<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 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 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 November 13, 1996
<PAGE>
PART I. FINANCIAL INFORMATION
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 (unaudited) and December 31, 1995
(In millions except share amounts)
ASSETS 1996 1995
------- -------
CURRENT ASSETS:
Cash and short-term investments $ 376 $ 211
Accounts receivable 2,186 1,925
Prepaid employee benefit costs 131 285
Materials, supplies and prepaid expenses 438 393
Common stock held for stock plans 499 413
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TOTAL CURRENT ASSETS 3,630 3,227
PROPERTY, PLANT AND EQUIPMENT (including aircraft
under capitalized lease obligations) - at
cost, net of accumulated depreciation and
amortization of $6,641 in 1996 and $6,060 in
1995 9,713 8,998
OTHER ASSETS 389 420
------- -------
$13,732 $12,645
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,311 $ 1,137
Accrued wages and withholdings 1,147 1,127
Dividends payable - 178
Deferred income taxes 93 87
Other current liabilities 462 437
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TOTAL CURRENT LIABILITIES 3,013 2,966
LONG-TERM DEBT (including capitalized lease
obligations), net of current maturities
of $8 in 1996 and $1 in 1995 1,803 1,729
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ACCUMULATED POSTRETIREMENT BENEFIT
OBLIGATION, NET 823 763
------- -------
DEFERRED TAXES, CREDITS AND OTHER LIABILITIES 2,241 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 91 76
Retained earnings 5,675 4,961
Cumulative foreign currency adjustments 29 57
------- -------
5,852 5,151
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$13,732 $12,645
======= =======
See notes to consolidated financial statements.
<PAGE>
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months and Nine Months Ended September 30, 1996 and 1995
(In millions except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
1996 1995 1996 1995
------- ------- ------- -------
Revenue $ 5,585 $ 5,140 $16,428 $15,400
------- ------- ------- -------
Operating Expenses:
Wages and employee benefits 3,189 3,004 9,532 9,031
Other 1,814 1,543 5,335 4,727
Restructuring Charge - 353 - 372
------- ------- ------- -------
5,003 4,900 14,867 14,130
------- ------- ------- -------
Operating Profit 582 240 1,561 1,270
------- ------- ------- -------
Other income and (expense):
Interest income 9 7 28 16
Interest expense (20) (21) (64) (59)
Miscellaneous, net (5) (13) (25) (25)
------- ------- ------- -------
(16) (27) (61) (68)
------- ------- ------- -------
Income before income taxes 566 213 1,500 1,202
Income taxes 226 89 600 477
------- ------- ------- -------
Net income $ 340 $ 124 $ 900 $ 725
------- ------- ------- -------
Net income per share $ 0.60 $ 0.21 $ 1.58 $ 1.25
------- ------- ------- -------
See notes to consolidated financial statements.
<PAGE>
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
Nine Months Ended September 30, 1996
(In millions per share amounts)
(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 $5,151
Net Income - - - 900 - 900
Gain on issuance of
common stock held
for stock plans - - 29 - - 29
Exercise of stock
options - - (14) - - (14)
Dividends
($.33 per share) - - - (186) - (186)
Foreign currency
adjustments - - - - (28) (28)
----- ----- ----- ------ ------ -------
Balance, September 570 $57 $91 $5,675 $29 $5,852
30, 1996 ===== ===== ===== ====== ====== =======
See notes to consolidated financial statements.
<PAGE>
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1996 and 1995
(In millions)
(unaudited)
1996 1995
------ ------
Cash flows from operating activities:
Net income $ 900 $ 725
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 706 640
Postretirement benefits 60 78
Deferred taxes, credits, and other 197 (53)
Non-cash restructuring charge - 338
Changes in assets and liabilities:
Accounts receivable (261) (198)
Prepaid employee benefit costs 154 121
Materials, supplies and prepaid expenses (55) (111)
Common stock held for stock plans (86) (291)
Accounts payable 174 60
Accrued wages and withholdings 20 35
Dividends payable (178) (170)
Other current liabilities 17 113
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Net cash provided from operating activities 1,648 1,287
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Cash flows from investing activities:
Capital expenditures (1,470) (1,308)
Disposals of property, plant and equipment 45 49
Other asset receipts (payments) 20 (97)
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Net cash (used in) investing activities (1,405) (1,356)
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Cash flows from financing activities:
Proceeds from borrowings 878 552
Repayment of borrowings (795) (272)
Dividends (186) (181)
Other transactions 15 12
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Net cash (used in) provided from financing
activities (88) 111
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Effect of exchange rate changes on cash 10 23
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Net increase in cash and short-term investments 165 65
Cash and short-term investments:
Beginning of period 211 261
----- -----
End of period $ 376 $ 326
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Cash paid during the period for:
Interest (net of amount capitalized) $ 56 $ 31
===== =====
Income taxes $ 324 $ 484
See notes to consolidated financial statements.
<PAGE>
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months and Nine Months Ended September 30, 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.
Certain prior period amounts have been reclassified to conform to the
presentation of current periods.
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 September 30, 1996, the results of operations for the three
months and nine months ended September 30, 1996 and 1995, and cash flows
for the nine months ended September 30, 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>
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months and Nine Months Ended September 30, 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. The trial date is set for September 8, 1997. 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 material 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.
4. As part of UPS's overall effort to lower operating expense, the
Company implemented a program of voluntary early retirement and severance
packages for certain, primarily management, employees during 1995. The
total charge to 1995 operating expense for this program was $372 million of
which $19 million was incurred during the quarter ended June 30, 1995, and
the balance in the quarter ended September 30, 1995.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 and 1995
Revenue increased by $445 million, or 8.7% for the three months ended
September 30, 1996 over the three months ended September 30, 1995. For the
third quarter of 1996, domestic revenue totaled $4.849 billion, an increase
of $385 million over the third quarter of 1995, and international revenue
totaled $736 million, an increase of $60 million.
Domestic revenue increased as a result of favorable changes in rates
and higher volume, which was up 4.4% over the third quarter of 1995, and
includes an 11.1% increase in higher yielding express packages.
The increase in international revenue was primarily attributable to a
19.0% revenue growth in export operations over the corresponding quarter of
the previous year. Export revenues increased as a result of favorable
changes in rates and higher volume, which was up 17.0%. Foreign domestic
revenues decreased by 6.1% primarily due to changes in the currency
exchange rates, and lower volume, which in turn resulted primarily from the
Company's efforts to improve profitability by increasing revenue yields on
these products.
Operating expenses increased by $103 million, or 2.1%. In the third
quarter of 1995, operating expenses included a one time charge of $353
million for the voluntary early retirement and severance program for
certain, primarily management, employees. Exclusive of the one time charge,
operating expenses increased by $456 million, or 10.0%, raising the
operating ratio from 88.5 during 1995 to 89.6 during 1996. The
deterioration of the operating ratio resulted primarily from increases in
depreciation and amortization, labor costs, fuel costs, advertising costs
and customer supplies.
Operating profit for the period increased by $342 million, or 142.5%,
as a result of the 1995 restructuring charge. Without the charge,
operating profit for the period decreased by $11 million, or 1.9%.
Income before income taxes ("pre-tax income") increased $353 million,
or 165.7%. Domestic pre-tax income amounted to $621 million, an increase
of $338 million, or 119.4%, with respect to the corresponding quarter of
the previous year inclusive of the restructuring charge.
The international pre-tax loss decreased by $15 million, or 21.3%, to
$55 million for the quarter. The international pre-tax loss attributable
to the foreign domestic operations increased by $7 million, or 16.5%.
Export operations improved by $22 million resulting in a moderate pre-tax
loss. The continuation of this favorable trend in export operations
resulted primarily from higher volume and improved operating margins on
European and U.S. exports. Export volume increased by 14.1% and 22.8% for
international and U.S. origin, export shipments, respectively. Despite the
continued improvement of the export operations, UPS expects that the cost
of operating its international business will continue to exceed revenue
in the near future.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Net income increased by $216 million, or 174.2%, over the
corresponding quarter of the prior year, primarily as a result of the
restructuring charge incurred during 1995.
Nine Months Ended September 30, 1996 and 1995
Revenue increased by $1.028 billion, or 6.7% for the nine months ended
September 30, 1996 over the nine months ended September 30, 1995. For the
first nine months of 1996, domestic revenue totaled $14.205 billion, an
increase of $840 million over the first nine months of 1995, and
international revenue totaled $2.223 billion, an increase of $188 million.
Domestic revenue increased as a result of first quarter rate increases
and higher volume, which was up 2.4%, and includes an 11.5% increase in
higher yielding express 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 reduced 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 changes for shipments originating outside the United
States have been made throughout the past year and vary by geographic
market.
The increase in international revenue was primarily attributable to an
18.4% revenue growth in export operations over the corresponding nine
months of the previous year. Export revenues increased primarily as a
result of higher volume, which was up 20.4%. Foreign domestic revenues
decreased by 4.1% primarily due to changes in the currency exchange rates
and volume reductions of 2.9%. The decreases in foreign domestic volume
are a result of the Company's efforts to improve profitability by
increasing revenue yields on these products.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Operating expenses increased by $737 million, or 5.2%. During the
nine months ended September 30, 1995, operating expenses included a one
time charge of $372 million for the voluntary early retirement and
severance program for certain, primarily management, employees. Excluding
the $372 million restructuring charge, operating expenses increased $1.109
billion, or 8.1%. Adjusting for the one time charge, the operating ratio
increased from 89.3 during 1995 to 90.5 during 1996. The deterioration of
the operating ratio resulted primarily from increases in depreciation and
amortization, labor costs, fuel costs, advertising costs and customer
supplies, as well as severe weather conditions during the first quarter of
1996 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 increased by $291 million, or 22.9%,
as a result of the 1995 restructuring charge. Exclusive of the charge,
operating profit for the period decreased by $81 million, or 4.9% as a
result of the proportionally higher operating costs.
Income before income taxes ("pre-tax income") increased by $298
million, or 24.8%. Domestic pre-tax income amounted to $1.621 billion, an
increase of $249 million, or 18.1% over the corresponding period of the
previous year, inclusive of the restructuring charge.
The international pre-tax loss decreased by $49 million, or 28.9%, to
$121 million for the first nine months of 1996.
The international pre-tax loss attributable to the foreign domestic
operations increased by $9 million, or 7.3%. Export operations improved by
$58 million over 1995, resulting in a moderate pre-tax profit. The
continuation of this favorable trend in export operations resulted
primarily from higher volume and improved operating margins on European and
U.S. exports. Export volume increased by 17.2% and 26.3% for international
and U.S. origin, export shipments, respectively. As noted previously in
the discussion for the third quarter, UPS expects that the cost of
operating its international business will continue to exceed revenue in the
near future, despite the continued improvement of the export operations.
Net income increased by $175 million, or 24.1%, over the corresponding
period of the prior year primarily as a result of the restructuring charge
incurred during 1995.
The results of operations for the three months and nine months ended
September 30, 1996 are not necessarily indicative of the results to be
expected for the full year.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Liquidity and Capital Resources
In March, 1996, the Board of Directors authorized an increase in the
Commercial Paper borrowing limits from $1.0 to $1.5 billion. In June,
1996, UPS renegotiated and extended two credit agreements with a consortium
of banks. These agreements provide revolving credit facilities of $1.25
billion each, with one expiring June 9, 1997 and the other June 8, 2001.
In recognition of a continuing need for borrowing over the near term,
and to take advantage of attractive borrowing costs in medium-term debt
markets, UPS has entered into four financing transactions through the first
nine months of 1996 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. In August and
September of 1996, UPS entered into two capital lease transactions which
provided $143 million for the acquisition of aircraft at favorable rates.
In June, 1996, UPS established a $500 million European medium-term
note program. Under this program UPS may, from time to time, issue notes
denominated in any currency. In addition, the Company filed a shelf
registration in July, 1996, which enables UPS to issue notes up to $300
million in the United States. Under the combined programs, the Company
currently does not plan to exceed $500 million in borrowings.
Management believes that these funds and borrowing programs, 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>
Part II
Item 6 - Exhibits and reports on Form 8-K
a) Exhibits: none
b) Reports on Form 8-K: no reports on Form 8-K were filed during the
quarter.
<PAGE>
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: November 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 376
<SECURITIES> 0
<RECEIVABLES> 2,186
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,630
<PP&E> 16,354
<DEPRECIATION> 6,641
<TOTAL-ASSETS> 13,732
<CURRENT-LIABILITIES> 3,013
<BONDS> 1,803
0
0
<COMMON> 57
<OTHER-SE> 5,795
<TOTAL-LIABILITY-AND-EQUITY> 13,732
<SALES> 16,428
<TOTAL-REVENUES> 16,428
<CGS> 0
<TOTAL-COSTS> 14,867
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> 1,500
<INCOME-TAX> 600
<INCOME-CONTINUING> 900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 900
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.58
</TABLE>
