1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the Quarter Ended June 30, 1994
Commission file number O-4714
United Parcel Service of America, Inc.
(Exact name of registrant specified in its charter)
Delaware 95-1732075
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Glenlake Parkway, NE
Atlanta, Georgia 30328
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (404)828-6000
Not Applicable
Former name, address and fiscal year, if changed since last
report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities and Exchange Act of 1934 during the preceding 12
months,
and (2) has been subject to such filing requirements for the past
90 days.
YES X NO________
Common Stock, par value $.10 per share
(Title of Class)
580,000,000 shares
Outstanding as of August 15, 1994
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PART I. FINANCIAL INFORMATION
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1994 (unaudited) and December 31, 1993
(000's omitted except share amounts)
ASSETS 1994 1993
CURRENT ASSETS:
Cash and short-term investments $ 115,315 $ 280,960
Accounts receivable 1,416,351 1,159,612
Materials, supplies and prepaid expenses 730,292 659,147
Common stock held for stock plans 597,384 283,112
----------- ----------
TOTAL CURRENT ASSETS 2,859,342 2,382,831
PROPERTY, PLANT AND EQUIPMENT - at cost, net of
accumulated depreciation of $5,022,940 in
1994 and $4,705,218 in 1993 7,049,884 6,763,770
OTHER ASSETS 418,748 427,230
---------- ----------
$10,327,974 $ 9,573,831
========== ==========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 279,371 $ 5,588
Accounts payable 940,131 870,089
Accrued wages and withholdings 1,016,476 918,943
Income taxes payable 57,747 72,505
Deferred income taxes 82,716 74,545
Other current liabilities 401,086 437,416
---------- ----------
TOTAL CURRENT LIABILITIES 2,777,527 2,379,086
---------- ----------
LONG-TERM DEBT, net of current maturities
of $1,491 in 1994 and $5,588 in 1993 854,426 852,266
---------- ----------
ACCUMULATED POSTRETIREMENT BENEFIT
OBLIGATION, NET 567,548 518,726
---------- ----------
DEFERRED TAXES, CREDITS AND OTHER LIABILITIES 1,853,308 1,879,244
---------- ----------
SHAREOWNERS' EQUITY:
Preferred stock, no par value,
Authorized 200,000,000 shares, none issued - -
Common stock, par value $.10 per share,
Authorized 900,000,000 shares, issued
580,000,000 58,000 58,000
Additional paid-in capital 273,508 264,401
Retained earnings 3,938,506 3,644,047
Cumulative foreign currency adjustments 5,151 (21,939)
---------- ----------
4,275,165 3,944,509
---------- ----------
$10,327,974 $ 9,573,831
========== ==========
See notes to consolidated financial statements.
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UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Three Months and Six Months Ended June 30, 1994 and 1993
(000's omitted except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
1994 1993 1994 1993
------ ------ ------ ------
Revenue $ 4,827,570 $ 4,348,283 $ 9,353,857 $ 8,553,104
--------- --------- ---------
Operating Expenses:
Wages and employee benefits 2,853,789 2,572,138 5,672,192 5,097,153
Other 1,509,030 1,408,307 2,975,430 2,845,867
--------- --------- --------- ---------
4,362,819 3,980,445 8,647,622 7,943,020
--------- --------- --------- ---------
Operating profit 464,751 367,838 706,235 610,084
--------- --------- --------- ---------
Other income and (expense):
Interest income 2,777 3,164 5,624 6,816
Interest expense (7,281) (8,267) (21,154) (21,277)
Miscellaneous, net (2,958) (2,964) 51,653 (9,322)
--------- --------- --------- ---------
(7,462) (8,067) 36,123 (23,783)
--------- --------- --------- ---------
Income before income taxes 457,289 359,771 742,358 586,301
Income taxes 186,404 146,475 307,343 240,315
--------- --------- --------- ---------
Net income $ 270,885 $ 213,296 $ 435,015 $ 345,986
========= ========= ========= =========
Net income per share $ 0.47 $ 0.37 $ 0.75 $ 0.60
========= ========= ========= =========
See notes to consolidated financial statements.
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UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
Six Months Ended June 30, 1994 and 1993
(000's omitted)
(unaudited)
Cumulative
Additional Foreign Total
Common Stock Paid-In Retained Currency Shareowners'
Shares Amount Capital Earnings Adjustments Equity
Balance, January 1, 1993 595,000 $59,500 $241,852 $3,394,289 $ 24,791 $3,720,432
Net income - - - 345,986 - 345,986
Gain on issuance of
common stock held
for stock plans - - 17,444 - - 17,444
Exercise of stock
options - - (2,049) - - (2,049)
Dividends
($.25 per share) - - - (143,377) - (143,377)
Foreign currency
adjustments - - - - (20,663) (20,663)
Reclassification of
common stock held
for stock plans (15,000) (1,500) - (274,683) - (276,183)
------- ------ ------ -------- ------- ---------
Balance, June 30, 1993 580,000 $58,000 $257,247 $3,322,215 $ 4,128 $3,641,590
======= ====== ======= ========= ======= =========
Balance, January 1, 1994 580,000 $58,000 $264,401 $3,644,047 $(21,939) $3,944,509
Net income - - - 435,015 - 435,015
Gain on issuance of
common stock held
for stock plans - - 14,948 - - 14,948
Exercise of stock
options - - (5,841) - - (5,841)
Dividends
($.25 per share) - - - (140,556) - (140,556)
Foreign currency
adjustments - - - - 27,090 27,090
------- ------ ------- --------- ------- ---------
Balance, June 30, 1994 580,000 $58,000 $273,508 $3,938,506 $ 5,151 $4,275,165
======= ====== ======= ========= ======= =========
See notes to consolidated financial statements.
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UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 1994 and 1993
(000's omitted)
(unaudited)
1994 1993
--------- ---------
Cash flows from operating activities:
Net income $ 435,015 $ 345,986
Adjustments to reconcile net income to
net cash provided from operating
activities:
Depreciation and amortization 383,565 350,669
Postretirement benefits 48,822 39,583
Deferred taxes, credits, and other (31,128) 437
Changes in assets and liabilities:
Accounts receivable (256,739) 62,348
Materials, supplies and prepaid
expenses (86,459) (22,110)
Common stock held for stock plans (314,272) 56,684
Accounts payable 70,042 (109,728)
Accrued wages and withholdings 97,533 71,905
Income taxes payable (14,758) (8,872)
Other current liabilities (36,330) 11,273
--------- ---------
Net cash provided from operating
activities 295,291 798,175
--------- ---------
Cash flows from investing activities:
Capital expenditures - net (638,894) (359,201)
Other asset payments 13,746 15,955
--------- ---------
Net cash (used in) investing activities (625,148) (343,246)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings 300,485 206,179
Repayment of borrowings (24,672) (210,491)
Redemption of common stock - (276,183)
Dividends (140,556) (143,377)
Other transactions 9,107 15,395
--------- ---------
Net cash provided from (used in)
financing activities 144,364 (408,477)
--------- ---------
Effect of exchange rate changes on cash 19,848 (17,801)
--------- ---------
Net increase (decrease) in cash and
short-term investments (165,645) 28,651
Cash and short-term investments:
Beginning of period 280,960 133,398
--------- ---------
End of period $ 115,315 $ 162,049
========= =========
Cash paid during the period for:
Interest (net of amount capitalized) $ 27,636 $ 27,827
========= =========
Income taxes $ 306,355 $ 257,138
========= =========
See notes to consolidated financial statements.
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UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(unaudited)
1. For interim consolidated financial statement purposes, UPS
computes its tax provision on the basis of its estimated annual
effective income tax rate, and provides for accruals under its
Managers Incentive Plan, Thrift Plan and Retirement Plan based on
one quarter of the estimated annual expense for each three month
period.
On August 6, 1993, Congress approved the Omnibus Budget
Reconciliation Act of 1993, which includes an increase in the
maximum corporate, Federal income tax rate from 34% to 35%
effective January 1, 1993. Accordingly, the Company revised its
estimated annual effective income tax rate and adjusted its
deferred tax liabilities during the third quarter of 1993. Had the
Company used the revised estimated annual effective income tax rate
during the six months ended June 30, 1993, the provision for income
taxes would have been increased by approximately $38 million,
including an adjustment to deferred tax liabilities at January 1,
1993 of approximately $32 million.
Net income per share is based on 580,000,000 shares in both
1994 and 1993, including common stock held for stock plans.
2. In the opinion of management, the accompanying interim,
unaudited, consolidated financial statements contain all
adjustments (consisting of normal recurring accruals) necessary to
present fairly the financial position as of June 30, 1994, the
results of operations for the three months and six months ended
June 30, 1994 and 1993, and cash flows for the six months ended
June 30, 1994 and 1993.
3. Agents for the United States Internal Revenue Service ("IRS")
have asserted in reports that UPS is liable for additional tax for
the 1984 through 1987 tax years. The assertions are based in large
part on the theory that UPS is liable for tax on income of Overseas
Partners Ltd. ("OPL"), a Bermuda company, which has reinsured
excess value package insurance purchased by UPS's customers from
unrelated insurers. The adjustments sought by the agents relating
to package insurance are based on a number of inconsistent theories
and range from $97 million to $183 million of tax, plus penalties
and interest.
In addition, the agents have raised a number of other issues,
some of which relate to the timing of deductions, involving the
characterization of expenses as capital rather than ordinary, and
some of which relate to UPS's entitlement to the Investment Tax
Credit in the 1984 through 1987 tax years. The adjustments sought
on these issues aggregate $127 million in tax, most of which would
reverse in future years, plus penalties and interest.
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UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(unaudited)
Management believes that the IRS positions are without merit
and that the eventual resolution of these matters will not have a
material impact on the Company. No assessment has been made by the
IRS with respect to the years 1984 through 1987, and the Company is
pursuing protests before the IRS's Appeals Division against the
imposition of any additional tax liability. The matter is awaiting
a hearing before the IRS Appeals Division. The IRS has not
proposed adjustments for years subsequent to 1987, although the IRS
may take positions similar to those in the reports described above
for periods after 1987.
4. Miscellaneous, net in the consolidated statement of income
includes a gain of approximately $46 million which resulted from
the sale of a long-term investment property in January 1994.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Three Months Ended June 30, 1994 and 1993
Revenue increased by $480 million, or 11.0% for the three
months ended June 30, 1994 over the three months ended June 30,
1993. For the second quarter of 1994, domestic revenue totaled
$4.297 billion, an increase of $425 million over the second quarter
of 1993, and international revenue totaled $531 million, an
increase of $55 million. Domestic revenue increased as a result of
higher volume (up 3.2%), favorable changes in rates and a shift
toward higher yielding packages. On February 7, 1994, published
rates for domestic ground services for commercial and residential
deliveries were increased by 3.8% and 4.3%, respectively.
Additionally, the published rates for Next Day Air and 2nd Day Air
packages each increased by 3.9%, and the published rates for Next
Day Air and 2nd Day Air letters increased by 2.4% and 4.5%,
respectively.
The increase in international revenue was attributable to
higher volume, which was up 7.0%.
Although operating expenses increased by $382 million, or
9.6%, the operating ratio improved from 91.5 in 1993 to 90.4 in
1994. This was primarily the result of proportionately lower
automotive and occupancy expenses.
Operating profit for the period increased by $97 million, or
26.3%, as a result of the higher revenue and improved operating
ratio discussed above.
Income before income taxes ("pre-tax income") increased $98
million, or 27.1%. Domestic pre-tax income amounted to $549
million, an increase of $114 million, or 25.9% over the
corresponding quarter of the previous year as a result of higher
operating profit. The international pre-tax loss increased by $16
million, or 21.1%, bringing the total international pre-tax loss to
$92 million for the quarter.
The international pre-tax loss attributable to the foreign
domestic operations increased by $24 million, or 55.3% as a result
of continued weak economic conditions and tough competition. The
pre-tax loss associated with export operations decreased by $8
million, or 25.9% as a result of increased volume and the
achievement of greater cost efficiencies in the international
network. Export volume increased by 50.0% and 17.8% for
international and U.S. origin, export shipments, respectively. UPS
expects that the cost of operating its international business will
continue to exceed revenue in the near future.
Net income increased approximately $58 million, or 27%. This
increase resulted primarily from the higher operating profit
described above. See Note 1 to the consolidated financial
statements for a discussion of the impact of an increase in the
maximum corporate, federal income tax rate approved by Congress on
August 6, 1993.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Six Months Ended June 30, 1994 and 1993
Revenue increased by $801 million, or 9.4% for the six months
ended June 30, 1994 over the six months ended June 30, 1993. For
the first six months of 1994, domestic revenue totaled $8.314
billion, an increase of $699 million over the first six months of
1993, and international revenue totaled $1.04 billion, an increase
of $102 million. Domestic revenue increased for the same reasons
described above for the second quarter--primarily due to higher
volume (up 1.3%), first quarter rate increases and a continuing
shift toward higher yielding packages.
The increase in international revenue was attributable to
higher volume, which was up 9.7%.
Although operating expenses increased by $705 million, or
8.9%, the operating ratio improved from 92.9 in 1993 to 92.4 in
1994. This improvement occurred during the second quarter of 1994
and offset proportionally higher costs suffered during the first
quarter associated with a one day strike in February and severe
weather conditions which periodically disrupted both air and ground
services.
Operating profit for the period increased by $96 million, or
15.8%, as a result of the higher revenue and improved operating
ratio discussed above.
Income before income taxes ("pre-tax income") increased $156
million, or 26.6%. Domestic pre-tax income amounted to $910
million, an increase of $173 million, or 23.5% over the
corresponding period of the previous year. The increase was
primarily the result of higher operating profit and the sale of a
long-term investment property during the first quarter of 1994 at
a gain of approximately $46 million. The international pre-tax
loss increased by $17 million, or 11.3%, bringing the total
international pre-tax loss to $168 million for the first six months
of 1994.
The international pre-tax loss attributable to the foreign
domestic operations increased by $31 million, or 37.3% for the same
reasons discussed under the second quarter. The pre-tax loss
associated with export operations decreased by $14 million, or
20.4% as a result of increased volume and the achievement of
greater cost efficiencies in the international network. Export
volume increased by 54.6% and 17.3% for international and U.S.
origin, export shipments, respectively. As noted in the second
quarter discussion, UPS expects that the cost of operating its
international business will continue to exceed revenue in the near
future.
Net income increased approximately $89 million, or 25.7%.
This increase resulted primarily from the higher operating profit
and a gain on a long-term investment property described above. See
Note 1 to the consolidated financial statements for a discussion of
the impact of an increase in the maximum corporate, federal income
tax rate approved by Congress on August 6, 1993.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
The results of operations for the three months and six months
ended June 30, 1994 are not necessarily indicative of the results
to be expected for the full year.
Liquidity and Capital Resources
As of June 30, 1994, UPS had borrowings outstanding of $278
million under its commercial paper program. Management anticipates
that UPS will have a continuing need for the near future to draw on
its commercial paper program to meet its working capital
requirements. Management believes that these funds, combined with
the Company's internally generated resources and revolving credit
facility, will provide adequate sources of liquidity and capital
resources to meet its expected future short-term and long-term
needs for the operation of its business, including anticipated
capital expenditures and purchase commitments.
In April 1994, an agent for the United States Internal Revenue
Service ("IRS") asserted in a report that UPS is liable for
additional tax for the 1985, 1986 and 1987 tax years. Reference is
made here to Note 3 to the unaudited consolidated financial
statements for more information.
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PART II
Item 6 - Exhibits and reports on Form 8-K
a) Exhibits: none
b) Reports on Form 8-K: no reports on Form 8-K were filed
during the quarter.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
UNITED PARCEL SERVICE OF AMERICA, INC.
(Registrant)
By: /S/ Robert J. Clanin
Robert J. Clanin
Senior Vice President,
Treasurer and
Chief Financial Officer
Date: August 15, 1994