10-QPeriod: Q2 FY2002

UNITED PARCEL SERVICE INC Quarterly Report for Q2 Ended Jun 30, 2002

Filed August 14, 2002For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported its financial results for the quarter and six months ended June 30, 2002. Overall revenue saw a modest increase of 2.5% for the quarter and 2.2% year-to-date, reaching $7.68 billion and $15.26 billion respectively. However, net income for the second quarter decreased slightly to $611 million from $630 million in the prior year, leading to a slight dip in diluted EPS to $0.54 from $0.55. For the six-month period, net income also saw a small decrease to $1.17 billion from $1.19 billion, though diluted EPS improved to $1.04 from $1.03, aided by a reduction in weighted-average shares outstanding and the absence of a prior year accounting adjustment. The company's U.S. domestic package segment experienced a revenue decline of 1.2% due to lower average daily package volumes, attributed to economic weakness and uncertainty surrounding labor contract negotiations. Despite this, U.S. domestic package revenue per piece saw a modest increase. International package operations demonstrated strong growth, with revenue increasing by 9.0% for the quarter and 3.5% year-to-date, driven by volume growth in export products and improved revenue per piece, including favorable currency impacts. Non-package operations also showed significant revenue growth, particularly in UPS Logistics Group and UPS Freight Services, largely due to acquisitions. Operating expenses increased, primarily driven by the non-package segment due to acquisitions, leading to a slight decrease in consolidated operating profit. The company ended the quarter with a strong liquidity position, evidenced by $2.4 billion in cash, cash equivalents, and short-term investments, and maintained significant borrowing capacity through commercial paper and credit facilities. A notable ongoing item is the ongoing settlement discussions with the IRS regarding a substantial tax matter, with a tentative basis for settlement reached, though finalization is uncertain.

Key Highlights

  • 1Consolidated revenue increased by 2.5% to $7.68 billion for the second quarter and by 2.2% to $15.26 billion for the first six months of 2002.
  • 2Net income for the second quarter decreased by 3.0% to $611 million compared to the prior year's $630 million.
  • 3U.S. domestic package revenue declined by 1.2% due to a decrease in average daily package volume, impacted by economic conditions and labor contract negotiation uncertainty.
  • 4International package revenue grew by 9.0% in the second quarter, driven by strong export volume growth and improved revenue per piece.
  • 5Non-package operations experienced substantial revenue growth (37.0% for the quarter) primarily due to acquisitions in logistics and freight services.
  • 6Operating profit for U.S. domestic package operations decreased by 6.9% ($67 million) due to lower volumes, while international package operating profit increased significantly.
  • 7The company maintained a strong liquidity position with $2.4 billion in cash, cash equivalents, and marketable securities as of June 30, 2002.

Frequently Asked Questions

Consolidated revenue increased by 2.5% to $7.68 billion in the second quarter of 2002, up from $7.49 billion in the same period of 2001. This growth was driven by stronger international package and non-package operations, partially offset by a decline in U.S. domestic package revenue.

The decline in U.S. domestic package revenue was primarily due to a decrease in average daily package volume, which fell by 2.6%. This was attributed to the continued weakness in the U.S. economy and uncertainty surrounding labor contract negotiations with the International Brotherhood of Teamsters, which approached its expiration date.

UPS and the IRS have reached a tentative basis for settlement of all outstanding tax issues related to EV package insurance through mediation. However, many steps are required for finalization, and there is no assurance that the settlement will be approved or will not materially change. If a settlement cannot be finalized, UPS intends to defend its position in court.

Effective January 1, 2002, UPS adopted FAS 142, which eliminated the amortization of goodwill. This change ceased goodwill amortization in 2002, positively impacting reported net income and earnings per share compared to prior periods where goodwill amortization was recognized. While the first step of the impairment test indicated potential impairment in the non-package segment, the full impact will be determined by year-end 2002.