UPS 2012 Annual Report Download - page 56

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
44
As of December 31, 2012, we had outstanding letters of credit totaling approximately $1.369 billion issued in connection
with our self-insurance reserves and other routine business requirements. We also issue surety bonds as an alternative to letters
of credit in certain instances, and as of December 31, 2012, we had $584 million of surety bonds written. As of December 31,
2012, we had unfunded loan commitments totaling $157 million associated with our financial business.
We believe that funds from operations and borrowing programs will provide adequate sources of liquidity and capital
resources to meet our expected long-term needs for the operation of our business, including anticipated capital expenditures, for
the foreseeable future.
Contingencies
We are involved in a number of judicial proceedings and other matters arising from the conduct of our business activities.
Although there can be no assurance as to the ultimate outcome, we have generally denied, or believe we have a
meritorious defense and will deny, liability in all litigation pending against us, including (except as otherwise noted herein) the
matters described below, and we intend to defend vigorously each case. We have accrued for legal claims when, and to the
extent that, amounts associated with the claims become probable and can be reasonably estimated. The actual costs of resolving
legal claims may be substantially higher or lower than the amounts accrued for those claims.
For those matters as to which we are not able to estimate a possible loss or range of loss, we are not able to determine
whether the loss will have a material adverse effect on our business, financial condition or results of operations or liquidity. For
matters in this category, we have indicated in the descriptions that follow the reasons that we are unable to estimate the possible
loss or range of loss.
Judicial Proceedings
We are a defendant in a number of lawsuits filed in state and federal courts containing various class action allegations
under state wage-and-hour laws. At this time, we do not believe that any loss associated with these matters, would have a
material adverse effect on our financial condition, results of operations or liquidity.
UPS and our subsidiary Mail Boxes Etc., Inc. are defendants in a lawsuit in California Superior Court about the
rebranding of The UPS Store franchises. In the Morgate case, the plaintiffs are 125 individual franchisees who did not rebrand
to The UPS Store and a certified class of all franchisees who did rebrand. The trial court entered judgment against a bellwether
individual plaintiff, which was affirmed in January 2012. The trial court granted our motion for summary judgment against the
certified class, which was reversed in January 2012.
There are multiple factors that prevent us from being able to estimate the amount of loss, if any, that may result from
whatever remaining aspects of this case proceeds, including: (1) we are vigorously defending ourselves and believe we have a
number of meritorious legal defenses; and (2) it remains uncertain what evidence of damages, if any, plaintiffs will be able to
present. Accordingly, at this time, we are not able to estimate a possible loss or range of loss that may result from this matter or
to determine whether such loss, if any, would have a material adverse effect on our financial condition, results of operations or
liquidity.
In AFMS LLC v. UPS and FedEx Corporation, a lawsuit filed in federal court in the Central District of California in
August 2010, the plaintiff asserts that UPS and FedEx violated U.S. antitrust law by conspiring to refuse to negotiate with
third-party negotiators retained by shippers and by individually imposing policies that prevent shippers from using such
negotiators. The case is scheduled to go to trial in August 2013. The Antitrust Division of the U.S. Department of Justice
(“DOJ”) has an ongoing civil investigation of our policies and practices for dealing with third-party negotiators. We are
cooperating with this investigation. We deny any liability with respect to these matters and intend to vigorously defend
ourselves. There are multiple factors that prevent us from being able to estimate the amount of loss, if any, that may result from
these matters including: (1) we believe that we have a number of meritorious defenses; (2) discovery is ongoing; and (3) the
DOJ investigation is ongoing. Accordingly, at this time, we are not able to estimate a possible loss or range of loss that may
result from these matters or to determine whether such loss, if any, would have a material adverse effect on our financial
condition, results of operations or liquidity.