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 September 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 November 14, 1994
2
PART I. FINANCIAL INFORMATION
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1994 (unaudited) and December 31, 1993
(000's omitted except share amounts)
ASSETS 1994 1993
-------- --------
CURRENT ASSETS:
Cash and short-term investments $ 316,977 $ 280,960
Accounts receivable 1,460,405 1,159,612
Materials, supplies and prepaid expenses 599,282 659,147
Common stock held for stock plans 309,368 283,112
---------- ----------
TOTAL CURRENT ASSETS 2,686,032 2,382,831
PROPERTY, PLANT AND EQUIPMENT - at cost, net of
accumulated depreciation of $5,180,416 in
1994 and $4,705,218 in 1993 7,376,691 6,763,770
OTHER ASSETS 430,067 427,230
---------- ----------
$10,492,790 $ 9,573,831
========== ==========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 10,655 $ 5,588
Accounts payable 1,014,426 870,089
Accrued wages and withholdings 1,037,254 918,943
Income taxes payable 47,030 72,505
Deferred income taxes 87,310 74,545
Other current liabilities 442,699 437,416
---------- ----------
TOTAL CURRENT LIABILITIES 2,639,374 2,379,086
---------- ----------
LONG-TERM DEBT, net of current maturities
of $1,435 in 1994 and $5,588 in 1993 853,678 852,266
---------- ----------
ACCUMULATED POSTRETIREMENT BENEFIT
OBLIGATION, NET 596,468 518,726
---------- ----------
DEFERRED TAXES, CREDITS AND OTHER LIABILITIES 1,854,658 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 292,574 264,401
Retained earnings 4,170,430 3,644,047
Cumulative foreign currency adjustments 27,608 (21,939)
---------- ----------
4,548,612 3,944,509
---------- ----------
$10,492,790 $ 9,573,831
========== ==========
See notes to consolidated financial statements.
3
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Three Months and Nine Months Ended September 30, 1994 and 1993
(000's omitted except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
1994 1993 1994 1993
---------- ---------- ----------- -----------
Revenue $4,884,565 $4,390,186 $14,238,422 $12,943,290
--------- --------- ---------- ----------
Operating Expenses:
Wages and employee benefits 2,925,387 2,711,392 8,597,579 7,808,545
Other 1,553,017 1,305,548 4,528,447 4,151,415
--------- --------- ---------- ----------
4,478,404 4,016,940 13,126,026 11,959,960
--------- --------- ---------- ----------
Operating Profit 406,161 373,246 1,112,396 983,330
--------- --------- ---------- ----------
Other income and (expense):
Interest income 3,574 6,528 9,198 13,344
Interest expense (2,766) (6,833) (23,920) (28,110)
Miscellaneous, net (12,369) 2,872 39,284 (6,450)
--------- -------- --------- ---------
(11,561) 2,567 24,562 (21,216)
--------- -------- --------- ---------
Income before income taxes 394,600 375,813 1,136,958 962,114
Income taxes 162,676 187,107 470,019 427,422
--------- -------- --------- ---------
Net income $ 231,924 $ 188,706 $ 666,939 $ 534,692
========= ========= ========== ==========
Net income per share $ 0.40 $ 0.33 $ 1.15 $ 0.92
======== ========= ========== =========
See notes to consolidated financial statements.
/TABLE
4
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
Nine Months Ended September 30, 1994
(000's omitted)
(unaudited)
Cumulative
Additional Foreign Total
Common Stock Paid-In Retained Currency Shareowners'
Shares Amount Capital Earnings Adjustments Equity
Balance, January 1,
1994 580,000 $58,000 $264,401 $3,644,047 $(21,939) $3,944,509
Net income - - - 666,939 - 666,939
Gain on issuance
of common stock
held for stock
plans - - 34,014 - - 34,014
Exercise of stock
options - - (5,841) - - (5,841)
Dividends
($.25 per share) - - - (140,556) - (140,556)
Foreign currency
adjustments - - - - 49,547 49,547
------- ------ ------- --------- ------ ---------
Balance, September
30, 1994 580,000 $58,000 $292,574 $4,170,430 $27,608 $4,548,612
======= ====== ======= ========= ====== =========
See notes to consolidated financial statements.
/TABLE
5
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 1994 and 1993
(000's omitted)
(unaudited)
1994 1993
Cash flows from operating activities:
Net income $ 666,939 $ 534,692
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 582,856 516,537
Postretirement benefits 77,742 59,008
Deferred taxes, credits, and other (28,881) 80,348
Changes in assets and liabilities:
Accounts receivable (300,793) (15,767)
Materials, supplies and prepaid
expenses 11,093 122,116
Common stock held for stock plans (26,256) 28,842
Accounts payable 144,337 (16,913)
Accrued wages and withholdings 118,311 138,007
Income taxes payable (25,475) 8,689
Other current liabilities 5,283 43,288
--------- ---------
Net cash provided from operating
activities 1,225,156 1,498,847
--------- ---------
Cash flows from investing activities:
Capital expenditures - net (1,096,829) (688,747)
Other asset payments 2,303 27,415
--------- -------
Net cash (used in) investing activities (1,094,526) (661,332)
--------- -------
Cash flows from financing activities:
Proceeds from borrowings 55,900 208,040
Repayment of borrowings (49,602) (215,741)
Redemption of common stock - (276,184)
Dividends (140,556) (143,913)
Other transactions 28,173 15,820
--------- --------
Net cash (used in) financing activities (106,085) (411,978)
--------- --------
Effect of exchange rate changes on cash 11,473 (4,698)
--------- --------
Net increase in cash and
short-term investments 36,018 420,839
Cash and short-term investments:
Beginning of period 280,960 133,398
--------- ---------
End of period $ 316,978 $ 554,237
========= =========
Cash paid during the period for:
Interest (net of amount capitalized) $ 18,849 $ 15,440
========= =========
Income taxes $ 503,385 $ 387,243
========= =========
See notes to consolidated financial statements.
6
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months and Nine Months Ended September 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.
During the third quarter of 1993, the maximum U.S. Federal income
tax rate for corporations was increased from 34% to 35%, effective
January 1, 1993. In addition to increasing the Company's income tax
accrual for its 1993 current and deferred taxable income, the Company
made a $31.8 million adjustment to reflect the effect of the rate change
on its deferred tax liabilities as of January 1, 1993, during the third
quarter of 1993.
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 September 30, 1994, the results of operations for the
three months and nine months ended September 30, 1994 and 1993, and cash
flows for the nine months ended September 30, 1994 and 1993.
3. UPS has entered into interest rate swap agreements to lower the
effective interest rate on its debentures. These agreements have an
average remaining life of two years. The periodic settlement payments
are accrued monthly, as either a charge or credit to expense, and are
not material to net income. Based on estimates provided by third party
investment bankers, the fair value of the Company's interest rate swap
agreements is not material to the Company's financial statements.
The Company also purchases options to reduce the impact of changes
in foreign currency rates on its foreign currency purchases and to
moderate the impact of major increases in the cost of crude oil on fuel
expense. The options are adjusted to fair value at period end based on
market quotes and are not material to the Company's financial statements.
UPS is exposed to credit loss in the event of nonperformance by the
other parties to the interest rate swap agreements. However, UPS does
not anticipate nonperformance by the counterparties. UPS is exposed to
market risk based upon changes in interest rates, foreign currency
exchange rates, and crude oil prices.
7
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months and Nine Months Ended September 30, 1994 and 1993
(unaudited)
4. 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
relating to the timing of deductions; the characterization of expenses
as capital rather than ordinary; and 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, the
majority of which would reverse in future years, plus penalties and
interest.
Management believes there is no merit to any material issues raised
by the IRS 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.
5. Miscellaneous, net in the consolidated statement of income for the
nine months ended September 30, 1994, includes a gain of approximately
$46 million which resulted from the sale of a long-term investment
property in January 1994.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Three Months Ended September 30, 1994 and 1993
Revenue increased by $494 million, or 11.3% for the three months
ended September 30, 1994 over the three months ended September 30, 1993.
For the third quarter of 1994, domestic revenue totaled $4.314 billion,
an increase of $398 million over the third quarter of 1993, and
international revenue totaled $570 million, an increase of $96 million.
Domestic revenue increased as a result of higher volume (up 3.5%),
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 primarily attributable to
higher volume, which was up 5.8%. In addition, the majority of the
increased volume related to higher yielding export packages.
Operating expenses increased by $461 million, or 11.5%, which was
commensurate with the increase in revenues. Higher wages and employee
benefits and increased costs for chartered aircraft, rail services, and
international purchased transportation accounted for the majority of the
increase.
Operating profit for the period increased by $33 million, or 8.8%,
as a result of the higher revenue.
Income before income taxes ("pre-tax income") increased $19
million, or 5.0%. Domestic pre-tax income amounted to $485 million,
an increase of $41 million, or 9.3% over the corresponding quarter of
the previous year and resulted from higher operating profit. The
international pre-tax loss increased by $22 million, or 33.3%,
bringing the total international pre-tax loss to $90 million for the
quarter.
The international pre-tax loss attributable to the foreign domestic
operations increased by $19 million, or 45.6%, primarily as a result of
competitive factors. The pre-tax loss associated with export operations
increased by $3 million, or 13.4%. Export volume increased by 41.0% and
15.3% 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 $43 million, or 22.9%. This
increase resulted primarily from adjustments to income tax expense
recorded in the third quarter of 1993 to reflect the effect of the
August 1993 increase in the maximum U.S. Federal income tax rate for
corporations from 34% to 35%, effective January 1, 1993. See also Note
1 to the accompanying unaudited consolidated financial statements.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Nine Months Ended September 30, 1994 and 1993
Revenue increased by $1.295 billion, or 10.0% for the nine months
ended September 30, 1994 over the nine months ended September 30, 1993.
For the first nine months of 1994, domestic revenue totaled $12.628
billion, an increase of $1.096 billion over the first nine months of
1993, and international revenue totaled $1.610 billion, an increase of
$198 million.
Domestic revenue increased for the same reasons described above for
the third quarter--primarily due to higher volume (up 2.0%), first
quarter rate increases and a continuing shift toward higher yielding
packages.
The increase in international revenue was primarily attributable to
higher volume, which was up 8.3%. In addition, the majority of the
increased volume related to higher yielding, export packages.
Operating expenses increased by $1.166 billion, or 9.7%, which was
commensurate with the increase in revenues. Higher wages and employee
benefits and increased costs for chartered aircraft, rail services, and
international purchased transportation accounted for the majority of the
increase.
Operating profit for the period increased by $129 million, or
13.1%, as a result of the higher revenue.
Income before income taxes ("pre-tax income") increased $175
million, or 18.2%. Domestic pre-tax income amounted to $1.395 billion,
an increase of $215 million, or 18.2% 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 $40 million, or 18.4%, bringing
the total international pre-tax loss to $258 million for the first nine
months of 1994.
The international pre-tax loss attributable to the foreign domestic
operations increased by $50 million, or 40.1%, for the same reasons
discussed under the third quarter. The pre-tax loss associated with
export operations decreased by $10 million, or 11.1%, as a result of
increased volume and the achievement of greater cost efficiencies in the
international network. Export volume increased by 49.2% and 16.7% for
international and U.S. origin, export shipments, respectively. As noted
in the third 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 $132 million, or 24.7%. This
increase resulted primarily from the higher operating profit, a gain on
a long-term investment property described above and a deferred tax
adjustment recorded in 1993 to reflect the effect of the increase in the
maximum U.S. Federal income tax rate for corporations from 34% to 35%.
See also Note 1 to the accompanying unaudited consolidated financial
statements.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
The results of operations for the three months and nine months
ended September 30, 1994 are not necessarily indicative of the results
to be expected for the full year.
Liquidity and Capital Resources
As of September 30, 1994, UPS had borrowings outstanding of
$9 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.
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. Reference is made here to
Note 4 to the accompanying unaudited consolidated financial statements
for more information.
Between August 15 and September 30, 1994, UPS conducted a
rescission offer pursuant to which UPS offered to repurchase
certain unregistered shares. The rescission offer applied to shares
of UPS Common Stock purchased from UPS between November 15, 1993 and
August 4, 1994 pursuant to UPS's Continuous Offering, and to shares of
Capital Stock of Overseas Partners Ltd. that were purchased from UPS
between August 5, 1993 and August 4, 1994 under the offering. The
shares had been sold by UPS without registration under the Securities
Act of 1933 due to an administrative error which resulted in greater
numbers of shares being sold than had been registered. The rescission
offer was accepted as to 6,612 UPS shares and 2,153 OPL shares by a
total of 107 individuals, who received $157,806 aggregate consideration
from UPS on October 15, 1994. As a result of completing the rescission
offer, management believes that UPS has no material continuing liability
with respect to the sale of the unregistered shares.
11
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.
12
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: November 14, 1994