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

9 Months Ended

Sep. 30, 2013

The carrying value of our outstanding debt as of September 30, 2013 and December 31, 2012 consists of the following (in millions):



	Principal Amount			Carrying Value
	Principal Amount		Maturity	2013			2012
Commercial paper	$	1,652	2013	$	1,652		$	—
Fixed-rate senior notes:
4.50% senior notes	—		2013	—			1,751
3.875% senior notes	1,000		2014	1,014			1,033
1.125% senior notes	375		2017	368			373
5.50% senior notes	750		2018	824			851
5.125% senior notes	1,000		2019	1,093			1,140
3.125% senior notes	1,500		2021	1,605			1,655
2.45% senior notes	1,000		2022	934			996
6.20% senior notes	1,500		2038	1,481			1,480
4.875% senior notes	500		2040	489			489
3.625% senior notes	375		2042	367			367
8.375% Debentures:
8.375% debentures	424		2020	487			512
8.375% debentures	276		2030	283			284
Pound Sterling notes:
5.50% notes	107		2031	103			103
5.13% notes	731		2050	699			699
Floating rate senior notes	377		2049-2053	373			374
Capital lease obligations	488		2013-3004	488			440
Facility notes and bonds	320		2015-2036	320			320
Other debt	20		2013-2022	20			3
Total Debt	$	12,395		12,600			12,870
Less: Current Maturities				(1,703		)	(1,781		)
Long-term Debt				$	10,897		$	11,089

Debt Repayments

On January 15, 2013, our $1.75 billion 4.5% senior notes matured and were repaid in full.

Debt Classification

We have classified our 3.875% senior notes with a principal balance of $1.0 billion due in April 2014 as a long-term liability, based on our intent and ability to refinance the debt as of September 30, 2013.

Sources of Credit

We are authorized to borrow up to $10.0 billion under the U.S. commercial paper program we maintain. We had $1.652 billion outstanding under this program as of September 30, 2013, with an average interest rate of 0.06%. We also maintain a European commercial paper program under which we are authorized to borrow up to €5.0 billion in a variety of currencies. As of September 30, 2013, there were no amounts outstanding under this program. As of September 30, 2013, we have classified the entire commercial paper balance as a current liability in our consolidated balance sheet.

We maintain two credit agreements with a consortium of banks. One of these agreements provides revolving credit facilities of $1.5 billion, and expires on March 28, 2014. 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 September 30, 2013.

The second agreement provides revolving credit facilities of $1.0 billion, and expires on March 29, 2018. 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 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 applicable margin is subject to certain minimum rates and maximum rates based on our public debt ratings from Standard & Poor’s Rating Service and Moody’s Investors Service. The minimum applicable margin rates range from 0.100% to 0.375%, and the maximum applicable margin rates range from 0.750% to 1.250%, 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 September 30, 2013.

Debt Covenants

Our existing debt instruments and credit facilities subject us to certain financial covenants. As of September 30, 2013 and for all prior periods, 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 September 30, 2013, 10% of net tangible assets was equivalent to $2.670 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 $13.572 and $14.658 billion as of September 30, 2013 and December 31, 2012, 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.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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