UPS 2013 Annual Report Download - page 61

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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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 routine business requirements. We also issue surety bonds as an alternative to letters
of credit in certain instances, and as of December 31, 2013, we had $627 million of surety bonds written. As of December 31,
2013, we had unfunded loan commitments totaling $153 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 (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.
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. UPS and FedEx have moved for summary judgment. There has been no ruling on those motions. The case does
not have a trial date scheduled. 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) the Court has not ruled on the pending dispositive motions; and (3) the DOJ
investigation is pending. 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.