United Parcel Service, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

DEBT AND FINANCING ARRANGEMENTS

DEBT AND FINANCING ARRANGEMENTS

3 Months Ended

Mar. 31, 2018

The carrying value of our outstanding debt as of March 31, 2018 and December 31, 2017 consists of the following (in millions):



	Principal Amount			Carrying Value
	Principal Amount		Maturity	2018			2017
Commercial paper	$	2,622	2018	$	2,622		$	3,203
Fixed-rate senior notes:
5.500% senior notes	750		2018	—			751
5.125% senior notes	1,000		2019	1,010			1,019
3.125% senior notes	1,500		2021	1,526			1,549
2.050% senior notes	700		2021	697			696
2.450% senior notes	1,000		2022	961			979
2.350% senior notes	600		2022	597			597
2.500% senior note	1,000		2023	993			992
2.800% senior note	500		2024	496			495
2.400% senior note	500		2026	497			497
3.050% senior note	1,000		2027	991			990
6.200% senior notes	1,500		2038	1,482			1,482
4.875% senior notes	500		2040	490			489
3.625% senior notes	375		2042	368			368
3.400% senior notes	500		2046	491			491
3.750 % senior notes	1,150		2047	1,136			1,135
Floating-rate senior notes:
Floating-rate senior notes	350		2021	349			348
Floating-rate senior notes	400		2022	398			398
Floating-rate senior notes	500		2023	498			496
Floating-rate senior notes	1,043		2049-2067	1,031			1,032
8.375% Debentures:
8.375% debentures	424		2020	441			447
8.375% debentures	276		2030	282			282
Pound Sterling notes:
5.500% notes	93		2031	88			84
5.125% notes	640		2050	610			586
Euro senior notes:
0.375% notes	862		2023	856			832
1.625% notes	862		2025	856			833
1.000% notes	616		2028	612			595
1.500% notes	616		2032	611			594
Floating-rate senior notes	616		2020	614			598
Canadian senior notes:
2.125% notes	580		2024	577			593
Capital lease obligations	580		2018-3005	580			500
Facility notes and bonds	320		2029-2045	319			319
Other debt	13		2018-2022	13			19
Total debt	$	23,988		23,092			24,289
Less: Current maturities				(2,683		)	(4,011		)
Long-term debt				$	20,409		$	20,278

Commercial Paper

We are authorized to borrow up to $10.0 billion under a U.S. commercial paper program and €5.0 billion (in a variety of currencies) under a European commercial paper program. We had the following amounts outstanding under these programs as of March 31, 2018: $2.511 billion with an average interest rate of 1.73% and €90 million ($111 million) with an average interest rate of -0.43%. As of March 31, 2018, we have classified the entire commercial paper balance as a current liability on our consolidated balance sheet.

Debt Classification

We have classified certain floating-rate senior notes that are putable by the note holders as a long-term liability, due to our intent and ability to refinance the debt if the put option is exercised by the note holders.

Debt Repayments

On January 15, 2018, our $750 million 5.500% senior notes matured and were repaid in full.

Sources of Credit

We maintain two credit agreements with a consortium of banks. One of these agreements provides revolving credit facilities of $4.5 billion, and expires on March 22, 2019. Generally, amounts outstanding under this facility bear interest at a periodic fixed rate equal to LIBOR for the applicable interest period and currency denomination, plus an applicable margin. Alternatively, a fluctuating rate of interest equal to the highest of (1) JPMorgan Chase Bank’s publicly announced prime rate; (2) the Federal Funds effective rate plus 0.50%; and (3) LIBOR for a one month interest period plus 1.00%, plus an applicable margin, may be used at our discretion. In each case, the applicable margin for advances bearing interest based on LIBOR is a percentage determined by quotations from Markit Group Ltd. for our 1-year credit default swap spread, subject to a minimum rate of 0.10% and a maximum rate of 0.75%. The applicable margin for advances bearing interest based on the prime rate is 1.00% below the applicable margin for LIBOR advances (but not lower than 0.00%). We are also able to request advances under this facility based on competitive bids for the applicable interest rate. There were no amounts outstanding under this facility as of March 31, 2018.

The second agreement provides revolving credit facilities of $3.0 billion, and expires on March 24, 2022. Generally, amounts outstanding under this facility bear interest at a periodic fixed rate equal to LIBOR for the applicable interest period and currency denomination, plus an applicable margin. Alternatively, a fluctuating rate of interest equal to the highest of (1) JPMorgan Chase Bank’s publicly announced prime rate; (2) the Federal Funds effective rate plus 0.50%; and (3) LIBOR for a one month interest period plus 1.00%, plus an applicable margin, may be used at our discretion. In each case, the applicable margin for advances bearing interest based on LIBOR is a percentage determined by quotations from Markit Group Ltd. for our 1-year credit default swap spread, interpolated for a period from the date of determination of such credit default swap spread in connection with a new interest period until the latest maturity date of this facility then in effect (but not less than a period of one year). The minimum applicable margin rate is 0.10% and the maximum applicable margin rate is 0.75% per annum. The applicable margin for advances bearing interest based on the prime rate is 1.00% below the applicable margin for LIBOR advances (but not less than 0.00%). We are also able to request advances under this facility based on competitive bids. There were no amounts outstanding under this facility as of March 31, 2018.

Debt Covenants

Our existing debt instruments and credit facilities subject us to certain financial covenants. As of March 31, 2018 and for all prior periods presented, we have satisfied these financial covenants. These covenants limit the amount of secured indebtedness that we may incur, and limit the amount of attributable debt in sale-leaseback transactions, to 10% of net tangible assets. As of March 31, 2018, 10% of net tangible assets was equivalent to $2.740 billion; however, we have no covered sale-leaseback transactions or secured indebtedness outstanding. We do not expect these covenants to have a material impact on our financial condition or liquidity.

Fair Value of Debt

Based on the borrowing rates currently available to the Company for long-term debt with similar terms and maturities, the fair value of long-term debt, including current maturities, was approximately $23.968 and $25.206 billion as of March 31, 2018 and December 31, 2017, respectively. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of all of our debt instruments.