UPS 2004 Annual Report Download - page 63

Notes to consolidated financial statements 61
The following table sets forth the aggregate minimum lease payments under capitalized and operating leases, the aggregate annual prin-
cipal payments due under our long-term debt, and the aggregate amounts expected to be spent for purchase commitments (in millions).
Capitalized Operating Debt Purchase
Leases Leases Principal Commitments
2005 $ 97 $ 370 $ 1,110 $ 1,012
2006 70 327 6 488
2007 121 242 — 223
2008 132 169 27 274
2009 76 128 84 637
After 2009 62 590 2,777 1,129
Total 558 $ 1,826 $ 4,004 $ 3,763
Less: imputed interest (157)
Present value of minimum capitalized lease payments 401
Less: current portion (78)
Long-term capitalized lease obligations $ 323
As of December 31, 2004, we had outstanding letters of credit
totaling approximately $2.161 billion issued in connection with
routine business requirements.
We maintain two credit agreements with a consortium of
banks that provide revolving credit facilities of $1.0 billion each,
with one expiring April 21, 2005 and the other April 24, 2008.
Interest on any amounts we borrow under these facilities would
be charged at 90-day LIBOR plus 15 basis points. At December
31, 2004, there were no outstanding borrowings under these
facilities. In addition, we maintain an extendable commercial
notes program under which we are authorized to borrow up to
$500 million. No amounts were outstanding under this program
at December 31, 2004.
We have a $2.0 billion shelf registration statement under
which we may issue debt securities in the U.S. The debt may be
denominated in a variety of currencies. There was approximately
$126 million issued under this shelf registration statement at
December 31, 2004.
Our existing debt instruments and credit facilities do not have
cross-default or ratings triggers, however these debt instruments
and credit facilities do subject us to certain financial covenants.
These covenants generally require us to maintain a $3.0 billion
minimum net worth and limit the amount of secured indebtedness
available to the company. These covenants are not considered
material to the overall financial condition of the company, and all
covenant tests were passed as of December 31, 2004.
In December 2003, we redeemed our $300 million cash-
settled convertible senior notes at a price of 102.703, and also
terminated the swap transaction associated with the notes. The
redemption amount paid was lower than the amount recorded
for the fair value of the notes at the time of redemption, which,
along with the cash settlement received on the swap, resulted in
a $28 million pre-tax gain recorded in 2003 results.
NOTE 9. DEFERRED TAXES, CREDITS, AND OTHER LIABILITIES
Deferred taxes, credits, and other liabilities as of December 31
consist of the following (in millions):
2004 2003
Deferred income taxes (see Note 14) $ 3,274 $ 3,118
Insurance reserves 1,136 923
Other credits and non-current liabilities972 733
$ 5,382 $ 4,774
NOTE 10. LEGAL PROCEEDINGS AND CONTINGENCIES
On August 9, 1999 the United States Tax Court held that we
were liable for tax on income of Overseas Partners Ltd., a
Bermuda company that had reinsured excess value (“EV”) insur-
ance purchased by our customers beginning in 1984, and that
we were liable for additional tax for the 1983 and 1984 tax
years. The IRS took similar positions to those advanced in the
Tax Court decision for tax years subsequent to 1984 through
1998. On June 20, 2001, the U.S. Court of Appeals for the
Eleventh Circuit ruled in our favor and reversed the Tax Court
decision. In January 2003, we and the IRS finalized settlement of
all outstanding tax issues related to EV package insurance.
Under the terms of settlement, we agreed to adjustments that
will result in income tax due of approximately $562 million,
additions to tax of $60 million and related interest. The amount
due to the IRS as a result of the settlement is less than amounts
we previously had accrued. As a result, we recorded income,
before taxes, of $1.023 billion ($776 million after tax) during
the fourth quarter of 2002. In the first quarter of 2004, we
received a refund of $185 million pertaining to the 1983 and
1984 tax years.