Networked for Growth
2014 Annual Report
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Financial
Highlights
Revenue
2014
2013
2012
$58,232
$55,438
$54,127
Operating expenses
53,264
48,404
52,784
Net income
Adjusted net income1
Diluted earnings per share
Adjusted diluted earnings per share1
Dividends declared per share
Assets
Long-term debt
Shareowners’ equity
Capital expenditures
Cash and marketable securities
(in millions except for per-share amounts)
3,032
4,389
3.28
4.75
2.68
4,372
4,336
4.61
4.57
2.48
807
4,389
0.83
4.53
2.28
35,471
36,212
38,863
9,864
2,158
2,328
3,283
10,824
11,089
6,488
2,065
5,245
4,733
2,153
7,924
58.3
MILLION
DAILY ONLINE
TRACKING
REQUESTS
1907
YEAR
FOUNDED
150,000
RETAIL ACCESS
POINTS
MORE THAN
2,700
WORLDWIDE
OPERATING
FACILITIES
5,088
ALT. FUEL
VEHICLES
Key Metrics
Return on assets (adj.)1
Return on assets (GAAP)
Return on equity (adj.)1
Return on equity (GAAP)
Return on invested capital (adj.)1
2014
12.2%
8.5%
66.5%
70.1%
27.2%
Return on invested capital (GAAP)
22.2%
27.8%
Dividend yield
2.4%
2.4%
9.8
MILLION
CUSTOMERS
2013
11.6%
11.6%
2012
12.0%
2.2%
77.5%
56.9%
77.9%
27.6%
13.6%
24.6%
6.5%
3.1%
over 13 MILLION
UPS
MY CHOICE®
MEMBERS
Free Cash
Flow
Net cash from operations
2014
2013
2012
$5,726
$7,304
$7,216
1,955
DAILY FLIGHT
SEGMENTS
Capital expenditures
(2,328)
(2,065)
(2,153)
Proceeds from disposals of PP&E
Net change in finance receivables
53
44
104
39
Other investing activities
(63)
(179)
95
101
94
Free cash fl ow
(in millions of dollars)
1 See reconciliation of Non-GAAP financial
measures on page A1.
$3,432
$5,203
$5,353
106,000
VEHICLES
IN DELIVERY
FLEET
435,000
EMPLOYEES
4. 6
BILLION
2014
DELIVERY
VOLUME
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Dear Fellow Shareowner,
History has shown that
networks can act as a
powerful, enabling force in
politics, business and society
alike. In the business world,
for instance, networks can
enable companies to develop
products and enter markets
more quickly and more
effi ciently than on their own.
Thanks to the rapid advances
in networks and analytics,
I believe we sit at the dawn
of an unprecedented era
of progress.
At UPS, we’ve leveraged the
power of networks to help
our customers realize their
goals for more than a century
now. In 2014, our company
delivered a record 4.6 billion
packages – including 572
million packages in December,
a make-or-break month
for many retailers. The
management team and
I received numerous calls
and emails from customers
big and small who wanted
to express their appreciation
for the eff orts of UPSers.
I am extremely proud of our
team and the service they
provided this year.
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Revenue
in billions of dollars
2014
58.2
2013
55.4
2012
54.1
2011
53.1
2010
49.5
2009
45.3
0
10
20
30
40
50
60
Of course, the path forward will be uneven and there
will be periods where the long-term investments we make
will affect our near-term results. This was true in 2014,
when we invested in additional capacity to reaffirm that
UPS could rise to the challenges and opportunities created
by e-commerce. While we delivered on our commitment to
customers, the higher operating costs dampened our profits.
In 2014, our adjusted net income* increased 1.2 percent,
to $4.39 billion on a 5 percent increase in revenue, to
$58.2 billion.
Last year, I was honored that the UPS board asked me to
serve as the 11th chief executive officer in the history of
this great company. I began working part-time for UPS in
1974 while attending Delta State University in Cleveland,
Miss. Forty years later, I sincerely believe we’ve barely
scratched the surface when it comes to the potential of UPS.
As the pace of change accelerates and the world shrinks
even further, the unmatched reach and flexibility of the UPS
network will enable our customers to navigate these changes
more nimbly than their rivals. Yes, I am confident UPS is
networked for growth.
The Five Key Investments for the Future:
At UPS, we’ve long taken pride in our ability to balance the
needs of our customers with the needs of our shareowners.
It is incumbent upon the management team to demonstrate
the operational efficiencies that enable us to generate the
kinds of returns investors have come to expect. We have a
plan in place to do just that. At our Investor Conference in
New York last November, I outlined five key initiatives to
boost our customer service, our productivity and, in turn,
our profitability. They include:
• Adding more capacity to our global network. UPS will
make about $3 billion in capital investments during 2015 as
we accelerate our hub automation and capacity expansion
projects. These investments will enable UPS to build on our
reputation for reliability and service, while boosting our
efficiency and profitability. Last year we announced plans to
invest more than $1 billion in Europe over the next five years,
expanding our ground network capacity to accommodate the
extraordinary growth we’ve experienced there.
• Improving efficiency through innovations like ORION,
our proprietary route-optimization software. By the end
of this year roughly 70 percent of our U.S. drivers will be
using ORION. When fully implemented in 2017, ORION is
expected to generate between $300 and $400 million in
combined cost reduction and avoidance.
* See reconciliation of Non-GAAP financial measures on page A1.
4
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Revenue by Segment
percent
Revenue by Geography
percent
16%
22%
62%
25%
75%
U.S. Domestic Package
International Package
Supply Chain & Freight
U.S.
International
Globally,
e-commerce
is expected to grow
at four times the rate
of Gross Domestic
Product.
• Further expanding our network and capabilities in
growth markets around the world. We’ve identified and
are implementing strategies in 13 key emerging and growth
markets that present the most opportunity. For instance, in
2015, UPS will begin expanding in 20 new markets across
China, while deepening our presence in the 33 markets
we currently serve today. In addition, we’re adding more
premium services and expanding our focus on key industries
as well as large Asian multinational companies.
• Focusing on fast-growing industries such as healthcare
and e-commerce. Since 2011, we’ve nearly doubled
our healthcare footprint, to 7 million square feet. On the
e-commerce front, we continue to expand the size of our
UPS Access PointTM network, and by the end of 2015 will
have more than 20,000 remote locations where consumers
can pick up packages on their own schedule.
• Reengineering processes and interfaces to generate
greater customer satisfaction. We have more than 20
internal optimization projects underway to streamline our
inside operations, control costs and improve customer
service levels.
We believe these initiatives will enable us to accelerate
growth and generate higher returns. In fact, we’re confident in
our ability to continue to generate returns on invested capital*
in excess of 25 percent.
Fortunately, we are starting from a position of relative strength.
Our free cash flow1 generation remained robust in 2014 at
$3.4 billion, even after making after-tax contributions of
$800 million to company-sponsored pension plans, as well as
$1.5 billion to transfer certain union employees to
multiemployer healthcare plans.
Our robust cash flow enabled UPS to pay dividends of $2.4
billion, an increase of 8 percent per share over the prior year.
Since going public, our efficient use of capital has enabled us
to return $50 billion to shareowners. I expect that we’ll return
more than $30 billion to shareowners over the next five years.
The good news going forward is the global economy is
expected to be modestly stronger in 2015. While parts
of Europe and Asia are expecting slower growth, the U.S.
economy continues to gain momentum. In addition, UPS is
well-positioned to benefit from trends in global economic
activity: e-commerce is expected to grow at four times the
rate of global GDP, and cross-border e-commerce should grow
at seven times that of the global economy.
Of course, we anticipated these trends and have invested not
only in the fastest-growing economies, but in industries like
healthcare and retail that should drive profitable growth for
years to come. I am confident our growth initiatives, along
with our capacity expansion projects and operation technology
implementations, will yield benefits for shareowners.
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* See reconciliation of Non-GAAP financial measures on page A1.
1 See reconciliation of Free Cash Flow on the inside front cover.
5
When we combine
our broad portfolio
of specialized capabilities
with our vast network, there are
few limits to what we can do.
5
4
3
2
1
0
Net Income
in billions of dollars
0
2
.
1
2
.
3
3
.
5
3
.
8
3
.
3
4
.
8
0
.
4
4
.
4
4
.
3
4
.
0
3
.
4
4
.
2009
2010
2011
2012
2013
2014
GAAP
Adjusted*
Operations Review
Global Package Operations
Our average daily package volume grew by 6.4 percent in
2014, signifying market demand for the unique solutions UPS
offers. We’ve learned when we combine our broad portfolio of
specialized capabilities with our vast network, there are few
limits to what we can do.
To improve the efficiency of our operations, we created
a team in 2014 to serve as a “control tower” and avert
potential bottlenecks in our network. In 2015, the control
tower will continue to focus on capacity management, but
will also be used for revenue and yield growth opportunities.
Average revenue per piece declined 1.7 percent, reflecting
high demand for lightweight, lower-yielding solutions as well
as changing regional trade patterns. While the management
team is focused on reducing costs and improving the
efficiency of our network, we also have a number of revenue
initiatives in place. UPS provides high-value solutions that
customers appreciate. As a result, we must ensure UPS
is compensated appropriately for the service we provide,
especially during peak periods.
On the operating side of the equation, in 2015 we will
continue to bend the cost-curve lower with operational
technology implementations that improve productivity and
reduce overtime. We will expand U.S. hub capacity in key
areas, ultimately reducing the need for temporary sorts. I am
confident our team will manage costs, tighten up the plan
and keep service levels high.
6
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Diluted Earnings
in dollars per share
Operating Margin
percent
5
4
3
2
1
0
6
9
1
.
3
1
2
.
3
3
3
.
8
4
3
.
4
8
3
.
5
3
4
.
3
8
0
.
3
5
4
.
1
6
4
.
7
5
4
.
8
2
3
.
5
7
4
.
2009
2010
2011
2012
2013
2014
15
12
9
6
3
0
7
7
.
2
8
.
.
4
1
1
.
5
1
1
.
4
1
1
.
9
2
1
5
2
.
.
1
3
1
.
7
2
1
.
8
2
1
5
8
.
.
2
2
1
2009
2010
2011
2012
2013
2014
GAAP
Adjusted*
GAAP
Adjusted*
U.S. Domestic
International
Our U.S. Domestic segment recorded a 5.2 percent rise in
revenue, as the e-commerce revolution creates greater
demand for our omni-channel solutions. By working closely
with retailers, we enable them to fulfill online orders right from
their stores. These solutions not only reduce the time in transit,
but also help merchants capture sales that might otherwise
be lost if their distribution centers are out of stock. During the
recent holiday season, the number of retailers employing a
local distribution strategy increased by 50 percent and the
number of stores participating rose by 30 percent.
Adjusted operating profit* declined 2 percent, to $4.5 billion,
and the adjusted operating margin* fell to 12.6 percent.
The decline was the result of extreme weather-related costs
in the first quarter and higher operating expenses as we invest
in the UPS network to more efficiently handle the increasing
demand for e-commerce.
International revenue rose 4.5 percent, bolstered by the
emerging recovery in Europe. Adjusted operating profit*
improved 6.1 percent over the prior year, to $1.9 billion.
Total International daily shipments climbed 6.4 percent to
2.7 million. Export products increased 7.8 percent and
Domestic products were up 5.3 percent. The Europe region
led the way with strong growth as the supply-chain continues
to evolve and the UPS portfolio is resonating with customers
in the region.
Currency-neutral shipment yields declined 1.5 percent, as
shifting regional trade patterns have resulted in faster growth
coming from intra-regional shipments, especially in Europe.
In addition, the demand for lower-priced deferred products
resulted in a drag on average shipment yield and profitability.
39686.indd 7
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* See reconciliation of Non-GAAP financial measures on page A1.
7
Dividends Declared
in dollars per share
Number Shares Repurchased
in millions
8.1%
8.8%
9.6%
10.6%
0.0%
4.4%
1.80
1.88
2.08
2.28
2.48
2.68
2014
26.4
2013
43.2
2012
21.8
2011
38.7
2010
12.4
2009
10.9
2009
2010
2011
2012
2013
2014
0
10
20
30
40
50
% Year Over Year Growth Rate
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Supply Chain and Freight
Corporate Responsibility
The Supply Chain and Freight segment recorded a 5.1 percent
increase in revenue, to $9.4 billion. Adjusted operating
profit* increased 6.5 percent to $718 million, while adjusted
operating margin* expanded 10 basis points to 7.6 percent.
The Freight Forwarding business unit experienced solid
improvements in Ocean Forwarding and the North American
Air Freight products. However, continued excess capacity
on the major trade lanes out of Asia pressured revenue and
operating profit expansion.
Meanwhile, the Distribution business unit continues to
produce high-single-digit revenue growth and steady margin
expansion. Enhancements to UPS healthcare capabilities
around the world contributed to the improvements.
UPS Freight® continues to develop its customer base in the
U.S. and saw revenue increase 5.8 percent as a result. Freight
customers enjoy the convenience of working with an LTL
carrier that has the strength of the UPS network behind it.
UPS is committed to being a good steward of the planet, and
our customers are looking to us as a supply chain partner to
help them meet their own sustainability goals. Since 2000,
we have driven 350 million miles in our alternative fuel and
advanced technology vehicles. Our continued investment in
these vehicles has UPS on pace to achieve its goal of
1 billion “green” miles by the end of 2017.
UPS again was recognized in 2014 for its global leadership in
sustainability. UPS received a top ranking on the CDP’s Climate
Disclosure Leadership Index of S&P 500 companies for the
fourth year in a row. With a score of 100 out of 100, UPS
ranked among the top 10 percent of companies measured and
one of only 14 to receive a score of 100. UPS was also selected
as a constituent of the Dow Jones Sustainability World Index
(DJSI) for the second consecutive year, and was included on
the DJSI North America Index for the 10th consecutive year.
Last June, UPS reaffirmed our commitment to the communities
we serve with a pledge to complete 20 million hours of global
volunteerism and community service by the end of 2020. To
achieve this goal, the total volunteer hours of our employees
will increase more than 12 percent and nonprofits will receive
volunteer assistance valued at more than $460 million, by the
end of the initiative.
* See reconciliation of Non-GAAP financial measures on page A1.
8
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Share Repurchase
in billions of dollars
2014
2.7
2013
3.8
2012
1.6
2011
2.7
2010
0.8
2009
0.6
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
The power of our network
and our people give UPS
a bright future.
2015 and Beyond
We live in an era of great change, with new technologies
disrupting not just many traditional business practices—
but many elements of how we work, how we shop and how
we live. During the past year, we demonstrated our ability to
adapt to the dramatic changes in retail and other industries.
2015 will be a year in which we not only reinvest, but
reexamine, reengineer and refine our operations to ensure
we are more efficient and more profitable going forward.
We anticipate that earnings per share in 2015 will increase
between 6 and 12 percent. Overall, UPS expects operating
profit to increase between 5 and 9 percent.
UPS is a strong company. We’re not intimidated by the pace
of change, but not so secure that we’re complacent. Times
change and we’re changing with them. We believe that the
power of our network—and the 435,000 UPSers who run it—
gives us a bright future.
David Abney
Chief Executive Officer
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UPS Board of Directors
David P. Abney
Chief Executive Officer
Director since 2014
F. Duane Ackerman
Former Chairman and Chief Executive
Officer, BellSouth Corporation
Director since 2007
Rodney C. Adkins
Former Senior Vice President, IBM
Director since 2013
Michael J. Burns
Former Chairman, Chief Executive Officer
and President, Dana Corporation
Director since 2005
D. Scott Davis
UPS Non-Executive Chairman and
Former UPS Chief Executive Officer
Director since 2006
Stuart E. Eizenstat
Partner, Covington & Burling LLP
Director since 2005
William R. Johnson
Former Chairman, President
and Chief Executive Officer,
H.J. Heinz Company
Director since 2009
Candace Kendle
Co-founder and Former Chairman
and Chief Executive Officer,
Kendle International Inc.
Director since 2011
Ann M. Livermore
Director and Former Executive Vice
President, Hewlett-Packard Company
Director since 1997
Rudy H.P. Markham
Former Financial Director, Unilever PLC
and Unilever NV
Director since 2007
Clark T. Randt, Jr.
Former U.S. Ambassador to the
People’s Republic of China
Director since 2010
John T. Stankey
Group President and Chief Strategy Officer,
AT&T
Director since 2014
Carol B. Tomé
Chief Financial Officer and Executive
Vice President—Corporate Services,
The Home Depot, Inc.
Director since 2003
Kevin M. Warsh
Former Member of the Board of
Governors of the Federal Reserve
System and Distinguished Visiting Fellow,
Hoover Institution, Stanford University
Director since 2012
Former UPS Chairman and Chief Executive Officer, Michael L. Eskew, Director since 1998, retired from the UPS board in 2014.
Management Committee
David P. Abney
Chief Executive Officer
James J. Barber, Jr.
Senior Vice President and President,
UPS International
David A. Barnes
Senior Vice President
and Chief Information Officer
Teresa Finley
Senior Vice President,
Global Marketing
Alan Gershenhorn
Executive Vice President and
Chief Commercial Officer
Kurt P. Kuehn
Senior Vice President
and Chief Financial Officer
Myron A. Gray
Senior Vice President and President,
U.S. Operations
Kate Gutmann
Senior Vice President, Worldwide Sales
and Solutions
Teri P. McClure
Chief Legal Officer and
Senior Vice President, Human Resources
and Employee Communications
Mitch Nichols
Senior Vice President,
Transportation and Engineering
John J. McDevitt retired from UPS in 2014 after more than 38 years of service.
D. Scott Davis retired as Chief Executive Officer from UPS in 2014 and remains Chairman of the Board.
Senior Operations Management
George W. Brooks Jr.
President, U.S. East Region
Brendan Canavan
President, UPS Airlines
Nando Cesarone
President, Asia Pacific Region
Stanley C. Deans
President, Retail Channel
and U.S. Package Operations
10
39686.indd 10
Stephen D. Flowers
President, Freight Forwarding
Romaine M. Seguin
President, Americas Region
Jack A. Holmes
President, UPS Freight
Gerald R. Mattes
President, U.S. West Region
Cindy J. Miller
President, Europe Region
Burt Wallace
President, Corporate Transportation
Mark Wallace
President, Logistics and Distribution
Derek S. Woodward
President, Emerging Markets
3/6/15 4:13 PM
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________
Form 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-15451
____________________________________
____________________________________
United Parcel Service, Inc.
(Exact Name of Registrant as Specified in Its Charter)
____________________________________
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
55 Glenlake Parkway, N.E. Atlanta, Georgia
(Address of Principal Executive Offices)
58-2480149
(I.R.S. Employer
Identification No.)
30328
(Zip Code)
(404) 828-6000
(Registrant’s telephone number, including area code)
____________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Class B common stock, par value $.01 per share
Name of Each Exchange on Which Registered
New York Stock Exchange
____________________________________
Securities registered pursuant to Section 12(g) of the Act:
Class A common stock, par value $.01 per share
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
No
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
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”,
“large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Check one:
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the class B common stock held by non-affiliates of the registrant was $72,546,596,423 as of June 30, 2014. The registrant’s class A common stock is not
listed on a national securities exchange or traded in an organized over-the-counter market, but each share of the registrant’s class A common stock is convertible into one share of the
registrant’s class B common stock.
As of February 18, 2015, there were 200,480,468 outstanding shares of class A common stock and 702,058,256 outstanding shares of class B common stock.
Portions of the registrant’s definitive proxy statement for its annual meeting of shareowners scheduled for May 7, 2015 are incorporated by reference into Part III of this report.
DOCUMENTS INCORPORATED BY REFERENCE
UNITED PARCEL SERVICE, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1.
Business
Overview
Business Strategy
Technology
Reporting Segments and Products & Services
Sustainability
Community
Reputation
Employees
Safety
Competition
Competitive Strengths
Government Regulation
Where You Can Find More Information
Item 1A.
Item 1B.
Item 2.
Risk Factors
Unresolved Staff Comments
Properties
Operating Facilities
Fleet
Item 3.
Item 4.
Legal Proceedings
Mine Safety Disclosures
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Shareowner Return Performance Graph
Item 6.
Item 7.
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II
Overview
Items Affecting Comparability
U.S. Domestic Package Operations
International Package Operations
Supply Chain & Freight Operations
Operating Expenses
Investment Income and Interest Expense
Income Tax Expense
Liquidity and Capital Resources
New Accounting Pronouncements
Critical Accounting Policies and Estimates
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
PART IV
1
1
2
4
5
9
10
10
11
11
12
12
13
14
15
20
20
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58
60
116
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118
119
119
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119
120
Cautionary Statement About Forward-Looking Statements
PART I
This report includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform
Act of 1995. Statements in the future tense, and all statements accompanied by terms such as “believe,” “project,” “expect,”
“estimate,” “assume,” “intend,” “anticipate,” “target,” “plan,” and variations thereof and similar terms are intended to be
forward-looking statements. We intend that all forward-looking statements we make will be subject to safe harbor protection of
the federal securities laws pursuant to Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934.
Our disclosure and analysis in this report, in our Annual Report to Shareholders and in our other filings with the
Securities and Exchange Commission (“SEC”) contain forward-looking statements regarding our intent, belief and current
expectations about our strategic direction, prospects and future results. From time to time, we also provide forward-looking
statements in other materials we release as well as oral forward-looking statements. Such statements give our current
expectations or forecasts of future events; they do not relate strictly to historical or current facts. Management believes that
these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue
reliance on any such forward-looking statements because such statements speak only as of the date when made.
Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ
materially from our historical experience and our present expectations or anticipated results. These risks and uncertainties are
described in Part I, “Item 1A. Risk Factors” and may also be described from time to time in our future reports filed with the
SEC. You should consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the
accuracy of predictions contained in such forward-looking statements. We do not undertake any obligation to update forward-
looking statements to reflect events, circumstances, changes in expectations, or the occurrence of unanticipated events after the
date of those statements.
Item 1. Business
Overview
United Parcel Service, Inc. (“UPS”) was founded in 1907 as a private messenger and delivery service in Seattle,
Washington. Today, UPS is the world’s largest package delivery company, a leader in the U.S. less-than-truckload industry and
the premier provider of global supply chain management solutions. We deliver packages each business day for 1.6 million
shipping customers to 8.2 million receivers ("consignees") in over 220 countries and territories. In 2014, we delivered an
average of 18.0 million pieces per day worldwide, or a total of 4.6 billion packages. Total revenue in 2014 was $58.2 billion.
We are a global leader in logistics, and we create value for our customers through solutions that lower costs, improve
service and provide highly customizable supply chain control and visibility. Customers are attracted to our broad set of services
that are delivered as promised through our integrated ground, air and ocean global network.
Our services and integrated network allow shippers to simplify their supply chains by using fewer carriers, and to adapt
their transportation requirements and expenditures as their businesses evolve. Across our service portfolio, we also provide
control and visibility of customers’ inventories and supply chains via our UPS technology platform. The information flow from
UPS technology drives improvements for our customers, as well as for UPS, in reliability, flexibility, productivity and
efficiency.
Particularly over the last decade, UPS has significantly expanded the scope of our capabilities to include more than
package delivery. Our logistics and distribution capabilities give companies the power to easily expand their businesses to new
markets around the world. By leveraging our international infrastructure, UPS enables our customers to bridge time zones,
cultures, distances and languages to keep the entire supply chain moving smoothly.
We serve the global market for logistics services, which include transportation, distribution, forwarding, ground freight,
ocean freight, air freight, brokerage and financing. We have three reportable segments: U.S. Domestic Package, International
Package and Supply Chain & Freight, all of which are described below. For financial information concerning our reportable
segments and geographic regions, refer to note 11 of our consolidated financial statements.
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Business Strategy
Customers leverage our broad array of logistics capabilities; global presence in North America, Europe, Asia and Latin
America; reliability; industry-leading technologies; and solutions expertise for competitive advantage in markets where they
choose to compete. We prudently invest to expand our integrated global network and service portfolio. Technology investments
create user-friendly shipping, e-commerce, logistics management and visibility tools for our customers, while supporting our
ongoing effort to increase operational efficiencies.
Our service portfolio and investments are rewarded with among the best return on invested capital and operating margins
in the industry. We have a long history of sound financial management. Our consolidated balance sheet reflects financial
strength that few companies can match. Our Moody’s and Standard & Poor’s short-term credit ratings are P-1 and A-1,
respectively. Our Moody’s and Standard & Poor’s long-term credit ratings are Aa3 and A+, respectively. We currently have a
stable outlook from both Moody's and Standard & Poor’s. Cash generation is a significant strength of UPS. This gives us strong
capacity to service our obligations and allows for distributions to shareowners, reinvestment in our businesses and the pursuit
of growth opportunities.
We enable and are the beneficiaries of the following trends:
Expansion of Global Trade
Transcontinental and trade across borders are predicted to grow faster than U.S. and global gross domestic production for
the foreseeable future. As a result, U.S. and international economies are becoming more inter-connected and dependent on
foreign trade.
UPS plays an important role in global trade and is well positioned to take advantage of trade growth, wherever it occurs.
Our global presence and productivity enhancing technologies allow customers to expand into new markets. We advocate the
expansion of free trade, including the passage of regional trade pacts and the removal of trade barriers. Free trade is a catalyst
for job creation, economic growth and improved living standards; additionally, it propels our growth.
Emerging Market Growth
Emerging market opportunities continue to expand. Over the next ten years, these markets are expected to represent the
majority of global GDP growth, and an increasing proportion of global trade. Emerging markets are understandably a focus of
investment and growth for our current customers; in addition, they will be a source of UPS’s next generation of customers. To
take advantage of these opportunities, UPS will continue to make long-term investments in markets where our customers
choose to grow. Over the past ten years, UPS has established a strong market presence in three leading emerging markets:
China, Poland and Turkey. In the future, the Middle East, Latin America, Africa and Eastern Europe will become increasingly
important for UPS.
Taken together, these two trends (expanding global trade and emerging market growth) underscore why our international
business is a catalyst for UPS’s growth.
Increasing Need for Segment Expertise in the Integrated Carrier, Logistics and Transportation Space
We offer differentiated value propositions in several segments, including automotive and industrial manufacturing, retail,
government, professional and consumer services, healthcare and high-tech.
Our industry-specific solutions are increasingly tailored to align with customer needs in each of these sectors. Staying
abreast of industry trends positions us to anticipate business challenges in each industry. We deepen our understanding by
studying these challenges and engaging with customers at the strategic planning stage. We then align our logistics expertise to
address these business challenges to help our customers compete.
Our understanding of how macro and industry trends impact the stakeholders in each market allows us to develop
commercial insights for our customers. These insights are incorporated into our sales-and-solution process and are shared with
customers through direct engagement, industry forums and publications. By inviting our customers to leverage our capabilities
to improve their overall industry performance, we help them achieve their business objectives and maintain our own
competitiveness.
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The combination of rising demand for healthcare services around the globe, new product innovations, increasing
regulatory demands and downward pressure on reimbursement is creating both exciting opportunities and complex challenges
for healthcare and life sciences companies. In today’s environment, healthcare logistics executives are most concerned with
regulatory compliance, product security, supply chain cost management and product damage/spoilage. To address these
challenges, more healthcare and life sciences companies are relying on partnerships with third party logistics providers that can
provide efficient, scalable solutions that enable instant access to healthcare compliant infrastructure, provide options for
temperature-sensitive transportation and storage capabilities and have expertise in the regulatory requirements of the markets
they seek to enter.
UPS is in a unique position to offer our clients such solutions through the combination of our dedicated healthcare
transportation and distribution capabilities which sit atop our vast, global integrated transportation network and are managed by
a team of employees with healthcare logistics expertise. Over the past two years, we opened 15 new dedicated healthcare
facilities on four continents, with our most recent additions in the United Kingdom, Mexico, Brazil and Poland. In total, we
operate nearly seven million square feet of dedicated healthcare distribution space across an integrated network of 49 facilities.
These facilities allow us to provide reliable, secure and cost-effective warehousing and distribution for healthcare and life
sciences firms, which, in turn, allow them to easily navigate across and within borders.
Rapid technology innovation and growing worldwide demand for electronics are driving change in the already-dynamic
high-tech industry. As the technology marketplace becomes more complex, high-tech companies must manage and optimize
their supply chains to remain competitive. Every year, product lifecycles are getting shorter, dictating the need for high-tech
companies to better predict demand and understand their logistics requirements. Increasingly, they are looking to third party
logistics providers for support in product launches, distribution, post-sales support and reverse logistics.
We have the expertise these companies need, as well as, a global transportation network and integrated technology
solutions that can generate supply chain efficiency. This means high-tech companies, large and small, can get their products to
market faster, improve customer service and boost revenue. We offer global sourcing and a significant amount of repair space
to leverage one of the largest networks of post-sales facilities in the world. With more than 950 field stocking locations in 147
countries, we help high-tech companies identify better ways to meet their crucial logistics needs. Our experience and global
capabilities make us a strong partner in the high-tech industry.
We will continue to expand our industry-specific support by growing our physical footprint and enhancing our
technology based on our deepening understanding of industry-specific needs. Our aim is to increase the number of customers
benefiting from these solutions and gain their associated transportation and logistics business.
Logistics Outsourcing
Outsourcing supply chain management is becoming more prevalent, as customers increasingly view professional
management and operation of their supply chains as a strategic advantage. This trend enables companies to focus on what they
do best. We can meet our customers’ needs for outsourced logistics with our global capabilities in customized forwarding,
transportation, warehousing, distribution, delivery and post-sales services. As we move deeper into customers’ supply chains,
we do so with a shared vision on how to best equip our customers with transportation and logistics solutions to better serve
their customers. We integrate our technology for efficiencies, visibility and control to ensure that we execute as promised and to
provide peace of mind for our customers.
Retail e-Commerce Growth
Throughout much of the world, e-commerce growth continues to outpace traditional lines of business. Our integrated
network puts UPS in an ideal position to capitalize on the shift towards residential deliveries. We continue to create new
services, supported by UPS technology, that complement the traditional UPS premium home delivery service and address the
needs of e-commerce shippers and consignees. Our offerings span a broad spectrum that supports retailers across their value
chain, from global sourcing to distribution and returns. We offer cost-sensitive solutions such as UPS SurePost, for shipments
where economy takes precedence over speed, and feature-rich solutions, such as our UPS My Choice service that provides
consignees with revolutionary visibility and control of their inbound shipments.
UPS My Choice keeps members up-to-date on their parcels’ delivery status through proactive alerts, and offers flexible
delivery options to control when and where deliveries occur. Following on the success of UPS My Choice in the U.S. (over 13
million members), we expanded the service to 15 additional countries and territories in the Americas and Europe regions in
2014. With UPS My Choice, consignees may direct the timing and location of their deliveries before a delivery attempt is
made. We strive to give our customers the best delivery experience in the industry---delivery on the first attempt, where and
when their customers want them.
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When UPS My Choice members will not be home to accept a delivery, they can redirect packages to UPS Access Point
locations. UPS Access Points are convenient locations - such as The UPS Store® and other local businesses - that offer easy
package drop-off and pickup. With evening and weekend hours, UPS Access Point locations fit consumers’ schedules and
enable UPS to get packages delivered faster. Shippers in 50 origin countries and territories can ship directly to UPS Access
Point locations in 12 destination countries, giving shippers and consignees greater control over package deliveries. Our
integrated UPS Access Point network in Europe now has nearly 14,000 locations across nine countries with the 2014 additions
of Poland and Italy. We also expanded into North America to include locations in Canada, Mexico and the United States. By
the end of 2015, we expect to have more than 20,000 locations worldwide. This move enhances our cross-border e-commerce
offerings for retailers, while increasing choice for their customers, who can opt to pick up or drop off their parcels at retail
locations that are convenient to them.
In 2014, UPS announced the purchase of i-parcel, LLC. This new offering focuses on innovative international e-
commerce and logistics. The combination of UPS and i-parcel yields a global e-commerce solution that further strengthens our
global business-to-consumer capabilities. This solution enables merchants to connect to over 100 million global shoppers by
providing an integrated web platform, creating a localized look and feel for international shoppers. The technology empowers
merchants to instantly localize their shopping cart value and provide a seamless shopping experience for international
customers. This solution serves retail shoppers in over 100 countries and includes local currency options, fully-landed prices,
and fully trackable, end-to-end delivery services.
Technology
Technology forms the foundation of our reliability and allows us to enhance the customer experience. Technology
delivers value to our customers and returns to our shareowners. Recent developments that improve our operational efficiency,
flexibility, reliability and customer experience include:
• Continuing rollout of telematics to our international delivery fleet. We have completed the deployment of telematics to
our domestic small package, freight forwarding and ground freight fleets. Telematics helps UPS determine a truck’s
performance and condition by capturing data on more than 200 related elements, including speed, RPM, oil pressure,
seat belt use, number of times the vehicle is placed in reverse and idling time. Together, improved data and driver
coaching help reduce fuel consumption, emissions and maintenance costs, while improving driver safety. Additionally,
customers experience more consistent pickup times and more reliable deliveries, thereby enhancing their profitability
and competitiveness. By the end of 2014, telematics had been installed in over 82,000 vehicles.
•
Implementing our On Road Integrated Optimization and Navigation system (“ORION”), which employs advanced
algorithms to determine the optimal route for each delivery while meeting service commitments. By the end of 2014,
ORION was deployed to over 23,000 drivers.
• Converting to keyless entry, which enables drivers to remotely turn the engine off with a button that will unlock the
bulkhead door at the same time. Keyless entry is installed on all package cars in the U.S. and Canada.
• Ramping up installations of our Next Generation Small Sort (“NGSS”) technology, which reduces the amount of
memorization required to sort a package, thereby improving productivity and quality. Employees sort packages to bins
tagged with flashing lights, rather than memorizing addresses, allowing us to dramatically reduce training time. NGSS
is deployed to 285 sites globally and 64 additional sites are under evaluation for 2015.
We bring industry-leading UPS technology to our customers who, in turn, realize increased productivity, greater control
of their supply chains and improved customer experience when they integrate with our systems. Customers benefit through
offerings such as:
Shipping
WorldShip™, which is UPS’s flagship desktop shipping application, provides middle market and large customers with
robust shipping capabilities. Customers can create custom labels, set up shipment alerts, create and upload customs
documentation, track and export shipments, create reports and integrate with their enterprise resource planning and accounting
systems to streamline shipping with real-time connectivity.
UPS marketplace shipping, which integrates www.ups.com with eBay® and Amazon®, allows marketplace sellers to
easily ship their orders via www.ups.com or WorldShip. UPS marketplace shipping provides simplified shipment processing,
access to order and shipment history, automatically updates the marketplace with tracking information and provides access to
multiple payment options, including PayPal™.
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Tracking and Visibility
UPS Quantum View® can help customers better manage shipments, facilitate tracking, allow for inbound volume
planning, manage third-party shipping costs and automatically notify customers of incoming shipments. With visibility into
transit times and delivery confirmations, customers can speed up their revenue cycle and collect accounts receivables more
quickly while improving customer service.
International Trade Tools
UPS Paperless™ solutions allow customers to self-enroll in UPS Paperless™ Invoice and to upload shipping documents.
These solutions enable customers to electronically transmit a commercial invoice, packing list or their own customs documents
when shipping internationally. This eliminates redundant data entry and errors, while reducing customs delays and paper waste.
UPS TradeAbility® tools help customers effectively and confidently manage the movement of goods internationally in a
timely, efficient and compliant manner.
Billing
The UPS Billing Center, a secure location for customers to view, download, manage and pay their UPS invoices, helps
customers accelerate billing and payment processes. Customers can assign privileges with administrative controls, manage
multiple accounts and create custom reports using a simple interface.
Integration
The UPS Developer Kit, which is comprised of multiple Application Programming Interfaces ("APIs"), helps customers
streamline and automate their internal business processes. The UPS Developer Kit APIs allow customers to integrate a wide
range of UPS functionality into their business systems and websites such as address validation, shipment scheduling, selection
of shipping service levels, tracking and much more.
Business-to-Consumer
All UPS Access Point locations are pre-approved to ensure package safety, and are also equipped with the latest UPS
technology to help make package pickup quick and convenient. Consumers are kept informed of the status of their package by
tracking it on www.ups.com or on the UPS mobile application or website.
UPS My Choice®, which focuses on the consignee, has transformed the residential delivery experience. Receivers can
direct the timing and circumstances of their deliveries using their computer, mobile devices or a Facebook app. This innovative
service is powered by the complex integration of real-time route optimization and other technologies within our delivery
network.
The Global Locator on www.ups.com was enhanced to give customers greater and faster access to UPS drop-off and
pickup locations, including new UPS Access Point sites. The Global Locator has a new single search field with updated filters,
location images, and location-specific promotions. Customers can also provide online feedback, e-mail search results, save
favorite locations and access recent searches.
Mobile
UPS Mobile™, which includes the mobile website, m.ups.com, and apps for iPhone, iPad, Android and Kindle Fire
devices, is readily available for most customers at any time. Customers can track, ship, find UPS locations, manage UPS My
Choice shipments and receive shipment notifications on their mobile devices. The UPS Mobile apps and website were
enhanced so that customers can now convert a rate estimate into a shipment, ship a package without logging in with a My UPS
ID, compare shipping services more easily, select PayPal™ as a payment option, view details on shipping charges and utilize
the redesigned Global Locator.
Reporting Segments and Products & Services
As a global leader in logistics, UPS offers a broad range of domestic and export delivery services; the facilitation of
international trade; and the deployment of advanced technology to more efficiently manage the world of business. We seek to
streamline our customers’ shipment processing and integrate critical transportation information into their own business
processes, helping them to create supply chain efficiencies, better serve their customers and improve cash flow.
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Global Small Package
UPS’s global small package operations provide time-definite delivery services for express letters, documents, small
packages and palletized freight via air and ground services. We provide domestic delivery services within 54 countries and
export services to more than 220 countries and territories around the world. We handle packages that weigh up to 150 pounds
and are up to 165 inches in combined length and girth as well as palletized shipments weighing greater than 150 pounds. All of
our package services are supported by numerous shipping, visibility and billing technologies.
UPS handles all levels of service (air, ground, domestic, international, commercial, residential) through one global
integrated pickup and delivery network. All packages are commingled within our network, except when necessary to meet their
specific service commitments. This enables one UPS driver to pick up our customers’ shipments, for any of our services, at the
same scheduled time each day. Compared to companies with single service network designs, our integrated network uniquely
provides operational and capital efficiencies while being more environmentally-friendly.
We offer same-day pickup of air and ground packages upon request. Customers can schedule pickups for one to five
days a week, based on their specific needs. Additionally, our wholly-owned and partnered global network offers approximately
150,000 entry points where customers can tender a package to us at a location or time convenient to them. This combined
network includes UPS drivers who can accept packages provided to them; UPS drop boxes; UPS Access Point locations; The
UPS Store locations; authorized shipping outlets and commercial counters; alliance locations; and customer centers attached to
UPS facilities. Some of these locations offer a full array of services including pickup, delivery and packing options, while
others are drop-off locations only. We continually look for ways to enhance the customer experience by offering easy access to
UPS.
The growth of online shopping has increased our customers’ needs for efficient and reliable returns, resulting in our
development of a robust selection of returns services that are available in more than 145 countries. Options vary based on
customer needs and country, and range from cost-effective solutions such as UPS Returns, to more-specialized services such as
UPS Returns Exchange. UPS Returns enables shippers to provide their customers with a return shipping label, while UPS
Returns Exchange simplifies product exchanges by delivering a replacement item and picking up a return item in the same stop,
and assisting with the re-packaging process.
We operate one of the largest airlines in the world, with global operations centered at our Worldport hub in Louisville,
Kentucky. Worldport sort capacity, currently at 416,000 packages per hour, has expanded over the years due to volume growth
and a centralization effort. Our European air hub is located in Cologne, Germany, and we maintain Asia-Pacific air hubs in
Shanghai, China; Shenzhen, China; and Hong Kong. Our regional air hub in Canada is located in Hamilton, Ontario, and our
regional air hub for Latin America and the Caribbean is in Miami, Florida.
In the U.S., Worldport is supported by our regional air hubs in Columbia, South Carolina; Dallas, Texas; Ontario,
California; Philadelphia, Pennsylvania; and Rockford, Illinois. This network design allows for cost-effective package
processing in our most technology-enabled facilities while enabling us to use fewer, larger and more fuel-efficient aircraft. Our
U.S. ground fleet serves all business and residential zip codes in the contiguous U.S.
U.S. Domestic Package Reporting Segment
UPS is a leader in time-definite, money-back guaranteed, small package delivery services. We offer a full spectrum of
U.S. domestic guaranteed ground and air package transportation services. Depending on the delivery speed needed, customers
can select from a range of guaranteed time and day-definite delivery options.
• Customers can select from same day, next day, two day and three day delivery alternatives. Many of these services
offer options that enable customers to specify a time-of-day guarantee for their delivery (e.g. by 8:30, 10:30, noon, end
of day, etc.).
• Customers can also leverage our extensive ground network to ship using our day-definite guaranteed ground service
that serves every U.S. business and residential address. UPS delivers more ground packages than any other carrier,
with nearly 13 million ground packages delivered on time every day in the U.S., most within one to three business
days.
• UPS also offers UPS SurePost, an economy residential ground service for customers with non-urgent, lightweight
residential shipments. UPS SurePost is a contractual residential ground service that combines the consistency and
reliability of the UPS Ground network with final delivery often provided by the U.S. Postal Service.
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As U.S. online sales are estimated to nearly double by 2020, UPS invested over $1 billion in facility expansions and
equipment modernization to better manage volume growth throughout the year, and to ensure a successful peak season in 2014
and beyond. Other significant improvements to effectively manage seasonal volume fluctuations included:
• Enhancing Cyber Week operations in the U.S., including full ground and air pickup and delivery operations on Black
Friday.
• Using additional aircraft and regional air hubs to add significant capacity to UPS’s air network during critical periods.
• Automating facilities to expand our existing capabilities through enhanced technology.
• Adding new delivery vehicles and trailers, and increasing staffing to improve efficiency in all areas.
• Updating www.ups.com and expanding UPS communications to enhance the timeliness and relevance of alerts when
service disruptions occur.
Our significant investments in network capacity improvements and enhanced shipment visibility demonstrate our
readiness to provide exceptional service and peace of mind to our customers.
International Package Reporting Segment
Our International Package reporting segment includes the small package operations in Europe, Asia, Canada and Latin
America, the Indian sub-continent, the Middle East and Africa. UPS offers a wide selection of guaranteed day and time-definite
international shipping services.
• We offer three guaranteed time-definite express options (Express Plus, Express and Express Saver) to more locations
than any other carrier.
•
•
•
In 2013, we introduced UPS Worldwide Express Freight for palletized shipments over 150 pounds. In early 2015, this
service was enhanced to include 50 origins and 51 destinations, helping UPS customers to expand the footprint of their
palletized shipments to major markets throughout the world. UPS Worldwide Express Freight leverages our unique
combination of package and freight networks to provide industry leading transit times with a money-back guarantee.
For international shipments that do not require express services, UPS Worldwide Expedited offers a reliable, deferred,
guaranteed day-definite service option. In 2013, we tripled the coverage area for UPS Worldwide Expedited,
providing delivery in two-to-five business days to more than 220 countries and territories. We continue to expand our
origin footprint for this service moving to over 80 origins in 2015. This expansion will help UPS customers magnify
their global reach and balance delivery speed with cost, no matter where they ship.
For cross-border ground package delivery, we offer UPS Transborder Standard delivery services within Europe,
between the U.S. and Canada and between the U.S. and Mexico.
Europe, our largest region outside of the U.S., accounts for roughly half of international revenue and is one of the
primary drivers of our growth. Several factors provide significant opportunities, including the highly fragmented nature of the
market and the fact that exports make up a significant part of Europe’s GDP. We believe there is a continued strong potential
for growth in small package exports in Germany, the U.K., France, Italy, Spain and the Netherlands. To accommodate this
growth, we expanded our main European air hub in Cologne, Germany in the first quarter of 2014; increasing capacity to
process 190,000 packages per hour.
Asia remains attractive due to growth rates in intra-Asia trade and the expanding Chinese economy. We are bringing
faster time-in-transit to customers focused on intra-Asia trade, and reducing transit days from Asia to Europe. Through added
flight frequencies, we provide our customers the ability to ship next day to more places in Europe, guaranteed, than any other
express carrier. We are continuing to build our presence in China through the expansion of our service capabilities, investing in
our transportation network and strengthening brand awareness. During 2014 we opened a new Trans Pacific Air Hub at Taiwan
Taoyuan International Airport, marking a 40% increase in size from the previous hub and increasing connectivity from Taiwan
to key markets in the U.S. and Europe. Additionally, we serve more than 40 Asia-Pacific countries and territories through more
than two dozen alliances with local delivery companies that supplement company-owned operations.
Additional international highlights include the following:
•
In South and Central America, we benefit from a strong regional economy. Our offerings include express package
delivery in major cities as well as distribution and forwarding services. We continue to expand our network in Brazil,
with plans to open nine new operating facilities strategically located in the state of Sao Paolo, set to be completed in
May 2015. This enhancement will increase territorial coverage by 78% and improve time in transit throughout this key
market.
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• We continue to grow our business organically in Mexico. We are well positioned with freight, domestic, international
and distribution services. In 2014, we opened six new UPS Express centers strategically located across Mexico,
including Mexico City, State of México, Jalisco and Quintana Roo. These new centers are aimed at increasing our
presence among small and medium enterprises and the retail sector.
•
In February 2012, we broadened our European business-to-consumer service portfolio by acquiring Kiala S.A., a
Belgium-based developer of a platform that enables e-commerce retailers to offer consumers the option of having
goods delivered to a convenient retail location. Kiala was rebranded as UPS Access Point™ in the UPS portfolio of
services. In 2014, we had nearly 14,000 Access Points in Europe after adding Poland and Italy to the existing seven
countries that include Belgium, Germany, France, the UK, Luxembourg, Spain, and the Netherlands. There are also
more than 700 Access Points in Canada, and in 2014 we added Mexico to the network. We expect to expand to over
20,000 locations throughout Europe and the Americas by the end of 2015.
• During 2014, UPS MyChoice was expanded to 15 additional countries and territories: Canada, Austria, Belgium,
Denmark, France, Germany, Italy, Mexico, the Netherlands, Poland, Puerto Rico, Spain, Sweden, Switzerland and the
United Kingdom.
Supply Chain & Freight Reporting Segment
The Supply Chain & Freight segment consists of our forwarding and logistics services, our UPS Freight business, and our
financial offerings through UPS Capital. Supply chain complexity creates demand for a global service offering that
incorporates transportation, distribution and international trade and brokerage services, with financial and information services.
We meet this demand by offering a broad array of supply chain services in over 195 countries and territories.
We have continued to acquire healthcare logistics companies to expand our transportation and distribution networks in
Europe. In February 2014, we acquired Polar Speed Distribution Limited, a U.K.-based healthcare transportation provider
specializing in refrigerated ground transportation of temperature-sensitive medicines and medical devices. In December 2014,
we announced the acquisition of Poltraf Sp. Z o.o., a Polish-based healthcare logistics company that provides direct distribution
and compliant logistics services to pharmaceutical and medical device customers in the fast-growing healthcare markets of
Central and Eastern Europe (this acquisition is expected to close in the first half of 2015). Both of these acquisitions are part of
our ongoing global growth and investment strategy.
In 2014, we also expanded our global logistics network by more than two million square feet, including 1.5 million
square feet in North America. We added contract logistics facilities in key markets including Brazil, Chile, Netherlands and
China (Beijing). Our continued investment in China brings the total to more than 130 owned and agent contract logistics
facilities, covering 87 cities. These facilities provide distribution and warehousing solutions to shippers who want to reach
customers within China and demonstrate our continued commitment to serving China's emerging middle class. We broadened
our North American Health Care service offering by developing a healthcare-compliant network of 36 Field Stocking Locations
("FSLs"). This capability helps companies quickly send medical devices to hospitals and care facilities, while better managing
inventory costs, regulatory compliance requirements, and end-to-end visibility of shipments.
Freight Forwarding
UPS is one of the largest U.S. domestic air freight carriers and among the top international air freight forwarders globally.
UPS offers a portfolio of guaranteed and non-guaranteed global air freight services. Additionally, as one of the world’s leading
non-vessel operating common carriers, UPS also provides ocean freight full-container load and less-than-container load
transportation services between most major ports around the world.
Customs Brokerage
UPS is among the world’s largest customs brokers by both the number of shipments processed annually and by the
number of dedicated brokerage employees worldwide. We provide our customers with customs clearance, trade management
and international trade consulting services. In 2014, UPS expanded its brokerage capabilities in Costa Rica through the
integration of the 2013 acquisition of SEISA Brokerage.
Logistics and Distribution
UPS Logistics offers the following services:
• Distribution Services: Our comprehensive distribution services are provided through a global network of distribution
centers that manage the flow of goods from receiving to storage and order processing to shipment. UPS also provides
specialized services to streamline supply chains in the healthcare, high tech, retail, industrial manufacturing and
aerospace industries. Together, these services allow companies to save time and money by minimizing capital
investment and positioning products closer to their customers.
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•
Post Sales: Post Sales services support goods after they have been delivered or installed in the field. The four core
service offerings within Post Sales include: (1) Critical Parts Fulfillment; (2) Reverse Logistics; (3) Test, Repair, and
Refurbish and (4) Network and Parts Planning. We leverage our global distribution network of over 950 FSLs to
ensure that the right type and quantity of our customers’ stock is in the right location to meet the needs of their end-
customers. This solution allows our customers to maximize service to their end-customers while reducing costs.
• UPS Mail Innovations: UPS Mail Innovations offers an efficient, cost-effective method for sending lightweight parcels
and flat mail to global addresses from the U.S. We pick up customers’ domestic and international mail, and then sort,
post, manifest and expedite the secured mail containers to the destination postal service for last-mile delivery.
• UPS Express Critical: UPS Express Critical provides a broad range of urgent transportation options ranging from
lightweight to heavyweight shipments around the world. Our experienced team can quickly assess a critical situation,
identify transportation alternatives and implement delivery solutions that meets customers’ time and cost requirements.
UPS Freight
UPS Freight offers regional, inter-regional and long-haul less-than-truckload (“LTL”) services, as well as full truckload
services, in all 50 states, Canada, Puerto Rico, Guam, the U.S. Virgin Islands and Mexico. UPS Freight provides reliable LTL
service backed by a day-definite, on-time guarantee at no additional cost. Additionally, many user-friendly small package
technology offerings are available for freight including: UPS WorldShip; Billing Center and Quantum View. These technology
systems allow customers to process and track LTL shipments, create electronic bills of lading and reconcile billing.
UPS Capital
By leveraging more than 107 years of transportation and global supply chain expertise, UPS Capital, a subsidiary of UPS,
provides insurance, financing and payment services that are unique, relevant and competitive. UPS Capital helps companies
protect themselves from risk, improve cash flow, and accelerate and protect payments. UPS is the only logistics company in
the world that offers this breadth of in-house financial and insurance solutions, providing customers with a single source for all
of their logistics needs.
Sustainability
UPS’s business and corporate responsibility strategies pursue a common interest to increase the vitality and
environmental sustainability of the global economy by aggregating the shipping activity of millions of businesses and
individuals worldwide into a single, highly efficient logistics network. This provides benefits to:
• UPS, by ensuring strong demand for our services.
• The economy, by making global supply chains more efficient and less expensive.
• The environment, by enabling our global customers to leverage UPS’s carbon efficiency and thereby reduce the
carbon intensity of their supply chains.
• Communities, by connecting individuals to global markets and providing the economic empowerment that can help
facilitate positive social change.
We pursue sustainable business practices worldwide through operational efficiency, fleet advances, facility engineering
projects and conservation-enabling technology and service offerings. We help our customers do the same.
We consider stakeholder engagement an essential aspect of corporate governance and collaborate regularly with a global
diverse set of stakeholders on sustainability issues. In addition, we engage stakeholders directly in our sustainability strategy
through our corporate materiality assessment process. In 2013, we conducted our second formal assessment, working once
again with the non-profit organization Business for Social Responsibility ("BSR") to evaluate significant sustainability issues
(economic, environmental and social), and ranked each issue by importance based on multiple stakeholder feedback. Our most
material sustainability issues primarily involve our energy use, emissions and workplace policies. The full results of the
assessment are available at www.ups.com/sustainability.
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Sustainability highlights in 2014 include:
• One of Corporate Responsibility’s “100 Best Corporate Citizens” for the 5th consecutive year.
• Recognized by Ethisphere Institute as one of the “World’s Most Ethical Companies” for the 8th consecutive year.
• Named to Interbrand's “Best Global Green Brands” for the 4th consecutive year. We ranked 28th and were the only
company in the transportation sector to make the top 50.
• Recognized as a constituent of the Dow Jones Sustainability North America Index for the 10th consecutive year; in
addition, we were included on the Dow Jones Sustainability World Index for the 2nd consecutive year.
• Recognized as a constituent of the NASDAQ OMX Global Sustainability Index for the 5th consecutive year.
• Recognized as the top community-minded industrial company by The Civic 50.
• Achieved a score of 100% in response to the Carbon Disclosure Project. It is the 4th consecutive year we have
achieved a rating at or above 99%.
More information on how UPS addresses its most significant sustainability issues is available in the UPS Corporate
Sustainability Report and on the UPS Sustainability website.
Community
We believe that strong communities are vital to the success of our company. By combining our philanthropy with the
volunteer time and talents of our employees, UPS helps drive positive change for organizations and communities in need across
the globe. The highlights of our corporate citizenship efforts in 2014 include:
• Local non-profits around the world received nearly 1.9 million hours of volunteer service from UPS employees
participating in our Neighbor-to-Neighbor program.
• The UPS Foundation, which oversees corporate citizenship efforts for the company, invested $104 million in
donations of both cash and in-kind services to global causes primarily in four focus areas—community safety,
environmental sustainability, diversity and volunteerism.
• UPS employees, both active and retired, contributed approximately $52 million to United Way in 2014 which was
matched by a corporate contribution of $8 million.
• Through The UPS Foundation we have the opportunity to support our global communities to offset carbon, support
clean water, reduce poverty and help individuals sustain their lives through the planting of trees. The UPS Global
Forestry Initiative, which began in 2013, is the signature program of The UPS Foundation’s Environmental Focus
area. By the end of 2014, we have supported the planting of three million trees worldwide.
• UPS continued to aid communities impacted by disasters through our UPS Humanitarian Relief program, by providing
our logistics expertise, skilled volunteers, capacity building support and in-kind services. In 2014, UPS coordinated
more than 263 humanitarian relief shipments across 43 countries and provided funding and logistics support to
strengthen long-term recovery efforts of communities impacted by the Ebola epidemic, the Syrian Refugee Crisis and
severe weather events in the Southern and Midwestern regions of the U.S.
• Nearly 6,700 teenagers and novice drivers in the U.S., Canada, the U.K., Germany and China participated in UPS
Road Code. This safety program for new drivers features UPS employees as instructors – a role where they share
driving knowledge and safety tips amassed over our long history of safe driving.
Reputation
Great brands require connecting with customers. In working to develop these connections, UPS continually receives high
accolades from independent brand evaluations. In 2014, the company ranked 27th on Interbrand’s Best Global Brands and
16th on Millward Brown's BrandZ Most Valuable Global Brands. Additionally, in Forbes’ “America’s Most Reputable
Companies 2014,” UPS ranked 2nd among 150 large publicly-traded US companies rated by the Reputation Institute.
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Employees
The strength of our company is our people, working together with a common purpose. We had approximately 435,000
employees (excluding temporary seasonal employees) as of December 31, 2014, of which 354,000 are in the U.S. and 81,000
are located internationally. Our global workforce includes approximately 75,000 management employees (38% of whom are
part-time) and 360,000 hourly employees (47% of whom are part-time).
As of December 31, 2014, we had approximately 270,000 employees employed under a national master agreement and
various supplemental agreements with local unions affiliated with the International Brotherhood of Teamsters (“Teamsters”).
During 2014, the Teamsters ratified a new national master agreement with UPS that will expire on July 31, 2018.
We have approximately 2,600 pilots who are employed under a collective bargaining agreement with the Independent
Pilots Association ("IPA"), which became amendable at the end of 2011. In February 2014, UPS and the IPA requested and
received mediation by the National Mediation Board for the ongoing contract negotiations.
Our airline mechanics are covered by a collective bargaining agreement with Teamsters Local 2727, which became
amendable November 1, 2013. In addition, approximately 3,100 of our auto and maintenance mechanics who are not
employed under agreements with the Teamsters are employed under collective bargaining agreements with the International
Association of Machinists and Aerospace Workers (“IAM”). In 2014, the IAM ratified new collective bargaining agreements
that will expire on July 31, 2019.
The experience of our management team continues to be an organizational strength. Nearly 34% of our full-time
managers have more than 20 years of service with UPS.
We believe that our relations with our employees are good. We periodically survey all our employees to determine their
level of job satisfaction. Areas of concern receive management attention as we strive to keep UPS the employer-of-choice
among our employees. We consistently receive numerous awards and wide recognition as an employer-of-choice, resulting in
part from our emphasis on diversity and corporate citizenship.
Safety
Health and Safety is a core value at UPS and an enduring belief that the well-being of our people, business partners and
the public is of utmost importance. We train our people to avoid injury to themselves and others in all aspects of their work. We
do not tolerate unsafe work practices.
We recognize employees for health, wellness, and safety accomplishments. We provide programs that help promote the
health and wellness of employees and their families, and the safety of our operations. We are committed to fostering the most
effective safety practices in our work environment. By meeting our high safety standards and goals, we contribute to the well-
being of our people, company, and the communities we serve.
We use an all-encompassing Comprehensive Health and Safety Process ("CHSP") to prevent occupational illnesses,
injuries and auto crashes, as well as promote wellness through the development of workplace programs. The foundation of this
process is our co-chaired employee and management health and safety committees. Together they conduct facility and
equipment audits, perform work practice and behavior analysis, conduct training and recommend work process and equipment
changes.
The components of CHSP are:
• Personal Value. Which is the foundation and forms the base of our safety and wellness culture.
• Management Commitment and Employee Involvement - Where employees take an active role in their own safety as
well as their fellow workers and are supported by management. All operations management commit to providing a
work environment that is conducive to the well-being and safety of their employees.
• Work Site Analysis. Which includes injury and auto crash data analysis, behavior observations and facility and
equipment audits to identify gaps and develop solutions. Our operations managers are responsible for their employees'
safety results. We investigate every injury and auto crash and develop prevention activities.
• Hazard Prevention and Control. Where solutions are developed and documented to ensure identified risks have been
mitigated.
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•
Safety Education and Training. Employees who are healthy and well-trained in proper methods are more safe and
efficient in performing their jobs. Our approach starts with training the trainer. All trainers are certified to ensure that
they have the skills and motivation to effectively instruct new employees. All new employees receive safety training
during orientation and in the work area. In addition, each new driver receives extensive classroom and online
instruction, as well as on-road training.
Other components to ensure the safety of our people and fleet include:
• Wellness. We have a "Five Being Habits" wellness program that turns health and wellness knowledge into actionable
measures. These habits are designed to enable employees and their families to take positive steps toward healthy
lifestyles.
• Recognition. We have a well-defined safe driving honor plan to recognize our drivers when they achieve accident-free
milestones. We have more than 7,200 drivers enshrined in our coveted Circle of Honor for drivers who have driven 25
years or more without an avoidable auto crash.
• Preventive Maintenance. We have a comprehensive Preventive Maintenance Program to ensure the safety of our fleet.
Our fleet is managed and monitored electronically to ensure that each vehicle is serviced at a specific time to prevent
malfunction or breakdown.
Competition
UPS is a global leader in logistics. We offer a broad array of services in the package and freight delivery industry and,
therefore, compete with many different local, regional, national and international carriers. Our competitors include worldwide
postal services, various motor carriers, express companies, freight forwarders, air couriers and others. Through our supply
chain service offerings, we compete with a number of providers in the supply chain, financial services and information
technology industries.
Competitive Strengths
Our competitive strengths include:
Global Network. We believe that our integrated global ground and air network is the most extensive in the industry. We
provide all types of package service (air, ground, domestic, international, commercial and residential) through a single pickup
and delivery service network. We also have extensive air freight, ocean freight, ground freight and logistics networks that
provide additional capabilities in the global transportation and logistics market.
Our sophisticated engineering systems allow us to optimize our network efficiency and asset utilization on a daily basis.
This unique, integrated global business model creates consistent and superior returns.
Global Presence. UPS serves more than 220 countries and territories around the world. We have a significant presence
in all of the world’s major economies.
Leading-edge Technology. We are a global leader in developing technology that helps our customers optimize their
shipping and logistics business processes to lower costs, improve service and increase efficiency.
Technology powers virtually every service we offer and every operation we perform. Our technology offerings are driven
by our customers’ needs. We offer a variety of online service options that enable our customers to integrate UPS functionality
into their own businesses not only to send, manage and track their shipments conveniently, but also to provide their customers
with better information services. We provide the infrastructure for an Internet presence that extends to tens of thousands of
customers who have integrated UPS tools directly into their own websites.
Broad Portfolio of Services. Our portfolio of services enables customers to choose the delivery option that is most
appropriate for their requirements. Increasingly, our customers benefit from business solutions that integrate many UPS
services in addition to package delivery. For example, our supply chain services—such as freight forwarding, customs
brokerage, order fulfillment and returns management—help improve the efficiency of the supply chain management process.
Customer Relationships. We focus on building and maintaining long-term customer relationships. We serve 1.6 million
pickup customers and 8.2 million delivery customers daily. Cross-selling small package, supply chain and freight services
across our customer base is an important growth mechanism for UPS.
Brand Equity. We have built a leading and trusted brand that stands for quality service, reliability and product
innovation. The distinctive appearance of our vehicles and the professional courtesy of our drivers are major contributors to our
brand equity.
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Distinctive Culture. We believe that the dedication of our employees results in large part from our distinctive
“employee-owner” concept. Our employee stock ownership tradition dates from 1927, when our founders, who believed that
employee stock ownership was a vital foundation for successful business, first offered stock to employees. To facilitate
employee stock ownership, we maintain several stock-based compensation programs.
Our long-standing policy of “promotion from within” complements our tradition of employee ownership, and this policy
reduces the need for us to hire managers and executive officers from outside UPS. The majority of our management team began
their careers as full-time or part-time hourly UPS employees, and have spent their entire careers with us. Many of our executive
officers have more than 30 years of service with UPS and have accumulated a meaningful ownership stake in our company.
Therefore, our executive officers have a strong incentive to effectively manage UPS, which benefits all our shareowners.
Financial Strength. Our balance sheet reflects financial strength that few companies can match. Our financial strength
gives us the resources to achieve global scale; to invest in employee development, technology, transportation equipment and
facilities; to pursue strategic opportunities that facilitate our growth; to service our obligations; and to return value to our
shareowners in the form of dividends, share repurchases and steady share growth.
Government Regulation
Air Operations
The U.S. Department of Transportation (“DOT”), the Federal Aviation Administration (“FAA”), and the U.S. Department
of Homeland Security, through the Transportation Security Administration (“TSA”), have regulatory authority over United
Parcel Service Co.’s (“UPS Airlines’”) air transportation services. The Federal Aviation Act of 1958, as amended, is the
statutory basis for DOT and FAA authority and the Aviation and Transportation Security Act of 2001, as amended, is the basis
for TSA aviation security authority.
The DOT’s authority primarily relates to economic aspects of air transportation, such as discriminatory pricing, non-
competitive practices, interlocking relations and cooperative agreements. The DOT also regulates, subject to the authority of
the President of the United States, international routes, fares, rates and practices, and is authorized to investigate and take action
against discriminatory treatment of U.S. air carriers abroad. International operating rights for U.S. airlines are usually subject to
bilateral agreement between the U.S. and foreign governments. UPS Airlines has international route operating rights granted by
the DOT and we may apply for additional authorities when those operating rights are available and are required for the efficient
operation of our international network. The efficiency and flexibility of our international air transportation network is
dependent on DOT and foreign government regulations and operating restrictions.
The FAA’s authority primarily relates to safety aspects of air transportation, including aircraft operating procedures,
transportation of hazardous materials, record keeping standards and maintenance activities, and personnel. In 1988, the FAA
granted us an operating certificate, which remains in effect so long as we meet the safety and operational requirements of the
applicable FAA regulations. In addition, we are subject to non-U.S. government regulation of aviation rights involving non-
U.S. jurisdictions, and non-U.S. customs regulation.
UPS aircraft maintenance programs and procedures, including aircraft inspection and repair at periodic intervals, are
approved for all aircraft under FAA regulations. The future cost of repairs pursuant to these programs may fluctuate according
to aircraft condition, age and the enactment of additional FAA regulatory requirements.
The TSA regulates various security aspects of air cargo transportation in a manner consistent with the TSA mission
statement to “protect the Nation’s transportation systems to ensure freedom of movement for people and commerce.” UPS
Airlines, and specified airport and off-airport locations, are regulated under TSA regulations applicable to the transportation of
cargo in an air network. In addition, personnel, facilities and procedures involved in air cargo transportation must comply with
TSA regulations.
UPS Airlines, along with a number of other domestic airlines, participates in the Civil Reserve Air Fleet (“CRAF”)
program. Our participation in the CRAF program allows the U.S. Department of Defense (“DOD”) to requisition specified UPS
Airlines wide-body aircraft for military use during a national defense emergency. The DOD compensates us for the use of
aircraft under the CRAF program. In addition, participation in CRAF entitles UPS Airlines to bid for military cargo charter
operations.
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Ground Operations
Our ground transportation of packages in the U.S. is subject to the DOT’s and the states’ jurisdiction with respect to the
regulation of operations, safety, insurance and hazardous materials. We are subject to similar regulation in many non-U.S.
jurisdictions.
The Postal Reorganization Act of 1970 created the U.S. Postal Service as an independent establishment of the executive
branch of the federal government, and created the Postal Rate Commission, an independent agency, to recommend postal rates.
The Postal Accountability and Enhancement Act of 2006 amended the 1970 Act to give the re-named Postal Regulatory
Commission revised oversight authority over many aspects of the Postal Service, including postal rates, product offerings and
service standards. We sometimes participate in the proceedings before the Postal Regulatory Commission in an attempt to
secure fair postal rates for competitive services.
Customs
We are subject to the customs laws in the countries in which we operate, regarding the import and export of shipments,
including those related to the filing of documents on behalf of client importers and exporters.
Environmental
We are subject to federal, state and local environmental laws and regulations across all of our business units. These laws
and regulations cover a variety of processes, including, but not limited to: proper storage, handling, and disposal of hazardous
and other waste; managing wastewater and stormwater; monitoring and maintaining the integrity of underground storage tanks;
complying with laws regarding clean air, including those governing emissions; protecting against and appropriately responding
to spills and releases; and communicating the presence of reportable quantities of hazardous materials to local responders. UPS
has established site- and activity-specific environmental compliance and pollution prevention programs to address our
environmental responsibilities and remain compliant. In addition, UPS has created numerous programs which seek to minimize
waste and prevent pollution within our operations.
Other Regulations
We are subject to numerous other U.S. federal and state laws and regulations, in addition to applicable foreign laws, in
connection with our package and non-package businesses in the countries in which we operate. These laws and regulations
include those enforced by U.S. Customs and Border Protection and other agencies of the U.S. Department of Homeland
Security, the U.S. Department of Treasury, the Federal Maritime Commission, the U.S. Drug Enforcement Administration, the
U.S. Food and Drug Administration and the U.S. Department of Agriculture.
Where You Can Find More Information
UPS maintains a website at www.ups.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities
Exchange Act of 1934 are made available through our website www.investors.ups.com as soon as reasonably practical after we
electronically file or furnish the reports to the SEC. Also available on the Corporation’s website are the Company’s Corporate
Governance Guidelines and Committee Charters. However, information on these websites is not incorporated by reference into
this report or any other report filed with or furnished to the SEC.
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We have adopted a written Code of Business Conduct that applies to all of our directors, officers and employees,
including our principal executive officer and senior financial officers. It is available in the governance section of the investor
relations website, located at www.investors.ups.com. In the event that we make changes in, or provide waivers from, the
provisions of the Code of Business Conduct that the SEC requires us to disclose, we intend to disclose these events in the
governance section of our investor relations website.
Our Corporate Governance Guidelines and the charters for our Audit Committee, Compensation Committee and
Nominating and Corporate Governance Committee are also available in the governance section of the investor relations
website.
Our sustainability report, which describes our activities that support our commitment to acting responsibly and
contributing to society, is available at www.sustainability.ups.com. We provide the addresses to our Internet sites solely for the
information of investors. We do not intend for any addresses to be active links or to otherwise incorporate the contents of any
website into this report.
Item 1A.
Risk Factors
You should carefully consider the following factors, which could materially affect our business, financial condition or
results of operations. You should read these Risk Factors in conjunction with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in Item 7 and our Consolidated Financial Statements and related notes in
Item 8.
General economic conditions, both in the U.S. and internationally, may adversely affect our results of operations.
We conduct operations in over 220 countries and territories. Our U.S. and international operations are subject to normal
cycles affecting the economy in general, as well as the local economic environments in which we operate. The factors that
create cyclical changes to the economy and to our business are beyond our control, and it may be difficult for us to adjust our
business model to mitigate the impact of these factors. In particular, our business is affected by levels of industrial production,
consumer spending and retail activity, and our business, financial position and results of operations could be materially affected
by adverse developments in these aspects of the economy.
We face significant competition which could adversely affect our business, financial position and results of operations.
We face significant competition on a local, regional, national and international basis. Our competitors include the postal
services of the U.S. and other nations, various motor carriers, express companies, freight forwarders, air couriers and others.
Competition may also come from other sources in the future. Some of our competitors have cost and organizational structures
that differ from ours and may offer services and pricing terms that we may not be willing or able to offer. If we are unable to
timely and appropriately respond to competitive pressures, our business, financial position and results of operations could be
adversely affected.
The transportation industry continues to consolidate and competition remains strong. As a result of consolidation, our
competitors may increase their market share and improve their financial capacity, and may strengthen their competitive
positions. Business combinations could also result in competitors providing a wider variety of services and products at
competitive prices, which could adversely affect our financial performance.
Changes in our relationships with our significant customers, including the loss or reduction in business from one or more
of them, could have an adverse impact on us.
No single customer accounts for 10% or more of our consolidated revenue. We do not believe the loss of any single
customer would materially impair our overall financial condition or results of operations; however, collectively, some of our
large customers might account for a relatively significant portion of the growth in revenue in a particular quarter or year. These
customers can drive the growth in revenue for particular services based on factors such as: new customer product launches; the
seasonality associated with the fourth quarter holiday season; business mergers and acquisitions; and the overall fast growth of
a customer's underlying business. These customers could choose to divert all or a portion of their business with us to one of our
competitors, demand pricing concessions for our services, require us to provide enhanced services that increase our costs, or
develop their own shipping and distribution capabilities. If these factors drove some of our large customers to cancel all or a
portion of their business relationships with us, it could materially impact the growth in our business and the ability to meet our
current and long-term financial forecasts.
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Our business is subject to complex and stringent regulation in the U.S. and internationally.
We are subject to complex and stringent aviation, transportation, environmental, security, labor, employment and other
governmental laws, regulations and policies, both in the U.S. and in the other countries in which we operate. In addition, our
business is impacted by laws, regulations and policies that affect global trade, including tariff and trade policies, export
requirements, taxes, monetary policies and other restrictions and charges. Changes in laws, regulations and policies and the
related interpretations may alter the landscape in which we do business and may affect our costs of doing business. The impact
of new laws, regulations and policies cannot be predicted. Compliance with new laws and regulations may increase our
operating costs or require significant capital expenditures. Any failure to comply with applicable laws or regulations in the U.S.
or in any of the countries in which we operate could result in substantial fines or possible revocation of our authority to conduct
our operations, which could adversely affect our financial performance.
Increased security requirements could impose substantial costs on us and we could be the target of an attack or have a
security breach.
As a result of concerns about global terrorism and homeland security, governments around the world have adopted or may
adopt stricter security requirements that will result in increased operating costs for businesses in the transportation industry.
These requirements may change periodically as a result of regulatory and legislative requirements and in response to evolving
threats. We cannot determine the effect that these new requirements will have on our cost structure or our operating results, and
these rules or other future security requirements may increase our costs of operations and reduce operating efficiencies.
Regardless of our compliance with security requirements or the steps we take to secure our facilities or fleet, we could be the
target of an attack or security breaches could occur, which could adversely affect our operations or our reputation.
We may be affected by global climate change or by legal, regulatory or market responses to such a potential change.
Concern over climate change, including the impact of global warming, has led to significant federal, state and
international legislative and regulatory efforts to limit greenhouse gas (“GHG”) emissions. For example, in the past several
years, the U.S. Congress has considered various bills that would regulate GHG emissions. While these bills have not yet
received sufficient Congressional support for enactment, some form of federal climate change legislation is possible in the
future. Even in the absence of such legislation, the Environmental Protection Agency, spurred by judicial interpretation of the
Clean Air Act, may regulate GHG emissions, especially aircraft or diesel engine emissions, and this could impose substantial
costs on us. These costs include an increase in the cost of the fuel and other energy we purchase and capital costs associated
with updating or replacing our aircraft or vehicles prematurely. Until the timing, scope and extent of any future regulation
becomes known, we cannot predict its effect on our cost structure or our operating results. It is reasonably possible that such
legislation or regulation could impose material costs on us. Moreover, even without such legislation or regulation, increased
awareness and any adverse publicity in the global marketplace about the GHGs emitted by companies in the airline and
transportation industries could harm our reputation and reduce customer demand for our services, especially our air services.
Strikes, work stoppages and slowdowns by our employees could adversely affect our business, financial position and results
of operations.
A significant number of our employees are employed under a national master agreement and various supplemental
agreements with local unions affiliated with the Teamsters. In addition, our airline pilots, airline mechanics, ground mechanics
and certain other employees are employed under other collective bargaining agreements. Strikes, work stoppages and
slowdowns by our employees could adversely affect our ability to meet our customers' needs, and customers may do more
business with competitors if they believe that such actions or threatened actions may adversely affect our ability to provide
services. We may face a permanent loss of customers if we are unable to provide uninterrupted service, and this could adversely
affect our business, financial position and results of operations. The terms of future collective bargaining agreements also may
affect our competitive position and results of operations.
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We are exposed to the effects of changing prices of energy, including gasoline, diesel and jet fuel, and interruptions in
supplies of these commodities.
Changing fuel and energy costs may have a significant impact on our operations. We require significant quantities of fuel
for our aircraft and delivery vehicles and are exposed to the risk associated with variations in the market price for petroleum
products, including gasoline, diesel and jet fuel. We mitigate our exposure to changing fuel prices through our indexed fuel
surcharges and we may also enter into hedging transactions from time to time. If we are unable to maintain or increase our fuel
surcharges, higher fuel costs could adversely impact our operating results. Even if we are able to offset the cost of fuel with our
surcharges, high fuel surcharges may result in a mix shift from our higher-yielding air products to lower-yielding ground
products or an overall reduction in volume. If fuel prices rise sharply, even if we are successful in increasing our fuel surcharge,
we could experience a lag time in implementing the surcharge, which could adversely affect our short-term operating results.
There can be no assurance that our hedging transactions will be effective to protect us from changes in fuel prices. Moreover,
we could experience a disruption in energy supplies, including our supply of gasoline, diesel and jet fuel, as a result of war,
actions by producers, or other factors beyond our control, which could have an adverse effect on our business.
Changes in exchange rates or interest rates may have an adverse effect on our results.
We conduct business across the globe with a significant portion of our revenue derived from operations outside the United
States. Our operations in international markets are affected by changes in the exchange rates for local currencies, and in
particular the Euro, British Pound Sterling, Canadian Dollar, Chinese Renminbi and Hong Kong Dollar.
We are exposed to changes in interest rates, primarily on our short-term debt and that portion of our long-term debt that
carries floating interest rates. The impact of a 100-basis-point change in interest rates affecting our debt is discussed in the
“Quantitative and Qualitative Disclosures about Market Risk” section of this report. Additionally, changes in interest rates
impact the valuation of our pension and postretirement benefit obligations and the related benefit cost recognized in the income
statement. The impact of changes in interest rates on our pension and postretirement benefit obligations and costs is discussed
further in the "Critical Accounting Policies and Estimates" section of this report.
We monitor and manage our exposures to changes in currency exchange rates and interest rates, and make use of
derivative instruments to mitigate the impact of changes in these rates on our financial position and results of operations;
however, changes in exchange rates and interest rates cannot always be predicted or hedged.
If we are unable to maintain our brand image and corporate reputation, our business may suffer.
Our success depends in part on our ability to maintain the image of the UPS brand and our reputation for providing
excellent service to our customers. Service quality issues, actual or perceived, even when false or unfounded, could tarnish the
image of our brand and may cause customers to use other companies. Also, adverse publicity surrounding labor relations,
environmental concerns, security matters, political activities and the like, or attempts to connect our company to these sorts of
issues, either in the United States or other countries in which we operate, could negatively affect our overall reputation and
acceptance of our services by customers. Damage to our reputation and loss of brand equity could reduce demand for our
services and thus have an adverse effect on our business, financial position and results of operations, and could require
additional resources to rebuild our reputation and restore the value of our brand.
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A significant privacy breach or IT system disruption could adversely affect our business and we may be required to increase
our spending on data and system security.
We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic
information, and to manage or support a variety of business processes and activities. In addition, the provision of service to our
customers and the operation of our networks and systems involve the storage and transmission of proprietary information and
sensitive or confidential data, including personal information of customers, employees and others. Our franchised center
locations also are reliant on the use of information technology systems to manage their business processes and activities. Our
and our franchisees’ information technology systems, some of which are managed by third-parties, may be susceptible to
damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or
components thereof, power outages, hardware failures, computer viruses, attacks by computer hackers, malicious insiders,
telecommunication failures, user errors or catastrophic events. Hackers, acting individually or in coordinated groups, may also
launch distributed denial of service attacks or other coordinated attacks that may cause service outages or other interruptions in
our business. In addition, breaches in security could expose us, our customers and franchisees, or the individuals affected, to a
risk of loss or misuse of proprietary information and sensitive or confidential data. The techniques used to obtain unauthorized
access, disable or degrade service or sabotage systems change frequently, may be difficult to detect for a long time and often
are not recognized until launched against a target. As a result, we may be unable to anticipate these techniques or to implement
adequate preventative measures.
Any of these occurrences could result in disruptions in our operations, the loss of existing or potential customers, damage
to our brand and reputation, and litigation and potential liability for the company. In addition, the cost and operational
consequences of implementing further data or system protection measures could be significant. In August 2014, a broad-based
malware intrusion targeting retailers throughout the U.S. was discovered and subsequently eradicated at approximately 1% of
our franchisees’ locations. While the impact of this cyber-attack, including the costs associated with investigation and
remediation activities, was not material to our business and our financial results, our efforts to deter, identify, mitigate and/or
eliminate any future breaches may not be successful.
Severe weather or other natural or manmade disasters could adversely affect our business.
Severe weather conditions and other natural or manmade disasters, including storms, floods, fires or earthquakes,
epidemics or pandemics, or terrorist attacks, conflicts or unrest, may result in decreased revenues, as our customers reduce their
shipments, or increased costs to operate our business, which could have an adverse effect on our results of operations for a
quarter or year. Any such event affecting one of our major facilities could result in a significant interruption in or disruption of
our business.
We make significant capital investments in our business of which a significant portion is tied to projected volume levels.
We require significant capital investments in our business consisting of aircraft, vehicles, technology, facilities and sorting
and other types of equipment to support both our existing business and anticipated growth. Forecasting projected volume
involves many factors which are subject to uncertainty, such as general economic trends, changes in governmental regulation
and competition. If we do not accurately forecast our future capital investment needs, we could have excess capacity or
insufficient capacity, either of which would negatively affect our revenues and profitability. In addition to forecasting our
capital investment requirements, we adjust other elements of our operations and cost structure in response to adverse economic
conditions; however, these adjustments may not be sufficient to allow us to maintain our operating margins in a weak economy.
We derive a significant portion of our revenues from our international operations and are subject to the risks of doing
business in international markets.
We have significant international operations and while the geographical diversity of our international operations helps
ensure that we are not overly reliant on a single region or country, we are continually exposed to changing economic, political
and social developments beyond our control. Emerging markets are typically more volatile than those in the developed world,
and any broad-based downturn in these markets could reduce our revenues and adversely affect our business, financial position
and results of operations. We are subject to many laws governing our international operations, including those that prohibit
improper payments to government officials and commercial customers, and restrict where we can do business, our shipments to
certain countries and the information that we can provide to non-U.S. governments.
18
We are subject to changes in markets and our business plans that have resulted, and may in the future result, in substantial
write-downs of the carrying value of our assets, thereby reducing our net income.
Our regular review of the carrying value of our assets has resulted, from time to time, in significant impairments, and we
may in the future be required to recognize additional impairment charges. Changes in business strategy, government
regulations, or economic or market conditions have resulted and may result in further substantial impairments of our intangible,
fixed or other assets at any time in the future. In addition, we have been and may be required in the future to recognize
increased depreciation and amortization charges if we determine that the useful lives of our fixed assets are shorter than we
originally estimated. Such changes could reduce our net income.
Employee health and retiree health and pension benefit costs represent a significant expense to us.
With approximately 435,000 employees, including approximately 354,000 in the U.S., our expenses relating to employee
health and retiree health and pension benefits are significant. In recent years, we have experienced significant increases in some
of these costs, largely as a result of economic factors beyond our control, including, in particular, ongoing increases in health
care costs well in excess of the rate of inflation and the decreasing trend of discount rates that we use to value our pension
liabilities. Continued increasing health care costs, volatility in investment returns and discount rates, as well as changes in laws,
regulations and assumptions used to calculate retiree health and pension benefit expenses, may adversely affect our business,
financial position, results of operations or require significant contributions to our pension plans. The new national master
agreement with the Teamsters includes changes that are designed to mitigate certain of these health care expenses, but there can
be no assurance that our efforts will be successful or that the failure or success of these efforts will not adversely affect our
business, financial position, results of operations or liquidity.
We participate in a number of trustee-managed multiemployer pension and health and welfare plans for employees
covered under collective bargaining agreements. As part of the overall collective bargaining process for wage and benefit
levels, we have agreed to contribute certain amounts to the multiemployer benefit plans during the contract period. The
multiemployer benefit plans set benefit levels and are responsible for benefit delivery to participants. Future contribution
amounts to multiemployer benefit plans will be determined only through collective bargaining, and we have no additional legal
or constructive obligation to increase contributions beyond the agreed-upon amounts (except potential surcharges under the
Pension Protection Act of 2006 in the event that a plan enters critical status, and our contributions are not sufficient to satisfy
any rehabilitation plan funding schedule). In future collective bargaining negotiations, we could agree to make significantly
higher future contributions to improve the funded status of one or more of these plans. The funded status of these
multiemployer plans are impacted by various factors, including investment performance, health care inflation, changes in
demographics and changes in participant benefit levels. At this time, we are unable to determine the amount of additional
future contributions, if any, or whether any material adverse effect on our financial condition, results of operations or liquidity
could result from our participation in these plans.
We may be subject to various claims and lawsuits that could result in significant expenditures.
The nature of our business exposes us to the potential for various claims and litigation related to labor and employment,
personal injury, property damage, business practices, environmental liability and other matters. Any material litigation or a
catastrophic accident or series of accidents could have a material adverse effect on our business, financial position and results
of operations.
We may not realize the anticipated benefits of acquisitions, joint ventures or strategic alliances.
As part of our business strategy, we may acquire businesses and form joint ventures or strategic alliances. Whether we
realize the anticipated benefits from these transactions depends, in part, upon the successful integration between the businesses
involved, the performance of the underlying operations, capabilities or technologies and the management of the acquired
operations. Accordingly, our financial results could be adversely affected by our failure to effectively integrate the acquired
operations, unanticipated performance issues, transaction-related charges or charges for impairment of long-term assets that we
acquire.
19
Insurance and claims expenses could have a material adverse effect on our business, financial condition and results of
operations.
We have a combination of both self-insurance and high-deductible insurance programs for the risks arising out of the
services we provide and the nature of our global operations, including claims exposure resulting from cargo loss, personal
injury, property damage, aircraft and related liabilities, business interruption and workers' compensation. Workers'
compensation, automobile and general liabilities are determined using actuarial estimates of the aggregate liability for claims
incurred and an estimate of incurred but not reported claims, on an undiscounted basis. Our accruals for insurance reserves
reflect certain actuarial assumptions and management judgments, which are subject to a high degree of variability. If the
number or severity of claims for which we are retaining risk increases, our financial condition and results of operations could
be adversely affected. If we lose our ability to self-insure these risks, our insurance costs could materially increase and we may
find it difficult to obtain adequate levels of insurance coverage.
Item 1B.
Unresolved Staff Comments
Not applicable.
Item 2. Properties
Operating Facilities
We own our headquarters, which is located in Atlanta, Georgia and consists of about 745,000 square feet of office space
in an office campus, and our UPS Supply Chain Solutions group’s headquarters, which is located in Alpharetta, Georgia, and
consists of about 310,000 square feet of office space.
We also own 29 of our 31 principal U.S. package operating facilities, which have floor spaces that range from
approximately 310,000 to 879,000 square feet. In addition, we have a 1.9 million square foot operating facility near Chicago,
Illinois, which is designed to streamline shipments between East Coast and West Coast destinations, and we own or lease over
1,000 additional smaller package operating facilities in the U.S. The smaller of these facilities have vehicles and drivers
stationed for the pickup of packages, and capacity for the sorting, transfer and delivery of packages. The larger of these
facilities also service our vehicles and equipment, and employ specialized mechanical installations for the sorting and handling
of packages.
We own or lease more than 800 facilities that support our international package operations. In addition, we own or lease
more than 500 facilities, with approximately 32.2 million square feet of floor space, that support our freight forwarding and
logistics operations. We own and operate a logistics campus consisting of approximately 3.7 million square feet in Louisville,
Kentucky.
We own or lease approximately 200 UPS Freight service centers with approximately 5.9 million square feet of floor
space. The main offices of UPS Freight are located in Richmond, Virginia and consist of about 217,000 square feet of office
space.
Our aircraft are operated in a hub and spoke pattern in the U.S., with our principal air hub, known as Worldport, located
in Louisville, Kentucky. The Worldport facility consists of over 5.2 million square feet and the site includes approximately 596
acres. Between 2009 and 2010, we completed an expansion of our Worldport facility, which increased the sorting capacity to
approximately 416,000 packages per hour. The expansion, which cost over $1 billion, involved the addition of two aircraft
load / unload wings to the hub building, followed by the installation of high-speed conveyor and computer control systems.
We also have regional air hubs in Columbia, South Carolina; Dallas, Texas; Ontario, California; Philadelphia,
Pennsylvania; and Rockford, Illinois. These hubs house facilities for the sorting, transfer and delivery of packages. Our
European air hub is located in Cologne, Germany, and we maintain Asia-Pacific air hubs in Shanghai, China; Shenzhen, China;
and Hong Kong. Our regional air hub in Canada is located in Hamilton, Ontario, and our regional air hub for Latin America and
the Caribbean is in Miami, Florida.
In the first quarter of 2014, we completed the expansion of our European air hub in Cologne. The expansion project
equipped the existing facility with additional state-of-the-art technology and included a major extension to the existing
building. This extension is partially dedicated to processing larger freight shipments. Together, these initiatives significantly
increased the hub’s package sorting capacity from 112,000 to 190,000 packages per hour. The total cost of the expansion was
approximately $200 million.
20
Over the past several years, UPS has made a successful transition to become the first wholly-owned foreign express
carrier in China. In 2008, we opened the UPS International Air Hub at Pudong International Airport, which was built on a
parcel totaling 2.4 million square feet with a sorting capacity of 17,000 packages per hour. This hub links all of China via
Shanghai to UPS’s international network, with direct service to the Americas, Europe and Asia. It also connects points served in
China by UPS through a dedicated service provided by Yangtze River Express, a Chinese all-cargo airline.
In February 2010, we opened a new intra-Asia air hub at Shenzhen Bao'an International Airport in China. The Shenzhen
facility, which was built on a parcel of almost one million square feet and has a sorting capacity of 18,000 packages per hour,
serves as our primary transit hub in Asia.
Our primary information technology operations are consolidated in a 443,600 square foot owned facility, the Ramapo
Ridge facility, which is located on a 39-acre site in Mahwah, New Jersey. We also own a 175,000 square foot facility located on
a 25-acre site in Alpharetta, Georgia, which serves as a backup to the main information technology operations facility in New
Jersey. This facility provides production functions and backup capacity in the event that a power outage or other disaster
incapacitates the main data center. It also helps to meet our internal communication needs.
We believe that our facilities are adequate to support our current operations.
Fleet
Aircraft
The following table shows information about our aircraft fleet as of December 31, 2014:
Description
Boeing 747-400F
Boeing 747-400BCF
Boeing 757-200F
Boeing 767-300ERF
Boeing MD-11F
Airbus A300-600F
Other
Total
Owned and
Capital
Leases
Short-term
Leased or
Chartered
From
Others
On
Order
Under
Option
11
2
75
59
38
52
—
237
—
—
—
—
—
—
412
412
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
We maintain an inventory of spare engines and parts for each aircraft.
All the aircraft we own meet Stage IV federal noise regulations and can operate at airports that have aircraft noise
restrictions.
We currently do not have any commitments or options to purchase aircraft.
Vehicles
We operate a global ground fleet of approximately 106,000 package cars, vans, tractors and motorcycles. Our ground
support fleet consists of 33,000 pieces of equipment designed specifically to support our aircraft fleet, ranging from non-
powered container dollies and racks to powered aircraft main deck loaders and cargo tractors. We also have 33,000 containers
used to transport cargo in our aircraft.
Item 3. Legal Proceedings
For a discussion of legal proceedings affecting us and our subsidiaries, please see the information under the sub-caption
“Contingencies” of the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
included in this report.
Item 4. Mine Safety Disclosures
Not applicable.
21
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our class A common stock is not listed on a national securities exchange or traded in an organized over-the-counter
market, but each share of our class A common stock is convertible into one share of our class B common stock.
The following is a summary of our class B common stock price activity and dividend information for 2014 and 2013. Our
class B common stock is listed on the New York Stock Exchange under the symbol “UPS”.
2014:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2013:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
Close
Dividends
Declared
$ 104.85
$ 104.30
$ 105.09
$ 113.10
$ 93.19
$ 95.57
$ 94.87
$ 94.05
$ 97.38
$ 102.66
$ 98.29
$ 111.17
$ 85.92
$ 89.96
$ 92.10
$ 105.35
$ 75.03
$ 81.95
$ 85.18
$ 88.46
$ 85.90
$ 86.48
$ 91.37
$ 105.08
$
$
$
$
$
$
$
$
0.67
0.67
0.67
0.67
0.62
0.62
0.62
0.62
As of February 20, 2015, there were 153,035 and 18,308 record holders of class A and class B common stock,
respectively.
The policy of our Board of Directors is to declare dividends out of current earnings. The declaration of dividends is
subject to the discretion of the Board of Directors and will depend on various factors, including our net income, financial
condition, cash requirements, future prospects, and other relevant factors.
On February 11, 2015, our Board declared a dividend of $0.73 per share, which is payable on March 10, 2015 to
shareowners of record on February 23, 2015. This represents a 9% increase from the previous $0.67 quarterly dividend in 2014.
On February 14, 2013, the Board of Directors approved a share repurchase authorization of $10.0 billion, which replaced
an authorization previously announced in 2012. The new share repurchase authorization has no expiration date. We anticipate
repurchasing approximately $2.7 billion of shares in 2015.
A summary of repurchases of our class A and class B common stock during the fourth quarter of 2014 is as follows (in
millions, except per share amounts):
October 1—October 31
November 1—November 30
December 1—December 31
Total October 1—December 31
Total Number
of Shares
Purchased(1)
4.4
0.9
0.9
6.2
Average
Price Paid
Per Share(1)
106.17
$
108.43
110.45
107.02
$
Total Number
of Shares Purchased
as Part of Publicly
Announced Program
Approximate Dollar
Value of Shares that
May Yet be Purchased
Under the Program
(as of month-end)
$
4.4
0.6
0.8
5.8
4,309
4,244
4,152
(1)
Includes shares repurchased through our publicly announced share repurchase program and shares tendered to pay the
exercise price and tax withholding on employee stock options.
22
Shareowner Return Performance Graph
The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with
the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or
Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates such
information by reference into such filing.
The following graph shows a five year comparison of cumulative total shareowners’ returns for our class B common
stock, the Standard & Poor’s 500 Index, and the Dow Jones Transportation Average. The comparison of the total cumulative
return on investment, which is the change in the quarterly stock price plus reinvested dividends for each of the quarterly
periods, assumes that $100 was invested on December 31, 2009 in the Standard & Poor’s 500 Index, the Dow Jones
Transportation Average, and our class B common stock.
United Parcel Service, Inc.
Standard & Poor’s 500 Index
Dow Jones Transportation Average
12/31/2009
$ 100.00
$ 100.00
$ 100.00
12/31/2010
$ 130.29
$ 115.06
$ 126.74
12/31/2011
$ 135.35
$ 117.48
$ 126.75
12/31/2012
$ 140.54
$ 136.26
$ 136.24
12/31/2013
$ 205.95
$ 180.38
$ 192.61
12/31/2014
$ 223.79
$ 205.05
$ 240.91
23
Item 6. Selected Financial Data
The following table sets forth selected financial data for each of the five years in the period ended December 31, 2014 (in
millions, except per share amounts). This financial data should be read together with our consolidated financial statements and
related notes, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other financial
data appearing elsewhere in this report.
Selected Income Statement Data
Revenue:
U.S. Domestic Package
International Package
Supply Chain & Freight
Total revenue
Operating expenses:
Compensation and benefits
Other
Total operating expenses
Operating profit:
U.S. Domestic Package
International Package
Supply Chain and Freight
Total operating profit
Other income (expense):
Investment income
Interest expense
Income before income taxes
Income tax expense
Net income
Per share amounts:
Basic earnings per share
Diluted earnings per share
Dividends declared per share
Weighted average shares outstanding:
Basic
Diluted
Selected Balance Sheet Data
Cash and marketable securities
Total assets
Long-term debt
Shareowners’ equity
Years Ended December 31,
2014
2013
2012
2011
2010
$ 35,851
12,988
9,393
58,232
$ 34,074
12,429
8,935
55,438
$ 32,856
12,124
9,147
54,127
$ 31,717
12,249
9,139
53,105
$ 29,742
11,133
8,670
49,545
32,045
21,219
53,264
28,557
19,847
48,404
2,859
1,677
432
4,968
22
(353)
4,637
1,605
3,032
3.31
3.28
2.68
916
924
$
$
$
$
4,603
1,757
674
7,034
20
(380)
6,674
2,302
4,372
4.65
4.61
2.48
940
948
$
$
$
$
33,102
19,682
52,784
459
869
15
1,343
24
(393)
974
167
807
0.84
0.83
2.28
960
969
$
$
$
$
27,575
19,450
47,025
26,557
17,347
43,904
3,764
1,709
607
6,080
44
(348)
5,776
1,972
3,804
3.88
3.84
2.08
981
991
$
$
$
$
3,238
1,831
572
5,641
3
(354)
5,290
1,952
3,338
3.36
3.33
1.88
994
1,003
2014
2013
2012
2011
2010
As of December 31,
3,283
35,471
9,864
2,158
$
5,245
36,212
10,824
6,488
$
7,924
38,863
11,089
4,733
$
4,275
34,701
11,095
7,108
$
4,081
33,597
10,491
8,047
$
$
$
$
$
24
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
U.S. economic growth, retail sales and industrial production continued at a moderate pace in 2014, which resulted in
growth in the small package delivery market. Continued strong growth in e-commerce and omni-channel retail sales has driven
package volume increases in both commercial and residential products. Given these trends, overall volume growth was strong
during the year, and products most aligned with business-to-consumer and retail industry shipments experienced the fastest
growth.
Economic conditions in Europe have deteriorated somewhat, as solid growth in the United Kingdom is being offset by
slower growth in Germany and general economic weakness in France and Italy. Economic growth in Asia has continued,
though growth in China has moderated. The uneven nature of economic growth worldwide, combined with a trend towards
more intra-regional trade, has led to shifting trade patterns and resulted in overcapacity in certain trade lanes. These factors
have created an environment in which customers are more likely to trade-down from premium express products to standard
delivery products in both Europe and Asia. As a result of these circumstances, we have adjusted our air capacity and cost
structure in our transportation network to better match the prevailing volume mix levels. Our broad portfolio of product
offerings and the flexibilities inherent in our transportation network have helped us adapt to these changing trends.
While the worldwide economic environment has remained challenging in 2014, we have continued to undertake several
initiatives in the U.S. and internationally to (1) improve the flexibility and capacity in our delivery network; (2) improve yield
management; and (3) increase operational efficiency and contain costs across all segments. Most notably, the continued
deployment of technology improvements (including several facility automation projects and the accelerated deployment of our
On Road Integrated Optimization and Navigation system - "ORION") should increase our network capacity, and improve
operational efficiency, flexibility and reliability. Additionally, we have continued to adjust our transportation network and
utilize new or expanded operating facilities to improve time-in-transit for shipments in each region.
Our consolidated results are presented in the table below:
Revenue (in millions)
Operating Expenses (in millions)
Operating Profit (in millions)
Operating Margin
Average Daily Package Volume (in thousands)
Average Revenue Per Piece
Net Income (in millions)
Basic Earnings Per Share
Diluted Earnings Per Share
Year Ended December 31,
% Change
2014
$ 58,232
53,264
4,968
$
8.5%
18,016
10.58
3,032
3.31
3.28
$
$
$
$
2013
$ 55,438
48,404
7,034
12.7%
$
16,938
10.76
4,372
4.65
4.61
$
$
$
$
2012
$ 54,127
52,784
1,343
$
2.5%
16,295
10.82
807
0.84
0.83
$
$
$
$
2014 / 2013
2013 / 2012
5.0 %
10.0 %
(29.4)%
6.4 %
(1.7)%
(30.6)%
(28.8)%
(28.9)%
2.4 %
(8.3)%
N/A
3.9 %
(0.6)%
N/A
N/A
N/A
25
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Items Affecting Comparability
The year-over-year comparisons of our financial results are affected by the following items (in millions):
Operating Expenses:
Defined Benefit Plans Mark-to-Market Charge
Health & Welfare Plan Charges
TNT Termination Fee and Related Expenses
Gain Upon Liquidation of Foreign Subsidiary
Multiemployer Pension Plan Withdrawal Charge
Income Tax Expense (Benefit) from the Items Above
Year Ended December 31,
2014
2013
2012
$
$ 1,062
1,102
—
—
—
(807)
— $ 4,831
—
—
—
284
(245)
—
896
—
(2,145)
(75)
These items have been excluded from comparisons of "adjusted" operating expenses, operating profit and operating
margin in the discussion that follows.
Defined Benefit Plans Mark-to-Market Charge
In 2014 and 2012, we incurred pre-tax mark-to-market losses of $1.062 and $4.831 billion, respectively, on a
consolidated basis ($670 million and $3.023 billion after-tax, respectively) on our pension and postretirement defined benefit
plans related to the remeasurement of plan assets and liabilities recognized outside of a 10% corridor. No mark-to-market gain
or loss was incurred in 2013, as the remeasurement of plan assets and liabilities only resulted in adjustments within the 10%
corridor (and thus only impacted accumulated other comprehensive income). These mark-to-market losses in 2014 and 2012,
which were recorded in compensation and benefits expense in our statements of consolidated income, impacted each of our
three reporting segments in both years. The table below indicates the amounts associated with each component of the pre-tax
mark-to-market loss, as well as the weighted-average actuarial assumptions used to determine our net periodic benefit costs, for
each year:
Components of mark-to-market gain (loss) (in millions)
Discount rates
Return on assets
Demographic assumptions
Total mark-to-market gain (loss)
Year Ended December 31,
2014
2013
$
$
(954)
42
(150)
(1,062)
$
$
— $
—
—
— $
2012
(5,530)
708
(9)
(4,831)
Weighted-average actuarial assumptions used to determine net periodic
benefit cost
Expected rate of return on plan assets
Actual rate of return on plan assets
Discount rate used for net periodic benefit cost
Discount rate at measurement date
2014
2013
2012
8.66%
9.45%
5.24%
4.36%
8.69%
8.36%
4.38%
5.24%
8.71%
11.76%
5.58%
4.38%
The $1.062 and $4.831 billion pre-tax mark-to-market losses for the years ended December 31, 2014 and 2012,
respectively, were comprised of the following components:
2014 - $1.062 billion pre-tax mark-to-market loss:
• Discount Rates ($954 million pre-tax loss): The weighted-average discount rate for our U.S. pension and
postretirement medical plans and our international pension plans declined from 5.24% at December 31, 2013 to
4.36% at December 31, 2014. This overall decline in discount rates was driven by a 122 basis point decline in the
30 year Treasury bond rate, but was partially offset by an increase in credit spreads on AA-rated 30 year bonds.
26
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
• Return on Assets ($42 million pre-tax gain): Our expected rate of return on U.S. pension and postretirement
medical plan assets is developed taking into consideration: (1) historical plan asset returns over long-term periods,
(2) current market conditions, and (3) the mix of asset classes in our investment portfolio. We review the
expected rate of return on an annual basis and revise it as appropriate. In 2014, the actual rate of return on plan
assets of 9.45% exceeded our expected rate of return of 8.66%, primarily due to continued gains in the world
equity markets.
• Demographic Assumptions ($150 million pre-tax loss): The implementation of new U.S. mortality tables in 2014
resulted in an increased participant life expectancy assumption, which increased the overall projected benefit
obligation for our plans.
2012 - $4.831 billion pre-tax mark-to-market loss:
• Discount Rates ($5.530 billion pre-tax loss): The weighted-average discount rate for our U.S. pension and
postretirement medical plans and our international pension plans declined from 5.58% at December 31, 2011 to
4.38% at December 31, 2012, due to two primary factors: (1) The discount rate for our U.S. pension and
postretirement medical plans is determined using a bond matching approach for a portfolio of corporate AA
bonds. In 2012, financial institutions comprised a smaller portion of our corporate AA bond portfolio relative to
2011, largely due to credit downgrades of several large financial institutions in 2012. (2) Credit spreads on AA-
rated 30-year bonds declined in 2012. These changes in the composition of our bond portfolio mix and the
compression in credit spreads were the primary factors resulting in the 120 basis point decline in the weighted-
average discount rate in 2012 relative to 2011.
• Return on Assets ($708 million pre-tax gain): In 2012, the actual rate of return on plan assets of 11.76% exceeded
our expected rate of return of 8.71%, primarily due to strong gains in the world equity markets.
• Demographic Assumptions ($9 million pre-tax loss): This represents the difference between actual and estimated
demographic factors, including items such as health care cost trends, mortality rates and compensation rate
increases.
Health and Welfare Plan Charges
In connection with the ratification of our national master agreement with the International Brotherhood of Teamsters
("Teamsters") in 2014, we incurred pre-tax charges totaling $1.102 billion ($687 million after-tax) associated with changes in
the delivery of healthcare benefits to certain active and retired union employees. These charges are discussed in further detail
in the "Collective Bargaining Agreements" section. These charges impacted our U.S. Domestic Package segment ($990
million), International Package segment ($28 million) and Supply Chain & Freight segment ($84 million).
TNT Termination Fee and Related Expenses
On January 30, 2013, the European Commission issued a formal decision prohibiting our proposed acquisition of TNT
Express N.V. ("TNT Express"). As a result of the prohibition by the European Commission, the condition of our offer requiring
European Union competition clearance was not fulfilled, and our proposed acquisition of TNT Express could not be completed.
Given this outcome, UPS and TNT Express entered a separate agreement to terminate the merger protocol, and we withdrew
our formal offer for TNT Express. We paid a termination fee to TNT Express of €200 million ($268 million) under this
agreement, and also incurred transaction-related expenses of $16 million during the first quarter of 2013. The combination of
these items resulted in a pre-tax charge of $284 million ($177 million after-tax), which impacted our International Package
segment.
Gain Upon the Liquidation of a Foreign Subsidiary
Subsequent to the termination of the merger protocol, we liquidated a foreign subsidiary that would have been used to
acquire the outstanding shares of TNT Express in connection with the proposed acquisition. Upon the liquidation of this
subsidiary in the first quarter of 2013, we realized a pre-tax foreign currency gain of $245 million ($213 million after-tax),
which impacted our International Package segment.
27
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Multiemployer Pension Plan Withdrawal Charge
In 2012, we recognized an $896 million pre-tax charge ($559 million after-tax) for the establishment of a withdrawal
liability related to our withdrawal from the New England Teamsters and Trucking Industry Pension Fund ("New England
Pension Fund"), a multiemployer pension plan. This charge is discussed in further detail in the "Collective Bargaining
Agreements" section. This charge was recorded in compensation and benefits expense in our statements of consolidated
income, and impacted our U.S. Domestic Package segment.
Results of Operations—Segment Review
The results and discussions that follow are reflective of how our executive management monitors the performance of our
reporting segments. We supplement the reporting of our financial information determined under generally accepted accounting
principles (“GAAP”) with certain non-GAAP financial measures, including operating profit, operating margin, pre-tax income,
net income and earnings per share adjusted for the non-comparable items discussed previously. We believe that these adjusted
measures provide meaningful information to assist investors and analysts in understanding our financial results and assessing
our prospects for future performance. We believe these adjusted financial measures are important indicators of our recurring
results of operations because they exclude items that may not be indicative of, or are unrelated to, our core operating results,
and provide a better baseline for analyzing trends in our underlying businesses. Additionally, these adjusted financial measures
are used internally by management for the determination of incentive compensation awards, business unit operating
performance analysis, and business unit resource allocation.
As discussed in our "Critical Accounting Policies and Estimates", we recognize changes in the fair value of plan assets
and net actuarial gains and losses in excess of a 10% corridor immediately as part of net periodic benefit cost. In our results of
operations and the discussions that follow, we have presented adjusted operating expenses, adjusted operating profit and
adjusted operating margin excluding the portion of net periodic benefit cost represented by the gains and losses recognized in
excess of the 10% corridor. This adjusted net periodic benefit cost is comparable to the accounting for our defined benefit plans
in our quarterly reporting under U.S. GAAP, and reflects assumptions utilizing the expected return on plan assets and the
discount rate used for determining net periodic benefit cost (the non-adjusted net periodic benefit cost reflects the actual return
on plan assets and the discount rate used for measuring the projected benefit obligation). We believe this adjusted net periodic
benefit cost provides important supplemental information that reflects the anticipated long-term cost of our defined benefit
plans, and provides a benchmark for historical defined benefit cost trends that can be used to better compare year-to-year
financial performance without considering the short-term impact of changes in market interest rates, equity prices, and similar
factors.
Certain operating expenses are allocated between our reporting segments based on activity-based costing methods. These
activity-based costing methods require us to make estimates that impact the amount of each expense category that is attributed
to each segment. Changes in these estimates will directly impact the amount of expense allocated to each segment, and
therefore the operating profit of each reporting segment. There were no significant changes in our expense allocation
methodology during 2014, 2013 or 2012.
28
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
U.S. Domestic Package Operations
Average Daily Package Volume (in thousands):
Next Day Air
Deferred
Ground
Total Avg. Daily Package Volume
Average Revenue Per Piece:
Next Day Air
Deferred
Ground
Total Avg. Revenue Per Piece
Operating Days in Period
Revenue (in millions):
Next Day Air
Deferred
Ground
Total Revenue
Operating Expenses (in millions):
Operating Expenses
Defined Benefit Plans Mark-to-Market Charge
Health & Welfare Plan Charges
Multiemployer Pension Plan Withdrawal Charge
Adjusted Operating Expenses
Operating Profit (in millions) and Operating Margin:
Operating Profit
Adjusted Operating Profit
Operating Margin
Adjusted Operating Margin
Year Ended December 31,
% Change
2014
2013
2012
2014 / 2013
2013 / 2012
1,274
1,155
12,893
15,322
1,271
1,074
12,060
14,405
1,277
1,031
11,588
13,896
$ 20.42
$ 20.12
$ 19.93
12.57
12.70
13.06
$
7.85
9.25
253
$
7.96
9.39
252
$
7.89
9.38
252
$ 6,581
$ 6,443
$ 6,412
3,672
25,598
3,437
24,194
3,392
23,052
$ 35,851
$34,074
$32,856
$ 32,992
(660)
(990)
—
$29,471
—
—
—
$ 31,342
$29,471
$32,397
(3,177)
—
(896)
$28,324
0.2 %
7.5 %
6.9 %
6.4 %
1.5 %
(1.0)%
(1.4)%
(1.5)%
2.1 %
6.8 %
5.8 %
5.2 %
(0.5)%
4.2 %
4.1 %
3.7 %
1.0 %
(2.8)%
0.9 %
0.1 %
0.5 %
1.3 %
5.0 %
3.7 %
11.9 %
(9.0)%
6.3 %
4.0 %
$ 2,859
$ 4,603
$
459
$ 4,509
$ 4,603
$ 4,532
(37.9)%
(2.0)%
N/A
1.6 %
8.0%
12.6%
13.5%
13.5%
1.4%
13.8%
29
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Revenue
The change in overall revenue was impacted by the following factors for the years ended December 31, 2014 and 2013,
compared with the corresponding prior year periods:
Revenue Change Drivers:
2014 / 2013
2013 / 2012
Volume
2014 compared to 2013
Volume
Rates /
Product Mix
Fuel
Surcharge
Total
Revenue
Change
6.8%
3.7%
(1.6)%
0.5 %
— %
(0.5)%
5.2%
3.7%
Our total volume increased in 2014, largely due to continued solid growth in e-commerce and overall retail sales.
Business-to-consumer shipments, which represent more than 45% of total U.S. Domestic Package volume, grew 12% for the
year and drove increases in both air and ground shipments. UPS SurePost volume increased more than 45% in 2014, and
accounted for approximately half of the overall volume growth for the segment. Business-to-business volume grew 3% in
2014, largely due to increased volume from the retail industry, including the use of our solutions for omni-channel (including
ship-from-store and ship-to-store models) and returns shipping; additionally, business-to-business volume was positively
impacted by growth in shipments from the industrial, automotive and government sectors.
Among our air products, volume increased in 2014 for both our Next Day Air and deferred services. Solid air volume
growth continued for those products most aligned with business-to-consumer shipping, particularly our residential Second Day
Air package product. Our business-to-business air volume increased slightly as well, largely due to growth in the retail and
industrial sectors. This growth was slightly offset by a decline in air letter volume, which was negatively impacted by some
competitive losses and slowing growth in the financial services industry. The growth in premium and deferred air volume
continues to be impacted by economic conditions and changes in our customers' supply chain networks; the combination of
these factors influences their sensitivity towards the price and speed of shipments, and therefore favoring the use of our
deferred air services.
The increase in ground volume in 2014 was driven by our SurePost service offering, which had a volume increase of
more than 45% for the year; additionally, we experienced moderate volume growth in our traditional residential and
commercial ground services. Demand for SurePost and our traditional residential products continues to be driven by business-
to-consumer shipping activity from e-commerce retailers and other large customers. The growth in business-to-business ground
volume was largely due to growth in omni-channel retail volume, the increased use of our returns service offerings, and the
growth in shipments from the industrial sector.
2013 compared to 2012
Our overall volume increased in 2013 compared with 2012, largely due to continued solid growth in e-commerce and
overall retail sales; however, the increase in volume was hindered by slow overall U.S. economic and industrial production
growth. Business-to-consumer shipments, which represent over 40% of total U.S. Domestic Package volume, grew
approximately 8% for the year and drove increases in both air and ground shipments. Growth accelerated during our peak
holiday shipping season, as business-to-consumer volume grew over 11% in the fourth quarter of 2013, and business-to-
consumer shipments exceeded 50% of total U.S. Domestic Package volume for the first time. Business-to-business volume
increased slightly in 2013, largely due to increased shipping activity by the retail industry; however, business-to-business
volume was negatively impacted by slowing industrial production.
30
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Among our air products, volume increased in 2013 compared with 2012, as growth in our deferred products more than
offset a small decline in our Next Day Air services. Solid air volume growth continued for those products most aligned with
business-to-consumer shipping, including our residential Second Day Air package and residential Next Day Air Saver products.
Next Day Air letter volume decreased approximately 7% for the year, and was negatively impacted by competitive losses and
slowing growth in the financial services industry. Our business-to-business air volume continued to be impacted by sluggish
economic conditions in the U.S., low levels of inventory replenishment among our customers and changes in our customers'
supply chain networks. The combination of these factors influenced our customers' sensitivity towards the price and speed of
shipments, and therefore the use of our premium air services.
The increase in ground volume in 2013 was primarily attributed to our traditional residential service offerings and
SurePost. Demand for these residential products continues to be driven by business-to-consumer shipping activity from e-
commerce retailers and other large customers. Business-to-business ground volume also showed a small increase, and was
positively impacted by the overall expansion of the U.S. retail sector; however, continued weakness in industrial production
hindered growth. The increased use of omni-channel retailing (including ship-from-store and ship-to-store models) by
customers is also positively impacting volume growth for both our residential and commercial ground products.
Rates and Product Mix
2014 compared to 2013
Overall revenue per piece decreased 1.5% in 2014, and was impacted by changes in base rates, customer and product
mix, and fuel surcharge rates.
Revenue per piece for our ground and air products was positively impacted by an increase in base rates that took effect on
December 30, 2013. We implemented an average 4.9% net increase in base and accessorial rates on UPS Next Day Air, UPS
2nd Day Air and UPS 3 Day Select and UPS Ground.
Revenue per piece increased for our Next Day Air products in 2014, largely due to the base rate increase, an increase in
the average weight per package, and a shift in product mix from lower-yielding letters towards higher-yielding packages.
Revenue per piece declined for our deferred products in 2014, as customer and product mix changes more than offset the
increase in base rates. Product mix adversely impacted deferred revenue per piece, as we experienced relatively stronger
growth in our lighter-weight business-to-consumer shipments, which have lower average yields than our heavier-weight
commercial shipments. Customer mix also adversely impacted deferred revenue per piece, due to the faster volume growth
among our larger customers, which typically have a lower average yield than our smaller and middle-market customers.
Ground revenue per piece decreased in 2014, as customer and product mix changes more than offset the impact of the
base rate increase. Customer and product mix changes adversely impacted revenue per piece as a greater portion of our overall
volume in 2014, relative to 2013, came from lighter-weight shipments (including more than 45% volume growth in SurePost)
and larger customers.
2013 compared to 2012
Overall revenue per piece was relatively flat in 2013 compared with 2012, and was impacted by changes in base rates,
customer and product mix, and fuel surcharge rates.
Revenue per piece for our ground and air products was positively impacted by an increase in base rates that took effect on
December 31, 2012. We increased the base rates 6.5% on UPS Next Day Air, UPS 2nd Day Air and UPS 3 Day Select, and
5.9% on UPS Ground, while reducing our fuel surcharge indices. Other pricing changes included an increase in the residential
surcharge, and an increase in the delivery area surcharge on certain residential and commercial services. These rate changes are
customary and occur on an annual basis.
Revenue per piece increased for Next Day Air in 2013, and was positively impacted by the base rate increase and the loss
of some lower-yielding letter volume. Revenue per piece for our deferred products declined, as the impact of the base rate
increase was more than offset by declines in fuel surcharge rates and changes in customer and product mix. Revenue per piece
for our air products was adversely impacted by the relatively stronger growth in our lower-yielding Next Day Air Saver and
deferred products, compared with our premium Next Day Air services, as well as the faster growth in lighter-weight business-
to-consumer shipments. Additionally, revenue per piece was negatively affected by the faster volume growth among our larger
customers, which typically have a lower average yield than our smaller and middle-market customers.
31
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Ground revenue per piece increased in 2013 compared with 2012, primarily due to the base rate increase; however, this
was partially offset by customer and product mix changes, as a greater portion of our overall volume in 2013, relative to 2012,
came from lighter-weight shipments and larger customers. Fuel surcharge rate changes adversely impacted ground revenue per
piece growth in 2013 compared with 2012.
Fuel Surcharges
UPS applies a fuel surcharge on our domestic air and ground services. The air fuel surcharge is based on the U.S.
Department of Energy’s (“DOE”) Gulf Coast spot price for a gallon of kerosene-type jet fuel, while the ground fuel surcharge is
based on the DOE’s On-Highway Diesel Fuel Price. In connection with our base rate increase on December 31, 2012, we
modified the fuel surcharge on air and ground services by reducing the index used to determine the fuel surcharge by 2% and
1%, respectively. Based on published rates, the average fuel surcharge rates for domestic air and ground products were as
follows:
Next Day Air / Deferred
Ground
Year Ended December 31,
% Point Change
2014
2013
2012
2014 / 2013
2013 / 2012
10.2%
7.1%
10.7%
7.2%
13.0%
8.0%
(0.5)%
(0.1)%
(2.3)%
(0.8)%
Total fuel surcharge revenue declined by $8 million in 2014, as lower fuel surcharge rates (driven by lower fuel prices)
slightly more than offset the impact of increased air and ground volume. In 2013, total fuel surcharge revenue declined by
$178 million due to lower fuel surcharge rates (driven primarily by the reductions in the index on both the air and ground
surcharges, as well as lower fuel prices).
Operating Expenses
2014 compared to 2013
Adjusted operating expenses for the segment increased $1.871 billion in 2014, primarily due to pick-up and delivery
costs (up $821 million), the cost of operating our domestic integrated air and ground network (up $719 million) and the costs of
package sorting (up $167 million). These costs were impacted by several factors:
• We incurred higher employee compensation costs, largely resulting from an increase in average daily union labor
hours (up 7.5%), union contractual wage rate increases, increased employee healthcare expenses and growth in the
overall size of the workforce. The increase in labor hours was driven by volume growth, additional overtime and
training hours during our fourth quarter holiday shipping season, and adverse weather conditions in early 2014.
• We incurred higher expenses associated with outside contract carriers, due to volume growth, issues associated with
the service performance of rail carriers, and the adverse weather conditions in early 2014.
• These cost increases were partially offset by a reduction in worker's compensation expense, due to actuarial
adjustments that were largely attributable to operational safety and claims management initiatives.
• These cost increases were also mitigated by certain network efficiency and productivity improvements, which resulted
in a 0.4% reduction in the total adjusted cost per piece in 2014 compared with 2013. We have continued to adjust our
air and ground networks to better match higher volume levels, utilize technology to increase package sorting and
delivery efficiency, and benefit from improved pick-up and delivery densities (particularly for our residential
products). These improvements allowed us to process increased volume (up 6.4%) at a faster rate than the increase in
average daily aircraft block hours (up 2.4%) and vehicle miles driven (up 4.2%).
In the fourth quarter of 2014, adjusted operating expenses increased 9.4%, as decreased productivity, higher contract
carrier rates, and additional union overtime and training hours contributed to approximately $200 million in excess costs. In
order to process the significant increase in package volume while maintaining service levels, we increased our overall capacity
through additional staffing, more equipment rentals and new operating facilities. Additionally, we elected to operate on one
additional day during the fourth quarter of 2014 to further improve service levels. However, the significant variability in
package volume during the holiday shipping season resulted in a sub-optimized transportation network, and a reduction in
productivity (average daily union labor hours increased 10.5%, compared with the volume increase of 6.6%). The total
adjusted cost per piece in the fourth quarter of 2014 increased 1.0% compared with the fourth quarter of 2013.
32
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
2013 compared to 2012
Adjusted operating expenses for the segment increased $1.147 billion in 2013 compared with 2012. This increase was
primarily due to pick-up and delivery costs, which grew $772 million, as well as the cost of operating our domestic integrated
air and ground network, which increased $290 million for the year. The growth in pick-up and delivery and network costs was
largely due to increased volume and higher employee compensation costs, which were impacted by a union contractual wage
increase (package driver wage rates rose 2.2%), an increase in average daily driver hours (up 2.2%) and an increase in
employee pension and healthcare costs. Partially offsetting these cost increases was a reduction in worker's compensation
expense, due to actuarial adjustments that were largely attributable to operational safety and claims management initiatives.
Cost increases have been mitigated as we adjust our air and ground networks to better match higher volume levels and
utilize technology to increase package sorting and delivery efficiency. Improved pick-up and delivery densities, particularly for
our residential products, have also contained increases in cost. These network efficiency improvements allowed us to process
increased volume (up 3.7%) at a faster rate than the increase in average daily union labor hours (up 3.1%), aircraft block hours
(down 0.6%) and miles driven (up 1.8%) in 2013 compared with 2012. As a result, the total adjusted cost per piece increased
only 0.4% in 2013.
Several factors caused our fourth quarter operating expenses to significantly increase (adjusted operating expenses
increased $553 million, or 7.3%, in the fourth quarter of 2013 compared with the same period of 2012). Higher-than-planned
volume growth, combined with adverse weather conditions and the relatively compressed holiday shipping season in 2013
(there were six fewer days between the Thanksgiving and Christmas holidays in 2013 relative to 2012), resulted in a significant
increase in labor hours and the greater use of contract carriers to help meet our service commitments. Additionally, the much
later-than-anticipated seasonal increase in volume during the fourth quarter strained our transportation network, resulting in
lower productivity (total union labor hours increased 6.2%, while volume increased 5.6% in the fourth quarter).
Operating Profit and Margin
2014 compared to 2013
Adjusted operating profit decreased $94 million in 2014 compared with 2013, and was impacted by several factors. We
incurred approximately $200 million of additional operating costs during the fourth quarter holiday shipping season, largely
due to decreased productivity, higher contract carrier rates, and additional union overtime and training hours. The unfavorable
weather conditions in the U.S. in early 2014 reduced operating profit approximately $200 million in 2014, including the
estimated loss in package volume, increased guaranteed service refunds to customers and higher operating expenses.
Additionally, changes in customer and product mix combined to pressure our revenue per piece. These factors were partially
offset by solid volume growth and the overall productivity improvements (resulting in lower cost per piece) discussed
previously. The combination of these factors led to a 90 basis point decline in our operating margin in 2014 compared with
2013.
2013 compared to 2012
Adjusted operating profit increased $71 million in 2013 compared with 2012, as the volume growth and productivity
improvements discussed previously more than offset the pressure on revenue per piece and the adverse impact of fuel. Overall
volume growth allowed us to better leverage our transportation network, resulting in greater productivity and better pick-up and
delivery density; however, these factors were partially offset by changes in customer and product mix, which combined to
pressure our revenue per piece. Additionally, the net impact of fuel adversely affected operating profit by $158 million in 2013
compared with 2012, as fuel surcharge revenue decreased at a faster rate than fuel expense.
Although annual adjusted operating profit improved in 2013, it declined by $178 million in the fourth quarter of 2013
compared with the fourth quarter of 2012. This decline in profitability was largely due to additional labor and purchased
transportation costs, as heavier-than-anticipated volume, adverse weather conditions and a compressed holiday shipping season
combined to result in approximately $125 to $150 million in extra costs in the fourth quarter of 2013. In addition, we incurred
approximately $50 million in service refunds for unmet delivery commitments in the fourth quarter of 2013. The combination
of these factors resulted in a 250 basis point decrease in our fourth quarter operating margin.
33
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
International Package Operations
Average Daily Package Volume (in thousands):
Domestic
Export
Total Avg. Daily Package Volume
Average Revenue Per Piece:
Domestic
Export
Total Avg. Revenue Per Piece
Operating Days in Period
Revenue (in millions):
Domestic
Export
Cargo
Total Revenue
Operating Expenses (in millions):
Operating Expenses
Defined Benefit Plan Mark-to-Market Charge
Health & Welfare Plan Charges
Gain Upon Liquidation of Foreign Subsidiary
TNT Termination Fee and Related Expenses
Adjusted Operating Expenses
Operating Profit (in millions) and Operating Margin:
Operating Profit
Adjusted Operating Profit
Operating Margin
Adjusted Operating Margin
Currency Translation Benefit / (Cost)—(in millions)*:
Revenue
Operating Expenses
Operating Profit
Year Ended December 31,
% Change
2014
2013
2012
2014 / 2013
2013 / 2012
1,579
1,115
2,694
$ 6.97
33.98
$ 18.15
253
$ 2,784
9,586
618
$12,988
1,499
1,034
2,533
$ 7.06
35.18
$ 18.54
252
$ 2,667
9,166
596
$12,429
1,427
972
2,399
$ 7.04
36.88
$ 19.13
252
$ 2,531
9,033
560
$12,124
$11,311
(200)
(28)
—
—
$11,083
$10,672
—
—
245
(284)
$10,633
$11,255
(941)
—
—
—
$10,314
5.3 %
7.8 %
6.4 %
(1.3)%
(3.4)%
(2.1)%
4.4 %
4.6 %
3.7 %
4.5 %
5.0 %
6.4 %
5.6 %
0.3 %
(4.6)%
(3.1)%
5.4 %
1.5 %
6.4 %
2.5 %
6.0 %
(5.2)%
4.2 %
3.1 %
$ 1,677
$ 1,905
$ 1,757
$ 1,796
$
869
$ 1,810
(4.6)%
6.1 %
102.2 %
(0.8)%
12.9%
14.7%
14.1%
14.5%
7.2%
14.9%
$
$
(72)
87
15
$
(65)
(37)
$ (102)
*
Net of currency hedging; amount represents the change compared to the prior year.
Revenue
The change in overall revenue was impacted by the following factors for the years ended December 31, 2014 and 2013,
compared with the corresponding prior year periods:
Revenue Change Drivers:
2014 / 2013
2013 / 2012
Volume
Rates /
Product Mix
Fuel
Surcharge
Currency
Total
Revenue
Change
6.8%
5.6%
(1.7)%
(1.5)%
— %
(1.1)%
(0.6)%
(0.5)%
4.5%
2.5%
34
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Volume
2014 compared to 2013
Our overall average daily volume increased in 2014, largely due to strong demand from several economic sectors
(including retail, healthcare, industrial and automotive).
We continued to experience strong export volume growth in 2014, with increases from all regions in the world. European
export volume increased 12% for the year, with particular strength in the intra-European trade lanes and the Europe-to-U.S.
trade lane. Asian export volume increased at a moderate pace (with strength in the Asia-to-U.S. and Asia-to-Europe trade
lanes), and benefited from technology sector product launches. Export volume continued to shift towards our standard
products, such as Transborder Standard and Worldwide Expedited, as compared with our premium express products, such as
Worldwide Express. Our international customers continue to be impacted by economic pressures and changes in their supply
chain networks, and the combination of these factors influences their sensitivity towards the price and speed of shipments.
The strong increase in domestic volume in 2014 was driven by solid volume growth in Canada, Italy, Spain, France and
the United Kingdom.
2013 compared to 2012
Our overall average daily volume increased in 2013 compared with 2012, largely due to growth in key markets in Europe,
as well as Canada and Mexico.
Export volume increased in 2013, and was driven by Europe (largely in the intra-European trade lanes) and the Americas
(particularly in the Canada-to-U.S. and Mexico-to-U.S. trade lanes). Asian export volume grew at a moderate pace due to
continued regional economic growth and expansion of our service offerings, but was negatively impacted by fewer technology
product launches from our customers and a small number of competitive losses. Volume continued to shift towards our
standard products, such as Transborder Standard and Worldwide Expedited, as compared with our premium express products,
such as Worldwide Express.
Domestic volume increased in 2013 compared to 2012, and was driven by solid volume growth in several key markets,
including Italy, Canada, Poland and Turkey.
Rates and Product Mix
2014 compared to 2013
Total average revenue per piece decreased 1.5% in 2014 on a currency-adjusted basis, and was impacted by changes in
base rates as well as product mix.
On December 30, 2013, we implemented an average 4.9% net increase in base and accessorial rates for international
shipments originating in the United States (Worldwide Express, Worldwide Saver, UPS Worldwide Expedited and UPS
International Standard service). Rate changes for shipments originating outside the U.S. are made throughout the year and vary
by geographic market.
Currency-adjusted export revenue per piece decreased 3.1% in 2014, as the shift in product mix from our premium
express products to our standard products more than offset the increase in base rates (volume for our standard products
increased 12%, while volume for our premium express products increased 4%). Additionally, currency-adjusted export revenue
per piece was adversely impacted by shorter average trade lanes (due to faster growth in intra-regional shipments) and changes
in customer mix (as export volume growth for larger customers exceeded the volume growth for higher-yielding middle market
customers).
Currency-adjusted domestic revenue per piece increased 0.3% in 2014, and was impacted by base rate increases, as well
as changes in product mix and fuel surcharge rates.
35
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
2013 compared to 2012
Total average revenue per piece decreased 2.5% in 2013 on a currency-adjusted basis, and was impacted by changes in
base rates, customer and product mix, and fuel surcharge rates.
On December 31, 2012, we increased the base rates 6.5% for international shipments originating in the United States
(Worldwide Express, Worldwide Express Plus, UPS Worldwide Expedited and UPS International Standard service), while
reducing fuel surcharge indices. Rate changes for shipments originating outside the U.S. are made throughout the year and vary
by geographic market.
Currency-adjusted export revenue per piece decreased 3.7% in 2013, as the shift in product mix from our premium
express products to our standard products more than offset the increase in base rates. Currency-adjusted export revenue per
piece was also negatively affected by the faster growth among our larger customers, which tend to have a lower yield than
middle market and smaller accounts. Additionally, currency-adjusted export revenue per piece was adversely impacted by
shorter average trade lanes (due to faster growth in intra-regional shipments), as well as a small impact on pricing from
overcapacity in the Asia outbound freight market.
Currency-adjusted domestic revenue per piece decreased 0.4% in 2013. Domestic revenue per piece was adversely
impacted by the faster domestic volume growth in our lower-yielding standard service, as well as product and customer mix
changes in several developed markets.
Fuel Surcharges
We maintain fuel surcharges on our international air and ground services. The fuel surcharges for international air
products originating inside or outside the United States are indexed to the DOE's Gulf Coast spot price for a gallon of kerosene-
type jet fuel, while the fuel surcharges for ground products originating outside the United States are indexed to fuel prices in the
international region or country where the shipment takes place. In connection with our base rate increase on December 31,
2012, we modified the fuel surcharge on certain U.S.-related international air services by reducing the index used to determine
the fuel surcharge by 2%.
Total international fuel surcharge revenue increased by $2 million in 2014, as the combined impact of international air
volume growth and modifications to the fuel surcharge indices were largely offset by declining fuel prices. Total international
fuel surcharge revenue decreased by $135 million in 2013, largely due to declining fuel prices and the 2% reduction in the
index; however, this was partially offset by increases in international air volume.
Operating Expenses
2014 compared to 2013
Overall adjusted operating expenses for the segment increased $450 million in 2014. This increase was driven by the cost
of pick-up and delivery, which increased $201 million, as well as the cost of operating our international integrated air and
ground network, which increased $150 million. The increases in pick-up and delivery and network costs were largely driven by
higher package volume and higher expense for outside transportation carriers (which was impacted by network capacity
constraints in Europe). However, network cost increases were mitigated by reductions in average daily aircraft block hours
(1.1% decrease in 2014), as a result of ongoing modifications to our air network; this was achieved even with a 7.8% increase
in international export volume and several air product service enhancements.
The remaining increase in adjusted operating expenses in 2014 was largely due to the costs of package sorting, which
increased $52 million, and was impacted by volume growth. Additionally, indirect operating costs increased $47 million in
2014, and were affected by various factors, including restructuring charges, foreign currency remeasurement losses, legal
contingency accruals, bad debt expense, and several other factors.
Excluding the impact of currency exchange rate changes, the total adjusted cost per piece for the segment decreased 1.6%
in 2014.
36
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
2013 compared to 2012
Overall adjusted operating expenses for the segment increased $319 million in 2013 compared with 2012. This increase
was driven by the cost of pick-up and delivery, which increased $195 million for the year, largely due to higher package
volume.
The cost of operating our international integrated air and ground network increased $111 million for the year, also largely
due to higher package volume; however, network costs were mitigated by a 0.4% reduction in average daily aircraft block hours
resulting from ongoing modifications to our air network. This was achieved even with a 6.4% increase in international export
volume and several air product service enhancements that occurred during 2013.
The remaining increases in adjusted operating expenses for the year were largely due to the costs of package sorting,
which was impacted by volume growth, and indirect operating costs, which were affected by increased expenses associated
with aviation security.
Excluding the impact of currency exchange rate changes, the total adjusted cost per piece for the segment decreased 2.7%
in 2013 compared with 2012.
Operating Profit and Margin
2014 compared to 2013
Adjusted operating profit increased by $109 million in 2014, while the adjusted operating margin increased 20 basis
points. These increases were largely due to moderate revenue growth combined with the mitigation of expense increases
through improved productivity.
In addition to the aforementioned factors, the net impact of fuel (fuel surcharge revenue grew faster than fuel expense)
and the net impact of currency (remeasurement and translation gains) resulted in a favorable impact on operating profit of $127
million when comparing 2014 with 2013. Fuel surcharge revenue was favorably impacted during 2014 by rate increases to the
fuel surcharge index. Operating profit in 2014 was negatively impacted by $21 million due to a restructuring charge and related
costs in Europe.
2013 compared to 2012
Adjusted operating profit contracted by 0.8% in 2013 compared with 2012, while the adjusted operating margin
decreased 40 basis points. The solid volume growth in 2013 was largely offset by reductions in revenue per piece, leading to
only slight growth in revenue. The net impact of fuel (fuel surcharge revenue decreased at a faster rate than fuel expense) as
well as currency remeasurement and translation losses combined to decrease operating profit by $219 million when comparing
2013 with 2012. The combination of low revenue growth and the adverse impact of fuel and currency led to the reduction in
adjusted operating margin.
37
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Supply Chain & Freight Operations
Freight LTL Statistics:
Revenue (in millions)
Revenue Per Hundredweight
Shipments (in thousands)
Shipments Per Day (in thousands)
Gross Weight Hauled (in millions of lbs)
Weight Per Shipment (in lbs)
Operating Days in Period
Revenue (in millions):
Forwarding and Logistics
Freight
Other
Total Revenue
Operating Expenses (in millions):
Operating Expenses
Defined Benefit Plans Mark-to-Market Charge
Health & Welfare Plan Charges
Adjusted Operating Expenses
Operating Profit (in millions) and Operating Margins:
Operating Profit
Adjusted Operating Profit
Operating Margin
Adjusted Operating Margin
Year Ended December 31,
% Change
2014
2013
2012
2014 / 2013
2013 / 2012
$ 2,633
$ 22.64
10,762
42.5
11,632
1,081
253
$ 5,758
3,048
587
$ 9,393
$ 2,502
$ 22.05
10,497
41.5
11,348
1,081
253
$ 5,492
2,882
561
$ 8,935
$ 2,377
$ 21.73
10,136
40.1
10,939
1,079
253
$ 5,977
2,640
530
$ 9,147
$ 8,961
(202)
(84)
$ 8,675
$ 8,261
—
—
$ 8,261
$ 9,132
(713)
—
$ 8,419
$
$
$
$
432
718
4.6%
7.6%
$
$
674
674
7.5%
7.5%
15
728
0.2%
8.0%
5.2 %
2.7 %
2.5 %
2.5 %
2.5 %
— %
4.8 %
5.8 %
4.6 %
5.1 %
5.3 %
1.5 %
3.6 %
3.6 %
3.7 %
0.2 %
(8.1)%
9.2 %
5.8 %
(2.3)%
8.5 %
(9.5)%
5.0 %
(1.9)%
(35.9)%
6.5 %
N/A
(7.4)%
Currency Translation Benefit / (Cost)—(in millions)*:
Revenue
Operating Expenses
Operating Profit
*
Amount represents the change compared to the prior year.
Revenue
2014 compared to 2013
$
$
(65)
54
(11)
$
$
(31)
25
(6)
Forwarding and logistics revenue increased $266 million in 2014 compared with 2013. Forwarding revenue increased for
the year, primarily due to volume and tonnage growth in our international air freight, North American air freight and ocean
freight businesses, which were impacted by improving overall market demand. This was partially offset, however, by lower
rates charged to our customers in our international air forwarding business, which was largely due to industry overcapacity in
key trade lanes, particularly the Asia-outbound market. Revenue for our logistics products increased in 2014, as we
experienced solid growth in our mail services, healthcare and retail distribution solutions.
38
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Freight revenue increased $166 million in 2014, driven by solid increases in average daily LTL shipments and LTL
revenue per hundredweight. The increase in average daily LTL shipments in 2014 was impacted by overall U.S. economic
growth and improving LTL market conditions. The increase in LTL revenue per hundredweight was largely due to our focus on
yield management, as well as general rate increases averaging 4.4% and 5.9% that took effect in March 2014 and June 2013,
respectively, covering non-contractual shipments in the United States, Canada and Mexico. LTL fuel surcharge revenue
increased by $13 million in 2014 compared with 2013, due to changes in diesel fuel prices and overall LTL shipment volume.
Revenue for the other businesses within Supply Chain & Freight increased $26 million in 2014, due to revenue growth at
The UPS Store, UPS Capital and UPS Customer Solutions; however, this was partially offset by a decline in revenue from our
contract to provide domestic air transportation services for the U.S. Postal Service.
2013 compared to 2012
Forwarding and logistics revenue decreased $485 million in 2013 compared with 2012. Forwarding revenue decreased in
2013, primarily due to lower tonnage and rates charged to our customers in our international air forwarding business. The
reduction in tonnage was caused by several factors, including weak overall market demand, competitive pressures, and our
customer concentration among the technology and military sectors, as demand in these sectors was relatively weaker than the
remainder of the air freight market. The reduction in rates was largely due to industry overcapacity in key trade lanes,
particularly the Asia-outbound market. Revenue for our logistics products increased in 2013 compared with 2012, as we
experienced solid growth in our mail services and healthcare distribution solutions; however, this was largely offset by revenue
declines among our technology customers.
Freight revenue increased $242 million in 2013, driven by an increase in LTL revenue per hundredweight, tonnage and
average daily LTL shipments. The increase in LTL revenue per hundredweight was largely due to our focus on yield
management, as well as general rate increases averaging 5.9% that took effect on both July 16, 2012 and on June 10, 2013,
covering non-contractual shipments in the United States, Canada and Mexico. LTL fuel surcharge revenue increased by $18
million in 2013 compared with the prior year, due to changes in diesel fuel prices and overall LTL shipment volume. In
addition, our Truckload division experienced increased volume and revenue, primarily related to our dedicated and non-
dedicated service offerings.
The other businesses within Supply Chain & Freight increased revenue by $31 million in 2013, primarily due to growth at
UPS Capital, The UPS Store and UPS Customer Solutions.
Operating Expenses
2014 compared to 2013
Forwarding and logistics adjusted operating expenses increased $266 million in 2014, largely due to higher purchased
transportation and employee compensation expenses. Purchased transportation expense increased by $229 million for the year,
primarily due to higher volume and tonnage in our international air freight forwarding business and higher rates charged to us
by third-party transportation carriers. Compensation and benefits expense increased $47 million in 2014, due to merit salary
and wage increases for management and hourly employees, along with an increase in the overall size of the workforce.
Freight adjusted operating expenses increased $140 million in 2014, while the total adjusted cost per LTL shipment
increased 2.0%. The increase in adjusted operating expenses was largely due to pick-up and delivery expenses (which
increased $96 million) and the costs associated with operating our linehaul network (which increased $65 million). The
increases in pick-up and delivery and network costs were primarily due to contractual wage increases, higher LTL volume and
increased costs associated with outside contract and rail carriers. Partially offsetting these cost increases were reductions in
indirect operating expenses, including lower auto liability and worker's compensation costs, which were impacted by
operational safety and claims management initiatives, as well as lower pension expense.
Operating expenses for the other businesses within Supply Chain & Freight increased $8 million in 2014 compared with
2013.
39
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
2013 compared to 2012
Forwarding and logistics adjusted operating expenses decreased $388 million in 2013 compared with 2012, due to several
factors. Purchased transportation expense declined by $236 million, primarily due to lower tonnage in our international air
freight forwarding business. Compensation and benefits expense declined by $59 million, largely due to reduced payroll costs
and lower expense for worker's compensation claims. The remaining decrease in expense resulted from lower fuel costs, bad
debt expense, and various other items.
Freight adjusted operating expenses increased $234 million in 2013, while the total cost per LTL shipment increased
2.0%. The largest component of this increase related to the cost of operating our linehaul network, which grew by $62 million,
as a result of a 3.7% average daily tonnage increase, coupled with wage and purchased transportation increases. Our Truckload
division experienced a $48 million increase in costs for the year, largely related to the expansion of our dedicated and non-
dedicated services. Pick-up and delivery costs increased $15 million as a result of higher volume and wage increases, but were
partially offset by productivity improvements. The remaining increase in expense in 2013 was impacted by increases in
pension expense and healthcare costs.
Adjusted operating expenses for the other businesses within Supply Chain & Freight decreased $4 million in 2013
compared with 2012.
Operating Profit and Margin
2014 compared to 2013
Adjusted operating profit for the forwarding and logistics unit remained comparable between 2014 and 2013, and was
impacted by several factors. Operating profit in the international air forwarding business declined in 2014, as continued excess
market capacity in key trade lanes reduced the margin between the rates we charge our customers and the rates at which we
procure capacity from third party air carriers. We increased profitability in our North American air freight, ocean freight,
distribution and mail services units in 2014, as a result of improving market demand and cost controls.
Adjusted operating profit for our freight unit increased $26 million in 2014 compared with 2013, as shipment growth,
increased yields and higher productivity more than offset contractual union wage increases.
The combined operating profit for all of our other businesses in this segment increased $18 million in 2014, primarily due
to higher operating profit at UPS Capital and UPS Customer Solutions.
2013 compared to 2012
Adjusted operating profit for the forwarding and logistics unit decreased by $97 million in 2013 compared with 2012.
This decrease was primarily due to reduced profitability in our international air forwarding business, which resulted from
competitive pressures combined with weak overall air freight market demand due to continued economic weakness in Europe,
slowing growth in China and a sluggish U.S. economy. Additionally, our customer concentration among the technology and
military sectors negatively impacted our results, as demand in these sectors was relatively weaker than the remainder of the air
freight market. This lower demand pressured the rates we charge to our customers, which more than offset the reduced rates we
incur from third-party transportation carriers, and thereby led to a compression in our operating margin.
Adjusted operating profit for our freight unit increased $8 million in 2013 compared with 2012, as improvements in
average daily LTL volume, yields and productivity measures (including gains in pick-up and delivery stops per hour, dock bills
per hour and linehaul network utilization) more than offset an increase in wage and benefit expenses.
The combined adjusted operating profit for all of our other businesses in this segment increased $35 million in 2013
compared with 2012, primarily due to higher operating profit at UPS Capital and The UPS Store.
40
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Operating Expenses
Year Ended December 31,
% Change
2014
2013
2012
2014 / 2013
2013 / 2012
Operating Expenses (in millions):
Compensation and Benefits
Defined Benefit Plans Mark-to-Market Charge
Health & Welfare Plan Charges
Multiemployer Pension Plan Withdrawal Charge
Adjusted Compensation and Benefits
$ 32,045
(1,062)
(1,102)
—
$ 28,557
—
—
—
29,881
28,557
$ 33,102
(4,831)
—
(896)
27,375
Repairs and Maintenance
Depreciation and Amortization
Purchased Transportation
Fuel
Other Occupancy
Other Expenses
TNT Termination Fee and Related Expenses
Gain Upon Liquidation of Foreign Subsidiary
Adjusted Other Expenses
1,371
1,923
8,460
3,883
1,044
4,538
—
—
4,538
1,240
1,867
7,486
4,027
950
4,277
(284)
245
4,238
1,228
1,858
7,354
4,090
902
12.2 %
(13.7)%
4.6 %
4.3 %
10.6 %
3.0 %
13.0 %
(3.6)%
9.9 %
1.0 %
0.5 %
1.8 %
(1.5)%
5.3 %
4,250
6.1 %
0.6 %
—
—
4,250
7.1 %
(0.3)%
Total Operating Expenses
Adjusted Total Operating Expenses
$ 53,264
$ 48,404
$ 52,784
$ 51,100
$ 48,365
$ 47,057
10.0 %
5.7 %
(8.3)%
2.8 %
Currency Translation Cost / (Benefit)*
$
(141)
$
12
*
Amount represents the change compared to the prior year.
Compensation and Benefits
2014 compared to 2013
Employee payroll costs increased $1.054 billion in 2014, compared with 2013, largely due to contractual union wage rate
increases, a 7.5% increase in average daily union labor hours, and a merit salary increase for management employees. The
increase in average daily union labor hours was impacted by volume growth, as well as additional training hours for the
seasonal fourth quarter staffing increase. Additionally, adverse weather conditions in the early part of 2014 contributed to an
increase in labor hours in the year-to-date comparison.
Adjusted benefits expense increased $270 million in 2014, primarily due to increased health and welfare costs, payroll
taxes, and vacation, holiday and excused absence expenses. However, these factors were partially offset by a reduction in
pension costs and workers compensation expense. These factors are discussed further as follows:
• Adjusted health and welfare costs increased $221 million in 2014, largely due to higher medical claims in company-
sponsored plans, increased contributions to multiemployer plans and the impact of several provisions of the Patient
Protection and Affordable Care Act of 2010. The growth in multiemployer plan contributions was impacted by
contractual contribution rate increases and higher union labor hours.
•
Payroll taxes increased $73 million in 2014, primarily as a result of higher union labor hours, union wage rate
increases and higher management incentive compensation payments.
41
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
• Vacation, holiday and excused absence expense increased $41 million in 2014, due to an increase in the overall
number of employees and increased vacation entitlements earned based on employees' years of service.
• Adjusted pension costs declined $23 million in 2014, as a decrease in the expense for company-sponsored pension
plans (largely due to higher discount rates used to determine pension cost for 2014) was largely offset by higher
contributions to multiemployer pension plans (due to both increased contribution rates and higher union labor hours).
• Workers compensation expense decreased $69 million in 2014, impacting all segments. Insurance reserves are
established for estimates of the loss that we will ultimately incur on reported worker's compensation claims, as well as
estimates of claims that have been incurred but not reported, and take into account a number of factors including our
history of claim losses, payroll growth and the impact of safety improvement initiatives. In 2014, we experienced
favorable actuarial expense adjustments as the frequency and severity of claims was less than previously projected,
due to the impact of ongoing operational safety improvement and claim management initiatives.
2013 compared to 2012
Employee payroll costs increased $684 million in 2013 compared with 2012, largely due to contractual union wage rate
increases, a 3.1% increase in average daily union labor hours, and a merit salary increase for management employees; however,
this was partially offset by an overall reduction in the number of management personnel.
Adjusted benefits expense increased $498 million in 2013 compared with 2012, primarily due to higher pension expense,
increased vacation, holiday and excused absence expense, and higher health and welfare costs; however, these items were
partially offset by changes in the expense associated with our self-insurance for worker’s compensation claims. These primary
factors impacting expense are discussed further as follows:
•
Pension expense increased $300 million in 2013 compared with 2012, due to higher union contribution rates for
multiemployer pension plans combined with increased service and interest costs for company-sponsored plans. The
increase in service and interest costs for company-sponsored plans was largely due to continued service accruals and
lower discount rates.
• Vacation, holiday and excused absence expense increased $89 million in 2013 compared with 2012, due to increased
vacation entitlements earned based on employees' years of service, higher wage rates and an increase in the overall
number of employees during 2013.
• Health and welfare costs increased $182 million in 2013 compared with 2012, largely due to increased contribution
rates to multiemployer plans, higher medical claims in UPS-sponsored plans, and the impact of several provisions of
the Patient Protection and Affordable Care Act of 2010.
• The expense associated with our self-insurance programs for worker’s compensation claims decreased $131 million in
2013 compared with 2012. In 2013, we experienced favorable actuarial expense adjustments as the frequency and
severity of claims was less than previously projected, due to the impact of ongoing safety improvement and claim
management initiatives.
Repairs and Maintenance
2014 compared to 2013
The increase in repairs and maintenance expense in 2014 was primarily due to a $93 million increase in airframe and
aircraft engine repair and component replacement costs, largely in our Boeing 747 and 767 aircraft fleets. The remaining
increase was largely due to increased vehicle maintenance costs in our global package and freight operations, primarily due to
the growth in the size of our vehicle fleet.
2013 compared to 2012
The increase in repairs and maintenance expense was largely due to increased vehicle maintenance costs in our global
package and freight operations. These higher costs were impacted by the increase in miles driven in 2013 compared with 2012,
as well as the overall increase in the size of our vehicle fleet in our U.S. Domestic Package and UPS Freight operations.
42
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Depreciation and Amortization
2014 compared to 2013
The increase in depreciation and amortization expense in 2014, compared with 2013, was primarily due to a $45 million
increase in the depreciation expense on vehicles, due to the replacement of older, fully-depreciated vehicles, technology
upgrades on vehicles and an overall increase in the size of our vehicle fleet in our U.S. Domestic Package and UPS Freight
operations. Additionally, amortization expense increased $20 million, primarily related to intangible assets resulting from
business acquisitions. These factors were partially offset by a decrease in building and facility depreciation, as several
operating facilities became fully-depreciated.
2013 compared to 2012
The increase in depreciation and amortization expense in 2013, compared with 2012, was primarily due to a $62 million
increase in depreciation expense on vehicles. This increase was driven by the replacement of older, fully-depreciated vehicles,
technology upgrades on new vehicles and an overall increase in the size of our vehicle fleet. This increase was largely offset by
several factors, including lower building and facility depreciation and capitalized software amortization.
Purchased Transportation
2014 compared to 2013
The $974 million increase in purchased transportation expense charged to us by third-party air, ocean and truck carriers in
2014 was driven by several factors:
• Our U.S. Domestic Package segment incurred a $474 million increase in expense in 2014, primarily due to (1) higher
fees paid to the U.S. Postal Service associated with the volume growth in our SurePost product; (2) the increased use
of, and higher rates passed to us from, rail carriers; and (3) the increased use of outside contract carriers, which was
impacted by volume growth and rail carrier service issues; additionally, adverse weather conditions in the early months
of 2014 resulted in the additional use of outside contract carriers. Approximately $177 million of the increase, or 37%
of the total increase for the year, was attributable to the fourth quarter as a result of high seasonal volume.
• Our International Package segment incurred a $203 million increase in expense in 2014, primarily due to higher costs
incurred for the use of outside transportation providers, which was impacted by strong international volume growth.
• Our UPS Freight business incurred a $68 million increase in expense in 2014, largely due to increased LTL and
brokerage volume, and the resulting increased use of, and higher rates passed to us from, outside transportation
carriers.
• The purchased transportation expense for our forwarding and logistics business increased $229 million in 2014, largely
due to increased volume and tonnage in our international air freight, North American air freight, and ocean forwarding
businesses.
2013 compared to 2012
The increase in purchased transportation expense charged to us by third-party air, ocean and truck carriers in 2013,
compared with 2012, was driven by several factors:
• Our U.S. Domestic Package segment incurred a $154 million expense increase for the year, primarily due to higher
rates passed to us from rail carriers, and higher fees paid to the U.S. Postal Service associated with the volume growth
in our SurePost product. This increase in expense was also impacted by the adverse weather conditions in the fourth
quarter of 2013, as well as the significant increase in volume during the compressed timing of the holiday season.
• Our International Package segment incurred a $144 million expense increase for the year, primarily due to
international volume growth.
• Our UPS Freight business incurred a $70 million increase for the year, largely due to growth in LTL volume and
higher rates passed to us from rail carriers.
• The purchased transportation expense for our forwarding & logistics business declined $236 million for the year,
largely due to lower tonnage and reduced rates from third-party transportation carriers in our international air freight
forwarding business.
43
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Fuel
2014 compared to 2013
The $144 million decrease in fuel expense in 2014 was primarily due to lower fuel prices (net of hedging activity), which
decreased fuel expense by $180 million in 2014. This was partially offset by higher fuel usage (due to an increase in aircraft
block hours and vehicle miles driven), which increased expense by $36 million.
2013 compared to 2012
The decrease in fuel expense in 2013 was largely due to the decline in fuel prices (primarily jet-A fuel prices), which
decreased expense by $77 million, net of hedging. This was partially offset by a $14 million increase in overall fuel usage,
which was primarily due to lower vehicle fuel efficiency and an increase in miles driven.
Other Occupancy
2014 compared to 2013
The increase in other occupancy expense in 2014 was largely due to an increase in facility rent expense ($25 million),
property taxes ($10 million) and natural gas and electric utility costs ($32 million). The increase in rent, property taxes and
utilities expense was impacted by new leases on facilities to support the growth of our U.S. Domestic Package operations.
Additionally, adverse weather conditions in the U.S. in the early months of 2014 resulted in $15 million of increased snow
removal costs at our operating facilities.
2013 compared to 2012
The increase in other occupancy expense in 2013, compared with 2012, was primarily due to higher snow removal costs
at our operating facilities, an increase in utility expenses, as well as higher real estate taxes. The relatively cold winter in the
United States in 2013 compared with 2012 caused the increase in snow removal costs, while increased usage and higher prices
of natural gas and electricity resulted in the increase in utility expenses.
Other Expenses
2014 compared to 2013
The $300 million increase in adjusted other expenses in 2014 was impacted by a number of factors. Transportation
equipment rental expense increased $90 million for the year, and was affected by the growth in package volume (particularly
the seasonal volume increase in the fourth quarter). We also incurred increases in several other expense categories, including
transportation security costs, employee expense reimbursements and recruitment costs (related to training and staffing for the
seasonal volume increase in the fourth quarter) and legal contingency expenses. These increases were partially offset by
business interruption insurance claim reimbursements from previous weather-related events, as well as lower advertising costs.
2013 compared to 2012
The decrease in adjusted other expenses in 2013 compared with 2012 was impacted by a number of factors, including
decreases in bad debt expense, employee expense reimbursements, advertising costs, telecommunications expenses, and non-
income based state and local taxes. These decreases in expense were partially offset by increases in auto liability insurance,
transportation equipment rentals, and air cargo handling costs.
44
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Investment Income and Interest Expense
The following table sets forth investment income and interest expense for the years ended December 31, 2014, 2013 and
2012 (in millions):
Investment Income
Interest Expense
Investment Income
2014 compared to 2013
Year Ended December 31,
% Change
2014
2013
2012
2014 / 2013
2013 / 2012
$
$
22
$
(353) $
20
$
(380) $
24
(393)
10.0 %
(7.1)%
(16.7)%
(3.3)%
The increase in investment income in 2014 compared with 2013 was primarily due to a $7 million decrease in losses from
fair value adjustments on real estate partnerships. This was partially offset by a decline in interest income, largely due to
having a lower average balance of invested assets in 2014.
2013 compared to 2012
The decrease in investment income in 2013 compared with 2012 was primarily due to lower interest rates earned on
invested assets, as well as a decline in the average balance of invested assets. These factors were partially offset by higher
realized gains on the sales of securities in 2013 compared with 2012.
Interest Expense
2014 compared to 2013
Interest expense decreased in 2014 compared with 2013, largely due to having a lower average balance of debt
outstanding. In addition, interest expense declined due to a decrease in the interest rate indices underlying our variable-rate
debt and swaps in 2014 compared with 2013.
2013 compared to 2012
Interest expense decreased in 2013 compared to 2012, largely due to three factors: (1) having a greater proportion of our
debt swapped to lower-yielding variable rates, (2) a decrease in the interest rate indices underlying our variable-rate debt and
swaps, and (3) a lower average balance of debt outstanding. These factors were partially offset by the imputation of interest
expense on the multiemployer pension withdrawal liability related to the New England Pension Fund.
Income Tax Expense
The following table sets forth income tax expense and our effective tax rate for the years ended December 31, 2014, 2013
and 2012 (in millions):
Income Tax Expense
Income Tax Impact of:
Year Ended December 31,
% Change
2014
$ 1,605
2013
$ 2,302
2012
167
$
2014 / 2013
(30.3)%
2013 / 2012
N/A
Defined Benefit Plans Mark-to-Market Charge
Health & Welfare Plan Charges
TNT Termination Fee and Related Expenses
Gain Upon Liquidation of Foreign Subsidiary
Multiemployer Pension Plan Withdrawal Charge
Adjusted Income Tax Expense
Effective Tax Rate
Adjusted Effective Tax Rate
392
415
—
—
—
$ 2,412
—
—
107
(32)
—
$ 2,377
1,808
—
—
—
337
$ 2,312
34.6%
35.5%
34.5%
35.4%
17.1%
34.5%
45
1.5 %
2.8%
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
2014 compared to 2013
Our adjusted effective tax rate increased slightly to 35.5% in 2014 from 35.4% in 2013 due to a decrease in U.S. Federal
and state tax credits relative to total pre-tax income, which was largely offset by favorable changes in the proportion of our
taxable income in certain U.S. and non-U.S. jurisdictions relative to total pre-tax income.
2013 compared to 2012
Our adjusted effective tax rate increased to 35.4% in 2013 from 34.5% in 2012, due to a decrease in U.S. Federal and state
tax credits relative to total pre-tax income, and unfavorable changes in the proportion of our taxable income in certain U.S. and
non-U.S. jurisdictions relative to total pre-tax income.
Liquidity and Capital Resources
Operating Activities
The following is a summary of the significant sources (uses) of cash from operating activities (amounts in millions):
Net income
Non-cash operating activities(a)
Pension and postretirement plan contributions (UPS-sponsored plans)
Settlement of postretirement benefit obligation
Income tax receivables and payables
Changes in working capital and other noncurrent assets and liabilities
Other operating activities
Net cash from operating activities
2014
3,032
5,901
(1,258)
(2,271)
(224)
512
34
5,726
$
$
2013
4,372
3,318
(212)
—
(155)
121
(140)
7,304
$
$
2012
$
807
7,313
(917)
—
280
(148)
(119)
$ 7,216
(a)
Represents depreciation and amortization, gains and losses on derivative and foreign exchange transactions, deferred
income taxes, provisions for uncollectible accounts, pension and postretirement benefit expense, stock compensation
expense, impairment charges and other non-cash items.
Cash from operating activities remained strong throughout the 2012 to 2014 time period. Operating cash flow was
adversely impacted by $1.527 billion due to certain transactions resulting from the ratification of our collective bargaining
agreement with the Teamsters in 2014. These transactions are discussed further in the "Collective Bargaining Agreements"
section:
• We paid $2.271 billion to settle postretirement benefit obligations for certain union employees.
• We paid $176 million in 2014 for retroactive economic benefits under the collective bargaining agreement that were
related to the period between August through December of 2013.
• During 2014, we received cash tax benefits of $920 million from the items described above (through reduced U.S.
Federal and state quarterly income tax payments).
Most of the remaining variability in operating cash flows during the 2012 to 2014 time period relates to the funding of
our company-sponsored pension and postretirement benefit plans (and related cash tax deductions). Except for discretionary or
accelerated fundings of our plans, contributions to our company-sponsored pension plans have largely varied based on whether
any minimum funding requirements are present for individual pension plans.
•
•
•
In 2014, we made discretionary contributions to our three primary company-sponsored U.S. pension plans totaling
$1.042 billion.
In 2013, we did not have any required, nor make any discretionary, contributions to our primary company-sponsored
pension plans in the U.S.
In 2012, we made a $355 million required contribution to the UPS IBT Pension Plan.
• The remaining contributions in the 2012 through 2014 period were largely due to contributions to our international
pension plans and U.S. postretirement medical benefit plans.
46
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As discussed further in the “Contractual Commitments” section, we have minimum funding requirements in the next
several years, primarily related to the UPS IBT Pension, UPS Retirement and UPS Pension plans.
Apart from the transactions described above, operating cash flow was impacted by changes in our working capital
position, payments for income taxes, and changes in hedge margin payables and receivables. In 2014 and 2013, the
compressed holiday shipping season resulted in an increase in working capital needs at each year-end period. The cash
payments for income taxes were $1.524, $2.712 and $1.988 billion for 2014, 2013 and 2012, respectively, and were primarily
impacted by the timing of current tax deductions. The net hedge margin collateral received from derivative counterparties was
$421, $67 and $4 million during 2014, 2013 and 2012, respectively, due to the increased net fair value asset position of the
derivative contracts used in our currency and interest rate hedging programs.
As of December 31, 2014, the total of our worldwide holdings of cash and cash equivalents was $2.291 billion, of which
$1.072 billion was held by foreign subsidiaries. The amount of cash held by our U.S. and foreign subsidiaries fluctuates
throughout the year due to a variety of factors, including the timing of cash receipts and disbursements in the normal course of
business. Cash provided by operating activities in the United States continues to be our primary source of funds to finance
domestic operating needs, capital expenditures, share repurchases and dividend payments to shareowners. To the extent that
such amounts represent previously untaxed earnings, the cash held by foreign subsidiaries would be subject to tax if such
amounts were repatriated in the form of dividends; however, not all international cash balances would have to be repatriated in
the form of a dividend if returned to the U.S. When amounts earned by foreign subsidiaries are expected to be indefinitely
reinvested, no accrual for taxes is provided.
Investing Activities
Our primary sources (uses) of cash for investing activities were as follows (amounts in millions):
Net cash used in investing activities
Capital Expenditures:
Buildings and facilities
Aircraft and parts
Vehicles
Information technology
Capital Expenditures as a % of Revenue
Other Investing Activities:
Proceeds from disposals of property, plant and equipment
Net decrease in finance receivables
Net (purchases) sales of marketable securities
Cash received (paid) for business acquisitions and dispositions
Other investing activities
2014
(2,801)
(808)
(44)
(1,061)
(415)
(2,328)
4.0%
53
44
(419)
(88)
(63)
$
$
$
$
$
$
$
$
2013
(2,114)
(483)
(478)
(662)
(442)
(2,065)
3.7%
104
39
9
(22)
(179)
$
$
$
$
$
$
$
$
2012
(1,335)
(506)
(568)
(672)
(407)
(2,153)
4.0%
95
101
628
(100)
94
$
$
$
$
$
$
$
$
We have commitments for the purchase of vehicles, equipment and real estate to provide for the replacement of existing
capacity and anticipated future growth. We generally fund our capital expenditures with our cash from operations. Future
capital spending for anticipated growth and replacement assets will depend on a variety of factors, including economic and
industry conditions. We anticipate that our capital expenditures for 2015 will be approximately $3.0 billion.
Capital spending on aircraft declined over the 2012 to 2014 period, as we completed the scheduled deliveries of a
previous order for the Boeing 767-300ERF aircraft. Capital spending on vehicles increased during the 2012 to 2014 period in
our U.S. and international package businesses and our freight unit, due to vehicle replacements, technology enhancements and
new vehicle orders to support volume growth. Capital expenditures on buildings and facilities also increased in the 2012 to
2014 period, and included hub automation and capacity expansion projects in the U.S. during 2014, as well as expansion and
new construction projects at facilities in Europe and Asia (including a $200 million expansion at our European air hub in
Cologne, Germany that was completed in 2014).
47
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The proceeds from the disposal of property, plant and equipment were largely due to real estate sales during the 2012
through 2014 period, as well as the proceeds from insurance recoveries in 2013. The net decline in finance receivables in the
2012 through 2014 period was primarily due to customer paydowns and loan sales activity, primarily in our commercial
lending, asset-based lending and leasing portfolios. The purchases and sales of marketable securities are largely determined by
liquidity needs and the periodic rebalancing of investment types, and will therefore fluctuate from period to period.
The cash paid for business acquisitions in the 2012 to 2014 period was largely due to the acquisitions of Kiala S.A. in
Belgium (2012), Cemelog Ltd. in Hungary (2013), i-parcel LLC in the U.S. (2014) and Polar Speed Distribution Limited in the
U.K. (2014), as well as other smaller acquisitions.
Other investing activities are impacted by changes in our restricted cash balances, capital contributions into certain
investment partnerships, and various other items. In 2014 and 2013, we increased the restricted cash balance associated with
our self-insurance requirements by $17 and $137 million, respectively (there were no changes in restricted cash in 2012, other
than earned interest).
Financing Activities
Our primary sources (uses) of cash for financing activities were as follows (amounts in millions, except per share data):
Net cash used in financing activities
Share Repurchases:
Cash expended for shares repurchased
Number of shares repurchased
Shares outstanding at year-end
Percent reduction in shares outstanding
Dividends:
Dividends declared per share
Cash expended for dividend payments
Borrowings:
Net borrowings (repayments) of debt principal
Other Financing Activities:
Cash received for common stock issuances
Other financing activities
Capitalization:
Total debt outstanding at year-end
Total shareowners’ equity at year-end
Total capitalization
Debt to Total Capitalization %
2014
(5,161)
(2,695)
(26.4)
905
(2.0)%
2.68
(2,366)
(169)
274
(205)
$
$
$
$
$
$
$
2013
(7,807)
(3,838)
(43.2)
923
(3.1)%
2.48
(2,260)
(1,775)
491
(425)
$
$
$
$
$
$
$
2012
(1,817)
(1,621)
(21.8)
953
(1.0)%
2.28
(2,130)
1,729
301
(96)
$
$
$
$
$
$
$
$ 10,787
2,158
$ 12,945
$ 10,872
6,488
$ 17,360
$ 12,870
4,733
$ 17,603
83.3 %
62.6 %
73.1 %
On February 14, 2013, the Board of Directors approved a share repurchase authorization of $10.0 billion, which replaced
an authorization previously announced in 2012. The share repurchase authorization has no expiration date. As of December 31,
2014, we had $4.152 billion of this share repurchase authorization remaining. Share repurchases may take the form of
accelerated share repurchases, open market purchases, or other such methods as we deem appropriate. The timing of our share
repurchases will depend upon market conditions. Unless terminated earlier by the resolution of our Board, the program will
expire when we have purchased all shares authorized for repurchase under the program. We anticipate repurchasing
approximately $2.7 billion of shares in 2015.
The declaration of dividends is subject to the discretion of the Board of Directors and will depend on various factors,
including our net income, financial condition, cash requirements, future prospects, and other relevant factors. We expect to
continue the practice of paying regular cash dividends. In February 2015, we increased our quarterly dividend payment from
$0.67 to $0.73 per share, a 9% increase.
48
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Issuances of debt in 2014 and 2013 consisted primarily of longer-maturity commercial paper. Issuances of debt in 2012
consisted primarily of senior fixed rate note offerings totaling $1.75 billion.
Repayments of debt in 2014 and 2013 consisted primarily of the maturity of our $1.0 and $1.75 billion senior fixed rate
notes that matured in April 2014 and January 2013, respectively. The remaining repayments of debt during the 2012 through
2014 time period included paydowns of commercial paper and scheduled principal payments on our capitalized lease
obligations. We consider the overall fixed and floating interest rate mix of our portfolio and the related overall cost of
borrowing when planning for future issuances and non-scheduled repayments of debt.
We had $772 million of commercial paper outstanding at December 31, 2014, and no commercial paper outstanding at
December 31, 2013 and 2012. The amount of commercial paper outstanding fluctuates throughout each year based on daily
liquidity needs. The average commercial paper balance was $1.356 billion and the average interest rate paid was 0.10% in 2014
($1.013 billion and 0.07% in 2013, and $962 million and 0.07% in 2012, respectively).
The variation in cash received from common stock issuances to employees was primarily due to level of stock option
exercises in the 2012 through 2014 period.
The cash outflows in other financing activities were impacted by several factors. Cash inflows (outflows) from the
premium payments and settlements of capped call options for the purchase of UPS class B shares were $(47), $(93) and $206
million for 2014, 2013 and 2012, respectively. Cash outflows related to the repurchase of shares to satisfy tax withholding
obligations on vested employee stock awards were $224, $253 and $234 million for 2014, 2013 and 2012, respectively. In
2013, we paid $70 million to purchase the noncontrolling interest in a joint venture that operates in the Middle East, Turkey and
portions of the Central Asia region. In 2012, we settled several interest rate derivatives that were designated as hedges of the
senior fixed-rate debt offerings that year, which resulted in a cash outflow of $70 million.
Sources of Credit
See note 7 to the audited consolidated financial statements for a discussion of our available credit and debt covenants.
Guarantees and Other Off-Balance Sheet Arrangements
We do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, which
we believe could have a material impact on financial condition or liquidity.
Contractual Commitments
We have contractual obligations and commitments in the form of capital leases, operating leases, debt obligations,
purchase commitments, and certain other liabilities. We intend to satisfy these obligations through the use of cash flow from
operations. The following table summarizes the expected cash outflow to satisfy our contractual obligations and commitments
as of December 31, 2014 (in millions):
Commitment Type
Capital Leases
Operating Leases
Debt Principal
Debt Interest
Purchase Commitments
Pension Fundings
Other Liabilities
Total
2015
2016
2017
2018
2019
$
75
323
876
295
269
1,030
43
$ 2,911
$
74
257
8
293
195
1,161
23
$ 2,011
$
67
210
377
293
71
344
10
$ 1,372
$
62
150
752
282
19
347
5
$ 1,617
$
59
90
1,000
260
8
400
—
$ 1,817
After 2019
435
$
274
7,068
4,259
26
488
—
$ 12,550
Total
$
772
1,304
10,081
5,682
588
3,770
81
$ 22,278
49
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Our capital lease obligations relate primarily to leases on aircraft. Capital leases, operating leases, and purchase
commitments, as well as our debt principal obligations, are discussed further in note 7 to our consolidated financial statements.
The amount of interest on our debt was calculated as the contractual interest payments due on our fixed-rate debt, in addition to
interest on variable rate debt that was calculated based on interest rates as of December 31, 2014. The calculations of debt
interest take into account the effect of interest rate swap agreements. For debt denominated in a foreign currency, the
U.S. Dollar equivalent principal amount of the debt at the end of the year was used as the basis to calculate future interest
payments.
Purchase commitments represent contractual agreements to purchase goods or services that are legally binding, the
largest of which are orders for technology equipment and vehicles. As of December 31, 2014, we have no open aircraft orders.
Pension fundings represent the anticipated required cash contributions that will be made to our qualified U.S. pension
plans (these plans are discussed further in note 4 to the consolidated financial statements). The pension funding requirements
were estimated under the provisions of the Pension Protection Act of 2006 and the Employee Retirement Income Security Act
of 1974, using discount rates, asset returns and other assumptions appropriate for these plans. In July 2012, federal legislation
was signed into law that allows pension plan sponsors to use higher interest rate assumptions (based on a 25-year rate history)
in valuing plan liabilities and determining funding obligations. The amount of any minimum funding requirement, as
applicable, for these plans could change significantly in future periods, depending on many factors, including future plan asset
returns and discount rates. A sustained significant decline in the world equity markets, and the resulting impact on our pension
assets and investment returns, could result in our domestic pension plans being subject to significantly higher minimum
funding requirements. To the extent that the funded status of these plans in future years differs from our current projections, the
actual contributions made in future years could materially differ from the amounts shown in the table above.
As discussed in note 5 to our consolidated financial statements, we are not currently subject to any minimum
contributions or surcharges with respect to the multiemployer pension and health and welfare plans in which we participate.
Contribution rates to these multiemployer pension and health and welfare plans are established through the collective
bargaining process. As we are not subject to any minimum contribution levels, we have not included any amounts in the
contractual commitments table with respect to these multiemployer plans.
The contractual payments due for “other liabilities” primarily include commitment payments related to our investment in
certain partnerships. The table above does not include approximately $217 million of liabilities for uncertain tax positions
because we are uncertain if or when such amounts will ultimately be settled in cash. In addition, we also have recognized assets
associated with uncertain tax positions in excess of the related liabilities such that we do not believe a net contractual obligation
exists to the taxing authorities. Uncertain tax positions are further discussed in note 12 to the consolidated financial statements.
As of December 31, 2014, we had outstanding letters of credit totaling approximately $1.064 billion issued in connection
with our self-insurance reserves and other routine business requirements. We also issue surety bonds as an alternative to letters
of credit in certain instances, and as of December 31, 2014, we had $640 million of surety bonds written. As of December 31,
2014, we had unfunded loan commitments totaling $136 million associated with our financial business.
We believe that funds from operations and borrowing programs will provide adequate sources of liquidity and capital
resources to meet our expected long-term needs for the operation of our business, including anticipated capital expenditures, for
the foreseeable future.
Contingencies
See note 8 to the audited consolidated financial statements for a discussion of judicial proceedings and other matters
arising from the conduct of our business activities, and note 12 for a discussion of income tax related matters.
50
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Collective Bargaining Agreements
Status of Collective Bargaining Agreements
As of December 31, 2014, we had approximately 270,000 employees employed under a national master agreement and
various supplemental agreements with local unions affiliated with the International Brotherhood of Teamsters (“Teamsters”).
During 2014, the Teamsters ratified a new national master agreement (“NMA”) with UPS that will expire on July 31, 2018.
The economic provisions in the NMA included wage rate increases, as well as increased contribution rates for healthcare and
pension benefits. Most of these economic provisions were retroactive to August 1, 2013, which was the effective date of the
NMA. In the second quarter of 2014, we remitted $278 million for these retroactive economic benefits; this payment had an
immaterial impact on net income, as these retroactive economic benefits had been accrued since the July 31, 2013 expiration of
the prior agreement.
In addition to the retroactive economic provisions of the NMA, there were certain changes to the delivery of healthcare
benefits that were effective at various dates. These changes impact approximately 36,000 full-time and 73,000 part-time active
employees covered by the NMA and the UPS Freight collective bargaining agreement (collectively referred to as the “NMA
Group”), as well as approximately 16,000 employees covered by other collective bargaining agreements (the “Non-NMA
Group”). These provisions are discussed further below in the "Changes to the Delivery of Active and Postretirement
Healthcare Benefits" section.
We have approximately 2,600 pilots who are employed under a collective bargaining agreement with the Independent
Pilots Association ("IPA"), which became amendable at the end of 2011. In February 2014, UPS and the IPA requested and
received mediation by the National Mediation Board for the ongoing contract negotiations.
Our airline mechanics are covered by a collective bargaining agreement with Teamsters Local 2727, which became
amendable November 1, 2013. In addition, approximately 3,100 of our auto and maintenance mechanics who are not
employed under agreements with the Teamsters are employed under collective bargaining agreements with the International
Association of Machinists and Aerospace Workers (“IAM”). In 2014, the IAM ratified new collective bargaining agreements
that will expire on July 31, 2019.
Multiemployer Benefit Plans
We contribute to a number of multiemployer defined benefit and health and welfare plans under terms of collective
bargaining agreements that cover our union represented employees. Our current collective bargaining agreements set forth the
annual contribution increases allotted to the plans that we participate in, and we are in compliance with these contribution rates.
These limitations will remain in effect throughout the terms of the existing collective bargaining agreements.
Changes to the Delivery of Active and Postretirement Healthcare Benefits
Prior to ratification, the NMA Group and Non-NMA Group employees received their healthcare benefits through UPS-
sponsored active and postretirement health and welfare benefit plans. Effective June 1, 2014, we ceased providing healthcare
benefits to active NMA Group employees through these UPS-sponsored benefit plans, and the responsibility for providing
healthcare benefits for active employees was assumed by three separate multiemployer healthcare funds (the “Funds”). The
responsibility for providing healthcare benefits for the active Non-NMA Group employees was also assumed by the Funds on
various dates up to January 1, 2015, depending on the ratification date of the applicable collective bargaining agreement. We
will make contributions to the Funds based on negotiated fixed hourly or monthly contribution rates for the duration of the
NMA and other applicable collective bargaining agreements.
Additionally, the Funds assumed the obligation to provide postretirement healthcare benefits to the employees in the
NMA Group who retire on or after January 1, 2014. The postretirement healthcare benefit obligation for the employees in the
Non-NMA Group was assumed by the Funds for employees retiring on or after January 1, 2014 or January 1, 2015, depending
on the applicable collective bargaining agreement. In exchange for the assumption of the obligation to provide postretirement
healthcare benefits to the NMA Group and Non-NMA Group, we transferred cash totaling $2.271 billion to the Funds in the
second quarter of 2014. UPS-sponsored health and welfare benefit plans retained responsibility for providing postretirement
healthcare coverage for employees in the NMA Group who retired from UPS prior to January 1, 2014, and for employees in the
Non-NMA Group who retire from UPS prior to the January 1, 2014 or January 1, 2015 effective date in the applicable
collective bargaining agreement.
51
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Accounting Impact of Health and Welfare Plan Changes
Income Statement Impact:
We recorded a pre-tax charge of $1.066 billion ($665 million after-tax) in the second quarter of 2014 for the health and
welfare plan changes described above. The components of this charge, which was included in "compensation and benefits"
expense in the statement of consolidated income, are as follows:
• Partial Plan Curtailment: We recorded a $112 million pre-tax curtailment loss due to the elimination of future service
benefit accruals. This curtailment loss represents the accelerated recognition of unamortized prior service costs.
• Remeasurement of Postretirement Obligation: We recorded a $746 million pre-tax loss due to the remeasurement of
the postretirement benefit obligations of the affected UPS-sponsored health and welfare benefit plans.
• Settlement: We recorded a $208 million pre-tax settlement loss, which represents the recognition of unamortized
actuarial losses associated with the postretirement obligation for the NMA Group.
We recorded an additional pre-tax charge of $36 million ($22 million after-tax) in the fourth quarter of 2014 upon
ratification of the collective bargaining agreements covering the Non-NMA Group, related to the remeasurement and settlement
of the postretirement benefit obligation associated with those employees.
Balance Sheet and Cash Flow Impact:
During 2014, as part of the health and welfare plan changes described previously, we transferred cash totaling $2.271
billion to the Funds, which was accounted for as a settlement of our postretirement benefit obligations (see note 4 to the audited
consolidated financial statements). We received approximately $854 million of cash tax benefits (through reduced U.S. Federal
and state quarterly income tax payments) in 2014.
For NMA Group employees who retired prior to January 1, 2014 and remained with the UPS-sponsored health and
welfare plans, the changes to the contributions, benefits and cost sharing provisions in these plans resulted in an increase in the
postretirement benefit obligation, and a corresponding decrease in pre-tax accumulated other comprehensive income, of $13
million upon ratification.
Anticipated Benefits of Health and Welfare Plan Changes
We believe we have obtained several benefits as a result of these health and welfare plan changes, including:
• Liability Transfer: We have removed a significant liability from our balance sheet, which helps to reduce
uncertainty around potential changes to healthcare laws and regulations, control the volatility of healthcare
inflation, and removes the risk associated with providing future retiree healthcare.
• Negotiated Healthcare Costs: Using the model of a defined contribution plan allows us to negotiate our
contributions towards healthcare costs going forward, and provides more certainty of costs over the contract
period.
• Minimize Impact of Healthcare Law Changes: Multiemployer plans have several advantages under the
Patient Protection and Affordable Care Act of 2010, including reduced transitional fees and the ability to limit
the impact of future excise taxes.
• Mitigate Demographic Issues: This helps reduce the potential impact of increased early retirements by
employees.
Agreement with the New England Teamsters and Trucking Industry Pension Fund
In the third quarter of 2012, we reached an agreement with the New England Pension Fund, a multiemployer pension
plan in which UPS is a participant, to restructure the pension liabilities for approximately 10,200 UPS employees represented
by the Teamsters. The agreement reflects a decision by the New England Pension Fund's trustees to restructure the fund
through plan amendments to utilize a "two pool approach", which effectively subdivides the plan assets and liabilities between
two groups of beneficiaries. As part of this agreement, UPS agreed to withdraw from the original pool of the New England
Pension Fund of which it had historically been a participant, and reenter the New England Pension Fund's newly-established
pool as a new employer.
52
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Upon ratification of the agreement by the Teamsters in September 2012, we withdrew from the original pool of the New
England Pension Fund and incurred an undiscounted withdrawal liability of $2.162 billion to be paid in equal monthly
installments over 50 years. The undiscounted withdrawal liability was calculated by independent actuaries employed by the
New England Pension Fund, in accordance with the governing plan documents and the applicable requirements of the
Employee Retirement Income Security Act of 1974. In the third quarter of 2012, we recorded a charge to expense to establish
an $896 million withdrawal liability on our balance sheet, which represents the present value of the $2.162 billion future
payment obligation discounted at a 4.25% interest rate. This discount rate represents the estimated credit-adjusted market rate
of interest at which we could obtain financing of a similar maturity and seniority.
As part of this agreement, we believe that UPS, the New England Pension Fund and our affected employees have
obtained several benefits, including:
• The old pool of the New England Pension Fund has historically had, and would likely continue to have, funding
challenges; this represented a risk to UPS of having to face higher future contribution requirements, as well as a
risk to the security of the pension benefits of those UPS employees who participate in the New England Pension
Fund. The 50 year fixed payment obligation should improve the funded status of the New England Pension Fund
over time, while reducing the risk to UPS of significantly higher future contribution requirements.
• The newly-established pool provides better protections for new participating employers. This pool uses a direct-
attribution methodology for calculating any potential future withdrawal liabilities, which reduces our exposure to
the liabilities of other participating employers. Additionally, this pool contains provisions designed to maintain a
fully-funded status, including automatic benefit reductions and/or increased employee contributions in the event
of an underfunded situation occurring.
• As part of the agreement, we were able to freeze our hourly pension contribution rate to the newly-established
pool of the New England Pension Fund for a period of 10 years, which provides cash flow visibility for both UPS
and the New England Pension Fund.
The $896 million charge to expense recorded in the third quarter of 2012 is included in "compensation and benefits
expense" in the statement of consolidated income, while the corresponding withdrawal liability is included in "other non-
current liabilities" on the consolidated balance sheet. We will impute interest on the withdrawal liability using the 4.25%
discount rate, while the monthly payments made to the New England Pension Fund will reduce the remaining balance of the
withdrawal liability.
Our status in the newly-established pool of the New England Pension Fund is accounted for as the participation in a new
multiemployer pension plan, and therefore we will recognize expense based on the contractually-required contribution for each
period, and we will recognize a liability for any contributions due and unpaid at the end of a reporting period.
Rate Adjustments
In October 2014, we announced an average 4.9% net increase in base and accessorial rates that took effect December 29,
2014, and impacted the following services:
•
•
•
•
UPS Ground services;
UPS Next Day Air, UPS 2nd Day Air, UPS 3 Day Select, and international air shipments originating in the United
States (including Worldwide Express, Worldwide Express Plus, UPS Worldwide Expedited and UPS International
Standard Service);
UPS Next Day Air Freight, UPS 2nd Day Air Freight, and UPS 3 Day Freight shipments within and between the
U.S., Canada, and Puerto Rico; and
UPS Express Freight shipments originating in the U.S.
Additionally, the pricing change involving the application of dimensional weight pricing to all UPS Ground services took effect
on December 29, 2014 as well.
53
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
These rate changes are customary and occur on an annual basis. Rate changes for shipments originating outside the U.S.
are made throughout the year and vary by geographic market.
New Accounting Pronouncements
Recently Adopted Accounting Standards
See note 1 to the audited consolidated financial statements for a discussion of recently adopted accounting standards.
Accounting Standards Issued But Not Yet Effective
See note 1 to the audited consolidated financial statements for a discussion of accounting standards issued, but not yet
effective.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial
statements, which are prepared in accordance with accounting principles generally accepted in the United States of America. As
indicated in note 1 to our consolidated financial statements, the amounts of assets, liabilities, revenue, and expenses reported in
our financial statements are affected by estimates and judgments that are necessary to comply with generally accepted
accounting principles. We base our estimates on prior experience and other assumptions that we consider reasonable to our
circumstances. Actual results could differ from our estimates, which would affect the related amounts reported in our
consolidated financial statements. While estimates and judgments are applied in arriving at many reported amounts, we believe
that the following matters may involve a higher degree of judgment and complexity.
Contingencies
As discussed in note 8 to our consolidated financial statements, we are involved in various legal proceedings and
contingencies. The events that may impact our contingent liabilities are often unique and generally are not predictable. At the
time a contingency is identified, we consider all relevant facts as part of our evaluation. We record a liability for a loss when the
loss is probable of occurring and reasonably estimable. Events may arise that were not anticipated and the outcome of a
contingency may result in a loss to us that differs from our previously estimated liability. These factors could result in a
material difference between estimated and actual operating results. Contingent losses that are probable and estimable,
excluding those related to income taxes and self-insurance which are discussed further below, were not material to our financial
position or results of operations as of, and for the year ended, December 31, 2014. In addition, we have certain contingent
liabilities that have not been recognized as of December 31, 2014, because a loss is not reasonably estimable.
Goodwill and Intangible Impairment
We perform impairment testing of goodwill for each of our reporting units on an annual basis. Our reporting units are
comprised of the Europe, Asia, Americas and ISMEA (Indian Subcontinent, Middle East and Africa) reporting units in the
International Package reporting segment, and the Forwarding, Logistics, UPS Freight, The UPS Store and UPS Capital
reporting units in the Supply Chain & Freight reporting segment. Our annual goodwill impairment testing date is October 1st
for each reporting unit. In assessing goodwill for impairment, we initially evaluate qualitative factors to determine if it is more
likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not
conclusive and it is necessary to calculate the fair value of a reporting unit, then we utilize a two-step process to test goodwill
for impairment. First, a comparison of the fair value of the applicable reporting unit with the aggregate carrying value,
including goodwill, is performed. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, we perform
the second step of the goodwill impairment test to determine the amount of impairment loss. The second step includes
comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill.
54
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We primarily determine the fair value of our reporting units using a discounted cash flow model (“DCF model”), and
supplement this with observable valuation multiples for comparable companies, as applicable. The completion of the DCF
model requires that we make a number of significant assumptions to produce an estimate of future cash flows. These
assumptions include projections of future revenue, costs and working capital changes. In addition, we make assumptions about
the estimated cost of capital and other relevant variables, as required, in estimating the fair value of our reporting units. The
projections that we use in our DCF model are updated annually and will change over time based on the historical performance
and changing business conditions for each of our reporting units. The determination of whether goodwill is impaired involves a
significant level of judgment in these assumptions, and changes in our business strategy, government regulations, or economic
or market conditions could significantly impact these judgments. We will continue to monitor market conditions and other
factors to determine if interim impairment tests are necessary in future periods. If impairment indicators are present in future
periods, the resulting impairment charges could have a material impact on our results of operations.
None of the reporting units incurred any goodwill impairment charges in 2014, 2013 or 2012. Changes in our forecasts
could cause carrying values of our reporting units to exceed their fair values in future periods, potentially resulting in a
goodwill impairment charge. A 10% decrease in the estimated fair value of our reporting units as of our most recent goodwill
testing date (October 1, 2014) would not result in a goodwill impairment charge.
Licenses with a carrying value of $5 million as of December 31, 2014 are deemed to be indefinite-lived intangibles, and
therefore are not amortized. Impairment tests for indefinite-lived intangibles are performed on an annual basis. All of our
remaining recorded intangible assets are deemed to be finite-lived intangibles, and are thus amortized over their estimated
useful lives. Impairment tests for these intangible assets are only performed when a triggering event occurs that indicates that
the carrying value of the intangible may not be recoverable based on the undiscounted future cash flows of the intangible. If the
carrying amount of the intangible is determined not to be recoverable, a write-down to fair value is recorded. Fair values are
determined based on a DCF model. We incurred impairment charges on intangible assets of $13 million during 2013, while
there were no impairments of any indefinite-lived or finite-lived intangible assets in 2014 or 2012.
Self-Insurance Accruals
We self-insure costs associated with workers’ compensation claims, automotive liability, health and welfare and general
business liabilities, up to certain limits. Insurance reserves are established for estimates of the loss that we will ultimately incur
on reported claims, as well as estimates of claims that have been incurred but not yet reported. Recorded balances are based on
reserve levels, which incorporate historical loss experience and judgments about the present and expected levels of cost per
claim. Trends in actual experience are a significant factor in the determination of such reserves. We believe our estimated
reserves for such claims are adequate, but actual experience in claim frequency and/or severity could materially differ from our
estimates and affect our results of operations.
Workers’ compensation, automobile liability and general liability insurance claims may take several years to completely
settle. Consequently, actuarial estimates are required to project the ultimate cost that will be incurred to fully resolve the claims.
A number of factors can affect the actual cost of a claim, including the length of time the claim remains open, trends in health
care costs and the results of related litigation. Furthermore, claims may emerge in future years for events that occurred in a
prior year at a rate that differs from previous actuarial projections. Changes in state legislation with respect to workers'
compensation can affect the adequacy of our self-insurance accruals. All of these factors can result in revisions to prior
actuarial projections and produce a material difference between estimated and actual operating results.
We sponsor a number of health and welfare insurance plans for our employees. These liabilities and related expenses are
based on estimates of the number of employees and eligible dependents covered under the plans, anticipated medical usage by
participants and overall trends in medical costs and inflation. Actual results may differ from these estimates and, therefore,
produce a material difference between estimated and actual operating results.
55
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Pension and Postretirement Medical Benefits
Our pension and other postretirement benefit costs are calculated using various actuarial assumptions and methodologies.
These assumptions include discount rates, health care cost trend rates, inflation, compensation increase rates, expected returns
on plan assets, mortality rates and other factors. The assumptions utilized in recording the obligations under our plans represent
our best estimates, and we believe that they are reasonable, based on information as to historical experience and performance as
well as other factors that might cause future expectations to differ from past trends.
Differences in actual experience or changes in assumptions may affect our pension and other postretirement obligations
and future expense. The primary factors contributing to actuarial gains and losses each year are (1) changes in the discount rate
used to value pension and postretirement benefit obligations as of the measurement date, (2) differences between the expected
and the actual return on plan assets, (3) changes in demographic assumptions including mortality and (4) participant experience
different from demographic assumptions.
We recognize changes in the fair value of plan assets and net actuarial gains or losses in excess of a corridor (defined as
10% of the greater of the fair value of plan assets or the plans' projected benefit obligations) in pension expense annually at
December 31st each year. The remaining components of pension expense (herein referred to as "ongoing net periodic benefit
cost"), primarily service and interest costs and the expected return on plan assets, are recorded on a quarterly basis.
The following sensitivity analysis shows the impact of a 25 basis point change in the assumed discount rate, return on
assets, and healthcare cost trend rate for our pension and postretirement benefit plans, and the resulting increase (decrease) on
our obligations and expense as of, and for the year ended, December 31, 2014 (in millions).
Pension Plans
Discount Rate:
25 Basis Point
Increase
25 Basis Point
Decrease
Effect on ongoing net periodic benefit cost
Effect on net periodic benefit cost for amounts recognized outside the 10% corridor
Effect on projected benefit obligation
$
(48) $
(888)
(1,628)
Return on Assets:
Effect on ongoing net periodic benefit cost(1)
Effect on net periodic benefit cost for amounts recognized outside the 10% corridor(2)
Postretirement Medical Plans
Discount Rate:
Effect on ongoing net periodic benefit cost
Effect on net periodic benefit cost for amounts recognized outside the 10% corridor
Effect on accumulated postretirement benefit obligation
Health Care Cost Trend Rate:
Effect on ongoing net periodic benefit cost
Effect on net periodic benefit cost for amounts recognized outside the 10% corridor
Effect on accumulated postretirement benefit obligation
(1)
(2)
Amount calculated based on 25 basis point increase / decrease in the expected return on assets.
Amount calculated based on 25 basis point increase / decrease in the actual return on assets.
(67)
(66)
1
(9)
(66)
1
10
23
50
1,543
1,736
67
66
(1)
10
68
(1)
(10)
(23)
Expense is expected to increase in 2015 compared with 2014, due primarily to the decrease in the weighted-average
discount rate used to determine ongoing net periodic benefit cost from 5.24% for 2014 to 4.36% for 2015 (These discount rates
represent the combined weighted-average discount rates for our U.S. and international pension plans, as well as our U.S.
postretirement medical plans).
56
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Depreciation, Residual Value and Impairment of Fixed Assets
As of December 31, 2014, we had $18.281 billion of net fixed assets, the most significant category of which is aircraft. In
accounting for fixed assets, we make estimates about the expected useful lives and the expected residual values of the assets,
and the potential for impairment based on the fair values of the assets and the cash flows generated by these assets.
In estimating the lives and expected residual values of aircraft, we have relied upon actual experience with the same or
similar aircraft types. Subsequent revisions to these estimates could be caused by changes to our maintenance program, changes
in the utilization of the aircraft, governmental regulations on aging aircraft and changing market prices of new and used aircraft
of the same or similar types. We periodically evaluate these estimates and assumptions, and adjust the estimates and
assumptions as necessary. Adjustments to the expected lives and residual values are accounted for on a prospective basis
through depreciation expense.
We review long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be
recoverable based on the undiscounted future cash flows of the asset. If the carrying amount of the asset is determined not to be
recoverable, a write-down to fair value is recorded. Fair values are determined based on quoted market values, discounted cash
flows or external appraisals, as applicable. We review long-lived assets for impairment at the individual asset or the asset group
level for which the lowest level of independent cash flows can be identified. The circumstances that would indicate potential
impairment may include, but are not limited to, a significant change in the extent to which an asset is utilized and operating or
cash flow losses associated with the use of the asset. In estimating cash flows, we project future volume levels for our different
air express products in all geographic regions in which we do business. Adverse changes in these volume forecasts, or a
shortfall of our actual volume compared with our projections, could result in our current aircraft capacity exceeding current or
projected demand. This situation would lead to an excess of a particular aircraft type, resulting in an aircraft impairment charge
or a reduction of the expected life of an aircraft type (thus resulting in increased depreciation expense).
There were no impairment charges on our property, plant and equipment during 2014, 2013 and 2012.
Fair Value Measurements
In the normal course of business, we hold and issue financial instruments that contain elements of market risk, including
derivatives, marketable securities, finance receivables, other investments and debt. Certain of these financial instruments are
required to be recorded at fair value, principally derivatives, marketable securities, pension assets and certain other
investments. Fair values are based on listed market prices, when such prices are available. To the extent that listed market
prices are not available, fair value is determined based on other relevant factors, including dealer price quotations. Certain
financial instruments, including over-the-counter derivative instruments, are valued using pricing models that consider, among
other factors, contractual and market prices, correlations, time value, credit spreads and yield curve volatility factors. Changes
in the fixed income, equity, foreign exchange and commodity markets will impact our estimates of fair value in the future,
potentially affecting our results of operations. A quantitative sensitivity analysis of our exposure to changes in commodity
prices, foreign currency exchange rates, interest rates and equity prices is presented in the “Quantitative and Qualitative
Disclosures about Market Risk” section of this report.
Income Taxes
We make certain estimates and judgments in determining income tax expense for financial statement purposes. These
estimates and judgments occur in the calculation of income by legal entity and jurisdiction, tax credits, benefits, and
deductions, and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition
of revenue and expense for tax and financial statement purposes, as well as the interest and penalties related to these uncertain
tax positions. Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent
period.
We assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase
our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be
recoverable. We believe that we will ultimately recover a substantial majority of the deferred tax assets recorded on our
consolidated balance sheets. However, should there be a change in our ability to recover our deferred tax assets, our tax
provision would increase in the period in which we determined that the recovery was not likely.
57
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We
recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation processes, if any. Once it is determined that the position
meets the recognition threshold, the second step requires us to estimate and measure the tax benefit as the largest amount that is
more likely than not to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts,
as we have to determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a
quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in
tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement could result
in the recognition of a tax benefit or an additional charge to the tax provision.
Allowance for Doubtful Accounts
Losses on accounts receivable are recognized when they are incurred, which requires us to make our best estimate of the
probable losses inherent in our customer receivables at each balance sheet date. These estimates require consideration of
historical loss experience adjusted for current conditions, trends in customer payment frequency, and judgments about the
probable effects of relevant observable data, including present economic conditions and the financial health of specific
customers and market sectors. Our risk management process includes standards and policies for reviewing major account
exposures and concentrations of risk. Deterioration in macroeconomic variables could result in our ultimate loss exposures on
our accounts receivable being significantly higher than what we have currently estimated and reserved for in our allowance for
doubtful accounts. Our total allowance for doubtful accounts as of December 31, 2014 and 2013 was $121 and $122 million,
respectively. Our total provision for doubtful accounts charged to expense during the years ended December 31, 2014, 2013
and 2012 was $143, $129 and $155 million, respectively.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in certain commodity prices, foreign currency exchange rates, interest rates
and equity prices. All of these market risks arise in the normal course of business, as we do not engage in speculative trading
activities. In order to manage the risk arising from these exposures, we utilize a variety of commodity, foreign exchange and
interest rate forward contracts, options and swaps. A discussion of our accounting policies for derivative instruments and
further disclosures are provided in note 14 to the consolidated financial statements.
Commodity Price Risk
We are exposed to changes in the prices of refined fuels, principally jet-A, diesel and unleaded gasoline, as well as
changes in the price of natural gas. Currently, the fuel surcharges that we apply to our domestic and international package and
LTL services are the primary means of reducing the risk of adverse fuel price changes. Additionally, we periodically use a
combination of option, forward and futures contracts to provide partial protection from changing fuel and energy prices. As of
December 31, 2014 and 2013, however, we had no commodity contracts outstanding.
Foreign Currency Exchange Risk
We have foreign currency risks related to our revenue, operating expenses and financing transactions in currencies other
than the local currencies in which we operate. We are exposed to currency risk from the potential changes in functional
currency values of our foreign currency-denominated assets, liabilities and cash flows. Our most significant foreign currency
exposures relate to the Euro, British Pound Sterling, Canadian Dollar, Chinese Renminbi and Hong Kong Dollar. We use a
combination of purchased and written options to hedge forecasted cash flow currency exposures. These derivative instruments
generally cover forecasted foreign currency exposures for periods of 12 to 24 months. We also utilize forward contracts to
hedge portions of our anticipated cash settlements of intercompany transactions subject to foreign currency remeasurement.
Additionally, we utilize cross-currency interest rate swaps to hedge the currency risk inherent in the interest and principal
payments associated with foreign currency denominated debt obligations. The terms of these swap agreements are
commensurate with the underlying debt obligations.
58
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Interest Rate Risk
We have issued debt instruments, including debt associated with capital leases, that accrue expense at fixed and floating
rates of interest. We use a combination of interest rate swaps as part of our program to manage the fixed and floating interest
rate mix of our total debt portfolio and related overall cost of borrowing. The notional amount, interest payment and maturity
dates of the swaps match the terms of the associated debt. We also utilize forward starting swaps and similar instruments to
lock in all or a portion of the borrowing cost of anticipated debt issuances. Our floating rate debt and interest rate swaps subject
us to risk resulting from changes in short-term (primarily LIBOR) interest rates.
We also are subject to interest rate risk with respect to our pension and postretirement benefit obligations, as changes in
interest rates will effectively increase or decrease our liabilities associated with these benefit plans, which also results in
changes to the amount of pension and postretirement benefit expense recognized in future periods.
We have investments in debt securities, as well as cash-equivalent instruments, some of which accrue income at variable
rates of interest. Additionally, we hold a portfolio of finance receivables that accrue income at fixed and floating rates of
interest.
Equity Price Risk
We hold investments in various common equity securities that are subject to price risk. These securities are primarily in
the form of equity index funds.
Sensitivity Analysis
The following analysis provides quantitative information regarding our exposure to foreign currency exchange risk,
interest rate risk and equity price risk embedded in our existing financial instruments. We utilize valuation models to evaluate
the sensitivity of the fair value of financial instruments with exposure to market risk that assume instantaneous, parallel shifts
in exchange rates, interest rate yield curves and commodity and equity prices. For options and instruments with non-linear
returns, models appropriate to the instrument are utilized to determine the impact of market shifts.
There are certain limitations inherent in the sensitivity analyses presented, primarily due to the assumption that exchange
rates change in a parallel fashion and that interest rates change instantaneously. In addition, the analyses are unable to reflect
the complex market reactions that normally would arise from the market shifts modeled. While this is our best estimate of the
impact of the specified interest rate scenarios, these estimates should not be viewed as forecasts. We adjust the fixed and
floating interest rate mix of our interest rate sensitive assets and liabilities in response to changes in market conditions.
Additionally, changes in the fair value of foreign currency derivatives and commodity derivatives are offset by changes in the
cash flows of the underlying hedged foreign currency and commodity transactions.
(in millions)
Change in Fair Value:
Currency Derivatives(1)
Change in Annual Interest Expense:
Variable Rate Debt(2)
Interest Rate Derivatives(2)
Change in Annual Interest Income:
Marketable Securities(3)
Shock-Test Result
As of December 31,
2014
2013
$
$
$
$
(229) $
(291)
15
81
$
$
— $
7
101
15
(1)
(2)
(3)
The potential change in fair value from a hypothetical 10% weakening of the U.S. Dollar against local currency exchange rates across all maturities.
The potential change in annual interest expense resulting from a hypothetical 100 basis point increase in short-term interest rates, applied to our
variable rate debt and swap instruments (excluding hedges of anticipated debt issuances).
The potential change in interest income resulting from a hypothetical 100 basis point increase in short-term interest rates, applied to our variable
rate investment holdings.
The sensitivity of our pension and postretirement benefit obligations to changes in interest rates is quantified in “Critical
Accounting Policies and Estimates”. The sensitivity in the fair value and interest income of our finance receivables due to
changes in interest rates was not material as of December 31, 2014 and 2013.
59
Item 8. Financial Statements and Supplementary Data
Table of Contents
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Statements of Consolidated Income
Statements of Consolidated Comprehensive Income
Statements of Consolidated Cash Flows
Notes to Consolidated Financial Statements
Note 1—Summary of Accounting Policies
Note 2—Cash and Investments
Note 3—Property, Plant and Equipment
Note 4—Company-Sponsored Employee Benefit Plans
Note 5—Multiemployer Employee Benefit Plans
Note 6—Business Acquisitions, Goodwill and Intangible Assets
Note 7—Debt and Financing Arrangements
Note 8—Legal Proceedings and Contingencies
Note 9—Shareowners’ Equity
Note 10—Stock-Based Compensation
Note 11—Segment and Geographic Information
Note 12—Income Taxes
Note 13—Earnings Per Share
Note 14—Derivative Instruments and Risk Management
Note 15—Termination of TNT Transaction
Note 16—Quarterly Information
61
62
63
63
64
65
65
69
73
73
82
87
89
93
96
100
103
105
108
109
114
114
60
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareowners
United Parcel Service, Inc.
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of United Parcel Service, Inc. and subsidiaries (the
“Company”) as of December 31, 2014 and 2013, and the related statements of consolidated income, consolidated
comprehensive income, and consolidated cash flows for each of the three years in the period ended December 31, 2014. 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 the standards of the Public Company Accounting Oversight Board (United
States). 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, Inc. and subsidiaries at December 31, 2014 and 2013, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally
accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company’s internal control over financial reporting as of December 31, 2014, based on the criteria established in
Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 27, 2015 expressed an unqualified opinion on the Company’s internal control over
financial reporting.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
February 27, 2015
61
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions)
ASSETS
Current Assets:
Cash and cash equivalents
Marketable securities
Accounts receivable, net
Deferred income tax assets
Other current assets
Total Current Assets
Property, Plant and Equipment, Net
Goodwill
Intangible Assets, Net
Investments and Restricted Cash
Derivative Assets
Deferred Income Tax Assets
Other Non-Current Assets
Total Assets
LIABILITIES AND SHAREOWNERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt and commercial paper
Accounts payable
Accrued wages and withholdings
Self-insurance reserves
Other current liabilities
Total Current Liabilities
Long-Term Debt
Pension and Postretirement Benefit Obligations
Deferred Income Tax Liabilities
Self-Insurance Reserves
Other Non-Current Liabilities
Shareowners’ Equity:
Class A common stock (201 and 212 shares issued in 2014 and 2013)
Class B common stock (705 and 712 shares issued in 2014 and 2013)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Deferred compensation obligations
Less: Treasury stock (1 share in 2014 and 2013)
Total Equity for Controlling Interests
Noncontrolling Interests
Total Shareowners’ Equity
Total Liabilities and Shareowners’ Equity
See notes to consolidated financial statements.
62
December 31,
2014
2013
$
2,291
992
6,661
590
1,274
11,808
18,281
2,184
847
489
515
652
695
$ 35,471
$
923
2,754
2,373
656
1,933
8,639
9,864
11,452
83
1,916
1,359
$
4,665
580
6,502
684
956
13,387
17,961
2,190
775
444
323
110
1,022
$ 36,212
$
48
2,478
2,325
719
1,561
7,131
10,824
7,051
1,244
2,059
1,415
2
7
—
5,726
(3,594)
59
(59)
2,141
17
2,158
$ 35,471
2
7
—
6,925
(460)
69
(69)
6,474
14
6,488
$ 36,212
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(In millions, except per share amounts)
Revenue
Operating Expenses:
Compensation and benefits
Repairs and maintenance
Depreciation and amortization
Purchased transportation
Fuel
Other occupancy
Other expenses
Total Operating Expenses
Operating Profit
Other Income and (Expense):
Investment income
Interest expense
Total Other Income and (Expense)
Income Before Income Taxes
Income Tax Expense
Net Income
Basic Earnings Per Share
Diluted Earnings Per Share
Years Ended December 31,
2014
$ 58,232
2013
$ 55,438
2012
$ 54,127
32,045
1,371
1,923
8,460
3,883
1,044
4,538
53,264
4,968
28,557
1,240
1,867
7,486
4,027
950
4,277
48,404
7,034
33,102
1,228
1,858
7,354
4,090
902
4,250
52,784
1,343
22
(353)
(331)
4,637
1,605
3,032
3.31
3.28
$
$
$
20
(380)
(360)
6,674
2,302
4,372
4.65
4.61
$
$
$
$
$
$
24
(393)
(369)
974
167
807
0.84
0.83
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(In millions)
Net income
Change in foreign currency translation adjustment, net of tax
Change in unrealized gain (loss) on marketable securities, net of tax
Change in unrealized gain (loss) on cash flow hedges, net of tax
Change in unrecognized pension and postretirement benefit costs, net of tax
Comprehensive income (loss)
See notes to consolidated financial statements.
Years Ended December 31,
2014
2013
2012
$
$
3,032
(331)
1
280
(3,084)
$
(102) $
4,372
(260)
(7)
67
3,094
7,266
$
$
807
294
—
(82)
(463)
556
63
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In millions)
Cash Flows From Operating Activities:
Net income
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization
Pension and postretirement benefit expense
Pension and postretirement benefit contributions
Settlement of postretirement benefit obligation
Self-insurance reserves
Deferred tax expense
Stock compensation expense
Other (gains) losses
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable
Other current assets
Accounts payable
Accrued wages and withholdings
Other current liabilities
Other operating activities
Net cash from operating activities
Cash Flows From Investing Activities:
Capital expenditures
Proceeds from disposals of property, plant and equipment
Purchases of marketable securities
Sales and maturities of marketable securities
Net decrease in finance receivables
Cash paid for business acquisitions
Other investing activities
Net cash used in investing activities
Cash Flows From Financing Activities:
Net change in short-term debt
Proceeds from long-term borrowings
Repayments of long-term borrowings
Purchases of common stock
Issuances of common stock
Dividends
Other financing activities
Net cash used in financing activities
Effect Of Exchange Rate Changes On Cash And Cash Equivalents
Net Increase (Decrease) In Cash And Cash Equivalents
Cash And Cash Equivalents:
Beginning of period
End of period
Cash Paid During The Period For:
Interest (net of amount capitalized)
Income taxes
See notes to consolidated financial statements.
64
Years Ended December 31,
2014
2013
2012
$
3,032
$
4,372
$
807
1,923
3,040
(1,258)
(2,271)
(201)
385
536
218
(523)
112
276
106
317
34
5,726
(2,328)
53
(3,525)
3,106
44
(88)
(63)
(2,801)
—
1,525
(1,694)
(2,695)
274
(2,366)
(205)
(5,161)
(138)
(2,374)
1,867
1,115
(212)
—
34
(246)
513
35
(515)
(13)
218
416
(140)
(140)
7,304
(2,065)
104
(2,948)
2,957
39
(22)
(179)
(2,114)
—
100
(1,875)
(3,838)
491
(2,260)
(425)
(7,807)
(45)
(2,662)
1,858
5,753
(917)
—
156
(2,083)
547
1,082
(124)
10
(58)
98
206
(119)
7,216
(2,153)
95
(2,357)
2,985
101
(100)
94
(1,335)
—
1,745
(16)
(1,621)
301
(2,130)
(96)
(1,817)
229
4,293
4,665
2,291
366
1,524
7,327
4,665
409
2,712
3,034
7,327
381
1,988
$
$
$
$
$
$
$
$
$
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
Basis of Financial Statements and Business Activities
The accompanying consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States (“GAAP”), and include the accounts of United Parcel Service, Inc., and all of its
consolidated subsidiaries (collectively “UPS” or the “Company”). All intercompany balances and transactions have been
eliminated.
UPS concentrates its operations in the field of transportation services, primarily domestic and international letter and
package delivery. Through our Supply Chain & Freight subsidiaries, we are also a global provider of specialized transportation,
logistics, and financial services.
Use of Estimates
The preparation of our consolidated financial statements requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities, the reported amounts of revenues and expenses and the disclosure of contingencies.
Estimates have been prepared on the basis of the most current and best information, and actual results could differ materially
from those estimates.
Revenue Recognition
U.S. Domestic and International Package Operations—Revenue is recognized upon delivery of a letter or package.
Forwarding and Logistics—Freight forwarding revenue and the expense related to the transportation of freight are
recognized at the time the services are completed. Material management and distribution revenue is recognized upon
performance of the service provided. Customs brokerage revenue is recognized upon completing documents necessary for
customs entry purposes.
Freight—Revenue is recognized upon delivery of a less-than-truckload (“LTL”) or truckload (“TL”) shipment.
We utilize independent contractors and third-party carriers in the performance of some transportation services. In
situations where we act as principal party to the transaction, we recognize revenue on a gross basis; in circumstances where we
act as an agent, we recognize revenue net of the cost of the purchased transportation.
Financial Services—Income on loans and direct finance leases is recognized on the effective interest method. Accrual of
interest income is suspended at the earlier of the time at which collection of an account becomes doubtful or the account
becomes 90 days delinquent. Income on operating leases is recognized on the straight-line method over the terms of the
underlying leases.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments that are readily convertible into cash. We consider
securities with maturities of three months or less, when purchased, to be cash equivalents. The carrying amount of these
securities approximates fair value because of the short-term maturity of these instruments.
Investments
Marketable securities are either classified as trading or available-for-sale securities and are carried at fair value.
Unrealized gains and losses on trading securities are reported as investment income on the statements of consolidated income.
Unrealized gains and losses on available-for-sale securities are reported as accumulated other comprehensive income
(“AOCI”), a separate component of shareowners’ equity. The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization and accretion is included in investment income, along with
interest and dividends. The cost of securities sold is based on the specific identification method; realized gains and losses
resulting from such sales are included in investment income.
We periodically review our available-for-sale investments for indications of other-than-temporary impairment considering
many factors, including the extent and duration to which a security’s fair value has been less than its cost, overall economic and
market conditions and the financial condition and specific prospects for the issuer. Impairment of available-for-sale securities
results in a charge to income when a market decline below cost is other-than-temporary.
65
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounts Receivable
Losses on accounts receivable are recognized when they are incurred, which requires us to make our best estimate of the
probable losses inherent in our customer receivables at each balance sheet date. These estimates require consideration of
historical loss experience, adjusted for current conditions, trends in customer payment frequency, and judgments about the
probable effects of relevant observable data, including present economic conditions and the financial health of specific
customers and market sectors. Our risk management process includes standards and policies for reviewing major account
exposures and concentrations of risk.
Our total allowance for doubtful accounts as of December 31, 2014 and 2013 was $121 and $122 million, respectively.
Our total provision for doubtful accounts charged to expense during the years ended December 31, 2014, 2013 and 2012 was
$143, $129 and $155 million, respectively.
Inventories
Jet fuel, diesel, and unleaded gasoline inventories are valued at the lower of average cost or market. Fuel and other
materials and supplies inventories are recognized as inventory when purchased, and then charged to expense when used in our
operations. Total inventories were $344 and $403 million as of December 31, 2014 and 2013, respectively, and are included in
“other current assets” on the consolidated balance sheets.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation and amortization are provided by the straight-line method
over the estimated useful lives of the assets, which are as follows: Vehicles—3 to 15 years; Aircraft—12 to 30 years; Buildings
—20 to 40 years; Leasehold Improvements—lesser of asset useful life or lease term; Plant Equipment—3 to 20 years;
Technology Equipment—3 to 5 years. The costs of major airframe and engine overhauls, as well as routine maintenance and
repairs, are charged to expense as incurred.
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 $11, $14 and $18 million for 2014, 2013, and 2012, respectively.
We review long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be
recoverable based on the undiscounted future cash flows of the asset. If the carrying amount of the asset is determined not to be
recoverable, a write-down to fair value is recorded. Fair values are determined based on quoted market values, discounted cash
flows, or external appraisals, as applicable. We review long-lived assets for impairment at the individual asset or the asset group
level for which the lowest level of independent cash flows can be identified.
Goodwill and Intangible Assets
Costs of purchased businesses in excess of net identifiable assets acquired (goodwill), and indefinite-lived intangible
assets are tested for impairment at least annually, unless changes in circumstances indicate an impairment may have occurred
sooner. We are required to test goodwill on a “reporting unit” basis. A reporting unit is the operating segment unless, for
businesses within that operating segment, discrete financial information is prepared and regularly reviewed by management, in
which case such a component business is the reporting unit.
In assessing goodwill for impairment, we initially evaluate qualitative factors to determine if it is more likely than not that
the fair value of a reporting unit is less than its carrying amount. We consider several factors, including macroeconomic
conditions, industry and market conditions, overall financial performance of the reporting unit, changes in management,
strategy or customers, and relevant reporting unit-specific events such as a change in the carrying amount of net assets, a more
likely than not expectation of selling or disposing all, or a portion, of a reporting unit, and the testing for recoverability of a
significant asset group within a reporting unit. If this qualitative assessment results in a conclusion that it is more likely than not
that the fair value of a reporting unit exceeds the carrying value, then no further testing is performed for that reporting unit.
66
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
If the qualitative assessment is not conclusive and it is necessary to calculate the fair value of a reporting unit, then we
utilize a two-step process to test goodwill for impairment. First, a comparison of the fair value of the applicable reporting unit
with the aggregate carrying value, including goodwill, is performed. If the carrying amount of a reporting unit exceeds its
calculated fair value, then the second step is performed, and an impairment charge is recognized for the amount, if any, by
which the carrying amount of goodwill exceeds its implied fair value. We primarily determine the fair value of our reporting
units using a discounted cash flow model, and supplement this with observable valuation multiples for comparable companies,
as applicable.
Finite-lived intangible assets, including trademarks, licenses, patents, customer lists, non-compete agreements and
franchise rights are amortized on a straight-line basis over the estimated useful lives of the assets, which range from 1 to 22
years. Capitalized software is amortized over 5 years.
Self-Insurance Accruals
We self-insure costs associated with workers’ compensation claims, automotive liability, health and welfare, and general
business liabilities, up to certain limits. Insurance reserves are established for estimates of the loss that we will ultimately incur
on reported claims, as well as estimates of claims that have been incurred but not yet reported. Recorded balances are based on
reserve levels, which incorporate historical loss experience and judgments about the present and expected levels of cost per
claim.
Pension and Postretirement Benefits
We incur certain employment-related expenses associated with pension and postretirement medical benefits. These
pension and postretirement medical benefit costs for company-sponsored benefit plans are calculated using various actuarial
assumptions and methodologies, including discount rates, expected returns on plan assets, healthcare cost trend rates, inflation,
compensation increase rates, mortality rates, and other factors. Actuarial assumptions are reviewed on an annual basis, unless
circumstances require an interim remeasurement date for any of our plans.
We recognize changes in the fair value of plan assets and net actuarial gains or losses in excess of a corridor (defined as
10% of the greater of the fair value of plan assets or the plans' projected benefit obligations) in pension expense annually at
December 31st each year. The remaining components of pension expense, primarily service and interest costs and the expected
return on plan assets, are recorded on a quarterly basis.
We participate in a number of trustee-managed multiemployer pension and health and welfare plans for employees
covered under collective bargaining agreements. Our contributions to these plans are determined in accordance with the
respective collective bargaining agreements. We recognize expense for the contractually required contribution for each period,
and we recognize a liability for any contributions due and unpaid (included in “other current liabilities”).
Income Taxes
Income taxes are accounted for on 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 our consolidated financial statements
or tax returns. In estimating future tax consequences, we generally consider all expected future events other than proposed
changes in the tax law or rates. Valuation allowances are provided if it is more likely than not that a deferred tax asset will not
be realized.
We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax
position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the
position will be sustained on audit, including resolution of related appeals or litigation processes, if any. Once it is determined
that the position meets the recognition threshold, the second step requires us to estimate and measure the tax benefit as the
largest amount that is more likely than not to be realized upon ultimate settlement. It is inherently difficult and subjective to
estimate such amounts, as we have to determine the probability of various possible outcomes. We reevaluate these uncertain tax
positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or
circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or
measurement could result in the recognition of a tax benefit or an additional charge to the tax provision.
67
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign Currency Translation
We translate the results of operations of our foreign subsidiaries using average exchange rates during each period,
whereas balance sheet accounts are translated using exchange rates at the end of each period. Balance sheet currency translation
adjustments are recorded in AOCI. Pre-tax currency transaction gains, net of hedging, included in other operating expenses and
investment income were $14, $76 and $10 million in 2014, 2013 and 2012, respectively.
Stock-Based Compensation
All share-based awards to employees are measured based on their fair values and expensed over the period during which
an employee is required to provide service in exchange for the award (the vesting period). We issue employee share-based
awards under the UPS Incentive Compensation Plan that are subject to specific vesting conditions; generally, the awards cliff
vest or vest ratably over a three or five year period (the "nominal vesting period”) or at the date the employee retires (as defined
by the plan), if earlier. Compensation cost is recognized immediately for awards granted to retirement-eligible employees, or
over the period from the grant date to the date retirement eligibility is achieved, if that is expected to occur during the nominal
vesting period.
Fair Value Measurements
Our financial assets and liabilities measured at fair value on a recurring basis have been categorized based upon a fair
value hierarchy. Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities. Level 2 inputs are based
on other observable market data, such as quoted prices for similar assets and liabilities, and inputs other than quoted prices that
are observable, such as interest rates and yield curves. Level 3 inputs are developed from unobservable data reflecting our own
assumptions, and include situations where there is little or no market activity for the asset or liability.
Certain non-financial assets and liabilities are measured at fair value on a nonrecurring basis, including property, plant,
and equipment, goodwill and intangible assets. These assets are not measured at fair value on a recurring basis; however, they
are subject to fair value adjustments in certain circumstances, such as when there is evidence of an impairment. A general
description of the valuation methodologies used for assets and liabilities measured at fair value, including the general
classification of such assets and liabilities pursuant to the valuation hierarchy, is included in each footnote with fair value
measurements present.
Derivative Instruments
All financial derivative instruments are recorded on our consolidated balance sheets at fair value. Derivatives not
designated as hedges must be adjusted to fair value through income. If a derivative is designated as a hedge, changes in its fair
value that are considered to be effective, as defined, either (depending on the nature of the hedge) offset the change in fair value
of the hedged assets, liabilities or firm commitments through income, or are recorded in AOCI until the hedged item is recorded
in income. Any portion of a change in a hedge’s fair value that is considered to be ineffective, or is excluded from the
measurement of effectiveness, is recorded immediately in income.
Adoption of New Accounting Standards
In January 2014, the FASB issued an accounting standards update that adds new disclosure requirements for investments
in qualified affordable housing projects through limited liability entities. If certain conditions are met, the cost of an entity's
investment in proportion to the tax credits and other tax benefits it receives may be amortized and included as a component of
income tax expense. In January 2008, we adopted the fair value option for our investments in certain investment partnerships
that were previously accounted for under the equity method; therefore, this accounting standards update did not have any effect
on our consolidated financial position or results of operations.
Other accounting pronouncements adopted during the periods covered by the consolidated financial statements did not
have a material impact on our consolidated financial position or results of operations.
68
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Standards Issued But Not Yet Effective
In April 2014, the FASB issued an accounting standards update that changes the requirements for reporting discontinued
operations. This update will have the impact of reducing the frequency of disposals reported as discontinued operations, by
requiring such a disposal to represent a strategic shift that has a major effect on an entity's operations and financial results. This
update also expands the disclosures for discontinued operations, and requires new disclosures related to individually significant
disposals that do not qualify as discontinued operations. This new guidance becomes effective for us prospectively in the first
quarter of 2015. This amended guidance will only have a potential impact to the extent that we discontinue any operations in
future periods.
In May 2014, the FASB issued an accounting standards update that changes the revenue recognition for companies that
enter into contracts with customers to transfer goods or services. This amended guidance requires revenue to be recognized in
an amount that reflects the consideration to which the company expects to be entitled for those goods and services when the
performance obligation has been satisfied. This amended guidance also requires enhanced disclosures regarding the nature,
amount, timing and uncertainty of revenue and related cash flows arising from contracts with customers. This amended
guidance is effective for us beginning in the first quarter of 2017 and early adoption is not permitted. At this time, we do not
expect this new guidance to have a material impact on our consolidated financial position or results of operations.
In June 2014, the FASB issued an accounting standards update for companies that grant their employees share-based
payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the
requisite service period. This new guidance becomes effective for us beginning in the first quarter of 2015, but early adoption is
permitted. This new guidance is not expected to have a material impact on our consolidated financial position or results of
operations.
Other accounting pronouncements issued, but not effective until after December 31, 2014, are not expected to have a
material impact on our consolidated financial position or results of operations.
Changes in Presentation
Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had
no impact on our financial position or results of operations.
NOTE 2. CASH AND INVESTMENTS
The following is a summary of marketable securities classified as trading and available-for-sale at December 31, 2014
and 2013 (in millions):
2014
Current marketable securities:
U.S. government and agency debt securities
Mortgage and asset-backed debt securities
Corporate debt securities
U.S. state and local municipal debt securities
Other debt and equity securities
Total marketable securities
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
$
$
321
89
534
2
46
992
$
$
1
1
—
—
—
2
$
$
(1) $
(1)
—
—
—
(2) $
321
89
534
2
46
992
69
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2013
Current marketable securities:
U.S. government and agency debt securities
Mortgage and asset-backed debt securities
Corporate debt securities
U.S. state and local municipal debt securities
Other debt and equity securities
Total marketable securities
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
$
$
355
76
146
2
3
582
$
$
— $
1
1
—
—
2
$
(1) $
(2)
(1)
—
—
(4) $
354
75
146
2
3
580
Of the total estimated fair value in marketable securities listed above, $430 million as of December 31, 2014 was
classified as "trading", with unrealized gains and losses recognized in investment income within the statements of consolidated
income (no amounts were classified as "trading" as of December 31, 2013). The remaining estimated fair value of marketable
securities was classified as "available-for-sale", with related unrealized gains and losses, net of tax, recognized in AOCI.
The gross realized gains on sales of marketable securities totaled $1, $11 and $15 million in 2014, 2013, and 2012,
respectively. The gross realized losses totaled $0, $6 and $6 million in 2014, 2013, and 2012, respectively. There were no
impairment losses recognized on marketable securities during 2014, 2013 or 2012.
Investment Other-Than-Temporary Impairments
We have concluded that no other-than-temporary impairment losses existed as of December 31, 2014. In making this
determination, we considered the financial condition and prospects of the issuer, the magnitude of the losses compared with the
investments’ cost, the probability that we will be unable to collect all amounts due according to the contractual terms of the
security, the credit rating of the security and our ability and intent to hold these investments until the anticipated recovery in
market value occurs.
Unrealized Losses
The following table presents the age of gross unrealized losses and fair value by investment category for all securities in a
loss position as of December 31, 2014 (in millions):
Less Than 12 Months
12 Months or More
Total
U.S. government and agency debt securities
Mortgage and asset-backed debt securities
Corporate debt securities
U.S. state and local municipal debt securities
Other debt and equity securities
Total marketable securities
$
Fair Value
147
$
—
—
—
—
$
147
$
Unrealized
Losses
Fair Value
Unrealized
Losses
Unrealized
Losses
$
Fair Value
147
21
(1) $
—
—
—
—
(1) $
— $
21
—
—
—
21
$
— $
(1)
—
—
—
(1) $
—
—
—
168
$
(1)
(1)
—
—
—
(2)
The unrealized losses for the U.S. government and agency debt securities and mortgage and asset-backed debt securities
are primarily due to changes in market interest rates. We have both the intent and ability to hold the securities contained in the
previous table for a time necessary to recover the cost basis.
70
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maturity Information
The amortized cost and estimated fair value of marketable securities at December 31, 2014, by contractual maturity, are
shown below (in millions). Actual maturities may differ from contractual maturities because the issuers of the securities may
have the right to prepay obligations without prepayment penalties.
Due in one year or less
Due after one year through three years
Due after three years through five years
Due after five years
Equity securities
Cost
Estimated
Fair Value
$
$
459
439
15
77
990
2
992
$
$
459
439
15
77
990
2
992
Non-Current Investments and Restricted Cash
Restricted cash is primarily associated with our self-insurance requirements. We entered into an escrow agreement with
an insurance carrier to guarantee our self-insurance obligations. This agreement requires us to provide cash collateral to the
insurance carrier, which is invested in money market funds and similar cash equivalent type assets. Additional cash collateral
provided is reflected in "other investing activities" in the statements of consolidated cash flows. As of December 31, 2014 and
2013, we had $442 and $425 million in self-insurance restricted cash, respectively.
We held a $19 million investment in a variable life insurance policy to fund benefits for the UPS Excess Coordinating
Benefit Plan at both December 31, 2014 and 2013. The quarterly change in investment fair value is recognized in "investment
income" on the statements of consolidated income. Additionally, we held escrowed cash related to the acquisition and
disposition of certain assets, primarily real estate, of $28 million as of December 31, 2014 (none as of December 31, 2013).
The amounts described above are classified as “investments and restricted cash” in the consolidated balance sheets.
Fair Value Measurements
Marketable securities utilizing Level 1 inputs include active exchange-traded equity securities and equity index funds,
and most U.S. Government debt securities, as these securities all have quoted prices in active markets. Marketable securities
utilizing Level 2 inputs include asset-backed securities, corporate bonds and municipal bonds. These securities are valued using
market corroborated pricing, matrix pricing or other models that utilize observable inputs such as yield curves.
We maintain holdings in certain investment partnerships that are measured at fair value utilizing Level 3 inputs (classified
as “other investments” in the tables below, and as “other non-current assets” in the consolidated balance sheets). These
partnership holdings do not have quoted prices, nor can they be valued using inputs based on observable market data. These
investments are valued internally using a discounted cash flow model with two significant inputs: (1) the after-tax cash flow
projections for each partnership, and (2) a risk-adjusted discount rate consistent with the duration of the expected cash flows for
each partnership. The weighted-average discount rates used to value these investments were 7.81% and 8.65% as of
December 31, 2014 and 2013, respectively. These inputs and the resulting fair values are updated on a quarterly basis.
The following table presents information about our investments measured at fair value on a recurring basis as of
December 31, 2014 and 2013, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair
value (in millions):
71
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
2014
Marketable securities:
U.S. government and agency debt securities
Mortgage and asset-backed debt securities
Corporate debt securities
U.S. state and local municipal debt securities
Other debt and equity securities
Total marketable securities
Other investments
Total
$
$
321
—
—
—
—
321
19
340
$
$
— $
89
534
2
46
671
—
671
$
— $
—
—
—
—
—
64
64
$
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
2013
Marketable securities:
U.S. government and agency debt securities
Mortgage and asset-backed debt securities
Corporate debt securities
U.S. state and local municipal debt securities
Other debt and equity securities
Total marketable securities
Other investments
Total
$
$
353
—
—
—
—
353
19
372
$
$
1
75
146
2
3
227
—
227
$
$
— $
—
—
—
—
—
110
110
$
321
89
534
2
46
992
83
1,075
354
75
146
2
3
580
129
709
The following table presents the changes in the above Level 3 instruments measured on a recurring basis for the years
ended December 31, 2014 and 2013 (in millions).
Balance on January 1, 2013
Transfers into (out of) Level 3
Net realized and unrealized gains (losses):
Included in earnings (in investment income)
Included in accumulated other comprehensive income (pre-tax)
Purchases
Settlements
Balance on December 31, 2013
Transfers into (out of) Level 3
Net realized and unrealized gains (losses):
Included in earnings (in investment income)
Included in accumulated other comprehensive income (pre-tax)
Purchases
Settlements
Balance on December 31, 2014
72
Marketable
Securities
Other
Investments
Total
— $
—
—
—
—
—
— $
—
—
—
—
—
— $
$
163
—
(53)
—
—
—
110
—
(46)
—
—
—
64
$
$
163
—
(53)
—
—
—
110
—
(46)
—
—
—
64
$
$
$
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including both owned assets as well as assets subject to capital leases, consists of the
following as of December 31 (in millions):
Vehicles
Aircraft
Land
Buildings
Building and leasehold improvements
Plant equipment
Technology equipment
Equipment under operating leases
Construction-in-progress
Less: Accumulated depreciation and amortization
2014
2013
7,542
15,801
1,145
3,276
3,266
7,649
1,608
34
299
40,620
(22,339)
18,281
$
$
6,762
15,772
1,163
3,260
3,116
7,221
1,569
44
244
39,151
(21,190)
17,961
$
$
We continually monitor our aircraft fleet utilization in light of current and projected volume levels, aircraft fuel prices and
other factors. Additionally, we monitor our other property, plant and equipment categories for any indicators that the carrying
value of the assets may not be recoverable. No impairment charges on property, plant and equipment were recorded in 2014,
2013 or 2012.
NOTE 4. COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS
We sponsor various retirement and pension plans, including defined benefit and defined contribution plans which cover
our employees worldwide.
U.S. Pension Benefits
In the U.S. we maintain the following single-employer defined benefit pension plans: The UPS Retirement Plan, the UPS
Pension Plan, the UPS IBT Pension Plan and the UPS Excess Coordinating Benefit Plan, a non-qualified plan.
The UPS Retirement Plan is noncontributory and includes substantially all eligible employees of participating domestic
subsidiaries who are not members of a collective bargaining unit, as well as certain employees covered by a collective
bargaining agreement. This plan generally provides for retirement benefits based on average compensation levels earned by
employees prior to retirement. Benefits payable under this plan are subject to maximum compensation limits and the annual
benefit limits for a tax-qualified defined benefit plan as prescribed by the Internal Revenue Service (“IRS”).
The UPS Excess Coordinating Benefit Plan is a non-qualified plan that provides benefits to certain participants in the
UPS Retirement Plan for amounts that exceed the benefit limits described above.
The UPS Pension Plan is noncontributory and includes certain eligible employees of participating domestic subsidiaries
and members of collective bargaining units that elect to participate in the plan. This plan generally provides for retirement
benefits based on service credits earned by employees prior to retirement.
The UPS IBT Pension Plan is noncontributory and includes employees that were previously members of the Central
States, Southeast and Southwest Areas Pension Fund (“Central States Pension Fund”), a multiemployer pension plan, in
addition to other eligible employees who are covered under certain collective bargaining agreements. This plan generally
provides for retirement benefits based on service credits earned by employees prior to retirement.
International Pension Benefits
We also sponsor various defined benefit plans covering certain of our international employees. The majority of our
international obligations are for defined benefit plans in Canada and the United Kingdom. In addition, many of our international
employees are covered by government-sponsored retirement and pension plans. We are not directly responsible for providing
benefits to participants of government-sponsored plans.
73
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. Postretirement Medical Benefits
We also sponsor postretirement medical plans in the U.S. that provide healthcare benefits to our retirees who meet certain
eligibility requirements and who are not otherwise covered by multiemployer plans. Generally, this includes employees with at
least 10 years of service who have reached age 55 and employees who are eligible for postretirement medical benefits from a
Company-sponsored plan pursuant to collective bargaining agreements. We have the right to modify or terminate certain of
these plans. These benefits have been provided to certain retirees on a noncontributory basis; however, in many cases, retirees
are required to contribute all or a portion of the total cost of the coverage.
Defined Contribution Plans
We also sponsor several defined contribution plans for all employees not covered under collective bargaining agreements,
and for certain employees covered under collective bargaining agreements. The Company matches, in shares of UPS common
stock or cash, a portion of the participating employees’ contributions. Matching contributions charged to expense were $95,
$90 and $83 million for 2014, 2013 and 2012, respectively.
Contributions are also made to defined contribution money purchase plans under certain collective bargaining
agreements. Amounts charged to expense were $82, $80 and $80 million for 2014, 2013 and 2012, respectively.
Net Periodic Benefit Cost
Information about net periodic benefit cost for the company-sponsored pension and postretirement benefit plans is as
follows (in millions):
Net Periodic Cost:
Service cost
Interest cost
Expected return on assets
Amortization of:
Transition obligation
Prior service cost
Actuarial (gain) loss
Curtailment and settlement loss
Other
Net periodic benefit cost
U.S. Pension Benefits
U.S. Postretirement
Medical Benefits
International
Pension Benefits
2014
2013
2012
2014
2013
2012
2014
2013
2012
$ 1,137
1,604
(2,257)
$ 1,349
1,449
(2,147)
$
998
1,410
(1,970)
$
$
62
152
(25)
$ 103
185
(33)
89
208
(18)
$
$
43
49
(61)
47
44
(55)
$
—
169
991
—
—
$ 1,644
—
172
—
173
— 4,388
—
—
—
—
$ 4,999
$ 823
—
—
767
356
—
$ 1,312
—
4
—
—
—
$ 259
—
5
374
—
—
$ 658
$
—
1
48
—
4
84
$
—
2
—
—
(5)
33
$
41
41
(47)
—
2
69
—
(10)
96
The curtailment and settlement loss in 2014 for the U.S. postretirement medical benefit plans is discussed further in note 5
under the section entitled "Accounting Impact of Health and Welfare Plan Changes".
Actuarial Assumptions
The table below provides the weighted-average actuarial assumptions used to determine the net periodic benefit cost.
U.S. Pension Benefits
U.S. Postretirement
Medical Benefits
International
Pension Benefits
Discount rate
Rate of compensation increase
Expected return on assets
2014
5.32%
4.29%
8.75%
2013
4.42%
4.16%
8.75%
2012
5.64%
4.50%
8.75%
2014
4.89%
N/A
8.75%
2013
4.21%
N/A
8.75%
2012
5.47%
N/A
8.75%
2014
4.35%
3.22%
6.29%
2013
4.00%
3.03%
6.90%
2012
4.63%
3.58%
7.20%
74
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below provides the weighted-average actuarial assumptions used to determine the benefit obligations of our
plans.
Discount rate
Rate of compensation increase
U.S. Pension Benefits
U.S. Postretirement
Medical Benefits
International
Pension Benefits
2014
2013
2014
2013
2014
2013
4.40%
4.29%
5.32%
4.29%
4.18%
N/A
5.14%
N/A
3.56%
3.08%
4.40%
3.30%
A discount rate is used to determine the present value of our future benefit obligations. To determine our discount rate for
our U.S. pension and postretirement benefit plans, we use a bond matching approach to select specific bonds that would satisfy
our projected benefit payments. We believe the bond matching approach reflects the process we would employ to settle our
pension and postretirement benefit obligations. For our international plans, the discount rate is determined by matching the
expected cash flows of a sample plan of similar duration to a yield curve based on long-term, high quality fixed income debt
instruments available as of the measurement date. These assumptions are updated each measurement date, which is typically
annually.
As of December 31, 2014, the impact of each basis point change in the discount rate on the projected benefit obligation of
the pension and postretirement medical benefit plans are as follows (in millions):
One basis point increase in discount rate
One basis point decrease in discount rate
Increase (Decrease) in the Projected Benefit Obligation
Pension Benefits
Postretirement Medical Benefits
(3)
3
(65) $
$
69
$
$
The Society of Actuaries' ("SOA") published mortality tables and improvement scales are used in developing the best
estimate of mortality for plans in the U.S. On October 27, 2014, the SOA published updated mortality tables and an updated
improvement scale, both of which reflect longer anticipated lifetimes. Based on an evaluation of these new tables and our
perspective of future longevity, we updated the mortality assumptions for purposes of measuring pension and other
postretirement benefit obligations at December 31, 2014. The change to the mortality assumption increased the year-end
pension and other postretirement benefit obligations by $1.119 billion and $51 million, respectively. At December 31, 2014, we
also revised the retirement assumptions for non-union plan participants based on recent retirement experience. The change to
the retirement assumption decreased the year-end pension and other postretirement benefit obligations by $383 and $234
million, respectively.
An assumption for the expected return on plan assets is used to determine a component of net periodic benefit cost for the
fiscal year. This assumption for our U.S. plans was developed using a long-term projection of returns for each asset class, and
taking into consideration our target asset allocation. The expected return for each asset class is a function of passive, long-term
capital market assumptions and excess returns generated from active management. The capital market assumptions used are
provided by independent investment advisors, while excess return assumptions are supported by historical performance, fund
mandates and investment expectations. In addition, we compare the expected return on asset assumption with the average
historical rate of return these plans have been able to generate.
For plans outside the U.S., consideration is given to local market expectations of long-term returns. Strategic asset
allocations are determined by plan, based on the nature of liabilities and considering the demographic composition of the plan
participants.
Healthcare cost trends are used to project future postretirement benefits payable from our plans. For year-end 2014 U.S.
plan obligations, future postretirement medical benefit costs were forecasted assuming an initial annual increase of 7.0%,
decreasing to 4.5% by the year 2020 and with consistent annual increases at those ultimate levels thereafter.
75
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assumed healthcare cost trends can have a significant effect on the amounts reported for our postretirement medical
plans. A one-percent change in assumed health care cost trend rates would have had the following effects on 2014 results (in
millions):
Effect on total of service cost and interest cost
Effect on postretirement benefit obligation
Funded Status
1% Increase
$
$
4
89
1% Decrease
$
$
(4)
(98)
The following table discloses the funded status of our plans and the amounts recognized in our consolidated balance
sheets as of December 31 (in millions):
U.S. Pension Benefits
U.S. Postretirement
Medical Benefits
International
Pension Benefits
2014
2013
2014
2013
2014
2013
Funded Status:
Fair value of plan assets
Benefit obligation
Funded status recognized at December 31
Funded Status Recognized in our Balance Sheet:
Other non-current assets
Other current liabilities
Pension and postretirement benefit obligations
Net liability at December 31
Amounts Recognized in AOCI:
Unrecognized net prior service cost
Unrecognized net actuarial gain (loss)
Gross unrecognized cost at December 31
Deferred tax asset at December 31
Net unrecognized cost at December 31
$ 28,828
(37,521)
931
(1,076)
$ (8,693) $ (3,284) $ (2,624) $ (3,691) $ (232) $ (145)
$ 26,224
(29,508)
$ 1,042
(1,274)
259
(2,883)
355
(4,046)
$
$
$
$
— $
— $
(17)
(8,676)
47
(3)
(189)
$ (8,693) $ (3,284) $ (2,624) $ (3,691) $ (232) $ (145)
— $
(97)
(3,594)
— $
(16)
(3,268)
25
(3)
(254)
(102)
(2,522)
$
$ (1,122) $ (1,286) $
(3,752)
(4,874)
1,833
$ (3,041) $
1,233
(53)
20
(33) $
(32) $
(89)
(121)
45
(76) $
(79) $
(29)
(108)
41
(67) $
(7) $
(103)
(110)
29
(81) $
(9)
(7)
(16)
2
(14)
The accumulated benefit obligation for our pension plans as of the measurement dates in 2014 and 2013 was $35.867 and
$28.586 billion, respectively.
Benefit payments under the pension plans include $19 and $16 million paid from employer assets in 2014 and 2013,
respectively. Benefit payments (net of participant contributions) under the postretirement medical benefit plans include $122
and $108 million paid from employer assets in 2014 and 2013, respectively. Such benefit payments from employer assets are
also categorized as employer contributions.
At December 31, 2014 and 2013, the projected benefit obligation, the accumulated benefit obligation, and the fair value
of plan assets for pension plans with benefit obligations in excess of plan assets were as follows (in millions):
U.S. Pension Benefits:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
International Pension Benefits:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Projected Benefit Obligation
Exceeds the Fair Value of Plan Assets
Accumulated Benefit Obligation
Exceeds the Fair Value of Plan Assets
2014
2013
2014
2013
$
$
37,521
34,725
28,828
510
426
261
$
$
76
$
$
29,508
27,623
26,224
764
658
580
$
$
37,521
34,725
28,828
474
398
232
29,508
27,623
26,224
361
301
184
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accumulated postretirement benefit obligation exceeds plan assets for all of our U.S. postretirement medical benefit
plans.
Benefit Obligations and Fair Value of Plan Assets
The following table provides a reconciliation of the changes in the plans’ benefit obligations and fair value of plan assets
as of the respective measurement dates in each year (in millions).
Benefit Obligations:
Projected benefit obligation at beginning of year
Service cost
Interest cost
Gross benefits paid
Plan participants’ contributions
Plan amendments
Actuarial (gain)/loss
Foreign currency exchange rate changes
Curtailments and settlements
Other
Projected benefit obligation at end of year
Fair Value of Plan Assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Plan participants’ contributions
Gross benefits paid
Foreign currency exchange rate changes
Curtailments and settlements
Other
Fair value of plan assets at end of year
U.S. Pension Benefits
U.S. Postretirement
Medical Benefits
International
Pension
Benefits
2014
2013
2014
2013
2014
2013
$ 29,508
1,137
1,604
(924)
—
5
6,191
—
—
—
$ 37,521
$ 31,868
1,349
1,449
(813)
—
140
(4,485)
—
—
—
$ 29,508
U.S. Pension Benefits
2014
2013
$ 26,224
2,471
1,057
—
(924)
—
—
—
$ 28,828
$ 24,941
2,082
14
—
(813)
—
—
—
$ 26,224
$
$
$
$
4,046
62
152
(255)
15
65
1,069
—
(2,271)
—
2,883
$
$
4,412
103
185
(258)
17
4
(417)
—
—
—
4,046
U.S. Postretirement
Medical Benefits
2014
2013
355
22
122
15
(255)
—
—
—
259
$
$
460
28
108
17
(258)
—
—
—
355
$
$
$
$
1,076
43
49
(26)
5
—
194
(103)
(2)
38
1,274
$
$
1,089
47
44
(21)
4
—
(55)
(26)
(6)
—
1,076
International
Pension
Benefits
2014
2013
931
106
79
3
(26)
(79)
(2)
30
1,042
$
$
801
81
90
1
(21)
(20)
(1)
—
931
The curtailments and settlements amount in 2014 for the U.S. postretirement medical benefit plans is discussed further in
note 5 under the section entitled "Accounting Impact of Health and Welfare Plan Changes".
Pension and Postretirement Plan Assets
The applicable benefit plan committees establish investment guidelines and strategies, and regularly monitor the
performance of the funds and portfolio managers. Our investment guidelines address the following items: governance, general
investment beliefs and principles, investment objectives, specific investment goals, process for determining/maintaining the
asset allocation policy, long-term asset allocation, rebalancing, investment restrictions/prohibited transactions, portfolio
manager structure and diversification (which addresses limits on the amount of investments held by any one manager to
minimize risk), portfolio manager selection criteria, plan evaluation, portfolio manager performance review and evaluation, and
risk management (including various measures used to evaluate risk tolerance).
77
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We invest pension assets in accordance with applicable laws and regulations. The long-term primary investment
objectives for our pension assets are to: (1) provide for a reasonable amount of long-term growth of capital, with prudent
exposure to risk; and protect the assets from erosion of purchasing power; (2) provide investment results that meet or exceed
the plans’ expected long-term rate of return; and (3) match the duration of the liabilities and assets of the plans to reduce the
potential risk of large employer contributions being necessary in the future. The plans strive to meet these objectives by
employing portfolio managers to actively manage assets within the guidelines and strategies set forth by the benefit plan
committees. These managers are evaluated by comparing their performance to applicable benchmarks.
Fair Value Measurements
Pension assets utilizing Level 1 inputs include equity investments, corporate debt instruments, and U.S. government
securities. Fair values were determined by closing prices for those securities traded on national stock exchanges, while
securities traded in the over-the-counter market and listed securities for which no sale was reported on the valuation date are
valued at the mean between the last reported bid and asked prices.
Level 2 assets include certain bonds that are valued based on yields currently available on comparable securities of other
issues with similar credit ratings, mortgage-backed securities that are valued based on cash flow and yield models using
acceptable modeling and pricing conventions, and certain investments that are pooled with other investments held by the trustee
in a commingled employee benefit trust fund. The investments in the commingled funds are valued by taking the percentage
owned by the respective plan in the underlying net asset value of the trust fund, which was determined in accordance with the
paragraph above.
Certain investments’ estimated fair value is based on unobservable inputs that are not corroborated by observable market
data and are thus classified as Level 3. These investments include commingled funds comprised of corporate and government
bonds, hedge funds, real estate investments and private equity funds. The fair values may, due to the inherent uncertainty of
valuation for those alternative investments, differ significantly from the values that would have been used had a ready market
for the alternative investments existed, and the differences could be material. These investments are described further below:
• Hedge Funds: We maintain plan assets invested in hedge funds that pursue multiple strategies to diversify risk and
reduce volatility. Investments in hedge funds are valued using reported net asset values as of December 31. These
assets are primarily invested in a portfolio of diversified, direct investments and funds of hedge funds. Most of these
funds allow redemptions either quarterly or semi-annually after a two to three month notice period, while other funds
allow for redemption after only a brief notification period with no restriction on redemption frequency. At
December 31, 2014, unfunded commitments to these hedge funds totaling approximately $90 million are expected to
be contributed over the remaining investment period, typically ranging between three and six years.
• Risk Parity Funds: We maintain plan assets invested in risk parity strategies in order to provide diversification and
balance risk / return objectives. Investments in risk parity funds are valued using reported net asset values as of
December 31. These strategies reflect a multi-asset class balanced risk approach generally consisting of equity, interest
rates, credit, and commodities. These funds allow for monthly redemptions with only a brief notification period. No
unfunded commitments existed with respect to these hedge funds as of December 31, 2014.
• Real Estate and Private Equity Funds: We maintain plan assets invested in limited partnership interests in various
private equity and real estate funds. These private equity and real estate investment funds are valued using fair values
per the most recent partnership audited financial reports, adjusted as appropriate for any lag between the date of the
financial reports and December 31. The real estate investments consist of U.S. and non-U.S. real estate investments
and are broadly diversified. Limited provision exists for the redemption of these interests by the general partners that
invest in these funds until the end of the term of the partnerships, typically ranging between 10 and 15 years from the
date of inception. An active secondary market exists for similar partnership interests, although no particular value
(discount or premium) can be guaranteed. At December 31, 2014, unfunded commitments to such limited partnerships
totaling approximately $1.01 billion are expected to be contributed over the remaining investment period, typically
ranging between three and six years.
78
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair values of U.S. and international pension and postretirement benefit plan assets by asset category as of
December 31, 2014 are presented below (in millions), as well as the percentage that each category comprises of our total plan
assets and the respective target allocations.
Asset Category (U.S. Plans):
Cash and cash equivalents
Equity Securities:
U.S. Large Cap
U.S. Small Cap
Emerging Markets
Global Equity
International Equity
Total Equity Securities
Fixed Income Securities:
U.S. Government Securities
Corporate Bonds
Global Bonds
Municipal Bonds
Total Fixed Income Securities
Other Investments:
Hedge Funds
Private Equity
Real Estate
Structured Products(1)
Risk Parity Funds
Total U.S. Plan Assets
Asset Category (International Plans):
Cash and cash equivalents
Equity Securities:
Local Markets Equity
U.S. Equity
Emerging Markets
International / Global Equity
Total Equity Securities
Fixed Income Securities:
Local Government Bonds
Corporate Bonds
Total Fixed Income Securities
Other Investments:
Real Estate
Other
Total International Plan Assets
Total Plan Assets
(1) Represents mortgage and asset-backed securities.
Level 1
Level 2
Level 3
Total
Assets
Percentage of
Plan Assets -
2014
Target
Allocation
2014
$
744
$ 1,028
$ — $
1,772
6.1%
0-5
2,066
322
1,270
2,788
1,154
7,600
4,541
6
—
—
4,547
2,082
44
116
—
792
3,034
239
2,921
159
100
3,419
—
—
—
—
—
—
—
269
613
—
882
4,148
366
1,386
2,788
1,946
10,634
4,780
3,196
772
100
8,848
—
—
412
—
—
$13,303
— 3,595
— 1,323
1,307
47
—
332
—
817
$ 7,924
$ 7,860
3,595
1,323
1,766
332
817
$ 29,087
$
6
$
26
$ —
145
17
19
82
263
78
55
133
105
—
—
95
200
—
94
94
—
—
—
—
—
—
—
—
32
250
17
19
177
463
78
149
227
—
—
$
402
$13,705
108
159
$
587
$ 8,447
—
53
$
53
$ 7,977
108
212
$
1,042
$ 30,129
79
36.6
35-55
30.4
25-35
12.4
4.5
6.1
1.1
2.8
100.0%
5-15
1-10
1-10
0-5
1-10
3.1
0-5
44.3
50-65
21.8
15-35
10.4
20.4
100.0%
0-17
0-20
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair values of U.S. and international pension and postretirement benefit plan assets by asset category as of
December 31, 2013 are presented below (in millions), as well as the percentage that each category comprises of our total plan
assets and the respective target allocations.
Asset Category (U.S. Plans):
Cash and cash equivalents
Equity Securities:
U.S. Large Cap
U.S. Small Cap
Emerging Markets
Global Equity
International Equity
Total Equity Securities
Fixed Income Securities:
U.S. Government Securities
Corporate Bonds
Global Bonds
Municipal Bonds
Total Fixed Income Securities
Other Investments:
Hedge Funds
Private Equity
Real Estate
Structured Products(1)
Risk Parity Funds
Total U.S. Plan Assets
Asset Category (International Plans):
Cash and cash equivalents
Equity Securities:
Local Markets Equity
U.S. Equity
Emerging Markets
International / Global Equity
Total Equity Securities
Fixed Income Securities:
Local Government Bonds
Corporate Bonds
Total Fixed Income Securities
Other Investments:
Real Estate
Other
Total International Plan Assets
Total Plan Assets
(1) Represents mortgage and asset-backed securities.
Level 1
Level 2
Level 3
Total
Assets
Percentage of
Plan Assets -
2013
Target
Allocation
2013
$
112
$
514
$ — $
626
2.3%
0-5
2,264
457
1,247
2,154
1,397
7,519
3,746
7
—
—
3,753
1,948
50
120
—
825
2,943
615
2,550
681
55
3,901
—
—
—
—
—
—
—
223
—
—
223
4,212
507
1,367
2,154
2,222
10,462
4,361
2,780
681
55
7,877
—
—
285
—
—
$11,669
— 3,738
— 1,397
1,091
21
—
326
756
—
$ 7,205
$ 7,705
3,738
1,397
1,397
326
756
$ 26,579
$
11
$
17
$ —
122
17
19
88
246
68
86
154
97
—
—
79
176
—
85
85
—
—
—
—
—
—
—
—
28
219
17
19
167
422
68
171
239
—
—
$
411
$12,080
63
124
$
465
$ 8,170
—
55
$
55
$ 7,260
63
179
$
931
$ 27,510
80
39.4
25-55
29.6
15-35
14.1
5.3
5.3
1.2
2.8
100.0%
8-15
3-10
3-10
0-5
1-10
3.0
0-5
45.3
50-65
25.7
15-35
6.8
19.2
100.0%
0-17
0-20
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the changes in the Level 3 instruments measured on a recurring basis for the years ended
December 31, 2014 and 2013 (in millions).
Balance on January 1, 2013
Actual Return on Assets:
Assets Held at End of Year
Assets Sold During the Year
Purchases
Sales
Transfers Into (Out of) Level 3
Balance on December 31, 2013
Actual Return on Assets:
Assets Held at End of Year
Assets Sold During the Year
Purchases
Sales
Transfers Into (Out of) Level 3
Balance on December 31, 2014
Corporate
Bonds
$
138
Hedge
Funds
$ 2,829
Real
Estate
$ 1,039
Private
Equity
$ 1,416
Global
Bonds
Risk Parity
Funds
Other
229
5
1,676
(1,001)
—
$ 3,738
81
54
145
(228)
—
$ 1,091
71
153
143
(386)
—
$ 1,397
$ — $
—
—
—
—
—
—
$ — $
71
(9)
1,043
(1,248)
—
$ 3,595
104
23
350
(261)
—
$ 1,307
11
126
166
(377)
—
$ 1,323
$
—
—
735
(122)
—
613
$
1,362
$
(99)
54
1
(562)
—
756
61
—
—
—
—
817
$
$
(1)
—
165
(79)
—
223
—
—
108
(62)
—
269
$
$
Total
$ 6,833
287
266
2,130
(2,256)
—
$ 7,260
49
6
—
—
—
—
55
(2)
—
—
—
—
53
245
140
2,402
(2,070)
—
$ 7,977
There were no UPS class A or B shares of common stock directly held in plan assets as of December 31, 2014 or
December 31, 2013.
Accumulated Other Comprehensive Income
The estimated amounts of prior service cost in AOCI expected to be amortized and recognized as a component of net
periodic benefit cost in 2015 are as follows (in millions):
Prior service cost / (benefit)
Expected Cash Flows
U.S. Pension Benefits
$
168
$
U.S. Postretirement
Medical Benefits
International Pension
Benefits
5
$
1
Information about expected cash flows for the pension and postretirement benefit plans is as follows (in millions):
Expected Employer Contributions:
2015 to plan trusts
2015 to plan participants
Expected Benefit Payments:
2015
2016
2017
2018
2019
2020 - 2024
U.S.
Pension Benefits
U.S. Postretirement
Medical Benefits
International Pension
Benefits
$
$
$
$
1,030
17
960
1,052
1,151
1,262
1,382
9,013
— $
104
$
245
238
236
231
230
1,034
69
4
26
25
28
30
33
214
Our funding policy for U.S. plans is to contribute amounts annually that are at least equal to the amounts required by
applicable laws and regulations, or to directly fund payments to plan participants, as applicable. International plans will be
funded in accordance with local regulations. Additional discretionary contributions may be made when deemed appropriate to
meet the long-term obligations of the plans. Expected benefit payments for pensions will be primarily paid from plan trusts.
Expected benefit payments for postretirement medical benefits will be paid from plan trusts and corporate assets.
81
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. MULTIEMPLOYER EMPLOYEE BENEFIT PLANS
We contribute to a number of multiemployer defined benefit plans under the terms of collective bargaining agreements that
cover our union-represented employees. These plans generally provide for retirement, death and/or termination benefits for eligible
employees within the applicable collective bargaining units, based on specific eligibility/participation requirements, vesting periods
and benefit formulas. The risks of participating in these multiemployer plans are different from single-employer plans in the following
aspects:
• Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other
participating employers.
•
•
If we negotiate to cease participating in a multiemployer plan, we may be required to pay that plan an amount based on our
allocable share of its underfunded status, referred to as a "withdrawal liability". However, cessation of participation in a
multiemployer plan and subsequent payment of any withdrawal liability is subject to the collective bargaining process.
If any of the multiemployer pension plans in which we participate enter critical status, and our contributions are not sufficient
to satisfy any rehabilitation plan funding schedule, we could be required under the Pension Protection Act of 2006 to make
additional surcharge contributions to the multiemployer pension plan in the amount of five to ten percent of the existing
contributions required by our labor agreement. Such surcharges would cease upon the ratification of a new collective
bargaining agreement, and could not recur unless a plan re-entered critical status at a later date.
The discussion that follows sets forth the financial impact on our results of operations and cash flows for the years ended
December 31, 2014, 2013 and 2012 from our participation in multiemployer benefit plans. As part of the overall collective bargaining
process for wage and benefit levels, we have agreed to contribute certain amounts to the multiemployer benefit plans during the
contract period. The multiemployer benefit plans set benefit levels and are responsible for benefit delivery to participants. Future
contribution amounts to multiemployer benefit plans are determined only through collective bargaining, and we have no additional
legal or constructive obligation to increase contributions beyond the agreed-upon amounts (except potential surcharges under the
Pension Protection Act of 2006 as described above).
The number of employees covered by our multiemployer health and welfare plans increased during 2014, affecting the
comparability of contributions with prior years, as a result of provisions of the new collective bargaining agreement with the
International Brotherhood of Teamsters (“Teamsters”) discussed below. The number of employees covered by our multiemployer
pension plans has remained consistent over the past three years, and there have been no significant changes that affect the
comparability of 2014, 2013 and 2012 contributions. We recognize expense for the contractually-required contribution for each
period, and we recognize a liability for any contributions due and unpaid at the end of a reporting period.
Status of Collective Bargaining Agreements
As of December 31, 2014, we had approximately 270,000 employees employed under a national master agreement and various
supplemental agreements with local unions affiliated with the Teamsters. During 2014, the Teamsters ratified a new national master
agreement (“NMA”) with UPS that will expire on July 31, 2018. The economic provisions in the NMA included wage rate increases,
as well as increased contribution rates for healthcare and pension benefits. Most of these economic provisions were retroactive to
August 1, 2013, which was the effective date of the NMA. In the second quarter of 2014, we remitted $278 million for these
retroactive economic benefits; this payment had an immaterial impact on net income, as these retroactive economic benefits had been
accrued since the July 31, 2013 expiration of the prior agreement.
In addition to the retroactive economic provisions of the NMA, there were certain changes to the delivery of healthcare benefits
that were effective at various dates. These changes impact approximately 36,000 full-time and 73,000 part-time active employees
covered by the NMA and the UPS Freight collective bargaining agreement (collectively referred to as the “NMA Group”), as well as
approximately 16,000 employees covered by other collective bargaining agreements (the “Non-NMA Group”). These provisions are
discussed further below in the "Changes to the Delivery of Active and Postretirement Healthcare Benefits" section.
We have approximately 2,600 pilots who are employed under a collective bargaining agreement with the Independent Pilots
Association ("IPA"), which became amendable at the end of 2011. In February 2014, UPS and the IPA requested and have received
mediation by the National Mediation Board for the ongoing contract negotiations.
Our airline mechanics are covered by a collective bargaining agreement with Teamsters Local 2727, which became amendable
November 1, 2013. In addition, approximately 3,100 of our auto and maintenance mechanics who are not employed under agreements
with the Teamsters are employed under collective bargaining agreements with the International Association of Machinists and
Aerospace Workers (“IAM”). In 2014, the IAM ratified new collective bargaining agreements that will expire on July 31, 2019.
82
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Multiemployer Pension Plans
The following table outlines our participation in multiemployer pension plans for the periods ended December 31, 2014, 2013
and 2012, and sets forth our calendar year contributions accrued for each plan. The “EIN/Pension Plan Number” column provides the
Employer Identification Number (“EIN”) and the three-digit plan number. The most recent Pension Protection Act zone status
available in 2014 and 2013 relates to the plans’ two most recent fiscal year-ends. The zone status is based on information that we
received from the plans’ administrators and is certified by each plan’s actuary. Among other factors, plans certified in the red zone are
generally less than 65% funded, plans certified in the orange zone are both less than 80% funded and have an accumulated funding
deficiency or are expected to have a deficiency in any of the next six plan years, plans certified in the yellow zone are less than 80%
funded, and plans certified in the green zone are at least 80% funded. The “FIP/RP Status Pending/Implemented” column indicates
whether a financial improvement plan (“FIP”) for yellow/orange zone plans, or a rehabilitation plan (“RP”) for red zone plans, is
either pending or has been implemented. As of December 31, 2014, all plans that have either a FIP or RP requirement have had the
respective FIP or RP implemented.
Our collectively-bargained contributions satisfy the requirements of all implemented FIPs and RPs and do not currently require
the payment of any surcharges. In addition, minimum contributions outside of the agreed upon contractual rate are not required. For
the plans detailed in the following table, the expiration date of the associated collective bargaining agreements was July 31, 2018, with
the exception of the Automotive Industries Pension Plan and the IAM National Pension Fund / National Pension Plan which both have
a July 31, 2019 expiration date. For all plans detailed in the following table, we provided more than 5% of the total plan contributions
from all employers for 2014, 2013 and 2012 (as disclosed in the Form 5500 for each respective plan).
Certain plans have been aggregated in the “all other multiemployer pension plans” line in the following table, as the
contributions to each of these individual plans were not material.
Pension Fund
Alaska Teamster-Employer Pension Plan
Automotive Industries Pension Plan
EIN / Pension
Plan
Pension
Protection Act
Zone Status
FIP/RP Status
Pending/
(in millions)
UPS Contributions and
Accruals
Surcharge
Number
2014
2013
Implemented
2014
2013
2012
Imposed
92-6003463-024
94-1133245-001
Red
Red
Red
Red
Yes/Implemented
$
Yes/Implemented
Central Pennsylvania Teamsters Defined Benefit Plan
23-6262789-001
Green
Green
No
Employer-Teamsters Local Nos. 175 & 505 Pension
Trust Fund
Hagerstown Motor Carriers and Teamsters Pension Fund
55-6021850-001
52-6045424-001
Red
Red
Green
Yes/Implemented
Red
Yes/Implemented
I.A.M. National Pension Fund / National Pension Plan
51-6031295-002
Green
Green
International Brotherhood of Teamsters Union Local
No. 710 Pension Fund
Local 705, International Brotherhood of Teamsters
Pension Plan
Local 804 I.B.T. & Local 447 I.A.M.—UPS
Multiemployer Retirement Plan
36-2377656-001
Green
Green
36-6492502-001
Red
Red
Yes/Implemented
51-6117726-001
Red
Red
Yes/Implemented
No
No
Milwaukee Drivers Pension Trust Fund
39-6045229-001
Green
Green
No
New England Teamsters & Trucking Industry Pension
Fund
New York State Teamsters Conference Pension and
Retirement Fund
16-6063585-074
Red
Red
Yes/Implemented
Teamster Pension Fund of Philadelphia and Vicinity
23-1511735-001
Yellow Yellow
Yes/Implemented
Teamsters Joint Council No. 83 of Virginia Pension Fund
54-6097996-001
Yellow Yellow
Yes/Implemented
Teamsters Local 639—Employers Pension Trust
53-0237142-001
Green
Green
No
Teamsters Negotiated Pension Plan
43-6196083-001
Yellow Yellow
Yes/Implemented
Truck Drivers and Helpers Local Union No. 355
Retirement Pension Plan
United Parcel Service, Inc.—Local 177, I.B.T.
Multiemployer Retirement Plan
52-6043608-001
Yellow Yellow
Yes/Implemented
13-1426500-419
Red
Red
Yes/Implemented
Western Conference of Teamsters Pension Plan
91-6145047-001
Green
Green
No
Western Pennsylvania Teamsters and Employers Pension
Fund
All Other Multiemployer Pension Plans
25-6029946-001
Red
Red
Yes/Implemented
5
5
33
10
6
27
89
69
92
32
$
5
4
30
9
5
27
88
68
88
29
$
4
4
29
9
5
24
75
46
87
26
81
50
52
45
27
16
85
604
24
57
72
46
49
41
26
14
68
553
23
49
65
44
44
36
24
14
62
520
24
59
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
04-6372430-001
Red
Red
Yes/Implemented
108
102
124
Total Contributions
$1,517
$1,396
$1,325
83
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Agreement with the New England Teamsters and Trucking Industry Pension Fund
In 2012, we reached an agreement with the New England Teamsters and Trucking Industry Pension Fund ("NETTI Fund"), a
multiemployer pension plan in which UPS is a participant, to restructure the pension liabilities for approximately 10,200 UPS
employees represented by the Teamsters. The agreement reflected a decision by the NETTI Fund's trustees to restructure the NETTI
Fund through plan amendments to utilize a "two pool approach", which effectively subdivided the plan assets and liabilities between
two groups of beneficiaries. As part of this agreement, UPS agreed to withdraw from the original pool of the NETTI Fund, of which it
had historically been a participant, and reenter the NETTI Fund's newly-established pool as a new employer.
Upon ratification of the agreement by the Teamsters in September 2012, we withdrew from the original pool of the NETTI Fund
and incurred an undiscounted withdrawal liability of $2.162 billion to be paid in equal monthly installments over 50 years. The
undiscounted withdrawal liability was calculated by independent actuaries employed by the NETTI Fund, in accordance with the
governing plan documents and the applicable requirements of the Employee Retirement Income Security Act of 1974. In 2012, we
recorded a charge to expense to establish an $896 million withdrawal liability on our consolidated balance sheet, which represents the
present value of the $2.162 billion future payment obligation discounted at a 4.25% interest rate. This discount rate represents the
estimated credit-adjusted market rate of interest at which we could obtain financing of a similar maturity and seniority. As this
agreement is not a contribution to the plan, the amounts reflected in the previous table do not include this $896 million non-cash
transaction.
The $896 million charge to expense recorded in 2012 is included in "compensation and benefits" expense in the statements of
consolidated income. We impute interest on the withdrawal liability using the 4.25% discount rate, while the monthly payments made
to the NETTI Fund reduce the remaining balance of the withdrawal liability.
Our status in the newly-established pool of the NETTI Fund is accounted for as the participation in a new multiemployer pension
plan, and therefore we recognize expense based on the contractually-required contribution for each period, and we recognize a liability
for any contributions due and unpaid at the end of a reporting period.
As of December 31, 2014 and 2013, we had $878 and $884 million, respectively, recognized in "other non-current liabilities" on
our consolidated balance sheets representing the remaining balance of the NETTI withdrawal liability. Based on the borrowing rates
currently available to the Company for long-term financing of a similar maturity, the fair value of the NETTI withdrawal liability as of
December 31, 2014 and 2013 was $913 and $783 million. We utilized Level 2 inputs in the fair value hierarchy of valuation
techniques to determine the fair value of this liability.
84
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Multiemployer Health and Welfare Plans
We also contribute to several multiemployer health and welfare plans that cover both active and retired employees. Health care
benefits are provided to participants who meet certain eligibility requirements as covered under the applicable collective bargaining
unit. The following table sets forth our calendar year plan contributions and accruals. Certain plans have been aggregated in the “all
other multiemployer health and welfare plans” line in the table, as the contributions to each of these individual plans are not material.
Health and Welfare Fund
Central States, South East & South West Areas Health and Welfare Fund
Teamsters Western Region & Local 177 Health Care Plan
Health & Welfare Insurance Fund Teamsters Local 653
Bay Area Delivery Drivers
Central Pennsylvania Teamsters Health & Pension Fund
Delta Health Systems—East Bay Drayage Drivers
Employer—Teamster Local Nos. 175 & 505
Joint Council #83 Health & Welfare Fund
Local 191 Teamsters Health Fund
Local 401 Teamsters Health & Welfare Fund
Local 804 Welfare Trust Fund
Milwaukee Drivers Pension Trust Fund—Milwaukee Drivers Health and Welfare Trust Fund
Montana Teamster Employers Trust
New York State Teamsters Health & Hospital Fund
North Coast Benefit Trust
Northern California General Teamsters (DELTA)
Northern New England Benefit Trust
Oregon / Teamster Employers Trust
Teamsters 170 Health & Welfare Fund
Teamsters Benefit Trust
Teamsters Local 251 Health & Insurance Plan
Teamsters Local 404 Health & Insurance Plan
Teamsters Local 638 Health Fund
Teamsters Local 639—Employers Health & Pension Trust Funds
Teamsters Local 671 Health Services & Insurance Plan
Teamsters Union 25 Health Services & Insurance Plan
Teamsters Union Local 677 Health Services & Insurance Plan
Truck Drivers and Helpers Local 355 Baltimore Area Health & Welfare Fund
Utah-Idaho Teamsters Security Fund
Washington Teamsters Welfare Trust
All Other Multiemployer Health and Welfare Plans
Total Contributions
(in millions)
UPS Contributions and Accruals
2014
$ 1,306
239
5
32
21
24
9
26
11
7
70
32
7
51
9
96
39
29
15
40
12
7
35
26
14
44
9
15
22
36
64
$ 2,352
2013
2012
$
505
—
—
29
20
24
9
24
9
6
67
31
6
46
8
84
35
28
12
38
11
6
32
24
13
37
8
13
18
35
44
$ 1,222
$
471
—
—
28
19
24
8
25
9
6
62
29
6
44
7
75
33
27
12
32
10
6
29
22
12
36
8
13
16
32
55
$ 1,156
The increase in 2014 contributions to the Central States, South East & South West Areas Health and Welfare Fund, the Teamsters
Western Region & Local 177 Health Care Plan, and the Health & Welfare Insurance Fund Teamsters Local 653 plan are related to the
changes to the delivery of active and postretirement healthcare benefits described below.
85
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes to the Delivery of Active and Postretirement Healthcare Benefits
Prior to ratification, the NMA Group and Non-NMA Group employees received their healthcare benefits through UPS-sponsored
active and postretirement health and welfare benefit plans. Effective June 1, 2014, we ceased providing healthcare benefits to active
NMA Group employees through these UPS-sponsored benefit plans, and the responsibility for providing healthcare benefits for active
employees was assumed by three separate multiemployer healthcare funds (the “Funds”). The responsibility for providing healthcare
benefits for the active Non-NMA Group employees was also assumed by the Funds on various dates up to January 1, 2015, depending
on the ratification date of the applicable collective bargaining agreement. We will make contributions to the Funds based on
negotiated fixed hourly or monthly contribution rates for the duration of the NMA and other applicable collective bargaining
agreements.
Additionally, the Funds assumed the obligation to provide postretirement healthcare benefits to the employees in the NMA
Group who retire on or after January 1, 2014. The postretirement healthcare benefit obligation for the employees in the Non-NMA
Group was assumed by the Funds for employees retiring on or after January 1, 2014 or January 1, 2015, depending on the applicable
collective bargaining agreement. In exchange for the assumption of the obligation to provide postretirement healthcare benefits to the
NMA Group and Non-NMA Group, we transferred cash totaling $2.271 billion to the Funds in the second quarter of 2014. UPS-
sponsored health and welfare benefit plans retained responsibility for providing postretirement healthcare coverage for employees in
the NMA Group who retired from UPS prior to January 1, 2014, and for employees in the Non-NMA Group who retire from UPS
prior to the January 1, 2014 or January 1, 2015 effective date in the applicable collective bargaining agreement.
Accounting Impact of Health and Welfare Plan Changes
Income Statement Impact:
We recorded a pre-tax charge of $1.066 billion ($665 million after-tax) in the second quarter of 2014 for the health and welfare
plan changes described above. The components of this charge, which was included in "compensation and benefits" expense in the
statement of consolidated income, are as follows:
• Partial Plan Curtailment: We recorded a $112 million pre-tax curtailment loss due to the elimination of future service
benefit accruals. This curtailment loss represents the accelerated recognition of unamortized prior service costs.
• Remeasurement of Postretirement Obligation: We recorded a $746 million pre-tax loss due to the remeasurement of the
postretirement benefit obligations of the affected UPS-sponsored health and welfare benefit plans.
• Settlement: We recorded a $208 million pre-tax settlement loss, which represents the recognition of unamortized actuarial
losses associated with the postretirement obligation for the NMA Group.
We recorded an additional pre-tax charge of $36 million ($22 million after-tax) in the fourth quarter of 2014 upon ratification of
the collective bargaining agreements covering the Non-NMA Group, related to the remeasurement and settlement of the postretirement
benefit obligation associated with those employees.
Balance Sheet and Cash Flow Impact:
During 2014, as part of the health and welfare plan changes described previously, we transferred cash totaling $2.271 billion to
the Funds, which was accounted for as a settlement of our postretirement benefit obligations (see note 4). We received approximately
$854 million of cash tax benefits (through reduced U.S. Federal and state quarterly income tax payments) in 2014.
For NMA Group employees who retired prior to January 1, 2014 and remained with the UPS-sponsored health and welfare
plans, the changes to the contributions, benefits and cost sharing provisions in these plans resulted in an increase in the postretirement
benefit obligation, and a corresponding decrease in pre-tax AOCI, of $13 million upon ratification.
86
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. BUSINESS ACQUISITIONS, GOODWILL AND INTANGIBLE ASSETS
The following table indicates the allocation of goodwill by reportable segment (in millions):
Balance on January 1, 2013
Acquired
Currency / Other
Balance on December 31, 2013
Acquired
Currency / Other
Balance on December 31, 2014
Business Acquisitions
2014 Acquisitions:
U.S. Domestic
Package
International
Package
Supply Chain &
Freight
$
$
$
— $
—
—
— $
—
—
— $
430
3
(13)
420
52
(23)
449
$
$
$
1,743
20
7
1,770
13
(48)
1,735
Consolidated
2,173
$
23
(6)
2,190
65
(71)
2,184
$
$
The goodwill acquired in the International Package segment was related to our October 2014 acquisition of i-parcel, LLC.
("i-parcel"), a U.S.-based international e-commerce enabler and logistics company that operates in the U.S. and U.K. The
goodwill acquired in the Supply Chain & Freight segment was related to our February 2014 acquisition of Polar Speed
Distribution Limited ("Polar Speed"), a U.K.-based company that provides temperature-sensitive pharmaceutical supply chain
solutions in the U.K. and continental Europe.
The purchase price allocation for acquired companies can be modified for up to one year from the date of acquisition.
The acquisition of Polar Speed and i-parcel were not material to our consolidated financial position or results of operations.
2013 Acquisitions:
The goodwill acquired in the Supply Chain & Freight segment was related to our July 2013 acquisition of Cemelog Ltd.
(“Cemelog”), a Hungary-based medical logistics provider that operates in Central and Eastern Europe. The goodwill acquired
in the International Package segment was largely related to our October 2013 acquisition of the assets and operations of two
Costa Rican-based companies: (1) Union Pak de Costa Rica, S.A., a small package delivery company, and (2) SEISA
Brokerage, a customs brokerage company. Both companies had long-standing relationships with UPS as authorized service
contractors.
Goodwill Impairment
We test our goodwill for impairment annually, as of October 1st, on a reporting unit basis. Our reporting units are
comprised of the Europe, Asia, Americas and ISMEA (Indian Subcontinent, Middle East and Africa) reporting units in the
International Package reporting segment, and the Forwarding, Logistics, UPS Freight, The UPS Store, and UPS Capital
reporting units in the Supply Chain & Freight reporting segment.
In assessing our goodwill for impairment, we initially evaluate qualitative factors to determine if it is more likely than not
that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive and it is
necessary to calculate the fair value of a reporting unit, then we utilize a two-step process to test goodwill for impairment. First,
a comparison of the fair value of the applicable reporting unit with the aggregate carrying value, including goodwill, is
performed. We primarily determine the fair value of our reporting units using a discounted cash flow model, and supplement
this with observable valuation multiples for comparable companies, as applicable. If the carrying amount of a reporting unit
exceeds the reporting unit’s fair value, we perform the second step of the goodwill impairment test to determine the amount of
impairment loss. The second step includes comparing the implied fair value of the affected reporting unit’s goodwill with the
carrying value of that goodwill.
87
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 2014, we utilized the two-step process to test goodwill for impairment for all of our reporting units. We did not have
any goodwill impairment charges in 2014, 2013 or 2012. Cumulatively, our Supply Chain & Freight reporting segment has
recorded goodwill impairment charges of $622 million, while our International and U.S. Domestic Package segments have not
recorded any impairment charges.
Intangible Assets
The following is a summary of intangible assets at December 31, 2014 and 2013 (in millions):
December 31, 2014
Capitalized software
Licenses
Franchise rights
Customer lists
Trademarks, patents, and other
Total Intangible Assets, Net
December 31, 2013
Capitalized software
Licenses
Franchise rights
Customer lists
Trademarks, patents, and other
Total Intangible Assets, Net
Weighted-
Average
Amortization
Period
(in years)
5.0
5.1
20.0
11.7
12.6
5.9
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
$
$
$
$
2,641
217
117
123
31
3,129
2,420
220
117
118
37
2,912
$
$
$
$
(1,997) $
(133)
(77)
(66)
(9)
(2,282) $
(1,897) $
(97)
(70)
(62)
(11)
(2,137) $
644
84
40
57
22
847
523
123
47
56
26
775
Licenses with a carrying value of $5 million as of December 31, 2014 are deemed to be indefinite-lived intangibles, and
therefore are not amortized. Impairment tests for indefinite-lived intangibles are performed on an annual basis. All of our other
recorded intangible assets are deemed to be finite-lived intangibles, and are thus amortized over their estimated useful lives.
Impairment tests for these intangible assets are only performed when a triggering event occurs that indicates that the carrying
value of the intangible may not be recoverable. We incurred impairment charges on intangible assets of $13 million during
2013, while there were no impairments of any finite-lived or indefinite-lived intangible assets in 2014 or 2012.
Amortization of intangible assets was $195, $185 and $244 million during 2014, 2013 and 2012, respectively. Expected
amortization of finite-lived intangible assets recorded as of December 31, 2014 for the next five years is as follows (in
millions): 2015—$277; 2016—$212; 2017—$153; 2018—$100; 2019—$57. Amortization expense in future periods will be
affected by business acquisitions, software development, licensing agreements, sponsorships and other factors.
88
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. DEBT AND FINANCING ARRANGEMENTS
The following table sets forth the principal amount, maturity or range of maturities, as well as the carrying value of our
debt obligations, as of December 31, 2014 and 2013 (in millions). The carrying value of these debt obligations can differ from
the principal amount due to the impact of unamortized discounts or premiums and valuation adjustments resulting from interest
rate swap hedging relationships.
Commercial paper
Fixed-rate senior notes:
3.875% senior notes
1.125% senior notes
5.50% senior notes
5.125% senior notes
3.125% senior notes
2.45% senior notes
6.20% senior notes
4.875% senior notes
3.625% senior notes
8.375% Debentures:
8.375% debentures
8.375% debentures
Pound Sterling Notes:
5.50% notes
5.125% notes
Floating rate senior notes
Capital lease obligations
Facility notes and bonds
Other debt
Total debt
Less: current maturities
Long-term debt
Commercial Paper
Principal
Amount
$
772
Maturity
2015
Carrying Value
2014
2013
$
772
$
—
1,000
375
750
1,000
1,500
1,000
1,500
500
375
424
276
2014
2017
2018
2019
2021
2022
2038
2040
2042
2020
2030
—
370
802
1,076
1,617
977
1,481
489
367
480
283
1,007
367
821
1,079
1,579
913
1,481
489
367
479
283
103
706
463
505
320
17
$ 11,586
2031
2050
2049 – 2064
2015 – 3005
2015 – 2036
2015 – 2022
99
673
459
505
320
17
10,787
(923)
9,864
105
714
370
473
320
25
10,872
(48)
$ 10,824
$
We are authorized to borrow up to $10.0 billion under our U.S. commercial paper program. We had $772 million
outstanding under this program as of December 31, 2014. We also maintain a European commercial paper program under
which we are authorized to borrow up to €5.0 billion in a variety of currencies. As of December 31, 2014, there were no
amounts outstanding under this program. The amount of commercial paper outstanding under these programs in 2015 is
expected to fluctuate.
89
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fixed Rate Senior Notes
We have completed several offerings of fixed rate senior notes. All of the notes pay interest semiannually, and allow for
redemption of the notes by UPS at any time by paying the greater of the principal amount or a “make-whole” amount, plus
accrued interest. We subsequently entered into interest rate swaps on several of these notes, which effectively converted the
fixed interest rates on the notes to variable LIBOR-based interest rates. The average interest rate payable on these notes,
including the impact of the interest rate swaps, for 2014 and 2013, respectively, were as follows:
3.875% senior notes
1.125% senior notes
5.50% senior notes
5.125% senior notes
3.125% senior notes
2.45% senior notes
Principal
Value
1,000
375
750
1,000
1,500
1,000
Maturity
2014
2017
2018
2019
2021
2022
Average Effective
Interest Rate
2014
0.94%
0.60%
2.49%
1.97%
1.06%
0.82%
2013
0.97%
0.64%
2.53%
2.01%
1.11%
0.86%
On April 1, 2014, our $1.00 billion 3.875% senior notes matured and were repaid in full. The principal balance of the
senior notes was repaid from the proceeds of short-term commercial paper issuances.
8.375% Debentures
The 8.375% debentures consist of two separate tranches, as follows:
•
$276 million of the debentures have a maturity of April 1, 2030. These debentures have an 8.375% interest rate until
April 1, 2020, and, thereafter, the interest rate will be 7.62% for the final 10 years. These debentures are redeemable in
whole or in part at our option at any time. The redemption price is equal to the greater of 100% of the principal amount
and accrued interest, or the sum of the present values of the remaining scheduled payout of principal and interest
thereon discounted to the date of redemption (at a benchmark treasury yield plus five basis points) plus accrued
interest.
•
$424 million of the debentures have a maturity of April 1, 2020. These debentures are not subject to redemption prior
to maturity.
Interest is payable semiannually on the first of April and October for both debentures and neither debenture is subject to
sinking fund requirements. We subsequently entered into interest rate swaps on the 2020 notes, which effectively converted the
fixed interest rates on the notes to variable LIBOR-based interest rates. The average interest rate payable on the 2020 notes,
including the impact of the interest rate swaps, for 2014 and 2013 was 4.99% and 5.03%, respectively.
Floating Rate Senior Notes
The floating rate senior notes bear interest at either one or three-month LIBOR, less a spread ranging from 30 to 45 basis
points. The average interest rate for 2014 and 2013 was 0.00% for both years. These notes are callable at various times after 30
years at a stated percentage of par value, and putable by the note holders at various times after 10 years at a stated percentage of
par value. The notes have maturities ranging from 2049 through 2064. In 2014 and 2013, we redeemed notes with a principal
value of $1 and $4 million, respectively, after put options were exercised by the note holders.
In December 2014, we issued a floating rate senior note with a principal balance of $90 million that bears interest at three-
month LIBOR less 30 basis points. This note matures in 2064.
90
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capital Lease Obligations
We have certain property, plant and equipment subject to capital leases. Some of the obligations associated with these
capital leases have been legally defeased. The recorded value of our property, plant and equipment subject to capital leases is as
follows as of December 31 (in millions):
Vehicles
Aircraft
Buildings
Plant Equipment
Technology Equipment
Accumulated amortization
2014
2013
86
2,289
197
—
—
(781)
1,791
$
$
49
2,289
181
2
—
(727)
1,794
$
$
These capital lease obligations have principal payments due at various dates from 2015 through 3005.
Facility Notes and Bonds
We have entered into agreements with certain municipalities to finance the construction of, or improvements to, facilities
that support our U.S. Domestic Package and Supply Chain & Freight operations in the United States. These facilities are
located around airport properties in Louisville, Kentucky; Dallas, Texas; and Philadelphia, Pennsylvania. Under these
arrangements, we enter into a lease or loan agreement that covers the debt service obligations on the bonds issued by the
municipalities, as follows:
• Bonds with a principal balance of $149 million issued by the Louisville Regional Airport Authority associated with our
Worldport facility in Louisville, Kentucky. The bonds, which are due in January 2029, bear interest at a variable rate,
and the average interest rates for 2014 and 2013 were 0.05% and 0.09%, respectively.
• Bonds with a principal balance of $42 million and due in November 2036 issued by the Louisville Regional Airport
Authority associated with our air freight facility in Louisville, Kentucky. The bonds bear interest at a variable rate, and
the average interest rates for 2014 and 2013 were 0.05% and 0.08%, respectively.
• Bonds with a principal balance of $29 million issued by the Dallas / Fort Worth International Airport Facility
Improvement Corporation associated with our Dallas, Texas airport facilities. The bonds are due in May 2032 and bear
interest at a variable rate, however the variable cash flows on the obligation have been swapped to a fixed 5.11%.
• Bonds with a principal balance of $100 million issued by the Delaware County, Pennsylvania Industrial Development
Authority associated with our Philadelphia, Pennsylvania airport facilities. The bonds, which are due in December
2015, bear interest at a variable rate, and the average interest rates for 2014 and 2013 were 0.04% and 0.07%,
respectively.
Pound Sterling Notes
The Pound Sterling notes consist of two separate tranches, as follows:
• Notes with a principal amount of £66 million accrue interest at a 5.50% fixed rate, and are due in February 2031.
These notes are not callable.
• Notes with a principal amount of £455 million accrue interest at a 5.125% fixed rate, and are due in February 2050.
These notes are callable at our option at a redemption price equal to the greater of 100% of the principal amount and
accrued interest, or the sum of the present values of the remaining scheduled payout of principal and interest thereon
discounted to the date of redemption at a benchmark U.K. government bond yield plus 15 basis points and accrued
interest.
We maintain cross-currency interest rate swaps to hedge the foreign currency risk associated with the bond cash flows for both
tranches of these bonds. The average fixed interest rate payable on the swaps is 5.45%.
91
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Contractual Commitments
We lease certain aircraft, facilities, land, equipment and vehicles under operating leases, which expire at various dates
through 2038. Certain of the leases contain escalation clauses and renewal or purchase options. Rent expense related to our
operating leases was $676, $575 and $619 million for 2014, 2013 and 2012, respectively.
The following table sets forth the aggregate minimum lease payments under capital and operating leases, the aggregate
annual principal payments due under our long-term debt, and the aggregate amounts expected to be spent for purchase
commitments (in millions).
Year
2015
2016
2017
2018
2019
After 2019
Total
Less: imputed interest
Present value of minimum capitalized lease payments
Less: current portion
Long-term capitalized lease obligations
Capital
Leases
Operating
Leases
Debt
Principal
Purchase
Commitments
323
257
210
150
90
274
1,304
$
$
876
8
377
752
1,000
7,068
10,081
$
$
269
195
71
19
8
26
588
$
$
$
$
75
74
67
62
59
435
772
(267)
505
(47)
458
As of December 31, 2014, we had outstanding letters of credit totaling approximately $1.064 billion issued in connection
with our self-insurance reserves and other routine business requirements. We also issue surety bonds as an alternative to letters
of credit in certain instances, and as of December 31, 2014, we had $640 million of surety bonds written.
Available Credit
We maintain two credit agreements with a consortium of banks. One of these agreements provides revolving credit
facilities of $1.5 billion, and expires on March 27, 2015. Generally, amounts outstanding under this facility bear interest at a
periodic fixed rate equal to LIBOR for the applicable interest period and currency denomination, plus an applicable margin.
Alternatively, a fluctuating rate of interest equal to the highest of (1) JPMorgan Chase Bank’s publicly announced prime rate,
(2) the Federal Funds effective rate plus 0.50%, and (3) LIBOR for a one month interest period plus 1.00%, plus an applicable
margin, may be used at our discretion. In each case, the applicable margin for advances bearing interest based on LIBOR is a
percentage determined by quotations from Markit Group Ltd. for our 1-year credit default swap spread, subject to a minimum
rate of 0.10% and a maximum rate of 0.75%. The applicable margin for advances bearing interest based on the prime rate is
1.00% below the applicable margin for LIBOR advances (but not lower than 0.00%). We are also able to request advances
under this facility based on competitive bids for the applicable interest rate. There were no amounts outstanding under this
facility as of December 31, 2014.
The second agreement provides revolving credit facilities of $1.0 billion, and expires on March 28, 2019. Generally,
amounts outstanding under this facility bear interest at a periodic fixed rate equal to LIBOR for the applicable interest period
and currency denomination, plus an applicable margin. Alternatively, a fluctuating rate of interest equal to the highest of (1)
JPMorgan Chase Bank’s publicly announced prime rate, (2) the Federal Funds effective rate plus 0.50%, and (3) LIBOR for a
one month interest period plus 1.00%, plus an applicable margin, may be used at our discretion. In each case, the applicable
margin for advances bearing interest based on LIBOR is a percentage determined by quotations from Markit Group Ltd. for our
credit default swap spread, interpolated for a period from the date of determination of such credit default swap spread in
connection with a new interest period until the latest maturity date of this facility then in effect (but not less than a period of one
year). The minimum applicable margin rate is 0.10% and the maximum applicable margin rate is 0.75% per annum. The
applicable margin for advances bearing interest based on the prime rate is 1.00% below the applicable margin for LIBOR
advances (but not less than 0.00%). We are also able to request advances under this facility based on competitive bids. There
were no amounts outstanding under this facility as of December 31, 2014.
92
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Debt Covenants
Our existing debt instruments and credit facilities subject us to certain financial covenants. As of December 31, 2014 and
for all prior periods presented, we have satisfied these financial covenants. These covenants limit the amount of secured
indebtedness that we may incur, and limit the amount of attributable debt in sale-leaseback transactions, to 10% of net tangible
assets. As of December 31, 2014, 10% of net tangible assets is equivalent to $2.380 billion; however, we have no covered sale-
leaseback transactions or secured indebtedness outstanding. We do not expect these covenants to have a material impact on our
financial condition or liquidity.
Fair Value of Debt
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, including current maturities, is approximately $12.257 and $11.756 billion as of December 31,
2014 and 2013, respectively. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair
value of all of our debt instruments.
NOTE 8. LEGAL PROCEEDINGS AND CONTINGENCIES
We are involved in a number of judicial proceedings and other matters arising from the conduct of our business activities.
Although there can be no assurance as to the ultimate outcome, we have generally denied, or believe we have a
meritorious defense and will deny, liability in all litigation pending against us, including (except as otherwise noted herein) the
matters described below, and we intend to defend vigorously each case. We have accrued for legal claims when, and to the
extent that, amounts associated with the claims become probable and can be reasonably estimated. The actual costs of resolving
legal claims may be substantially higher or lower than the amounts accrued for those claims.
For those matters as to which we are not able to estimate a possible loss or range of loss, we are not able to determine
whether the loss will have a material adverse effect on our business, financial condition or results of operations or liquidity. For
matters in this category, we have indicated in the descriptions that follow the reasons that we are unable to estimate the possible
loss or range of loss.
Judicial Proceedings
We are a defendant in a number of lawsuits filed in state and federal courts containing various class action allegations
under state wage-and-hour laws. At this time, we do not believe that any loss associated with these matters would have a
material adverse effect on our financial condition, results of operations or liquidity.
UPS and our subsidiary The UPS Store, Inc., are defendants in Morgate v. The UPS Store, Inc. et al. an action in the Los
Angeles Superior Court brought on behalf of a certified class of all franchisees who chose to rebrand their Mail Boxes Etc.
franchises to The UPS Store in March 2003. Plaintiff alleges that UPS and The UPS Store, Inc. misrepresented and omitted
facts to the class about the market tests that were conducted before offering the class the choice of whether to rebrand to The
UPS Store. The trial is scheduled for June 2015.
There are multiple factors that prevent us from being able to estimate the amount of loss, if any, that may result from the
remaining aspects of this case, including: (1) we are vigorously defending ourselves and believe we have a number of
meritorious legal defenses; and (2) it remains uncertain what evidence of damages, if any, plaintiffs will be able to present.
Accordingly, at this time, we are not able to estimate a possible loss or range of loss that may result from this matter or to
determine whether such loss, if any, would have a material adverse effect on our financial condition, results of operations or
liquidity.
93
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In AFMS LLC v. UPS and FedEx Corporation, a lawsuit filed in federal court in the Central District of California in
August 2010, the plaintiff asserts that UPS and FedEx violated U.S. antitrust law by conspiring to refuse to negotiate with third-
party negotiators retained by shippers and by individually imposing policies that prevent shippers from using such negotiators.
UPS and FedEx have moved for summary judgment. There has been no ruling on those motions. The case does not have a trial
date scheduled. The Antitrust Division of the U.S. Department of Justice (“DOJ”) has an ongoing civil investigation of our
policies and practices for dealing with third-party negotiators. We are cooperating with this investigation. We deny any liability
with respect to these matters and intend to vigorously defend ourselves. There are multiple factors that prevent us from being
able to estimate the amount of loss, if any, that may result from these matters including: (1) we believe that we have a number
of meritorious defenses; (2) the Court has not ruled on the pending dispositive motions; and (3) the DOJ investigation is
pending. Accordingly, at this time, we are not able to estimate a possible loss or range of loss that may result from these matters
or to determine whether such loss, if any, would have a material adverse effect on our financial condition, results of operations
or liquidity.
In Canada, four purported class-action cases were filed against us in British Columbia (2006); Ontario (2007) and Québec
(2006 and 2013). The cases each allege inadequate disclosure concerning the existence and cost of brokerage services provided
by us under applicable provincial consumer protection legislation and infringement of interest restriction provisions under the
Criminal Code of Canada. The British Columbia class action was declared inappropriate for certification and dismissed by the
trial judge. That decision was upheld by the British Columbia Court of Appeal in March 2010, which ended the case in our
favor. The Ontario class action was certified in September 2011. Partial summary judgment was granted to us and the plaintiffs
by the Ontario motions court. The complaint under the Criminal Code was dismissed. No appeal is being taken from that
decision. The allegations of inadequate disclosure were granted and we are appealing that decision. The motion to authorize the
2006 Québec litigation as a class action was dismissed by the motions judge in October 2012; there was no appeal, which ended
that case in our favor. The 2013 Québec litigation also has been dismissed. We deny all liability and are vigorously defending
the one outstanding case in Ontario. There are multiple factors that prevent us from being able to estimate the amount of loss, if
any, that may result from this matter, including: (1) we are vigorously defending ourselves and believe that we have a number
of meritorious legal defenses; and (2) there are unresolved questions of law and fact that could be important to the ultimate
resolution of this matter. Accordingly, at this time, we are not able to estimate a possible loss or range of loss that may result
from this matter or to determine whether such loss, if any, would have a material adverse effect on our financial condition,
results of operations or liquidity.
Other Matters
In January 2008, a class action complaint was filed in the United States District Court for the Eastern District of New
York alleging price-fixing activities relating to the provision of freight forwarding services. UPS was not named in this case. In
July 2009, the plaintiffs filed a First Amended Complaint naming numerous global freight forwarders as defendants. UPS and
UPS Supply Chain Solutions are among the 60 defendants named in the amended complaint. After two rounds of motions to
dismiss, in October 2014, UPS entered into a settlement agreement with the plaintiffs to settle the remaining claims asserted
against UPS for an immaterial amount. The court granted preliminary approval of the settlement on December 16, 2014. The
settlement is subject to final court approval.
In August 2010, competition authorities in Brazil opened an administrative proceeding to investigate alleged
anticompetitive behavior in the freight forwarding industry. Approximately 45 freight forwarding companies and individuals are
named in the proceeding, including UPS, UPS SCS Transportes (Brasil) S.A., and a former employee in Brazil. UPS submitted
its written defenses to these allegations in April 2014. UPS intends to continue to defend itself in these proceedings. In
November 2012, the Commerce Commission of Singapore initiated an investigation with respect to similar matters.
We are cooperating with each of these investigations, and intend to continue to vigorously defend ourselves. There are
multiple factors that prevent us from being able to estimate the amount of loss, if any, that may result from these matters
including: (1) we are vigorously defending each matter and believe that we have a number of meritorious legal defenses;
(2) there are unresolved questions of law that could be of importance to the ultimate resolutions of these matters, including the
calculation of any potential fine; and (3) there is uncertainty about the time period that is the subject of the investigations.
Accordingly, at this time, we are not able to estimate a possible loss or range of loss that may result from these matters or to
determine whether such loss, if any, would have a material adverse effect on our financial condition, results of operations or
liquidity.
94
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 29, 2013, we entered into a Non-Prosecution Agreement (“NPA”) with the United States Attorney's Office in
the Northern District of California in connection with an investigation by the Drug Enforcement Administration of shipments
by illicit online pharmacies. Under the NPA, we forfeited $40 million to the government, admitted to a Statement of Facts
describing the conduct leading to the agreement, and agreed to implement an online pharmacy compliance program. The term
of the NPA is two years. We have petitioned the government to shorten that term in its discretion to a lesser period pursuant to
the terms of the NPA. The NPA did not have a material impact on our financial condition, results of operations or liquidity.
In January 2014, we received a Civil Investigative Demand from the DOJ seeking documents related to possible
violations of the False Claims Act ("FCA") in connection with delivery services provided to government customers where
guaranteed commitment times allegedly were not met. The General Services Administration - Office of Inspector General had
previously sought similar documents. The Company has been cooperating with these inquiries and is in discussions with the
DOJ to resolve all claims by the federal government regarding this matter. We do not believe that a negotiated resolution would
have a material adverse effect on our financial condition, results of operations or liquidity. We also have been contacted by
several states requesting this information. The Company has been cooperating with these inquiries.
It is not possible to predict the potential outcome of the state inquiries at this stage, or to reasonably estimate the range or
amount of possible loss, if any, that may result from these investigations based on a number of factors, including: (1) the
investigations are not complete; (2) these matters are at an early stage and there are unresolved questions of law and fact that
could be of importance to the ultimate resolution of these matters; (3) the scope and size of potentially affected government
customers and the time period covered by potential claims remains uncertain; and (4) our current intention to vigorously defend
any claims of FCA violations. Accordingly, at this time, we are not able to estimate a possible loss or range of loss that may
result from these matters or to determine whether such loss, if any, would have a material adverse effect on our financial
condition, results of operations or liquidity.
On February 18, 2015, the State and City of New York filed suit against UPS arising from alleged shipments of cigarettes
to New York State and City residents. The complaint asserts claims under various federal and state laws. The complaint also
includes a claim that UPS violated the Assurance of Discontinuance it entered into with the New York Attorney General
concerning cigarette deliveries in 2005. There are multiple factors that prevent us from being able to estimate the amount of
loss, if any, that may result from this case, including: (1) we are vigorously defending ourselves and believe we have a number
of meritorious factual and legal defenses; and (2) it remains uncertain what evidence of their claims and damages, if any,
plaintiffs will be able to present. Accordingly, at this time, we are not able to estimate a possible loss or range of loss that may
result from this matter or to determine whether such loss, if any, would have a material adverse effect on our financial
condition, results of operations or liquidity.
We are a defendant in various other lawsuits that arose in the normal course of business. We do not believe that the
eventual resolution of these other lawsuits (either individually or in the aggregate), including any reasonably possible losses in
excess of current accruals, will have a material adverse effect on our financial condition, results of operations or liquidity.
95
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. SHAREOWNERS’ EQUITY
Capital Stock, Additional Paid-In Capital, and Retained Earnings
We maintain two classes of common stock, which are distinguished from each other by their respective voting rights.
Class A shares of UPS are entitled to 10 votes per share, whereas class B shares are entitled to one vote per share. Class A
shares are primarily held by UPS employees and retirees, as well as trusts and descendants of the Company’s founders, and
these shares are fully convertible into class B shares at any time. Class B shares are publicly traded on the New York Stock
Exchange (“NYSE”) under the symbol “UPS”. Class A and B shares both have a $0.01 par value, and as of December 31,
2014, there were 4.6 billion class A shares and 5.6 billion class B shares authorized to be issued. Additionally, there are
200 million preferred shares authorized to be issued, with a par value of $0.01 per share; as of December 31, 2014, no preferred
shares had been issued.
The following is a rollforward of our common stock, additional paid-in capital, and retained earnings accounts (in
millions, except per share amounts):
2014
2013
2012
Shares
Dollars
Shares
Dollars
Shares
Dollars
Class A Common Stock
Balance at beginning of year
Common stock purchases
Stock award plans
Common stock issuances
Conversions of class A to class B common stock
Class A shares issued at end of year
Class B Common Stock
Balance at beginning of year
Common stock purchases
Conversions of class A to class B common stock
Class B shares issued at end of year
212
(5)
5
3
(14)
201
712
(21)
14
705
Additional Paid-In Capital
Balance at beginning of year
Stock award plans
Common stock purchases
Common stock issuances
Option premiums received (paid)
Balance at end of year
Retained Earnings
Balance at beginning of year
Net income attributable to controlling interests
Dividends ($2.68, $2.48 and $2.28 per share)
Common stock purchases
Balance at end of year
$
$
$
$
$
$
$
$
2
—
—
—
—
2
7
—
—
7
—
656
(918)
309
(47)
—
6,925
3,032
(2,487)
(1,744)
5,726
225
(8)
9
4
(18)
212
729
(35)
18
712
$
$
$
$
$
$
$
$
3
(1)
—
—
—
2
7
—
—
7
—
554
(768)
307
(93)
—
7,997
4,372
(2,367)
(3,077)
6,925
240
(9)
8
3
(17)
225
725
(13)
17
729
$
$
$
$
$
$
3
—
—
—
—
3
7
—
—
7
—
444
(943)
293
206
—
$ 10,128
807
(2,243)
(695)
7,997
$
For the years ended December 31, 2014, 2013 and 2012, we repurchased a total of 26.4, 43.2 and 21.8 million shares of
class A and class B common stock for $2.662, $3.846 and $1.638 billion, respectively ($2.695, $3.838 and $1.621 billion in
repurchases for 2014, 2013 and 2012, respectively, are reported on the cash flow statement due to the timing of settlements).
On February 14, 2013, the Board of Directors approved a new share repurchase authorization of $10.0 billion, which replaced
an authorization previously announced in 2012. This new share repurchase authorization has no expiration date. As of
December 31, 2014, we had $4.152 billion of this share repurchase authorization remaining.
96
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From time to time, we enter into share repurchase programs with large financial institutions to assist in our buyback of
company stock. These programs allow us to repurchase our shares at a price below the weighted average UPS share price for a
given period. During the fourth quarter of 2014, we entered into an accelerated share repurchase program, which allowed us to
repurchase $400 million of shares (3.7 million shares). The program was completed in December 2014.
In order to lower the average cost of acquiring shares in our ongoing share repurchase program, we periodically enter into
structured repurchase agreements involving the use of capped call options for the purchase of UPS class B shares. We pay a
fixed sum of cash upon execution of each agreement in exchange for the right to receive either a pre-determined amount of cash
or stock. Upon expiration of each agreement, if the closing market price of our common stock is above the pre-determined
price, we will have our initial investment returned with a premium in either cash or shares (at our election). If the closing
market price of our common stock is at or below the pre-determined price, we will receive the number of shares specified in the
agreement. We paid net premiums of $47 and $93 million during 2014 and 2013, respectively, related to entering into and
settling capped call options for the purchase of class B shares. As of December 31, 2014, we had outstanding options for the
purchase of 1.7 million shares with an average strike price of $100.01 per share that will settle in the first and second quarters
of 2015.
Accumulated Other Comprehensive Income (Loss)
We incur activity in AOCI for unrealized holding gains and losses on available-for-sale securities, foreign currency
translation adjustments, unrealized gains and losses from derivatives that qualify as hedges of cash flows and unrecognized
pension and postretirement benefit costs. The activity in AOCI is as follows (in millions):
2014
2013
2012
Foreign currency translation gain (loss):
Balance at beginning of year
Reclassification to earnings (no tax impact in any period)
Translation adjustment (net of tax effect of $105, $(5), and $(9))
Balance at end of year
Unrealized gain (loss) on marketable securities, net of tax:
Balance at beginning of year
Current period changes in fair value (net of tax effect of $1, $(3), and $4)
Reclassification to earnings (net of tax effect of $0, $(2), and $(3))
Balance at end of year
Unrealized gain (loss) on cash flow hedges, net of tax:
Balance at beginning of year
Current period changes in fair value (net of tax effect of $133, $1 and $(25))
Reclassification to earnings (net of tax effect of $35, $39, and $(24))
Balance at end of year
Unrecognized pension and postretirement benefit costs, net of tax:
$
(126) $
—
(331)
(457)
$
134
(161)
(99)
(126)
(1)
2
(1)
—
(219)
220
60
61
6
(4)
(3)
(1)
(286)
1
66
(219)
Balance at beginning of year
Reclassification to earnings (net of tax effect of $870, $67, and $1,876)
Net actuarial gain (loss) and prior service cost resulting from remeasurements of
plan assets and liabilities (net of tax effect of $(2,714), $1,786, and $(2,151))
Balance at end of year
Accumulated other comprehensive income (loss) at end of year
(114)
1,462
(3,208)
111
(4,546)
(3,198)
(3,594) $
2,983
(114)
(460) $
$
(160)
—
294
134
6
6
(6)
6
(204)
(43)
(39)
(286)
(2,745)
3,135
(3,598)
(3,208)
(3,354)
97
— Income tax expense
—
Net income
9
(3)
6
(22)
24
61
—
(24)
39
Investment income
Income tax expense
Net income
Interest expense
Interest expense
Revenue
Fuel expense
Income tax expense
Net income
Compensation and
benefits
Compensation and
benefits
Compensation and
benefits
Income tax expense
Net income
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Detail of the gains (losses) reclassified from AOCI to the statements of consolidated income for the years ended
December 31, 2014, 2013 and 2012 is as follows (in millions):
2014 Amount
Reclassified
from AOCI
2013 Amount
Reclassified
from AOCI
2012 Amount
Reclassified
from AOCI
Affected Line Item in the
Income Statement
$
— $
161
$
—
Other expenses
Foreign currency translation gain (loss):
Liquidation of foreign subsidiary
Income tax (expense) benefit
Impact on net income
Unrealized gain (loss) on marketable securities:
Realized gain (loss) on sale of securities
Income tax (expense) benefit
Impact on net income
Unrealized gain (loss) on cash flow hedges:
Interest rate contracts
Foreign exchange contracts
Foreign exchange contracts
Commodity contracts
Income tax (expense) benefit
Impact on net income
—
—
1
—
1
(23)
(48)
(24)
—
35
(60)
—
161
5
(2)
3
(22)
18
(53)
(48)
39
(66)
Unrecognized pension and postretirement benefit costs:
Prior service costs
Settlement and curtailment loss
Remeasurement of benefit obligation
Income tax (expense) benefit
Impact on net income
(170)
(356)
(1,806)
870
(1,462)
(178)
(5,011)
—
—
67
(111)
—
—
1,876
(3,135)
Total amount reclassified for the period
$
(1,521) $
(13) $
(3,090)
Net income
98
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred Compensation Obligations and Treasury Stock
We maintain a deferred compensation plan whereby certain employees were previously able to elect to defer the gains on
stock option exercises by deferring the shares received upon exercise into a rabbi trust. The shares held in this trust are
classified as treasury stock, and the liability to participating employees is classified as “deferred compensation obligations” in
the shareowners’ equity section of the consolidated balance sheets. The number of shares needed to settle the liability for
deferred compensation obligations is included in the denominator in both the basic and diluted earnings per share calculations.
Employees are generally no longer able to defer the gains from stock options exercised subsequent to December 31, 2004.
Activity in the deferred compensation program for the years ended December 31, 2014, 2013 and 2012 is as follows (in
millions):
Deferred Compensation Obligations
Balance at beginning of year
Reinvested dividends
Options exercise deferrals
Benefit payments
Balance at end of year
Treasury Stock
Balance at beginning of year
Reinvested dividends
Options exercise deferrals
Benefit payments
Balance at end of year
Noncontrolling Interests
2014
2013
2012
Shares
Dollars
Shares
Dollars
Shares
Dollars
$
$
(1) $
—
—
—
(1) $
69
2
—
(12)
59
(69)
(2)
—
12
(59)
$
$
(1) $
—
—
—
(1) $
78
4
—
(13)
69
(78)
(4)
—
13
(69)
$
$
(2) $
—
—
1
(1) $
88
3
—
(13)
78
(88)
(3)
—
13
(78)
We have noncontrolling interests in certain consolidated subsidiaries in our International Package and Supply Chain &
Freight segments, primarily in international locations. The activity related to our noncontrolling interests is presented below (in
millions):
Noncontrolling Interests
Balance at beginning of period
Purchase of noncontrolling interests
Dividends attributable to noncontrolling interests
Net income attributable to noncontrolling interests
Balance at end of period
2014
2013
2012
$
$
14
3
—
—
17
$
$
80
(66)
—
—
14
$
$
73
7
—
—
80
In January 2013, we repurchased the noncontrolling interest in our joint venture that operates in the Middle East, Turkey,
and portions of the Central Asia region for $70 million. After this transaction, we own 100% of this entity.
99
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. STOCK-BASED COMPENSATION
The UPS Incentive Compensation Plan permits the grant of nonqualified and incentive stock options, stock appreciation
rights, restricted stock and stock units, and restricted performance shares and units, to eligible employees. The number of shares
reserved for issuance under the Incentive Compensation Plan is 27 million. Each share issued pursuant to restricted stock units
and restricted performance units (collectively referred to as "Restricted Units"), stock options and other permitted awards will
reduce the share reserve by one share. We had 16 million shares available to be issued under the Incentive Compensation Plan
as of December 31, 2014.
There are currently three primary awards granted to eligible employees under the UPS Incentive Compensation Plan,
including the Management Incentive Award, Long-Term Incentive Performance Award and Non-Qualified Stock Option Award.
These awards are discussed in the following paragraphs. The total expense recognized in our income statement under all stock
compensation award programs was $536, $513 and $547 million during 2014, 2013 and 2012, respectively. The associated
income tax benefit recognized in our income statement was $199, $190 and $201 million during 2014, 2013 and 2012,
respectively. The cash income tax benefit received from the exercise of stock options and the lapsing of Restricted Units was
$261, $286 and $265 million during 2014, 2013 and 2012, respectively.
Management Incentive Award
Non-executive management earning the right to receive the Management Incentive Award are determined annually by the
Salary Committee, which is comprised of executive officers of the Company. Awards granted to executive officers are
determined annually by the Compensation Committee of the UPS Board of Directors. Our Management Incentive Award
program provides, with certain exceptions, that one-half to two-thirds of the annual Management Incentive Award will be made
in Restricted Units (depending upon the level of management involved). The other one-third to one-half of the award is in the
form of cash or unrestricted shares of class A common stock, and is fully vested at the time of grant.
Upon vesting, Restricted Units result in the issuance of the equivalent number of UPS class A common shares after
required tax withholdings. Except in the case of death, disability, or retirement, Restricted Units granted for our Management
Incentive Award generally vest over a five year period with approximately 20% of the award vesting at each anniversary date of
the grant. The entire grant is expensed on a straight-line basis over the requisite service period. All Restricted Units granted are
subject to earlier cancellation or vesting under certain conditions. Dividends earned on Restricted Units are reinvested in
additional Restricted Units at each dividend payable date.
Long-Term Incentive Performance Award granted prior to 2014
We awarded Restricted Units in conjunction with our Long-Term Incentive Performance Award program to certain
eligible employees. The Restricted Units ultimately granted under the Long-Term Incentive Performance Award program are
based upon the achievement of certain performance measures, including growth in consolidated revenue and operating return
on invested capital, each year during the performance award cycle, and other measures, including the achievement of an
adjusted earnings per share target, over the entire three year performance award cycle. The Restricted Units granted under this
program vest at the end of the three year performance award cycle, except in the case of death disability, or retirement, in which
case immediate vesting occurs.
As of December 31, 2014, we had the following Restricted Units outstanding, including reinvested dividends, that were
granted under our Management Incentive Award program and Long-Term Incentive Performance Award program (granted prior
to 2014):
Nonvested at January 1, 2014
Vested
Granted
Reinvested Dividends
Forfeited / Expired
Nonvested at December 31, 2014
Restricted Units Expected to Vest
Shares
(in thousands)
12,748
(6,455)
5,064
363
(161)
11,559
11,292
Weighted Average
Grant Date
Fair Value
Weighted Average Remaining
Contractual Term
(in years)
Aggregate Intrinsic
Value (in millions)
74.60
71.61
92.35
N/A
81.73
82.58
82.62
$
$
$
100
1.39
1.38
$
$
1,285
1,255
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of each Restricted Unit is the NYSE closing price of class B common stock on the date of grant. The
weighted-average grant date fair value of Restricted Units granted during 2014, 2013 and 2012 was $92.35, $80.18 and $77.21,
respectively. The total fair value of Restricted Units vested was $579, $510 and $627 million in 2014, 2013 and 2012,
respectively. As of December 31, 2014, there was $483 million of total unrecognized compensation cost related to nonvested
Restricted Units. That cost is expected to be recognized over a weighted average period of three years.
Long-Term Incentive Performance Award granted in 2014
Beginning with the Long-Term Incentive Performance grant in 2014, the performance targets are equally-weighted
among consolidated operating return on invested capital, growth in consolidated revenue, and total shareowner return relative to
a peer group of companies. The Restricted Units granted under this award generally vest at the end of a three-year period
(except in the case of death disability, or retirement, in which case immediate vesting occurs on a prorated basis). The number
of Restricted Units earned will be based on the percentage achievement of the performance targets set forth on the grant date.
The range of percentage achievement can vary from 0% to 200% of the target award.
For the two-thirds of the award related to consolidated operating return on invested capital and growth in consolidated
revenue, we recognize the grant-date fair value of these units (less estimated forfeitures) as compensation expense ratably over
the vesting period, based on the number of awards expected to be earned. The remaining one-third of the award related to total
shareowner return relative to a peer group is valued using a Monte Carlo model. This portion of the award was valued at a share
payout of 109.84% of the target grant, and is recognized as compensation expense (less estimated forfeitures) ratably over the
vesting period.
As of December 31, 2014, we had the following Restricted Units outstanding, including reinvested dividends, that were
granted under our 2014 Long-Term Incentive Performance Award:
Shares
(in thousands)
Weighted
Average
Grant Date
Fair Value
Weighted Average Remaining
Contractual Term
(in years)
Aggregate Intrinsic
Value (in millions)
Nonvested at January 1, 2014
Vested
Granted
Reinvested Dividends
Forfeited / Expired
Nonvested at December 31, 2014
Performance Units Expected to Vest
— $
(28)
932
17
(106)
815
777
$
$
—
96.98
96.98
N/A
96.98
96.98
96.98
2.08
2.08
$
$
91
86
The fair value of each Restricted Unit is the NYSE closing price of class B common stock on the date of grant. The
weighted-average grant date fair value of Restricted Units granted during 2014 was $96.98. The total fair value of Restricted
Units vested was $2 million in 2014. As of December 31, 2014, there was $54 million of total unrecognized compensation cost
related to nonvested Restricted Units. That cost is expected to be recognized over a weighted average period of two years.
Nonqualified Stock Options
We maintain fixed stock option plans, under which options are granted to purchase shares of UPS class A common stock.
Stock options granted in connection with the Incentive Compensation Plan must have an exercise price at least equal to the
NYSE closing price of UPS class B common stock on the date the option is granted.
Executive officers and certain senior managers receive a non-qualified stock option grant annually, in which the value
granted is determined as a percentage of salary. Options granted generally vest over a five year period with approximately 20%
of the award vesting at each anniversary date of the grant. All options granted are subject to earlier cancellation or vesting under
certain conditions. Option holders may exercise their options via the tender of cash or class A common stock, and new class A
shares are issued upon exercise.
101
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is an analysis of options to purchase shares of class A common stock issued and outstanding:
Outstanding at January 1, 2014
Exercised
Granted
Forfeited / Expired
Outstanding at December 31, 2014
Options Vested and Expected to Vest
Exercisable at December 31, 2014
Shares
(in thousands)
5,212
(1,620)
127
(28)
3,691
3,691
3,356
Weighted Average
Exercise
Price
Weighted Average Remaining
Contractual Term
(in years)
Aggregate Intrinsic
Value (in millions)
$
$
$
$
73.73
72.52
96.98
72.82
75.07
75.07
74.20
2.85
2.85
2.35
$
$
$
133
133
124
The fair value of each option grant is estimated using the Black-Scholes option pricing model. The weighted average
assumptions used, by year, and the calculated weighted average fair values of options, are as follows:
Expected dividend yield
Risk-free interest rate
Expected life in years
Expected volatility
Weighted average fair value of options granted
2014
2013
2012
2.56%
2.40%
7.5
24.26%
20.48
$
2.75%
1.38%
7.5
24.85%
15.50
$
2.77%
1.63%
7.5
25.06%
14.88
$
Expected volatilities are based on the historical returns on our stock and the implied volatility of our publicly-traded
options. The expected dividend yield is based on the recent historical dividend yields for our stock, taking into account changes
in dividend policy. The risk-free interest rate is based on the term structure of interest rates at the time of the option grant. The
expected life represents an estimate of the period of time options are expected to remain outstanding, and we have relied upon a
combination of the observed exercise behavior of our prior grants with similar characteristics, the vesting schedule of the
grants, and an index of peer companies with similar grant characteristics in estimating this variable.
We received cash of $85, $292 and $122 million during 2014, 2013 and 2012, respectively, from option holders resulting
from the exercise of stock options. The total intrinsic value of options exercised during 2014, 2013 and 2012 was $47, $92 and
$39 million, respectively. As of December 31, 2014, there was $1 million of total unrecognized compensation cost related to
nonvested options. That cost is expected to be recognized over a weighted average period of 3 years and 2 months.
The following table summarizes information about stock options outstanding and exercisable at December 31, 2014:
Exercise Price Range
$50.01 - $70.00
$70.01 - $80.00
$80.01 - $90.00
$90.01 - $100.00
Options Outstanding
Options Exercisable
Shares
(in thousands)
264
2,118
1,182
127
3,691
Average Life
(in years)
Average
Exercise
Price
4.85
2.52
2.30
9.18
2.85
$
$
61.52
72.05
81.17
96.98
75.07
Shares
(in thousands)
246
2,002
1,081
27
3,356
$
$
Average
Exercise
Price
61.11
71.82
81.00
96.98
74.20
Discounted Employee Stock Purchase Plan
We maintain an employee stock purchase plan for all eligible employees. Under this plan, shares of UPS class A common
stock may be purchased at quarterly intervals at 95% of the NYSE closing price of UPS class B common stock on the last day
of each quarterly period. Employees purchased 0.9, 1.1 and 1.2 million shares at average prices of $95.67, $79.74 and $72.17
per share during 2014, 2013 and 2012, respectively. This plan is not considered to be compensatory, and therefore no
compensation cost is measured for the employees’ purchase rights.
102
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. SEGMENT AND GEOGRAPHIC INFORMATION
We report our operations in three segments: U.S. Domestic Package operations, International Package operations and
Supply Chain & Freight operations. Package operations represent our most significant business and are broken down into
regional operations around the world. Regional operations managers are responsible for both domestic and export products
within their geographic area.
U.S. Domestic Package
Domestic Package operations include the time-definite delivery of letters, documents and packages throughout the United
States.
International Package
International Package operations include delivery to more than 220 countries and territories worldwide, including
shipments wholly outside the United States, as well as shipments with either origin or destination outside the United States. Our
International Package reporting segment includes the operations of our Europe, Asia, Americas and ISMEA (Indian
Subcontinent, Middle East and Africa) operating segments.
Supply Chain & Freight
Supply Chain & Freight includes our forwarding and logistics operations, UPS Freight and other aggregated business
units. Our forwarding and logistics business provides services in more than 195 countries and territories worldwide, and
includes international air and ocean freight forwarding, customs brokerage, distribution and post-sales services, and mail and
consulting services. UPS Freight offers a variety of LTL and TL services to customers in North America. Other aggregated
business units within this segment include The UPS Store, UPS Capital and UPS Customer Solutions.
In evaluating financial performance, we focus on operating profit as a segment’s measure of profit or loss. Operating
profit is before investment income, interest expense and income taxes. The accounting policies of the reportable segments are
the same as those described in the summary of accounting policies (see note 1), with certain expenses allocated between the
segments using activity-based costing methods. Unallocated assets are comprised primarily of cash, marketable securities, and
certain investment partnerships.
Segment information as of, and for the years ended, December 31 is as follows (in millions):
Revenue:
U.S. Domestic Package
International Package
Supply Chain & Freight
Consolidated
Operating Profit:
U.S. Domestic Package
International Package
Supply Chain & Freight
Consolidated
Assets:
U.S. Domestic Package
International Package
Supply Chain & Freight
Unallocated
Consolidated
Depreciation and Amortization Expense:
U.S. Domestic Package
International Package
Supply Chain & Freight
Consolidated
103
2014
2013
2012
$
$
$
$
$
$
$
$
35,851
12,988
9,393
58,232
2,859
1,677
432
4,968
20,716
7,853
6,024
878
35,471
1,276
478
169
1,923
$
$
$
$
$
$
$
$
34,074
12,429
8,935
55,438
4,603
1,757
674
7,034
19,648
8,463
6,624
1,477
36,212
1,229
473
165
1,867
$
$
$
$
$
$
$
$
32,856
12,124
9,147
54,127
459
869
15
1,343
19,934
11,248
6,610
1,071
38,863
1,220
475
163
1,858
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue by product type for the years ended December 31 is as follows (in millions):
U.S. Domestic Package:
Next Day Air
Deferred
Ground
Total U.S. Domestic Package
International Package:
Domestic
Export
Cargo
Total International Package
Supply Chain & Freight:
Forwarding and Logistics
Freight
Other
Total Supply Chain & Freight
Consolidated
2014
2013
2012
$
$
6,581
3,672
25,598
35,851
2,784
9,586
618
12,988
5,758
3,048
587
9,393
58,232
$
$
6,443
3,437
24,194
34,074
2,667
9,166
596
12,429
5,492
2,882
561
8,935
55,438
$
$
6,412
3,392
23,052
32,856
2,531
9,033
560
12,124
5,977
2,640
530
9,147
54,127
Geographic information as of, and for the years ended, December 31 is as follows (in millions):
United States:
Revenue
Long-lived assets
International:
Revenue
Long-lived assets
Consolidated:
Revenue
Long-lived assets
2014
2013
2012
$
$
$
$
$
$
43,840
15,902
14,392
6,105
58,232
22,007
$
$
$
$
$
$
41,772
15,651
13,666
6,297
55,438
21,948
$
$
$
$
$
$
40,428
16,262
13,699
5,312
54,127
21,574
Long-lived assets include property, plant and equipment, pension and postretirement benefit assets, long-term
investments, goodwill, and intangible assets.
No countries outside of the United States, nor any individual customers, provided 10% or more of consolidated revenue
for the years ended December 31, 2014, 2013 or 2012.
104
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. INCOME TAXES
The income tax expense (benefit) for the years ended December 31 consists of the following (in millions):
Current:
U.S. Federal
U.S. State and Local
Non-U.S.
Total Current
Deferred:
U.S. Federal
U.S. State and Local
Non-U.S.
Total Deferred
Total
Income before income taxes includes the following components (in millions):
United States
Non-U.S.
2014
2013
2012
$
$
$
$
932
103
185
1,220
427
(11)
(31)
385
1,605
2014
3,819
818
4,637
$
$
$
$
2,181
205
162
2,548
(242)
(22)
18
(246)
2,302
2013
6,040
634
6,674
$
$
$
$
1,901
182
167
2,250
(1,871)
(201)
(11)
(2,083)
167
2012
384
590
974
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:
Statutory U.S. federal income tax rate
U.S. state and local income taxes (net of federal benefit)
Non-U.S. tax rate differential
Nondeductible/nontaxable items
U.S. federal tax credits
Other
Effective income tax rate
2014
2013
2012
35.0%
1.2
(2.4)
1.3
(1.5)
1.0
34.6%
35.0%
2.1
(1.3)
(0.2)
(1.2)
0.1
34.5%
35.0%
—
(6.1)
(0.4)
(7.4)
(4.0)
17.1%
Our effective tax rate increased to 34.6% in 2014, compared with 34.5% in 2013, largely due to the impact of the gain
from liquidating a foreign subsidiary in early 2013 not being taxable (see note 15), offset by favorable changes in the proportion
of our taxable income in certain U.S. and non-U.S. jurisdictions relative to total pre-tax income and the increase in U.S. Federal
and state tax credits relative to total pre-tax income.
Beginning in 2012, we were granted a tax incentive for certain of our non-U.S. operations, which is effective through
December 31, 2017 and may be extended through December 31, 2022 if additional requirements are satisfied. The tax
incentive is conditional upon our meeting specific employment and investment thresholds. The impact of this tax incentive
decreased non-U.S. tax expense by $21 and $20 million for 2014 and 2013, respectively.
105
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax liabilities and assets are comprised of the following at December 31 (in millions):
Fixed assets and capitalized software
Other
Deferred tax liabilities
Pension and postretirement benefits
Loss and credit carryforwards (non-U.S. and state)
Insurance reserves
Stock compensation
Other
Deferred tax assets
Deferred tax assets valuation allowance
Deferred tax asset (net of valuation allowance)
Net deferred tax asset (liability)
Amounts recognized in the consolidated balance sheets:
Current deferred tax assets
Current deferred tax liabilities (included in other current liabilities)
Non-current deferred tax assets
Non-current deferred tax liabilities
Net deferred tax asset (liability)
2014
(4,816) $
(424)
(5,240)
4,722
250
745
242
630
6,589
(208)
6,381
1,141
$
2013
(4,624)
(756)
(5,380)
3,086
279
765
70
933
5,133
(251)
4,882
(498)
590
(18)
652
(83)
1,141
$
$
684
(48)
110
(1,244)
(498)
$
$
$
$
The valuation allowance changed by $(43), $31 and $15 million during the years ended December 31, 2014, 2013 and
2012, respectively.
We have U.S. state and local operating loss and credit carryforwards as follows (in millions):
U.S. state and local operating loss carryforwards
U.S. state and local credit carryforwards
2014
2013
$
$
815
52
$
$
546
42
The operating loss carryforwards expire at varying dates through 2034. The state credits can be carried forward for
periods ranging from three years to indefinitely.
We also have non-U.S. loss carryforwards of approximately $586 million as of December 31, 2014, the majority of which
may be carried forward indefinitely. As indicated in the table above, we have established a valuation allowance for certain non-
U.S. and state carryforwards, due to the uncertainty resulting from a lack of previous taxable income within the applicable tax
jurisdictions.
Undistributed earnings of foreign subsidiaries amounted to approximately $4.683 billion at December 31, 2014. Those
earnings are considered to be indefinitely reinvested and, accordingly, no deferred income taxes have been provided thereon.
Upon distribution of those earnings in the form of dividends or otherwise, we would be subject to income taxes and withholding
taxes payable in various jurisdictions, which could potentially be offset by foreign tax credits. Determination of the amount of
unrecognized deferred income tax liability is not practicable because of the complexities associated with its hypothetical
calculation.
106
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the activity related to our unrecognized tax benefits (in millions):
Tax
Interest
Penalties
Balance at January 1, 2012
Additions for tax positions of the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years for:
Changes based on facts and circumstances
Settlements during the period
Lapses of applicable statute of limitations
Balance at December 31, 2012
Additions for tax positions of the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years for:
Changes based on facts and circumstances
Settlements during the period
Lapses of applicable statute of limitations
Balance at December 31, 2013
Additions for tax positions of the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years for:
Changes based on facts and circumstances
Settlements during the period
Lapses of applicable statute of limitations
Balance at December 31, 2014
$
$
252
13
7
(22)
(3)
(15)
232
15
20
(67)
(8)
(1)
191
15
51
(74)
(10)
(1)
172
$
$
73
—
9
(18)
(7)
(4)
53
—
9
(23)
1
—
40
—
13
(8)
(2)
(1)
42
$
$
3
—
1
—
—
—
4
—
2
(1)
—
(1)
4
—
—
—
—
(1)
3
The total amount of gross unrecognized tax benefits as of December 31, 2014, 2013 and 2012 that, if recognized, would
affect the effective tax rate was $166, $185 and $224 million, respectively. We also had gross recognized tax benefits of $54,
$281 and $280 million recorded as of December 31, 2014, 2013 and 2012, respectively, associated with outstanding refund
claims for prior tax years. We had a net payable recorded with respect to prior years’ income tax matters in the accompanying
consolidated balance sheets as of December 31, 2014, and a net receivable recorded with respect to prior years’ income tax
matters as of December 31, 2013 and 2012. We have also recognized a receivable for interest of $4, $25 and $23 million for the
recognized tax benefits associated with outstanding refund claims as of December 31, 2014, 2013 and 2012, respectively. Our
continuing practice is to recognize interest and penalties associated with income tax matters as a component of income tax
expense.
We file income tax returns in the U.S. federal jurisdiction, most U.S. state and local jurisdictions, and many non-U.S.
jurisdictions. We have substantially resolved all U.S. federal income tax matters for tax years prior to 2010.
In June 2011, we received an IRS Revenue Agent Report ("RAR") covering income taxes for tax years 2005 through
2007. The income tax RAR proposed adjustments related to the value of acquired software and intangibles, research credit
expenditures, and the amount of deductible costs associated with our British Pound Sterling Notes exchange offer completed in
May 2007. Receipt of the RAR represents only the conclusion of the examination process. We disagreed with some of the
proposed adjustments related to these matters. Therefore, we filed protests and, in the third quarter of 2011, the IRS responded
to our protests and forwarded the case to IRS Appeals.
In July 2013, we began resolution discussions with IRS Appeals on the income tax matters. In the second quarter of 2014,
we reached a final resolution with IRS Appeals on all income tax matters for the 2005 through 2007 tax years and received a net
refund of tax and interest totaling $145 million during the second quarter of 2014. The resolution of these matters and
subsequent refund of tax and interest did not have a material impact on net income.
107
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In February 2014, we began resolution discussions with IRS Appeals related to an RAR received for tax years 2008 and
2009. In the third quarter of 2014, we reached a final resolution with IRS Appeals on all income tax matters for the 2008 and
2009 tax years. In the fourth quarter of 2014 we received a net refund of tax and interest totaling $26 million. The resolution of
these matters and subsequent refund of tax and interest did not have a material impact on net income.
A number of years may elapse before an uncertain tax position is audited and ultimately settled. It is difficult to predict the
ultimate outcome or the timing of resolution for uncertain tax positions. It is reasonably possible that the amount of
unrecognized tax benefits could significantly increase or decrease within the next twelve months. Items that may cause changes
to unrecognized tax benefits include the timing of interest deductions and the allocation of income and expense between tax
jurisdictions. These changes could result from the settlement of ongoing litigation, the completion of ongoing examinations, the
expiration of the statute of limitations or other unforeseen circumstances. At this time, an estimate of the range of the
reasonably possible change cannot be made.
NOTE 13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (in millions, except per share
amounts):
Numerator:
2014
2013
2012
Net income attributable to common shareowners
$
3,032
$
4,372
$
807
Denominator:
Weighted average shares
Deferred compensation obligations
Vested portion of restricted shares
Denominator for basic earnings per share
Effect of dilutive securities:
Restricted performance units
Stock options
Denominator for diluted earnings per share
Basic earnings per share
Diluted earnings per share
913
1
2
916
7
1
924
3.31
3.28
$
$
937
1
2
940
7
1
948
4.65
4.61
$
$
957
1
2
960
8
1
969
0.84
0.83
$
$
Diluted earnings per share for the years ended December 31, 2014, 2013, and 2012 exclude the effect of 0.1, 0.1 and
2.6 million shares, respectively, of common stock that may be issued upon the exercise of employee stock options because such
effect would be antidilutive.
108
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT
Risk Management Policies
We are exposed to market risk, primarily related to foreign exchange rates, commodity prices and interest rates. These
exposures are actively monitored by management. To manage the volatility relating to certain of these exposures, we enter into a
variety of derivative financial instruments. Our objective is to reduce, where it is deemed appropriate to do so, fluctuations in
earnings and cash flows associated with changes in foreign currency rates, commodity prices and interest rates. It is our policy and
practice to use derivative financial instruments only to the extent necessary to manage exposures. As we use price sensitive
instruments to hedge a certain portion of our existing and anticipated transactions, we expect that any loss in value for those
instruments generally would be offset by increases in the value of those hedged transactions. We do not hold or issue derivative
financial instruments for trading or speculative purposes.
Credit Risk Management
The forward contracts, swaps and options discussed below contain an element of risk that the counterparties may be unable to
meet the terms of the agreements. However, we minimize such risk exposures for these instruments by limiting the counterparties to
financial institutions that meet established credit guidelines and monitoring counterparty credit risk to prevent concentrations of
credit risk with any single counterparty.
We have agreements with all of our active counterparties (covering the majority of our derivative positions) containing early
termination rights and/or zero threshold bilateral collateral provisions whereby cash is required based on the net fair value of
derivatives associated with those counterparties. Events such as a counterparty credit rating downgrade (depending on the ultimate
rating level) could also allow us to take additional protective measures such as the early termination of trades. At December 31,
2014, we held cash collateral of $548 million under these agreements.
In connection with the agreements described above, we could also be required to provide additional collateral or terminate
transactions with certain counterparties in the event of a downgrade of our credit rating. The amount of collateral required would be
determined by the net fair value of the associated derivatives with each counterparty. At December 31, 2014, we were required to
post $1 million in collateral with our counterparties. At December 31, 2014, there were no instruments in a net liability position that
were not covered by the zero threshold bilateral collateral provisions.
We have not historically incurred, and do not expect to incur in the future, any losses as a result of counterparty default.
Accounting Policy for Derivative Instruments
We recognize all derivative instruments as assets or liabilities in the consolidated balance sheets at fair value. The accounting
for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging
relationship and, further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as
hedging instruments, we must designate the derivative, based upon the exposure being hedged, as a cash flow hedge, a fair value
hedge or a hedge of a net investment in a foreign operation.
A cash flow hedge refers to hedging the exposure to variability in expected future cash flows that is attributable to a particular
risk. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the
derivative instrument is reported as a component of AOCI, and reclassified into earnings in the same period during which the
hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in
the present value of future cash flows of the hedged item, or hedge components excluded from the assessment of effectiveness, are
recognized in the statements of consolidated income during the current period.
A fair value hedge refers to hedging the exposure to changes in the fair value of an existing asset or liability on the
consolidated balance sheets that is attributable to a particular risk. For derivative instruments that are designated and qualify as a fair
value hedge, the gain or loss on the derivative instrument is recognized in the statements of consolidated income during the current
period, as well as the offsetting gain or loss on the hedged item.
A net investment hedge refers to the use of cross currency swaps, forward contracts or foreign currency denominated debt to
hedge portions of our net investments in foreign operations. For hedges that meet the effectiveness requirements, the net gains or
losses attributable to changes in spot exchange rates are recorded in the cumulative translation adjustment within AOCI. The
remainder of the change in value of such instruments is recorded in earnings.
109
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Types of Hedges
Commodity Risk Management
Currently, the fuel surcharges that we apply to our domestic and international package and LTL services are the primary
means of reducing the risk of adverse fuel price changes on our business. We periodically enter into option contracts on energy
commodity products to manage the price risk associated with forecasted transactions involving refined fuels, principally jet-A,
diesel and unleaded gasoline. The objective of the hedges is to reduce the variability of cash flows, due to changing fuel prices,
associated with the forecasted transactions involving those products. We have designated and account for these contracts as cash
flow hedges of the underlying forecasted transactions involving these fuel products and, therefore, the resulting gains and losses
from these hedges are recognized as a component of fuel expense or revenue when the underlying transactions occur.
Foreign Currency Risk Management
To protect against the reduction in value of forecasted foreign currency cash flows from our international package business,
we maintain a foreign currency cash flow hedging program. Our most significant foreign currency exposures relate to the Euro,
British Pound Sterling, Canadian Dollar, Chinese Renminbi and Hong Kong Dollar. We hedge portions of our forecasted revenue
denominated in foreign currencies with option contracts. We have designated and account for these contracts as cash flow hedges of
anticipated foreign currency denominated revenue and, therefore, the resulting gains and losses from these hedges are recognized as
a component of international package revenue when the underlying sales transactions occur.
We also hedge portions of our anticipated cash settlements of intercompany transactions subject to foreign currency
remeasurement using foreign currency forward contracts. We have designated and account for these contracts as cash flow hedges of
forecasted foreign currency denominated transactions, and therefore the resulting gains and losses from these hedges are recognized
as a component of other operating expense when the underlying transactions are subject to currency remeasurement.
We have foreign currency denominated debt obligations and capital lease obligations associated with our aircraft. For some of
these debt obligations and leases, we hedge the foreign currency denominated contractual payments using cross-currency interest
rate swaps, which effectively convert the foreign currency denominated contractual payments into U.S. Dollar denominated
payments. We have designated and account for these swaps as cash flow hedges of the forecasted contractual payments and,
therefore, the resulting gains and losses from these hedges are recognized in the statements of consolidated income when the
currency remeasurement gains and losses on the underlying debt obligations and leases are incurred.
Interest Rate Risk Management
Our indebtedness under our various financing arrangements creates interest rate risk. We use a combination of derivative
instruments, including interest rate swaps and cross-currency interest rate swaps, as part of our program to manage the fixed and
floating interest rate mix of our total debt portfolio and related overall cost of borrowing. The notional amount, interest payment and
maturity dates of the swaps match the terms of the associated debt being hedged. Interest rate swaps allow us to maintain a target
range of floating rate debt within our capital structure.
We have designated and account for interest rate swaps that convert fixed rate interest payments into floating rate interest
payments as hedges of the fair value of the associated debt instruments. Therefore, the gains and losses resulting from fair value
adjustments to the interest rate swaps and fair value adjustments to the associated debt instruments are recorded to interest expense
in the period in which the gains and losses occur. We have designated and account for interest rate swaps that convert floating rate
interest payments into fixed rate interest payments as cash flow hedges of the forecasted payment obligations. The gains and losses
resulting from fair value adjustments to these interest rate swaps are recorded to AOCI.
We periodically hedge the forecasted fixed-coupon interest payments associated with anticipated debt offerings, using forward
starting interest rate swaps, interest rate locks or similar derivatives. These agreements effectively lock a portion of our interest rate
exposure between the time the agreement is entered into and the date when the debt offering is completed, thereby mitigating the
impact of interest rate changes on future interest expense. These derivatives are settled commensurate with the issuance of the debt,
and any gain or loss upon settlement is amortized as an adjustment to the effective interest yield on the debt.
110
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Outstanding Positions
The notional amounts of our outstanding derivative positions were as follows as of December 31, 2014 and 2013 (in millions):
Currency Hedges:
Euro
British Pound Sterling
Canadian Dollar
Indian Rupee
Malaysian Ringgit
Mexican Peso
Interest Rate Hedges:
Fixed to Floating Interest Rate Swaps
Floating to Fixed Interest Rate Swaps
Interest Rate Basis Swaps
2014
2013
2,833
1,149
293
85
150
152
5,799
779
1,500
2,637
1,097
218
—
—
583
6,799
780
2,500
EUR
GBP
CAD
INR
MYR
MXN
USD
USD
USD
As of December 31, 2014, we had no outstanding commodity hedge positions. The maximum term over which we are hedging
exposures to the variability of cash flow is 35 years.
Balance Sheet Recognition
The following table indicates the location on the consolidated balance sheets in which our derivative assets and liabilities have
been recognized, and the related fair values of those derivatives as of December 31, 2014 and 2013 (in millions). The table is
segregated between those derivative instruments that qualify and are designated as hedging instruments and those that are not, as
well as by type of contract and whether the derivative is in an asset or liability position.
We have master netting arrangements with substantially all of our counterparties giving us the right of offset for our derivative
positions. However, we have not elected to offset the fair value positions of our derivative contracts recorded on our consolidated
balance sheets. The columns labeled "net amounts if right of offset had been applied" indicate the potential net fair value positions
by type of contract and location on the consolidated balance sheets had we elected to apply the right of offset.
Asset Derivatives
Derivatives designated as hedges:
Foreign exchange contracts
Interest rate contracts
Foreign exchange contracts
Interest rate contracts
Derivatives not designated as hedges:
Foreign exchange contracts
Interest rate contracts
Total Asset Derivatives
Balance Sheet Location
2014
2013
2014
2013
Gross Amounts Presented in
Consolidated Balance Sheets
Net Amounts if Right of
Offset had been Applied
Other current assets
$
204
$
Other current assets
Other non-current assets
Other non-current assets
Other current assets
Other non-current assets
—
229
227
2
59
10
7
59
204
7
60
$
204
$
—
229
194
2
57
$
721
$
347
$
686
$
4
7
59
110
5
57
242
111
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
—
—
10
5
1
—
16
6
44
(48)
2
Liability Derivatives
Derivatives designated as hedges:
Foreign exchange contracts
Foreign exchange contracts
Interest rate contracts
Derivatives not designated as hedges:
Foreign exchange contracts
Interest rate contracts
Interest rate contracts
Total Liability Derivatives
Income Statement and AOCI Recognition
Balance Sheet Location
2014
2013
2014
2013
Gross Amounts Presented in
Consolidated Balance Sheets
Net Amounts if Right of
Offset had been Applied
Other current liabilities
$
— $
Other non-current liabilities
Other non-current liabilities
Other current liabilities
Other current liabilities
Other non-current liabilities
34
35
—
1
7
6
—
104
7
1
3
$
— $
34
2
—
1
5
$
77
$
121
$
42
$
The following table indicates the amount of gains and losses that have been recognized in AOCI for the years ended
December 31, 2014 and 2013 for those derivatives designated as cash flow hedges (in millions):
Derivative Instruments in Cash Flow Hedging Relationships
Interest rate contracts
Foreign exchange contracts
Commodity contracts
Total
Amount of Gain (Loss) Recognized in AOCI on
Derivative (Effective Portion)
2014
2013
$
$
(5) $
358
—
353
$
As of December 31, 2014, $135 million of pre-tax gains related to cash flow hedges that are currently deferred in AOCI are
expected to be reclassified to income over the 12 month period ended December 31, 2015. The actual amounts that will be
reclassified to income over the next 12 months will vary from this amount as a result of changes in market conditions.
The amount of ineffectiveness recognized in income on derivative instruments designated in cash flow hedging relationships
was immaterial for the years ended December 31, 2014, 2013 and 2012.
The following table indicates the amount and location in the statements of consolidated income in which derivative gains and
losses, as well as the associated gains and losses on the underlying exposure, have been recognized for those derivatives designated
as fair value hedges for the years ended December 31, 2014 and 2013 (in millions):
Derivative Instruments
in Fair Value Hedging
Relationships
Interest rate
contracts
Location of
Gain (Loss)
Recognized in
Income
Amount of Gain (Loss)
Recognized in Income
2014
2013
Interest Expense
$
90
$
(306)
Hedged Items in
Fair Value Hedging
Relationships
Fixed-Rate Debt
and Capital Leases
Location of
Gain (Loss)
Recognized in
Income
Amount of Gain (Loss)
Recognized in Income
2014
2013
Interest Expense
$
(90) $
306
Additionally, we maintain some foreign exchange forward, interest rate swap, and commodity contracts that are not
designated as hedges. These foreign exchange forward contracts are intended to provide an economic offset to foreign currency
remeasurement risks for certain assets and liabilities in our consolidated balance sheets. These interest rate swap contracts are
intended to provide an economic hedge of a portfolio of interest bearing receivables. These commodity contracts are intended to
provide a short-term economic offset to fuel expense changes due to price fluctuations.
We also periodically terminate interest rate swaps and foreign currency options by entering into offsetting swap and foreign
currency positions with different counterparties. As part of this process, we de-designate our original swap and foreign currency
contracts. These transactions provide an economic offset that effectively eliminates the effects of changes in market valuation.
112
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We have entered into several interest rate basis swaps, which effectively convert cash flows based on variable LIBOR-based
interest rates to cash flows based on the prevailing federal funds interest rate. These swaps are not designated as hedges, and all
amounts related to fair value changes and settlements are recorded to interest expense in the statements of consolidated income.
The following is a summary of the amounts recorded in the statements of consolidated income related to fair value changes
and settlements of these foreign currency forward, interest rate swap, and commodity contracts not designated as hedges for the
years ended December 31, 2014 and 2013 (in millions):
Derivative Instruments Not Designated in
Hedging Relationships
Commodity contracts
Foreign exchange contracts
Foreign exchange contracts
Interest rate contracts
Total
Fair Value Measurements
Location of Gain
(Loss) Recognized
in Income
Fuel Expense
Other Expenses
Investment Income
Interest Expense
Amount of Gain (Loss)
Recognized in Income
2014
2013
$
$
(15) $
27
7
(5)
14
$
—
72
(5)
(4)
63
Our foreign currency, interest rate and energy derivatives are largely comprised of over-the-counter derivatives, which are
primarily valued using pricing models that rely on market observable inputs such as yield curves, currency exchange rates and
commodity forward prices, and therefore are classified as Level 2. The fair values of our derivative assets and liabilities as of
December 31, 2014 and 2013 by hedge type are as follows (in millions):
2014
Assets
Foreign Exchange Contracts
Interest Rate Contracts
Total
Liabilities
Foreign Exchange Contracts
Interest Rate Contracts
Total
2013
Assets
Foreign Exchange Contracts
Interest Rate Contracts
Total
Liabilities
Foreign Exchange Contracts
Interest Rate Contracts
Total
Quoted Prices in
Active Markets
for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
$
$
— $
—
— $
— $
—
— $
435
286
721
34
43
77
$
$
$
$
— $
—
— $
— $
—
— $
Quoted Prices in
Active Markets
for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
— $
—
— $
— $
—
— $
76
271
347
13
108
121
$
$
$
$
— $
—
— $
— $
—
— $
$
$
$
$
113
435
286
721
34
43
77
76
271
347
13
108
121
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. TERMINATION OF TNT TRANSACTION
TNT Termination Fee and Related Costs
On January 30, 2013, the European Commission issued a formal decision prohibiting our proposed acquisition of TNT
Express N.V. (“TNT Express”). As a result of the prohibition by the European Commission, the condition of our offer requiring
European Union competition clearance was not fulfilled, and our proposed acquisition of TNT Express could not be completed.
Given this outcome, UPS and TNT Express entered a separate agreement to terminate the merger protocol, and we withdrew
our formal offer for TNT Express. We paid a termination fee to TNT Express of €200 million ($268 million) under this
agreement, and also incurred transaction-related expenses of $16 million during the first quarter of 2013. The combination of
these items resulted in a pre-tax charge of $284 million ($177 million after-tax), which impacted our International Package
segment.
Gain upon the Liquidation of a Foreign Subsidiary
Subsequent to the termination of the merger protocol, we liquidated a foreign subsidiary that would have been used to
acquire the outstanding shares of TNT Express in connection with the proposed acquisition. Upon the liquidation of this
subsidiary in the first quarter of 2013, we realized a pre-tax foreign currency gain of $245 million ($213 million after-tax),
which impacted our International Package segment.
NOTE 16. QUARTERLY INFORMATION (unaudited)
Our revenue, segment operating profit, net income, basic and diluted earnings per share on a quarterly basis are presented
below (in millions, except per share amounts):
Revenue:
U.S. Domestic Package
International Package
Supply Chain & Freight
Total revenue
Operating profit (loss):
U.S. Domestic Package
International Package
Supply Chain & Freight
Total operating profit
Net income
Net income per share:
Basic
Diluted
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2014
2013
2014
2013
2014
2013
2014
2013
$ 8,488
3,127
2,164
13,779
$ 8,271
2,978
2,185
13,434
$ 8,668
3,252
2,348
14,268
$ 8,241
3,062
2,204
13,507
$ 8,691
3,183
2,416
14,290
$ 8,254
3,017
2,250
13,521
$ 10,004
3,426
2,465
15,895
$ 9,308
3,372
2,296
14,976
927
438
148
1,513
911
1,085
352
143
1,580
$ 1,037
0.99
0.98
$
$
1.09
1.08
$
$
$
$
$
$
209
444
94
747
454
1,132
451
159
1,742
$ 1,071
1,279
460
215
1,954
$ 1,214
1,186
417
201
1,804
$ 1,097
0.49
0.49
$
$
1.14
1.13
$
$
1.33
1.32
$
$
1.17
1.16
444
335
(25)
754
453
1,200
537
171
1,908
$ 1,167
0.50
0.49
$
$
1.26
1.25
$
$
$
Operating profit for the quarter ended December 31, 2014 was impacted by two items, as follows:
• A mark-to-market loss of $1.062 billion on our pension and postretirement benefit plans related to the remeasurement
of plan assets and liabilities recognized outside of a 10% corridor (allocated as follows—U.S. Domestic Package $660
million, International Package $200 million, Supply Chain & Freight $202 million). This loss reduced net income by
$670 million, and basic and diluted earnings per share by $0.74.
• A pre-tax charge of $36 million associated with the remeasurement and settlement of postretirement health and welfare
benefit obligations for certain employees covered by collective bargaining agreements (allocated as follows—U.S.
Domestic Package $33 million, International Package $1 million, Supply Chain & Freight $2 million). This charge
reduced net income by $22 million, and basic and diluted earnings per share by $0.02.
114
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Operating profit for the quarter ended June 30, 2014 was impacted by a pre-tax charge of $1.066 billion associated with
curtailment, remeasurement and settlement of postretirement health and welfare benefit obligations for certain employees
covered by collective bargaining agreements (allocated as follows—U.S. Domestic Package $957 million, International
Package $27 million, Supply Chain & Freight $82 million). This charge reduced net income by $665 million, and basic and
diluted earnings per share by $0.73 and $0.72, respectively.
The curtailment, remeasurement and settlement charges described above that impacted the quarters ended June 30, 2014
and December 31, 2014 are discussed further in note 5.
Operating profit for the quarter ended March 31, 2013 was impacted by two items: (1) The termination fee and
transaction-related expenses for our proposed acquisition of TNT Express, and (2) The foreign currency gain realized upon the
liquidation of a subsidiary that would have been used to acquire the shares of TNT Express. These two items are discussed
further in note 15. The combination of these two items reduced the operating profit for the International Package segment by
$39 million, increased net income by $36 million, and increased basic and diluted earnings per share by $0.04.
115
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures:
As of the end of the period covered by this report, management, including our chief executive officer and chief financial
officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures and internal controls
over financial reporting. Based upon, and as of the date of, the evaluation, our chief executive officer and chief financial officer
concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the
reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required and
is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control:
There were no changes in the Company’s internal controls over financial reporting during the quarter ended
December 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
Management’s Report on Internal Control Over Financial Reporting:
UPS management is responsible for establishing and maintaining adequate internal controls over financial reporting for
United Parcel Service, Inc. and its subsidiaries (the “Company”). Based on the criteria for effective internal control over
financial reporting established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission, management has assessed the Company’s internal control over financial reporting
as effective as of December 31, 2014. The independent registered public accounting firm of Deloitte & Touche LLP, as auditors
of the consolidated balance sheets of United Parcel Service, Inc. and its subsidiaries as of December 31, 2014 and the related
statements of consolidated income, consolidated comprehensive income and consolidated cash flows for the year ended
December 31, 2014, has issued an attestation report on the Company’s internal control over financial reporting, which is
included herein.
/s/ United Parcel Service, Inc.
February 27, 2015
116
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareowners
United Parcel Service, Inc.
Atlanta, Georgia
We have audited the internal control over financial reporting of United Parcel Service, Inc. and subsidiaries (the
“Company”) as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s
principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s
board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2014, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements as of and for the year ended December 31, 2014 of the Company and our report
dated February 27, 2015 expressed an unqualified opinion on those financial statements.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
February 27, 2015
117
Item 9B.
Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
Executive Officers of the Registrant
PART III
Name and Office
David P. Abney
Chief Executive Officer
James J. Barber, Jr.
President, UPS International
David A. Barnes
Senior Vice President and Chief Information Officer and
Global Business Services Officer
Teresa Finley
Senior Vice President, Global Marketing
Alan Gershenhorn
Executive Vice President and Chief Commercial Officer
Myron Gray
President, United States Operations
Kate Gutmann
Senior Vice President, Worldwide Sales and Solutions
Kurt P. Kuehn
Senior Vice President and Chief Financial
and Compliance Officer
Teri P. McClure
Chief Legal Officer and Senior Vice President, Human
Resources
Mitch Nichols
Senior Vice President, Transportation, Engineering
and Labor Relations
Principal Occupation
and Employment For
the Last Five Years
Age
59 Chief Executive Officer ( 2014 - present), Senior
Vice President and Chief Operating Officer (2007 -
2014), President, UPS Airlines (2007 - 2008),
Senior Vice President and President, UPS
International (2003 - 2007).
54 Senior Vice President and President, UPS
International (2013 - present), Chief Operating
Officer, UPS Europe, Middle East, and Africa (2010
- 2013).
59 Senior Vice President and Chief Information Officer
and Global Business Services Officer (2005 -
present).
53 Senior Vice President of Global Marketing (2015 -
Present), Treasurer (2014), Corporate Controller
(2010 - 2013).
56 Executive Vice President and Chief Commercial
Officer (2014 - present), Senior Vice President,
Worldwide Sales, Marketing and Strategy (2011 -
2014), Senior Vice President, Worldwide Sales and
Marketing (2008 - 2010), Senior Vice President and
President, UPS International (2007), President, UPS
Supply Chain Solutions - Asia and Europe (2006).
57 President, United States Operations (2009 -
present), Vice President, Americas Region (2008 -
2009), Vice President, North Central Region (2004 -
2008).
46 Senior Vice President, Worldwide Sales and
Solutions (2014 - present), President, Worldwide
Sales (2011 - 2014), Vice President, Marketing UPS
Europe Region (2008 - 2011).
60 Senior Vice President and Chief Financial and
Compliance Officer (2015 - present), Senior Vice
President and Chief Financial Officer (2008 - 2014),
Treasurer (2008 - 2010), Senior Vice President,
Worldwide Sales and Marketing (2004 - 2007).
51 Chief Legal Officer and Senior Vice President,
Human Resources (2015 - present), Senior Vice
President of Legal, Compliance and Public Affairs,
General Counsel and Corporate Secretary (2006 -
2014), Corporate Legal Department Manager (2005
- 2006).
59 Senior Vice President Transportation, Engineering
and Labor Relations (2015 - Present), Senior Vice
President Transportation and Engineering (2014 -
2015), President, UPS Airlines (2011 - 2014), Vice
President of Air Group Operations (2007 - 2011).
118
Information about our directors is presented under the caption “Election of Directors” in our definitive Proxy Statement
for the Annual Meeting of Shareowners to be held on May 7, 2015 and is incorporated herein by reference.
Information about our Audit Committee is presented under the caption “Election of Directors—Committees of the Board
of Directors—Audit Committee” in our definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May
7, 2015 and is incorporated herein by reference.
Information about our Code of Business Conduct is presented under the caption “Where You Can Find More Information”
in Part I, Item 1 of this report.
Information about our compliance with Section 16 of the Exchange Act of 1934, as amended, is presented under the
caption “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement for the Annual Meeting
of Shareowners to be held on May 7, 2015 and is incorporated herein by reference.
Item 11. Executive Compensation
Information about executive compensation is presented under the captions “Compensation Discussion and Analysis,”
“Compensation of Executive Officers,” “Compensation of Directors,” “Report of the Compensation Committee” and
“Compensation Committee Interlocks and Insider Participation” in our definitive Proxy Statement for the Annual Meeting of
Shareowners to be held on May 7, 2015 and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information about security ownership is presented under the caption “Beneficial Ownership of Common Stock” in our
definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 7, 2015 and is incorporated herein by
reference.
Information about our equity compensation plans is presented under the caption “Equity Compensation Plans” in our
definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 7, 2015 and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information about transactions with related persons is presented under the caption “Related Person Transactions” in our
definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 7, 2015 and is incorporated herein by
reference.
Information about director independence is presented under the caption “Election of Directors—Director Independence”
in our definitive Proxy Statement for the Annual Meeting of Shareowners to be held on May 7, 2015 and is incorporated herein
by reference.
Item 14. Principal Accounting Fees and Services
Information about aggregate fees billed to us by our principal accountant is presented under the caption “Principal
Accounting Firm Fees” in our definitive Proxy Statement for the Annual Meetings of Shareowners to be held on May 7, 2015
and is incorporated herein by reference.
119
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Financial Statements.
See Item 8 for the financial statements filed with this report.
2. Financial Statement Schedules.
None.
3. List of Exhibits.
See the Exhibit Index for a list of the exhibits incorporated by reference into or filed with this report.
(b) Exhibits required by Item 601 of Regulation S-K.
See the Exhibit Index for a list of the exhibits incorporated by reference into or filed with this report.
(c) Financial Statement Schedules.
None.
120
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, United Parcel Service, Inc. has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
UNITED PARCEL SERVICE, INC.
(REGISTRANT)
By:
/S/ DAVID P. ABNEY
David P. Abney
Chief Executive Officer
Date: February 27, 2015
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
/S/ DAVID P. ABNEY
David P. Abney
/S/ F. DUANE ACKERMAN
F. Duane Ackerman
/S/ RODNEY C. ADKINS
Rodney C. Adkins
/S/ MICHAEL J. BURNS
Michael J. Burns
/S/ D. SCOTT DAVIS
D. Scott Davis
/S/ STUART E. EIZENSTAT
Stuart E. Eizenstat
/S/ WILLIAM R. JOHNSON
William R. Johnson
/S/ CANDACE KENDLE
Candace Kendle
Title
Chief Executive Officer and Director (Principal Executive Officer)
Date
February 27, 2015
Director
Director
Director
February 27, 2015
February 27, 2015
February 27, 2015
Chairman and Director
February 27, 2015
Director
Director
Director
February 27, 2015
February 27, 2015
February 27, 2015
/S/ KURT P. KUEHN
Chief Financial Officer (Principal Financial and Accounting Officer)
February 27, 2015
Kurt P. Kuehn
/S/ ANN M. LIVERMORE
Ann M. Livermore
/S/ RUDY MARKHAM
Rudy Markham
/S/ CLARK T. RANDT, JR.
Clark T. Randt, Jr.
/S/ JOHN T. STANKEY
John T. Stankey
/S/ CAROL B. TOMÉ
Carol B. Tomé
/S/ KEVIN M. WARSH
Kevin M. Warsh
Director
Director
Director
Director
Director
Director
121
February 27, 2015
February 27, 2015
February 27, 2015
February 27, 2015
February 27, 2015
February 27, 2015
EXHIBIT INDEX
Exhibit
No.
Description
2.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.1
— Termination Agreement, dated as of January 22, 2013, between United Parcel Service, Inc. and TNT Express N.V.
(incorporated by reference to Exhibit 2.3 to the 2012 Annual Report on Form 10-K)
— Form of Restated Certificate of Incorporation of United Parcel Service, Inc. (incorporated by reference to Exhibit 3.2 to
Form 8-K filed on May 12, 2010).
— Amended and Restated Bylaws of United Parcel Service, Inc. as of February 14, 2013 (incorporated by reference to
Exhibit 3.1 to Form 8-K, filed on February 19, 2013).
— Indenture relating to 8 3/8% Debentures due April 1, 2020 (incorporated by reference to Exhibit 4(c) to Registration
Statement No. 33-32481, filed December 7, 1989).
— Indenture dated as of December 18, 1997 relating to 8 3/8% Debentures due 2030 (incorporated by reference to Exhibit
T-3C to Form T-3 filed December 18, 1997).
— Indenture dated as of January 26, 1999 (incorporated by reference to Exhibit 4.1 to Pre-Effective Amendment No. 1 to
Form S-3 (No. 333-08369), filed on January 26, 1999).
— Form of Supplemental Indenture dated as of March 27, 2000 to Indenture dated January 26, 1999 (incorporated by
reference to Exhibit 4.2 to Post-Effective Amendment No. 1 to Form S-3 (No. 333-08369-01), filed on March 15, 2000).
— Form of Second Supplemental Indenture dated as of September 21, 2001 to Indenture dated January 26, 1999
(incorporated by reference to Exhibit 4 to Form 10-Q for the Quarter Ended September 30, 2001).
— Form of Indenture dated as of August 26, 2003 (incorporated by reference to Exhibit 4.1 to Form S-3 (No. 333-108272),
filed on August 27, 2003).
— Form of First Supplemental Indenture dated as of November 15, 2013 to Indenture dated as of August 26, 2003
(incorporated by reference to Exhibit 4.2 to Form S-3ASR (No. 333-192369) filed on November 15, 2013).
— Form of Note for 5.50% Senior Notes due January 15, 2018 (incorporated by reference to Exhibit 4.2 to Form 8-K filed
on January 15, 2008).
— Form of Note for 6.20% Senior Notes due January 15, 2038 (incorporated by reference to Exhibit 4.3 to Form 8-K filed
on January 15, 2008).
— Form of Note for 5.125% Senior Notes due April 1, 2019 (incorporated by reference to Exhibit 4.2 to Form 8-K filed on
March 24, 2009).
4.11
— Form of Note for 3.125% Senior Notes due January 15, 2021 (incorporated by reference to Exhibit 4.1 to Form 8-K
filed on November 12, 2010).
4.12
— Form of Note for 4.875% Senior Notes due November 15, 2040 (incorporated by reference to Exhibit 4.2 to Form 8-K
filed on November 12, 2010).
4.13
— Form of Note for 1.125% Senior Notes due October 1, 2017 (incorporated by reference to Exhibit 4.1 to Form 8-K filed
on September 27, 2012).
4.14
— Form of Note for 2.450% Senior Notes due October 1, 2022 (incorporated by reference to Exhibit 4.2 to Form 8-K filed
on September 27, 2012).
4.15
— Form of Note for 3.625% Senior Notes due October 1, 2042 (incorporated by reference to Exhibit 4.3 to Form 8-K filed
on September 27, 2012).
4.16
— Form of Note for Floating Rate Senior Notes due December 15, 2064 (incorporated by reference to Exhibit 4.3 to Form
8-K filed on December 15, 2014).
†10.1 — UPS Retirement Plan, as Amended and Restated, effective as of January 1, 2014.
†10.2 — UPS Savings Plan, as Amended and Restated, effective as of January 1, 2014.
10.3
— Credit Agreement (364-Day Facility) dated March 28, 2014 among United Parcel Service, Inc., the initial lenders named
therein, J.P. Morgan Securities LLC, Citigroup Global Markets, Inc., Barclays Bank PLC and BNP Paribas Securities
Corp. as joint lead arrangers and joint bookrunners, Barclays Bank PLC and BNP Paribas as co-documentation agents,
Citibank, N.A. as syndication agent, and JPMorgan Chase Bank, N.A. as administrative agent (incorporated by
reference to Exhibit 10.1 to Form 10-Q for the quarter ending March 31, 2014).
122
10.4
— Credit Agreement (5 Year Facility) dated March 28, 2014 among United Parcel Service, Inc., the initial lenders named
therein, J.P. Morgan Securities LLC, Citigroup Global Markets, Inc., Barclays Bank PLC and BNP Paribas Securities
Corp. as joint lead arrangers and joint bookrunners, Barclays Bank PLC and BNP Paribas as co-documentation agents,
Citibank, N.A. as syndication agent, and JPMorgan Chase Bank, N.A. as administrative agent (incorporated by
reference to Exhibit 10.2 to Form 10-Q for the quarter ending March 31, 2014).
10.5
— UPS Excess Coordinating Benefit Plan, as amended and restated, effective as of January 1, 2012 (incorporated by
reference to Exhibit 10.5 to the 2012 Annual Report on Form 10-K).
10.6
— United Parcel Service, Inc. 2012 Omnibus Incentive Compensation Plan (incorporated by reference to Annex II to the
Definitive Proxy Statement, filed on March 12, 2012).
(1) Form of Long-Term Incentive Performance Award Agreement (incorporated by reference to Exhibit 10.3 to the
Quarterly Report on Form 10-Q for the quarter ended March 31, 2011).
(2) Form of Non-Management Director Restricted Stock Unit Award (incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q for the quarter ended March 31, 2010).
(3) UPS Management Incentive Program Terms and Conditions effective as of January 1, 2011 (incorporated by
reference to Exhibit 10.10(3) to the 2010 Annual Report on Form 10-K).
(4) UPS Stock Option Program Terms and Conditions effective as of January 1, 2012 (incorporated by reference to
Exhibit 10.7(4) to the 2011 Annual Report on Form 10-K).
(5) UPS Long-Term Incentive Performance Program Terms and Conditions effective as of January 1, 2012 (incorporated
by reference to Exhibit 10.7(5) to the 2011 Annual Report on Form 10-K).
10.7
— Form of UPS Deferred Compensation Plan (incorporated by reference to Exhibit 10.11 to the 2010 Annual Report on
Form 10-K).
(1) Amendment No. 1 to the UPS Deferred Compensation Plan(incorporated by reference to Exhibit 10.7(1) to the 2012
Annual Report on Form 10-K).
10.8
— United Parcel Service, Inc. Nonqualified Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to
the registration statement on Form S-8 (No. 333-34054), filed on April 5, 2000).
10.9
— Discounted Employee Stock Purchase Plan, as amended and restated, effective October 1, 2002.
(1) Amendment No. 1 to the Discounted Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.12(1)
to the 2005 Annual Report on Form 10-K).
(2) Amendment No. 2 to the Discounted Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.13(2)
to the 2009 Annual Report on Form 10-K).
(3) Amendment No. 3 to the Discounted Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.9(3)
to the 2012 Annual Report on Form 10-K).
10.10 — 2012 Omnibus Incentive Compensation Plan (incorporated by reference to Annex A to the proxy statement filed on
March 12, 2012).
11
— Statement regarding Computation of per Share Earnings (incorporated by reference to note 13 to Part I, Item 8
“Financial Statements and Supplementary Data” of this Annual Report on Form 10-K).
†12
†21
†23
— Ratio of Earnings to Fixed Charges.
— Subsidiaries of the Registrant.
— Consent of Deloitte & Touche LLP.
†31.1 — Certificate of the Chief Executive Officer Pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
†31.2 — Certificate of the Chief Financial Officer Pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
†32.1 — Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
†32.2 — Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
123
††101 — The following financial information from the Annual Report on Form 10-K for the year ended December 31, 2014,
formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the
Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated
Statements of Cash Flows, and (v) the Notes to the Consolidated Financial Statements.
__________________________
†
††
Filed herewith.
Filed electronically herewith.
124
Reported / GAAP
Defined Benefit Plans Mark-to-Market Charge
TNT Termination Fee and Related Expenses
Gain Upon Liquidation of Foreign Subsidiary
Restructuring Charge
Gains on Real Estate Transactions
Multiemployer Pension Plan Withdrawal Charge
Gains / Losses on Sales of Businesses
Charge for Change in Tax Filing Status for German Subsidiary
Health & Welfare Plan Charges
Aircraft Impairment
Remeasurment of Certain Foreign-Currency Denominated Obligations
Adjusted
Reported / GAAP
Defined Benefit Plans Mark-to-Market Charge
TNT Termination Fee and Related Expenses
Gain Upon Liquidation of Foreign Subsidiary
Restructuring Charge
Gains on Real Estate Transactions
Multiemployer Pension Plan Withdrawal Charge
Gains / Losses on Sales of Businesses
Health & Welfare Plan Charges
Aircraft Impairment
Adjusted
Reported / GAAP
Defined Benefit Plans Mark-to-Market Charge
TNT Termination Fee and Related Expenses
Gain Upon Liquidation of Foreign Subsidiary
Health & Welfare Plan Charges
Adjusted
Beginning Balance (Reported / GAAP)
Ending Balance (Reported / GAAP)
Defined Benefit Plans Mark-to-Market Charge
TNT Termination Fee and Related Expenses
Gain Upon Liquidation of Foreign Subsidiary
Health & Welfare Plan Charges
Multiemployer Pension Plan Withdrawal Charge
Long-Term U.S. Deferred Tax Assets
Reconciliation of Non-GAAP Financial Measures
(amounts in millions, except per share amounts)
2014
2013
2012
2011
2010
2009
Diluted Earnings Per Share
2014
3,032
670
-
-
-
-
-
-
-
687
-
-
4,389
2014
4,968
1,062
-
-
-
-
-
-
1,102
-
7,132
$
$
$
$
2013
4,372
-
177
(213)
-
-
-
-
-
-
-
-
4,336
2013
7,034
-
284
(245)
-
-
-
-
-
-
7,073
$
$
$
$
$
U.S. Domestic Package
2014
2013
4,603
2,859
-
660
-
-
-
-
-
990
4,603
4,509
$
$
$
$
$
$
$
$
$
Net Income
2012
807
3,023
-
-
-
-
559
-
-
-
-
-
4,389
2011
3,804
527
-
-
-
(20)
-
-
-
-
-
-
4,311
$
$
$
Operating Profit
2012
2011
6,080
1,343
827
4,831
-
-
-
-
-
-
(33)
-
-
896
-
-
-
-
-
-
6,874
7,070
$
$
2010
3,338
75
$
2009
1,968
11
-
-
64
(61)
-
3
76
-
-
-
3,495
2010
5,641
112
-
-
98
(109)
-
(20)
-
-
5,722
$
$
$
-
-
-
-
-
-
-
-
116
48
2,143
$
$
2009
3,508
16
-
-
-
-
-
-
-
181
3,705
$
$
$
3.28
0.73
-
-
-
-
-
-
-
0.74
-
-
4.75
2014
8.5%
1.8%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
1.9%
0.0%
12.2%
$
$
4.61
-
0.19
(0.23)
-
-
-
-
-
-
-
-
4.57
2013
12.7%
0.0%
0.5%
-0.4%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
12.8%
$
Operating Profit
International Package
2014
2013
1,757
1,677
-
200
284
-
(245)
-
-
1,796
28
1,905
$
Supply Chain & Freight
2013
2014
$
$
432
202
-
-
84
718
$
$
674
-
-
-
-
674
U.S. Domestic Package
2014
2013
13.5%
0.0%
0.0%
0.0%
0.0%
13.5%
8.0%
1.8%
0.0%
0.0%
2.8%
12.6%
$
$
0.83
3.12
-
-
-
-
0.58
-
-
-
-
-
4.53
$
$
3.84
0.53
-
-
-
(0.02)
-
-
-
-
-
-
4.35
Operating Margin
2012
2011
11.4%
1.6%
0.0%
0.0%
0.0%
-0.1%
0.0%
0.0%
0.0%
0.0%
12.9%
2.5%
8.9%
0.0%
0.0%
0.0%
0.0%
1.7%
0.0%
0.0%
0.0%
13.1%
Operating Margin
International Package
2014
2013
14.1%
12.9%
0.0%
1.6%
2.3%
0.0%
-1.9%
0.0%
0.0%
0.2%
14.5%
14.7%
$
$
3.33
0.07
-
-
0.06
(0.06)
-
-
0.08
-
-
-
3.48
2010
11.4%
0.2%
0.0%
0.0%
0.2%
-0.2%
0.0%
-0.1%
0.0%
0.0%
11.5%
$
$
1.96
0.01
-
-
-
-
-
-
-
-
0.11
0.05
2.13
2009
7.7%
0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.4%
8.2%
Supply Chain & Freight
2013
2014
4.6%
2.1%
0.0%
0.0%
0.9%
7.6%
7.5%
0.0%
0.0%
0.0%
0.0%
7.5%
Return on Assets
2013
38,863
$
36,212
$
-
177
(213)
-
-
-
36,176
$
37,538
$
37,520
$
11.6%
11.6%
2014
36,212
$
35,471
$
-
-
-
1,417
-
(1,113)
35,775
$
35,842
$
35,994
$
8.5%
12.2%
2012
34,701
$
38,863
$
-
-
-
-
-
(559)
38,304
$
36,782
$
36,503
$
2.2%
12.0%
$
$
$
$
$
$
2014
6,488
2,158
4,546 *
Return on Shareowners' Equity
2013
4,733
6,488
-
177
(213)
-
-
-
6,452
5,611
5,593
77.9%
77.5%
2012
7,108
4,733
3,023
-
-
-
559
-
8,315
5,921
7,712
13.6%
56.9%
-
-
-
-
-
6,704
4,323
6,596
70.1%
66.5%
$
$
$
$
$
$
$
$
$
Adjusted Ending Balance
Average Reported Balance ((Reported Beginning + Reported Ending) / 2)
Average Adjusted Balance ((Reported Beginning + Adjusted Ending) / 2)
Return on Reported Balance (Reported Net Income / Average Reported Balance)
Return on Adjusted Balance (Adjusted Net Income / Average Adjusted Balance)
* Note: 2014 includes the entire pension and postretirement benefit plan remeasurement (amounts both inside and outside the 10% corridor). 2013 and 2012 reflect only amounts outside the 10% corridor.
Return on Invested Capital
Operating Profit
Less: Taxes
Beginning LT Debt
Ending LT Debt
Beginning Shareowners' Equity
Ending Shareowners' Equity
Average Invested Capital
Return on Invested Capital
2014
2013
2012
Reported
4,968
$
(1,719)
3,249
$
Adjusted
7,132
$
(2,532)
4,600
$
Reported
7,034
$
(2,427)
4,607
$
Adjusted
7,073
$
(2,504)
4,569
$
Reported
1,343
$
(230)
1,113
$
Adjusted
7,070
$
(2,439)
4,631
$
$
$
10,824
9,864
6,488
2,158
14,667
$
$
10,824
9,864
6,488
6,704
16,940
$
$
11,089
10,824
4,733
6,488
16,567
$
$
11,089
10,824
4,733
6,452
16,549
$
$
11,095
11,089
7,108
4,733
17,013
$
$
11,095
11,089
7,108
8,315
18,804
22.2%
27.2%
27.8%
27.6%
6.5%
24.6%
Note: The adjustments denoted in the tables above are further described in our annual reports on Form 10-K for the years ended December 31, 2014, 2013 and 2012, as well as in the historical financial
schedules on our investor relations website. The taxes deducted from operating profit in the return on invested capital calculation are based on the reported and adjusted effective tax rates noted
on page 45 of our 2014 annual report on Form 10-K.
Note: We supplement the reporting of our financial information determined under Generally Accepted Accounting Principles ("GAAP") with certain non-GAAP financial measures, including net income,
earnings per share, operating profit, operating margin, return on assets, return on equity, and return on invested capital adjusted for the non-comparable items listed in the tables above. We
believe these adjusted measures provide meaningful information to assist investors and analysts in understanding our financial results and assessing our prospects for future performance. We
believe these adjusted financial measures are important indicators of our recurring results of operations because they exclude items that may not be indicative of, or are unrelated to, our core
operating results, and provide a better baseline for analyzing trends in our underlying businesses.
A1
Investor Information
Annual Meeting
Our annual meeting of shareowners will be held at 8 a.m.
on May 7, 2015, at the Hotel DuPont, 11th and Market Street,
Wilmington, DE. Shareowners of record as of March 9, 2015,
are entitled to vote at the meeting.
Investor Relations
You can contact our Investor Relations Department at:
UPS
55 Glenlake Parkway, NE
Atlanta, GA 30328-3474
800.877.1503 or 404.828.6059
investors.ups.com
Exchange Listing
Our Class B common stock is listed on the New York Stock
Exchange under the symbol “UPS.”
Transfer Agent and Registrar
Computershare
Send notice of address change or questions regarding
account status, stock transfer, lost certificates, or dividend
payments to:
Regular Mail:
UPS
c/o Computershare
PO Box 30169
College Station, TX 77842-3169
or:
Expedited Delivery:
UPS
c/o Computershare
250 Royall Street
Canton, MA 02021
Form 10-K
Our Annual Report on Form 10-K for the year ended
December 31, 2014, forms part of the UPS 2014 Annual
Report. If you would like an additional copy of our Form
10-K, you can access it through the Investor Relations
website at www.investors.ups.com or at the Securities
and Exchange Commission website, sec.gov. The Form 10-K
also is available free of charge by calling, contacting via the
website, or writing to the Investor Relations Department.
UPS Shareowner Services
Convenient access 24 hours a day, seven days a week.
Class A Common Shareowners
www.computershare.com/ups
888.663.8325
Class B Common Shareowners
www.computershare.com/ups
800.758.4674
Calls from outside the United States: 201.680.6612
TDD for hearing impaired: 800.231.5469
TDD for non-U.S. shareowners: 201.680.6610
Direct Stock Purchase Plan
To make an initial purchase of UPS Class B Common Stock
online, visit www.computershare.com/Investor and go to
“Buy stock direct-search and enroll in available plans”.
Follow the instructions provided to search for Investment
Plans and access the Enrollment Wizard.
Current Class B shareowners can enroll in the plan online
by accessing their accounts through www.computershare.
com/ups or by calling 800.758.4674.
Dividend Reinvestment Plan
To reinvest dividends in the purchase of additional
UPS shares:
Class A and B Shareowners
www.computershare.com/ups
Online Access to Shareowner Account Materials
You may receive shareowner information electronically.
To enroll, select the “View Account” link to manage your
holdings. Then from “My Details” select ECommunications
and follow the enrollment instructions when you access your
UPS Class A or Class B shareowner account via the website
addresses in the “UPS Shareowner Services” section above.
UPS Websites
Investor Relations . . . . . . . . . . . . . investors.ups.com
UPS Corporate . . . . . . . . . . . . . . . ups.com
Sustainability/
Corporate Responsibility . . . . . . . . responsibility.ups.com
Services and Solutions . . . . . . . . . ups.com/businesssolutions
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55 Glenlake Parkway, NE
Atlanta, GA 30328-3474
www.ups.com
© 2015 United Parcel Service of America, Inc.
UPS, the UPS brandmark, and the color brown are trademarks
of United Parcel Service of America, Inc. All rights reserved.
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