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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1994 Commission File No. 0-4714
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United Parcel Service of America, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 95-1732075
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(State or other jurisdiction (I.R.S. Employer ID. No.)
of incorporation or organization)
55 Glenlake Parkway, NE, Atlanta, Georgia 30328
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(Address of principal executive office) (ZIP Code)
Area (404) 828-6000
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(Telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each Exchange on which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
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(Title of Class)
Common Stock, par value $.10 per share, subject to UPS Managers Stock Trust
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(Title of Class)
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 Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the common stock held by non-affiliates
of the registrant, based on a price per share of $23.75, the price per share,
as of February 28, 1995, at which UPS expressed its willingness to purchase its
shares from shareowners wishing to sell their shares, was $11,585,644,559.
The number of shares of UPS Common Stock outstanding as of February
28, 1995, was 580,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its annual
meeting of shareowners scheduled for May 11, 1995 are incorporated by reference
in answer to Part III of this Report.
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PART I
Item 1. Business.
United Parcel Service of America, Inc., through subsidiaries, provides
specialized transportation services, primarily through the delivery of
packages. Service is offered throughout the United States and over 200 other
countries and territories around the world. In terms of revenue, UPS is the
largest package delivery company in the world. During 1994 UPS delivered
approximately 3 billion packages. UPS currently has approximately 1.4 million
customer locations to which it provides daily pickup services.
With minor exceptions, UPS Common Stock is owned by or held for the
benefit of managers and supervisors actively employed by UPS, or their
families; or by former employees, their estates or heirs; or by charitable
foundations established by UPS founders and their family members; or by other
charitable organizations which have acquired their stock by donations from
shareowners. UPS stock is not listed on a national securities exchange or
traded in the organized over-the-counter markets. When used herein the term
"UPS" refers to United Parcel Service of America, Inc., a Delaware corporation,
and its subsidiaries.
Delivery Service in the United States
Ground Services
UPS is engaged primarily in the delivery of packages with dimensional
limitations of 108 inches in length and 130 inches in length and girth
combined. Effective February 1994, UPS increased the weight limit for
individual packages from 70 to 150 pounds for interstate and certain intrastate
deliveries. As of January 1, 1995, as a result of deregulation, the 150 pound
weight limit was made available in all of the 48 contiguous states. UPS
provides interstate and intrastate ground service to every address in the 48
contiguous states and between those states and Hawaii and Alaska. In Hawaii,
an intra-island service is provided between addresses on Oahu and an
inter-island air service is offered between all islands of the state. In
Alaska, an intrastate package delivery service is available throughout the
state.
Effective January 1, 1995, UPS began providing Hundredweight
Service(SM) for ground shipments to all 48 contiguous states. Under this
service, contract rates are established for multi-package shipments weighing in
the aggregate 200 pounds or more and addressed to one consignee at one location
on one day. Customers can realize savings on such shipments compared to
regular ground service rates. In 1994, UPS Hundredweight volume grew over 36%
from 1993. This growth was primarily due to the increase in new customers as a
result of the Teamsters strike of less-than-truckload (LTL) carriers last
spring. UPS has managed to retain much of the volume after the strike ended.
UPS Hundredweight also offers Weight Break Pricing, which provides rate
incentives for shipments of over 500 pounds.
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UPS also provides UPS GroundSaver(SM), a contract service, offering
special rates and services for business-to-business shipments to specified ZIP
Codes. GroundSaver revenue for 1994 increased over 15% from 1993.
UPS's domestic ground revenue increased in 1994 by 5.3% over 1993 as a
result of higher volume, which was up 0.5%, favorable changes in rates and
higher average weights per package. For a description of the rate increase,
see "Item 1 -- Rates."
Domestic Air Services
UPS provides domestic air delivery services known as "UPS Next Day
Air(R)" and "UPS 2nd Day Air(R)," which are available throughout the United
States and Puerto Rico. UPS also provides UPS Prepaid Letter, which permits
customers to purchase UPS Next Day Air and 2nd Day Air Letters in advance at
lower prices. For both UPS Next Day Air and UPS 2nd Day Air, packages and
documents are either picked up from shippers by UPS or are dropped off by
shippers at Air Service Centers or Letter Centers located throughout UPS's
service network.
UPS offers guaranteed delivery by 10:30 a.m. for UPS Next Day Air
Packages and Letters sent to areas covering over 76% of the U.S. population
and noon delivery to areas covering an additional 15% of the U.S. population.
In 1994, UPS introduced Early A.M.(SM) service in all of the 48 contiguous
states, which provides guaranteed next-day delivery of packages and documents
by 8:30 a.m. In 1993, UPS began offering Next Day Air Saver(SM), which is Next
Day Air delivery in the afternoon -- by either 3 p.m. or 4:30 p.m., depending
on location, at a slightly lower rate than 10:30 a.m. delivery. UPS also
guarantees on-schedule delivery of UPS 2nd Day Air packages.
In early 1995, UPS acquired SonicAir, a provider of same-day delivery
and third-party logistics services. Through this wholly-owned subsidiary,
customers will be offered same-day delivery anywhere in the continental United
States, as well as next-flight-out services internationally.
UPS offers Saturday Delivery for UPS Next Day Air shipments to an area
covering approximately 76% of all UPS customers. UPS also offers Saturday
Pickup service of air shipments in all areas served by UPS Saturday delivery.
Further, in 1993, UPS began accepting hazardous materials in its air services,
for an additional charge.
UPS offers UPS Next Day Air and UPS 2nd Day Air Hundredweight Service
for package shipments totaling at least 100 pounds addressed to one consignee
at one location on the same day. UPS Air Cargo Service provides two services
designed to fill what would otherwise be unfilled capacity on regular UPS
flights: the transportation of containerized and palletized cargo in available
space on UPS flights and aircraft charters when UPS planes are not being
utilized by UPS.
The volume of UPS's higher margin air services, such as UPS Next Day
Air service, continued to grow during 1994. In 1994, UPS's air services'
volume increased by 22% and revenues increased by 20%.
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To enable UPS to accommodate future demand for air delivery services,
UPS, in 1994, completed an expansion of its Dallas, Texas regional air sorting
facility and opened a new regional air sorting facility in Rockford, Illinois.
UPS also has plans to open an additional new regional air sorting facility in
Columbia, South Carolina in 1995. Other regional air sorting facilities are
located in Ontario, California and Philadelphia, Pennsylvania. In 1993, UPS
ordered thirty new Boeing 767 freighter aircraft and ten more 757 freighter
aircraft, in addition to the twenty-one 757 freighter aircraft previously
ordered, to meet anticipated future growth in air delivery volume. In 1994,
UPS took delivery of twelve more 757 freighter aircraft. For a further
description of UPS's properties, see "Item 2 -- Properties."
Delivery services in the United States accounted for 88.4%, 89.0% and
89.1% of UPS's consolidated revenue in 1994, 1993 and 1992, respectively. For
further financial information relating to foreign and domestic operations, see
Note 10 to the Consolidated Financial Statements.
International Delivery Service
UPS offers international air service between over 200 countries and
territories throughout the world. During 1994, UPS focused its worldwide,
transborder and domestic services on two major markets -- Europe and North
America. UPS is the only package delivery company in Europe with fully
integrated European ground and air delivery linked to a global operation. As
discussed more fully in "Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations," the number of International Air
packages handled increased substantially in 1994.
Domestic air service is offered throughout Canada, Germany, Italy, and
Spain. Ground service is provided throughout Austria, Belgium, Canada,
Denmark, France, Germany, Ireland, Italy, Malaysia, Mexico, the Netherlands,
Norway, Spain, Sweden, Switzerland and the United Kingdom. UPS's transborder
air and ground services within Europe are enhanced by UPS EuroExpress
("EuroExpress") and UPS EuroExpedited ("EuroExpedited") services.
EuroExpress is a pan-European air service that offers next-day
delivery before noon for shipments between major metropolitan areas, covering
more than 80% of the population. EuroExpedited uses roadways to deliver
packages and freight between 15 countries, with shipments tracked
electronically. With the easing of border restrictions throughout Europe
during early 1993, EuroExpedited shipments take more direct routes between
countries, thereby reducing transit times.
In 1994, UPS continued its services between Canada, Mexico and the
United States. UPS offers three levels of service between these countries:
Express, for delivery in one business day; Expedited, for delivery usually
within three days; and Standard, for transborder ground delivery. Expedited
service is new for these countries, as is ground service between Mexico and the
United States.
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UPS Worldwide Express ("Worldwide Express") provides delivery of
urgent packages, documents and letters to over 200 countries and territories.
Worldwide Express shipments are generally delivered within two business days.
During 1993, the document delivery schedules for most Worldwide Express
customers were improved with the commencement of overnight service from 21
major U.S. cities to major business centers in Asia, Europe, Mexico and South
America, and in 1994, UPS added an on-time guarantee to Worldwide Express
shipments. The competitive rates offered for Worldwide Express include customs
clearance, which is facilitated by electronic transfer of customs information.
Additionally, Worldwide Express provides for shipment tracking throughout the
world using an advanced data network developed by UPS.
UPS offers Worldwide Expedited Package Service ("Worldwide Expedited")
to Canada and Mexico as well as between Europe and the Asia-Pacific. Worldwide
Expedited is a multi-package alternative to air freight services, generally
using UPS ground and 2nd Day Air operating facilities. Transit times are
slightly longer than by express delivery, but rates are substantially lower.
Worldwide Expedited also offers services, such as shipment tracking, which are
not typically available for air freight.
The growth in international volume prompted UPS to replace DC-8
freighter aircraft with larger 747 freighter aircraft for United States to
Europe flights. Within Europe, UPS introduced its own 727s to replace smaller
aircraft.
During 1994, UPS suffered pre-tax losses in its international
operations of approximately $327 million. The international pre-tax loss was
primarily a result of losses from domestic operations outside of the United
States caused by strong competition in European countries. However, revenues
from all international services increased for 1994 by 16.2% over 1993. UPS
expects to incur future losses in connection with its international operations.
UPS's international delivery service accounted for approximately
11.6%, 11.0% and 10.9% of the consolidated revenues of UPS in 1994, 1993 and
1992, respectively. For financial information relating to foreign and domestic
operations, see Note 10 to the Consolidated Financial Statements.
Other Services
UPS offers customized services for certain types of customers or even
a single customer, such as Consignee Billing and Delivery Confirmation.
Consignee Billing was designed for customers who receive large amounts of
merchandise from a number of vendors. UPS bills these consignee customers
directly for the shipping charges, enabling the customer to obtain tighter
control over inbound transportation costs. UPS's Consignee Billing service
volume increased 34% in 1994. Electronic tracking of all Consignee Billing
Packages is offered, as well as on demand pick up service for return shipments.
Delivery Confirmation provides automatic confirmation and weekly reports of
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deliveries. Immediate confirmation is provided upon request. This service is
available throughout the United States and Puerto Rico.
UPS GroundTrac(SM) service electronically tracks ground packages so
that UPS's customers can receive immediate information about the status of
their packages while in transit. UPS TotalTrack(SM) is an enhanced tracking
system. With the introduction of in-vehicle data transmission capabilities,
this service enables U.S. customers to receive verification of deliveries
within minutes after they are completed. Shippers can access tracking
information 24 hours a day, seven days a week, by telephone or through the UPS
MaxiTrac software system, which enables customers to track and trace their own
packages via telecommunications links with UPS's electronic data systems. As
of December 31, 1994, UPS had distributed MaxiTrac software to approximately
85,000 customers. UPS's MaxiShip System is a hardware-software system that
assists customers in managing their shipping operations by automating a
customer's shipping room with features such as automatic zoning, rating and
printing of address labels, pickup records and shipping reports. As of
December 31, 1994, approximately 25,500 customers were using MaxiShip software.
Rates
On February 7, 1994, UPS raised its domestic ground rates for
commercial and residential deliveries by 3.8% and 4.3%, respectively. On
February 4, 1995, these rates were increased by 3.7% and 4.5%, respectively.
In 1994, published rates for Next Day Air and 2nd Day Air packages each
increased by 3.9%, respectively. The published rates for Next Day Air and 2nd
Day Air letters increased by 2.4% and 4.5%, respectively, in 1994. In 1995,
the published rates for Next Day Air, 2nd Day Air and 3 Day Select packages
were each increased 3.9%. The published rates for Next Day Air and 2nd Day Air
letters increased by 4.7% and 4.3%, respectively, in 1995.
Competition
In terms of revenue, UPS is the largest package delivery company in
the world. UPS competes with many companies and services which operate on a
national, regional or local basis in the United States and internationally, and
its business is affected by the availability and the use of numerous alternate
methods of service. These include the parcel post service and other classes of
mail (including air service) of the United States Postal Service (the "Postal
Service") and the postal services of other nations, various other motor
carriers, independent trucking companies and express companies, freight
forwarders, air couriers, and shipper-owned or leased delivery vehicles.
Competition is intense within the United States and throughout the world.
Competition for high volume, profitable shipping business focuses largely on
providing economical pricing and desirable and dependable service features and
delivery schedules.
UPS also endeavors to attract customers by providing services meeting
their distinct needs, such as guaranteed timely delivery of packages shipped
via UPS Next Day Air and UPS 2nd Day Air and enhanced tracking capabilities.
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UPS is directing a larger proportion of its resources to delivering these
higher revenue packages, providing customized services and obtaining the most
current technology to improve package tracking and delivery confirmation
services.
UPS also engages in widespread advertising of its services,
particularly its international and UPS Next Day Air services.
Regulation
Under the Federal Aviation Act of 1958, as amended, both the
Department of Transportation ("DOT") and the Federal Aviation Administration
("FAA") regulate air transportation services.
The DOT's authority relates primarily to economic aspects of air
transportation, such as discriminatory pricing, non-competitive practices,
interlocking relations or cooperative agreements. The DOT also regulates,
subject to the authority of the President, international routes, fares, rates
and practices and is authorized to investigate and take action against
discriminatory treatment of U.S. air carriers abroad.
FAA authority relates primarily to safety aspects of air
transportation, including aircraft standards and maintenance, personnel and
ground facilities. UPS was granted an operating certificate by the FAA in 1988
which remains in effect so long as UPS meets the operational requirements of
the Federal Aviation Regulations.
The FAA has issued rules mandating repairs on all Boeing Company and
McDonnell Douglas Corporation aircraft which have completed a specified number
of flights and has also issued rules requiring a corrosion control program for
Boeing Company aircraft. Total expenditures under these programs for 1994 were
$12 million. Each of these programs requires that UPS make periodic
inspections of its aircraft. These inspections may result in a determination
that additional repairs are required under these programs. Hence, the future
cost of such repairs pursuant to the programs may fluctuate.
Until January 1, 1995, ground transportation of packages by UPS in the
United States was subject to regulation by the Interstate Commerce Commission
("ICC") and by various state regulatory agencies when such transportation was
pursuant to common carrier certificates and contract carrier permits issued by
the ICC and state agencies. After January 1, 1995, all state regulation of
rates, routes and services was declared preempted by federal legislation, for
both integrated intermodal carriers and motor carriers. UPS remains subject to
the jurisdiction of the ICC, while the states maintain regulation over such
areas as safety, insurance and hazardous materials. UPS is subject to similar
regulation in many foreign jurisdictions.
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Postal Rate Proceedings
The Postal Reorganization Act of 1970 ("Act") created the Postal
Service as an independent establishment of the executive branch of the federal
government and vested the power to recommend domestic postal rates in a
regulatory body, the Postal Rate Commission ("Commission"). UPS believes that
the Postal Service consistently attempts to set rates for its parcel,
international and other competitive services generally below its costs of
providing such services and to use excess revenues from its monopoly classes,
particularly First Class letter mail, to subsidize those competitive services.
Therefore, UPS participates in postal rate proceedings before the Commission in
an attempt to secure what UPS believes to be at least minimum fairness in the
Postal Service's competition for parcel delivery and expedited letter, document
and parcel delivery business.
In 1994, the Postal Service proposed a general rate increase for
domestic mail. In particular, the Postal Service proposed increases for First
Class letters and Express Mail of 10.3% and for Parcel Post of 13.2%. UPS
intervened in the proceeding, contending that the increase for First Class
letters was excessive and would cross-subsidize competitive services. On
November 30, 1994, the Commission issued its recommended decision, reducing the
increase for First Class letters to 8.9%, and recommending increases for
Express Mail of 8.0% and Parcel Post of 18.3%. The Governors of the Postal
Service in general accepted the Commission's recommended rates, and the rates
became effective on January 1, 1995. However, the Postal Service sought
clarification from the Commission on three issues. Reconsideration of these
issues is pending before the Commission and might result in changes in the rate
structures for two categories of mail -- Priority Mail and Bound Printed
Matter. One mailer group, not including UPS, has petitioned the United States
Court of Appeals for the District of Columbia for review of the decision of the
Governors to accept the Commission's recommended rates. This appeal is
pending.
In July, 1993, the Postal Service adopted, on a permanent basis,
regulations implementing a new "International Customized Mail" service, in
which the Postal Service would negotiate unique, customized contracts with
large international mailers. Since the Commission does not have jurisdiction
over the Postal Service's international rates and services, UPS Worldwide
Forwarding, Inc. filed suit in the United States District Court for the
District of Delaware. The suit sought to enjoin the new service on the ground
that the Postal Reorganization Act of 1970, as amended, prohibits the Postal
Service from negotiating rate and service contracts that differ from mailer to
mailer. The complaint also alleged that the statute requires the Postal
Service to obtain the consent of the President to all of its international
rates, and that the Postal Service had violated that requirement. The district
court found in favor of UPS and enjoined the Postal Service from entering into
such contracts. The Postal Service's appeal from the district court's Order
was argued before the United States Court of Appeals for the Third Circuit on
March 10, 1995, and the matter is presently under consideration by that court.
In 1992, the Postal Service proposed a new class of parcel mail,
called bulk small parcel service. The proposed rates for this service would
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have been substantially below the existing rates of Parcel Post and of UPS.
The Postal Service had estimated that the new class, if approved, would have
diverted nearly one hundred million parcels per year from UPS. UPS intervened
before the Commission and opposed the creation of this new class of service and
the adoption of the proposed rates, which UPS believed to be below cost and
contrary to the Act. In August 1993, the Commission rejected the new class
proposal, and instead recommended much lower discounts to be taken off of
existing Parcel Post rates. The Governors of the Postal Service, in a decision
issued on February 1, 1994, rejected the Commission's recommendation, and thus,
there was no reduction in rates for this type of shipment.
Other Operations
UPS's subsidiary, UPS Worldwide Logistics, Inc., offers a consultative
service to develop customized solutions for a shipper's distribution needs.
UPS Inventory Express(SM) service, which provides for the storage of inventory,
processing of orders and shipment of customers' products through a warehouse
located near UPS's national air hub in Louisville, is part of this division.
In 1993, UPS established its second Inventory Express facility near UPS's
European air hub in Cologne, Germany, which matches the overnight distribution
capabilities of its U.S. counterpart in Louisville. Also supporting the
Worldwide Logistics initiative is UPS's first bonded, multi-user European
Distribution Center. This warehousing service is in the Netherlands, and UPS
plans to set up several more warehousing centers across Europe in the next five
years. These warehousing services facilitate quick entry of urgent shipments
into the UPS system.
Martrac, a UPS subsidiary, transports produce and other commodities in
temperature-controlled trailers over railroads. Martrac's revenues and income
before taxes decreased by 10.0% and 32.0%, respectively, primarily due to
severe weather conditions suffered in the first quarter of 1994. Martrac's
fleet now totals 1,483 trailers, a decrease of 3.7% from 1993.
UPS Truck Leasing, Inc., a UPS subsidiary, ("UPS Truck Leasing"),
rents and leases trucks and tractors to commercial users under full-service
rental agreements. Through programs established with Worldwide Logistics, UPS
Truck Leasing is capitalizing on a business trend toward increased outsourcing
of trucking needs. As of December 31, 1994, UPS Truck Leasing had 40
facilities and a fleet of 3,917 vehicles. UPS Truck Leasing's revenues
increased by 13% in 1994.
Environmental Regulation
In 1989, regulations were adopted pursuant to the Resource
Conservation and Recovery Act, which required owners and operators of
underground storage tanks ("USTs") to test, upgrade and/or replace their USTs
on a rolling schedule of deadlines through 1998. UPS substantially completed
this project in 1993, five years ahead of the mandated Environmental Protection
Agency
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("EPA") schedule. UPS replaced approximately 2,833 USTs at a cost of $105
million.
The Clean Air Act Amendments of 1990 require a ten-year phase in of
alternative fuel vehicles by fleets in the urban areas with the worst air
quality problems. In order to address these requirements, UPS began a project
in 1989 using compressed natural gas ("CNG") as a fuel in the package cars. By
the end of 1994, 250 package cars were running on CNG in various cities. In
1995, UPS has plans to add 104 CNG cars in San Ramon, California; 100 CNG cars
in Atlanta; and between 100 and 200 CNG cars in Connecticut, where a tax credit
incentive exists to assist in implementation of this program.
The EPA's final rules under the Clean Air Act Amendments established
regulations governing the exemption of clean fuel fleet vehicles from certain
transportation control measures ("TCMs"). The exemptions except clean fuel
vehicles, such as UPS's CNG vehicles, from urban TCMs, such as truck bans and
time-of-day restrictions. It also permits the CNG vehicles to travel in high
occupancy vehicle lanes, provided they meet certain emission criteria.
Employees
As of December 31, 1994, UPS had approximately 320,000 employees, an
11.9% increase over 1993. Most hourly employees are represented by unions,
principally by locals of the International Brotherhood of Teamsters ("IBT").
Executive Officers
Listed below is certain information relating to the executive officers
and management of UPS.
Principal Occupation
and Employment During
Name and Office Age At Least the Last Five Years
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John Alden 53 Director (1988 to present),
Senior Vice President Senior Vice President and
and Director Business Development Group Manager (1986 to
present), UPS
Robert J. Clanin 51 Senior Vice President, Treasurer and Chief Financial
Senior Vice President, Officer (1994 to present), Finance Manager (1990 to
Treasurer and Chief 1994), Treasury Manager (1989-1990), UPS
Financial Officer
Francis J. Erbrick 56 Senior Vice President (1989
Senior Vice President to present), Strategic Systems Manager (1992 to
present), Information Services Manager (1985 to
1992), UPS
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Principal Occupation
and Employment During
Name and Office Age At Least the Last Five Years
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Don R. Fischer 57 Senior Vice President (1992 to present),
Senior Vice President International Systems and UPS Truck Leasing Manager
(1992 to present), Corporate Delivery Information
and Loss Prevention Manager (before 1987 to 1992),
UPS
John J. Kelley 59 Director (1992 to present), Senior Vice President
Senior Vice President and Director and Human Resources Manager (1991 to present), Region
Manager (1983 to 1991), UPS
James P. Kelly 51 Director (1991 to present), Executive Vice President
Executive Vice President and Director (1994 to present), Chief Operating Officer (1992 to
present), U.S.A. Operations Manager (1990 to 1992),
Labor Relations Manager (1988 to 1990), UPS
Joseph R. Moderow 46 Director (1988 to present), Senior Vice President and
Senior Vice President, Secretary (1986 to present), Legal and Public
Secretary, General Counsel and Affairs Group Manager (1989 to present),
Director Legal Manager (1986 to 1989), UPS
Kent C. Nelson 57 Director (1983 to present), Chairman and Chief
Chairman of the Board Executive Officer (1989 to present),
and Director (Chief Vice Chairman (1989), Executive Vice President (1986
Executive Officer) to 1989), UPS
Charles L. Schaffer 49 Director (1992 to present), Senior Vice President
Senior Vice President and Director and Engineering Group Manager (1990 to present), Plant
Engineering Manager (1989 to 1990), Strategic
Planning Staff (1988 to 1989), District Manager
(1987 to 1988), UPS
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Principal Occupation
and Employment During
Name and Office Age At Least the Last Five Years
--------------- --- -----------------------------
Edward L. Schroeder 53 Senior Vice President (1993 to present),
Senior Vice President International Operations Coordinator (1993 to
present), Region Manager (1988 to 1993), District
Manager (1986 to 1988), UPS
Calvin E. Tyler, Jr. 52 Director (1991 to present), Senior Vice President
Senior Vice President and Director (1988 to present), U.S.A. Operations Manager (1991
to present), Human Resources Manager (1988 to 1991),
Region Manager (1985 to 1988), UPS
Thomas H. Weidemeyer 47 Senior Vice President (1994 to present), Airline
Senior Vice President Operation Manager (1990 to 1994), Region Manager
(1989 to 1990), District Manager (1988 to 1989), UPS
Clinton L. Yard 55 Senior Vice President (1992 to present), National
Senior Vice President Operations Manager (1992 to present), Region Manager
(1988 to 1992), District Manager (1982 to 1988), UPS
Each officer of UPS has been elected to serve until the next
organizational meeting of the directors of UPS following the annual meeting of
shareowners of UPS.
Item 2. Properties.
Operating Facilities
During 1991, UPS moved its corporate office to Atlanta, Georgia. In
1994, UPS completed its new headquarters at a cost of $105 million, and moved
all of its staff into the headquarters.
Among UPS's principal operating facilities are those located in Dallas
(Texas), Denver (Colorado), Earth City (Missouri), Grand Rapids (Michigan) and
Palatine (Illinois). These operating facilities, having floor spaces which
range from 350,000 to 1,000,000 square feet, have central sorting facilities,
operating hubs and service centers for local operations. UPS has recently
completed construction of a large hub facility near Chicago, Illinois. This
facility has floor space of approximately 1,900,000 square feet and has
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recently commenced operations on a limited basis. The estimated cost of this
facility, including plant equipment, was approximately $318 million.
UPS also owns approximately 700 and leases approximately 1,000 other
operating facilities throughout the territories it serves. The smaller of
these facilities have vehicles and drivers stationed for the pickup of packages
and facilities for sorting and transfer and delivery of packages. The larger
of these facilities have additional facilities for servicing UPS vehicles and
equipment, and employ specialized mechanical installations for the sorting and
handling of packages.
UPS's aircraft are operated in a hub and spokes pattern in the United
States. UPS's principal air hub in the United States is located in Louisville,
Kentucky, with regional air hubs in Philadelphia, Pennsylvania and Ontario,
California. These hubs house facilities for sorting, transfer and delivery of
packages. The Louisville hub handles the largest volume of packages for air
delivery in the United States. In 1994, UPS finished construction of a
regional air hub in Rockford, Illinois and completed the hub expansion in
Dallas, Texas. UPS has plans to construct its last regional air hub in
Columbia, South Carolina. UPS's European air hub is located in Cologne,
Germany.
UPS's computer operations have been consolidated in a 400,000 square
foot leased facility located on a 39 acre site in Mahwah, New Jersey. The
construction of a 27,000 square foot addition to the facility commenced in 1994
and should be completed by the fourth quarter of 1995. The addition will
accommodate further expansions of up to 54,000 square feet. UPS has leased
this facility for an initial term ending in 2019 for use as a data processing,
telecommunications and operations facility. UPS has also begun construction of
a 160,000 square foot facility located on a 25 acre site in the Atlanta,
Georgia area, which will serve as a backup to the main facility in New Jersey.
The new facility, to be completed in July 1995, will provide backup capacity in
case a power outage or other disaster incapacitates the main data center, and
it will also help meet future communication needs.
Aircraft
UPS operates a fleet of 462 aircraft. UPS's fleet at December 31,
1994 consisted of the following aircraft:
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Number Number
Description Owned Leased
----------- ------ ------
McDonnell Douglas DC-8-71 23 1
McDonnell Douglas DC-8-73 26 2
Boeing 747-100 5 18
Boeing 757-200 29 18
Boeing 727-100 51 -
Boeing 727-200 8 -
Fairchild SA227-AT 11 -
Other - 270
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Total 153 309
An inventory of spare engines and parts is maintained for each
aircraft.
All of UPS's DC-8-71's, DC-8-73's, B757PF's and 747-100's meet Stage
III federal noise regulations. UPS is replacing the three engines on all but
seven B727-100 aircraft with new, quieter engines. These re-engined B727-100's
will meet Stage III federal noise regulations and will allow UPS to operate
into airports with aircraft noise restrictions that exclude B727-100's that
have not been re-engined. UPS will accomplish engine modifications for each of
its eight 727-200 aircraft to achieve Stage III noise compliance.
The current noise regulations do not impact the valuation of these
aircraft as their depreciable lives all end before the final phase-in date for
Stage III compliance in 1999. All other aircraft operated by UPS are not
subject to Stage III noise regulations.
In 1994, UPS completed a cockpit modernization program of all but
seven aircraft in the B727-100 fleet. This modernization program consisted of
replacing many of the original cockpit instruments with modern cathode ray tube
(CRT) instrumentation. In addition, the layout and positioning of instruments
in these B727-100 cockpits has been standardized to a common configuration. A
similar cockpit modernization program is also underway for all the UPS DC8-71
and DC8-73 aircraft. At this time, UPS has not committed seven B727-100's
purchased in 1994 to either the re-engining program or the cockpit
modernization program.
During 1994, UPS ordered 30 new Boeing 767 freight aircraft
(B767-300F) with options to buy 30 more. The delivery of the first 767 is
scheduled for October 1995. UPS also accelerated the delivery of two B757-200
aircraft from 1995 to 1994. A total of 12 B757-200's were delivered to UPS in
1994. Eight B757-200's will be delivered to UPS in 1995, along with 5
B767-300F's. In addition, UPS has options for the purchase of 31 additional
B757-200 aircraft and 30 B767-300F aircraft for delivery between 1997 and 2008,
if additional aircraft are required.
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15
Vehicles
UPS owns and operates a fleet of approximately 132,000 vehicles and
leases 2,400 vehicles, ranging in size from panel delivery cars to large
tractors and trailers, including 1,483 temperature-controlled trailers owned by
Martrac and 3,917 vehicles owned by UPS Truck Leasing. During 1994,
approximately 4,245 package cars, tractors and trailers were purchased and
approximately 3,764 older vehicles were retired.
Item 3. Legal Proceedings.
While UPS is routinely involved in litigation relating to the conduct
of its business, there are no pending legal proceedings which, individually or
in the aggregate, are material to the business of UPS. UPS was subject to tax
audits by the United States Internal Revenue Service for the 1983 through 1987
tax years. Information regarding the tax audit is incorporated herein by
reference from Note 4 to the Consolidated Financial Statements filed herewith.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for the Registrant's Common Equity And Related Stockholder
Matters.
UPS is authorized to issue 900,000,000 shares of common stock, par
value $.10 per share, of which 580,000,000 shares were issued and outstanding
(including those shares held by UPS for distribution in connection with its
stock plans) as of February 28, 1995. UPS is also authorized to issue
200,000,000 shares of preferred stock, without par value. No shares of
preferred stock have been issued or are outstanding.
Each share of UPS Common Stock is entitled to one vote in the election
of directors and other matters, except that, generally, any shareowner, or
shareowners acting as a group, who beneficially own more than 10 percent of the
voting stock are entitled to only one one-hundredth of a vote with respect to
each vote in excess of 10 percent of the voting power of the then outstanding
shares of voting stock. Holders have no preemptive or other right to subscribe
to additional shares. In the event of liquidation or dissolution, they are
entitled to share ratably in the assets available after payment of all
obligations. The shares are not redeemable by UPS except through UPS's
exercise of the preferential right of purchase mentioned below and, in the case
of stock subject to the UPS Managers Stock Trust, UPS's right of purchase in
the circumstances described herein.
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Shareowners are entitled to such dividends as are declared by the
Board of Directors. The policy of the UPS Board is to declare dividends each
year out of current earnings. However, the declaration of future dividends is
subject to the discretion of the Board of Directors in light of all relevant
facts, including UPS's earnings, general business conditions and capital
requirements.
UPS Common Stock is not listed on a national securities exchange or
traded in the organized over-the-counter market. The UPS Certificate of
Incorporation provides that no outstanding shares of UPS capital stock entitled
to vote generally in the election of directors may be transferred to any other
person, except by bona fide gift or inheritance, unless the shares shall have
first been offered, by written notice, for sale to UPS at the same price and on
the same terms upon which they are to be offered to the proposed transferee.
UPS has the right, within 30 days after receipt of the notice, to
purchase all or a part of the shares at the price and on the terms offered. If
it fails to exercise or waives the right, the shareowner may, within a period
of 20 days thereafter, sell to the proposed transferee all, but not part, of
the shares which UPS elected not to purchase, for the price and on the terms
described in the offer. All transferees of shares hold their shares subject to
the same restriction. Shares previously offered but not transferred within the
20 day period remain subject to the initial restrictions. Shares may be
pledged or otherwise used for security purposes, but no transfer may be made
upon a foreclosure of the pledge until the shares have been offered to UPS at
the price and on the terms and conditions bid by the purchaser at the
foreclosure.
UPS, from time to time, has waived its right of first refusal to
purchase its shares in order to permit managers and supervisors to purchase
shares at the same price as UPS was willing to pay. The grant of waivers in
these cases has been effected after considering the needs of UPS for purposes
of the UPS Managers Incentive Plan and UPS's 1986 and 1991 Stock Option Plans
("Plans") and other corporate purposes and has been subject to those needs.
Persons who purchase shares in this manner are required to deposit them in the
UPS Managers Stock Trust.
UPS notifies its shareowners periodically of its willingness to
purchase shares at specified prices determined by the Board of Directors, in
the event that shareowners wish to sell their shares. During 1994, UPS
purchased 29,290,052 shares at an aggregate purchase price of approximately
$632 million.
In determining the prices, the Board considers a variety of factors,
including past and current earnings, earnings estimates, the ratio of UPS
Common Stock to debt of UPS, other factors affecting the business and outlook
of UPS and general economic conditions, as well as opinions furnished from time
to time by two firms of investment counselors, each acting independently, as
to the value of UPS shares. The Board has not followed any predetermined
formula. It has considered a number of formulas commonly used in the
evaluation of securities of closely held and of publicly held companies, but
its decisions have been based primarily on the judgment of the Board of Direc-
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tors as to the long-range prospects of UPS rather than what the Board considers
to be the short-term trends relating to UPS or the values of securities
generally. Thus, for example, the Board has not given substantial weight to
short-term variations in average price-earnings ratios of publicly traded
securities which at times have been considerably higher, and at other times,
considerably lower, than those for UPS's securities. However, the Board's
decision as to prices does take into account factors affecting generally the
market prices of publicly traded securities, and prolonged changes in those
prices could have an effect on the prices offered by UPS.
One factor in determining the prices at which securities trade in the
organized markets is that of supply and demand. When demand is high in relation
to the shares which investors seek to sell, prices tend to increase, while
prices tend to decrease when demand is low in relation to the shares being
sold. To date, the UPS Board of Directors has not given significant weight to
considerations of supply and demand in determining the price to be paid by UPS
for its shares. UPS has had a need for many of its shares for purposes of
awards under the Plans, and eligible managers and supervisors have purchased
many other available shares. When the number of shares acquired by UPS exceeds
the number needed for these purposes within a reasonable period, the excess
shares are constructively retired and treated as authorized and unissued shares
by UPS.
UPS intends to continue its policy of purchasing a limited number of
shares when offered by shareowners. However, there can be no assurance of
continuation of that policy. The feasibility of purchases by UPS and the
prices at which shares may be purchased are both subject to the continued
maintenance by UPS of satisfactory earnings and financial condition. Hence,
both the salability of UPS shares and the prices at which they may be sold
would be adversely affected by a continuous decline of UPS's earnings or by
unfavorable changes in its financial position and might be adversely affected
by decisions of shareowners to sell substantially more shares than the Board
considers necessary for the ultimate purpose of making awards under the Plans.
The prices at which UPS has published notices of its willingness to
purchase shares of Common Stock since January 1993 have been as follows:
Dates Price
----- -----
1993
----
January 1 to February 18 $18.50
February 19 to May 19 $18.75
May 20 to August 18 $19.25
August 19 to November 17 $19.75
November 18 to February 16, 1994 $20.75
1994 Price
---- -----
February 17 to May 25 $21.25
May 26 to August 24 $22.00
August 25 to November 17 $23.00
November 18 to February 15, 1995 $23.50
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On February 16, 1995, UPS expressed its willingness to purchase shares
at $23.75 per share, which is still the price at the date of this report.
In February 1995, UPS distributed an aggregate of 6,487,408 shares of
UPS Common Stock, subject to the UPS Managers Stock Trust, under the UPS
Managers Incentive Plan to a total of 29,462 employees at a managerial or
supervisory level. In February 1994, it distributed an aggregate of 6,325,902
shares of UPS Common Stock under that Plan to a total of 28,096 managerial or
supervisory employees. The UPS Managers Stock Trust and the Managers Incentive
Plan have been previously described in the UPS Registration Statement on Form
10 and in the UPS Prospectus, dated February 1, 1995, relating to the UPS
Managers Incentive Plan awards. Such distributions do not represent "sales" as
defined under the Securities Act of 1933, as amended (the "1933 Act").
However, the shares awarded were registered under the 1933 Act to permit
resales of the shares consistent with the interpretations of the Securities and
Exchange Commission under Rule 144 adopted under the 1933 Act.
During 1994, 1,215,680 shares of UPS Common Stock were distributed to
1,881 employees upon the exercise of stock options granted to them by UPS under
the 1986 Stock Option Plan. In addition, a total of 5,433,772 shares of UPS
Common Stock were sold, pursuant to a stock offering by UPS, to 13,373 UPS
managers and supervisors. The offering has been previously described in the
UPS Registration Statement on Form S-3 (No. 33-54297), which became effective
in August 1994. The shares issued upon exercise of the options and the shares
purchased pursuant to the offering are subject to the UPS Managers Stock Trust.
During 1994, UPS also sold 15 million shares of UPS Common Stock to the UPS
Thrift Plan at a price of $330 million.
Shares of UPS Common Stock issued to employees under the Plans and
most other shares of UPS Common Stock owned by UPS employees are held subject
to the UPS Managers Stock Trust (the "Trust"). First Fidelity Bank
("Fidelity") serves as trustee under the Trust. The Trust agreement gives UPS
the right to purchase the shares of UPS Common Stock of members deposited in
the Trust at their fair market value, as defined, when the member retires, dies
or ceases to be an employee of UPS, or when the member requests the withdrawal
of shares from the Trust. Fair market value is defined as the fair market
value of the shares at the time of the sale, or in the event of differences of
opinion as to value, the average price per share of all shares of UPS sold
during the 12 months preceding the sale involved. UPS becomes entitled to
purchase shares of UPS Common Stock held under the Trust within 60 days of a
request from the member to release the shares from the Trust and upon
occurrence of the other enumerated events. The time during which UPS may
purchase shares of UPS Common Stock following the cessation of employment
varies from three years to thirteen years, depending upon the number of shares
held by the employee and the date of the applicable trust agreement. In the
event UPS fails to exercise its option within the prescribed periods, the
employee would become entitled, upon request, to the delivery of the shares of
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UPS Common Stock free and clear of the Trust, unless the purchase period has
been extended by agreement of UPS and the shareowner. UPS has consistently
exercised its purchase rights.
Members of the Trust are entitled to the dividends on shares of UPS
Common Stock held for their accounts (except that stock dividends are added to
the shares held by the Trustee for the benefit of the individual members), to
direct the Trustee as to how the shares held for their benefit are to be voted
and to request proxies from the Trustee to vote shares held for their accounts.
In January 1995, UPS paid a cash dividend of $.30 a share. For the
fiscal year ended December 31, 1994, UPS paid cash dividends of $.25 a share
in January 1994 and $.25 in June 1994. For the fiscal year ended December 31,
1993, UPS paid a cash dividend of $.25 a share in June 1993.
UPS intends to continue its policy of paying dividends to its
shareowners. However, the declaration of future dividends is subject to the
discretion of the Board of Directors in light of all relevant facts, including
earnings, general business conditions and working capital requirements. Loan
agreements, to which UPS is a party, limit the amount which UPS may declare as
dividends and use for the repurchase of its Common Stock. The most restrictive
of these agreements limits the declaration of dividends, other than stock
dividends, and payments for the purchase of Common Stock to the extent that
such declarations and payments, together with all other payments made
subsequent to January 1, 1985 would exceed, in the aggregate, (i) $250,000,000,
(ii) 66-2/3% of net income, as defined in the agreement, and (iii) the net
proceeds from the issuance, sale or disposition of any shares of stock of UPS
or any warrants or other rights to purchase such stock subsequent to January 1,
1985. As of December 31, 1994 UPS had approximately $979 million not subject
to these restrictions. These limits do not materially restrict the declaration
of dividends.
Set forth below is the approximate number of record holders of equity
securities of UPS as of February 28, 1995.
Number of
Title of Class Record Holders
-------------- --------------
Common Stock of UPS, $.10 par value 2,587
Common Stock of UPS, $.10 par value, 44,528(1)
subject to UPS Managers Stock Trust
________________________________________________________________________________
1. Refers to beneficial owners. The record holder of the shares of
Common Stock subject to the Trust is Saul & Co., as nominee for First
Fidelity Bank, N.A., Newark, New Jersey, as Trustee.
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Item 6. Selected Financial Data.
Selected Income Statement Data:
(000's omitted, except for per share amounts) Year ended December 31,
---------------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Revenue............................ $19,575,690 $17,782,353 $16,518,621 $15,019,830 $13,606,344
Operating expenses................. (18,019,744) (16,324,681) (15,240,837) (13,768,574) (12,554,167)
Interest income.................... 13,762 19,846 22,433 27,572 22,278
Interest expense................... (29,211) (34,000) (41,918) (51,794) (71,999)
Miscellaneous -- net............... 34,879 (11,821) 10,996 (9,969) (2,572)
Income taxes....................... (632,047) (622,062) (504,223) (516,895) (403,108)
----------- ----------- ----------- ----------- -----------
Income before cumulative
effect of a change in
accounting principle............. 943,329 809,635 765,072 700,170 596,776
Cumulative effect of a change
in the method of accounting
for postretirement benefits
other than pensions.............. --- --- (248,905) --- ---
----------- ----------- ----------- ----------- -----------
Net income......................... $ 943,329 $ 809,635 $ 516,167 $ 700,170 $ 596,776
=========== =========== =========== =========== ===========
% of revenue after cumulative
effect of a change in
accounting principle........... 4.8% 4.6% 3.1% 4.7% 4.4%
=========== =========== =========== =========== ===========
Per share amounts (1):
Income before cumulative effect
of a change in accounting
principle...................... $ 1.63 $ 1.40 $ 1.29 $ 1.14 $ 0.95
Cumulative effect of a change
in the method of accounting
for postretirement benefits
other than pensions............ --- --- (0.42) -- --
----------- ----------- ----------- ----------- -----------
Net income per share............. $ 1.63 $ 1.40 $ 0.87 $ 1.14 $ 0.95
=========== =========== =========== =========== ===========
Dividends per share................ $ 0.55 $ 0.50 $ 0.50 $ 0.48 $ 0.48
=========== =========== =========== =========== ===========
Selected Balance Sheet Data:
(000's omitted)
December 31,
------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Working Capital.................... $ 120,994 $ 3,745 $ 61,687 $ 172,635 $ 68,328
=========== =========== =========== =========== ===========
Long-term debt..................... $ 1,127,405 $ 852,266 $ 862,378 $ 830,634 $ 854,687
=========== =========== =========== =========== ===========
Total assets....................... $11,182,404 $ 9,573,831 $ 9,037,817 $ 8,858,561 $ 8,176,056
=========== =========== =========== =========== ===========
___________________________
(1) All per share amounts have been restated to reflect the 4-for-1 stock
split effective September 6, 1991.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Operations
1994 Compared to 1993
Revenue increased $1.793 billion, or 10.1%, during 1994 compared to
1993. For 1994, domestic revenue totaled $17.298 billion, an increase of
$1.475 billion, or 9.3%, over 1993 and international revenue totaled $2.278
billion, an increase of $318 million, or 16.2%, over 1993.
Domestic revenue increased as a result of higher volume which was up
2.3%, favorable changes in rates and a continuing shift toward higher yielding
packages. During the first quarter of 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 8.0%. The majority of the increased volume related
to higher yielding, export packages.
Operating expenses increased by $1.695 billion, or 10.4%, which was
commensurate with the increase in revenues. Higher wages and employee benefits
accounted for the majority of the increase. Other operating expenses were up
in a variety of categories with the largest increases relating to depreciation
and purchased transportation. As part of UPS's overall effort to lower
operating expenses, it is considering a possible reduction in the number of
managers it employs from the current level of approximately 35,000. However,
no decisions have been made as to the size of a possible reduction. UPS is
considering the extent to which its objectives can be met through attrition,
early retirement and possible layoffs. Therefore, the projected savings or
expenses associated with a possible reduction in the number of managers cannot
be determined.
Operating profit for 1994 increased by $98 million, or 6.7%. This
increase resulted primarily from higher revenue discussed above.
Income before income taxes and cumulative effect of a change in
accounting principle ("pre-tax income") increased by $144 million, or 10.0%.
Domestic pre-tax income amounted to $1.902 billion, an increase of $204
million, or 12.0%, over 1993. This increase was a result of higher operating
profit and the sale of an investment property in January at a gain of
approximately $46 million. The
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international pre-tax loss increased by $60 million, or 22.6%, bringing the
total international pre-tax loss to $327 million for 1994.
The international pre-tax loss attributable to the foreign domestic
operations increased by $56 million, or 31.8%, primarily as a result of
competitive factors. The pre-tax loss associated with export operations
increased by $4 million, or 4.8%. Export volume increased by 48.0% and 16.3%
for international and U.S. origin, export shipments, respectively. UPS expects
the cost of operating its international business will continue to exceed
revenue in the near future.
Net income increased by $134 million, or 16.5%. 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 7 to the consolidated
Financial Statements.
1993 Compared to 1992
Revenue increased $1.264 billion, or 7.7%, during 1993 compared to
1992. For 1993, domestic revenue totaled $15.823 billion, an increase of
$1.101 billion, or 7.5%, over 1992, and international revenue totalled $1.960
billion, an increase of $163 million, or 9.1%, over 1992. Domestic revenue
increased as a result of favorable changes in rates and a shift toward higher
yielding packages. Increases in published rates during the first quarter of
1993 ranged from 4.9% to 5.9% for domestic air shipments and averaged
approximately 4.5% for domestic ground shipments. These increases offset a
0.6% decline in domestic volume during 1993. The increase in international
revenue was attributable to higher volume, which was up 11.8%. However, the
effect of the international volume increase on revenue was partially offset by
a decrease in revenue per piece. This decrease resulted from competitive
pressures and poor economic conditions in certain foreign markets along with
currency exchange rate fluctuations with respect to the U.S. dollar and
discounting in connection with efforts to build volume.
Operating expenses increased by $1.084 billion, or 7.1%. The increase
was primarily the result of increases in average pay rates and employee
benefits. In November 1993, UPS entered into a new, four-year labor agreement
with the International Brotherhood of Teamsters ("Teamsters"). The new
agreement resulted in hourly increases in wages and employee benefits for
senior drivers of $2.25 and $1.80, respectively, over the four-year term. The
agreement will result in similar increases in wages and employee benefits for
the Company's other Teamsters employees. Terms of the agreement were effective
August 1, 1993.
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23
Operating profit for 1993 increased by $180 million, or 14.1%. This
increase resulted primarily from higher revenue.
Income before income taxes and cumulative effect of a change in
accounting principle ("pre-tax income") increased by $162 million, or 12.8%.
Domestic pre-tax income amounted to $1.698 billion, an increase of $153
million, or 9.9%, over 1992 as a result of higher operating profit. The
international pre-tax loss decreased by $10 million, or 3.5% bringing the
international pre-tax loss to $267 million for 1993. This change resulted from
improved export operations and favorable swings in currency exchange rates
offset by declines in foreign domestic operations.
The international pre-tax loss attributable to the foreign domestic
operations increased by $71 million, or 68.2%, primarily as a result of weak
economic conditions and tough competition. The pre-tax loss associated with
export operations decreased by $81 million, or 47.1%, as a result of increased
volume and the achievement of greater cost efficiencies in the international
network. Export volume increased by 36.1% and 35.7% for international and U.S.
origin, export shipments, respectively.
The provision for income taxes increased by approximately $118
million, or 23.4%. This increase is a result of higher pre-tax income as well
as an increase in the U.S. federal income tax rate, as described more fully in
Note 7 to the Consolidated Financial Statements.
Income before cumulative effect of a change in accounting principle
increased by $45 million, or 5.8%. This increase resulted from the increase in
pre-tax income, partially offset by the increase in the U.S. federal income tax
rate.
Liquidity and Capital Resources
UPS believes that its internally generated funds, revolving credit
facilities and commercial paper program (discussed below) 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 of $2.2 billion for land, buildings, equipment
and aircraft in 1995, as well as commitments for aircraft purchases through
2000.
During the fourth quarter of 1993, UPS established a commercial paper
program under which it may borrow up to $500 million on a short-term, unsecured
basis at favorable rates. The amount which UPS can borrow under this program
was increased to $1 billion in 1995.
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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 agent
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.
Item 8. Financial Statements and Supplementary Data.
Financial Statements
The Financial Statements of UPS are filed together with this Report:
see Index to Financial Statements, page F-1, which is incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
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PART III
Item 10. Directors and Executive Officers of the Registrant.
Information regarding the Directors of UPS is presented under the
caption "Election of Directors" in UPS's definitive Proxy Statement for the
Annual Meeting of Shareowners to be held on May 11, 1995, which will be filed
with the Securities and Exchange Commission (the "SEC") by March 31, 1995, is
incorporated herein by reference.
Information concerning UPS's executive officers can be found in Part
I, Item 1, of this Form 10-K under the caption "Executive Officers" in
accordance with Instruction 3 of Item 401(b) of Regulation S-K and General
Instruction G(3) of Form 10-K.
Item 11. Executive Compensation.
Information in answer to this Item 11 is presented under the caption
"Compensation of Executive Officers and Other Information" excluding the
information under the captions "Report of the Officer Compensation Committee on
Executive Compensation" and "Shareowner Return Performance Graph" in UPS's
definitive Proxy Statement for the Annual Meeting of Shareowners to be held on
May 11, 1995, which will be filed with the SEC by March 31, 1995, is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information in answer to this Item 12 is presented under the caption
"Stock Ownership" in UPS's definitive Proxy Statement for the Annual Meeting of
Shareowners to be held on May 11, 1995, which will be filed with the SEC by
March 31, 1995, is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information in answer to this Item 13 is presented under the captions
"Certain Business Relationships" and "Common Relationships with Overseas
Partners Ltd." in UPS's definitive Proxy Statement for the Annual Meeting of
Shareowners to be held on May 11, 1995, which will be filed with the SEC by
March 31, 1995, is incorporated herein by reference.
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements.
- See Index to Financial Statements and Financial
Statement Schedules at page F-1, which is incorporated herein by reference.
2. Financial Statement Schedules
- Not applicable
3. List of Exhibits.
- See Exhibit Index at page E-1, which is incorporated
herein by reference.
(b) Reports on Form 8-K.
- No reports on Form 8-K were filed during the quarter ended
December 31, 1994
(c) Exhibits required by Item 601 of Regulation S-K.
- See Exhibit Index at page E-1, which is incorporated herein
by reference.
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27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, United Parcel Service of America, Inc. has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNITED PARCEL SERVICE OF AMERICA, INC.
(Registrant)
Date: March 29, 1995 By: /s/ Kent C. Nelson
---------------------------------
Kent C.Nelson
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ John W. Alden Senior Vice President March 29, 1995
------------------------- and Director
John W. Alden
/s/ William H. Brown, III Director March 29, 1995
-------------------------
William H. Brown, III
/s/ Robert J. Clanin Senior Vice President March 29, 1995
------------------------- Treasurer (Chief Financial
Robert J. Clanin and Accounting Officer)
Director , 1995
------------------------- ---------
Carl Kaysen
/s/ John J. Kelley Senior Vice President March 29, 1995
------------------------- and Director
John J. Kelley
/s/ James P. Kelly Executive Vice President March 29, 1995
------------------------- and Director
James P. Kelly
Director , 1995
------------------------- ---------
Gary E. MacDougal
/s/ Joseph R. Moderow Senior Vice President, March 29, 1995
------------------------- Secretary and Director
Joseph R. Moderow
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28
/s/ Kent C. Nelson Chairman of the Board March 29, 1995
------------------------- and Director (Chief
Kent C. Nelson Executive Officer)
Director , 1995
------------------------- ---------
Victor A. Pelson
Director , 1995
------------------------- ---------
John W. Rogers
/s/ Charles L. Schaffer Senior Vice President March 29, 1995
------------------------- and Director
Charles L. Schaffer
Director , 1995
------------------------- ---------
Robert M. Teeter
/s/ Calvin E. Tyler, Jr. Senior Vice President March 29, 1995
------------------------- and Director
Calvin E. Tyler, Jr.
-27-
29
UNITED PARCEL SERVICE OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
COMPRISING ITEMS 8 AND 14(a) (2) OF ANNUAL REPORT ON FORM 10-K
TO SECURITIES AND EXCHANGE COMMISSION
THREE YEARS ENDED DECEMBER 31, 1994
30
UNITED PARCEL SERVICE OF AMERICA, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
ITEM 8 - FINANCIAL STATEMENTS Page Number
----------------------------- -----------
Independent Auditors' Report F-2
Consolidated balance sheet F-3 and F-4
- December 31, 1994 and 1993
Statement of consolidated income
- Years ended December 31, 1994, 1993 and 1992 F-5
Statement of consolidated shareowners' equity
- Years ended December 31, 1994, 1993 and 1992 F-6
Statement of consolidated cash flows
- Years ended December 31, 1994, 1993 and 1992 F-7
Notes to consolidated financial statement schedule F-8 to F-23
Items 14(a) (2) - Financial Statement Schedules
------------------------------------------------
All schedules are omitted because they are not applicable, or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
31
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareowners
United Parcel Service of America, Inc.
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of United Parcel
Service of America, Inc., and its subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of income, shareowners' equity,
and cash flows for each of the three years in the period ended December 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of United Parcel Service of America,
Inc., and its subsidiaries at December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in Note 5 to the consolidated financial statements, in 1992 the
Company changed its method of accounting for postretirement benefits other
than pensions to conform with Statement of Financial Accounting Standards No.
106.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 8, 1995
F-2
32
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1994 and 1993
(000's omitted except share amounts)
Assets
1994 1993
---- ----
Current Assets:
Cash and short-term investments $ 261,038 $ 280,960
Accounts receivable 1,592,494 1,159,612
Prepaid employee benefit costs 439,430 216,565
Materials, supplies and other
prepaid expenses 381,179 442,582
Common stock held for stock plans 349,338 283,112
---------- ---------
Total Current Assets 3,023,479 2,382,831
---------- ---------
Property, Plant and Equipment:
Vehicles 2,767,493 2,661,407
Aircraft 3,707,654 2,936,940
Land 622,936 617,381
Buildings 1,359,967 1,257,963
Leasehold improvements 1,416,784 1,337,315
Plant equipment 2,660,881 2,266,811
Construction-in-progress 557,186 391,171
---------- ----------
13,092,901 11,468,988
Less accumulated depreciation 5,325,159 4,705,218
---------- ----------
7,767,742 6,763,770
---------- ----------
Other Assets 391,183 427,230
---------- ----------
$ 11,182,404 $ 9,573,831
========== ==========
See notes to consolidated financial statements.
F-3
33
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1994 and 1993
(000's omitted except share amounts)
Liabilities and Shareowners' Equity
1994 1993
---- ----
Current Liabilities:
Accounts payable $ 1,082,056 $ 728,808
Accrued wages and withholdings 1,080,554 918,943
Dividends payable 170,037 141,281
Deferred income taxes 136,260 74,545
Other current liabilities 433,578 515,509
---------- ---------
Total Current Liabilities 2,902,485 2,379,086
---------- ---------
Long-Term Debt 1,127,405 852,266
---------- ---------
Accumulated Postretirement Benefit
Obligation, Net 588,860 518,726
---------- ---------
Deferred Taxes, Credits and Other
Liabilities 1,916,405 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 295,441 264,401
Retained earnings 4,276,784 3,644,047
Cumulative foreign currency
adjustments 17,024 (21,939)
---------- ---------
4,647,249 3,944,509
---------- ---------
$ 11,182,404 $ 9,573,831
========== =========
Shareowners' Equity Per Share $ 8.01 $ 6.80
========== =========
See notes to consolidated financial statements.
F-4
34
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
Years Ended December 31, 1994, 1993 and 1992
(000's omitted except per share amounts)
1994 1993 1992
---- ---- ----
Revenue $ 19,575,690 $ 17,782,353 $ 16,518,621
------------ ------------ ------------
Operating Expenses:
Wages and employee benefits 11,726,807 10,661,081 9,707,793
Other 6,292,937 5,663,600 5,533,044
------------ ------------ ------------
18,019,744 16,324,681 15,240,837
------------ ------------ ------------
Operating profit 1,555,946 1,457,672 1,277,784
------------ ------------ ------------
Other Income and (Expense):
Interest income 13,762 19,846 22,433
Interest expense (29,211) (34,000) (41,918)
Miscellaneous, net 34,879 (11,821) 10,996
------------ ------------ ------------
19,430 (25,975) (8,489)
------------ ------------ ------------
Income Before Income Taxes and
Cumulative Effect of a Change
in Accounting Principle 1,575,376 1,431,697 1,269,295
Income Taxes 632,047 622,062 504,223
------------ ------------ ------------
Income Before Cumulative Effect
of a Change in Accounting
Principle 943,329 809,635 765,072
Cumulative Effect of a Change
in the Method of Accounting
for Postretirement Benefits
Other Than Pensions - - (248,905)
------------ ------------ ------------
Net income $ 943,329 $ 809,635 $ 516,167
============ ============ ============
Per Share Amounts:
Income before cumulative
effect of a change in
accounting principle $ 1.63 $ 1.40 $ 1.29
Cumulative effect of a change in
the method of accounting for
postretirement benefits other
than pensions - - (0.42)
------------ ------------ ------------
Net income per share $ 1.63 $ 1.40 $ 0.87
============ ============ ============
See notes to consolidated financial statements.
F-5
35
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREOWNERS' EQUITY
Years Ended December 31, 1994, 1993 and 1992
(000's omitted except per share amounts)
Cumulative
Additional Foreign Total
Common Stock Paid-in Retained Currency Shareowners'
Shares Amount Capital Earnings Adjustments Equity
------ ------ ---------- -------- ----------- ------------
Balance, January 1, 1992 616,000 $61,600 $238,475 $3,502,540 $ 70,537 $3,873,152
Net income - - - 516,167 - 516,167
Dividends ($.50 per share) - - - (293,225) - (293,225)
Gain on issuance of common
stock held for stock plans - - 10,838 - - 10,838
Exercise of stock options - - (7,461) - - (7,461)
Foreign currency adjustments - - - - (45,746) (45,746)
Redemption of common stock (21,000) (2,100) - (331,193) - (333,293)
-------- ------- -------- ---------- -------- ----------
Balance, December 31, 1992 595,000 59,500 241,852 3,394,289 24,791 3,720,432
Net income - - - 809,635 - 809,635
Dividends ($.50 per share) - - - (285,193) - (285,193)
Gain on issuance of common
stock held for stock plans - - 20,795 - - 20,795
Exercise of stock options - - 1,754 - - 1,754
Foreign currency adjustments - - - - (46,730) (46,730)
Redemption of common stock (15,000) (1,500) - (274,684) - (276,184)
-------- ------- -------- ---------- -------- ----------
Balance, December 31, 1993 580,000 58,000 264,401 3,644,047 (21,939) 3,944,509
Net income - - - 943,329 - 943,329
Dividends ($.55 per share) - - - (310,592) - (310,592)
Gain on issuance of common
stock held for stock plans - - 36,882 - - 36,882
Exercise of stock options - - (5,842) - - (5,842)
Foreign currency adjustments - - - - 38,963 38,963
-------- ------- -------- ---------- -------- ----------
Balance, December 31, 1994 580,000 $58,000 $295,441 $4,276,784 $ 17,024 $4,647,249
======== ======= ======== ========== ======== ==========
See notes to consolidated financial statements.
F-6
36
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
Years Ended December 31, 1994, 1993 and 1992
(000's omitted)
1994 1993 1992
---- ---- ----
Cash flows from operating activities:
Net income $ 943,329 $ 809,635 $ 516,167
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 786,122 691,397 662,031
Postretirement benefits 70,134 50,063 468,663
Deferred taxes, credits and other 78,858 117,254 (27,516)
Changes in assets and liabilities:
Accounts receivable (432,882) (67,233) (91,527)
Prepaid employee benefit costs (222,865) (60,012) (77,038)
Materials, supplies and prepaid
expenses (6,514) 2,137 64,713
Common stock held for stock plans (66,226) 49,977 (27,864)
Accounts payable 353,248 (78,024) 19,422
Accrued wages and withholdings 161,611 86,150 18,765
Dividends payable 28,756 141,281 (81,798)
Other current liabilities (78,019) 11,192 6,355
----------- ----------- ----------
Net cash from operating activities 1,615,552 1,753,817 1,450,373
----------- ----------- ----------
Cash flows from investing activities:
Capital expenditures - net (1,677,343) (1,097,036) (929,261)
Other asset receipts and (payments) 42,194 41,667 (44,602)
----------- ----------- ----------
Net cash (used in) investing
activities (1,635,149) (1,055,369) (973,863)
----------- ----------- ----------
Cash flows from financing activities:
Proceeds from borrowings 322,455 203,670 36,318
Repayment of borrowings (51,465) (212,808) (36,440)
Redemption of common stock - (276,184) (333,293)
Dividends paid (310,592) (285,193) (293,225)
Other transactions 31,040 22,549 3,377
----------- ----------- ----------
Net cash (used in) financing
activities (8,562) (547,966) (623,263)
----------- ----------- ----------
Effect of exchange rate changes on cash 8,237 (2,920) (7,122)
----------- ----------- ----------
Net increase (decrease) in cash and
short-term investments (19,922) 147,562 (153,875)
Cash and short-term investments:
Beginning of year 280,960 133,398 287,273
----------- ----------- ----------
End of year $ 261,038 $ 280,960 $ 133,398
=========== =========== ==========
Cash paid during the period for:
Interest, net of amount capitalized $ 38,498 $ 42,022 $ 41,784
=========== =========== ==========
Income taxes $ 661,672 $ 569,759 $ 363,503
=========== =========== ==========
See notes to consolidated financial statements.
F-7
37
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1994, 1993 and 1992
1. SUMMARY OF ACCOUNTING POLICIES
Basis of Financial Statements and Business Activities
The accompanying consolidated financial statements include the accounts
of United Parcel Service of America, Inc., and all of its subsidiaries
(collectively "UPS"). All material intercompany balances and transactions have
been eliminated.
UPS concentrates its operations in the field of transportation services,
primarily domestic and international package delivery. Revenue is recognized
upon delivery of a package.
Cash Equivalents
Cash equivalents (short-term investments) consist of highly liquid
investments which are readily convertible into cash. The carrying amount
approximates fair value because of the short-term maturity of these
instruments.
Common Stock Held for Stock Plans
UPS accounts for its common stock held for distribution pursuant to
awards under the UPS Managers Incentive Plan and the UPS Stock Option Plan as a
current asset. The liability for the amount of the annual managers incentive
award is included in accrued wages and withholdings. Common stock held in
excess of current requirements is accounted for as a reduction in Shareowners'
Equity.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation
(including amortization) is provided by the straight-line method over the
estimated useful lives of the assets, which are as follows: Vehicles - 9
years; Aircraft - 12 to 20 years; Buildings - 10 to 40 years; Leasehold
Improvements - lives of leases; Plant Equipment - 8 1/3 years.
Costs in Excess of Net Assets Acquired
Costs in excess of net assets acquired are amortized over a 10-year
period using the straight-line method.
F-8
38
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1994, 1993 and 1992
Income Taxes
Deferred income taxes result primarily from the use of accelerated
depreciation methods allowable for income tax purposes, certain differences in
asset lives adopted for income tax purposes, temporary differences between the
accrual and payment of employee compensation and investments in leveraged
leases. UPS adopted Statement of Financial Accounting Standards ("FAS") No.
96, "Accounting for Income Taxes," in 1987, and FAS 109, "Accounting for Income
Taxes," in 1993.
The benefit of investment tax credits is amortized over seven years
except investment tax credits from the investment in leveraged leases, which is
amortized over the life of the lease.
Capitalized Interest
Interest incurred during the construction period of certain property,
plant and equipment is capitalized until the underlying assets are placed in
service, at which time amortization of the capitalized interest begins,
straight-line, over the estimated useful lives of the related assets.
Capitalized interest was $45,400,000, $27,800,000, and $26,500,000 for 1994,
1993 and 1992, respectively.
Derivative Instruments
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.
Changes in Presentation
Certain prior year amounts have been reclassified to conform to the
current year presentation.
F-9
39
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1994, 1993 and 1992
2. LONG-TERM DEBT
Long-term debt, as of December 31, consists of the following (000's
omitted):
1994 1993
---- ----
8.375% debentures,
due April 1, 2020 $ 700,000 $ 700,000
Commercial paper 263,266 -
Industrial development bonds,
Philadelphia Airport
facilities due
December 1, 2015 100,000 100,000
Installment notes, mortgages
and bonds 41,321 30,021
Investment properties -
nonrecourse mortgages 24,493 27,833
--------- ---------
1,129,080 857,854
Less current maturities 1,675 5,588
--------- ---------
$1,127,405 $ 852,266
========= =========
The debentures are not subject to redemption prior to maturity and are
not subject to sinking fund requirements. Interest is payable semi-annually on
the first of April and October. The average interest rate on the commercial
paper outstanding as of December 31, 1994, was 6.0%. The commercial paper has
been classified as long-term debt in accordance with the Company's intention
and ability to refinance such obligations on a long-term basis. However, the
amount of commercial paper outstanding in 1995 is expected to fluctuate and may
be reduced from time to time. The industrial development bonds bear interest
at either a daily, variable, or fixed rate. The average interest rates for
1994 and 1993 were 2.7% and 2.2%, respectively. The installment notes,
mortgages and bonds bear interest at rates of 6.0% to 11.5%.
The aggregate annual principal payments for the next five years,
excluding commercial paper, are: 1995- $1,675,000; 1996- $3,720,000; 1997-
$3,105,000; 1998- $3,293,000; and 1999- $2,514,000.
F-10
40
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1994, 1993 and 1992
Based on the borrowing rates currently available to the Company for
long-term debt with similar terms and maturities, the fair value of long-term
debt is approximately $1,127,000,000 as of December 31, 1994.
3. COMMON STOCK PER SHARE DATA
Per share amounts related to income are based on 580,000,000 shares in
1994 and 1993 and 595,000,000 shares in 1992 and include Common Stock Held for
Stock Plans.
4. LEGAL PROCEEDINGS AND COMMITMENTS
UPS is a defendant in various lawsuits which arose in the normal course
of business. In the opinion of management, none of these cases are expected to
have a material effect on the financial condition of UPS.
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.
F-11
41
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1994, 1993 and 1992
UPS leases certain operating facilities and aircraft, the majority of
which are from related parties, including various UPS employee benefit plans.
These leases expire at various dates through 2030. Total aggregate minimum
lease commitments are as follows (000's omitted):
Year Amount
---- ------
1995 $ 256,144
1996 199,423
1997 149,484
1998 116,900
1999 98,053
After 1999 733,028
----------
$1,553,032
==========
UPS maintains two credit agreements with a consortium of banks which
provide revolving credit facilities of $500,000,000 each, with one expiring
June 12, 1995 and the other June 14, 1996. At December 31, 1994, there were no
outstanding borrowings under these facilities. As of December 31, 1994, UPS
has outstanding letters of credit totaling approximately $783,732,000 issued in
connection with routine business requirements.
At December 31, 1994, UPS had commitments outstanding for capital
expenditures under purchase orders and contracts of approximately $3.4 billion,
of which approximately $1.2 billion is expected to be spent in 1995.
5. EMPLOYEE BENEFIT PLANS
UPS maintains the UPS Retirement Plan (the "Plan"). The Plan is a
defined benefit plan which provides employees annual defined retirement
benefits. The Plan is noncontributory and all employees who meet certain
minimum age and years of service are eligible, except those covered by certain
multi-employer plans provided for under collective bargaining agreements.
The Plan provides for retirement benefits based on average compensation
levels earned by employees during certain years of service preceding
retirement. The Plan's assets consist primarily of publicly traded stocks and
bonds. In addition, the Plan's assets include 8,052,840 shares of UPS common
stock at both December 31, 1994 and 1993. The actual earnings on the Plan's
assets were $88,944,000, $224,405,000, and $124,661,000, in 1994, 1993 and
1992, respectively. UPS's funding policy is consistent with relevant federal
tax regulations. Accordingly, UPS contributes amounts deductible for federal
income tax purposes.
F-12
42
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1994, 1993 and 1992
Pension expense, consisting of various component parts, and certain
assumptions used during the years ended December 31, are as follows (000's
omitted):
1994 1993 1992
---- ---- ----
Current year's earned
benefit $115,638 $ 97,230 $ 81,173
Interest on projected
benefit obligation 144,585 121,934 107,646
Expected earnings on
pension plan assets (151,107) (120,655) (99,772)
Amortization of
unrecognized benefit
obligation:
Net obligation at
transition date 5,203 5,203 5,203
Effect of plan
benefit amendments 11,698 11,741 11,741
Net amortization of
unrecognized investment
gains and changes in
actuarial assumptions
and experience 4,277 - -
------- ------- -------
Provision for pension
expense $130,294 $115,453 $105,991
======= ======= =======
Expected long-term
rate of earnings 9.5% 9.5% 9.5%
on plan assets
Weighted average discount
rate 9.0% 7.5% 8.25%
Rate of increase in future
compensation levels 4.25% 4.25% 5.0%
F-13
43
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1994, 1993 and 1992
The following schedule reconciles the funded status of the Plan with
certain amounts included in the balance sheet as of December 31 (000's
omitted):
1994 1993
---- ----
Projected benefit obligation:
Accumulated benefits computed
using present salary levels:
Vested $1,024,811 $1,217,502
Nonvested 336,857 245,834
--------- ---------
1,361,668 1,463,336
Additional benefits computed
using projected salary levels 271,651 478,213
--------- ---------
Total projected benefit
obligation 1,633,319 1,941,549
Pension plan assets 1,874,126 1,645,387
--------- ---------
Difference 240,807 (296,162)
Unrecognized net investment gains
and changes in assumptions used to
compute projected benefit (323,418) 150,830
Unrecognized net benefit obligation
at transition date 49,432 54,635
Unrecognized projected benefit
obligation arising from amendments
to the retirement plan 163,450 175,149
--------- ---------
Prepaid pension cost $ 130,271 $ 84,452
========= =========
UPS also contributes to several multi-employer pension plans for which
the above information is not determinable. Amounts charged to operations for
contributions to pension plans other than the Plan described above were
$506,215,000, $455,842,000, and $407,879,000 during 1994, 1993 and 1992,
respectively.
UPS sponsors defined benefit postretirement medical plans that provide
health care benefits to its retirees who meet certain eligibility requirements
and who are not covered by multi-employer retirement plans. Generally, this
includes employees with at least 10 years of service who have reached age 55
and will be receiving benefits from one of the Company's retirement plans. The
Company has the right to modify or terminate certain of these plans.
Historically, these benefits have been provided to retirees on a
noncontributory basis; however, effective January 1, 1992, the Company made
modifications which will likely result in cost sharing in the future for
certain of its retirees.
F-14
44
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1994, 1993 and 1992
Prior to 1992, UPS had generally expensed the costs of these benefits on
a current, "pay as you go" basis. During 1992, UPS adopted the provisions of
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This Statement requires accrual
of postretirement benefits, which include health care benefits, during the
years an employee provides service.
The effect of adoption resulted in a one-time "catch-up" charge during
1992 of approximately $248.9 million, after tax, representing the cumulative
effect of the change as of January 1, 1992. In addition to the cumulative
effect, adoption of this Statement resulted in additional charges to income in
1994, 1993 and 1992 of approximately $64,300,000, $47,500,000, and $40,300,000,
respectively, after tax ($0.11, $0.08, and $0.07 per share, respectively).
Overall, net income for 1994, 1993 and 1992 was reduced $64,300,000,
$47,500,000, and $289,200,000, respectively, as a result of adoption ($0.11,
$0.08, and $0.49 per share, respectively).
The accumulated postretirement benefit obligation at December 31, is
detailed as follows (000's omitted):
1994 1993
---- ----
Accumulated postretirement benefit
obligation:
Retirees $127,771 $146,879
Fully eligible active plan
participants 60,623 69,933
Other active participants 564,607 626,303
------- -------
753,001 843,115
Plan assets at fair value 155,593 130,706
------- -------
Accumulated postretirement benefit
obligation in excess of plan
assets 597,408 712,409
Unrecognized net investment gains and
changes in assumptions used to
compute projected benefits (8,548) (193,683)
------- -------
Accumulated postretirement benefit
obligation, net $588,860 $518,726
======= =======
F-15
45
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1994, 1993 and 1992
Net periodic postretirement benefit cost for the years ended December
31, included the following components (000's omitted):
1994 1993 1992
---- ---- ----
Service cost-benefits
attributed to service
during the period $ 45,033 $ 34,413 $ 29,481
Interest cost on
accumulated postretirement
benefit obligation 65,933 54,878 44,904
Expected earnings on
plan assets (11,930) (11,137) (9,069)
Amortization of unrecognized
amounts 6,277 - -
------- ------- -------
Net periodic postretirement
benefit cost $105,313 $ 78,154 $ 65,316
======= ======= =======
The significant assumptions used in determining postretirement benefit
cost and the accumulated postretirement benefit obligation were as follows:
1994 1993 1992
---- ---- ----
Expected long-term rate of return
on plan assets 9.5% 9.5% 9.5%
Weighted average discount rate 9.0% 7.5% 8.25%
Future benefit costs were forecasted assuming an initial annual increase
of 10.25% for pre-65 medical costs and an increase of 9.25% for post-65 medical
costs, decreasing to 7.25% for pre-65 and 6.25% for post-65 by the year 2000
and with consistent annual increases at those ultimate levels thereafter. A
one percentage point increase in the annual trend rate would have increased the
total accumulated postretirement benefit obligation at December 31, 1994, by
$71.8 million and the aggregate of the service and interest components of the
net periodic postretirement benefit costs for 1994 by $11.5 million.
Plan assets consist primarily of publicly traded stocks and bonds. The
Trust holding the Plan assets is not subject to income taxes. UPS's funding
policy is consistent with relevant federal tax regulations. Accordingly, UPS
contributes amounts deductible for federal income tax purposes.
F-16
46
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1994, 1993 and 1992
6. MANAGEMENT INCENTIVE PLANS
UPS maintains the UPS Managers Incentive Plan. Persons earning the
right to receive awards are determined annually by either the Officer
Compensation Committee or the Salary Committee of the UPS Board of Directors.
Awards consist primarily of UPS common stock and cash equivalent to the tax
withholdings on such awards. The total of all such awards is limited to 15% of
consolidated income before federal income taxes for the 12-month period ending
each September 30, exclusive of gains and losses from the sale of real estate
and stock of subsidiaries. In addition, the cumulative effect of a change in
accounting principle was specifically excluded from the 1992 award calculation
in accordance with a vote of shareowners. Amounts charged to operations were
$255,482,000, $217,784,000, and $198,943,000, during 1994, 1993 and 1992,
respectively.
UPS maintains stock option plans. Originally, these plans were
established to issue Book Value Shares. Book Value Shares were shares of UPS
common stock with a stated value equal to the UPS book value per share as of
the year end immediately preceding the date of option grant. Voting, dividends
and liquidation rights for the Book Value Shares were the same as for other UPS
common stock. UPS repurchased all Book Value Shares immediately after their
issuance except for certain repurchases from officers and directors which were
deferred for up to six months.
Except in the case of death, disability, or retirement, options are
exercisable only during a limited period after the expiration of five years
from the date of grant but are subject to earlier cancellation or exercise
under certain conditions. The number of options and option prices for Book
Value Shares exercised under the Plans were 4,611,372 and $5.68 in 1992. There
were no Book Value Shares exercised during 1994 or 1993. Compensation expense
charged to operations related to exercise of these options was not material.
No further shares may be issued under the 1986 plan.
Prior to issuing options for any Book Value Shares, the 1991 Plan was
amended during 1992 to change it to a Current Price Plan. Under a Current
Price Plan, options are granted to purchase shares of UPS common stock at the
current price of UPS shares as determined by the Board of Directors on the date
of option grant. Unlike Book Value Shares, the optionee may continue to hold
the shares of common stock received on exercise, subject to the terms of the
UPS Managers Stock Trust. Persons earning the right to receive stock options
under the 1991 plan are determined each year by either the Officer Compensation
Committee or Salary Committee of the UPS Board of Directors. Options covering
a total of 30,000,000 common shares may be granted during the five-year period
ending in 1996.
Also during 1992, an amendment was made to the 1986 plan to allow
options on Book Value Shares issued during the period 1988 through 1991 to be
converted to Current Price options in the
F-17
47
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1994, 1993 and 1992
ratio of three common shares for five Book Value Shares. Substantially all
holders of unexpired options for Book Value Shares elected to convert to
options for common stock as of December 31, 1992. Following is an analysis of
options for shares of common stock issued and outstanding:
Stock Options Number of Shares
------------- ----------------
Converted at $12.00 to $15.25 per share 12,592,685
Granted at $16.50 per share 4,259,826
Canceled (55,777)
----------
Outstanding at December 31, 1992 16,796,734
Exercised at $12.00 per share (2,734,798)
Granted at $18.75 per share 4,225,850
Canceled (236,553)
----------
Outstanding at December 31, 1993 18,051,233
Exercised at $13.38 per share (2,952,522)
Granted at $21.25 per share 4,056,690
Canceled (226,724)
----------
Outstanding at December 31, 1994 18,928,677
==========
Exercisable at December 31, 1994 -
==========
Current Price options converted from Book Value options were issued with
exercise prices equal to the published price of UPS common stock as of the year
end immediately preceding the original date of grant. Compensation expense
charged to operations related to these options was not material. Options
granted during 1994, 1993 and 1992 have an exercise price equal to the current
price of a share of UPS common stock at the date of grant.
7. INCOME TAXES
Effective January 1, 1993, UPS adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). FAS 109 is an
asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, FAS 109 generally considers all expected
future events other than enactments of changes in the tax law or rates.
Previously, the Company used the FAS 96 asset and liability approach that gave
no recognition to future events other than the recovery of assets and
settlement of liabilities at their carrying amounts.
The effects of adopting FAS 109 were not material to the Company's
financial position or results of operations.
During the third quarter of 1993, the maximum U.S. federal income tax
rate for corporations was increased from 34% to 35%
F-18
48
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1994, 1993 and 1992
effective January 1, 1993. In addition to increasing the Company's income tax
accruals 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 net
deferred tax liabilities on January 1, 1993.
The provision for income taxes for the years ended December 31, consists
of the following (000's omitted):
1994 1993 1992
---- ---- ----
Current:
Federal $493,417 $450,094 $331,265
State 96,200 85,437 75,361
------- ------- -------
Total Current 589,617 535,531 406,626
------- ------- -------
Deferred:
Federal 35,784 72,978 110,041
State 6,646 13,553 (12,444)
------- ------- -------
Total Deferred 42,430 86,531 97,597
------- ------- -------
Total $632,047 $622,062 $504,223
======== ======= =======
Income before income taxes and cumulative effect of a change in
accounting principle includes losses of foreign subsidiaries of $172,311,000,
$169,689,000 and $114,941,000 for 1994, 1993 and 1992, respectively.
A reconciliation of the statutory federal income tax rate to the
effective income tax rate for the years ended December 31, consists of the
following:
1994 1993 1992
---- ---- ----
Statutory federal income
tax rate 35.0% 35.0% 34.0%
Amortization of
investment tax credits (0.3) (0.5) (0.8)
Effect of federal rate
change on deferred
liabilities - 2.2 -
State income taxes
(net of federal benefit) 4.3 4.5 5.1
Other 1.1 2.2 1.4
---- ---- ----
Effective income tax rate 40.1% 43.4% 39.7%
==== ==== ====
F-19
49
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1994, 1993 and 1992
Deferred tax liabilities and assets are comprised of the following at
December 31 (000's omitted):
1994 1993
---- ----
Excess of tax over book
depreciation $1,206,711 $1,164,455
Differences in timing of
deductions relating to:
Leveraged leases 222,308 243,457
UPS Retirement Plan 127,733 98,922
Prepaid insurance 90,410 41,943
Other 258,895 241,408
--------- ---------
Gross deferred tax liabilities 1,906,057 1,790,185
--------- ---------
Other postretirement
benefits not currently
deductible 241,476 203,172
Loss carryforwards
(international) 263,314 199,351
Insurance reserves not currently
deductible 86,384 58,542
Other 65,887 57,191
--------- ---------
Gross deferred tax assets 657,061 518,256
Deferred tax assets valuation
allowance (263,314) (199,351)
--------- ---------
393,747 318,905
--------- ---------
Net deferred tax liability $1,512,310 $1,471,280
========= =========
The valuation allowance increased approximately $64,000,000 and
$90,000,000 during the years ended December 31, 1994 and 1993, respectively.
F-20
50
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1994, 1993 and 1992
The tax effects of items included in the deferred tax provision for
1992, consist of the following (000's omitted):
1992
----
Excess of tax over book
depreciation $ 55,988
Differences in timing of
deduction for certain
accrued expenses 152,543
Other postretirement benefits
not currently deductible (25,009)
Amortization of
investment tax credits (14,541)
Other (71,384)
-------
Total deferred tax provision $ 97,597
=======
UPS has international loss carryforwards of approximately $598,000,000
as of December 31, 1994. Of this amount, $337,000,000 expires in varying
amounts through 2000. The remaining $261,000,000 may be carried forward
indefinitely.
8. OTHER ASSETS
Other assets, as of December 31, consist of the following (000's
omitted):
1994 1993
---- ----
Leveraged leases $233,639 $289,838
Other long-term investments 68,796 38,166
Costs in excess of net assets acquired 88,748 99,226
------- -------
$391,183 $427,230
======= =======
F-21
51
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1994, 1993 and 1992
Leveraged Leases
The net investment in leveraged leases, as of December 31, consists of
the following (000's omitted):
1994 1993
---- ----
Rentals receivable
(net of nonrecourse
debt payments) $ 174,682 $ 219,524
Estimated residual values 81,665 98,360
Unearned income (22,708) (28,046)
-------- -------
Long-term investments in
leveraged leases 233,639 289,838
Deferred income taxes (222,308) (243,457)
Deferred investment
tax credits (16,753) (22,561)
-------- -------
Net investment in
leveraged leases $ (5,422) $ 23,820
======== ========
Unearned income on each leveraged lease is amortized to provide an
approximate level rate of return when compared to UPS's unrecovered net
investment.
9. DEFERRED TAXES, CREDITS AND OTHER LIABILITIES
Deferred taxes, credits and other liabilities, as of December 31,
consist of the following (000's omitted):
1994 1993
---- ----
Deferred federal and state
income taxes $1,376,050 $1,396,736
Deferred investment tax
credits 19,747 26,133
Other credits and noncurrent
liabilities 520,608 456,375
--------- ---------
$1,916,405 $1,879,244
========= =========
F-22
52
UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1994, 1993 and 1992
10. SEGMENT AND GEOGRAPHIC INFORMATION
UPS operates primarily in one industry segment, transportation services,
which is comprised principally of domestic and international package delivery.
Information about operations in different geographic segments for the years
ended December 31, is shown below (000's omitted):
1994 1993 1992
---- ---- ----
Domestic:
Revenue $17,297,843 $15,822,558 $14,721,686
Income before income
taxes $ 1,902,140 $ 1,698,299 $ 1,545,484
Identifiable assets $ 9,886,634 $ 8,359,395 $ 7,873,398
Foreign:
Revenue $ 2,277,847 $ 1,959,795 $ 1,796,935
Loss before income
taxes $ (326,764) $ (266,602) $ (276,189)
Identifiable assets $ 1,295,770 $ 1,214,436 $ 1,164,419
Consolidated:
Revenue $19,575,690 $17,782,353 $16,518,621
Income before income
taxes $ 1,575,376 $ 1,431,697 $ 1,269,295
Identifiable assets $11,182,404 $ 9,573,831 $ 9,037,817
Foreign operations include shipments which either originate in or are
destined to foreign (non-U.S.) locations. Foreign revenues attributable to
shipments which originated in the U.S. totaled $495,957,000, $390,984,000, and
$323,732,000 in 1994, 1993 and 1992, respectively.
11. OTHER OPERATING EXPENSES
The major components of other operating expenses for the years ended
December 31, are as follows (000's omitted):
1994 1993 1992
---- ---- ----
Repairs and maintenance $ 870,894 $ 829,080 $ 792,251
Depreciation and
amortization 786,122 691,397 662,031
Purchased transportation 1,284,736 1,180,706 1,183,181
Fuel 564,359 553,697 531,372
Other occupancy expense 361,212 370,520 383,677
Other expenses 2,425,614 2,038,200 1,980,532
--------- --------- ---------
$6,292,937 $5,663,600 $5,533,044
========= ========= =========
F-23
53
________________________________________________________________________________
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
_______________________
UNITED PARCEL SERVICE
OF AMERICA, INC.
________________________________________________________________________________
_______________________________________________________________________________
54
EXHIBIT INDEX
(3) Articles of Incorporation and By-laws.
(a) Restated Certif- Incorporated by Reference to
icate of Incorpo- Exhibit 4(iv) to Form S-8
ration of UPS. Registration Statement
(No. 33-19622).
(b) By-laws of UPS as Incorporated by Reference
amended through to Exhibit 3(b) to 1991
February 21, 1992. Annual Report on Form 10-K.
(4) Instruments defining the
rights of security holders,
including indentures.
(a) Specimen Certif- Incorporated by Reference to
icate of Capital Exhibit 3(a) to Form 10, as
Stock of UPS. filed April 29, 1970.
(b) UPS Managers Stock Incorporated by Reference to
Trust Agreement. Exhibit 2 to Registration
Statement No. 2-46382.
(c) Specimen Certificate Incorporated by Reference to
of 8 3/8% Debentures Exhibit 4(c) to Registration
due April 1, 2020. Statement No. 33-32481.
(d) Indenture relating to Incorporated by Reference to
8 3/8% Debentures Exhibit 4(c) to Registration
due April 1, 2020. Statement No. 33-32481.
(10) Material Contracts.
(a) UPS Thrift Plan, as
Amended and Restated
January 1, 1976, in-
cluding Amendments
Nos. 1 and 2.
(1) Amendment Incorporated by Reference to
No. 3 to the Exhibit 20(b) to 1980 Annual
UPS Thrift Plan. Report on Form 10-K.
(2) Amendment Incorporated by Reference to
No. 4 to the Exhibit 20(b) to 1981 Annual
UPS Thrift Plan. Report on Form 10-K.
E-1
55
(3) Amendment Incorporated by Reference to
No. 5 to the Exhibit 19(b) to 1983 Annual
UPS Thrift Plan. Report on Form 10-K.
(4) Amendment Incorporated by Reference to
No. 6 to the Exhibit 10(a)(4) to 1985
UPS Thrift Plan. Annual Report on Form 10-K.
(5) Amendment Incorporated by Reference to
No. 7 to the Exhibit 10(a)(5) to 1985
UPS Thrift Plan. Annual Report on Form 10-K.
(6) Amendment Incorporated by Reference to
No. 8 to the Exhibit 10(a)(6) to 1987
UPS Thrift Plan. Annual Report on Form 10-K.
(7) Amendment Incorporated by Reference to
No. 9 to the Exhibit 10(a)(7) to 1987
UPS Thrift Plan. Annual Report on Form 10-K.
(8) Amendment Incorporated by Reference to
No. 10 to the Exhibit 10(a)(8) to 1990
UPS Thrift Plan. Annual Report on Form 10-K.
(9) Amendment Incorporated by Reference to
No. 11 to the Exhibit 10(a)(9) to 1991
UPS Thrift Plan. Annual Report on Form 10-K.
(10) Amendment Incorporated by Reference to
No. 12 to the Exhibit 10(a)(10) to 1991
UPS Thrift Plan. Annual Report on Form 10-K.
(11) Amendment Incorporated by Reference to
No. 13 to the Exhibit 10(a)(11) to 1991
UPS Thrift Plan. Annual Report on Form 10-K.
(12) Amendment Incorporated by Reference to
No. 14 to the Exhibit 10(a)(12) to 1991
UPS Thrift Plan. Annual Report on Form 10-K.
(13) Amendment Incorporated by Reference to
No. 15 to the Exhibit 10(a)(13) to 1992
UPS Thrift Plan. Annual Report on Form 10-K.
(14) Amendment No. 16 Incorporated by Reference to
to the UPS Thrift Exhibit 10(a)(14) to 1993
Plan Annual Report on Form 10-K
(15) Amendment Incorporated by Reference to
No. 17 to the UPS Exhibit 10(a)(15) to 1994
Thrift Plan Annual Report on Form 10-K
(16) Amendment No. 18 to Filed herewith.
the UPS Thrift Plan
(17) Amendment No. 19 to Filed herewith.
the UPS Thrift Plan
(b) UPS Retirement Plan Incorporated by Reference to
(including amend- Exhibit 9 to 1979 Annual
ments 1 through 4). Report on Form 10-K.
E-2
56
(1) Amendment No. 5 Incorporated by Reference to
to the UPS Re- Exhibit 20(a) to 1980 Annual
tirement Plan. Report on Form 10-K.
(2) Amendment No. 6 Incorporated by Reference to
to the UPS Re- Exhibit 19(a) to 1983 Annual
tirement Plan. Report on Form 10-K.
(3) Amendment No. 7 Incorporated by Reference to
to the UPS Re- Exhibit 10(b)(3) to 1984
tirement Plan. Annual Report on Form 10-K.
(4) Amendment No. 8 Incorporated by Reference to
to the UPS Re- Exhibit 10(b)(4) to 1985
tirement Plan. Annual Report on Form 10-K.
(5) Amendment No. 9 Incorporated by Reference to
to the UPS Re- Exhibit 10(b)(5) to 1986
tirement Plan. Annual Report on Form 10-K.
(6) Amendment No. 10 Incorporated by Reference to
to the UPS Re- Exhibit 19(a) to 1988 Annual
tirement Plan. Report on Form 10-K.
(7) Amendment No. 11 Incorporated by Reference to
to the UPS Re- Exhibit 19(b) to 1988 Annual
tirement Plan. Report on Form 10-K.
(8) Amendment No. 12 Incorporated by Reference to
to the UPS Re- Exhibit 10(b)(8) to 1989
tirement Plan. Annual Report on Form 10-K.
(9) Amendment No. 13 Incorporated by Reference to
to the UPS Re- Exhibit 10(b)(9) to 1989
tirement Plan. Annual Report on Form 10-K.
(10) Amendment No. 14 Incorporated by Reference to
to the UPS Re- Exhibit 10(b)(10) to 1990
tirement Plan. Annual Report on Form 10-K.
(11) Amendment No. 15 Incorporated by Reference
to the UPS Re- to Exhibit 10(b)(11) to
tirement Plan. 1992 Annual Report on
Form 10-K.
(12) Amendment No. 16 Filed herewith.
to the UPS
Retirement Plan
(13) Amendment No. 17 Filed herewith.
to the UPS
Retirement Plan
(c) UPS Managers Incorporated by Reference to
Incentive Plan definitive Proxy Statement
(as amended). for 1992 Special Meeting of
Shareowners.
(d) 1986 UPS Stock Option Incorporated by Reference to
Plan, as amended Exhibit 4(iv) to Form S-8
through March 5, 1987. Registration Statement
(No. 33-12576).
E-3
57
(1) Amendment to UPS Incorporated by Reference to
1986 Stock Option Exhibit 10(e)(1) to 1987
Plan adopted Annual Report on Form 10-K.
November 30, 1987.
(2) Amendment to UPS Incorporated by Reference
1986 Stock Option Exhibit 10(e)(2) to 1992
Plan adopted Annual Report on Form
October 30, 1992. 10-K.
(e) Intentionally omitted.
(f) Agreement and Plan of Incorporated by Reference
Reorganization, dated to Exhibit l(a) to Amend-
December 4, 1979, by ment No. 1 to Form S-14,
and between United Registration No. 2-65859.
Parcel Service of
America, Inc. and
Parmac Corporation.
(g) Agreement and Plan of Incorporated by Reference
Reorganization, dated to Exhibit l(b) to Amend-
December 4, 1979, by ment No. 1 to Form S-14,
and between United Registration No. 2-65859.
Parcel Service of
America, Inc. and
Nuparmac Corporation.
(h) Agreement and Plan of Incorporated by Reference
Reorganization, dated to Exhibit l(c) to Amend-
December 4, 1979, by ment No. 1 to Form S-14,
and between United Registration No. 2-65859.
Parcel Service of
America, Inc. and Parco
Managers Corporation.
(i) Indemnification Con- Incorporated by Reference to
tracts or Arrangements. Item 8 of Form 10, as filed
April 29, 1970.
(j) Agreement of Sale be- Incorporated by Reference to
tween Delaware County Exhibit 10(m) to 1985 Annual
Industrial Development Report on Form 10-K.
Authority and Penallen
Corporation, dated as
of December 1, 1985;
Remarketing Agreement,
dated as of December 1,
1985, among United Parcel
Service of America, Inc.,
Penallen Corporation and
Salomon Brothers Inc.;
Guarantee Agreement,
dated as of December 1,
1985, between United Par-
cel Service of America,
Inc. and Irving Trust
Company; Guarantee by
United Parcel Service
of America, Inc. to Dela-
ware County Industrial
Development Authority,
E-4
58
dated as of December 1,
1985.
(k) Participation Agree- Incorporated by Reference to
ment, dated November 17, Exhibit 10(k) to 1989 Annual
1986, among United Report on Form 10-K.
Parcel Service Co.
("UPS Co."), Bankers
Trust Company, as Trustee
under a Master Trust
Agreement for the bene-
fit of the participants
and the beneficiaries of
the UPS Thrift Plan and
the UPS Retirement Plan,
Overseas Partners Ltd.,
Wilmington Trust Company
and The Connecticut
National Bank ("Owner
Trustee").
(l) Aircraft Purchase Incorporated by Reference to
Agreement, dated Exhibit 10(l) to 1989 Annual
November 5, 1986, Report on Form 10-K.
between UPS Co. and
the Owner Trustee.
(m) Lease Agreement, Incorporated by Reference to
dated November 17, Exhibit 10(m) to 1989 Annual
1986, between UPS Report on Form 10-K.
Co. and the Owner
Trustee
(n) Guarantee Agree- Incorporated by Reference to
ment between United Exhibit 10(n) to 1989 Annual
Parcel Service of Report on Form 10-K.
America, Inc., as
Guarantor and the
Owner Trustee.
(o) Receivables Purchase Incorporated by Reference to
and Sale Agreement, Exhibit 10(l) to 1987 Annual
dated as of Novem- Report on Form 10-K.
ber 24, 1987, among
United Parcel Service,
Inc., an Ohio corpora-
tion, United Parcel
Service, Inc., a New
York corporation,
United Parcel Service
of America, Inc., Coop-
erative Receivables
Corporation and Citicorp
North America, Inc.
(p) Receivables Purchase Incorporated by Reference to
and Sale Agreement, Exhibit 10(m) to 1987 Annual
dated as of November 24, Report on Form 10-K.
1987, among United
Parcel Service, Inc.,
an Ohio corporation,
United Parcel Service,
E-5
59
Inc., a New York cor-
poration, United Parcel
Service of America,
Inc., Citibank, N.A.,
and Citicorp North
America, Inc.
(q) Membership Agreement, Incorporated by Reference to
dated as of November 24, Exhibit 10(n) to 1987 Annual
1987, by and between on Form 10-K.
Cooperative Receivables
Corporation and United
Parcel Service of
America, Inc.
(r) Amended and Restated Incorporated by Reference to
Facility Lease Agree- Exhibit 10(r) to 1990 Annual
ment, dated as of Report on Form 10-K.
November 6, 1990,
among Overseas Part-
ners Leasing, Inc.,
United Parcel Service
General Services Co.
and United Parcel
Service of America,
Inc.
(s) Amended and Restated Incorporated by Reference to
Aircraft Lease Agree- Exhibit 10(s) to 1990 Annual
ment, dated as of Report on Form 10-K.
November 6, 1990,
among Overseas Part-
ners Leasing, Inc.,
United Parcel Service
Co. and United Parcel
Service of America, Inc.
(t) Agreement of Sale, Incorporated by Reference to
dated as of December 28, Exhibit 10(t) to 1989 Annual
1989, between Edison Report on Form 10-K.
Corporation and Over-
seas Partners Leasing,
Inc.
(u) Assignment and Assump- Incorporated by Reference to
tion Agreement, dated Exhibit 10(u) to 1989 Annual
as of December 28, 1989, Report on Form 10-K.
between and among Edison
Corporation, Overseas
Partners Leasing, Inc.,
McBride Enterprises, Inc.
and Ramapo Ridge-McBride
Office Park.
(v) UPS Deferred Compensation Incorporated by Reference to
Plan for Non-Employee Exhibit 10(v) to 1990 Annual
Directors Report on Form 10-K.
(w) UPS Retirement Plan for Incorporated by Reference to
Outside Directors Exhibit 10(w) to 1990 Annual
Report on Form 10-K.
E-6
60
(x) UPS Savings Plan, as Incorporated by Reference to
Amended and Restated, Exhibit 10(x) to 1990 Annual
including Amendments Report on Form 10-K.
No. 1-5.
(1) Amendment No. 6 to Incorporated by Reference to
the UPS Savings Plan Exhibit 10(x)(1) to 1990
Annual Report on Form 10-K.
(2) Amendment No. 7 to Incorporated by Reference to
the UPS Savings Plan Exhibit 10(x)(2) to 1991
Annual Report on Form 10-K.
(3) Amendment No. 8 to Incorporated by Reference
the UPS Savings Plan to Exhibit 10(x)(3) to
1992 Annual Report on
Form 10-K.
(4) Amendment No. 9 to Incorporated by Reference
the UPS Savings Plan to Exhibit 10(x)(4) to 1992
Annual Report on Form 10-K.
(5) Amendment No. 10 to Incorporated by Reference
the UPS Savings Plan to Exhibit 10(x)(5) to 1992
Annual Report on Form 10-K.
(6) Amendment No. 11 to Filed herewith.
the UPS Savings Plan
(7) Amendment No. 12 to Filed herewith.
the UPS Savings Plan
(8) Amendment No. 13 to Filed herewith.
the UPS Savings Plan
(9) Amendment No. 14 to Filed herewith.
the UPS Savings Plan
(10) Amendment No. 15 to Filed herewith.
the UPS Savings Plan
(y) Competitive Advance and Incorporated by Reference to
Revolving Credit Facility Exhibit 10(y) to 1990 Annual
Agreement, dated as of Report on Form 10-K.
May 7, 1990 among UPS,
named banks and Chemical
Bank, as Agent.
(1) Letter, dated Nov- Incorporated by Reference to
ember 13, 1990 re- Exhibit 10(y)(1) to 1990
ducing commitment Annual Report on Form 10-K.
under Competitive
Advance and
Revolving Credit
Facility Agreement.
(z) UPS 1991 Stock Option Incorporated by Reference to
Plan (Amended and Exhibit 10(z) to 1991 Annual.
Restated as of Report on Form 10-K.
February 20, 1992).
E-7
61
(aa) UPS Coordinating Benefit Incorporated by Reference to
Plan. Exhibit 10(aa) to 1991
Annual Report on Form 10-K.
(1) Amendment No. 1 to Incorporated by Reference
UPS Coordinating to Exhibit 10(aa)(1) to
Benefit Plan. 1992 Annual Report on
Form 10-K.
(2) Amendment No. 2 to Incorporated by Reference
UPS Coordinating to Exhibit 10(aa)(2) to
Benefit Plan. 1992 Annual Report on
Form 10-K.
(21) Subsidiaries of the Filed herewith as Exhibit
Registrant. 21.
(23) Consent of Deloitte & Touche LLP. Filed herewith as Exhibit
23.
(27) Financial Data Schedule Filed herewith as Exhibit
27 (for SEC use only).
E-8