UPS 2006 Annual Report Download - page 10

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“Diligent, long-term thinking has led to
consistently strong fi nancial performance
by UPS, and we believe this approach
will continue to serve us well.”
DEAR FELLOW SHAREOWNERS,
D. Scott Davis
Vice Chairman and Chief Financial Offi cer
One of the defi ning characteristics of UPS is our
fi nancial strength. Diligent, long-term thinking has
led to consistently strong fi nancial performance by
UPS, and we believe this approach will continue to
serve us well. As we move forward, we embrace
long-standing values that have enabled us to run
this business in the best interests of our long-term
shareowners, generations of UPS partners, and of
course, our customers.
A TRACK RECORD OF SUCCESS ...
THE LAST FIVE YEARS
Since 2002, consolidated volume has increased at
a compound annual growth rate of 4 percent. This
resulted in the daily delivery of nearly 15.6 mil-
lion packages in 2006, an increase of more than
2.3 million each day compared with 2002.
Consolidated revenue increased approximately
$16 billion since 2002, representing a compound
annual growth rate of 11 percent. While a portion
of this performance is due to the impact of acquisi-
tions, the primary driver of our revenue gains has
been organic growth.
Earnings per share (EPS), adjusted for non-recur-
ring items in 2002*, increased from $2.14 to $3.86
resulting in a compound annual growth rate of
almost 16 percent. We’re proud of these results,
particularly since the growth in this period exceeded
our 30-year historical range of 10 to 15 percent.
Return on invested capital (ROIC)** is a key mea-
sure of fi nancial performance. ROIC is like a fi nan-
cial tuning fork used to check how well revenue
growth, operating margins, and capital investment
are playing together. ROIC has increased from 17.3
percent in 2002 to 22.1 percent in 2006, without any
benefi t yet from two recent signifi cant acquisitions.
Finally, cash generation, whether measured as free
cash fl ow or cash from operations, has been excep-
tional. For many years, this has been a hallmark
of our fi nancial strength. In the last fi ve years, cu-
mulative cash from operations was $27 billion.
These results offer compelling proof that our people
are focused exactly where they should be—increasing
the long-term value of the enterprise.
INVESTING FOR LONG-TERM GROWTH
The fi rst priority for UPS is always reinvestment in
the business, either through capital expenditures or
acquisitions. Typically, capital investment ranges
between 5 and 8 percent of revenue, and we have
been at the lower end of this range over the last
fi ve years.
** Defi ned as (Operating Income x (1- tax rate)) / Average (Long-term Debt + Equity)
* Excludes after-tax effects of a gain related to a change in vacation policy, a restructuring charge, a
charge upon adoption of FAS 142, and the settlement of a previously established tax assessment li-
ability. The net effect of these items was to increase net income by $760 million, or $0.67 per share.
8