10-K405 1 UNITED PARCEL SERVICE FORM 10-K405 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, 1994 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 (I.R.S. Employer ID. No.) of incorporation or organization) 55 Glenlake Parkway, NE, Atlanta, Georgia 30328 ----------------------------------------- ------------------------- (Address of principal executive office) (ZIP Code) Area (404) 828-6000 ------------------- (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 $23.75, the price per share, as of February 28, 1995, at which UPS expressed its willingness to purchase its shares from shareowners wishing to sell their shares, was $11,585,644,559. The number of shares of UPS Common Stock outstanding as of February 28, 1995, 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, 1995 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 over 200 other countries and territories around the world. In terms of revenue, UPS is the largest package delivery company in the world. During 1994 UPS delivered approximately 3 billion packages. UPS currently has approximately 1.4 million customer locations 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 with dimensional limitations of 108 inches in length and 130 inches in length and girth combined. Effective February 1994, UPS increased the weight limit for individual packages from 70 to 150 pounds for interstate and certain intrastate deliveries. As of January 1, 1995, as a result of deregulation, the 150 pound weight limit was made available in all of the 48 contiguous states. 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. Effective January 1, 1995, UPS began providing Hundredweight Service(SM) for ground shipments to all 48 contiguous states. 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 1994, UPS Hundredweight volume grew over 36% from 1993. This growth was primarily due to the increase in new customers as a result of the Teamsters strike of less-than-truckload (LTL) carriers last spring. UPS has managed to retain much of the volume after the strike ended. UPS Hundredweight also offers Weight Break Pricing, which provides rate incentives for shipments of over 500 pounds. -1- 3 UPS also provides UPS GroundSaver(SM), a contract service, offering special rates and services for business-to-business shipments to specified ZIP Codes. GroundSaver revenue for 1994 increased over 15% from 1993. UPS's domestic ground revenue increased in 1994 by 5.3% over 1993 as a result of higher volume, which was up 0.5%, favorable changes in rates and higher average weights per package. For a description of the rate increase, see "Item 1 -- Rates." 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. UPS also provides 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 an additional 15% of the U.S. population. In 1994, UPS introduced Early A.M.(SM) service in all of the 48 contiguous states, which provides guaranteed next-day delivery of packages and documents by 8:30 a.m. In 1993, UPS began offering Next Day Air Saver(SM), 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. In early 1995, UPS acquired SonicAir, a provider of same-day delivery and third-party logistics services. Through this wholly-owned subsidiary, customers will be offered same-day delivery anywhere in the continental United States, as well as next-flight-out services internationally. UPS offers Saturday Delivery for UPS Next Day Air shipments to an area covering approximately 76% of all UPS customers. UPS also offers Saturday Pickup service of air shipments in all areas served by UPS Saturday delivery. Further, 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 the same day. 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 1994. In 1994, UPS's air services' volume increased by 22% and revenues increased by 20%. -2- 4 To enable UPS to accommodate future demand for air delivery services, UPS, in 1994, completed an expansion of its Dallas, Texas regional air sorting facility and opened a new regional air sorting facility in Rockford, Illinois. UPS also has plans to open an additional new regional air sorting facility in Columbia, South Carolina in 1995. Other regional air sorting facilities are located in Ontario, California and Philadelphia, Pennsylvania. 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. In 1994, UPS took delivery of twelve more 757 freighter aircraft. For a further description of UPS's properties, see "Item 2 -- Properties." Delivery services in the United States accounted for 88.4%, 89.0% and 89.1% of UPS's consolidated revenue in 1994, 1993 and 1992, 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 over 200 countries and territories throughout the world. During 1994, 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 1994. Domestic air service is offered throughout Canada, Germany, Italy, and Spain. Ground service is provided throughout Austria, Belgium, Canada, Denmark, France, Germany, Ireland, Italy, Malaysia, Mexico, the Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom. UPS's transborder air and ground services within Europe are enhanced by UPS EuroExpress ("EuroExpress") and UPS EuroExpedited ("EuroExpedited") services. 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 take more direct routes between countries, thereby reducing transit times. In 1994, UPS continued 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. -3- 5 UPS Worldwide Express ("Worldwide Express") provides delivery of urgent packages, documents and letters to over 200 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 and South America, and in 1994, UPS added an on-time guarantee to Worldwide Express shipments. 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. 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. 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 1994, UPS suffered pre-tax losses in its international operations of approximately $327 million. The international pre-tax loss was primarily a result of losses from domestic operations outside of the United States caused by strong competition in European countries. However, revenues from all international services increased for 1994 by 16.2% over 1993. UPS expects to incur future losses in connection with its international operations. UPS's international delivery service accounted for approximately 11.6%, 11.0% and 10.9% of the consolidated revenues of UPS in 1994, 1993 and 1992, respectively. For financial information relating to foreign and domestic operations, see Note 10 to the Consolidated Financial Statements. Other 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 34% in 1994. 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 -4- 6 deliveries. Immediate confirmation is provided upon request. This service is available throughout the United States and Puerto Rico. UPS GroundTrac(SM) service electronically tracks ground packages so that UPS's customers can receive immediate information about the status of their packages while in transit. UPS TotalTrack(SM) is an enhanced tracking system. With the introduction of in-vehicle data transmission capabilities, this service 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 MaxiTrac software system, which enables customers to track and trace their own packages via telecommunications links with UPS's electronic data systems. As of December 31, 1994, UPS had distributed MaxiTrac software to approximately 85,000 customers. UPS's MaxiShip 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. As of December 31, 1994, approximately 25,500 customers were using MaxiShip software. Rates On February 7, 1994, UPS raised its domestic ground rates for commercial and residential deliveries by 3.8% and 4.3%, respectively. On February 4, 1995, these rates were increased by 3.7% and 4.5%, respectively. In 1994, published rates for Next Day Air and 2nd Day Air packages each increased by 3.9%, respectively. The published rates for Next Day Air and 2nd Day Air letters increased by 2.4% and 4.5%, respectively, in 1994. In 1995, the published rates for Next Day Air, 2nd Day Air and 3 Day Select packages were each increased 3.9%. The published rates for Next Day Air and 2nd Day Air letters increased by 4.7% and 4.3%, respectively, in 1995. 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 Air and enhanced tracking capabilities. -5- 7 UPS is directing a larger proportion of its resources to delivering these higher revenue packages, providing customized services and obtaining the most current 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. Total expenditures under these programs for 1994 were $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. Until January 1, 1995, ground transportation of packages by UPS in the United States was subject to regulation by the Interstate Commerce Commission ("ICC") and by various state regulatory agencies when such transportation was pursuant to common carrier certificates and contract carrier permits issued by the ICC and state agencies. After January 1, 1995, all state regulation of rates, routes and services was declared preempted by federal legislation, for both integrated intermodal carriers and motor carriers. UPS remains subject to the jurisdiction of the ICC, while the states maintain regulation over such areas as safety, insurance and hazardous materials. UPS is subject to similar regulation in many foreign jurisdictions. -6- 8 Postal Rate 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 domestic 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, international and other competitive services generally below its costs of providing such services and to use excess revenues from its monopoly classes, particularly First Class letter mail, to subsidize those competitive services. Therefore, 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 1994, the Postal Service proposed a general rate increase for domestic mail. In particular, the Postal Service proposed increases for First Class letters and Express Mail of 10.3% and for Parcel Post of 13.2%. UPS intervened in the proceeding, contending that the increase for First Class letters was excessive and would cross-subsidize competitive services. On November 30, 1994, the Commission issued its recommended decision, reducing the increase for First Class letters to 8.9%, and recommending increases for Express Mail of 8.0% and Parcel Post of 18.3%. The Governors of the Postal Service in general accepted the Commission's recommended rates, and the rates became effective on January 1, 1995. However, the Postal Service sought clarification from the Commission on three issues. Reconsideration of these issues is pending before the Commission and might result in changes in the rate structures for two categories of mail -- Priority Mail and Bound Printed Matter. One mailer group, not including UPS, has petitioned the United States Court of Appeals for the District of Columbia for review of the decision of the Governors to accept the Commission's recommended rates. This appeal is pending. In July, 1993, the Postal Service adopted, on a permanent basis, regulations implementing a new "International Customized Mail" service, in which the Postal Service would negotiate unique, customized contracts with large international mailers. Since the Commission does not have jurisdiction over the Postal Service's international rates and services, UPS Worldwide Forwarding, Inc. filed suit in the United States District Court for the District of Delaware. The suit sought to enjoin the new service on the ground that the Postal Reorganization Act of 1970, as amended, prohibits the Postal Service from negotiating rate and service contracts that differ from mailer to mailer. The complaint also alleged that the statute requires the Postal Service to obtain the consent of the President to all of its international rates, and that the Postal Service had violated that requirement. The district court found in favor of UPS and enjoined the Postal Service from entering into such contracts. The Postal Service's appeal from the district court's Order was argued before the United States Court of Appeals for the Third Circuit on March 10, 1995, and the matter is presently under consideration by that court. In 1992, the Postal Service proposed a new class of parcel mail, called bulk small parcel service. The proposed rates for this service would -7- 9 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 rejected the new class proposal, and instead recommended much lower discounts to be taken off of existing Parcel Post rates. The Governors of the Postal Service, in a decision issued on February 1, 1994, rejected the Commission's recommendation, and thus, there was 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 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 is 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 decreased by 10.0% and 32.0%, respectively, primarily due to severe weather conditions suffered in the first quarter of 1994. Martrac's fleet now totals 1,483 trailers, a decrease of 3.7% from 1993. UPS Truck Leasing, Inc., a UPS subsidiary, ("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. As of December 31, 1994, UPS Truck Leasing had 40 facilities and a fleet of 3,917 vehicles. UPS Truck Leasing's revenues increased by 13% in 1994. Environmental Regulation In 1989, regulations were adopted pursuant to the Resource Conservation and Recovery Act, which required owners and operators of underground storage tanks ("USTs") to test, upgrade and/or replace their USTs on a rolling schedule of deadlines through 1998. UPS substantially completed this project in 1993, five years ahead of the mandated Environmental Protection Agency -8- 10 ("EPA") schedule. UPS replaced approximately 2,833 USTs at a cost of $105 million. The Clean Air Act Amendments of 1990 require a ten-year phase in of alternative fuel vehicles by fleets in the urban areas with the worst air quality problems. In order to address these requirements, UPS began a project in 1989 using compressed natural gas ("CNG") as a fuel in the package cars. By the end of 1994, 250 package cars were running on CNG in various cities. In 1995, UPS has plans to add 104 CNG cars in San Ramon, California; 100 CNG cars in Atlanta; and between 100 and 200 CNG cars in Connecticut, where a tax credit incentive exists to assist in implementation of this program. The EPA's final rules under the Clean Air Act Amendments established 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, 1994, UPS had approximately 320,000 employees, an 11.9% increase over 1993. Most hourly employees are represented by unions, principally by locals of the International Brotherhood of Teamsters ("IBT"). Executive Officers Listed below is certain information relating to the executive officers and management of UPS.
Principal Occupation and Employment During Name and Office Age At Least the Last Five Years --------------- --- ----------------------------- John Alden 53 Director (1988 to present), Senior Vice President Senior Vice President and and Director Business Development Group Manager (1986 to present), UPS Robert J. Clanin 51 Senior Vice President, Treasurer and Chief Financial Senior Vice President, Officer (1994 to present), Finance Manager (1990 to Treasurer and Chief 1994), Treasury Manager (1989-1990), UPS Financial Officer Francis J. Erbrick 56 Senior Vice President (1989 Senior Vice President to present), Strategic Systems Manager (1992 to present), Information Services Manager (1985 to 1992), UPS
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Principal Occupation and Employment During Name and Office Age At Least the Last Five Years --------------- --- ----------------------------- Don R. Fischer 57 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 John J. Kelley 59 Director (1992 to present), Senior Vice President Senior Vice President and Director and Human Resources Manager (1991 to present), Region Manager (1983 to 1991), UPS James P. Kelly 51 Director (1991 to present), Executive Vice President Executive Vice President and Director (1994 to present), Chief Operating Officer (1992 to present), U.S.A. Operations Manager (1990 to 1992), Labor Relations Manager (1988 to 1990), UPS Joseph R. Moderow 46 Director (1988 to present), Senior Vice President and Senior Vice President, Secretary (1986 to present), Legal and Public Secretary, General Counsel and Affairs Group Manager (1989 to present), Director Legal Manager (1986 to 1989), UPS Kent C. Nelson 57 Director (1983 to present), Chairman and Chief Chairman of the Board Executive Officer (1989 to present), and Director (Chief Vice Chairman (1989), Executive Vice President (1986 Executive Officer) to 1989), UPS Charles L. Schaffer 49 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
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Principal Occupation and Employment During Name and Office Age At Least the Last Five Years --------------- --- ----------------------------- Edward L. Schroeder 53 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. 52 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 Thomas H. Weidemeyer 47 Senior Vice President (1994 to present), Airline Senior Vice President Operation Manager (1990 to 1994), Region Manager (1989 to 1990), District Manager (1988 to 1989), UPS Clinton L. Yard 55 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. Item 2. Properties. Operating Facilities During 1991, UPS moved its corporate office to Atlanta, Georgia. In 1994, UPS completed its new headquarters at a cost of $105 million, and moved all of its staff into the headquarters. Among UPS's principal operating facilities are those located in Dallas (Texas), Denver (Colorado), Earth City (Missouri), Grand Rapids (Michigan) and Palatine (Illinois). These operating facilities, having floor spaces which range from 350,000 to 1,000,000 square feet, have central sorting facilities, operating hubs and service centers for local operations. UPS has recently completed construction of a large hub facility near Chicago, Illinois. This facility has floor space of approximately 1,900,000 square feet and has -11- 13 recently commenced operations on a limited basis. The estimated cost of this facility, including plant equipment, was approximately $318 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. In 1994, UPS finished construction of a regional air hub in Rockford, Illinois and completed the hub expansion in Dallas, Texas. UPS has plans to construct its last regional air hub in Columbia, South Carolina. UPS's European air hub is located in Cologne, Germany. UPS's computer operations have been consolidated in a 400,000 square foot leased facility located on a 39 acre site in Mahwah, New Jersey. The construction of a 27,000 square foot addition to the facility commenced in 1994 and should be completed by the fourth quarter of 1995. 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 operations facility. UPS has also begun construction of a 160,000 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 July 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 462 aircraft. UPS's fleet at December 31, 1994 consisted of the following aircraft: -12- 14
Number Number Description Owned Leased ----------- ------ ------ McDonnell Douglas DC-8-71 23 1 McDonnell Douglas DC-8-73 26 2 Boeing 747-100 5 18 Boeing 757-200 29 18 Boeing 727-100 51 - Boeing 727-200 8 - Fairchild SA227-AT 11 - Other - 270 --- --- Total 153 309
An inventory of spare engines and parts is maintained for each aircraft. All of UPS's DC-8-71's, DC-8-73's, B757PF's and 747-100's meet Stage III federal noise regulations. UPS is replacing the three engines on all but seven B727-100 aircraft with new, quieter engines. These re-engined B727-100's will meet Stage III federal noise regulations and will allow UPS to operate into airports with aircraft noise restrictions that exclude B727-100's that have not been re-engined. UPS will accomplish engine modifications for each of its eight 727-200 aircraft to achieve Stage III noise 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. In 1994, UPS completed a cockpit modernization program of all but seven aircraft in the B727-100 fleet. This modernization program consisted of replacing many of the original cockpit instruments with modern cathode ray tube (CRT) instrumentation. In addition, the layout and positioning of instruments in these B727-100 cockpits has been standardized to a common configuration. A similar cockpit modernization program is also underway for all the UPS DC8-71 and DC8-73 aircraft. At this time, UPS has not committed seven B727-100's purchased in 1994 to either the re-engining program or the cockpit modernization program. During 1994, UPS ordered 30 new Boeing 767 freight aircraft (B767-300F) with options to buy 30 more. The delivery of the first 767 is scheduled for October 1995. UPS also accelerated the delivery of two B757-200 aircraft from 1995 to 1994. A total of 12 B757-200's were delivered to UPS in 1994. Eight B757-200's will be delivered to UPS in 1995, along with 5 B767-300F's. In addition, UPS has options for the purchase of 31 additional B757-200 aircraft and 30 B767-300F aircraft for delivery between 1997 and 2008, if additional aircraft are required. -13- 15 Vehicles UPS owns and operates a fleet of approximately 132,000 vehicles and leases 2,400 vehicles, ranging in size from panel delivery cars to large tractors and trailers, including 1,483 temperature-controlled trailers owned by Martrac and 3,917 vehicles owned by UPS Truck Leasing. During 1994, approximately 4,245 package cars, tractors and trailers were purchased and approximately 3,764 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 tax audits by the United States Internal Revenue Service for the 1983 through 1987 tax years. 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, 1995. 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 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. -14- 16 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. 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 1994, UPS purchased 29,290,052 shares at an aggregate purchase price of approximately $632 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 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 Direc- -15- 17 tors 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 constructively retired and treated as authorized and unissued shares by UPS. 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 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 1993 have been as follows:
Dates Price ----- ----- 1993 ---- January 1 to February 18 $18.50 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 1994 Price ---- ----- February 17 to May 25 $21.25 May 26 to August 24 $22.00 August 25 to November 17 $23.00 November 18 to February 15, 1995 $23.50
-16- 18 On February 16, 1995, UPS expressed its willingness to purchase shares at $23.75 per share, which is still the price at the date of this report. In February 1995, UPS distributed an aggregate of 6,487,408 shares of UPS Common Stock, subject to the UPS Managers Stock Trust, under the UPS Managers Incentive Plan to a total of 29,462 employees at a managerial or supervisory level. In February 1994, it distributed an aggregate of 6,325,902 shares of UPS Common Stock under that Plan to a total of 28,096 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, 1995, 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. During 1994, 1,215,680 shares of UPS Common Stock were distributed to 1,881 employees upon the exercise of stock options granted to them by UPS under the 1986 Stock Option Plan. In addition, a total of 5,433,772 shares of UPS Common Stock were sold, pursuant to a stock offering by UPS, to 13,373 UPS managers and supervisors. The offering has been previously described in the UPS Registration Statement on Form S-3 (No. 33-54297), which became effective in August 1994. The shares issued upon exercise of the options and the shares purchased pursuant to the offering are subject to the UPS Managers Stock Trust. During 1994, UPS also sold 15 million shares of UPS Common Stock to the UPS Thrift Plan at a price of $330 million. 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 -17- 19 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 January 1995, UPS paid a cash dividend of $.30 a share. For the fiscal year ended December 31, 1994, UPS paid cash dividends of $.25 a share in January 1994 and $.25 in June 1994. For the fiscal year ended December 31, 1993, UPS paid a cash dividend of $.25 a share in June 1993. 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 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, 1994 UPS had approximately $979 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, 1995.
Number of Title of Class Record Holders -------------- -------------- Common Stock of UPS, $.10 par value 2,587 Common Stock of UPS, $.10 par value, 44,528(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. -18- 20 Item 6. Selected Financial Data.
Selected Income Statement Data: (000's omitted, except for per share amounts) Year ended December 31, --------------------------------------------------------------------------- 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- Revenue............................ $19,575,690 $17,782,353 $16,518,621 $15,019,830 $13,606,344 Operating expenses................. (18,019,744) (16,324,681) (15,240,837) (13,768,574) (12,554,167) Interest income.................... 13,762 19,846 22,433 27,572 22,278 Interest expense................... (29,211) (34,000) (41,918) (51,794) (71,999) Miscellaneous -- net............... 34,879 (11,821) 10,996 (9,969) (2,572) Income taxes....................... (632,047) (622,062) (504,223) (516,895) (403,108) ----------- ----------- ----------- ----------- ----------- Income before cumulative effect of a change in accounting principle............. 943,329 809,635 765,072 700,170 596,776 Cumulative effect of a change in the method of accounting for postretirement benefits other than pensions.............. --- --- (248,905) --- --- ----------- ----------- ----------- ----------- ----------- Net income......................... $ 943,329 $ 809,635 $ 516,167 $ 700,170 $ 596,776 =========== =========== =========== =========== =========== % of revenue after cumulative effect of a change in accounting principle........... 4.8% 4.6% 3.1% 4.7% 4.4% =========== =========== =========== =========== =========== Per share amounts (1): Income before cumulative effect of a change in accounting principle...................... $ 1.63 $ 1.40 $ 1.29 $ 1.14 $ 0.95 Cumulative effect of a change in the method of accounting for postretirement benefits other than pensions............ --- --- (0.42) -- -- ----------- ----------- ----------- ----------- ----------- Net income per share............. $ 1.63 $ 1.40 $ 0.87 $ 1.14 $ 0.95 =========== =========== =========== =========== =========== Dividends per share................ $ 0.55 $ 0.50 $ 0.50 $ 0.48 $ 0.48 =========== =========== =========== =========== =========== Selected Balance Sheet Data: (000's omitted) December 31, ------------ 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- Working Capital.................... $ 120,994 $ 3,745 $ 61,687 $ 172,635 $ 68,328 =========== =========== =========== =========== =========== Long-term debt..................... $ 1,127,405 $ 852,266 $ 862,378 $ 830,634 $ 854,687 =========== =========== =========== =========== =========== Total assets....................... $11,182,404 $ 9,573,831 $ 9,037,817 $ 8,858,561 $ 8,176,056 =========== =========== =========== =========== ===========
___________________________ (1) All per share amounts have been restated to reflect the 4-for-1 stock split effective September 6, 1991. -19- 21 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Operations 1994 Compared to 1993 Revenue increased $1.793 billion, or 10.1%, during 1994 compared to 1993. For 1994, domestic revenue totaled $17.298 billion, an increase of $1.475 billion, or 9.3%, over 1993 and international revenue totaled $2.278 billion, an increase of $318 million, or 16.2%, over 1993. Domestic revenue increased as a result of higher volume which was up 2.3%, favorable changes in rates and a continuing shift toward higher yielding packages. During the first quarter of 1994, published rates for domestic ground services for commercial and residential deliveries were increased by 3.8% and 4.3%, respectively. Additionally, the published rates for Next Day Air and 2nd Day Air packages each increased by 3.9% and the published rates for Next Day Air and 2nd Day Air letters increased by 2.4% and 4.5%, respectively. The increase in international revenue was primarily attributable to higher volume, which was up 8.0%. The majority of the increased volume related to higher yielding, export packages. Operating expenses increased by $1.695 billion, or 10.4%, which was commensurate with the increase in revenues. Higher wages and employee benefits accounted for the majority of the increase. Other operating expenses were up in a variety of categories with the largest increases relating to depreciation and purchased transportation. As part of UPS's overall effort to lower operating expenses, it is considering a possible reduction in the number of managers it employs from the current level of approximately 35,000. However, no decisions have been made as to the size of a possible reduction. UPS is considering the extent to which its objectives can be met through attrition, early retirement and possible layoffs. Therefore, the projected savings or expenses associated with a possible reduction in the number of managers cannot be determined. Operating profit for 1994 increased by $98 million, or 6.7%. This increase resulted primarily from higher revenue discussed above. Income before income taxes and cumulative effect of a change in accounting principle ("pre-tax income") increased by $144 million, or 10.0%. Domestic pre-tax income amounted to $1.902 billion, an increase of $204 million, or 12.0%, over 1993. This increase was a result of higher operating profit and the sale of an investment property in January at a gain of approximately $46 million. The -20- 22 international pre-tax loss increased by $60 million, or 22.6%, bringing the total international pre-tax loss to $327 million for 1994. The international pre-tax loss attributable to the foreign domestic operations increased by $56 million, or 31.8%, primarily as a result of competitive factors. The pre-tax loss associated with export operations increased by $4 million, or 4.8%. Export volume increased by 48.0% and 16.3% for international and U.S. origin, export shipments, respectively. UPS expects the cost of operating its international business will continue to exceed revenue in the near future. Net income increased by $134 million, or 16.5%. This increase resulted primarily from the higher operating profit, a gain on a long-term investment property described above and a deferred tax adjustment recorded in 1993 to reflect the effect of the increase in the maximum U.S. federal income tax rate for corporations from 34% to 35%. See also Note 7 to the consolidated Financial Statements. 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. -21- 23 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. 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. 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. Liquidity and Capital Resources UPS believes that its internally generated funds, revolving credit facilities 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 $2.2 billion for land, buildings, equipment and aircraft in 1995, as well as commitments for aircraft purchases through 2000. 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. The amount which UPS can borrow under this program was increased to $1 billion in 1995. -22- 24 Agents for the United States Internal Revenue Service ("IRS") have asserted in reports that UPS is liable for additional tax for the 1984 through 1987 tax years. The assertions are 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 $97 million to $183 million of tax, plus penalties and interest, for the period stated above. In addition, the agents have raised a number of other issues relating to the timing of deductions; the characterization of expenses as capital rather than ordinary; and UPS's entitlement to the Investment Tax Credit in the 1983 through 1987 tax years. The adjustments sought on these issues aggregate $127 million in tax, the majority of which would reverse in future years, plus penalties and interest. After consultation with legal experts, management believes there is no merit to any material issues raised by the IRS and that the eventual resolution of these matters will not have a material impact on the Company. Although no assessment has yet been made by the IRS with respect to the years 1983 through 1987, it is likely the IRS will issue a Notice of Deficiency for the years 1983 and 1984 which the Company will contest through litigation. The IRS has not proposed adjustments for years subsequent to 1987, although the IRS may take positions similar to those in the reports described above for periods after 1987. 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. -23- 25 PART III Item 10. Directors and Executive Officers of the Registrant. Information regarding the Directors of UPS is presented under the caption "Election of Directors" in UPS's definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 11, 1995, which will be filed with the Securities and Exchange Commission (the "SEC") by March 31, 1995, 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. Item 11. Executive Compensation. Information in answer to this Item 11 is presented under the caption "Compensation of 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, 1995, which will be filed with the SEC by March 31, 1995, 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, 1995, which will be filed with the SEC by March 31, 1995, 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, 1995, which will be filed with the SEC by March 31, 1995, is incorporated herein by reference. -24- 26 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 - Not applicable 3. List of Exhibits. - See Exhibit Index at page E-1, which is incorporated herein by reference. (b) Reports on Form 8-K. - No reports on Form 8-K were filed during the quarter ended December 31, 1994 (c) Exhibits required by Item 601 of Regulation S-K. - See Exhibit Index at page E-1, which is incorporated herein by reference. -25- 27 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 29, 1995 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 29, 1995 ------------------------- and Director John W. Alden /s/ William H. Brown, III Director March 29, 1995 ------------------------- William H. Brown, III /s/ Robert J. Clanin Senior Vice President March 29, 1995 ------------------------- Treasurer (Chief Financial Robert J. Clanin and Accounting Officer) Director , 1995 ------------------------- --------- Carl Kaysen /s/ John J. Kelley Senior Vice President March 29, 1995 ------------------------- and Director John J. Kelley /s/ James P. Kelly Executive Vice President March 29, 1995 ------------------------- and Director James P. Kelly Director , 1995 ------------------------- --------- Gary E. MacDougal /s/ Joseph R. Moderow Senior Vice President, March 29, 1995 ------------------------- Secretary and Director Joseph R. Moderow
-26- 28 /s/ Kent C. Nelson Chairman of the Board March 29, 1995 ------------------------- and Director (Chief Kent C. Nelson Executive Officer) Director , 1995 ------------------------- --------- Victor A. Pelson Director , 1995 ------------------------- --------- John W. Rogers /s/ Charles L. Schaffer Senior Vice President March 29, 1995 ------------------------- and Director Charles L. Schaffer Director , 1995 ------------------------- --------- Robert M. Teeter /s/ Calvin E. Tyler, Jr. Senior Vice President March 29, 1995 ------------------------- and Director Calvin E. Tyler, Jr.
-27- 29 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES COMPRISING ITEMS 8 AND 14(a) (2) OF ANNUAL REPORT ON FORM 10-K TO SECURITIES AND EXCHANGE COMMISSION THREE YEARS ENDED DECEMBER 31, 1994 30 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 F-3 and F-4 - December 31, 1994 and 1993 Statement of consolidated income - Years ended December 31, 1994, 1993 and 1992 F-5 Statement of consolidated shareowners' equity - Years ended December 31, 1994, 1993 and 1992 F-6 Statement of consolidated cash flows - Years ended December 31, 1994, 1993 and 1992 F-7 Notes to consolidated financial statement schedule F-8 to F-23 Items 14(a) (2) - Financial Statement Schedules ------------------------------------------------
All 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. 31 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, 1994 and 1993, and the related consolidated statements of income, shareowners' equity, and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Note 5 to the consolidated financial statements, in 1992 the Company changed its method of accounting for postretirement benefits other than pensions to conform with Statement of Financial Accounting Standards No. 106. DELOITTE & TOUCHE LLP Atlanta, Georgia February 8, 1995 F-2 32 UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 1994 and 1993 (000's omitted except share amounts)
Assets 1994 1993 ---- ---- Current Assets: Cash and short-term investments $ 261,038 $ 280,960 Accounts receivable 1,592,494 1,159,612 Prepaid employee benefit costs 439,430 216,565 Materials, supplies and other prepaid expenses 381,179 442,582 Common stock held for stock plans 349,338 283,112 ---------- --------- Total Current Assets 3,023,479 2,382,831 ---------- --------- Property, Plant and Equipment: Vehicles 2,767,493 2,661,407 Aircraft 3,707,654 2,936,940 Land 622,936 617,381 Buildings 1,359,967 1,257,963 Leasehold improvements 1,416,784 1,337,315 Plant equipment 2,660,881 2,266,811 Construction-in-progress 557,186 391,171 ---------- ---------- 13,092,901 11,468,988 Less accumulated depreciation 5,325,159 4,705,218 ---------- ---------- 7,767,742 6,763,770 ---------- ---------- Other Assets 391,183 427,230 ---------- ---------- $ 11,182,404 $ 9,573,831 ========== ==========
See notes to consolidated financial statements. F-3 33 UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 1994 and 1993 (000's omitted except share amounts)
Liabilities and Shareowners' Equity 1994 1993 ---- ---- Current Liabilities: Accounts payable $ 1,082,056 $ 728,808 Accrued wages and withholdings 1,080,554 918,943 Dividends payable 170,037 141,281 Deferred income taxes 136,260 74,545 Other current liabilities 433,578 515,509 ---------- --------- Total Current Liabilities 2,902,485 2,379,086 ---------- --------- Long-Term Debt 1,127,405 852,266 ---------- --------- Accumulated Postretirement Benefit Obligation, Net 588,860 518,726 ---------- --------- Deferred Taxes, Credits and Other Liabilities 1,916,405 1,879,244 ---------- --------- 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 58,000 58,000 Additional paid-in capital 295,441 264,401 Retained earnings 4,276,784 3,644,047 Cumulative foreign currency adjustments 17,024 (21,939) ---------- --------- 4,647,249 3,944,509 ---------- --------- $ 11,182,404 $ 9,573,831 ========== ========= Shareowners' Equity Per Share $ 8.01 $ 6.80 ========== =========
See notes to consolidated financial statements. F-4 34 UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME Years Ended December 31, 1994, 1993 and 1992 (000's omitted except per share amounts)
1994 1993 1992 ---- ---- ---- Revenue $ 19,575,690 $ 17,782,353 $ 16,518,621 ------------ ------------ ------------ Operating Expenses: Wages and employee benefits 11,726,807 10,661,081 9,707,793 Other 6,292,937 5,663,600 5,533,044 ------------ ------------ ------------ 18,019,744 16,324,681 15,240,837 ------------ ------------ ------------ Operating profit 1,555,946 1,457,672 1,277,784 ------------ ------------ ------------ Other Income and (Expense): Interest income 13,762 19,846 22,433 Interest expense (29,211) (34,000) (41,918) Miscellaneous, net 34,879 (11,821) 10,996 ------------ ------------ ------------ 19,430 (25,975) (8,489) ------------ ------------ ------------ Income Before Income Taxes and Cumulative Effect of a Change in Accounting Principle 1,575,376 1,431,697 1,269,295 Income Taxes 632,047 622,062 504,223 ------------ ------------ ------------ Income Before Cumulative Effect of a Change in Accounting Principle 943,329 809,635 765,072 Cumulative Effect of a Change in the Method of Accounting for Postretirement Benefits Other Than Pensions - - (248,905) ------------ ------------ ------------ Net income $ 943,329 $ 809,635 $ 516,167 ============ ============ ============ Per Share Amounts: Income before cumulative effect of a change in accounting principle $ 1.63 $ 1.40 $ 1.29 Cumulative effect of a change in the method of accounting for postretirement benefits other than pensions - - (0.42) ------------ ------------ ------------ Net income per share $ 1.63 $ 1.40 $ 0.87 ============ ============ ============
See notes to consolidated financial statements. F-5 35 UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES STATEMENT OF CONSOLIDATED SHAREOWNERS' EQUITY Years Ended December 31, 1994, 1993 and 1992 (000's omitted except per share amounts)
Cumulative Additional Foreign Total Common Stock Paid-in Retained Currency Shareowners' Shares Amount Capital Earnings Adjustments Equity ------ ------ ---------- -------- ----------- ------------ Balance, January 1, 1992 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 ($.50 per share) - - - (285,193) - (285,193) Gain on issuance of common stock held for stock plans - - 20,795 - - 20,795 Exercise of stock options - - 1,754 - - 1,754 Foreign currency adjustments - - - - (46,730) (46,730) Redemption of common stock (15,000) (1,500) - (274,684) - (276,184) -------- ------- -------- ---------- -------- ---------- Balance, December 31, 1993 580,000 58,000 264,401 3,644,047 (21,939) 3,944,509 Net income - - - 943,329 - 943,329 Dividends ($.55 per share) - - - (310,592) - (310,592) Gain on issuance of common stock held for stock plans - - 36,882 - - 36,882 Exercise of stock options - - (5,842) - - (5,842) Foreign currency adjustments - - - - 38,963 38,963 -------- ------- -------- ---------- -------- ---------- Balance, December 31, 1994 580,000 $58,000 $295,441 $4,276,784 $ 17,024 $4,647,249 ======== ======= ======== ========== ======== ==========
See notes to consolidated financial statements. F-6 36 UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS Years Ended December 31, 1994, 1993 and 1992 (000's omitted)
1994 1993 1992 ---- ---- ---- Cash flows from operating activities: Net income $ 943,329 $ 809,635 $ 516,167 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization 786,122 691,397 662,031 Postretirement benefits 70,134 50,063 468,663 Deferred taxes, credits and other 78,858 117,254 (27,516) Changes in assets and liabilities: Accounts receivable (432,882) (67,233) (91,527) Prepaid employee benefit costs (222,865) (60,012) (77,038) Materials, supplies and prepaid expenses (6,514) 2,137 64,713 Common stock held for stock plans (66,226) 49,977 (27,864) Accounts payable 353,248 (78,024) 19,422 Accrued wages and withholdings 161,611 86,150 18,765 Dividends payable 28,756 141,281 (81,798) Other current liabilities (78,019) 11,192 6,355 ----------- ----------- ---------- Net cash from operating activities 1,615,552 1,753,817 1,450,373 ----------- ----------- ---------- Cash flows from investing activities: Capital expenditures - net (1,677,343) (1,097,036) (929,261) Other asset receipts and (payments) 42,194 41,667 (44,602) ----------- ----------- ---------- Net cash (used in) investing activities (1,635,149) (1,055,369) (973,863) ----------- ----------- ---------- Cash flows from financing activities: Proceeds from borrowings 322,455 203,670 36,318 Repayment of borrowings (51,465) (212,808) (36,440) Redemption of common stock - (276,184) (333,293) Dividends paid (310,592) (285,193) (293,225) Other transactions 31,040 22,549 3,377 ----------- ----------- ---------- Net cash (used in) financing activities (8,562) (547,966) (623,263) ----------- ----------- ---------- Effect of exchange rate changes on cash 8,237 (2,920) (7,122) ----------- ----------- ---------- Net increase (decrease) in cash and short-term investments (19,922) 147,562 (153,875) Cash and short-term investments: Beginning of year 280,960 133,398 287,273 ----------- ----------- ---------- End of year $ 261,038 $ 280,960 $ 133,398 =========== =========== ========== Cash paid during the period for: Interest, net of amount capitalized $ 38,498 $ 42,022 $ 41,784 =========== =========== ========== Income taxes $ 661,672 $ 569,759 $ 363,503 =========== =========== ==========
See notes to consolidated financial statements. F-7 37 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1994, 1993 and 1992 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. F-8 38 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1994, 1993 and 1992 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 ("FAS") No. 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 $45,400,000, $27,800,000, and $26,500,000 for 1994, 1993 and 1992, respectively. Derivative Instruments UPS has entered into interest rate swap agreements to lower the effective interest rate on its debentures. These agreements have an average remaining life of two years. The periodic settlement payments are accrued monthly, as either a charge or credit to expense, and are not material to net income. Based on estimates provided by third party investment bankers, the fair value of the Company's interest rate swap agreements is not material to the Company's financial statements. The Company also purchases options to reduce the impact of changes in foreign currency rates on its foreign currency purchases and to moderate the impact of major increases in the cost of crude oil on fuel expense. The options are adjusted to fair value at period end based on market quotes and are not material to the Company's financial statements. UPS is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreements. However, UPS does not anticipate nonperformance by the counterparties. UPS is exposed to market risk based upon changes in interest rates, foreign currency exchange rates, and crude oil prices. Changes in Presentation Certain prior year amounts have been reclassified to conform to the current year presentation. F-9 39 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1994, 1993 and 1992 2. LONG-TERM DEBT Long-term debt, as of December 31, consists of the following (000's omitted):
1994 1993 ---- ---- 8.375% debentures, due April 1, 2020 $ 700,000 $ 700,000 Commercial paper 263,266 - Industrial development bonds, Philadelphia Airport facilities due December 1, 2015 100,000 100,000 Installment notes, mortgages and bonds 41,321 30,021 Investment properties - nonrecourse mortgages 24,493 27,833 --------- --------- 1,129,080 857,854 Less current maturities 1,675 5,588 --------- --------- $1,127,405 $ 852,266 ========= =========
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 first of April and October. The average interest rate on the commercial paper outstanding as of December 31, 1994, was 6.0%. The commercial paper has been classified as long-term debt in accordance with the Company's intention and ability to refinance such obligations on a long-term basis. However, the amount of commercial paper outstanding in 1995 is expected to fluctuate and may be reduced from time to time. The industrial development bonds bear interest at either a daily, variable, or fixed rate. The average interest rates for 1994 and 1993 were 2.7% and 2.2%, respectively. The installment notes, mortgages and bonds bear interest at rates of 6.0% to 11.5%. The aggregate annual principal payments for the next five years, excluding commercial paper, are: 1995- $1,675,000; 1996- $3,720,000; 1997- $3,105,000; 1998- $3,293,000; and 1999- $2,514,000. F-10 40 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1994, 1993 and 1992 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 $1,127,000,000 as of December 31, 1994. 3. COMMON STOCK PER SHARE DATA Per share amounts related to income are based on 580,000,000 shares in 1994 and 1993 and 595,000,000 shares in 1992 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. Agents for the United States Internal Revenue Service ("IRS") have asserted in reports that UPS is liable for additional tax for the 1984 through 1987 tax years. The assertions are 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 agents relating to package insurance are based on a number of inconsistent theories and range from $97 million to $183 million of tax, plus penalties and interest, for the period stated above. In addition, the agents have raised a number of other issues relating to the timing of deductions; the characterization of expenses as capital rather than ordinary; and UPS's entitlement to the Investment Tax Credit in the 1983 through 1987 tax years. The adjustments sought on these issues aggregate $127 million in tax, the majority of which would reverse in future years, plus penalties and interest. After consultation with legal experts, management believes there is no merit to any material issues raised by the IRS and that the eventual resolution of these matters will not have a material impact on the Company. Although no assessment has yet been made by the IRS with respect to the years 1983 through 1987, it is likely the IRS will issue a Notice of Deficiency for the years 1983 and 1984 which the company will contest through litigation. The IRS has not proposed adjustments for years subsequent to 1987, although the IRS may take positions similar to those in the reports described above for periods after 1987. F-11 41 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1994, 1993 and 1992 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 2030. Total aggregate minimum lease commitments are as follows (000's omitted):
Year Amount ---- ------ 1995 $ 256,144 1996 199,423 1997 149,484 1998 116,900 1999 98,053 After 1999 733,028 ---------- $1,553,032 ==========
UPS maintains two credit agreements with a consortium of banks which provide revolving credit facilities of $500,000,000 each, with one expiring June 12, 1995 and the other June 14, 1996. At December 31, 1994, there were no outstanding borrowings under these facilities. As of December 31, 1994, UPS has outstanding letters of credit totaling approximately $783,732,000 issued in connection with routine business requirements. At December 31, 1994, UPS had commitments outstanding for capital expenditures under purchase orders and contracts of approximately $3.4 billion, of which approximately $1.2 billion is expected to be spent in 1995. 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 noncontributory 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 shares of UPS common stock at both December 31, 1994 and 1993. The actual earnings on the Plan's assets were $88,944,000, $224,405,000, and $124,661,000, in 1994, 1993 and 1992, respectively. UPS's funding policy is consistent with relevant federal tax regulations. Accordingly, UPS contributes amounts deductible for federal income tax purposes. F-12 42 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1994, 1993 and 1992 Pension expense, consisting of various component parts, and certain assumptions used during the years ended December 31, are as follows (000's omitted):
1994 1993 1992 ---- ---- ---- Current year's earned benefit $115,638 $ 97,230 $ 81,173 Interest on projected benefit obligation 144,585 121,934 107,646 Expected earnings on pension plan assets (151,107) (120,655) (99,772) Amortization of unrecognized benefit obligation: Net obligation at transition date 5,203 5,203 5,203 Effect of plan benefit amendments 11,698 11,741 11,741 Net amortization of unrecognized investment gains and changes in actuarial assumptions and experience 4,277 - - ------- ------- ------- Provision for pension expense $130,294 $115,453 $105,991 ======= ======= ======= Expected long-term rate of earnings 9.5% 9.5% 9.5% on plan assets Weighted average discount rate 9.0% 7.5% 8.25% Rate of increase in future compensation levels 4.25% 4.25% 5.0%
F-13 43 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1994, 1993 and 1992 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):
1994 1993 ---- ---- Projected benefit obligation: Accumulated benefits computed using present salary levels: Vested $1,024,811 $1,217,502 Nonvested 336,857 245,834 --------- --------- 1,361,668 1,463,336 Additional benefits computed using projected salary levels 271,651 478,213 --------- --------- Total projected benefit obligation 1,633,319 1,941,549 Pension plan assets 1,874,126 1,645,387 --------- --------- Difference 240,807 (296,162) Unrecognized net investment gains and changes in assumptions used to compute projected benefit (323,418) 150,830 Unrecognized net benefit obligation at transition date 49,432 54,635 Unrecognized projected benefit obligation arising from amendments to the retirement plan 163,450 175,149 --------- --------- Prepaid pension cost $ 130,271 $ 84,452 ========= =========
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 $506,215,000, $455,842,000, and $407,879,000 during 1994, 1993 and 1992, 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 noncontributory 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. F-14 44 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1994, 1993 and 1992 Prior to 1992, UPS had generally expensed the costs of these benefits on a current, "pay as you go" basis. During 1992, UPS adopted the provisions of 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 1994, 1993 and 1992 of approximately $64,300,000, $47,500,000, and $40,300,000, respectively, after tax ($0.11, $0.08, and $0.07 per share, respectively). Overall, net income for 1994, 1993 and 1992 was reduced $64,300,000, $47,500,000, and $289,200,000, respectively, as a result of adoption ($0.11, $0.08, and $0.49 per share, respectively). The accumulated postretirement benefit obligation at December 31, is detailed as follows (000's omitted):
1994 1993 ---- ---- Accumulated postretirement benefit obligation: Retirees $127,771 $146,879 Fully eligible active plan participants 60,623 69,933 Other active participants 564,607 626,303 ------- ------- 753,001 843,115 Plan assets at fair value 155,593 130,706 ------- ------- Accumulated postretirement benefit obligation in excess of plan assets 597,408 712,409 Unrecognized net investment gains and changes in assumptions used to compute projected benefits (8,548) (193,683) ------- ------- Accumulated postretirement benefit obligation, net $588,860 $518,726 ======= =======
F-15 45 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1994, 1993 and 1992 Net periodic postretirement benefit cost for the years ended December 31, included the following components (000's omitted):
1994 1993 1992 ---- ---- ---- Service cost-benefits attributed to service during the period $ 45,033 $ 34,413 $ 29,481 Interest cost on accumulated postretirement benefit obligation 65,933 54,878 44,904 Expected earnings on plan assets (11,930) (11,137) (9,069) Amortization of unrecognized amounts 6,277 - - ------- ------- ------- Net periodic postretirement benefit cost $105,313 $ 78,154 $ 65,316 ======= ======= =======
The significant assumptions used in determining postretirement benefit cost and the accumulated postretirement benefit obligation were as follows:
1994 1993 1992 ---- ---- ---- Expected long-term rate of return on plan assets 9.5% 9.5% 9.5% Weighted average discount rate 9.0% 7.5% 8.25%
Future benefit costs were forecasted assuming an initial annual increase of 10.25% for pre-65 medical costs and an increase of 9.25% for post-65 medical costs, decreasing to 7.25% for pre-65 and 6.25% for post-65 by the year 2000 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, 1994, by $71.8 million and the aggregate of the service and interest components of the net periodic postretirement benefit costs for 1994 by $11.5 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. F-16 46 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1994, 1993 and 1992 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 Committee or the Salary Committee 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 $255,482,000, $217,784,000, and $198,943,000, during 1994, 1993 and 1992, 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 for certain repurchases from officers and directors which were deferred for up to six months. 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. There were no Book Value Shares exercised during 1994 or 1993. Compensation expense charged to operations related to exercise of these options was not material. No further shares may be issued under the 1986 plan. 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 F-17 47 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1994, 1993 and 1992 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 $12.00 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 Exercised at $13.38 per share (2,952,522) Granted at $21.25 per share 4,056,690 Canceled (226,724) ---------- Outstanding at December 31, 1994 18,928,677 ========== Exercisable at December 31, 1994 - ==========
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. Compensation expense charged to operations related to these options was not material. Options granted during 1994, 1993 and 1992 have an exercise price equal to the current price of a share of UPS common stock at the date of grant. 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 effects of adopting FAS 109 were not material to the Company's financial position or results of operations. During the third quarter of 1993, the maximum U.S. federal income tax rate for corporations was increased from 34% to 35% F-18 48 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1994, 1993 and 1992 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):
1994 1993 1992 ---- ---- ---- Current: Federal $493,417 $450,094 $331,265 State 96,200 85,437 75,361 ------- ------- ------- Total Current 589,617 535,531 406,626 ------- ------- ------- Deferred: Federal 35,784 72,978 110,041 State 6,646 13,553 (12,444) ------- ------- ------- Total Deferred 42,430 86,531 97,597 ------- ------- ------- Total $632,047 $622,062 $504,223 ======== ======= =======
Income before income taxes and cumulative effect of a change in accounting principle includes losses of foreign subsidiaries of $172,311,000, $169,689,000 and $114,941,000 for 1994, 1993 and 1992, 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:
1994 1993 1992 ---- ---- ---- Statutory federal income tax rate 35.0% 35.0% 34.0% Amortization of investment tax credits (0.3) (0.5) (0.8) Effect of federal rate change on deferred liabilities - 2.2 - State income taxes (net of federal benefit) 4.3 4.5 5.1 Other 1.1 2.2 1.4 ---- ---- ---- Effective income tax rate 40.1% 43.4% 39.7% ==== ==== ====
F-19 49 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1994, 1993 and 1992 Deferred tax liabilities and assets are comprised of the following at December 31 (000's omitted):
1994 1993 ---- ---- Excess of tax over book depreciation $1,206,711 $1,164,455 Differences in timing of deductions relating to: Leveraged leases 222,308 243,457 UPS Retirement Plan 127,733 98,922 Prepaid insurance 90,410 41,943 Other 258,895 241,408 --------- --------- Gross deferred tax liabilities 1,906,057 1,790,185 --------- --------- Other postretirement benefits not currently deductible 241,476 203,172 Loss carryforwards (international) 263,314 199,351 Insurance reserves not currently deductible 86,384 58,542 Other 65,887 57,191 --------- --------- Gross deferred tax assets 657,061 518,256 Deferred tax assets valuation allowance (263,314) (199,351) --------- --------- 393,747 318,905 --------- --------- Net deferred tax liability $1,512,310 $1,471,280 ========= =========
The valuation allowance increased approximately $64,000,000 and $90,000,000 during the years ended December 31, 1994 and 1993, respectively. F-20 50 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1994, 1993 and 1992 The tax effects of items included in the deferred tax provision for 1992, consist of the following (000's omitted):
1992 ---- Excess of tax over book depreciation $ 55,988 Differences in timing of deduction for certain accrued expenses 152,543 Other postretirement benefits not currently deductible (25,009) Amortization of investment tax credits (14,541) Other (71,384) ------- Total deferred tax provision $ 97,597 =======
UPS has international loss carryforwards of approximately $598,000,000 as of December 31, 1994. Of this amount, $337,000,000 expires in varying amounts through 2000. The remaining $261,000,000 may be carried forward indefinitely. 8. OTHER ASSETS Other assets, as of December 31, consist of the following (000's omitted):
1994 1993 ---- ---- Leveraged leases $233,639 $289,838 Other long-term investments 68,796 38,166 Costs in excess of net assets acquired 88,748 99,226 ------- ------- $391,183 $427,230 ======= =======
F-21 51 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1994, 1993 and 1992 Leveraged Leases The net investment in leveraged leases, as of December 31, consists of the following (000's omitted):
1994 1993 ---- ---- Rentals receivable (net of nonrecourse debt payments) $ 174,682 $ 219,524 Estimated residual values 81,665 98,360 Unearned income (22,708) (28,046) -------- ------- Long-term investments in leveraged leases 233,639 289,838 Deferred income taxes (222,308) (243,457) Deferred investment tax credits (16,753) (22,561) -------- ------- Net investment in leveraged leases $ (5,422) $ 23,820 ======== ========
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):
1994 1993 ---- ---- Deferred federal and state income taxes $1,376,050 $1,396,736 Deferred investment tax credits 19,747 26,133 Other credits and noncurrent liabilities 520,608 456,375 --------- --------- $1,916,405 $1,879,244 ========= =========
F-22 52 UNITED PARCEL SERVICE OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1994, 1993 and 1992 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):
1994 1993 1992 ---- ---- ---- Domestic: Revenue $17,297,843 $15,822,558 $14,721,686 Income before income taxes $ 1,902,140 $ 1,698,299 $ 1,545,484 Identifiable assets $ 9,886,634 $ 8,359,395 $ 7,873,398 Foreign: Revenue $ 2,277,847 $ 1,959,795 $ 1,796,935 Loss before income taxes $ (326,764) $ (266,602) $ (276,189) Identifiable assets $ 1,295,770 $ 1,214,436 $ 1,164,419 Consolidated: Revenue $19,575,690 $17,782,353 $16,518,621 Income before income taxes $ 1,575,376 $ 1,431,697 $ 1,269,295 Identifiable assets $11,182,404 $ 9,573,831 $ 9,037,817
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 $495,957,000, $390,984,000, and $323,732,000 in 1994, 1993 and 1992, respectively. 11. OTHER OPERATING EXPENSES The major components of other operating expenses for the years ended December 31, are as follows (000's omitted):
1994 1993 1992 ---- ---- ---- Repairs and maintenance $ 870,894 $ 829,080 $ 792,251 Depreciation and amortization 786,122 691,397 662,031 Purchased transportation 1,284,736 1,180,706 1,183,181 Fuel 564,359 553,697 531,372 Other occupancy expense 361,212 370,520 383,677 Other expenses 2,425,614 2,038,200 1,980,532 --------- --------- --------- $6,292,937 $5,663,600 $5,533,044 ========= ========= =========
F-23 53 ________________________________________________________________________________ ________________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________ EXHIBITS TO FORM 10-K ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 _______________________ UNITED PARCEL SERVICE OF AMERICA, INC. ________________________________________________________________________________ _______________________________________________________________________________ 54 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 55 (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 Incorporated by Reference to to the UPS Thrift Exhibit 10(a)(14) to 1993 Plan Annual Report on Form 10-K (15) Amendment Incorporated by Reference to No. 17 to the UPS Exhibit 10(a)(15) to 1994 Thrift Plan Annual Report on Form 10-K (16) Amendment No. 18 to Filed herewith. the UPS Thrift Plan (17) Amendment No. 19 to Filed herewith. 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. E-2 56 (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. (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. (12) Amendment No. 16 Filed herewith. to the UPS Retirement Plan (13) Amendment No. 17 Filed herewith. to the UPS Retirement Plan (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 57 (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. (e) Intentionally omitted. (f) Agreement and Plan of Incorporated by Reference Reorganization, dated to Exhibit l(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 l(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 l(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, 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, E-4 58 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. (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, E-5 59 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. (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. E-6 60 (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. (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. (6) Amendment No. 11 to Filed herewith. the UPS Savings Plan (7) Amendment No. 12 to Filed herewith. the UPS Savings Plan (8) Amendment No. 13 to Filed herewith. the UPS Savings Plan (9) Amendment No. 14 to Filed herewith. the UPS Savings Plan (10) Amendment No. 15 to Filed herewith. the UPS Savings Plan (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). E-7 61 (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 LLP. Filed herewith as Exhibit 23. (27) Financial Data Schedule Filed herewith as Exhibit 27 (for SEC use only). E-8 EX-10.(A)(16) 2 AMENDMENT # 18 TO THE UPS THRIFT PLAN 1 EXHIBIT 10(a)(16) AMENDMENT NO. 18 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. 17 which was adopted January 7, 1994; and WHEREAS, the Board of Directors of United Parcel Service of America, Inc. desires to amend the Plan further to provide to distributees of eligible rollover distributions from this Plan the option of transferring such distributions directly to another eligible retirement plan. 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, 2 effective for distributions made on or after January 1, 1993: 1. A new Section 10.5 is added to read as follows: Section 10.5 Direct Rollover. (a) With respect to any distribution described in this Plan which constitutes an eligible rollover distribution within the meaning of Code Section 401(a)(31)(C), the distributee thereof shall, in accordance with procedures established by the Committee, be afforded the opportunity to direct that such distribution be transferred directly to the trustee of an eligible retirement plan (a "direct rollover"). For purposes of the foregoing sentence, an "eligible retirement plan" is (1) a qualified trust within the meaning of Code Section 402 which is a defined contribution plan the terms of which permit the acceptance of rollover distributions, (2) an individual retirement account or annuity within the meaning of Code Section 408 (other than an endowment contract), or (3) an annuity plan within the meaning of Code Section 403(a), which is specified by the distributee in such form and at such time as the Committee may prescribe. (b) Notwithstanding the foregoing, if the distributee elects to have his or her eligible rollover distribution paid in part to him or her and paid in part as a direct rollover: (A) The direct rollover must be in an amount of $500 or more. (B) A direct rollover to two or more eligible retirement plans shall not be permitted. (c) The Committee shall, within a reasonable period of time prior to making an eligible rollover distribution from this Plan, provide a written explanation to the distributee of the direct rollover option described above, as well as the provisions -2- 3 under which such distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date on which the distributee received the distribution. 2. Section 18.13 is revised in its entirety to read as follows: Section 18.13 Withholding of Income Tax. (a) Notification of Withholding of Federal Income Tax. All Participants and beneficiaries entitled to receive benefits under the Plan shall be notified of the Plan's obligation to withhold federal income tax from any benefits payable pursuant to the terms of the Plan. Such notice shall be in writing, be given at the times set forth in subsection (b) and contain the information set forth in subsection (c) of this Section. (b) Time of Notice. The notice described in subsection (a) shall be provided not earlier than six months before such payment is to be made and not later than the time the Participant or beneficiary is furnished with his or her claim for benefits application. (c) Content of the Notice. The notice required by subsection (a) shall, at a minimum: (1) with respect to any distribution which is an eligible rollover distribution within the meaning of Code Section 3405(c)(3) (other than an eligible rollover distribution of less than $200 which is exempt from withholding under regulations prescribed by the Secretary of the Treasury), advise the payee that there shall be withheld from such distribution an amount equal to 20 percent thereof (or such other amount as may from time to time be prescribed by the Code, or the Secretary of the Treasury or his delegate), unless the payee directs the Committee to transfer such distribution as a direct -3- 4 rollover to an eligible retirement plan, within the meaning of Section 10.5(a) hereof, in accordance with such procedures as the Committee may prescribe (a "transfer direction"), (2) with respect to any distribution which is not an eligible rollover distribution within the meaning of Code Section 3405(c)(3): (A) advise the payee of his or her right to elect not to have withholding apply to any payment or distribution and explain the manner in which such election may be made, and include or indicate the source of any forms necessary to make the election; (B) advise the payee that penalties may be incurred under the estimated tax payment rules if the payee's payments of estimated tax are not adequate and sufficient tax is not withheld from payments under this Plan; and (C) advise the payee that the election not to have federal income tax withheld from benefits is prospective only and that any election made after a payment or distribution to the payee is not an election with respect to such payment or distribution. (d) Effective Date of Elections. Any transfer direction, election or revocation of any election by a payee shall become effective immediately upon receipt by the Committee of the transfer direction, election or revocation. Thereafter, the Committee shall, unless otherwise provided by applicable law, regulation or other guidance by the Secretary of the Treasury or his delegate, withhold federal income tax in accordance or consistent with the instructions filed by the payee. (e) Failure to Make Election. (1) In the case of an eligible rollover distribution, if the payee fails to provide the Committee with a transfer direction, the Committee shall withhold an amount equal to 20% of the amount of the distribution -4- 5 (or such other amount as may be from time to time prescribed by the Code, or the Secretary of the Treasurer or his delegate). (2) In the case of a distribution which is not an eligible rollover distribution, if the payee fails to provide the Committee with a withholding certificate, the Committee shall withhold an amount equal to 10% of the amount of the distribution. (f) Coordination with Internal Revenue Code and Regulations. Notwithstanding the foregoing, the Committee shall discharge its withholding and notice obligations in accordance with the Code and regulations and such other guidance with respect thereto as may be promulgated from time to time by the Secretary of the Treasury or his delegate. IN WITNESS WHEREOF, United Parcel Service of America, Inc., based upon action by the Board of Directors, has caused this Amendment No. 18 to be executed this 28th day of February, 1994. ATTEST: UNITED PARCEL SERVICE OF AMERICA, INC. By: ---------------------------- ------------------------------ Chairman -5- EX-10.(A)(17) 3 AMENDMENT # 19 TO THE UPS THRIFT PLAN 1 EXHIBIT 10(a)(17) AMENDMENT NO. 19 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. 18, effective January 1, 1993; and WHEREAS, the Board of Directors of United Parcel Service of America, Inc. desires to amend the Plan further to permit Employer contributions to be matched with participants voluntary savings contributions for non-discrimination testing and other purposes. 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, the Plan is hereby amended as follows, effective January 1, 1994 except as otherwise noted: 1. Section 4.3 is revised by deleting the words "limitations provided in Section 5.6(b)(2) and Article VI of the Plan" and by inserting in lieu thereof the words "limitations provided in Sections 5.6(b)(3), 6.1 and 6.2 of the Plan." 2. Section 5.6(b) is amended in its entirety to read as follows: (b) (1) As of the end of each calendar year the Committee shall, subject to paragraph (3) below, credit each eligible Participant's Employer Contributions Account in the General Fund with that part of the Employer's Basic Contribution for the year as bears the same ratio to such contribution as the average monthly balance during the year of the Participant's combined Participant Savings Account, Employer Contributions 2 Account and Participant Investment Income Account bears to the aggregate average monthly balances of all Participants in the three accounts of the General Fund. (2) A Participant shall be eligible to share the allocation of the Employer Basic Contribution for the Plan Year only if (A) the Participant has an Employer Contribution Account in the General Fund on January 1 of the Plan Year following the Plan Year for which the Employer's Basic Contribution is made and (B) the Participant in fact made one or more voluntary savings contributions pursuant to Article III (including weekly cash payments in lieu of payroll deductions pursuant to the subsections 3.2(b) and (c)) which were allocated to his or her Participant Savings Account for the Plan Year for which the Employer Basic Contribution is being made. (3) Notwithstanding the foregoing, no amount in excess of four thousand dollars ($4,000) shall be allocated to a Participant as an Employer Basic Contribution with respect the any calendar year, and if the Participant ceased participation during a calendar year the four thousand dollar limit shall be reduced to an amount which shall be determined by multiplying the four thousand dollar limit by a fraction, the numerator of which is the number of wholly or partially completed calendar months of participation during said calendar year, and the denominator of which is 12. Any amount in excess of the dollar limitations determined under the preceding sentences shall reduce the Employer's Tentative Basic Contribution to arrive at the Employer's Basic Contribution to be made under the Plan. (4) Effective for the Employer Basic Contribution for the 1994 and subsequent Plan Years, that portion of the Employer Benefit Contribution allocated to the account of a Participant who is a Highly Compensated Employee, which, when combined with the Participant's voluntary savings contributions pursuant to Article III, exceeds the contribution limitations for Highly Compensated Employees pursuant to Section 6.3 shall be distributed to such Participant in accordance with the provisions of that Section. 3. Effective January 1, 1989, Subsection 6.2(a) is amended by the addition of the following sentence to the end thereof: For purposes of the foregoing sentence, "total compensation" means the Participant's taxable compensation from the Employer reported on Form W-2 for the Plan Year or, as determined by the Committee in a uniform manner with respect to all Employees for the Plan Year, such other nondiscriminatory definition of compensation that satisfies the requirements Treas. Reg. 1.415-2(d). 4. Section 3.7 is deleted and a new Section 6.3 is added to read as follows: Contribution Limitations Under Section 401(m) of the Code. (a) Average Contribution Percentage Test. The "Average Contribution Percentage", as determined under subsection (b), for the group of Employees who are Highly Compensated Employees shall not exceed for any Plan Year after 1993 the greater of -2- 3 (1) The Average Contribution Percentage for the group of Non-Highly Compensated Employees times 1.25; or (2) The Average Contribution Percentage for the group of Non-Highly Compensated Employees times 2.0; provided, however, that the Average Contribution Percentage for the group of Highly Compensated Employees does not exceed the Average Contribution Percentage for the group of Non-Highly Compensated Employees by more than two percentage points. For purposes of the foregoing tests and subsection (b), an "Employee" includes any Employee eligible to make voluntary savings contributions pursuant to Article III at any time during the Plan Year, even if he or she in fact declined to make such contributions. In addition, to the extent prohibited by Treasury regulations, paragraph (2) of this subsection (a) may not be applied to satisfy both the Average Contribution Percentage described above and the average deferral percentage test with respect to a cash or deferred arrangement under Code Section 401(k) maintained by an Employer or Related Employer. (b) Excess Contributions. The Average Contribution Percentage for a specified group of Employees for a Plan Year shall be the average of the ratios (calculated separately for each Employee in such group) of: (1) The sum of (i) the Employee's voluntary savings contributions (pursuant to Article III) and (ii) the Employee's share of Employer Basic Contribution or Imputed Employer Contribution, as the case may be, actually paid to the Trustee on behalf of such Employee for such Plan Year (together, "Aggregate Contributions"), to (2) his or her Compensation for the Plan Year. For the purpose of determining the above-described ratio ("Contribution Percentage") with respect to a Highly Compensated Employee, the Aggregate Contributions and Compensation of such Highly Compensated Employee shall included the Aggregate Contributions and Compensation of said Employee's family members (as described in Code Section 414(q)(6)(B)), and such affected family members shall be disregarded in determining the Average Contribution Percentage for the group of Non-Highly Compensated Employees. (c) If more than one plan providing for matching contributions or employee contributions (within the meaning of Section 401(m) of the Code) is maintained by the Employer or a Related Employer (other than a plan which is not permitted to be aggregated with this Plan under Treas. Reg. Section 1.401(m)-1(b)(3)(ii)), the individual ratio of any Highly Compensated Employee who participates in more than one such plan shall, for purposes of determining the individual's Contribution Percentage, be determined as if all such plans were a single plan with respect to the Plan Years ending with or within the same calendar year. (d) The Committee shall have the responsibility of determining the extent, if any, to which either of the tests described in subsection (a) may not be met with respect to Employees' Average Contribution Percentages. If, in the discretion of the Committee, it is determined that Aggregate Contributions made on behalf of Highly Compensated Employees do not satisfy one of the tests in subsection (a), then Aggregate Contributions with respect to Highly Compensated Employees shall be refunded in -3- 4 uniform percentage increments, commencing with the Aggregate Contributions of the group of Highly Compensated Employees with the highest percentages of Aggregate Contributions, and then the Aggregate Contributions of the group of Highly Compensated Employees with the next highest of such percentages, and so on, until it is determined by the Committee that the Plan will satisfy one of the Average Contribution Percentage tests set forth in subsection (a). Each reduction at a stated percentage level will apply to all Highly Compensated Employees at that level regardless of whether their Contribution Percentages have been reduced from higher levels. The Committee shall accomplish the reductions as described above by distributing to each affected Highly Compensated Employee that portion of his or her Aggregate Contribution (plus any income and minus any loss allocable thereto in a manner consistent with Treasury regulations, if any) necessary to meet the requirements of one of the Average Contribution Percentage tests in subsection (a) on or before March 15 of the following Plan Year. If such distribution is not made, it must in all events be made no later than the close of said following Plan Year. (e) Definitions. For purposes of this Section 6.3, the following terms shall have the meanings set forth below: (1) "Compensation" shall mean any of the following, as determined by the Committee in a uniform manner with respect to all Employees for the Plan Year: (A) The Compensation or wages paid to an Employee for the Plan Year by reason of his or her employment by the Employer including overtime pay and commissions, before any payroll deductions, including elective deferrals contributions and/or salary reduction contributions, if any, to a plan or plans described in Section 125 or 401(k) of the Code, but excluding bonuses, expense reimbursements and contributions (other than elective deferral contributions to a cash or deferred arrangement described in Section 401(k) of the Code) made by the Employer to any employee benefit plan other than this Plan. (B) The Employee's taxable compensation from the Employer reported on Form W-2 for the Plan Year, or (C) Such other nondiscriminatory definition of compensation which satisfies the requirements of Code Section 414(s) and the regulations hereunder. Notwithstanding the foregoing, in no event shall the Compensation of any Employee as determined for purposes of this Section 6.3 and taken into account for any Plan Year exceed $150,000, increased by the applicable cost-of-living adjustment, if any, for the calendar year sanctioned by Code Section 401(a)(17). In determining the Compensation of an Employee, any Compensation paid by the Employer to the spouse or lineal descendant (who has not attained age 19 before the close of the Plan Year) of an Employee who is (i) a 5% owner as defined in section 416(i) of the Code or (ii) one of the 10 employees of the Employer paid the greatest Compensation during the Plan Year shall be treated as Compensation paid to such Employee. If, as the result of the application of the foregoing sentence the applicable dollar limitation is exceeded, then such limitation shall be prorated among the affected individuals in -4- 5 proportion to each such individual's Compensation as determined for purposes of this Plan prior to the application of the dollar limitation. (2) "Highly Compensated Employee" means, with respect to a particular Plan Year, an Employee who is not represented for purposes of collective bargaining by a labor union and who (i) during the Plan Year or other "determination year" as described in the regulations to Code Section 414(1) is among the 100 employees receiving the most compensation from the Employer and is a highly compensated employee as defined by Code Section 414(q) and the regulations thereunder or (ii) during the 12-month period preceding the applicable determination year (the "look-back year") is a highly compensated employee as defined in Code Section 414(q) and the regulations thereunder. The Committee may, in its discretion and consistent with regulations under Code Section 414(q) or other guidance issued by the Secretary of the Treasury, elect to make a look-back year calculation for a determination year on the basis of the calendar year ending with or within the applicable determination year. (3) "Non-Highly Compensated Employee" means an Employee who is not represented for purposes of collective bargaining by a labor union, and who is not a Highly Compensated Employee as defined in (2) above. 5. Section 7.1 is amended by deleting the words "As of January 1 following the calendar year" in each plan in which it appears, and by inserting the following in lieu thereof: "As of December 31 of the calendar year" 6. Section 7.1 is further amended by deleting the test of subsection (a) and inserting the following in lieu thereof: (a) As of December 31 of the calendar year in which the Participant completes 35 years of participation in the Plan; 7. Effective January 1, 1994, Subparagraph 10.1(b) is amended to read as follows: (b) Imputed Employer Contribution. A Participant described in Section 10.1(a) shall be eligible to share in the allocation of the Imputed Employer Contribution only if he or she in fact made voluntary savings contributions pursuant to Article III (including weekly cash payments in lieu of payroll deductions pursuant to subsections 3.2(b) and (c)) which were allocated to his or her Participant Savings Account for the Plan Year for which the Imputed Employer Contribution is made. The Imputed Employer Contribution which shall be credited with respect to an eligible 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 -5- 6 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). 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). Effective for the Imputed Employer Contribution for the 1994 and subsequent Plan Years, that portion of the Imputed Employer Contribution made with respect to any Participant who is a Highly Compensated Employee which, when combined with the Participant's voluntary savings contributions for the Plan Year pursuant to Article III, exceeds the contribution limitations for Highly Compensated Employees pursuant to Section 6.3, shall be distributed to such Participant in accordance with the provisions of that Section. 8. Section 19.2(i) is amended to read as follows: "Total Compensation" is the Participant's compensation as defined in Section 415(c)(3) of the Code, but shall not be greater than the applicable annual dollar limitation prescribed in Code Section 401(a)(17). 9. Section 19.5 is deleted. IN WITNESS WHEREOF, United Parcel Service of America, Inc., based upon the action by the Board of Directors, has caused this Amendment No. 19 to be executed this 2nd day of December 1994. ATTEST: UNITED PARCEL SERVICE OF AMERICA, INC. By: ---------------------------- ------------------------------ Secretary Chairman -6- EX-10.(B)(12) 4 AMENDMENT # 16 TO THE UPS RETIREMENT PLAN 1 EXHIBIT 10(b)(12) AMENDMENT NO. 16 TO THE UPS RETIREMENT PLAN (As Amended and Restated January 1, 1976) WHEREAS, United Parcel Service of America, Inc. and its affiliated corporations established the UPS Retirement Plan ("Plan") for the benefit of their eligible employees, in order to provide benefits to those employees upon their retirement, disability or death, effective as of September 1, 1961; and WHEREAS, the Plan was amended and restated in its entirety, replacing all of the provisions of the Plan then in effect, effective as of January 1, 1976, to comply with the Employee Retirement Income Security Act of 1974 ("ERISA"); and WHEREAS, the Plan has been amended further since January 1, 1976, the most recent being Amendment No. 15, executed August 13, 1992; and WHEREAS, it is desired to amend the Plan further (i) to revise in their entirety the Plan's disability benefit provisions; and (ii) to provide to distributees of eligible rollover distributions from this Plan the option of transferring such distributions directly to another eligible retirement plan; NOW THEREFORE, pursuant to the authority vested in the Board of Directors by Section 7.1 of the Plan, the Plan is hereby amended as follows, effective January 1, 1993: 2 1. Section 4.4(a) is amended by adding the words "or Total Disability" immediately following the words "if (i) his employment is terminated other than by reason of death. . ." 2. Sections 4.5, 4.6 and 4.7 of the Plan are revised in their entirety to read as follows: Section 4.5 Disability Benefit. (a) Eligibility. Each Participant in this Plan with at least one Hour of Service as an Employee on or after January 1, 1993, other than a Participant whose terms and conditions of employment are governed by a collective bargaining agreement unless said agreement specifically provides for the Disability Benefit described herein, shall, in the event of his or her termination of employment by reason of Total Disability following five (5) or more Years of Service, be eligible for the Disability Benefit described in this Section 4.5. Any Participant not described in the preceding sentence whose employment is terminated by reason of Total Disability after completion of ten (10) or more Years of Service but prior to his or her Early Retirement Date shall be eligible for the Supplemental Disability Income Benefit described in Section 4.7. (b) In General. In the event that a Participant with five (5) or more Years of Service terminates employment prior to his or her Normal Retirement Date by reason of his or her Total Disability as defined in Section 4.6, he or she may elect to receive a Disability Benefit in a monthly amount determined under subsection 5.4(a) commencing on his or her Disability Date and continuing for his or her Period of Disability as defined in subsection 4.5(d). (c) Disability Date. A Participant's Disability Date shall be the first day of any month following the date which is six (6) months following the Participant's cessation of work with an Employer Company as the re- -2- 3 sult of Total Disability; provided, however, that a Participant's Disability Date shall not be earlier than the date on which the Participant's salary or wage continuation or other temporary disability benefit from the Employer Company ends. Notwithstanding the foregoing, the Committee may provide nondiscriminatory rules by which a Participant's Disability Date may be prior to six months following the Participant's cessation of work due to Total Disability, provided that he or she is not then receiving salary or wage continuation payments or temporary disability benefits from the Employer Company. (d) Period of Disability. A Participant's Period of Disability shall begin on his or her Disability Date and shall end when any one of the following occurs: (1) The Participant ceases to be Totally Disabled or dies; (2) The Participant attains his or her Normal Retirement Date; (3) The Participant begins working in any gainful occupation for which the Participant is fitted by his or her education, training or experience, or for which he or she could reasonably become fitted (work at a rehabilitation program, as approved by the Committee, will not count as work in any reasonable occupation); (4) The Participant is no longer under the care of a physician; or (5) The Participant does not furnish to the Committee upon request the latest proof of his or her continuing Total Disability, or refuses to be examined by a physician designated by the Committee for the purpose of determining whether he or she continues to be Totally Disabled. (e) Coordination and Transitional Rules. Notwithstanding any provision of this Plan to the contrary, no Disability Benefit shall be paid for any period of time during which the Participant is receiving benefits under any short-term or long-term disability plan or similar program sponsored by an Employer Company or to which the Employer -3- 4 Company contributes. In the case of a Participant who had, as of January 1, 1993, been receiving long-term disability benefits under the UPS Long-Term Disability Plan ("LTD Plan"), he or she shall, effective as of such date, commence to receive the Disability Benefit described herein; provided however, (1) that he or she, at such time and thereafter, remains Totally Disabled and otherwise eligible for a Disability Benefit from this Plan, and (2) the amount of the Participant's monthly long-term disability benefit from the LTD Plan is reduced by the amount of the monthly Disability Benefit payable for the same time period. Section 4.6 Total Disability. (a) In General. A Participant shall be considered Totally Disabled if he or she is unable to work, as described below, as the result of a medically-determinable physical or mental impairment, which requires the Participant to be under the care of a physician (a "Total Disability"). During the first 24 months that a Participant is Totally Disabled, he or she will be considered unable to work if he or she cannot work at the same type of occupation in which he or she normally engages, provided that the Participant is unable to work comparable hours performing alternate work, if available, provided by the Employer Company in accordance with its employment policies applied on a non-discriminatory basis to employees similarly situated. After the first 24 months that a Participant is Totally Disabled, he or she will be considered to be unable to work only if he or she is unable to work at any gainful occupation for which the Participant is fitted by his or her education, training or experience, or for which he or she could reasonably become fitted. Notwithstanding the foregoing, a Participant will not be considered Totally Disabled if, at any time after the first 24 months of Total Disability, it is determined by the Committee that the Participant's disability is not at that time caused by a physical impairment which can be demonstrated by clinical and laboratory diagnosis. A mental or -4- 5 nervous condition is not a physical impairment. (b) Proof of Disability. The Committee shall have the discretion and authority to determine whether a Participant is or remains Totally Disabled. For this purpose, the Committee may require the Participant to submit to an examination by a physician of the Committee's choosing, and may request any and all medical records and other pertinent information. Following a determination of Total Disability, the Committee may periodically require the Participant to submit proof of continued Total Disability, and may determine that a Participant is no longer disabled if he or she fails to comply with this requirement. Section 4.7 Supplemental Disability Income Benefit for Certain Participants. (a) In General. In the case of a Participant who is not among the class of individuals eligible for the Disability Benefit described in Section 4.5, he or she shall, in the event that his or her employment as an Employee is terminated by reason of his or her Total Disability (as described in subsection (d) below) after completion of ten (10) or more Years of Service but prior to his or her Early Retirement Date, receive a monthly Supplemental Disability Income Benefit as described in this Section 4.7. Notwithstanding the foregoing, no Supplemental Disability Income Benefit shall be paid to any Participant for any period of time during which the Participant is receiving benefits under any short-term or long-term disability plan or program (including, but not limited to, the Disability Benefit described at Section 4.5) sponsored by an Employer Company or to which the Employer Company contributes. (b) Amount. The Supplemental Disability Income Benefit shall consist of a monthly benefit, payable for the period of time described in subsection (c) below, equal to the amount determined by multiplying $9.60 ($8.00 in the case of Total Disability commencing prior to January 1, 1978) by the number of -5- 6 years of Benefit Service to a maximum of 25, completed by the Participant prior to becoming Totally Disabled. (c) Duration. The Supplemental Disability Income Benefit shall be paid monthly to the disabled Participant, commencing on his or her Disability Date and ending as of the first to occur of the Participant's death, attainment of age 55 or the month in which his or her Period of Disability ends. Thereafter, the Participant may apply for and receive an Early or Normal Retirement Benefit, or Deferred Vested Benefit, the amount of which shall be calculated based on the Participant's Years of Benefit Service earned prior to becoming Totally Disabled, but shall not be reduced on account of the Supplemental Disability Income Benefit previously payable. Similarly, the surviving spouse of a Participant who dies while receiving the Supplemental Disability Income Benefit may receive the Qualified Joint and Survivor (Husband and Wife) Preretirement Survivor Benefit in accordance with the terms of Section 5.5 commencing on what would have been the Participant's Early Retirement Date. In no event shall a Participant receive simultaneously a Supplemental Disability Income Benefit and an Early or Normal Retirement Benefit, or Deferred Vested Benefit. (d) The terms "Disability Date," "Period of Disability" and "Total Disability" shall have the same meanings as described in subsections 4.5(c), 4.5(d) and Section 4.6, respectively, except that, for Participants who became disabled prior to January 1, 1993, "Total Disability" shall have the same meaning as the term "total and permanent disability" as defined by Section 4.6 prior to its amendment by Amendment No. 15 to this Plan. 3. Subsection 5.3(a) is amended as follows: a. The first sentence of paragraph (1) is amended by deleting the words "Annuity Starting Date of a Participant's Normal or Early Retirement Benefit, or Deferred Vested Benefit," -6- 7 and by substituting in lieu thereof the words "Annuity Starting Date of a Participant's Normal or Early Retirement Benefit, Deferred Vested Benefit or Disability Benefit." b. A new paragraph (3) is added to read as follows: (3) Notwithstanding the foregoing, see subsection 5.4(b) for special rules relating to the payment of Disability Benefits. 4. Subsection 5.3(d) is amended by deleting the words "his or her vested Normal Retirement Benefit or Deferred Vested Benefit" and by substituting in lieu thereof the words "his or her vested Normal Retirement Benefit, Deferred Vested Benefit or Disability Benefit." 5. Section 5.4 is amended in its entirety to read as follows: Section 5.4 Disability Benefit. (a) Amount. The amount of the monthly benefit to which a Participant is entitled under Section 4.5 because of Total Disability shall be equal to one-twelfth of the Participant's Normal Retirement Benefit calculated in accordance with the applicable benefit formulas under paragraphs (1) or (2) of subsection 5.2(a) (whichever produces the larger amount), modified as follows: (1) The Participant's years of Benefit Service (defined in subsection 1.1(l) hereof) shall be the greater of: (A) the actual number of years of Benefit Service earned by the Participant as of his or her Disability Date; or -7- 8 (B) the number of years of Benefit Service indicated in the following table:
Age of Participant at Disability Date Years of Benefit Service ------------------ ------------------------ 50 or younger 15 51 14 52 13 53 12 54 11 55 10 56 9 57 8 58 7 59 6 60 or older 5
(2) There shall be no reduction in the amount of the Participant's Disability Benefit on account of its commencement prior to the Participant's Normal Retirement Date. (b) Form and Duration of Payments. (1) The Disability Benefit shall be paid in monthly installments, in the amount described in subsection 5.4(a), beginning as of the Participant's Disability Date. The last payment of the Participant's Disability Benefit shall be made as of the first day of the month in which the Participant's Period of Disability ends. (2)(A) If the Participant's Period of Disability ends as the result of his or her attainment of his or her Normal Retirement Date, the Participant shall thereafter be able to receive a Normal Retirement Benefit, commencing no earlier than the first day of the month following the cessation of his or her Disability Benefit, in an amount determined under subsection 5.2(a) taking into account all Benefit Service which had, pursuant to subsection 5.4(a), been taken into account in determining the amount of his or her Disability Benefit. -8- 9 (B) If the Participant is married on the Annuity Starting Date of his or her Normal Retirement Benefit, such benefit shall be paid in the form of a Qualified Joint and Survivor (Husband and Wife) Benefit unless the Participant, at any time within the 90-day period ending on the Annuity Starting Date, makes an election, in the form prescribed in paragraph 5.3(b)(1), to waive such payment form in favor of an alternate payment form available under subsection 5.3(b). (C) If the Participant is not married on the Annuity Starting Date of his or her Normal Retirement Benefit, such benefit shall be paid in the form of a single life annuity, unless he or she elects, at any time within the 90-day period ending on the Annuity Starting Date, to receive a reduced monthly benefit payable in the form of a single life annuity with a guarantee of 120 monthly payments, as described in paragraph 5.3(a)(2). (D) If the Participant should die while Totally Disabled but prior to his or her Disability Date, or else should die during his or her Period of Disability but prior to the Annuity Starting Date of his or her Normal Retirement Benefit, his or her surviving spouse, if any, shall be eligible to receive the Qualified Joint and Survivor (Husband and Wife) Preretirement Survivor Benefit in accordance with and commencing at the time described in Section 5.5; provided however, that the amount of such benefit shall be calculated based on all years of Benefit Service which had, pursuant to subsection 5.4(a), been taken into account in determining the amount of the Participant's Disability Benefit. (E) The written explanation described in subsection 5.3(c) shall be provided to the Participant within 90 days prior to the Annuity Starting Date of the Participant's Normal Retirement Benefit. (3)(A) If the Participant's Period of Disability should end prior to his or her Normal Retirement Date (other than by reason of death), the Participant may, in -9- 10 accordance with the applicable terms of this Plan, thereafter apply for and receive an Early or Normal Retirement Benefit, or Deferred Vested Benefit, as the case may be, the amount of which shall be calculated based on the Participant's actual years of Benefit Service earned prior to becoming Totally Disabled, but shall not be reduced on account of the Disability Benefit previously payable. (B) Similarly, in the event the Participant should die following the end of his or her Period of Disability (and the cessation of his or her Disability Benefit) but prior to the Annuity Starting Date of his or her Early or Normal Retirement Benefit or Deferred Vested Benefit, the Participant's surviving spouse, if any, shall be eligible to receive the Qualified Joint and Survivor (Husband and Wife) Preretirement Survivor Benefit in accordance with and commencing at the time described in Section 5.5, the amount of which shall be calculated based on the Participant's actual years of Benefit Service earned prior to becoming Totally Disabled, but shall not be reduced on account of the Disability Benefit previously payable. (4) In no event shall a Participant receive simultaneously a Disability Benefit and an Early or Normal Retirement Benefit, or Deferred Vested Benefit. 6. Section 5.12 is revised in its entirety to read as follows: Section 5.12 Withholding of Income Tax. (a) Notification of Withholding of Federal Income Tax. All Participants and beneficiaries entitled to receive benefits under the Plan shall be notified of the Plan's obligation to withhold federal income tax from any benefits payable pursuant to the terms of the Plan. Such notice shall be in writing, be given at the times set forth in subsection (b) and contain the information set forth in subsection (c) of this Section. -10- 11 (b) Time of Notice. The notice described in subsection (a) shall be provided not earlier than six months before such payment is to be made and not later than the time the Participant or beneficiary is furnished with his or her claim for benefits application. (c) Content of the Notice. The notice required by subsection (a) shall, at a minimum: (1) with respect to any distribution which is an eligible rollover distribution within the meaning of Code Section 3405(c)(3) (other than an eligible rollover distribution of less than $200 which is exempt from withholding under regulations prescribed by the Secretary of the Treasury), advise the payee that there shall be withheld from such distribution an amount equal to 20 percent thereof (or such other amount as may from time to time be prescribed by the Code, or the Secretary of the Treasury or his delegate), unless the payee directs the Committee to transfer such distribution as a direct rollover to an eligible retirement plan, within the meaning of Section 5.13 hereof, in accordance with such procedures as the Committee may prescribe (a "transfer direction"), (2) with respect to any distribution which is not an eligible rollover distribution within the meaning of Code Section 3405(c)(3): (A) advise the payee of his or her right to elect not to have withholding apply to any payment or distribution and explain the manner in which such election may be made, and include or indicate the source of any forms necessary to make the election; (B) advise the payee of his or her right to revoke such an election at any time; (C) advise the payee that any election remains effective until revoked; (D) advise the payee that penalties may be incurred under the estimated tax payment rules if the payee's payments of estimated -11- 12 tax are not adequate and sufficient tax is not withheld from payments under this Plan; and (E) advise the payee that the election not to have federal income tax withheld from benefits is prospective only and that any election made after a payment or distribution to the payee is not an election with respect to such payment or distribution. (d) Effective Date of Election. Any transfer direction, election or revocation of any election by a payee shall become effective immediately upon receipt by the Committee of the transfer direction, election or revocation. Thereafter, the Committee shall, unless otherwise provided by applicable law, regulation or other guidance by the Secretary of the Treasury or his delegate, instruct the Trustee to withhold federal income tax in accordance or consistent with the instructions filed by the payee. (e) Failure to Make Election. (1) In the case of an eligible rollover distribution, if the payee fails to provide the Committee with a transfer direction, the Committee shall instruct the Trustee to withhold an amount equal to 20% of the amount of the distribution (or such other amount as may be from time to time prescribed by the Code, or the Secretary of the Treasury or his delegate). (2) In the case of a distribution which is not an eligible rollover distribution, if the payee fails to provide the Committee with a withholding certificate, the Committee shall instruct the Trustee to withhold, in the case of a periodic distribution, the amount which would be required to be withheld from such payment if such payment were a payment of wages by an employer to an employee for the appropriate payroll period, determined as if the payee were a married person claiming three withholding allowances. In the case of a nonperiodic distribution, 10% of the amount of the distribution shall be withheld. -12- 13 (f) Coordination with Internal Revenue Code and Regulations. Notwithstanding the foregoing, the Committee shall discharge its withholding and notice obligations in accordance with the Code and regulations and such other guidance with respect thereto as may be promulgated from time to time by the Secretary of the Treasury or his delegate. 7. A new Section 5.13 is added to read as follows: Section 5.13 Direct Rollover. (a) With respect to any distribution described in this Article V which constitutes an eligible rollover distribution within the meaning of Code Section 401(a)(31)(C), the distributee thereof shall, in accordance with procedures established by the Committee, be afforded the opportunity to direct that such distribution be transferred directly to the trustee of an eligible retirement plan (a "direct rollover"). For purposes of the foregoing sentence, an "eligible retirement plan" is (1) a qualified trust within the meaning of Code Section 402 which is a defined contribution plan the terms of which permit the acceptance of rollover distributions, (2) an individual retirement account or annuity within the meaning of Code Section 408 (other than an endowment contract), or (3) an annuity plan within the meaning of Code Section 403(a), which is specified by the distributee in such form and at such time as the Committee may prescribe. (b) Notwithstanding the foregoing, if the distributee elects to have his or her eligible rollover distribution paid in part to him or her and paid in part as a direct rollover: (A) The direct rollover must be in an amount of $500 or more. (B) A direct rollover to two or more eligible retirement plans shall not be permitted. (c) The Committee shall, within a reasonable period of time prior to making an -13- 14 eligible rollover distribution from this Plan, provide a written explanation to the distributee of the direct rollover option described above, as well as the provisions under which such distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date on which the distributee received the distribution. 8. Subsection 12.2(d) is amended as follows: (a) The first sentence of the first paragraph is amended to read as follows: "Retired Participant" means, for purposes of this Article XII, an individual who (i) was a Participant who was actively employed by an Employer Company until his or her Early, Normal or Postponed Retirement Date, or until his or her termination of employment following 10 or more Years of Service by reason of Total Disability, (ii) in the case of a Participant who first became an employee on or after January 1, 1989, had at least 10 Years of Service with an Employer Company and at least one Year of Service as a Participant in this Plan, (iii) retired from employment with an Employer Company and was thereupon immediately eligible to receive an Early or Normal Retirement Benefit, or Disability Benefit, hereunder. (b) The third sentence of the penultimate paragraph thereof is amended to read as follows: A Participant's retirement from employment with the Employer Company at or after his or her Early or Normal Retirement Date, or prior to such date by reason of Total Disability following 10 or more Years of Service, with the immediate right to receive a Retirement or Disability Benefit hereunder, or the death of a Participant following attainment of his or her Early Retirement Date while still employed by an Employer Company (with, in each case, the additional requirement that a -14- 15 Participant who first became an Employee on or after January 1, 1989 must have completed at least 10 Years of Service with an Employer Company, at least one of which was as a Participant in this Plan), are conditions to eligibility for Medical Benefits under this Article XII. (c) The present text of subsection 12.2(d) (modified as hereinabove provided) is designated as paragraph (2), and a new paragraph (2) is added to read as follows: (2) A Participant who is a Retired Participant because of his or her termination of employment by reason of Total Disability shall cease to be a Retired Participant when his or her Period of Disability ends. In such event, and subject to Section 12.3 in the event the Participant's Period of Disability ends by reason of his or her death, Medical Benefits under this Article XII shall cease to be paid for claims incurred by the Participant, or his or her Covered Dependents, on or after the end of the month in which his or her Period of Disability ends. In WITNESS WHEREOF, United Parcel Service of America, Inc. based upon action by its Board of Directors, has caused this Amendment No. 16 to be executed this day of , 1993. ATTEST: UNITED PARCEL SERVICE OF AMERICA, INC. By: ---------------------------- ------------------------------ Secretary Chairman -15- EX-10.(B)(13) 5 AMENDMENT # 17 TO THE UPS RETIREMENT PLAN 1 EXHIBIT 10(b)(13) AMENDMENT NO. 17 TO THE UPS RETIREMENT PLAN (As Amended and Restated January 1, 1976) WHEREAS, United Parcel Service of America, Inc. and its affiliated corporations established the UPS Retirement Plan ("Plan") for the benefit of their eligible employees, in order to provide benefits to those employees upon their retirement, disability or death, effective as of September 1, 1961; and WHEREAS, the Plan was amended and restated in its entirety, replacing all of the provisions of the Plan then in effect, effective as of January 1, 1976, to comply with the Employee Retirement Income Security Act of 1974 ("ERISA"); and WHEREAS, the Plan has been amended further since January 1, 1976, the most recent being Amendment No. 16, effective as of January 1, 1993; and WHEREAS, it is desired to amend the Plan further to reflect the reduction, pursuant to Code Section 401(a)(17), in Compensation which may be taken into account for Plan purposes effective as of January 1, 1994; NOW THEREFORE, pursuant to the authority vested in the Board of Directors by Section 7.1 of the Plan, the Plan is hereby amended as follows, effective January 1, 1994: 1. Subsection 1.1(y) of the Plan is revised by deleting in its entirety the penultimate paragraph thereof (relating to the $200,000 Compensation limitation) and by adding the following paragraphs to the end thereof: For the purpose of calculating a Participant's accrued benefit for any Plan Year commencing on or after January 1, 1989, in no event shall the Compensation of any Participant taken into account under the Plan exceed the following dollar amounts:
Plan Year Compensation Limit --------- ------------------ 1989 $200,000 1990 $209,200 1991 $222,220 1992 $228,860
2 1993 $ 235,840 1994 $ 150,000 1995 and later years $ 150,000, increased by the applicable cost-of-living adjustment, if any, for the calendar year sanctioned by Code Section 401(a)(17).
In determining the Compensation of a Participant, the rules of Section 414(q)(6) of the Code shall apply, except that in applying such rules, the term "family" shall include only the Participant's spouse and any lineal descendants of the Participants who have not attained age 19 before the close of the Plan Year. If, as a result of the application of such rules the applicable Compensation limitation is exceeded, then such limitation shall be prorated among the affected individuals in proportion to each such individual's Compensation as determined under this subsection 1.1(y) prior to the application of this limitation. In determining a Participant's Final Average Compensation, the $150,000 Compensation limitation shall apply retroactively with respect to Compensation earned prior to 1994 by a Participant with at least one Hour of Service on or after January 1, 1994. Similarly, the $200,000 Compensation limitation shall be applied retroactively with respect to Compensation earned prior to 1989 by a Participant with at least one Hour of Service on or after January 1, 1989 (but without any Hours of Service on or after January 1, 1994). However, a Participant's Benefit shall not be less than that which he or she had accrued or earned as of December 31, 1993 (December 31, 1988 in the case of a Participant without at least one Hour of Service on or after January 1, 1994), based on his or her Benefit Service and Final Average Compensation determined as of such date. 2. The first paragraph of subsection 5.7(b)(1) is amended by deleting the phrase "(ii) 100% of the Participant's average compensation (as defined in Treasury Regulation Section 1.415-2(d) paid for three consecutive calendar years during which he was an active Participant in the Plan, and in which he received the greatest aggregate compensation from the Employer Company, subject to the following:", and by substituting in lieu thereof the following: (ii) 100% of the Participant's average compensation (as defined in Treasury Regulation Section 1.415-2(d) and reduced, if necessary, to reflect the applicable annual compensation limitation set forth in subsection 1.1(y) of this Plan paid for the three consecutive calendar years during which he was an active Participant in the Plan, and in which he received the greatest aggregate compensation (as defined above) from the Employer Company, subject to the following: -2- 3 3. Subsection 5.7(b)(2) as amended in the following respects: a. Subparagraph (A)(II) is revised by deleting the phrase "(ii) the product of 1.4 multiplied by an amount equal to 100% of the Participant's average compensation for the three consecutive calendar years during which he participated in the Plan and in which he had the greatest aggregate compensation from the Employer Company," and by substituting in lieu thereof the following: (ii) the product of 1.4 multiplied by an amount equal to 100% of the Participant's average compensation (as defined in Treasury Regulation Section 1.415-2(d) and reduced, if necessary, to reflect the applicable annual compensation limitation set forth in subsection 1.1(y) of this Plan) for the three consecutive calendar years during which he was an active Participant in the Plan, and in which he had the greatest aggregate compensation (as defined above) from the Employer Company. b. Subparagraph (B)(II)(ii) is revised to read as follows: (ii) 1.4 multiplied by 25% of the Participant's compensation (as defined in Section 415(c)(3) of the Code and reduced, if necessary, to reflect the applicable annual compensation limit set forth in subsection 1.1(y) of this Plan) for such limitation year. Subsection 11.2(i) is amended to read as follows: (i) "Total Compensation" is the Participant's compensation as defined in Section 415(c)(3) of the Code, but shall not exceed the applicable dollar amount set forth in subsection 1.1(y) of this Plan. IN WITNESS WHEREOF, United Parcel Service of America, Inc. based upon action by its Board of Directors, has caused this Amendment No. 17 to be executed this 2nd day of December 1994. ATTEST: UNITED PARCEL SERVICE OF AMERICA, INC. By: ---------------------------- ------------------------------ Secretary Chairman -3- EX-10.(X)(6) 6 AMENDMENT # 11 TO THE UPS SAVINGS PLAN 1 EXHIBIT 10(x)(6) AMENDMENT NO. 11 TO THE UPS SAVINGS PLAN WHEREAS, United Parcel Service of America, Inc. ("UPS") and its affiliated corporations established, effective July 1, 1988, the UPS Savings Plan (the "Plan") in order to permit their eligible employees to put money aside on a tax deferred basis to supplement that which they will receive from Social Security and other pension or retirement plans in which they participate; and WHEREAS, the Plan has been amended ten times before, the most recent being Amendment No. 10 adopted on June 3, 1992; and WHEREAS, it is desired to amend the Plan further (i) to permit Participants and certain retired Former Participants to roll over or transfer to the Trust under the Plan amounts which they have received as eligible rollover distributions under Internal Revenue Code Section 402, and (ii) to provide to distributees of eligible rollover distributions from this Plan the option of transferring such distributions directly to another eligible retirement plan; NOW THEREFORE, pursuant to the authority vested in the Board of Directors by Section 9.1 of the Plan, the Plan is hereby amended in the following respects, effective, except as otherwise noted, for distributions made on or after January 1, 1993: 1. Effective July 1, 1994, the second sentence of Section 2 4.1 is amended by deleting the words "pursuant to Participants' Elective Deferrals to the Trustee" and by substituting in lieu thereof the words "pursuant to the Participant's Elective Deferrals, as well as any amounts contributed pursuant to Section 4.12." 2. Effective July 1, 1994, a new Section 4.12 is added to Article IV to read as follows: Section 4.12 Rollovers from Qualified Plans. (a) Any Participant may contribute to the Trust an amount consisting of an eligible rollover distribution or transfer from a conduit IRA, provided that the contribution shall not jeopardize the tax-exempt status of the Plan or Trust or create adverse tax consequences for the Employer Company. A Former Participant may contribute to the Trust in accordance with this Section 4.12(a) provided that the Former Participant: (1) ceased to be a Participant as the result of his or her retirement; (2) makes such contribution to the Trust within eighteen (18) calendar months from the date of his or her retirement; and (3) has not otherwise received a distribution of his or her Individual Account pursuant to Section 6.5. (b) Any such contribution shall at all times be fully vested and nonforfeitable. Such contribution shall be invested in the investment options selected by the Participant in accordance with Article IV, in the same percentage amounts as are invested the Participant's Elective Deferrals. (c) For purposes of this Section, an eligible rollover distribution or transfer from a conduit IRA means: (1) an eligible rollover distribution, -2- 3 within the meaning of Code Section 402, which is transferred to this Plan by the Participant no later than sixty (60) days following the day on which the Participant received the property distributed; (2) an eligible rollover distribution, within the meaning of Code Section 402, which is transferred to this Plan directly by another qualified trust at the Participant's direction; or (3) an amount transferred to this Plan, within sixty (60) days of the Participant's receipt of distribution thereof, from an individual retirement account or annuity that has no assets other than assets (together with earnings thereon) which were previously distributed to the Participant as an eligible rollover distribution and which were deposited in such conduit individual retirement account or annuity within sixty (60) days of such previous distribution. For purposes of an eligible rollover distribution described in (1) above, the Participant may contribute an amount equal to the gross amount of the distribution, notwithstanding that a portion of the distribution may have been subject to mandatory income tax withholding. 3. A new Section 6.8 is added to Article VI to read as follows: 6.8 Direct Rollover. (a) With respect to any distribution of $200 or more described in this Article VI which constitutes an eligible rollover distribution within the meaning of Code Section 401(a) (31) (C), the distributee thereof shall, in accordance with procedures established by the Committee, be afforded the opportunity to direct that such distribution be transferred directly to the trustee of an eligible retirement plan (a "direct rollover"). For purposes of the foregoing sentence, an "eligible retirement plan" is (1) a qualified trust within the meaning of Code Section 402, which is a defined contribution plan the terms of which permit the acceptance of rollover distributions, (2) an individual retirement account or annuity within the meaning of Code Section 408 (other than an endowment contract), or (3) an annuity plan within the meaning of Code Section 403 (a), which is specified by the distributee in such form and at such time as the Committee may prescribe. -3- 4 (b) Notwithstanding the foregoing, if the distributee elects to have his or her eligible rollover distribution paid in part to him or her and paid in part as a direct rollover: (1) The direct rollover must be in an amount of $500 or more; and (2) A direct rollover to two or more eligible retirement plans shall not be permitted. (c) The Committee shall, within a reasonable period of time prior to making an eligible rollover distribution from this Plan, provide a written explanation to the distributee of the direct rollover option described above, if applicable, as well as the provisions under which such distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date on which the distributee received the distribution. 4. Section 11.8 is revised in its entirety to read as follows: Section 11.8 Withholding of Income Tax. (a) Notification of Withholding of Federal Income Tax. All Participants and beneficiaries entitled to receive benefits under the Plan shall be notified of the Plan's obligation to withhold federal income tax from any benefits payable pursuant to the terms of the Plan. Such notice shall be in writing, be given at the times set forth in subsection (b) and contain the information set forth in subsection (c) of this Section. (b) Time of Notice. The notice described in subsection (a) shall be provided not earlier than six months before such payment is to be made and not later than the time the Participant or beneficiary is furnished with his or her claim for benefits application. (c) Content of the Notice. The notice required by subsection (a) shall, at a minimum: (1) with respect to any distribution which is not an eligible rollover distribution within the meaning of Code Section 3405(c) (3) (other than an eligible rollover distribution of less than $200 which is exempt from withholding under regulations prescribed -4- 5 by the Secretary of the Treasury), advise the payee that there shall be withheld from such distribution an amount equal to 20 percent thereof (or such other amount as may from time to time be prescribed by the Code, or the Secretary of the Treasury or his delegate), unless the payee directs the Committee to transfer such distribution as a direct rollover to an eligible retirement plan, within the meaning of Section 6.8(a) hereof, in accordance with such procedures as the Committee may prescribe (a "transfer direction"), (2) with respect to any distribution which is not an eligible rollover distribution within the meaning of Code Section 3405(c) (3): (A) advise the payee of his or her right to elect not to have withholding apply to any payment or distribution and explain the manner in which such election may be made, and include or indicate the source of any forms necessary to make the election; (B) advise the payee that penalties may be incurred under the estimated tax payment rules if the payee's payments of estimated tax are not adequate and sufficient tax is not withheld from payments under this Plan; and (C) advise the payee that the election not to have federal income tax withheld from benefits is prospective only and that any election made after a payment or distribution to the payee is not an election with respect to such payment or distribution. (d) Effective Date of Elections. Any transfer direction, election or revocation of any election by a payee shall become effective immediately upon receipt by the Committee of the transfer direction, election or revocation. Thereafter, the Committee shall, unless otherwise provided by applicable law, regulation or other guidance by the Secretary of the Treasury or his delegate, instruct the Trustee to withhold federal income tax in accordance or consistent with the instructions filed by the payee. (e) Failure to Make Election. (1) In the case of an eligible rollover distribution, if the payee fails to provide the Committee with a transfer direction, the Committee shall instruct the Trustee to withhold an amount equal to 20% of the amount of the distribution (or such other amount as may be from time to time prescribed by the -5- 6 Code, or the Secretary of the Treasury or his delegate). (2) In the case of a distribution which is not an eligible rollover distribution, if the payee fails to provide the Committee with a withholding certificate, the Committee shall instruct the Trustee to withhold an amount equal to 10% of the amount of the distribution. (f) Coordination with Internal Revenue Code and Regulations. Notwithstanding the foregoing, the Committee shall discharge its withholding and notice obligations in accordance with the Code and regulations and such other guidance with respect thereto as may be promulgated from time to time by the Secretary of the Treasury or his delegate. IN WITNESS WHEREOF, United Parcel Service of America, Inc. has caused this Amendment No. 11 to the Plan to be executed this ___________ day of ____________________, 1993. ATTEST: UNITED PARCEL SERVICE OF AMERICA, INC. By: ---------------------------- ------------------------------ Secretary -6- EX-10.(X)(7) 7 AMENDMENT # 12 TO THE UPS SAVINGS PLAN 1 EXHIBIT 10(x)(7) AMENDMENT NO. 12 TO THE UPS SAVINGS PLAN WHEREAS, United Parcel Service of America, Inc. ("UPS") and its affiliated corporations established, effective July 1, 1988, the UPS Savings Plan (the "Plan") in order to permit their eligible employees to put money aside on a tax deferred basis to supplement that which they will receive under Social Security and other pension and retirement plans; and WHEREAS, the Plan has been amended eleven times before, the most recent being Amendment No. 11 effective as of January 1, 1993; and WHEREAS, it is desired to amend the Plan further to conform to the disclosure requirements with respect to the participant-directed investment of Plan accounts, described in the final regulation to Section 404(c) of ERISA. NOW THEREFORE, pursuant to the authority vested in the Board of Directors by Section 9.1 of the Plan, the Plan is hereby amended in the following respects, effective January 1, 1994: 1. Subsection 4.4 is amended by adding the following sentence immediately prior to the first sentence of subsection (a) thereof: It is intended that the Plan satisfy the conditions for the participant-directed investment of Plan accounts contained in Section 404(c) of ERISA and the regulation thereunder (Labor Regulation Section 2550.404c-1), so as to afford to each Participant the 2 opportunity to exercise control over the assets in his or her Individual Account and to choose, from a broad range of investment alternatives, the manner in which said assets are invested. 2. Section 4.4 is further amended by adding a new subsection (b), to read as follows: (b) In order to provide Participants the opportunity to obtain sufficient information to make informed decisions with regard to investment alternatives available under the Plan: (1) The Committee or its designee shall provide each Participant, by means of the summary plan description or by separate written communication, with the following information: (A) An explanation that the Plan is intended to constitute a plan described in Section 404(c) of ERISA and the regulation thereunder, and that the fiduciaries of the Plan may be relieved of liability for any losses which are the direct and necessary result of investment instructions given by the Participant. (B) With respect to each Investment Option, a general description of the investment objectives and risk and return characteristics of such Investment Option, including information relating to the type and diversification of assets comprising the portfolio of the Investment Option. (C) Identification of the investment manager with respect to each Investment Option. (D) An explanation of the circumstances under which Participants may give investment instructions and any limitations or restrictions on such instructions, including any restrictions with -2- 3 respect to transfers to or between Investment Options, and, if voting, tender or similar rights with respect to investments held in an Investment Option are passed through to Participants, any restrictions on such rights. (E) A description of any transaction fees and expenses which affect the Participant's Account balance in connection with the purchase or sale of interests in the several Investment Options (e.g., commissions, sales loads, deferred sales charges, redemption or exchange fees). (F) The name, address and telephone number of the Plan fiduciary (or its designee) which is responsible for the provision of information upon request as described in paragraph (2) below. (G) Such other information as may be required to be disclosed to Participants, with respect to an Investment Option, in accordance with Labor Regulation Section 2550.404c-1(b)(2)(B)(1). (2) The Committee or its designee shall provide each Participant with the following information upon request, based on the latest information available to the Plan: (A) A description of the annual operating expenses of each Investment Option (e.g., investment management or administrative fees, transaction costs) which reduce the Option's rate of return to Participants and beneficiaries, and the aggregate amount of such expenses expressed as a percentage of the average net assets of the Investment Option. (B) Copies of prospectuses, financial statements and reports relating to the available Investment Options, to the extent such information is provided to the Plan. -3- 4 (C) A list of the assets comprising the portfolio of Investment Option A (fixed rate investment fund), the value of each such asset (or the proportion of the fund which it comprises) and, with respect to each fixed rate investment contract held in such fund, the name of the issuing bank, savings and loan association or insurance company, the term of the contract and the rate of return on the contract. (D) With respect to any other Investment Option the assets comprising the portfolio of which are "plan assets" within the meaning of Labor Regulation Section 2510.3-101, a list of such assets and the value of each such asset, or the proportion of the portfolio which it comprises. (E) Information regarding the past and current investment performance of each Investment Option. (F) Information regarding the value of the Participant's Account invested in each Investment Option. (G) Such other information as may be required to be disclosed upon request to Participants, with respect to an Investment Option, in accordance with Labor Regulation Section 2550.404c-1(b)(2)(B)(2). IN WITNESS WHEREOF, United Parcel Service of America, Inc. has caused this Amendment No. 12 to the Plan to be executed this day of 1994. ATTEST: UNITED PARCEL SERVICE OF AMERICA, INC. By: ---------------------------- ------------------------------ -4- EX-10.(X)(8) 8 AMENDMENT # 13 TO THE UPS SAVINGS PLAN 1 EXHIBIT 10(x)(8) AMENDMENT NO. 13 TO THE UPS SAVINGS PLAN WHEREAS, United Parcel Service of America, Inc. ("UPS") and its affiliated corporations established, effective July 1, 1988, the UPS Savings Plan (the "Plan") in order to permit their eligible employees to put money aside on a tax deferred basis to supplement that which they will receive under Social Security and other pension and retirement plans; and WHEREAS, the Plan has been amended twelve times before, the most recent being Amendment No. 12 effective as of January 1, 1994; and WHEREAS, it is desired to amend the Plan further to add the Fidelity Magellan Fund as an additional investment option available to Participants. NOW THEREFORE, pursuant to the authority vested in the Board of Directors by Section 9.1 of the Plan, the Plan is hereby amended in the following respects, effective February 1, 1994: 1. Section 4.4(a) is amended as follows: a. The following investment Option E is added, immediately following the description of Options A, B, C and D: OPTION E - the Fidelity Magellan Fund, managed by Fidelity Management & Research Company, consisting primarily of common stocks and securities convertible into common stocks, with the 2 primary objective of capital appreciation. b. The penultimate sentence thereof is revised by deleting the words "among Options A, B, C and D" and by substituting in lieu thereof the words "among Options A, B, C, D and E." 2. Section 4.7 is modified by deleting the words "among Options A, B, C and D" and by substituting in lieu thereof the words "among Options A, B, C, D and E." 3. Section 4.8 is modified by deleting the words "Options A, B, C, and D" in both places where they appear and by substituting in lieu thereof the words "Options A, B, C, D and E. 4. Section 4.10 is modified by deleting the words "among Options A, B, C and D" in each place they appear and by substituting in lieu thereof the words "among Options A, B, C, D and E." IN WITNESS WHEREOF, United Parcel Service of America, Inc. has caused this Amendment No. 13 to the Plan to be executed this day of 1994. ATTEST: UNITED PARCEL SERVICE OF AMERICA, INC. By: ---------------------------- ------------------------------ -2- EX-10.(X)(9) 9 AMENDMANT # 14 TO THE UPS SAVINGS PLAN 1 EXHIBIT 10(x)(9) AMENDMENT NO. 14 TO THE UPS SAVINGS PLAN WHEREAS, United Parcel Service of America, Inc. ("UPS") and its affiliated corporations established, effective July 1, 1988, the UPS Savings Plan (the "Plan") in order to permit their eligible employees to put money aside on a tax deferred basis to supplement that which they will receive under Social Security and other pension and retirement plans; and WHEREAS, the Plan has been amended thirteen times before, the most recent being Amendment No. 13 effective as of February 1, 1994; and WHEREAS, it is desired to amend the Plan further to eliminate the requirement that U. S. Government and U. S. Governmental agency obligations forming a part of the investments in the Fixed Rate Investment Fund be guaranteed as to the repayment of principal and the payment of interest by the full faith and credit of the United States; NOW THEREFORE, pursuant to the authority vested in the Board of Directors by Section 9.1 of the Plan, the Plan is hereby amended in the following respects, effective February 1, 1994: 1. Section 4.4(a) is amended by deleting the description of Investment "Option A" and inserting in lieu thereof the following: "OPTION A - A fixed rate investment fund, as designated by the Committee or its delegate, 2 consisting of fixed interest rate obligations issued by one or more domestic insurance companies or domestic banks each of which satisfies the asset and creditworthiness requirements described below, and collective short-term investment funds which satisfy the creditworthiness requirements described below. The fixed interest rate obligations shall, in accordance with guidelines established by the Committee, consist of either or both of the following: - fixed interest rate contracts under which the payment of interest and principal is backed by the general assets and surplus of the insurance company or bank. - fixed interest rate contracts under which the payment of interest and principal is backed by a separate account or trust portfolio of short-term debt securities which are (i) direct obligations of the United States, (ii) obligations of an agency or instrumentality of the United States, or (iii) securities or receipts evidencing ownership interests in obligations or specified portions (such as principal or interest) of obligations described in (i) or (ii). Each such insurance company or bank issuing a fixed rate obligation described above shall have at least five billion dollars in assets, and shall maintain a minimum Standard & Poor's rating of AA- or a minimum Moody's rating of Aa3. Pending investment in fixed rate obligations described above or for the purpose of providing a source of liquid funds for anticipated transfers, monies invested in Option A may be invested in one or more collective short-term investment funds, the investments under -2- 3 which shall consist of short-term obligations or deposits, with an average maturity of not more than 120 days and a maximum maturity of not more than 30 months, which are rated at least A1 by Standard & Poor's and P1 by Moody's (or rated at least AA in the case of obligations with a maturity of 12 months or more) at the time of acquisition." IN WITNESS WHEREOF, United Parcel Service of America, Inc. has caused this Amendment No. 14 to the Plan to be executed this day of 1994. ATTEST: UNITED PARCEL SERVICE OF AMERICA, INC. By: ---------------------------- ------------------------------ -3- EX-10.(X)(10) 10 AMENDMENT # 15 TO THE UPS SAVINGS PLAN 1 EXHIBIT 10(x)(10) AMENDMENT NO. 15 TO THE UPS SAVINGS PLAN WHEREAS, United Parcel Service of America, Inc. (the "Employer") and its affiliated corporations established, effective July 1, 1988, the UPS Savings Plan (the "Plan") in order to permit their eligible employees to put money aside on a tax deferred basis to supplement that which they will receive from Social Security and other pension or retirement plans in which they participate; and WHEREAS, the Plan has been amended fourteen times before, the most recent being Amendment No. 14, effective as of February 1, 1994; and WHEREAS, it is desired to amend the Plan further to (i) reflect the changes to the annual dollar limit on compensation under Section 401(a)(17) of the Internal Revenue Code; and (ii) to make certain other technical changes; NOW THEREFORE, pursuant to the authority vested in the Board of Directors by Section 9.1 of the Plan, the Plan is hereby amended in the following respects, effective January 1, 1989: 1. Subsection 1.1(b) is revised to read as follows: (b) "Actual Deferral Percentage" means, for a specified group of Employees for a Plan Year, the average of the percentages (calculated separately for each Eligible Employee in the group) of the compensation deferred by each such Employee under this Plan, in accordance with Section 401(k)(3)(B) of the Code. For purposes of the foregoing, compensation shall mean any of the following, as determined by the Committee in a uniform manner with respect to all Eligible Employees for the Plan Year: (1) Compensation within the meaning of Section 1.1(dd) (which includes amounts contributed as Elective Deferrals to this Plan); (2) The Eligible Employee's taxable compensation from the Employer Company reported on Form W-2 for the Plan Year; or (3) Such other nondiscriminatory definition of compensation which satisfies the requirements of Code Section 414(s) and the regulations thereunder. In no event, however, shall an Eligible Employee's annual compensation for purposes of this Section 1.1(b) exceed the applicable dollar limit set forth in Section 1.1(h). 2 2. Section 1.1(h) is revised to read as follows: "Eligible Compensation" means the compensation or wages paid to an Employee for the Plan Year by reason of his or her employment by the Employer Company, including overtime pay and commissions, and before any payroll deductions, including Elective Deferrals hereunder, and salary reduction contributions, if any, made on behalf of an Employee to the UPS Flexible Benefits Plan or other plan described in Section 125 of the Code (other than Benefit Credits extended to the Employee under the Flexible Benefits Plan), but excluding bonuses, expense reimbursements and amounts allocated (other than described as above) or benefits paid under any employee benefit plan of the Employer Company. Notwithstanding the foregoing, in no event shall the compensation of any Eligible Employee as determined for the purposes of this Plan and taken into account for any Plan Year exceed the following annual dollar limitations:
Plan Year Compensation Limit --------- ------------------ 1989 $200,000 1990 $209,200 1991 $222,220 1992 $228,860 1993 $235,840 1994 $150,000 1995 and later years $150,000, increased by the applicable cost-of-living adjustment, if any, for the calendar year sanctioned by Code Section 401(a)(17).
In determining the compensation of an Eligible Employee, any compensation paid by the Employer Company to the spouse or lineal descendant (who has not attained age 19 before the close of the Plan Year) of an Eligible Employee who is (i) a 5% owner as defined in section 416(i) of the Code or (ii) one of the 10 employees of the Employer Company paid the greatest compensation during the Plan Year shall be treated as compensation paid to such Eligible Employee. If, as the result of the application of the foregoing sentence the applicable dollar limitation is exceeded, then such limitation shall be prorated among the affected individuals in proportion to each such individual's compensation as determined for purposes of this Plan prior to the application of the dollar limitations. 3. The following sentence is added to the end of Section 1.1(dd): A Participant's Compensation shall not, however, exceed the applicable dollar limit set forth in Section 1.1(h). 4. Section 8.3 is revised to read as follows: Authority of Committee. The Committee shall establish rules for the administration of the Plan, and shall decide - 2 - 3 all questions arising in the administration of the Plan not specifically delegated or reserved to the Board of Directors, to the Employer, or to the Trustee. Except as otherwise herein expressly provided, the Committee shall have the exclusive right and discretion to interpret the Plan, to construe the Plan's terms, and to decide any matters arising in and with respect to the administration and operation of the Plan, and, subject to the claims procedure described at Section 8.5, any interpretations or decisions so made shall be final and binding on all persons; provided, however, that all such interpretations and decisions shall be applied in a uniform manner to all persons. 5. Section 12.1(i) is revised to read as follows: (i) "Total Compensation" is the Participant's compensation as defined in Section 415(c)(3) of the Code, but shall not exceed the applicable dollar amount set forth in Section 1.1(h). 6. Section 12.3 is deleted, and Sections 12.4 and 12.5 are renumbered as Sections 12.3 and 12.4, respectively. 7. Effective July 1, 1994, Section 4.12(a)(2) revised to read as follows: Makes such contribution to the Trust within eighteen (18) calendar months from the date of his or her retirement, or if, later, within three (3) months from the date such Former Participant's interest in the UPS Thrift Plan, if any, is actually transferred from the General Fund to the Distribution Fund pursuant to the terms of such plan. IN WITNESS WHEREOF, United Parcel Service of America, Inc. has caused this Amendment No. 15 to the Plan to be executed this 2nd day of December 1994. ATTEST: UNITED PARCEL SERVICE OF AMERICA, INC. By: ---------------------------- ------------------------------ Secretary Chairman - 3 - EX-21 11 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 (21) Subsidiaries of the Registrant March 24, 1995
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 Espana 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 UPS Air Leasing, Inc. Delaware October 12, 1989 Avenair Corporation Nevada November 14, 1994 Nevair Corporation Nevada November 10, 1994 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 Upinsco, Inc. U.S. Virgin Islands December 1, 1994
2
State of Date of Wholly Owned Subsidiaries (cont.) Incorporation Incorporation ------------------------- ------------- ------------- 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 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
-2- 3
State of Date of Wholly Owned Subsidiaries (cont.) Incorporation Incorporation ------------------------- ------------- ------------- 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- EX-23 12 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33-46840, 33-57179 and 33-12576 (on Form S-8) and No. 33-54297 (on Form S-3) of United Parcel Service of America, Inc. of our report dated February 8, 1995, appearing in this Annual Report on Form 10-K of United Parcel Service of America, Inc. for the year ended December 31, 1994. DELOITTE & TOUCHE LLP Atlanta, Georgia March 29, 1995 EX-27 13 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1994 DEC-31-1994 261,038 0 1,592,494 0 0 3,023,479 13,092,901 5,325,159 11,182,404 2,902,485 1,127,405 58,000 0 0 4,589,249 11,182,404 19,575,690 19,575,690 0 18,019,744 0 0 29,211 1,575,376 632,047 943,329 0 0 0 943,329 1.63 1.63