10-QPeriod: Q2 FY2001

UNITED PARCEL SERVICE INC Quarterly Report for Q2 Ended Jun 30, 2001

Filed August 14, 2001For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported its financial results for the quarter and six months ended June 30, 2001. The company experienced a slight revenue increase year-over-year, driven by improvements in its U.S. domestic package segment, particularly in ground services, and significant growth in non-package operations due to acquisitions like Mail Boxes Etc. and Fritz Companies. However, overall operating profit declined due to increased operating expenses, including higher fuel costs and depreciation, and a decrease in international package segment profitability. Net income and diluted earnings per share saw a decline compared to the prior year, reflecting the challenging economic environment and increased operating costs. Despite these headwinds, UPS maintained a strong liquidity position with substantial cash reserves and continued to invest in its business through strategic acquisitions. The company also highlighted progress in resolving a significant tax dispute, with a favorable appellate court ruling that may reduce potential liabilities.

Key Highlights

  • 1Total revenue increased by 3.9% to $7.566 billion for the three months ended June 30, 2001, compared to $7.284 billion in the prior year period.
  • 2U.S. domestic package revenue grew by 1.5% to $5.981 billion, driven by a 2.5% increase in average revenue per piece, though overall volume slightly decreased.
  • 3Non-package operations saw substantial revenue growth of 38.6% to $535 million, largely due to acquisitions of Mail Boxes Etc. and Fritz Companies.
  • 4Operating profit decreased by 10.3% to $1.041 billion for the quarter, impacted by a 6.6% rise in operating expenses.
  • 5Net income for the quarter was $630 million, a decrease from $695 million in the same period last year, resulting in diluted EPS of $0.55.
  • 6The company's cash and cash equivalents significantly increased to $2.062 billion from $879 million at the end of the previous year.
  • 7A favorable ruling was received from the U.S. Court of Appeals for the Eleventh Circuit regarding a significant tax dispute, though further proceedings are possible.

Frequently Asked Questions

The report indicates that the continued weakness of the U.S. economy impacted UPS's performance, particularly affecting U.S. domestic package operations. While revenue saw a slight increase, operating profit in this segment decreased due to the challenging economic environment.

The significant growth in the non-package segment was primarily driven by strategic acquisitions, including Mail Boxes Etc. and Fritz Companies, as well as continued expansion of the UPS Logistics Group. These acquisitions contributed significantly to the 38.6% revenue increase in this segment.

The U.S. Court of Appeals for the Eleventh Circuit ruled in favor of UPS, reversing a previous Tax Court decision concerning income of Overseas Partners Ltd. (OPL). While the IRS has requested a reconsideration, this appellate ruling is a positive development. The company previously recorded a substantial charge related to this matter but is awaiting further proceedings to determine the final outcome and impact on its reserve.

UPS maintained a strong liquidity position, with cash and cash equivalents significantly increasing. The company had substantial authorized but unused share repurchase capacity and maintained access to significant revolving credit facilities. It also continued to fund its operations and investments through cash flow from operations.