UPS 2014 Annual Report Download - page 38

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Items Affecting Comparability
The year-over-year comparisons of our financial results are affected by the following items (in millions):
Year Ended December 31,
2014 2013 2012
Operating Expenses:
Defined Benefit Plans Mark-to-Market Charge $ 1,062 $ — $ 4,831
Health & Welfare Plan Charges 1,102 — —
TNT Termination Fee and Related Expenses — 284 —
Gain Upon Liquidation of Foreign Subsidiary — (245)—
Multiemployer Pension Plan Withdrawal Charge — — 896
Income Tax Expense (Benefit) from the Items Above (807)(75)(2,145)
These items have been excluded from comparisons of "adjusted" operating expenses, operating profit and operating
margin in the discussion that follows.
Defined Benefit Plans Mark-to-Market Charge
In 2014 and 2012, we incurred pre-tax mark-to-market losses of $1.062 and $4.831 billion, respectively, on a
consolidated basis ($670 million and $3.023 billion after-tax, respectively) on our pension and postretirement defined benefit
plans related to the remeasurement of plan assets and liabilities recognized outside of a 10% corridor. No mark-to-market gain
or loss was incurred in 2013, as the remeasurement of plan assets and liabilities only resulted in adjustments within the 10%
corridor (and thus only impacted accumulated other comprehensive income). These mark-to-market losses in 2014 and 2012,
which were recorded in compensation and benefits expense in our statements of consolidated income, impacted each of our
three reporting segments in both years. The table below indicates the amounts associated with each component of the pre-tax
mark-to-market loss, as well as the weighted-average actuarial assumptions used to determine our net periodic benefit costs, for
each year:
Year Ended December 31,
Components of mark-to-market gain (loss) (in millions) 2014 2013 2012
Discount rates $ (954)$ — $ (5,530)
Return on assets 42 — 708
Demographic assumptions (150)— (9)
Total mark-to-market gain (loss) $ (1,062)$ — $ (4,831)
Weighted-average actuarial assumptions used to determine net periodic
benefit cost 2014 2013 2012
Expected rate of return on plan assets 8.66% 8.69% 8.71%
Actual rate of return on plan assets 9.45% 8.36% 11.76%
Discount rate used for net periodic benefit cost 5.24% 4.38% 5.58%
Discount rate at measurement date 4.36% 5.24% 4.38%
The $1.062 and $4.831 billion pre-tax mark-to-market losses for the years ended December 31, 2014 and 2012,
respectively, were comprised of the following components:
2014 - $1.062 billion pre-tax mark-to-market loss:
• Discount Rates ($954 million pre-tax loss): The weighted-average discount rate for our U.S. pension and
postretirement medical plans and our international pension plans declined from 5.24% at December 31, 2013 to
4.36% at December 31, 2014. This overall decline in discount rates was driven by a 122 basis point decline in the
30 year Treasury bond rate, but was partially offset by an increase in credit spreads on AA-rated 30 year bonds.