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, 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 November 10, 1995
2
PART I. FINANCIAL INFORMATION
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1995 (unaudited) and December 31, 1994
(000's omitted except share amounts)
ASSETS 1995 1994
---------- ----------
CURRENT ASSETS:
Cash and short-term investments $ 326,165 $ 261,038
Accounts receivable 1,790,299 1,592,494
Prepaid employee benefit costs 106,916 439,430
Materials, supplies and prepaid expenses 469,891 381,179
Common stock held for stock plans 640,600 349,338
---------- ----------
TOTAL CURRENT ASSETS 3,333,871 3,023,479
PROPERTY, PLANT AND EQUIPMENT - at cost, net
of accumulated depreciation of $5,874,708
in 1995 and $5,325,159 in 1994 8,454,858 7,767,742
OTHER ASSETS 509,140 391,183
---------- ----------
$12,297,869 $11,182,404
========== ==========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,142,344 $ 1,082,056
Accrued wages and withholdings 1,115,320 1,080,554
Dividends payable - 170,037
Deferred income taxes 156,348 136,260
Other current liabilities 545,580 433,578
---------- ----------
TOTAL CURRENT LIABILITIES 2,959,592 2,902,485
---------- ----------
LONG-TERM DEBT, net of current maturities
of $1,101 in 1995 and $1,675 in 1994 1,409,012 1,127,405
---------- ----------
ACCUMULATED POSTRETIREMENT BENEFIT
OBLIGATION, NET 782,064 588,860
---------- ----------
DEFERRED TAXES, CREDITS AND OTHER LIABILITIES 1,894,960 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 307,067 295,441
Retained earnings 4,820,880 4,276,784
Cumulative foreign currency adjustments 66,294 17,024
---------- ----------
5,252,241 4,647,249
---------- ----------
$12,297,869 $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 Nine Months Ended September 30, 1995 and 1994
(000's omitted except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
--------------------- -----------------------
1995 1994 1995 1994
------ ------ ------ ------
Revenue $5,139,925 $4,884,565 $15,399,564 $14,238,422
--------- --------- ---------- ----------
Operating Expenses:
Wages and employee
benefits 3,003,950 2,925,387 9,030,553 8,597,579
Other 1,542,156 1,553,017 4,720,979 4,528,447
Restructuring charge 353,318 - 372,318 -
--------- --------- ---------- ----------
4,899,424 4,478,404 14,123,850 13,126,026
--------- --------- ---------- ----------
Operating Profit 240,501 406,161 1,275,714 1,112,396
--------- --------- ---------- ----------
Other income and (expense):
Interest income 6,825 3,574 16,344 9,198
Interest expense (20,642) (2,766) (58,663) (23,920)
Miscellaneous, net (13,758) (12,369) (31,211) 39,284
--------- --------- --------- ---------
(27,575) (11,561) (73,530) 24,562
--------- --------- --------- ---------
Income before income taxes 212,926 394,600 1,202,184 1,136,958
Income taxes 88,986 162,676 477,036 470,019
--------- --------- --------- ---------
Net income $ 123,940 $ 231,924 $ 725,148 $ 666,939
========= ========= ========= =========
Net income per share $ 0.21 $ 0.40 $ 1.25 $ 1.15
========= ========= ========= =========
See notes to consolidated financial statements.
4
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
Nine Months Ended September 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 $4,647,249
Net income - - - 725,148 - 725,148
Gain on issuance
of common stock
held for stock
plans - - 20,925 - - 20,925
Exercise of stock
options - - (9,299) - - (9,299)
Dividends
($.32 per share) - - - (181,052) - (181,052)
Foreign currency
adjustments - - - - 49,270 49,270
------- ------ ------- --------- ------ ---------
Balance,
September 30,1995 580,000 $58,000 $307,067 $4,820,880 $66,294 $5,252,241
======= ====== ======= ========= ====== =========
See notes to consolidated financial statements
5
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 1995 and 1994
(000's omitted)
(unaudited)
1995 1994
---------- ---------
Cash flows from operating activities:
Net income $ 725,148 $ 666,939
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 640,145 582,856
Postretirement benefits 78,061 77,742
Deferred taxes, credits, and other (53,421) (28,881)
Non-cash restructuring charge 338,453 -
Changes in assets and liabilities:
Accounts receivable (197,805) (300,793)
Prepaid employee benefit costs 121,351 72,799
Materials, supplies and prepaid
expenses (110,637) (61,706)
Common stock held for stock plans (291,262) (26,256)
Accounts payable 60,288 285,618
Accrued wages and withholdings 34,766 118,311
Dividends payable (170,037) (141,281)
Other current liabilities 112,576 (20,192)
--------- ---------
Net cash provided from operating
activities 1,287,626 1,225,156
--------- ---------
Cash flows from investing activities:
Capital expenditures (1,308,292) (1,143,758)
Proceeds from disposals of property, plant
and equipment 49,437 46,929
Other asset receipts and payments (97,431) 2,303
--------- ---------
Net cash (used in) investing activities (1,356,286) (1,094,526)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings 552,654 55,900
Repayment of borrowings (272,149) (49,602)
Dividends (181,052) (140,556)
Other transactions 11,626 28,173
--------- ---------
Net cash provided from (used in)
financing activities 111,079 (106,085)
--------- ---------
Effect of exchange rate changes on cash 22,708 11,473
--------- ---------
Net increase in cash and short-term investments 65,127 36,018
Cash and short-term investments:
Beginning of period 261,038 280,960
--------- ---------
End of period $ 326,165 $ 316,978
========= =========
Cash paid during the period for:
Interest (net of amount capitalized) $ 30,824 $ 18,849
========= =========
Income taxes $ 483,551 $ 503,385
========= =========
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, 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 various
employee benefit plans 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 September 30, 1995, the results of operations for the
three months and nine months ended September 30, 1995 and 1994, and
cash flows for the nine months ended September 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 Nine Months Ended September 30, 1995 and 1994
(unaudited)
In August, 1995, the Company filed a petition in Tax Court 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
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.
5. As part of UPS's overall effort to lower operating expenses, the
Company implemented a program of voluntary early retirement and
severance for certain, primarily management, employees which concluded
August 15, 1995. A one time charge of $372 million was recorded to
1995 operations of which $353 million was recorded in the third quarter
with the remaining $19 million previously recorded in the second
quarter.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Three Months Ended September 30, 1995 and 1994
Revenue increased by $255 million, or 5.2% for the three months
ended September 30, 1995 over the three months ended September 30,
1994. For the third quarter of 1995, domestic revenue totaled $4.464
billion, an increase of $150 million over the third quarter of 1994,
and international revenue totaled $676 million, an increase of $105
million.
Domestic revenue increased as a result of higher volume which was
up 0.4%, favorable changes in rates and a continuing shift toward
higher yielding packages. 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 the 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 12.5% 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 $421 million, or 9.4%, primarily
due to a one time charge of $372 million of which $353 million was
recorded to third quarter operations for the voluntary early retirement
and severance program for certain, primarily management employees which
concluded August 15, 1995 ("restructuring charge"). Excluding this
restructuring charge, operating expenses increased 1.5% resulting in an
improvement in the operating ratio from 91.7 during 1994 to 88.4 during
1995. The improvement in the operating ratio, excluding the
restructuring charge of $353 million, is primarily a function of cost
control efforts during 1995. This trend should be further enhanced as a
result of the restructuring.
Operating profit for the period decreased by $166 million, or
40.8%, as a result of the restructuring charge of $353 million, offset
by higher revenue and an improved operating ratio, exclusive of the
restructuring charge.
Income before income taxes ("pre-tax income") decreased $182
million, or 46.0%. Domestic pre-tax income amounted to $283 million, a
decrease of $202 million, or 41.6% over the corresponding quarter of
the previous year. The decrease was a result of the restructuring
charge of $353 million. Ignoring the effect of this one-time charge,
domestic pre-tax income would have been up $151 million, or 31.3%,
primarily the result of higher operating profits. The international
pre-tax loss decreased by $20 million, or 22.2%, to $70 million for the
quarter.
The international pre-tax loss attributable to the foreign
domestic operations decreased by $19 million, or 31.1%, primarily as a
result of higher volume and improved operating margins. The pre-tax
loss associated with export operations decreased by $1 million, or
3.7%, and resulted primarily from higher volume and improved operating
margins. Export volume increased by 31.0% and 15.1% 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.
<PAGE) 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Net income decreased by $108 million, or 46.6%, over the
corresponding quarter of the prior year. The net decrease resulted
from the restructuring charge of $353 million which was offset by
higher operating profits.
Nine Months Ended September 30, 1995 and 1994
Revenue increased by $1.161 billion, or 8.2% for the nine months
ended September 30, 1995 over the nine months ended September 30, 1994.
For the first nine months of 1995, domestic revenue totaled $13.365
billion, an increase of $736 million over the first nine months of
1994, and international revenue totaled $2.035 billion, an increase of
$425 million.
Domestic revenue increased as a result of higher volume which was
up 2.3%, 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
severe weather conditions which disrupted both air and ground
operations and a one day strike in February 1994. 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 13.7%, 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 $998 million, or 7.6% over the
prior year. Included in this increase is a one time charge of $372
million for a voluntary early retirement and severance program for
certain, primarily management, employees which concluded August 15,
1995 ("restructuring charge"). Excluding this restructuring charge,
operating expenses increased only 4.8% resulting in an improvement in
the operating ratio, from 92.2 during 1994 to 89.3 during 1995. The
improvement in the operating ratio, excluding the restructuring charge,
is a function of cost control efforts during the first nine 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. The effect of cost control efforts should be further enhanced
as a result of the restructuring.
Operating profit for the period increased by $163 million, or
14.7%, as a result of the higher revenue and the improved operating
ratio offset by the restructuring charge of $372 million.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Income before income taxes ("pre-tax" income) increased $65
million, or 5.7%. Domestic pre-tax income amounted to $1.373 billion,
a decrease of $23 million, or 1.6% over the corresponding period of the
previous year. Results for the period were reduced by the restructuring
charge of $372 million. Ignoring the effect of this one-time charge,
domestic pre-tax income would have been up $349 million, or 25.1%,
primarily due to 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 $88 million, or 34.0%, to $171 million for the first nine
months of 1995.
The international pre-tax loss attributable to the foreign
domestic operations decreased by $58 million, or 32.9%. The pre-tax
loss associated with export operations decreased by $30 million, or
36.4%. Both decreases were a result of the same reasons discussed
under the third quarter. Export volume increased by 40.6% and 18.0%
for the 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 by $58 million, or 8.7% 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 nine months
ended September 30, 1995 are not necessarily indicative of the results
to be expected for the full year.
Liquidity and Capital Resources
As of September 30, 1995, UPS had borrowings outstanding of $541
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 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.
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 6 - Exhibits and reports on Form 8-K
a) Exhibits:
10) Material contracts
e) Employees Stock Purchase Plan, as amended
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 10, 1995