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<p style="MARGIN-TOP: 18px; MARGIN-BOTTOM: 0px"><font style="FONT-FAMILY: Times New Roman" size="2"><b>NOTE 8. LEGAL
PROCEEDINGS AND CONTINGENCIES</b></font></p>
<p style="MARGIN-TOP: 6px; TEXT-INDENT: 4%; MARGIN-BOTTOM: 0px">
<font style="FONT-FAMILY: Times New Roman" size="2">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 court’s 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.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px; FONT-SIZE: 1px">
 </p>
<p style="MARGIN-TOP: 0px; TEXT-INDENT: 4%; MARGIN-BOTTOM: 0px">
<font style="FONT-FAMILY: Times New Roman" size="2">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 UPS’s 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 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.</font></p>
<p style="MARGIN-TOP: 12px; TEXT-INDENT: 4%; MARGIN-BOTTOM: 0px">
<font style="FONT-FAMILY: Times New Roman" size="2">In Barber Auto
Sales v. UPS, which a federal court in Alabama certified as a class
action in September 2009, the plaintiff asserts a breach of
contract claim arising from UPS’s assessment of shipping
charge corrections when UPS determines that the “dimensional
weight” of packages is greater than reported by the shipper.
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.</font></p>
<p style="MARGIN-TOP: 12px; TEXT-INDENT: 4%; MARGIN-BOTTOM: 0px">
<font style="FONT-FAMILY: Times New Roman" size="2">In AFMS LLC v.
UPS and FedEx Corporation, a lawsuit filed in federal court in the
Central District of California in August 2010, the plaintiff
asserts that UPS and FedEx violated U.S. antitrust law by
conspiring to refuse to negotiate with third party negotiators
retained by shippers and/or to monopolize a so-called market for
the time sensitive delivery of letters and packages. The Antitrust
Division of the U.S. Department of Justice (“DOJ”) has
informed us that it has opened a civil investigation of our
policies and practices for dealing with third party negotiators. We
are cooperating with this investigation. We deny any liability with
respect to these matters and intend to vigorously defend ourselves.
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.</font></p>
<p style="MARGIN-TOP: 12px; TEXT-INDENT: 4%; MARGIN-BOTTOM: 0px">
<font style="FONT-FAMILY: Times New Roman" size="2">We are a
defendant in various other lawsuits that arose in the normal course
of business. We believe that the eventual resolution of these cases
will not have a material adverse effect on our financial condition,
results of operations or liquidity.</font></p>
<p style="MARGIN-TOP: 12px; TEXT-INDENT: 4%; MARGIN-BOTTOM: 0px">
<font style="FONT-FAMILY: Times New Roman" size="2">As of
December 31, 2010, we had approximately 250,000 employees
employed under a national master agreement and various supplemental
agreements with local unions affiliated with the International
Brotherhood of Teamsters (“Teamsters”). These
agreements run through July 31, 2013. We have approximately
2,800 pilots who are employed under a collective bargaining
agreement with the Independent Pilots Association
(“IPA”), which becomes amendable at the end of 2011.
Our airline mechanics are covered by a collective bargaining
agreement with Teamsters Local 2727, which became amendable in
November 2006. We began formal negotiations with Teamsters Local
2727 in October 2006, and have been under the guidance of the
National Mediation Board since January 2008. In January 2011, we
reached a tentative agreement with Teamsters Local 2727 which will
run through November 1, 2013 when ratified. In addition, the
majority (approximately 3,300) of our ground mechanics who are not
employed under agreements with the Teamsters are employed under
collective bargaining agreements with the International Association
of Machinists and Aerospace Workers (“IAM”). Our
agreement with the IAM runs through July 31, 2014.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px; FONT-SIZE: 1px">
 </p>
<p style="MARGIN-TOP: 0px; TEXT-INDENT: 4%; MARGIN-BOTTOM: 0px">
<font style="FONT-FAMILY: Times New Roman" size="2">We participate
in a number of trustee-managed multi-employer pension and health
and welfare plans for employees covered under collective bargaining
agreements. Several factors could cause us to make significantly
higher future contributions to these plans, including unfavorable
investment performance, changes in demographics, and increased
benefits to participants. At this time, we are unable to determine
the amount of additional future contributions, if any, or whether
any material adverse effect on our financial condition, results of
operations, or liquidity would result from our participation in
these plans.</font></p>
<p style="MARGIN-TOP: 12px; TEXT-INDENT: 4%; MARGIN-BOTTOM: 0px">
<font style="FONT-FAMILY: Times New Roman" size="2">In January
2008, a class action complaint was filed in the United States
District Court for the Eastern District of New York alleging
price-fixing activities relating to the provision of freight
forwarding services. UPS was not named in this case. On
July 21, 2009, the plaintiffs filed a first amended complaint
naming numerous global freight forwarders as defendants. UPS and
UPS Supply Chain Solutions are among the 60 defendants named in the
amended complaint. We intend to vigorously defend ourselves in this
case. 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.</font></p>
<p style="MARGIN-TOP: 18px; MARGIN-BOTTOM: 0px"><font style="FONT-FAMILY: Times New Roman" size="2"><i>Other
Matters</i></font></p>
<p style="MARGIN-TOP: 6px; TEXT-INDENT: 4%; MARGIN-BOTTOM: 0px">
<font style="FONT-FAMILY: Times New Roman" size="2">We received a
grand jury subpoena from the Antitrust Division of the DOJ
regarding the DOJ’s investigation into certain pricing
practices in the freight forwarding industry in December
2007.</font></p>
<p style="MARGIN-TOP: 12px; TEXT-INDENT: 4%; MARGIN-BOTTOM: 0px">
<font style="FONT-FAMILY: Times New Roman" size="2">In October
2007, June 2008, and February 2009, we received information
requests from the European Commission (“Commission”)
relating to its investigation of certain pricing practices in the
freight forwarding industry, and subsequently responded to each
request. On February 9, 2010, UPS received a Statement of
Objections by the Commission. This document contains the
Commission’s preliminary view with respect to alleged
anticompetitive behavior in the freight forwarding industry by 18
freight forwarders, including UPS. Although it alleges
anticompetitive behavior, it does not prejudge the
Commission’s final decision, as to facts or law (which is
subject to appeal to the European courts). The options available to
the Commission include taking no action or imposing a monetary
fine; the range of any potential action by the Commission is not
reasonably estimable. Any decision imposing a fine would be subject
to appeal. UPS has responded to the Statement of Objections,
including at a July 2010 Commission hearing, and we intend to
continue to vigorously defend ourselves in this proceeding. We
received an additional information request from the Commission in
January 2011, and will respond in due course.</font></p>
<p style="MARGIN-TOP: 12px; TEXT-INDENT: 4%; MARGIN-BOTTOM: 0px">
<font style="FONT-FAMILY: Times New Roman" size="2">In August 2010,
competition authorities in Brazil opened an administrative
proceeding to investigate alleged anticompetitive behavior in the
freight forwarding industry. Approximately 45 freight forwarding
companies and individuals are named in the proceeding, including
UPS, UPS SCS Transportes (Brasil) S.A., and a former employee in
Brazil. UPS will have an opportunity to respond to these
allegations.</font></p>
<p style="MARGIN-TOP: 12px; TEXT-INDENT: 4%; MARGIN-BOTTOM: 0px">
<font style="FONT-FAMILY: Times New Roman" size="2">We also
received and responded to related information requests from
competition authorities in other jurisdictions.</font></p>
<p style="MARGIN-TOP: 12px; TEXT-INDENT: 4%; MARGIN-BOTTOM: 0px">
<font style="FONT-FAMILY: Times New Roman" size="2">We are
cooperating with each of these investigations, and intend to
continue to vigorously defend ourselves. At this time, we are
unable to determine the amount of any liability that may result
from these matters or whether any such liability would have a
material adverse effect on our financial condition, results of
operations or liquidity.</font></p>
</div>NOTE 8. LEGAL
PROCEEDINGS AND CONTINGENCIES
We are a
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