1
SECURITIES AND EXCHANGE COMMMMISSION
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, 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 August 14, 1995
2
PART I. FINANCIAL INFORMATION
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1995 (unaudited) and December 31, 1994
(000's omitted except share amounts)
ASSETS 1995 1994
---------- ----------
CURRENT ASSETS:
Cash and short-term investments $ 239,682 $ 261,038
Accounts receivable 1,674,784 1,592,494
Prepaid employee benefit costs 351,523 439,430
Materials, supplies and prepaid expenses 524,054 381,179
Common stock held for stock plans 653,996 349,338
---------- ----------
TOTAL CURRENT ASSETS 3,444,039 3,023,479
PROPERTY, PLANT AND EQUIPMENT - at cost, net of
accumulated depreciation of $5,690,255 in
1995 and $5,325,159 in 1994 8,116,617 7,767,742
OTHER ASSETS 527,543 391,183
---------- ----------
$12,088,199 $11,182,404
========== ==========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,074,045 $ 1,082,056
Accrued wages and withholdings 1,048,859 1,080,554
Dividends payable - 170,037
Deferred income taxes 150,852 136,260
Other current liabilities 505,847 433,578
---------- ----------
TOTAL CURRENT LIABILITIES 2,779,603 2,902,485
---------- ----------
LONG-TERM DEBT, net of current maturities
of $1,371 in 1995 and $1,675 in 1994 1,548,337 1,127,405
---------- ----------
ACCUMULATED POSTRETIREMENT BENEFIT
OBLIGATION, NET 641,173 588,860
---------- ----------
DEFERRED TAXES, CREDITS AND OTHER LIABILITIES 1,984,662 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 303,921 295,441
Retained earnings 4,696,940 4,276,784
Cumulative foreign currency adjustments 75,563 17,024
---------- ----------
5,134,424 4,647,249
---------- ----------
$12,088,199 $11,182,404
========== ==========
See notes to consolidated financial statements.
3
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Three Months and Six Months Ended June 30, 1995 and 1994
(000's omitted except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
1995 1994 1995 1994
--------- --------- ---------- ---------
Revenue $5,157,732 $4,827,570 $10,259,639 $9,353,857
--------- --------- ---------- ---------
Operating Expenses:
Wages and employee benefits 3,015,407 2,853,789 6,045,603 5,672,192
Other 1,611,434 1,509,030 3,178,823 2,975,430
--------- --------- ---------- ---------
4,626,841 4,362,819 9,224,426 8,647,622
--------- --------- ---------- ---------
Operating Profit 530,891 464,751 1,035,213 706,235
--------- --------- ---------- ---------
Other income and (expense):
Interest income 5,522 2,777 9,519 5,624
Interest expense (17,984) (7,281) (38,021) (21,154)
Miscellaneous, net (13,039) (2,958) (17,453) 51,653
--------- --------- ---------- ---------
(25,501) (7,462) (45,955) 36,123
--------- --------- ---------- ---------
Income before income taxes 505,390 457,289 989,258 742,358
Income taxes 194,166 186,404 388,050 307,343
--------- --------- ---------- ---------
Net income $ 311,224 $ 270,885 $ 601,208 $ 435,015
========= ========= ========== =========
Net income per share $ 0.54 $ 0.47 $ 1.04 $ 0.75
========= ========= ========== =========
See notes to consolidated financial statements.
4
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
Six Months Ended June 30, 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 $4,647,249
Net income - - - 601,208 - 601,208
Gain on issuance
of common stock
held for stock
plans - - 17,766 - - 17,766
Exercise of stock
options - - (9,286) - - (9,286)
Dividends
($.32 per share) - - - (181,052) - (181,052)
Foreign currency
adjustments - - - - 58,539 58,539
------- ------ ------- --------- ------ ---------
Balance, June 30,
1995 580,000 $58,000 $303,921 $4,696,940 $75,563 $5,134,424
======= ====== ======= ========= ====== =========
See notes to consolidated financial statements.
5
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 1995 and 1994
(000's ommitted)
(unaudited)
1995 1994
-------- --------
Cash flows from operating activities:
Net income $ 601,208 $ 435,015
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 419,519 383,565
Postretirement benefits 52,313 48,822
Deferred taxes, credits, and other 76,272 (31,128)
Changes in assets and liabilities:
Accounts receivable (82,290) (256,739)
Prepaid employee benefit costs 87,907 (50,727)
Materials, supplies and prepaid
expenses (168,214) (35,732)
Common stock held for stock plans (304,658) (314,272)
Accounts payable (8,011) 211,323
Accrued wages and withholdings (31,695) 97,533
Dividends payable (170,037) (141,281)
Other current liabilities 72,573 (51,088)
-------- --------
Net cash provided from operating
activities 544,887 295,291
-------- --------
Cash flows from investing activities:
Capital expenditures (731,425) (671,017)
Proceeds from disposal of property, plant
and equipment 31,642 32,123
Other asset receipts and payments (134,445) 13,746
-------- --------
Net cash (used in) investing activities (834,228) (625,148)
-------- --------
Cash flows from financing activities:
Proceeds from borrowings 530,317 300,485
Repayment of borrowings (110,368) (24,672)
Dividends (181,052) (140,556)
Other transactions 8,480 9,107
-------- --------
Net cash provided from financing activities 247,377 144,364
-------- --------
Effect of exchange rate changes on cash 20,608 19,848
-------- --------
Net (decrease) in cash and
short-term investments (21,356) (165,645)
Cash and short-term investments:
Beginning of period 261,038 280,960
-------- --------
End of period $ 239,682 $ 115,315
======== ========
Cash paid during the period for:
Interest (net of amount capitalized) $ 31,294 $ 27,636
======== ========
Income taxes $ 287,154 $ 306,355
======== ========
See notes to consolidated financial statements.
6
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months and Six Months Ended June 30, 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 June 30, 1995, the results of operations for the three
months and six months ended June 30, 1995 and 1994, and cash flows for
the six months ended June 30, 1995 and 1994.
3. During the second quarter of 1995, the Company received a Notice of
Deficiency from the United States Internal Revenue Service (IRS)
asserting that it is liable for additional tax for the 1983 and 1984 tax
years. The Notice of Deficiency is 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 deficiency
sought by the IRS relating to package insurance is based on a number of
inconsistent theories and ranges from $8 million to $35 million of tax,
plus penalties and interest for 1984.
Agents for the IRS have also asserted in reports that UPS is liable
for additional tax for the 1985 through 1987 tax years. The additional
tax sought by the agents relating to package insurance for this period
range from $89 million to $148 million, plus penalties and interest, and
are based on the same theories included in the above described Notice of
Deficiency.
In addition, the IRS and its 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. These issues
total $32 million in tax for the 1983 and 1984 tax years and $95 million
in tax for the 1985 through 1987 tax year. Penalties and interest are
in addition to these amounts. The majority of these adjustments would
reverse in future years.
7
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months and Six Months Ended June 30, 1995 and 1994
(unaudited)
The Company will file a petition in Tax Court in August, 1995, in
opposition to the Notice of Deficiency. After consultation with tax
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. 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
six months ended June 30, 1994, includes a gain of approximately $46
million which resulted from the sale of a long-term investment property
in January 1994.
5. As part of UPS's overall effort to lower operating expense, the
Company has implemented a program of voluntary early retirement and
severance packages for certain, primarily management, employees.
Voluntary elections to participate in the program must be made during
the period June 15 to August 15, 1995. Employees are allowed a one
week recision period after making their election. All electing
employees must terminate employment no later than August 31, 1995.
The total charge to 1995 operations for this program will not be
known until the third quarter. It is anticipated to be in the range of
$250 to $300 million, however, this estimate could vary significantly
depending on the actual number and mix of employees who accept the
offer. Total charges incurred through June 30, 1995 were $19 million.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Three Months Ended June 30, 1995 and 1994
Revenue increased by $330 million, or 6.8% for the three months
ended June 30, 1995 over the three months ended June 30, 1994. For the
second quarter of 1995, domestic revenue totaled $4.462 billion, an
increase of $165 million over the second quarter of 1994, and
international revenue totaled $696 million, an increase of $165 million.
Domestic revenue increased as a result of higher volume which was
up 0.8% and a continuing shift toward higher yielding packages.
The increase in international revenue was primarily attributable to
higher volume, which was up 13.4% 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 $264 million, or 6.1%, resulting in
an improvement in the operating ratio from 90.4 during 1994 to 89.7
during 1995. The improvement in the operating ratio is primarily a
function of cost control efforts during 1995.
Operating profit for the period increased by $66 million, or 14.2%,
as a result of the higher revenue and the lower operating ratio.
Income before income taxes ("pre-tax income") increased $48
million, or 10.5%. Domestic pre-tax income amounted to $559 million, an
increase of $10 million, or 1.9% over the corresponding quarter of the
previous year. The increase was a result of higher operating profits.
The international pre-tax loss decreased by $38 million, or 41.4%, to
$54 million for the quarter.
The international pre-tax loss attributable to the foreign domestic
operations decreased by $27 million, or 39.3%, primarily as a result of
higher volume and improved operating margins. The pre-tax loss
associated with export operations decreased by $11 million, or 47.2%,
and also resulted primarily from higher volume and improved operating
margins. Export volume increased by 41.8% and 18.5% 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 $40 million, or 14.9%, over the
corresponding quarter of the prior year. The increase resulted
primarily from improved operating profit.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Six Months Ended June 30, 1995 and 1994
Revenue increased by $906 million, or 9.7% for the six months ended
June 30, 1995 over the six months ended June 30, 1994. For the first
six months of 1995, domestic revenue totaled $8.901 billion, an increase
of $587 million over the first six months of 1994, and international
revenue totaled $1.359 billion, an increase of $319 million.
Domestic revenue increased as a result of higher volume which was
up 3.2%, first quarter rate increases and a continuing shift toward
higher yielding packages. The volume increase was mainly a result of
lower volume during the first quarter of 1994, which was affected by a
one day strike in February 1994 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 14.3%, 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 $577 million, or 6.7%, resulting in
an improvement in the operating ratio from 92.4 during 1994 to 89.9
during 1995. The improvement in the operating ratio is a function of
both cost control efforts during the first six months of 1995 and
adverse factors affecting results for the first quarter of 1994, as
discussed above. These factors not only affected first quarter 1994
volume, but increased first quarter 1994 operating costs as well.
Operating profit for the period increased by $329 million, or
46.6%, as a result of the higher revenue and the lower operating ratio.
Income before income taxes ("pre-tax income") increased $247
million, or 33.3%. Domestic pre-tax income amounted to $1.09 billion,
an increase of $179 million, or 19.7% over the corresponding period 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 $68 million, or 40.3%, to $100
million for the first six months of 1995.
The international pre-tax loss attributable to the foreign domestic
operations decreased by $39 million, or 33.8%. The pre-tax loss
associated with export operations decreased by $29 million, or 54.3%.
Both decreases were a result of the same reasons discussed under the
second quarter. Export volume increased by 46.7% and 19.5% 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.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Net income increased by $166 million, or 38.2% over the
corresponding period of the prior year. This increase resulted
primarily from improved operating profit.
The results of operations for the three months and six months ended
June 30, 1995 are not necessarily indicative of the results to be
expected for the full year.
Liquidity and Capital Resources
As of June 30, 1995, UPS had borrowings outstanding of $683 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. During the
second quarter of 1995, UPS entered into agreements with a consortium of
banks to renew its two revolving credit facilities, increasing the
amount of each facility to $1.25 billion from $500 mmillion, 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 implemented a program of voluntary early retirement and
severance packages for certain, primarily management, employees.
Voluntary elections to participate in the program must be made during
the period June 15 to August 15, 1995. Employees are allowed a one
week recision period after making their election. All electing
employees must terminate employment no later than August 31, 1995.
The total charge to 1995 operations for this program will not be
known until the third quarter. It is anticipated to be in the range of
$250 to $300 million, however, this estimate could vary significantly
depending on the actual number and mix of employees who accept the offer.
Total charges incurred through June 30, 1995 were $19 million.
During the second quarter of 1995, the Company received a Notice of
Deficiency from the United States Internal Revenue Service (IRS)
asserting that it is liable for additional tax for the 1983 and 1984 tax
years. Agents for the IRS have also asserted in reports that UPS is
liable for additional tax for the 1985 through 1987 tax years.
Reference is made here to Note 3 to the accompanying unaudited
consolidated financial statements for more information.
11
PART II
Item 1 - Legal Proceedings
In the second quarter of 1995, UPS received a Notice of
Deficiency from the United States Internal Revenue Service asserting
that it is liable for additional tax for the 1983 and 1984 tax years.
UPS will file a petition in Tax Court in August, 1995, in opposition to
the Notice of Deficiency. Information regarding the Notice of
Deficiency is incorporated herein by reference from Note 3 to the
Consolidated Financial Statements filed herewith.
Item 4 - Submission of Matters to a Vote of Security Holders
The annual meeting of shareowners of the Registrant was held on
May 11, 1995.
Proxies for the meeting were solicited pursuant to Regulation
14A under the Securities Exchange Act of 1934, there was no solicitation
in opposition to management's nominees as listed in Item No. 1 in the
proxy statement, and all of such nominees were elected.
The results of the voting by the shareowners for directors is
presented below.
Percent of
Director Number of Votes Total Voting
John W. Alden For 337,190,102 95.8%
Withheld 14,968,227 4.2%
William H. Brown, III For 339,532,551 96.4%
Withheld 12,625,778 3.6%
Carl Kaysen For 337,162,029 95.7%
Withheld 14,996,300 4.3%
John J. Kelley For 340,602,877 96.7%
Withheld 11,555,452 3.3%
James P. Kelly For 340,844,585 96.8%
Withheld 11,313,744 3.2%
Gary E. MacDougal For 338,815,775 96.2%
Withheld 13,342,554 3.8%
Joseph R. Moderow For 340,901,482 96.8%
Withheld 11,256,847 3.2%
Kent C. Nelson For 339,022,430 96.3%
Withheld 13,135,899 3.7%
Victor A. Pelson For 338,959,448 96.3%
Withheld 13,198,881 3.7%
John W. Rogers For 340,298,524 96.7%
Withheld 11,859,805 3.3%
Charles L. Schaffer For 340,482,463 96.7%
Withheld 11,675,866 3.3%
Robert M. Teeter For 339,465,487 96.4%
Withheld 12,692,842 3.6%
Calvin E. Tyler Jr. For 340,694,659 96.7%
Withheld 11,463,670 3.3%
12
PART II
Two proposals (designated Item Nos. 2 and 3) were submitted by
the Board of Directors. The proposals and the results of the voting by
the stockholders are presented below.
Percent of
Number of Votes Total Voting
2. To approve the UPS 1991 For 332,934,516 94.5%
Stock Option Plan, as amended Against 13,238,017 3.8%
and restated Abstain 5,985,796 1.7%
3. To confirm the appointment For 346,392,370 98.4%
of Deloitte & Touche LLP, Against 3,236,741 0.9%
independent auditors, as auditors Abstain 2,529,218 0.7%
of UPS and its subsidiaries for
the year ending December 31, 1995
Item 6 - Exhibits and reports on Form 8-K
a) Exhibits:
10) Material contracts
a) Credit Agreement (364-Day Facility) dated June 12, 1995
among United Parcel Service of America, Inc., the initial
lenders named therein, NationsBank of Georgia, N.A., as
Agent and Citibank, N.A., as Agent.
b) Credit Agreement (Five-Year Facility) dated June 12, 1995
among United Parcel Service of America, Inc., the initial
lenders named therein, NationsBank of Georgia, N.A., as
Agent and Citibank, N.A., as Agent.
b) Reports on Form 8-K: no reports on Form 8-K were filed during
the quarter.
13
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 14, 1995