UPS 2012 Annual Report Download - page 55

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Contractual Commitments
We have contractual obligations and commitments in the form of capital leases, operating leases, debt obligations,
purchase commitments, and certain other liabilities. We intend to satisfy these obligations through the use of cash flow from
operations. The following table summarizes the expected cash outflow to satisfy our contractual obligations and commitments
as of December 31, 2012 (in millions):
Commitment Type 2013 2014 2015 2016 2017 After 2017 Total
Capital Leases $ 55 $ 52 $ 50 $ 49 $ 48 $ 426 $ 680
Operating Leases 342 271 203 145 118 358 1,437
Debt Principal 1,750 1,000 101 1 375 8,765 11,992
Debt Interest 322 294 287 285 285 4,759 6,232
Purchase Commitments 629 103 22 14 7 — 775
Pension Fundings — — 563 1,020 1,058 986 3,627
Other Liabilities 64 58 43 23 10 5 203
Total $ 3,162 $ 1,778 $ 1,269 $ 1,537 $ 1,901 $ 15,299 $ 24,946
Our capital lease obligations relate primarily to leases on aircraft. Capital leases, operating leases, and purchase
commitments, as well as our debt principal obligations, are discussed further in note 7 to our consolidated financial statements.
The amount of interest on our debt was calculated as the contractual interest payments due on our fixed-rate debt, in addition to
interest on variable rate debt that was calculated based on interest rates as of December 31, 2012. The calculations of debt
interest take into account the effect of interest rate swap agreements. For debt denominated in a foreign currency, the
U.S. Dollar equivalent principal amount of the debt at the end of the year was used as the basis to calculate future interest
payments.
Purchase commitments represent contractual agreements to purchase goods or services that are legally binding, the
largest of which are orders for aircraft, engines, and parts. As of December 31, 2012, we have firm commitments to purchase
eight Boeing 767-300ERF aircraft to be delivered in 2013.
Pension fundings represent the anticipated required cash contributions that will be made to our qualified U.S. pension
plans (these plans are discussed further in note 4 to the consolidated financial statements). The pension funding requirements
were estimated under the provisions of the Pension Protection Act of 2006 and the Employee Retirement Income Security Act
of 1974, using discount rates, asset returns and other assumptions appropriate for these plans. In July 2012, federal legislation
was signed into law that allows pension plan sponsors to use higher interest rate assumptions (based on a 25-year rate history)
in valuing plan liabilities and determining funding obligations. As a result of this legislation, we are not subject to required
contributions in 2013 and 2014 for our domestic pension plans. The amount of any minimum funding requirement, as
applicable, for these plans could change significantly in future periods, depending on many factors, including future plan asset
returns and discount rates. A sustained significant decline in the world equity markets, and the resulting impact on our pension
assets and investment returns, could result in our domestic pension plans being subject to significantly higher minimum
funding requirements. To the extent that the funded status of these plans in future years differs from our current projections, the
actual contributions made in future years could materially differ from the amounts shown in the table above.
As discussed in note 5 to our consolidated financial statements, we are not currently subject to any minimum
contributions or surcharges with respect to the multiemployer pension and health and welfare plans in which we participate.
Contribution rates to these multiemployer pension and health and welfare plans are established through the collective
bargaining process. As we are not subject to any minimum contribution levels, we have not included any amounts in the
contractual commitments table with respect to these multiemployer plans.
The contractual payments due for “other liabilities” primarily include commitment payments related to our investment in
certain partnerships. The table above does not include approximately $232 million of liabilities for uncertain tax positions
because we are uncertain if or when such amounts will ultimately be settled in cash. In addition, we also have recognized assets
associated with uncertain tax positions in excess of the related liabilities such that we do not believe a net contractual obligation
exists to the taxing authorities. Uncertain tax positions are further discussed in note 12 to the consolidated financial statements.