-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, qHpO37udFYRMIyeqAIxA4scYWu7hPT0XCEQ+STdB155Hg+ec/0AwXqp0g8t+lWNa F59pDY1VNw5/YyuyfH/cSw== 0000950144-94-000773.txt : 19940331 0000950144-94-000773.hdr.sgml : 19940331 ACCESSION NUMBER: 0000950144-94-000773 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED PARCEL SERVICE OF AMERICA INC CENTRAL INDEX KEY: 0000809697 STANDARD INDUSTRIAL CLASSIFICATION: 4210 IRS NUMBER: 951732075 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 033-11378 FILM NUMBER: 94519186 BUSINESS ADDRESS: STREET 1: 400 PERIMETER CNTR TERRACES N STREET 2: GREENWICH OFFICE PK 5 CITY: ATLANTA STATE: GA ZIP: 30346 BUSINESS PHONE: 4049136000 10-K 1 UNITED PARCEL SERVICE 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 Commission File No. 0-4714 United Parcel Service of America, Inc. (Exact name of registrant as specified in its charter) Delaware 95-1732075 - -------------------------------------------------------------- ------------------------- (State or other jurisdiction of incorporation or organization) (I.R.S. Employer ID. No.) 400 Perimeter Center -- Terraces North, Atlanta, Georgia 30346 - -------------------------------------------------------- ------------------------- (Address of principal executive office) (ZIP Code)
Area (404) 913-6000 (Telephone number) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each Exchange on which registered None None - ------------------- -------------------------------------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.10 per share (Title of Class) Common Stock, par value $.10 per share, subject to UPS Managers Stock Trust (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of the common stock held by non-affiliates of the registrant, based on a price per share of $21.25, the price per share, as of February 28, 1994, at which UPS expressed its willingness to purchase its shares from shareowners wishing to sell their shares, was $10,555,096,871. The number of shares of UPS Common Stock outstanding as of February 28, 1994, was 580,000,000. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for its annual meeting of shareowners scheduled for May 11, 1994 are incorporated by reference in answer to Part III of this Report. 2 PART I Item 1. Business. United Parcel Service of America, Inc., through subsidiaries, provides specialized transportation services, primarily through the delivery of packages. Service is offered throughout the United States and in more than 185 other countries and territories around the world. In terms of revenue, UPS is the largest package delivery company in the world. During 1993 UPS delivered approximately 2.9 billion packages. UPS currently has approximately 1.3 million customer locations in the United States to which it provides daily pickup services. With minor exceptions, UPS Common Stock is owned by or held for the benefit of managers and supervisors actively employed by UPS, or their families; or by former employees, their estates or heirs; or by charitable foundations established by UPS founders and their family members; or by other charitable organizations which have acquired their stock by donations from shareowners. UPS stock is not listed on a national securities exchange or traded in the organized over-the-counter markets. When used herein the term "UPS" refers to United Parcel Service of America, Inc., a Delaware corporation, and its subsidiaries. Delivery Service in the United States Ground Services UPS is engaged primarily in the delivery of packages. During 1993, the packages delivered were up to a maximum of 70 pounds in weight, 108 inches in length and 130 inches in length and girth combined. Effective February 1994, UPS increased the weight limit to 150 pounds. UPS provides interstate and intrastate ground service to every address in the 48 contiguous states and between those states and Hawaii and Alaska. In Hawaii, an intra-island service is provided between addresses on Oahu and an inter-island air service is offered between all islands of the state. In Alaska, an intrastate package delivery service is available throughout the state. In 1993, UPS introduced a new service called UPS 3 Day Select(SM). This service offers a money-back guarantee of third-business-day delivery, along with the ability to verify deliveries on the day of delivery. It meets customers' needs for a faster, more reliable delivery service than long-distance ground options at a lower cost than air services. UPS provides Hundredweight Service(SM) for ground shipments to all 48 contiguous states on an interstate basis. As of December 31, 1993, this service was also available intrastate in -1- 3 39 states and the District of Columbia. Under this service, contract rates are established for multi-package shipments weighing in the aggregate 200 pounds or more and addressed to one consignee at one location on one day. Customers can realize savings on such shipments compared to regular ground service rates. In 1993, UPS Hundredweight volume grew over 20% from 1992, primarily due to the expansion of intrastate Hundredweight Service and the introduction of Weight Break Pricing. Weight Break Pricing offers rate incentives for shipments of over 500 pounds. UPS also provides UPS GroundSaver(SM) service offering special rates and services for business-to-business shipments to specified ZIP Codes. GroundSaver revenue for 1993 increased over 59% from 1992 due primarily to an expansion of its service territory to all 48 contiguous states and expanded incentive qualifications to include a broader range of customers. UPS's domestic ground volume decreased slightly during 1993. Much of the decline in volume occurred in residential deliveries, which followed rate increases for such deliveries. For a description of the rate increase, see "Item 1 -- Rates." However, due to a general rate increase in February 1993 (discussed below) and continued growth in UPS's higher margin services, such as UPS Hundredweight Service, during 1993, domestic ground revenues increased in 1993 by 6% over 1992. Domestic Air Services UPS provides domestic air delivery services known as "UPS Next Day Air(R)" and "UPS 2nd Day Air(R)," which are available throughout the United States and Puerto Rico. In 1993, UPS introduced UPS Prepaid Letter, which permits customers to purchase UPS Next Day Air and 2nd Day Air Letters in advance at lower prices. For both UPS Next Day Air and UPS 2nd Day Air, packages and documents are either picked up from shippers by UPS or are dropped off by shippers at Air Service Centers or Letter Centers located throughout UPS's service network. UPS offers guaranteed delivery by 10:30 a.m. for UPS Next Day Air Packages and Letters sent to areas covering over 76% of the U.S. population and noon delivery to areas covering over 89% of the U.S. population. In 1993, UPS began offering Next Day Air Saver, which is Next Day Air delivery in the afternoon -- by either 3 p.m. or 4:30 p.m., depending on location, at a slightly lower rate than 10:30 a.m. delivery. UPS also guarantees on-schedule delivery of UPS 2nd Day Air packages. UPS offers Saturday Delivery for UPS Next Day Air shipments to an area covering approximately 90% of all UPS customers. In 1993, UPS also began offering Saturday Pickup service of air shipments in all areas served by UPS Saturday delivery. Further, -2- 4 in 1993, UPS began accepting hazardous materials in its air services, for an additional charge. UPS offers UPS Next Day Air and UPS 2nd Day Air Hundredweight Service for package shipments totaling at least 100 pounds addressed to one consignee at one location on one day. 3 Day Select Hundredweight Service is also available. UPS Air Cargo Service provides two services designed to fill what would otherwise be unfilled capacity on regular UPS flights: the transportation of containerized and palletized cargo in available space on UPS flights; and aircraft charters when UPS planes are not being utilized by UPS. The volume of UPS's higher margin air services, such as UPS Next Day Air service, continued to grow during 1993. In 1993, UPS's air services' volume increased by 20% and revenues increased by 14%. To enable UPS to accommodate future demand for air delivery services, UPS plans to open a new regional air sorting facility in Rockford, Illinois. Regional air sorting facilities are currently located in Ontario, California, Philadelphia, Pennsylvania and Dallas, Texas. In 1993, UPS ordered thirty new Boeing 767 freighter aircraft and ten more 757 freighter aircraft, in addition to the twenty-one 757 freighter aircraft previously ordered, to meet anticipated future growth in air delivery volume. For a further description of UPS's properties, see "Item 2 -- Properties." Delivery services in the United States accounted for 89.0%, 89.1% and 91.2% of UPS's consolidated revenue in 1993, 1992 and 1991, respectively. For further financial information relating to foreign and domestic operations, see Note 10 to the Consolidated Financial Statements. International Delivery Service UPS offers international air service between more than 185 countries and territories throughout the world. During 1993, UPS focused its worldwide, transborder and domestic services on two major markets -- Europe and North America. UPS is the only package delivery company in Europe with fully integrated European ground and air delivery linked to a global operation. As discussed more fully in "Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations," the number of International Air packages handled increased substantially in 1993. Domestic air service is offered throughout Canada, Germany, Italy, and Spain. Ground service is provided throughout Austria, Belgium, Canada, Denmark, France, Germany, Ireland, Italy, -3- 5 Malaysia, Mexico, the Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom. UPS's transborder air and ground services within Europe were enhanced in February 1993 with the introduction of UPS EuroExpress ("EuroExpress") and UPS EuroExpedited ("EuroExpedited"). EuroExpress is a pan-European air service that offers next-day delivery before noon for shipments between major metropolitan areas, covering more than 80% of the population. EuroExpedited uses roadways to deliver packages and freight between 15 countries, with shipments tracked electronically. With the easing of border restrictions throughout Europe during early 1993, EuroExpedited shipments can take more direct routes between countries, thereby reducing transit times. In response to an increasing trend toward consignee-controlled shipping, UPS introduced in 1993 a new service in Europe called UPS Special Import Service ("SIS"). SIS handles all arrangements for the pickup of a customer's imports, thereby providing greater control of a shipment's delivery time and cost. In 1993, UPS expanded its services between Canada, Mexico and the United States. UPS offers three levels of service between these countries: Express, for delivery in one business day; Expedited, for delivery usually within three days; and Standard, for transborder ground delivery. Expedited service is new for these countries, as is ground service between Mexico and the United States. UPS provides intra-island service in Puerto Rico and delivery service within Mexico between 15 major Mexican cities. UPS provides next-business-day delivery of documents to Mexico City, Guadalajara and Monterrey from the United States and Canada, in addition to air service from those cities to the rest of UPS's international territory. UPS offers Worldwide Expedited Package Service ("Worldwide Expedited") to Canada and Mexico as well as between Europe and the Asia-Pacific. Worldwide Expedited is a multi-package alternative to air freight services, generally using UPS ground and 2nd Day Air operating facilities. Transit times are slightly longer than by express delivery, but rates are substantially lower. Worldwide Expedited also offers services, such as shipment tracking, which are not typically available for air freight. UPS Worldwide Express ("Worldwide Express") provides delivery of urgent packages, documents and letters to over 185 countries and territories. Worldwide Express shipments are generally delivered within two business days. During 1993, the document delivery schedules for most Worldwide Express customers were improved with the commencement of overnight service from 21 major U.S. cities to major business centers in Asia, Europe, Mexico -4- 6 and South America. The competitive rates offered for Worldwide Express include customs clearance, which is facilitated by electronic transfer of customs information. Additionally, Worldwide Express provides for shipment tracking throughout the world using an advanced data network developed by UPS. The growth in international volume prompted UPS to replace DC-8 freighter aircraft with larger 747 freighter aircraft for United States to Europe flights. Within Europe, UPS introduced its own 727s to replace smaller aircraft. During 1993, UPS suffered pre-tax losses in its international operations of approximately $267 million, although the operating margin (defined here as operating expenses plus other income and expense, net, as a percent of revenue) in international operations improved to 113.6% in 1993 from 115.4% in 1992. The international pre-tax loss was primarily a result of losses from domestic operations outside of the United States caused by poor economic conditions and strong competition in European countries. However, revenues from all international services increased for 1993 by 9% over 1992. UPS expects to incur future losses in connection with its international operations. UPS's international delivery service accounted for approximately 11.0%, 10.9% and 8.8% of the consolidated revenues of UPS in 1993, 1992 and 1991, respectively. For financial information relating to foreign and domestic operations, see Note 10 to the Consolidated Financial Statements. Other Delivery Services UPS offers customized services for certain types of customers or even a single customer, such as Consignee Billing and Delivery Confirmation. Consignee Billing was designed for customers who receive large amounts of merchandise from a number of vendors. UPS bills these consignee customers directly for the shipping charges, enabling the customer to obtain tighter control over inbound transportation costs. UPS's Consignee Billing service volume increased 112% in 1993. Electronic tracking of all Consignee Billing Packages is offered, as well as on demand pick up service for return shipments. Delivery Confirmation provides automatic confirmation and weekly reports of deliveries. Immediate confirmation is provided upon request. This service is available throughout the United States and Puerto Rico. UPS introduced UPS GroundTrac(SM) service in June 1992. This service electronically tracks ground packages so that UPS's customers can receive immediate information about the status of their packages while in transit. In February 1993, UPS introduced UPS TotalTrack(SM), an enhanced tracking system. With the introduction of in-vehicle data transmission capabilities, this service -5- 7 enables U.S. customers to receive verification of deliveries within minutes after they are completed. Shippers can access tracking information 24 hours a day, seven days a week, by telephone or through the UPS Maxi-Trac software system, which enables customers to track and trace their own packages via telecommunications links with UPS's electronic data systems. UPS's Maxi-Ship System is a hardware-software system that assists customers in managing their shipping operations by automating a customer's shipping room with features such as automatic zoning, rating and printing of address labels, pickup records and shipping reports. Customer use of the Maxi-Ship System increased in 1993. Rates On February 15, 1993, UPS raised its domestic ground rates for commercial and residential deliveries by 3.8% and 7.4%, respectively. On February 7, 1994, these rates were increased by 3.8% and 4.3%, respectively. In 1993, published rates for Next Day Air packages and 2nd Day Air packages increased 4.9% and 5.9%, respectively. The published rates for Next Day Air and 2nd Day Air letters increased by 5.0% and 10.0%, respectively, in 1993. In 1994, the published rates for Next Day Air and 2nd Day Air packages each increased by 3.9%. The published rates for Next Day Air and 2nd Day Air letters increased by 2.4% and 4.5%, respectively, in 1994. Rates for ground and air shipments originating in the United States and destined for Canada as well as rates for Worldwide Express and Worldwide Expedited services were not changed. Competition In terms of revenue, UPS is the largest package delivery company in the world. UPS competes with many companies and services which operate on a national, regional or local basis in the United States and internationally, and its business is affected by the availability and the use of numerous alternate methods of service. These include the parcel post service and other classes of mail (including air service) of the United States Postal Service (the "Postal Service") and the postal services of other nations, various other motor carriers, independent trucking companies and express companies, freight forwarders, air couriers, and shipper-owned or leased delivery vehicles. Competition is intense within the United States and throughout the world. Competition for high volume, profitable shipping business focuses largely on providing economical pricing and desirable and dependable service features and delivery schedules. UPS also endeavors to attract customers by providing services meeting their distinct needs, such as guaranteed timely delivery of packages shipped via UPS Next Day Air and UPS 2nd Day -6- 8 Air and enhanced tracking capabilities. UPS is directing a larger proportion of its resources to delivering these higher revenue packages, providing customized services and obtaining the most recent technology to improve package tracking and delivery confirmation services. UPS also engages in widespread advertising of its services, particularly its international and UPS Next Day Air services. Regulation Under the Federal Aviation Act of 1958, as amended, both the Department of Transportation ("DOT") and the Federal Aviation Administration ("FAA") regulate air transportation services. The DOT's authority relates primarily to economic aspects of air transportation, such as discriminatory pricing, non-competitive practices, interlocking relations or cooperative agreements. The DOT also regulates, subject to the authority of the President, international routes, fares, rates and practices and is authorized to investigate and take action against discriminatory treatment of U.S. air carriers abroad. FAA authority relates primarily to safety aspects of air transportation, including aircraft standards and maintenance, personnel and ground facilities. UPS was granted an operating certificate by the FAA in 1988 which remains in effect so long as UPS meets the operational requirements of the Federal Aviation Regulations. The FAA has issued rules mandating repairs on all Boeing Company and McDonnell Douglas Corporation aircraft which have completed a specified number of flights and has also issued rules requiring a corrosion control program for Boeing Company aircraft. Based upon the current condition of its aircraft, UPS estimates that the cost of the repairs pursuant to these programs will total approximately $12 million. Each of these programs requires that UPS make periodic inspections of its aircraft. These inspections may result in a determination that additional repairs are required under these programs. Hence, the future cost of such repairs pursuant to the programs may fluctuate. Ground transportation of packages by UPS in the United States is subject to regulation by the Interstate Commerce Commission ("ICC") and by various state regulatory agencies when such transportation is pursuant to common carrier certificates and contract carrier permits issued by the ICC and state agencies. The ICC and state agencies also have regulatory authority over rates charged by UPS for transportation services provided under such certificates and permits. Federal and state regulation covering -7- 9 ground transportation of packages also covers a variety of subjects, including licensing, truck safety, weight and size limitations of packages, rates and operating conditions. UPS is subject to similar regulation in many foreign jurisdictions. In 1993, the California legislature created a new designation of integrated intermodal small package carrier that gave these carriers, of which UPS is one, rate and service freedom from regulatory overview by the California Public Utilities Commission. Postal Rate Commission Proceedings The Postal Reorganization Act of 1970 ("Act") created the Postal Service as an independent establishment of the executive branch of the federal government and vested the power to recommend postal rates in a regulatory body, the Postal Rate Commission ("Commission"). UPS believes that the Postal Service consistently attempts to set rates for its parcel and international express letter mail services generally below its costs of providing such services and to use excess revenues from first class letter mail to subsidize those competitive services. UPS participates in postal rate proceedings before the Commission in an attempt to secure what UPS believes to be at least minimum fairness in the Postal Service's competition for parcel delivery and expedited letter, document and parcel delivery business. In 1992, the Postal Service proposed a new class of parcel mail, called bulk small parcel service. Bulk small parcel service would have encompassed shipments of 300 or more parcels, weighing up to five pounds each and meeting certain barcoding and entry requirements. The Postal Service requested that the Commission permit it to reduce rates for this type of shipment by an average of 27%, which would have been substantially below the existing rates of parcel post and of UPS. The Postal Service had estimated that the new class, if approved, would have diverted nearly one hundred million parcels per year from UPS. UPS intervened before the Commission and opposed the creation of this new class of service and the adoption of the proposed rates, which UPS believed to be below cost and contrary to the Act. In August 1993, the Commission recommended just 7% in reduced rates for this type of shipment. The Governors of the Postal Service, in a decision issued on February 1, 1994, rejected the Commission's recommendation, and thus, there shall be no reduction in rates for this type of shipment. Other Operations UPS's subsidiary, UPS Worldwide Logistics, Inc., offers a consultative service to develop customized solutions for a shipper's distribution needs. UPS Inventory Express(SM) service, which provides for the storage of inventory, processing of orders -8- 10 and shipment of customers' products through a warehouse located near UPS's national air hub in Louisville, is part of this division. In 1993, UPS established its second Inventory Express facility near UPS's European air hub in Cologne, Germany, which matches the overnight distribution capabilities of its U.S. counterpart in Louisville. Also supporting the Worldwide Logistics initiative was the establishment, in 1992, of UPS's first bonded, multi-user European Distribution Center. This warehousing service is in the Netherlands, and UPS plans to set up several more warehousing centers across Europe in the next five years. These warehousing services facilitate quick entry of urgent shipments into the UPS system. Martrac, a UPS subsidiary, transports produce and other commodities in temperature-controlled trailers over railroads. Martrac's revenues and income before taxes remained consistent with 1992 levels. Martrac's fleet now totals 1,540 trailers, an increase of 16 over 1992. Since 1982, a UPS subsidiary, UPS Truck Leasing, Inc. ("UPS Truck Leasing"), rents and leases trucks and tractors to commercial users under full-service rental agreements. Through programs established with Worldwide Logistics, UPS Truck Leasing is capitalizing on a business trend toward increased outsourcing of trucking needs. Because of these needs, UPS Truck Leasing added seven truck leasing facilities in 1993. As of December 31, 1993, UPS Truck Leasing had 43 facilities in the Southern states, plus California, Illinois, Kansas and Ohio, and a fleet of 5,272 vehicles. UPS Truck Leasing's revenues increased by 17% in 1993. Through its UPS Properties, Inc. subsidiary, UPS has undertaken to develop, as an incident to its core delivery business, properties and facilities at and around its operating centers. The focus of UPS Properties was broadened in 1993 and divided into four business units: Asset Management (for future UPS facilities leased to third-party users); Industrial Parks (for potential UPS sites that offer investment opportunities); Investment Properties (principally hotels); and Surplus Properties (real estate no longer needed by UPS). Environmental Regulation In 1989, regulations were adopted pursuant to the federal Resource Conservation and Recovery Act of 1976. In accordance with these regulations, UPS is testing, upgrading and, as needed, replacing many of its underground fuel tanks. UPS substantially completed this project in 1993, five years ahead of the mandated Environmental Protection Agency ("EPA") Schedule. UPS replaced approximately 2,800 underground storage tanks at a cost of approximately $100 million. -9- 11 The revised Clean Air Act calls for a ten-year phasing-in of alternative fuel vehicles in nine of the most polluted urban areas in the United States. In order to ensure compliance with these regulations at the conclusion of the phase-in period, UPS began a project in 1989 using compressed natural gas ("CNG") as a fuel in 10 package cars operated in Brooklyn, New York. In 1990, an additional 20 CNG vehicles were placed in use in Brooklyn, and in 1991, the program was expanded to Dallas and Los Angeles. In 1992, 102 CNG vehicles were placed in service in Oklahoma City and Tulsa, and in 1993, a total of 205 CNG vehicles were in operation in six cities. In 1994, UPS expects to place 20 more CNG vehicles in operation in Washington, D.C. In addition, UPS converted 800 package cars in Canada to run on propane fuel. On March 3, 1993, the EPA adopted final rules under the Clean Air Act Amendments establishing regulations governing the exemption of clean fuel fleet vehicles from certain transportation control measures ("TCMs"). The exemptions except clean fuel vehicles, such as UPS's CNG vehicles, from urban TCMs, such as truck bans and time-of-day restrictions. It also permits the CNG vehicles to travel in high occupancy vehicle lanes, provided they meet certain emission criteria. Employees As of December 31, 1993, UPS had approximately 285,000 employees, a 1.7% increase over 1992. Most hourly employees are represented by unions, principally by locals of the International Brotherhood of Teamsters ("IBT"). In 1993, UPS reached agreement with the IBT on a new four year contract. The agreement increases drivers' wages by an average of 3% a year over the four-year contract and includes increases in benefits. Executive Officers Listed below is certain information relating to the executive officers and management of UPS.
Principal Occupation and Employment During Name and Address Age At Least the Last Five Years ---------------- --- ---------------------------- John Alden 52 Director (1988 to present), Senior Vice President Senior Vice President and and Director Business Development Group Manager (1986 to present), UPS
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Principal Occupation and Employment During Name and Address Age At Least the Last Five Years ---------------- --- ----------------------------- Francis J. Erbrick 55 Senior Vice President (1989 Senior Vice President to present), Strategic Systems Manager (1992 to present), Information Services Manager (1985 to 1992), UPS Don R. Fischer 56 Senior Vice President (1992 to present), Senior Vice President International Systems and UPS Truck Leasing Manager (1992 to present), Corporate Delivery Information and Loss Prevention Manager (before 1987 to 1992), UPS Edwin A. Jacoby 61 Director (1988 to present), Senior Vice President, Senior Vice President, Treasurer and Chief Treasurer and Chief Financial Officer (1987 to Financial Officer and present), UPS Director John J. Kelley 58 Director (1992 to present), Senior Vice President and Senior Vice President and Director Human Resources Manager (1991 to present), Region Manager (1983 to 1991), UPS James P. Kelly 50 Director (1991 to present), Executive Vice President Executive Vice President and Director (1994), Chief Operating Officer (1992 to present), Labor Relations Manager (1988 to 1990), U.S.A. Operations Manager (1990 to 1992), UPS Donald W. Layden 59 Director (1980 to present), Senior Vice President International Operations and Director Manager (1988 to present), Senior Vice President (1983 to present), Human Resources Manager (1983 to 1988), UPS Joseph R. Moderow 45 Director (1988 to present), Senior Vice President, Senior Vice President and Secretary and Director Secretary (1986 to present), Legal and Public Affairs Group Manager (1989 to present), Legal Manager (1986 to 1989), UPS
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Principal Occupation and Employment During Name and Address Age At Least the Last Five Years ---------------- --- ------------------------------ Kent C. Nelson 56 Director (1983 to present), Chairman and Chief Chairman of the Board Executive and Director (Chief Officer (1989 to present), Executive Officer) Vice Chairman (1989), Executive Vice President (1986 to 1989), UPS Richard O. Oehme 54 Senior Vice President (1990 Senior Vice President to present), Air Region Manager (1985 to present), UPS Charles L. Schaffer 48 Director (1992 to present), Senior Vice President Senior Vice President and Director and Engineering Group Manager (1990 to present), Plant Engineering Manager (1989 to 1990), Strategic Planning Staff (1988 to 1989), District Manager (1987 to 1988), UPS Edward L. Schroeder 52 Senior Vice President (1993 to present), Senior Vice President International Operations Coordinator (1993 to present), Region Manager (1988 to 1993), District Manager (1986 to 1988), UPS Calvin E. Tyler, Jr. 51 Director (1991 to present), Senior Vice President Senior Vice President and Director (1988 to present), U.S.A. Operations Manager (1991 to present), Human Resources Manager (1988 to 1991), Region Manager (1985 to 1988), UPS Clinton L. Yard 54 Senior Vice President (1992 to present), National Senior Vice President Operations Manager (1992 to present), Region Manager (1988 to 1992), District Manager (1982 to 1988), UPS
Each officer of UPS has been elected to serve until the next organizational meeting of the directors of UPS following the annual meeting of shareowners of UPS. -12- 14 Item 2. Properties. Operating Facilities During 1991, UPS moved its corporate office to Atlanta, Georgia. UPS is currently leasing portions of several office buildings and is occupying a portion of an owned office building. Completion of its new headquarters, which has an anticipated cost of $103 million, is scheduled to occur in 1994. Among UPS's principal operating facilities are those located in New York City, Uniondale (New York), Houston, Denver, Los Angeles, Chicago, Addison (Illinois), San Francisco, Minneapolis, Chelmsford (Massachusetts) and New Stanton (Pennsylvania). These operating facilities, having floor spaces which range from 300,000 to 1,000,000 square feet, have central sorting facilities, operating hubs and service centers for local operations. UPS is constructing a large hub facility near Chicago, Illinois. This facility, which will have floor space of approximately 1,900,000 square feet, is scheduled to commence operations in 1995. The estimated cost of this facility is $272 million. UPS also owns approximately 700 and leases approximately 1,000 other operating facilities throughout the territories it serves. The smaller of these facilities have vehicles and drivers stationed for the pickup of packages and facilities for sorting and transfer and delivery of packages. The larger of these facilities have additional facilities for servicing UPS vehicles and equipment, and employ specialized mechanical installations for the sorting and handling of packages. UPS's aircraft are operated in a hub and spokes pattern in the United States. UPS's principal air hub in the United States is located in Louisville, Kentucky, with regional air hubs in Philadelphia, Pennsylvania and Ontario, California. These hubs house facilities for sorting, transfer and delivery of packages. The Louisville hub handles the largest volume of packages for air delivery in the United States. The Louisville hub site also contains UPS's administrative offices for its airline operation, and its flight training school. UPS also is constructing a regional air hub in Dallas, Texas, which is scheduled for completion in 1994 at an anticipated cost of $35 million and has plans to construct a regional air hub in Rockford, Illinois. UPS's European air hub is located in Cologne, Germany. UPS's computer operations have been consolidated in a 400,000 square foot facility located on a 39 acre site in Mahwah, New Jersey. The construction of a 20,000-27,000 square foot addition of the facility is planned to commence in 1994. The addition will accommodate further expansions of up to 54,000 square feet. UPS has leased this facility for an initial term ending in 2019 for use as a data processing, telecommunications and opera- -13- 15 tions facility. UPS has also begun construction of a 165,000 square foot facility located on a 25 acre site in the Atlanta, Georgia area, which will serve as a backup to the main facility in New Jersey. The new facility, to be completed in 1995, will provide backup capacity in case a power outage or other disaster incapacitates the main data center, and it will also help meet future communication needs. Aircraft UPS operates a fleet of 458 aircraft. UPS's fleet at December 31, 1993 consisted of the following aircraft:
Number Number Description Owned Leased ----------- ------ ------ McDonnell Douglas DC-8-71 23 - McDonnell Douglas DC-8-73 26 - Boeing 747-100 5 7 Boeing 757-200 20 15 Boeing 727-100 40 4 Boeing 727-200 8 - Fairchild SA227-AT 11 - Other - 299 --- --- Total 133 325
An inventory of spare engines and parts is maintained for each aircraft. UPS is currently carrying out a retrofit program to refurbish more than 90 of its aircraft with state-of-the-art avionics equipment and a common cabin configuration. All of UPS's DC-8-71's, DC-8-73's, 747-100's and 757-200's meet Stage III federal noise standards. UPS is also replacing the three engines on each of the 727-100 aircraft with new, quieter engines to enable them to meet Stage III federal noise standards and to increase its ability to send the 727 aircraft to airports where local noise curfews prevent some aircraft from landing. UPS will perform modifications to existing engines to enable its eight 727-200 aircraft to achieve Stage III compliance. The current noise regulations do not impact the valuation of these aircraft as their depreciable lives all end before the final phase-in date for Stage III compliance in 1999. All other aircraft operated by UPS are not subject to Stage III noise regulations. During 1993, UPS ordered 30 new Boeing 767 freight aircraft with options to buy 30 more. Delivery of the first 767 is scheduled for 1995. UPS exercised its option under an agreement with The Boeing Corporation to purchase 15 757-200PF aircraft. The final airplanes under this agreement were delivered during 1993. UPS also entered into agreements with Boeing for the purchase of 31 -14- 16 additional 757-200PF aircraft, for delivery between 1994 and 1998. UPS has an option for additional aircraft, if required, for delivery between 1998 and 2001. Vehicles UPS owns and operates a fleet of approximately 132,000 vehicles, ranging in size from panel delivery cars to large tractors and trailers, including 1,540 temperature-controlled trailers owned by Martrac and 5,272 vehicles owned by UPS Truck Leasing, Inc. During 1993, approximately 4,000 package cars, tractors and trailers were purchased and approximately 3,000 older vehicles were retired. Item 3. Legal Proceedings. While UPS is routinely involved in litigation relating to the conduct of its business, there are no pending legal proceedings which, individually or in the aggregate, are material to the business of UPS. UPS was subject to a tax audit by the United States Internal Revenue Service for the 1984 tax year. Information regarding the tax audit is incorporated herein by reference from Note 4 to the Consolidated Financial Statements filed herewith. Item 4. Submission of Matters to a Vote of Security Holders. None. PART II Item 5. Market for the Registrant's Common Equity And Related Stockholder Matters. UPS is authorized to issue 900,000,000 shares of common stock, par value $.10 per share, of which 580,000,000 shares were issued and outstanding (including those shares held by UPS for distribution in connection with its stock plans) as of February 28, 1994. UPS is also authorized to issue 200,000,000 shares of preferred stock, without par value. No shares of preferred stock have been issued or are outstanding. Each share of UPS Common Stock is entitled to one vote in the election of directors and other matters, except that, generally, any shareowner, or shareowners acting as a group, who beneficially own more than 10 percent of the voting stock are entitled to only one one-hundredth of a vote with respect to each vote in excess of 10 percent of the voting power of the then outstanding -15- 17 shares of voting stock. Holders have no preemptive or other right to subscribe to additional shares. In the event of liquidation or dissolution, they are entitled to share ratably in the assets available after payment of all obligations. The shares are not redeemable by UPS except through UPS's exercise of the preferential right of purchase mentioned below and, in the case of stock subject to the UPS Managers Stock Trust, UPS's right of purchase in the circumstances described herein. Shareowners are entitled to such dividends as are declared by the Board of Directors. The policy of the UPS Board is to declare dividends each year out of current earnings. However, the declaration of future dividends is subject to the discretion of the Board of Directors in light of all relevant facts, including UPS's earnings, general business conditions and capital requirements. UPS Common Stock is not listed on a national securities exchange or traded in the organized over-the-counter market. The UPS Certificate of Incorporation provides that no outstanding shares of UPS capital stock entitled to vote generally in the election of directors may be transferred to any other person, except by bona fide gift or inheritance, unless the shares shall have first been offered, by written notice, for sale to UPS at the same price and on the same terms upon which they are to be offered to the proposed transferee. UPS has the right, within 30 days after receipt of the notice, to purchase all or a part of the shares at the price and on the terms offered. If it fails to exercise or waives the right, the shareowner may, within a period of 20 days thereafter, sell to the proposed transferee all, but not part, of the shares which UPS elected not to purchase, for the price and on the terms described in the offer. All transferees of shares hold their shares subject to the same restriction. Shares previously offered but not transferred within the 20 day period remain subject to the initial restrictions. Shares may be pledged or otherwise used for security purposes, but no transfer may be made upon a foreclosure of the pledge until the shares have been offered to UPS at the price and on the terms and conditions bid by the purchaser at the foreclosure. UPS, from time to time, has waived its right of first refusal to purchase its shares in order to permit managers and supervisors to purchase shares at the same price as UPS was willing to pay. The grant of waivers in these cases has been effected after considering the needs of UPS for purposes of the UPS Managers Incentive Plan and UPS's 1986 and 1991 Stock Option Plans ("Plans") and other corporate purposes and has been subject to those needs. Persons who purchase shares in this manner are required to deposit them in the UPS Managers Stock Trust. -16- 18 UPS notifies its shareowners periodically of its willingness to purchase shares at specified prices determined by the Board of Directors, in the event that shareowners wish to sell their shares. During 1993, UPS purchased 28,035,837 shares at an aggregate purchase price of approximately $535 million. In determining the prices, the Board considers a variety of factors, including past and current earnings, earnings estimates, the ratio of UPS Common Stock to debt of UPS, other factors affecting the business and outlook of UPS and general economic conditions, as well as opinions furnished from time to time by a bank and by two firms of investment counselors, each acting independently, as to the value of UPS shares. The Board has not followed any predetermined formula. It has considered a number of formulas commonly used in the evaluation of securities of closely held and of publicly held companies, but its decisions have been based primarily on the judgment of the Board of Directors as to the long-range prospects of UPS rather than what the Board considers to be the short-term trends relating to UPS or the values of securities generally. Thus, for example, the Board has not given substantial weight to short-term variations in average price-earnings ratios of publicly traded securities which at times have been considerably higher, and at other times, considerably lower, than those for UPS's securities. However, the Board's decision as to prices does take into account factors affecting generally the market prices of publicly traded securities, and prolonged changes in those prices could have an effect on the prices offered by UPS. One factor in determining the prices at which securities trade in the organized markets is that of supply and demand. When demand is high in relation to the shares which investors seek to sell, prices tend to increase, while prices tend to decrease when demand is low in relation to the shares being sold. To date, the UPS Board of Directors has not given significant weight to considerations of supply and demand in determining the price to be paid by UPS for its shares. UPS has had a need for many of its shares for purposes of awards under the Plans, and eligible managers and supervisors have purchased many other available shares. When the number of shares acquired by UPS exceeds the number needed for these purposes within a reasonable period, the excess shares are treated as authorized and unissued shares by UPS. During 1993, UPS determined that it had acquired its Common Stock in excess of the amount required to fund its Plan obligations. Accordingly, UPS constructively retired 15 million of those excess shares on June 30, 1993 which reduced "Common Stock Held for Stock Plans" and "Shareowners' Equity" by $276 million. UPS intends to continue its policy of purchasing a limited number of shares when offered by shareowners. However, there can be no assurance of continuation of that policy. The feasibility of purchases by UPS and the prices at which shares may be purchased are both subject to the continued maintenance by UPS -17- 19 of satisfactory earnings and financial condition. Hence, both the salability of UPS shares and the prices at which they may be sold would be adversely affected by a continuous decline of UPS's earnings or by unfavorable changes in its financial position and might be adversely affected by decisions of shareowners to sell substantially more shares than the Board considers necessary for the ultimate purpose of making awards under the Plans. The prices at which UPS has published notices of its willingness to purchase shares of Common Stock since January 1992 have been as follows:
Dates Price ----- ----- 1992 ---- January 1 to February 20 $16.00 February 21 to May 21 $16.50 May 22 to August 26 $17.25 August 27 to November 19 $18.00 November 20 to February 18, 1993 $18.50 1993 ---- February 19 to May 19 $18.75 May 20 to August 18 $19.25 August 19 to November 17 $19.75 November 18 to February 16, 1994 $20.75
On February 17, 1994, UPS expressed its willingness to purchase shares at $21.25 per share, which is still the price at the date of this report. In February 1994, UPS distributed an aggregate of 6,325,902 shares of UPS Common Stock, subject to the UPS Managers Stock Trust, under the UPS Managers Incentive Plan to a total of 28,096 employees at a managerial or supervisory level. In February 1993, it distributed an aggregate of 7,214,509 shares of UPS Common Stock under that Plan to a total of 26,596 managerial or supervisory employees. The UPS Managers Stock Trust and the Managers Incentive Plan have been previously described in the UPS Registration Statement on Form 10 and in the UPS Prospectus, dated February 1, 1994, relating to the UPS Managers Incentive Plan awards. Such distributions do not represent "sales" as defined under the Securities Act of 1933, as amended (the "1933 Act"). However, the shares awarded were registered under the 1933 Act to permit resales of the shares consistent with the interpretations of the Securities and Exchange Commission under Rule 144 adopted under the 1933 Act. -18- 20 During 1993, 1,167,638 shares of UPS Common Stock were distributed to 1,228 employees upon the exercise of stock options granted to them by UPS under the 1986 Stock Option Plan. In addition, a total of 3,642,972 shares of UPS Common Stock were sold, pursuant to a stock offering by UPS, to 15,028 UPS managers and supervisors. The offering has been previously described in the UPS Registration Statement on Form S-3 (No. 33-5582), which became effective in the summer of 1986. The shares issued upon exercise of the options and the shares purchased pursuant to the offering are subject to the UPS Managers Stock Trust. Shares of UPS Common Stock issued to employees under the Plans and most other shares of UPS Common Stock owned by UPS employees are held subject to the UPS Managers Stock Trust (the "Trust"). First Fidelity Bank ("Fidelity") serves as trustee under the Trust. The Trust agreement gives UPS the right to purchase the shares of UPS Common Stock of members deposited in the Trust at their fair market value, as defined, when the member retires, dies or ceases to be an employee of UPS, or when the member requests the withdrawal of shares from the Trust. Fair market value is defined as the fair market value of the shares at the time of the sale, or in the event of differences of opinion as to value, the average price per share of all shares of UPS sold during the 12 months preceding the sale involved. UPS becomes entitled to purchase shares of UPS Common Stock held under the Trust within 60 days of a request from the member to release the shares from the Trust and upon occurrence of the other enumerated events. The time during which UPS may purchase shares of UPS Common Stock following the cessation of employment varies from three years to thirteen years, depending upon the number of shares held by the employee and the date of the applicable trust agreement. In the event UPS fails to exercise its option within the prescribed periods, the employee would become entitled, upon request, to the delivery of the shares of UPS Common Stock free and clear of the Trust, unless the purchase period has been extended by agreement of UPS and the shareowner. UPS has consistently exercised its purchase rights. Members of the Trust are entitled to the dividends on shares of UPS Common Stock held for their accounts (except that stock dividends are added to the shares held by the Trustee for the benefit of the individual members), to direct the Trustee as to how the shares held for their benefit are to be voted and to request proxies from the Trustee to vote shares held for their accounts. In June 1993, UPS paid a cash dividend of $.25 a share, and in January 1994, $.25 a share. In June 1992, UPS paid a cash dividend of $.25 a share, and in December 1992, $.25 a share. UPS intends to continue its policy of paying dividends to its shareowners. However, the declaration of future dividends is subject to the discretion of the Board of Directors in light of all relevant facts, including earnings, general business conditions and -19- 21 working capital requirements. Loan agreements, to which UPS is a party, limit the amount which UPS may declare as dividends and use for the repurchase of its Common Stock. The most restrictive of these agreements limits the declaration of dividends, other than stock dividends, and payments for the purchase of Common Stock to the extent that such declarations and payments, together with all other payments made subsequent to January 1, 1985 would exceed, in the aggregate, (i) $250,000,000, (ii) 66-2/3% of net income, as defined in the agreement, and (iii) the net proceeds from the issuance, sale or disposition of any shares of stock of UPS or any warrants or other rights to purchase such stock subsequent to January 1, 1985. As of December 31, 1993 UPS had approximately $695 million not subject to these restrictions. These limits do not materially restrict the declaration of dividends. Set forth below is the approximate number of record holders of equity securities of UPS as of February 28, 1994. Number of Title of Class Record Holders -------------- -------------- Common Stock of UPS, $.10 par value 2,466 Common Stock of UPS, $.10 par value, 42,162(1) subject to UPS Managers Stock Trust - ------------------------------------------------------------------------------ 1. Refers to beneficial owners. The record holder of the shares of Common Stock subject to the Trust is Saul & Co., as nominee for First Fidelity Bank, N.A., Newark, New Jersey, as Trustee. -20- 22 Item 6. Selected Financial Data.
Selected Income Statement Data: (000's omitted, except for per share amounts) Year ended December 31, --------------------------------------------------------------------------- 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Revenue............................ $ 17,782,353 $ 16,518,621 $ 15,019,830 $ 13,606,344 $ 12,357,918 Operating expenses................. (16,324,681) (15,240,837) (13,768,574) (12,554,167) (11,142,648) Interest income.................... 19,846 22,433 27,572 22,278 22,793 Interest expense................... (34,000) (41,918) (51,794) (71,999) (14,833) Miscellaneous -- net............... (11,821) 10,996 (9,969) (2,572) (20,122) Income taxes....................... (622,062) (504,223) (516,895) (403,108) (509,684) ------- ------- ------- ------- ------- Income before cumulative effect of a change in accounting principle............. 809,635 765,072 700,170 596,776 693,424 Cumulative effect of a change in the method of accounting for postretirement benefits other than pensions.............. --- (248,905) --- --- --- ------- --------- ------- ------- ------- Net income......................... $ 809,635 $ 516,167 $ 700,170 $ 596,776 $ 693,424 ======= ======= ======= ======= ======= % of revenue after cumulative effect of a change in accounting principle........... 4.6 3.1 4.7 4.4 5.6 ======= ======= ======= ======= ======= Per share amounts (1): Income before cumulative effect of a change in accounting principle...................... $ 1.40 $ 1.29 $ 1.14 $ 0.95 $ 1.07 Cumulative effect of a change in the method of accounting for postretirement benefits other than pensions............ --- (0.42) -- -- -- ------- -------- ----- ----- ----- Net income per share............. $ 1.40 $ 0.87 $ 1.14 $ 0.95 $ 1.07 ======= ======= ======= ======= ======= Dividends paid per share........... $ 0.50 $ 0.50 $ 0.48 $ 0.48 $ 0.48 ======= ======= ======= ======= =======
Selected Balance Sheet Data: (000's omitted) December 31, ------------ 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Working Capital.................... $ 3,745 $ 61,687 $ 172,635 $ 68,328 $ 199,112 ===== ====== ======= ====== ======= Long-term debt..................... $ 852,266 $ 862,378 $ 830,634 $ 854,687 $ 848,036 ======= ======= ======= ======= ======= Total assets....................... $ 9,573,831 $ 9,037,817 $ 8,858,561 $ 8,176,056 $ 7,888,127 ========= ========= ========= ========= =========
- ----------------------------- (1) All per share amounts have been adjusted to reflect a 4-for-1 stock split effective September 6, 1991. -21- 23 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Operations 1993 Compared to 1992 Revenue increased $1.264 billion, or 7.7% during 1993 compared to 1992. For 1993, domestic revenue totaled $15.823 billion, an increase of $1.101 billion, or 7.5% over 1992, and international revenue totalled $1.960 billion, an increase of $163 million, or 9.1% over 1992. Domestic revenue increased as a result of favorable changes in rates and a shift toward higher yielding packages. Increases in published rates during the first quarter of 1993 ranged from 4.9% to 5.9% for domestic air shipments and averaged approximately 4.5% for domestic ground shipments. These increases offset a 0.6% decline in domestic volume during 1993. The increase in international revenue was attributable to higher volume, which was up 11.8%. However, the effect of the international volume increase on revenue was partially offset by a decrease in revenue per piece. This decrease resulted from competitive pressures and poor economic conditions in certain foreign markets along with currency exchange rate fluctuations with respect to the U.S. dollar and discounting in connection with efforts to build volume. Operating expenses increased by $1.084 billion, or 7.1%. The increase was primarily the result of increases in average pay rates and employee benefits. In November 1993, UPS entered into a new, four-year labor agreement with the International Brotherhood of Teamsters ("Teamsters"). The new agreement resulted in hourly increases in wages and employee benefits for senior drivers of $2.25 and $1.80, respectively, over the four-year term. The agreement will result in similar increases in wages and employee benefits for the Company's other Teamsters employees. Terms of the agreement were effective August 1, 1993. Operating profit for 1993 increased by $180 million, or 14.1%. This increase resulted primarily from higher revenue. Income before income taxes and cumulative effect of a change in accounting principle ("pre-tax income") increased by $162 million, or 12.8%. Domestic pre-tax income amounted to $1.698 billion, an increase of $153 million, or 9.9% over 1992 as a result of higher operating profit. The international pre-tax loss decreased by $10 million, or 3.5% bringing the international pre- tax loss to $267 million for 1993. This change resulted from improved export operations and favorable swings in currency exchange rates offset by declines in foreign domestic operations. -22- 24 The international pre-tax loss attributable to the foreign domestic operations increased by $71 million, or 68.2% primarily as a result of weak economic conditions and tough competition. The pre-tax loss associated with export operations decreased by $81 million, or 47.1% as a result of increased volume and the achievement of greater cost efficiencies in the international network. Export volume increased by 36.1% and 35.7% for international and U.S. origin, export shipments, respectively. UPS expects that the cost of operating its international business will continue to exceed revenue in the near future. The provision for income taxes increased by approximately $118 million, or 23.4%. This increase is a result of higher pre-tax income as well as an increase in the U.S. federal income tax rate, as described more fully in Note 7 to the Consolidated Financial Statements. Income before cumulative effect of a change in accounting principle increased by $45 million, or 5.8%. This increase resulted from the increase in pre-tax income, partially offset by the increase in the U.S. federal income tax rate. 1992 Compared to 1991 Revenue increased by $1.5 billion, or 10.0%, with $1.03 billion coming from increased domestic revenue and $472 million coming from increased international revenue. Increased domestic revenue resulted primarily from favorable changes in volume, rates and product mix. Domestic delivery volume increased 1.0%, while increases in published rates during the first quarter of 1992 ranged from 2.6% to 4.9% for domestic air shipments and averaged approximately 5.0% for domestic ground shipments. International revenue increased primarily from higher volume which was up 21.4% as a result of the Company's efforts to expand its international operations. Operating expenses increased by $1.47 billion, or 10.7%. The increase is primarily due to the additional delivery volume along with increases in average pay rates and employee benefits. As discussed in a following section titled "Changes in Accounting Methods" as well as Note 5 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 106 during 1992. In addition to the one-time cumulative effect discussed below, 1992 operating expenses were charged an additional $65 million as a result of adoption. Operating profit for the period increased by $27 million, or 2.1%. This resulted primarily from the increase in domestic revenues, partially offset by increased losses in international operations. -23- 25 Income before income taxes and cumulative effect of a change in accounting principle ("pre-tax income") increased $52 million, or 4.3%. Domestic pre-tax income was up $75 million over the prior year as a result of higher operating profit. This increase was offset by an increase in the international pre-tax loss of $23 million. Although the international loss trend in total is negative, the operating margin (defined here as operating expenses plus other income and expense, net, as a percent of revenue) improved to 115.4% in 1992 from 119.1% in 1991. Income before cumulative effect of a change in accounting principle increased by $65 million, or 9.3%. The increase resulted primarily from higher operating profit and a decrease in the effective income tax rate. The cumulative effect of a change in the method of accounting for postretirement benefits other than pensions is discussed in a following section titled "Changes in Accounting Methods" as well as Note 5 to the Consolidated Financial Statements. Liquidity and Capital Resources UPS believes that its internally generated funds, revolving credit facility and commercial paper program (discussed below) will provide adequate sources of liquidity and capital resources to meet its expected future short-term and long-term needs for the operation of its business, including anticipated capital expenditures of $1.8 billion for land, buildings, equipment and aircraft in 1994, as well as commitments for aircraft purchases through 2002. Additionally, UPS sold a long-term investment property for $45.6 million cash in January 1994. During the fourth quarter of 1993, UPS established a commercial paper program under which it may borrow up to $500 million on a short-term, unsecured basis at favorable rates. No amounts had been borrowed under this program as of December 31, 1993. An agent for the United States Internal Revenue Service ("IRS") has asserted in a report that UPS is liable for additional tax and possible penalties for the 1984 tax year. The assertion is based in large part on the theory that UPS is liable for tax on income of Overseas Partners Ltd. ("OPL"), a Bermuda company, which has reinsured excess value package insurance purchased by UPS's customers from unrelated insurers. The adjustments sought by the agent relating to package insurance are based on a number of inconsistent theories and range from $7.9 million of tax to $45.5 million of tax and estimated penalties. -24- 26 Management believes that the IRS positions are without merit and the eventual resolution of this matter will not have a material impact on the Company. No assessment has been made by the IRS with respect to 1984, and the Company is pursuing a protest before the IRS's Appeals Division against the imposition of any additional tax liability. The matter is awaiting a hearing before the IRS Appeals Division. The IRS has not proposed assessments for years subsequent to 1984, although the IRS may take positions similar to those in the report described above for periods after 1984. Changes in Accounting Methods Effective January 1, 1992, UPS adopted the provisions of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement requires accrual of postretirement benefits, which include health care benefits, during the years an employee provides service. Additional information regarding this change in accounting method is included in Note 5 to the Consolidated Financial Statements. Effective January 1, 1993, UPS adopted the provisions of the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). This statement prescribes an asset and liability approach for accounting for income taxes. FAS 109 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. Prior to January 1, 1993, and since 1987, UPS accounted for income taxes in accordance with Statement of Financial Accounting Standards No. 96, "Accounting for Income Taxes" ("FAS 96"). The adoption of FAS 109 had no effect on net income for the year ended December 31, 1993. The adoption of FAS 109 did, however, affect the classification of deferred tax amounts on the balance sheet. As a result of these classification changes, the deferred tax asset at December 31, 1992 of $45 million has been offset against deferred tax liabilities. Additionally, $75 million of the net deferred tax liability of $1.471 billion has been segregated as a current liability at December 31, 1993. The change had no impact on liquidity or cash flow. Future Accounting Changes In November 1992, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards -25- 27 No. 112, "Employers' Accounting for Postemployment Benefits." This statement requires employers to recognize an obligation for certain postemployment benefits when certain conditions are met. Management does not anticipate that adoption of this standard will have a material effect on net income or shareowners' equity. The statement must be adopted by 1994, with earlier application encouraged. UPS will adopt the statement during 1994. In May 1993, the FASB issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The standard will be adopted by UPS during the first quarter of 1994. The majority of the Company's investments which are within the purview of this standard are short-term cash equivalents. Because the Company has the intent and ability to hold these investments until maturity, Management does not expect adoption of this standard to have a material effect on net income or shareowners' equity. Item 8. Financial Statements and Supplementary Data. Financial Statements The Financial Statements of UPS are filed together with this Report: see Index to Financial Statements, page F-1, which is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. Information regarding the Directors of UPS presented under the captions "Stock Ownership" and "Compliance with Section 16(a) of the Securities Exchange Act" in UPS's definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 11, 1994, which will be filed with the Securities and Exchange Commission (the "SEC") by April 12, 1994, is incorporated herein by reference. Information concerning UPS's executive officers can be found in Part I, Item 1, of this Form 10-K under the caption "Executive Officers" in accordance with Instruction 3 of Item 401(b) of Regulation S-K and General Instruction G(3) of Form 10-K. -26- 28 Item 11. Executive Compensation. Information in answer to this Item 11 is presented under the caption "Compensation of Directors and Executive Officers and Other Information" excluding the information under the captions "Report of the Officer Compensation Committee on Executive Compensation" and "Shareowner Return Performance Graph" in UPS's definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 11, 1994, which will be filed with the SEC by April 12, 1994, is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. Information in answer to this Item 12 is presented under the caption "Stock Ownership" in UPS's definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 11, 1994, which will be filed with the SEC by April 12, 1994, is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. Information in answer to this Item 13 is presented under the captions "Certain Business Relationships" and "Common Relationships with Overseas Partners Ltd." in UPS's definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 11, 1994, which will be filed with the SEC by April 12, 1994, is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) 1. Financial Statements. - See Index to Financial Statements and Financial Statement Schedules at page F-1, which is incorporated herein by reference. 2. Financial Statement Schedules. - See Index to Financial Statements and Financial Statement Schedules at page F-1, which is incorporated herein by reference. 3. List of Exhibits. - See Exhibit Index at page E-1, which is incorporated herein by reference. -27- 29 (b) Reports on Form 8-K. - No reports on Form 8-K were filed during the quarter ended December 31, 1993. (c) Exhibits required by Item 601 of Regulation S-K. - See Exhibit Index at page E-1, which is incorporated herein by reference. -28- 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, United Parcel Service of America, Inc. has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED PARCEL SERVICE OF AMERICA, INC. (Registrant) Date: March 23, 1994 By: /s/ Kent C. Nelson ------------------- Kent C. Nelson Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- /s/ John W. Alden Senior Vice President March 23, 1994 - ----------------------- and Director John W. Alden /s/ William H. Brown, III Director March 23, 1994 - ------------------------- William H. Brown, III /s/ Edwin A. Jacoby Senior Vice President March 23, 1994 - ----------------------- and Treasurer (Chief Edwin A. Jacoby Financial and Accounting Officer) and Director - ----------------------- Director --------, 1994 Carl Kaysen /s/ John J. Kelley Senior Vice President March 23, 1994 - ----------------------- and Director John J. Kelley /s/ James P. Kelly Executive Vice President March 23, 1994 - ----------------------- and Director James P. Kelly - ----------------------- Senior Vice President -------, 1994 Donald W. Layden and Director - ----------------------- Director -------, 1994 Gary E. MacDougal /s/ Joseph R. Moderow Senior Vice President, March 23, 1994 - ----------------------- Secretary and Director Joseph R. Moderow
31 /s/ Kent C. Nelson Chairman of the Board March 23, 1994 - ----------------------- Kent C. Nelson and Director (Chief Executive Officer) - ----------------------- Director --------, 1994 Paul Oberkotter - ----------------------- Director --------, 1994 Victor A. Pelson - ----------------------- Director --------, 1994 John W. Rogers /s/ Charles L. Schaffer Senior Vice President March 23, 1994 - ------------------------ Charles L. Schaffer and Director - ----------------------- Director --------, 1994 Robert M. Teeter /s/ Calvin E. Tyler, Jr. Senior Vice President March 23, 1994 - ------------------------ Calvin E. Tyler, Jr. and Director
32 - ------------------------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________ EXHIBITS TO FORM 10-K ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 _______________________ UNITED PARCEL SERVICE OF AMERICA, INC. - ------------------------------------------------------------------------------ 33 EXHIBIT INDEX (3) Articles of Incorporation and By-laws. (a) Restated Certif- Incorporated by Reference to icate of Incorpo- Exhibit 4(iv) to Form S-8 ration of UPS. Registration Statement (No. 33-19622). (b) By-laws of UPS as Incorporated by Reference amended through to Exhibit 3(b) to 1991 February 21, 1992. Annual Report on Form 10-K. (4) Instruments defining the rights of security holders, including indentures. (a) Specimen Certif- Incorporated by Reference to icate of Capital Exhibit 3(a) to Form 10, as Stock of UPS. filed April 29, 1970. (b) UPS Managers Stock Incorporated by Reference to Trust Agreement. Exhibit 2 to Registration Statement No. 2-46382. (c) Specimen Certificate Incorporated by Reference to of 8 3/8% Debentures Exhibit 4(c) to Registration due April 1, 2020. Statement No. 33-32481. (d) Indenture relating to Incorporated by Reference to 8 3/8% Debentures Exhibit 4(c) to Registration due April 1, 2020. Statement No. 33-32481. (10) Material Contracts. (a) UPS Thrift Plan, as Amended and Restated January 1, 1976, in- cluding Amendments Nos. 1 and 2. (1) Amendment Incorporated by Reference to No. 3 to the Exhibit 20(b) to 1980 Annual UPS Thrift Plan. Report on Form 10-K. (2) Amendment Incorporated by Reference to No. 4 to the Exhibit 20(b) to 1981 Annual UPS Thrift Plan. Report on Form 10-K.
E-1 34 (3) Amendment Incorporated by Reference to No. 5 to the Exhibit 19(b) to 1983 Annual UPS Thrift Plan. Report on Form 10-K. (4) Amendment Incorporated by Reference to No. 6 to the Exhibit 10(a)(4) to 1985 UPS Thrift Plan. Annual Report on Form 10-K. (5) Amendment Incorporated by Reference to No. 7 to the Exhibit 10(a)(5) to 1985 UPS Thrift Plan. Annual Report on Form 10-K. (6) Amendment Incorporated by Reference to No. 8 to the Exhibit 10(a)(6) to 1987 UPS Thrift Plan. Annual Report on Form 10-K. (7) Amendment Incorporated by Reference to No. 9 to the Exhibit 10(a)(7) to 1987 UPS Thrift Plan. Annual Report on Form 10-K. (8) Amendment Incorporated by Reference to No. 10 to the Exhibit 10(a)(8) to 1990 UPS Thrift Plan. Annual Report on Form 10-K. (9) Amendment Incorporated by Reference to No. 11 to the Exhibit 10(a)(9) to 1991 UPS Thrift Plan. Annual Report on Form 10-K. (10) Amendment Incorporated by Reference to No. 12 to the Exhibit 10(a)(10) to 1991 UPS Thrift Plan. Annual Report on Form 10-K. (11) Amendment Incorporated by Reference to No. 13 to the Exhibit 10(a)(11) to 1991 UPS Thrift Plan. Annual Report on Form 10-K. (12) Amendment Incorporated by Reference to No. 14 to the Exhibit 10(a)(12) to 1991 UPS Thrift Plan. Annual Report on Form 10-K. (13) Amendment Incorporated by Reference to No. 15 to the Exhibit 10(a)(13) to 1992 UPS Thrift Plan. Annual Report on Form 10-K. (14) Amendment No. 16 Filed herewith. to the UPS Thrift Plan (15) Amendment Filed herewith. No. 17 to the UPS Thrift Plan (b) UPS Retirement Plan Incorporated by Reference to (including amend- Exhibit 9 to 1979 Annual ments 1 through 4). Report on Form 10-K. (1) Amendment No. 5 Incorporated by Reference to to the UPS Re- Exhibit 20(a) to 1980 Annual tirement Plan. Report on Form 10-K.
E-2 35 (2) Amendment No. 6 Incorporated by Reference to to the UPS Re- Exhibit 19(a) to 1983 Annual tirement Plan. Report on Form 10-K. (3) Amendment No. 7 Incorporated by Reference to to the UPS Re- Exhibit 10(b)(3) to 1984 tirement Plan. Annual Report on Form 10-K. (4) Amendment No. 8 Incorporated by Reference to to the UPS Re- Exhibit 10(b)(4) to 1985 tirement Plan. Annual Report on Form 10-K. (5) Amendment No. 9 Incorporated by Reference to to the UPS Re- Exhibit 10(b)(5) to 1986 tirement Plan. Annual Report on Form 10-K. (6) Amendment No. 10 Incorporated by Reference to to the UPS Re- Exhibit 19(a) to 1988 Annual tirement Plan. Report on Form 10-K. (7) Amendment No. 11 Incorporated by Reference to to the UPS Re- Exhibit 19(b) to 1988 Annual tirement Plan. Report on Form 10-K. (8) Amendment No. 12 Incorporated by Reference to to the UPS Re- Exhibit 10(b)(8) to 1989 tirement Plan. Annual Report on Form 10-K. (9) Amendment No. 13 Incorporated by Reference to to the UPS Re- Exhibit 10(b)(9) to 1989 tirement Plan. Annual Report on Form 10-K. (10) Amendment No. 14 Incorporated by Reference to to the UPS Re- Exhibit 10(b)(10) to 1990 tirement Plan. Annual Report on Form 10-K. (11) Amendment No. 15 Incorporated by Reference to the UPS Re- to Exhibit 10(b)(11) to tirement Plan. 1992 Annual Report on Form 10-K. (c) UPS Managers Incorporated by Reference to Incentive Plan definitive Proxy Statement (as amended). for 1992 Special Meeting of Shareowners. (d) 1986 UPS Stock Option Incorporated by Reference to Plan, as amended Exhibit 4(iv) to Form S-8 through March 5, 1987. Registration Statement (No. 33-12576).
E-3 36 (1) Amendment to UPS Incorporated by Reference to 1986 Stock Option Exhibit 10(e)(1) to 1987 Plan adopted Annual Report on Form 10-K. November 30, 1987. (2) Amendment to UPS Incorporated by Reference 1986 Stock Option Exhibit 10(e)(2) to 1992 Plan adopted Annual Report on Form October 30, 1992. 10-K. (f) Agreement and Plan of Incorporated by Reference Reorganization, dated to Exhibit 1(a) to Amend- December 4, 1979, by ment No. 1 to Form S-14, and between United Registration No. 2-65859. Parcel Service of America, Inc. and Parmac Corporation. (g) Agreement and Plan of Incorporated by Reference Reorganization, dated to Exhibit 1(b) to Amend- December 4, 1979, by ment No. 1 to Form S-14, and between United Registration No. 2-65859. Parcel Service of America, Inc. and Nuparmac Corporation. (h) Agreement and Plan of Incorporated by Reference Reorganization, dated to Exhibit 1(c) to Amend- December 4, 1979, by ment No. 1 to Form S-14, and between United Registration No. 2-65859. Parcel Service of America, Inc. and Parco Managers Corporation. (i) Indemnification Con- Incorporated by Reference to tracts or Arrangements. Item 8 of Form 10, as filed April 29, 1970. (j) Agreement of Sale be- Incorporated by Reference to tween Delaware County Exhibit 10(m) to 1985 Annual Industrial Development Report on Form 10-K. Authority and Penallen Corporation, dated as of December 1, 1985; Remarketing Agreement, dated as of December 1, 1985, among United Parcel Service of America, Inc., Penallen Corporation and Salomon Brothers Inc.; Guarantee Agreement, dated as of December 1,
E-4 37 1985, between United Par- cel Service of America, Inc. and Irving Trust Company; Guarantee by United Parcel Service of America, Inc. to Dela- ware County Industrial Development Authority, dated as of December 1, 1985. (k) Participation Agree- Incorporated by Reference to ment, dated November 17, Exhibit 10(k) to 1989 Annual 1986, among United Report on Form 10-K. Parcel Service Co. ("UPS Co."), Bankers Trust Company, as Trustee under a Master Trust Agreement for the bene- fit of the participants and the beneficiaries of the UPS Thrift Plan and the UPS Retirement Plan, Overseas Partners Ltd., Wilmington Trust Company and The Connecticut National Bank ("Owner Trustee"). (l) Aircraft Purchase Incorporated by Reference to Agreement, dated Exhibit 10(l) to 1989 Annual November 5, 1986, Report on Form 10-K. between UPS Co. and the Owner Trustee. (m) Lease Agreement, Incorporated by Reference to dated November 17, Exhibit 10(m) to 1989 Annual 1986, between UPS Report on Form 10-K. Co. and the Owner Trustee (n) Guarantee Agree- Incorporated by Reference to ment between United Exhibit 10(n) to 1989 Annual Parcel Service of Report on Form 10-K. America, Inc., as Guarantor and the Owner Trustee.
E-5 38 (o) Receivables Purchase Incorporated by Reference to and Sale Agreement, Exhibit 10(l) to 1987 Annual dated as of Novem- Report on Form 10-K. ber 24, 1987, among United Parcel Service, Inc., an Ohio corpora- tion, United Parcel Service, Inc., a New York corporation, United Parcel Service of America, Inc., Coop- erative Receivables Corporation and Citicorp North America, Inc. (p) Receivables Purchase Incorporated by Reference to and Sale Agreement, Exhibit 10(m) to 1987 Annual dated as of November 24, Report on Form 10-K. 1987, among United Parcel Service, Inc., an Ohio corporation, United Parcel Service, Inc., a New York cor- poration, United Parcel Service of America, Inc., Citibank, N.A., and Citicorp North America, Inc. (q) Membership Agreement, Incorporated by Reference to dated as of November 24, Exhibit 10(n) to 1987 Annual 1987, by and between on Form 10-K. Cooperative Receivables Corporation and United Parcel Service of America, Inc. (r) Amended and Restated Incorporated by Reference to Facility Lease Agree- Exhibit 10(r) to 1990 Annual ment, dated as of Report on Form 10-K. November 6, 1990, among Overseas Part- ners Leasing, Inc., United Parcel Service General Services Co. and United Parcel Service of America, Inc.
E-6 39 (s) Amended and Restated Incorporated by Reference to Aircraft Lease Agree- Exhibit 10(s) to 1990 Annual ment, dated as of Report on Form 10-K. November 6, 1990, among Overseas Part- ners Leasing, Inc., United Parcel Service Co. and United Parcel Service of America, Inc. (t) Agreement of Sale, Incorporated by Reference to dated as of December 28, Exhibit 10(t) to 1989 Annual 1989, between Edison Report on Form 10-K. Corporation and Over- seas Partners Leasing, Inc. (u) Assignment and Assump- Incorporated by Reference to tion Agreement, dated Exhibit 10(u) to 1989 Annual as of December 28, 1989, Report on Form 10-K. between and among Edison Corporation, Overseas Partners Leasing, Inc., McBride Enterprises, Inc. and Ramapo Ridge-McBride Office Park. (v) UPS Deferred Compensation Incorporated by Reference to Plan for Non-Employee Exhibit 10(v) to 1990 Annual Directors Report on Form 10-K. (w) UPS Retirement Plan for Incorporated by Reference to Outside Directors Exhibit 10(w) to 1990 Annual Report on Form 10-K. (x) UPS Savings Plan, as Incorporated by Reference to Amended and Restated, Exhibit 10(x) to 1990 Annual including Amendments Report on Form 10-K. No. 1-5. (1) Amendment No. 6 to Incorporated by Reference to the UPS Savings Plan Exhibit 10(x)(1) to 1990 Annual Report on Form 10-K. (2) Amendment No. 7 to Incorporated by Reference to the UPS Savings Plan Exhibit 10(x)(2) to 1991 Annual Report on Form 10-K. (3) Amendment No. 8 to Incorporated by Reference the UPS Savings Plan to Exhibit 10(x)(3) to 1992 Annual Report on Form 10-K.
E-7 40 (4) Amendment No. 9 to Incorporated by Reference the UPS Savings Plan to Exhibit 10(x)(4) to 1992 Annual Report on Form 10-K. (5) Amendment No. 10 to Incorporated by Reference the UPS Savings Plan to Exhibit 10(x)(5) to 1992 Annual Report on Form 10-K. (y) Competitive Advance and Incorporated by Reference to Revolving Credit Facility Exhibit 10(y) to 1990 Annual Agreement, dated as of Report on Form 10-K. May 7, 1990 among UPS, named banks and Chemical Bank, as Agent. (1) Letter, dated Nov- Incorporated by Reference to ember 13, 1990 re- Exhibit 10(y)(1) to 1990 ducing commitment Annual Report on Form 10-K. under Competitive Advance and Revolving Credit Facility Agreement. (z) UPS 1991 Stock Option Incorporated by Reference to Plan (Amended and Exhibit 10(z) to 1991 Annual. Restated as of Report on Form 10-K. February 20, 1992). (aa) UPS Coordinating Benefit Incorporated by Reference to Plan. Exhibit 10(aa) to 1991 Annual Report on Form 10-K. (1) Amendment No. 1 to Incorporated by Reference UPS Coordinating to Exhibit 10(aa)(1) to Benefit Plan. 1992 Annual Report on Form 10-K. (2) Amendment No. 2 to Incorporated by Reference UPS Coordinating to Exhibit 10(aa)(2) to Benefit Plan. 1992 Annual Report on Form 10-K. (21) Subsidiaries of the Filed herewith as Exhibit Registrant. 21. (23) Consent of Deloitte & Touche. Filed herewith as Exhibit 23.
E-8 41 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES COMPRISING 8 AND 14(a) (2) OF ANNUAL REPORT ON FORM 10-K TO SECURITIES AND EXCHANGE COMMISSION THREE YEARS ENDED DECEMBER 31, 1993 42 F-1 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
ITEM 8 - FINANCIAL STATEMENTS Page Number - ----------------------------- ----------- Independent Auditors' Report F-2 Consolidated balance sheet - December 31, 1993 and 1992 F-3 and F-4 Statement of consolidated income - Years ended December 31, 1993, 1992 and 1991 F-5 Statement of consolidated shareowners' equity - Years ended December 31, 1993, 1992 and 1991 F-6 Statement of consolidated cash flows - Years ended December 31, 1993, 1992 and 1991 F-7 Notes to consolidated financial statements F-8 to F-21 ITEMS 14(a) (2) - FINANCIAL STATEMENT SCHEDULES - ------------------------------------------------ Schedule V - Property, plant and equipment F-22 Schedule VI - Accumulated depreciation, depletion and amortization of property, plant and equipment F-23 Schedule VIII - Valuation and qualifying accounts and reserves F-24 Schedule IX - Short-term borrowings F-25 Schedule X - Supplementary income statement information F-26
All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. 43 F-2 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareowners United Parcel Service of America, Inc. Atlanta, Georgia We have audited the accompanying consolidated balance sheets of United Parcel Service of America, Inc. and its subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, shareowners' equity, and cash flows for each of the three years in the period ended December 31, 1993. Our audits also included the financial statement schedules listed in the Index on page F-1. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of United Parcel Service of America, Inc. and its subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 7 to the consolidated financial statements, in 1993 the Company changed its method of accounting for income taxes to conform with Statement of Financial Accounting Standards No. 109, and in 1992, as discussed in Note 5, changed its method of accounting for postretirement benefits other than pensions to conform with Statement of Financial Accounting Standards No. 106. DELOITTE & TOUCHE Atlanta, Georgia February 9, 1994 44 F-3 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 1993 and 1992 (000's omitted except share amounts)
ASSETS - ------ 1993 1992 ---- ---- Current Assets: Cash and short-term investments $ 280,960 $ 133,398 Accounts receivable 1,159,612 1,092,379 Materials, supplies and prepaid expenses 659,147 564,262 Deferred income taxes - 44,819 Common stock held for stock plans 283,112 333,089 ------------ --------- Total Current Assets 2,382,831 2,167,947 ----------- --------- Property, Plant and Equipment: Vehicles 2,661,407 2,583,753 Aircraft 2,936,940 2,502,896 Land 617,381 609,693 Buildings 1,257,963 1,224,442 Leasehold improvements 1,337,315 1,275,662 Plant equipment 2,266,811 2,098,880 Construction-in-progress 391,171 212,135 ----------- ---------- 11,468,988 10,507,461 Less accumulated depreciation 4,705,218 4,135,667 ----------- ---------- 6,763,770 6,371,794 ----------- ---------- Other Assets 427,230 498,076 ----------- ---------- $ 9,573,831 $9,037,817 =========== ==========
See notes to consolidated financial statements. 45 F-4 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 1993 and 1992 (000's omitted except share amounts)
LIABILITIES AND SHAREOWNERS' EQUITY - ----------------------------------- 1993 1992 ---- ---- Current Liabilities: Accounts payable $ 870,089 $ 769,822 Accrued wages and withholdings 918,943 832,793 Income taxes payable 72,505 87,603 Deferred income taxes 74,545 - Other current liabilities 443,004 416,042 ---------- ---------- Total Current Liabilities 2,379,086 2,106,260 ---------- ---------- Long-Term Debt 852,266 862,378 ---------- ---------- Accumulated Postretirement Benefit Obligation, Net 518,726 468,663 ---------- --------- Deferred Taxes, Credits and Other Liabilities 1,879,244 1,880,084 ---------- ---------- Shareowners' Equity: Preferred stock, no par value, authorized 200,000,000 shares, none issued - - Common stock, par value $.10 per share, authorized 900,000,000 shares, issued 580,000,000 in 1993 and 595,000,000 in 1992 58,000 59,500 Additional paid-in capital 264,401 241,852 Retained earnings 3,644,047 3,394,289 Cumulative foreign currency adjustments (21,939) 24,791 ---------- ---------- 3,944,509 3,720,432 ---------- ---------- $9,573,831 $9,037,817 ========== ========== Shareowners' Equity Per Share $ 6.80 $ 6.25 ========== ==========
See notes to consolidated financial statements. 46 F-5 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME Years Ended December 31, 1993, 1992 and 1991 (000's omitted except per share amounts)
1993 1992 1991 ---- ---- ---- Revenue $17,782,353 $16,518,621 $15,019,830 Operating Expenses: ----------- ----------- ----------- Wages and employees benefits 10,661,081 9,707,793 8,832,297 Other 5,663,600 5,533,044 4,936,277 ----------- ----------- ----------- 16,324,681 15,240,837 13,768,574 ----------- ----------- ----------- Operating profit 1,457,672 1,277,784 1,251,256 ----------- ----------- ----------- Other Income and (Expense): Interest income 19,846 22,433 27,572 Interest expense (34,000) (41,918) (51,794) Miscellaneous, net (11,821) 10,996 (9,969) ----------- ----------- ----------- (25,975) (8,489) (34,191) ----------- ----------- ----------- Income Before Income Taxes and Cumulative Effect of a Change in Accounting Principle 1,431,697 1,269,295 1,217,065 Income Taxes 622,062 504,223 516,895 ----------- ----------- ----------- Income Before Cumulative Effect of a Change in Accounting Principle 809,635 765,072 700,170 Cumulative Effect of a Change in the Method of Accounting for Postretirement Benefits Other Than Pensions - (248,905) - ----------- ----------- ----------- Net income $ 809,635 $ 516,167 $ 700,170 =========== =========== =========== Per Share Amounts: Income before cumulative effect of a change in accounting principle $ 1.40 $ 1.29 $ 1.14 Cumulative effect of a change in the method of accounting for postretirement benefits other than pension - (0.42) - ----------- ----------- ----------- Net income per share $ 1.40 $ 0.87 $ 1.14 =========== =========== ===========
See notes to consolidated financial statements. 47 F-6 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES STATEMENT OF CONSOLIDATED SHAREOWNERS' EQUITY Years Ended December 31, 1993, 1992 and 1991 (000's omitted except per share amounts)
Common Stock -------------------- Additional Foreign Total Paid-in Retained Currency Shareowners' Shares Amount Capital Earnings Adjustments Equity ------ ------ ---------- -------- ----------- ------------ Balance, January 1, 1991 156,370 $ 15,637 $ 292,344 $ 3,232,184 $ 66,778 $ 3,606,943 Net income - - - 700,170 - 700,170 Dividends ($.48 per share) - - - (287,131) - (287,131) Gain on issuance of common stock held for stock plans - - 3,517 - - 3,517 Exercise of stock options - - (11,186) - - (11,186) Foreign currency adjustments - - - - 3,759 3,759 Redemption of common stock (2,370) (237) - (142,683) - (142,920) Common stock split 4 for 1 462,000 46,200 (46,200) - - - ------- ---------- ----------- -------------- ------------ -------------- Balance, December 31, 1991 616,000 61,600 238,475 3,502,540 70,537 3,873,152 Net income - - - 516,167 - 516,167 Dividends ($.50 per share) - - - (293,225) - (293,225) Gain on issuance of common stock held for stock plans - - 10,838 - - 10,838 Exercise of stock options - - (7,461) - - (7,461) Foreign currency adjustments - - - - (45,746) (45,746) Redemption of common stock (21,000) (2,100) - (331,193) - (333,293) ------- ---------- ----------- -------------- ------------ -------------- Balance, December 31, 1992 595,000 59,500 241,852 3,394,289 24,791 3,720,432 Net income - - - 809,635 - 809,635 Dividends ($.50 per share) - - - (285,193) - (285,193) Gain on issuance of common stock held for stock plans - - 20,795 - - 20,795 Exercise of stock options - - 1,754 - - 1,754 Foreign currency adjustments - - - - (46,730) (46,730) Redemption of common stock (15,000) (1,500) - (274,684) - (276,184) ------- ---------- ----------- -------------- ------------ -------------- Balance, December 31, 1993 580,000 $ 58,000 $ 264,401 $ 3,644,047 $ (21,939) $ 3,944,509 ======= ========== =========== ============== =========== ==============
48 F-7 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS Years Ended December 31, 1993, 1992 and 1991 (000's omitted)
1993 1992 1991 ---- ---- ---- Cash flows from operating activities: Net income $ 809,635 $ 516,167 $ 700,170 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization 691,397 662,031 667,009 Postretirement benefits 50,063 468,663 - Deferred taxes, credits and other 117,254 (27,516) 177,297 Changes in assets and liabilities: Accounts receivable (67,233) (91,527) (172,040) Materials, supplies and prepaid expenses (94,885) (54,830) (26,004) Common stock held for stock plans 49,977 (27,864) 25,345 Accounts payable 100,267 (19,871) 113,916 Accrued wages and withholdings 86,150 18,765 (52,846) Income taxes payable (15,098) (22,254) 108,043 Other current liabilities 26,290 28,609 57,132 --------------- --------------- --------------- Net cash from operating activities 1,753,817 1,450,373 1,598,022 --------------- --------------- --------------- Cash flows from investing activities: Capital expenditures - net (1,097,036) (929,261) (1,044,698) Other asset receipts and (payments) 41,667 (44,602) 252 Net cash (used in) investing --------------- --------------- --------------- activities (1,055,369) (973,863) (1,044,446) --------------- --------------- --------------- Cash flows from financing activities: Proceeds from borrowings 203,670 36,318 - Repayment of borrowings (212,808) (36,440) (4,261) Redemption of common stock (276,184) (333,293) (142,920) Dividends paid (285,193) (293,225) (287,131) Other transactions 22,549 3,377 9,766 Net cash (used in) financing --------------- --------------- --------------- activities (547,966) (623,263) (424,546) --------------- --------------- --------------- Effect of exchange rate changes on cash (2,920) (7,122) 10,833 Net increase (decrease) in cash and --------------- --------------- --------------- short-term investments 147,562 (153,875) 139,863 Cash and short-term investments: Beginning of year 133,398 287,273 147,410 --------------- --------------- --------------- End of year $ 280,960 $ 133,398 $ 287,273 =============== =============== =============== Cash paid during the period for: Interest, net of amount capitalized $ 42,022 $ 41,784 $ 46,331 =============== =============== =============== Income taxes $ 569,759 $ 363,503 $ 360,119 =============== =============== ===============
See notes to consolidated financial statements. 49 F-8 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1993, 1992 and 1991 1. SUMMARY OF ACCOUNTING POLICIES Basis of Financial Statements and Business Activities The accompanying consolidated financial statements include the accounts of United Parcel Service of America, Inc. and all of its subsidiaries (collectively "UPS"). All material intercompany balances and transactions have been eliminated. UPS concentrates its operations in the field of transportation services, primarily domestic and international package delivery. Revenue is recognized upon delivery of a package. Cash Equivalents Cash equivalents (short-term investments) consist of highly liquid investments which are readily convertible into cash. The carrying amount approximates fair value because of the short-term maturity of these instruments. Common Stock Held for Stock Plans UPS accounts for its common stock held for distribution pursuant to awards under the UPS Managers Incentive Plan and the UPS Stock Option Plan as a current asset. The liability for the amount of the annual managers incentive award is included in Accrued Wages and Withholdings. Common stock held in excess of current requirements is accounted for as a reduction in Shareowners' Equity. Property, Plant and Equipment Property, plant and equipment are carried at cost. Depreciation (including amortization) is provided by the straight-line method over the estimated useful lives of the assets, which are as follows: Vehicles - 9 years; Aircraft - 12 to 20 years; Buildings - 10 to 40 years; Leasehold Improvements - lives of leases; Plant Equipment - 8 1/3 years. Costs in Excess of Net Assets Acquired Costs in excess of net assets acquired are amortized over a 10- year period using the straight-line method. 50 F-9 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1993, 1992 and 1991 Income Taxes Deferred income taxes result primarily from the use of accelerated depreciation methods allowable for income tax purposes, certain differences in asset lives adopted for income tax purposes, temporary differences between the accrual and payment of employee compensation and investments in leveraged leases. UPS adopted Statement of Financial Accounting Standards No. ("FAS") 96, "Accounting for Income Taxes," in 1987, and FAS 109, "Accounting for Income Taxes," in 1993. The benefit of investment tax credits is amortized over seven years except investment tax credits from the investment in leveraged leases, which is amortized over the life of the lease. Capitalized Interest Interest incurred during the construction period of certain property, plant and equipment is capitalized until the underlying assets are placed in service, at which time amortization of the capitalized interest begins, straight-line, over the estimated useful lives of the related assets. Capitalized interest was $27,800,000, $26,500,000, and $21,000,000 for 1993, 1992 and 1991, respectively. 2. LONG-TERM DEBT Long-term debt as of December 31, consists of the following (000's omitted):
1993 1992 ---- ---- 8.375% debentures, due April 1, 2020 $700,000 $700,000 Industrial development bonds, Philadelphia Airport facilities due December 1, 2015 100,000 100,000 Installment notes, mortgages and bonds 30,021 38,441 Investment properties - nonrecourse mortgages 27,833 28,853 -------- --------- 857,854 867,294 Less current maturities 5,588 4,916 -------- --------- $852,266 $862,378 ======== ========
51 F-10 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1993, 1992 and 1991 The debentures are not subject to redemption prior to maturity and are not subject to sinking fund requirements. Interest is payable semi-annually on the 1st of April and October. The industrial development bonds bear interest at either a daily, variable, or fixed rate. The average interest rates for 1993 and 1992 were 2.2% and 2.5%, respectively. The installment notes, mortgages and bonds bear interest at rates of 6.0% to 11.5%. The aggregate annual principal payments are summarized as follows (000's omitted):
Year Amount ---- ------ 1994 $ 5,588 1995 2,595 1996 1,274 1997 1,253 1998 1,338 After 1998 845,806 -------- $857,854 ========
Based on the borrowing rates currently available to the Company for long-term debt with similar terms and maturities, the fair value of long-term debt is approximately $987,000,000 as of December 31, 1993. 3. COMMON STOCK SPLIT AND PER SHARE DATA During 1991, the UPS Board of Directors approved a resolution to split the outstanding common stock of the Company, four for one. The split was effected September 6, 1991 by distributing three additional shares of common stock for each share held as of the close of business on August 21, 1991. All appropriate references to shares and per share amounts have been retroactively restated in these financial statements to reflect this split. Per share amounts related to income are based on 580,000,000 shares in 1993, 595,000,000 shares in 1992 and 616,000,000 shares in 1991, as restated, and include Common Stock Held for Stock Plans. 4. LEGAL PROCEEDINGS AND COMMITMENTS UPS is a defendant in various lawsuits which arose in the normal course of business. In the opinion of management, none of these cases are expected to have a material effect on the financial condition of UPS. 52 F-11 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1993, 1992 and 1991 An agent for the United States Internal Revenue Service ("IRS") has asserted in a report that UPS is liable for additional tax and possible penalties for the 1984 tax year. The assertion is based in large part on the theory that UPS is liable for tax on income of Overseas Partners Ltd. ("OPL"), a Bermuda company, which has reinsured excess value package insurance purchased by UPS's customers from unrelated insurers. The adjustments sought by the agent relating to package insurance are based on a number of inconsistent theories and range from $7.9 million of tax to $45.5 million of tax and estimated penalties. Management believes that the IRS positions are without merit and the eventual resolution of this matter will not have a material impact on the Company. No assessment has been made by the IRS with respect to 1984, and the Company is pursuing a protest before the IRS's Appeals Division against the imposition of any additional tax liability. The matter is awaiting a hearing before the IRS Appeals Division. The IRS has not proposed assessments for years subsequent to 1984, although the IRS may take positions similar to those in the report described above for periods after 1984. UPS leases certain operating facilities and aircraft, the majority of which are from related parties, including various UPS employee benefit plans. These leases expire at various dates through 2018 and two of them require additional amounts based upon usage. Total aggregate minimum lease commitments are as follows (000's omitted):
Year Amount ---- ------ 1994 $ 224,425 1995 193,780 1996 164,247 1997 125,127 1998 100,169 After 1998 895,587 --------- $1,703,335 =========
UPS maintains two credit agreements with a consortium of banks which provide revolving credit facilities of $500,000,000 each, with one expiring on June 13, 1994 and the other June 13, 1996. At December 31, 1993, there were no outstanding borrowings under these facilities. As of December 31, 1993, UPS has outstanding letters of credit totaling approximately $753,506,000 issued in connection with routine business requirements. At December 31, 1993, UPS had commitments outstanding for capital expenditures under purchase orders and contracts of approximately $4.1 billion, of which approximately $973 million is expected to be spent in 1994. 53 F-12 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1993, 1992 and 1991 5. EMPLOYEE BENEFIT PLANS UPS maintains the UPS Retirement Plan (the "Plan"). The Plan is a defined benefit plan which provides employees annual defined retirement benefits. The Plan is non-contributory and all employees who meet certain minimum age and years of service are eligible, except those covered by certain multi-employer plans provided for under collective bargaining agreements. The Plan provides for retirement benefits based on average compensation levels earned by employees during certain years of service preceding retirement. The Plan's assets consist primarily of publicly traded stocks and bonds. In addition, the Plan's assets include 8,052,840 and 4,721,840 shares of UPS common stock at December 31, 1993 and 1992, respectively. The actual earnings on the Plan's assets were $224,405,000, $124,661,000, and $168,027,000 in 1993, 1992 and 1991, respectively. UPS's funding policy is consistent with relevant federal tax regulations. Accordingly, UPS contributes amounts deductible for federal income tax purposes. Pension expense, consisting of various component parts, and certain assumptions used during the years ended December 31, is as follows (000's omitted):
1993 1992 1991 ---- ---- ---- Current year's earned benefit $ 97,230 $ 81,173 $ 49,143 Interest on projected benefit obligation 121,934 107,646 77,511 Expected earnings on pension plan assets (120,655) (99,772) (84,026) Amortization of unrecognized benefit obligation: Net obligation at transition date 5,203 5,203 5,203 Effect of plan benefit amendments 11,741 11,741 956 Net amortization of unrecognized investment gains and changes in actuarial assumptions and experience - - ( 491) -------- -------- -------- Provision for pension expense $115,453 $105,991 $ 48,296 ======== ======== ======== Expected long-term rate of earnings on plan assets 9.5% 9.5% 9.5% Weighted average discount rate 7.5% 8.25% 8.5% Rate of increase in future compensation levels 4.25% 5.0% 5.5%
54 F-13 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1993, 1992 and 1991 The following schedule reconciles the funded status of the Plan with certain amounts included in the balance sheet as of December 31 (000's omitted):
1993 1992 ---- ---- Projected benefit obligation: Accumulated benefits computed using present salary levels: Vested $ 1,217,502 $ 896,400 Nonvested 245,834 192,376 ---------- ---------- 1,463,336 1,088,776 Additional benefits computed using projected salary levels 478,213 399,947 ---------- ---------- Total projected benefit obligation 1,941,549 1,488,723 Pension plan assets 1,645,387 1,286,458 ---------- ---------- Difference (296,162) (202,265) Unrecognized net investment gains and changes in assumptions used to compute projected benefit 150,830 (8,180) Unrecognized net benefit obligation at transition date 54,635 59,838 Unrecognized projected benefit obligation arising from amendments to the retirement plan 175,149 187,617 ---------- ---------- Prepaid pension cost $ 84,452 $ 37,010 ========== ==========
The Plan was amended during 1992 to reflect certain enhancements to benefits provided to participants under the Plan. The amendment to the Plan resulted in an increase in the projected benefit obligation at December 31, 1992 of $184,674,000 and an increase in pension expense for the year then ended of $42,400,000. UPS also contributes to several multi-employer pension plans for which the above information is not determinable. Amounts charged to operations for contributions to pension plans other than the Plan described above were $504,109,000, $428,282,000, and $402,911,000 during 1993, 1992 and 1991, respectively. UPS sponsors defined benefit postretirement medical plans that provide health care benefits to its retirees who meet certain eligibility requirements and who are not covered by multi-employer retirement plans. Generally, this includes employees with at least 10 years of service who have reached age 55 and will be receiving benefits from one of the Company's retirement plans. The Company has the right to modify or terminate certain of these plans. Historically, these benefits have been provided to retirees on a non-contributory basis, however, effective January 1, 1992, the Company made modifications which will likely result in cost sharing in the future for certain of its retirees. 55 F-14 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1993, 1992 and 1991 Prior to 1992, UPS has generally expensed the costs of these benefits on a current, "pay as you go" basis. During 1992, UPS adopted the provisions of the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This Statement requires accrual of postretirement benefits, which include health care benefits, during the years an employee provides service. The effect of adoption resulted in a one-time "catch-up" charge during 1992 of approximately $248.9 million, after tax, representing the cumulative effect of the change as of January 1, 1992. In addition to the cumulative effect, adoption of this Statement resulted in additional charges to income in 1993 and 1992 of approximately $47.5 and $40.3 million, respectively, after tax, ($0.08 and $0.07 per share, respectively). Overall, net income for 1993 and 1992 was reduced $47.5 and $289.2 million, respectively, as a result of adoption ($0.08 and $0.49 per share, respectively). The accumulated postretirement benefit obligation at December 31, is detailed as follows (000's omitted):
1993 1992 ---- ---- Accumulated postretirement benefit obligation: Retirees $146,879 $ 68,972 Fully eligible active plan participants 69,933 63,511 Other active participants 626,303 461,917 -------- -------- 843,115 594,400 Plan assets at fair value 130,706 94,631 -------- -------- Accumulated postretirement benefit obligation in excess of plan assets 712,409 499,769 Unrecognized net investment gains and changes in assumptions used to compute projected benefits (193,683) (31,106) -------- -------- Accumulated postretirement benefit obligation, net $518,726 $468,663 ======== ========
Net periodic postretirement benefit cost for 1993 and 1992 included the following components (000's omitted):
1993 1992 ---- ---- Service cost-benefits attributed to service during the period $ 34,413 $ 29,481 Interest cost on accumulated postretirement benefit obligation 54,878 44,904 Expected earnings on plan assets (11,137) (9,069) -------- -------- Net periodic postretirement benefit cost $ 78,154 $ 65,316 ======== ========
56 F-15 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1993, 1992 and 1991 The significant assumptions used in determining postretirement benefit cost and the accumulated postretirement benefit obligation were as follows:
1993 1992 ---- ---- Expected long-term rate of return on plan assets 9.50% 9.50% Weighted average discount rate 7.50% 8.25%
Future benefit costs were forecasted assuming an initial annual increase of 11.25% for pre-65 medical costs and an increase of 10.25% for post-65 medical costs, decreasing to 7.25% for pre-65 and 6.25% for post-65 by the year 2001 and with consistent annual increases at those ultimate levels thereafter. A one percentage point increase in the annual trend rate would have increased the total accumulated postretirement benefit obligation at December 31, 1993, by $10.4 million and the aggregate of the service and interest components of the net periodic postretirement benefit costs for 1993 by $9.8 million. Plan assets consist primarily of publicly traded stocks and bonds. The Trust holding the Plan assets is not subject to income taxes. UPS's funding policy is consistent with relevant federal tax regulations. Accordingly, UPS contributes amounts deductible for federal income tax purposes. 6. MANAGEMENT INCENTIVE PLANS UPS maintains the UPS Managers Incentive Plan. Persons earning the right to receive awards are determined annually by either the Officer Compensation or the Salary Committees of the UPS Board of Directors. Awards consist primarily of UPS common stock and cash equivalent to the tax withholdings on such awards. The total of all such awards is limited to 15% of consolidated income before federal income taxes for the 12-month period ending each September 30, exclusive of gains and losses from the sale of real estate and stock of subsidiaries. In addition, the cumulative effect of a change in accounting principle was specifically excluded from the 1992 award calculation in accordance with a vote of shareowners. Amounts charged to operations were $217,784,000, $198,943,000, and $169,606,000, during 1993, 1992 and 1991, respectively. UPS maintains stock option plans. Originally, these plans were established to issue Book Value Shares. Book Value Shares were shares of UPS common stock with a stated value equal to the UPS book value per share as of the year end immediately preceding the date of option grant. Voting, dividends and liquidation rights for the Book Value Shares were the same as for other UPS common stock. UPS repurchased all Book Value Shares immediately after their issuance except that UPS deferred some repurchases from officers and directors for up to six months. 57 F-16 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1993, 1992 and 1991 Except in the case of death, disability, or retirement, options are exercisable only during a limited period after the expiration of five years from the date of grant but are subject to earlier cancellation or exercise under certain conditions. The number of options and option prices for Book Value Shares exercised under the Plans were 4,611,372 and $5.68 in 1992 and 4,896,588 and $5.47 in 1991. There were no Book Value Shares exercised during 1993. Compensation expense charged to operations related to exercise of these options was not material. No further shares may be issued under either the 1981 or 1986 plans. Options granted under the 1981 plan were either exercised or expired as of December 31, 1991. Prior to issuing options for any Book Value Shares, the 1991 Plan was amended during 1992 to change it to a Current Price Plan. Under a Current Price Plan, options are granted to purchase shares of UPS common stock at the current price of UPS shares as determined by the Board of Directors on the date of option grant. Unlike Book Value Shares, the optionee may continue to hold the shares of common stock received on exercise, subject to the terms of the UPS Managers Stock Trust. Persons earning the right to receive stock options under the 1991 plan are determined each year by either the Officer Compensation Committee or Salary Committee of the UPS Board of Directors. Options covering a total of 30,000,000 common shares may be granted during the five-year period ending in 1996. Also during 1992, an amendment was made to the 1986 plan to allow options on Book Value Shares issued during the period 1988 through 1991 to be converted to Current Price options in the ratio of three common shares for five Book Value Shares. Substantially all holders of unexpired options for Book Value Shares elected to convert to options for common stock as of December 31, 1992. Following is an analysis of options for shares of common stock issued and outstanding:
Stock Options Number of Shares ------------- ---------------- Converted at $12.00 to $15.25 per share 12,592,685 Granted at $16.50 per share 4,259,826 Canceled (55,777) ---------- Outstanding at December 31, 1992 16,796,734 Exercised at $18.75 per share (2,734,798) Granted at $18.75 per share 4,225,850 Canceled (236,553) ---------- Outstanding at December 31, 1993 18,051,233 ========== Exercisable at December 31, 1993 - ==========
Current Price options converted from Book Value options were issued with exercise prices equal to the published price of UPS common stock as of the year end immediately preceding the original date of grant. Options granted during 1993 and 1992 have an exercise price equal to the current price of a share of UPS common stock at the date of grant. 58 F-17 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1993, 1992 and 1991 The conversion of previously issued Book Value options resulted in a change for accounting purposes from a variable plan to a fixed plan. As a fixed plan, the difference between the exercise price and current price at the measurement date will be charged to operations over the remaining vesting periods of the options. Such charges totaled approximately $19,110,000 during 1993, leaving approximately $14,622,000 to be charged during the period 1994 to 1996. Under current accounting literature, no additional compensation will be recorded for appreciation of converted options or for the issue of new options. 7. INCOME TAXES Effective January 1, 1993, UPS adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). FAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, FAS 109 generally considers all expected future events other than enactments of changes in the tax law or rates. Previously, the Company used the FAS 96 asset and liability approach that gave no recognition to future events other than the recovery of assets and settlement of liabilities at their carrying amounts. The adoption of FAS 109 had no effect on pre-tax income for the year ended December 31, 1993. Additionally, adoption of FAS 109 had no effect on retained earnings at January 1, 1993. During the third quarter of 1993, the maximum U.S. federal income tax rate for corporations was increased from 34% to 35% effective January 1, 1993. In addition to increasing the Company's income tax accruals for its 1993 current and deferred taxable income, the Company made a $31.8 million adjustment to reflect the effect of the rate change on its net deferred tax liabilities on January 1, 1993. The provision for income taxes for the years ended December 31, consists of the following (000's omitted):
1993 1992 1991 ---- ---- ---- Current: Federal $450,094 $331,265 $383,997 State 85,437 75,361 78,798 -------- -------- -------- Total Current 535,531 406,626 462,795 -------- -------- -------- Deferred: Federal 72,978 110,041 18,100 State 13,553 (12,444) 36,000 -------- -------- -------- Total Deferred 86,531 97,597 54,100 -------- -------- -------- Total $622,062 $504,223 $516,895 ======== ======== ========
59 F-18 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1993, 1992 and 1991 Income before income taxes and cumulative effect of a change in accounting principle includes losses of foreign subsidiaries of $163,689,000, $114,941,000 and $92,541,000 for 1993, 1992 and 1991, respectively. A reconciliation of the statutory federal income tax rate to the effective income tax rate for the years ended December 31, consists of the following:
1993 1992 1991 ---- ---- ---- Statutory federal income tax rate 35.0% 34.0% 34.0% Amortization of investment tax credits (0.5) (0.8) (1.7) Effect of federal rate change on deferred liabilities 2.2 - - State income taxes (net of federal benefit) 4.5 5.1 6.8 Other 2.2 1.4 3.4 ----- ----- ----- Effective income tax rate 43.4% 39.7% 42.5% ===== ===== =====
Deferred tax liabilities and assets are comprised of the following at December 31, 1993 (000's omitted): Excess of tax over book depreciation $1,164,455 Differences in timing of deductions relating to leveraged leases 243,457 Differences in timing of deductions relating to the UPS Retirement Plan 98,922 Other 283,351 ---------- Gross deferred tax liabilities 1,790,185 ---------- Other postretirement benefits not currently deductible 203,172 Loss carryforwards (international) 169,638 Other 115,733 ---------- Gross deferred tax assets 488,543 Deferred tax assets valuation allowance (169,638) ---------- 318,905 ---------- Net deferred tax liability $1,471,280 ==========
The valuation allowance increased $60,000,000 during the year ended December 31, 1993. 60 F-19 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1993, 1992 and 1991 The tax effects of items included in the deferred tax provision for years prior to 1993, consist of the following (000's omitted):
1992 1991 ---- ---- Excess of tax depreciation over book depreciation $ 55,988 $102,644 Differences in timing of deduction for certain accrued expenses 152,543 (22,646) Other postretirement benefits not currently deductible (25,009) - Amortization of investment tax credits (14,541) (22,430) Other (71,384) (3,468) -------- -------- Total deferred tax provision $ 97,597 $ 54,100 ======== ========
UPS has international loss carryforwards of approximately $385,100,000. Of this amount, $260,800,000 expires in varying amounts through 2000. The remaining $124,300,000 may be carried forward indefinitely. 8. OTHER ASSETS Other assets as of December 31, consist of the following (000's omitted):
1993 1992 ---- ---- Leveraged leases $289,838 $320,616 Other long-term investments 38,166 47,858 Costs in excess of net assets acquired 99,226 129,602 -------- -------- $427,230 $498,076 ======== ========
61 F-20 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1993, 1992 and 1991 Leveraged Leases The net investment in leveraged leases as of December 31, consists of the following (000's omitted):
1993 1992 ---- ---- Rentals receivable (net of nonrecourse debt payments) $ 219,524 $ 239,670 Estimated residual values 98,360 110,838 Unearned income (28,046) (29,892) --------- --------- Long-term investments in leveraged leases 289,838 320,616 Deferred income taxes (243,457) (262,117) Deferred investment tax credits (22,561) (25,172) --------- --------- Net investment in leveraged leases $ 23,820 $ 33,327 ========= =========
Unearned income on each leveraged lease is amortized to provide an approximate level rate of return when compared to UPS's unrecovered net investment. 9. DEFERRED TAXES, CREDITS AND OTHER LIABILITIES Deferred taxes, credits and other liabilities as of December 31, consist of the following (000's omitted):
1993 1992 ---- ---- Deferred federal and state income taxes $1,396,736 $1,439,316 Deferred investment tax credits 26,133 36,304 Other credits and noncurrent liabilities 456,375 404,464 ---------- ---------- $1,879,244 $1,880,084 ========== ==========
62 F-21 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1993, 1992 and 1991 10. SEGMENT AND GEOGRAPHIC INFORMATION UPS operates primarily in one industry segment, transportation services, which is comprised principally of domestic and international package delivery. Information about operations in different geographic segments for the years ended December 31, is shown below (000's omitted):
1993 1992 1991 ---- ---- ---- Domestic: Revenue $15,822,558 $14,721,686 $13,694,728 Income before income taxes $ 1,698,299 $ 1,545,484 $ 1,470,645 Identifiable assets $ 8,359,395 $ 7,873,398 $ 7,982,387 Foreign: Revenue $ 1,959,795 $ 1,796,935 $ 1,325,102 Loss before income taxes $ (266,602) $ (276,189) $ (253,580) Identifiable assets $ 1,214,436 $ 1,164,419 $ 876,174 Consolidated: Revenue $17,782,353 $16,518,621 $15,019,830 Income before income taxes $ 1,431,697 $ 1,269,295 $ 1,217,065 Identifiable assets $ 9,573,831 $ 9,037,817 $ 8,858,561
Foreign operations include shipments which either originate in or are destined to foreign (non-U.S.) locations. Foreign revenues attributable to shipments which originated in the U.S. totaled $308,800,000, $255,666,000, and $190,568,000 in 1993, 1992 and 1991, respectively. 63 F-22 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES (000's omitted) SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
Column A Column B Column C Column D Column E Column F -------- -------- -------- -------- -------- -------- Balance at Other Balance beginning Additions changes - at end Classification of period at cost Retirements add (deduct) (A) of period -------------- ---------- --------- ----------- ---------------- ---------- Year Ended December 31, 1993: Vehicles $ 2,583,753 $ 157,474 $ (64,407) $ (15,413) $ 2,661,407 Airplanes 2,502,896 408,150 (17,981) 43,875 2,936,940 Land 609,693 16,355 (1,960) (6,707) 617,381 Buildings 1,224,442 35,007 (4,231) 2,745 1,257,963 Leasehold Improvements 1,275,662 62,039 (5,951) 5,565 1,337,315 Plant Equipment 2,098,880 203,731 (27,061) (8,739) 2,266,811 Construction in progress 212,135 256,440 - (77,404) 391,171 --------------- -------------- ---------------- -------------- -------------- $ 10,507,461 $ 1,139,196 $ (121,591) $ (56,078) $ 11,468,988 =============== ============== ================ ============== ============== Year Ended December 31, 1992: Vehicles $ 2,508,512 $ 132,245 $ (45,330) $ (11,674) $ 2,583,753 Airplanes 2,140,244 311,753 (11,112) 62,011 2,502,896 Land 604,895 23,246 (15,592) (2,856) 609,693 Buildings 1,144,869 71,750 (1,297) 9,120 1,224,442 Leasehold Improvements 1,166,929 74,156 (12,443) 47,020 1,275,662 Plant Equipment 1,936,712 196,080 (33,527) (385) 2,098,880 Construction in progress 208,726 174,858 - (171,449) 212,135 --------------- -------------- ---------------- ----------------- --------------- $ 9,710,887 $ 984,088 $ (119,301) $ (68,213) $ 10,507,461 =============== ============== ================ ================= =============== Year Ended December 31, 1991: Vehicles $ 2,444,432 $ 79,612 $ (39,065) $ 23,533 $ 2,508,512 Airplanes 1,750,371 398,272 (8,391) (8) 2,140,244 Land 562,384 49,580 - (7,069) 604,895 Buildings 1,028,780 101,067 (39) 15,061 1,144,869 Leasehold Improvements 1,057,000 51,590 (5,426) 63,765 1,166,929 Plant Equipment 1,684,844 196,825 (27,864) 82,907 1,936,712 Construction in progress 167,194 215,439 - (173,907) 208,726 --------------- -------------- ---------------- ----------------- --------------- $ 8,695,005 $ 1,092,385 $ (80,785) $ 4,282 $ 9,710,887 =============== ============== ================ ================= ===============
(A) Primarily represents foreign currency translation adjustments and transfers from construction in progress to other categories. 64 F-23 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES (000's omitted) SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
Column A Column B Column C Column D Column E Column F -------- -------- -------- -------- -------- -------- Additions Balance at charged to Other Balance beginning costs and changes - at end Classification of period expenses Retirements add (deduct) of period -------------- ---------- ----------- ----------- ------------ ----------- Year Ended December 31, 1993: Vehicles $ 1,601,549 $ 225,289 $ (48,494) $ (11,589) $ 1,766,755 Airplanes 705,937 114,221 (6,217) (55) 813,886 Buildings 261,747 37,505 (1,771) (930) 296,551 Leasehold Improvements 442,060 83,679 (3,690) (1,564) 520,485 Plant Equipment 1,124,374 211,644 (24,143) (4,334) 1,307,541 -------------- -------------- ---------------- ----------------- ---------------- $ 4,135,667 $ 672,338 $ (84,315) $ (18,472) $ 4,705,218 ============== ============== ================ ================= ================ Year Ended December 31, 1992: Vehicles $ 1,414,163 $ 236,721 $ (43,320) $ (6,015) $ 1,601,549 Airplanes 615,247 92,207 (3,827) 2,310 705,937 Buildings 213,855 36,502 (1,190) 12,580 261,747 Leasehold Improvements 377,914 78,129 (9,054) (4,929) 442,060 Plant Equipment 958,521 206,471 (18,792) (21,826) 1,124,374 -------------- -------------- ---------------- ----------------- ---------------- $ 3,579,700 $ 650,030 $ (76,183) $ (17,880) $ 4,135,667 ============== ============== ================ ================= ================ Year Ended December 31, 1991: Vehicles $ 1,212,309 $ 235,240 $ (37,364) $ 3,978 $ 1,414,163 Airplanes 511,340 113,671 (8,391) (1,373) 615,247 Buildings 176,438 36,365 - 1,052 213,855 Leasehold Improvements 307,331 74,457 (3,923) 49 377,914 Plant Equipment 784,766 193,774 (19,166) (853) 958,521 -------------- -------------- ---------------- ----------------- ---------------- $ 2,992,184 $ 653,507 $ (68,844) $ 2,853 $ 3,579,700 ============== ============== ================ ================= ================
65 F-24 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES (000's omitted) Year Ended December 31, 1993 SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E -------- -------- ------------------------------- -------- -------- (1) (2) Balance at Charged to beginning of costs and Charged to Balance at Description period expenses other accounts Deductions end of period - ----------- ----------- ----------- ---------------- ---------- ------------- Deferred tax assets valuation allowance $109,893 59,745 0 0 $169,638
66 F-25 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES (000's omitted) Year Ended December 31, 1993 SCHEDULE IX - SHORT-TERM BORROWINGS (A)
Column A Column B Column C Column D Column E Column F - -------- -------- -------- -------- -------- -------- Maximum Average Weighted Category of Weighted amount amount average aggregate Balance average outstanding outstanding interest rate short-term at end of interest during the during the during the borrowings period rate period period period (B) - ----------- --------- -------- ---------- ----------- ------------- Borrowings from banks $0 3.23% $200,000 $16,667 0.27%
(A) Borrowings from banks represent amounts borrowed under the Company's credit agreements with a consortium of banks. The Company may borrow on an unsecured basis under these agreements, with interest payable at a variable rate. (B) Calculated based upon the stated annual interest rate of 3.23% and the 30-day period during which the borrowing was outstanding during 1993. 67 F-26 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES (000's omitted) SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION (1) (Charged to operating expenses) Column A Column B
Years ended December 31, ------------------------ Item 1993 1992 1991 ---- ---- ---- ---- Maintenance and repairs $523,511 $512,190 $449,125 Taxes, other than payroll and income taxes $246,179 $247,652 $210,267
(1) Items omitted were less than 1% of revenue EX-14 2 AMENDMENT 16 TO THRIFT PLAN 1 AMENDMENT NO. 16 TO THE UPS THRIFT PLAN WHEREAS, United Parcel Service of America, Inc. and its affiliated corporations heretofore established, effective as of July 14, 1960, the UPS Thrift Plan (the "Plan") for the benefit of their eligible employees in order to provide benefits to those employees upon their retirement, death or other separation from service; and WHEREAS, the Plan, as adopted and amended from time to time, was amended and restated in its entirety, effective as of January 1, 1976, to comply with the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"); and WHEREAS, the Plan has been amended further since January 1, 1976, the most recent amendment being Amendment No. 15 which was adopted December 14, 1992; and WHEREAS, the Board of Directors of United Parcel Service of America, Inc. desires to amend the Plan further to modify the calculation of imputed employer contributions and imputed investment income or loss upon final distribution of a Participant's account balance; NOW THEREFORE, pursuant to the authority vested in the Board of Directors of United Parcel Service of America, Inc., by Section 16.1 of the Plan, it is hereby amended as follows, effective January 1, 1993: 1. Section 7.1 is amended in its entirety to read as follows: Section 7.1 Events Causing Transfer to Distribution Fund. All amounts standing to the credit of a Participant in the General Fund shall be transferred to the Distribution Fund in the following cases ("Transfer Events"), and such amounts, including the amount of Imputed Employer Contributions and Imputed Investment Income or Loss for the Participant's final year of active participation credited in accordance with Section 10.1(a)(1), shall then be recorded in three accounts in the Distribution Fund listed in Section 5.1(b): (a) As of January 1 following the calendar year in which the Participant completes 33 years of participation in the Plan. (b) As of January 1 following the calendar year in which the Trustee did not receive any amount deducted from a Participant's salary or wages in accordance with Article III, unless during any part of such year the Participant was on a leave of absence approved by the Committee (including but not limited to an approved leave of absence due to pregnancy, disability, or other health or medical problems as provided in Section 3.2), is repaying a loan under Section 11.1, or is eligible to make weekly cash payments and elects to do so in accordance with Section 3.2. (c) As of January 1 following the calendar year in which the Participant retires, dies or otherwise terminates Regular Employment (without having elected to make cash payments in accordance with Section 3.2), unless the Participant elects, in accordance with Section 10.1(d), to receive the immediate distribution of all amounts standing to his credit in the General Fund. 2. Section 10.1 is amended in its entirety to read as follows: Section 10.1 Distribution of Account Balances; Imputed Employer Contributions and Imputed Investment Income or Loss for Final Year of Participation. 2 -2- (a) Distribution of Accounts. If a Participant retires, dies or otherwise terminates Regular Employment (unless he is eligible to make weekly cash payments and elects to do so in accordance with Section 3.2), all amounts standing to his credit under the Plan shall be distributed to him or his designated beneficiary in accordance with the following terms and conditions: (1) Unless the Participant or beneficiary elects to receive an immediate distribution in accordance with the provisions of Subsection 10.1(d), the Participant's accounts in the General Fund, if any, shall be transferred to and held as part of the Distribution Fund as of January 1 following the calendar year in which the Participant's retirement, death or termination of Regular Employment occurs (the "Transferred Amount"). Immediately prior to said transfer, the Transferred Amount shall be credited and/or debited with the Imputed Employer Contribution and the Imputed Investment Income or Loss for the Participant's final year of active participation, as described in Subsections 10.1(b) and 10.1(c), respectively, and shall thereafter be distributable from the Distribution Fund in accordance with paragraph 10.1(a)(2). For purposes of the foregoing sentence, the Transferred Amount shall also include amounts transferred to the Distribution Fund as of January 1 following the calendar year in which one of the Transfer Events described in Subsections 7.1(a) and (b) has occurred. (2) All amounts standing to the credit of a Participant in the Distribution Fund (including the Transferred Amount) shall be distributed, in a single lump sum, to the Participant or his beneficiary as soon as practicable after the January 1 following the calendar year in which the Participant retires, dies, or otherwise terminates Regular Employment (without having elected to make cash payments in accordance with Section 3.2). Any such distribution to a Participant shall require the Participant's written consent if made prior to his attaining normal retirement age, which for purposes of the Plan shall be age 62. Failure to consent shall be deemed to be an election to defer distribution of the Participant's benefit, and all amounts standing to the Participant's credit shall remain in the Distribution Fund until a subsequent consent to distribution is filed with the Committee, or the Participant attains 62 years of age. Notwithstanding the foregoing, if the value of the Participant's accounts in the Distribution Fund, following the last to occur of (i) the crediting or debiting of the Participant's Transferred Amount with the Imputed Employer Contribution and the Imputed Investment Income or Loss or (ii) the Participant's retirement, death or termination of Regular Employment as aforesaid, does not exceed $3,500, said amounts shall be distributed to the Participant or his beneficiary without such individual's consent. (b) Imputed Employer Contribution. The Imputed Employer Contribution which shall be credited with respect to a Participant's Transferred Amount shall be an amount equal to the product of (1), (2) and (3) below where (1) is the annual percentage rate of the Employer's Tentative Basic Aggregate Contribution, as described in Subsection 4.1(b)(1), if any, for the calendar year in which the Participant's Transfer Event described in Section 7.1 occurs, which percentage rate shall be determined by dividing the amount of said Tentative Basic Aggregate Contribution by the aggregate average monthly account balances for such year of all Participants' accounts in the General Fund, as of December 31. (2) is the average monthly balance of the accounts held for the Participant in the General Fund during the calendar year in which the Participant's Transfer Event described in Section 7.1 occurs, and (3) is a fraction, the numerator of which is an integer equal to the whole or partial calendar months of Regular Employment completed by the Participant during the calendar year in which his Transfer Event occurs, and the denominator of which is twelve (12). 3 -3- In no event shall the Imputed Employer Contribution made with respect to any Participant exceed four thousand dollars ($4,000) multiplied by a fraction, the numerator of which is an integer equal to the number of whole or partial calendar months of Regular Employment completed by the Participant during such calendar year, and the denominator of which is twelve (12). The amount of the Imputed Employer Contribution shall be charged against the Fund Investment Income Account in the General Fund as provided in Section 5.5(c), and credited to the Participant's Employer Contribution Account in the Distribution Fund. (c) Imputed Investment Income or Loss The Imputed Investment Income or Loss which shall be credited or debited with respect to a Participant's Transferred Amount shall be an amount equal to the product of (1), (2) and (3) where (1) is the average monthly rate of investment income or loss of the Fund Investment Income Account in the General Fund for the calendar year in which the Participant's Transfer Event described in Section 7.1 occurs, (2) is the average monthly balance of the accounts held for the Participant in the General Fund during the calendar year in which the Participant's Transfer Event described in Section 7.1 occurs, and (3) is twelve (12). The amount of the Imputed Investment Income or Loss shall be credited or charged to the Fund Investment Income Account in the General Fund and shall be credited or charged to the Participant's Investment Income Account in the General Fund immediately prior to transfer to the Distribution Fund as contemplated by Section 10.1(a)(1). (d) Immediate Distribution Option (1) Following a Participant's retirement, death or other termination of Regular Employment (unless he is eligible to make weekly cash payments and elects to do so in accordance with Section 3.2), the Participant or his beneficiary shall be permitted to elect, in accordance with procedures established by the Committee, the immediate distribution, in a single lump sum, of all amounts standing to the Participant's credit in the General Fund. If such election is made, there shall be distributed to the Participant or beneficiaries, as soon as practicable following the Committee's receipt of the Participant's or beneficiary's completed election, an amount equal to the balance standing to the credit of the Participant in the General Fund, plus or minus a prorated earnings or loss amount for the calendar year in which distribution is made equal to the product of (A) and (B) where (A) is the sum of the monthly Short-Term Investment Fund Rates for those whole calendar months in the Participant's final calendar year of participation which precede the calendar month in which distribution is made; and (B) is the average monthly balance of the accounts held for the Participant in the General Fund for those whole calendar months in the Participant's final calendar year of participation which precede the calendar month in which distribution is made. (2) In no event shall the account of a Participant for which immediate distribution is elected in accordance with this Section 10.1(d) be credited and/or debited with the Imputed Employer Contribution or the Imputed Investment Income or Loss described in Subsection 10.1(b) or (c), respectively. In the event that the Participant or beneficiary fails, within such reasonable time parameters as the Committee may establish, to elect an immediate distribution in accordance with this Subsection, all amounts standing to Participant's credit in the General Fund shall be credited and/or debited with the Imputed Employer Contribution and the Imputed Investment 4 -4- Income or Loss and transferred to the Distribution Fund in accordance with paragraph 10.1(a)(1), and shall thereafter be distributable in accordance with paragraph 10.1(a)(2). (e) Distribution Fund. Following the transfer of a Participant's account in the General Fund to the Distribution Fund, such amounts shall be invested from time to time as designated by the Administrative Committee or its designee in a short-term investment or money market fund and shall thereafter be credited on a periodic basis with its prorated share of interest income therefrom at the short-term investment fund rate until distributed in accordance with paragraph 10.1(a)(2). (f) Repayment of Prior Distribution in Event of Re-employment. If a former Participant, after receiving distribution of his accounts pursuant to this Article X, returns to Regular Employment with the Employer before the end of the 12-month period commencing on the date he terminated Regular Employment, he shall be permitted to restore all, but not less than all, of the amounts previously distributed to him, provided such restoration is made in a lump sum within six (6) months after his date of re-employment, and provided that such repayment is at least $1,000. Upon repayment, the monies previously distributed shall be credited to a newly established Participant's Savings Account in the General Fund. (g) Repayment of Prior Distribution in Event of Return to Work Following Disability or Leave or Absence Due to Health Reasons. If a former Participant, after receiving distribution of his accounts pursuant to this Article X, returns to Regular Employment with the Employer after a period of disability or a leave of absence due to pregnancy, disability, or other health or medical problems, he shall be permitted to restore all, but not less than all, of the amounts, previously distributed to him, provided such restoration is made in a lump sum within six (6) months after his date of returning to Regular Employment, and provided that such repayment is at least $1,000. Upon repayment, the monies previously distributed shall be credited to a newly established Participant's Savings Account in the General Fund. IN WITNESS WHEREOF, United Parcel Service of America, Inc., based upon action by the Board of Directors, has caused this Amendment No. 16 to be executed this 12th day of July, 1993. ATTEST: UNITED PARCEL SERVICE OF AMERICA, INC. _________________________________ By: _________________________________ Secretary Chairman EX-15 3 AMENDMENT 17 TO THRIFT PLAN 1 AMENDMENT NO. 17 TO THE UPS THRIFT PLAN WHEREAS, United Parcel Service of America, Inc. and its affiliated corporations heretofore established, effective as of July 14, 1960, the UPS Thrift Plan (the "Plan") for the benefit of their eligible employees in order to provide benefits to those employees upon their retirement, death or other separation from service; and WHEREAS, the Plan, as adopted and amended from time to time, was amended and restated in its entirety, effective as of January 1, 1976, to comply with the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"); and WHEREAS, the Plan has been amended further since January 1, 1976, the most recent amendment being Amendment No. 16 which was adopted on July 12, 1993; and WHEREAS, the Board of Directors of United Parcel Service of America, Inc. desires to amend the Plan further to modify the event causing transfer of all credits of a Participant in the General Fund to the Distribution Fund; NOW THEREFORE, pursuant to the authority vested in the Board of Directors of United Parcel Service of America, Inc., by Section 16.1 of the Plan, it is hereby amended, as follows to be effective January 1, 1993: Section 7.1 is hereby amended by deleting the text of subsection (a) and inserting the following in lieu thereof: "(a) As of the end of the calendar year in which the Participant completes 34 years of participation in the Plan;" IN WITNESS WHEREOF, United Parcel Service of America, Inc., based on action by the Board of Directors, has caused this Amendment No. 17 to be executed the 7th day of January, 1994. ATTEST: UNITED PARCEL SERVICE OF AMERICA, INC. ___________________________________ ___________________________________ Assistant Secretary Chairman EX-21 4 CORPORATE ORGANIZATION CHART 1 Exhibit 21 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARY COMPANIES CORPORATE ORGANIZATION CHART February 28, 1994 State of Date of Parent Company Incorporation Incorporation - -------------- ------------- ------------- United Parcel Service of America, Inc. Delaware May 9, 1930 Wholly Owned Subsidiaries ------------------------- United Parcel Service Co. Delaware January 22, 1953 United Parcel Service Deutschland Inc. Delaware September 10, 1980 United Parcel Service General Services Co. Delaware November 4, 1957 United Parcel Service, Inc. New York June 27, 1930 United Parcel Service, Inc. Ohio March 19, 1934 United Parcel Service, Inc. (Virginia) Virginia September 21, 1970 UPS Customhouse Brokerage, Inc. Delaware April 1, 1985 UPS International General Services Co. Delaware August 12, 1988 UPS International, Inc. Delaware July 5, 1988 UPS International Forwarding, Inc. Delaware August 13, 1990 UPS of Ireland, Inc. Delaware January 9, 1992 UPS of Argentina, Inc. Delaware March 17, 1992 UPS of Brazil, Inc. Delaware November 12, 1993 UPS of Portugal, Inc. Delaware June 30, 1992 UPS of Norway, Inc. Delaware September 25, 1992 United Parcel Service Espa#a Ltd. Delaware December 4, 1992 United Parcel Service Italia, S.R.L. Delaware January 11, 1993 UPS Truck Leasing, Inc. Delaware September 11, 1981 UPS Worldwide Forwarding, Inc. Delaware August 12, 1988 UPS Worldwide Logistics, Inc. Delaware December 18, 1992 UPICO Corporation Delaware December 26, 1974 Jet Fuel Service Co. Delaware February 7, 1989 Diversified Trimodal, Inc. Delaware July 25, 1979 Merchants Parcel Delivery Washington April 5, 1909 Texas United Parcel Service, Inc. Texas March 16, 1951 Trailer Conditioners, Inc. Delaware March 22, 1982 II Morrow, Inc. Oregon March 9, 1982 Red Arrow Bonded Messenger Corporation California November 16, 1922
1 2
State of Date of Wholly Owned Subsidiaries (cont.) Incorporation Incorporation ------------------------- ------------- ------------- UPS Air Leasing, Inc. Delaware October 12, 1989 Roadnet Technologies, Inc. Delaware May 12, 1986 UPS Telecommunications, Inc. Delaware April 25, 1990 UPS Properties, Inc. Delaware May 9, 1990 El Paso Distribution Center, Inc. (One) Texas September 17, 1990 El Paso Distribution Center, Inc. (Two) Texas September 17, 1990 Tri-State Distribution, Inc. (One) Illinois September 14, 1990 Tri-State Distribution, Inc. (Two) Illinois September 14, 1990 Tri-State Distribution, Inc. (Three) Illinois September 14, 1990 Tri-State Distribution, Inc. (Four) Illinois September 14, 1990 Tri-State Distribution, Inc. (Five) Illinois September 14, 1990 Vista Distribution Center, Inc. (One) Nevada September 14, 1990 Vista Distribution Center, Inc. (Two) Nevada September 14, 1990 Vista Distribution Center, Inc. (Three) Nevada September 14, 1990 Vista Distribution Center, Inc. (Four) Nevada September 14, 1990 Vista Distribution Center, Inc. (Five) Nevada September 14, 1990 Adi Realty Company Idaho March 30, 1979 Alko Corporation Oklahoma December 7, 1976 Bardale Company Illinois July 1, 1965 Basplaz Corporation Delaware January 16, 1987 Brastock Corporation Nebraska April 15, 1974 Brookind Corporation Illinois January 26, 1970 Buckroe Corporation Alabama September 17, 1984 Burdence Corporation Rhode Island September 26, 1969 Chasreal, Inc. West Virginia January 20, 1965 Cleve Company Ohio December 19, 1958 Cova Corporation Virginia March 13, 1978 Dakkel Corporation South Dakota February 11, 1971 Dalho Corporation Texas January 29, 1970 Darico, Inc. Connecticut May 26, 1969 Daven Corporation Iowa June 14, 1976 Deerfield Corporation Illinois June 20, 1986 Denado Corporation Colorado March 1, 1971 Dullesport Corporation Virginia September 2, 1987 Edison Corporation New Jersey April 21, 1970 Elsil Corporation Illinois July 3, 1986 Evind Corporation Indiana November 6, 1969 Fardak Corporation North Dakota February 11, 1971 Galanta Company Georgia July 15, 1968 Kylou, Inc. Kentucky May 24, 1982 Labar Corporation Louisiana October 12, 1983
2 3
State of Date of Wholly Owned Subsidiaries (cont.) Incorporation Incorporation ------------------------- ------------- ------------- Lakefair Corporation Virginia September 1, 1987 Mascester Company, Inc. Massachusetts June 13, 1969 Masreal Company, Inc. Massachusetts November 8, 1962 Mexalb Corporation New Mexico September 15, 1975 Minneagen Real Estate Company Minnesota January 28, 1985 Missjack Company Mississippi January 4, 1971 Montbill Corporation Montana July 22, 1976 Moroc Corporation Missouri October 16, 1972 Newbany Corporation New York September 23, 1969 Nubee, Inc. New York December 9, 1943 Oshcon Corporation Wisconsin April 16, 1974 Parkprop, Inc. Kansas March 7, 1989 Penallen Corporation Pennsylvania July 7, 1969 Ralcar Corporation North Carolina April 20, 1970 Rockapar Corporation Arkansas April 30, 1973 Royoak, Incorporated Michigan July 10, 1969 Sallad Corporation Texas February 26, 1982 Saluta Corporation Utah February 22, 1977 Saskan Corporation Kansas June 16, 1969 Kacika Corporation Kansas November 13, 1984 Socol Company, Inc. South Carolina July 2, 1969 Solacal Company California February 16, 1966 Lacalos Corporation Nevada January 29, 1986 Sophil Company Pennsylvania August 22, 1962 South Seventh Corporation Washington June 11, 1969 Stadiana, Inc. Indiana April 1, 1959 Swanpor Corporation Oregon May 13, 1970 Temphis Corporation Tennessee September 10, 1969 Valacal Company California July 7, 1966 Verbal Corporation Maryland September 18, 1969 Verlas Corporation Nevada March 24, 1971 Willmanch Corporation New Hampshire October 30, 1973 Wycas Corporation Wyoming June 10, 1976 Wyld, Inc. Delaware September 5, 1980
3 4 UNITED PARCEL SERVICE INTERNATIONAL CORPORATE ORGANIZATION CHART February 28, 1994
UPS Date of Country Subsidiary Incorporation ------------ ----------------------- ------------- ARGENTINA UPS OF ARGENTINA, INC., 17 Mar 1992 BUENOS AIRES BRANCH AUSTRALIA UNITED PARCEL SERVICE 7 Dec 1990 PTY. LTD. UPS PTY. LTD. 19 Jan 1990 AUSTRIA UNITED PARCEL SERVICE 2 Sep 1986 SPEDITIONSGESELLSCHAFT m.b.H. UPS TRANSPORT GmbH 5 Nov 1986 BAHRAIN UNITED PARCEL SERVICE 19 Feb 1983 (BAHRAIN) WLL BELGIUM UNITED PARCEL SERVICE 22 Dec 1988 BELGIUM N.V. BERMUDA UNITED PARCEL SERVICE 25 Jun 1985 (BERMUDA) LTD. BRAZIL UPS DO BRASIL & CIA. CANADA 2855-8278 QUEBEC INC. 24 Apr 1991 724352 ONTARIO INC. 19 Jun 1987 UNITED PARCEL SERVICE 19 Sep 1974 CANADA LTD. CAYMAN UNITED PARCEL SERVICE 5 Jun 1992 ISLANDS CAYMAN ISLANDS LIMITED DENMARK UPS DENMARK A/S 1 Jan 1989 FINLAND UNITED PARCEL SERVICE 28 Jan 1987 FINLAND OY FRANCE PROST-TRANSPORTS 13 Jan 1968 UNITED PARCEL SERVICE 20 Jun 1989 (FRANCE) S.A.
*designates non-UPS - 1 - 5 UNITED PARCEL SERVICE INTERNATIONAL CORPORATE ORGANIZATION CHART February 28, 1994
UPS Date of Country Subsidiary Incorporation ------------ ----------------------- ------------- GERMANY PROST-TRANSPORTS S.A. 1989 SPEDITIONSGESELLSCHAFT mbH UNITED PARCEL SERVICE 16 Oct 1980 DEUTSCHLAND INC. UPS AIR CARGO SERVICE 12 Jan 1988 GmbH UPS 25 Feb 1985 GRUNDSTUECKSVERWALTUNGS GmbH UPS TRANSPORT GmbH 5 Aug 1976 UPS TRANSPORT GmbH II 23 Jul 1990 UPS WORLDWIDE LOGISTICS 17 Aug 1993 GmbH HONG KONG UPS PARCEL DELIVERY 6 Nov 1987 SERVICE LIMITED IRELAND UNITED PARCEL SERVICE 25 Mar 1986 OF IRELAND LIMITED ITALY UNITED PARCEL SERVICE 30 Jul 1986 ITALIA, S.R.L. JAPAN UPS JAPAN LIMITED 14 Oct 1986 UPS YAMATO CO., LTD. 26 Dec 1986 JERSEY UNITED PARCEL SERVICE 23 Oct 1973 JERSEY LIMITED MALAYSIA UNITED PARCEL SERVICE 17 Aug 1988 (M) SDN. BHD. UNITED PARCEL SERVICE 2 Oct 1989 (TRANSPORT) SDN. BHD.
*designates non-UPS - 2 - 6 UNITED PARCEL SERVICE INTERNATIONAL CORPORATE ORGANIZATION CHART February 28, 1994
UPS Date of Country Subsidiary Incorporation ------------ ----------------------- ------------- MEXICO UNITED PARCEL SERVICE 22 Nov 1989 DE MEXICO, S.A. DE C.V. NETHERLANDS PACKAGE DELIVERY B.V. 19 Dec 1985 PROST-TRANSPORTS 20 Jul 1988 NEDERLAND B.V. UNITED PARCEL SERVICE 11 Sep 1985 NEDERLAND B.V. NORWAY UPS NORGE A/S 8 Aug 1986 UPS OF NORWAY, INC., 25 Sep 1992 OSLO BRANCH PORTUGAL UPS OF PORTUGAL, INC., 30 Jun 1992 LISBON BRANCH SINGAPORE UNITED PARCEL SERVICE 15 Jun 1988 SINGAPORE PTE LTD SOUTH KOREA UNITED PARCEL SERVICE 3 Jan 1990 CO., KOREAN BRANCH SPAIN SOCIEDAD INVERSORA 17 Nov 1988 SANRELMAN, S.A. UNITED PARCEL SERVICE 1 Jan 1993 ESPANA LTD. Y COMPANIA, S.R.C. UPS SPAIN, S.L. 9 Mar 1988 SWEDEN UNITED PARCEL SERVICE 4 Apr 1986 SCANDINAVIA AB UNITED PARCEL SERVICE 1 Jan 1966 SWEDEN AB SWITZERLAND UNITED PARCEL SERVICE 28 Aug 1986 (SWITZERLAND)
*designates non-UPS - 3 - 7 UNITED PARCEL SERVICE INTERNATIONAL CORPORATE ORGANIZATION CHART February 28, 1994
UPS Date of Country Subsidiary Incorporation ------------ ----------------------- ------------- TAIWAN UPS INTERNATIONAL, 5 Jul 1988 INC., TAIWAN BRANCH THAILAND UPS PARCEL DELIVERY 28 Sep 1988 SERVICE LIMITED UNITED ATEXCO (1991) LIMITED 6 Mar 1985 KINGDOM ATLASAIR LIMITED 24 Jul 1947 CARRYFAST LIMITED 4 Aug 1941 IML AIR SERVICES GROUP 11 Feb 1969 LIMITED UNITED PARCEL SERVICE 28 Oct 1991 OF AMERICA UPS (UK) LIMITED 2 Oct 1984 UPS LIMITED 24 Jul 1985 UPS OF AMERICA LIMITED 5 Mar 1985
*designates non-UPS - 4 - EX-23 5 CONSENT OF DELOITTE & TOUCHE 1 Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33-46840, 33-51159 and 33-12576 (on Form S-8) and No. 33-5582 (on Form S-3) of United Parcel Service of America, Inc. of our report dated February 9, 1994, appearing in this Annual Report on Form 10-K of United Parcel Service of America, Inc. for the year ended December 31, 1993. DELOITTE & TOUCHE Atlanta, Georgia March 28, 1994 -----END PRIVACY-ENHANCED MESSAGE-----