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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
45
Investment Income and Interest Expense
The following table sets forth investment income and interest expense for the years ended December 31, 2014, 2013 and
2012 (in millions):
Year Ended December 31, % Change
2014 2013 2012 2014 / 2013 2013 / 2012
Investment Income $ 22 $ 20 $ 24 10.0 % (16.7)%
Interest Expense $ (353)$ (380)$ (393) (7.1)% (3.3)%
Investment Income
2014 compared to 2013
The increase in investment income in 2014 compared with 2013 was primarily due to a $7 million decrease in losses from
fair value adjustments on real estate partnerships. This was partially offset by a decline in interest income, largely due to
having a lower average balance of invested assets in 2014.
2013 compared to 2012
The decrease in investment income in 2013 compared with 2012 was primarily due to lower interest rates earned on
invested assets, as well as a decline in the average balance of invested assets. These factors were partially offset by higher
realized gains on the sales of securities in 2013 compared with 2012.
Interest Expense
2014 compared to 2013
Interest expense decreased in 2014 compared with 2013, largely due to having a lower average balance of debt
outstanding. In addition, interest expense declined due to a decrease in the interest rate indices underlying our variable-rate
debt and swaps in 2014 compared with 2013.
2013 compared to 2012
Interest expense decreased in 2013 compared to 2012, largely due to three factors: (1) having a greater proportion of our
debt swapped to lower-yielding variable rates, (2) a decrease in the interest rate indices underlying our variable-rate debt and
swaps, and (3) a lower average balance of debt outstanding. These factors were partially offset by the imputation of interest
expense on the multiemployer pension withdrawal liability related to the New England Pension Fund.
Income Tax Expense
The following table sets forth income tax expense and our effective tax rate for the years ended December 31, 2014, 2013
and 2012 (in millions):
Year Ended December 31, % Change
2014 2013 2012 2014 / 2013 2013 / 2012
Income Tax Expense $ 1,605 $ 2,302 $ 167 (30.3)% N/A
Income Tax Impact of:
Defined Benefit Plans Mark-to-Market Charge 392 — 1,808
Health & Welfare Plan Charges 415 — —
TNT Termination Fee and Related Expenses — 107 —
Gain Upon Liquidation of Foreign Subsidiary — (32)—
Multiemployer Pension Plan Withdrawal Charge — — 337
Adjusted Income Tax Expense $ 2,412 $ 2,377 $ 2,312 1.5 % 2.8%
Effective Tax Rate 34.6% 34.5% 17.1%
Adjusted Effective Tax Rate 35.5% 35.4% 34.5%