UPS 2012 Annual Report Download - page 97

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
85
Debt Covenants
Our existing debt instruments and credit facilities subject us to certain financial covenants. As of December 31, 2012 and
for all prior periods presented, we have satisfied these financial covenants. These covenants limit the amount of secured
indebtedness that we may incur, and limit the amount of attributable debt in sale-leaseback transactions, to 10% of net tangible
assets. As of December 31, 2012, 10% of net tangible assets is equivalent to $2.770 billion; however, we have no covered sale-
leaseback transactions or secured indebtedness outstanding. Additionally, we are required to maintain a minimum net worth, as
defined, of $5.0 billion on a quarterly basis. As of December 31, 2012, our net worth, as defined, was equivalent to $8.007
billion. We do not expect these covenants to have a material impact on our financial condition or liquidity.
Fair Value of Debt
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, including current maturities, is approximately $14.658 and $12.035 billion as of December 31,
2012 and 2011, respectively. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair
value of all of our debt instruments.
NOTE 8. LEGAL PROCEEDINGS AND 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.