UPS 2013 Annual Report Download - page 103

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
91
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 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, 2013, 10% of net tangible assets is equivalent to $2.612 billion; however, we have no covered sale-
leaseback transactions or secured indebtedness outstanding. 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 $11.756 and $14.658 billion as of December 31,
2013 and 2012, 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 (1) 125 individual franchisees who did not
rebrand to The UPS Store and (2) a certified class of all franchisees who did rebrand. With respect to the 125 individual
franchisees described in (1) above, the trial court entered judgment against a bellwether individual plaintiff, which was affirmed
in January 2012. In March 2013, we reached a settlement in principle with the remaining individual plaintiffs who did not
rebrand. We believe this settlement will not have a material adverse effect on our financial condition, results of operations or
liquidity. The trial court granted our motion for summary judgment against the certified class described in (2) above, which
was reversed in January 2012. We have not reached a settlement with this class of franchisees, and the claims of the class
remain pending.
There are multiple factors that prevent us from being able to estimate the amount of loss, if any, that may result from the
remaining aspects of this case, 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.