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United Parcel Service Annual Report, Year Ended Dec 31, 2003

Filing Date
Filed March 5, 2004
Period End
December 31, 2003
Security
UPS
In the record · 2016–202610-K1110-Q338-K110

UPS filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 110 current reports (8-K) between 2016 and 2026.

  1. FY2018 annual report10-K · Feb ’19Feb ’19
  2. Leadership change8-K · May ’21May ’21
  3. Leadership change8-K · Jun ’25Jun ’25

01—Abstract

Summary

Summary of the 10-K filed March 5, 2004. Cited figures are marked; the original filing is the authoritative source.

United Parcel Service's 2003 Form 10-K shows a company at its scale peak with steady top-line growth and improving international profitability, but flat-to-down U.S. domestic economics.

Revenue rose 7.1% to $33.5 billiona, and operating profit grew 8.5% to $4.45 billion, lifting the consolidated operating margin modestly to 13.3% from 13.1%. Diluted EPS was $2.55 on reported net income of $2.90 billion, down from $2.81 in 2002, which benefited from a $1.0 billion pre-tax tax-assessment reversal. Excluding one-time items, management reports adjusted diluted EPS of $2.44, up 14% from $2.14.

Growth was driven by international export volume (up 8.6%) and Supply Chain Solutions, while U.S. domestic operating profit fell 8.5% on slow volume growth and higher costs, including a $75 millionb aircraft impairment. Balance sheet strength is a central theme: the company reports about $4.0 billion in cash and short-term investments, $3.1 billion of long-term debt, shareowners' equity of $14.9 billion, and AAA/Aaa ratings. Operating cash flow fell to $4.6 billion from $5.7 billion, mainly because of a $1.1 billion pension funding, and capital expenditures rose to $1.9 billion with about $2.2 billion planned for 2004.

The company also raised its dividend to $0.92c per share for 2003 and declared a $0.28 quarterly dividend for 2004, a 12% increase. Key risks flagged include a pending global settlement of excess value insurance lawsuits (management does not expect a material effect), ongoing Teamsters and pilot union negotiations, fuel price exposure, and IRS proposed adjustments with potential interest exposure of up to about $178 million. Management guided to a $600 million annual cost reduction from its sorting-system modernization by 2007.

02—Key points

Key Highlights

  1. Revenue grew 7.1% to $33.5 billion, with international package revenue up 18.8% and non-package revenue up 8.8%.
  2. Reported diluted EPS was $2.55 versus $2.81 in 2002; excluding one-time items, adjusted diluted EPS was $2.44, up 14%.
  3. U.S. domestic package operating profit fell 8.5% to $3.27 billion on slow volume growth and higher operating expenses, while international operating profit rose 120% to $709 million.
  4. Operating cash flow declined to $4.6 billion from $5.7 billion, largely due to a $1.1 billion pension contribution in 2003.
  5. Balance sheet remains strong, with about $4.0 billion in cash and short-term investments, $3.1 billion of long-term debt, $14.9 billion of equity, and AAA/Aaa debt ratings.
  6. The quarterly dividend was raised to $0.28 per share for 2004, a 12% increase, and 2003 dividends were $0.92 per share versus $0.76 in 2002.
  7. A planned $600 million sorting and delivery system investment is expected to yield about $600 million in annual operating cost reductions once fully deployed in 2007.

03—Questions

Frequently Asked Questions

  1. Why did reported EPS decline in 2003 even though operating profit grew?

    2002 net income included a $776 million after-tax reversal of a tax assessment liability, which boosted that year's EPS by $0.68. Without that benefit, 2003 reported EPS would look like growth. Management's adjusted figures, which strip out one-time items, show diluted EPS rising 14% to $2.44 from $2.14.

  2. What is driving growth and what is lagging?

    International package revenue rose 18.8%, led by export volume up 8.6% and higher revenue per piece, and international operating profit more than doubled. Non-package revenue grew 8.8%, with UPS Supply Chain Solutions up 8.0%. U.S. domestic package revenue rose only 4.6%, with daily volume up 2.1%, and operating profit fell 8.5% after a $175 million vacation-policy credit in 2002 and higher costs.

  3. Are there material legal or financial risks investors should watch?

    The main legal item is 23 lawsuits over excess value insurance premiums, which are consolidated in New York; a preliminary global settlement would give class members service vouchers and pay plaintiffs' attorneys' fees, and management does not expect a material impact. The IRS has proposed additional adjustments with potential interest of up to about $178 million, which management believes will not be material. Labor is also a factor: about 64% of employees are Teamsters covered through July 2008, and pilot negotiations are ongoing.

  4. How is UPS funding its capital needs and returning cash to shareholders?

    Capital expenditures were $1.9 billion in 2003 and are expected to be about $2.2 billion in 2004, funded from operating cash flow. The company repurchased $398 million of stock in 2003 and had $858 million remaining under its authorization, paid $1.03 billion in dividends, and maintains about $7 billion of commercial paper capacity plus $2 billion of revolving credit facilities, though it had no borrowings under the facilities at year-end.

04—Continue

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