<PAGE> 1
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, 1997
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 November 13, 1997
<PAGE> 2
PART I. ITEM 1- FINANCIAL INFORMATION
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1997 (unaudited) and December 31, 1996
(In millions except share amounts)
ASSETS 1997 1996
- ------ ---- ----
CURRENT ASSETS:
Cash and short-term investments $ 1,663 $ 392
Accounts receivable 2,269 2,341
Prepaid employee benefit costs 457 401
Materials, supplies and prepaid expenses 509 581
Common stock held for stock plans 667 540
______ ______
TOTAL CURRENT ASSETS 5,565 4,255
PROPERTY, PLANT AND EQUIPMENT (including aircraft
under capitalized lease obligations)- at
cost, net of accumulated depreciation and
amortization of $7,337 in 1997 and $6,778 in
1996 10,806 10,230
OTHER ASSETS 412 469
$16,783 $14,954
====== ======
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
CURRENT LIABILITIES:
Commercial paper $ 900 $ -
Accounts payable 1,226 1,155
Accrued wages and withholdings 1,177 1,201
Dividends payable - 194
Deferred income taxes 150 149
Other current liabilities 654 459
______ ______
TOTAL CURRENT LIABILITIES 4,107 3,158
LONG-TERM DEBT (including capitalized lease
obligations), net of current maturities
of $34 in 1997 and $18 in 1996 2,885 2,573
------ ------
ACCUMULATED POSTRETIREMENT BENEFIT
OBLIGATION, NET 897 841
------ ------
DEFERRED TAXES, CREDITS AND OTHER LIABILITIES 2,711 2,481
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 95 95
Retained earnings 6,092 5,728
Cumulative foreign currency adjustments (61) 21
------ ------
6,183 5,901
------ ------
$16,783 $14,954
====== ======
See notes to consolidated financial statements.
<PAGE> 3
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months and Nine Months Ended September 30, 1997 and 1996
(In millions except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
Revenue $4,810 $5,585 $16,320 $16,428
----- ----- ------ ------
Operating Expenses:
Compensation and
benefits 2,979 3,302 9,776 9,815
Other 1,817 1,701 5,486 5,052
----- ----- ------ ------
4,796 5,003 15,262 14,867
Operating Profit 14 582 1,058 1,561
----- ----- ------ ------
Other income and
(expense):
Interest income 28 9 47 28
Interest expense (57) (20) (135) (64)
Miscellaneous, net (1) (5) (16) (25)
----- ----- ------ ------
(30) (16) (104) (61)
Income(loss)before
income taxes (16) 566 954 1,500
Income taxes (6) 226 396 600
----- ----- ------ ------
Net income (loss) $ (10) $ 340 $ 558 $ 900
===== ===== ====== ======
Net income (loss)
per share $ (0.02) $ 0.60 $ 0.98 $ 1.58
===== ===== ====== ======
See notes to consolidated financial statements.
<PAGE> 4
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
Nine Months Ended September 30, 1997
(In millions)
(unaudited)
Cumulative
Additional Foreign Total
Common Stock Paid-In Retained Currency Shareowners'
-------------
Shares Amount Capital Earnings Adjustments Equity
------ ------ ------- -------- ----------- ------
Balance, January 1,
1997 570 $57 $95 $5,728 $21 $5,901
Net income - - - 558 - 558
Gain on issuance of
common stock held
for stock plans - - 26 - - 26
Exercise of stock
options - - (26) - - (26)
Dividends
($0.35 per share) - - - (194) - (194)
Foreign currency
adjustments - - - - (82) (82)
--- --- --- ------ ---- ------
Balance, September
30, 1997 570 $57 $95 $6,092 $(61) $6,183
=== === === ====== ==== ======
See notes to consolidated financial statements.
<PAGE> 5
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1997 and 1996
(In millions)
(unaudited)
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 558 $ 900
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 757 706
Postretirement benefits 56 60
Deferred taxes, credits, and other 213 197
Changes in assets and liabilities:
Accounts receivable 72 (261)
Prepaid employee benefit costs (56) 154
Materials, supplies and prepaid
expenses 72 (55)
Common stock held for stock plans (127) (86)
Accounts payable 71 174
Accrued wages and withholdings (24) 20
Dividends payable (194) (178)
Other current liabilities 179 17
----- -----
Net cash provided from operating activities 1,577 1,648
----- -----
Cash flows from investing activities:
Capital expenditures (1,480) (1,470)
Disposals of property, plant and equipment 106 45
Other asset receipts 46 20
Net cash (used in) investing activities (1,328) (1,405)
Cash flows from financing activities:
Proceeds from borrowings 1,949 878
Repayment of borrowings (717) (795)
Dividends (194) (186)
Other transactions - 15
----- -----
Net cash provided by(used in)
financing activities 1,038 (88)
----- -----
Effect of exchange rate changes on cash (16) 10
----- -----
Net increase in cash and short-term investments 1,271 165
Cash and short-term investments:
Beginning of period 392 211
----- -----
End of period $1,663 $ 376
===== =====
Cash paid during the period for:
Interest (net of amount capitalized) $ 78 $ 56
===== =====
Income taxes $ 147 $ 324
===== =====
See notes to consolidated financial statements.
<PAGE> 6
UNITED PARCEL SERVICE OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months and Nine Months Ended September 30, 1997 and 1996
(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
1997 and 1996, 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
September 30, 1997, the results of operations for the three
months and nine months ended September 30, 1997 and 1996, and
cash flows for the nine months ended September 30, 1997 and
1996.
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 and the 1988 through 1990 tax years. The additional
tax sought by the agents relating to package insurance for
these periods range from $89 million to $148 million for the
1985 through 1987 tax years and up to $174 million for the
1988 through 1990 tax years, plus penalties and interest.
The IRS has based their assertions 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 and the
Research Tax Credit in the 1983 through 1990 tax years.
These issues total $32 million in tax for the 1983 and 1984
tax years, $95 million in tax for the 1985 through 1987 tax
years, and $228 million in tax for the 1988 through 1990 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 and Nine Months Ended September 30, 1997 and
1996
(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 matter was tried before the Tax Court
in two sessions, from September 15 through September 30,
1997, and from November 6 through November 7, 1997. While
the Tax Court will not render its decision for at least
twelve to eighteen months, management still believes that the
eventual resolution of the matters raised by the IRS will not
result in a material adverse effect upon the financial
condition of the Company.
The Company has appealed with the IRS all material
issues related to the 1985 through 1990 tax years. The IRS
may take positions similar to those in the reports described
above for periods after 1990.
The Company is a defendant in various employment-related
lawsuits. Two of these actions allege employment
discrimination by the Company. Class action status has been
granted in one case and plaintiff's motion for class action
status is pending in the other. In addition, the United
States Equal Employment Opportunity Commission has moved to
intervene in one of the cases. Also, lawsuits have been filed
on behalf of more than 250 former contract pilots against the
Company, alleging, among other things, that in the late 1980's
the Company did not fulfill offers of employment to individuals
to serve as pilots of Company-operated aircraft. These cases
generally do not allege specific amounts of damages. However,
one of these cases has been tried and resulted in a jury verdict,
which was affirmed on appeal. Though the compensatory and
punitive damages awarded were substantial, they were not material
to the Company. Each of the pending employment-related lawsuits
is in its early stages, and the Company is at present unable to
estimate its exposure.
4. Certain prior period amounts have been reclassified to
conform to the current period presentation.
5. The Company experienced a strike from August 4, 1997
through August 19, 1997 by the International Brotherhood of
Teamsters ("IBT"), which represents approximately 190,000 UPS
employees. During the strike, the Independent Pilot
Association ("IPA"), which represents the majority of the
Company's pilots, observed picket lines in support of the IBT
strike. The strike severely limited U.S. domestic air and
ground operations during that period and also curtailed
International export operations, mainly U.S. export volume.
This resulted in a net loss of approximately $211 million for
the month ended August 31, 1997, which affected results for
the third quarter of 1997.
<PAGE> 8
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 and 1996
- ----------------------------------------------
As previously reported, the International Brotherhood of
Teamsters ("IBT"), which represents approximately 190,000 UPS
employees, was on strike from August 4, 1997 through August
19, 1997. In addition, the Independent Pilot Association
("IPA"), which represents the majority of the Company's
pilots, observed picket lines in support of the IBT strike.
The new collective bargaining agreement negotiated in August
with the IBT was approved by a vote of the IBT membership on
October 9, 1997, however, two IBT local unions have not yet
ratified the relevant local supplements to the collective
bargaining agreement. The new collective bargaining agreement
extends through July 31, 2002. Management does not believe
the terms of the new agreement will have a material adverse
effect on operating margins. Further, the Company's
collective bargaining agreement with the IPA became amendable
on January 1, 1996. The Company proposed a new agreement to
the IPA, which was rejected by a vote of the Company's IPA-
represented pilots on October 1, 1997. The Company
anticipates that the parties to these contract negotiations
will not be released from mandatory mediation, if at all,
until after the Christmas season.
The IBT strike severely limited U.S. domestic air and
ground operations during August and also curtailed
international export operations, mainly U.S. export volume.
This resulted in a net loss of approximately $211 million for
the month ended August 31, 1997.
For the three months ended September 30, 1997, revenue
decreased by $775 million, or 13.9%, in comparison with the
three months ended September 30, 1996. For the third quarter
of 1997, domestic revenue totaled $4.138 billion, a decrease
of $712 million, or 14.7%, over the third quarter of 1996,
and international revenue totaled $672 million, a decrease of
$63 million, or 8.6%.
Domestic revenue decreased as a result of the significant
drop in volume caused by the strike. Volume decreased 19.5%
for the three months ended September 30, 1997 compared with
the three months ended September 30, 1996. This decrease is
inclusive of an 8.7% volume decrease in higher yielding
express packages. Although volume has not returned to pre-
strike levels, the month ended September 30, 1997 showed
significant improvement, with domestic revenues at levels
comparable with the month ended September 30, 1996.
Management has implemented several initiatives to restore
customer volume.
The decrease in international revenue was primarily
attributable to a $40 million decrease in foreign domestic
revenue, or 15.7%, further reduced by a $23 million decrease
in foreign export revenue, or 4.9%. The decrease in foreign
domestic revenue resulted primarily from a stronger U.S.
dollar. Export revenues decreased primarily as a result of a
stronger U.S. dollar despite higher volume, which was up
4.9%. Volume increases were somewhat curtailed as a result
of the strike.
Operating expenses decreased by $207 million, or 4.1%.
The operating ratio deteriorated from 89.6 during the third
quarter of 1996 to 99.7 during the third quarter of 1997 due
to the significant decrease in revenues from the strike. The
operating ratio was 89.7 for the month ended September 30,
1997 as a result of improved revenues.
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 and 1996
- ----------------------------------------------
Operating profit for the period decreased $568 million,
or 97.6% as a result of the lower revenues. Operating
profits for the month ended September 30, 1997 returned to
levels comparable to the month ended September 30, 1996.
Interest expense amounted to $57 million, an increase of
$37 million over the corresponding quarter of the previous
year. This increase is primarily attributable to interest
costs incurred on higher debt levels outstanding during the
third quarter in comparison to the corresponding quarter of
the previous year. In addition, interest income increased by
$19 million as a result of correspondingly higher cash and
short-term investment balances.
Income before income taxes ("pre-tax income") decreased
$582 million, or 102.9%. Domestic pre-tax income amounted to
$14 million, a decrease of $607 million, or 97.7% over the
corresponding quarter of the previous year. The decrease was
a result of the strike and increased interest costs.
The international pre-tax loss amounted to $30 million,
an improvement of $25 million over the pre-tax loss for the
corresponding quarter of the previous year.
The international pre-tax loss attributable to the
foreign domestic operations decreased by $15 million, or
29.5%. This improvement results largely from cost reductions
from the Company's efforts to reduce unprofitable volume. The
pre-tax income associated with export operations improved by
$10 million. The continuation of this favorable trend in
export operations resulted primarily from higher volume and
improved operating margins. Export volume generated outside
the U.S. increased by 13.0%, while U.S. origin export
shipments decreased by 7.9%, which is attributable to the
strike, as described above. UPS expects that there will be a
continuing possibility of incurring overall losses in its
international business for the near future.
Net income decreased by $350 million, or 102.9%, over
the corresponding quarter of the prior year, as a result of
the strike.
As noted above, revenues and earnings were adversely
affected during the strike and for a brief period afterwards
while operations were gearing back up to meet customer needs.
Although the financial impact of the strike may continue into
the future, Management currently believes that the threat of
a material adverse effect on revenues and earnings for the
fourth quarter of 1997 and beyond 1997 has been substantially
mitigated as a result of better than anticipated, post-strike
operating results and cost cutting initiatives currently
being undertaken.
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 and 1996
- ---------------------------------------------
Reference is made here to the discussion included in the
preceding section titled "Three Months Ended September 30,
1997 and 1996" regarding the IBT strike ("the strike") and
its effect on the operations of the Company.
Revenue decreased by $108 million, or 0.7%, for the nine
months ended September 30, 1997 over the nine months ended
September 30, 1996. For the nine months ended September 30,
1997, domestic revenue totaled $14.193 billion, a slight
decrease of $13 million, or 0.1%, over the nine months ended
September 30, 1996, and international revenue totaled $2.127
billion, a decrease of $95 million, or 4.3%.
Domestic revenue decreased as a result of lower volume,
which was down 4.7% due to the strike. The overall decrease
in volume is inclusive of a 3.5% volume increase in higher
yielding express packages, which was also depressed as a
result of the strike.
During the first quarter of 1997, rates for standard
ground shipments were increased an average of 3.4% for
commercial deliveries and 4.3% for residential deliveries.
Rates for UPS Next Day Air, UPS 2nd Day Air, and UPS 3-Day
Select each increased approximately 3.9%.
Rates for international shipments originating in the
United States were increased 2.6% for UPS Worldwide Express
and 4.9% for UPS Worldwide Expedited. Rate changes for
shipments originating outside the United States have been
made throughout the past year and vary by geographic market.
Rates for UPS Standard service to Canada did not change.
The decrease in international revenue was primarily
attributable to a $130 million decrease in foreign domestic
revenue, or 16.4%, offset by a $35 million increase in
foreign export revenue, or 2.5%. The decrease in foreign
domestic revenue results primarily from a stronger U.S.
dollar and a 5.5% decrease in volume. The Company has
focused attention on higher margin volume which is intended
to improve operating results in the long run but has reduced
revenue in the short term. Export revenues increased
primarily as a result of higher volume, which was up 9.2%.
Operating expenses increased by $395 million, or 2.7%. A
combination of increased operating expenses along with
decreased revenues from the strike resulted in a
deterioration of the operating ratio from 90.5 during 1996 to
93.5 during 1997.
Operating profit for the period decreased $503 million,
or 32.2%, as a result of lower revenues and increased
operating expenses.
Interest expense amounted to $135 million, an increase of
$71 million over the corresponding period of the previous
year. This increase is primarily attributable to interest
costs incurred on higher debt levels outstanding during the
current period in comparison to the corresponding period of
the previous year. In addition, interest income increased by
$19 million as a result of correspondingly higher cash and
short-term investment balances.
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 and 1996
- ---------------------------------------------
Income before income taxes ("pre-tax income") decreased
$546 million, or 36.4%. Domestic pre-tax income amounted to
$1.004 billion, a decrease of $617 million, or 38.1%, over
the corresponding period of the previous year. The decrease
was a result of the strike and higher interest costs as
discussed above.
The international pre-tax loss amounted to $50 million,
an improvement of $71 million, or 58.5%, over the
corresponding period's pre-tax loss of the previous year.
The international pre-tax loss attributable to the
foreign domestic operations decreased by $22 million, or
17.2%. This improvement results largely from cost reductions
from the Company's efforts to reduce unprofitable volume.
The pre-tax income associated with export operations improved
by $49 million. The continuation of this favorable trend in
export operations resulted primarily from higher volume and
improved operating margins on international and U.S. exports.
Export volume generated outside the U.S. increased by 14.6%,
while U.S. origin export shipments increased by 0.7%. Export
volume, primarily U.S. origin, was somewhat depressed as a
result of the strike. UPS expects that there will be a
continuing possibility of incurring overall losses in its
international business for the near future.
Net income decreased by $342 million, or 38.0%, over the
corresponding period of the prior year as a result of the
strike.
The results of operations for the three months and nine
months ended September 30, 1997 are not likely to be
indicative of the results to be expected for the full year.
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
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 medium-term debt markets, UPS has entered into
several financing transactions during 1997. In February 1997,
UPS issued $165 million of 6.875% Pound Sterling notes which
are due in February 2000. In April 1997, UPS issued $200
million of 6.625% Euro Notes which are due April 2001. In
July 1997, UPS issued $300 million of 6.25% Euro Notes which
are due July 2000. These Euro Notes were issued through the
European medium-term note program established in 1996. In
July 1997, this program was amended to increase the borrowing
capacity from $500 million to $1 billion. Currently, $500
million is outstanding under the European medium-term note
program. During 1997, UPS also entered into a series of
capital lease transactions which provided $229 million for
the acquisition of aircraft at favorable rates.
As previously reported, the International Brotherhood of
Teamsters ("IBT"), which represents approximately 190,000 UPS
employees, was on strike from August 4, 1997 through August
19, 1997. In addition, the Independent Pilot Association
("IPA"), which represents the majority of the Company's
pilots, observed picket lines in support of the IBT strike.
The new collective bargaining agreement negotiated in August
with the IBT was approved by a vote of the IBT membership on
October 9, 1997, however, two IBT local unions have not yet
ratified the relevant local supplements to the collective
bargaining agreement which affect them. The new collective
bargaining agreement extends through July 31, 2002.
Management does not believe the terms of the new agreement
will have a material adverse effect on operating margins.
Further, the Company's collective bargaining agreement with
the IPA became amendable on January 1, 1996. The Company
proposed a new agreement to the IPA, which was rejected by a
vote of the Company's IPA-represented pilots on October 1,
1997. The Company anticipates that the parties to these
contract negotiations will not be released from mandatory
mediation, if at all, until after the Christmas season.
The IBT strike severely limited U.S. domestic air and
ground operations during August and also curtailed
international export operations, mainly U.S. export volume.
This resulted in a net loss of approximately $211 million for
the month ended August 31, 1997.
During the second quarter, UPS increased its Commercial
Paper borrowing limits from $1.5 billion to $2.0 billion. As
of September 30, 1997, UPS had a $1.424 billion commercial
paper balance outstanding. Since UPS does not have the
intent to refinance the full commercial paper balance
outstanding at September 30, 1997, $900 million has been
reclassified as a short-term liability. In May 1997, UPS
renegotiated and extended one of two credit agreements with a
consortium of banks increasing a revolving credit facility
that would have otherwise expired on June 9, 1997, from $1.25
billion to $3.25 billion. This new agreement expires May 6,
1998.
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
The Company's current assets and commercial paper
program were adequate to support operations during the
strike. Management believes that the funds described above,
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 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 and the 1988 through 1990 tax years.
In addition, the Company is a defendant in various employment-
related lawsuits. Each of the pending employment-related
lawsuits is in its early stages, and the Company is at
present unable to estimate its exposure. Reference is made
here to Note 3 to the accompanying unaudited consolidated
financial statements for more information.
This Management's Discussion and Analysis of Financial
Condition and the Results of Operations and Liquidity and
Capital Resources contains statements which may constitute
"forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended.
Those statements include statements regarding the intent,
belief or current expectations of UPS and its management.
Such forward-looking statements involve risks and
uncertainties with respect to future events, and could be
affected by future events such as, for example, continued
success in the recovery of volume lost as a result of the
strike, and, as to international operations, such matters as
future operating losses.
<PAGE> 14
PART II
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits:
(10) Material Contracts
(a) UPS 1996 Stock Option plan, as amended and restated on
September 19, 1997
b) Reports on Form 8-K: The Company filed a Form 8-K Current Report on
August 6, 1997 (Date of Earliest Event Reported: August 4, 1997),
reporting a strike called by the International Brotherhood of Teamsters.
<PAGE> 15
EXHIBIT INDEX
-------------
(10) Material Contracts
(a) UPS 1996 Stock Option plan, filed herewith, as
amended and restated on September 19, 1997
<PAGE> 16
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: _____________________________________
Robert J. Clanin
Senior Vice President,
Treasurer and
Chief Financial Officer
Date: November 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,663
<SECURITIES> 0
<RECEIVABLES> 2,269
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,565
<PP&E> 18,143
<DEPRECIATION> 7,337
<TOTAL-ASSETS> 16,783
<CURRENT-LIABILITIES> 4,107
<BONDS> 2,885
0
0
<COMMON> 57
<OTHER-SE> 6,126
<TOTAL-LIABILITY-AND-EQUITY> 16,783
<SALES> 16,320
<TOTAL-REVENUES> 16,320
<CGS> 0
<TOTAL-COSTS> 15,262
<OTHER-EXPENSES> 16
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135
<INCOME-PRETAX> 954
<INCOME-TAX> 396
<INCOME-CONTINUING> 558
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 558
<EPS-PRIMARY> 0.980
<EPS-DILUTED> 0.980
</TABLE>
UNITED PARCEL SERVICE OF AMERICA, INC.
1996 STOCK OPTION PLAN
(As amended and restated on September 19, 1997)
1. Purpose.
The purpose of this Amended and Restated Plan is to ensure
continuity of management and increase the incentive for key managerial
employees and non-employee members of the Board of the Company to make
major contributions to the effective management or direction of the
Company by providing them with an opportunity to acquire equity
interests in the Company in the manner contemplated by this Amended and
Restated Plan.
2. Definitions.
As used in this Amended and Restated Plan, the following
definitions shall apply:
''Amended and Restated Plan'' means this United Parcel Service of
America, Inc. 1996 Stock Option Plan as originally adopted by the Board
on February 14, 1996 and by the shareowners of the Company at the 1996
Annual Meeting of Shareowners, as amended and restated on February 12,
1997, as amended and restated on September 19, 1997, and as further
amended in accordance herewith from time to time.
''Board'' means the Board of Directors of the Company or, when
appropriate, the Executive Committee of the Board of Directors, acting
for the Board.
''Code'' means the Internal Revenue Code of 1986, as amended.
''Company'' means United Parcel Service of America, Inc.
''Current Price'' of a Share at any time means the price per Share
which the Board shall have determined to be the fair market value at
which the Company may express its willingness to purchase Shares from
shareowners who offer them for sale to the Company at that time.
''Employee Optionee'' means any Optionee other than an Outside
Director Optionee.
''Incentive Stock Option'' means an Option that qualifies as an
incentive stock option within the meaning of Section 422 of the Code.
''Nonqualified Option'' means an Option that is not an Incentive
Stock Option.
''Officer Compensation Committee'' means the Officer Compensation
Committee of the Board.
''Option'' means the right to purchase Shares under the terms and
conditions of the Amended and Restated Plan, as evidenced by an option
certificate or agreement in such form, not inconsistent with the Amended
and Restated Plan, as the Committee may adopt for general use or for
specific cases from time to time.
''Optionee'' means the person to whom an Option has been granted
under the Amended and Restated Plan and, where the context permits, the
estate, personal representative or beneficiary to whom an Option has
been transferred by will or the laws of descent and distribution.
''Outside Director'' means any member of the Board who is not, as
of the date of grant of an Option, an employee or a former employee of
the Company or any Subsidiary.
''Outside Director Formula'' has the meaning set forth in
subparagraph E of paragraph 7 of this Amended and Restated Plan.
''Outside Director Optionee'' means the Optionee who is, as of the
date of grant of an Option, an Outside Director.
''Salary Committee'' means the Salary Committee of the Board.
''Shares'' means shares of the Company's common stock, presently
having a par value of $0.10 per share.
''Subsidiary'' means any corporation, limited liability company or
other entity more than 50% of whose outstanding voting securities is
owned by the Company or by one or more of the Company's other
Subsidiaries.
''UPS Managers Stock Trust'' means a trust arrangement established
by agreements conforming to the trust agreement made as of April 15,
1958, as heretofore or hereafter amended (the ''UPS Managers Trust
Agreement''), among certain employees of the Company and First Union
National Bank, as Trustee (''First Union''), or any successor trust
arrangement.
An Option shall be deemed ''granted'' under the Amended and
Restated Plan on the date of the action taken by the Salary Committee or
Officer Compensation Committee approving the grant of an Option
hereunder.
3. Plan Adoption and Term.
A. The Amended and Restated Plan was originally adopted by the
Board on February 14, 1996 and by the shareowners of the Company at the
1996 Annual Meeting of Shareowners. The Amended and Restated Plan was
amended and restated by the Board on February 12, 1997 and the
amendments received shareowner approval at the 1997 Annual Meeting of
Shareowners. The Amended and Restated Plan was further amended and
restated by the Executive Committee of the Board of Directors on
September 19, 1997 without the need for shareowner approval.
B. No Option may be granted hereunder after March 31, 2001, but
Options granted on or before that date may extend beyond such date in
accordance with their terms.
4. Administration of the Amended and Restated Plan.
A. Subject to the provisions of paragraph 7 regarding grant of
options and paragraph 16 regarding amendment of the Amended and Restated
Plan, this Amended and Restated Plan shall be administered by the Salary
Committee or, if the Salary Committee shall consist of fewer than two
persons, by the Board. All actions taken by the Salary Committee with
respect to the Amended and Restated Plan shall be reported to the Board
at the next regular meeting of the Board.
B. The Salary Committee shall have the authority to interpret
the provisions of the Amended and Restated Plan, to construe the terms
of any Option, to prescribe, amend and rescind rules and regulations
relating to the Amended and Restated Plan, and to make all other
determinations in the judgment of the Salary Committee necessary or
desirable for the administration of the Amended and Restated Plan. The
Salary Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Amended and Restated Plan or in any
Option in the manner and to the extent it shall deem expedient to
effectuate the purposes and intent of the Amended and Restated Plan.
C. Any power granted to the Salary Committee, either in this
Amended and Restated Plan or by the Board, may at any time be exercised
by the Board. Any determination by the Salary Committee shall be subject
to review and reversal or modification by the Board on its own motion,
except that the Board may not impair the rights of Optionees under
Options previously granted.
D. Members of the Salary Committee, the Officer Compensation
Committee, the Executive Committee, and the Board shall not be liable
for any action or determination made by them in good faith.
5. Eligibility.
Key managerial employees of the Company and its Subsidiaries, and
Outside Directors, shall be eligible to participate in the Amended and
Restated Plan. All recipients of Options shall be selected on the basis
of their having demonstrated an ability to contribute substantially to
the effective management or direction of the Company and its
Subsidiaries. Members of the Board shall be eligible to receive Options
under the Amended and Restated Plan, provided that: (i) a member shall
not participate in any decision or action affecting such member other
than a decision or action affecting all participants generally; and (ii)
Outside Directors shall be eligible to receive only Nonqualified
Options. No Option shall be issued under this Amended and Restated Plan
to any individual who at the time an Option might be granted hereunder
owns stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company, or of any parent or Subsidiary
of the Company.
6. Limitation on the Number of Shares.
Subject to adjustment as provided in paragraph 14, Options may be
granted pursuant to the Amended and Restated Plan for the purchase of
not more than 30,000,000 Shares. If prior to its exercise in full by an
Optionee, any Option is canceled or terminates or lapses in whole or in
part for any reason other than the termination of the Amended and
Restated Plan as a whole, the number of Shares not purchased thereunder
shall forthwith become available again for allocation under new Options,
including new Options to such Optionee, in accordance with the Amended
and Restated Plan.
7. Grant of Options.
A. At any time during the term of this Amended and Restated
Plan, the Salary Committee may grant to any eligible employee who is (i)
eligible under paragraph 5 hereof and (ii) not a member of the Board, a
member of the Salary Committee, or a person who is an officer of the
Company as defined in Rule 16a-1 under the Securities Exchange Act of
1934, as amended, an Option to purchase any number of the Shares
reserved for issuance under the Amended and Restated Plan, subject to
prior allocation of Shares to the same or other persons and to the
limitation of paragraph 6.
B. At any time during the term of this Amended and Restated
Plan, the Officer Compensation Committee may grant to any eligible
employee who is a member of the Board, a member of the Salary Committee,
or an officer of the Company as defined in Rule 16a-1 under the
Securities Exchange Act of 1934, as amended, an Option to purchase any
number of the Shares reserved for issuance under the Amended and
Restated Plan, subject to prior allocation of Shares to the same or
other persons and to the limitation of paragraph 6.
C. At the time of grant of each Option to an Employee Optionee,
the Salary Committee or the Officer Compensation Committee, as
appropriate, shall designate such Option as an Incentive Stock Option or
as a Nonqualified Option. However, the aggregate fair market value, as
determined at the time the Option is granted, of the Shares with respect
to which Incentive Stock Options may become exercisable for the first
time by an Optionee during any calendar year (under the Amended and
Restated Plan and any other stock option plan of the Company or any
entity which, at the time of the granting of such Option, is a parent or
Subsidiary of the Company) shall not exceed $100,000. To the extent that
an Option designated as an Incentive Stock Option may be or become
exercisable for a number of Shares exceeding the limitation of the
preceding sentence, such Option shall be deemed to be an Incentive Stock
Option with respect to the maximum number of Shares permissible under
the preceding sentence and a Nonqualified Option with respect to any
remaining Shares.
D. At such time as the Salary Committee or the Officer
Compensation Committee grants to any Employee Optionee an Option to
purchase Shares pursuant to subparagraph A or B of paragraph 7, it may
also grant to such Employee Optionee a right to receive money at the
time of exercise of the Option in an amount equal to a designated
percentage of the amount by which the Current Price of the Shares
subject to the Option exceeds, at the time of exercise thereof, the
option price.
E. On the first day of each year, during the term of this
Amended and Restated Plan, on which any Option is granted to an Employee
Optionee, each Outside Director shall be granted Options to purchase
Shares, as provided in this subparagraph E of paragraph 7. Each Outside
Director shall be granted Options to purchase that number of the Shares,
equal to the Outside Director Formula, reserved for issuance under the
Amended and Restated Plan, subject to prior allocation of Shares to the
same or other persons and to the limitation of paragraph 6. In the case
of each Outside Director, the Outside Director Formula shall be 109.5%
of such Outside Director's annual director's fee as in effect on the
last day of the most recently ended fiscal year of the Company, divided
by the Current Price of one Share on such date. The Salary Committee may
at any time and from time to time modify or amend the Outside Director
Formula; provided, however, that the Salary Committee may not: (i)
modify or amend the Outside Director Formula more often than once during
any twelve-month period; (ii) without shareowner approval, modify or
amend the Outside Director Formula in any respect that would materially
increase the benefits accruing to Outside Directors under the Amended
and Restated Plan; or (iii) without the consent of an Outside Director
Optionee, make any modification or amendment of the Outside Director
Formula that would affect such Outside Director Optionee's rights under
any Option previously granted. All Options granted to Outside Director
Optionees shall be designated as Nonqualified Options.
8. Purchase Price, Delivery of Shares, and Payment.
A. The purchase price for each Share represented by an Option
shall be 100% of the Current Price of a Share at the time the Option is
granted. Notwithstanding the foregoing, the purchase price per Share
shall not be less than the par value of one Share.
B. Payment of the purchase price for Shares purchased shall be
made upon exercise of an Option by payment, (i) in cash, (ii) in Shares
owned by the purchaser for at least six months prior to the date of
exercise and valued at their then Current Price, or (iii) in any
combination of cash and such Shares. Any payment in Shares shall be
effected by the delivery thereof to the Secretary of the Company,
endorsed in blank or accompanied by stock powers executed in blank. For
such purpose, the Optionee may notify the Trustee under the UPS Managers
Stock Trust, in writing, to transmit to the Secretary of the Company,
endorsed in blank, Shares held by the Trustee for the Optionee's account
under the UPS Managers Stock Trust.
C. All Shares issued by the Company to Employee Optionees upon
exercise of Options shall be subject to the UPS Managers Stock Trust. As
a condition to the receipt of Shares upon exercise of an Option, the
Employee Optionee shall execute and deliver to the Trustee of the UPS
Managers Stock Trust a trust deposit agreement. The Company shall then
deposit with or deliver to the Trustee the Shares issued to the Employee
Optionee to be held by the Trustee in trust for such Employee Optionee's
benefit pursuant and subject to the terms of the UPS Managers Trust
Agreement.
D. In the event that any Shares are issued or distributed by the
Company to an Employee Optionee upon exercise of an Option on a date
that is later than the date of termination of the Employee Optionee's
employment with the Company and Subsidiaries (the ''Termination Date''),
then, for purposes of the UPS Managers Stock Trust, the Company's rights
to repurchase the Shares so issued or distributed shall commence on the
June 15 next following the first anniversary of the Termination Date and
such Shares shall be treated as securities issued as a result of the
distribution of rights appurtenant UPS common stock owned by the
Employee Optionee and subject to the UPS Managers Stock Trust on the
Termination Date.
E. All Shares issued by the Company to Outside Director
Optionees shall be subject to such agreements with respect to the
repurchase of such Shares, similar in purpose and effect to the
provisions of the UPS Managers Stock Trust, as the Salary Committee
shall prescribe. As a condition to the receipt of Shares upon exercise
of an Option, the Outside Director Optionee shall execute and deliver
such agreements as the Salary Committee shall prescribe.
9. Duration of Options.
Each Option and all rights thereunder shall expire five and one-
half years from the date on which the Option is granted, and shall be
subject to earlier termination as provided herein.
10. Conditions Relating to Exercise.
A. Except as otherwise provided in Paragraph 11 hereof, no
Option shall be exercisable until the expiration of five years from the
date the Option is granted. Subject to the provisions of Paragraph 11,
an Option may be exercised only in its entirety and only during the
period from April 1 to April 30 in the year in which the Option becomes
exercisable.
B. No Option shall be transferable by an Optionee otherwise than
by will or by the laws of descent and distribution.
C. All Options granted hereunder shall be exercisable during the
lifetime of the Optionee only by the Optionee or the Optionee's guardian
or legal representative.
D. An Option shall be exercised as follows:
(1) By delivering to the Company, at its principal office, to the
attention of its Secretary, written notice of the number of Shares with
respect to which the Option is being exercised; and
(2) By paying the purchase price for the Shares in accordance with
paragraph 8 hereof and any withholding tax required to be paid pursuant
to paragraph 15 hereof.
E. Notwithstanding any other provision in this Amended and
Restated Plan, no Option shall be exercisable unless and until (i) the
Shares may be legally issued and sold to the Optionee and (ii) the
Optionee shall have executed such documents and taken such action as the
Salary Committee reasonably shall deem advisable to assist the Company
in complying with the requirements of any applicable law.
11. Effect of Termination of Employment or Service.
A. In the event an Employee Optionee's employment with the
Company and Subsidiaries shall terminate by reason of such Employee
Optionee's retirement with the consent of the Company or in accordance
with an applicable retirement plan, any Incentive Stock Option then held
by such Employee Optionee, which shall not have lapsed or expired shall,
at the election of the Employee Optionee: (i) be or immediately become
fully exercisable but only for a period ending on the earlier of a date
three months following the date of retirement or the date of expiration
of the Option in accordance with its terms; or (ii) be unaffected by
such retirement. Any Nonqualified Option held by such an Employee
Optionee shall be unaffected by such retirement.
B. In the event an Employee Optionee's employment with the
Company and Subsidiaries shall terminate by reason of such Employee
Optionee's disability (within the meaning of Section 22(e)(3) of the
Code), any Incentive Stock Option then held by such Employee Optionee,
which shall not have lapsed or expired shall, at the election of the
Employee Optionee: (i) be or immediately become fully exercisable but
only for a period ending on the earlier of a date one year following the
date of termination of employment or the date of expiration of the
Option in accordance with its terms; or (ii) be unaffected by such
termination of employment. Any Nonqualified Option held by such an
Employee Optionee shall be unaffected by such termination of employment.
C. In the event of an Employee Optionee's death (including death
while retired or disabled), any Option then held by such Employee
Optionee which shall not have lapsed or expired shall be or immediately
become fully exercisable at any time before the date of expiration of
the Option in accordance with its terms.
D. In the event an Employee Optionee shall cease to be employed
by the Company and Subsidiaries for any reason other than those
specified in subparagraphs A, B and C above, any Option then held by
such Employee Optionee shall immediately terminate.
E. Whether an authorized leave of absence or absence in
government or military service constitutes a termination of employment
shall be determined by the Salary Committee, and the Salary Committee's
determination shall be final and conclusive on all persons affected
thereby; provided, however, that if such leave of absence or other
absence shall be deemed a termination of employment for purposes of the
UPS Managers Stock Trust, it will also constitute a termination of
employment for purposes of the Amended and Restated Plan.
F. In the case of any Option granted to an Outside Director
Optionee, if such Outside Director Optionee ceases for any reason to be
a member of the Board, then such Option shall be exercisable according
to the following provisions, and shall terminate upon the expiration of
the applicable exercise period, if any, specified in this subparagraph F
of paragraph 11:
(i) If an Outside Director Optionee ceases to be a member of the
Board for any reason other than resignation, removal for cause or death,
any such Option held by such Outside Director Optionee which shall not
have lapsed or expired shall, at the election of the Outside Director
Optionee: (I) be or immediately become fully exercisable but only for a
period ending on the earlier of a date three months following the date
on which such Outside Director Optionee ceases to be a member of the
Board or the date of expiration of the Option in accordance with its
terms; or (II) be unaffected.
(ii) Except as provided in clause (iii) of this subparagraph F of
paragraph 11, if during his term of office as a member of the Board an
Outside Director Optionee resigns from the Board or is removed from
office for cause, any Option held by the Outside Director Optionee which
is not exercisable by the Outside Director Optionee immediately prior to
resignation or removal shall terminate as of the date of resignation or
removal, and any Option held by the Outside Director Optionee which is
exercisable by the Outside Director Optionee immediately prior to
resignation or removal shall be exercisable in accordance with its
terms.
(iii) If during his term of office as a member of the Board an
Outside Director Optionee's service on the Board shall terminate by
reason of such Outside Director Optionee's disability (within the
meaning of Section 22(e)(3) of the Code), any Option then held by such
Outside Director Optionee, which shall not have lapsed or expired shall,
at the election of the Outside Director Optionee: (I) be or immediately
become fully exercisable but only for a period ending on the earlier of
a date one year following the date on which such Outside Director
Optionee ceases to be a member of the Board or the date of expiration of
the Option in accordance with its terms; or (II) be unaffected.
(iv) Following the death of an Outside Director Optionee
(including death after ceasing, for any reason other than resignation or
removal for cause, to be a member of the Board) any Option held by the
Outside Director Optionee which shall not have lapsed or expired shall
be or immediately become fully exercisable at any time before the date
of expiration of the Option in accordance with its terms.
12. No Special Rights Respecting Employment or Rate of Compensation.
Nothing contained in the Amended and Restated Plan or in any
Option shall confer upon any Employee Optionee any right with respect to
the continuation of his or her employment by the Company or any
Subsidiary or interfere in any way with the right of the Company or any
Subsidiary at any time to terminate an Employee Optionee's employment or
to increase or decrease the compensation of any Optionee from the rate
in existence at the time of the grant of an Option.
13. Rights as a Shareowner.
The holder of an Option shall have no rights as a shareowner with
respect to any Shares covered by the Option until the date such Shares
are issued as provided in paragraph 8. Except as provided in paragraph
14 below, no adjustment shall be made for rights for which the record
date occurs prior to the date such Shares are issued.
14. Antidilution Provisions.
A. In the event of a stock dividend, stock split, or other
subdivision, reclassification or combination of the common stock of the
Company, the Salary Committee may make such adjustments in the number of
Shares for which Options may be granted under the Amended and Restated
Plan, the number of Shares subject to unexercised Options, and the
option prices as it deems equitable.
B. In the event that the outstanding common stock of the Company
is changed or converted into, or exchanged or exchangeable for, a
different number or kind of shares or other securities of the Company or
of another corporation, by reason of reorganization, merger,
consolidation or combination, the Salary Committee may make such
adjustments in the number and kind of Shares for which Options may be or
may have been awarded under the Amended and Restated Plan as it deems
equitable; provided, however, that in the event of any contemplated
transaction which may constitute a change in control of the Company, the
Salary Committee, with the approval of a majority of the members of the
Board who are not then holding Options, may modify any and all
outstanding Options so as to accelerate, as a consequence of or in
connection with such transaction, an Optionee's right to exercise any
such Option.
C. Each Optionee will be notified of any such adjustment and any
such adjustment, or the failure to make such adjustment, shall be
binding on the Optionee.
15. Withholding Taxes.
Whenever Shares are to be issued or cash paid to an Optionee upon
exercise of an Option, the Company shall have the right to require the
Optionee to remit to the Company, as a condition of exercise of the
Option, an amount sufficient to satisfy federal, state and local
withholding tax requirements at the time of exercise.
16. Modification or Amendment of the Amended and Restated Plan.
The Amended and Restated Plan may at any time or from time to time
be modified or amended by the affirmative votes of a majority of the
Shares present, or represented, and entitled to vote at a meeting of the
Company's shareowners. The Board or the Executive Committee of the Board
may at any time and from time to time modify or amend the Amended and
Restated Plan in any respect, or terminate the Amended and Restated
Plan, except that, without shareowner approval the Board or the
Executive Committee of the Board may not (a) materially increase the
benefits accruing to participants under the Amended and Restated Plan,
(b) materially increase the number of Shares which may be issued under
the Amended and Restated Plan, or (c) materially modify the requirements
as to eligibility for participation in the Amended and Restated Plan.
The termination, modification or amendment of the Amended and Restated
Plan shall not, without the consent of an Optionee, affect the
Optionee's rights under an Option previously granted. With the consent
of the Optionee, the Board or the Executive Committee of the Board may
amend outstanding Options in a manner not inconsistent with the Amended
and Restated Plan.
