10-QPeriod: Q3 FY2001

UNITED PARCEL SERVICE INC Quarterly Report for Q3 Ended Sep 30, 2001

Filed November 14, 2001For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported its financial results for the third quarter and the first nine months of 2001. The company experienced a revenue increase of 1.5% for the quarter to $7.481 billion and 3.1% for the nine-month period to $22.557 billion, driven primarily by growth in non-package operations due to acquisitions and increased international export volume. However, U.S. domestic package revenue saw a slight decline of 2.1% for the quarter, impacted by a weaker economy and the September 11th terrorist attacks, which also led to a significant drop in consolidated operating profit by 17.4% for the quarter to $943 million and 13.1% for the nine-month period to $2.928 billion. Net income for the third quarter decreased by 17.0% to $568 million, or $0.50 per diluted share, compared to $702 million, or $0.60 per diluted share, in the prior year. For the first nine months, net income was $1.754 billion, or $1.53 per diluted share, down from $2.210 billion, or $1.87 per diluted share, in the same period of 2000. The company also noted significant progress in resolving its long-standing tax dispute with the IRS, with a favorable appeals court ruling, though the IRS still has the option to pursue Supreme Court review. Several acquisitions, including Mail Boxes Etc., Fritz Companies, and First International Bancorp, were completed during the period, bolstering the non-package segment.

Key Highlights

  • 1Revenue grew by 1.5% to $7.481 billion in Q3 2001 and 3.1% to $22.557 billion for the first nine months of 2001, largely driven by acquisitions in the non-package segment and international export growth.
  • 2U.S. domestic package revenue declined by 2.1% in Q3, reflecting economic weakness and the impact of the September 11th attacks, while international package revenue saw a slight increase.
  • 3Consolidated operating profit decreased significantly by 17.4% to $943 million in Q3 and 13.1% to $2.928 billion for the nine-month period, impacted by lower U.S. domestic package performance and increased expenses.
  • 4Net income for Q3 declined 17.0% to $568 million ($0.50 per diluted share), and for the nine-month period decreased to $1.754 billion ($1.53 per diluted share) from $2.210 billion ($1.87 per diluted share) in the prior year.
  • 5UPS completed several strategic acquisitions, including Mail Boxes Etc. and Fritz Companies, which significantly contributed to the growth of its non-package segment.
  • 6The company reported favorable developments in its major tax dispute with the IRS following an appeals court ruling, though potential Supreme Court review remains.
  • 7The September 11th terrorist attacks caused temporary operational disruptions and a noticeable decline in U.S. package volume in the weeks following, with a credit of $37 million recognized under the Air Transportation Safety and System Stabilization Act.

Frequently Asked Questions

The terrorist attacks on September 11, 2001, led to a federal ground stop order that temporarily halted air operations, causing significant disruptions. While UPS utilized its ground network for express shipments, the subsequent economic slowdown and travel restrictions resulted in significant declines in U.S. package volume during the weeks following the attacks. The company recognized a $37 million credit related to the Air Transportation Safety and System Stabilization Act to mitigate some of these financial impacts.

UPS received a favorable ruling from the U.S. Court of Appeals for the Eleventh Circuit, reversing the Tax Court's decision regarding tax liabilities related to Overseas Partners Ltd. (OPL). While the IRS has the option to petition the U.S. Supreme Court, the case has been remanded to the Tax Court for further proceedings. This positive development reduces, but does not fully eliminate, the potential financial exposure related to this matter.

UPS completed several key acquisitions during the period, including Mail Boxes Etc. and Fritz Companies. These acquisitions, accounted for under the purchase method, significantly contributed to the substantial revenue growth in the non-package segment, particularly in UPS Logistics Group and Forwarding and Brokerage Services. However, these acquisitions also contributed to increased operating expenses, including integration costs and goodwill amortization.

U.S. domestic package revenue saw a slight decrease in the third quarter, attributed to a combination of a weak U.S. economy and the impact of the September 11th attacks. Management notes that revenue per piece in the ground segment saw an increase, but this was offset by a decline in average daily volume. Future performance will likely depend on broader economic conditions and the ongoing integration of acquired businesses.