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 March 31, 1995
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 May 12, 1995
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PART I. FINANCIAL INFORMATION
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 1995 (unaudited) and December 31, 1994
(000's omitted except share amounts)
ASSETS 1995 1994
____________ ____________
CURRENT ASSETS:
Cash and short-term investments $ 285,144 $ 261,038
Accounts receivable 1,668,615 1,592,494
Prepaid employee benefit costs 551,857 439,430
Materials, supplies and prepaid
expenses 567,008 381,179
Common stock held for stock plans 376,491 349,338
_________ _________
TOTAL CURRENT ASSETS 3,449,115 3,023,479
PROPERTY, PLANT AND EQUIPMENT - at cost,
net of accumulated depreciation
of $5,527,542 in 1995 and
$5,325,159 in 1994 7,995,824 7,767,742
OTHER ASSETS 492,456 391,183
__________ __________
$11,937,395 $11,182,404
========== ==========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,060,253 $ 1,082,056
Accrued wages and withholdings 962,824 1,080,554
Dividends payable - 170,037
Deferred income taxes 143,134 136,260
Other current liabilities 657,011 433,578
__________ __________
TOTAL CURRENT LIABILITIES 2,823,222 2,902,485
___________ __________
LONG-TERM DEBT, net of current
maturities of $1,563 in 1995
and $1,675 in 1994 1,533,585 1,127,405
__________ __________
ACCUMULATED POSTRETIREMENT BENEFIT
OBLIGATION, NET 615,017 588,860
__________ __________
DEFERRED TAXES, CREDITS AND OTHER
LIABILITIES 1,947,969 1,916,405
__________ __________
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 312,415 295,441
Retained earnings 4,566,768 4,276,784
Cumulative foreign currency
adjustments 80,419 17,024
__________ __________
5,017,602 4,647,249
__________ __________
$11,937,395 $11,182,404
========== ==========
See notes to consolidated financial statements.
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UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended March 31, 1995 and 1994
(000's omitted except per share amounts)
(unaudited)
1995 1994
__________ __________
Revenue $5,101,907 $4,526,287
Operating Expenses:
Wages and employee benefits 3,030,196 2,818,403
Other 1,567,389 1,466,400
_________ _________
4,597,585 4,284,803
_________ _________
Operating Profit 504,322 241,484
_________ _________
Other income and (expense):
Interest income 3,997 2,847
Interest expense (20,037) (13,873)
Miscellaneous, net (4,414) 54,611
_________ _________
(20,454) 43,585
_________ _________
Income before income taxes 483,868 285,069
Income taxes 193,884 120,939
_________ _________
Net income $ 289,984 $ 164,130
========= =========
Net income per share $ .50 $ .28
========= =========
See notes to consolidated financial statements.
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UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
Three Months Ended March 31, 1995
(000's omitted)
(unaudited)
Cumulative
Additional Foreign Total
Common Stock Paid-In Retained Currency Shareowners'
Shares Amount Capital Earnings Adjustments Equity
Balance, January 1,
1995 580,000 $58,000 $295,441 $4,276,784 $17,024 $4,647,249
Net income - - - 289,984 - 289,984
Gain on issuance
of common stock
held for stock
plans - - 16,974 - - 16,974
Foreign currency
adjustments - - - - 63,395 63,395
_______ ______ _______ _________ ______ _________
Balance, March 31,
1995 580,000 $58,000 $312,415 $4,566,768 $80,419 $5,017,602
======= ====== ======= ========= ====== =========
See notes to consolidated financial statements.
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UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended March 31, 1995 and 1994
(000's omitted)
(unaudited)
1995 1994
________ ________
Cash flows from operating activities:
Net income $289,984 $164,130
Adjustments to reconcile net income to net cash
provided from (used in) operating activities:
Depreciation and amortization 205,672 180,803
Postretirement benefits 26,157 23,844
Deferred taxes, credits, and other 36,268 (6,057)
Changes in assets and liabilities:
Accounts receivable (76,121) (222,809)
Prepaid employee benefit costs (112,427) (238,202)
Materials, supplies and prepaid expenses (195,555) 48,989
Common stock held for stock plans (27,153) (132,475)
Accounts payable (21,803) 169,573
Accrued wages and withholdings (117,730) (20,668)
Dividends payable (170,037) (141,281)
Other current liabilities 223,545 55,582
________ ________
Net cash from (used in) operating activities 60,800 (118,571)
________ ________
Cash flows from investing activities:
Capital expenditures (384,372) (298,465)
Proceeds from disposal of property, plant and
equipment 12,397 11,889
Other asset receipts and payments (102,912) 13,255
________ ________
Net cash (used in) investing activities (474,887) (273,321)
________ ________
Cash flows from financing activities:
Proceeds from borrowings 436,844 280,058
Repayment of borrowings (31,422) (1,985)
Other transactions 16,974 11,897
________ ________
Net cash from financing activities 422,396 289,970
________ ________
Effect of exchange rate changes on cash 15,797 5,688
________ ________
Net increase (decrease) in cash and
short-term investments 24,106 (96,234)
Cash and short-term investments:
Beginning of period 261,038 280,960
________ ________
End of period $285,144 $184,726
======== ========
Cash paid during the period for:
Income taxes $ 8,020 $ 96,530
======== ========
See notes to consolidated financial statements.
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UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 1995 and 1994
(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.
Net income per share is based on 580,000,000 shares in both 1995
and 1994, 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 March 31, 1995, and the results of operations and cash
flows for the three months ended March 31, 1995 and 1994.
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, for the period stated
above.
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 1983 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.
After consultation with legal experts, 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. Although no assessment has yet been made by the IRS with
respect to the years 1983 through 1987, it is likely the IRS will issue
a Notice of Deficiency for the years 1983 and 1984 which the Company
will contest through litigation. 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 for the
three months ended March 31, 1994, 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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UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 and 1994
Revenue increased by $576 million, or 12.7% for the three months
ended March 31, 1995 over the three months ended March 31, 1994. For
the first quarter of 1995, domestic revenue totaled $4.439 billion, an
increase of $421 million over the first quarter of 1994, and
international revenue totaled $663 million, an increase of $155 million.
Domestic revenue increased as a result of higher volume which was
up 5.7%, favorable changes in rates and a continuing shift toward higher
yielding packages. The volume increase in the first quarter of 1995
reflects problems experienced during the first quarter of 1994, which
included a one day strike in February and periodic severe weather
conditions which disrupted both air and ground operations. On February
4, 1995, published rates for domestic ground services for commercial and
residential deliveries were increased by 3.9%. 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 4.7% and 4.3%, respectively.
The increase in international revenue was primarily attributable to
higher volume, which was up 15.2%, and the effect of stronger foreign
currencies. In addition, the majority of the increased volume related
to higher yielding export packages.
Operating expenses increased by $313 million, or 7.3%, resulting in
an improvement in the operating ratio from 94.7 during 1994 to 90.1
during 1995. The improvement in the operating ratio is a function of
both cost control efforts during the current quarter and adverse factors
affecting results for the comparable prior year quarter, as discussed
above. These factors not only affected first quarter 1994 volume, but
increased 1994 operating costs as well.
Operating profit for the period increased by $263 million, or
108.8%, as a result of the higher revenue and lower operating costs.
Income before income taxes ("pre-tax income") increased $199
million, or 69.7%. Domestic pre-tax income amounted to $531 million, an
increase of $169 million, or 46.7% over the corresponding quarter of the
previous year. The increase was a result of higher operating profits.
In 1994, domestic pre-tax income included a non-recurring $46 million
gain from the sale of an investment property, as discussed in Note 4 to
the accompanying, unaudited financial statements. The international
pre-tax loss decreased by $30 million, or 39.0%, to $47 million for the
quarter.
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UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
The international pre-tax loss attributable to the foreign domestic
operations decreased by $12 million, or 26.0%, primarily as a result of
higher volume and improved operating margins. The pre-tax loss
associated with export operations decreased by $18 million, or 60.1%,
and resulted primarily from higher volume and improved operating
margins. Export volume increased by 52.2% and 20.6% 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 by $126 million, or 76.7%, over the
corresponding quarter of the prior year. This increase resulted
primarily from improved operating profit.
The results of operations for the three months ended March 31, 1995
are not necessarily indicative of the results to be expected for the
full year.
Liquidity and Capital Resources
As of March 31, 1995, UPS had borrowings outstanding of $670
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.
During the first quarter of 1995, the amount which UPS can borrow under
this program was increased to $1 billion from $500 million. UPS has
entered into firm commitments with a consortium of banks to renew its
two revolving credit facilities, increasing the amount of each facility
to $1.25 billion from $500 million, with one expiring June 12, 1996, and
the other June 12, 2000. Management believes that these funds, combined
with the Company's internally generated resources, 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.
As part of UPS's overall effort to lower operating expense, the
Company has announced it will offer voluntary early retirement and
severance packages for certain employees, primarily management, during
the period June 15 to August 15, 1995. Because of the voluntary nature
of this program, the projected savings or expense cannot be determined
at this time.
Agents for the United States Internal Revenue Service ("IRS") have
asserted in reports that UPS is liable for additional tax for the 1983
through 1987 tax years. Reference is made here to Note 3 to the
accompanying 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: May 12, 1995