UPS 2011 Annual Report Download - page 58

Our existing debt instruments and credit facilities do not have cross-default or ratings triggers, however
these debt instruments and credit facilities do subject us to certain financial covenants. As of December 31, 2011
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, 2011, 10% of net tangible assets is equivalent to
$2.550 billion, however we have no covered sale-leaseback transactions or secured indebtedness outstanding.
Additionally, we are required to maintain a minimum net worth, as defined, of $5.0 billion on a quarterly basis.
As of December 31, 2011, our net worth, as defined, was equivalent to $10.138 billion. We do not expect these
covenants to have a material impact on our financial condition or liquidity.
Guarantees and Other Off-Balance Sheet Arrangements
We do not have guarantees or other off-balance sheet financing arrangements, including variable interest
entities, which we believe could have a material impact on financial condition or liquidity.
Contractual Commitments
We have contractual obligations and commitments in the form of capital leases, operating leases, debt
obligations, purchase commitments, and certain other liabilities. We intend to satisfy these obligations through
the use of cash flow from operations. The following table summarizes the expected cash outflow to satisfy our
contractual obligations and commitments as of December 31, 2011 (in millions):
Commitment Type 2012 2013 2014 2015 2016 After 2016 Total
Capital Leases ........................ $ 59 $ 56 $ 51 $ 50 $ 48 $ 474 $ 738
Operating Leases ...................... 329 257 192 140 97 393 1,408
Debt Principal ........................ — 1,750 1,000 100 — 7,366 10,216
Debt Interest ......................... 315 292 263 257 257 4,622 6,006
Purchase Commitments ................ 517 453 32 16 34 — 1,052
Pension Fundings ..................... 355 738 1,081 702 1,161 1,818 5,855
Other Liabilities ...................... 67 64 58 43 23 15 270
Total ............................... $1,642 $3,610 $2,677 $1,308 $1,620 $14,688 $25,545
Our capital lease obligations relate primarily to leases on aircraft. Capital leases, operating leases, and
purchase commitments, as well as our debt principal obligations, are discussed further in Note 8 to our
consolidated financial statements. The amount of interest on our debt was calculated as the contractual interest
payments due on our fixed-rate debt, in addition to interest on variable rate debt that was calculated based on
interest rates as of December 31, 2011. The calculations of debt interest take into account the effect of 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 calculate future interest payments.
Purchase commitments represent contractual agreements to purchase goods or services that are legally
binding, the largest of which are orders for aircraft, engines, and parts. As of December 31, 2011, we have firm
commitments to purchase 15 Boeing 767-300ER freighters to be delivered between 2012 and 2013. These
aircraft purchase orders will provide for anticipated future growth.
Pension fundings represent the anticipated required cash contributions that will be made to our qualified
pension plans. These contributions include those to the UPS IBT Pension Plan, the UPS Pension Plan and the
UPS Retirement Plan. These plans are discussed further in Note 5 to the consolidated financial statements. The
pension funding requirements were estimated under the provisions of the Pension Protection Act of 2006 and the
Employee Retirement Income Security Act of 1974, using discount rates, asset returns and other assumptions
appropriate for these plans. To the extent that the funded status of these plans in future years differs from our
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