UPS 2013 Annual Report Download

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2013 Annual Report

Table of contents

  • Page 1
    2013 Annual Report

  • Page 2
    ...000 VEHICLES IN DELIVERY FLEET 47 . 5 MILLION DAILY ONLINE TRACKING REQUESTS RETAIL ACCESS POINTS 4.3 2013 DELIVERY VOLUME Return on equity (GAAP) Return on invested capital (adj.)1 1,955 DAILY FLIGHT Return on invested capital (GAAP) 27.8% Dividend yield 2.4% SEGMENTS 2,700 73,500 Free Cash...

  • Page 3
    ...being transformed by cutting-edge technologies and innovative ways of thinking. Old business models are being challenged by advances in mobile and cloud computing, big data, crowdsourcing and 3D printing. While these changes carry risks, they also create extraordinary opportunities for the companies...

  • Page 4
    ... per share. • Our International package segment earned $1.76 billion on $12.4 billion in revenue. Adjusted operating profit2 for the segment declined slightly from 2012 as customers traded down to less-expensive modes of transportation. International package generated 22 percent of revenue versus...

  • Page 5
    ... in scheduled facility expansions across Europe, Latin America and Asia over a two-year period. Our management team is focused on optimizing the performance of our global network. I believe these investments will enable UPS to build on our reputation for reliability and service. Operations Review...

  • Page 6
    ... of every incoming package even before our customers' trucks arrive at our facilities Net Income in billions of dollars 5 4 With ORION technolo , a reduction of just one mile a day per driver ultimately will save UPS up to $50 million a year. 3 2 1 0 2008 2009 2010 2011 2012 2013 GAAP...

  • Page 7
    ..., retail and UPS mail services. Our operating margins expanded slightly as the group continued to absorb the cost of technology and healthcare facility Diluted Earnings in dollars per share 5 15 Operating Margin percent 4 12 3 9 2 6 1 3 0 2008 2009 2010 2011 2012 2013 0 2008...

  • Page 8
    ... our investments in alternative fuel and advanced technology vehicles. We announced the purchase of more than 900 liquefied natural gas (LNG) tractors and plans to invest $68 million in Dividends Declared in dollars per share 3.0 8.1% Number Shares Repurchased in millions 2013 2012 2011 2010 2009...

  • Page 9
    ... creating new consumer classes in these markets. Roughly a billion people from the developing world are now entering the market for the goods and services they see on display in the developed world, D. Scott Davis Chairman and CEO Share Repurchase in billions of dollars 2014* 2013 2012 2011 2010...

  • Page 10
    ... Director since 2012 Management Committee David P. Abney Senior Vice President, Global Transportation, and Chief Operating Officer David A. Barnes Senior Vice President and Chief Information Officer James Jay Barber, Jr. Senior Vice President and President, UPS International D. Scott Davis Chairman...

  • Page 11
    ...ACT OF 1934 For the fiscal year ended December 31, 2013 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from Commission file number 001-15451 to _____ _____ United Parcel Service, Inc. (Exact Name of Registrant as Specified in...

  • Page 12
    ... Operating Facilities Fleet Legal Proceedings Mine Safety Disclosures PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Shareowner Return Performance Graph Selected Financial Data Management's Discussion and Analysis of Financial...

  • Page 13
    ..., which include transportation, distribution, forwarding, ground, ocean and air freight, brokerage and financing. We have three reportable segments: U.S. Domestic Package, International Package and Supply Chain & Freight, all of which are described below. For financial information concerning our...

  • Page 14
    ... efforts to increase operational efficiencies. Our service portfolio and investments are rewarded with among the best returns on invested capital and operating margins in the industry. We have a long history of sound financial management. Our consolidated balance sheet reflects financial strength...

  • Page 15
    ... with our global capabilities in customized forwarding, transportation, warehousing, distribution, delivery and post-sales services. As we move deeper into customers' supply chains, we do so with a shared vision on how to best equip our customers with transportation and logistics solutions to better...

  • Page 16
    ... address validation, shipment scheduling, selection of shipping service levels, tracking and much more. • The UPS Billing Center, which is a secure location for customers to view, download, manage and pay their UPS invoices, helps customers accelerate their billing and payment processes. Customers...

  • Page 17
    ... and ground packages upon request. Customers can schedule pickups for one to five days a week, based on their specific needs. Additionally, we provide our customers with easy access to UPS, with over 157,000 domestic and international entry points including: 39,000 drop boxes; 1,500 customer centers...

  • Page 18
    ... network design allows for cost-effective package processing in our most technology-enabled facilities while enabling us to use fewer, larger and more fuel-efficient aircraft. Our U.S. ground fleet serves all business and residential zip codes in the contiguous U.S. U.S. Domestic Package Reporting...

  • Page 19
    ... transportation, distribution and international trade and brokerage services, with financial and information services. We meet this demand by offering a broad array of supply chain services in over 195 countries and territories, which are described below. The 2011 acquisition of Italy-based...

  • Page 20
    ... service backed by a day-definite, on-time guarantee at no additional cost. Additionally, many user-friendly small package technology offerings are available for freight. Applications such as UPS WorldShip, Billing Center, and Quantum View allow customers to process and track LTL shipments, create...

  • Page 21
    ...the company, invested $102 million in donations of both cash and in-kind services to global causes primarily in four focus areas-community safety, environmental sustainability, diversity and volunteerism. • UPS employees, both active and retired, contributed $51 million to United Way in 2013 which...

  • Page 22
    ... Workers ("IAM"). Our agreement with the IAM runs through July 31, 2014. The experience of our management team continues to be an organizational strength. Nearly 37% of our full-time managers have more than 20 years of service with UPS. We believe that our relations with our employees are good. We...

  • Page 23
    ... include worldwide postal services, various motor carriers, express companies, freight forwarders, air couriers and others. Through our supply chain service offerings, we compete with a number of participants in the supply chain, financial services and information technology industries. Competitive...

  • Page 24
    ... have a strong incentive to effectively manage UPS, which benefits all our shareowners. Financial Strength. Our balance sheet reflects financial strength that few companies can match. Our financial strength gives us the resources to achieve global scale; to invest in employee development, technology...

  • Page 25
    ... the Postal Regulatory Commission in an attempt to secure fair postal rates for competitive services. Customs We are subject to the customs laws in the countries in which we operate, regarding the import and export of shipments, including those related to the filing of documents on behalf of client...

  • Page 26
    ...our overall financial condition or results of operations; however, collectively, some of these large customers might account for a relatively significant portion of the growth in revenue in a particular quarter or year. These customers can drive the growth in revenue for particular services based on...

  • Page 27
    ...and reduce customer demand for our services, especially our air services. Strikes, work stoppages and slowdowns by our employees could adversely affect our business, financial position and results of operations. A significant number of our employees are employed under a national master agreement and...

  • Page 28
    ... system security. We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities. In addition, the provision of service to our customers and the operation...

  • Page 29
    .... Continued increasing health care costs, volatility in investment returns and discount rates, as well as changes in laws, regulations and assumptions used to calculate retiree health and pension benefit expenses, may adversely affect our business, financial position, results of operations or...

  • Page 30
    ...costs could materially increase and we may find it difficult to obtain adequate levels of insurance coverage. Item 1B. Unresolved Staff Comments Not applicable. Item 2. Properties Operating Facilities We own our headquarters, which is located in Atlanta, Georgia and consists of about 745,000 square...

  • Page 31
    ...-Asia air hub at Shenzhen Bao'an International Airport in China. The Shenzhen facility, which was built on a parcel of almost one million square feet and has a sorting capacity of 18,000 packages per hour, serves as our primary transit hub in Asia. Our primary information technology operations are...

  • Page 32
    ... commitments or options to purchase aircraft. Vehicles We operate a global ground fleet of approximately 103,000 package cars, vans, tractors and motorcycles. Our ground support fleet consists of 32,000 pieces of equipment designed specifically to support our aircraft fleet, ranging from nonpowered...

  • Page 33
    ... national securities exchange or traded in an organized over-the-counter market, but each share of our class A common stock is convertible into one share of our class B common stock. The following is a summary of our class B common stock price activity and dividend information for 2013 and 2012. Our...

  • Page 34
    ... dividends for each of the quarterly periods, assumes that $100 was invested on December 31, 2008 in the Standard & Poor's 500 Index, the Dow Jones Transportation Average, and our class B common stock. 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 United Parcel Service...

  • Page 35
    ... report. Years Ended December 31, 2013 2012 2011 2010 2009 Selected Income Statement Data Revenue: U.S. Domestic Package International Package Supply Chain & Freight Total revenue Operating expenses: Compensation and benefits Other Total operating expenses Operating profit: U.S. Domestic Package...

  • Page 36
    ... new air route authority we have gained over the last several years and to take full advantage of faster growing trade lanes. Our consolidated results are presented in the table below: Year Ended December 31, 2013 2012 2011 % Change 2013 / 2012 2012 / 2011 Revenue (in millions) Operating Expenses...

  • Page 37
    ... (loss) Weighted-average actuarial assumptions used to determine net periodic benefit cost Expected rate of return on plan assets Actual rate of return on plan assets Discount rate used for net periodic benefit cost Discount rate at measurement date 2013 2012 2011 $ $ - - - - $ (5,530) 708...

  • Page 38
    ... adjusted net periodic benefit cost is comparable to the accounting for our defined benefit plans in our quarterly reporting under U.S. GAAP, and reflects assumptions utilizing the expected return on plan assets and the discount rate used for determining net periodic benefit cost (the non-adjusted...

  • Page 39
    ...during 2013, 2012 or 2011. U.S. Domestic Package Operations Year Ended December 31, 2013 2012 2011 % Change 2013 / 2012 2012 / 2011 Average Daily Package Volume (in thousands): Next Day Air Deferred Ground Total Avg. Daily Package Volume Average Revenue Per Piece: Next Day Air Deferred Ground Total...

  • Page 40
    ... MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Revenue The change in overall revenue was impacted by the following factors for the years ended December 31, 2013 and 2012, compared with the corresponding prior year periods: Rates / Product Mix Fuel Surcharge...

  • Page 41
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The increase in ground volume in 2012 was driven by our SurePost service offering, which targets low-cost, non-urgent residential deliveries. Volume for this product ...

  • Page 42
    ... increase (package driver wage rates rose 2.0%), an increase in driver hours (up 1.1%) and increased employee health care costs. These increases were partially offset by reductions in indirect operating costs of $79 million in 2012, largely due to a decrease in the expense for management incentive...

  • Page 43
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cost increases have been moderated as we adjust our air and ground networks to better match higher volume levels, and utilize technology to increase package sorting ...

  • Page 44
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS International Package Operations Year Ended December 31, 2013 2012 2011 % Change 2013 / 2012 2012 / 2011 Average Daily Package Volume (in thousands): Domestic Export ...

  • Page 45
    ...revenue per piece decreased 2.5% in 2013 on a currency-adjusted basis, and was impacted by changes in base rates, customer and product mix, and fuel surcharge rates. On December 31, 2012, we increased the base rates 6.5% for international shipments originating in the United States (Worldwide Express...

  • Page 46
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2012 compared to 2011 Total average revenue per piece increased 1.5% in 2012 on a currency-adjusted basis, and was impacted by base rate increases, as well as changes in...

  • Page 47
    ... TNT Express N.V. (see note 15 to the consolidated financial statements) as well as the February 2012 acquisition of Kiala S.A. Excluding the impact of currency exchange rate changes, the total cost per piece for the segment increased 2.3% in 2012 compared with 2011. Operating Profit and Margin 2013...

  • Page 48
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Supply Chain & Freight Operations Year Ended December 31, 2013 2012 2011 % Change 2013 / 2012 2012 / 2011 Freight LTL Statistics: Revenue (in millions) Revenue Per ...

  • Page 49
    ... United States, Canada and Mexico. The decline in average daily LTL shipments in 2012 was impacted by increased competitiveness in the LTL market and the slowdown in the U.S. economy. Fuel surcharge revenue increased by $16 million for 2012 compared with the prior year, due to changes in diesel fuel...

  • Page 50
    ... from the continued investment in technology and facilities for our global health care business. Adjusted operating profit for our freight unit increased $20 million in 2012 compared with 2011, as gains in productivity (including pick-up and delivery stops per hour, dock bills per hour and linehaul...

  • Page 51
    ... Change 2013 / 2012 2012 / 2011 Operating Expenses (in millions): Compensation and Benefits Defined Benefit Plans Mark-to-Market Charge Multiemployer Pension Plan Withdrawal Charge Adjusted Compensation and Benefits Repairs and Maintenance Depreciation and Amortization Purchased Transportation Fuel...

  • Page 52
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS • Health and welfare costs increased $182 million in 2013 compared with 2012, largely due to increased contribution rates to multiemployer plans, higher medical claims...

  • Page 53
    ... and an overall increase in the size of our vehicle fleet in our U.S. Domestic package operations. Purchased Transportation 2013 compared to 2012 The increase in purchased transportation expense charged to us by third-party air, ocean and truck carriers in 2013, compared with 2012, was driven by...

  • Page 54
    ...proposed TNT Express N.V. acquisition. These increases were partially offset by a reduction in employee relocation expenses and a decline in package claims expense. Additionally, 2012 adjusted other expenses were reduced by a $9 million gain on the sale of a distribution facility in our Supply Chain...

  • Page 55
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2012 compared to 2011 Interest expense increased in 2012 compared with 2011, largely due to a higher average balance of debt outstanding, as well as a higher effective ...

  • Page 56
    ... sources (uses) of cash from operating activities (amounts in millions): 2013 2012 2011 Net income Non-cash operating activities(a) Pension and postretirement plan contributions (UPS-sponsored plans) Income tax receivables and payables Changes in working capital and other noncurrent assets and...

  • Page 57
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Investing Activities Our primary sources (uses) of cash for investing activities were as follows (amounts in millions): 2013 2012 2011 Net cash used in investing ...

  • Page 58
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financing Activities Our primary sources (uses) of cash for financing activities were as follows (amounts in millions, except per share data): 2013 2012 2011 Net cash ...

  • Page 59
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cash received from common stock issuances to employees increased primarily due to additional stock option exercises in 2013 and 2012. The cash outflows in other ...

  • Page 60
    ...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...

  • Page 61
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As of December 31, 2013, we had outstanding letters of credit totaling approximately $1.023 billion issued in connection with our self-insurance reserves and other ...

  • Page 62
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In Canada, four purported class-action cases were filed against us in British Columbia (2006); Ontario (2007) and Québec (2006 and 2013). The cases each allege ...

  • Page 63
    ... employed under agreements with the Teamsters are employed under collective bargaining agreements with the International Association of Machinists and Aerospace Workers ("IAM"). Our agreement with the IAM runs through July 31, 2014. Tax Matters In June 2011, we received an IRS Revenue Agent Report...

  • Page 64
    ... operations or liquidity. Multiemployer Benefit Plans We contribute to a number of multiemployer defined benefit and health and welfare plans under terms of collective bargaining agreements that cover our union represented employees. Our current collective bargaining agreements set forth the annual...

  • Page 65
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Rate Adjustments In May 2013, our UPS Freight unit announced a general rate increase averaging 5.9%, covering non-contractual shipments in the United States, Canada and ...

  • Page 66
    ... results of operations are based on our consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America. As indicated in note 1 to our consolidated financial statements, the amounts of assets, liabilities, revenue, and...

  • Page 67
    ... claims. A number of factors can affect the actual cost of a claim, including the length of time the claim remains open, trends in health care costs and the results of related litigation. Furthermore, claims may emerge in future years for events that occurred in a prior year at a rate that differs...

  • Page 68
    ... point change in the assumed discount rate, return on assets, and health care cost trend rate for our pension and postretirement benefit plans, and the resulting increase (decrease) on our obligations and expense as of, and for the year ended, December 31, 2013 (in millions). Pension Plans Discount...

  • Page 69
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Depreciation, Residual Value and Impairment of Fixed Assets As of December 31, 2013, we had $17.961 billion of net fixed assets, the most significant category of which ...

  • Page 70
    ...trends in customer payment frequency, and judgments about the probable effects of relevant observable data, including present economic conditions and the financial health of specific customers and market sectors. Our risk management process includes standards and policies for reviewing major account...

  • Page 71
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Interest Rate Risk We have issued debt instruments, including debt associated with capital leases, that accrue expense at fixed and floating rates of interest. We use a ...

  • Page 72
    ...Note 9-Shareowners' Equity Note 10-Stock-Based Compensation Note 11-Segment and Geographic Information Note 12-Income Taxes Note 13-Earnings Per Share Note 14-Derivative Instruments and Risk Management Note 15-Termination of TNT Transaction Note 16-Subsequent Events Note 17-Quarterly Information 61...

  • Page 73
    ...Shareowners United Parcel Service, Inc. Atlanta, Georgia We have audited the accompanying consolidated balance sheets of United Parcel Service, Inc. and subsidiaries (the "Company") as of December 31, 2013 and 2012, and the related statements of consolidated income, consolidated comprehensive income...

  • Page 74
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions) December 31, 2013 2012 ASSETS Current Assets: Cash and cash equivalents Marketable securities Accounts receivable, net Deferred income tax assets Other current assets Total Current Assets Property, Plant and ...

  • Page 75
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (In millions, except per share amounts) Years Ended December 31, 2013 2012 2011 Revenue Operating Expenses: Compensation and benefits Repairs and maintenance Depreciation and amortization Purchased transportation Fuel ...

  • Page 76
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (In millions) Years Ended December 31, 2013 2012 2011 Cash Flows From Operating Activities: Net income Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization Pension ...

  • Page 77
    ... and International Package Operations-Revenue is recognized upon delivery of a letter or package. Forwarding and Logistics-Freight forwarding revenue and the expense related to the transportation of freight are recognized at the time the services are performed. Material management and distribution...

  • Page 78
    ...trends in customer payment frequency, and judgments about the probable effects of relevant observable data, including present economic conditions and the financial health of specific customers and market sectors. Our risk management process includes standards and policies for reviewing major account...

  • Page 79
    ... of pension expense, primarily service and interest costs and the expected return on plan assets, are recorded on a quarterly basis. We participate in a number of trustee-managed multiemployer pension and health and welfare plans for employees covered under collective bargaining agreements. Our...

  • Page 80
    ... SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Foreign Currency Translation We translate the results of operations of our foreign subsidiaries using average exchange rates during each period, whereas balance sheet accounts are translated using exchange rates at the end...

  • Page 81
    ... periodic pension cost), companies would instead cross reference to the related note for additional information (e.g., the pension note). We adopted this accounting standard update in the first quarter of 2013 and have included the required presentation in all applicable filings since that date (see...

  • Page 82
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cost Unrealized Gains Unrealized Losses Estimated Fair Value 2012 Current marketable securities: U.S. government and agency debt securities Mortgage and asset-backed debt securities Corporate debt securities...

  • Page 83
    ...policy to fund benefits for the UPS Excess Coordinating Benefit Plan at December 31, 2013 and 2012. This investment is classified as "Investments and Restricted Cash" in the consolidated balance sheets with the quarterly change in investment value recognized in investment income on the statements of...

  • Page 84
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total 2013 Marketable securities: U.S. government and ...

  • Page 85
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, including both owned assets as well as assets subject to capital leases, consists of the following as of December 31 (in millions): 2013 2012 ...

  • Page 86
    ... weighted-average actuarial assumptions used to determine the net periodic benefit cost. U.S. Pension Benefits 2013 2012 2011 2013 U.S. Postretirement Medical Benefits 2012 2011 2013 International Pension Benefits 2012 2011 Discount rate Rate of compensation increase Expected return on assets 4.42...

  • Page 87
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The table below provides the weighted-average actuarial assumptions used to determine the benefit obligations of our plans. U.S. Pension Benefits 2013 2012 U.S. Postretirement Medical Benefits 2013 2012 ...

  • Page 88
    ... SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Funded Status The following table discloses the funded status of our plans and the amounts recognized in our balance sheet as of December 31 (in millions): U.S. Postretirement Medical Benefits 2013 2012 International Pension...

  • Page 89
    ... Pension Benefits 2013 2012 U.S. Postretirement Medical Benefits 2013 2012 2012 Fair Value of Plan Assets: Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Plan participants' contributions Gross benefits paid Foreign currency exchange rate changes...

  • Page 90
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our investment strategy with respect to pension assets is to invest the assets in accordance with applicable laws and regulations. The long-term primary objectives for our pension assets are to: (1) provide for a...

  • Page 91
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fair values of U.S. and international pension and postretirement benefit plan assets by asset category as of December 31, 2013 are presented below (in millions), as well as the percentage that each category ...

  • Page 92
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fair values of U.S. and international pension and postretirement benefit plan assets by asset category as of December 31, 2012 are presented below (in millions), as well as the percentage that each category ...

  • Page 93
    ... class A or B shares of common stock directly held in plan assets as of December 31, 2013 or December 31, 2012. Accumulated Other Comprehensive Income The estimated amounts of prior service cost in AOCI expected to be amortized and recognized as a component of net periodic benefit cost in 2014 are...

  • Page 94
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our funding policy for U.S. plans is to contribute amounts annually that are at least equal to the amounts required by applicable laws and regulations, or to directly fund payments to plan participants, as ...

  • Page 95
    ... actuaries employed by the NETTI Fund, in accordance with the governing plan documents and the applicable requirements of the Employee Retirement Income Security Act of 1974. In 2012, we recorded a charge to expense to establish an $896 million withdrawal liability on our consolidated balance sheet...

  • Page 96
    ... Health and Welfare Plans We also contribute to several multiemployer health and welfare plans that cover both active and retired employees. Health care benefits are provided to participants who meet certain eligibility requirements as covered under the applicable collective bargaining unit...

  • Page 97
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6. BUSINESS ACQUISITIONS, GOODWILL AND INTANGIBLE ASSETS The following table indicates the allocation of goodwill by reportable segment (in millions): U.S. Domestic Package International Package Supply Chain...

  • Page 98
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In 2013, we utilized a qualitative assessment to determine that it was more likely than not that the reporting unit fair value exceeded the carrying value for our Europe, Asia, Americas and MBE / The UPS Store ...

  • Page 99
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7. DEBT AND FINANCING ARRANGEMENTS The following table sets forth the principal amount, maturity or range of maturities, as well as the carrying value of our debt obligations, as of December 31, 2013 and ...

  • Page 100
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fixed Rate Senior Notes We have completed several offerings of fixed rate senior notes. All of the notes pay interest semiannually, and allow for redemption of the notes by UPS at any time by paying the greater ...

  • Page 101
    ... Domestic Package and Supply Chain & Freight operations in the United States. These facilities are located around airport properties in Louisville, Kentucky; Dallas, Texas; and Philadelphia, Pennsylvania. Under these arrangements, we enter into a lease or loan agreement that covers the debt service...

  • Page 102
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Contractual Commitments We lease certain aircraft, facilities, land, equipment and vehicles under operating leases, which expire at various dates through 2038. Certain of the leases contain escalation clauses and...

  • Page 103
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Debt Covenants Our existing debt instruments and credit facilities subject us to certain financial covenants. As of December 31, 2013 and for all prior periods presented, we have satisfied these financial ...

  • Page 104
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 ...

  • Page 105
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In January 2008, a class action complaint was filed in the United States District Court for the Eastern District of New York alleging price-fixing activities relating to the provision of freight forwarding ...

  • Page 106
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following is a rollforward of our common stock, additional paid-in capital, and retained earnings accounts (in millions, except per share amounts): 2013 Shares Dollars Shares 2012 Dollars Shares 2011 Dollars...

  • Page 107
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Accumulated Other Comprehensive Income (Loss) We incur activity in AOCI for unrealized holding gains and losses on available-for-sale securities, foreign currency translation adjustments, unrealized gains and ...

  • Page 108
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Detail of the gains (losses) reclassified from AOCI to the statements of consolidated income for the years ended December 31, 2013, 2012 and 2011 is as follows (in millions): 2013 Amount Reclassified from AOCI ...

  • Page 109
    ... consolidated subsidiaries in our International Package and Supply Chain & Freight segments, primarily in international locations. The activity related to our noncontrolling interests is presented below (in millions): 2013 2012 2011 Noncontrolling Interests Balance at beginning of period Purchase...

  • Page 110
    ... to certain eligible employees. The Restricted Units ultimately granted under the Long-Term Incentive Performance Awards program will be based upon the achievement of certain performance measures, including growth in consolidated revenue and operating return on invested capital, each year during the...

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    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fair value of each Restricted Unit is the NYSE closing price of class B common stock on the date of grant. The weighted-average grant date fair value of Restricted Units granted during 2013, 2012 and 2011 was...

  • Page 112
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes information about stock options outstanding and exercisable at December 31, 2013: Options Outstanding Shares (in thousands) Average Life (in years) Average Exercise Price Options ...

  • Page 113
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Segment information as of, and for the years ended, December 31 is as follows (in millions): 2013 2012 2011 Revenue: U.S. Domestic Package International Package Supply Chain & Freight Consolidated Operating ...

  • Page 114
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Geographic information as of, and for the years ended, December 31 is as follows (in millions): 2013 2012 2011 United States: Revenue Long-lived assets International: Revenue Long-lived assets Consolidated: ...

  • Page 115
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our effective tax rate increased to 34.5% in 2013, compared with 17.1% in 2012, primarily due to an increase in total pre-tax income and the decrease in U.S. Federal and state tax credits relative to total pre-...

  • Page 116
    ... recorded as of December 31, 2013, 2012 and 2011, respectively, associated with outstanding refund claims for prior tax years. Therefore, we had a net receivable recorded with respect to prior years' income tax matters in the accompanying consolidated balance sheets. Additionally, we have recognized...

  • Page 117
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In June 2011, we received an IRS Revenue Agent Report (RAR) covering income taxes for tax years 2005 through 2007, in addition to the excise tax matters described in note 8. The income tax RAR proposed ...

  • Page 118
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT Risk Management Policies We are exposed to market risk, primarily related to foreign exchange rates, commodity prices and interest rates. These exposures are ...

  • Page 119
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Types of Hedges Commodity Risk Management Currently, the fuel surcharges that we apply to our domestic and international package and LTL services are the primary means of reducing the risk of adverse fuel price ...

  • Page 120
    ...Consolidated Balance Sheets Asset Derivatives Balance Sheet Location 2013 2012 Net Amounts if Right of Offset had been Applied 2013 2012 Derivatives designated as hedges: Foreign exchange contracts Interest rate contracts Foreign exchange contracts Interest rate contracts Derivatives not designated...

  • Page 121
    ... FINANCIAL STATEMENTS Gross Amounts Presented in Consolidated Balance Sheets Liability Derivatives Balance Sheet Location 2013 2012 Net Amounts if Right of Offset had been Applied 2013 2012 Derivatives designated as hedges: Foreign exchange contracts Foreign exchange contracts Interest rate...

  • Page 122
    ... the amounts recorded in the statements of consolidated income related to fair value changes and settlements of these foreign currency forward and interest rate swap contracts not designated as hedges for the years ended December 31, 2013 and 2012 (in millions): Location of Gain (Loss) Recognized in...

  • Page 123
    ... are employed under a collective bargaining agreement with the Independent Pilots Association ("IPA"), which became amendable at the end of 2011. In February 2014, UPS and the IPA requested mediation by the National Mediation Board for the ongoing contract negotiations. As of the date of this filing...

  • Page 124
    ... Package segment by $896 million, net income by $559 million and basic and diluted earnings per share by $0.58. Operating profit for the quarter ended December 31, 2012 was impacted by a mark-to-market loss on our pension and postretirement benefit plans related to the remeasurement of plan assets...

  • Page 125
    ...balance sheets of United Parcel Service, Inc. and its subsidiaries as of December 31, 2013 and the related statements of consolidated income, consolidated comprehensive income and consolidated cash flows for the year ended December 31, 2013, has issued an attestation report on the Company's internal...

  • Page 126
    ... Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2013 of the Company and our report dated February 28, 2014 expressed an unqualified opinion on those financial statements. /s/ Deloitte & Touche LLP Atlanta, Georgia...

  • Page 127
    ...), Senior Vice President, Worldwide Sales and Marketing (2008 - 2010), Senior Vice President and President, UPS International (2007), President, UPS Supply Chain Solutions - Asia and Europe (2006). Senior Vice President, U.S. Operations (2009 - present), Vice President, Americas Region (2008 - 2009...

  • Page 128
    ... Beneficial Owners and Management and Related Stockholder Matters Information about security ownership is presented under the caption "Beneficial Ownership of Common Stock" in our definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 8, 2014 and is incorporated herein...

  • Page 129
    PART IV Item 15. Exhibits and Financial Statement Schedules (a) 1. Financial Statements. See Item 8 for the financial statements filed with this report. 2. Financial Statement Schedules. None. 3. List of Exhibits. See the Exhibit Index for a list of the exhibits incorporated by reference into or ...

  • Page 130
    ... Exchange Act of 1934, United Parcel Service, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED PARCEL SERVICE, INC. (REGISTRANT) By: / S/ D. SCOTT DAVIS D. Scott Davis Chairman and Chief Executive Officer Date: February 28, 2014...

  • Page 131
    ... 2013, between United Parcel Service, Inc. and TNT Express N.V. (incorporated by reference to Exhibit 2.3 to the 2012 Annual Report on Form 10-K) - Form of Restated Certificate of Incorporation of United Parcel Service, Inc. (incorporated by reference to Exhibit 3.2 to Form 8-K filed on May 12, 2010...

  • Page 132
    ... 10.2(6) to the 2012 Annual Report on Form 10-K). †(7) Amendment No. 7 to the UPS Savings Plan. 10.3 - Credit Agreement (364-Day Facility) dated March 29, 2013 among United Parcel Service, Inc., the initial lenders named therein, J.P. Morgan Securities LLC and Citigroup Global Markets, Inc. as...

  • Page 133
    ... to the 2012 Annual Report on Form 10-K). 10.8 10.9 - United Parcel Service, Inc. Nonqualified Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to the registration statement on Form S-8 (No. 333-34054), filed on April 5, 2000). - Discounted Employee Stock Purchase Plan, as...

  • Page 134
    ... in our annual reports on Form 10-K for the years ended December 31, 2013, 2012 and 2011, as well as in the historical financial schedules on our investor relations website. The taxes deducted from operating profit in the return on invested capital calculation are based on the reported and adjusted...

  • Page 135
    ....computershare.com/ups or by calling 800 758 4674. Transfer Agent and Registrar Computershare Shareowner Services Send notices of address changes or questions regarding account status, stock transfer, lost certificates, or dividend payments to: United Parcel Service, Inc. c/o Computershare P.O. Box...

  • Page 136
    55 Glenlake Parkway, NE Atlanta, GA 30328 3474 www.ups.com © 2014 United Parcel Service of America, Inc. UPS, the UPS brandmark, and the color brown are trademarks of United Parcel Service of America, Inc. All rights reserved.