UPS 2014 Annual Report Download - page 40

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
28
Multiemployer Pension Plan Withdrawal Charge
In 2012, we recognized an $896 million pre-tax charge ($559 million after-tax) for the establishment of a withdrawal
liability related to our withdrawal from the New England Teamsters and Trucking Industry Pension Fund ("New England
Pension Fund"), a multiemployer pension plan. This charge is discussed in further detail in the "Collective Bargaining
Agreements" section. This charge was recorded in compensation and benefits expense in our statements of consolidated
income, and impacted our U.S. Domestic Package segment.
Results of Operations—Segment Review
The results and discussions that follow are reflective of how our executive management monitors the performance of our
reporting segments. We supplement the reporting of our financial information determined under generally accepted accounting
principles (“GAAP”) with certain non-GAAP financial measures, including operating profit, operating margin, pre-tax income,
net income and earnings per share adjusted for the non-comparable items discussed previously. We believe that these adjusted
measures provide meaningful information to assist investors and analysts in understanding our financial results and assessing
our prospects for future performance. We believe these adjusted financial measures are important indicators of our recurring
results of operations because they exclude items that may not be indicative of, or are unrelated to, our core operating results,
and provide a better baseline for analyzing trends in our underlying businesses. Additionally, these adjusted financial measures
are used internally by management for the determination of incentive compensation awards, business unit operating
performance analysis, and business unit resource allocation.
As discussed in our "Critical Accounting Policies and Estimates", we recognize changes in the fair value of plan assets
and net actuarial gains and losses in excess of a 10% corridor immediately as part of net periodic benefit cost. In our results of
operations and the discussions that follow, we have presented adjusted operating expenses, adjusted operating profit and
adjusted operating margin excluding the portion of net periodic benefit cost represented by the gains and losses recognized in
excess of the 10% corridor. This 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 net periodic benefit cost reflects the actual return
on plan assets and the discount rate used for measuring the projected benefit obligation). We believe this adjusted net periodic
benefit cost provides important supplemental information that reflects the anticipated long-term cost of our defined benefit
plans, and provides a benchmark for historical defined 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 costing methods. These
activity-based costing methods require us to make estimates that impact the amount of each expense category that is attributed
to each segment. Changes in these estimates will directly impact the amount of expense allocated to each segment, and
therefore the operating profit of each reporting segment. There were no significant changes in our expense allocation
methodology during 2014, 2013 or 2012.