UPS 2014 Annual Report Download - page 62

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Our capital lease obligations relate primarily to leases on aircraft. Capital leases, operating leases, and purchase
commitments, as well as our debt principal obligations, are discussed further in note 7 to our consolidated financial statements.
The amount of interest on our debt was calculated as the contractual interest payments due on our fixed-rate debt, in addition to
interest on variable rate debt that was calculated based on interest rates as of December 31, 2014. The calculations of debt
interest take into account the effect of interest rate swap agreements. For debt denominated in a foreign currency, the
U.S. Dollar equivalent principal amount of the debt at the end of the year was used as the basis to calculate future interest
payments.
Purchase commitments represent contractual agreements to purchase goods or services that are legally binding, the
largest of which are orders for technology equipment and vehicles. As of December 31, 2014, we have no open aircraft orders.
Pension fundings represent the anticipated required cash contributions that will be made to our qualified U.S. pension
plans (these plans are discussed further in note 4 to the 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, federal legislation
was signed into law that allows pension plan sponsors to use higher interest rate assumptions (based on a 25-year rate history)
in valuing plan liabilities and determining funding obligations. The amount of any minimum funding requirement, as
applicable, for these plans could change significantly in future periods, depending on many factors, including future plan asset
returns and discount rates. A sustained significant decline in the world equity markets, and the resulting impact on our pension
assets and investment returns, could result in our domestic pension plans being subject to significantly higher minimum
funding requirements. To the extent that the funded status of these plans in future years differs from our current projections, the
actual contributions made in future years could materially differ from the amounts shown in the table above.
As discussed in note 5 to our consolidated financial statements, we are not currently subject to any minimum
contributions or surcharges with respect to the multiemployer pension and health and welfare plans in which we participate.
Contribution rates to these multiemployer pension and health and welfare plans are established through the collective
bargaining process. As we are not subject to any minimum contribution levels, we have not included any amounts in the
contractual commitments table with respect to these multiemployer plans.
The contractual payments due for “other liabilities” primarily include commitment payments related to our investment in
certain partnerships. The table above does not include approximately $217 million of liabilities for uncertain tax positions
because we are uncertain if or when such amounts will ultimately be settled in cash. In addition, we also have recognized assets
associated with uncertain tax positions in excess of the related liabilities such that we do not believe a net contractual obligation
exists to the taxing authorities. Uncertain tax positions are further discussed in note 12 to the consolidated financial statements.
As of December 31, 2014, we had outstanding letters of credit totaling approximately $1.064 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, 2014, we had $640 million of surety bonds written. As of December 31,
2014, we had unfunded loan commitments totaling $136 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
See note 8 to the audited consolidated financial statements for a discussion of judicial proceedings and other matters
arising from the conduct of our business activities, and note 12 for a discussion of income tax related matters.