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Navigate Tomorrow
2015 ANNUAL REPORT

Table of contents

  • Page 1
    Navigate Tomorrow 2015 A NN UA L R EPORT

  • Page 2
    ... DAILY ONLINE TRACKING REQUESTS UPS ACCESS POINT™ LOCATIONS 24,000 1907 YEAR FOUNDED 444,000 EMPLOYEES MORE THAN 1,990 10.0 million CUSTOMERS WORLDWIDE OPERATING FACILITIES ALTERNATIVE FUEL VEHICLES 6,483 MORE THAN 22 million UPS MY CHOICE® MEMBERS 110,000 VEHICLES IN DELIVERY FLEET...

  • Page 3
    ... Shareowner, In the 108-year history of UPS, I can't recall a more exciting time to be in logistics. Every day, we interact with 10 million customers in more than 220 countries and territories and serve as a preferred logistics partner with customers across all industries. The fast pace of change...

  • Page 4
    ... on revenue management and operational execution during the peak season, UPS ended 2015 with record fourth-quarter earnings per share and our highest operating profit ever. For the full year, adjusted diluted earnings per share* increased 14 percent, to $5.43, which was also an all-time high. In...

  • Page 5
    ... operating margin expansion. In total, global package adjusted operating margin* expanded by 120 basis points, to 14.3 percent in 2015. 2015 2014 58.4 58.2 55.4 54.1 53.1 49.5 10 †Revenue (in billions of dollars) 2013 2012 2011 2010 0 20 30 40 50 60 3 See reconciliation of Free Cash Flow...

  • Page 6
    ... 250 basis points, as falling oil prices resulted in lower fuel surcharge revenue. Year-over-year revenue growth was partially driven by strong demand for UPS Deferred Air products, which rose almost 14 percent, and Next Day Air, which grew 3.3 percent. These products benefitted from the competitive...

  • Page 7
    ...2011 2012 2013 Adjusted* 2014 2015 Supply Chain and Freight Revenue for the Supply Chain and Freight segment rose 0.8 percent in 2015. Currency exchange rate changes and lower fuel surcharges contributed to about a 450-basis point drag on revenue growth. Initiatives to improve account profitability...

  • Page 8
    ... will be challenged by the everchanging world of logistics and we will be there offering solutions that help customers Navigate Tomorrow." Dividends Declared (in dollars per share) YOY % Growth rate 2010 2011 2012 2013 2014 2015 0.0 0.5 1.0 1.88 2.08 2.28 2.48 2.68 2.92 1.5 2.0 2.5 4.4% 10...

  • Page 9
    ... in the coming year and beyond. Despite the uneven economic outlook around the globe, we will continue to deliver exceptional value to our customers. As a result, we expect that diluted earnings per share in 2016 will increase between 5 percent and 9 percent over the adjusted 2015 results*. Overall...

  • Page 10
    ..., UPS International David Barnes Chief Information and Global Business Services Officer Norman Brothers, Jr. Senior Vice President, General Counsel and Corporate Secretary Teresa Finley Senior Vice President, Global Marketing Alan Gershenhorn Executive Vice President and Chief Commercial Officer...

  • Page 11
    ... transition period from Commission file number 001-15451 to Form 10-K _____ _____ United Parcel Service, Inc. (Exact Name of Registrant as Specified in Its Charter) _____ Delaware (State or Other Jurisdiction of Incorporation or Organization) 55 Glenlake Parkway, N.E. Atlanta, Georgia (Address...

  • Page 12
    ... More Information Risk Factors Unresolved Staff Comments Properties 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...

  • Page 13
    ...and delivery service in Seattle, Washington. Today, we are the world's largest package delivery company, a leader in the U.S. less-than-truckload industry and the premier provider of global supply chain management solutions. We deliver packages each business day for 1.6 million shipping customers to...

  • Page 14
    ... product monitoring and tracking functionality. Our service portfolio and investments are rewarded with among the best return on invested capital and operating margins in the industry. We have a long history of sound financial management and our consolidated balance sheet reflects financial strength...

  • Page 15
    ...tech companies can get their products to market faster, improve customer service and boost revenue. We offer global sourcing and a significant amount of repair space to leverage one of the largest networks of post-sales facilities in the world. With more than 950 field stocking locations in over 110...

  • Page 16
    ..., manage third-party shipping costs and automatically notify customers of incoming shipments. With visibility into transit times and delivery confirmations, customers can speed up their revenue cycle and collect accounts receivables more quickly while improving customer service. International Trade...

  • Page 17
    ... them to create supply chain efficiencies, better serve their customers and improve cash flow. Global Small Package Our global small package operations provide time-definite delivery services for express letters, documents, small packages and palletized freight via air and ground services. We serve...

  • Page 18
    ... 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, delivery...

  • Page 19
    ... other carrier. • In 2015, we undertook the largest one-time expansion in the history of UPS Worldwide Express service by adding coverage to more than 41,000 new postal codes around the world, creating earlier guaranteed-delivery options for customers that previously had only end-of-day guarantees...

  • Page 20
    ... to global addresses from the U.S. We pick up customers' domestic and international mail, and then sort, post, manifest and expedite the secured mail containers to the destination postal service for last-mile delivery. In 2015, we launched UPS Mail Innovations Returns, an easy-to-use postal solution...

  • Page 21
    ... LTL service backed by a day-definite, on-time guarantee at no additional cost. Additionally, many user-friendly small package technology offerings are available for freight including: UPS WorldShip; Billing Center and Quantum View; these systems allow freight customers to process and track LTL...

  • Page 22
    ...the world received nearly 2.35 million hours of volunteer service from our employees participating in our Neighbor-to-Neighbor program. • The UPS Foundation, which oversees corporate citizenship efforts for the company, invested $111 million in donations of both cash and in-kind services to global...

  • Page 23
    ..., conduct training and recommend work process and equipment changes. The components of CHSP are: • Personal Value. Which is the foundation and forms the base of our health, wellness and safety culture. • Management Commitment and Employee Involvement. Where employees take an active role in...

  • Page 24
    ... major economies. Leading-edge Technology. We are a global leader in developing technology that helps our customers optimize their shipping and logistics business processes to lower costs, improve service and increase efficiency. Technology powers virtually every service we offer and every operation...

  • Page 25
    ... are described below. Air Operations The U.S. Department of Transportation ("DOT"), the Federal Aviation Administration ("FAA"), and the U.S. Department of Homeland Security, through the Transportation Security Administration ("TSA"), have regulatory authority over United Parcel Service Co.'s ("UPS...

  • Page 26
    ... of Business Conduct that applies to all of our directors, officers and employees, including our principal executive officer and senior financial officers. It is available in the governance section of our investor relations website, located at www.investors.ups.com. In the event that we make changes...

  • Page 27
    ...to normal cycles affecting the economy in general, as well as the local economic environments in which we operate. The factors that create cyclical changes to the economy and to our business are beyond our control, and it may be difficult for us to adjust our business model to mitigate the impact of...

  • Page 28
    ...higher fuel costs could adversely impact our operating results. Even if we are able to offset the cost of fuel with our surcharges, high fuel surcharges may result in a mix shift from our higher-yielding air products to lower-yielding ground products or an overall reduction in volume. If fuel prices...

  • Page 29
    ... system security. We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities. In addition, the provision of service to our customers and the operation...

  • Page 30
    ... use to value our benefit plan obligations. 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...

  • Page 31
    ... 2007 in return for fully funding its allocable share of unfunded vested benefits thereunder. In 2015, CSPF submitted a proposed pension suspension plan to the U.S. Department of Treasury under the Multiemployer Pension Reform Act of 2014 ("MPRA") which proposes to make retirement benefit reductions...

  • Page 32
    ...-Asia air hub at Shenzhen Bao'an International Airport in China. The Shenzhen facility, which was built on a parcel of almost one million square feet and has a sorting capacity of 18,000 packages per hour, serves as our primary transit hub in Asia. Our primary information technology operations are...

  • Page 33
    ... or options to purchase aircraft. Vehicles We operate a global ground fleet of approximately 110,000 package cars, vans, tractors and motorcycles. Our ground support fleet consists of 33,000 pieces of equipment designed specifically to support our aircraft fleet, ranging from nonpowered container...

  • Page 34
    ...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 2015 and 2014. Our class B common stock is listed on the New York Stock Exchange under the symbol "UPS". High Low Close Dividends...

  • Page 35
    ... dividends for each of the quarterly periods, assumes that $100 was invested on December 31, 2010 in the Standard & Poor's 500 Index, the Dow Jones Transportation Average, and our class B common stock. 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015 United Parcel Service...

  • Page 36
    ... report. 2015 Years Ended December 31, 2014 2013 2012 2011 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
    ...below: 2015 Year Ended December 31, 2014 2013 % Change 2015/ 2014 2014/ 2013 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
    ...cost Total mark-to-market gain (loss) Weighted-average actuarial assumptions used to determine net periodic benefit cost: Expected rate of return on plan assets Actual rate of return on plan assets Discount rate used for net periodic benefit cost Discount rate at measurement date $ 2015 2014 2013...

  • Page 39
    ... with changes in the delivery of healthcare 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...

  • 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
    ...Daily Package Volume Average Revenue Per Piece: Next Day Air Deferred Ground Total Avg. Revenue Per Piece Operating Days in Period Revenue (in millions): Next Day Air Deferred Ground Total Revenue Operating Expenses (in millions): Operating Expenses Defined Benefit Plans Mark-to-Market Charge Health...

  • Page 42
    ...increased use of our returns service offerings, and the growth in shipments from the industrial sector. Rates and Product Mix 2015 compared to 2014 Overall revenue per piece increased 0.3% in 2015, and was impacted by changes in base rates, customer and product mix, and fuel surcharge rates. Revenue...

  • Page 43
    ...-type jet fuel, while the ground fuel surcharge is based on the DOE's On-Highway Diesel Fuel Price. Based on published rates, the average fuel surcharge rates for domestic air and ground products were as follows: Year Ended December 31, 2014 2013 % Point Change 2015/ 2014 2014/ 2013 2015 Next Day...

  • Page 44
    ... delivery efficiency, and benefit from improved pick-up densities. These improvements allowed us to process increased volume (up 6.4%) at a faster rate than the increase in average daily aircraft block hours (up 2.4%) and vehicle miles driven (up 4.2%). • • • Operating Profit and Margin 2015...

  • Page 45
    ... contract carrier rates, and additional union overtime and training hours. The unfavorable weather conditions in the U.S. in early 2014 reduced operating profit approximately $200 million in 2014, including the estimated loss in package volume, increased guaranteed service refunds to customers and...

  • Page 46
    ... Avg. Daily Package Volume Average Revenue Per Piece: Domestic Export Total Avg. Revenue Per Piece Operating Days in Period Revenue (in millions): Domestic Export Cargo Total Revenue Operating Expenses (in millions): Operating Expenses Defined Benefit Plan Mark-to-Market Charge Health & Welfare Plan...

  • Page 47
    ... Packages and the tables for Ground, Air and International fuel surcharges were adjusted. Rate changes for shipments originating outside the U.S. are made throughout the year and vary by geographic market. Currency-adjusted export revenue per piece decreased 3.7% in 2015, due to lower fuel surcharge...

  • Page 48
    ... market customers). Currency-adjusted domestic revenue per piece increased 0.3% in 2014, and was impacted by base rate increases, as well as changes in product mix and fuel surcharge rates. Fuel Surcharges We maintain fuel surcharges on our international air and ground services. The fuel surcharges...

  • Page 49
    ... on operating profit of $127 million when comparing 2014 with 2013. Fuel surcharge revenue was favorably impacted during 2014 by rate increases to the fuel surcharge index. Operating profit in 2014 was negatively impacted by $21 million due to a restructuring charge and related costs in Europe. 37

  • 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, 2015 2014 2013 % Change 2015/ 2014 2014/ 2013 Freight LTL Statistics: Revenue (in millions) Revenue Per ...

  • Page 51
    ... $3 million for 2015 largely due to higher pension costs (impacted by lower discount rates for UPS-sponsored plans). Operating expenses for the other businesses within Supply Chain & Freight increased $76 million in 2015 compared with 2014 primarily due to UPS Capital and our service contracts with...

  • Page 52
    ...well as lower pension expense. Operating expenses for the other businesses within Supply Chain & Freight increased $8 million in 2014 compared with 2013. Operating Profit and Margin 2015 compared to 2014 Adjusted operating profit for the forwarding and logistics unit increased by $51 million in 2015...

  • Page 53
    ... MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating Expenses Year Ended December 31, 2015 2014 2013 % Change 2015/ 2014 2014/ 2013 Operating Expenses (in millions): Compensation and Benefits: Defined Benefit Plans Mark-to-Market Charge Health & Welfare...

  • Page 54
    ... number of employees and increased vacation entitlements earned based on employees' years of service. Adjusted pension costs declined $23 million in 2014, as a decrease in the expense for company-sponsored pension plans (largely due to higher discount rates used to determine pension cost for 2014...

  • Page 55
    ...fourth quarter as a result of high seasonal volume. Our International Package segment incurred a $203 million increase in expense in 2014, primarily due to higher costs incurred for the use of outside transportation providers, which was impacted by strong international volume growth. Our UPS Freight...

  • Page 56
    ... air freight, North American air freight, and ocean forwarding businesses. Fuel 2015 compared to 2014 The $1.401 billion decrease in fuel expense in 2015 was primarily due to lower fuel prices, which decreased fuel expense by $1.383 billion. Increases in fuel efficiency, fuel hedging activities...

  • Page 57
    ... tax rate for the years ended December 31, 2015, 2014 and 2013 (in millions): Year Ended December 31, 2015 2014 2013 % Change 2015/ 2014 2014/ 2013 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
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Our effective tax rate is affected by recurring factors, such as statutory tax rates in the jurisdictions we operate in and the relative amounts of taxable income we ...

  • Page 59
    ...2014 2013 Net Income Non-cash operating activities(a) Pension and postretirement plan contributions (UPS-sponsored plans) Settlement of postretirement benefit obligation Hedge margin receivables and payables Income tax receivables and payables Changes in working capital and other non-current assets...

  • Page 60
    ... and facilities Aircraft and parts Vehicles Information technology Capital Expenditures as a % of Revenue Other Investing Activities: Proceeds from disposals of property, plant and equipment Net decrease in finance receivables Net (purchases) sales of marketable securities Cash received (paid) for...

  • Page 61
    ..., 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 2013 to 2015...

  • Page 62
    ... paid was 0.10% and 0.07%, respectively. The amount of commercial paper outstanding fluctuates throughout the year based on daily liquidity needs. The variation in cash received from common stock issuances was primarily due to the level of stock option exercises by employees in the 2013 through 2015...

  • Page 63
    ... minimum funding requirement, as applicable, for these plans could change significantly in future periods, depending on many factors, including future plan asset returns, discount rates, and changes to pension plan funding regulations. A sustained significant decline in the world equity markets, and...

  • Page 64
    ... bargaining agreements. Changes to the Delivery of Active and Postretirement Healthcare Benefits Prior to ratification, the NMA Group and Non-NMA Group employees received their healthcare benefits through UPSsponsored active and postretirement health and welfare benefit plans. Effective June 1, 2014...

  • Page 65
    ... UPS prior to January 1, 2014, and for employees in the Non-NMA Group who retire from UPS prior to the January 1, 2014 or January 1, 2015 effective date in the applicable collective bargaining agreement. Accounting Impact of Health and Welfare Plan Changes Income Statement Impact: We recorded a pre...

  • Page 66
    ...2015, the surcharge increased for Over Maximum Packages and the tables for Ground, Air and International fuel surcharges were adjusted. Effective January 4, 2016, there will be a charge for UPS's Third-Party Billing Service. These rate changes are customary and occur on an annual basis. Rate changes...

  • Page 67
    ..., 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 on the historical performance and changing business conditions for each of our reporting units. The determination of whether goodwill is impaired...

  • Page 68
    ... Medical Benefits Our pension and other postretirement benefit costs are calculated using various actuarial assumptions and methodologies. These assumptions include discount rates, health care cost trend rates, inflation, compensation increase rates, expected returns on plan assets, mortality rates...

  • Page 69
    ...estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions...

  • Page 70
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Income Taxes We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the ...

  • Page 71
    ..., as well as cash-equivalent instruments, some of which accrue income at variable rates of interest. Additionally, we hold a portfolio of finance receivables that accrue income at fixed and floating rates of interest. Equity Price Risk We hold investments in various common equity securities that are...

  • Page 72
    .... We adjust the fixed and floating interest rate mix of our interest rate sensitive assets and liabilities in response to changes in market conditions. Additionally, changes in the fair value of foreign currency derivatives and commodity derivatives are offset by changes in the cash flows of the...

  • Page 73
    ... to Consolidated Financial Statements Note 1-Summary of Accounting Policies Note 2-Cash and Investments Note 3-Property, Plant and Equipment Note 4-Company-Sponsored Employee Benefit Plans Note 5-Multiemployer Employee Benefit Plans Note 6-Goodwill and Intangible Assets Note 7-Business Acquisitions...

  • Page 74
    ... Accounting Firm Board of Directors and Shareowners United Parcel Service, Inc. Atlanta, Georgia We have audited the accompanying consolidated balance sheets of United Parcel Service, Inc. and subsidiaries (the "Company") as of December 31, 2015 and 2014, and the related statements of consolidated...

  • Page 75
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions) December 31, 2015 2014 ASSETS Current Assets: Cash and cash equivalents Marketable securities Accounts receivable, net Other current assets Total Current Assets Property, Plant and Equipment, Net Goodwill ...

  • Page 76
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (In millions, except per share amounts) Years Ended December 31, 2015 2014 2013 Revenue Operating Expenses: Compensation and benefits Repairs and maintenance Depreciation and amortization Purchased transportation Fuel ...

  • Page 77
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (In millions) Years Ended December 31, 2015 2014 2013 Cash Flows From Operating Activities: Net income Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization Pension ...

  • Page 78
    ... and Business Activities The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), and include the accounts of United Parcel Service, Inc., and all of its consolidated subsidiaries (collectively...

  • Page 79
    ... accounts charged to expense during the years ended December 31, 2015, 2014 and 2013 was $121, $143 and $129 million, respectively. Inventories Jet fuel, diesel, and unleaded gasoline inventories are valued at the lower of average cost or market. Fuel and other materials and supplies inventories...

  • Page 80
    ... pension and postretirement medical benefit costs for company-sponsored benefit plans are calculated using various actuarial assumptions and methodologies, including discount rates, expected returns on plan assets, healthcare cost trend rates, inflation, compensation increase rates, mortality rates...

  • Page 81
    ... Balance sheet currency translation adjustments are recorded in AOCI. Pre-tax currency transaction gains, net of hedging, included in other operating expenses, investment income and interest expense were $7, $14 and $76 million in 2015, 2014 and 2013, respectively. Stock-Based Compensation All share...

  • Page 82
    ...of revenue and related cash flows arising from contracts with customers. In August 2015, the FASB issued an accounting standards update that defers the effective date of the new revenue recognition guidance for one year to interim and annual reporting periods beginning after December 15, 2017. Early...

  • Page 83
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. CASH AND INVESTMENTS The following is a summary of marketable securities classified as trading and available-for-sale at December 31, 2015 and 2014 (in millions): Cost Unrealized Gains Unrealized Losses ...

  • Page 84
    ... due to changes in market interest rates. We have both the intent and ability to hold the securities contained in the previous table for a time necessary to recover the cost basis. Maturity Information The amortized cost and estimated fair value of marketable securities at December 31, 2015, by...

  • Page 85
    ... assets" in the consolidated balance sheets). These partnership holdings do not have quoted prices, nor can they be valued using inputs based on observable market data. These investments are valued internally using a discounted cash flow model with two significant inputs: (1) the after-tax cash flow...

  • Page 86
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents information about our investments measured at fair value on a recurring basis as of December 31, 2015 and 2014, and indicates the fair value hierarchy of the valuation techniques ...

  • Page 87
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the changes in the above Level 3 instruments measured on a recurring basis for the years ended December 31, 2015 and 2014 (in millions). Marketable Securities Other Investments Total...

  • Page 88
    ... Pension Fund, a multiemployer pension plan, in addition to other eligible employees who are covered under certain collective bargaining agreements. This plan generally provides for retirement benefits based on service credits earned by employees prior to retirement. International Pension Benefits...

  • Page 89
    ... weighted-average actuarial assumptions used to determine the net periodic benefit cost. U.S. Pension Benefits 2015 2014 2013 U.S. Postretirement Medical Benefits 2015 2014 2013 International Pension Benefits 2015 2014 2013 Discount rate Rate of compensation increase Expected return on assets 4.40...

  • Page 90
    ...reflects the process we would employ to settle our pension and postretirement benefit obligations. For our international plans, the discount rate is determined by matching the expected cash flows of a sample plan of similar duration to a yield curve based on long-term, high quality fixed income debt...

  • Page 91
    ...long-term returns. Strategic asset allocations are determined by plan based on the nature of liabilities and considering the demographic composition of the plan participants. Healthcare cost trends are used to project future postretirement benefits payable from our plans. For year-end 2015 U.S. plan...

  • Page 92
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Benefit payments under the pension plans include $22 and $19 million paid from employer assets in 2015 and 2014, respectively. Benefit payments (net of participant contributions) under the postretirement medical ...

  • Page 93
    ...Medical Benefits 2015 2014 International Pension Benefits 2015 2014 Fair Value of Plan Assets: Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Plan participants' contributions Gross benefits paid Foreign currency exchange rate changes Curtailments...

  • Page 94
    ...-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 the commingled funds are valued...

  • Page 95
    ... Asset Category (International Plans): Cash and cash equivalents Equity Securities: Local Markets Equity U.S. Equity Emerging Markets International / Global Equity Total Equity Securities Fixed Income Securities: Local Government Bonds Corporate Bonds Total Fixed Income Securities Other Investments...

  • Page 96
    ... Asset Category (International Plans): Cash and cash equivalents Equity Securities: Local Markets Equity U.S. Equity Emerging Markets International / Global Equity Total Equity Securities Fixed Income Securities: Local Government Bonds Corporate Bonds Total Fixed Income Securities Other Investments...

  • Page 97
    ... class A or B shares of common stock directly held in plan assets as of December 31, 2015 or December 31, 2014. 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 2016 are...

  • Page 98
    ... end of a reporting period. Status of Collective Bargaining Agreements As of December 31, 2015, we had approximately 266,000 employees employed under a national master agreement and various supplemental agreements with local unions affiliated with the Teamsters. During 2014, the Teamsters ratified...

  • Page 99
    ... Plan Number" column provides the Employer Identification Number ("EIN") and the three-digit plan number. The most recent Pension Protection Act zone status available in 2015 and 2014 relates to the plans' two most recent fiscal year-ends. The zone status is based on information that we received...

  • Page 100
    ... 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 101
    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 102
    ... UPS prior to January 1, 2014, and for employees in the Non-NMA Group who retired from UPS prior to the January 1, 2014 or January 1, 2015 effective date in the applicable collective bargaining agreement. Accounting Impact of Health and Welfare Plan Changes Income Statement Impact: We recorded a pre...

  • Page 103
    ... Activity: The goodwill acquired in the International Package segment was related to our October 2014 acquisition of i-parcel, LLC. ("i-parcel"), a U.S.-based international e-commerce enabler and logistics company that operates in the U.S. and U.K. The goodwill acquired in the Supply Chain & Freight...

  • Page 104
    ... intangible assets recorded as of December 31, 2015 for the next five years is as follows (in millions): 2016-$332; 2017-$276; 2018-$218; 2019-$167; 2020-$112. Amortization expense in future periods will be affected by business acquisitions, software development, licensing agreements, sponsorships...

  • Page 105
    ... customers, as well as technology systems and industry best practices. The acquisition was funded using cash from operations and issuances of commercial paper. The estimates of deferred income taxes and goodwill are subject to change based on the final determination of fair values of acquired assets...

  • Page 106
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8. DEBT AND FINANCING ARRANGEMENTS The following table sets forth the principal amount, maturity or range of maturities, as well as the carrying value of our debt obligations, as of December 31, 2015 and ...

  • Page 107
    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 108
    ... by the Louisville Regional Airport Authority associated with our air freight facility in Louisville, Kentucky. The bonds bear interest at a variable rate, and the average interest rates for 2015 and 2014 were 0.02% and 0.05%, respectively. • Bonds with a principal balance of $29 million issued by...

  • Page 109
    ...on the prime rate is 1.00% below the applicable margin for LIBOR advances (but not lower than 0.00%). We are also able to request advances under this facility based on competitive bids for the applicable interest rate. There were no amounts outstanding under this facility as of December 31, 2015. 97

  • Page 110
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The second agreement provides revolving credit facilities of $3.0 billion, and expires on March 27, 2020 . Generally, amounts outstanding under this facility bear interest at a periodic fixed rate equal to LIBOR ...

  • Page 111
    ..., 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 was not named in this case...

  • Page 112
    ... CONSOLIDATED FINANCIAL STATEMENTS In January 2014, we received a Civil Investigative Demand from the DOJ seeking documents related to possible damages under the False Claims Act ("FCA") in connection with delivery services provided to government customers where guaranteed commitment times allegedly...

  • Page 113
    ... of our common stock, additional paid-in capital, and retained earnings accounts (in millions, except per share amounts): 2015 Shares Dollars Shares 2014 Dollars Shares 2013 Dollars Class A Common Stock: Balance at beginning of year Common stock purchases Stock award plans Common stock issuances...

  • Page 114
    ... investment returned with a premium in either cash or shares (at our election). If the closing market price of our common stock is at or below the pre-determined price, we will receive the number of shares specified in the agreement. We paid net premiums of $17 and $47 million during 2015 and 2014...

  • Page 115
    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, 2015, 2014 and 2013 is as follows (in millions): 2015 Amount Reclassified from AOCI ...

  • Page 116
    ...31, 2004. Activity in the deferred compensation program for the years ended December 31, 2015, 2014 and 2013 is as follows (in millions): 2015 Shares Dollars Shares 2014 Dollars Shares 2013 Dollars Deferred Compensation Obligations: Balance at beginning of year Reinvested dividends Options exercise...

  • Page 117
    ...statement was $215, $199 and $190 million during 2015, 2014 and 2013, respectively. The cash income tax benefit received from the exercise of stock options and the lapsing of Restricted Units was $252, $261 and $286 million during 2015, 2014 and 2013, respectively. Management Incentive Award Program...

  • Page 118
    ...-thirds of the award related to consolidated operating return on invested capital and growth in consolidated revenue, we recognize the grant-date fair value of these units (less estimated forfeitures) as compensation expense ratably over the vesting period, based on the number of awards expected to...

  • Page 119
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Nonqualified Stock Options We maintain fixed stock option plans, under which options are granted to purchase shares of UPS class A common stock. Stock options granted in connection with the Incentive Compensation...

  • Page 120
    ...UPS class B common stock on the last day of each quarterly period. Employees purchased 0.9, 0.9 and 1.1 million shares at average prices of $95.41, $95.67 and $79.74 per share during 2015, 2014 and 2013, respectively. This plan is not considered to be compensatory, and therefore no compensation cost...

  • Page 121
    ... of cash, marketable securities and certain investment partnerships. Segment information as of, and for the years ended, December 31 is as follows (in millions): 2015 2014 2013 Revenue: U.S. Domestic Package International Package Supply Chain & Freight Consolidated Operating Profit: U.S. Domestic...

  • Page 122
    ... STATEMENTS Revenue by product type for the years ended December 31 is as follows (in millions): 2015 2014 2013 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: Forwarding...

  • Page 123
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13. INCOME TAXES The income tax expense (benefit) for the years ended December 31 consists of the following (in millions): 2015 2014 2013 Current: U.S. Federal U.S. State and Local Non-U.S. Total Current ...

  • Page 124
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In the fourth quarter of 2015, we recognized an income tax benefit of $39 million related to pre-tax mark-to-market losses of $118 million on our pension and postretirement defined benefit plans. This income tax ...

  • Page 125
    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): 2015 2014 Fixed assets and capitalized software Other Deferred tax liabilities Pension and postretirement benefits...

  • Page 126
    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, 2013 Additions for tax positions of the current year Additions for...

  • Page 127
    ...): 2015 2014 2013 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...

  • Page 128
    ... instruments as assets or liabilities in the consolidated balance sheets at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship...

  • Page 129
    ... a component of fuel expense or revenue when the underlying transactions occur. Foreign Currency Risk Management To protect against the reduction in value of forecasted foreign currency cash flows from our international package business, we maintain a foreign currency cash flow hedging program. Our...

  • Page 130
    ...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 2015 2014 Net Amounts if Right of Offset had been Applied 2015 2014 Derivatives designated...

  • Page 131
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Gross Amounts Presented in Consolidated Balance Sheets Liability Derivatives Balance Sheet Location 2015 2014 Net Amounts if Right of Offset had been Applied 2015 2014 Derivatives Designated As Hedges: Foreign ...

  • Page 132
    ... the amounts recorded in the statements of consolidated income related to fair value changes and settlements of these foreign currency forwards, interest rate swaps, and commodity contracts not designated as hedges for the years ended December 31, 2015 and 2014 (in millions): Location of Gain (Loss...

  • Page 133
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair Value Measurements Our foreign currency, interest rate and investment market price derivatives are largely comprised of over-the-counter derivatives, which are primarily valued using pricing models that rely...

  • Page 134
    ... 2015 2014 Third Quarter 2015 2014 Fourth Quarter 2015 2014 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 135
    UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS • A pre-tax charge of $36 million associated with the remeasurement and settlement of postretirement health and welfare benefit obligations for certain employees covered by collective bargaining agreements (...

  • Page 136
    ... accounting firm of Deloitte & Touche LLP, as auditors of the consolidated balance sheets of United Parcel Service, Inc. and its subsidiaries as of December 31, 2015 and the related statements of consolidated income, consolidated comprehensive income and consolidated cash flows for the year ended...

  • Page 137
    ... Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2015 of the Company and our report dated February 24, 2016 expressed an unqualified opinion on those financial statements. /s/ Deloitte & Touche LLP Atlanta, Georgia...

  • Page 138
    ... Operating Officer, UPS Europe, Middle East, and Africa (2010 - 2013). Senior Vice President and Chief Information and Global Business Services Officer (2014 - present), Senior Vice President, Chief Information Officer (2005-2014). Senior Vice President of Global Marketing (2015 Present), Corporate...

  • Page 139
    ... the caption "Corporate Governance Matters-Director Independence" in our definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 5, 2016 and is incorporated herein by reference. Item 14. Principal Accounting Fees and Services Information about aggregate fees billed to us...

  • Page 140
    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 141
    ... by the undersigned, thereunto duly authorized. UNITED PARCEL SERVICE, INC. (REGISTRANT) By: /S / DAVID P. ABNEY David P. Abney Chairman and Chief Executive Officer Date: February 24, 2016 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 142
    ...- Termination Agreement, dated as of January 22, 2013, between United Parcel Service, Inc. and TNT Express N.V. (incorporated by reference to Exhibit 2.3 to the 2012 Annual Report on Form 10-K) - Form of Restated Certificate of Incorporation of United Parcel Service, Inc. (incorporated by reference...

  • Page 143
    ... agent (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2015). - Credit Agreement (5 Year Facility) dated March 27, 2015 among United Parcel Service, Inc., the initial lenders named therein, J.P. Morgan Securities LLC, Citigroup Global Markets, Inc...

  • Page 144
    ... financial information from the Annual Report on Form 10-K for the year ended December 31, 2015, 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, (iv...

  • Page 145
    ..., 2014 and 2013, 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 2015 annual report on Form 10...

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  • Page 147
    ... UPS 2015 Annual Report. If you would like an additional copy of our Form 10-K, you can access it through the Investor Relations website at www.investors.ups.com or at the Securities and Exchange Commission website, sec.gov. The Form 10-K also is available free of charge by calling, contacting via...

  • Page 148
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