United Parcel Service, Inc. · NYSE:UPS
United Parcel Service — Q4 2019 Earnings Presentation
15 slides from United Parcel Service's earnings presentation, Jan 30, 2020
Slide 1: 4Q19 Pension Mark-to-Market Charge Overview
4Q19 Pension Mark-to-Market Charge Overview January 30, 2020 © 2020 United Parcel Service Inc., UPS, the UPS brand mark, the color brown and photos are trademarks of United Parcel Service of America Inc. All rights reserved.
Slide 2: Safe Harbor
Safe Harbor Cautionary Statement About Forward-Looking Statements This presentation, our Annual Report on Form 10-K for the year ended December 31, 2018 and our other filings from time to time with the Securities and Exchange Commission contain “forward-looking statements” within the meaning of the
Slide 3: Agenda
Agenda • Review of Mark-to-Market (MTM) Methodology – Components of Pension Expense – MTM Timeline - Example • 4Q19 MTM Charge • UPS withdrawal from Central States Pension Fund • Drivers of UPS Average Discount Rate • Mark-to-Market Corridor Matrix (Jan 2020) • Pension De-Risking Continues… • Glossa
Slide 4: Review of MTM Methodology
Review of MTM Methodology • Benefits of MTM methodology • Simplifies pension accounting • Aligns with U.S. GAAP fair value accounting concepts • Reflects current market returns • Provides greater transparency • No impact to funding requirements or cash flow • No change to benefits paid to plan parti
Slide 5: Components of Pension Expense
Components of Pension Expense Operating Cost of benefits earned and Expense Service Cost PBGC premiums Growth in liability due Interest Cost to passage of time Other Income and Expense Expected earnings on plan Return on Assets (ROA) assets 5
Slide 6: MTM Timeline – Example
MTM Timeline – Example Expected 2019 ROA = 7.75% Actual 2019 ROA = 17.57% 12/31/18 Discount Rate = 12/31/19 Discount Rate = 4.50%* 3.60%* Fair Value of Pension Assets Fair Value of Pension Assets Projected Benefit Obligation Projected Benefit Obligation 12/31/2018 12/31/2019 Monitor & Update 2019 mo
Slide 7: 4Q19 MTM Charge Impact to Income Statement
4Q19 MTM Charge Impact to Income Statement (in millions) Unrecognized Loss as of 12/31/2018 $4,098 Net loss due to changes in demographic data and assumptions $(44) Including turnover, salaries, medical claims costs, other Loss due to discount rate change 7,477 Discount rate decreased from 4.50% to
Slide 8: UPS withdrawal from Central States Pension Fund
UPS withdrawal from Central States Pension Fund • Withdrawal from CSPF was the right financial decision. • 2014 legislation created potential liability as disclosed. • UPS continues to work with Congress, the Administration and other stakeholders to find fair and equitable funding solutions for the
Slide 9: Drivers of UPS Average Discount Rate
Drivers of UPS Average Discount Rate 7.0% 6.0% 5.64% 5.33% 4.85% 5.0% 4.41% 4.41% 4.41% 4.50% 3.82% 4.0% 3.60% 3.0% 2.0% 1.0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 Discount Rate • UPS uses a hypothetical portfolio of AA bonds to calculate pension plan discount rates. • Yields on treasuries an
Slide 10: Mark-to-Market Corridor Matrix (Jan 2020)
Mark-to-Market Corridor Matrix (Jan 2020) 2020 Rate of Return 0.25% 2.75% 5.25% 7.75% 10.25% 12.75% 15.25% 4.60% - - - - - (194) (513) Discount Rate as of 12/31/2020(1) Discount Rate as of 12/31/2019(1) Discount Rate as of 12/31/2017* 4.35% - - - - - - - 4.10% 81 - - - - - - 3.85% 1,396 319 - - - -
Slide 11: Pension De-Risking Continues…
Pension De-Risking Continues… • UPS actively manages pensions to assure sustainability plan participants, improve predictability, balance operating expense, cash and balance sheet objectives, and minimize risk. • UPS continues to look for opportunistic ways to lower long-term risk. • UPS monitors th
Slide 12: Glossary
Glossary 12
Slide 13: Glossary
Glossary • Accounting Funded status – the difference between plan assets at fair value and the PBO. • Actuarial assumption – an estimate of an uncertain variable made for the purposes of calculating the expected present value of pension benefits. Possible variables include discount rates, return on
Slide 14: Glossary (cont.)
Glossary (cont.) • Mark-to-Market (MTM) accounting – recognition in the fourth quarter each year of any gains or losses outside the corridor. Such gains and losses arise from experience (including asset returns different from what had been assumed), and changes in actuarial assumptions (including di
Slide 15: Thank You
Thank You
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