UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-13818
POPULAR, INC. U.S.A. PROFIT SHARING/401(K) PLAN
(Full title of the Plan and address of the Plan, if
different from that of the issuer named below)
POPULAR, INC.
209 MUNOZ RIVERA AVENUE
HATO REY, PUERTO RICO 00918
(Name of issuer of the securities held pursuant to the
plan and the address of principal executive office)
POPULAR, INC. U.S.A. PROFIT
SHARING/401(k) PLAN
FINANCIAL STATEMENTS AND
SUPPLEMENTAL SCHEDULE
DECEMBER 31, 2003 AND 2002
POPULAR, INC. U.S.A. PROFIT SHARING/401(K) PLAN
INDEX
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PAGE(s)
Report of Independent Registered Public Accounting Firm...................................... 1
Financial Statements
Statements of Net Assets Available for Benefits.............................................. 2
Statement of Changes in Net Assets Available for Benefits.................................... 3
Notes to Financial Statements................................................................ 4-10
Supplemental Schedule:*
SCHEDULE H, LINE 4I. Schedule of Assets (Held at End-of-Year)................................ 11
* Other supplementary schedules required by Section 2520.103-10 of the
Department of Labor Rules and Regulations for Reporting and Disclosure
under ERISA have been omitted because they are not applicable.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants and Administrator of
Popular, Inc. U.S.A. Profit Sharing/401(k) Plan
In our opinion, the accompanying statements of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of Popular, Inc. U.S.A. Profit Sharing/401(k) Plan (the "Plan") at December 31,
2003 and 2002 and the changes in net assets available for benefits for the year
ended December 31, 2003 in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
at end of year is presented for the purpose of additional analysis and
is not a required part of the basic financial statements but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. This supplemental schedule is the responsibility of the Plan's management.
The supplemental schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
/s/ PricewaterhouseCoopers LLP
New York, NY
June 25, 2004
1
POPULAR, INC. U.S.A. PROFIT SHARING/401(K) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
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DECEMBER 31,
2003 2002
ASSETS
Investments (see Note 4) $48,947,506 $35,201,894
Cash -- 13,132
Receivables:
Employer's contribution 811,214 620,004
Participants' contributions 156,448 118,902
Interest and other receivables 33,252 12,279
Due from broker for securities sold -- 798
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TOTAL RECEIVABLES 1,000,914 751,983
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TOTAL ASSETS 49,948,420 35,967,009
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LIABILITIES
Refundable contributions $ 296,395 $ 182,454
Due to broker for securities purchased 225,214 184,176
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TOTAL LIABILITIES 521,609 366,630
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NET ASSETS AVAILABLE FOR BENEFITS $49,426,811 $35,600,379
=========== ===========
See accompanying notes to the financial statements.
2
POPULAR, INC. U.S.A. PROFIT SHARING/401(K) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 2003
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ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Investment income
Net appreciation in fair value of investments (See Note 4) $10,153,512
Dividends 230,346
Interest income, investments 92,310
Interest income, participants' loans 76,807
-----------
10,552,975
-----------
Contributions:
Participant 3,911,193
Rollovers from external sources 662,425
Employer 2,079,949
Transfers in - other plans 1,365,875
-----------
8,019,442
-----------
Total additions 18,572,417
-----------
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Benefits paid to participants 4,443,140
Refunded contributions 296,395
Administrative expenses 6,450
-----------
Total deductions 4,745,985
-----------
Net increase 13,826,432
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of year 35,600,379
-----------
End of year $49,426,811
===========
See accompanying notes to the financial statements.
3
POPULAR, INC. U.S.A. PROFIT SHARING/401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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1. DESCRIPTION OF THE PLAN
The following brief description of the Popular, Inc. U.S.A. Profit
Sharing/401(k) Plan (the "Plan") provides only general information.
Popular, Inc. is the sponsor of the Plan. Participants should refer to
the Plan document for a more complete description of the Plan's
provisions.
GENERAL
Pioneer Bank & Trust Company Profit Sharing Plan (the "Pioneer Plan")
was established on January 1, 1972, as a qualified defined contribution
plan. The Pioneer Plan was amended and restated, effective January 1,
1976 and again restated, effective July 1, 1982, to comply with the
requirements of the Employee Retirement Income Security Act of 1974
(ERISA). On July 1, 1989, the Pioneer Plan was amended to include a
cash or deferred arrangement under Section 401(k) of the Internal
Revenue Code ("401(k)"). The Pioneer Plan sponsor was Banco Popular,
Illinois, a wholly-owned subsidiary of Popular, Inc.
On March 1, 1997, the Pioneer Plan was restated and converted into a
defined contribution participant-directed plan under the name of
BanPonce U.S.A. Profit Sharing/401(k) Plan. On October 14, 1998,
certain provisions related to rollover contributions and distributions
of the Plan were amended.
During 1998 the employees of Banco Popular, Illinois, Banco Popular,
California, N.A., Banco Popular, Florida, N.A., Banco Popular, Texas
N.A., Popular Leasing U.S.A., Inc. and Banco Popular, FSB participated
in the Plan.
Effective January 1, 2000, the entities participating in the Plan
merged to form a single banking entity under the name of Banco Popular
North America (the "Bank").
On January 1, 2000 employees from the Bank, Banco Popular, N.A.
(Texas), First State Bank of Southern California and Gore Bronson
Bancorp became eligible to participate in the Plan. The Plan was also
amended to allow for additional discretionary contributions to be made
to the Plan on behalf of participants who were employees of the New
York branch of Banco Popular de Puerto Rico on December 31, 1998.
On April 30, 2000, the BanPonce U.S.A. Profit Sharing/401(k) Plan
adopted the name of Popular, Inc. U.S.A. Profit Sharing/401(k) Plan.
During 2000, the Plan was amended to allow for a merger of assets from
Citizens National Bank Profit Sharing Savings Plan, Banco Popular de
Puerto Rico Employee Stock Plan and the Gore Bronson Bancorp Profit
Sharing Plan and Trust.
Effective January 1, 2001, the Plan was amended to allow participation
by employees of Banco Popular de Puerto Rico (BPPR) that are employed
in the Virgin Islands (VI) or British Virgin Islands (BVI). These
employees can contribute from 1% to 10% of eligible pre-tax annual
compensation (post tax for BVI employees) up to IRS limits. The Bank
contributes 50 cents for each dollar the employee contributes up to 2%
of their eligible compensation that has been invested in Popular Inc.
Common Stock subject to compliance with certain requirements as
outlined in the Plan. Assets from the prior plan were transferred in
2001.
4
POPULAR, INC. U.S.A. PROFIT SHARING/401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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Effective August 1, 2001, Article 9 of the Plan was amended by adding
Section 9.4 that allows participants who have attained age 59 1/2 to
elect to receive 100% of the value of their before-tax deposit account
and their after-tax deposit account and the vested portion of Matching
Employer Contributions.
Effective February 13, 2002, US employees of Popular Insurance, Inc.
were eligible to participate in the plan as of September 25, 2001.
On February 19, 2002, a restated plan was submitted to the IRS for a
new determination letter. The restated plan incorporates prior
amendments. In addition the plan extends benefits to employees of the
GM Group in the United States as of July 1, 2001 and Popular Insurance
Inc. employees in the United States as of September 25, 2001.
Effective April 1, 2002, the Ivy International Fund was replaced by the
Templeton Foreign Fund. The funds added were: Fidelity Advisor Equity
Growth Fund, Marshall Mid-Cap Value Fund and Strong Advisor Small Cap
Value Fund.
Effective August 1, 2002, the Capital Bank Plan, was merged into the
Plan.
Effective December 12, 2002 the plan was amended to conform to the
Economic Growth and Tax Relief Reconciliation Act of 2001 and to allow
for amendment to eliminate the option of annuity for distribution.
Effective February 1, 2003, the First State Plan with assets of
$1,365,875, was merged into the Plan.
The Plan is subject to the provisions of ERISA.
ELIGIBILITY AND VESTING
Prior to September 1, 2000, employees were automatically enrolled in
the Plan upon the first day of the month coinciding with or next
following the date they became an employee. Beginning September 1,
2000, employees are automatically enrolled into the Plan upon the first
day of the month following 30 days of service. Participants are
immediately vested in their voluntary contributions and earnings
thereon. Vesting in the Bank's matching and discretionary contribution
portion of their account plan plus actual earnings thereon is based on
years of credited service. A participant begins to vest in the Plan
according to the following table:
YEARS OF CREDITED SERVICE VESTING PERCENTAGE
Less than 2 0%
2 25
3 50
4 75
5 or more 100
5
POPULAR, INC. U.S.A. PROFIT SHARING/401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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CONTRIBUTIONS
Each year, employees may contribute from 1% to 10% of eligible pre-tax
annual compensation up to a maximum of $12,000 based on IRS
limitations, as defined in the Plan. Participants may also contribute
amounts representing distributions from other qualified defined benefit
or defined contribution plans.
The Bank contributes 50 cents for each pre-tax $1 contributed by an
employee. Additionally, the Bank contributes 50 cents for each pre-tax
$1 contributed by an employee that has been invested in the Popular,
Inc. Common Stock Fund, subject to compliance with certain requirements
defined in the Plan agreement. Total contributions from the Bank will
not exceed 6% of the employee's pre-tax compensation. The Bank will
also make a profit sharing contribution in an amount determined by the
Board of Directors of the Bank. The Bank's profit sharing and 401(k)
matching contribution is limited to the total amount which the Bank can
deduct for federal income tax purposes.
PARTICIPANT ACCOUNTS
As of the last day of each quarter, net earnings or losses are
allocated among eligible participants in proportion to their account
balances relative to the total of all such account balances as of the
previous valuation date, adjusted for distributions and employee
contributions. As of the last day of the Plan year, the Bank's profit
sharing contribution is allocated to participant accounts based upon
the participants' eligible compensation, as defined, and subject to
compliance with certain requirements included in the Plan agreement.
As of the last day of the plan year, the Bank's additional matching
contribution is allocated based on each employee's contribution, as
described above. The Bank's contributions plus the employee's after-tax
and pre-tax contributions are limited to the lesser of 25% of the
employee's eligible compensation or a maximum amount set annually by
federal authorities.
INVESTMENT OPTIONS
Upon enrollment in the Plan, a participant may direct his/her
investments and reinvestments, other than his/her Bonus Matching
Contribution, into any of the following investment options.
M&I STABLE PRINCIPAL FUND: This fund's objective is to maintain safety
of principal while generating a level of current income generally
exceeding that of a money market fund. This fund primarily invests in
traditional and synthetic investment contracts.
PIMCO TOTAL RETURN FUND: This fund invests mainly in fixed income
securities, seeking maximum return, consistent with preservation of
capital and prudent investment management.
VANGUARD WELLINGTON INCOME FUND: This fund seeks to conserve capital
and to provide moderate long-term growth in capital and income by
investing in common stocks and debt securities.
DAVIS NEW YORK VENTURE FUND: This fund's investment objective is growth
of capital. The fund ordinarily invests in common stocks.
T. ROWE PRICE MID-CAP GROWTH FUND: This fund seeks long-term capital
appreciation through investments in medium-sized growth companies.
6
POPULAR, INC. U.S.A. PROFIT SHARING/401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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FIDELITY GROWTH & INCOME FUND: This fund seeks long-term growth,
current income and long-term growth of income consistent with
reasonable investment risk by investing in common stocks and corporate
bonds.
VANGUARD S&P 500 INDEX FUND: This fund seeks investment results that
correspond to the price and yield performance of the S&P 500 Index.
FIDELITY ADVISOR EQUITY GROWTH FUND: This fund seeks capital
appreciation by investing in large capital common stocks with strong
growth potential.
MARSHALL MID-CAP VALUE FUND: This fund seeks capital appreciation and
income by investing in companies with mid capitalization value traits.
STRONG ADVISOR SMALL CAP VALUE FUND: This fund seeks capital growth by
investing in equity securities of undervalued small capitalization
companies.
TEMPLETON FOREIGN FUND: This fund seeks long term growth by investing
primarily in equity securities of companies located outside the U.S.
including emerging markets.
POPULAR INC. COMMON STOCK FUND: This fund is primarily invested in
Popular Inc. Common Stock and cash.
PARTICIPANT LOANS
Participants may borrow against their fund accounts a minimum of $500
up to a maximum of the lesser of $50,000 or 50% of the vested portion
of the participant's equity in the Plan. Loans are charged a reasonable
interest rate, which range between 6.25% and 11.50%, which is
determined by the Plan Committee and which meets all regulatory
requirements. The loans are collaterized by the balance in the
participant's account.
DISTRIBUTIONS
Distributions may occur for termination, retirement, disability, or
death. The Plan provides that benefits be distributed in one of the
following ways as selected by the participant or beneficiary: (a)
payment in one single sum; or (b) payment in substantially equal
installments determined by the participant or beneficiary.
PLAN TERMINATION
Although it has not expressed any intent to do so, the sponsor may
terminate the Plan for any reason at any time, in which event there
shall be no employer duty to make contributions. In the event of
termination, all participants become fully vested and have a
nonforfeitable right to their full account balance.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of
America. A description of the more significant accounting policies
follows.
7
POPULAR, INC. U.S.A. PROFIT SHARING/401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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VALUATION OF INVESTMENTS
Plan investments are stated at fair value, with the exception of M&I
Stable Principal Fund that is stated at contract value, which
approximates fair value. Shares of registered investment companies are
valued at quoted market prices which represent the net asset value of
shares held by the Plan at year-end. Popular Inc. Common Stock is
valued at its quoted market price.
The registered investment companies retain and reinvest all dividends.
Such undistributed income is included in the statement of changes in
net assets available for benefits and is recorded as an increase in the
cost basis of fund units held at year end in the statement of net
assets available for benefits.
Temporary investments are stated at cost, which approximates fair
value.
Purchases and sales of securities are recorded on a trade-date basis.
INVESTMENT INCOME
Net gain on investments is a combination of net realized gains (losses)
and the change in unrealized appreciation (depreciation) from the
previous year-end. Dividends are recorded on the ex-dividend date.
Interest income on temporary investments is recorded on the accrual
basis.
ADMINISTRATIVE EXPENSES
Legal and other administrative expenses are paid by the Bank and,
accordingly, have not been reflected in the Plan's financial
statements.
PAYMENT OF BENEFITS
Benefits are recorded when paid.
FORFEITED ACCOUNTS
There were no forfeited non-vested balances at December 31, 2003 and
2002. During 2003 and 2002, forfeitures applied to reduce employer
contributions total $275,753 and $539,749, respectively.
REFUNDABLE CONTRIBUTIONS
Refundable contributions totaled $296,395 and $182,454 at December 31,
2003 and 2002, respectively. These excess contributions arise as a
result of failing non-discrimination tests, which are prepared in
accordance with the Internal Revenue Service regulations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Plan administrator to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and changes therein, and disclosure of contingent assets
and liabilities. Actual results could differ from these estimates.
RISKS AND UNCERTAINTIES
The Plan provides for various investment options in any combination of
stocks, fixed income securities, mutual funds and other investment
securities. Investment securities are exposed to various risks, such as
interest rate, market and credit risk. Due to the level of risk
associated with certain investment securities, it is at least
reasonably possible that changes in the value of investment securities
will occur in the near term and that such changes could materially
affect
8
POPULAR, INC. U.S.A. PROFIT SHARING/401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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participant account balances and the amounts reported in the statement
of net assets available for benefits.
3. INCOME TAXES
The Popular, Inc. U.S.A. Profit Sharing/401(k) Plan received a
favorable determination letter from the Internal Revenue Service, dated
March 25, 2004, indicating that it qualified under Section 401(a) of
the Internal Revenue Code (IRC).
4. INVESTMENTS HELD
Investments held by the Plan are summarized below. Those investments
that represent 5 percent or more of the Plan's net assets at the end of
the year are noted with an asterisk (*).
DECEMBER 31, 2003 DECEMBER 31, 2002
SHARES/UNITS FAIR VALUE FAIR VALUE SHARES/UNITS
Shares of registered
investment companies:
M&I Stable Principal Fund 2,272,149 $ 2,272,149 2,160,338 $ 2,160,338 *
PIMCO Total Return Fund 237,694 2,545,705 * 176,628 1,884,620 *
Vanguard Wellington
Income Fund 117,129 3,374,497 * 107,744 2,646,204 *
Davis New York Venture Fund 66,326 1,825,288 63,614 1,332,089
T. Rowe Price Mid-Cap
Growth Fund 49,177 2,109,688 47,644 1,478,893
Fidelity Growth & Income Fund 44,222 1,575,640 31,879 966,259
Vanguard S&P 500 Index Fund 20,741 2,129,431 16,889 1,370,476
Fidelity Advisor Equity Growth
Fund 1,761 78,411 279 9,424
Marshall Mid-Cap Value Fund 14,130 195,129 3,596 37,840
Strong Advisor Small Cap Value
Fund 8,214 226,131 10,420 197,756
Templeton Foreign Fund 57,676 613,672 46,672 387,846
Popular Inc. Common Stock
Fund 585,255 30,728,253 * 560,310 21,863,326 *
Popular Inc. Common Stock 93 4,171 -- --
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47,678,165 34,335,071
Participant loans 1,269,341 866,823
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TOTAL $48,947,506 $35,201,894
=========== ===========
During 2003, the Plan's investments (including gains and losses on investments
bought and sold, well as held during the year) appreciated in value by
$10,153,512 as follows:
Mutual funds $ 3,045,947
Common stock fund 7,107,565
-------------
$ 10,153,512
=============
9
POPULAR, INC. U.S.A. PROFIT SHARING/401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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The M&I Stable Principal Fund is fully benefit responsive. The average
yield for the year ended December 31, 2003 was 4.33%. The crediting
interest rate as of December 31, 2003 was 4.11%. The frequency and
basis for determining the crediting interest rate resets are daily and
accrual/units, respectively. There are no valuation reserves recorded
to adjust the contract amounts. There is no minimum crediting interest
rate under the terms of the contracts. There are no limitations or
guarantees on the contracts.
5. RELATED PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by Marshall
& Ilsley Investments. Marshall & Ilsley Investments is the trustee as
defined by the Plan and, therefore, these transactions qualify as
party-in-interest transactions. The Plan also invested in common stock
and cash of its sponsor, Popular, Inc. In addition, the Company pays
certain costs on behalf of the Plan.
10
POPULAR, INC. U.S.A. PROFIT SHARING/401(K) PLAN
SUPPLEMENTAL SCHEDULE H, LINE 4I
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2003 EXHIBIT I
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(C) DESCRIPTION OF
INVESTMENT INCLUDING
(B) IDENTITY OF ISSUE, MATURITY DATE, RATE OF
BORROWER, LESSOR, INTEREST, COLLATERAL, (E) CURRENT
(A) OR SIMILAR PARTY PAR, OR MATURITY VALUE (D) COST VALUE
--- ---------------- ---------------------- -------- ------------
* M&I Stable Principal Fund 2,272,149 shares $ 2,272,149 $ 2,272,149
PIMCO Total Return Fund 237,694 shares 2,533,443 2,545,705
Vanguard Wellington Income Fund 117,129 shares 3,240,005 3,374,497
Davis NY Venture Fund 66,326 shares 1,589,188 1,825,288
T. Rowe Price Mid-Cap Growth Fund 49,177 shares 1,685,795 2,109,688
Fidelity Growth & Income Fund 44,222 shares 1,578,287 1,575,640
Vanguard S&P 500 Index Fund 20,741 shares 2,177,645 2,129,431
Fidelity Advisor Equity Growth Fund 1,761 shares 66,575 78,411
Marshall Mid-Cap Value Fund 14,130 shares 174,968 195,129
Strong Advisor Small Cap Value Fund 8,214 shares 179,355 226,131
Templeton Foreign Fund 57,676 shares 540,975 613,672
* Popular Inc. Common Stock Fund 585,255 units 18,288,910 30,728,253
* Popular Inc. Common Stock 93 shares 2,196 4,171
* Participant Loans Interest rates range between
6.25% and 11.50% 1,269,341 1,269,341
------------ -------------
Total $ 35,598,832 $ 48,947,506
============ ============
* Party in interest to the Plan.
11
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of
1934, the persons who administer the employee benefit plan have duly caused this
annual report to be signed on its behalf by the undersigned hereunto duly
authorized.
POPULAR, INC. U.S.A. PROFIT SHARING/401(K) PLAN
-----------------------------------------------
(Name of Plan)
By: S/ Pamela Kulnis
Pamela Kulnis
Authorized Representative
Dated: June 28, 2004