifications in vacation policies and changes in the workforce coverage of our individual plans.
Excluding this reduction in vacation liabilities, the UPS Freight unit reported a small operating loss due to the
economic recession and difficult LTL market in the United States.
The combined operating income for all of our other businesses in this segment increased during the year.
The increase was primarily driven by a gain on sale of substantially all of our international Mail Boxes Etc
operations during the second quarter.
2008 compared to 2007
Operating profit improved in the forwarding and logistics businesses, primarily resulting from revenue
management initiatives and a focus on asset utilization. Operating profit was lower at UPS Freight during the
year, largely as a result of the slowing LTL market in the United States. The overall segment operating margin
improved, excluding the goodwill impairment charge, due to the improved margins in the forwarding and
logistics businesses.
Operating Expenses
Year Ended December 31, % Change
2009 2008 2007 2009 / 2008 2008 / 2007
Operating Expenses (in millions):
Compensation and Benefits ........................ $25,640 $26,063 $31,745 (1.6)% (17.9)%
Impact of Pension Plan Withdrawal Charge ....... — — (6,100)
Impact of SVSO Charge ...................... — — (68)
Impact of France Restructuring Charge ........... — — (46)
Adjusted Compensation and Benefits ........ 25,640 26,063 25,531 (1.6)% 2.1%
Repairs and Maintenance .......................... 1,075 1,194 1,157 (10.0)% 3.2%
Depreciation and Amortization ..................... 1,747 1,814 1,745 (3.7)% 4.0%
Purchased Transportation ......................... 5,379 6,550 5,902 (17.9)% 11.0%
Fuel .......................................... 2,365 4,134 2,974 (42.8)% 39.0%
Other Occupancy ................................ 985 1,027 958 (4.1)% 7.2%
Other Expenses ................................. 4,305 5,322 4,633 (19.1)% 14.9%
Impact of Aircraft Impairment Charges .......... (181) — (221)
Impact of Goodwill and Intangible Impairment
Charges ................................. — (575) —
Adjusted Other Expenses .................. 4,124 4,747 4,412 (13.1)% 7.6%
Total Operating Expenses ......................... $41,496 $46,104 $49,114 (10.0)% (6.1)%
Adjusted Total Operating Expenses ................. 41,315 45,529 42,679 (9.3)% 6.7%
Currency Translation (Benefit) Cost ................. $ (390) $ 342
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