UPS 2014 Annual Report Download

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Networked for Growth
2014 Annual Report

Table of contents

  • Page 1
    Networked for Growth 2014 Annual Report

  • Page 2
    ... Dividends declared per share Assets Long-term debt Shareowners' equity Capital expenditures Cash and marketable securities (in millions except for per-share amounts) 1907 YEAR FOUNDED 150,000 RETAIL ACCESS POINTS 2,700 WORLDWIDE OPERATING FACILITIES 5,088 ALT. FUEL VEHICLES Key Metrics Return...

  • Page 3
    ... for more than a century now. In 2014, our company delivered a record 4.6 billion packages - including 572 million packages in December, a make-or-break month for many retailers. The management team and I received numerous calls and emails from customers big and small who wanted to express their...

  • Page 4
    ... to customers, the higher operating costs dampened our profits. In 2014, our adjusted net income* increased 1.2 percent, to $4.39 billion on a 5 percent increase in revenue, to $58.2 billion. Last year, I was honored that the UPS board asked me to serve as the 11th chief executive officer in...

  • Page 5
    ... modestly stronger in 2015. While parts of Europe and Asia are expecting slower growth, the U.S. economy continues to gain momentum. In addition, UPS is well-positioned to benefit from trends in global economic activity: e-commerce is expected to grow at four times the rate of global GDP, and cross...

  • Page 6
    ... 2010 GAAP Adjusted* 2011 2012 2013 Operations Review Global Package Operations Our average daily package volume grew by 6.4 percent in 2014, signifying market demand for the unique solutions UPS offers. We've learned when we combine our broad portfolio of specialized capabilities with our vast...

  • Page 7
    ...from their stores. These solutions not only reduce the time in transit, but also help merchants capture sales that might otherwise be lost if their distribution centers are out of stock. During the recent holiday season, the number of retailers employing a local distribution strategy increased by 50...

  • Page 8
    ...2.08 2011 2.28 2012 2.48 2013 2.68 2014 2009 % Year Over Year Growth Rate Supply Chain and Freight The Supply Chain and Freight segment recorded a 5.1 percent increase in revenue, to $9.4 billion. Adjusted operating profit* increased 6.5 percent to $718 million, while adjusted operating margin...

  • Page 9
    ... that earnings per share in 2015 will increase between 6 and 12 percent. Overall, UPS expects operating profit to increase between 5 and 9 percent. UPS is a strong company. We're not intimidated by the pace of change, but not so secure that we're complacent. Times change and we're changing with them...

  • Page 10
    ...1998, retired from the UPS board in 2014. Management Committee David P. Abney Chief Executive Officer James J. Barber, Jr. Senior Vice President and President, UPS International David A. Barnes Senior Vice President and Chief Information Officer Teresa Finley Senior Vice President, Global Marketing...

  • Page 11
    ... of class A common stock and 702,058,256 outstanding shares of class B common stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for its annual meeting of shareowners scheduled for May 7, 2015 are incorporated by reference into Part III of this report.

  • 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
    .... We serve the global market for logistics services, which include transportation, distribution, forwarding, ground freight, ocean freight, air freight, brokerage and financing. We have three reportable segments: U.S. Domestic Package, International Package and Supply Chain & Freight, all of which...

  • Page 14
    ... and solutions expertise for competitive advantage in markets where they choose to compete. We prudently invest to expand our integrated global network and service portfolio. Technology investments create user-friendly shipping, e-commerce, logistics management and visibility tools for our customers...

  • Page 15
    ... home delivery service and address the needs of e-commerce shippers and consignees. Our offerings span a broad spectrum that supports retailers across their value chain, from global sourcing to distribution and returns. We offer cost-sensitive solutions such as UPS SurePost, for shipments where...

  • Page 16
    ...pick up or drop off their parcels at retail locations that are convenient to them. In 2014, UPS announced the purchase of i-parcel, LLC. This new offering focuses on innovative international ecommerce and logistics. The combination of UPS and i-parcel yields a global e-commerce solution that further...

  • Page 17
    ... and websites such as address validation, shipment scheduling, selection of shipping service levels, tracking and much more. Business-to-Consumer All UPS Access Point locations are pre-approved to ensure package safety, and are also equipped with the latest UPS technology to help make package pickup...

  • Page 18
    ...can accept packages provided to them; UPS drop boxes; UPS Access Point locations; The UPS Store locations; authorized shipping outlets and commercial counters; alliance locations; and customer centers attached to UPS facilities. Some of these locations offer a full array of services including pickup...

  • Page 19
    ... and Central America, we benefit from a strong regional economy. Our offerings include express package delivery in major cities as well as distribution and forwarding services. We continue to expand our network in Brazil, with plans to open nine new operating facilities strategically located in the...

  • Page 20
    ... services, our UPS Freight business, and our financial offerings through UPS Capital. Supply chain complexity creates demand for a global service offering that incorporates transportation, distribution and international trade and brokerage services, with financial and information services. We meet...

  • Page 21
    ... transportation alternatives and implement delivery solutions that meets customers' time and cost requirements. UPS Freight UPS Freight offers regional, inter-regional and long-haul less-than-truckload ("LTL") services, as well as full truckload services, in all 50 states, Canada, Puerto Rico, Guam...

  • Page 22
    ... efforts in 2014 include: • Local non-profits around the world received nearly 1.9 million hours of volunteer service from UPS employees participating in our Neighbor-to-Neighbor program. • The UPS Foundation, which oversees corporate citizenship efforts for the company, invested $104 million...

  • Page 23
    ...wellness through the development of workplace programs. The foundation of this process is our co-chaired employee and management health and safety committees. Together they conduct facility and equipment audits, perform work practice and behavior analysis, conduct training and recommend work process...

  • Page 24
    ... each vehicle is serviced at a specific time to prevent malfunction or breakdown. Competition UPS is a global leader in logistics. We offer a broad array of services in the package and freight delivery industry and, therefore, compete with many different local, regional, national and international...

  • Page 25
    ... resources to achieve global scale; to invest in employee development, technology, transportation equipment and facilities; to pursue strategic opportunities that facilitate our growth; to service our obligations; and to return value to our shareowners in the form of dividends, share repurchases and...

  • Page 26
    ... 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 27
    ...www.sustainability.ups.com. We provide the addresses to our Internet sites solely for the information of investors. We do not intend for any addresses to be active links or to otherwise incorporate the contents of any website into this report. Item 1A. Risk Factors You should carefully consider the...

  • Page 28
    ... with the Teamsters. In addition, our airline pilots, airline mechanics, ground mechanics and certain other employees are employed under other collective bargaining agreements. Strikes, work stoppages and slowdowns by our employees could adversely affect our ability to meet our customers' needs, and...

  • Page 29
    ...the income statement. The impact of changes in interest rates on our pension and postretirement benefit obligations and costs is discussed further in the "Critical Accounting Policies and Estimates" section of this report. We monitor and manage our exposures to changes in currency exchange rates and...

  • Page 30
    ... or confidential data, including personal information of customers, employees and others. Our franchised center locations also are reliant on the use of information technology systems to manage their business processes and activities. Our and our franchisees' information technology systems, some of...

  • Page 31
    ... 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 require...

  • Page 32
    ... Freight service centers with approximately 5.9 million square feet of floor space. The main offices of UPS Freight are located in Richmond, Virginia and consist of about 217,000 square feet of office space. Our aircraft are operated in a hub and spoke pattern in the U.S., with our principal air hub...

  • Page 33
    ... incapacitates the main data center. It also helps to meet our internal communication needs. We believe that our facilities are adequate to support our current operations. Fleet Aircraft The following table shows information about our aircraft fleet as of December 31, 2014: Short-term Leased or...

  • Page 34
    ... 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 2014 and 2013. Our class...

  • Page 35
    ... dividends for each of the quarterly periods, assumes that $100 was invested on December 31, 2009 in the Standard & Poor's 500 Index, the Dow Jones Transportation Average, and our class B common stock. 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 United Parcel Service...

  • Page 36
    ... report. 2014 Years Ended December 31, 2013 2012 2011 2010 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 37
    ...: 2014 Year Ended December 31, 2013 2012 % Change 2014 / 2013 2013 / 2012 Revenue (in millions) Operating Expenses (in millions) Operating Profit (in millions) Operating Margin Average Daily Package Volume (in thousands) Average Revenue Per Piece Net Income (in millions) Basic Earnings Per Share...

  • Page 38
    ... (in millions): Year Ended December 31, 2014 2013 2012 Operating Expenses: Defined Benefit Plans Mark-to-Market Charge Health & Welfare Plan Charges TNT Termination Fee and Related Expenses Gain Upon Liquidation of Foreign Subsidiary Multiemployer Pension Plan Withdrawal Charge Income Tax Expense...

  • Page 39
    ... benefits to certain active and retired union employees. These charges are discussed in further detail in the "Collective Bargaining Agreements" section. These charges impacted our U.S. Domestic Package segment ($990 million), International Package segment ($28 million) and Supply Chain & Freight...

  • Page 40
    ...benefit cost trends that can be used to better compare year-to-year financial performance without considering the short-term impact of changes in market interest rates, equity prices, and similar factors. Certain operating expenses are allocated between our reporting segments based on activity-based...

  • Page 41
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS U.S. Domestic Package Operations Year Ended December 31, 2014 2013 2012 % Change 2014 / 2013 2013 / 2012 Average Daily Package Volume (in thousands): Next Day Air ...

  • Page 42
    ... OPERATIONS Revenue The change in overall revenue was impacted by the following factors for the years ended December 31, 2014 and 2013, compared with the corresponding prior year periods: Rates / Product Mix Fuel Surcharge Total Revenue Change Volume Revenue Change Drivers: 2014 / 2013 2013 / 2012...

  • Page 43
    ... residential and commercial ground products. Rates and Product Mix 2014 compared to 2013 Overall revenue per piece decreased 1.5% in 2014, and was impacted by changes in base rates, customer and product mix, and fuel surcharge rates. Revenue per piece for our ground and air products was positively...

  • Page 44
    ... on air and ground services by reducing the index used to determine the fuel surcharge by 2% and 1%, respectively. Based on published rates, the average fuel surcharge rates for domestic air and ground products were as follows: Year Ended December 31, 2013 2012 % Point Change 2014 / 2013 2013 / 2012...

  • Page 45
    ...-up and delivery and network costs was largely due to increased volume and higher employee compensation costs, which were impacted by a union contractual wage increase (package driver wage rates rose 2.2%), an increase in average daily driver hours (up 2.2%) and an increase in employee pension and...

  • Page 46
    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, 2014 2013 2012 % Change 2014 / 2013 2013 / 2012 Average Daily Package Volume (in thousands): Domestic Export ...

  • Page 47
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Volume 2014 compared to 2013 Our overall average daily volume increased in 2014, largely due to strong demand from several economic sectors (including retail, healthcare...

  • Page 48
    ... lower-yielding standard service, as well as product and customer mix changes in several developed markets. Fuel Surcharges We maintain fuel surcharges on our international air and ground services. The fuel surcharges for international air products originating inside or outside the United States are...

  • Page 49
    ... operating costs, which were affected by increased expenses associated with aviation security. Excluding the impact of currency exchange rate changes, the total adjusted cost per piece for the segment decreased 2.7% in 2013 compared with 2012. Operating Profit and Margin 2014 compared to 2013...

  • Page 50
    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, 2014 2013 2012 % Change 2014 / 2013 2013 / 2012 Freight LTL Statistics: Revenue (in millions) Revenue Per ...

  • Page 51
    ...on yield management, as well as general rate increases averaging 5.9% that took effect on both July 16, 2012 and on June 10, 2013, covering non-contractual shipments in the United States, Canada and Mexico. LTL fuel surcharge revenue increased by $18 million in 2013 compared with the prior year, due...

  • Page 52
    ... our customers and the rates at which we procure capacity from third party air carriers. We increased profitability in our North American air freight, ocean freight, distribution and mail services units in 2014, as a result of improving market demand and cost controls. Adjusted operating profit for...

  • Page 53
    ... FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating Expenses Year Ended December 31, 2014 2013 2012 % Change 2014 / 2013 2013 / 2012 Operating Expenses (in millions): Compensation and Benefits Defined Benefit Plans Mark-to-Market Charge Health & Welfare Plan Charges Multiemployer Pension Plan...

  • Page 54
    ... entitlements earned based on employees' years of service, higher wage rates and an increase in the overall number of employees during 2013. Health and welfare costs increased $182 million in 2013 compared with 2012, largely due to increased contribution rates to multiemployer plans, higher medical...

  • Page 55
    ... vehicles, technology upgrades on vehicles and an overall increase in the size of our vehicle fleet in our U.S. Domestic Package and UPS Freight operations. Additionally, amortization expense increased $20 million, primarily related to intangible assets resulting from business acquisitions...

  • Page 56
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Fuel 2014 compared to 2013 The $144 million decrease in fuel expense in 2014 was primarily due to lower fuel prices (net of hedging activity), which decreased fuel ...

  • Page 57
    ... tax rate for the years ended December 31, 2014, 2013 and 2012 (in millions): Year Ended December 31, 2014 2013 2012 % Change 2014 / 2013 2013 / 2012 Income Tax Expense Income Tax Impact of: Defined Benefit Plans Mark-to-Market Charge Health & Welfare Plan Charges TNT Termination Fee and Related...

  • Page 58
    ...exchange transactions, deferred income taxes, provisions for uncollectible accounts, pension and postretirement benefit expense, stock compensation expense, impairment charges and other non-cash items. Cash from operating activities remained strong throughout the 2012 to 2014 time period. Operating...

  • Page 59
    ... Pension, UPS Retirement and UPS Pension plans. Apart from the transactions described above, operating cash flow was impacted by changes in our working capital position, payments for income taxes, and changes in hedge margin payables and receivables. In 2014 and 2013, the compressed holiday shipping...

  • Page 60
    ..., asset-based lending and leasing portfolios. The purchases and sales of marketable securities are largely determined by liquidity needs and the periodic rebalancing of investment types, and will therefore fluctuate from period to period. The cash paid for business acquisitions in the 2012 to 2014...

  • Page 61
    ... each year based on daily liquidity needs. The average commercial paper balance was $1.356 billion and the average interest rate paid was 0.10% in 2014 ($1.013 billion and 0.07% in 2013, and $962 million and 0.07% in 2012, respectively). The variation in cash received from common stock issuances...

  • Page 62
    ... consolidated financial statements). The pension funding requirements were estimated under the provisions of the Pension Protection Act of 2006 and the Employee Retirement Income Security Act of 1974, using discount rates, asset returns and other assumptions appropriate for these plans. In July 2012...

  • Page 63
    ...providing healthcare benefits for the active Non-NMA Group employees was also assumed by the Funds on various dates up to January 1, 2015, depending on the ratification date of the applicable collective bargaining agreement. We will make contributions to the Funds based on negotiated fixed hourly or...

  • Page 64
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Accounting Impact of Health and Welfare Plan Changes Income Statement Impact: We recorded a pre-tax charge of $1.066 billion ($665 million after-tax) in the second ...

  • Page 65
    ... 50 years. The undiscounted withdrawal liability was calculated by independent actuaries employed by the New England Pension Fund, in accordance with the governing plan documents and the applicable requirements of the Employee Retirement Income Security Act of 1974. In the third quarter of 2012, we...

  • Page 66
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS These rate changes are customary and occur on an annual basis. Rate changes for shipments originating outside the U.S. are made throughout the year and vary by ...

  • Page 67
    ..., costs and working capital changes. In addition, we make assumptions about the estimated cost of capital and other relevant variables, as required, in estimating the fair value of our reporting units. The projections that we use in our DCF model are updated annually and will change over time based...

  • Page 68
    ... point change in the assumed discount rate, return on assets, and healthcare 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, 2014 (in millions). Pension Plans Discount...

  • Page 69
    ..., foreign currency exchange rates, interest rates and equity prices is presented in the "Quantitative and Qualitative Disclosures about Market Risk" section of this report. Income Taxes We make certain estimates and judgments in determining income tax expense for financial statement purposes. These...

  • Page 70
    ... years ended December 31, 2014, 2013 and 2012 was $143, $129 and $155 million, respectively. Item 7A. Quantitative and Qualitative Disclosures about Market Risk We are exposed to market risk from changes in certain commodity prices, foreign currency exchange rates, interest rates and equity prices...

  • Page 71
    ... capital leases, that accrue expense at fixed and floating rates of interest. We use a combination of interest rate swaps as part of our program to manage the fixed and floating interest rate mix of our total debt portfolio and related overall cost of borrowing. The notional amount, interest payment...

  • Page 72
    ... Employee Benefit Plans Note 6-Business Acquisitions, Goodwill and Intangible Assets Note 7-Debt and Financing Arrangements Note 8-Legal Proceedings and Contingencies Note 9-Shareowners' Equity Note 10-Stock-Based Compensation Note 11-Segment and Geographic Information Note 12-Income Taxes...

  • Page 73
    ... balance sheets of United Parcel Service, Inc. and subsidiaries (the "Company") as of December 31, 2014 and 2013, and the related statements of consolidated income, consolidated comprehensive income, and consolidated cash flows for each of the three years in the period ended December 31, 2014. These...

  • Page 74
    ... Long-Term Debt Pension and Postretirement Benefit Obligations Deferred Income Tax Liabilities Self-Insurance Reserves Other Non-Current Liabilities Shareowners' Equity: Class A common stock (201 and 212 shares issued in 2014 and 2013) Class B common stock (705 and 712 shares issued in 2014 and 2013...

  • Page 75
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (In millions, except per share amounts) Years Ended December 31, 2014 2013 2012 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, 2014 2013 2012 Cash Flows From Operating Activities: Net income Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization Pension ...

  • Page 77
    ... domestic and international letter and package delivery. Through our Supply Chain & Freight subsidiaries, we are also a global provider of specialized transportation, logistics, and financial services. Use of Estimates The preparation of our consolidated financial statements requires the use of...

  • Page 78
    ...including macroeconomic conditions, industry and market conditions, overall financial performance of the reporting unit, changes in management, strategy or customers, and relevant reporting unit-specific events such as a change in the carrying amount of net assets, a more likely than not expectation...

  • Page 79
    ... year. The remaining components 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...

  • Page 80
    UNITED PARCEL 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 ...

  • Page 81
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Accounting Standards Issued But Not Yet Effective In April 2014, the FASB issued an accounting standards update that changes the requirements for reporting discontinued operations. This update will have the ...

  • Page 82
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cost Unrealized Gains Unrealized Losses Estimated Fair Value 2013 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 both December 31, 2014 and 2013. The quarterly change in investment fair value is recognized in "investment income" on the statements of consolidated income. Additionally, we held escrowed cash related to the acquisition and...

  • 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 2014 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): 2014 2013 ...

  • Page 86
    ... "Accounting Impact of Health and Welfare Plan Changes". Actuarial Assumptions The table below provides the weighted-average actuarial assumptions used to determine the net periodic benefit cost. U.S. Pension Benefits 2014 2013 2012 U.S. Postretirement Medical Benefits 2014 2013 2012 International...

  • 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 2014 2013 U.S. Postretirement Medical Benefits 2014 2013 ...

  • Page 88
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Assumed healthcare cost trends can have a significant effect on the amounts reported for our postretirement medical plans. A one-percent change in assumed health care cost trend rates would have had the following...

  • Page 89
    ... "Accounting Impact of Health and Welfare Plan Changes". Pension and Postretirement Plan Assets The applicable benefit plan committees establish investment guidelines and strategies, and regularly monitor the performance of the funds and portfolio managers. Our investment guidelines address the...

  • Page 90
    ...similar credit ratings, mortgage-backed securities that are valued based on cash flow and yield models using acceptable modeling and pricing conventions, and certain investments that are pooled with other investments held by the trustee in a commingled employee benefit trust fund. The investments in...

  • Page 91
    ... Total Fixed Income Securities Other Investments: Hedge Funds Private Equity Real Estate Structured Products(1) Risk Parity Funds Total U.S. Plan Assets Asset Category (International Plans): Cash and cash equivalents Equity Securities: Local Markets Equity U.S. Equity Emerging Markets International...

  • Page 92
    ... Total Fixed Income Securities Other Investments: Hedge Funds Private Equity Real Estate Structured Products(1) Risk Parity Funds Total U.S. Plan Assets Asset Category (International Plans): Cash and cash equivalents Equity Securities: Local Markets Equity U.S. Equity Emerging Markets International...

  • Page 93
    ... class A or B shares of common stock directly held in plan assets as of December 31, 2014 or December 31, 2013. 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 2015 are...

  • Page 94
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5. MULTIEMPLOYER EMPLOYEE BENEFIT PLANS We contribute to a number of multiemployer defined benefit plans under the terms of collective bargaining agreements that cover our union-represented employees. These ...

  • Page 95
    ... Helpers Local Union No. 355 Retirement Pension Plan United Parcel Service, Inc.-Local 177, I.B.T. Multiemployer Retirement Plan Western Conference of Teamsters Pension Plan Western Pennsylvania Teamsters and Employers Pension Fund All Other Multiemployer Pension Plans Total Contributions Number 92...

  • Page 96
    ... paid in equal monthly installments over 50 years. The undiscounted withdrawal liability was calculated by independent 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...

  • Page 97
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Multiemployer 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...

  • Page 98
    ...providing healthcare benefits for the active Non-NMA Group employees was also assumed by the Funds on various dates up to January 1, 2015, depending on the ratification date of the applicable collective bargaining agreement. We will make contributions to the Funds based on negotiated fixed hourly or...

  • Page 99
    ...in the International Package segment was largely related to our October 2013 acquisition of the assets and operations of two Costa Rican-based companies: (1) Union Pak de Costa Rica, S.A., a small package delivery company, and (2) SEISA Brokerage, a customs brokerage company. Both companies had long...

  • Page 100
    ... PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In 2014, we utilized the two-step process to test goodwill for impairment for all of our reporting units. We did not have any goodwill impairment charges in 2014, 2013 or 2012. Cumulatively, our Supply Chain & Freight...

  • Page 101
    ... Notes: 5.50% notes 5.125% notes Floating rate senior notes Capital lease obligations Facility notes and bonds Other debt Total debt Less: current maturities Long-term debt Commercial Paper $ 772 1,000 375 750 1,000 1,500 1,000 1,500 500 375 424 276 2015 2014 2017 2018 2019 2021 2022 2038 2040...

  • Page 102
    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 103
    ... follows as of December 31 (in millions): 2014 2013 Vehicles Aircraft Buildings Plant Equipment Technology Equipment Accumulated amortization $ $ These capital lease obligations have principal payments due at various dates from 2015 through 3005. Facility Notes and Bonds 86 $ 2,289 197 - - (781...

  • Page 104
    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 105
    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, 2014 and for all prior periods presented, we have satisfied these financial ...

  • Page 106
    ... on our financial condition, results of operations or liquidity. Other Matters 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 services. UPS...

  • Page 107
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On March 29, 2013, we entered into a Non-Prosecution Agreement ("NPA") with the United States Attorney's Office in the Northern District of California in connection with an investigation by the Drug Enforcement ...

  • Page 108
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9. SHAREOWNERS' EQUITY Capital Stock, Additional Paid-In Capital, and Retained Earnings We maintain two classes of common stock, which are distinguished from each other by their respective voting rights. ...

  • Page 109
    ... the use of capped call options for the purchase of UPS class B shares. We pay a fixed sum of cash upon execution of each agreement in exchange for the right to receive either a pre-determined amount of cash or stock. Upon expiration of each agreement, if the closing market price of our common stock...

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    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, 2014, 2013 and 2012 is as follows (in millions): 2014 Amount Reclassified from AOCI ...

  • Page 111
    ... Package and Supply Chain & Freight segments, primarily in international locations. The activity related to our noncontrolling interests is presented below (in millions): 2014 2013 2012 Noncontrolling Interests Balance at beginning of period Purchase of noncontrolling interests Dividends...

  • Page 112
    ... income tax benefit received from the exercise of stock options and the lapsing of Restricted Units was $261, $286 and $265 million during 2014, 2013 and 2012, respectively. Management Incentive Award Non-executive management earning the right to receive the Management Incentive Award are determined...

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    ... to purchase shares of UPS class A common stock. Stock options granted in connection with the Incentive Compensation Plan must have an exercise price at least equal to the NYSE closing price of UPS class B common stock on the date the option is granted. Executive officers and certain senior managers...

  • Page 114
    ...at 95% of the NYSE closing price of UPS class B common stock on the last day of each quarterly period. Employees purchased 0.9, 1.1 and 1.2 million shares at average prices of $95.67, $79.74 and $72.17 per share during 2014, 2013 and 2012, respectively. This plan is not considered to be compensatory...

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    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11. SEGMENT AND GEOGRAPHIC INFORMATION We report our operations in three segments: U.S. Domestic Package operations, International Package operations and Supply Chain & Freight operations. Package operations...

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    ... FINANCIAL STATEMENTS Revenue by product type for the years ended December 31 is as follows (in millions): 2014 2013 2012 U.S. Domestic Package: Next Day Air Deferred Ground Total U.S. Domestic Package International Package: Domestic Export Cargo Total International Package Supply Chain & Freight...

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    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12. INCOME TAXES The income tax expense (benefit) for the years ended December 31 consists of the following (in millions): 2014 2013 2012 Current: U.S. Federal U.S. State and Local Non-U.S. Total Current ...

  • Page 118
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred tax liabilities and assets are comprised of the following at December 31 (in millions): 2014 2013 Fixed assets and capitalized software Other Deferred tax liabilities Pension and postretirement benefits...

  • Page 119
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the activity related to our unrecognized tax benefits (in millions): Tax Interest Penalties Balance at January 1, 2012 Additions for tax positions of the current year Additions for...

  • Page 120
    ...): 2014 2013 2012 Numerator: Net income attributable to common shareowners Denominator: Weighted average shares Deferred compensation obligations Vested portion of restricted shares Denominator for basic earnings per share Effect of dilutive securities: Restricted performance units Stock options...

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    ... 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 actively...

  • Page 122
    ... 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 changes...

  • Page 123
    ..." indicate the potential net fair value positions by type of contract and location on the consolidated balance sheets had we elected to apply the right of offset. Gross Amounts Presented in Consolidated Balance Sheets Asset Derivatives Balance Sheet Location 2014 2013 Net Amounts if Right of Offset...

  • Page 124
    ... of changes in market conditions. The amount of ineffectiveness recognized in income on derivative instruments designated in cash flow hedging relationships was immaterial for the years ended December 31, 2014, 2013 and 2012. The following table indicates the amount and location in the statements of...

  • Page 125
    ... recorded in the statements of consolidated income related to fair value changes and settlements of these foreign currency forward, interest rate swap, and commodity contracts not designated as hedges for the years ended December 31, 2014 and 2013 (in millions): Location of Gain (Loss) Recognized...

  • Page 126
    ... 2014 2013 Third Quarter 2014 2013 Fourth Quarter 2014 2013 Revenue: U.S. Domestic Package International Package Supply Chain & Freight Total revenue Operating profit (loss): U.S. Domestic Package International Package Supply Chain & Freight Total operating profit Net income Net income per share...

  • Page 127
    ... STATEMENTS Operating profit for the quarter ended June 30, 2014 was impacted by a pre-tax charge of $1.066 billion associated with curtailment, remeasurement and settlement of postretirement health and welfare benefit obligations for certain employees covered by collective bargaining agreements...

  • Page 128
    ...balance sheets of United Parcel Service, Inc. and its subsidiaries as of December 31, 2014 and the related statements of consolidated income, consolidated comprehensive income and consolidated cash flows for the year ended December 31, 2014, has issued an attestation report on the Company's internal...

  • Page 129
    ... Registered Public Accounting Firm Board of Directors and Shareowners United Parcel Service, Inc. Atlanta, Georgia We have audited the internal control over financial reporting of United Parcel Service, Inc. and subsidiaries (the "Company") as of December 31, 2014, based on criteria established...

  • Page 130
    ... Business Services Officer (2005 present). Senior Vice President of Global Marketing (2015 Present), Treasurer (2014), Corporate Controller (2010 - 2013). Executive Vice President and Chief Commercial Officer (2014 - present), Senior Vice President, Worldwide Sales, Marketing and Strategy (2011 2014...

  • Page 131
    ... "Compensation of Executive Officers," "Compensation of Directors," "Report of the Compensation Committee" and "Compensation Committee Interlocks and Insider Participation" in our definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 7, 2015 and is incorporated herein by...

  • Page 132
    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 133
    ... on its behalf by the undersigned, thereunto duly authorized. UNITED PARCEL SERVICE, INC. (REGISTRANT) By: /S / DAVID P. ABNEY David P. Abney Chief Executive Officer Date: February 27, 2015 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 134
    ... as of January 1, 2014. - UPS Savings Plan, as Amended and Restated, effective as of January 1, 2014. - Credit Agreement (364-Day Facility) dated March 28, 2014 among United Parcel Service, Inc., the initial lenders named therein, J.P. Morgan Securities LLC, Citigroup Global Markets, Inc., Barclays...

  • Page 135
    ... 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 136
    ... financial information from the Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income...

  • Page 137
    ...31, 2014, 2013 and 2012, 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 effective tax rates noted on page 45 of our 2014 annual report on...

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    ... and Market Street, Wilmington, DE. Shareowners of record as of March 9, 2015, are entitled to vote at the meeting. UPS Shareowner Services Convenient access 24 hours a day, seven days a week. Class A Common Shareowners www.computershare.com/ups 888.663.8325 Investor Relations You can contact our...

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