<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities and Exchange Act of 1934
For the Quarter Ended March 31, 1996
Commission file number 0-4714
United Parcel Service of America, Inc.
(Exact name of registrant specified in its charter)
Delaware 95-1732075
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Glenlake Parkway, NE
Atlanta, Georgia 30328
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (404) 828-6000
Not Applicable
Former name, address and fiscal year, if changed since last report
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 and Exchange Act of 1934 during the preceding 12
months, and (2) has been subject to such filing requirements of
the past 90 days.
YES X NO
Common Stock, par value $.10 per share
(Title of Class)
570,000,000 shares
Outstanding as of May 14, 1996
<PAGE> 2
PART I. FINANCIAL INFORMATION
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1996 (unaudited) and December 31, 1995
(In millions except share amounts)
ASSETS 1996 1995
------- -------
CURRENT ASSETS:
Cash and short-term investments $ 355 $ 211
Accounts receivable 2,054 1,925
Prepaid employee benefit costs 412 285
Materials, supplies and prepaid expenses 485 393
Common stock held for stock plans 389 413
------- -------
TOTAL CURRENT ASSETS $ 3,695 $ 3,227
PROPERTY, PLANT AND EQUIPMENT - at cost, net
of accumulated depreciation of $6,234
in 1996 and $6,060 in 1995 9,059 8,998
OTHER ASSETS 401 420
------- -------
$13,155 $12,645
======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,225 $ 1,137
Accrued wages and withholdings 979 1,127
Dividends payable - 178
Deferred income taxes 91 87
Other current liabilities 607 437
------ ------
TOTAL CURRENT LIABILITIES 2,902 2,966
------ ------
LONG-TERM DEBT, net of current maturities
of $1 in 1996 and 1995 1,966 1,729
------ ------
ACCUMULATED POSTRETIREMENT BENEFIT
OBLIGATION, NET 789 763
------ ------
DEFERRED TAXES, CREDITS AND OTHER LIABILITIES 2,114 2,036
------ ------
SHAREOWNERS' EQUITY:
Preferred stock, no par value,
Authorized 200,000,000 shares, none issued - -
Common stock, par value $.10 per share,
Authorized 900,000,000 shares, issued
570,000,000, net of 10,000,000 in treasury 57 57
Additional paid-in capital 92 76
Retained earnings 5,202 4,961
Cumulative foreign currency adjustments 33 57
------ ------
5,384 5,151
------- -------
$13,155 $12,645
======= =======
See notes to consolidated financial statements.
<PAGE> 3
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 1996 and 1995
(in millions except per share amounts)
(unaudited)
Three Months Ended
1996 1995
------- -------
Revenue $ 5,335 $ 5,102
------- -------
Operating Expenses:
Wages and employee benefits 3,178 3,030
Other 1,735 1,568
------- -------
4,913 4,598
------- -------
Operating Profit 422 504
------- -------
Other income and (expense):
Interest income 9 4
Interest expense (23) (20)
Miscellaneous, net (6) (4)
------- -------
(20) (20)
------- -------
Income before income taxes 402 484
Income taxes 161 194
------- -------
Net income $ 241 $ 290
======= =======
Net income per share $ 0.42 $ 0.50
======= =======
See notes to consolidated financial statements.
<PAGE> 4
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
Three Months Ended March 31, 1996
(In millions)
(unaudited)
Cumulative
Additional Foreign Total
Common Stock Paid-In Retained Currency Shareowners'
Shares Amount Capital Earnings Adjustments Equity
------ ------ ------- -------- ----------- -----------
Balance, January 1,
1996 570 $57 $76 $4,961 $57 $5,151
Net income - - - 241 - 241
Gain on issuance of
common stock held
for stock plans - - 16 - - 16
Foreign currency
adjustments - - - - (24) (24)
----- ----- ----- ----- ----- -----
Balance, March 31,
1996 570 $57 $92 $5,202 $33 $5,384
===== ===== ===== ====== ===== ======
See notes to consolidated financial statements.
<PAGE> 5
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1996 and 1995
(In millions)
(unaudited)
1996 1995
------ ------
Cash flows from operating activities:
Net income $ 241 $ 290
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 228 206
Postretirement benefits 26 26
Deferred taxes, credits, and other 74 36
Changes in assets and liabilities:
Accounts receivable (129) (76)
Prepaid employee benefit costs (127) (112)
Materials, supplies and prepaid
expenses (92) (196)
Common stock held for stock plans 24 (27)
Accounts payable 87 (22)
Accrued wages and withholdings (148) (118)
Dividends payable (178) (170)
Other current liabilities 170 224
------ ------
Net cash provided from operating activities 176 61
------ ------
Cash flows from investing activities:
Capital expenditures (318) (384)
Disposals of property, plant and equipment 18 12
Other asset receipts and payments 20 (103)
------ ------
Net cash (used in) investing activities (280) (475)
------ ------
Cash flows from financing activities:
Proceeds from borrowings 293 437
Repayment of borrowings (56) (32)
Other transactions 16 17
------ ------
Net cash provided from financing activities 253 422
------ ------
Effect of exchange rate changes on cash (5) 16
------ ------
Net increase in cash and short-term investments 144 24
Cash and short-term investments:
Beginning of period 211 261
------ ------
End of period $ 355 $ 285
====== ======
Cash paid during the period for:
Interest (net of amount capitalized) $ 4 $ -
====== ======
Income taxes $ 30 $ 8
====== ======
See notes to consolidated financial statements.
<PAGE> 6
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 1996 and 1995
(unaudited)
1. For interim consolidated financial statement purposes, UPS computes
its tax provision on the basis of its estimated annual effective income tax
rate, and provides for accruals under its various employee benefit plans
based on one quarter of the estimated annual expense for each three month
period.
Net income per share is based on 570,000,000 shares in 1996 and
580,000,000 in 1995, including common stock held for stock plans.
2. In the opinion of management, the accompanying interim, unaudited,
consolidated financial statements contain all adjustments (consisting of
normal recurring accruals) necessary to present fairly the financial
position as of March 31, 1996, the results of operations for the three
months ended March 31, 1996 and 1995, and cash flows for the three months
ended March 31, 1996 and 1995.
3. During the second quarter of 1995, the Company received a Notice of
Deficiency from the United States Internal Revenue Service ("IRS")
asserting that it is liable for additional tax for the 1983 and 1984 tax
years. The Notice of Deficiency is based in large part on the theory that
UPS is liable for tax on income of Overseas Partners Ltd., a Bermuda
company, which has reinsured excess value package insurance purchased by
UPS's customers from unrelated insurers. The deficiency sought by the IRS
relating to package insurance is based on a number of inconsistent theories
and ranges from $8 million to $35 million of tax, plus penalties and
interest for 1984.
Agents for the IRS have also asserted in reports that UPS is liable
for additional tax for the 1985 through 1987 tax years. The additional tax
sought by the agents relating to package insurance for this period ranges
from $89 million to $148 million, plus penalties and interest, and is
based on the same theories included in the above described Notice of
Deficiency.
In addition, the IRS and its agents have raised a number of other
issues relating to the timing of deductions; the characterization of
expenses as capital rather than ordinary; and UPS's entitlement to the
Investment Tax Credit in the 1983 through 1987 tax years. These issues
total $32 million in tax for the 1983 and 1984 tax years and $95 million in
tax for the 1985 through 1987 tax years. Penalties and interest are in
addition to these amounts. The majority of these adjustments would reverse
in future years.
<PAGE> 7
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 1996 and 1995
(unaudited)
In August, 1995, the Company filed a petition in Tax Court in
opposition to the Notice of Deficiency related to the 1983 and 1984 tax
years. After consultation with tax legal experts, management believes
there is no merit to any material issues raised by the IRS and that the
eventual resolution of these matters will not have a material impact on the
Company. The Company has appealed with the IRS all issues related to the
1985 through 1987 tax years. The IRS may take positions similar to those
in the reports described above for periods after 1987.
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1995
- ------------------------------------------
Revenue increased by $233 million, or 4.6% for the three months ended
March 31, 1996 over the three months ended March 31, 1995. For the first
quarter of 1996, domestic revenue totaled $4.591 billion, an increase of
$153 million over the first quarter of 1995, and international revenue
totaled $744 million, an increase of $81 million.
Domestic revenue increased as a result of higher volume which was up
0.2%, favorable changes in rates and a continuing shift toward higher
yielding packages. During the first quarter of 1996, the Company
implemented distance-based pricing for its domestic air express services.
This new pricing structure is based on both weight and distance of packages
shipped. Under the revised structure, air express rates are geographically
defined by ZIP Code. The continental United States is divided into the
same seven zones used for UPS standard ground services. Previously,
express shipments were priced by weight only, the standard method in the
industry. The new structure means that prices for UPS Next Day Air have
been dropped by as much as 40% in short-distance zones, while prices in
longer zones have increased up to 28%.
In addition, rates for standard ground shipments were increased an
average of 2.9% for commercial deliveries and 3.9% for residential
deliveries. Rates for the newly-zoned UPS Next Day Air and UPS 2nd Day Air
services increased approximately 4.9%. Rates for UPS 3-Day Select, already
zoned, increased approximately 3.9%. Rates for international shipments
originating in the United States were increased 4.9% for UPS Worldwide
Express, 6.9% for UPS Worldwide Expedited and 3.9% for UPS Standard Service
to Canada. Rate increases for shipments originating outside the United
States have been made throughout the past year and vary by market.
The increase in international revenue was primarily attributable to a
20.8% revenue growth in export operations over the corresponding quarter of
the previous year. Export revenues increased primarily as a result of
higher volume, which was up 23.2%. Foreign domestic revenues remained
relatively flat in comparison with the corresponding quarter of the
previous year with volume decreasing by 1.8%. This is a result of the
Company's efforts to improve profitability on foreign domestic revenues by
raising rates to improve yields on these products.
Operating expenses increased by $315 million, or 6.9%, raising the
operating ratio from 90.1 during 1995 to 92.1 during 1996. The
deterioration of the operating ratio resulted from increased payroll and
associated costs due to severe weather conditions during the quarter which
disrupted both air and ground operations. This is in contrast to the mild
weather conditions experienced in the comparable quarter in 1995.
Operating profit for the period decreased by $82 million, or 16.3%, as
a result of the proportionally higher operating costs.
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1995
- ------------------------------------------
Income before income taxes ("pre-tax income") decreased $82 million,
or 16.9%. Domestic pre-tax income amounted to $442 million, a decrease of
$88 million, or 16.5% over the corresponding quarter of the previous year.
The decrease was primarily a result of proportionally higher operating
costs as discussed above.
The international pre-tax loss decreased by $6 million, or 13.6%, to
$40 million for the quarter.
The international pre-tax loss attributable to the foreign domestic
operations increased by $1 million, or 1.9%. The pre-tax loss associated
with export operations decreased by $7 million, or 59.9%, and resulted
primarily from higher volume and improved operating margins. Export volume
increased by 12.1% and 13.6% for international and U.S. origin, export
shipments, respectively. UPS expects that the cost of operating its
international business will continue to exceed revenue in the near future.
Net income decreased by $49 million, or 16.9%, over the corresponding
quarter of the prior year. The net decrease resulted primarily from higher
operating costs as discussed above.
The results of operations for the three months ended March 31, 1996
are not necessarily indicative of the results to be expected for the full
year.
Liquidity and Capital Resources
-------------------------------
In recognition of a continuing need for borrowing over the near term,
and to take advantage of attractive borrowing costs in longer term debt
markets, UPS has recently concluded two transactions and is continuing to
examine other favorable alternatives. In January 1996, UPS issued $200
million of 5.5% Eurobond notes which are due January 1999. In April 1996,
UPS issued $166 million of 3.25% Swiss Franc notes which are due in October
1999. Management believes that these funds, combined with the Company's
internally generated resources and other credit facilities, will provide
adequate sources of liquidity and capital resources to meet its expected
future short-term and long-term needs for the operation of its business,
including anticipated capital expenditures and purchase commitments.
During 1995, the Company received a Notice of Deficiency from the
United States Internal Revenue Service ("IRS") asserting that it is liable
for additional tax for the 1983 and 1984 tax years. Agents for the IRS
have also asserted in reports that UPS is liable for additional tax for the
1985 through 1987 tax years. Reference is made here to Note 3 to the
accompanying unaudited consolidated financial statements for more
information.
<PAGE> 10
PART II
Item 6 - Exhibits and reports on Form 8-K
- -----------------------------------------
a) Exhibits: See the Exhibit Index on page E-1 for a list of the
exhibits available to the commission upon request.
b) Reports on Form 8-K: no reports on Form 8-K were filed during the
quarter.
<PAGE> 11
EXHIBIT INDEX
(4) Instruments defining the rights of security
holders, including indentures
(a) Specimen Certificate of Available to the
$200,000,000 of 5.5% Eurobond Commission upon request
Notes due January 4, 1999.
(b) Indenture relating to Available to the
$200,000,000 of 5.5% Eurobond Commission upon request
Notes due January 4, 1999.
(c) Specimen Certificate of Available to the
$166,000,000 of 3.25% Swiss Commission upon request
Franc Notes due October 22, 1999.
(d) Indenture relating to Available to the
$166,000,000 of 3.25% Swiss Commission upon request
Franc Notes due October 22, 1999.
E-1
<PAGE> 12
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED PARCEL SERVICE OF AMERICA, INC.
- --------------------------------------
(Registrant)
By: /S/ Robert J. Clanin
Robert J. Clanin
Senior Vice President,
Treasurer and
Chief Financial Officer
Date: May 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 355
<SECURITIES> 0
<RECEIVABLES> 2,054
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,695
<PP&E> 15,293
<DEPRECIATION> 6,234
<TOTAL-ASSETS> 13,155
<CURRENT-LIABILITIES> 2,902
<BONDS> 1,966
<COMMON> 57
0
0
<OTHER-SE> 5,327
<TOTAL-LIABILITY-AND-EQUITY> 13,155
<SALES> 5,335
<TOTAL-REVENUES> 5,335
<CGS> 0
<TOTAL-COSTS> 4,913
<OTHER-EXPENSES> 00
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> 402
<INCOME-TAX> 161
<INCOME-CONTINUING> 241
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 241
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
