Annual report pursuant to Section 13 and 15(d)

DEBT AND FINANCING ARRANGEMENTS

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DEBT AND FINANCING ARRANGEMENTS
 12 Months Ended
Dec. 31, 2021
Debt Disclosure [Abstract]  
DEBT AND FINANCING ARRANGEMENTS DEBT AND FINANCING ARRANGEMENTS
The carrying value of our outstanding debt obligations, as of December 31, 2021 and 2020 consists of the following (in millions):
Principal Carrying Value
Amount Maturity 2021 2020
Commercial paper $ —  2021 $ —  $ 15 
Fixed-rate senior notes:
3.125% senior notes
 —  2021 —  1,507 
2.050% senior notes
 —  2021 —  700 
2.450% senior notes
 1,000  2022 1,010  1,028 
2.350% senior notes
 600  2022 600  599 
2.500% senior notes
 1,000  2023 998  997 
2.800% senior notes
 500  2024 498  498 
2.200% senior notes
 400  2024 399  398 
3.900% senior notes
 1,000  2025 996  995 
2.400% senior notes
 500  2026 498  498 
3.050% senior notes
 1,000  2027 994  993 
3.400% senior notes
 750  2029 746  746 
2.500% senior notes
 400  2029 397  397 
4.450% senior notes
 750  2030 744  743 
6.200% senior notes
 1,500  2038 1,484  1,483 
5.200% senior notes
 500  2040 494  493 
4.875% senior notes
 500  2040 491  490 
3.625% senior notes
 375  2042 368  368 
3.400% senior notes
 500  2046 492  491 
3.750% senior notes
 1,150  2047 1,137  1,137 
4.250% senior notes
 750  2049 743  742 
3.400% senior notes
 700  2049 688  688 
5.300% senior notes
 1,250  2050 1,231  1,231 
Floating-rate senior notes:
     Floating-rate senior notes —  2021 —  350 
     Floating-rate senior notes 400  2022 400  399 
     Floating-rate senior notes 500  2023 500  499 
Floating-rate senior notes 1,039  2049-2067 1,027  1,027 
Debentures:
7.620% debentures(1)
276  2030 280  281 
Pound Sterling Notes:
     5.500% notes
 90  2031 89  90 
     5.125% notes
 614  2050 583  586 
Euro Senior Notes:
0.375% senior notes
 793  2023 791  857 
1.625% senior notes
 793  2025 791  856 
1.000% senior notes
 567  2028 564  611 
1.500% senior notes
 567  2032 564  611 
Canadian senior notes:
     2.125% senior notes
 586  2024 585  583 
Finance lease obligations 408  2022 – 2046 408  342 
Facility notes and bonds 320  2029 – 2045 320  320 
Other debt 5  2022 – 2025 5  5 
Total debt $ 22,083  21,915  24,654 
Less: current maturities (2,131) (2,623)
Long-term debt $ 19,784  $ 22,031 
(1) On April 1, 2020, the interest rate on these debentures decreased from 8.375% to 7.620% for the remaining 10 years until maturity.
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. As of December 31, 2021 we had no outstanding balances under these commercial paper programs. The amount of commercial paper outstanding under these programs in 2022 is expected to fluctuate.
Debt Repayments
On January 15, 2021, our 3.125% senior notes with a principal balance of $1.5 billion matured and were repaid in full. On April 1, 2021, our 2.050% fixed-rate senior notes with a principal balance of $700 million and our floating rate senior notes with a principal balance of $350 million matured and were both repaid in full.
Fixed-Rate Senior Notes
All of our fixed-rate notes pay interest semi-annually, and allow for redemption by UPS at any time by paying the greater of the principal amount or a “make-whole” amount, plus accrued interest. We subsequently entered into interest rate swaps on certain of these notes, which effectively converted the fixed interest rates on the notes to variable interest rates. The average interest rates payable on the notes where fixed interest rates were swapped to variable interest rates, including the impact of the interest rate swaps, for 2021 and 2020 were as follows:
Principal Average Effective Interest Rate
Value Maturity 2021 2020
3.125% senior notes
 $ 1,500  2021 1.07  % 1.60  %
2.450% senior notes
 1,000  2022 0.76  % 1.55  %
7.620% Debentures
The $276 million debentures have a maturity of April 1, 2030. These debentures had an interest rate of 8.375% until April 1, 2020, at which time the interest rate decreased to 7.620% for the remaining term. These debentures are redeemable in whole or in part at our option at any time. The redemption price is equal to the greater of the principal amount plus accrued interest, or the present value of remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark treasury yield plus five basis points, plus accrued interest. Interest is payable semi-annually in April and October, and the debentures are not subject to sinking fund requirements.
Floating-Rate Senior Notes
Our floating-rate senior notes bear interest at rates that reference the London Interbank Offer Rate ("LIBOR") for U.S. Dollars. As part of a broader program of reference rate reform, it is expected that U.S. Dollar LIBOR rates will cease to be published after June 2023.
We have floating-rate senior notes in the principal amounts of $400 and $500 million that bear interest at three-month LIBOR, plus a spread of 38 and 45 basis points, respectively. These notes are not callable. The $400 million notes mature in 2022 and the $500 million notes mature in 2023, prior to the expected discontinuance of U.S. Dollar LIBOR. The average interest rate for 2021 and 2020, including interest on the $350 million floating-rate senior notes that matured on April 1, 2021, was 0.58% and 1.29%, respectively.
The remaining floating-rate senior notes, with principal amounts totaling $1.0 billion, bear interest at either one or three-month LIBOR, less a spread ranging from 30 to 45 basis points. These notes have maturities ranging from 2049 through 2067 and will be impacted by the discontinuance of U.S. Dollar LIBOR rates in June 2023. We are currently working to transition these notes to an alternative reference rate. We anticipate that the Secured Overnight Financing Rate ("SOFR") will be adopted in accordance with recommendations of the Alternative Reference Rates Committee.
The average interest rate on the remaining floating-rate senior notes for 2021 and 2020 was 0.00% and 0.40%, respectively. These notes are callable at various times after 30 years at a stated percentage of par value, and redeemable at the option of the note holders at various times after one year at a stated percentage of par value. We have classified these floating-rate senior notes as long-term liabilities in our consolidated balance sheets, due to our intent and ability to refinance the debt if the put option is exercised.
Finance Lease Obligations
We have certain property, plant and equipment subject to finance leases. For additional information on finance lease obligations, see note 12.
Facility Notes and Bonds
We have entered into agreements with certain municipalities or related entities to finance the construction of, or improvements to, facilities that support our operations in the United States. These facilities are located around airport properties in Louisville, Kentucky; Dallas, Texas; and Philadelphia, Pennsylvania. Under these arrangements, we enter into a lease or loan agreement that covers the debt service obligations on the bonds issued by these entities, as follows:
•Bonds with a principal balance of $149 million issued by the Louisville Regional Airport Authority associated with our Worldport facility in Louisville, Kentucky. The bonds, which are due in January 2029, bear interest at a variable rate, and the average interest rates for 2021 and 2020 were 0.05% and 0.50%, respectively.
•Bonds with a principal balance of $42 million and due in November 2036 issued by the Louisville Regional Airport Authority associated with our air freight facility in Louisville, Kentucky. The bonds bear interest at a variable rate, and the average interest rates for 2021 and 2020 were 0.07% and 0.56%, respectively.
•Bonds with a principal balance of $29 million issued by the Dallas / Fort Worth International Airport Facility Improvement Corporation associated with our Dallas, Texas airport facilities. The bonds are due in May 2032 and bear interest at a variable rate, however the variable cash flows on the obligation have been swapped to a fixed rate of 5.11%.
•Bonds with a principal balance of $100 million issued by the Delaware County, Pennsylvania Industrial Development Authority associated with our Philadelphia, Pennsylvania airport facilities. These bonds, which are due September 2045, bear interest at a variable rate. The average interest rate for 2021 and 2020 was 0.05% and 0.62%, respectively.
Pound Sterling Notes
The Pound Sterling notes consist of two separate tranches, as follows:
•Notes with a principal amount of £66 million accrue interest at a 5.50% fixed rate, and are due in February 2031. These notes are not callable.
•Notes with a principal amount of £455 million accrue interest at a 5.125% fixed rate, and are due in February 2050. These notes are callable at our option at a redemption price equal to the greater of the principal amount plus accrued interest, or the present value of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark U.K. government bond yield plus 15 basis points, plus accrued interest.
Canadian Dollar Senior Notes
The Canadian Dollar notes consist of a single series, as follows:
•Notes in the principal amount of C$750 million, which bear interest at a 2.125% fixed rate and mature in May 2024. Interest on the notes is payable semi-annually. The notes are callable at our option, in whole or in part, at the Government of Canada yield plus 21.5 basis points, and on or after the par call date at par value.
Euro Senior Notes
The Euro notes consist of three separate issuances, as follows:
•Notes in the principal amount of €500 million accrue interest at a 1.00% fixed rate and are due in November 2028. Interest is payable annually on the notes. These notes are callable at our option at a redemption price equal to the greater of the principal amount, or the present value of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark comparable German government bond yield plus 15 basis points, plus accrued interest.
•Notes with a principal amount of €700 million accrue interest at a 1.625% fixed rate and are due in November 2025. Interest is payable annually on the notes. These notes are callable at our option at a redemption price equal to the greater of the principal amount, or the present value of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark German government bond yield plus 20 basis points, plus accrued interest.
•Notes with principal amounts of €700 million and €500 million accrue interest at 0.375% and 1.50% fixed rates, respectively, and are due in November 2023 and November 2032, respectively. Interest on these notes is payable annually. The notes are callable at our option at a redemption price equal to the greater of the principal amount, or the present value of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption at a benchmark comparable government bond yield plus 10 and 20 basis points, respectively, plus accrued interest.
Contractual Commitments
The following table sets forth the aggregate annual principal and anticipated interest payments on our long-term debt and our projected aggregate annual purchase commitments (in millions):
Year Debt Principal
Debt Interest (1)
Purchase
Commitments (1)
2022 $ 2,003  $ 722  $ 2,454 
2023 2,295  668 1,467 
2024 1,487  630 939 
2025 1,794  636 363 
2026 500  523 81 
After 2026 13,598  7167 69 
Total $ 21,677  $ 10,346  $ 5,373 
(1) Debt interest and purchase commitments include estimates of future amounts yet to be recognized in our financial statements.
The amount of interest on our debt was calculated as the contractual interest payments due on our fixed-rate debt and variable-rate debt based on interest rates as of December 31, 2021, taking into account the effect of any interest rate swap agreements. For debt denominated in a foreign currency, the U.S. Dollar equivalent principal amount of the debt at the end of the year was used as the basis to project future interest payments.
Purchase commitments represent contractual agreements to purchase assets, goods or services that are legally binding, including contracts for aircraft, construction of new or expanded facilities and orders for technology equipment and vehicles.
As of December 31, 2021, we had outstanding letters of credit totaling approximately $1.7 billion issued in connection with our self-insurance reserves and other routine business requirements. We also issue surety bonds as an alternative to letters of credit in certain instances, and as of December 31, 2021, we had $1.5 billion of surety bonds written.
Sources of Credit
We maintain two credit agreements with a consortium of banks. The first of these agreements provides revolving credit facilities of $1.0 billion and expires on December 6, 2022. Amounts outstanding under this agreement bear interest at a periodic fixed rate equal to the term SOFR rate, plus 0.10% per annum and an applicable margin based on our then-current credit rating. The applicable margin from the credit pricing grid as of December 31, 2021 was 0.875%. Alternatively, a fluctuating rate of interest equal to the highest of (1) the rate of interest last quoted by The Wall Street Journal as the prime rate in the United States; (2) the Federal Funds effective rate plus 0.50%; or (3) the Adjusted Term SOFR Rate for a one month interest period plus 1%, may be used at our discretion.
The second agreement provides revolving credit facilities of $2.0 billion and expires on December 7, 2026. Amounts outstanding under this facility bear interest at a periodic fixed rate equal to the term SOFR rate plus 0.10% per annum and an applicable margin based on our then-current credit rating. The applicable margin from the credit pricing grid as of December 31, 2021 was 0.875%. Alternatively, a fluctuating rate of interest equal to the highest of (1) the rate of interest last quoted by The Wall Street Journal as the prime rate in the United States; (2) the Federal Funds effective rate plus 0.50%; and (3) the Adjusted Term SOFR Rate for a one-month interest period plus 1.00%, plus an applicable margin, may be used at our discretion.
If the credit ratings established by S&P and Moody’s differ, the higher rating will be used, except in cases where the lower rating is two or more levels lower. In these circumstances, the rating one step below the higher rating will be used. We are also able to request advances under these facilities based on competitive bids for the applicable interest rate. There were no amounts outstanding under these facilities as of December 31, 2021.
Debt Covenants
Our existing debt instruments and credit facilities subject us to certain financial covenants. As of December 31, 2021 and for all prior periods presented, we have satisfied these financial covenants. These covenants limit the amount of secured indebtedness that we may incur, and limit the amount of attributable debt in sale-leaseback transactions, to 10% of net tangible assets. As of December 31, 2021, 10% of net tangible assets is equivalent to $4.6 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 us for long-term debt with similar terms and maturities, the fair value of long-term debt, including current maturities, was approximately $25.1 billion and $28.3 billion as of December 31, 2021 and 2020, 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.